Obligations and Contracts Cases

Table of Contents
PAGE
CASE TITLE G.R NO.
NO.
I. GENERAL PROVISIONS
o Cabahug v. NAPOCOR G.R. No. 186069 7
o ACE Foods, Inc. v. Micro Pacific Technologies Co., Ltd. G.R. No. 200602 8
o Hur Tin Yang v. People G.R. No. 195117 9
o Cruz v. Gruspe G.R. No. 191431 10
o Traders Royal Bank v. Cuison Lumber Co., Inc. G.R. No. 174286 11
o Central Cement Corporation v. Mines Adjudication Board G.R. No. 173562 12
o Lorenzo Shipping Corp. v. BJ Marthel International, Inc. G.R. No. 145483 13
o International Freeport Traders, Inc. v. Danzas, G.R. No. 181833 14
o Heirs of Ignacio v. Home Bankers Savings and Trust Co., G.R. No. 177783 15
o Robern Development Corp. v. People’s Landless
G.R. No. 173622 16
Association
o Bugatti v. Court of Appeals, G.R. No. 138113 17
o BPI Investment Corporation v. Court of Appeals G.R. No. 133632 18
o Cui v. Arellano University 2 SCRA 205 19
o Pactum commissorium: Edralin v. Philippines Veterans
G.R. No. 168523 20
Bank
o Pactum commissorium: Garcia v. Villar 21
o Non-involvement clause: Tiu v. Platinum Plans Phil., Inc. G.R. No. 163512 22
o Prohibition to marry clause: Duncan Association of
G.R. No. 162994 23
Detailman-PTGWO v. Glaxo Wellcome Philippines, Inc.
o Prohibition to marry clause: Star Paper Corporation v.
G.R. No. 164774 24
Simbol
o Exclusivity clause: Avon Cosmetics, Inc. v. Luna, G.R. No. 153674 25
o Escalation clause: Polotan, Sr. v. Court of Appeals G.R. No. 119379, 26
o Escalation clause: New Sampaguita Builders
G.R. No. 148753 27
Construction, Inc. v. Philippine National Bank
o Dragnet clause: Tecklo v. Rural Bank of Pamplona 28
o Chua Tee Dee v. CA, re: Deprivación de derecho v.
429 SCRA 418 29
Deprivación de mero hecho [Arts. 1654 / 1664] in lease
o Martin v. DBS Bank Philippines, Inc. G.R. No. 174632 30
o Heirs of Zabala v. Court of Appeals, G.R. No. 189602 31
o P.L. Uy Realty Corp. v. ALS Management and
G.R. No. 166642 33
Development Corp.
o Star Two (SPV-AMC), Inc. v. Paper City Corporation of G.R. No. 169211 35
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the Philippines
o Gonzalo v. Tarnate G.R. No. 160600 37
o Campos v. Bank of the Philippine Islands, G.R. No. 207597 39
o Acol v. Philippine Commercial Credit Card Incorporated G.R. No. 135149 41
o Carmelcraft Corporation v. National Labor Relations
G.R. No. 90634 43
Commission,
o Asuncion v. Court of Appeals G.R. No. 109125 45
o Rizal Commercial Banking Corporation v. Court of
G.R. No. 133107 47
Appeals,
o Right of first refusal: Polytechnic University of the
G.R. No. 183612 49
Philippines v. Golden Horizon Realty Corporation
o Consolidated Industrial Gases, Inc. v. Alabang Medical
G.R. No. 181983 51
Center
o Metropolitan Bank & Trust Company v. Rosales, G.R. No. 183204 53
o Mendiola v. Commerz Trading Int’l., Inc. G.R. No. 200895 55
o GF Equity, Inc. v. Valenzona G.R. No. 156841, 57
o Allied Banking Corporation v. Court of Appeals G.R. No. 124290 58
o United Coconut Planters Bank v. Beluso, G.R. No. 159912 59
o Saludo, Jr. v. Security Bank Corp., G.R. No. 184041 60
o Pilipino Telephone Corporation v. Tecson, G.R. No. 156966 62
o Philippine Savings Bank v. Castillo G.R. No. 193178 63
o Philippine National Bank v. Court of Appeals G.R. No. 88880 65
o Florendo v. Court of Appeals G.R. No. 101771 67
o Juico v. China Banking Corporation G.R. No. 187678 69
o Silos v. Philippine National Bank G.R No. 181045 71
o Metropolitan Waterworks and Sewerage System v.
G.R. No. 171351 73
Bautista
o Borromeo v. Court of Appeals G.R. No. 169846, 75
o Valdez v. Court of Appeals G.R. No. 132196 76
o Sta. Lucia Realty v. Buenaventura G.R. No. 177113 78
o Tortious interference: Go v. Cordero G.R. No. 164703 80
o Inocencion v. Hospicio de San Jose G.R. No. 201787 82
o Mamaril v. The Boy Scout of the Philippines G.R. No. 179382 84
o DKC Holdings Corporation v. Court of Appeals G.R. No. 118248 86
o Prudential Bank and Trust Company v. Abasolo G.R. No. 186738 88
o So Ping Bun v. Court of Appeals G.R. No. 120554. 89
II. ESSENTIAL REQUISITES/ELEMENTS
o SM Land, Inc. v. Bases Conversion and Development
G.R. No. 203655 90
Authority
o Traders Royal Bank v. Cuison Lumber Co., Inc. G.R. No. 174286 92
o Yuvienco v. Dacuycuy G.R. No L-55048 94
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o Metropolitan Manila Development Authority v. Jancom
G.R. No. 147465 96
Environmental Corporation
o Sanchez v. Rigos 45 SCRA 368 98
o Malbarosa v. Court of Appeals G.R. No. 125761 100
o Laudico v. Rodriguez G.R. No. 16530 102
o Catalan v. Basa G.R. No. 159567 104
o Domingo v. Court of Appeals G.R. No. 127540 106
o Mendezona v. Ozamiz G.R. No. 143370 107
o Theis v. Court of Appeals G.R. No. 126013 109
o Rural Bank of Caloocan v. Court of Appeals G.R. No. L-32116 110
o Dumez Company of France v. National Labor Relations
G.R. No. 82340 112
Commission
o Hill v. Veloso 31 Phil 160 114
o Fontana Resort and Country Club, Inc. v. Tan G.R. No. 154670 116
o Viloria v. Continental Airlines, Inc. G.R. No. 188288 118
o Tankeh v. Development Bank of the Philippines G.R. No. 171428 120
o Tongson v. Emergency Pawnshop Bula Inc. G.R. 167874 122
o ECE Realty and Development Inc. v. Mandap G.R. No. 196182 124
o Binua v. Ong G.R. No. 207176 126
o Mangahas v. Brobio G.R. No. 183852 127
o Catindig v. vda. De Meneses, G.R. No. 165851 128
o Orduña v. Fuentebella G.R. No. 176841 131
o Cojuangco, Jr. v. Republic G.R. No. 180705 134
o Pentacapital Investment Corp. v. Mahinay G.R. No. 171736 138
o Heirs of Intac v. Court of Appeals G.R. No. 173211 140
o Formaran v. Ong, G.R. No. 186264 142
o Villaceran s. De Guzman G.R. No. 169055 144
o De Leon v. Dela Llana G.R. No. 212277 146
o Heirs of Ureta v. Heirs of Ureta G.R. No. 165748 148
o Rebusquillo v. Gualvez G.R. No. 204029 150
III. FORM OF CONTRACTS
G.R153. No. L-
153
o Dauden-Hernaez v. Delos Angeles, 27010
o Vega v. Social Security System G.R. No. 181672 154
o David v. Misamis Occidental II Electric Cooperative, Inc. G.R. No. 194785 156
IV. REFORMATION OF INSTRUMENTS
o Atilano v. Atilano 28 SCRA 231 158
o Investor Finance Corp. v. Court of Appeal G.R. No. 91334 159
V. INTERPRETATION OF CONTRACTS
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o Pichel v. Alonzo 11 SCRA 341 161
o Tanguilig v. Court of Appeals G.R. No. 117190 162
o Borromeo v. Court of Appeals 47 SCRA 65 163
o Lim Yhi Luya v. Court of Appeals G.R. No. L-40258 164
o Rizal Commercial Banking Corporation v. Court of
G.R. No. 133107 166
Appeals
o Doctrine of complementary contracts construed
G.R. No. 158138 167
together: Philippine Bank of Communications v. Lim
o Specialibus derogat generalibus: Movido v. Pastor G.R. No. 172279 168
o Cabahug v. National Power Corp. G.R. No. 186069 170
o Cruz v. Gruspe, G.R. No. 191431 172
o Star Two (SPV-AMC), Inc. v. Paper City Corporation of
G.R. No. 169211 173
the Philippines,
o Stronghold Insurance Company, Inc. v. Stroem, G.R. No. 204689 175
o Berman Memorial Park, Inc. v. Cheng G.R. No. 154630 177
o The Wellex Group, Inc. v. U-Land Airlines, Co., Ltd G.R. No. 167519 179
VI. DEFECTIVE CONTRACTS
o Universal Food Corp. v. Court of Appeals, G.R. No. L-29155 181
o Equatorial Realty Development, Inc. v. Mayfair Theater,
G R. No. 106063 182
Inc.
o Guman, Bocaling & Co. v. Bonnevie, G.R. No. 86150 184
o Rivera v. Del Rosario G.R. No. 144934 186
o Union Bank of the Philippines v. Ong G.R. No. 152347 188
o Lee v. Bangkok Bank Public Company, Ltd. G.R. No. 173349 190
o Luz v. Baylon G.R. No. 182435 192
o Viloria v. Continental Airlines, Inc., G .R. No. 188288 193
o Anchor Saving Bank v. Furigay G.R. No. 191178 195
o Air France v. Court of Appeals G.R. No. 104234 197
o Rural Bank of Caloocan v. Court of Appeals G.R. No. L-32116 199
o Metropolitan Waterworks and Sewerage System v. Court
October 7, 1998 200
of Appeals, G.R. No. 126000
o Guiang v. Court of Appeals G.R. No. 125172 201
o De Braganza v. De Villa 105 Phil 456 202
o Francisco v. Herrera G.R. No. 139982 203
o Fuentes v. Roca G.R. No. 178902 205
o Hernandez v. Hernandez G.R. No. 158576 206
o Viloria v. Continental Airlines, Inc. G.R. No. 188288 207
o The Roman Catholic Church v. Pante G.R. No. 174118 209
o Metropolitan Fabrics, Inc. v. Prosperity Credit Resources,
G.R. No. 154390 211
Inc.,
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o Yuvienco v. Dacuycuy G.R. No L-55048 213
o Coronel v. Constantino G.R. No. 121069 214
o Regal Films. Inc. v. Concepcion G.R. No. 139532 215
o National Power Corporation v. National Merchandising
G.R. No. L-33819 216
Corporation
o Cenido v.Apacionado G.R. No. 132474 217
o Villanueva v. Court of Appeals G.R. No. 107624 218
o Municipality of Hagonoy v. Dumdum G.R. No. 168289 220
o De Ouano v. Republic G.R. No. 168770 222
o Cruz v. J. M. Tuason & Company, Inc., G.R. No. L-23749 223
o Orduña v. Fuentebella G.R. No. 176841 224
o Iglesia Filipina Independiente v. Heirs of Taeza, G.R. No. 179597 225
o Averia v. Averia G.R. No. 141877 226
o Philippine Banking Corporation v. Lui She, 21 SCRA 52 227
o Francisco v. Herrera G.R. No. 139982 228
o Agan v. Philippine International Air Terminals Co., Inc. G.R. No. 155001 229
o Menchavez v. Teves Jr. G.R. No. 153201 231
o Nool v. Court of Appeals G.R. No. 116635 232
o Vigilar v. Aquino G.R. No. 180388 233
o Land Bank of the Philippines v. Cacayurin G.R. No. 191667 234
o Gonzalo v. Tarnate G.R. No. 160600 235
o Beumer v. Amores G.R. No. 195670, 236
o Borromeo v. Mina G.R. No. 193747 237
o Manotok IV v. Heirs of Barque G.R. Nos. 162335 238
o Department of Public Works and Highways v. Quiwa G.R. No. 183444 240
o De Belen Vda. de Cabalu v. Tabu G.R. No. 188417 241
o Hulst v. PR Builders, Inc. G.R. No. 156364 242
o Fullido v. Grilli G.R. No. 215014 243
o Teja Marketing v. Intermediate Appellate Court G.R. NO. L-65510 244
o Asian Cathay Finance and Leasing Corporation v.
G.R. No. 186550 245
Gravador
VII. TRUSTS
o Republic v. Sandiganbayan G.R. No. 166859 246
o Heirs of Labanon v. Heirs of Labanon G.R. No. 160711 248
o Huang v. Court of Appeals G.R. No. 108525 250
o Salao v. Salao 70 SCRA 65 251
o Cañezo v. Rojas G.R. No. 148788 253
o Philippine National Bank v. Aznar G.R. No. 171805 254
o Ringor v. Ringor, G.R. No. 147863 256
o Medina v. Court of Appeals G.R. No. L-26107, 258
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o Secuya v. Vda. de Selma G.R. No. 136021 261
o Gomez v. Duyan G.R. No. 144148 262
o Tamayo v. Callejo G.R. No. L-25563 266
o Mindanao Development Authority v. Court of Appeals G.R. No. L-49087 268
o Estate of Cabacungan v. Laigo G.R. No. 175073 269
o Tala Realty Services Corp. v. Banco Filipino Savings and
G.R. No. 137533 270
Mortgage Bank
o Mendizabel v. Apao G.R. No. 143185 272
o Iglesia Filipina Independiente v. Heirs of Taeza, G.R. No. 179597 275
o Ty v. Ty G.R. No. 165696 277
o O'Laco v. Co Cho Chit G.R. No. 58010 279
o Fabian v. Fabian G.R. No. L-20449 280
o O'Laco v. Co Cho Chit G.R. No. 58010 284
o Vda. de Rigonan v. Derecho G.R. No. 159571 287
o Pilapil v. Heirs of Briones G.R. No. 150175 289
o Aznar Brothers Realty Company v. Aying G.R. No. 144773 291
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Jesus and Coronacion Cabahug vs. NAPOCOR
G.R. No. 186069; January 30, 2013
PONENTE: Perez, J.
TOPIC: General Provisions, Contracts
FACTS:
The Cabahug spouses owned two parcels of land in Leyte. They were the defendants
in an earlier expropriation case filed by the National Power Corporation (NAPOCOR) before
the Regional Trial Court (RTC) with its Leyte-Cebu Interconnection Project. The suit was
dismissed because NAPOCOR opted to settle with the landowners by paying easement fees.
Jesus Cabahug executed two documents as right of way grant in favour of NAPOCOR. In
consideration of easement fees, Cabahug granted NAPOROCR continuous easement of right
of way for Napocor’s transmission lines and appurtenances. Cabahug agreed not to build
anything in the area within the Right of Way that will adversely affect Napocor’s
transmission lines, except for crops that do not grow up to three meters high. Cabahug also
reserved the option to seek additional compensation for easement fee based on the
Supreme Court (SC) decision of NAPOCOR v. Gutierrez and Malit. So, Cabahug filed a
complaint for payment of just compensation, damages, and attorney’s fees against
NAPOCOR before the Regional Trial Court (RTC). Napocor alleged that it had paid the full
easement fee under Republic Act (RA) 6395 and the reservation in the grant was for
additional compensation not full compensation sought by the Cabahugs.
The RTC decided against Napocor. Napocor appealed the decision and then filed a
motion for reconsideration, which was denied by the Court of Appeals (CA).
ISSUE:
Whether or not the Cabahugs are entitled to full compensation.
RULING:
The general rule is that a contract constitutes as the law between the parties, bound
by the stipulations, if in clear and plain language, should be applied literally. Courts are not
able to add stipulations to the contracts. The Courts are not able to rewrite the contract
because doing so would be inequitable to one of the parties.
Eminent domain is exercised but not transferred by the expropriator in an easement
of right of way. Just compensation is neither less nor more of the monetary equivalent the
property is. Just compensation in eminent domain proceeding is a judicial function.
Valuation by statues is a guiding principle, but is not the court’s own judgment as to what
amount to follow. Thus, RA 6395 is not binding to the Court.
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ACE Foods, Inc., vs. Micro Pacific Technologies Co., Ltd.
G.R. No. 200602; December 11, 2013
PONENTE: Perlas-Bernabe, J.
TOPIC: Definition, Contracts
FACTS:
The petitioner, ACE Foods (AF), is a domestic corporation that deals with consumer
goods and retail bases. The respondent, Micro Pacific Technologies (MTCL) is a company
that deals with supplies of computer hardware and equipment.
MTCL proposed the delivery and sale of products to be installed in AF. AF accepted
the proposal, which amounted to 646, 464 Philippine Pesos. MTCL delivered the products to
AF. The invoice states that the title to the sold property is reserved with MTCL. The products
were delivered, installed, and configured in AF’s premises. MTCL demanded AF to pay the
purchase price. AF sent a letter to MTCL, saying that it has been returning the products to
MTCL’s sales representative who has not showed up.
AF complained against MTCL before the Regional Trial Court (RTC). AF prays that
MTCL pulls out the products from its premises, alleging that MTCL breached contract. The
RTC rendered the decision in favor of AF. On appeal, the Court of Appeals (CA) reversed and
set aside the RTC’s decision.
ISSUE:
Whether or not AF should pay MTCL.
RULING:
The contract of sale had been perfected when AF accepted the proposal to sell of the
products and the price of 646, 464 Philippine Pesos. This gave rise to both parties’ reciprocal
obligations and may be demanded.
The reservation of the title, appearing as a stipulation in the invoice in this case, does
not show that it had modified or superseded the original agreement of the parties. There
was no clear indication that the title reservation stipulation was agreed upon/ The Court
deemed it to be a unilateral position with no effect on the original agreement of the parties.
AF has to pay the price and accept the products. The petition was denied and the Ca’s
decision was affirmed.
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Hur Tin Yang v. People
G.R. No. 195117; August 14, 2013
PONENTE: Velasco Jr., J.
FACTS:
Supermax Philippines Inc. (Supermax) is a domestic corporation that deals with
construction. The Metropolitan Bank and Trust Company (Metrobank) sent several credit
letters to Supermax. The letters were used by Supermax to pay for deliveries of construction
materials to be used for construction. Metrobank asked Supermax’s represntative, the
petitioner, to sign trust receipts for security in construction materials and hold the materials
or proceeds of the sales in trust for Metrobank.
The receipts were due. Despite demand letters being received, Supermax failed to
pay, deliver goods, or proceeds to Metrobank. Supermax requested the loan to be
restructured. The restructuring did not materialize, so Metrobank sent another demand
letter. Metrobank filed complaints against the petitioner.
The petitioner admitted to signing trust receipts, but for security of loans extended
to Supermax’s purchase of construction equipment and materials. The petitioner presented
a witness to testify that the construction materials were delivered before the petitioner
signed the receipts.
The Regional Trial Court rendered judgment, convicting the petitioner of estafa. The
petitioner appealed to the Court of Appeals (CA). The CA upheld the findings of the Regional
Trial Court (RTC).
ISSUE:
Whether or not the petitioner is liable for Estafa.
RULING:
The findings of the trial and appellate court reveal that the petitioner and
Metrobank’s trust receipt was not a trust receipt, but one of a simple loan. The petitioner
admitted to signing the receipts in behalf of Supermax, which failed to pay the loan or turn
over the proceeds to Metrobank, but it does not mean that the transaction is a trust receipt.
The contract was that of a loan.
Trust receipts are where the entrusted has the obligation to deliver to the entruster
the price of the sale, if not sold then return the merchandise to the entruster. This
transaction has two obligations. First, money received under the obligation has to be turned
over to the owner. Second, merchandise received under the obligation has to be turned
over to the owner.
The Court acquitted the petitioner.
9
Rodolfo G. Cruz and Esperanza Ibias vs. Atty. Delfin Gruspe
G.R. No. 191431; March 13, 2013
PONENTE: Brion, J.
FACTS:
A mini bus owned by the petitioner Cruz, driven by Arturo Davin collided with the
respondent’s Toyota. The car was a wreck. Petitioner Ibias went to the respondent’s office,
apologized, and executed a joint affidavit of undertaking. The petitioners promised to jointly
and severally replace the car in 20 days, or until November 15, 1999, the same car or quality,
or pay the amount of ₱350, 000 with the interest at 12% per month, until November 15. The
petitioners failed with the undertaking. The respondent filed a complaint.
The petitioners denied the allegation, they claimed that the respondent prepared the
affidavit and forced them to affix their signatures without being informed. The Regional Trial
Court (RTC) ruled against the petitioners. On appeal, the Court of Appeals (CA) also ruled
against the petitioners.
ISSUE:
Whether or not the affidavit is a contract.
RULING:
The joint affidavit of undertaking discloses stipulations that are like a contract.
Contracts are obligatory no matter the form, as long as the essential requisites for their
validity are present.
The petitioners failed to prove their allegation. Thus there is no merit for vitiated
consent. The affidavit is deemed genuine.
The Court affirmed the CA’s decision.
10
Traders Royal Bank vs. Cuison Lumber Co., Inc.,
G.R. No. 174286; June 5, 2009
PONENTE: Brion, J.
TOPIC: Stages of a Contract
FACTS:
The respondent company, Cuison Lumber Compani Inc. (CLCI), had loans with the
petitioner bank, Traders Royal Bank (TRB). A parcel of land secured the loans through a real
estate mortgage. The CLCI failed to pay the loan. TRB extrajudicially foreclosed the property.
Auction followed, where TRB was the highest bidder. CLCI and TRB communicated, where
CLCI wanted to restructure its loan obligation and repurchase the property. TRB replied to
grant the request, but CLCI did not make an acceptance. CLCI failed to comply with the
conditions.
ISSUE:
Whether or not the repurchase agreement was perfected.
RULING:
Both parties agreed to the repurchase of the property. CLCI accepted the repurchase
agreement and partially executed the agreement. At first, CLCI responded to a demand
letter from the bank, requesting for a time extension. Then, CLCI continued payments for
the repurchase price even after the receipt of the letter. CLCI still continued possession of
the property, which was within the conditions of the repurchase agreement.
Contracts are perfected from the moment that there is a meeting of the minds,
acceptance of the thing due, and cause that constitute the contract. The contract may exist
between parties whose minds have met, even without affixing signatures to a written
document.
The petition was granted.
11
Central Cement Corporation vs. Mines Adjudication Board and Rock and Ore Industries,
INC.
G.R. No. 173562; January 22, 2008
PONENTE: Reyes, R.T., J.

FACTS:
The petitioner, Central Cement Corporation (CCC), and the private respondent, Rock
and Ore Industries, Inc. (ROII), are domestic companies in the Philippines. CCC filed a mineral
production sharing agreement (MPSA) with the Department of Environment and Natural
Resources (DENR). The ROII’s application was published and posted. The petitioner opposed
and filed a claim to the application of the ROII, with DENR’s panel of arbitrators. The CCC
claimed that ROII’s MPSA conflicted with CCC’s MPSA. A third company, Neutron
Construction (NC), also filed an intervention, claiming that ROII’s MPSA was in conflict with
its application.
The panel dismissed the opposition of CCC and intervention of NC. The petitioner
appealed to the Mining Adjudication Board (MAB), but the MAB agreed with the panel. The
CCC moved for reconsideration. While the motion for reconsideration was pending, the
ROII’s president brought in two companies under a memorandum of understanding (MOU).
The MOU provided for cession of claims and ownership of the mining dispute before the
MAB. The ROII’s president prayed that the resolution of the MAB, claiming that the parties
have resolved the issue because of the MOU.
The MAB denied the motion for reconsideration. The petitioner filed a second motion
for reconsideration, which was denied and then appealed to the Court of Appeals (CA).
ISSUE:
Whether or not the MOU was a contract between the parties.
RULING:
The parties are bound by the MOU, which is a valid compromise agreement between
the parties. Article 1315 of the Civil Code provides that a contract is perfected by mere
consent. There is no dispute that the MOU was perfected as the parties assent to it. Both
freely and voluntarily signed the MOU.
Perfection of a contract is not the same as the consummation of a contract. A
contract has three stages; preparation, perfection, and consummation. Preparation begins
from the time the parties manifest their interest and ends in their agreement. The perfection
stage takes place when the parties agree on the essential elements of the contract.
Consummation stage happens where the parties fulfil or perform the terms in the contract,
which then extinguishes it.
The MOU shows that there is intention of the parties to consolidate their rights. The
petitioner and private respondent agreed to swap mining rights for land. Thus, the CA’s
decision was affirmed.
12
Lorenzo Shipping Corp. vs. BJ Marthel International, Inc.
G.R. No. 145483; November 19, 2004
PONENTE: Chico-Nazario, J.
FACTS:
The petitioner is a domestic corporation engaged in coastwise shipping. It used to
own the M/V Dadiangas Express. The respondent is a business entity in trading, marketing,
and selling of industrial commodities. The respondent supplied the petitioner marine
engines. In 1989, the petitioner asked the respondent for a quotation of machine parts. The
respondent furnished the petitioner with a formal quotation. In the contract, delivery is
within two months after receipt of firm order, with 25% upon delivery, balance payable in
five bi-monthly equal, instalments, not to exceed 90 days.
The petitioner issued to the respondent a purchase order, for one cylinder liner at
₱477,000. The petitioner did not pay the 25% down payment, but issued postdated checks to
be drawn against the petitioner with Allied Banking Corporation. The petitioner issued a
purchase order for another cylinder liner. This time, the term had a 25% upon delivery,
balance in five bi-monthly equal instalments. The respondent deposited the petitioner’s
check, but was dishonoured for lack of funds. The post-dated checks were returned to the
petitioner.
The respondent filed an action for sum of money and damages before the Regional
Trial Court (RTC). Then, the respondent filed a second amended complaint with preliminary
attachment, which the RTC admitted. The RTC dismissed the action. The respondent filed
with the Court of Appeals (CA) which reversed the decision.
ISSUE:
Whether or not time is of the essence in the contract.
RULING:
The respondent could not have incurred delay of the cylinder because there was no
demand made, which Article 169 of the Civil Code provides for. Delay is incurred upon judicial
or extrajudicial demand has been made. If no time is fixed, delivery shall be made within a
reasonable time. The petitioner alleged that the cylinder liners were to be used for dry dock
repair and maintenance of the M/V Dadiangas Express. There was no indication that the
respondent was aware of the fact. The petitioner failed to notify the respondent, thus it
cannot be a subject for a contracts of sale. So, time was not of the essence.
The petition is denied.
13
International Freeport Traders, Inc., vs. Danzas Intercontinental, Inc.
G.R. No. 181833; January 26, 1011
PONENTE: Abad, J.
FACTS:
The petitioner (IFTI), ordered a shipment of Toblerone and other confectionaries
from Jacobs Suchard Tobler Ltd. (Jacobs) of Switzerland, through Colombo Merchants
Philippines. In delivering the goods, Jacobs dealt with Danmar Lines, which issued Jacobs
negotiable house bills of lading, signed by the respondent (Danzas). The bills of lading said
the terms were FOB and freight payable at destination, with Jacobs as the shipper, China
Bank as the consignee, and IFTI as the party to be notified of shipment. Danmar did not have
a vessel, Orient Overseas Container Line (OOCL) was contacted to ship goods. OOCL issued a
bill of lading. Danmar paid OOCL and the goods were loaded. The goods arrived in Manila’s
port, so Danzas informed IFTI. IFTI asked to surrender the original bills of lading and submit a
bank guarantee. IFTI did not provide Danzas with a bank guarantee, claiming the letters of
credit covered the shipment. IFTI insisted Danzas endorse the import permit and bills of
lading, but Danzas did not do it. Danzas withheld the release of the goods. IFTI yielded to
the request. IFTI issued a promissory note. Danzas secured the release of the goods and
delivered it to IFTI.
On January 19, 1988, Danzas demanded shipping payment of ₱181, 809.45, which IFTI
ignored. Danzas filed separate complaints against IFTI and OOCL before the Metropolitan
Trial Court (MeTC). The MeTC rendered decision and favoured Danzas. On appeal, the
Regional Trial Court (RTC) dismissed the complaint. In the Court of Appeals (CA), the RTC’s
decision was reversed.
ISSUE:
Whether or not there is a contract of lease f service.
RULING:
Shipments and imported goods are free to stay for free, for three working days, and
in storage for five or six calendar days. The goods arrived on May 14, 1997. IFTI has the
import permit ready by May 20, 1997, but did not have the bank guarantee. The Court was
not convinced that IFTI could get the bank guarantee ready by May 23, 1997. The delay was
all IFTI’s fault.
The Court affirms the CA’s decision.
14
Heirs of Fausto Ignacio vs. Home Bankers Savings and Trust Company, etc.
G.R. No. 177783; January 23, 2013
PONENTE: Villarama, JR., J.

FACTS:
Ignacio mortgaged two parcels of land to the respondent bank, Home Bankers
Savings and Trust Company (HBSTC), as security for a loan. Ignacio defaulted in the payment
of the loan, so the property was foreclosed and sold to the bank in public auction. Ignacio
offered to repurchase the property. Universal Properties, Inc. (UPI), sent a letter to Ignacio
that had terms for the repurchase. Ignacio annotated the letter with new terms and
conditions. He claimed that the agreements were between him and UPI. HBSTC sold the
property to third parties.
Ignacio filed an action for specific performance against the bank for reconveyance of
the properties after paying the purchase price, with the Regional Trial Court (RTC). He
claimed that UPI accepted his counter-offer. The bank denied that it consented. The RTC
made a decision in favour of Ignacio. On appeal, the Court of Appeals (CA) reversed the
decision.
ISSUE:
Whether or not Ignacio and UPI’s negotiations are valid.
RULING:
A contract of sale is perfected where valid consent is given. No consent is given when
a party merely negotiates, a qualified acceptance, or a counter-offer. Acceptance amounts
to a meeting of the minds between the parties. Ignacio proposed new terms and conditions
to the repurchase agreement. There was no showing that the bank approved.
Negotiations between Ignacio and UPI were preparatory to the agreement. This does
not bind the bank. Ignacio could compel the bank to accede the repurchase of the property.
Corporations only give a valid acceptance through officers or agents. Counter-offers
will not bind the corporation by acceptance of an agent, without evidence of authority from
the corporation’s board of directors.
15
Robern Development Corporation and Rodolfo Bernardo vs. People’s Landless Association
G.R. No. 173622; March 11, 2013
PONENTE: Del Castillo, J.

FACTS:
Al-Amanah owned property in Davao City. Al-Amanah, through Febe Dalig, asked
members of the People’s Landless Association (PELA) to desist from building houses on the
lot, unless they are interested to buy it. The informal settlers expressed their interest to buy
at ₱100 per square meter. Al-Amanah turned it down because it was below asking price. Al-
Amanah further demanded the informal settlers to vacate the lot. The informal settlers,
through a letter, offered to purchase the lot for ₱300, 000, half as down payment and the
other half to be paid within a year. Al-Amanah made an annotation to the letter,
acknowledging the offer but the half must be paid before Alril 15, 1993.
PELA deposited the ₱150, 000, evidenced with four bank receipts. The bank labelled
the payments as partial deposits, but on the fourth receipt it was labelled as partial or full
payment on deposit on sale.
PELA remained in the property and introduced improvements. PELA disapproved of
PELA’s offer to buy the lot. Pela claimed there was already a sale.
ISSUE:
Whether or not there was a perfected contract.
RULING:
In sale, there is no contract where there is an offer without acceptance of the other.
The decision to accept a bidder’s proposal must be communicated to the bidder. A contract
may exist without affixed written signatures on a document, as long as acceptance has been
expressed or implied and the parties whose minds have met. This can be inferred from the
contemporaneous and subsequent acts of the parties.
PELA acknowledged that Dalig made it clear that the acceptance of the offer is
subject to the approval of the Head Office. Dalig did not misrepresent the bidders and had
authority to sell the bank’s property. Dalig had no authority to execute a deed of sale. Al-
Amanah and PELA remained in the negotiation stage. The offer did not materialize to a
perfected sale, because documentary evidence proved that Al-Amanah expressed
amenability to the offer, but before the lapse of a year, PELA had to pay the remaining
balance. Al-Amanah rejected the offer in seven months.
16
Emilio Bugatti vs. Court of Appeals, etc.
G.R. No. 138113; October 17, 2000
PONENTE: Gonzaga-Reyes, J.
FACTS:
The private respondents Ben and Maria Baguilat filed an action for recovery of
possession and damages with the Regional Trial Court (RTC) of Lagawe, Ifugao, against the
petitioner. The Baguilats claimed that they owned a parcel of land in Lagawe. Sometime in
December, Bugatti offered to lease their land. They discussed the terms and conditions of
lease with the petitioner, a portion will be leased for nine years, for a monthly rental of
₱500, and that the petitioner will construct a ₱40, 000 building. The respondents would
have to reimburse the petitioner and after the petitioner is fully reimbursed, he shall
continue paying the ₱500 for the duration of the lease, then the building shall belong to the
respondents.
The parties agreed that the terms and conditions be included in a written contract of
lease, prepared by the petitioner, and presented to the respondents for approval. Before
preparing the contract, the petitioner occupied the land and began construction. Maria
Baguilat demanded that the contract of lease be signed first. The petitioner presented the
contract but did not contain the terms and conditions agreed upon. The Baguilats refused to
accede to the revised document and its counter-proposals. The petitioner kept occupying
the land.
The RTC rendered the decision in favor of the Baguilats. On appeal, the Court of
Appeals (CA) reversed the decision, stating that there was a perfected contract of lease
between the parties.
ISSUE:
Whether or not the contract of lease has been perfected.
RULING:
The Court ruled that there was no contract of lease perfected. All that was done was
a negotiation of an intended lease contract. A contract undergoes three stages; preparation
or negotiation, perfection, and consummation. Negotiation begins from the parties
manifesting their interest in the contract and ends at their agreement. Perfection or birth of
the contract takes place when the parties agree on the essential elements of the contract.
Consummation of the contract begins where the parties fulfill or perform the terms agreed
upon.
The petitioner is a builder in bad faith. There is an absence of a perfected contract of
lease and the petitioner disregarded the respondents’ protests.
The case was remanded to the trial court for determination of proper amount of
rentals.
17
BPI Investment Corporation vs. Court of Appeals and ALS Management and Development
Corporation
G.R. No. 133632; February 15, 2002
PONENTE: Quisumbing, J.
TOPIC: Basic Principles or Characteristics of a Contract: Consensuality
FACTS:
Frank Roa obtained a loan with a 16 ¼% per annum rate from Ayala Investment and
Developmetn Corporation (AIDC), BPI Investment Corporation’s predecessor, for
constructing a house. Roa mortgaged the house as security for the loan. Roa sold the house
to ALS and Litonjua for ₱850, 000, who paid ₱350,000 but was indebted with the rest of the
amount with AIDC. AIDC proposed to grant ALS and LItonjua a new loan with amortization.
ALS and Litonjua executed a mortgage deed containing new stipulations that amortization
will commence on May 1, 1981. ALS and Litonjua paid BPI Investment Corporation (BPICC),
but not the entire amount. BPICC instituted foreclosure proceedings against ALS and
Litonjua because they failed to pay their debt from May 1, 1981 to June 30, 1984 which
amounted to ₱475, 585.31. ALS and Litonjua filed a civil case against BPIIC claiming that they
made an overpayment.
The Regional Trial Court (RTC) favoured ALS and Litonjua. The Court of Appeals (CA)
affirmed the RTC’s decision.
ISSUE:
Whether or not the contract of loan is a consensual contract.
RULING:
No, it is not a consensual contract, but it is still a real contract. The contract is
perfected upon delivery of the object of the contract. The loan contract was perfected on
September 13, 1982, the second release of the loan. Amortization should accrue from the
time BPIIC released the loan amount to Las and Litonjua, because it is the time the loan was
perfected. A contract of loan has a reciprocal obligation. The obligation or promise of each
party is in consideration for that of the other. Neither party would incur delay if either does
not comply or is not ready to comply with the obligation. When the party has performed his
part of the contract and the other fails, default sets in.
The CA’s decision is affirmed.
18
Emeterio Cui vs. Arellano University
G.R. No. L-15127; May 30, 1961
PONENTE: Concepcion, J.
TOPIC: Basic Principles or Characteristics of a Contract: Freedom or Autonomy to Stipulate
FACTS:
Cui enrolled in Arellano, the defendant. Cui finished his law studies, up to the fourth
year, first semester. Cui was given scholarship grants and his tuition fees were returned to
him after each semester. Cui left the defendant’s law school and enrolled the last semester
of his fourth year in Abad Santos University and graduated there. In applying for the bar
examination, Cui needed his transcript of records from the defendant. The defendant
refused until he paid ₱1,033.87. In the contract he signed in consideration of the scholarship
granted by the defendant, he waived his right to transfer to another school without having
refunded the defendant the equivalent of the scholarship cash.
ISSUE:
Whether or not the provision of the contract between the Cui and the defendant is
valid.
RULING:
The contract of waiver by Cui and the respondent is invalid, thus null and void. The
contract was not sound to policy and civic honesty. Students that are given full or partial
scholarships are to be understood as the scholarship was merited and earned. The amount
of tuition and other fees corresponding the policies are not to be charged to the receiving
students, even if they decide to quit or transfer to another school.
The decision appealed from is reversed.
19
Fernando and Angelina Edralin vs. Philippine Veterans Bank
G.R. No. 168523; March 9, 2011
PONENTE: Del Castillo, J.

TOPIC: Basic Principles or Characteristics of a Contract: Freedom or Autonomy to Stipulate,
Pactum Commissorium
FACTS:
The respondent granted the Edralins a loan in the amount of ₱270,000 and executed
a real estate mortgage (REM) as security, over a real property in Parañaque, registered
under Fernando Edralin. The Edralins failed to pay the obligation to Veterans Bank, so it filed
a petition for extrajudicial foreclosure of the REM with the Clerk of Court and Sheriff of
Rizal. Foreclosure sale was held and the property was sold at public auction. Veterans Bank
was the highest bidder and issued the certificate of sale. The Edralins failed to redeem the
property within a year, so absolute ownership went to Veterans Bank. Veterans Bank caused
the consolidation of ownership of the property under its name, cancelling the title under the
name of Fernando Edralin. The Edralins failed to vacate and surrender the property to
Veterans Bank, which filed an ex-parte petition for the issuance of a writ of possession
before the Regional Trial Court (RTC), but was dismissed.
ISSUE:
Whether or not the consolidation of title was done in accordance with law.
RULING:
Pactum commissorium is a stipulation that empowers the creditor to appropriate the
thing that is a guaranty for the fulfilment of the obligation, in the event the obligor fails his
undertakings. Pactum Commissorium is present when; there is property mortgaged by
security for paying an obligation and there should be a stipulation for automatic
appropriation in case of non-payment.
There is no second element for pactum commissorium. Veterans bank did not acquire
the mortgaged property automatically, because Veterans Bank resorted to extrajudicial
foreclosure. Veterans Bank went through all the stages of extrajudicial foreclosure. There
was no pactum commissorium.
The petition was denied.
20
Pablo Garcia v. Yolanda Valdez Villar
G.R. No. 158891; June 27, 2012
PONENTE: Leonardo-De Castro, J.

