Duman \ OBLICON \ Prof Morales \ I-E \ Page 1

Digests for Defective Contracts contract that he will be chief chemist and that he shall
exercise absolute control and supervision from
personnel to the preparation of the said product. No
Rescissible Contracts other persons were allowed to enter the laboratory
even his sons or the President of the corp.
Universal Food Corp Vs. CA c) Civil Code—conveyance should be interpreted to effect
the “least transmission of right” and there is a better
Facts: example of least transmission by allowing or
permitting only the use, without transfer of
 This is a petition for certiorari by UFC against the ownership, of the formula of the mafran sauce.
decision of the CA whereby CA ordered UFC to return
to plaintiff Magdalo Francisco his Mafran sauce 2) Yes. UFC issued a memorandum directing that only
trademark and formula and to pay his monthly salary Ricardo Francisco (another Francisco in the case who
of P300 per month. was the assistant chief chemist) be retained and that
 In 1960 plaintiff and def corp entered into a contract the salary or Magdalo Franciso be stopped until the
where it was stipulated that Francisco is the owner corp resume operations and their reason was bec of
and the author of the formula of the mafran sauce the scarcity and high prices of raw materials but 5
and he will be appointed Second VP and Chief days after this memorandum, they filed several
Chemist. That he will have absolute control and memoranda directing plaintiff to report to work and
supervision over the lab assistants and personnel. produce sauc of not less than 100 cases a day, to hire
 In return, plaintiff assigned to corp his interests and personnel, and to produce what is being demanded.
rights over the said trademark and formula so that Clearly it was the corp’s way of maneuvering to ease
the def corp could use the formula in the preparation out, separate and dismiss plaintiff.
and manufacture of the mafran sauce and the trade
name fro the marketing as shown in a contract 3) Yes. 1191 vs. 1383 and 1384.
entitled “Bill of Assignment”.  General rule ios that rescission of a contract will not
 Def without any justifiable cause dismissed all the be permitted for a slight causal breach but only for
assistants and laborers of plaintiff with evident such substantial and fundamental breach as would
intention to discover the formula and were not able to defeat the very object of the parties in making the
do so, dismissed the plaintiff as chief chemist and agreement. (Corp is alleging the rescission is only
appointer other employees in his place in the subsidiary remedy and should be instituted if there
preparation of said sauce. are no other means)
 Def corp also deprived him of his right to the royalty  The dismissal of Francisco is fundamental and
equivalent to 2% of the net profit of the corp. (He has substantial. Apart from the legal legal principle that
registered his trademark in the Bureau of Patents in the option for rescission belongs to the injured party,
1938). the fact remains that there is no alternative but to file
 Def Corp thru its President Tirso Reyes, is selling in the present action.
favor or a third party the assets of the said corp  The corp is alleging that plaintiff cannot have both,
together with the ownership of the aforementioned rescission and the performance of an obligation i.e.
trademark and formula in violation of the contract. payment of salary. Court held that the use, the right
 Def defenses are that they have complied with the to use, and the formula for the sauce remained in the
terms of the contract and that Francisco was not corp when plaintiff was dismissed.
dismissed and that he was even given several  Bill of Assignment rescinded and corp ordered to
memoranda that he reports to work but he failed to retrun and restore the right to the use of his mafran
do so, thus, he is the one who has failed to comply sauce trademark and formula, corp enjoined from
with the stipulations of the contract. using the mafran trademark and formula and to pay
 It was Francisco who filed for rescission of the the salary from 1960 until date of inality of judgment.
contract.
Note: Discussed the reconciliation of rescission articles.
Issues:
Guzman, Bocaling & Co. vs. Bonnevie
1) WON the Bill of Assignment ceded and transferred to UFC
the formula of Mafran sauce. Facts:

2) WON Franciso was dismissed from the corporation without  A 600 sqm parcel of land with two buildings belonging
justifiable cause and in violation of the stipulations in the Bill of to the Intestate Estate of Jose Reynoso was leased to
Assignment which states that his appointment is permanent in Raoul and Christopher Bonnevie by the administratix
character Africa Valdez for a period of one year at a rate of 4K a
month starting Aug. 1976.
3) WON the rescission of the Bill of Assignment should be  In the contract of lease, there is a stipulation that “in
granted. case the lessor desires or decides to sell the leased
property, the lessees shall be given a first priority to
Held: purchase the same, all things and considerations
being equal.
1) No. It was only the use of the sauce and not the  In Nov. 1976, administratix notified the resp by
formula which was the intention of the parties. registered mail that she is selling the premises for
a) Payment of royalty: royalty when used in connection 600K less a mortgage loan and giving them 30 days
with a license under a patent, menas the from receipt to exercise their right of first priority. If
compensation paid by the licensee to the licensor for they would not exercise, she expects them to vacate
the use of the licensor’s patented invention. the prop in March 1977.
b) It was clear that plaintiff wanted to preserve the  In Jan 1977, she sent a letter notifying them that in
secrecy of the Mafran formula and to prevent its their failure to exercise their right, she has already
unauthorized proliferation, it is provided in the sold the property. This is the only letter that the
 Duman \ OBLICON \ Prof Morales \ I-E \ Page 2
Bonnevies received. They informed agent that they  Santiago returned to China after one year and entered
are willing to make negotiations and that they refuse into an illicit relationship with Chan Quieg.
the termination of the lease.  He returned to the Phil and never saw Chan Quieg
 In March 1977, property formally sold to Guzman, again but then he received a letter from her saying
Bocaling & Corp for 400K and the balance of this that she had borne him a son Uy Soo Lim.
amount shall be paid when the Bonnevies have  Santiago died without even seeing his son and with
already vacated the premises. the belief that he is his only son, he dictated the
 Administratix demanded that they vacate the provisions of his will upon this belief disposing a
premises and pay the rentals for four months. greater part of his properties to his son.
 They had a Compromise Agreement that the  In 1901, Santiago died with persons who survived
Bonnevies shall vacate the premises not later than him, Candida Vivares and daughters and Chan Quieg
Oct. 1979 but this was set aside. and Uy Soo Lim.
 The Bonnevies filed an action for annulment of the  Tan Chuan was named executor and Uy Bundan, the
sale between REynoso and the GBC and ancellation of brother of Sanitago was named testator guardian of
the transfer certificate. They also asked that Reynoso Francisca, Concepcion and Uy Soo Lim.
be required to sell the property to them under the  Until Oct 1910, Uy Bundan continued administering
same terms and conditions agreed upon the Contract the properties and on Oct 18, 1910, Francisca had
of sale. reached majority, Concepcion would reach majority in
Issue: a few months and Uy Soo Lim had married, the
guardian was ordered to present a plan of distribution
WON the Bonnevies can file for an action for annulment of the of the estate accdg to the dispositions of Santiago’s
sale between Reynoso and the GBC considering that they are will. He did not comply.
third parties to the contract.  Candida claims the right as widow and claims for ½ of
the estate and asked that administration of the estate
Held: be reopened.
 Francisca and Concepcion filed that Uy Soo Lim was
Yes. The Contract of Sale was not voidable but rescissible. not entitled under law to the amount assigned to him
for the reason that the marriage of Chan Quieg with
 Under Art 1380 to 1381 (3) of the CC, a contract Santiago was null and void and that Uy Soo Lim was
otherwise valid may nonetheless be subsequently not a son of Santiago, either legitimate or illegitimate.
rescinded by reason of injury to third persons, like  Chan Quieg claims for ½ of the properties bec she
creditors. The status of creditors could be validly claims that she has lived martially with Santiago and
accorded the Bonnevies for they had substantial that their union was valid under the laws and customs
interest that were prejudiced by the sale of the of China.
subject property to the petitioner without recognizing  Uy Soo Lim appointed Choa Tek Hee as agent and
their right of first priority under the Contract of Lease. adviser and executed a power of attorney in favor of
 Tolentino: rescission is a remdy granted by law to the Tek Hee to represent him in the pending negotiations.
contracting parties and even to third persons, to  There was an agreement reached that they would
secure reparation for damages caused to them by a submit the dispute to there respectable Chinese
contract, even if this should be valid, by means of the mechants as friendly advisers.
resotoration of things to their condition at the  In 1911, Uy Soo Lim executed a deed which
moment prior to the celebration of said contract. relinquished and sold to Francisca all his right, title
 It is a relief allowed for the protection of one of the and interest in the estate in consideration of P82,500.
contracting parties and even third persons from all Concepcion and Candida Vivares relinquished and sold
injury and damage the contract may cause, or to also to Francisca all their right, title and interest.
protect some incompatible and preferred right created Chan Quieg also sold and relinquished to Francisca all
by the contract. her right, title and interest. She also gave her consent
 Rescission implies a contract which, even if initially to the sale of Uy Soo Lim of his right and interest (Uy
valid, produces a lesion or pecuniary damage to Soo Lim was still a minor).
someone that justifies its invalidation for reasons of  Francisca was declared as sole owner of all properties
equity. of Santiago.
 GBC cannot be buyers in good faith bec they had  In 1914, Uy Soo Lim seek to rescind and annul the
knowledge of the lease of the premise. They were contract by which he has sold and transferred to
negligent in not inquiring about the terms of the Francisca his interest in the estate.
Lease Contract.  He alleges that undue influence was exercised upon
him, taking advantage of his youth. The court
Voidable Contracts discounted this allegations because there has been no
evidence to prove such claim (he was even a student
Uy Soo Lim vs. Tan Unchuan of law and the court said he was a youth of more than
ordinary intelligence—wow tayo rin?). Furthermore,
Facts: he had the benefit of the advice of two lawyers.