Pactum Commissorium
FACTS:
A mortgage on a lot owned by Lourdes Galas favored Yolanda Villar, for a loan
obtained by Galas from Villar amounting to ₱2, 200, 000. The deed of the real estate
mortgage (REM) executed between Galas and Villar appoints Villar to sell the property in
case Galas fails to pay the loan. A year later the property was mortgaged to Pablo Garcia, to
secure another loan amounting to ₱1, 800, 000. Galas sold the property to Villar, with a deed
of sale fixed between them. Garcia filed a petition for Mandamus with damages, claiming
that the authority given to Villar is pactum commissorium.
The Regional Trial Court (RTC) favored Garcia. The Court of Appeals (CA) reversed the
RTC’s decision and favored Villar.
ISSUE:
Whether or not the deed of REM is pactum commissorium.
RULING:
The elements of pactum commissorium include; that a property be mortgaged as
security and that there should be a stipulation for automatic appropriation by the creditor in
case of non-payment.
The prohibition on pactum commissorium was not violated. The power of attorney
given to Villar does not automatically transfer ownership to Villar. As attorney-in-fact, it
granted Villar authority to sell or dispose the property and apply the proceeds to the loan.
This is in accord with mortgage contracts under Article 2087 of the Civil Code.
The court affirmed the CA’s decision.
21
Daisy Tiu vs. Platinum Plans Philippines, Inc.
G.R. No. 163512; February 28, 2007
Non-involvement Clause
FACTS:
The respondent is a domestic corporation dealing with pre-needs. The petitioner was
its Division Marketing Director from 1987 to 1989. The respondent re-hired the petitioner in
1993 as Senior Assistant Vice-President and Territorial Operations Head for Hong Kong and
ASEAN operations. The parties executed an employment contract, valid for five years. In
1995, the Tiu stopped working. She became vice-president for sales in another company,
also in pre-need industry.
The respondent sued Tiu for damages before the Regional Trial Court (RTC) of Pasig
City. The respondent alleged the TIU’s employment with the other company violated the
non-involvement clause in her contract.
The RTC found the two-year restriction to be valid and reasonable. On appeal, the
Court of Appeals (CA) affirmed the RTC’s ruling. The petitioner entered into the contract in
her own will and volition, so she is bound to fulfil that which is stipulated in the contract.
ISSUE:
Whether or not the non-involvement clause is valid.
RULING:
The non-involvement clause has a time limit, which is two years from the time the
petitioner’s employment with the respondent ends. It is limited to trade, which prohibits the
petitioner from engaging in any pre-need business, akin to the respondent’s.
Tiu’s office makes her privy to confidential and sensitive marketing strategies of
respondent’s business. Allowing her to engage in a rival business after she leaves, makes the
respondent’s trade secrets vulnerable.
The non-involvement clause is valid and the petition is denied.
22
Duncan Associuaition of Detailman-PTGWO vs. Glaxo Wellcome Philippines, Inc.
G.R. No. 162994; September 17, 2004
PONENTE: Tinga, J.
Prohibition to Marry Clause
FACTS:
Pedro Tecson was hired by the respondent corporation as a medical representative.
In the contract of Tecson, Glaxo expects employees to inform management of existing or
future relationship by consanguinity or affinity with co-employees or employees of
competing drug companies. Management can transfer an employee to another department
or prepare the employee to have employment outside the company after six months.
Tecson entered into a romantic relationship with an employee of Astra
Pharmaceuticals, Glaxo’s competitor. Tecson married the employee. Tecson was reminded
by the district manager regarding conflict of interest that the relationship might engender.
Tecson failed to resolve the issue, Glaxo offered separation pay or to be transferred to
Caraines to Butuan-Surigao-Agusan sales area, which Tecson did not abide. Tecson filed a
petition to the National Conciliation and Mediation Board (NCMB). NCMB affirmed Glaxo’s
policy. The Court of Appeals (CA) also affirmed the policy.
ISSUE:
Whether or not Glaxo’s policy is valid.
RULING:
The policy is valid. Glaxo does not prohibit against relationships. Glaxo merely wants
to avoid conflict of interest between employees and other companies that arise out of
relationships.
Glaxo gave Tecson chances to eliminate the conflict of interest. He was reminded of
the effects while his relationship was still in the initial stage. Glaxo asked that he resigned or
his wife resign from Astra. Glaxo expressed desire to retain Tecson. There was no unfairness
on the part of Glaxo.
The petition was denied.
23
Star Paper Corporation, etc. vs. Ronaldo Simbol, etc.
G.R. No. 164774; April 12, 2006
PONENTE: Puno, J.
Prohibition to Marry Clause
FACTS:
Simbol was employed by the company where he met a co-employee and got married.
Before Simbol getting married, Josephine Ongsitco, the manager, advised that should they
get married, one of them should resign pursuant to company policy. Company policy does
not allow applicants who have a relative within the third degree of consanguinity, employed
in the company and if two employees got married, one should preserve company policy.
Simbol resigned.
Wilfreda Comia, one of the respondents, was hired by the company. She met a co-
employee and got married. Ongsitco reminded them of company policy. So, Comia resigned.
Lorna Estrella, another respondent, got hired in the company. This time, the co-
worker is a married man, Luisito Zuñiga. Estrella resigned.
The respondents signed a release and confirmation agreement. They have no money
and property in the company and release the company of any claim or demand. However,
the respondents gave a different story. Simbol and Comia claim that they were compelled to
resign, in view of an illegal company policy. Estrella alleged that her relationship with Zuñiga
was misrepresented, she thought Zuñiga was a separated man. After she got pregnant, that
is when she found out that he is not separated.
The respondents filed a complaint for unfair labor practice. The Labor Arbiter (LA)
dismissed the complaint. On appeal to the National Labor Relations Commission (NLRC) , the
decision was affirmed. The Court of Appeals (CA) reversed the NLRC’s decision.
ISSUE:
Whether or not the policy of the employer banning spouses from working in the
same company violates the rights of the employee under the Constitution and the Labor
Code or is a valid exercise of management prerogative.
RULING:
The policy violates the rights of the employees under the Constitution and is not a
valid management prerogative. For the company policy to be upheld, the requirement of
reasonableness must be established. In this case, there was no reasonable business
necessity. Even if there is a lack of statutes expressly prohibiting marital discrimination, this
should not benefit the petitioners.
The CA’s decision is affirmed.
24
Avon Cosmetics, Inc., and Jose Franco vs. Leticia Luna
G.R. No. 153674; December 20, 2006
Exclusivity Clause
FACTS:
Luna worked for Bautifont as a franchise dealer, then supervisor. Bautifont was
acquired by Avon Cosmetics, where Luna continued to work. Luna and Avon entered a
supervisor’s agreement, where the supervisor is not an employee or an agent, but an
independent retailer. She is not allowed to sell or display any other products aside from
Avon’s.
Luna entered into the sales force of Sandre Philippines, which terminated her
contract. Luna filed a complaint for damages against Avon. The Regional Trial Court (RTC)
ruled in favour of Luna. On appeal, the Court of Appeals (CA) affirmed the decision.
ISSUE:
Whether or not the exclusivity clause was contrary to public policy.
RULING:
No. The Supreme Court agreed with the petitioner that the clause was there to
protect Avon from other companies and competitors who would exploit sales and
promotions that Avon established.
Sandre Philippines made Luna a franchise director. She is able to utilize skills learned
from Avon in sale and distribution of products. There is unjust enrichment. Avon will be
taken advantage of by Sandre. The dealers are the same, but it will create belief that the
products the dealers sell is the same product of the company.
25
Rodelo Polotan, Sr. v. Court of Appeals, etc.
G.R. No. 119379; September 25, 1998
PONENTE: Romero, J.
Escalation Clause
FACTS:
The private respondent, Security Diners International Corporation (SDIC), is a credit
card company. Goods and services are reimbursed by cardholders upon billing. Polotan
applied for membership and credit accommodations with SDIC. The application form
contained terms and conditions for the use and availment of the SDIC card. Ofricano Canlas
obligated himself to pay jointly and severally with the petitioner. Polotan was issued a card
and incurred credit charges, appropriate interest, and service charges of ₱33, 819, due and
demandable.
Demands for payment were made against the petitioner and it was futile. SDIC filed a
complaint for collection of sum of money against the petitioner before the lower court. The
Regional Trial Court (RTC) ruled in favour of SDIC. The Court of Appeals (CA) affirmed the
decision.
ISSUE:
Whether or not the contract allows for escalation of interests.
RULING:
Escalation clauses are valid stipulations in commercial contracts for stability and to
retain value of money. A provision in the contract is questioned, where if there is a change in
the prevailing market rates, the new interest rate shall guide the computation. This is not an
escalation clause because it does not state an increase in interest rate. The clause states that
interest rates should be based on the prevailing market rate. The rate could go up or down.
If it goes up it becomes an escalation clause. It does not depend on the respondent alone,
but of prevailing market rates. Escalation clauses are not wrong, not solely potestative, but
also based on reasonable and valid grounds. Market fluctuation is not up to the respondent.
The petition is denied.
26
New Sampaguita Builders Construction, Inc., Eduardo and Arcelita Dee vs. Philippine
National Bank
G.R. No. 148753; July 30, 2004
PONENTE: Panganiban, J.
Escalation Clause
FACTS:
New Sampaguita Builders Construction Inc. (NSBCI) loaned from Philippine National
Bank (PNB) amounting to ₱8 Million. NSBCI executer promissory notes, due on different
dates, with different rates. The first promissory note had 19.5% interest rate, the second and
third had 21.5% interest rate. A clause in the promissory note stated that if the debt is not
paid after two years, it is converted to a medium term loan and the interest rate of such
would apply.
NSBCI defaulted and failed to comply with obligations in the promissory notes. NSBCI
requested for an extension, but defaulted again. So, NSBCI asked for a loan restructuring.
NSBCI paid part of the loan and promised to pay the balance later. Once again, NSBCI
defaulted. PNB claimed they owe over ₱12 Million.
PNB filed a case in the Regional Trial Court (RTC). The RTC ruled in favour of NSBCI.
The Court of Appeals (CA) reversed the decision.
ISSUES:
Whether or not the accounts are bloated.
RULING:
The accounts are bloated and there is no deficiency, but an overpayment of more
than ₱3 Million.
There is no base to increase the interest rates. The first promissory note had a 19.5%
rate and the other promissory notes had 21.5% rates. Escalation clauses may be valid, but
only in maintaining stability and retaining the value of money for long-term contracts. The
respondent has no unbridled right to adjust interest independently and upwardly. If so, this
would negate mutuality in contracts under Aricle 1308 of the Civil Code.
The petition is partly granted.
27
Benedict and Maricel Dy Tecklo vs. Rural Bank of Pamlona, Inc.
G.R. No. 171201; June 18, 2010
Dragnet Clause
FACTS:
The spouses Roberto and Maria Co loaned from the Rural Bank of Pamplona (RBP)
amounting to ₱100, 000, due in three months. The loan was secured by a real estate
mortgage, by a lot owned by the Cos. Because the mortgage was security for future loans,
the Cos then obtained a second loan, this time amounting to ₱150, 000.
The Tecklos instituted an action for collection of sum of money against the Cos, with
the Regional Trial Court (RTC). The Tecklos obtained a writ of attachment on the mortgaged
property of the Cos. The two loans remained unpaid, even remaining after being due and
demandable. The RBP instituted extrajudicial foreclosure proceedings. Public auction
followed and the RBP itself had the winning bid, which did not include the second loan.
The Tecklos exercised the right of redemption, to which the RBP objected. The RTC
decided that the petitioners pay the RBP and upon payment, the RBP must surrender the
property to the Tecklos. On appeal, the Court of Appeals (CA) insisted that the foreclosed
motgage also included the second loan.
ISSUE:
Whether or not the redemption amount includes the second loan.
RULING:
The second loan was between the Cos and the RBP and it was a private contract. This
does not include third parties, unless registered. The extrajudicial foreclosure initiated by the
RBP only included the first loan.
A blanket mortgage clause, a dragnet clause, makes available future loans without
the need of executing another security and is recognized in Philippine jurisprudence. It saves
time, loan charges, legal services, fees, and other costs. A blanket mortgage is designed to
lower the costs of loans to borrowers and makes business lending profitable to banks. It is
settled that mortgages securing future loans are valid and legal contracts.
28
Chua Tee Dee vs. Court of Appeals and J.C. Agricom Development Corporation, Inc.
G.R. No. 135721; May 27, 2004
PONENTE: Callejo, J.
Deprivación de derecho v. Deprivación de mero hecho in lease
FACTS:
Agricom owned a plantaion at Bayabas, Davao. Agricom planned to lease the
plantation. Chua Tee Dee, married to Amado Dee, does business under the name of Pioneer
Enterprises. Agricom and Dee entered into a 15-year lease contract over the rubber
plantaion. The stipulations in the contract was a deposit payment amounting to ₱135, 000
and payment of back rentals in case of non-payment of rentals for three months. The
contract stipulated that Agricom had the duty to maintain Dee in the quiet, peaceful,
possession, and enjoyment of the leased premises.
A case for illegal dismissal and unfair labor practices was filedf against Agricom, Dee,
and Pioneer, because plantation workers were dismissed from work because of the lease.
Pioneer defaulted on monthly payments, so Agricom filed a complaint for sum of money.
The Regional Trial Court (RTC) dismissed the complaint and the lease contract was
terminated. The Court of Appeals (CA) affirmed the decision.
ISSUE:
Whether or not the lease contract is violated.
RULING:
The petitioner was not disturbed in legal possession of the property under Aritcle
1654 of the New Civil Code. When the petitioner’s representatives saw that a portion of the
leased premises was being fenced in by the claimants, she had the right to sue those
disturbing the physical possession, under Article 1664 of the New Civil Code. The petitioner
did not file the suit against the claimants. Thus, the respondent did not violate the contract
of lease.
The case was affirmed, but with modification. The petitioner still needs to pay
monthly rentals with a 2% penalty for delay in payment of rentals.
29
MARTIN V. DBS BANK PHILIPPINES INC.
G.R. No. 174632, June 16, 2010
PONENTE: NACHURA, J.
TOPIC: Freedom/Autonomy to stipulate
FACTS:
Felicidad T. Martin, Melissa M. Isidro, Grace M. David, Caroline M. Garcia, Victoria M.
Roldan, and Benjamin T. Martin, Jr., as lessors, entered into a lease contract with the DBS
Bank Philippines, Inc., covering a commercial warehouse and lots that DBS was to use for
office, warehouse, and parking yard for repossessed vehicles. On May 25 and August 13, 1997
heavy rains flooded the leased property and submerged into water the DBS offices there
along with its 326 repossessed vehicles. In June 1998, DBS vacated the property but
continued paying the monthly rents. However, it made a final demand on the Martins to
restore the leased premises to tenantable condition on or before September 30, 1998,
otherwise, it would rescind the lease contract. On September 24, 1998 the Martins
contracted the services of Altitude Systems & Technologies Co. for the reconstruction of the
perimeter fence on the property. DBS demanded the rescission of the lease contract and
the return of its deposit. The Martins refused, however, to comply with DBS’ demand. DBS
filed a complaint against the Martins for rescission of the contract of lease with damages
before the Regional Trial Court. The Makati City RTC rendered a decision, dismissing the
complaint against the Martins. On appeal to the Court of Appeals, the court reversed and set
aside the RTC decision.
ISSUE:
Whether or not the CA erred in holding that DBS is entitled to the rescission of the
lease contract only from July 7, 1999 when it filed its action for rescission, entitling the
Martins to collect rents until that time.
RULING:
Under their agreement, the remedy of rescission would become unavailable to DBS
only if the Martins, as lessors, made the required repair and reconstruction after the
damages by natural cause occurred, which meant putting the premises after the floods in
such condition as would enable DBS to resume its use of the same for the purposes
contemplated in the agreement, namely, as office, warehouse, and parking space for DBS’
repossessed vehicles. Here, it is undisputed that the floods of May 25 and August 13, 1997
submerged the DBS offices and its 326 repossessed vehicles. The floods rendered the place
unsuitable for its intended uses. And, while the Martins did some repairs, they did not
restore the place to meet DBS’ needs. The heaviness of the filling materials caused portions
of the perimeter walls to collapse or lean dangerously.17 Indeed, the Office of the City
Engineer advised DBS that unless those walls were immediately demolished or rehabilitated,
they would endanger passersby. Undeniably, the DBS suffered considerable damages when
flood waters deluged its offices and 326 repossessed vehicles. Hence the Court denied the
petition and affirmed with modifications the decision of the Court of.
30
HEIRS OF ZABALA V. COURT OF APPEALS
G.R. NO. 189602, MAY 6, 2010
FACTS:
On April 1, 2002, respondent Vicente T. Manuel filed a Complaint for ejectment with
damages against Alfredo Zabala before the Municipal Trial Court in Cities of Balanga, Bataan.
Respondent alleged that he was in actual and peaceful possession of a fishpond (Lot No.
1483) located in Ibayo, Balanga City. On October 15, 2001, Zabala allegedly entered the
fishpond without authority, and dumped soil into the fishpond without an Environment
Compliance Certificate. Zabala continued such action until the time of the filing of the
Complaint, killing the crabs and the bangus that respondent was raising in the fishpond.
Thus, respondent asked that Zabala be restrained from touching and destroying the
fishpond; that Zabala be ejected therefrom permanently; and for actual and moral damages
and attorney’s fees. Zabala promptly moved for the dismissal of the Complaint for non-
compliance with the requirement under the Local Government Code to bring the matter first
to barangay conciliation before filing an action in court.
Respondent subsequently filed a Motion for Judgment on the ground of petitioner’s

failure to file a responsive pleading or answer. The MTCC, in an Order dated May 27, 2003,
granted Zabala’s motion and dismissed the Complaint, holding that respondent indeed
violated the requirement of barangay conciliation. Respondent then appealed the ruling to
the Balanga, Bataan Regional Trial Court. In a decision dated March 30, 2004,[5] the RTC
reversed the MTCC’s May 27, 2003 Order and rendered judgment directing Zabala, his heirs
or subalterns to immediately vacate Lot No. 1483 and restore respondent to his peaceful
possession thereof. The RTC also directed Zabala to pay respondent actual damages, moral
damages, and attorney’s fees. The RTC found that Zabala did not, in fact, file an answer to
the Complaint. Zabala then filed a Petition for Review before the Court of Appeal. The CA
promulgated a Decision upholding the RTC’s reversal of the MTCC’s Order. The CA held that,
based on the allegations in the Complaint, the requirement for prior conciliation
proceedings under the Local Government Code was inapplicable to the suit before the
MTCC, the action being one for ejectment and damages, with application for a writ of
preliminary injunction, even without the use of those actual terms in the Complaint.
However, the CA granted Zabala’s prayer for the deletion of the awards for actual and moral
damages, and for attorney’s fees. Zabala filed a Motion for Reconsideration, which the CA
denied.
ISSUE:
Whether or not the case must prosper and continue considering the present
circumstances
RULING:
31
No. The Court ruled that Under Article 2028 of the Civil Code, a compromise
agreement is a contract whereby the parties, by making reciprocal concessions, avoid
litigation or put an end to one already commenced. Compromise is a form of amicable
settlement that is not only allowed, but also encouraged in civil cases. Contracting parties
may establish such stipulations, clauses, terms, and conditions as they deem convenient,
provided that these are not contrary to law, morals, good customs, public order, or public
policy. Thus, finding the above Compromise Agreement to have been validly executed and
not contrary to law, morals, good customs, public order, or public policy, we approve the
same. Thus the Compromise Agreement was and judgment is hereby rendered in
accordance therewith. By virtue of such approval, this case was deemed terminated.
32
P.L. UY REALTY CORPORATION V. ALS MANAGEMENT AND DEVELOPMENT CORPORATION
G.R. No. 166462, October 24, 2012
PONENTE: VELASCO, J.
FACTS:
On September 3, 1980, PLU, as vendor, and ALS, as vendee, executed a Deed of
Absolute Sale with Mortgage6covering a parcel of land, registered under Transfer Certificate
of Title (TCT) No. 16721, in the name of petitioner and located at F. Blumentritt Street,
Mandaluyong, Metro Manila. The purchase price for the land was set at PhP 8,166,705
payable. Notably, the parties stipulated in paragraph 4.a of the Deed of Absolute Sale with
Mortgage on the eviction of informal settlers. On January 26, 1981, TCT No. 16721 was
canceled and a new one, TCT No. 26048, issued in the name of ALS. Subsequently, the
parties executed a Partial Release of Mortgage dated April 3, 198114 attesting to the
payment by ALS of the first installment indicated in the underlying deed. The relevant
portion of the Partial Release of Mortgage.
ALS, however, failed to pay the 2nd payment despite demands.Thus, on August 25,
1982, PLU filed a Complaint16 against ALS for Foreclosure of Mortgage and Annulment of
DocumentsOn May 9, 1986, the Makati RTC rendered a Decision21 ruling that the obligation
of PLU to clear the property of informal settlers was superseded by an oral agreement
between the parties whereby ALS assumed the responsibility of ejecting said informal
settlers. PLU appealed to the CA which rendered the assailed Decision affirming that of the
Pasig RTC.
ISSUE:
Whether or not Litonjua personally liable for the transaction of ALS as there was no
ground to pierce the veil of corporate fiction.
RULING:
Clearly, the instant complaint must be dismissed.On a final note, it would be relevant
to note that Art. 1306 of the Civil Code guarantees the freedom of parties to stipulate the
terms of their contract provided that they are not contrary to law, morals, good customs,
public order, or public policy. Thus, when the provisions of a contract are valid, the parties
are bound by such terms under the principle that a contract is the law between the parties.
Here, both parties knew for a fact that the property subject of their contract was occupied
by informal settlers, whose eviction would entail court actions that in turn, would require
some amount of time. They also knew that the length of time that would take to conclude
such court actions was not within their power to determine. Despite such knowledge, both
parties still agreed to the stipulation that the payment of the balance of the purchase price
would be deferred until the informal settlers are ejected. There was never any allegation
33
that PLU was coerced into signing the Deed of Sale with Mortgage or that its consent was in
any way vitiated. PLU was free to accept or decline such contracted provision.
In this connection, it is to be borne in mind that the shows that the parties were fully
aware that the land described was occupied by squatters, because the fact is expressly
mentioned therein (Rec. on Appeal, Petitioner’s Appendix B, pp. 12-13). As the parties must
have known that they could not take the law into their own hands, but must resort to legal
processes in evicting the squatters, they must have realized that the duration of the suits to
be brought would not be under their control nor could the same be determine in advance.
The conclusion is thus forced that the parties must have intended to defer the performance
of the obligations under the contract until the squatters were duly evicted, as contended by
the petitioner Gregorio Araneta, Inc. The instant petition is hereby DENIED.
34
STAR TWO (SPV-AMC), INC. V. PAPER CITY CORPORATION OF THE PHILIPPINES
G.R. No. 169211, March 6, 2013
PONENTE: PEREZ, J.
FACTS:
Rizal Commercial Banking Corporation (RCBC), Metropolitan Bank and Trust Co.
(Metrobank) and Union Bank of the Philippines (Union Bank) are banking corporations duly
organized and existing under the laws of the Philippines.On the other hand, respondent
Paper City is a domestic corporation engaged in the manufacture of paper products
particularly cartons, newsprint and clay-coated paper. From 1990-1991, Paper City applied for
and was granted the following loans and credit accommodations in peso and dollar
denominations by RCBC: ₱10,000,000.00 on 8 January 1990,5 ₱14,000,000.00 on 19 July
1990,6₱10,000,000.00 on 28 June 1991,7 and ₱16,615,000.00 on 28 November 1991.8 The
loans were secured by four (4) Deeds of Continuing Chattel Mortgages on its machineries
and equipments found inside its paper plants. Paper City was able to comply with its loan
obligations until July 1997. But economic crisis ensued which made it difficult for Paper City
to meet the terms of its obligations leading to payment defaults.16 Consequently, RCBC filed
a Petition for Extrajudicial Foreclosure Under Act No. 3135 Against the Real Estate Mortgage
executed by Paper City on 21 October 1998. This foreclosure sale prompted Paper City to file
a Complaint21 docketed as Civil Case No. 164-V-99 on 15 June 1999 against the creditor banks
alleging that the extra-judicial sale of the properties and plants was null and void due to lack
of prior notice and attendance of gross and evident bad faith on the part of the creditor
banks.
Paper City filed its Motion for Reconsideration25 on 4 April 2003 which was favorably
granted by the trial court in its Order dated 15 August 2003. RCBC filed with the CA a Petition
for Certiorari under Rule 65 to annul the Orders dated 15 August 2003 and 1 December 2003
of the trial court, RCBC sought reconsideration but its motion was denied in the CA’s
Resolution
ISSUE:
Whether the subject machineries and equipments were included in the extrajudicial
foreclosure dated 21 October 1998 which in turn were sold to the creditor banks as
evidenced by the Certificate of Sale dated 8 February 1999.
RULING:
We grant the petition. By contracts, all uncontested in this case, machineries and
equipments are included in the mortgage in favor of RCBC, in the foreclosure of the
mortgage and in the consequent sale on foreclosure also in favor of petitioner. The
mortgage contracts are the original MTI of 26 August 1992 and its amendments and
35
supplements on 20 November 1992, 7 June 1994, and 24 January 1995. As held in Gateway
Electronics Corp. v. Land Bank of the Philippines,49 the rule in this jurisdiction is that the
contracting parties may establish any agreement, term, and condition they may deem
advisable, provided they are not contrary to law, morals or public policy. The right to enter
into lawful contracts constitutes one of the liberties guaranteed by the Constitution. Then
till now the pronouncement has been that if the language used is as clear as day and readily
understandable by any ordinary reader, there is no need for construction. The case at bar is
covered by the rule. The petition is GRANTED.
36
DOMINGO GONZALO V. JOHN TARNATE, JR.
G.R. No. 160600, January 15, 2014
PONENTE: BERSAMIN, J.
FACTS:
After the Department of Public Works and Highways (DPWH) had awarded on July
22, 1997 the contract for the improvement of the Sadsadan-Maba-ay Section of the
Mountain Province-Benguet Road in the total amount of 7 014 963 33 to his company,
Gonzalo Construction,1 petitioner Domingo Gonzalo (Gonzalo) subcontracted to respondent
John Tarnate, Jr. (Tarnate) on October 15, 1997, the supply of materials and labor for the
project under the latter s business known as JNT Aggregates. Their agreement stipulated,
among others, that Tarnate would pay to Gonzalo eight percent and four percent of the
contract price, respectively, upon Tarnate s first and second billing in the project.2
Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail.
Thus, he brought this suit against Gonzalo on September 13, 1999 in the Regional Trial Court
(RTC) in Mountain Province to recover the retention fee of ₱233,526.13, moral and
exemplary damages for breach of contract, and attorney’s fees. In his answer, Gonzalo
admitted the deed of assignment and the authority given therein to Tarnate, but averred
that the project had not been fully implemented because of its cancellation by the DPWH,
and that he had then revoked the deed of assignment. He insisted that the 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 of the deed of assignment from the time of its execution, could
not go to court with unclean hands to invoke any right based on the invalid deed of
assignment or on the product of such deed of assignment. Gonzalo appealed to the Court of
Appeals but CA affirmed the RTC. Gonzalo has now come to the Court to seek the review
and reversal of the decision of the CA.
ISSUE:
Whether or not CA erred in affirming the RTC because both parties were in pari
delicto.
RULING:
We deny the petition for review, but we delete the grant of moral damages,
attorney’s fees and litigation expenses. Obviously, without the Sub-Contract Agreement
there will be no Deed of Assignment to speak of. The illegality of the Sub-Contract
Agreement necessarily affects the Deed of Assignment because the rule is that an illegal
agreement cannot give birth to a valid contract. To rule otherwise is to sanction the act of
entering into transaction the object of which is expressly prohibited by law and thereafter
execute an apparently valid contract to subterfuge the illegality. The legal proscription in
such an instance will be easily rendered nugatory and meaningless to the prejudice of the
37
general public. Under Article 1409 (1) of the Civil Code, a contract whose cause, object or
purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot
produce a valid one.13 To the same effect is Article 1422 of the Civil Code, which declares
that "a contract, which is the direct result of a previous illegal contract, is also void and
inexistent."
Nonetheless, the application of the doctrine of in pari delicto is not always

rigid.1âwphi1 An accepted exception arises when its application contravenes well-
established public policy.18 In this jurisdiction, public policy has been defined as "that
principle of the law which holds that no subject or citizen can lawfully do that which has a
tendency to be injurious to the public or against the public good."19
Lastly, the letter and spirit of Article 22 of the Civil Code command Gonzalo to make a full
reparation or compensation to Tarnate. The illegality of their contract should not be allowed
to deprive Tarnate from being fully compensated through the imposition of legal interest.
Towards that end, interest of 6% per annum reckoned from September 13, 1999, the time of
the judicial demand by Tarnate, is imposed on the amount of ₱233,526.13. Not to afford this
relief will make a travesty of the justice to which Tarnate was entitled for having suffered
too long from Gonzalo’s unjust enrichment.
38
ANECITO CAMPOS V. BANK OF THE PHILIPPINE ISLANDS
G.R. No. 207597, May 30, 2016
PONENTE: BRION, J.
FACTS:
In 1980, petitioner Campos mortgaged fourteen (14) lots in favor of the Far East Bank
and Trust, Co. (FEBTC) - now merged with respondent Bank of the Philippine Islands (BPI/the
Bank) - to secure a One (1) Million peso loan. Among these lots was the then vacant Lot No.
7-G-4 (subject lot).Sometime in the late 1980's, Campos constructed a two-storey building on
the subject lot allegedly with the knowledge and consent of the Bank. Due to unfortunate
business losses, Campos failed to pay his loan. The loan eventually ballooned to Eleven (11)
Million pesos (P11,000,000.00).4 Consequently, the Bank moved for the extra judicial
foreclosure of the mortgaged lots.5
When Campos failed to redeem the properties within the legal redemption period,
the Bank consolidated its ownership of the properties.6 Thereafter, it filed a verified ex
parte motion for the issuance of a writ of possession before the Regional Trial Court
(RTC).On August 7, 2006, the RTC granted the motion and ordered the Clerk of Court and
the Ex Officio Sheriff of the RTC to place the Bank in possession of the lots. The RTC held
that the motion for suspension was filed long after the writ of possession attained finality.
The CA dismissed the petition after finding no grave abuse of discretion on the part of the
RTC.
Campos moved for reconsideration26 reiterating that he had not been furnished a copy of
the ex parte motion or of the RTC's order granting the writ of possession. He also asserted
the applicability of Policarpio to his situation. The CA denied Campos' motion for
reconsideration.
ISSUE:
Whether or not the RTC acted beyond its jurisdiction or gravely abused its discretion
in denying Campos' motion to suspend the implementation of the writ of possession.
RULING:
We DENY the petition for lack of merit. The term "grave abuse of discretion" has a
specific and well-defined meaning; it is not an amorphous concept that can be shaped or
manipulated to suit a litigant's purpose.47 It is present when there is such capricious and
whimsical exercise of judgment as is equivalent to lack of jurisdiction,48 or where power is
exercised arbitrarily or in a despotic manner by reason of passion, prejudice, or personal
hostility amounting to an evasion of positive duty, or to a virtual refusal to perform a legal
duty or act at all in contemplation of law.The RTC did not act capriciously or arbitrarily. In
fact, it observed the provisions of Act No. 3135 and narrowly adhered to prevailing
39
jurisprudence on the ministerial nature of its duty to issue a writ of possession.
The mortgage contracts themselves specifically include "all the buildings and
improvements now existing or which may hereafter be erected or constructed [on the
properties]" as part of the mortgage. This renders the value of the improvements and
Campos' alleged good faith immaterial; he voluntarily included the building when he entered
into the mortgage. Article 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient provided they are not contrary
to law, morals, good customs, public order, or public policy.This Civil Code provision asserts
the Autonomy of Contracts. Contractual obligations have the force of law between the
parties and should be complied with in good faith. The Courts will not rescue a litigant from
his bad bargains, protect him from unwise investments, relieve him from disadvantageous
contracts, or annul the effects of his foolish acts unless there has been a violation of law.
Hence, we hereby DENY the petition for lack of merit, and accordingly AFFIRM.
40
MANUEL C. ACOL V. PHILIPPINE COMMERCIAL CREDIT CARD INCORPORATED
G.R. NO. 135149, July 25, 2006
PONENTE: CORONA, J.
FACTS:
On August 20, 1982, petitioner Manuel Acol applied with respondent for a Bankard
credit card and extension.4 Both were issued to him shortly thereafter. For several years, he
regularly used this card, purchasing from respondent's accredited establishments and
paying the corresponding charges for such purchases.Late in the evening of April 18, 1987,
petitioner discovered the loss of his credit card. After exhausting all efforts to find it, the
first hour of the following day, April 19, 1987, a Sunday, he called up respondent's office and
reported the loss. The representative he spoke to told him that his card would be
immediately included in the circular of lost cards.
On April 21, 1987, a day before receiving the written notice, respondent issued a
special cancellation bulletin informing its accredited establishments of the loss of the cards
of the enumerated holders, including petitioner's. Unfortunately, it turned out that
somebody used petitioner's card on April 19 and 20, 1987 to buy commodities worth
P76,067.28. The accredited establishments reported the invoices for such purchases to
respondent which then billed petitioner for that amount.Petitioner informed respondent he
would not pay for the purchases made after April 19, 1987, the day he notified respondent of
the loss. Immediately after receiving his statement of account for the period ending April 30,
1987, petitioner confirmed his exceptions to the billing in writing.
Petitioner, through his lawyer, wrote respondent to deny liability for the disputed
charges. In short order, however, respondent filed suit in the Regional Trial Court (RTC) of
Manila5 against petitioner for the collection of P76,067.28, plus interest and penalty
charges.6 After considering the evidence, the trial court dismissed the case .Respondent
appealed to the Court of Appeals, which, while not disputing factual findings, reversed the
RTC ruling.
ISSUE:
Whether or not the contested provision in the contract was valid and binding on the
petitioner, given that the contract was one of adhesion.
RULING:
The petition has merit. In this case, the stipulation in question is just as repugnant to
public policy as that in ErmitaÃ±o. As petitioner points out, the effectivity of the cancellation
of the lost card rests on an act entirely beyond the control of the cardholder. Worse, the
41
phrase "after a reasonable time" gives the issuer the opportunity to actually profit from
unauthorized charges despite receipt of immediate written notice from the cardholder.
Under such a stipulation, petitioner could have theoretically done everything in his power to
give respondent the required written notice. But if respondent took a "reasonable" time
(which could be indefinite) to include the card in its cancellation bulletin, it could still hold
the cardholder liable for whatever unauthorized charges were incurred within that span of
time. This would have been truly iniquitous, considering the amount respondent wanted to
hold petitioner liable for. Article 1306 of the Civil Code10 prohibits contracting parties from
establishing stipulations contrary to public policy. The assailed provision was just such a
stipulation. It is without any hesitation therefore that we strike it down.
42
CARMELCRAFT CORPORATION V. NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 90634-35 June 6, 1990
PONENTE: CRUZ, J.
FACTS:
The record shows that after its registration as a labor union, the Camelcraft
Employees Union sought but did not get recognition from the petitioners. Consequently, it
filed a petition for certification election in June 1987. On July 13, 1987, Camelcraft
Corporation, through its president and general manager, Carmen Yulo, announced in a
meeting with the employees that it would cease operations on August 13, 1987, due to
serious financial losses. Operations did cease as announced. On August 17, 1987, the union
filed a complaint with the Department of Labor against the petitioners for illegal lockout,
unfair labor practice and damages, followed the next day with another complaint for
payment of unpaid wages, emergency cost of living allowances, holiday pay, and other
benefits. On November 29, 1988, the Labor Arbiter declared the shutdown illegal and
violative of the employees' right to self-organization. The claim for unpaid benefits was also
granted.
ISSUE:
Whether or not there is grave abuse of discretion.
RULING:
We do not find that the above decision is tainted with grave abuse of discretion. On
the contrary, it is comformable to the pertinent laws and the facts clearly established at the
hearing. The reason invoked by the petitioner company to justify the cessation of its
operations is hardly credible; in fact, it is preposterous when viewed in the light of the other
relevent circumstances. Its justification is that it sustained losses in the amount of P 1,603.88
as of December 31, 1986 .3 There is no report, however, of its operations during the period
after that date, that is, during the succeeding seven and a half months before it decided to
close its business. Significantly, the company is capitalized at P 3 million .4 Considering such
a substantial investment, we hardly think that a loss of the paltry sum of less than P 2,000.00
could be considered serious enough to call for the closure of the company.
We agree with the public respondent that the real reason for the decision of the
petitioners to cease operations was the establishment of respondent Carmelcraft
Employees Union. It was apparently unwelcome to the corporation, which would rather shut
down than deal with the union. There is the allegation from the private respondent that the
company had suggested that it might decide not to close the business if the employees were
to affiliate with another union which the management preferred. 5 This allegation has not
been satisfactorily disproved. At any rate, the finding of the NLRC is more believable than
43
the ground invoked by the petitioners. Notably, this justification was made only eight
months after the alleged year-end loss and shortly after the respondent union filed a
petition for certification election. The act of the petitioners was an unfair labor practice
prohibited by Article 248 of the Labor Code, to wit:
ART. 248. Unfair labor practices of employers.-It shall be unlawful for an employer to
commit any of the following unfair labor practice:
(a) To interfere with, restrain or coerce employees in the exercise of their right to
self- organization;
More importantly, it was a defiance of the constitutional provision guaranteeing to

workers the right to self-organization and to enter into collective bargaining with
management through the labor union of their own choice and confidence.The petitioners
obviously regard the private respondents as mere servants simply because they are paid
employees. That is a mistake. Laborers are not just hired help to be exploited, without the
right to defend and improve their interest . The working class is an equal partner of
management and should always be treated as such. The more labor is prevented from
pursuing its legitimate demands for its protection and enhancement, the more it is likely to
lose faith in our free institutions and to incline toward Ideologies offering a more if
deceptive regime. One way of disabusing our working men and women of this delusion is to
assure them that under our form of government, the interests of labor deserve and will get
proper recognition from an enlightened and compassionate management, no less than the
total sympathy of a solicitous State.
44
ASUNCION V. COURT OF APPEALS
G.R. No. 133491,OctOBER 13, 1999
PONENTE:
TOPIC: Obligatory force and compliance in good faith
FACTS:
On September 9, 1980, private respondent borrowed P500,000 from Paluwagan ng
Bayan Savings and Loan Association to use as working capital for Embassy Farms. He
executed a real estate mortgage on three of his properties as security for the loan. On
November 4, 1981, private respondent mortgaged 10 titles more in favor of PAIC Savings and
Mortgage Bank. Private respondent obtained another loan in the amount of P844,625.78
from Mercator Finance Corporation. The loan was secured by a real estate mortgage on five
5 other landholdings of private respondent. Private respondents aggregate debt exposure
totaled P3,056,625.78. However, he defaulted in his loan payments. By June 1984, his
aggregate debt had ballooned to almost six million pesos.On August 2, 1984, petitioner and
private respondent executed a Memorandum of Agreement. Upon the execution of the
Memorandum, petitioner paid private respondent one million pesos, P500,000.00 within a
ninety-day period in four disbursements. The second installment, in the like amount of three
hundred thousand pesos, was supposed to be remitted by petitioner to private respondent
for the purpose of financing the operations of the piggery pursuant to the Memorandum.
Instead, petitioner agreed to pay to PAIC Savings & Mortgage Bank. However, more than a
year after the signing of the Memorandum of Agreement, the landholdings of private
respondent which were mortgaged to Paluwagan ng Bayan Savings and Loan Association,
PAIC Savings and Mortgage Bank and Mercator Finance Corporation still remained titled in
his name. Neither did he inform said mortgagees of the transfer of his lands. As to the shares
of stock, it was incumbent upon private respondent to endorse and deliver them to
petitioner so he could also have them transferred in his name, but private respondent never
did. He refused to honor his obligations under the Memorandum of Agreement and even
countered with a demand letter of his own.
ISSUE:
Whether the non-compliance of one party in a reciprocal obligation amounts to
rescission of the obligation.
RULING:
Petitioner and private respondent entered into what the law regards as reciprocal
obligations. Reciprocity arises from identity of cause, and necessarily the two obligations are
created at the same time. Reciprocal obligations, therefore, are those which arise from the
same cause, and in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned upon the simultaneous
45
fulfillment of the other. Article 1191 of the Civil Code governs the situation where there is
non-compliance by one party in case of reciprocal obligations. The effect of rescission is also
provided in the Civil Code in Article 1385. Private respondent admitted in open court that
petitioner paid him the initial sum of one million pesos upon the signing of the
Memorandum of Agreement as well as various sums of money as fees for the restructuring
of his loans. Thereupon, private respondent was obligated to execute a deed of sale with
assumption of mortgage, both in compliance with the Memorandum of Agreement and to
ensure the legal efficacy of petitioner's promise to assume his loan obligations. However,
private respondent failed to perform his substantial obligations under the Memorandum of
Agreement. Hence, petitioner sought the rescission of the Memorandum of Agreement and
ceased infusing capital into the piggery business of private respondent.
46
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO V. COURT
OF APPEALS
G.R. Nos. 128833. April 20, 1998
PONENTE: MELO, J.
FACTS:
RCBC Binondo Branch initially granted a credit facility of P30M to Goyu & Sons, Inc.
GOYU’s applied again and through Binondo Branch key officer's Uy’s and Lao’s
recommendation, RCBC’s executive committee increased its credit facility to P50M to P90M
and finally to P117M. As security, GOYU executed 2 real estate mortgages and 2 chattel
mortgages in favor of RCBC. GOYU obtained in its name 10 insurance policy on the
mortgaged properties from Malayan Insurance Company, Inc. (MICO). In February 1992, he
was issued 8 insurance policies in favor of RCBC. April 27, 1992: One of GOYU’s factory
buildings was burned so he claimed against MICO for the loss who denied contending that
the insurance policies were either attached pursuant to writs of attachments/garnishments
or that creditors are claiming to have a better right.
GOYU filed a complaint for specific performance and damages at the RTC. RCBC, one
of GOYU’s creditors, also filed with MICO its formal claim over the proceeds of the insurance
policies, but said claims were also denied for the same reasons that MICO denied GOYU’s
claims. RTC confirmed GOYU’s other creditors (Urban Bank, Alfredo Sebastian, and
Philippine Trust Company) obtained their writs of attachment covering an aggregate
amount of P14,938,080.23 and ordered that 10 insurance policies be deposited with the
court minus the said amount so MICO deposited P50,505,594.60. Another Garnishment of
P8,696,838.75 was handed down RTC favored GOYU against MICO for the claim, RCBC for
damages and to pay RCBC its loan. CA Modified by increasing the damages in favor of GOYU.
In G.R. No. 128834, RCBC seeks right to intervene in the action between Alfredo C. Sebastian
(the creditor) and GOYU (the debtor), where the subject insurance policies were attached in
favor of Sebastian. RTC and CA endorsements do not bear the signature of any officer of
GOYU concluded that the endorsements favoring RCBC as defective.
ISSUE:
Whether or not RCBC as mortgagee, has any right over the insurance policies taken
by GOYU, the mortgagor, in case of the occurrence of loss.
RULING:
Mortgagor and a mortgagee have separate and distinct insurable interests in the
same mortgaged property, such that each one of them may insure the same property for his
own sole benefit. Although it appears that GOYU obtained the subject insurance policies
naming itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to better serve the
47
interest of justice and equity. 8 endorsement documents were prepared by Alchester in
favor of RCBC. MICO, a sister company of RCBC. GOYU continued to enjoy the benefits of
the credit facilities extended to it by RCBC. GOYU is at the very least estopped from assailing
their operative effects. The two courts below erred in failing to see that the promissory
notes which they ruled should be excluded for bearing dates which are after that of the fire,
are mere renewals of previous ones.
RCBC has the right to claim the insurance proceeds, in substitution of the property
lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the
said insurance policies. Insurance company to be held liable for unreasonably delaying and
withholding payment of insurance proceeds, the delay must be wanton, oppressive, or
malevolent - not shown. Sebastian’s right as attaching creditor must yield to the preferential
rights of RCBC over the Malayan insurance policies as first mortgagee.
48
POLYTHECNIC UNIVERISTY OF THE PHILIPPINES V. GOLDEN HORIZON REALTY
CORPORATION
G.R. NO. 183612, MARCH 15, 2010
PONENTE: VILLARAMA, J.
FACTS:
Petitioner National Development Company (NDC) and Petitioner Polytechnic
University of the Philippines entered into a Contract of Lease (C-33-77) with Golden Horizon
Realty Corporation (GHRC) over a portion of the property, with an area of 2,407 square
meters for a period of ten years, renewable for another ten years with mutual consent of
the parties. On May 4, 1978, a second Contract of Lease (C-12-78) was executed between
NDC and GHRC covering 3,222.80 square meters, also renewable upon mutual consent after
the expiration of the ten (10)-year lease period. On June 13, 1988, before the expiration of
the ten (10)-year period under the second lease contract, GHRC wrote a letter to NDC
indicating its exercise of the option to renew the lease for another ten years. As no response
was received from NDC, GHRC sent another letter on August 12, 1988, reiterating its desire
to renew the contract and also requesting for priority to negotiate for its purchase should
NDC opt to sell the leased premises. NDC still did not reply but continued to accept rental
payments from GHRC and allowed the latter to remain in possession of the property.
Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose
the property to a third party. On October 21, 1988, GHRC filed in the RTC a complaint for
specific performance, damages with preliminary injunction and temporary restraining order.
This Court rendered a decision which declared that the sale to PUP by NDC of the portion
leased by Firestone pursuant to Memorandum Order No. 214 violated the right of first
refusal granted to Firestone under its third lease contract with NDC.
ISSUE:
Whether or not our ruling in Polytechnic University of the Philippines v. Court of
Appeals applies in this case involving another lessee of NDC who claimed that the option to
purchase the portion leased to it was similarly violated by the sale of the NDC Compound in
favor of PUP pursuant to Memorandum Order No. 214.
RULING:
The CA was correct. In the light of the foregoing, the Court held that respondent,
which did not offer any amount to petitioner NDC, and neither disputed the P1,500.00 per
square meter actual value of NDC’s property at that time it was sold to PUP at P554.74 per
square meter, as duly considered by this Court in the Firestone case, should be bound by
such determination. Indeed, basic is the rule that a party to a contract cannot unilaterally
withdraw a right of first refusal that stands upon valuable consideration. We have
categorically ruled that it is not correct to say that there is no consideration for the grant of
the right of first refusal if such grant is embodied in the same contract of lease. Since the
stipulation forms part of the entire lease contract, the consideration for the lease includes
49
the consideration for the grant of the right of first refusal. In entering into the contract, the
lessee is in effect stating that it consents to lease the premises and to pay the price agreed
upon provided the lessor also consents that, should it sell the leased property, then, the
lessee shall be given the right to match the offered purchase price and to buy the property
at that price. We have further stressed that not even the avowed public welfare or the
constitutional priority accorded to education, invoked by petitioner PUP in the Firestone
case, would serve as license for us, and any party for that matter, to destroy the sanctity of
binding obligations. Clearly, no reversible error was committed by the CA. Hence the petition
was denied.
50
CONSOLIDATED INDUSTRIAL GASES, INC. V. ALABANG MEDICAL CENTER
G.R. No. 181983, November 13, 2013
PONENTE: REYES, J.
FACTS:
On August 14, 1995, CIGI, as contractor and AMC, as owner, entered into a contract
whereby the former bound itself to provide labor and materials for the installation of a
medical gas pipeline system for the first, second and third floors (Phase 1 installation
project) of the hospital for the contract price of P9,856,725.18 which AMC duly paid in full.
The herein legal controversy arose after the parties entered into another agreement on
October 3, 1996 this time for the continuation of the centralized medical oxygen and
vacuum pipeline system in the hospital’s fourth & fifth floors (Phase 2 installation project) at
the cost of P2,267,344.42. This second contract followed the same terms and conditions of
the contract for the Phase 1 installation project. CIGI forthwith commenced installation
works for Phase 2 while AMC paid the partial amount of P1,000,000 with the agreement that
the balance shall be paid through progress billing and within 15 days from the date of
receipt of the original invoice sent by CIGI. On August 4, 1997, CIGI sent AMC Charge Sales
Invoice No. 125847 as completion billing for the unpaid balance of P1,267,344.42 for the
Phase 2 installation project. When the sales invoice was left unheeded, CIGI sent a demand
letter to AMC on January 7, 1998. AMC, however, still failed to pay thus prompting CIGI to
file a collection suit before the RTC on September 15, 1998.
CIGI claimed that AMC’s obligation to pay the outstanding balance of the contract
price for the Phase 2 installation project is already due and demandable pursuant to Article
II, page 4 of the contract stating that the project shall be paid through progress billing within
15 days from the date of receipt of original invoice. AMC averred that its obligation to pay
the balance of the contract price has not yet accrued because CIGI still has not turned over a
complete and functional medical oxygen and vacuum pipeline system. AMC alleged that
CIGI has not yet tested Phases 1 and 2 which constitute one centralized medical oxygen and
vacuum pipeline system of the hospital despite substantial payments already made.
ISSUE:
Is CIGI’s demand for payment upon AMC proper?
RULING:
No.The subject installation contracts bear the features of reciprocal obligations.
“Reciprocal obligations are those which arise from the same cause, and [in] which each
party is a debtor and a creditor of the other, such that the obligation of one is dependent
upon the obligation of the other. They are to be performed simultaneously, so that the
performance of one is conditioned upon the simultane ous fulfillment of the other.” In
reciprocal obligations, neither party incurs in delay if the other does not comply or is not
51
ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfils his obligation, delay by the other begins. Under the subject
contracts, CIGI as contractor bound itself to install a centralized medical oxygen and vacuum
pipeline system for the first to fifth floors of AMC, which in turn, undertook to pay the
contract price therefor in the manner prescribed in the contract. Being reciprocal in nature,
the respective obligations of AMC and CIGI are dependent upon the performance of the
other of its end of the deal such that any claim of delay or non-performance can only
prosper if the complaining party has faithfully complied with its own obligation Here, CIGI
complains that AMC refused to abide by its undertaking of full payment. While AMC does
not dispute its liability to pay the balance of P1,267,344.42 being claimed by CIGI, it asserts,
however that the same is not yet due because CIGI still has not turned over a complete and
functional medical oxygen and vacuum pipeline system. CIGI is yet to conduct a test run of
the installation and an orientation/seminar of AMC employees who will be involved in the
operation of the system. CIGI, on the other hand, does not deny that it failed to conduct the
agreed orientation/seminar and test run but it blames AMC for such omission and asserts
that the latter failed to heed CIGI’s request for electrical facilities necessary for the test run.
CIGI also contends that its obligation is merely to provide labor and installation. The Court
has painstakingly evaluated the records of the case and based thereon, there can be no
other conclusion than that CIGI’s allegations failed to muster merit. The Court finds that CIGI
did not faithfully complete its prestations and hence, its demand for payment cannot
prosper based on the following grounds: (a) under the two installation contracts, CIGI was
bound to perform more prestations than merely supplying labor and materials; and (b) CIGI
failed to prove by substantial evidence that it requested AMC for electrical facilities as such,
its failure to conduct a test run and orientation/seminar is unjustified.
52
THE METROPOLITAN BANK AND TRUST COMPANY V. ANA GRACE ROSALES AND YO YUK
TO
G.R. No. 183204, January 13, 2014
PONENTE: DEL CASTILLO, J.

FACTS:
Petitioner Metrobank is a domestic banking corporation duly organized and existing
under the laws of the Philippines. Respondent Rosales is the owner of a travel agency while
Yo Yuk To is her mother. In 2000, respondents opened a Joint Peso Account10 with
petitioner’s Pritil-Tondo Branch. In May 2002, respondent Rosales accompanied her client
Liu Chiu Fang, a Taiwanese National applying for a retiree’s visa from the Philippine Leisure
and Retirement Authority (PLRA), to petitioner’s branch in Escolta to open a savings
account. Since Liu Chiu Fang could speak only in Mandarin, respondent Rosales acted as an
interpreter for her. On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo
Branch a Joint Dollar Account with an initial deposit of US$14,000.00. On July 31, 2003,
petitioner issued a “Hold Out” order against respondents’ accounts.
On September 3, 2003, petitioner, through its Special Audit Department Head

Antonio Ivan Aguirre, filed before the Office of the Prosecutor of Manila a criminal case for
Estafa through False Pretences, Misrepresentation, Deceit, and Use of Falsified Documents.
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized
withdrawal from the dollar account of Liu Chiu Fan. On December 15, 2003, the Office of the
City Prosecutor of Manila issued a Resolution dismissing the criminal case for lack of
probable cause. On September 10, 2004, respondents filed before the RTC of Manila a
complaint for Breach of Obligation and Contract with Damages.
ISSUE:
Whether Metrobank breached its contract with respondents.
RULING:
The Court held that Metrobank’s reliance on the “Hold Out” clause in the Application
and Agreement for Deposit Account is misplaced. Bank deposits, which are in the nature of a
simple loan or mutuum, must be paid upon demand by the depositor. The “Hold Out” clause
applies only if there is a valid and existing obligation arising from any of the sources of
obligation enumerated in Article 1157 of the Civil Code, to wit: law, contracts, quasi-
contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents
have an obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And
although a criminal case was filed by petitioner against respondent Rosales, this is not
enough reason for petitioner to issue a “Hold Out” order as the case is still pending and no
final judgment of conviction has been rendered against respondent Rosales.
53
In fact, it is significant to note that at the time petitioner issued the “Hold Out”
order, the criminal complaint had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation, there was no legal basis for
petitioner to issue the “Hold Out” order. Accordingly, we agree with the findings of the RTC
and the CA that the “Hold Out” clause does not apply in the instant case.
In view of the foregoing, the Court found that petitioner is guilty of breach of
contract when it unjustifiably refused to release respondents’ deposit despite demand.
Having breached its contract with respondents, petitioner is liable for damages.
54
MENDIOLA V. COMMERZ TRADING INTERNATIONAL INC.
GR. NO. 200895, JULY 31, 2013
PONENTE: CARPIO, J.
FACTS:
Genicon, Inc. (Genicon) is a foreign corporation based in Florida, United States of
America, which designs, produces, and distributes "patented surgical instrumentation
focused exclusively on laparoscopic surgery."[5] Petitioner, a physician by profession,
entered into a contract with Genicon to be its exclusive distributor of Genicon laparoscopic
instruments in the Philippines, as evidenced by a Distribution Agreement dated 18 July
2007.[6] Petitioner, in turn, entered into a Memorandum of Agreement (MOA)[7] with
respondent to facilitate the marketing and sale of Genicon laparoscopic instruments in the
Philippines. Under the MOA, respondent would be compensated for P100,000.00 "[f]or the
use of [respondent's] name, office, secretary, invoices, official receipts and facilities x x x for
every sale of [a] complete set of Genicon laparoscopic instruments x x x."
Respondent sent a price quotation to Pampanga Medical Specialist Hospital, Inc. (PMSHI),
which thereafter agreed to purchase a Genicon laparoscopic instrument for Two Million Six
Hundred Thousand Pesos (P2,600,000.00). Then, petitioner ordered the laparoscopic
instrument from Genicon, which in turn shipped the medical equipment to the Philippines.
Respondent undertook the release of the laparoscopic instrument from the Bureau of
Customs and subsequently delivered the same to PMSHI. Despite petitioner's repeated
demands, respondent failed to remit the remaining balance of P70,000.00 from the
proceeds of the sale of the laparoscopic instrument. Consequently, petitioner filed a
collection suit against respondent with the Metropolitan Trial Court, Branch 79, Las Piñas
City (MeTC).
ISSUE:
Whether respondent has the right to retain the balance of the proceeds of the sale in
the amount of P70,000.00.
RULING:
We deny the petition. There is no dispute that the P70,000.00 respondent withheld
from petitioner formed part of the proceeds of the sale of the Genicon laparoscopic
instrument. Respondent, however, claims that the P70,000.00 represents a portion of the
total VAT due[16] from the Genicon transaction which is allegedly petitioner's obligation
under paragraph V of the MOA which states: "All taxes/expenses and expenses related to
Genicon transactions shall be the responsibility of [petitioner]."
Basic is the principle that a contract is the law between the parties,[18] and its
stipulations are binding on them, unless the contract is contrary to law, morals, good
customs, public order or public policy. Indeed, paragraph V of the MOA obligates petitioner
55
to pay the taxes due from the sale of the Genicon laparoscopic instrument. Petitioner
admits that he is the one "responsible in the payment of the EVAT and not the respondent,
who merely acted as the marketer" of the Genicon laparoscopic instrument. Hence, as
between petitioner and respondent, petitioner bears the burden for the payment of VAT.
The question now is whether respondent is authorized under the MOA to withhold a specific
amount from the proceeds of the sale of the Genicon laparoscopic instrument as tax due
from petitioner. The MOA is silent on this matter. The MOA does not expressly allow
respondent to collect or withhold from petitioner any amount from the sale of the Genicon
laparoscopic instrument for taxation purposes. However, the same agreement (1) allows
respondent to issue official receipts on which VAT should have been computed and included
in the purchase price, and (2) obligates petitioner to pay any tax due on the sale.
56
GF EQUITY INC, V. VALENZONA
G.R. No. 156841, June 30, 2005
PONENTE: Justice Carpio-Morales

TOPIC: Mutuality
FACTS:
GF Equity hired Valenzona as Head Coach of the Alaska team in Philippine Basketball
Association under contract. Under the contract Valenzona will receive a monthly salary of
P35,000, net of taxes, a service vehicle with gasoline allowance. Although, he had consulted
his lawyer for the stipulations in the contract and was pointed by his counsel that there is an
one-sidedness face still he agreed to the contract. Later on, he was terminated from being
the Head Coach on grounds that the management believes he did not comply of all his
duties as coach. Valenzona filed in RTC of Manila against the GF Equity of breach of contract
with damages. The RTC dismissed the complaint stating that the contract was valid and that
he is aware of the bad bargain. In the CA, where he appealed, the appellate court reversed
the RTC’s decision and thus ordered HF Equity liable for damages. Hence this petition.
ISSUE:
Whether or not the contract violated the rules on mutuality of contract resulting
from breach of contract and therefore a recovery of damages can be awarded.
RULING:
The CA bases their judgment on Article 19 of the Civil Code, or the principle of abuse
of rights. The same code also provides for the mutuality of contracts where both parties are
bound and must adhere to the contract. The stipulation wherein, the management, on its
sole opinion can terminate the employment of the defendant is violative and thus is null and
void. GF Equity failed to consider the principle of abuse of right clearly stated in Article 19 of
the CC. The pre-termination is anchored which is contrary to law and thereby abusing the
right of Valenzona, entitles him of damages in consonance with Article 19 in relation to
Article 20 of the CC.
57
ALLIED BANKING CORPORATION V. COURT OF APPEALS
G.R. NO. 124290, JANUARY 16, 1998
PONENTE: BELLOSILLO, J.
TOPIC: Mutuality
FACTS:
Private respondent Potenciano Galanida was hired by petitioner Allied Banking
wherein it is agreed that the bank reserves the right to transfer or assign respondent to
other departments or branches of the bank as the need arises and in the interest of
maintaining smooth and uninterrupted service to the public.”Private respondent was
promoted several times and was transferred to several branches. Petitioner listed
respondent as second in the order of priority of assistant managers to be assigned outside
of Cebu City having been stationed in Cebu for seven years already. Private respondent
manifested his refusal to be transferred toBacolod. He then filed a complaint before the
Labor Arbiter for constructive dismissal.Subsequently, petitioner bank informed private
respondent that he was to report to the Tagbilaran City Branch but the respondent refused.
On 5 October 1994, Galanida received a memo that Allied Bank had terminated his services
effective 1 September 1994. The reasons given for the dismissal were: (1) Galanida’s
continued refusal to be transferred from the Jakosalem, Cebu City branch; and (2) his refusal
to report for work despite the denial of his application for additional vacation leave. Labor
Arbiter- Galanida’s transfer was inconvenient NLRC- Allied Bank terminated Galanida without
just cause. CA- Affirmed NLRC ruling.
ISSUE:
Wether or not Galanida’s continued refusal to obey the transfer orders constituted
willful disobedience or insubordination, which is a just cause for termination under the Labor
Code.
RULING:
The memorandum prepared by Atty. Durano and the assailed Decision of the Labor
Arbiter, both misquoted the Supreme Court’s ruling in Dosch v. NLRC.The phrase refusal to
obey a transfer order cannot be considered insubordination where employee cited reason
for said refusal, such as that of being away from the family” does not appear anywhere in
the Dosch decision. (misleading the court. Gawa gawa) GR: The employer exercises the
prerogative to transfer an employee for valid reasons and according to the requirement of
its business, provided the transfer does not result in demotion in rank or diminution of the
employee’s salary, benefits and other privileges.[24] In illegal dismissal cases, the employer
has the burden of showing that the transfer is not unnecessary, inconvenient and prejudicial
to the displaced employee.Dosch case not applicable to the present case. The transfer of an
employee to an overseas post cannot be likened to a transfer from one city to another
within the country. Willful refusal to be transferred within the Philippines based on personal
grounds was considered willful disobedience.
58
UNITED COCONUT PLANTERS BANK V. BELUSO
G.R. No. 159912, August 17, 2007
PONENTE: CHICO-NAZARIO, J.
TOPIC: Mutuality
FACTS:
UCPB granted spouses Beluso a Promissory Notes Line under a Credit Agreement
whereby the latter could avail from the former credit up to the maximum amount of P1.2 M,
which was amended to increaseP2.35 M. Spouses Beluso have executed a total of 5
promissory notes, the last two of which they claim to have never been released to them. In
any case, UCPB applied interest rates on the different promissory notes ranging from 18% to
34%, and thereafter continued to charge interests and penalties. When the respondents
failed to make payments, UCPB foreclosed their mortgaged properties. Respondents filed a
petition for annulment thereof. RTC ruled in favor of respondents and the CA affirmed
thereof. It was ruled that the provision on interest rates agreed upon by the parties is void
as the rates and bases therefor were determined solely by the petitioner. UCPB argues that
there is no violation of the principle of mutuality of contracts, and assuming there is, it was
already cured by estoppel on the part of respondents.
ISSUE:
Is the contention of the petitioner UCPB meritorious?
RULING:
No. Article 1308 provides that “contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.” In order that obligations
arising from contracts may have the force of law between the parties, there must be
mutuality between the parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of
one of the contracting parties, is void. The provision stating that the interest shall be at the
“rate indicative of DBD retail rate or as determined by the Branch Head” is indeed
dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has
two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or
(2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should
be categorically determinable in both choices. If either of these two choices presents an
opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus
making the entire interest rate provision violative of the principle of mutuality of contracts.
Not just one, but rather both, of these choices are dependent solely on the will of UCPB.
Spouses Beluso had acknowledged before the RTC their obligation to pay a 12% legal interest
on their loans. There is sufficient basis to impose a 12% legal interest in favor of petitioner in
the case at bar, as what we have voided is merely the stipulated rate of interest and not the
stipulation that the loan shall earninterest. We uphold the contract stipulation providing the
compounding of interest. The provisions in the Credit Agreement and in the promissory
notes providing for the compounding of interest were neither nullified by the RTC or the
Court of Appeals, nor assailed by the spouses Beluso.
59
SALUDO, JR V. SECURITY BANK CORPORATION
G.R. NO. 184041, OCTOBER 13, 2010
PONENTE: PEREZ, J.
TOPIC: Mutuality
FACTS:
On 30 May 1996, Booklight was extended an omnibus line credit facility by SBC in the
amount of P10,000,000.00. Said loan was covered by a Credit Agreement and a Continuing
Suretyship with petitioner as surety, both documents dated 1 August 1996, to secure full
payment and performance of the obligations arising from the credit accommodation.
Booklight drew several availments of the approved credit facility from 1996 to 1997 and
faithfully complied with the terms of the loan. On 30 October 1997, SBC approved the
renewal of credit facility of Booklight in the amount of P10,000,000.00 under the prevailing
security lending rate. From August 3 to 14, 1998, Booklight executed nine promissory notes
in favor of SBC in the aggregate amount of P9,652,725.00. For failure to settle the loans
upon maturity, demands were made on Booklight and petitioner for the payment of the
obligation but the duo failed to pay. It also claimed that it was not in default as in fact, it
paid the sum of P1,599,126.11 on 30 September 1999 as a prelude to restructuring its loan for
which it earnestly negotiated for a mutually acceptable agreement until 5 July 2000, without
knowing that SBC had already filed the collection case. Petitioner argued that said offer to
pay constitutes a valid tender of payment which discharged Booklight’s obligation to the
extent of the offer. After trial, the RTC ruled that petitioner is jointly and solidarily liable
with Booklight under the Continuing Suretyship Agreement. The Court of Appeals affirmed
in toto the ruling of the RTC.
ISSUE:
Whether or not petitioner should be held solidarily liable for the second credit facility
extended to Booklight.
RULING:
We rule in the affirmative. There is no doubt that Booklight was extended two (2)
credit facilities, each with a one-year term, by SBC. Petitioner argues that the approval of the
second credit facility necessitates his consent considering the onerous and solidary liability
of a surety. This is contrary to the express waiver of his consent to such renewal, contained
in paragraph 12 of the Continuing Suretyship. Respondent, as last resort, harps on the
novation of the first credit facility to exculpate itself from liability from the second credit
facility. At the outset, it must be pointed out that the Credit Agreement is actually the
principal contract and it covers “all credit facilities now or hereafter extended by SBC to
Booklight and that the suretyship agreement was executed precisely to guarantee these
obligations, i.e., the credit facilities arising from the credit agreement. The principal contract
is the credit agreement covered by the Continuing Suretyship. The two loan facilities availed
by Booklight under the credit agreement are the Omnibus Line amounting to
P10,000,000.00 granted to Booklight in 1996 and the other one is the Loan Line of the same
60
amount in 1997. Petitioner however seeks to muddle the issue by insisting that these two
availments were two separate principal contracts, conveniently ignoring the fact that it is
the credit agreement which constitutes the principal contract signed by Booklight in order
to avail of SBC’s credit facilities. The two credit facilities are but loans made available to
Booklight pursuant to the credit agreement. On these facts the novation argument
advanced by petitioner must fail. It is the first credit facility that expired and not the Credit
Agreement. There was a second loan pursuant to the same credit agreement. The terms
and conditions under the Credit Agreement continue to apply and the Continuing Suretyship
continues to guarantee the Credit Agreement. Hence the petition is denied.
61
PILIPINO TELEPHONE CORPORATION V. TECSON
G.R. No. 156966. May 7, 2004
PONENTE: VITUG, J.
TOPIC: Mutuality
FACTS:
On various dates in 1996, Delfino C. Tecson applied for 6 cellular phone subscriptions
with petitioner Pilipino Telephone Corporation (PILTEL), a company engaged in the
telecommunications business, which applications were each approved and covered,
respectively, by six mobiline service agreements. On 05 April 2001, respondent filed with the
Regional Trial Court a complaint against petitioner for a “Sum of Money and Damages.”
Petitioner moved for the dismissal of the complaint on the ground of improper venue, citing
a common provision in the mobiline service agreements to the effect that - “Venue of all
suits arising from this Agreement or any other suit directly or indirectly arising from the
relationship between PILTEL and subscriber shall be in the proper courts of Makati, Metro
Manila. Subscriber hereby expressly waives any other venues.” The Regional Trial Court of
Iligan City, Lanao del Norte, denied petitioner’s motion to dismiss and required it to file an
answer within 15 days from receipt thereof. Petitioner filed a petition for certiorari before
the Court of Appeals. The Court of Appeals saw no merit in the petition and affirmed the
assailed orders of the trial court.
ISSUE:
Whether or not the Court of Appeals erred in affirming the orders of the trial court.
RULING:
The contract herein involved is a contract of adhesion. But such an agreement is not per se
inefficacious. The rule instead is that, should there be ambiguities in a contract of adhesion,
such ambiguities are to be construed against the party that prepared it. If, however, the
stipulations are not obscure, but are clear and leave no doubt on the intention of the parties,
the literal meaning of its stipulations must be held controlling. A contract of adhesion is just
as binding as ordinary contracts. It is true that this Court has, on occasion, struck down such
contracts as being assailable when the weaker party is left with no choice by the dominant
bargaining party and is thus completely deprived of an opportunity to bargain effectively.
Nevertheless, contracts of adhesion are not prohibited even as the courts remain careful in
scrutinizing the factual circumstances underlying each case to determine the respective
claims of contending parties on their efficacy. In the case at bar, respondent secured 6
subscription contracts for cellular phones on various dates. It would be difficult to assume
that, during each of those times, respondent had no sufficient opportunity to read and go
over the terms and conditions embodied in the agreements. Respondent continued, in fact,
to acquire in the pursuit of his business subsequent subscriptions and remained a subscriber
of petitioner for quite sometime. Hence, the petition was granted.
62
PHILIPPINE SAVINGS BANK V. CASTILLO
GR. NO. 193178, MAY 30, 2011
TOPIC: Mutuality
FACTS:
Respondents obtained a loan with face value of P2,500,000.00 and 17% interest rate
per annum from petitioner with real estate mortgage over lots they owned in Tondo,
Manila.
From the release of the loan, the highest interest was 29% and the lowest was 15.5% per
annum. Respondents were notified in writing.They neither gave their confirmation thereto
nor did they formally question the changes.However, respondent Castillo sent several
letters to petitioner requesting for the reduction of the rates. Respondents defaulted due to
financial constraints. Thus, petitioner initiated an extrajudicial foreclosure sale of the
mortgaged properties which were auctioned. A certificate of sale was then issued and
submitted to the Clerk of Court and to the Ex-Officio Sheriff ofManila. The same, sansthe
approval of the Executive Judge of the RTC, was registered with the Registry of Deeds.
Respondents failed to redeem the property. Respondents filed a case before the RTC. After
trial, the RTC decided that the questioned increases of the interest were unreasonable,
excessive, and arbitrary; that Petitioner should refund Respondents of the amount of
interest collected in excess of 17% per annum; that the Extrajudicial Foreclosure conducted
by the defendants are voidab initio;that the Register of Deeds is ordered to cancel the
corresponding annotations at the back of TCTs; that defendant is to pay plaintiffs moral and
exemplary damages, and attorneys fees. Petitioner filed an MR.The RTC partially granted the
motion by modifying the interest rate from 17% to 24% per annum. The case was appealed to
the CA which modified the decision of the RTC ordering PSB to refund to the plaintiffs the
amount of interest collected in excess of 17% per annum; declaring the Extrajudicial
Foreclosure conducted by the defendants as valid; and modifying the damages awarded to
plaintiff.
ISSUE:
Did the CA err in (1) declaring that the modifications in the interest rates are
unreasonable; and (2) sustaining the award of damages and attorneys fees?
RULING:
The increase or decrease of interest rates hinge solely on the discretion of petitioner,
violated the principle of mutuality of contracts, and is unconscionable; therefore void.Any
stipulation regarding the validity or compliance of the contract left solely to the will of one
of the parties is likewise invalid. Petitioner cannot claim that respondent recognized the
legality of the changes. Respondents exhibits readily shows that the conformity letter
signed by them pertain only to the amendment of the interest rate review period from 90
days to 30 days.This is separate from the modification of the interest rate itself. Moreover,
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respondents assent cannot be implied from their lack of response to the memos sent by
petitioner. No one receiving a proposal to change a contract is obliged to answer the
proposal; assent is therefore not implied. Likewise, it cannot be said that respondents
recognized the rates legality when it requested for a reduction its reduction. This does not
translate into consent. Further, the letters were actually questioning the propriety of the
interest rates.
We are not sufficiently convinced that fraud, bad faith, or wanton disregard of
contractual obligations can be imputed to petitioner simply because it unilaterally imposed
the changes in interest rates. Thus, the award of moral and exemplary damages is
unwarranted.In the same vein, respondents cannot recover attorneys fees and litigation
expenses. As regards the award for refund to respondents of their interest payments in
excess of 17% per annum, the same should include legal interest.We have held that when an
obligation is breached, and it consists in the payment of a sum of money, the interest on the
amount of damages shall be at the rate of 12%per annum, reckoned from the time of the
filing of the complaint.
64
PHILIPPINE NATIONAL BANK v. COURT OF APPEALS
G.R. No. 88880. April 30, 1991
PONENTE: GRIÑO-AQUINO, J.
TOPIC: Mutuality
FACTS:
In July 1982, the private respondent applied for, and was granted by petitioner PNB, a
credit line of 321.8 million, secured by a real estate mortgage, for a term of two (2) years,
with 18% interest per annum. Private respondent executed in favor of the PNB a Credit
Agreement. Complying, private respondent on June 25, 1984, paid PNB P540,000 00 (30% of
P1.8 million) and requested that "the balance of P1,260,000.00 be renewed for another
period of two (2) years under the same arrangement" and that "the increase of the interest
rate of my mortgage loan be from 18% to 21. On August 10, 1984, PNB informed private
respondent that "we can not give due course to your request for preferential interest rate in
view of the following reasons: Existing Loan Policies of the bank requires 32% for loan of
more than one year; our present cost of funds has substantiallyincreased.
In a letter dated August 24, 1984 to PNB, private respondent announced that he
would "continue making further payments, and instead of a ‘loan of more than one year. On
October 15, 1984, private respondent reiterated his request that the interest rate should not
be increased from 18% to 32% and from 32% to 41%. He also attached (as payment) a check for
P140,000.00. Like rubbing salt on the private respondent’s wound, the petitioner informed
private respondent on October 29, 1984, that "the interest rate on your outstanding
line/loan is hereby adjusted from 41% p.a. to 48% p.a. (42% prime rate plus 6% spread)
effective 25 October 1984." On December 18, 1984, private respondent filed in the Regional
Trial Court of Manila a complaint against PNB.The trial court rendered judgment on April 14,
1986, dismissing the complaint because the increases of interest were properly made. Court
of Appeals reversed the trial court.
ISSUE:
Whether the bank, within the term of the loan which it granted to the private
respondent, may unilaterally change or increase the interest rate stipulated therein at will
and as often as it pleased.
RULING:
The answer to that question is no. In the first place, although Section 2, PD. No. 116 of
January 29, 1973, authorizes the Monetary Board to prescribe the maximum rate or rates of
interest for loans or renewal thereof and to change such rate or rates whenever warranted
by prevailing economic and social conditions, it expressly provides that "such changes shall
not be made oftener than once every twelve months. Secondly, as pointed out by the Court
of Appeals, while the private respondent-debtor did agree in the Deed of Real Estate
Mortgage that the interest rate may be increased during the life of the contract "to such
increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may
65
prescribe or "within the limits allowed by law" (Promissory Notes, Ex’s. 2, 3, and 4), no law
was ever passed in July to November 1984 increasing the interest rates on loans or renewals
thereof to 32%, 41% and 48% (per annum), and no documents were executed and delivered by
the debtor to effectuate the increases. The Court of Appeals observed. Clearly, then, the
agreement between the parties authorized the defendant bank to increase the interest rate
beyond the original rate of 18% per annum but ‘within the limits allowed by law’ or ‘within
the rate allowed by law,’ it being declared the obligation of the plaintiff as borrower to
execute and deliver the corresponding documents and instruments to effectuate the
increase.
This Court disallowed the increase for the simple reason that said "Circular No. 494,
although it has the effect of law is not a law. In the present case, the PNB relied on its own
Board Resolution No. PNB Circular No. 40-79-84, and PNB Circular No. 40-129-84, but those
resolution and circulars are neither laws nor resolutions of the Monetary Board. PNB’S
successive increases of the interest rate on the private respondent’s loan, over the latter’s
protest, were arbitrary as they violated an express provision of the Credit Agreement
Section 9.01 that its terms "may be amended only by an instrument in writing signed by the
party to be bound as burdened by such amendment." The increases imposed by PNB also
contravene Art. 1956 of the Civil Code which provides that "no interest shall be due unless it
has been expressly stipulated in writing. The debtor herein never agreed in writing to pay
the interest increases fixed by the PNB beyond 24% per annum, hence, he is not bound to
pay a higher rate than that. That an increase in the interest rate from 18% to 48% within a
period of four (4) months is excessive, as found by the Court of Appeals, is indisputable.
66
FLORENDO V. COURT OF APPEALS AND LAND BANK OF THE PHILIPPINES
G.R. NO. 101771 DECEMBER 17, 1996
PONENTE: PANGANIBAN, J.
TOPIC: Mutuality
FACTS:
That (Petitioner) Gilda Florendo (was) an employee of (Respondent Bank) from May
17, 1976 until August 16, 1984 when she voluntarily resigned. However, before her
resignation, she applied for a housing loan of P148,000.00, payable within 25 years from
(respondent bank's) Provident Fund on July 20, 1983. Petitioners) and (respondent bank),
through the latter's duly authorized representative, executed the Housing Loan Agreement.
On March 19, 1985, (respondent bank) increased the interest rate on (petitioner's) loan from
9%per annum to 17%, the said increase to take effect on March 19, 1985. The details of the
increase are embodied ManCom and in a PF (Provident Fund) Memorandum Circular.
Respondent bank first informed (petitioners) of the said increase in a letter dated June 7,
1985. Enclosed with the letter are a copy of the PF Memo Circular . . . and a Statement of
Account as of May 31, 1985. Petitioner protested the increase in a letter dated June 11, 1985
to which (respondent bank) replied through a letter dated July 1, 1985. Enclosed with the
letter is a Memorandum dated June 26, 1985 of (respondent bank's) legal counsel, A.B. F.
Gaviola, Jr. Petitioners promptly appealed, arguing that, inter alia, the increased rate of
interest is onerous and was imposed unilaterally, without the consent of the borrower-
spouses. Respondent bank likewise appealed and contested the propriety of having the
increased interest rate apply only upon the finality of the judgment and not from March 19,
1985. The respondent Court subsequently affirmed with modification the decision of the trial
court.
ISSUE
Whether or not respondent Court "a grave and patent error" in not nullifying the
respondent bank's unilateral increase of the interest rate and monthly amortizations of the
loan on the ground that the increase has no basis in the contracts between the parties.
RULING:
We have already mentioned that by virtue of CB Circular 905, the Usury Law has been
rendered ineffective. Thus, petitioners' contention that the escalation clause is violative of
the said law is bereft of any merit. On the other hand, it will not be amiss to point out that
the unilateral determination and imposition of increased interest rates by the herein
respondent bank is obviously violative of the principle of mutuality of contracts ordained in
Article 1308 of the Civil Code. As this Court held in PNB: In order that obligations arising from
contracts may have the force of law between the parties, there must be mutuality between
the parties based on their essential equality. A contract containing a condition which makes
its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting
parties, is void. Hence, even assuming that the . . . loan agreement between the PNB and the
private respondent gave the PNB a license to increase the interest rate at will during the
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term of the loan, that license would have been null and void for being violative of the
principle of mutuality essential in contracts. It would have invested the loan agreement with
the character of a contract of adhesion, where the parties do not bargain on equal footing,
the weaker party's (the debtor) participation being reduced to the alternative "to take it or
leave it" . Such a contract is a veritable trap for the weaker party whom the courts of justice
must protect against abuse and imposition.
The respondent bank tried to sidestep this difficulty by averring that petitioner Gilda
Florendo as a former bank employee was very knowledgeable concerning respondent
bank's lending rates and procedures, and therefore, petitioners were "on an equal footing"
with respondent bank as far as the subject loan contract was concerned. That may have
been true insofar as entering into the original loan agreement and mortgage contract was
concerned. However, that does not hold true when it comes to the determination and
imposition of escalated rates of interest as unilaterally provided in the ManCom Resolution,
where she had no voice at all in its preparation and application.
68
SPOUSES IGNACIO F. JUICO and ALICE P. JUICO vs. CHINA BANKING CORPORATION
G.R NO. 181045 JULY 2 2014
PONENTE: VILLARAMA, JR., J.
TOPIC: STAGES OF CONTRACT
FACTS:
Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China
Banking Corporation (respondent) as evidenced by two Promissory Notes both dated
October 6, 1998 and numbered 507-001051-34and 507-001052-0,5 for the sums of !!6,216,000
and P4, 139,000, respectively. The loan was secured by a Real Estate Mortgage (REM) over
petitioners’ property located at 49 Greensville St., White Plains, Quezon City respondent
demanded the full payment of the outstanding balance with accrued monthly interests. As
of February 23, 2001, the amount due on the two promissory notes totaled P19,201,776. On
the same day, the mortgaged property was sold at public auction, with respondent China
bank as highest bidder for the amount of P10,300,000.petitioners received 8a demand
letter9 dated May 2, 2001 from respondent for the payment ofP8,901,776.63, the amount of
deficiency after applying the proceeds of the foreclosure sale respondent prayed that
judgment be rendered ordering the petitioners to pay jointly and severally:
(1)P8,901,776.63representing the amount of deficiency, plus interests at the legal rate, from
February 23, 2001 until fully paid; (2) an additional amount equivalent to 1/10 of 1% per day of
the total amount, until fully paid, as penalty; (3) an amount equivalent to 10% of the
foregoing amounts as attorney’s fees; and (4) expenses of litigation and costs of suit. Ms.
Annabelle Cokai Yu, its Senior Loans Assistant stated that as of now the outstanding balance
of petitioners wasP15,190,961.48. Yu reiterated that the interest rate changes every month
based on the prevailing market rate. she notified petitioners of the prevailing rate by calling
them monthly .It was increased unilaterally RTC: ordered Spouses to pay bank 9M plus the
interest which amounted to 15M.CA AFFIRMEDPETITIONER: They insist that the increase in
interest rates were unilaterally imposed by the bank and thus violate the principle of
mutuality of contracts.
ISSUE:
Whether the increase in interest rates is void for violating the mutuality of contracts
HELD:
Yes. Article 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. Article 1956 of the Civil Code likewise
ordains that "no interest shall be due unless it has been expressly stipulated in writing. "The
binding effect of any agreement between parties to a contract is premised on xxx (2) that
there must be mutuality between the parties based on their essential equality. Any contract
which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the
69
contract which is left solely to the will of one of the parties, is likewise, invalid Escalation
clauses refer to stipulations allowing an increase in the interest rate agreed upon by the
contracting parties. This Court has long recognized that there is nothing inherently wrong
with escalation clauses Nevertheless, an escalation clause "which grants the creditor an
unbridled right to adjust the interest independently and upwardly, completely depriving the
debtor of the right to assent to an important modification in the agreement" is void. A
stipulation of such nature violates the principle of mutuality of contracts. In a case, SC said
that petitioner’s assent to the modifications in the interest rates cannot be implied from
their lack of response to the memos sent by respondent.
70
SPOUSES EDUARDO and LYDIA SILOS, vs.PHILIPPINE NATIONAL BANK
G.R. No. 181045 July 2, 2014
PONENTE: DEL CASTILLO, J.
TOPIC: STAGES OF CONTRACT
FACTS:
Spouses Eduardo and Lydia Silos secured a revolving credit line with Philippine
National Bank (PNB)through a real estate mortgage as a security. After two years, their
credit line increased. Spouses Silos then signed a Credit Agreement, which was also
amended two years later, and several Promissory Notes (PN) as regards their Credit
Agreements with PNB. The said loan was initially subjected to a 19.5% interest rate per
annum. In the Credit Agreements, Spouses Silos bound themselves to the power of PNB to
modify the interest rate depending on whatever policy that PNB may adopt in the future,
without the need of notice upon them. Thus, the said interest rates played from 16% to as
high as 32% per annum. Spouses Silos acceded to the policy by pre-signing a total of twenty-
six (26) PNs leaving the individual applicable interest rates at hand blank since it would be
subject to modification by PNB. Spouses Silos regularly renewed and made good on their
PNs, religiously paid the interests without objection or fail. However, during the 1997 Asian
Financial Crisis, Spouses Silos faltered when the interest rates soared. Spouses Silos’ 26thPN
became past due, and despite repeated demands by PNB, they failed to make good on the
note. Thus, PNB foreclosed and auctioned the involved security for the mortgage. Spouses
Silos instituted an action to annul the foreclosure sale on the ground that the succeeding
interest rates used in their loan agreements was left to the sole will of PNB, the same fixed
by the latter without their prior consent and thus, void. The Regional Trial Court (RTC) ruled
that such stipulation authorizing both the increase and decrease of interest rates as may be
applicable is valid. The Court of Appeals (CA) affirmed the RTC decision.
ISSUE:
May the bank, on its own, modify the interest rate in a loan agreement without
violating the mutuality of contracts?
RULING:
No. Any modification in the contract, such as the interest rates, must be made with
the consent of the contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the agreement. In
the case of loan agreements, the rate of interest is a principal condition, if not the most
important component. Loan and credit arrangements may be made enticing by, or
"sweetened" with, offers of low initial interest rates, but actually accompanied by provisions
written in fine print that allow lenders to later on increase or decrease interest rates
unilaterally, without the consent of the borrower, and depending on complex and subjective
factors. Because they have been lured into these contracts by initially low interest rates,
71
borrowers get caught and stuck in the web of subsequent steep rates and penalties,
surcharges and the like. Being ordinary individuals or entities, they naturally dread legal
complications and cannot afford court litigation; they succumb to whatever charges the
lenders impose. At the very least, borrowers should be charged rightly; but then again this is
not possible in a one-sided credit system where the temptation to abuse is strong and the
willingness to rectify is made weak by the eternal desire for profit
72
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM v. GENARO C. BAUTISTA Et. Al.,
G.R. NO. 171351 March 14, 2008
PONENTE: REYES, R.T.
TOPIC: Relativity of Contracts
FACTS:
On 07 May 1993, after a petition for election of officers of Kaisahan at Kapatiran ng
mga Manggagawa at Kawani sa Metropolitan Waterworks and Sewerage System (KKMK-
MWSS) was filed by Bonifacio De Guzman, former auditor of KKMK-MWSS, a Resolution was
issued by Perlita Bathan-Velasco, in her capacity as Director of the Bureau of Labor Relations
(BLR), the decretal portion of which states: Wherefore, the instant petition is hereby
granted and the Kaisahan at Kapatiran ng mga Manggagawa at Kawani sa Metropolitan
Waterworks and Sewerage System (KKMK-MWSS) is hereby directed to immediately
conduct an election of the following union officers: 1. President,... 2. 1st Vice President, 3.
2nd Vice President, 4. Executive Secretary, 5. Assistant Executive Secretary, 6. Treasurer, 7.
Assistant Treasurer, 8. Auditor, 9. Assistant Auditor, 10. Public Relations Officer, 11. Twenty
Three (23) Directors, 12. Four Sergeants at Arms, and 13. Business Manager, after the usual
pre-election conferences. The Labor Organizations Division, this Bureau, shall supervise the
conduct of said election. A Motion for Reconsideration was filed by the incumbent officers
of KKMK-MWSS, led by its President, Genaro Bautista, with the BLR, but was denied by
Perlita Bathan-Velasco on 08 July 1993. An appeal was filed with the Office of the Secretary
of Labor and Employment where the order of the BLR was assailed as having been issued
with grave abuse of discretion and without jurisdiction. On 24 August 1993, an Order was
issued by the Office of the Secretary of Labor and Employment, through Undersecretary
Bienvenido Laguesma, part of which reads: Records clearly show that the subject of the
present controversy is an intra union conflict involving an employee's organization in the
public sector created and registered pursuant to Executive Order No. 180. Consequently, this
office (referring to the Secretary of Labor and Employment) has no other recourse but to
dismiss the appeal for lack of jurisdiction. Wherefore, the instant appeal is hereby dismissed
for lack of jurisdiction. Accordingly, let the entire records of this case be returned to the
Bureau of Labor Relations, for appropriate action. The then incumbent officers of KKMK-
MWSS, represented by its President, Genaro C. Bautista, filed a special civil action for
certiorari which was, however, dismissed.
ISSUES:
Whether or not the RTC has jurisdiction over a case involving an intra-union dispute
(election of officers) of an employee's organization in the public sector.
RULING:
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The authority of the BLR in assuming jurisdiction over a certification election, or any
inter-union or intra-union conflicts, is found in Article 226 of the Labor Code of the
Philippines, which reads: Art. 226. BUREAU OF LABOR RELATIONS. The Bureau of Labor
Relations and the Labor Relations Division in the regional offices of the Department of Labor
shall have original and exclusive authority to act, at their own initiative or upon request of
either or both parties, on all inter-union and intra-union conflicts, and all disputes, grievances
or problems arising from or affecting labor-management relations in all workplaces whether
agricultural or nonagricultural, except those arising from the implementation or
interpretation of collective bargaining agreements which shall be the subject of grievance
procedure and/or voluntary arbitration. The Bureau shall have fifteen (15) working days to
act on labor cases before it, subject to extension by agreement of the parties. It is quite clear
from this provision that BLR has the original and exclusive jurisdiction on all inter-union and
intra-union conflicts. An intra-union conflict would refer to a conflict within or inside a labor
union, and an inter-union controversy or dispute, one occurring or carried on between or
among unions. The subject of the case at bar, which is the election of the officers and
members of the board of KMKK-MWSS, is, clearly, an intra-union conflict, being within or
inside a labor union. It is well within the powers of the BLR to act upon. Executive Order No.
180 (1987) particularly Section 16 thereof, is completely lucid as to the settlement of disputes
involving government employees, viz: SEC. 16. The Civil Service and labor laws and
procedures, whenever applicable, shall be followed in the resolution of complaints,
grievances and cases involving government employees.
74
SPS. NESTOR AND MA. NONA BORROMEO, vs. HONORABLE COURT OF APPEALS and
EQUITABLE SAVINGS BANK
G.R. No. 169846, March 28, 2008
PONENTE: CHICO-NAZARIO, J
FACTS:
Respondent Jose A Villamor was a distributor of lumber belonging to Mr. Miller
who was the agent of the Insular Lumber Company in Ceb City. Defendant usually borrowed
from his friend and former classmate-petitioner Canuto O. Borromeo several amounts of
money. On one occasion, with some pressing obligation to Mr. Miller, defendant borrowed a
large sum of money from Borromeo for which he mortgaged his land and house in Cebu City.
Mr. Miller filed a civil action against the defendant and attached his properties including
those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could
not be registered as it was not properly drawn up. Plaintiff then pressed for settlement of
his obligation, but defendant instead offered to execute a document of future payment.
Liquidation was made and defendant was found to have owed plaintiff the sum of
PhP7220.00, for which defendant signed a promissory therefor on November 29, 1933 with
interest at the rate of 12% per annum, agreeing to pay ‘as soon as I have money.’ The note
further stipulates that the defendant would waive the right of prescription as prescribed in
the Civil Code of Procedure. Plaintiff did not collect within the 1st ten years since defendant
did not have any property attached to his name. However after the second World War,
plaintiff then pressed on his demands. The RTC granted his motion but the CA reversed the
ruling claiming that said period was contrary to law.
ISSUE:
Whether or not the said period stipulated in the contract is valid?
RULING:
The CA erred in its decision. It should be noted that the wordings in said contracts
should not instantly nullify the intent of the parties. The intent of the parties is clear – that
an extension of time be granted to respondent for payment of his debts. In effect, the first
10 years should not be considered in the prescription of the contract and that the next ten
years is granted from which the counting of the period should begin.
75
SPOUSES BONIFACIO R. VALDEZ, JR. and VENIDA M. VALDEZ vs. HON. COURT OF APPEALS,
SPOUSES GABRIEL FABELLA and FRANCISCA FABELLA
G..R. No. 132424 May 2, 2006
PONENTE: CHICO-NAZARIO, J.:
FACTS:
Spouses Valdez are the registered owner of a piece of residential lot located in
Antipolo Rizal which they acquired by virtue of sales contract. The respondents Fabella
occupied the said lot by building their house in the said lot thereby depriving the plaintiff’s
rightful possession. Several times, the plaintiffs orally asked the defendants to peacefully
surrender the premises to them, but they refused to vacate the lot they unlawfully occupied.
Because the unfounded refusal on the part of the private respondents, the Brgy. Capt. Was
forced to issue the issue the necessary certificate to file action. The petitioners filed a
complaint for unlawful detainer before the MTC. The MTC rendered a decision in favor of the
petitioners spouses Valdez. Private respondents appealed to the RTC in which the RTC
affirmed in toto the decision of the MTC. Thereafter, they appealed to the CA. the CA of
appeals reversed the decision of the RTC. It held that for spouse Valdes, the petitioners
failed to make a case for unlawful detainer because they failed to show that they had given
the private respondents the right to occupy the premises or that they have tolerated private
respondents’ possession of the same, which is a requirement in unlawful detainer cases. It
added that the allegations in petitioners’ complaint lack jurisdictional elements for forcible
entry which requires an allegation or prior material possession.
Thus, this petitioner for review.
ISSUE:
1. Whether or not the allegations of the complaint clearly made out a case of unlawful
detainer
2. Whether or not the MTC has the original jurisdiction over the case
RULING:
The petition is denied and the judgment of CA that the MTC for lack of jurisdiction is
affirmed. The Supreme Court held that: it is the nature of defendant’s entry into the land
which determines the cause of action, whether it is forcible entry or unlawful detainer. If the
entry is illegal, then the action which may be filed against the intruder if forcible entry. If,
however, the entry is legal but the possession thereafter becomes illegal, the case is
unlawful detainer. Petitioners alleged in their complaint that they inherited the property
from their parents; that possession thereof by private respondent was by tolerance of their
mother, and after her death by their own tolerance. It is settled that one whose stay is
merely tolerated becomes a deforciant illegally occupying the land the moment he is
required to leave. It is essential in unlawful detainer cases of this kind, that plaintiff’s
76
supposed acts of tolerance must have been present right from the right from the start of
the possession which is later sought to be recovered. This is where the petitioners’ cause of
action fails. The evidence revealed that the possession of defendant was illegal at the
inception and not merely tolerated as alleged in the complaint, considering that defendant
started to occupy the subject lot and then built a house thereon without the permission and
consent of petitioners and before them, their mother. Clearly, defendant’s entry in to the
land was effected clandestinely, without the knowledge of the owner, consequently, it is
categorized as possession by stealth which is forcible entry. In the instant case, the
allegations in the complaint do not contain any averment of fact that would substantiate
petitioners’ claim they permitted or tolerated the occupation or the property by
respondents. The complaint contains only bare allegations that respondents without any
color of title whatsoever occupies the land in question by building their house in the said
land thereby depriving petitioners the possession thereof. Since the complaint did not
satisfy the jurisdictional requirement of a valid cause for unlawful detainer, the MTC had no
jurisdiction over the case.
77
STA. LUCIA REALTY & DEVELOPMENT, INC. v. SPOUSES FRANCISCO & EMELIA*
BUENAVENTURA, as represented by RICARDO SEGISMUNDO.
G.R. NO. 177113, October 2, 2009
PONENTE: Ynares-Santiago,
TOPIC: Relativity Of Contracts
FACTS:
ACL Development Corporation alleged that petitioner was responsible for the
issuance of all construction permits on the subdivision project; hence, it was the one that
caused the confusion among all parties. On the other hand, RCD Realty Corporation alleged
that it was a builder in good faith. On June 16, 1998, the HLURB’s Arbiter for the National
Capital Region Field Office issued a Decision directing respondent Sta. Lucia Realty and
Development Corporation, Inc. to cause to be vacated complainant’s lot denominated as Lot
No. 3, Block No. 4, Phase II, Greenwood Executive Village, Cainta, Rizal; and In the
alternative, the aforesaid respondent is ordered to reimburse the complainant the current
market value of the subdivision lot which shall in no case be less than P4,500.00 per square
meter, the prevailing price in the area. Subsequently, it issued a Resolution dated November
28, 2003 denying petitioner’s Motion for Reconsideration. On December 21, 2006, the Court
of Appeals affirmed the Decision of the Office of the President. The appellate court found
that it was petitioner who caused the confusion in the identity of the lots by its issuance of a
construction permit to RCD Realty Corporation; that petitioner was remiss and negligent in
complying with its obligations towards its buyers, their heirs, assignees, and/or successors-
in-interest when it failed to deliver the property described in respondents’ title. On March 21,
2007, the Court of Appeals denied petitioner’s Motion for Reconsideration.
ISSUE:
Whether or not the CA erred in affirming that the petitioner is liable in a complaint for
specific performance.
HELD:
The Supreme Court held that the petition was without merit. Article 1311 of the New
Civil Code states that, “contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law.” In this case, the
rights and obligations between petitioner and Alfonso are transmissible. There was no
mention of a contractual stipulation or provision of law that makes the rights and
obligations under the original sales contract for Lot 3, Block 4, Phase II intransmissible.
Hence, Alfonso can transfer her ownership over the said lot to respondents and petitioner is
bound to honor its corresponding obligations to the transferee or new lot owner in its
subdivision project. Having transferred all rights and obligations over Lot 3, Block 4, Phase II
78
to respondents, Alfonso could no longer be considered as an indispensable party. An
indispensable party is one who has such an interest in the controversy or subject matter that
a final adjudication cannot be made in his absence, without injuring or affecting that
interest. We agree with the appellate court’s finding that petitioner was remiss and
negligent in the performance of its obligations towards its buyers, their heirs, assignees,
and/or successors-in-interest; and that it was petitioner’s negligence which caused the
confusion on the identity of the lot, which likewise resulted to the erroneous construction
done by RCD Realty Corporation. Petitioner cannot pass the blame to RCD Realty
Corporation because it is undisputed that it issued a construction permit for Lot 3, Block 4,
Phase II – the property of respondents.
For its gross negligence which resulted to the erroneous construction on Lot 3, Block
4, Phase II and caused respondents undue damage and prejudice, petitioner is rightfully
adjudged by the HLURB Arbiter liable for P100,000.00 moral damages, P50,0000.00
exemplary damages, and P50,000.00 attorney’s fees.
79
ALLAN C. GO, doing business under the name and style "ACG Express Liner," vs.
MORTIMER F. CORDERO
G.R. No. 164703,May 4, 2010
PONENTE: VILLARAMA, JR.
FACTS:
Mortimer F. Cordero, Vice-President of Pamana Marketing Corporation (Pamana),
ventured into the business of marketing inter-island passenger vessels. After contacting
various overseas fast ferry manufacturers from all over the world, he came to meet Tony
Robinson, an Australian national based in Brisbane, Australia, who is the Managing Director
of Aluminium Fast Ferries Australia (AFFA). Between June and August 1997, Robinson
signed documents appointing Cordero as the exclusive distributor of AFFA catamaran and
other fast ferry vessels in the Philippines. As such exclusive distributor, Cordero offered for
sale to prospective buyers the 25-meter Aluminium Passenger catamaran known as the
SEACAT 25. After negotiations with Felipe Landicho and Vincent Tecson, lawyers of Allan C.
Go who is the owner/operator of ACG Express Liner of Cebu City, a single proprietorship,
Cordero was able to close a deal for the purchase of two SEACAT 25. Accordingly, the parties
executed Shipbuilding Contract No. 7825 for one high-speed catamaran (SEACAT 25) for the
price of US$1,465,512.00. Per agreement between Robinson and Cordero, the latter shall
receive commissions totalling US$328,742.00, or 22.43% of the purchase price, from the sale
of each vessel. Cordero immediately flew to Brisbane to clarify matters with Robinson, only
to find out that Go and Landicho were already there in Brisbane negotiating for the sale of
the second SEACAT 25. Despite repeated follow-up calls, no explanation was given by
Robinson, Go, Landicho and Tecson who even made Cordero believe there would be no
further sale between AFFA and ACG Express Liner. On January 29, 2001, the CA rendered
judgment granting the petition for certiorari hence the appeal.
ISSUE:
Whether or not the CA erred in holding the prtitioner liable for the breach.
HELD:
In the case at bar, it was established that petitioner Cordero was not paid the balance
of his commission by respondent Robinson. From the time petitioner Go and respondent
Landicho directly dealt with respondent Robinson in Brisbane, and ceased communicating
through petitioner Cordero as the exclusive distributor of AFFA in the Philippines, Cordero
was no longer informed of payments remitted to AFFA in Brisbane. In other words, Cordero
had clearly been cut off from the transaction until the arrival of the first SEACAT 25 which
was sold through his efforts. When Cordero complained to Go, Robinson, Landicho and
Tecson about their acts prejudicial to his rights and demanded that they respect his
exclusive distributorship, Go simply let his lawyers led by Landicho and Tecson handle the
matter and tried to settle it by promising to pay a certain amount and to purchase high-
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speed catamarans through Cordero. However, Cordero was not paid anything and worse,
AFFA through its lawyer in Australia even terminated his exclusive dealership insisting that
his services were engaged for only one transaction, that is, the purchase of the first SEACAT
25 in August 1997.
We find that contrary to the claims of petitioner Cordero, there was indeed no
sufficient evidence that respondents actually purchased a second SEACAT 25 directly from
AFFA. But this circumstance will not absolve respondents from liability for invading
Cordero’s rights under the exclusive distributorship. Respondents clearly acted in bad faith
in bypassing Cordero as they completed the remaining payments to AFFA without advising
him and furnishing him with copies of the bank transmittals as they previously did, and
directly dealt with AFFA through Robinson regarding arrangements for the arrival of the first
SEACAT 25 in Manila and negotiations for the purchase of the second vessel pursuant to the
Memorandum of Agreement which Cordero signed in behalf of AFFA. As a result of
respondents’ actuations, Cordero incurred losses as he was not paid the balance of his
commission from the sale of the first vessel and his exclusive distributorship revoked by
AFFA. While it is true that a third person cannot possibly be sued for breach of contract
because only parties can breach contractual provisions, a contracting party may sue a third
person not for breach but for inducing another to commit such breach. Article 1314 of the
Civil Code provides that any third person who induces another to violate his contract shall be
liable for damages to the other contracting party. The elements of tort interference are: (1)
existence of a valid contract; (2) knowledge on the part of the third person of the existence
of a contract; and (3) interference of the third person is without legal justification. Thus the
petitions was denied. The Decision dated March 16, 2004 as modified by the Resolution
dated July 22, 2004 of the Court of Appeals in CA-G.R. CV No. 69113 are hereby affirmed with
modification in that the awards of moral and exemplary damages are hereby reduced to
P300,000.00 and P200,000.00.
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ANALITA P. INOCENCIO, substituting for RAMON INOCENCIO (Deceased), vs. HOSPICIO DE
SAN JOSE
G.R. No. 201787 September 25, 2013
PONENTE: CARPIO, J.
TOPIC: Principle of Relativity of Contracts
FACTS:
This case involves Lot No. 9 which has 1,007 square meter parcel of land located at
Kinasang-an, Pardo, Cebu City and fronting the Cebu provincial highway. The lot originally
belonged to Pastor Pacres who left it intestate to his heirs Margarita, Simplicia, Rodrigo,
Francisco, Mario and Vearanda. Petitioners admitted that at the time of Pastor's death in
1962, his heirs were already occupying definite portions of Lot No. 9. The front portion along
the provincial highway was occupied by the co-owned Pacres ancestral home, and beside it
stood Rodrigo's hut. Mario's house stood at the back of the ancestral house according to
Valentina's testimony in 1968. On the same year, the heirs leased "the ground floor of the
ancestral home together with a lot area of 300 square meters including the area occupied by
the house" to respondent Hilario Ramirez, who immediately took possession thereof.
Subsequently in 1974, four of the Pacres sibling namely, Rodrigo, Francisco, Simplicia and
Margarita sold their shares in the ancestral home and the lot on which it stood to Ramirez.
The deeds of sale described the subjects thereof as "part and portion of the 300 square
meters actually in possession and enjoyment by vendee and her spouse, Hilario Ramirez, by
virtue of a contract of lease in their favor." In 1984, Ygoa filed a petition to survey and
segregate the portions she bought from Lot No. 9. Mario objected on the ground that he
wanted to exercise his right as co-owner to redeem his siblings' shares. Vendee Rodrigo also
opposed on the ground that he wanted to annul the sale for failure of consideration. On the
other hand, Margarita and the widow of Francisco both manifested their assent to Ygoa's
petition. By virtue of such manifestation, the court issued a writ of possession respecting
Margarita's and Francisco's shares in favor of Ygoa. On June 18, 1993, the Republic of the
Philippines, through the Department of Public Works and Highways (DPWH), expropriated
the front portion of Lot No. 9 for the expansion of the Cebu south road.
On September 30, 1994, Mario, petitioners' predecessor-in-interest, filed an