 An action for annulment of a contract by terms of Issue:

which Uy Soo Lim sold to Pastrano all his interesit in
the estate of the late Santiago Pastrano Uy Toco. WON Uy Soo Lim can file for the annulment of the contract.
 When Santiago was 13, he came from China to reside
in the Phil. Held: No.
 In Aug 1882 he married Candida Vivares at Cagayan
de Misames. They had 2 daughters Francisca nad  Although the RTC found that he was a minor at the
Concepcion. Francisca is a defendant in this suit and time of the eexecution of the contract, but that he did
the wife of the co-def Tan Unchuan. not only fail to repudiate it promptly upon reaching
 He had little property before, but during his marriage his majority but tacitly ratified it by disposing of the
with Candida, he has acquired larger properties. greater part of the proceeds after he became of age
 Duman \ OBLICON \ Prof Morales \ I-E \ Page 3
and after he had full knowledge of the facts upon by pet but pet still stubbornly refused to accept the
which he now seeks to disaffirm. offer.
 In 1913, he has already reached his majority under  Priv resp was then compelled to file an action for the
the Phil law (21 yrs old). He had received P20K before annulment of the deed of sale and the reconveyance
majority and the P62.5K after majority. He has spent of the propertoes.
for his own use the money he has received.
 Knowing his legal rights, plaintiff should have been Issue:
prompt to disaffirm his contract upon reaching
majority. Instead, he deliberately permitted the WON the contract can be voided on the ground of mistake (as
defendants to continue making the payments and what the lower court ruled).
when the last cent was collected, sought to avail
himself of this ground for rescission. Held:
 Old Code: Rescission obliges the return of the things
which were the objects of the contract with their fruits Yes.
and the sum with interest; therefore it can only be
carried into effect when the person who may have  On the facts of the case, it was clear that what the pet
claimed it CAN return that which on his part he is wanted to buy were the vacant lots and not the lot
bound to do (1295). with the house on it and it was also clear that what
 1304: When the nullity arises from the incapacity of the priv resp intended to sell were the vacant lots and
one of the contracting parties, the incapacitated not the land with the house on it.
person is not obliged to make restitution, except to  The law explicitly recognized that consent of the
the extent he has profited by the thing or by the sum parties is one of the essential elements to the validity
he may have received. of the contract and where consent is given through
mistake, the validity of the contractual relations
Note: The important fact is not the time when he received the between the parties is legally impaired.
money, but the time he disposed of it. If it be shown that he  The mistake or error on the subject of the sale in
has the power to restore the thing that he received, he cannot question appears to be substantial as the object of the
be allowed to rescind without first making restitution. same transaction is different from that intended by
the parties. This fiasco could have been cured and the
Sps. Theis vs CA pain and travails of this litigation avoided, had parties
agreed to a REFORMATION of the deed of sale. But as
Facts: shown bu the sequence of events occurring after the
sale was consummated, and the mistake was
 Calsons Devt Corp is owner of 3 adjacent parcels of discovered, the defendants refused, insisting that they
land covered by TCT in Tagaytay. wanted the vacant lot on the right side of the
 In 1985, private resp (CDC) constructed a two-storey plaintiff’s house which was impossible for plaintiff to
house son parcel no. 3 while parcels 1 and 2 remained do, as said vacant lots were not of its own dominion.
idle.  There was an honest mistake on the part of the
 However in a surver in 1985, parcel no. 3 where the plaintiff-appellee in the sale of Parcel no. 4 which they
2-storey house stands was erroneously indicated to tried to remedy.
be covered by a different TCT while the two idle lands  1390 of the New CC: The ff contracts are voidable or
were mistakenly surveyed to be located on parcel no. annullable even thought there may have been no
4 and covered by a different title as well. damage to the contracting parties xxx those where
 In 1987, unaware of the mistake by which priv resp the consent is vitiated by MISTAKE, violence,