ejectment suit against Ramirez' successor-in-interest Vicentuan. Mario claimed sole
ownership of the lot occupied by Ramirez/Vicentuan by virtue of the oral partition. He
argued that Ramirez/Vicentuan should pay rentals to him for occupying the front lot and
should transfer to the rear of Lot No. 9 where the lots of Ramirez's vendors are located. The
trial court ruled in favor of respondents. The appellate court sustained the ruling of the trial
court. Hence this petition.
ISSUE:
Whether petitioners were able to prove the existence of the alleged oral
agreements such as the partition and the additional obligations of surveying and
titlin
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RULING:
On the first issue, the court find no compelling reason to deviate from the foregoing
rule and disturb the trial and appellate courts' factual finding that the existence of an oral
partition was not proven. Our examination of the records indicates that, contrary to
petitioners' contention, the lower courts' conclusion was justified. Petitioners' only piece of
evidence to prove the alleged oral partition was the joint affidavit supposedly executed by
some of the Pacres siblings and their heirs in 1993, to the effect that such an oral partition
had previously been agreed upon. Petitioners did not adequately explain why the affidavit
was executed only in 1993, several years after respondents Ygoa and Ramirez took
possession of the front portions of Lot No. 9. On the second issue, the Supreme Court
affirmed the decision of the Court of Appeals, they found that the parties did not provide
the Court with the pleadings filed in the expropriation case, which makes it impossible to
know the extent of the issues already submitted by the parties in the expropriation case and
thereby assess whether there was forum-shopping. Nonetheless, while the court cannot rule
on the existence of forum-shopping for insufficiency of evidence, it is correct that the issue
of ownership should be litigated in the expropriation court. The court hearing the
expropriation case is empowered to entertain the conflicting claims of ownership of the
condemned property and adjudge the rightful owner thereof, in the same expropriation
case. This is due to the intimate relationship of the issue of ownership with the claim for the
expropriation payment. Petitioners' objection regarding respondents' claim over the
expropriation payment should have been brought up in the expropriation court as
opposition to respondent's motion. The SC cannot agree with the trial court's order to
partition the lot in accordance with Exhibit No. 1 or the sketch prepared by petitioner
Valentina. To do so would resolve the issue of ownership over portions of Lot No. 9 and
effectively preempt the expropriation court, based solely on actual occupation. In sum, the
Supreme Court denied the petition.
83
SPOUSES BENJAMIN C. MAMARIL AND SONIA P. MAMARIL vs. THE BOY SCOUT OF THE
PHILIPPINES, AIB SECURITY AGENCY, INC.
G.R. No. 179382 January 14, 2013
PONENTE: PERLAS-BERNABE, J.:

FACTS:
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Spouses Mamaril) are jeepney
operators. They park their passenger jeepneys every night at the Boy Scout of the
Philippines (BSP) for a fee per month for each unit. As usual, all these vehicles were parked
inside the BSP compound one evening. However, the following morning, one of the vehicles
was missing and was never recovered. According to the security guards CesarioPe (Pe) and
Vicente Gaddi (Gaddi) of AIB Security Agency, Inc. (AIB) with whom BSP had contracted
(Guard Service Contract) for its security and protection, a male person who looked familiar
to them took the subject vehicle out of the compound.
ISSUE:
Whether or not BSP is liable based on the Guard Service Contract and the parking
ticket it issued.
HELD:
The petition lacks merit. With respect to Guard Service Contract, it is undisputed that
Spouses Mamaril are not parties therein. Neither did the subject agreement contain any
stipulation pour autrui. And even if there was, Spouses Mamaril did not convey any
acceptance thereof. Thus, under the principle of relativity of contracts, they cannot validly
claim any rights or favor under the said agreement. With respect to the parking ticket, it has
been held that the act of parking a vehicle in a garage, upon payment of a fixed amount, is a
lease. A lessor-lessee relationship existed between Spouses Mamaril and BSP. Article 1664 of
the same Code states that [t]he lessor is not obliged to answer for a mere act of trespass
which a third person may cause on the use of the thing leased; but the lessee shall have a
direct action against the intruder. Here, BSP was not remiss in its obligation to provide
Spouses Mamaril a suitable parking space for their jeepneys as it even hired security guards
to secure the premises; hence, it should not be held liable for the loss suffered by Spouses
Mamaril.
84
DKC HOLDINGS CORPORATION vs. COURT OF APPEALS, VICTOR U. BARTOLOME and
REGISTER OF DEEDS FOR METRO MANILA
G.R. No. 118248 April 5, 2000
PONENTE: YNARES-SANTIAGO, J.:

FACTS:
March 16, 1988. DKC entered a contract of lease with option to buy with Encarnacion
Bartolome . DKC was given the option to lease or lease with purchase the subject land,
which option must be exercised within a period of two years counted from the signing of
the Contract. In turn, DKC undertook to pay P3,000.00 a month as consideration for the
reservation of its option. Within the two-year period, DKC shall serve formal written notice
upon the lessor Encarnacion Bartolome of its desire to exercise its option. The contract also
provided that in case DKC chose to lease the property, it may take actual possession of the
premises. In such an event, the lease shall be for a period of six years, renewable for another
six years, and the monthly rental fee shall be P15,000.00 for the first six years and
P18,000.00 for the next six years, in case of renewal. January 10, 1990. Victor executed an
affidavit of Self Adjudication all over her deceased mom’s properties, including the subject
lot. Victor the dick then cancelled the deed of transfer of DKC and then issued a transfer
certificate under his name, what a dick. March 14, 1990. DKC sent a notice to Victor the royal
douche, stating that they are going to exercise their option to lease, tendering the amount
of P15,000 as rent. Victor refused payment. The lower court then rendered its decision, it
dismissed the complaint and ordered DKC to pay Victor for P30,000 as attorney’s fee. On
appeal, the CA affirmed the decision of the lower court
ISSUE:
Whether the Contract of Lease with Option to Buy entered into by the late
Encarnacion Bartolome with petitioner was terminated upon her death or whether it binds
her sole heir, Victor, even after her demise.
HELD:
No. Article 1311 of the Civil Code and jurisprudence, Victor is bound by the subject
Contract of Lease with Option to buy executed by his predecessor-in-interest. It is futile for
Victor to insist that he is not a party to the contract because of the clear provision of Article
1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest
between him and his deceased mother. He only succeeds to what rights his mother had and
what is valid and binding against her is also valid and binding as against him. The general
rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-
interest except when the rights and obligations arising therefrom are not transmissible by
(1) their nature, (2) stipulation or (3) provision of law.
85
SO PING BUN vs. COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C.
TIONG
G.R. No. 120554 September 21, 1999
PONENTE: QUISUMBING, J.:

FACTS:
Tek Hua Trading Co. entered into four lease agreements on premises located at
Binondo, Manila with lessor Dee C. Chuan & Sons Inc. (DCCSI). Tek Hua used the areas to
store itstextiles. The contracts each had a one-year term. They provided that should the
lesseecontinue to occupy the premises after the term, the lease shall be on a month-to-
monthbasis. When the contracts expired, the parties did not renew the contracts, but Tek
Hua continued to occupy the premises. So Pek Giok, managing partner of Tek Hua Trading,
died. His grandson, petitioner So PingBun, occupied the warehouse for his own textile
business, Trendsetter Marketing. Lessor DCCSI sent letters addressed to Tek Hua Enterprises
(formerly Tek Hua Trading but with a new board, including private respondent Tiong),
informing them of the 30%rent increase. Enclosed in these letters were new lease contracts
for signing. DCCSI warned that failure of the lessee to accomplish the contracts shall be
deemed as lack of interest on the lessee's part, and agreement to the termination of the
lease. Private respondents did not answer any of these letters. Still, the lease contracts were
not rescinded. Private respondent Tiong sent a letter to petitioner ordering him to vacate
the warehouse because Tiong decided to go back into the textile business and he needed
the warehouse immediately for stocks. Petitioner refused to vacate and instead requested
formal contracts of lease. DCCSI acceded to petitioner's request. In the suit for injunction,
private respondents pressed for the nullification of the lease contracts between DCCSI and
petitioner. They also claimed damages. Trial Court Ruled for respondent, annulling the four
contracts of lease and awardingP500,000 without prejudice to negotiate for the renewal of
their lease contracts. Court of Appeals Upheld the trial court. Modified the decision by
reducing the award to P200,000.
ISSUES:
Whether or not So Ping Bun was guilty of tortuous interference of contract.
HELD:
YES, but he is justified. One becomes liable in an action for damages for an invasion
of another's interest in the private use and enjoyment of asset if:(a) the other has property
rights and privileges with respect to the use or enjoyment interfered with;(b) the invasion is
substantial;(c) the defendant's conduct is a legal cause of the invasion, and(d) the invasion is
either intentional and unreasonable or unintentional and actionable under general
negligence rules. The elements of tort interference are: (1) existence of a valid contract;(2)
86
knowledge on the part of the third person of the existence of contract; and(3) interference
of the third person is without legal justification or excuse. In this case, petitioner's
Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result
petitioner deprived respondent corporation of the latter's property right. Clearly, the three
elements of tort interference above-mentioned are present in the instant case. A duty which
the law of torts is concerned with is respect for the property of others, and a cause of action
ex delicto may be predicated upon an unlawful interference by one person of the enjoyment
by the other of his private property. This may pertain to a situation where a third person
induces a party to renege on or violate his undertaking under a contract. It is debated
whether interference may be justified where the defendant acts for the sole purpose of
furthering his own financial or economic interest. If the impetus of his conduct lies in a
proper business interest rather than in wrongful motives, it can be said that his act is
justified.
87
PRUDENTIAL BANK AND TRUST COMPANY (now BANK OF THE PHILIPPINE ISLANDS),
Petitioner vs. LIWAYWAYABASOLO, Respondent
G.R. No. 186738 SEPTEMBER 27, 2010
PONENTE: REYES J.,
TOPIC: RELATIVITY OF CONTRACTS
FACTS:
Prudential Bank and Trust Company secured a revolving credit line with Philippine
National Bank (PNB)through a real estate mortgage as a security. After two years, their
credit line increased. Spouses Silos then signed a Credit Agreement, which was also
amended two years later, and several Promissory Notes (PN) as regards their Credit
Agreements with PNB. The said loan was initially subjected to a 19.5% interest rate per
annum. In the Credit Agreements, Spouses Silos bound themselves to the power of PNB to
modify the interest rate depending on whatever policy that PNB may adopt in the future,
without the need of notice upon them. Thus, the said interest rates played from 16% to as
high as 32% per annum. Spouses Silos acceded to the policy by pre-signing a total of twenty-
six (26) PNs leaving the individual applicable interest rates at hand blank since it would be
subject to modification by PNB. Spouses Silos regularly renewed and made good on their
PNs, religiously paid the interests without objection or fail. However, during the 1997 Asian
Financial Crisis, Spouses Silos faltered when the interest rates soared. Spouses Silos’ 26thPN
became past due, and despite repeated demands by PNB, they failed to make good on the
note. Thus, PNB foreclosed and auctioned the involved security for the mortgage. Spouses
Silos instituted an action to annul the foreclosure sale on the ground that the succeeding
interest rates used in their loan agreements was left to the sole will of PNB, the same fixed
by the latter without their prior consent and thus, void. The Regional Trial Court (RTC) ruled
that such stipulation authorizing both the increase and decrease of interest rates as may be
applicable is valid. The Court of Appeals (CA) affirmed the RTC decision.
ISSUE:
May the bank, on its own, modify the interest rate in a loan agreement without
violating the mutuality of contracts?
RULING:
No. Any modification in the contract, such as the interest rates, must be made with
the consent of the contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the agreement. In
the case of loan agreements, the rate of interest is a principal condition, if not the most
important component. Loan and credit arrangements may be made enticing by, or
"sweetened" with, offers of low initial interest rates, but actually accompanied by provisions
written in fine print that allow lenders to later on increase or decrease interest rates
unilaterally, without the consent of the borrower, and depending on complex and subjective
88
factors. Because they have been lured into these contracts by initially low interest rates,
borrowers get caught and stuck in the web of subsequent steep rates and penalties,
surcharges and the like. Being ordinary individuals or entities, they naturally dread legal
complications and cannot afford court litigation; they succumb to whatever charges the
lenders impose. At the very least, borrowers should be charged rightly; but then again this is
not possible in a one-sided credit system where the temptation to abuse is strong and the
willingness to rectify is made weak by the eternal desire for profit.
89
SM LAND, INC. v. BASES CONVERSION AND DEVELOPMENT AUTHORITY
G.R. No. 203655, March 18, 2015
PONENTE: VELASCO JR.
TOPIC: ELEMENTS OF CONTRACTS
FACTS:
Pursuant to Republic Act (RA)No. 7227 (Bases Conversion and Development Act of
1992), the BCDA opened for disposition and development its Bonifacio South Property.
Jumping on the opportunity, SM Land, Inc. (SMLI) submitted to the BCDA an unsolicited
proposal for the development of the lot through a Public-Private Joint Venture Agreement
which was accepted by the BCDA. However, the BCDA clarified that its act should not be
construed to bind the agency to enter into a joint venture agreement with SMLI but only
constitutes an authorization to conduct detailed negotiations with SMLI and iron out the
terms and conditions of the agreement. Afterwards, upon arriving at mutually acceptable
terms and conditions, a Certification of Successful Negotiations (Certification) was issued by
the BCDA and signed by both parties with the provisions that the BCDA undertook to
“subject SMLI’s Original Proposal to Competitive Challenge” and committed itself to
“commence the activities for the solicitation for comparative proposals.” Then, instead of
proceeding with the Competitive Challenge, the BCDA corresponded with SMLI stating that
it will welcome any “voluntary and unconditional proposal” to improve the original offer,
with the assurance that the BCDA will nonetheless respect any right which may have
accrued in favor of SMLI. In turn, SMLI increased the total secured payments with an upfront
payment. Without responding to SMLI’s new proposal, the BCDA sent a memorandum to
the Office of the President (OP) categorically recommending the termination of the
Competitive Challenge. Alarmed by this development, SMLI urged the BCDA to proceed with
the Competitive Challenge as agreed upon. However, the BCDA, via the assailed
Supplemental Notice No. 5, terminated the Competitive Challenge altogether. In the
meantime, the BCDA issued in favor of SMLI a check without explanation attached to it but
its value corresponds to the proposal security posted by SMLI, with interest. SMLI
attempted to return the check but to no avail. The BCDA caused the publication of an
“Invitation to Bid” for the development of the subject property. This impelled SMLI to file an
Urgent Manifestation with Reiterative Motion to Resolve SMLI’s Application for Temporary
Restraining Order UST Law Review, Vol. LIX, No. 1, May 2015 (TRO) and Preliminary
Injunction. The Court issued the TRO prayed for by SMLI and enjoined BCDA from
proceeding with the new selection process for the development of the property. For its
part, SMLI alleged in its petition that the Certification issued by the BCDA and signed by the
parties constituted a contract and that under the said contract, BCDA cannot renege on its
obligation to conduct and complete the Competitive Challenge. The BCDA relies chiefly on
the reservation clause in the Terms of Reference (TOR),which mapped out the procedure to
be followed in the Competitive Challenge, which allegedly authorized the agency to
unilaterally cancel the Competitive Challenge. BCDA add that the terms and conditions
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agreed upon are disadvantageous to the government, and that it cannot legally be barred by
estoppel in correcting a mistake committed by its agents.
ISSUE:
Was the BCDA correct in issuing Supplemental Notice No. 5, which unilaterally
aborted the Competitive Challenge, and in subjecting the development of the project to
public bidding?
RULING:
No. SMLI has the right to a completed Competitive Challenge pursuant to the
Detailed Guidelines for Competitive Challenge Procedure for Public-Private Joint Ventures
(NEDA JV Guidelines) and the Certification issued by the BCDA. The reservation clause
adverted to by the BCDA cannot, in any way, prejudice said right. NEDA promulgated the
NEDA Joint Venture Guidelines, which detailed two (2) modes of selecting a private sector
Joint Venture partner: by competitive selection or through negotiated agreements.
Competitive selection involves a selection process based on transparent criteria, which
should not constrain or limit competition, and is open to participation, by any interested and
qualified private entity. Furthermore, it is well to point out that after BCDA accepted the
unsolicited proposal of SMLI and after both parties herein successfully concluded the
detailed negotiations on the terms and conditions of the project, SMLI acquired the status
of an Original Proponent. An Original Proponent, per the TOR, pertains to the party whose
unsolicited proposal for the development and privatization of the subject property through
Joint Venture with BCDA has been accepted by the latter, subject to certain conditions, and
is now being subjected to a Competitive Challenge. In this regard, SMLI insists that as an
Original Proponent, it obtained the right to a completed Competitive Challenge. A scrutiny
of the NEDA JV Guidelines reveals that certain rights are conferred to an Original Proponent.
As correctly pointed out by SMLI, these rights include the right to the conduct and
completion of a competitive challenge. UST Law Review, Vol. LIX, No. 1, May 2015 by their
mutual consent and in signing the Certification, both parties, in effect, entered into a binding
agreement to subject the unsolicited proposal to the Competitive Challenge. Evidently, the
Certification partakes of a contract wherein BCDA committed itself to proceed with the
Third Stage of the process and simultaneously grants SMLI the right to expect that the BCDA
will fulfill its obligations under the same. The preconditions to the conduct of the
Competitive Challenge having been met, what is left, therefore, is to subject the terms
agreed upon to a Competitive Challenge.
91
TRADERS ROYAL BANK v. CUISON LUMBER CO., INC.,
G.R. No. 174286, June 5, 2009
PONENTE: WILLARAMA, J.
TOPIC: Acceptance
FACTS:
On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president,
Roman Cuison Sr., obtained two loans from the bank. The loans were secured by a real
estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 10282
(subject property). CLCI failed to pay the loan, prompting the bank to extra judicially
foreclose the mortgage on the subject property. The bank was declared the highest bidder
at the public auction that followed, conducted on August 1, 1985. A Certificate of Sale and a
Sheriff’s Final Certificate of Sale were subsequently issued in the bank’s favor. In a series of
written communications between CLCI and the bank, CLCI manifested its intention to
restructure its loan obligations and to repurchase the subject property. On July 31, 1986,
Mrs. Cuison, the widow and administratrix of the estate of Roman Cuison Sr., wrote the
bank’s Officer-in-Charge, Remedios Calaguas, a letter indicating her offered terms of
repurchase. CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on
September 3, 1986). The bank received and regarded these amounts as “earnest money” for
the repurchase of the subject property. On October 20, 1986, the bank sent Atty. Roman
Cuison, Jr. (Atty. Cuison), as the president and general manager of CLCI, a letter informing
CLCI of the bank’s board of directors’ resolution of October 10, 1986 (TRB Repurchase
Agreement), laying down the conditions for the repurchase of the subject property. CLCI
failed to comply with the terms notwithstanding the extensions of time given by the bank.
Nevertheless, CLCI tendered, on February 3, 1987, a check forP135,091.57 to cover fifty
percent (50%) of the twenty percent (20%) bid price. The check, however, was returned for
“insufficiency of funds.” On May 13, 1987, CLCI tendered an additional P50,000.00. On May
29, 1987, the bank sent Atty. Cuison a letter informing him that the P185,000.00 CLCI paid
was not a deposit, but formed part of the earnest money under the TRB Repurchase
Agreement. On August 28, 1987, Atty. Cuison, by letter, requested that CLCI’s outstanding
obligation of P1,221,075.61 (as of July 31, 1987) be reduced to P1 million, and the amount of
P221,075.61 be condoned by the bank. To show its commitment to the request, CLCI paid the
bank P100,000.00 and P200,000.00 on August 28, 1987. The bank credited both payments as
earnest money. A year later, CLCI inquired about the status of its request. The bank
responded that the request was still under consideration by the bank’s Manila office. On
September 30, 1988, the bank informed CLCI that it would resell the subject property at an
offered price of P3 million, and gave CLCI 15 days to make a formal offer; otherwise, the
bank would sell the subject property to third parties. On October 26, 1988, CLCI Contracts
offered to repurchase the subject property for P1.5 million, given that it had already
tendered the amount ofP400,000.00 as earnest money. CLCI subsequently claimed that the
92
bank breached the terms of repurchase, as it had wrongly considered its payments (in the
amounts of P140,485.18, P200,000.00 andP100,000.00) as earnest money, instead of
applying them to the purchase price. Through its counsel, CLCI demanded that the bank
rectify the repurchase agreement to reflect the true consideration agreed upon for which
the earnest money had been given. The bank did not act on the demand. Instead, it
informed CLCI that the amounts it received were not earnest money, and that the bank was
willing to return these sums, less the amounts forfeited to answer for the unremitted rentals
on the subject property. In view of these developments, CLCI and Mrs. Cuison, on February
10, 1989, filed with the RTC a complaint for breach of contract, specific performance,
damages, and attorney’s fees against the bank. On April 20, 1989, the bank filed its Answer
alleging that the TRB repurchase agreement was already cancelled given CLCI’s failure to
comply with its provisions.
ISSUE:
Whether or not a perfected contract of repurchase existed and can be enforced
between the parties.
HELD:
Yes. Under the law, a contract is perfected by mere consent, that is, from the
moment that there is a meeting of the offer and the acceptance upon the thing and the
cause that constitute the contract. The law requires that the offer must be certain and the
acceptance absolute and unqualified. An acceptance of an offer may be express and implied;
a qualified offer constitutes a counter-offer. Case law holds that an offer, to be considered
certain, must be definite, while an acceptance is considered absolute and unqualified when
it is identical in all respects with that of the offer so as to produce consent or a meeting of
the minds. We have also previously held that the ascertainment of whether there is a
meeting of minds on the offer and acceptance depends on the circumstances surrounding
the case. The clear and neat principle is that the offer must be certain and definite with
respect to the cause or consideration and object of the proposed contract, while the
acceptance of this offer – express or implied – must be unmistakable, unqualified, and
identical in all respects to the offer. The required concurrence, however, may not always be
immediately clear and may have to be read from the attendant circumstances; in fact, a
binding contract may exist between the parties whose minds have met, although they did
not affix their signatures to any written document. The facts of the present case, although
ambivalent in some respects, point on the whole to the conclusion that both parties agreed
to the repurchase of the subject property.
93
SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and MARCELINO SOTTO vs. HON.
AUXENCIO C. DACUYCUY ET. AL.,
G.R. No. L-55048 May 27, 1981
PONENTE: BARREDO
TOPIC: ACCEPTANCE
FACTS:
In essence, the theory of petitioners is that while it is true that they did express willingness
to sell to private respondents the subject property (land and building) for P6,500,000.00
provided the latter made known their own decision to buy it not later than July 31, 1978, the
respondents' reply that they were agreeable was not absolute, so much so that when
ultimately petitioners' representative went to Cebu City with a prepared and duly signed
contract for the purpose of perfecting and consummating the transaction, respondents and
said representative found variance between the terms of payment stipulated in the
prepared document and what respondents had in mind, hence the bank draft which
respondents were delivering to the representative was returned and the document
remained unsigned by respondents.
The respondents, in their complaint, contended “That on August 1, 1978 Pedro Gamboa
arrived Tacloban City bringing with him the prepared contract to purchase and to sell
referred to in his telegram dated July 27, 1978 for the purpose of closing the transactions
referred to in paragraphs 8 and 9 hereof, however, to the complete surprise of plaintiffs, the
defendant without giving notice to plaintiffs, changed the mode of payment with respect to
the balance of P4,500,000.00 by imposing upon plaintiffs to pay same amount within thirty
(30) days from execution of the contract instead of the former term of ninety (90) days.”
ISSUES:
1. Whether or not the complaint sufficiently states a cause of action?
2. Whether or not the claim alleged therein is unenforceable under the Statute of
Frauds?
RULING:
The court held that although there was no perfected contract of sale in the light of
the letter of Atty. Gamboa of July 12, 1978 and the letter-reply thereto of Yao; it being
doubtful whether or not, under Article 1319 of the Civil Code, the said letter may be deemed
as an offer to sell that is "certain", and more, the Yao telegram is far from being an
"absolute" acceptance under said article, still there appears to be a cause of action alleged
in Paragraphs 8 to 12 of the respondents' complaint, considering it is alleged therein that
subsequent to the telegram of Yao, it was agreed that the petitioners would sell the
property to respondents for P6.5 M, by paving P2 M down and the balance in 90 days and
which agreement was allegedly violated when in the deeds prepared by Atty. Gamboa and
taken to Tacloban, only 30 days were given to respondents. Further, the court ruled that in
any sale of real property on installments, the Statute of Frauds read together with the
94
perfection requirements of Article 1475 of the Civil Code must be understood and applied in
the sense that the idea of payment on installments must be in the requisite of a note or
memorandum therein contemplated.
95
METROPOLITAN MANILA DEVELOPMENT AUTHORITY vs. JANCOM ENVIRONMENTAL
CORPORATION and JANCOM INTERNATIONAL DEVELOPMENT PROJECTS PTY. LIMITED OF
AUSTRALIA
G.R. No. 147465 January 30, 2002
PONENTE: MELO, J.
TOPIC: ACCEPTANCE
FACTS:
President Fidel Ramos issued Presidential Memorandum Order no. 202 creating an Executive
Committee (EC) to oversee and develop waste-to-energy projects for the waste disposal
sites in Rizal and Carmona under the Build-Operate-Transfer (BOT) scheme. Respondent
Jancom International Development Projects Pty. Limited of Australia was one of the bidders
for the Rizal Site which subsequently entered into a partnership with its co-respondent Asea
Brown Boveri under the firm name Jancom Environmental Corporation (JANCOM).
Consequently, EC declared JANCOM as the sole complying bidder of the Rizal Waste
Disposal Site hence a Contract for the BOT implementation of the Solid Waste Management
Project for the Rizal Site was entered between Greater Metropolitan Manila Solid Waste
Management Committee (GMMSWMC) and Metro Manila Development Authority (MMDA),
and JANCOM. The contract was submitted for approval to President Ramos who
subsequently endorsed it to then incoming President Joseph E. Estrada. Owing to the
clamor of the residents of Rizal, the Estrada administration ordered the closure of the San
Mateo landfill. GMMSWMC thereupon adopted a Resolution not to pursue the contract with
JANCOM, citing as reasons therefore the passage of Republic Act 8749, otherwise known as
the Clean Air Act of 1999, the non-availability of the San Mateo site, and costly tipping fees.
JANCOM filed a petition with the Regional Trial Court (RTC) of Pasig City to declare the
GMMSWMC Resolution and the acts of MMDA calling for the bids for and authorizing the
forging of a new contract for the Metro Manila waste management as illegal,
unconstitutional and void, and to enjoin them from implementing the Resolution and
making another award. The trial court ruled in favor of JANCOM which was subsequently
affirmed by the Court of Appeals. The Supreme Court declared the contract valid and
perfected, albeit ineffective and unimplementable pending the approval by the President.
JANCOM and MMDA later entered into negotiations to modify certain provisions of the
contract which were embodied in a draft Amended Agreement which bore no signature of
the parties. JANCOM then filed before the Pasig City RTC an Omnibus Motion for a writ of
execution which upon its issuance, was challenged by GMMSWMC and MMDA. The Court of
Appeals however affirmed the RTC Order.
ISSUE:
Whether or not contract is ineffective and unimplentable until and unless it is approved by
the President.
96
HELD:
The only question before the Court is whether or not there is a valid and perfected
contract between the parties. As to necessity, expediency, and wisdom of the contract,
these are outside the realm of judicial adjudication. These considerations are primarily and
exclusively a matter for the President to decide. While the Court recognizes that the
garbage problem is a matter of grave public concern, it can only declare that the contract in
question is a valid and perfected one between the parties, but the same is still ineffective or
unimplementable until and unless it is approved by the President, the contract itself
providing that such approval by the President is necessary for its effectivity. In issuing the
alias writ of execution, the trial court in effect ordered the enforcement of the contract
despite this Court‘s unequivocal pronouncement that albeit valid and perfected, the
contract shall become effective only upon approval by the President.
97
NICOLAS SANCHEZ vs. SEVERINA RIGOS
G.R. No. L-25494 June 14, 1972
PONENTE: CONCEPCION, C.J.

TOPIC: ACCEPTANCE
FACTS:
In 1961, Rigos and Sanchez executed a document titled ‘Option to Purchase’ whereby
Rigos bound herself to sell a parcel of land to Sanchez for 1.5k pesos within two years from
the execution of the contract. This option contract had no distinct consideration. Sanchez
made several tenders of the purchase price to Rigos, but Rigos ignored them. Sanchez
consigned the payment in court less than 2 months before the expiration of the period to
exercise his right. In other words, Sanchez accepted the optino before Rigos could withdraw
the offer. The RTC ruled in favor of Sanchez, ordering Rigos to accept the payment of the
price. On appeal, Rigos claims that she could validly withdraw the option given to Sanchez,
even if Sanchez has opted to exercise his right, since the contract was not supported by a
separate and distinct consideration (ruling in Southwestern Sugar v Altantic Gulf).
ISSUE:
Whether or not Rigos is bound by Sanchez’ acceptance even though the option is not
supported by a separate consideration.
HELD:
Ruling in Southwestern abandoned; acceptance of option before withdrawal creates
a binding obligation to buy and sell even if not supported by consideration Even if the "offer
of option" is not supported by any consideration, the option became binding on the
promissor when the promisee gave notice to it of its acceptance, and that having accepted it
within the period of option, the offer can no longer be withdrawn and in any event such
withdrawal is ineffective. Article 1479 must be read in relation to Article 1324
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable. An accepted unilateral promise to buy or sell a determinate thing for a price
certain is binding upon the promisor if the promise is supported by a consideration distinct
from the price. ART. 1324. When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn any time before acceptance by communicating such
withdrawal, except when the option is founded upon consideration as something paid or
promised. In Southwestern, the Court said while 1324 was applicable to contracts in general,
Article 1479 specifically states that in unilateral contracts to sell, there is a need for the
separate consideration before the obligation to buy and sell arises. However, this ruling was
abandoned in the case of Atkins v Cua Hian Tek, where the Court decided there was no
distinction between the two articles. Both articles produced the same effect: the promise is
treated as an option which, although not binding as a contract in itself for lack of a separate
consideration, nevertheless generated a bilateral contract of purchase and sale upon
acceptance. In other words, since there may be no valid contract without a cause or
98
consideration, the promisor is not bound by his promise and may, accordingly, withdraw it.
Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of
an offer to sell which, if accepted, results in a perfected contract of sale.
99
SALVADOR P. MALBAROSA vs. HON. COURT OF APPEALS and S.E.A. DEVELOPMENT CORP.
G.R. No. 125761 April 30, 2003
PONENTE: CALLEJO, SR., J.:

TOPIC: ACCEPTANCE
FACTS:
The petitioner Salvador Malbarosa was the president and general manager of
Philtectic Corporation and an officer of other corporations belonging to the SEADC group of
companies. SEADC assigned to him a 1982 model Mitsubishi Gallant Super Saloon car and
was also issued membership certificates in the Architectural Center, Inc. On January 8, 1990,
Malabarosa tendered his resignation from all his positions in the SEADC group of companies
and reiterating his request for the payment of his incentive compensation for 1989 which is
approximately P395,000.00 according to him. SEADC, through its President Louis Da Costa,
accepted his resignation and entitled him to an incentive amounting to P251,057.67, which
was lower than Malbarosa's expectation. It is to be satisfied by transferring to him the car
assigned to him, which estimated fair market value is P220,000.00 and the membership
share of SEADC subsidiary, Tradestar International Inc. in the Architectural Center, Inc.
amounting to P60,000.00. The respondent prepared the letter-offer dated march 14, 1990
and required Malbarosa to affix his conformity on the space provided therefor and the date
thereof on the right bottom position of the letter. On March 16, 1990, Da Costa met with the
petitioner and handed to him the original copy of the letter-offer for his consideration but
he refused to sign it, instead said that he will review the offer first. More than two weeks
have passed and Da Costa never heard feedback from Malbarosa. Thus he decided to finally
withdraw his offer on April 3, 1996. However, Malbarosa transmitted the copy of the signed
Letter-offer to respondent on April 7, 1996 and he alleged that he had already accepted the
offer of the respondent when he affixed his conformity thereto on the space provided
therefor on March 28, 1990 and had sent to the respondent corporation on April 7, 1990 a
copy of said March 14, 1990 Letter-offer bearing his conformity to the offer of the
respondent; hence, the respondent can no longer demand the return of the vehicle in
question. He further avers that he had already impliedly accepted the offer when after said
respondent’s offer, he retained possession of the car. The RTC issued a writ of replevin while
CA affirmed RTC's decision.
ISSUES:
1. Whether there was a valid acceptance on Malbarosa's part of the March 14, 1990 letter-
offer of respondent
2. Whether there was an effective withdrawal by the respondent of said Letter-offer
100
HELD
1. NO. Article 1318 of CC says that “There is no contract unless the following requisites
concur:(1) consent of the contracting parties;(2) object certain which is the subject matter of
the contract(3) cause of the obligation which is established. In this case, there is no contract
as Malbarosa failed to meet the requirements of a valid acceptance to wit:(a) may be
express or implied(b) must be absolute, unconditional and without variance of any sort from
the offer must be made known to the offeror(d) must be made in the manner prescribed by
the offeror. Malabarosa communicated his acceptance only after the knowledge of
revocation or withdrawal of his offer. He failed to transmit his conformity while the offer
was subsisting. An acceptance which is not made in the manner prescribed by the offeror is
not effective but constitutes a counter-offer which the offeror may accept or reject. The
respondent required the petitioner to accept the offer by affixing his signature on the space
provided in said letter-offer and writing the date of said acceptance, thus foreclosing an
implied acceptance or any other mode of acceptance by the petitioner. However, when the
letter-offer of the respondent was delivered to the petitioner on March 16, 1990, he did not
accept or reject the same for the reason that he needed time to decide whether to reject or
accept the same.There was no contract perfected between the petitioner and the
respondent corporation. The petitioner’s plaint that he was not accorded by the respondent
reasonable time to accept or reject its offer does not persuade. It must be underscored that
there was no time frame fixed by the respondent for the petitioner to accept or reject its
offer. When the offeror has not fixed a period for the offeree to accept the offer, and the
offer is made to a person present, the acceptance must be made immediately. In this case,
the respondent made its offer to the petitioner when Da Costa handed over on March 16,
1990 to the petitioner its March 14, 1990 Letter-offer but that the petitioner did not accept
the offer. The respondent, thus, had the option to withdraw or revoke the offer, which the
respondent did on April 4, 1990.
2. YES, Implicit in the authority given to Philtectic Corporation to demand for and recover
from the petitioner the subject car and to institute the appropriate action against him to
recover possession of the car is the authority to withdraw the respondent's Letter-offer.
Decision of the CA is AFFIRMED
101
MAMERTO LAUDICO and FRED M. HARDEN vs. MANUEL ARIAS RODRIGUEZ, ET AL.
G.R. No. 16530 March 31, 1922
PONENTE: AVANCEÑA, J.
TOPIC: ACCEPTANCE
FACTS:
On December 9, 1997, the Airline Pilots Association of the Philippines (ALPAP) filed
with the National Conciliation and Mediation Board (NCMB) a Notice of Strike, docketed as
NCMB NCR NS 12-514-97 (Strike Case), on the grounds of unfair labor practice and union-
busting by PAL. The Secretary of the Department of Labor and Employment (DOLE)
assumed jurisdiction over the Strike Case, and issued an Order on December 23, 1997
prohibiting all actual and impending strikes and lockouts. On May 25, 1998, the DOLE
Secretary issued another Order reiterating the prohibition against strikes and lockouts.
Despite the abovementioned Orders of the DOLE Secretary, ALPAP filed a second Notice of
Strike on June 5, 1998 and staged a strike on the same day. The DOLE Secretary immediately
called PAL and ALPAP for conciliation conferences on June 6 and 7, 1998 to amicably settle
the dispute between them. After his efforts failed, the DOLE Secretary issued an Order8 on
June 7, 1998 (Return-to-Work Order) ordering the striking employees to return to work
within 24 hours from receipt of the order and for PAL management to receive them under
the same terms and conditions prior to the strike. On June 26, 1998, the members of ALPAP
reported for work but PAL did not accept them on the ground that the 24-hour period for
the strikers to return set by the DOLE Secretary in his Return-to-Work Order had already
lapsed, resulting in the forfeiture of their employment. Consequently, ALPAP filed with the
NLRC on June 29, 1998 a Complaint for illegal lockout against PAL, On August 21, 1998, the
Acting Executive Labor Arbiter ordered the consolidation of the Illegal Lockout Case with
the Strike Case pending before the DOLE Secretary. In its Motion to Dismiss and/or Position
Paper for Respondent, PAL averred that the Complaint for illegal dismissal is an offshoot of
the Strike and Illegal Lockout Cases wherein the DOLE Secretary already adjudged with
finality that the striking pilots lost their employment for participating in an illegal strike
and/or disobeying the Return-to-Work Order. Hence, PAL argued that the Complaint was
already barred by res judicata. In addition, PAL presented the following evidence to refute
complainants' allegation that they were not strikers: (a) the logbook showing that
complainants belatedly complied with the Return-to-Work Order on June 26, 1998; and (b)
the photographs showing that some of complainants were at the strike area or picket line.
The Labor Arbiter rendered a Decision declaring that the complainants were illegally
dismissed. Moreover, the LA opined that the illegal dismissal case may proceed
independently from the Strike and Lockout Cases.PAL appealed before the NLRC. The NLRC
reversed the decision of the LA declaring all but Jadie legally dismissed. Aggreived,
Rodriguez et al, dela Cruz and Poe filed a Petition for Certiori with the CA, assailing the NLRC
decision for having been rendered with grace abuse of discretion. Dela Cruz subsequently
withdrew his petition.The Court of Appeals rendered their decision favoring Rodriquez et al.,
102
and Poe. Finding them illegally dismissed, the appellate court ordered PAL to pay the
complainants separation pay in lieu of reinstatement. Motions for reconderation filed by
both parties were denied.
Hence, Rodriguez et al & PAL assail before this Court the Decision and Resolution of the
Court of Appeals by way of separate Petitions for review on Certiorari, docketed as G.R.
No.178501 and G.R. No. 178510, respectively.
ISSUE:
Whether or not 1st and 2nd ALPAP cases constitute res judicata on issue of the legality of the
Rodriguez et al’s dismissal.
RULING:
The Court declared that among the petitioner-complainants Rodriguez, et al, only
Jadie was illegally dismissed by PAL. During the strike, Jadie was already on maternity leave.
Jadie did not join the strike and could not be reasonably expected to report back for work
by June 9, 1998 in compliance with the Return-to-Work Order. Indeed, Jadie gave birth on
June 24, 1998. However, as both the NLRC and the Court of Appeals had held, Jadie can no
longer be reinstated for the following reasons: (1) Jadie's former position as Captain of the
E-50 aircraft no longer existed as said aircraft was already returned to its lessors in
accordance with the Amended and Restated Rehabilitation Plan of PAL; (2) Per ATO
certification, Jadie's license expired in 1998; (3) the animosity between the parties as
engendered by the protracted and heated litigation; (4) the possibility that Jadie had already
secured equivalent or other employment after the significant lapse of time since the
institution of the Illegal Dismissal Case; and (5) the nature of the business of PAL which
requires the continuous operations of its planes and, thus, the hiring of new pilots. In lieu of
reinstatement, Jadie is entitled to separation pay.
103
CORAZON CATALAN, LIBRADA CATALAN-LIM, EULOGIO CATALAN, MILA CATALAN-MILAN,
ZENAIDA CATALAN, ALEX CATALAN, DAISY CATALAN, FLORIDA CATALAN and GEMMA
CATALAN, Heirs of the late FELICIANO CATALAN, vs. JOSE BASA, MANUEL BASA, LAURETA
BASA, DELIA BASA, JESUS BASA and ROSALINDA BASA, Heirs of the late MERCEDES
CATALAN,
G.R. No. 159567 July 31, 2007
PONENTE: PUNO, C.J.

TOPIC: ACCEPTANCE
FACTS:
On October 20, 1948, Feliciano Catalan was discharged from active military service.
The Board of Medical Officers of the Department of Veteran Affairs found that he was unfit
to render military service due to his mental disorder (schizophrenia). On September 28,
1949, Feliciano married Corazon Cerezo. On June 16, 1951, Feliciano allegedly donated to his
sister Mercedes one-half of the real property through the execution of a document, titled,
“Absolute deed of Donation”. On December 11, 1953, People’s Bank and Trust Company filed
Special Proceedings to declare Feliciano incompetent. On December 22, 1953, the trial court
issued its Order of Adjudication of Incompetency for Appointing Guardian for the Estate and
Fixing Allowance of Feliciano. Thus, Bank of the Philippine Islands (BPI), which is formerly
the People’s Bank and Trust Company, was appointed to be his guardian by the trial court.
On March 26, 1979, Mercedes sold the property donated by Feliciano to her in issue in her
children Delia and Jesus Basa. On April 1, 1997, BPI, acting as Feliciano’s guardian filed a case
for Declaration of Nullity of Documents, Recovery of Possession and Ownership, as well as
damages against herein respondents. BPI alleged that the Deed of Absolute Donation of
Mercedes was void ab initio, as Feliciano never donated the property to Mercedes. In
addition, BPI averred that even if Feliciano had truly intended to give the property to her,
the donation would still be void, as he was not of sound mind and was therefore incapable
of giving valid consent. On August 14, 1997, Feliciano passed away. Both the lower court and
Court of Appeals dismissed the case because of insufficient evidence presented by the
complainants to overcome the presumption that Feliciano was sane and competent at the
time he executed the deed of donation in favor of Mercedes Catalan.
ISSUE:
Whether or not Feliciano has the capacity to execute the donation.
RULING:
104
The Supreme Court affirmed the decisions of the lower court and the Court of Appeals and
denied the petition. 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. A person
suffering from schizophrenia does not necessarily lose his competence to intelligently
dispose his property. By merely alleging the existing 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 facilities. Thus, the lower court correctly held that Feliciano
was of sound mind at that time and this condition continued to exist until proof to the
contrary was adduced. Since the donation was valid. Mercedes has 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 property to her children was tainted with fraud or falsehood.
Thus, the property in question belongs to Delia and Jesus Basa. The Supreme Court notes
the issue of prescription and laches for the first time on appeal before the court. It is
sufficient for the Supreme Court to note that even if it prospered, the deed of donation was
still a voidable, not a void, contract. As such, it remained binding as it was not annulled in a
proper action in court within four years.
105
ROBERTO DOMINGO, petitioner, vs. COURT OF APPEALS and DELIA SOLEDAD AVERA
represented by her Attorney-in-Fact MOISES R. AVERA,
G.R. No. 104818 September 17, 1993
PONENTE: ROMERO, J.
TOPIC: ACCEPTANCE
FACTS:
Roberto Domingo married Delia Soledad in 1976 while being married with Emerlina dela Paz.
He has been unemployed and completely dependent upon Delia, who has been working in
Saudi Arabia, for support and subsistence. Delia only found out about the prior marriage
when Emerlina sued them for bigamy in 1983. In 1989, she found out that Roberto was
cohabiting with another woman and he was disposing of some of her properties without her
knowledge and consent. In May 1991, Delia filed a petition for judicial declaration of nullity of
her marriage to Roberto and separation of property.
ISSUE:
Whether or not a petition for judicial declaration of a void marriage is necessary. If in
affirmative, whether the same should be filed only for purpose of remarriage.
RULING:
Yes. A declaration of the absolute nullity of marriage is now explicitly required either as a
cause of action or a ground for defense. Where the absolute nullity of a previous marriage is
sought to be invoked for purpose of contracting a second marriage, the sole basis
acceptable in law for the said projected marriage be free from legal infirmity is a final
judgment declaring the previous marriage void. The requirement for a declaration of
absolute nullity of a marriage is also for the protection of the spouse who, believing that his
or her marriage is illegal and void, marries again. With the judicial declaration of the nullity of
his or her first marriage, the person who marries again cannot be charged with bigamy.
Article 40 as finally formulated included the significant clause denotes that final judgment
declaring the previous marriage void need not be obtained only for purposes of remarriage.
A person can conceive of other instances other than remarriage, such as in case of an action
for liquidation, partition, distribution and separation of property between the spouses, as
well as an action for the custody and support of their common children and the delivery of
the latters' presumptive legitimes. In such cases, however, one is required by law to show
proof that the previous one was an absolute nullity. Marriage is an “inviolable social
institution, is the foundation of the family;” as such, it “shall be protected by the State. As a
matter of policy, there should be a final judgment declaring the marriage void and a party
should not declare for himself or herself whether or not the marriage is void.
106
MARIO J. MENDEZONA and TERESITA M. MENDEZONA, LUIS J. MENDEZONA and MARICAR
L. MENDEZONA and TERESITA ADAD VDA. DE MENDEZONA vs. JULIO H. OZAMIZ,
ROBERTO J. MONTALVAN, JOSE MA. OZAMIZ, CARMEN H. OZAMIZ, PAZ O. MONTALVAN,
MA. TERESA O.F. ZARRAGA, CARLOS O. FORTICH, JOSE LUIS O. ROS, PAULITA O.
RODRIGUEZ, and LOURDES O. LON
G.R. No. 143370 February 6, 2002
PONENTE: DE LEON, JR., J.

TOPIC: ACCEPTANCE
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 pf 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
107
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 court erred in ruling that the Deed of Absolute Sale dated April 28, 1989 was a
simulated contract.
HELD:
The Supreme Court ruled that the contact was not simulated. Contrary to the erroneous
conclusions of the appellate court, a simulated contract cannot be inferred from the mere
non production of checks. It was not the 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 a notary public. As such, it is in favor of presumption of regularity and
it carries the evidentiary weight conferred upon it with respect to its due execution.
Moreover, A person is not incapacitated to contact merely because of 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 properly, intelligently, and fairly protecting her property
rights is considered incapacitated.
108
Theis vs. COURT OF APPEALS et. Al.
G.R. No. 126013. 12 Feb 1997
PONENTE: Hermosisima, Jr., J.:

TOPIC: VICES OF WILL
FACTS:
Private respondent Calsons Development Corporation is the owner of three (3)
adjacent parcels of land (parcel nos.1, 2 and 3). All three parcels of land are situated in
Tagaytay City. Adjacent to parcel no.3 is a vacant lot denominated as parcel no. 4. In 1985,
Private respondent constructed a two-srorey house on parcel no. 3 and the two other lots
remained idle. In a survey conducted in 1985, parcel no. 3 was erroneously indicated to be
covered by the TCT of parcel no. 1, while the parcel no. 1 and parcel no. 2 were mistakenly
surveyed to be located on parcel no. 4 instead. Unaware of the mistake private respondent
sold said parcel no. 4 to petitioners. In 1990, petitioners discovered that parcel no. 4 was
owned by another person. They also discovered that the lots actually sold to them were
parcel nos. 2 and 3. To remedy the mistake, private respondent offered parcel nos. 1 and 2 as
these two were precisely the two vacant lots which private respondent owned and intended
to sell. Petitioners rejected the good faith offer. Private respondent made another offer, this
time the return of an amount double the price paid by petitioners. Petitioners still refused.
Private respondent was then compelled to file an action for annulment of deed of sale and
reconveyance of the properties subject thereof in the RTC which ruled on their favor and on
appeal, the CA affirmed the same.
ISSUE:
Whether or not petitioners should be allowed to take parcel no. 3.
RULING:
The SC held that private respondent obviously committed an honest mistake in
selling parcel no. 4. The good faith of the private respondent is evident in the fact that when
the mistake was discovered, it immediately offered two other vacant lots to the petitioners
or to reimburse them with twice the amount paid. That petitioners refused either option left
the private respondent with no other choice but to file an action for the annulment of the
deed of sale on the ground of mistake.
To allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment.
Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to
accept the offer of the private respondent to give them two (2) other vacant lots in
exchange, as well as their insistence on parcel no. 3, which is a house and lot, is manifestly
unreasonable. Petition dismissed. CA decision affirmed.
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RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR.,
vs. THE COURT OF APPEALS and MAXIMA CASTRO
G.R. No. L-32116, April 2l, 1981
PONENTE: De Castro, J.
TOPIC: Vices of Will
FACTS:
Maxima Castro, accompanied by Severino Valencia, went to the Rural
Bank of Caloocan to apply for a loan. Valencia arranged everything about the loan with the
bank. He supplied to the latter the personal data required for Castro's loan application. After
the bank approved the loan for the amount of P3,000.00, Castro, accompanied by the
Valencia spouses, signed a promissory note corresponding to her loan in favor of the bank.
On the same day, the Valencia spouses obtained from the bank an equal amount of loan for
P3,000.00. They signed another promissory note (Exhibit "2") corresponding to their loan in
favor of the bank and had Castro affixed thereon her signature as co-maker. Both loans were
secured by a real-estate mortgage on Castro's house and lot. Later, the sheriff of Manila sent
a notice to Castro, saying that her property would be sold at public auction to satisfy
the obligation covering the two promissory notes plus interest and attorney's fees. Upon
request by Castro and the Valencias and with conformity of the bank, the auction sale was
postponed, but was nevertheless auctioned at a later date. Castro claimed that she is a 70-
year old widow who cannot read and write in English. According to her, she has only finished second
grade. She needed money in the amount of P3,000.00 to invest in the business of the defendant
spouses Valencia, who accompanied her to the bank to secure a loan of P3,000.00. While at
the bank, an employee handed to her several forms already prepared which she was asked
to sign, with no one explaining to her the nature and contents of the documents. She also
alleged that it was only when she received the letter from the sheriff that she learned that
the mortgage contract which was an encumbrance on her property was for P6.000.00 and
not for P3,000.00 and that she was made to sign as co-maker of the promissory note
without her being informed. Castro filed a suit against petitioners contending that thru
mistake on her part or fraud on the part of Valencias she was induced to sign as co-maker
of a promissory note and to constitute a mortgage on her house and lot to secure the
questioned note. At the time of filing her complaint, respondent Castro deposited the
amount of P3,383.00 with the court a quo in full payment of her personal loan plus interest.
Castro prayed for: the annulment as far as she is concerned of the promissory note (Exhibit
"2")and mortgage (Exhibit "6") insofar as it exceeds P3,000.00; and for the discharge of her
personal obligation with the bank by reason of a deposit of P3,383.00 with the court a quo
upon the filing of her complaint.
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ISSUE:
Whether or not respondent court correctly affirmed the lower court in declaring the
promissory note (Exhibit 2) invalid insofar as they affect respondent Castro vis-à-vis
petitioner bank, and the mortgage contract (Exhibit 6) valid up to the amount of P3,000.00
only.
HELD:
Yes. While the Valencias defrauded Castro by making her sign the promissory note
and the mortgage contract, they also misrepresented to the bank Castro's personal
qualifications in order to secure its consent to the loan. Thus, as a result of the fraud upon
Castro and the misrepresentation to the bank inflicted by the Valencias both Castro and the bank committed
mistake in giving their consents to the contracts
In other words, substantial mistake vitiated their consents given. For if Castro had
been aware of what she signed and the bank of the true qualifications of the loan applicants,
it is evident that they would not have given their consents to the contracts. Article 1342 of
the Civil Code which provides: Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has created substantial mistake and the same
is mutual.
We cannot declare the promissory note valid between the bank and Castro and the mortgage
contract binding on Castro beyond the amount of P3,000.00, for while the contracts may not be
invalidated insofar as they affect the bank and Castro on the ground of fraud because the bank was not
a participant thereto, such may however be invalidated on the ground of substantial mistake
mutually committed by them as a consequence of the fraud and misrepresentation inflicted by the Valencias
Thus, in the case of Hill vs. Veloso, this Court declared that a contract may be
annulled on the ground of vitiated consent if deceit by a third person, even without
connivance or complicity with one of the contracting parties, resulted in mutual error on the
part of the parties to the contract. The fraud particularly averred in the complaint, having
been proven, is deemed sufficient basis for the declaration of the promissory note invalid
insofar as it affects Castro vis-a-vis the bank, and the mortgage contract valid only up to
the amount of P3,000.00.
111
DUMEZ COMPANY OF FRANCE vs. NLRC
GR NO. 82340, AUGUST 12, 1991
PONENTE: Feliciano, J.
FACTS:
Petitioner Dumez Company of France ("Dumez") is a French corporation which hires

Filipino workers through Eastern Construction Company, Inc. ("ECCOI"), a corporation
existing under the laws of and domiciled in the Philippines. Sometime in 1984, Dumez
needed additional manpower, including four (4) Senior Draftsmen at a proposed wage of
US$600.00 per month for its Medical City project in Riyadh, Saudi Arabia. Upon approval by
the Philippine Overseas Employment Administration ("POEA") of its corresponding request,
petitioner alleges, ECCOI summoned these draftsmen and gave each of them copy of their
respective Manpower Requisition Slip which indicated their name, category ("Senior
Draftsmen") and monthly basic salary (US$600.00). Among the draftsmen hired was private
respondent Florante Jose. Consequently, ECCOI and the draftsmen entered into an
overseas employment agreement.
Since ECCOI has no personality in Saudi Arabia, the draftsmen signed another set of
overseas employment agreements with Dumez. Private respondent signed his agreement
on 16 January 1985. The monthly salary under Section 3 (j) of that agreement is based on
eight (8) hours per day for six (6) working days and one (1) paid rest day per week or a total
of 240 hours per month. Though the employment agreements of the other three (3) Senior
Draftsmen reflected the amount of US$600.00 as the monthly base salary and US$2.50 as
the normal hourly rate, that of private respondent, however, showed the amount of
US$680.00 monthly base salary but with the same hourly rate of US$2.50.
On 23 January 1985, private respondent commenced working at Medical City, Riyadh,

Saudi Arabia. Petitioner avers that it discovered the discrepancy in respondent's monthly
base salary when the site management in Saudi Arabia prepared the papers relating to
respondent's first month's salary. This was subsequently communicated to the Philippine
office. Mrs. Carmen Francisco of ECCOI explained in her affidavit that the discrepancy was
due to a typographical error, further alleging that private respondent was given a copy of
the Manpower Requisition Slip prior to his signing of the employment agreement with
Dumez. Petitioner also claims that Florante Jose was subsequently informed that the
necessary correction would have to be made on his salary and was requested to sign new
contract papers showing his monthly basic salary as US$600.00 with an hourly rate of
US$2.50, but that Jose insisted on being paid US$680.00 a month. Petitioner eventually
acceded by paying US$680.00 for services rendered in the first month of his employment
subject, however, to the condition that Mr. Jose would be transferred to a new job
112
classification that would match his desired salary scale. Petitioner found that no job
with a higher classification was at that particular time available. On 9 February 1985, Mr.
Jose's services were terminated on the ground of "surplus employee, excess of manpower
and retrenchment." On 28 February 1985, private respondent was repatriated to the
Philippines with petitioner shouldering his return fare expenses. On 13 September 1985,
private respondent filed a complaint for illegal dismissal before the POEA, raising the issue
of whether or not there had been a breach of contract of employment on the part of
Dumez.
ISSUE:
Was there a breach of contract that would amount to illegal dismissal?
HELD:
It is clear from the facts here that the amount of the monthly salary base was a prime or
essential consideration of the parties in signing the employment contract. Mutual mistake,
however, prevented the proposed contract from arising. Each of the parties signed the
employment agreement bearing a different salary rate in mind. While private respondent
insists that he entered the employment agreement on the belief that he would be receiving
the amount of US$680.00 as his monthly basic salary as stated in the employment
agreement, Dumez was able to prove that said amount of US$680.00 was the result
of a clerical error and that it had always intended to give only the amount of US$600.00 for
the services of private respondent.
The evidence of both parties corroborate petitioner's claim. The employment

agreements signed by the other Senior Draftsmen with petitioner and the Manpower
Requisition Slips of each of them duly show the amount of US$600.00 as the monthly salary
base. The POEA itself mentioned in its decision that it had approved the proposed wage
schedule of four (4) Senior Draftsmen at US$600.00 per month per draftsman. Although the
employment agreement between private respondent and Dumez showed the amount of
US$680.00 as the monthly base salary, this amount is contradicted by the normal hourly rate
of US$2.50 inscribed thereon.
ACCORDINGLY, the Court Resolved to GRANT the Petition and to SET ASIDE and
NULLIFY the Decision of the National Labor Relations Commission dated 20 January
1988. The Court also Resolved to REINSTATE the Decision of the Philippine Overseas
Employment Administration in POEA Case No. 85-09-0689 with modification that private
respondent Florante Jose shall be awarded the amount of US$1,200.00 or its peso
equivalent at the time of payment. No costs.
113
HILL vs. VELOSO
31 PHIL 160, July 24, 1915
PONENTE:
FACTS:
On July 24, 1915 Maximina Veloso claimed that she was tricked by her son-in-law
Domingo Franco into signing a blank document, unknowingly binding her to a debt of P6,319
to Michael & Co. She thought, according to her, she was made to sign to acknowledge an
obligation to pay for the guardianship of the minor children of Potenciano Veloso (her
brother). And that she learned of the true nature of the document (a promissory note to
Michael & Co.) only after Franco’s death. But, clearly her signatures on the promissory note
were obtained by means of fraud.
ISSUE:
Whether or not deceit by a third person even without connivance or complicity with
one of the contracting parties is valid?
HELD:
Granted there was deceit in executing the Promissory Note to Michael & Co., still the
deceit and error alleged could not annul the consent of Veloso nor exempt her from
the obligation incurred. The deceit, in order that it may annul the consent, must be that
which the law defines as a cause.“There is deceit when by words or insidious machinations
on the part of one of the contracting parties, the other is inducedto execute a contract
which without them he would not have made.”
Franco was not one of the contracting parties who may have deceitfully induced the
other contracting party, Michael & Co.,to execute the contract. The one and the other of the
contracting parties, to whom the law refers, are the active and passive subjects of the
obligation, the party of the first part and the party of the second part who execute the
contract. The active subject and the party of the first part of the Promissory Note in question
was Michael & Co., and the passive subject and party of the second part were Veloso and
Franco.
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Veloso and Franco, therefore, composed a single contracting party in contractual
relation with or against Franco, like any other person who might have induced Veloso into
signing the Promissory Note under the influence of deceit, would be but a third person.
Under the Civil Code, deceit by a third person does not in general annul consent. This deceit
may give rise to more or less extensive and serious responsibility on the part of the third
person (Franco) and a corresponding right of action for the contracting party prejudiced
(Veloso). Veloso will probably just have to file an action against the estate of Franco.
115
FONTANA RESORT AND COUNTRY CLUB, INC. AND RN DEVELOPMENT CORP.,
PETITIONERS, VS. SPOUSES ROY S. TAN AND SUSAN C. TAN, RESPONDENTS.
[G.R. No. 154670 : January 30, 2012]
PONENTE: Leonardo-De Castro, J.

TOPIC: Consent- Fraud/Deceit
FACTS:
For review under Rule 45 of the Rules of Court is the Decision[1] dated May 30, 2002 and
Resolution[2]dated August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816. The
appellate court affirmed with modification the Decision[3] dated July 6, 2001 of the Securities
and Exchange Commission (SEC) En Bancin SEC AC Case No. 788 which, in turn, affirmed the
Decision[4] dated April 28, 2000 of Hearing Officer Marciano S. Bacalla, Jr. (Bacalla) of the
SEC Securities Investigation and Clearing Department (SICD) in SEC Case No. 04-99-6264.
Sometime in March 1997, respondent spouses Roy S. Tan and Susana C. Tan bought
from petitioner RN Development Corporation (RNDC) two class “D” shares of stock in
petitioner Fontana Resort and Country Club, Inc. (FRCCI), worth P387,300.00, enticed by the
promises of petitioners’ sales agents that petitioner FRCCI would construct a park with first-
class leisure facilities in Clark Field, Pampanga, to be called Fontana Leisure Park (FLP); that
FLP would be fully developed and operational by the first quarter of 1998; and that FRCCI
class “D” shareholders would be admitted to one membership in the country club, which
entitled them to use park facilities and stay at a two-bedroom villa for “five (5) ordinary
weekdays and two (2) weekends every year for free.”[5]
Two years later, in March 1999, respondents filed before the SEC a Complaint[6] for
refund of the P387,300.00 they spent to purchase FRCCI shares of stock from
petitioners. Respondents alleged that they had been deceived into buying FRCCI shares
because of petitioners’ fraudulent misrepresentations. Construction of FLP turned out to be
still unfinished and the policies, rules, and regulations of the country club were obscure.
ISSUE:
Whether or not there was Fraud or Deceit.
HELD:
In this case, respondents have miserably failed to prove how petitioners employed
fraud to induce respondents to buy FRCCI shares. It can only be expected that petitioners
116
presented the FLP and the country club in the most positive light in order to attract investor-
members. There is no showing that in their sales talk to respondents, petitioners actually
used insidious words or machinations, without which, respondents would not have bought
the FRCCI shares. Respondents appear to be literate and of above-average means, who may
not be so easily deceived into parting with a substantial amount of money. What is apparent
to us is that respondents knowingly and willingly consented to buying FRCCI shares, but
were later on disappointed with the actual FLP facilities and club membership benefits.
Similarly, the SC found no evidence on record that petitioners defaulted on any of their
obligations that would have called for the rescission of the sale of the FRCCI shares to
respondents.
117
ALEJANDRO V. TANKEH vs. DEVELOPMENT BANK OF THE PHILIPPINES, STERLING SHIPPING
LINES, INC., RUPERTO V. TANKEH, VICENTE ARENAS, and ASSET PRIVATIZATION TRUST
709 scra 19; G.R. No. 171428, November 11, 2013
PONENTE: Leonen, J.
FACTS:
Respondent Ruperto V. Tankeh is the President of Sterling Shipping Lines who
applied a loan from Development Bank of the Philippines for the partial financing of M/V
Golden Lilac (now as M/V Sterling Ace).
Petitioner Dr. Alejandro V. Tankeh alleged that his younger brother, Ruperto
approached and informed him that the latter was operating a new shipping line business
and offered him (Dr.) 1,000 shares to be the director of the business worth 1M Pesos.
In 1981, petitioner signed the Assignment of Shares of Stock with Voting Rights and
the promissory note. The loan was then approved by DBP. Sometime in 1987, DBP sold the
M/V Sterling Ace in Singapore. Petitioner filed several Complaints and that the promissory
note he signed in 1981 be declared null and void on the ground that he was fraudulently
deceive into signing the contract.
ISSUE:
Whether the fraud contemplated serious enough to render a contract voidable.
HELD:
Ruperto V. Tankeh was liable for the commission of incidental fraud for refusing to
allow petitioner to participate in the management of the business. Although there was no
fraud that had been undertaken to obtain petitioner’s consent, there was fraud in the
performance of the contract. The records showed that petitioner had been unjustly
excluded from participating in the management of the affairs of the corporation. This
exclusion from the management in the affairs of Sterling Shipping Lines, Inc. constituted
fraud incidental to the performance of the obligation.There are two types of fraud
contemplated in the performance of contracts: dolo incidente or incidental fraud and dolo
causante or fraud serious enough to render a contract voidable.
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Dolo Causante or causal fraud (Art.1338)
 are those deceptions or misrepresentations of a serious character employed by one party
and without which the other party would not have entered into the contract.
 Dolo causante determines or is the essential cause of the consent.
 The effects of dolo causante are the nullity of the contract and the indemnification of
damages.
Dolo incidente, or incidental fraud (Art. 1344)
 are those which are not serious in character and without which the other party would still
have entered into the contract.
 refers only to some particular or accident of the obligation. and
 dolo incidente obliges the person employing it to pay damages.
119
SPS. TONGSON V. EMERGENCY PAWNSHOP
G.R. NO. 167874, 15 JANUARY 2010
PONENTE: Carpio, J.
FACTS:
Napala offered to purchase the land of Spouses Tongson for P3,000,000. The
petitioners find the offer acceptable executed with Napala a Memorandum of Agreement.
Upon signing of the Deed of Absolute Sale Napala paid P200,000 in cash to petitioners and
issued a postdated PNB check for the payment of the remaining amount. However, the
check bounces because of insufficient fund, despite the petitioners repeated demand that it
be paid in full or return the land, Napala failed to do both now the petitioners filed an action
against Napala.
ISSUE:
Whether or not the contract of sale can be annulled based on the fraud employed by Napala.
RULING:
A valid contract requires the concurrence of the following essential elements: (1)
consent or meeting of the minds, that is, consent to transfer ownership in exchange for the
price; (2) determinate subject matter; and (3) price certain in money or its equivalent.
In the case, there is no dispute as regards the presence of the two requisites for a
valid sales contract, namely, (1) a determinate subject matter and (2) a price certain in
money. The problem now lie with the existence of the remaining element, which is consent
of the contracting parties, specifically, the consent of the Spouses Tongson to sell the
property to Napala.
The Supreme Court found no causal fraud in this case to justify the annulment of the
contract of sale between the parties. It is clear from the records that the Spouses Tongson
agreed to sell their property to Napala who offered to pay ₱3,000,000 as purchase price
therefor. Contrary to the Spouses Tongson’s belief that the fraud employed by Napala was
“already operational at the time of the perfection of the contract of sale,” the
misrepresentation by Napala that the postdated PNB check would bounce on its maturity
hardly equates to dolo causante. Napala’s assurance that the check he issued was fully
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funded was not the principal inducement for the Spouses Tongson to sign the Deed of
Absolute Sale. Even before Napala issued the check, the parties had already consented and
agreed to the sale transaction. The Spouses Tongson were never tricked into selling their
property to Napala. On the contrary, they willingly accepted Napala’s offer to purchase the
property at ₱3,000,000. In short, there was a meeting of the minds as to the object of the
sale as well as the consideration therefor.
Instances where there is an existence of causal fraud include: (1) when the seller,
who had no intention to part with her property, was “tricked into believing”; (2) when the
signature of the authorized corporate officer was forged; or (3) when the seller was
seriously ill, and died a week after signing the deed of sale raising doubts on whether the
seller could have read, or fully understood, the contents of the documents he signed or of
the consequences of his act. Suffice it to state that nothing analogous to these badges of
causal fraud exists in this case.
However, while no causal fraud attended the execution of the sales contract, the
fraud surfaced when Napala issued the worthless check to the Spouses Tongson, which is
definitely not during the negotiation and perfection stages of the sale. Rather, the fraud
existed in the consummation stage of the sale when the parties are in the process of
performing their respective obligations under the perfected contract of sale.
121
ECE Realty v. Mandap
G.R. No. 196182, 1 September 2014
PONENTE: Peralta, J.
TOPIC: Consent- Fraud/ Deceit
FACTS:
The petitioner is a corporation engaged in building condominium units. The petitioner
started its construction at Pasay City. However, in their advertisement it provides that it is
situated in Makati City. The respondent in belief that the condo unit was in Makati City
agreed to buy a unit by paying reservation fee, downpayment and monthly installments. In
their Contract to Sell it indicated therein that the condo unit was in Pasay City.
More than two years after the execution of the contract, respondent demanding the
return of her payment on the ground that the unit was built in Pasay not in Makati.
ISSUE:
Whether petitioner was guilty of fraud and if so, whether such fraud is sufficient
ground to nullify its contract with respondent.
RULING:
First, the fraud must be dolo causante or it must be fraud in obtaining the consent of
the party. This is referred to as causal fraud. The deceit must be serious. The fraud is serious
when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which
cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each
case should be considered, taking into account the personal conditions of the victim.
Second, the fraud must be proven by clear and convincing evidence and not merely by
preponderance thereof.
In the present case, the Supreme Court finds that petitioner is guilty of false
representation of a fact. This is evidenced by its printed advertisements indicating that its
subject condominium project is located in Makati City when, in fact, it is in Pasay City.
However, insofar as the present case is concerned, the Court agrees with the Housing and
Land Use Arbiter, the HLURB Board of Commissioners, and the Office of the President, that
the misrepresentation made by petitioner in its advertisements does not constitute causal
fraud which would have been a valid basis in annulling the Contract to Sell between
petitioner and respondent.
122
“Being a notarized document, it had in its favor the presumption of regularity, and to
overcome the same, there must be evidence that is clear, convincing and more than merely
preponderant; otherwise, the document should be upheld. Mandap failed to overcome this
presumption.
123
SPOUSES VICTOR and EDNA BINUA vs.LUCIA P. ONG
G.R. No. 207176, June 18, 2014
PONENTE: Reyes, J.
TOPIC: Consent- Intimidation
FACTS:
Petitioner Edna was convicted of Estafa and was sentenced to imprisonment. She
was likewise ordered to pay the respondent the amount of ₱2.3M, with ten percent (10%)
interest, and damages. To avoid criminal liability, petitioner settled her indebtedness by
mortgaging her husband Victor’s properties.
However, Edna failed to settle her obligation, thus the mortgage was foreclosed. The
Sps. Binua then filed the case to nullify the Mortgage Contracts, alleging that it
was “executed under duress, that at the time of the execution of said deeds Edna was still
suffering from the effect of the conviction, and could not have been freely entered into said
contracts.”
RTC dismissed the case, citing Art. 1335 of the Civil Code, “A threat to enforce one’s
claim through competent authority, if the claim is just or legal, does not vitiate consent.” CA
affirmed the decision of the lower court.
ISSUE:
Whether the mortgage contracts were executed under duress.
HELD:
Article 1335 of the Civil Code states that, “[a] threat to enforce one’s claim through
competent authority, if the claim is just or legal, does not vitiate consent.”
In De Leon v. Court of Appeals, the Court held that in order that intimidation may vitiate
consent and render the contract invalid, the following requisites must concur:
1. that the intimidation must be the determining cause of the contract, or must have caused
the consent to be given;
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2. that the threatened act be unjust or unlawful;
3. that the threat be real and serious, there being an evident disproportion between the evil
and the resistance which all men can offer, leading to the choice of the contract as the
lesser evil; and
4. that it produces a reasonable and well-grounded fear from the fact that the person from
whom it comes has the necessary means or ability to inflict the threatened injury.
Petitioner Edna’s conviction was a result of a valid judicial process and her imprisonment is a
legal consequence of such conviction. The threat to prosecute for estafa is not an unjust act,
but rather a valid and legal act to enforce a claim, and cannot at all be considered as
intimidation.
Petition is denied.
125
CARMELA BROBIO MANGAHAS vs. EUFROCINA A. BROBIO
G.R. No. 183852, October 20, 2010
PONENTE: Nachura, J.
TOPIC: Consent- Intimidation
FACTS:
Pacifico died and left 3 parcels of land. He was survived by his wife, Eufrocina, 4legit
and 3 illegit children. Carmela is one of the illegitimate children. The heirs executed a Deed
of Extrajudicial Settlement of Estate with Waiver. In the Deed, Carmela and the other
children, in consideration of their love and affection for Eufrocina and the sum of
P150k waived their shares over the land in favor of Eufrocina. According to Carmela,
Eufrocina promised to give her an additional amount for her share in her father’s estate.
After the signing of the Deed, Carmela demanded from Eufrocina the promised additional
amount, but Eufrocina refused topay. Later, Eufrocina needed an original copy of the Deed
for submission to the BIR. She didn’t have a copy anymore so she asked Carmela to
countersign a copy of the Deed. Carmela refused, demanding that Eufrocina first give her
the additional amount that she promised. Carmela asked for P1M, but Eufrocina begged her
to lower the amount. Carmela agreed to lower it to P600k. Because Eufrocina did not have
the money at that time, Eufrocina executed a promissory note.Upon maturity of the
PN, Eufrocina failed and refused to pay despite several demands so Carmela filed
a complaint with the RTC. Eufrocina alleged that she was practically held "hostage" by the
demand of Carmela because at that time, Eufrocina was so much pressured to submit the
documents to the BIR. She(Eufrocina) also claimed that the circumstances in the execution
of the promissory note were obviously attended by involuntariness and the same was issued
withoutconsideration at all or for illegal consideration.
The RTC ruled in favor of Carmela. The CA reversed the RTC decision because there
was a complete absence of consideration in the execution of the promissory note, which
made it inexistent and without any legal force and effect. The court noted that "financial
assistance" was not the real reason why Eufrocina executed the promissory note, but only
to secure Carmela’s signature. The CA held that the waiver of Carmela’s share in the
properties may not be considered as the consideration of the promissory note, considering
that Carmela signed the Deed way back in 2002 and she had already received
the consideration of P150k for signing the same. The CA also found that intimidation
attended the signing of the promissory note. Eufrocina needed the Deed countersigned by
Carmela in order to comply with a BIR requirement so Eufrocina was forced to sign the
promissory note to assure Carmela that the money promised to her would be paid.
ISSUE/S:
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1. W/N the CA erred in the appreciation of the facts of this case when it found that
intimidation attended the execution of the promissory note subject of this case.
2. W/N the CA erred when it found that the promissory note was without consideration. (this
is the more relevant issue)
HELD:
1.YES
2.YES
Eufrocina insists that she was "forced" into signing the promissory
note becauseCarmela would not sign the document required by the BIR.
Being forced into a situation does not amount to vitiated consent where it is not
shown that the party is deprived of free will and choice. There is undue influence when a
person takes improper advantage of his power over the will of another, depriving the latter
of a reasonable freedom of choice. For undue influence to be present, the influence exerted
must have so overpowered the mind of a contracting party as to destroy his free agency,
making him express the will of another rather than his own. Eufrocina may have desperately
needed petitioner’s signature on the Deed, but there is no showing that she was deprived of
free agency when she signed the promissory note.
Section 24 of the NIL provides that “A contract is presumed to be supported by cause
or consideration.” The presumption that a contract has sufficient consideration cannot be
overthrown by a mere assertion that it has no consideration.
To overcome the presumption, the alleged lack of consideration must be shown by
preponderance of evidence. The burden to prove lack of consideration rests upon whoever
alleges it, which, in the present case, is Eufrocina. Eufrocina failed to prove that the
promissory note was not supported by any consideration. From her testimony and her
assertions in the pleadings, it is clear that the promissory note was issued for a cause or
consideration, which, at the very least, was Carmela’s signature on the document. It may
very well be argued that if such was the consideration, it was inadequate. Nonetheless, even
if the consideration is inadequate, the contract would not be invalidated, unless there has
been fraud, mistake, or undue influence. As previously stated, none of these grounds had
been proven present in this case.
CATINDIG VS. VDA. DE MENESES

G.R. NO. 165851, 02 FEBRUARY 2011
127
PONENTE: Mendoza, J.
TOPIC: Essential Element of a Contract
FACTS:
The late Rosendo Meneses, Sr. owns a parcel of land situated in Malolos, Bulacan, with
an area of 49,139 square meters under Transfer Certificate of Title (TCT) No. T-1749
(hereinafter referred to as the Masusuwi Fishpond). Aurora Irene C. Vda. De Meneses,
respondent, is the surviving spouse of the registered owner. She was issued Letters of
Administration over the estate of her late husband. On May 17, 1995, respondent filed a
Complaint for Recovery of Possession, Sum of Money and Damages against petitioners
Manuel Catindig and Silvino Roxas, Sr. before the Regional Trial Court of Malolos, Bulacan,
to recover possession over the Masusuwi Fishpond.
Respondent alleged that in September 1975, petitioner Catindig, the first cousin of her
husband, deprived her of her possession over the Masusuwi Fishpond, through fraud, undue
influence and intimidation. Since then, petitioner Catindig unlawfully leased the property to
petitioner Roxas. Respondent verbally demanded that petitioners vacate the said property,
but all were futile, thus, forcing respondent to send demand letters to petitioners Roxas and
Catindig. However, petitioners ignored the demand letters that led the respondent to file a
suit against the petitioners to recover the property and demanded payment of unearned
income, damages, attorney's fees and costs of suit.
In his answer, petitioner Catindig stated that in January 1978, he bought the Masusuwi
Fishpond from respondent and her children, as evidenced by a Deed of Absolute Sale.
Catindig further argued that even assuming that respondent was indeed divested of her
possession of the Masusuwi Fishpond by fraud, her cause of action had already prescribed
considering the lapse of about twenty (20) years from 1975, which was allegedly the year
when she was fraudulently deprived of her possession over the said property.
On the other hand, petitioner Roxas asserted in his own answer that respondent has no
cause of action against him, since Catindig is the lawful owner of the Masusuwi Fishpond, to
whom he had paid his rentals in advance until the year 2001.
The Trial Court ruled in favor of Meneses. Petitioners' then challenged the Trial Court's
decision before the Court of Appeals. Petitioner Catindig insisted that he holds a valid Deed
of Sale, thus, ownership belongs to him. Petitioner Roxas argued that he, relying on that
Deed of Sale, is a lessee in good faith.
After the trial, the Regional Trial Court rendered its judgment and ruled in favor of the
respondent. It was found out that the Deed of Sale executed between respondent and
petitioner Catindig was simulated and fictitious so it did not convey title over the Masusuwi
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Fishpond to Catindig. The Deed of Absolute Sale also lacked consideration, because
respondent and her children never received the stipulated purchase price for the said
property which was pegged at P150,000.00. Since ownership over the property has never
been transferred to Catindig, the trial court declared that he has no right to lease it to Roxas.
The petitioners separately challenged the trial court's decision before the Court of
Appeals. The appellate court dismissed the appeals of both petitioners because according to
the Court of Appeals, the trial court properly rejected petitioners' reliance on the Deed of
Absolute Sale between respondent and petitioner Catindig.
ISSUE: Whether or not Catindig's claim that the Deed of Sale was genuine.
HELD:
The trial court found that the Deed of Sale was simulated and fictitious and has no
consideration.
On its face, the Deed of Absolute Sale:
Is not complete and is not in due form. It is a 3-page document but with several items
left unfilled or left blank, like the day the document was supposed to be entered into, the
tax account numbers of the persons appearing as signatories to the document and the
names of the witnesses. In other words, it was not witnessed by any one. More importantly,
it was not notarized. While the name Ramon E. Rodrigo, appeared typed in the
Acknowledgement, it was not signed by him.
The questioned deed was supposedly executed in January 1978. Petitioner Catinidig
testified that his brother Francisco Catindig was with him when respondent signed the
document. The evidence, however, shows that Francisco Catindig died on January 1, 1978 as
certified to by the Office of Municipal Civil Registrar of Malolos, Bulacan and the Parish
Priest of Sta. Maria Assumpta Parish, Bulacan.
The document mentions 49,130 square meters, as the area sold by respondent and her
two children to petitioner Catindig. But this is the entire area of the property as appearing in
the title and they are not the only owners. The other owner is Rosendo Meneses, Jr, stepson
of herein respondent, whose name does not appear in the document. The declaration of
Catindig that Rosendo Meneses, Jr. likewise sold his share of the property to him in another
document does not inspire rational belief. This other document was not presented in
evidence and Rosendo Meneses, Jr., did not testify, if only to corroborate Catindig's claim.
The Court also finds compelling reason to depart from the court a quo's finding that
129
respondent never received the consideration stipulated in the simulated deed of sale, thus:
The title to this property is still in the name of Rosendo Meneses, Sr., and the owner's
duplicate copy of the title is still in the possession of Meneses. If Catindig was really a
legitimate buyer of the property who paid the consideration with good money, why then did
he not register the document of sale or had it annotated at the back of the title, or better
still, why then did he not have the title in the name of Rosendo Meneses, Sr. canceled so
that a new title can be issued in his name? Equally telling is Catindig's failure to pay the real
estate taxes for the property from 1978 up to the present.
It is a well-entrenched rule that where the deed of sale states that the purchase price
has been paid but in fact has never been paid, the deed of sale is null and void ab initio for
lack of consideration. Moreover, Article 1471 of the Civil Code, provides that if the price is
simulated, the sale is void, which applies to the instant case, since the price purportedly paid
as indicated in the contract of sale was simulated for no payment was actually made.
Since it was well established that the Deed of Sale is simulated and therefore void,
petitioners' claim the respondent's cause of action is one for annulment or contract, which
already prescribed, is unavailing, because only voidable contracts may be annulled. On the
other hand, respondent's defense for the declaration of the inexistence of the contract does
not prescribe.
In Pascual v. Coronel, the Court held that as against the registered owners and the
holder of an unregistered deed of sale, is the former who has better right to possess.
Likewise, in the recent case of Umpoc v. Mercado, the Court declared that the trial court did
not err in giving more probative weight to the TCT in the name of the decedent vis-a-vis the
contested unregistered Deed of Sale. Further, it a fundamental principle in land registration
that the certificate of title serves as evidence of an indefeasible and incontrovertible title of
the property in favor of the person whose name appears therein. It is conclusive evidence
with respect to the ownership of the land described therein. Moreover, the age-old rule is
that the person who has a Torrens title over a land is entitled to possession thereof.
Petitioner Roxas is not regarded as a lessee in good faith because of his reliance to an
unregistered and unnotarized Deed of Sale.
The petition in G.R. No. 165851 is denied. The Decision of the Court of Appeals dated
October 22, 2004, which affirmed the decision of the Regional Trail Court of Malolos,
Bulacan is affirmed.
130
ANTHONY ORDUÑA, DENNIS ORDUÑA, and ANTONITA ORDUÑA vs.
EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G. BANTA, and
ARMANDO GABRIEL, JR.
G.R. No. 176841, June 29, 2010
PONENTE: Velasco, Jr., J.