appeared to be the owner of the parcel no. 4 as intimidation, undue influence or fraud.
indicated in the erroneous survey, the priv resp thru  Tolentino explains that the concept of error in this
its legal rep sold parcel no.4 to petitioners. article must include both ignorance, which is the
 Petitioners did not immediately occupy and take absence of knowledge with respect to a thing and
possession of the two parcels. They went to Germany. mistake properly speaking, which is a wrong
 When they went back, they discovered that no. 4 was conception about said thing, or a belief in the
owned by another person. And they discovered that existence of some circumstances, fact, or even, which
what was actually sold to them were parcels no. 2 and in reality does not exist. In both cases, there is a lack
3. However, no. 3 could have not been sold to pet of full and correct knowledge about the thing.
since the two-storey house was erected on each and
the construction of said house far exceeded the price Rural Bank of Caloocan Inc. vs CA
paid by the petitioners.
 Pet insisted that it was parcel no. that they bought Facts:
but priv resp could not have possibly sold parcel no. 4
since they don’t own the lot.  In Dec 1959, Maxima Castro and Severino Valencia
 There is a mistake of the identity of the said lots went to the Rural Bank of Caloocan to apply for an
which is traceable to the erroneous survey conducted industrial loan. It was Valencia who arranged
in 1985. everything about the loan with the ban nd who
 To remedy this, priv resp offered parcels 1 and 2 as supplied to the latter the personal data required for
these two were precisely the two vacant lots which Castro’s loan application.
they owned and intended to sell when they entered  The bank approved the P3K loan and on this loan was
into the contract. executed a real-estate mortgage on Castro’s house
 Pet refused and instead on taking no. 3 where the and lot.
house stands and no. 2 on the ground that the TCTs  In 1961, the sheriff of Manila sent a notice to Castro
of these lots have already been cancelled and new that her property would be sold at public auction on
ones were issued in their name. March 1961 to satisfy the obligation covering the two
 Such refusal prompted that priv resp to make another prom notes.
offer—the return of an amount double the price paid
 Duman \ OBLICON \ Prof Morales \ I-E \ Page 4
 It was moved to April 10, 1961 but it was declared a  MWSS then approved the sale of the prop in favor of
special holiday and so the prop was sold on April 11, Silhouette, as an assignee of chgcci for 25M.
1961.  Silhouette entered a deed of sale with AYALA for 74M,
 Castro alleged that it was only on Feb. 13, 1961 that the P25M was to be paid by Ayala to MWSS in July
she learned for the first time that the mortgage 1984.
contract was for 6K and not for 3K and that she was  Ayala developed the land and is now know as the
made to sign as co-maker in the prom note without Ayala Heights Subdivision.
informing her about this.  In March 1993 (almost 10 yrs after), MWSS filed an
 She filed a suit against the Bank and spouses Valencia action against herein resps seeking for the declaration
that thru mistake on her part or fraud, she was of nullity of the MWSS-Silhouette sales agreement.
induced to sign as co-maker of the prom note. At the Reason is because of fraudulent and illegal acts of the
time of filing of the complaint, she consign the defendants and that the contract was influenced by
amount of P3.3K for full payment of her personal loan Marcos where the land was sold at P40/sqm despite
with interest. full knowledge that prop’s value is much much higher.
 Her house was sold at a public auction and the bank  Ayala filed the affirmative defenses of prescription,
executed a deed of sale to Arsenio Reyes for P7K. laches, waiver, estoppel, ratification, no cause of
 She claims that she is a 70-year old widow who action, non-joinder of indispensable parties, and non-
cannot read and write the English language and that jurisdiction of the court for the non-specification of
she only finished 2nd grade. She was just asked to amount of damages sought.
sign papers with no one explaining to her the nature
and contents of the documents and that she didn’t Issue: WON the sale can be declared null and void.
even receive a copy of these documents.
Held. NO. All of the elements of a contract are present. Taking
Issue: such allegation as hypothetically true, the alleged vitiation of