TOPIC: Object/ Subject Matter
FACTS:
Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita
Orduña (Antonita), but no formal deed was executed to document the sale. The contract
price was apparently payable in installments as Antonita remitted from time to time and
Gabriel Sr. accepted partial payments. One of the Orduñas would later testify that Gabriel Sr.
agreed to execute a final deed of sale upon full payment of the purchase price.
As early as 1979, however, Antonita and her sons, Dennis and Anthony Orduña, were
already occupying the subject lot on the basis of some arrangement undisclosed in the
records and even constructed their house thereon. They also paid real property taxes for the
house and declared it for tax purposes, as evidenced by Tax Declaration No. (TD) 96-04012-
111087 in which they place the assessed value of the structure at PhP 20,090.
After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT
No. T-71499 over the subject lot and continued accepting payments from the petitioners. On
December 12, 1996, Gabriel Jr. wrote Antonita authorizing her to fence off the said lot and to
construct a road in the adjacent lot. On December 13, 1996, Gabriel Jr. acknowledged receipt
of a PhP 40,000 payment from petitioners. Through a letter dated May 1, 1997, Gabriel Jr.
acknowledged that petitioner had so far made an aggregate payment of PhP 65,000, leaving
an outstanding balance of PhP 60,000. A receipt Gabriel Jr. issued dated November 24, 1997
reflected a PhP 10,000 payment.
Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to
Bernard Banta (Bernard) obviously without the knowledge of petitioners, as later
developments would show.
ISSUE:
Whether or not the contract has a valid Object/ Subject Matter.
RULING:
The general rule is that one dealing with a parcel of land registered under the Torrens
System may safely rely on the correctness of the certificate of title issued therefor and is not
obliged to go beyond the certificate.41 Where, in other words, the certificate of title is in the
131
name of the seller, the innocent purchaser for value has the right to rely on what appears on
the certificate, as he is charged with notice only of burdens or claims on the res as noted in
the certificate. Another formulation of the rule is that (a) in the absence of anything to
arouse suspicion or (b) except where the party has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make such inquiry or (c) when
the purchaser has knowledge of a defect of title in his vendor or of sufficient facts to induce
a reasonably prudent man to inquire into the status of the title of the property, said
purchaser is without obligation to look beyond the certificate and investigate the title of the
seller.
Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be
innocent purchasers for value or purchasers in good faith. For each knew or was at least
expected to know that somebody else other than Gabriel, Jr. has a right or interest over the
lot. This is borne by the fact that the initial seller, Gabriel Jr., was not in possession of subject
property. With respect to Marcos and Benjamin, they knew as buyers that Bernard, the
seller, was not also in possession of the same property. The same goes with Eduardo, as
buyer, with respect to Marcos and Benjamin.ten.lihpwa1
Basic is the rule that a buyer of a piece of land which is in the actual possession of
persons other than the seller must be wary and should investigate the rights of those in
possession. Otherwise, without such inquiry, the buyer can hardly be regarded as a buyer in
good faith. When a man proposes to buy or deal with realty, his duty is to read the public
manuscript, i.e., to look and see who is there upon it and what his rights are. A want of
caution and diligence which an honest man of ordinary prudence is accustomed to exercise
in making purchases is, in contemplation of law, a want of good faith. The buyer who has
failed to know or discover that the land sold to him is in adverse possession of another is a
buyer in bad faith.
Where the land sold is in the possession of a person other than the vendor, the
purchaser must go beyond the certificates of title and make inquiries concerning the rights
of the actual possessor. And where, as in the instant case, Gabriel Jr. and the subsequent
vendors were not in possession of the property, the prospective vendees are obliged to
investigate the rights of the one in possession. Evidently, Bernard, Marcos and Benjamin,
and Eduardo did not investigate the rights over the subject lot of the petitioners who, during
the period material to this case, were in actual possession thereof. Bernard, et al. are, thus,
not purchasers in good faith and, as such, cannot be accorded the protection extended by
the law to such purchasers. Moreover, not being purchasers in good faith, their having
registered the sale, will not, as against the petitioners, carry the day for any of them under
Art. 1544 of the Civil Code prescribing rules on preference in case of double sales of
immovable property. Occeña v. Esponilla, laid down the following rules in the application of
Art. 1544: (1) knowledge by the first buyer of the second sale cannot defeat the first buyer’s
rights except when the second buyer first register in good faith the second sale; and (2)
knowledge gained by the second buyer of the first sale defeats his rights even if he is first to
register, since such knowledge taints his registration with bad faith.
132
Upon the facts obtaining in this case, the act of registration by any of the three
respondent-purchasers was not coupled with good faith. At the minimum, each was aware
or is at least presumed to be aware of facts which should put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of his
vendor.
133
EDUARDO M. COJUANGCO, JR. v. REPUBLIC OF THE PHILIPPINES
G.R. No. 180705, November 27, 2012

TOPIC: Cause/Consideration
Facts:
R.A. 6260 was enacted creating the Coconut Investment Company (CIC) to
administer the Coconut Investment Fund (CIF), which, under Section 8 thereof, was to be
sourced from a P0.55 levy on the sale of every 100 kg. of copra. Charged with the duty of
collecting and administering the Fund was Philippine Coconut Administration (PCA). Like
COCOFED with which it had a legal linkage, the PCA, by statutory provisions scattered in
different coco levy decrees, had its share of the coco levy. Per Cojuangco’s own admission,
PCA paid, out of the Coconut Consumers Stabilization Fund (CCSF), the entire acquisition
price for the 72.2% option shares. The list of First United Bank (FUB) stockholders included
Cojuangco with 14,440 shares and PCA with 129,955 shares. It would appear later that,
pursuant to the stipulation on maintaining Cojuangco’s equity position in the bank, PCA
would cede to him 10% of its subscriptions to (a) the authorized but unissued shares of FUB
and (b) the increase in FUB’s capital stock. In all, from the "mother" PCA shares, Cojuangco
would receive a total of 95,304 FUB (UCPB) shares broken down as follows: 14,440 shares +
10% (158,840 shares) + 10% (649,800 shares) = 95,304.
Issue:
Whether or not the agreement between PCA and Cojuangco can be accorded the
status of a law without publication.
Ruling:
NO. It bears to stress at this point that the PCA-Cojuangco Agreement referred to
above in Section 1 of P.D. 755 was not reproduced or attached as an annex to the same law.
It is well-settled that laws must be published to be valid. In fact, publication is an
indispensable condition for the effectivity of a law. Tañada v. Tuvera (G.R. No. L-63915, 1986)
said as much: Publication of the law is indispensable in every case x x x. Laws must come out
in the open in the clear light of the sun instead of skulking in the shadows with their dark,
deep secrets. Mysterious pronouncements and rumored rules cannot be recognized as
binding unless their existence and contents are confirmed by a valid publication intended to
make full disclosure and give proper notice to the people. The furtive law is like a
scabbarded saber that cannot feint, parry or cut unless the naked blade is drawn. The
publication must be of the full text of the law since the purpose of publication is to inform
the public of the contents of the law. Mere referencing the number of the presidential
decree, its title or whereabouts and its supposed date of effectivity would not satisfy the
publication requirement.
134
In this case, while it incorporated the PCA-Cojuangco Agreement by reference,
Section 1 of P.D. 755 did not in any way reproduce the exact terms of the contract in the
decree. Neither was a copy thereof attached to the decree when published. The SC cannot,
therefore, extend to the said Agreement the status of a law. Consequently, the Court joined
the Sandiganbayan in its holding that the PCA-Cojuangco Agreement shall be treated as an
ordinary transaction between agreeing minds to be governed by contract law under the Civil
Code.
135
CARMELA BROBIO MANGAHAS vs. EUFROCINA A. BROBIO
G.R. No. 183852, October 20, 2010
FACTS:
Pacifico died and left 3 parcels of land. He was survived by his wife, Eufrocina, 4legit
and 3 illegit children. Carmela is one of the illegitimate children. The heirs executed a Deed
of Extrajudicial Settlement of Estate with Waiver. In the Deed, Carmela and the other
children, in consideration of their love and affection for Eufrocina and the sum of
P150k waived their shares over the land in favor of Eufrocina. According to Carmela,
Eufrocina promised to give her an additional amount for her share in her father’s estate.
After the signing of the Deed, Carmela demanded from Eufrocina the promised additional
amount, but Eufrocina refused topay. Later, Eufrocina needed an original copy of the Deed
for submission to the BIR. She didn’t have a copy anymore so she asked Carmela to
countersign a copy of the Deed. Carmela refused, demanding that Eufrocina first give her
the additional amount that she promised. Carmela asked for P1M, but Eufrocina begged her
to lower the amount. Carmela agreed to lower it to P600k. Because Eufrocina did not have
the money at that time, Eufrocina executed a promissory note.Upon maturity of the
PN, Eufrocina failed and refused to pay despite several demands so Carmela filed
a complaint with the RTC. Eufrocina alleged that she was practically held "hostage" by the
demand of Carmela because at that time, Eufrocina was so much pressured to submit the
documents to the BIR. She(Eufrocina) also claimed that the circumstances in the execution
of the promissory note were obviously attended by involuntariness and the same was issued
withoutconsideration at all or for illegal consideration.
The RTC ruled in favor of Carmela. The CA reversed the RTC decision because there
was a complete absence of consideration in the execution of the promissory note, which
made it inexistent and without any legal force and effect. The court noted that "financial
assistance" was not the real reason why Eufrocina executed the promissory note, but only
to secure Carmela’s signature. The CA held that the waiver of Carmela’s share in the
properties may not be considered as the consideration of the promissory note, considering
that Carmela signed the Deed way back in 2002 and she had already received
the consideration of P150k for signing the same. The CA also found that intimidation
attended the signing of the promissory note. Eufrocina needed the Deed countersigned by
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Carmela in order to comply with a BIR requirement so Eufrocina was forced to sign the
promissory note to assure Carmela that the money promised to her would be paid.
ISSUE/S:
1. W/N the CA erred in the appreciation of the facts of this case when it found that
intimidation attended the execution of the promissory note subject of this case.
2. W/N the CA erred when it found that the promissory note was without consideration. (this
is the more relevant issue)
HELD:
1.YES 2.YES
Eufrocina insists that she was "forced" into signing the promissory
note becauseCarmela would not sign the document required by the BIR.
Being forced into a situation does not amount to vitiated consent where it is not
shown that the party is deprived of free will and choice. There is undue influence when a
person takes improper advantage of his power over the will of another, depriving the latter
of a reasonable freedom of choice. For undue influence to be present, the influence exerted
must have so overpowered the mind of a contracting party as to destroy his free agency,
making him express the will of another rather than his own. Eufrocina may have desperately
needed petitioner’s signature on the Deed, but there is no showing that she was deprived of
free agency when she signed the promissory note.
Section 24 of the NIL provides that “A contract is presumed to be supported by cause
or consideration.” The presumption that a contract has sufficient consideration cannot be
overthrown by a mere assertion that it has no consideration.
To overcome the presumption, the alleged lack of consideration must be shown by
preponderance of evidence. The burden to prove lack of consideration rests upon whoever
alleges it, which, in the present case, is Eufrocina. Eufrocina failed to prove that the
promissory note was not supported by any consideration. From her testimony and her
assertions in the pleadings, it is clear that the promissory note was issued for a cause or
consideration, which, at the very least, was Carmela’s signature on the document.
It may very well be argued that if such was the consideration, it was inadequate.
Nonetheless, even if the consideration is inadequate, the contract would not be invalidated,
unless there has been fraud, mistake, or undue influence. As previously stated, none
of these grounds had been proven present in this case.
137
PENTACAPITAL INVESTMENT CORPORATION vs. MAKILITO B. MAHINAY
G.R. No. 171736, July 5, 2010
TOPIC: Cause/ Consideration
FACTS:
Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay based
on two separate loans obtained by the latter, a total amount of P1,936,800.00. These loans
were evidenced by two promissory notes dated February 23, 1996.Despite repeated
demands, respondent failed to pay the loans, hence, the complaint.
Realty to pay the former’s creditors, including respondent who thus received a check
worth P1,715,156.90. It was further agreed that the balance would be payable upon the
submission of an Entry of Judgment showing that the case involving the Molino Properties
had been decided in favor of CRDI. Respondent, Pentacapital Realty and CRDI allegedly
agreed that respondent had a charging lien equivalent to 20% of the total consideration of
the sale in the amount of P10,277,040.00.
The supplemental pleading must be based on matters arising subsequent to the filing of
the original pleading related to the claim or defense presented therein, and founded on the
same cause of action.
ISSUE:
Whether or not respondent is bound by the promissory notes.
RULING:
YES. Under Article 1354 of the Civil Code, it is presumed that consideration exists and is
lawful unless the debtor proves the contrary. Moreover, under Section 3, Rule 131 of the
Rules of Court, the following are disputable presumptions: (1) private transactions have
been fair and regular; (2) the ordinary course of business has been followed; and (3) there
was sufficient consideration for a contract. A presumption may operate against an adversary
who has not introduced proof to rebut it. The effect of a legal presumption upon a burden
of proof is to create the necessity of presenting evidence to meet the legal presumption or
the prima facie case created thereby, and which, if no proof to the contrary is presented and
offered, will prevail. In the present case, as proof of his claim of lack of consideration,
respondent denied under oath that he owed petitioner a singlec entavo. He added that he
did not apply for a loan and that when he signed the promissory notes, they were all blank
forms and all the blank spaces were to be filled up only if the sale transaction over the
138
subject properties would not push through because of a possible adverse decision in the civil
cases involving them (the properties).He thus posits that since the sale pushed through, the
promissory notes did not become effective. Contrary to the conclusions of the RTC and the
CA, we find such proof insufficient to overcome the presumption of consideration. The
presumption that a contract has sufficient consideration cannot be overthrown by the bare,
uncorroborated and self-serving assertion of respondent that it has no consideration.
139
HEIRS OF DR. MARIO S. INTAC and ANGELINA MENDOZA-INTAC v. COURT OF APPEALS and
SPOUSES MARCELO ROY, JR. and JOSEFINA MENDOZA-ROY and SPOUSES DOMINADOR
LOZADA and MARTINA MENDOZA-LOZADA
G.R. No. 173211, October 11, 2012
TOPIC: Simulation of Contracts
FACTS:
During the lifetime of Ireneo Mendoza (Ireneo), he executed a deed of absolute sale
involving a property located in Bagong Pag-asa, Quezon City in favor of spouses Angelina
and Mario Intac (spouses Intac). Consequently, TCT No. 242655 was issued in favorof the
spouses Intac. The deed was executed because the spouses Intac needed to borrow the title
of the property and to use the same as collateral for their loan application.
Respondents Josefina Mendoza-Roy and Martina Mendoza-Lozada, heirs of the late
Ireneo, sought the cancellation of TCT No. 242655 claiming that the sale was only simulated,
and therefore, void.
Both the RTC and the CA declared that the deed of absolute sale was null and void and
ordered the cancellation of TCT No. 242655.Hence, this present recourse.
ISSUE:
Whether or not the deed of absolute sale was a simulated contract or a valid
agreement?
HELD:
Accordingly, for a contract to be valid, it must have three essential elements: (1) consent
of the contracting parties; (2) objectcertain which is the subject matter of the contract; and
(3) cause of the obligation which is established. In a contract of sale, its perfection is
consummated at the moment there is a meeting of the minds upon the thing that is the
object of the contract and upon the price. Consent is manifested by the meeting of the offer
and the acceptance of the thing and the cause, which are to constitute the contract.
If the parties state a false cause in the contract to conceal their real agreement, the
contract is only relatively simulated and the parties are still bound by their real agreement.
Hence, where the essential requisites of a contract are present and the simulation refers
only to the content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors in interest.
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In absolute simulation, there is a colorable contract but it has no substance as the
parties have no intention to be bound by it. The main characteristic of an absolute simulation
is that the apparent contract is not really desired or intended to produce legal effect or in
any way alter the juridical situation of the parties. As a result, an absolutely simulated or
fictitious contract is void, and the parties may recover from each other what they may have
given under the contract. In the case at bench, the Court is one with the courts below that no
valid sale of the subject property actually took place between the alleged vendors, Ireneo
and Salvacion; and the alleged vendees, Spouses Intac. There was simply no consideration
and no intent to sell it.
Petition is DENIED.
141
DR. LORNA FORMARAN VS. DR. GLENDA ONG AND SOLOMON ONG
G.R. NO. 186264, JULY 8, 2013
PONENTE: Perez, J.
FACTS:
According to plaintiff’s complaint, she owns the parcel of land which was donated
to her Inter vivos by her uncle and aunt, spouses Melquiades Barraca and Praxedes Casidsid;
that upon the prodding and representation of defendant Glenda, that she badly needed a
collateral for a loan which she was applying from a bank to equip her dental clinic, plaintiff
made it appear that she sold one-half of the parcel of land to the defendant Glenda; that the
sale was totally without any consideration and fictitious; that contrary to plaintiff’s
agreement with defendant Glenda for the latter to return the land, defendant Glenda filed a
case for unlawful detainer against the plaintiff.
Defendant Glenda insisted on her ownership over the land in question on account of
a Deed of Absolute Sale executed by the plaintiff in her favor. Petitioner filed on action for
annulment of the Deed of Sale against respondents before the Regional Trial Court. The trial
court rendered a Decision in favor of petitioner and against the respondent by declaring the
Deed of Absolute Sale null and void for being an absolutely simulated contract and for want
of consideration; declaring the petitioner as the lawful owner entitled to the possession of
the land in question. Respondents coursed an appeal to the CA. The CA reversed and set
aside the Decision of the trial court and ordered petitioner to vacate the land in question and
restore the same to respondents.
ISSUE:
Whether or not the Deed of Absolute Sale is null and void for being an absolutely
simulated contract?
RULING:
Yes. The Court believes and so holds that the subject Deed of Sale is indeed simulated, as it
is:
(1) totally devoid of consideration;
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(2) it was executed on August 12, 1967, less than two months from the time the
subject land was donated to petitioner on June 25,1967 by no less than the parents of
respondent Glenda Ong;
(3) on May 18, 1978,
petitioner mortgaged the land to the Aklan Development Bank for a ₱23,000.00 loan;
(4) from the time of the alleged sale, petitioner has been in actual possession of the
subject land;
(5) the alleged sale was registered on May 25, 1991 or about twenty-four (24) years
after execution;
(6) respondent Glenda Ong never introduced any improvement on the
subject land; and
(7) petitioner’s house stood on a part of the subject land.
These are facts and circumstances which may be considered badges of bad faith that
tip the balancein favor of petitioner.
143
SPS. JOSE AND MILAGROS VILLACERAN AND FAR EAST BANK AND TRUST COMPANY v.
JOSEPHINE DE GUZMAN
GR No. 169055, February 22, 2012
PONENTE: Villarama, Jr., J.

FACTS:
De Guzman alleged that she is the registered owner of a parcel of land covered by
Transfer Certificate of Title (TCT) No. T-236168, located in Echague, Isabela, having an area of
971 square meters and... described as Lot 8412-B of the Subdivision Plan Psd-93948. On April
17, 1995, she mortgaged the lot to the Philippine National Bank (PNB) of Santiago City to
secure a loan of P600,000. In order to secure a bigger loan to finance a business venture, De
Guzman asked Milagros
Villaceran to obtain an additional loan on her behalf. She executed a Special Power of
Attorney in favor of Milagros. Considering De Guzman's unsatisfactory loan record with the
PNB, Milagros suggested that the title of the property be transferred to her and Jose
Villaceran and they would obtain a bigger loan as they have a credit line of up to
P5,000,000 with the bank.
On June 19, 1996, De Guzman executed a simulated Deed of Absolute Sale in favor of the
spouses Villaceran. On the same day, they went to the PNB and paid the amount of
P721,891.67 using the money of the spouses Villaceran. The spouses Villaceran... registered
the Deed of Sale and secured TCT No. T-257416 in their names. Thereafter, they mortgaged
the property with FEBTC Santiago City to secure a loan of P1,485,000. However, the spouses
Villaceran concealed the loan release from De Guzman. Later,... when De Guzman learned of
the loan release, she asked for the loan proceeds less the amount advanced by the spouses
Villaceran to pay the PNB loan. However, the spouses Villaceran refused to give the money
stating that they are already the registered owners of the property and... that they would
reconvey the property to De Guzman once she returns the P721,891.67 they paid to PNB.
De Guzman offered to pay P350,000 provided that the spouses Villaceran would
execute a deed of reconveyance of the property. In view of the simulated character of their
transaction, the spouses Villaceran executed a Deed of Absolute Sale[10] dated September
6, 1996 in favor of De Guzman. They also promised to pay their mortgage debt with FEBTC to
avoid exposing the property to possible foreclosure and auction sale. However, the spouses
Villaceran failed to settle the loan and subsequently the property was extra-judicially...
foreclosed. A Sheriff's Certificate of Sale was issued in favor of FEBTC for the amount of
144
P3,594,000. De Guzman asserted that the spouses Villaceran should be compelled to
redeem their mortgage so as not to prejudice her as the real owner of the property.
On the other hand, the spouses Villaceran and FEBTC, in their Amended Answer, averred
that in 1996 De Guzman was introduced to Milagros by a certain Digna Maranan. Not long
afterwards, De Guzman requested Milagros to help her relative who had a loan... obligation
with the PNB in the amount of P300,000. As a consideration for the accommodation, De
Guzman would convey her property located at Maligaya, Echague, Isabela which was then
being held in trust by her cousin, Raul Sison. Because of this agreement, Milagros paid De
Guzman's obligation with the PNB in the amount of P300,000.
ISSUES:
Whether or not the Contract is a simulated contract.
RULING:
Article 1345 of the Civil Code provides that the simulation of a contract may either be
absolute or relative. In absolute simulation, there is a colorable contract but it has no
substance as the parties have no intention to be bound by it. The... main characteristic of an
absolute simulation is that the apparent contract is not really desired or intended to produce
legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely
simulated or fictitious contract... is void, and the parties may recover from each other what
they may have given under the contract. However, if the parties state a false cause in the
contract to conceal their real agreement, the contract is only relatively simulated and the
parties are still bound by their real... agreement. Hence, where the essential requisites of a
contract are present and the simulation refers only to the content or terms of the contract,
the agreement is absolutely binding and enforceable between the parties and their
successors in interest.
The primary consideration in determining the true nature of a contract is the intention
of the parties. If the words of a contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined not only from the express terms
of... their agreement, but also from the contemporaneous and subsequent acts of the
parties. In the case at bar, there is a relative simulation of contract as the Deed of Absolute
Sale dated June 19, 1996 executed by De Guzman in favor of petitioners... did not reflect the
true intention of the parties.
145
ROBERT AND NENITA DE LEON v. GILBERT AND ANALYN DELA LLANA
G.R. No. 212277, February 11, 2015
FACTS:
This case stemmed from an unlawful detainer complaint (first ejectment complaint) filed
by respondent Gilbert dela Llana (Gilbert) against petitioner Robert de Leon (Robert) and a
certain Gil de Leon (Gil) on March 7, 2005 before the 3rd Municipal Circuit Trial Court of
Nabunturan-Mawab, Compostela Valley Province (MCTC-Nabunturan-Mawab), docketed
as Civil Case No. 821. In the said complaint, Gilbert averred that sometime in 1999, he,
through an undated contract of lease, leased a portion of a 541 square-meter property
situated in Poblacion, Nabunturan, Compostela Valley Province, registered in his name, to
Robert, which the latter intended to use as a lottery outlet. The lease contract had a term of
five (5) years and contained a stipulation that any case arising from the same shall be filed in
the courts of Davao City only. Gilbert claimed that Robert and Gil failed to pay their rental
arrears to him and refused to vacate the subject property, despite repeated demands, thus,
the first ejectment complaint.
In their defense, Robert and Gil posited that the aforementioned lease contract was
simulated and, hence, not binding on the parties.
ISSUE:
whether or not the second ejectment complaint was barred by prior judgment.
HELD:
Res judicata (meaning, a “matter adjudged”) is a fundamental principle of law which

precludes parties from re-litigating issues actually litigated and determined by a prior and
final judgment. It means that “a final judgment or decree on the merits by a court of
competent jurisdiction is conclusive of the rights of the parties or their privies in all later
suits on all points and matters determined in the former suit.”
Notably, res judicata has two (2) concepts. The first is “bar by prior judgment” in which
the judgment or decree of a court of competent jurisdiction on the merits concludes the
litigation between the parties, as well as their privies, and constitutes a bar to a new action
or suit involving the same cause of action before the same or other tribunal, while the
146
second concept is “conclusiveness of judgment” in which any right, fact or matter in issue
directly adjudicated or necessarily involved in the determination of an action before a
competent court in which judgment is rendered on the merits is conclusively settled by the
judgment therein and cannot again be litigated between the parties and their privies
whether or not the claim, demand, purpose, or subject matter of the two actions is the
same.
There is a bar by prior judgment where there is identity of parties, subject matter, and
causes of action between the first case where the judgment was rendered and the second
case that is sought to be barred. There is conclusiveness of judgment, on the other hand,
where there is identity of parties in the first and second cases, but no identity of causes of
action.
147
Heirs of Ureta v. Heirs of Ureta
G.R. No. 165748, 14 September 2011
FACTS:
Alfonso Ureta was financially well-off and owned several properties. He begot
fourteen children, including herein petitioners and Policronio, father of respondents. For
taxation purposes, Alfonso sold, without monetary consideration, several parcels of land to
four of his children, including Policronio. Alfonso continued to own, possess and enjoy the
lands and their produce. Upon his death, Liberato acted as the administrator. The Fernandez
Family rented the portion transferred to Policronio. But even after the fact, the tenants
never turned over the produce of the lands to Policronio or any of this heirs, but to Alfonso
and, later, to the administrators of his estate.
When Policronio died, except for a portion of one of the parcels of land, neither
Policronio nor his heirs ever took possession of the subject lands. Alfonso’s heirs executed a
Deed of Extra-Judicial Partition,8 which included all the lands that were covered by the four
(4) deeds of sale that were previously executed by Alfonso for taxation purposes. Conrado,
Policronio’s eldest son, representing the Heirs of Policronio, signed the Deed of Extra-
Judicial Partition in behalf of his co-heirs. Heirs of Policronio allegedly learned about the
Deed of Extra-Judicial Partition involving Alfonso’s estate when it was published in the July
19, 1995 issue of the Aklan Reporter. The Heirs of Policronio averred that the extra-judicial
partition is void because Conrado signed the same without written authority form his
siblings.
ISSUE:
WON Conrado Ureta’s lack of capacity to give his co-heirs’ consent to the Extra-Judicial
Partition rendered the same voidable.
RULING:
148
No. Article 1390 is not applicable in this case. Article 1390 (1) contemplates the incapacity
of a party to give consent to a contract. What is involved in the case at bench though is not
Conrado’s incapacity to give consent to the contract, but rather his lack of authority to do
so. Instead, Articles 1403 (1), 1404, and 1317 of the Civil Code find application to the
circumstances prevailing in this case.
The Deed of Extrajudicial Partition and Sale is not a voidable or an annullable contract
under Article 1390 of the New Civil Code. Article 1390 renders a contract voidable if one of
the parties is incapable of giving consent to the contract or if the contracting party’s
consent is vitiated by mistake, violence, intimidation, undue influence or fraud. Therefore,
Conrado’s failure to obtain authority from his co-heirs to sign the Deed of Extra-Judicial
Partition in their behalf did not result in his incapacity to give consent so as to render the
contract voidable, but rather, it rendered the contract valid but unenforceable against
Conrado’s co-heirs for having been entered into without their authority.
149
AVELINA ABARIENTOS REBUSQUILLO and SALVADOR A. OROSCO vs. SPS. DOMINGO and
EMELINDA REBUSQUILLO GUALVEZ and the CITY ASSESSOR OF LEGAZPI CITY
G.R. No. 204029, June 4, 2014
PONENTE: Velasco, Jr. J,
FACTS:
Petitioner Avelina was one of the children of Eulalio who died intestate. On his death,
Eulalio left behind an untitled parcel of land in Legazpi City.
In 2001, Avelina was supposedly made to sign two documents by her daughter Emelinda
and her son-in-law Domingo, respondents in this case, on the pretext that the documents
were needed to facilitate the titling of the lot. It was only in 2003, so petitioners claim, that
Avelina realized that what she signed was an Affidavit of Self-Adjudication and a Deed of
Absolute Sale in favor of respondents.
Petitioners filed a complaint for annulment and revocation of an Affidavit of Self-

Adjudication and a Deed of Absolute Sale. After trial, RTC held the annulment of the subject
documents. CA reversed RTC’s decision. CA held that the RTC erred in annulling
the Affidavit of Self-Adjudication simply on petitioners’ allegation of the existence of the
heirs of Eulalio, considering that issues on heirship must be made in administration or
intestate proceedings, not in an ordinary civil action. Further, the appellate court observed
that the Deed of Absolute Sale cannot be nullified as it is a notarized document that has in
its favor the presumption of regularity and is entitled to full faith and credit upon its face.
ISSUES:
1. Whether or not the issue on heirship in this case must be raised in a separate administration
or intestate proceedings.
2. Whether or not the Deed of Absolute Sale can be nullified.
HELD:
FIRST ISSUE: No.
The Court ruled that this case falls under the exception of the rule on separate intestate
proceedings.
150
The general rule is that the declaration of heirship must be made in a special proceeding,
not in an independent civil action. However, the Court also ruled that recourse to
administration proceedings to determine who heirs are is sanctioned only if there is a good
and compelling reason for such recourse.
The Court had allowed exceptions to the rule requiring administration proceedings as
when the parties in the civil case already presented their evidence regarding the issue of
heirship, and the RTC had consequentlyrendered judgment upon the issues it defined during
the pre-trial.
Similar to the case of Portugal v. Portugal-Beltran, in the present case, there appears to
be only one parcel of land being claimed by the contending parties as the inheritance from
Eulalio.
It would be more practical, as Portugal teaches, to dispense with a separate special

proceeding for the determination of the status of petitioner Avelina as sole heir of Eulalio,
especially in light of the fact that respondents spouses Gualvez admitted in court that they
knew for a fact that petitioner Avelina was not the sole heir of Eulalio and that petitioner
Salvador was one of the other living heirs with rights over the subject land.
Accordingly, the court a quo had properly rendered judgment on the validity of
the Affidavit of Self-Adjudication executed by Avelina. As pointed out by the trial court,
an Affidavit of Self-Adjudication is only proper when the affiant is the sole heir of the
decedent.
SECOND ISSUE: Yes.
The Court held that it is apparent from the admissions of respondents and the records
of this case that Avelina had no intention to transfer the ownership, of whatever extent,
over the property to respondents. Hence, the Deed of Absolute Sale is nothing more than a
simulated contract.
Heirs of Policronio Ureta Sr. v. Heirs of Liberato Ureta: In absolute simulation, there is a
colorable contract but it has no substance as the parties have no intention to be bound by it.
The main characteristic of an absolute simulation is that the apparent contract is not really
desired or intended to produce legal effect or in any way alter the juridical situation of the
parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract.
In the present case, the true intention of the parties in the execution of the Deed of
Absolute Sale is simply to “facilitate the titling of the subject property,” not to transfer the
151
ownership of the lot to them. Furthermore, respondents concede that petitioner Salvador
remains in possession of the property and that there is no indication that respondents ever
took possession of the subject property after its supposed purchase. Such failure to take
exclusive possession of the subject property or, in the alternative, to collect rentals from its
possessor, is contrary to the principle of ownership and is a clear badge of simulation that
renders the whole transaction void.
152
DAUDEN-HERNAEZ V. DE LOS ANGELES
G.R. NO. L-27010, 30 APRIL 1969
PONENTE: Reyes, J.B.L.,

TOPIC: Forms of Contracts
FACTS:
Petitioner, an actress, filed a complaint against Hollywood Far East Productions to
recover fees for her services as leading actress in two motion pictures produced by the
company. Respondent judge, De los Angeles ordered the complaint dismissed grounded on
the reason that the “claim of plaintiff was not evidenced by any written document, either
public or private”. That according to Article 1358 governing unenforceable contracts, writing
was absolute and indispensable, because the amount involved exceeds five hundred pesos.
ISSUE:
WON said contract must be in writing to be valid and enforceable.
RULING:
No. The aforementioned contract needs not to be in writing.
Article 1315 of the Civil Code provides that: “Contracts are perfected by mere
consent, and from that moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law.”. Furthermore Article 1356 of the same
book provides that: “Contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present….”
Exemptions to the general rule are solemn contracts (needs to be in writing to be valid) and
memorandums (governed by Article 1402(2) of the Statute of Frauds).
In the matter of formalities, the contractual system of our Civil Code still follows the
upholding of the spirit and intent of the parties over formalities: hence, in general, contracts
are valid and binding from their perfection regardless of form whether they be oral or
written. Petition is with merit and case remanded to lower court for fee determination.
153
SPS. ANTONIO & LETICIA VEGA, PETITIONER, VS. SOCIAL SECURITY SYSTEM (SSS) & PILAR
DEVELOPMENT CORPORATION, RESPONDENTS.
G.R. No. 181672, September 20, 2010
PONENTE: ABAD, J.
TOPIC: Forms of Contract
FACTS:
Magdalena V. Reyes (Reyes) owned a piece of titled land in Pilar Village, Las Piñas
City. On August 17, 1979 she got a housing loan from respondent Social Security System
(SSS) for which she mortgaged her land. In late 1979, however, she asked the petitioner
spouses Antonio and Leticia Vega (the Vegas) to assume the loan and buy her house and lot
since she wanted to emigrate.
Upon inquiry with the SSS, an employee there told the Vegas that the SSS did not
approve of members transferring their mortgaged homes. The Vegas could, however,
simply make a private arrangement with Reyes provided they paid the monthly
amortizations on time. This practice, said the SSS employee, was common-placed. Armed
with this information, the Vegas agreed for Reyes to execute in their favor a deed of
assignment of real property with assumption of mortgage and paid Reyes P20,000.00 after
she undertook to update the amortizations before leaving the country. The Vegas then took
possession of the house in January 1981.
But Reyes did not readily execute the deed of assignment. She left the country and
gave her sister, Julieta Reyes Ofilada (Ofilada), a special power of attorney to convey
ownership of the property. Sometime between 1983 and 1984, Ofilada finally executed the
deed promised by her sister to the Vegas. Ofilada kept the original and gave the Vegas two
copies. The latter gave one copy to the Home Development Mortgage Fund and kept the
other. Unfortunately, a storm in 1984 resulted in a flood that destroyed the copy left with
them.
In 1992, the Vegas learned that Reyes did not update the amortizations for they received
a notice to Reyes from the SSS concerning it. They told the SSS that they already gave the
payment to Reyes but, since it appeared indifferent, on January 6, 1992 the Vegas updated
the amortization themselves and paid P115,738.48 to the SSS, through Antonio Vega's
personal check.They negotiated seven additional remittances and the SSS accepted
P8,681.00 more from the Vegas.
ISSUE:
The issues in this case are:
154
1. Whether or not the Vegas presented adequate proof of Reyes' sale of the subject
property to them;
2. In the affirmative, whether or not Reyes validly sold her SSS-mortgaged property to
the Vegas; and
3. In the affirmative, whether or not the sheriff validly sold the same at public auction to
satisfy Reyes' debt to PDC.
HELD:
One. The CA ruled that the Vegas were unable to prove that Reyes assigned the subject
property to them, given that they failed to present the deed of assignment in their favor
upon a claim that they lost it. But the rule requiring the presentation of the original of that
deed of assignment is not absolute. Secondary evidence of the contents of the original can
be adduced, as in this case, when the original has been lost without bad faith on the part of
the party offering it.
Two. Reyes acquired the property in this case through a loan from the SSS in whose
favor she executed a mortgage as collateral for the loan. Although the loan was still unpaid,
she assigned the property to the Vegas without notice to or the consent of the SSS. The
Vegas continued to pay the amortizations apparently in Reyes' name. Meantime, Reyes
apparently got a cash loan from Apex, which assigned the credit to PDC. This loan was not
secured by a mortgage on the property but PDC succeeded in getting a money judgment
against Reyes and had it executed on the property. Such property was still in Reyes' name
but, as pointed out above, the latter had disposed of it in favor of the Vegas more than 10
years before PDC executed on it.
Three. The next question is: was Reyes' sale of the property to the Vegas binding on
PDC which tried to enforce the judgment credit in its favor on the property that was then
still mortgaged to the SSS?
The CA ruled that Reyes' assignment of the property to the Vegas did not bind PDC,
which had a judgment credit against Reyes, since such assignment neither appeared in a
public document nor was registered with the register of deeds as Article 1625 of the Civil
Code required
But Article 1625 referred to assignment of credits and other incorporeal rights. Reyes
did not assign any credit or incorporeal right to the Vegas. She sold the Vegas her house and
lot. They became owner of the property from the time she executed the deed of
assignment covering the same in their favor. PDC had a judgment for money against Reyes
only. A court's power to enforce its judgment applies only to the properties that are
indisputably owned by the judgment obligor. Here, the property had long ceased to belong
to Reyes when she sold it to th
155
DAVID vs. MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE INC.
G.R. No. 194785, July 11, 2012
FACTS:
Virgilio S. David was the owner or proprietor of VSD Electric Sales, a company
engaged in the business of supplying electrical hardware for rural electric cooperatives like
respondent Misamis Occidental II Electric Cooperative, Inc. (MOELCI), with principal office
located in Ozamis City. MOELCI expressed its intention to purchase a 10 MVA power
transformer from David. Its General Manager, Engr. Reynaldo Rada went to meet David in
Quezon City. David agreed to supply the power transformer provided they would secure a
board resolution because the item would still have to be imported.
On June 8, 1992, Engr. Rada and Director Jose Jimenez, in-charge of procurement, returned
to Manila and presented to David the board resolution. In turn, David presented his
proposal.
After the reading of the proposal and the discussion of terms, David instructed his
secretary to type the names of Engr. Rada and Jimenez at the end of the proposal. Both
signed the document under the word “conforme.” The board resolution was thereafter
attached to the proposal.
As stated in the proposal, the subject transformer, together with the basic
accessories, was valued at P5,200,000.00. It was also stipulated therein that 50% of the
purchase price should be paid as down payment and the remaining balance to be paid upon
delivery. Freight handling, insurance, customs duties, and incidental expenses were for the
account of the buyer. The Board Resolution, on the other hand, stated that the purchase of
the said transformer was to be financed through a loan from the National Electrification
Administration (NEA).
As there was no immediate action on the loan application, Engr. Rada returned to
Manila in early December 1992 and requested David to deliver the transformer to them even
without the required down payment. David granted the request provided that MOELCI
would pay interest at 24% per annum. Engr. Rada acquiesced to the condition. On December
17, 1992, the goods were shipped to Ozamiz City via William Lines. In the Bill of Lading, a
sales invoice was included which stated the agreed interest rate of 24% per annum.
When nothing was heard from MOELCI after the shipment, Emanuel Medina
(Medina), David’s Marketing Manager, went to Ozamiz City to check on the shipment.
Medina was able to confer with Engr. Rada who told him that the loan was not yet released
and asked if it was possible to withdraw the shipped items. Medina agreed.
When no payment was made after several months, Medina sent the demand letter which
MOELCI duly received. Engr. Rada replied in writing that the goods were still in the
warehouse of William Lines again reiterating that the loan had not been approved.
156
This prompted Medina to head back to Ozamiz City where he found out that the goods had
already been released to MOELCI evidenced by the shipping company’s copy of the Bill of
Lading which was stamped “Released,” and with the notation that the arrastre charges in
the amount of P5,095.60 had been paid. This was supported by a receipt of payment with
the corresponding cargo delivery receipt issued by the Integrated Port Services of Ozamiz,
Inc.
On February 17, 1994, David filed a complaint about specific performance with damages with
the RTC. The RTC dismissed the complaint. It found that although a contract of sale was
perfected, it was not consummated because David failed to prove that there was indeed a
delivery of the subject item and that MOELCI received it. CA affirmed the ruling of the RTC.
ISSUES:
Whether or not there was a perfected contract of sale
RULING:
There was a meeting of the minds, there was consent on the part of David to transfer
ownership of the power transformer to MOELCI in exchange for the price, thereby
complying with the first element. Thus, the said document cannot just be considered a
contract to sell but rather a perfected contract of sale. The elements of a contract of sale
are, to wit:
Consent or meeting of the minds, that is, consent to transfer ownership in exchange
for the price;
Determinate subject matter; and
Price certain in money or its equivalent.
It is the absence of the first element which distinguishes a contract of sale
from that of a contract to sell.
An examination of the alleged contract to sell, “Exhibit A,” despite its unconventional
form, would show that said document, with all the stipulations therein and with the
attendant circumstances surrounding it, was actually a Contract of Sale. The rule is that it is
not the title of the contract, but its express terms or stipulations that determine the kind of
contract entered into by the parties.
157
ATILANO vs. ATILANO
28 SCRA 231 , May 21, 1969
PONENTE: Makalintal, J.
TOPIC: Reformation of Instruments
FACTS:
Eulogio Atilano I bought a parcel land, subdivided it into 5 and built his house on one
of the portions. He sold one portion to his brother Eulogio Atilano II upon which the latter
also built his house. The titles to the lots were obtained at once. However, it was discovered
many years later that the title of Atilano I’s lot pertained to the lot sold to Atilano II, and the
latter’s title conversely pertained to the lot of Atilano I which had a much bigger area.
Atilano II’s family sought to obtain the land on the force of the title. The Court denied their
plea. It held that the families are in possession of the lots which the contracting parties have
intended. There was only a mistake with the content of the instruments thus reformation
may be sought; however, this is no longer needed since the intent of the parties have
already been carried out. The parties must only convey to each other a document reflecting
the correct description of their lots.
ISSUE:
Whether or not the heirs of Atilano II are entitled to the real 535-E, as stated in his
deed of sale
RULING:
No. Judgment is affirmed. In this case, the portion correctly referred to as lot No. 535-
A was already in the possession of the Atilano II, who had built a house on it even before
Atilano I had sold it to him. Atilano I had built a house for he on the real 535-E, and both
brothers had lived on their respective lands for years until the mistake was discovered in
1959. The real issue here is not adverse possession, but the real intention of the parties to
that sale. From all the facts and circumstances, the object of the sale between the Atilano
brothers was 535-A, even if the deed referred to it as 535-E, which was a simple mistake in
the drafting of the document. The mistake did not vitiate the consent of the parties or affect
the validity and binding effect of the contract between them. The proper remedy to such
mistake is reformation of the instrument. This remedy is available when, there having been a
meeting of the funds of the parties to a contract, their true intention is not expressed in the
instrument purporting to embody the agreement by reason of mistake, fraud, inequitable
conduct on accident (Art. 1359, et seq.) In this case, there is no need to reform the 1920 deed
of sale since the parties retained possession their respective properties conformably to the
real intention of the parties to that sale, and all they should do is to execute mutual deeds of
conveyance.
158
INVESTOR FINANCE CORP. vs. COURT OF APPEALS
G.R. No. 102998 July 5, 1996,
PONENTE: Griño-Aquino, J.
TOPIC: Reformation of Instruments
FACTS:
On 15 May 1980, spouses Reynaldo and Florencia Manahan executed, a promissory
note binding themselves to pay Carmasters, Inc., the amount of P83,080.00 in thirty-six (36)
monthly installments commencing July 1, 1980. To secure payment, the Manahan spouses
executed a deed of chattel mortgage over a motor vehicle, a Ford Cortina 1.6 GL, with motor
and serial number CUBFWE-801010. Carmasters later assigned the promissory note and the
chattel mortgage to petitioner BA Finance Corporation with the conformity of the
Manahans. When the latter failed to pay the due installments, petitioner sent demand
letters. The demands not having been heeded, petitioner, on October 2, 1987, filed a
complaint for replevin with damages against the spouses, as well as against a John Doe,
praying for the recovery of the vehicle with an alternative prayer for the payment of a sum
of money should the vehicle not be returned.
Upon petitioner's motion and the filing of a bond in the amount of P169,161.00 the
lower court issued a writ of replevin. The court, however, cautioned the petitioner that
should summons be not served on the defendants within thirty (30) days from the writ's
issuance, the case would be dismissed because of failure to prosecute.
(The warning was based on what the court perceived to be the deplorable practice of some
mortgagees of "freezing (the) foreclosure or replevin cases" which they would so
"conveniently utilize as a leverage for the collection of unpaid installments on mortgaged
chattels.")
The service of summons upon the spouses Manahan was served by the petitioner at No. 35
Lantana St., Cubao, Quezon City. The original of the summons had the name and the
signature of private respondent Roberto M. Reyes, indicating that he received, on October
14, 1987, a copy of the same, as well as the complaint.
The petitioner, through its Legal Assistant, Danilo E. Solano, issued a certification to the
effect that it had received from Orson R. Santiago, the deputy sheriff of the Regional Trial
Court of Manila, Branch 20, the Ford Cortina seized from private respondent Roberto M.
Reyes, the John Doe referred to in the complaint, in Sorsogon, Sorsogon. On October 20,
1987, the lower court came out with an order of seizure. Alleging possession in good faith,
private respondent filed, on October 26, 1987, a motion for an extension of time within
which to file his answer and/or a motion for intervention. The court granted the motion. A
few months later, or on February 18, 1988, the court issued an order which, in part, stating
that: Considering that this is a replevin case and to forestall the evils that arise from this
practice, plaintiff failing to heed the Order dated October 13, 1987, particularly second
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paragraph thereof, the above-entitled case is hereby ordered DISMISSED for failure to
prosecute and further ordering the plaintiff to return the property seized with all its
accessories to defendant John Doe in the person of Roberto M. Reyes.
On February 26, 1988, petitioner filed a notice of dismissal of the case "without prejudice
and without pronouncement as to costs” before service of Summons and Answer. It also
sought in another motion the withdrawal of the replevin bond. In view of the earlier
dismissal of the case (for petitioner's failure to prosecute), the court, on March 2, 1988,
merely noted the notice of dismissal and denied the motion to withdraw the replevin bond
considering that the writ of replevin had meanwhile been implemented. On March 9, 1988,
private respondent filed a motion praying that petitioner be directed to comply with the
court order requiring the petitioner to return the vehicle to him. In turn, the petitioner filed,
on March 14, 1988, a motion for the reconsideration of the orders of February 18, 1988 and
March 2, 1988, contending that: (a) the dismissal of the case was tantamount to adjudication
on the merits that thereby deprived it with the remedy to enforce the promissory note, the
chattel mortgage and the deed of assignment, under Section 3, Rule 117, of the Rules of
Court; (b) the order to return the vehicle to private respondent was a departure from
jurisprudence recognizing the right of the mortgagor to foreclose the property to respond
to the unpaid obligation secured by the chattel mortgage; and (c) there were no legal and
factual bases for the court's view that the filing of the replevin case was "characterized (by)
evil practices."
ISSUE:
Whether or not is extrinsic fraud in securing the judgment by compromise in Civil
Case No. 29671.
RULING:
None. After a careful evaluation of the pleadings and admissions of the parties, the
Court does not agree with the lower courts' conclusion that there was extrinsic fraud in
securing the judgment by compromise in Civil Case No. 29671.
None of the fraudulent acts provided in Philippine Jurisprudence was committed by
the petitioner/plaintiff in Civil Case No. 29671, hence the judgment therein is not annullable
for extrinsic fraud. The execution of a compromise agreement by the parties in Civil Case No.
29671 in order to put an end to the litigation, did not constitute extrinsic fraud.
Compromises and amicable settlements are in fact encouraged by law and the Rules of
Court. One of the purposes of a pre-trial is to abort a law suit by compromise (Rule 20, Rules
of Court). A compromise duly approved by the court has the effect and authority of res
judicata and is immediately executory.
160
LUIS PICHEL vs. PRUDENCIO ALONZO
G.R.No. L- 36902 30January1982
PONENTE: Guerrero, J.
TOPIC: Interpretation of Contracts
FACTS:
That Prudencio Alonzo (VENDOR) executed a deed of sale for the coconut fruits of his land
in Balactasan Plantation in Lamitan, Basilan, in favor of Luis Pichel (VENDEE). The land from
which the subject coconut fruits are derived from was subjected to a cancellation of the
award in 1965, due to the reason of violation of the law that disallows alienation of land (the
vendor’s rights to the land were reinstated in 1972) The vendor and his wife sold to the
vendee the fruits of the coconut trees from 1968 to 1976 for consideration of 4,200. Even
during the date of sale, the land was still leased to one Ramon Sua, and it was part of the
agreement of the sale that the sum of 3,650.00 was to be paid by the vendor to Ramon Sua
as to release the land. The RTC decided in favor of the vendor, due to the fact that the deed
of sale that was executed was invalid, due to its supposed violation of RA No. 477, in which
they equated the deed of sale executed by the parties as a contract of lease.
ISSUE:
Whether or not the deed of sale is valid
RULING:
Yes, The RTC erred in constructing the deed of sale as a contract of lease.
There was no need on the part of the RTC to interpret the contract, since there was no
ambiguity, it merely contracts the sale of the fruits of the land, not the land itself.
The S.C. relied upon ART 1370 of the Civil Code, regarding the rule on interpreting contracts.
Its interpretation in express form is the preferred. Construction shall be employed when
such literal interpretation is impossible. The possession of the coconut fruits for 7 years is
different from possession of the land, since the coconut fruits are mere accessories and the
land is the principal- a transfer of accessories does not necessarily mean a transfer of
principal, it is the other way around. The vendor after having received the consideration for
the sale of his coconut fruits cannot be allowed to impugn the validity of the contracts he
entered into, to the prejudice of petitioner who contracted in good faith and consideration.
161
JACINTO TANGUILIG vs. COURT OF APPEALS
G.R. No. 117190, January 2, 1997
PONENTE: Bellosillo, J.
FACTS:
Petitioner Jacinto M. Tanguilig proposed to respondent Vicente Herce Jr. to
construct a windmill system for him. After some negotiations they agreed on the
construction of the windmill for a consideration of P60,000.00. On 14 March 1988, due to
the refusal and failure of respondent to pay the balance, petitioner filed a complaint to
collect the amount. Respondent denied the claim saying that he had already paid this
amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep
well to which the windmill system was to be connected. According to respondent, since the
deep well formed part of the system the payment he tendered to SPGMI should be credited
to his account by petitioner. Moreover, assuming that he owed petitioner a balance of
P15,000.00, this should be offset by the defects in the windmill system which caused the
structure to collapse after a strong wind hit their place.
Petitioner denied that the construction of a deep well was included in the agreement
to build the windmill system, for the contract price of P60,000.00 was solely for the windmill
assembly and its installation. He also disowned any obligation to repair or reconstruct the
system since its collapse was attributable to a typhoon, a force majeure, which relieved him
of any liability.
ISSUE:
Whether or not the payment for the deep well is part of the contract price.
Whether or not Tanguilig is liable to reconstruct the damaged windmill
considering that its collapse is due to a typhoon.
RULING:
There is absolutely no mention in the two (2) documents that a deep well pump is a
component of the proposed windmill system. The contract prices fixed in both proposals
cover only the features specifically described therein and no other. Respondent is directed
to pay petitioner Tanguilig the balance of P15,000.00 plus legal interest.
Regarding the second issue, the Supreme Court has consistently held that in order for
a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the
Civil Code four (4) requisites must concur: (a) the cause of the breach of the obligation must
be independent of the will of the debtor; (b) the event must be either unforeseeable or
unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and, (d) the debtor must be free from any participation in or
aggravation of the injury to the creditor. Petitioner failed to show that the collapse of the
windmill was due solely to a fortuitous event.
BORROMEO vs COURT OF APPEALS
162
GR No. L-22962 September 28, 1972
PONENTE: Fernando, J.
FACTS:
Respondent Jose A Villamor was a distributor of lumber belonging to Mr. Miller who
was the agent of the Insular Lumber Company in Ceb City. Defendant usually borrowed from
his friend and former classmate-petitioner Canuto O. Borromeo several amounts of money.
On one occasion, with some pressing obligation to Mr. Miller, defendant borrowed a large
sum of money from Borromeo for which he mortgaged his land and house in Cebu City. Mr.
Miller filed a civil action against the defendant and attached his properties including those
mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be
registered as it was not properly drawn up. Plaintiff then pressed for settlement of his
obligation, but defendant instead offered to execute a document of future payment.
Liquidation was made and defendant was found to have owed plaintiff the sum of
PhP7220.00, for which defendant signed a promissory therefor on November 29, 1933 with
interest at the rate of 12% per annum, agreeing to pay ‘as soon as I have money.’ The note
further stipulates that the defendant would waive the right of prescription as prescribed in
the Civil Code of Procedure. Plaintiff did not collect within the 1st ten years since defendant
did not have any property attached to his name. However after the second World War,
plaintiff then pressed on his demands. The RTC granted his motion but the CA reversed the
ruling claiming that said period was contrary to law?
ISSUE:
Is said period stipulated in the contract valid?
RULING:
The CA erred in its decision. It should be noted that the wordings in said contracts
should not instantly nullify the intent of the parties. The intent of the parties is clear – that
an extension of time be granted to respondent for payment of his debts.
In effect, the first 10 years should not be considered in the prescription of the contract
and that the next ten ye
ars is granted from which the counting of the period should begin.
163
LIM YHU LUYA vs. COURT OF APPEALS
GR No. L-40258, September 11, 1980
PONENTE: Guerrero, J.
Lim Yhu Luya operates a grocery store, hardware store and gasoline station. Private
respondent Hind Sugar Company is engaged in the manufacturing and marketing of sugar,
its VP & General Manager is Atty. Emiliano Abalos. His assistant is Generoso Bongato, while
the cashier and accountant of the complainant is Teodoro Garcia.
Petitioner and private respondent since 1958 have had business dealings with each
other, the company selling sugar to the petitioner and the latter has been supplying the
company with diesel, gasoline, muriatic acid, other supplies and materials ordered on credit.
November 13, 1970, Lim proceeded to the company and in the office of Manager
Abalos, the latter offered to sell sugar at PP37.00 per picul. The parties agreed to the
purchase of 4,085 piculs of sugar at P35.00 each picul. The specific terms of the contract are
shown in Exhibit A. On the same day, in compliance with the contract, four delivery order
receipt were issued to the petitioner by cashier Garcia upon instructions of Manager Abalos
covering the total quantity of sugar sold, 4,085 piculs. Between November 3, 1970 to
January 27, 1971, petitioner withdrew from the company warehouse in varying quantities a
total amount of 3,735 piculs under substitute delivery orders, leaving a balance of 350 piculs
undelivered.
On January 22, 1971, the question of payment cropped out between the parties.
Petitioner claimed that he had paid Pp142, 975.00 to the company officials, Cashier Garcia
and Manager Abalos on November 13, 1970 and as a proof of his payment, he referred to the
contract Exhibit A. Respondent company officials denied the claim of the petitioner, alleging
that petitioner never paid for the sugar on the said date or at any time thereafter.
ISSUE:
Whether or not the plaintiff-appelee has paid the sum of P142,975.00 which is
the purchase price of the sugar covered by the contract of sale between the parties.
RULING:
The logical implication of the ruling of the respondent court which upheld the
position of the respondent company that the purchase of sugar was not a cash transaction,
is Chat the purchase was on credit. However, since it appears that the transaction was not
recorded in the company books and there was no document showing it was not cash, the
inference arises that the respondent company allowed, tolerated, and/or sanctioned a credit
164
transaction to be unrecorded in the company books which is simply irregular, unbusiness-
like and anomalous.
In the evaluation and appreciation of the evidence on record, we find that the
respondent court gave credence to the unsupported testimony of General Manager
Emiliano Abalos that the term or mode of payment stipulated in the written contract, Exh.
"A", had been changed by him to "payment as withdrawals are made." This is clear as
testified to by Manager Abalos in the hearing on May 22, 1972, t.s.n., pp. 3839. The evidence,
however, does not show nor is there proof that the contract, Exh. "A", was accordingly
changed or altered from "cash upon signing of the contract" to "payment as withdrawals
are made."
The Supreme Court affirms the decision of the trial court in ruling that petitioner has
paid in cash the sum of P142,975.00 to respondent company for the purchase of 4,085 piculs
of H-2 sugar and is entitled to the delivery of 350 piculs of H-2 sugar or to be paid the sum of
P12,250.00 plus legal interest from November 13, 1970 until fully paid, at the option of
petitioner.
165
RCBC vs. COURT OF APPEALS
G.R. No. 133107, March 25, 1999
PONENTE: Melo, J.
FACTS:
Private respondent Atty. Felipe Lustre purchased a car from Toyota Shaw, Inc. for
which he made a down payment, the balance of which is to be paid in 24 equal monthly
installments. He then issued 24 postdated checks in the amount due for every month. To
secure the balance, private respondent executed a promissory note and a contract of
Chattle Mortgage over the vehicle in favor of Toyota Shaw. The contract of Chattle
Mortgage provided for an acceleration clause stating that if there be default on the part of
the mortgagor to pay any of the installments, the whole amount remaining shall become
due.
Toyota Shaw then assigned all its rights and interest in the Chattle Mortgage to
petitioner Rizal Commercial Banking Corporation (RCBC). The problem arose when one
check was not signed by the private respondent. On the theory that the respondent
defaulted in his payments, petitioner demanded the payment of the debt including
liquidated damages. Atty. Lustre refused, prompting RCBC to file an action for replevin and
damages before the Regional Trial Court of Pasay City.
After trial, the RTC rendered a decision in favor of the private respondent, and held
that he was not in default. The Court of Appeals affirmed the decision of the lower court.
ISSUE:
Whether or not private respondent should be held in default.
HELD:
Article 1170 of the Civil Code states that “those who in the performance of their
obligation are guilty of delay are liable for damages.” The delay in the performance must be
malicious or negligent. There was no imputation, much less evidence, that private
respondent acted with malice or negligence in failing to sign the check. The Supreme Court
agreed with the Court of Appeals that such omission was mere inadvertence on the part of
private respondent.
166
PHILIPPINE BANK OF COMMUNICATIONS V. LIM
G.R. NO. 158138, April 12, 2005
PONENTE: Melo, J.
FACTS:
Petitioner filed a complaint against respondents for the collection of a deficiency
amounting to P4,014,297.23 exclusive of interest. Petitioner alleged that respondents
obtained a loan from it and executed a continuing surety in favor of petitioner for all loans,
credits, etc., that were extended or may be extended in the future to respondents.
Petitioner granted a renewal of said loan upon respondent’s request as evidenced by a
promissory note renewal BD-Variable No. 8298021001 on the amount of P3,000,000.00. it
was expressly stipulated therein that the venue for any legal action that may arise out of
said promissory note shall be Makati City “to the excklusion of all other courts.”
Respondent allegedly failed to pay said obligation upon maturity. Thus petitioner foreclosed
the real estate mortgage executed by the respondents valued at P1,081,600.00 leaving a
deficiency balance of P4,014,297.23
Respondents moved to dismiss the complaint on the ground of improper venue,
invoking the stipulation contained in the last paragraph of the promissory note with respect
to the restriction/exclusive venue. The trial court denied said motion asseverating that
petitioners had separate causes of action arising from the promissory note and the
continuing surety agreement.
ISSUE:
Whether or not the “complementary-contracts-construed together” principle is
applicable in the case at bar.
RULING:
The aforementioned doctrine is applicable to the present case. In capable of
standing by itself, the surety agreement can be enforced only in conjuction with the
promissory note. The latter documents the debt that is sought to be collected in the action
against the sureties
According to this principle, an accessory contract must be read in its entirety and
together with the principal agreement. This principle is used in construing contractual
stipulations in order to arrive at their true meaning; certain stipulations cannot be
segregated and then made to control. This no-segregation principle is based on Article 1374
of the Civil Code.
Notably, the promissory note was a contract of adhesion that petitioner
required the principal debtor to execute as a condition of the approval of the loan. It was
made in the form and language prepared by the bank. By inserting the provision of that
Makati City would be the “venue for any legal action that may arise out of the promissory
note,” petitioner also restricted the venue of actions against the sureties. The legal action
167
against the sureties arose not only from the security agreement but also from the
promissory note.
MOVIDO vs PASTOR
G.R. No. 172279 : February 11, 2010
PONENTE: Corona, J.
FACTS:
Respondent Luis Reyes Pastor filed a complaint for specific performance in the
Regional Trial Court of Imus, Cavite, praying that petitioner Valentin Movido be compelled to
cause the survey of a parcel of land subject of their contract to sell. In his complaint,
respondent alleged that he and petitioner executed a kasunduan sa bilihan ng lupa where the
latter agreed to sell a parcel of land located in Paliparan, Dasmariñas, Cavite with an area of
some 21,000 sq. m. out of the 22,731 sq. m. covered by Transfer Certificate of Title.
Respondent further alleged that another kasunduan was later executed supplementing the
kasunduan sa bilihan ng lupa. It provided that, if a NAPOCOR power line traversed the subject
lot, the purchase price would be lowered to P200/sq. m. beyond the distance of 15 meters on
both sides from the center of the power line while the portion within a distance of 15 meters
on both sides from the center of the power line would not be paid. Lastly, respondent
alleged that he already paid petitioner P5 million out of the original purchase price of P8.4
million stated in the kasunduan sa bilihan ng lupa. He was willing and ready to pay the
balance of the purchase price but due to petitioner's refusal to have the property surveyed
despite incessant demands, his unpaid balance could not be determined with certainty. In
his answer, petitioner alleged that the original negotiation for the sale of his property
involved the entire area of 22,731 sq. m. However, as respondent was not sure whether a
Napocor power line traversed the property, they then executed the kasunduan. After
respondent personally inspected the property, a final agreement of the kasunduan sa bilihan
ng lupa was executed where the area to be sold was 21,000 sq. m. for P400/sq. m. for a total
sum of P8.4 million. The final agreement also listed a schedule of payments of the purchase
price and included a penalty clause in case of default. The RTC ruled in favor of petitioner
and held that the kasunduan preceded the kasunduan sa bilihan ng lupa. The CA reversed the
RTC and held that the kasunduan sa bilihan ng lupa was the first document executed by the
parties, not the kasunduan. Movido's motion for reconsideration did not have its desired
result, hence, this petition.
ISSUE:
Whether the KASUNDUAN comes first and not the kasunduan sa bilihan ng lupa.
RULING:
168
The Supreme Court dismissed the petition. It explains that both contracts were
executed and notarized on the same day, December 6, 1993. More importantly, both
contracts, even independent of the time of their execution but, taken together, clearly spell
out in full the respective rights and obligations of the parties. A reading of the kasunduan sa
bilihan ng lupa and the kasunduan would readily reveal that payment of the purchase price
does not depend on the survey of the property. In other words, the purchase price should
be paid whether or not the property is surveyed. The survey of the property is important
only insofar as the right of respondent to the reduction of the purchase price is concerned. If
respondent pays a higher amount without the property being surveyed first (compared to
what he is liable to pay after the survey of the property) it will not be a problem because the
excess of the amount paid can easily be refunded to him. Such would be the plain
application of the provisions of the kasunduan. On the other hand, petitioner cannot
successfully reject respondent's demand for petitioner to perform his obligation to have the
property surveyed. Under the kasunduan sa bilihan ng lupa, petitioner is obligated to conduct
the survey on or before the due date of the last installment. Corollary to this, the CA erred
when it proceeded to determine the remaining balance of respondent by applying a reduced
rate on certain portions of the property. Luis Reyes Pastor should thereafter pay the
balance of the purchase price, after which, Marginito should execute the kasulatan ng ganap
na bilihan ng lupa (deed of absolute sale) in favor of Luis Reyes Pastor, reflecting as purchase
price the amount actually paid by the latter.
169
SPOUSES CABAHUG vs NATIONAL POWER CORPORATION
G.R. No. 186069, January 30, 2013
PONENTE: Perez, J.
FACTS:
The Spouses Cabahug are the owners of two parcels of land situated in Barangay
Capokpok, Tabango, Leyte Provincial Registry. They were among the defendants in Special
Civil. Action a suit for expropriation filed by NPC before the RTC, in connection with its
Leyte-Cebu Interconnection Project. The suit was dismissed when NPC opted to settle with
the landowners by paying an easement fee equivalent to 10% of value of their property. In
view of the conflicting land values presented by the affected landowners, it appears that the
Leyte Provincial Appraisal Committee, upon request of NPC, fixed the valuation of the
affected properties at P45.00 per square meter.
On 9 November 1996, Jesus Cabahug executed two documents denominated as