MWSS consent, it would only render the sale voidable and not
WON the promissory note was invalid because the mortgage void ab initio.
contract was valid up to P3K only.  As the contract were voidable at the most, the 4-year
prescriptive period under 1391 will apply.
Held:  Hypothetically admitting that President Marcos unduly
influenced the sale, the prescriptive period to annul
No. The prom notes cannot be declared valid between the the same would have begun on Feb. 26, 1986 which
Bank and Castro and the mortgage contract binding on Castro this Court takes judicial notice of as the date Marcos
beyond the amount of P3K. was deposed (if thru undue influence).
 However, if MWSS’ consent was vitiated thru fraud,
 For while the contracts may not be invalidated insofar the prescriptive period would commenced upon the
as they affect the bank and Castro on the ground of discovery. Discovery commenced from the date of the
fraud because the bank was not a participant thereto, execution of the sale of documents as petitioner was
such may however, be invalidated on the ground of party thereto. At the least, discovery is deemed to
substantial mistake mutually committed by them as a have taken place on the date of registration of the
consequence of the fraud and misrepresentation by deeds with the Register of Deeds as registration is
Valencias. constructive notice to the world. Thus it would
 Both Castro and the bank committed mistake in giving commence in 1984 when the agreements were
their consents. Substantial mistake vitiated their registered and titles were issued. At the latest, the
consents given. 1342: Misrepresentation by a third action would prescribe by 1988. MWSS claims that
person does not vitiate consent unless such contract is void ab initio bec the initial agreement
misrepresentation has created substantial mistake from which these agreements emanated was executed
and the same is mutual. The bank and Castro were without the knowledge much less the approval of
negligent in giving their consent to the contracts. petitioner MWSS. However the Court held that this
 A contract may be annulled on the ground of vitiated agreement is not a sale.
consent if deceit by third person even without the  On laches: The prevailing doctrine is that the right to
connivance of complicity with one of the contracting have a contract declared void ab initio may be barred
parties, resulted in mutual error on the part of the by laches although not barred by prescription.
parties to the contract.  Elements of laches are all present:
 Bank and Valencia were held liable and Reyes’ petition a. conduct on the part of the defendant, or one under
for rent from Castro was denied and was put on whom he claims, giving rise to the situation that led
abeyance until resolution of the case is finalized. to the complaint and for which the complaint seeks a
remedy.
MWSS vs CA and MWSS vs. Lopez b. Delay in asserting the complainant’s rights, having
had the knowledge or notice of the defendant’s
Facts: conduct and having been afforded an opportunity to
institute a suit
 in 1965 MWSS (Nawasa then) leased around 128 c. Lack of knowledge or notice on the part of the
hectares of its land to CHGCCI (international Sports defendant that the complainant would assert the right
Development Corp) for 25 yrs renewable for another on which he bases his suit and
15 years until 2005 with a stipulation allowing the d. Injury or prejudice to the defendant in the event relief
latter to exercise a right of first refusal should it be is accorded to the complainant or the suit is not held
open for sale. barred.
 LOI (letter of instruction) was issued by Pres. Marcos  On ratification: Ratification can be made by the
directing MWSS to cancel the Chgcci lease agreement corporate board either expressly or impliedly. Implied
for the disposition of the property. In 1981, MWSS ratification may take various forms like silence or
and chgcci agreed in principle the purchase of the acquiescence by acts showing approval or adoption of
property. Marcos expreesed his approval of the sale. the contact or by acceptance and retention of benefits
flowing therefrom. Both have been made in this case.
 Duman \ OBLICON \ Prof Morales \ I-E \ Page 5
 On non-joinder: the lot owners should have been
included in the suit as parties-defendants because
they are indispensable parties without whom no relief
is available and without whom the court can render no
valid judgment.