Right of Way Grant in favor of NPC. For and in consideration of the easement fees. Jesus
Cabahug granted NPC a continuous easement of right of way for the latter’s transmissions
lines and their appurtenances. By said grant, Jesus Cabahug agreed not to construct any
building or structure, nor plant in any area within the Right of Way that will adversely affect
or obstruct the transmission line of NPC, except agricultural crops. Jesus Cabahug reserved
the option to seek additional compensation for easement fee, based on the Supreme
Court’s Decision in G.R. No. 60077, entitled National Power Corporation v. Spouses
Misericordia Gutierrez and Ricardo Malit, et al. (Gutierrez).
On 21 September 1998, the Spouses Cabahug filed the complaint for the payment of
just compensation, damages and attorney’s fees against NPC before the RTC. Claiming to
have been totally deprived of the use of the portions of land, the Spouses Cabahug alleged,
the reservation provided under paragraph 4 of the aforesaid grant, they have demanded
from NPC payment of the balance of the just compensation for the subject properties which,
based on the valuation fixed by the Leyte Provincial Appraisal Committee. In its answer, NPC
averred that it already paid the full easement fee mandated under RA 6395 and that the
reservation in the grant referred to additional compensation for easement fee, not the full
just compensation sought by the Spouses Cabahug.
The RTC render a Decision brushing aside NPC, applied the ruling handed down by
this Court in Gutierrez to the effect that NPC’s easement of right of way which indefinitely
deprives the owner of their proprietary rights over their property falls within the purview of
the power of eminent domain.
Aggrieved by the foregoing decision, the NPC perfected the appeal before the CA reversing
and setting aside the RTC’s appealed decision. Finding that the facts of a case are different
170
from those obtaining in Gutierrez and that Section 3-A of RA 6395 only allows NPC to acquire
an easement of right of way over properties traversed by its transmission lines. The Spouses
Cabahug’s motion for reconsideration was denied for lack of merit in the CA’s Resolution.
ISSUES:
(a) Whether or not the Grant of Right of Way whereby Jesus Cabahug reserved the right to
seek additional compensation for easement fee
(b) Whether or not applying Court’s ruling in Gutierrez case, in representation of NPC, the
Office of the Solicitor General (OSG) argues that the sums paid in 1996 by way of easement
fees represent the full amount allowed by law and agreed upon by the parties. Considering
that Gutierrez concerned the payment of just compensation for property expropriated by
the NPC, the OSG maintains the CA did not err in according scant consideration to the
Spouses Cabahug’s invocation of the ruling.
RULING:
The court ruled that the foregoing reservation, was evident that the Spouses Cabahug’s
receipt of the easement fee did not bar them from seeking further compensation from NPC.
Even by the basic rules in the interpretation of contracts, we find that the CA erred in
holding that the payment of additional sums to the Spouses Cabahug would be violative of
the parties’ contract and amount to unjust enrichment. Indeed, the rule is settled that a
contract constitutes the law between the parties who are bound by its stipulations which,
when couched in clear and plain language, should be applied according to their literal tenor.
The Court ruled that the power of eminent domain may be exercised although title is not
transferred to the expropriator in an easement of right of way. Just compensation which
should be neither more nor less than the money equivalent of the property is due where the
nature and effect of the easement is to impose limitations against the use of the land for an
indefinite period and deprive the landowner its ordinary use.
Even without the reservation made by Jesus Cabahug in the Grant of Right of Way, the
application of Gutierrez to this case is not improper as NPC represents it to be. It has been
ruled that the owner should be compensated for the monetary equivalent of the land as the
easement is intended to perpetually or indefinitely deprive the owner of his proprietary
rights through the imposition of conditions that affect the ordinary use, free enjoyment and
disposal of the property or through restrictions and limitations that are inconsistent with the
exercise of the attributes of ownership, or when the introduction of structures or objects
which, by their nature, create or increase the probability of injury, death upon or destruction
of life and property found on the land is necessary. Measured not by the taker’s gain but the
owner’s loss, just compensation is defined as the full and fair equivalent of the property
taken from its owner by the expropriator.
171
RODOLFO G. CRUZ vs RODOLFO G. CRUZ
G.R. No. 191431, March 13, 2013
PONENTE: Brion, J.
TOPIC: Interpretaion of Contracts
FACTS:
The claim arose from an accident when the mini bus owned and operated by Cruz and driven
by one Arturo Davin collided with the Toyota Corolla car, Gruspe’s car was a total wreck. The
next day, Cruz, along with Leonardo Q. Ibias went to Gruspe’s office, apologized for the
incident, and executed a Joint Affidavit of Undertaking promising jointly and severally to
replace the Gruspe’s damaged car in 20 days, or until November 15, 1999, of the same model
and of at least the same quality; or, alternatively, they would pay the cost of Gruspe’s car
amounting to P350,000.00, with interest at 12% per month for any delayed payment after
November 15, 1999, until fully paid. When Cruz and Leonardo failed to comply with their
undertaking, Gruspe filed a complaint for collection of sum of money against them. Cruz and
Leonardo denied Gruspe’s allegation, claiming that Gruspe, a lawyer, prepared the Joint
Affidavit of Undertaking and forced them to affix their signatures thereon, without
explaining and informing them of its contents.
ISSUE:
Whether or not the Joint Affidavit of Undertaking is a contract that can be the basis
of an obligation to pay a sum of money.
HELD:
Simple reading of the terms of the Joint Affidavit of Undertaking readily discloses
that it contains stipulations characteristic of a contract. Contracts are obligatory no matter
what their forms may be, whenever the essential requisites for their validity are present. In
determining whether a document is an affidavit or a contract, the Court looks beyond the
title of the document, since the denomination or title given by the parties in their document
is not conclusive of the nature of its contents. In the construction or interpretation of an
instrument, the intention of the parties is primordial and is to be pursued. If the terms of the
document are clear and leave no doubt on the intention of the contracting parties, the literal
meaning of its stipulations shall control. If the words appear to be contrary to the parties’
evident intention, the latter shall prevail over the former.
172
STAR TWO (SPV-AMC), INC., vs PAPER CITY CORPORATION OF THE PHILIPPINES
G.R. No. 169211, March 6, 2013
PONENTE: Perez, J.
FACTS:
Respondent Paper City is a domestic corporation engaged in the manufacture of
paper products. Paper City applied for and was granted loans and credit accommodations in
peso and dollar denominations by RCBC secured by 4 Deeds of Continuing Chattel
Mortgages on its machineries and equipment found inside its paper plants.
However, a unilateral Cancellation of Deed of Continuing Chattel Mortgage on
Inventory of Merchandise/Stocks-in-Trade was executed by RCBC over the merchandise and
stocks-in-trade covered by the continuing chattel mortgages.
RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as the trustee
bank) entered into a Mortgage Trust Indenture (MTI) with Paper City. In the said MTI, Paper
City acquired an additional P170, 000,000.00 from the creditor banks in addition to the
previous loan from RCBC amounting to P110, 000,000.00.
The old loan of P110,000,000.00 was partly secured by various parcels of land
situated in Valenzuela City. The new loan obligation of P170,000,000.00 would be secured by
the same five (5) Deeds of Real Estate Mortgage and additional real and personal properties
described in an annex to MTI, Annex "B" which covered the machineries and equipment of
Paper City.
The MTI was later amended to increase the contributions of the RCBC and Union
Bank. As a consequence, they executed a Deed of Amendment to MTI but still included as
part of the mortgaged properties by way of a first mortgage the various machineries and
equipment located in and bolted to and/or forming part of buildings.
A Second Supplemental Indenture to the MTI was executed to increase the amount
of the loan secured against the existing properties composed of land, building, machineries
and equipment and inventories described in Annexes "A" and "B."
Finally, a Third Supplemental Indenture to the MTI was executed to increase the
existing loan obligation with an additional security composed of a newly constructed two-
storey building and other improvements, machineries and equipment located in the existing
plant site.
Paper City was able to comply with its loan obligations but economic crisis ensued
which made it difficult for Paper City to meet the terms of its obligations leading to payment
defaults. Consequently, RCBC filed a Petition for Extrajudicial Foreclosure.
173
The petition was for the extra-judicial foreclosure of eight parcels of land including all
improvements thereon which were sold in favor of the creditor banks RCBC, Union Bank and
Metrobank as the highest bidders.
This foreclosure sale prompted Paper City to file a Complaint against the creditor
banks alleging that the extra-judicial sale of the properties and plants was null and void due
to lack of prior notice and attendance of gross and evident bad faith on the part of the
creditor banks.
Acting on the said motion, the trial court issued an Order denying the prayer and ruled that
the machineries and equipment were included in the annexes and form part of the MTI.
Paper City filed its Motion for Reconsideration which was favorably granted by the trial
court with justification that the disputed machineries and equipment are chattels by
agreement of the parties through their inclusion in the four Deeds of Chattel Mortgage and
the deed of cancellation executed by RCBC was not valid because it was done unilaterally
and without the consent of Paper City.
ISSUE:
Whether the subject machineries and equipment were included in the mortgage,
extrajudicial foreclosure and in the consequent sale.
RULING:
Yes. By contracts, all uncontested in this case, machineries and equipment are
included in the mortgage in favor of RCBC, in the foreclosure of the mortgage and in the
consequent sale on foreclosure also in favor of petitioner.
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to
RCBC are various parcels of land including the buildings and existing improvements thereon
as well as the machineries and equipment, which as stated in the granting clause of the
original mortgage, are "more particularly described and listed that is to say, the real and
personal properties listed in Annexes ‘A’ and ‘B’.”
The plain language and literal interpretation of the MTIs must be applied. The
petitioner, other creditor banks and Paper City intended from the very first execution of the
indentures that the machineries and equipment enumerated in Annexes "A" and "B" are
included. Obviously, with the continued increase in the amount of the loan, totaling
hundreds of millions of pesos, Paper City had to offer all valuable properties acceptable to
the creditor banks.
174
STRONGHOLD INSURANCE COMPANY, INC. vs SPOUSES RUNE and LEA STROEM
G.R. No. 204689 , January 21, 2015
PONENTE: Leonen, J.
FACTS:
Spouses Rune and Lea Stroem, entered into an Owners-Contractor Agreement with
Asis-Leif & Company, Inc. for the construction of a two-storey house on the lot owned by
Spouses Stroem. Pursuant to the agreement, Asis-Leif secured Performance Bond in the
amount of P4,500,000.00 from Stronghold Insurance Company, Inc. Stronghold and Asis-
Leif, through Ms. Ma. Cynthia Asis-Leif, bound themselves jointly and severally to pay the
Spouses Stroem the agreed amount in the event that the construction project is not
completed. Despite the repeated demands of the Spouses Stroem, Asis-Leif failed to finish
the projection time. Spouses Stroem, subsequently rescinded the agreement and hired an
independent appraiser to evaluate the progress of the construction project.
On April 5, 2001, Stronghold sent a letter to Asis-Leif requesting that the company
settle its obligations with the Spouses Stroem, but Asis-Leif failed to respond. Spouses
Stroem filed a Complaint (with Prayer for Preliminary Attachment) for breach of contract
and for sum of money with a claim for damages against Asis-Leif, Ms. Cynthia Asis-Leif, and
Stronghold. But only Stronghold was served summons. Ms. Cynthia Asis-Leif allegedly
absconded and moved out of the country.
The Regional Trial Court rendered a judgment in favor of the Spouses Stroem. The
trial court ordered Stronghold to pay the Spouses Stroem P4,500,000.00 with 6% legal
interest from the time of first demand, plus attorney’s fees and litigation expenses
amounting to P35,000. Both Stronghold and the Spouses Stroem appealed to the Court of
Appeals. The Court of Appeals affirmed with modification the trial court’s Decision,
increasing the attorney’s fees to P50,000.
ISSUES:
1. Whether or not, the dispute involves a construction contract, thus, the regular
court has no jurisdiction to rule on the case?
2. Whether or not, petitioner Stronghold Insurance Company, Inc. is liable under
Performance Bond?
175
RULING:
1. YES. The dispute arises from a construction contract, the CIAC has exclusive and
original jurisdiction. Construction has been defined as referring to all on-site works
on buildings or altering structures, from land clearance through completion including
excavation, erection and assembly and installation of components and equipment.
Performance bond which guarantees the completion of the project, is substantially
connected to the construction contract and therefore, falls under the jurisdiction of
the CIAC.
2. YES. The surety’s solidary obligation for the performance of the principal debtor’s
obligation is indirect and secondary. Article 7.2 of the Owners-Contractor
Agreement, provides that the performance bond will guarantee the satisfactory and
faithful performance by the CONTRACTOR of all provisions stated within the
contract.
176
BERMAN MEMORIAL PARK, Inc. vs. CHENG
G.R. No. 154630, May 6, 2005
PONENTE: Callejo, Jr., J.

FACTS:
Berman Memorial Park, Inc. (BMPI) is the owner and operator of the Iloilo Memorial
Park (IMP) located in Jaro, Iloilo City. One of the sales counselors of the corporation was
Luisa Chong.
Francisco Cheng had been a businessman for 50 years, engaged in the
purchase and sale of salt, monggo, soya and other commodities under the business name
"Timberland Native Products and Supplies." Among his employees was an accountant.
On January 18, 1994, Conchita Cheng, Francisco Cheng’s wife, died. On January 20,
1994, Cheng purchased from BMPI a memorial lot, identified as 12-Lot Family Estate, Jr., in
the IMP for the interment of his wife. He and BMPI executed, on the said date, At-Need
Purchase Agreement No. 2280 in which he bound and obliged himself to pay its purchase
price of P150,000.00, thus: P50,000.00 as downpayment; P50,000.00 on or before March 7,
1994; and P50,000.00 on or before April 22, 1994. The remains of Conchita were interred in
the said lot.
Cheng made a downpayment of P50,000.00 and executed a promissory note,

obliging himself to pay the balance of P100,000.00 on or before the said due date. Cheng
was able to pay the P100,000.00 via postdated check, less P1,000.00 representing Chong’s
cash offer for the deceased which she and BMPI had agreed would be deducted from her
future commissions. However, Cheng remitted to BMPI, on April 22, 1994, the amount of
P49,750.00 as additional payment of the said lot although he had already paid the price in
full.
On July 24, 1996, Cheng filed a Complaint against the IMP, not against BMPI, and
Luisa Chong in the Regional Trial Court (RTC) of Iloilo City, for specific performance with
damages. He alleged that the IMP was a corporation duly organized and existing in the
Philippines and that he had purchased 24-Lot from the IMP for P250,000.00, less the amount
of P150,000.00 he had paid for 12-Lot, or a net price of P100,000.00. He asserted that he had
made an overpayment of P77,375.00 for the said lot.
ISSUE:
Whether or not the respondent knew and understood the two (2) transactions he
entered into and was benefited by the process called upgrading.
RULING:
177
Article 1370 of the New Civil Code provides that if the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. No amount of extrinsic aids are required and no further extraneous
sources are necessary in order to ascertain the parties’ intent, determinable as it is, from the
contract itself. The records are clear that the respondent understood the nature of the
contract he entered into.
If, indeed, the stipulations as embodied in the aforementioned Pre-Need Purchase
Agreement were not the true intention of the parties, the respondent should have filed the
corresponding action for reformation of the contract. But he did not.
The hornbook rule on interpretation of contracts gives primacy to the intention of
the parties, which is the law among them. Ultimately, their intention is to be deciphered not
from the unilateral post facto assertions of one of the parties, but from the language used in
the contract. And when the terms of the agreement, as expressed in such language, are
clear, they are to be understood literally, just as they appear on the face of the contract.
178
The Wellex Group Inc. vs. U-Land Airlines, Co., Ltd
G.R. No. 167519, January 14, 2015
PONENTE: Leonen, J.
TOPIC: Interpretaion of Contracts
FACTS:
Wellex and U-Land agreed to develop a long-term business relationship through the
creation of joint interest in airline operations and property development projects in the
Philippines. The provisions of the memorandum were agreed to be executed within 40days
from its execution date. The 40-day period lapsed but Wellex and U-Land were not able to
enter into any share purchase agreement although drafts were exchanged between the
two. Despite these transactions, Wellex and U-Land still failed to enter into the share
purchase agreement and the joint development agreement. Thus, U-Land filed a Complaint
praying for rescission of the First Memorandum of Agreement and damages against Wellex
and for the issuance of a Writ of Preliminary Attachment. Under the circumstances, it is clear
thatdefendant fraudulently violated the provisions of the MOA.” On appeal, the Court of
Appeals affirmed the ruling of theRegional Trial Court. Hence, this petition.
ISSUE:
Whether or not respondent U-Land correctly sought the principal relief of rescission
or resolution underArticle1191.
RULING:
Yes. The failure of one of the parties to comply with its reciprocal prestation allows
the wronged party to seek the remedy of Article 1191. The wronged party is entitled to
rescission or resolution under Article 1191, and even the payment of damages. It is a principal
action precisely because it is a violation of the original reciprocal prestation. Rescission or
resolution under Article 1191, therefore, is a principal action that is immediately available to
the party at the time that the reciprocal prestation was breached. Thus, respondent U-Land
correctly sought the principal relief of rescission or resolution under Article 1191. The parties
and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with
Assumption of Mortgage. Respondent, however, defaulted in the payment of her
obligations on their due dates. Instead of paying the amounts due in lump sum on their
respective maturity dates, respondent paid petitioner in small amounts from time to time.
The RTC considered a contract to sell, and not a contract of sale. The CA affirmed the RTC.
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ISSUE:
What mode of rescission or resolution is proper? Under Article 1191 or under Article 1381?
RULING:
Rescission, as defined by Article 1385, mandates that the parties must return to each
other everything that they may have received as a result of the contract. This pertains to
rescission or resolution under Article 1191, as well as the provisions governing all forms of
rescissible contracts.
When a party seeks the relief of rescission as provided in Article 1381, there is no need for
reciprocal prestations to exist between or among the parties. All that is required is that the
contract should be among those enumerated in Article 1381 for the contract to be
considered rescissible. Unlike Article 1191, rescission under Article 1381 must be a subsidiary
action because of Article 1383.
Contrary to petitioner Wellex’s argument, this is not rescission under Article 1381 of the Civil
Code. This case does not involve prejudicial transactions affecting guardians, absentees, or
fraud of creditors. Article 1381(3) pertains in particular to a series of fraudulent actions on
the part of the debtor who is in the process of transferring or alienating property that can
be used to satisfy the obligation of the debtor to the creditor. There is no allegation of fraud
for purposes of evading obligations to other creditors. The actions of the parties involving
the terms of the First Memorandum of Agreement do not fall under any of the enumerated
contracts that may be subject of rescission.
On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of
action is subordinated to the existence of that prejudice, because it is the raison detre as
well as the measure of the right to rescind. Hence, where the defendant makes good the
damages caused, the action cannot be maintained or continued, as expressly provided in
Articles 1383 and 1384. But the operation of these two articles is limited to the cases of
rescission for lesión enumerated in Article 1381 of the Civil Code of the Philippines, and does
not apply to cases under Article 1191.185
Rescission or resolution under Article 1191, therefore, is a principal action that is immediately
available to the party at the time that the reciprocal prestation was breached. Article 1383
mandating that rescission be deemed a subsidiary action cannot be applicable to rescission
or resolution under Article 1191.
Thus, respondent U-Land correctly sought the principal relief of rescission or resolution
under Article 1191. The obligations of the parties gave rise to reciprocal prestations, which
arose from the same cause: the desire of both parties to enter into a share purchase
agreement that would allow both parties to expand their respective airline operations in the
Philippines and other neighboring countries
180
UNIVERSAL FOOD CORPORATION vs CA
G.R. No. L-29155 ,February 22, 1971
PONENTE: Castro, J.
FACTS:
The petitioner contends that (a) under the terms of the Bill of Assignment, exh. A,
the respondent Magdalo V. Francisco ceded and transferred to the petitioner not only the
right to the use of the formula for Mafran sauce but also the formula itself, because this,
allegedly, was the intention of the parties; (b) that on the basis of the entire evidence on
record and as found by the trial court, the petitioner did not dismiss the respondent
Francisco because he was, and still is, a member of the board of directors, a stockholder, and
an officer of the petitioner corporation, and that as such, had actual knowledge of the
resumption of production by the petitioner, but that despite such knowledge, he refused to
report back for work notwithstanding the petitioner's call for him to do so; (c) that the
private respondents are not entitled to rescind the Bill of Assignment; and (d) that the
evidence on record shows that the respondent Francisco was the one not ready, willing and
able to comply with his obligations under the Bill of Assignment, in the sense that he not
only irregularly reported for work but also failed to assign, transfer and convey to the
petitioner of the said deed of conveyance.
ISSUE:
Whether respondent Francisco ceded to the petitioner merely the use of the formula
for Mafran sauce and not the formula itself.
RULING:
The Court concluded that what was actually ceded and transferred was only the use
of the Mafran sauce formula. The fact that the trademark "Mafran" was duly registered in
the name of the petitioner pursuant to the Bill of Assignment, standing by itself alone, to
borrow the petitioner's language, is not sufficient proof that the respondent Francisco was
supposedly obligated to transfer and cede to the petitioner the formula for Mafran sauce
and not merely its use. For the said respondent allowed the petitioner to register the
trademark for purposes merely of the "marketing of said project.
181
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC vs. MAYFAIR
THEATER, I9NC
G.R. No. 106063, November 21, 1996
PONENTE: Hermosisima, Jr., J.

FACTS:
Carmelo owned a parcel of land, together with two 2-storey buildings constructed
thereon. On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the
latter’s lease of a portion of Carmelo’s property. 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. Both contracts of lease provide identically worded paragraph 8, which
reads: ‘That if the LESSOR should desire to sell the leased premises, the LESSEE shall be
given 30-days exclusive option to purchase the same. In the event, however, that the leased
premises is sold to someone other than the LESSEE, the LESSOR is bound and 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. 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 Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the
property for Six to Seven Million Pesos. Under your company’s two lease contracts with our
client, it is uniformly provided:
That if the LESSOR should desire to sell the leased premises the LESSEE shall be given
30-days exclusive option to purchase the same. In the event, however, that the leased
premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it
here 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 hereof. 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. In September 1978, Mayfair instituted the
action a quo for specific performance and annulment of the sale of the leased premises to
182
Equatorial. It dismissed the complaint with costs against the plaintiff. The Court of Appeals
reversed the decision of the trial court.
ISSUE:
Whether or not the decision of the Court of Appeals’ decision was correct.
RULING:
The Court agrees with the Court of Appeals that the aforecited contractual
stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or
an option contract. It is a contract of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our
characterization of an option contract as one necessarily involving the choice granted to
another for a distinct and separate consideration as to whether or not to purchase a
determinate thing at a predetermined fixed price.
Further, 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 Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the
property in question rescissible. We agree with respondent Appellate Court that the records
bear out the fact that 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.
Hence, the petition was denied.
183
Guzman, Bocaling & Co. vs Bonnevie
G.R. No. 86150, March 2, 1992
PONENTE: Cruz, J.
FACTS:
Africa Valdez de Reynoso leased a parcel of land to Raoul S. Bonnevie and