Spouses Guiang vs. CA

Facts:

 Gilda Corpuz filed an Amended Complaint against her

husband Judie Corpuz and the spouses Guiang. In the
complaint, she sought the declaration of a certain
deed of sale which involved the conjugal property of
private resp and her husband null and void.
 The husband sold to the spouses one-half of the
conjugal property consisting of their residence and the
lot on which it stood. Gilda left for Manila in 1989 to
look for work abroad but unfortunately she became a
victim of an unscrupulous illegal recruiter.
 In 1990, Harriet, one of her daughters wrote to her
mom telling her about the sale of their home lot.
Mother replied that she was objecting to the sale.
 However in the absence of his wife Gilda, Judie
pushed thru the sale of the remaining one-half of the
property.
 When she came back from the Middle East, she found
her children staying with other households.
 Gilda stayed in their house with one her children,
thus, made the spouses Guiang complained at the
Barangay for trespassing. They have agreed to have
an amicable settlement but she then complained to
the Brgy. Captain who testified that he did not deny
that Gilda approached him only that he forgot that
Gilda approached him. Thus the conclusion that Gilda
did approached the Brgy. Captain for the annulment
of the settlement.
 The Lower Court ruled that the alienation or
encumbrance by the husband of the conjugal property
without the consent of his wife is null and void as
provided in the Family Code (124). Ratification by the
amicable settlement is barred bec it is specifically
provided that his is prohibited or declared void by law.

Issue:

WON the contract was merely voidable and was later ratified
by the amicable settlement.

Held:

No. In this case, private resp’s consent is totally inexistent of

absent, thus would not fall under par 2 of 1390 (vitiated
consent).

 Art 124 also states that” xxx 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 spouse. In the absence of
such authority or consent, the disposition or
encumbrance shall be void.
 The fact remains that such contract was entered into
without the wife’s consent. The nullity of the contract
of sale is premised on the absence of private resp’s
consent.