Christopher Bonnevie for a period of one year beginning August 8, 1976. Reynoso alleged
that on November 3, 1976 she notified respondents by registered mail that she was selling
the leased premises for P600,000 and that she was giving respondents 30 days from receipt
of the letter to exercise their right of first priority to purchase the subject property as
stipulated in their Contract of Lease. On January 20, 1977, Reynoso sent another letter to the
respondents informing them that the property had been sold. Respondents wrote back to
Reynoso that they did not receive her first letter and that they had already signified their
interest to purchase the property beforehand to Reynoso’s agent and thus were
constrained to refuse Reynoso’s request to terminate the lease. Reynoso went on with the
sale in favor of Guzman, Bocaling & Co. for a lesser price, and filed an ejectment case against
the Bonnevies. Respondents filed an action for annulment of the sale. The Court of First
Instance ruled in favor of the respondents, declaring the deed of sale executed by Reynoso
in favor of Guzman, Bocaling & Co. null and void. The Court of Appeals affirmed the lower
court’s decision but held that the Contract of Sale was not voidable but was instead
rescissible.
ISSUES:
1.) Did the Court of Appeals err in holding that the Contract of Sale was not voidable but was
instead rescissible?
2.) Did the Court of Appeals err in considering the petitioner as a buyer in bad faith?
RULING:
1.) No. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third persons, like creditors.
184
The status of creditors could be validly accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the subject property to the petitioner without
recognizing their right of first priority under the Contract of Lease. Rescission is a remedy
granted by law to the contracting parties and even to third persons, to secure reparation for
damages caused to them by a contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior to the celebration of said
contract. It is a relief allowed for the protection of one of the contracting parties and even
third persons from all injury and damage the contract may cause, or to protect some
incompatible and preferent right created by the contract. Recission implies a contract which,
even if initially valid, produces a lesion or pecuniary damage to someone that justifies its
invalidation for reasons of equity.
2.) No. Petitioner cannot be deemed a purchaser in good faith for the record shows that it
categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to petitioner. A purchaser in good
faith and for value 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 for the same at
the time of such purchase or before he has notice of the claim or interest of some other
person in the property. Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. Tested by these principles, the petitioner cannot
tenably claim to be a buyer in good faith as it had notice of the lease of the property by the
Bonnevies and such knowledge should have cautioned it to look deeper into the agreement
to determine if it involved stipulations that would prejudice its own interests.
185
RIVERA vs. DEL ROSARIO
G.R. No. 144934, January 15, 2004
PONENTE: Cruz, J.
FACTS:
Respondents filed a complaint for nullity of contract of sale and annulment of the
transfer certificates of title against petitioners. The RTC ruled in favor of respondents. The
CA affirmed with modification the RTC decision. Hence, petitioners filed a petition for review
on certiorari before the SC.
Petitioners contend, among others, that jurisdiction was not validly acquired because the
filing fees respondents paid was only P1,554.45 when the relief sought was reconveyance of
land that was worth P2,141,622.50 under the Kasunduan. They contend that respondents
should have paid filing fees amounting to P12,183.70. In support of their argument,
petitioners invoke the doctrine in Sun Insurance Office, Ltd., v. Asuncion and attach a
certification from the Clerk of Court of the RTC of Quezon City.
Respondents counter that it is beyond dispute that they paid the correct amount of docket
fees when they filed the complaint. If the assessment was inadequate, they could not be
faulted because the clerk of court made no notice of demand or reassessment, respondents
argue. Respondents also add that since petitioners failed to contest the alleged
underpayment of docket fees in the lower court, they cannot raise the same on appeal.
ISSUE:
Did the trial court acquire jurisdiction over the case, despite an alleged deficiency in the
amount of filing fees paid by respondents?
RULING:
Yes. Jurisdiction was validly acquired over the complaint. In Sun Insurance Office, Ltd., v.
Asuncion, this Court ruled that the filing of the complaint or appropriate initiatory pleading
and the payment of the prescribed docket fee vest a trial court with jurisdiction over the
subject matter or nature of the action. If the amount of docket fees paid is insufficient
considering the amount of the claim, the clerk of court of the lower court involved or his
duly authorized deputy has the responsibility of making a deficiency assessment. The party
filing the case will be required to pay the deficiency, but jurisdiction is not automatically lost.
Here it is beyond dispute that respondents paid the full amount of docket fees as assessed
by the Clerk of Court of the Regional Trial Court of Malolos, Bulacan, Branch 17, where they
186
filed the complaint. If petitioners believed that the assessment was incorrect, they should
have questioned it before the trial court. Instead, petitioners belatedly question the alleged
underpayment of docket fees through this petition, attempting to support their position
with the opinion and certification of the Clerk of Court of another judicial region. Needless to
state, such certification has no bearing on the instant case.
187
UNION BANK OF THE PHILIPPINES, Petitioner, vs. SPS. ONG
G.R. No. 152347 June 21, 2006
PONENTE: Garcia, J.
FACTS:
Spouses Alfredo Ong and Susana Ong 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 aP40,000,000.00-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 Greenhills, San Juan, Metro Manila, together with the house and other
improvements standing thereon, to their co-respondent, Jackson Lee. The following day,
Lee registered the sale and was then issued Transfer Certificate of Title (TCT) No. 4746-R. 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 lost no time in filing with the RTC of Pasig City an action for rescission of the sale
between the spouses Ong and Jackson Lee for purportedly being in fraud of creditors.
ISSUE:
Whether or not the Ong-Lee contract of sale partakes of a conveyance to defraud
Union Bank
RULING:
The Ong-Lee contract of sale partakes a conveyance of bona fide transaction and not
a trick to defeat creditors. 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 the present case, respondent spouses Ong, had sufficiently
established the legitimacy of the sale. It was supported by sufficient consideration. The
disparity between the price and the real value of the property was not as gross to support a
conclusion of fraud. Furthermore, there was no evidence to prove that the spouses Ong and
Lee were conniving cheats. Even if the spouses Ong did not leave the premises immediately
after the sale, such action was supported by a valid contract of lease. It could not also be
188
contended that Lee was not financially capable of purchasing the property, since mere
income for a specific year is not sufficient to establish his incapacity.
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. UB failed to show that it has no other legal recourse to obtain satisfaction for
its claim; hence, it is not entitled to the rescission asked. On a final note, the Insolvency Law
cannot be applied in this case. First, the spouses Ong had not filed a petition for a
declaration of their own insolvency; neither has one been filed against them. Second, the
real debtor of petitioner bank in this case is BMC. Third, the twin elements of good faith and
valuable and sufficient consideration have been duly established, giving no occasion to apply
Section 70 of the Insolvency Law, which considers transfers made within a month after the
date of cleavage void, except those made in good faith and for valuable pecuniary
consideration.
189
LEE vs. BANGKOK BANK PUBLIC COMPANY
G.R. No. 173349, February 09, 2011
FACTS:
Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI)
entered into two separate Credit Line Agreements (CLAs) with Respondent Bangkok Bank
Public Company, Limited (Bangkok Bank) on November 29, 1995 and April 17, 1996,
respectively. MDEC and MHI are owned and controlled by the Lee family: Thelma U. Lee,
Maybelle L. Lim, Daniel U. Lee and Samuel U. Lee (Samuel). Both corporations have
interlocking directors and management led by the Lee family; and engaged in the
manufacturing and export of garments, ladies' bags and apparel.
On July 25, 1996, MDEC was likewise granted a loan facility by Asiatrust Development
Bank, Inc. (Asiatrust). This facility had an available credit line of forty million pesos (PhP
40,000,000) for letters of credit, advances on bills and export packing; and a separate credit
line of two million dollars (USD 2,000,000) for bills purchase.
In the meantime, in May 1997, Samuel bought several parcels of land in Cupang,
Antipolo, and later entered into a joint venture with Louisville Realty and Development
Corporation to develop the properties into a residential subdivision, called Louisville
Subdivision. These properties in Cupang, Antipolo are the subject properties in the instant
case (Antipolo properties) and are covered by Transfer Certificate of Title.
MDEC and MHI initially had made payments with their CLAs until they defaulted and
incurred aggregate obligations to Bangkok Bank in the amount of USD 1,998,554.60 for
MDEC and USD 800,000 for MHI. Similarly, the Lee corporations defaulted in their
obligations with other creditors
On February 16, 1998, MDEC, MHI, and three other corporations owned by the Lee
family filed before the Securities and Exchange Commission (SEC) a Consolidated Petition
for the Declaration of a State of Suspension of Payments and for Appointment of a
Management Committee/Rehabilitation Receiver.
On February 20, 1998, the SEC issued a Suspension Order enjoining the Lee
corporations from disposing of their property in any manner except in the ordinary course of
business, and from making any payments outside the legitimate expenses of their business
during the pendency of the petition.
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On July 20, 1999, Bangkok Bank filed the instant case before the RTC. The RTC
dismissed the case. However, the CA granted the appeal, and reversed and set aside the RTC
decision. Hence, this petition.
ISSUE:
Whether or not Bangkok Bank can maintain an action to rescind the REM on the
subject Antipolo properties despite its failure to exhaust all legal remedies to satisfy its
claim.
RULING:
The Supreme Court ruled that under Sec. 5.2 of RA 8799, the SEC's original and
exclusive jurisdiction over all cases enumerated under Sec. 5 of PD 902-A was transferred to
the appropriate RTC. RA 8799, Sec. 5.2, however, expressly stated as an exception, that the
"the Commission shall retain jurisdiction over pending suspension of payment/rehabilitation
cases filed as of 30 June 2000 until finally disposed." Accordingly, the Consolidated Petition
for the Declaration of a State of Suspension of Payments and for Appointment of a
Management Committee/Rehabilitation Receiver filed on February 16, 1998 by MDEC, MHI
and three other corporations owned by the Lee family, remained under the jurisdiction of
the SEC until finally disposed of pursuant to the last sentence of Sec. 5.2 of RA 8799.
The SEC's jurisdiction is evident from the statutorily vested power of jurisdiction,
supervision and control by the SEC over all corporations, partnerships or associations, which
are grantees of primary franchise, license or permit issued by the government to operate in
the Philippines, and its then original and exclusive jurisdiction over petitions for suspension
of payments of said entities. Secs. 3 and 5 of PD 902-A pertinently provides:
Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over
all corporations, partnerships or associations, who are the grantees of primary franchise
and/or a license or permit issued by the government to operate in the Philippines; and in the
exercise of its authority, it shall have the power to enlist the aid and support of any and all
enforcement agencies of the government, civil or military.
Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide cases involving: (d) Petitions of corporations,
partnerships or associations to be declared in the state of suspension of payments in cases
where the corporation, partnership or association possesses sufficient property to cover all
its debts but foresees the impossibility of meeting them when they respectively fall due or in
cases where the corporation, partnership or association has no sufficient assets to cover its
liabilities, but is under the management of a Rehabilitation Receiver or Management
Committee created pursuant to this Decree.
191
LUZ ADANZA vs. FLORANTE BAYLON
G.R. No. 182435, August 13, 2012
PONENTE: Reyes, J.
FACTS:
Rita Baylon, was alleged to have been used the income of the estate produced by
parcels of land co-owned by petitioners. They claimed that Rita took possession of the said
parcels of land and appropriated for herself the income from the same hence, this prompted
petitioners to file a Complaint for partition, accounting and damages against the former.
During the pendency of the case, Rita, through a Deed of Donation, donated a lot in favor of
Florante Baylon. Petitioners filed again a petition that the said donation be rescinded in
accordance with Article 1381(4) of the Civil Code.
ISSUE:
Whether the deed of donation to Florante Baylon is subject for rescission.
HELD:
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;
3. those which, by special provisions of law, are susceptible to rescission.
In the case at bar, the lower court aptly ordered the rescission of the donation in
favor of Florante. It is undisputed that, at the time they were gratuitously conveyed by Rita,
the subject lot are among the properties that were the subject of the partition case then
pending with the RTC. 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.
192
SPOUSES FERNANDO AND LOURDES VILORIA VS. CONTINENTAL AIRLINES, INC.
G.R. NO. 188288, JANUARY 16, 2012
PONENTE: REYES, J.
TOPIC: RESCISSION
FACTS:
Fernando purchased for himself and his wife, Lourdes, two (2) round trip airline
tickets from San Diego, California to Newark, New Jersey on board Continental Airlines.
Fernando purchased the tickets at US$400.00 each from a travel agency called “Holiday
Travel” and was attended to by a certain Margaret Mager. According to Spouses Viloria,
Fernando agreed to buy the said tickets after Mager informed them that there were no
available seats at Amtrak, an intercity passenger train service provider in the United States.
Per the tickets, Spouses Viloria were scheduled to leave for Newark and return to San Diego.
Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier
date or August 6, 1997. Mager informed him that flights to Newark via Continental Airlines
were already fully booked and offered the alternative of a round trip flight via Frontier Air.
Since flying with Frontier Air called for a higher fare of US$526.00 per passenger and would
mean traveling by night, Fernando opted to request for a refund. Mager, however, denied
his request as the subject tickets are non-refundable and the only option that Continental
Airlines can offer is the re-issuance of new tickets within one (1) year from the date the
subject tickets were issued. Fernando decided to reserve two (2) seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went to the
Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries and
was told that there are seats available and he can travel on Amtrak anytime and any day he
pleased. Fernando then purchased two (2) tickets for Washington, D.C.From Amtrak,
Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her
that she had misled them into buying the Continental Airlines tickets by misrepresenting
that Amtrak was already fully booked. Fernando reiterated his demand for a refund but
Mager was firm in her position that the subject tickets are non-refundable.Upon returning to
the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a refund and
alleging that Mager had deluded them into purchasing the subject tickets.Continental
Micronesia denied Fernando’s request for a refund and advised him that he may take the
subject tickets to any Continental ticketing location for the re-issuance of new tickets within
two (2) years from the date they were issued. Continental Micronesia informed Fernando
that the subject tickets may be used as a form of payment for the purchase of another
Continental ticket, albeit with a re-issuance fee.
Fernando demanded for the refund of the subject tickets as he no longer wished to
have them replaced. In addition to the dubious circumstances under which the subject
tickets were issued, Fernando claimed that CAI’s act of charging him with US$1,867.40 for a
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round trip ticket to Los Angeles, which other airlines priced at US$856.00, and refusal to
allow him to use Lourdes’ ticket, breached its undertaking under its March 24, 1998 letter.
ISSUE:
Whether or not assuming that CAI is bound by the acts of Holiday Travel’s agents and
employees, can the representation of Mager as to unavailability of seats at Amtrak be
considered fraudulent as to vitiate the consent of Spouse Viloria in the purchase of the
subject tickets.
RULING:
Without a modicum of evidence that CAI exercised control over Holiday Travel’s
employees or that CAI was equally at fault, no liability can be imposed on CAI for Mager’s
supposed misrepresentation.Even on the assumption that CAI may be held liable for the acts
of Mager, still, Spouses Viloria are not entitled to a refund. Mager’s statement cannot be
considered a causal fraud that would justify the annulment of the subject contracts that
would oblige CAI to indemnify Spouses Viloria and return the money they paid for the
subject tickets.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order that fraud may vitiate consent,
it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement
to the making of the contract.30 In Samson v. Court of Appeals,31 causal fraud was defined
as “a deception employed by one party prior to or simultaneous to the contract in order to
secure the consent of the other.”
Also, fraud must be serious and its existence must be established by clear and
convincing evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere
preponderance of evidence is not adequate: Fraud must also be discounted, for according to
the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which without them, he
would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and
should not have been employed by both contracting parties.
194
ANCHOR SAVINGS BANK VS. FURIGAY
G.R. NO. 191178, MARCH 13,2013
PONENTE: MENDOZA, J.
TOPIC: RESCISSION
FACTS:
Ciudad Transport Services, Inc., Henry H. Furigay and Gelinda C. Furigay obtained a
loan from Anchor Savings Bank and subsequently the former defaulted from their loan
obligation which prompted Anchor Savings Bank to file the case. Defendants Sps. Henry H.
Furigay and Gelinda C. Furigay are the registered owners of various real properties located at
the Province of Pangasinan covered by Transfer Certificate of Title Nos. 19721, 21678, 21679,
and 21682. That on 8 March 2001 defendants Sps. Henry H. Furigay and Gelinda C. Furigay
executed a Deed of Donation in favor of their children herein defendants Hegem C. Furigay
and Herriette C. Furigay donating to them all of the above-mentioned properties. Hence, the
following titles were issued under their names to wit: Transfer Certificate of Title Nos. 21743,
21742, 21741, and 21740. That the donation made by defendants Sps. Henry H. Furigay and
Gelinda C. Furigay were done with the intention to defraud its creditors particularly Anchor
Savings Bank. Said transfer or conveyance is the one contemplated by Article 1387 of the
New Civil Code. In the instant case, Sps. Furigay donated the properties at the time there
was a pending case against them.
In the instant case, the Sps. Furigay donated the properties to their son and
daughter. Moreover, the transfer or donation was executed in 2001 when both donees
Hegem C. Furigay and Herriette C. Furigay are minors. Clearly, the Donation made by
defendants Sps. Furigay was intended to deprive plaintiff Anchor Savings Bank from going
after the subject properties to answer for their due and demandable obligation with the
Bank. The donation being undertaken in fraud of creditors then the same may be rescinded
pursuant to Article 1381 of the New Civil Code. Consequently, Transfer Certificate of Title
Nos. 21743, 21742, 21741, and 21740 issued under the names of defendants Herriette C.
Furigay and Hegem C. Furigay should likewise be cancelled and reverted to the names of co-
defendants Henry and Gelinda Furigay.
ISSUE:
Whether or not petitioner has a valid cause of action.
RULING:
Following the subsidiary nature of the remedy of rescission, a creditor would have a
cause of action to bring an action for rescission, if it is alleged that the following successive
measures have already been taken: (1) exhaust the properties of the debtor through levying
195
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); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion pauliana).
A cursory reading of the allegations of ASB's complaint would show that it failed to
allege the ultimate facts constituting its cause of action and the prerequisites that must be
complied before the same may be instituted. ASB, without availing of the first and second
remedies, that is, exhausting the properties of CTS, Henry H. Furigay and Genilda C. Furigay
or their transmissible rights and actions, simply undertook the third measure and filed an
action for annulment of the donation.
196
AIR FRANCE V. COURT OF APPEALS
G.R. NO. 104234, JUNE 30, 1995
PONENTE: ROMERO, J.
TOPIC: RESCISSION
FACTS:
Petitioner Air France filed a complaint for a sum of money and damages against
private respondents Multinational Travel Corporation of the Philippines, Fiorello Panopio
and Vicky Panopio before the Regional Trial Court of Manila, Branch 27, then presided over
by the Hon. Ricardo Diaz. Petitioner moved for the issuance of an alias writ of execution on
the ground of unsatisfied judgment. It likewise moved to declare the sale of Iolani Dionisio
of a parcel of land with a house erected thereon in the name of the Multinational Food
Corporation and covered by Transfer Certificate of Title No. 353935 as one in fraud of
creditors. Petitioner, in said motion, stated that private respondent spouses jointly owned
91% of Multinational Food and Catering Corporation (Multinational Food), other
stockholders being: Aldo Glen Panopio (brother of Fiorello) 3%; Jaime Dionisio (husband of
private respondent Iolani Dionisio) 3%; and Marie Rose Ricasa 3%. Petitioner stated that
although Multinational Food was registered with the Securities and Exchange Corporation, it
neither engaged in operations nor held meetings because of adverse business conditions.
The Corporations, through its President Iolani Dionisio, filed a sworn statement to this effect
with the SEC dated July 28, 1986. However, petitioner alleged that despite its being non-
operational, Multinational Food acquired from Ayala Investment and Development
Corporation (Ayala Corporation) the subject property on February 1, 1985.
Petitioner further alleged that private respondent spouses subsequently sold the
property to Iolani Dionisio on April 11, 1985. However, the sale was not registered until one
year and nine months later or at the time petitioner was pursuing the issuance of a writ of
attachment.
ISSUE:
Whether or not a separate civil action, as proposed by private respondents, will only
perpetrate fraud.
RULING:
Petitioner’s contrary claim that the property belongs to private respondent spouses,
if true, requires a rescissory action which cannot be done in the same case, but through the
filing of a separate action. Rescission is a relief which the law grants on the premise that the
contract is valid for the protection of one of the contracting parties and third persons from
197
all injury and damage that contract may cause, or to protect some incompatible and
preferential right created by the contract.
Regarding contracts undertaken in fraud of creditors, the existence of the intention
to prejudice the same should be determined either by the presumption established by
Article 1387 6 or by the proofs presented in the trial of the case. In any case, the
presumption of fraud established by this article is not exclusive. 8To repeat, an independent
action is necessary to prove that the contract is rescissible.
Clearly, the rights and defenses which the parties in a rescissible contract may raise
or set up cannot properly ventilated in a motion but only in a full trial.The appellate court did
not err in holding that the trial court acted with grave abuse of discretion in resolving these
matters through mere motion of petitioner.
198
RURAL BANK IF CALOOCAN VS. COURT OF APPEALS
G.R. NO. L-32116, APRIL 21, 1981
PONENTE: DE CASTRO, J.
TOPIC: VOIDABLE CONTRACTS
FACTS:
The Valencia spouses obtained from the bank an equal amount of loan for P3,000.00. They
signed a promissory note corresponding to their loan in favor of the bank and had Castro
affixed thereon her signature as co-maker.The two loans were secured by a real-estate
mortgage on Castro's house and lot of 150 square meters, covered by Transfer Certificate of
Title No. 7419 of the Office of the Register of Deeds of Manila. The sheriff of Manila, thru
Acting Chief Deputy Sheriff Basilio Magsambol, sent a notice of sheriff's sale addressed to
Castro, announcing that her property covered by T.C.T. No. 7419 would be sold at public
auction on March 10, 1961 to satisfy the obligation covering the two promissory notes plus
interest and attorney's fees.Upon request by Castro and the Valencias and with conformity
of the bank, the auction sale that was scheduled for March 10, 1961 was postponed for April
10, 1961. But when April 10, 1961 was subsequently declared a special holiday, the sheriff of
Manila sold the property covered by T.C.T. No. 7419 at a public auction sale that was held on
April 11, 1961, which was the next succeeding business day following the special
holiday.Castro alleged that it was only when she received the letter from the Acting Deputy
Sheriff on February 13, 1961, when she learned for the first time that the mortgage contract
which was an encumbrance on her property was for P6,000.00 and not for P3,000.00 and
that she was made to sign as co-maker of the promissory note without her being informed
of this.
ISSUE:
Whether or not the parties have the capacity to bring about the suit.
RULING:
Castro's act of holding the Valencias as her agent led the bank to believe that they
were authorized to speak and bind her. She cannot now be permitted to deny the authority
of the Valencias to act as her agent for one who clothes another with apparent authority as
her agent is not permitted to deny such authority.
The authority of the Valencias was only to follow-up Castro's loan application with
the bank. They were not authorized to borrow for her. This is apparent from the fact that
Castro went to the Bank to sign the promissory note for her loan of P3,000.00. If her act
had been understood by the Bank to be a grant of an authority to the Valencias to borrow in
her behalf, it should have required a special power of attorney executed by Castro in their
favor.
199
METROPOLTAN WATERWORKS AND SEWERAGE SYSTE VS. COURT OF APPEALS
G.R. NO. 126000, OCTOBER 7, 1998
PONENTE: MARTINEZ, J.
FACTS:
A lease for the 128 hectares land of MWSS was entered into by MWSS with the
CHGCCI for 25 years, provided that CHGCCI will exercise the right of first refusal should the
property be made open for sale. When the lease expired, the CHGCCI purchased the
property and thereafter sold it to Ayala.10 years later, MWSS filed an action against CHGCCI
and Ayala in RTC praying for the declaration of nullity of the MWSS-CHGCCI sales agreement.
RTC dismissed the petition on grounds of prescription, laches, estoppel and non-joinder of
indispensable parties. CA affirmed. Hence, this petition for review.
ISSUE:
Whether or not decision of the RTC to dismiss the case on the grounds of prescription and
laches is valid.
RULING:
Petitioner MWSS claims as erroneous both the lower courts’ uniform finding that the
action has prescribed, arguing that its complaint is one to declare the MWSS-SILHOUETTE
sale, and all subsequent conveyances of the subject property, void which is imprescriptible.
The very allegations in petitioner MWSS’ complaint show that the subject property was sold
through contracts which, at most, can be considered only as voidable, and not void.As noted
by both lower courts, petitioner MWSS admits that it consented to the sale of the property,
with the qualification that such consent was allegedly unduly influenced by the President
Marcos. Taking such allegation to be hypothetically true, such would have resulted in only
voidable contracts because all three elements of a contract, still obtained nonetheless. The
alleged vitiation of MWSS’ consent did not make the sale null and void ab initio. Thus, “a
contract where consent is given through mistake, violence, intimidation, undue influence or
fraud, is voidable.
200
GUIANG vs. COURT OF APPEALS
G.R. NO. 125172, JUNE 26,1998
PONENTE: CALLEJO, SR., J.

FACTS:
The sale of a conjugal property requires the consent of both the husband and the
wife. The absence of the consent of one renders the sale null and void, while the vitiation
thereof makes it merely voidable. Only in the latter case can ratification cure the defect.
Over the objection of private respondent Gilda Corpuz and while she was in Manila
seeking employment (with the consent of her husband), her husband sold to the petitioners-
spouses Antonio and Luzviminda Guiang one half of their conjugal peoperty, consisting of
their residence and the lot on which it stood. Upon her return to Cotabato, respondent
gathered her children and went back to the subject property. Petitioners filed a complaint
for trespassing. Later, there was an amicable settlement between the parties. Feeling that
she had the shorter end of the bargain, respondent filed an Amended Complaint against her
husband and petitioners. The said Complaint sought the declaration of a certain deed of
sale, which involved the conjugal property of private respondent and her husband, null and
void.
ISSUE:
Whether or not the contract without the consent of wife is void.
RULING:
Art 124 of the FC rules that In the event that one spouse is incapacitated or otherwise
unable to participate in the administration of the conjugal properties, the other spouse 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 spouse. In the absence of such authority or consent, the disposition or
encumbrance shall be void.
Respondent’s consent to the contract of sale of their conjugal property was totally
inexistent or absent. The nullity of the contract of sale is premised on the absence of private
respondent’s consent. To constitute a valid contract, the Civil Code requires the concurrence
of the following elements: (1) cause, (2) object, and (3) consent, the last element being
indubitably absent in the case at bar.
A void contract cannot be ratified.
201
DE BRAGANZA VS. VILLA-ABRILLE
105 PHIL 456
PONENTE: BENGZON, J.
FACTS:
Rosario Braganza and her sons loaned from De Villa Abrille P70,000 in Japanese war
notes. They promised in writing to pay him P10,000 + 2% per annum in legal currency of the
Philippines in 2 years after cessation of war. Because they haven’t paid, Abrille sued them.
CFI Manila and CA held that they shall be liable to pay according to the contract they signed.
Braganza petitioned to review the decision of CA whereby they were ordered to pay Abrille
P10,000 + 2% interest, praying for consideration of the minority of her sons when they signed
the contract.
ISSUE: Whether or not the sons who were 16 and 18 are bound by the contract of loan which
they have signed.
RULNG:
SC found Rosario will still be liable to pay her share in contract because the minority
of her sons does not release her from liability. She ordered to pay 1/3 of P10,000 + 2%
interest. Minority is a personal defense to the children. In order to hold a minor liable to the
contract, the fraud must be actual and not constructive.
202
JULIAN FRANCISCO ET.AL. VS. PASTOR HERRERA
G.R. NO. 139982; NOVEMBER 21, 2002
PONENTE: QUISUMBING, J.
FACTS:
Eligio Herrera, Sr., father of respondent Pastor Herrera, owned two parcels of land
consisting of 500 sq. m. and 451 sq. m. located at Cainta, Rizal. The two parcels of land was
sold at 1M and 750K to the petitioner. Pastor, contending that the contract price for the two
parcels of land was grossly inadequate tried to negotiate with petitioner to increase the
purchase price. When petitioner refused, respondent then filed a complaint for annulment
of sale. Pastor alleged that the contract of sale was null and void on the ground that Eligio,
Sr., at that time, was already afflicted with senile dementia. Petitioner, on the other hand,
contended that respondent had effectively ratified both contracts of sales, by receiving the
consideration offered in each transaction. RTC ruled that the contract of sale is null and void.
CA affirmed, hence, this petition.
ISSUE:
Whether or not the assailed contracts of sale void or merely voidable and hence capable of
being ratified.
RULING:
In the present case, vendor Eligio, Sr. entered into an agreement with petitioner, but
that the former’s capacity to consent was vitiated by senile dementia. Hence, it was ruled
that the assailed contracts are not void or inexistent per se; rather, these are contracts that
are valid and binding unless annulled through a proper action filed in court.
An annullable contract may be rendered perfectly valid by ratification, which can be
express or implied. Implied ratification may take the form of accepting and retaining the
benefits of a contract. As in this case, respondent negotiated for the increase of the
purchase price while receiving the installment payments from the petitioner. Clearly,
respondent was agreeable to the contract. Further, there is no showing that respondent
returned the payments or made an offer to do so. This bolsters the view that indeed there
was ratification.
203
MANGAHAS VS. BROBIO
G.R. NO. 183852, OCTOBER 20, 2010
FACTS:
Pacifico Brobio died intestate leaving 3 parcels of land survived by his wife,
Respondent Eufrocina Brobio and 4 legitimate and 3 illegitimate children. Petitioner Carmela
Brobio is one of the 3 illegitimate children. In same year, the heirs had executed an
Extrajudicial Settlement of the Estate of the late Pacifico with Waiver. In said Deed,
Petitioner and other children, in consideration of their love and affection for Respondent
and the sum of Php150,000, waived and ceded their respective shares over the 3 parcels of
land in favor of the Respondent. According to Petitioner, Respondent promised to give her
an additional amount for her share in her father’s estate. After signing the Deed, Petioner
demanded from Respondent the promised additional amount, but Respondent refused to
pay. A year later, while processing her tax obligations with the BIR, Respondent was
required to submit original copy of Deed. Left no more original copy, she summoned
Petitoner to her office and asked her to countersign a copy of a Deed. Petitioner refused
demanding the additional amount she promised. Considering the value of land which she
claimed to be Php20M, Petitioner asked for Php1M. But Respondent begged her to lower
the amount. Petitioner agreed to Php600,000. Respondent Answered with Compulsory
Counterclaim admitting that she signed a Promissory Note but claimed she was forced to do
so and the same was not supported by any consideration. In 2006, RTC decided for
Petitioner, but in 2008, CA reversed RTC’s decision and dismissed the complaint grounded
on absence of consideration in the execution of Promissory Note, thus, making it inexistent
and without any legal force and effect, partition is proper.
ISSUE:
Whether the Court of Appeas is correct in holding that partition is proper in this case.
RULING:
Action for partition implies that the property is still owned in common. In this case,
since the heirs had already executed a Deed of Extrajudicial Settlement and Waived their
shares in favor of the Respondent, the properties are no longer under a state of co-
ownership; there is nothing more to be partitioned, as ownership had already been merged
to one person, the Respondent.
204
FUENTES VS. ROCA
G.R. NO. 178902, APRIL 21, 2010
PONENTE: ABAD, J.
FACTS:
Sabina Tarroza owned a land in Canelar,Zamboanga City and she sold it to her son,
Tarciano T. Roca under a deed of absolute sale. Six years later in 1988, Tarciano offered to
sell the lot to petitioners Manuel and Leticia Fuentes. Within six months, Tarciano was to
clear the lot of structures and occupants and secure the consent of his estranged wife,
Rosario Gabriel Roca, to the sale. Upon Tarciano’s compliance with these conditions, the
Fuentes spouses were to take possession of the lot and pay him an additional pay besides
the downpayment, depending on whether or not he succeeded in demolishing the house
standing on it. According to the lawyer, he went to see Rosario in one of his trips to Manila
and had her sign an affidavit of consent. After 6 months, a new title was issued in the name
of the spouses who immediately constructed a building on the lot. Thereafter Tarciano
passed away, followed by his wife Rosario who died nine months afterwards.
The Rocas claimed that the sale to the spouses was void since Tarciano’s wife,
Rosario, did not give her consent to it. Her signature on the affidavit of consent had been
forged. They thus prayed that the property be reconveyed to them upon reimbursement of
the price that the Fuentes spouses paid Tarciano.The spouses denied the Rocas’ allegations.
They presented Atty. Plagata who testified that he personally saw Rosario sign the affidavit
at her residence. He admitted, however,that he notarized the document in Zamboanga City
four months later. All the same, the Fuentes spouses pointed out that the claim of forgery
was personal to Rosario and she alone could invoke it. Besides, the four-year prescriptive
period for nullifying the sale on ground of fraud had already lapsed.
ISSUES:
Whether or not only Rosario, the wife whose consent was not had, could bring the action to
annul that sale.
RULING:
The heirs of Rosario may bring an action to annul the sale. As stated above, that sale
was void from the beginning. Consequently, the land remained the property of Tarciano and
Rosario despite that sale. When the two died, they passed on the ownership of the property
to their heirs.
205
CORNELIA M. HERNANDEZ VS. CECILIO F. HERNANDEZ
G.R. NO. 158576, MARCH 9, 2011
PONENTE: PEREZ, J.
FACTS:
The controversy between the parties began when the Republic of the Philippines,
through the Department of Public Works and Highways, offered to purchase a portion of a
parcel of land with an area of 80,133 square meters, covered by TCT No. T-367514 of the
Registry of Deeds for Tanauan, Batangas, located at San Rafael, Sto. Tomas, Batangas, for
use in the expansion of the South Luzon Expressway. The land is pro-indiviso owned by
Cornelia M. Hernandez, petitioner herein, Atty. Jose M. Hernandez, deceased father of
respondent Cecilio F. Hernandez , represented by Paciencia Hernandez and Mena
Hernandez, also deceased and represented by her heirs.The initial purchase price that was
offered by the government was allegedly at Thirty-Five pesos (₱35.00) per square meter for
14,643 square meters of the aforementioned land.7 The Hernandez family rejected the offer.
After a series of negotiations with the DPWH, the last offer stood at Seventy Pesos (₱70.00)
per square meter.8 They still did not accept the offer and the government was forced to file
an expropriation case.
ISSUE:
Whether or not the contracts voidable.
RULING:
A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable. In determining whether consent is vitiated by any of the
circumstances mentioned, courts are given a wide latitude in weighing the facts or
circumstances in a given case and in deciding in their favor what they believe to have
actually occurred, considering the age, physical infirmity, intelligence, relationship, and the
conduct of the parties at the time of the making of the contract and subsequent thereto,
irrespective of whether the contract is in public or private writing.And, in order that mistake
may invalidate consent, it should refer to the substance of the thing which is the object of
the contract, or those conditions which have principally moved one or both parties to enter
the contract.
206
VILORIA vs. CONTNENTAL AIRLINES
G.R. NO. 188288, JANUARY 16,2012
PONENTE: REYES, J.
FACTS:
While in the United States, Fernando purchased for himself and his wife, Lourdes, two (2)
round trip airline tickets from San Diego, California to Newark, New Jersey on board
Continental Airlines.Subsequently, Fernando requested Mager to reschedule their flight to
Newark to an earlier date or August 6, 1997. Mager informed him that flights to Newark via
Continental Airlines were already fully booked and offered the alternative of a round trip
flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00 per
passenger and would mean traveling by night, Fernando opted to request for a refund.
Mager, however, denied his request as the subject tickets are non-refundable and the only
option that Continental Airlines can offer is the re-issuance of new tickets within one (1) year
from the date the subject tickets were issued. Fernando decided to reserve two (2) seats
with Frontier Air.As he was having second thoughts on traveling via Frontier Air, Fernando
went to the Greyhound Station where he saw an Amtrak station nearby. Fernando made
inquiries and was told that there are seats available and he can travel on Amtrak anytime
and any day he pleased. Fernando then purchased two (2) tickets for Washington, D.C.Upon
returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a
refund and alleging that Mager had deluded them into purchasing the subject tickets.
Continental Micronesia denied Fernando’s request for a refund and advised him that
he may take the subject tickets to any Continental ticketing location for the re-issuance of
new tickets within two (2) years from the date they were issued. Continental Micronesia
informed Fernando that the subject tickets may be used as a form of payment for the
purchase of another Continental ticket, albeit with a re-issuance fee. Fernando demanded
for the refund of the subject tickets as he no longer wished to have them replaced. In
addition to the dubious circumstances under which the subject tickets were issued,
Fernando claimed that CAI’s act of charging him with US$1,867.40 for a round trip ticket to
Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to use
Lourdes’ ticket, breached its undertaking under its March 24, 1998 letter.
Issue:
Whether or not CAI is justified in insisting that the subject tickets are non-
transferable and non-refundable.
RULING:
Even assuming that Mager’s representation is causal fraud, the subject contracts
have been impliedly ratified when Spouses Viloria decided to exercise their right to use the
207
subject tickets for the purchase of new ones. Under Article 1392 of the Civil Code,
“ratification extinguishes the action to annul a voidable contract.” Ratification of a voidable
contract is defined under Article 1393 of the Civil Code as follows:
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.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts
showing approval or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom. Simultaneous with their demand for a refund on the ground of
Fernando’s vitiated consent, Spouses Viloria likewise asked for a refund based on CAI’s
supposed bad faith in reneging on its undertaking to replace the subject tickets with a round
trip ticket from Manila to Los Angeles.
In doing so, Spouses Viloria are actually asking for a rescission of the subject
contracts based on contractual breach. Resolution, the action referred to in Article 1191, is
based on the defendant’s breach of faith, a violation of the reciprocity between the
parties37 and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation,38 this Court
ruled that a claim for a reimbursement in view of the other party’s failure to comply with his
obligations under the contract is one for rescission or resolution.
208
THE ROMAN CATHOLIC CHURCH VS. REGINO PANTE
G.R. NO. 174118 APRIL 11, 2012
PONENTE: BRION, J.
FACTS:
The Church, represented by the Archbishop of Caceres, sold to respondent Regino
Pante a 32-sq.m. lot that measured 2x16m on the belief that the latter was an actual
occupant of the lot. Consequently, the Church sold a 215-sq.m. lot that included the lot
previously sold to Pante to the Sps. Nestor and Fidela Rubi . The spouses Rubi asserted their
ownership by erecting a concrete fence over the lot sold to Pante, effectively blocking Pante
and his family’s access from their family home to the municipal road. Pante instituted with
the RTC an action to annul the sale between the Church and the spouses Rubi, insofar as it
included the lot previously sold to him.
The Church alleged that the contract was obtained by fraud when Pante
misrepresented that he had been an actual occupant, when in truth, he was merely using
the 32-sq.m. lot as a passageway from his house to the town proper. It contended that it
was its policy to sell its lots only to actual occupants. Since the Sps. Rubi and their
predecessors-in-interest have long been occupying the 215-sq.m. lot that included the
32sq.m. lot sold to Pante, the Church claimed that the spouses Rubi were the rightful buyers.
ISSUE:
Whether or not the consent has been vitiated thus invalidating the contract.
RULING:
Where consent, is given through mistake, violence, intimidation, undue influence, or
fraud, the contract is deemed voidable. However, not every mistake renders a contract
voidable. The Civil Code clarifies the nature of mistake that vitiates consent:
Article 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent
only when such identity or qualifications have been the principal cause of the contract.
For mistake as to the qualification of one of the parties to vitiate consent, two
requisites must concur:
1. the mistake must be either with regard to the identity or with regard to the
qualification of one of the contracting parties; and
2. the identity or qualification must have been the principal consideration for the
celebration of the contract.
209
In the present case, the actual occupancy or residency of a buyer over the land does
not appear to be a necessary qualification that the Church requires before it could sell its
land. Had this been indeed its policy, then neither Pante nor the spouses Rubi would qualify
as buyers as none of them actually occupied or resided on the lot; that a sketch plan,
executed by the Church and Pante, clearly labeled the 2×16-meter lot as a “RIGHT OF WAY”
was from the Archbishop’s Palace; the then parish priest was aware that Pante was not an
actual occupant, but still allowed the sale of the lot to Pante, means there had been no
vitiation of the Church’s consent to the sale of the lot. There was no vitiation of consent;
therefore, the contract between the Church and Pante stands valid and existing.
210
METROPOLITAN FABRICS, INC., ET AL. VS.
PROSPERITY CREDIT RESOURCES, INC. ET AL.
G.R. No. 154390, MARCH 17,2014
PONENTE: BERSAMIN, J.
FACTS:
Metropolitan Fabrics, Incorporated (MFI), a family corporation, owned a 5.8hectare
industrial compound at No. 685 Tandang Sora Avenue, Novaliches, Quezon City which was
covered by TCT No. 241597.Pursuant to a P2 million, 10-year 14% per annum loan agreement
with Manphil Investment Corporation (Manphil) dated April 6, 1983, the said lot was
subdivided into11 lots, with Manphil retaining four lots as mortgage security.The other seven
lots, now covered by TCT Nos. 317699 and 317702 to 317707, were released to MFI. In July
1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance of the cost of
its boiler machine, to prevent its repossession by the seller. PCRI, also family-owned
corporation licensed since 1980 to engage in money lending, was represented by Domingo
Ang (“Domingo”) its president, and his son Caleb, vice-president. The parties knew each
other because they belonged to the same familyassociation, the Lioc Kui Tong Fraternity.
On the basis only of his interview with Enrique, feedback from the stockholders and
the Chinese community, as well as information given by his own father Domingo, and
without further checking on the background of Enrique and his business and requiring him
to submit a company profile and a feasibility study of MFI, Caleb recommended the approval
of the P3.44 million with an interest ranging from 24% to 26% per annum and a term of
between five and ten years (Decision, p. 5).According to the court, it sufficed for Caleb that
Enrique was a well-respected Chinese businessman, that he was the presidentof their
Chinese family association, and that he had other personal businesses aside fromMFI, such
as the Africa Trading.However, in September 1984, the first amortization check bounced for
insufficient fund due to MFI’s continuing business losses. It was then that the appellees
allegedly learnedthat PCRI had filled up the 24 blank checks with dates and amounts that
reflected a 35%interest rate per annum, instead of just 24%, and a two year repayment
period, instead of10 years.
Enrique received a Notice of Sheriff’s Sale dated August 29, 1986, announcing the
auction of the seven lots on September 24, 1986 due to unpaid indebtedness of P10.5
million. Vicky (daughter of owner of MFI, because their father went into a coma because of
intense pressure from the foreclosure) insisted that prior to the auction notice, they never
received any statement or demand letter from the defendants to pay P10.5 million, nor did
the defendants inform them of the intended foreclosure.
ISSUE:
211
Whether or not he Mortgage Contract is void.
RULING:
As the records show, petitioners really agreed to mortgage their properties as
security for their loan, and signed the deed of mortgage for the purpose. Thereafter, they
delivered the TCTs of the properties subject of the mortgage to respondents. Consequently,
petitioners’ contention of absence of consent had no firm moorings. It remained unproved.
To begin with, they neither alleged nor established that they had been forced or coerced to
enter into the mortgage. Also, they had freely and voluntarily applied for the loan, executed
the mortgage contract and turned over the TCTs of their properties. And, lastly, contrary to
their modified defense of absence of consent, Vicky Ang’s testimony tended at best to prove
the vitiation of their consent through insidious words, machinations or misrepresentations
amounting to fraud, which showed that the contract was voidable.
212
YUVIENCO V. DACUYCUY
G.R. NO. L-55048, MAY 27,1981
PONENTE: BARREDO, J.
TOPIC: UNENFORCEABLE CONTRACTS
FACTS:
Petitioners own a property in Tacloban City which they intend to sell for 6.5M. They
gave the respondents the right to purchase the property nut only until July 31, 1978.
Respondents replied that they agree to buy the property and they will negotiate for details.
Petitioner sent another telegram informing respondents that their proposal is accepted and
a contract will be prepared.
Lawyer of defendant, Mr.Gamboa, arrived bringing a contact with an altered mode of
payment which says that the balance payment should be paid withing 30 days instead of the
former 90 days. (Otiginal terms: 2M payment upon execution. 4.5M after 90 days)
ISSUE:
Whether or not there was already a perfected contract of sale between the parties.
RULING:
There was no perfected contract of sale yet because both parties are still under
negotiation and hence, no meeting of the minds. Mr.Gamboa even went to the respondents
to negotiate for the sale. Even though there was an agreement on the terms of payment,
there was no absolute acceptance because respondents still insisted on further details.
With regard to the alleged violation of terms of payment, there was no written document to
prove that the respondents agreed to pay not in cash but in installment. In sale of real
property, payment of installment must be in requisite of a note under the statute of frauds.
CORONEL v. CONSTANTINO
G.R. No. 121069, February 7, 2003
213
PONENTE: AUSTRIA-MARTINEZ, J.
TOPIC: Unenforceable contracts
FACTS:
The disputed property was originally owned by Honoria Aguinaldo. One half was
inherited by Emilia Coronel together with her sons Benjamin, Catalino and Cerefino, all
surnamed Coronel. The other half was inherited by Florentino Constantino and Aurea
Buensuceso. Emilia sold her share of the lot to Jess C Santos and Priscilla Bernardo as
evidenced by the “KASULATAN NG BILIHANG PATULUYAN.” Santos and Bernardo then sold
it to the respondents. Petitioners built several constructions and improvements on the
disputed lot. Respondents then filed a complaint for declaration of ownership, quieting of
title and damages with prayer for writ of mandatory and/or prohibitory injunction with the
trial court.
ISSUE:
Whether or not the sale was valid. If yes, up to what extent.
RULING:
YES, only up to ¼ share of the land inherited by Emilia and her sons. Emilia signed
only in her behalf and not in representation of her three children thus the sale is only binding
to her share. The subject property was co-owned, pro-indiviso by petitioner Emilia together
with her petitioner sons. No proof was presented to show that the co-ownership that
existed among the heirs of Ceferino and Catalino and herein petitioners as never been
terminated. No evidence was presented to show that the three brothers were aware of the
sale made by their mother.
Since there was no partition made, Emilia is deemed to have sold only her share of
the lot which is ¼ thereof. Consequently SC declared respondents as owner of ½ undivided
portion of the original lot which they inherited plus ¼ share (of their ½) of petitioner Emilia
Coronel.
214
REGAL FILMS, INC. VS. GABRIEL CONCEPCION
G.R. NO. 139532, AUGUST 9, 2001
PONENTE: VITUG, J.
FACTS:
In 1991, respondent Gabriel "Gabby" Concepcion, a television artist and movie actor,
through his manager Lolita Solis, entered into a contract with petitioner Regal Films, Inc., for
services to be rendered by respondent in petitioners motion pictures. In 1993, the parties
renewed the contract, incorporating the same undertaking on the part of petitioner to give
respondent the two parcels of land mentioned in the first agreement. Despite the
appearance of respondent in several films produced by petitioner, the latter failed to comply
with its promise to convey to respondent the two aforementioned lots.
Respondent and his manager filed an action against petitioner before the Regional
Trial Court of Quezon City for rescission of contract with damages. In his complaint,
respondent contended that he was entitled to rescind the contract, plus damages, and to be
released from further commitment to work exclusively for petitioner owing to the latters
failure to honor the agreement.
ISSUE:
Whether or not the compromise agreement is valid.
RULING:
A compromise is an agreement between two or more persons who, for preventing or
putting an end to a lawsuit, adjust their respective positions by mutual consent in the way
they feel they can live with. Reciprocal concessions are the very heart and life of every
compromise agreement,where each party approximates and concedes in the hope of
gaining balanced by the danger of losing. It is, in essence, a contract. Law and jurisprudence
recite three minimum elements for any valid contract - (a) consent; (b) object certain which
is the subject matter of the contract; and (c) cause of the obligation which is established.
Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the agreement. The offer, however, must be certain and
the acceptance seasonable and absolute; if qualified, the acceptance would merely
constitute a counter-offer. In this instance, the addendum was flatly rejected by respondent
on the theses (a) that he did not give his consent thereto nor authorized anyone to enter
into the agreement, and (b) that it contained provisions grossly disadvantageous to him. The
outright rejection of the addendum made known to the other ended the offer. When
respondent later filed his Manifestation, stating that he was, after all, willing to honor the
addendum, there was nothing to still accept.
215
NATIONAL POWER CORPORATION vs. NATIONAL MERCHANDISING CORPORATION.
G.R. NOS. L-33819,OCTOBER 23, 1982
PONENTE: AQUINO, J.
FACTS:
Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant
National Merchandising Corporation (NAMERCO), the Philippine representative of New
York-based International Commodities Corporation, executed a contract of sale of sulfur
with a stipulation for liquidated damages in case of breach. Defendant-appellant Domestic
Insurance Company executed a performance bond in favor of NPC to guarantee the seller's
obligation. In entering into the contract, Namerco, however, did not disclose to NPC that
Namerco's principal, in a cabled instruction, stated that the sale was subject to availability of
a steamer, and contrary to its principal's instruction, Namerco agreed that non-availability of
a steamer was not a justification for non-payment of liquidated damages. The New York
supplier was not able to deliver the sulfur due to its inability to secure shipping space.
Consequently, the Government Corporate Counsel rescinded the contract of sale due to the
supplier's non-performance of its obligations, and demanded payment of liquidated
damages from both Namerco and the surety. Thereafter, NPC sued for recovery of the
stipulated liquidated damages. After trial, the Court of First Instance rendered judgment
ordering defendants-appellants to pay solidarity to the NPC reduced liquidated damages
with interest.
ISSUE:
Whether or not National Merchandising Corporation exceeded their authority.
RULING:
The Supreme Court held that before the contract of sale was signed Namerco was
already aware that its principal was having difficulties in booking shipping space.
Moreover, the rule is complemented by article 1898 of the Civil Code which provides
that "if the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with
whom the agent contracted is aware of the limits of the powers granted by the principal".
Namerco never disclosed to the Napocor the cabled or written instructions of its
principal. For that reason and because Namerco exceeded the limits of its authority, it
virtually acted in its own name and not as agent and it is, therefore, bound by the contract of
sale which, however, is not enforceable against its principal.
CENIDO vs. APACIONADO
G.R. NO. 132474, NOVEMBER 19, 1999
216
PONENTE: PUNO, J.
FACTS:
Petitioner, Renato Cenido seeks to reverse and set aside the decision of the Court of
Appeals which declared the respondents as the owners of the disputable property in
Binangonan, Rizal. Prior to this, defendant filed a complaint against the petitioner for
Declaration of Ownership, Nullity with Damages. They allegedly state that they are the
owners of the parcel of the unregistered land. They contended that the original owner of
the property, Bonifacio Cenido sold the same property to them. They presented a letter as
an evidence of sale with a thumbmark of the deceased. The petitioner argued that Bonifacio
was not capable of executing such letter as his body is paralyzed down under and the letter
was not notarized. Additionally, he stated that he was the rightful owner as he was an
illegitimate child of the deceased which was recognized by the latter’s brother, Gavino
Cenido.
ISSUE:
Whether or not the petitioner’s claim over the disputable property as a recognized
illegitimate child of the deceased owner, Bonifacio Cenido is valid.
RULING:
The petition is denied and the decision and resolution of the Court of Appeals was
affirmed. If the father or mother died during the minority of the child, in which case the
latter may file the action before the expiration of four years from the attainment of his
majority.If after the death of the father or of the mother a document should appear of
which nothing had been heard and in which either or both parents recognize the child. In
this case, the action must be commenced within four years from the finding of the
document. In the case at bar, the petitioner did not present any record of birth, will, or any
authentic writing to show he was voluntarily recognized by Bonifacio Cenido himself as his
illegitimate son. The voluntary recognition of petitioner’s filiation by Bonifacio’s brother
before the MTC does not qualify as a statement in a court of record. Under the law, this
statement must be made personally by the parent himself, not by any brother, sister, or
relative. After all, the concept of recognition speaks of a voluntary declaration by the parent,
or if the parent refuses, by judicial authority, to establish the paternity or maternity of
children born outside wedlock.
217
VILLANUEVA vs. COURT OF APPEALS
G.R. NO. 107624, JANUARY 28, 1997
FACTS:
Gamaliel Villanueva (tenant) of a unit in the 3-door apartment building owned by
defendants-spouses (now private respondents) Jose Dela Cruz and Leonila dela Cruz located
at Project 8, Quezon City. Dela Cruz offered said parcel of land with the 3-door apartment
building for sale and plaintiffs, son and mother, showed interest in the property.Because
said property was in arrears(overdue) in the payment of the realty taxes, dela Cruz
approached Irene Villanueva and asked for a certain amount to pay for the taxes so that the
property would be cleared of any incumbrance. Irene Villanueva gave P10,000.00 on two
occasions. It was agreed by them that said P10,000.00 would form part of the sale price of
P550,000.00.Dela Cruz went to plaintiff Irene Villanueva bringing with him Mr. Ben Sabio, a
tenant of one of the units in the 3-door apartment building and requested Villanueva to
allow said Sabio to purchase one-half (1/2) of the property where the unit occupied by him
pertained to which the plaintiffs consented, so that they would just purchase the other half
portion and would be paying only P265,000.00, they having already — given an amount of
P10,000.00 used for paying the realty taxes in arrears. Accordingly the property was
subdivided and two (2) separate titles were secured by defendants Dela Cruz. Mr. Ben Sabio
immediately made payments by installments.
The plaintiffs came to know of such assignment and transfer and issuance of a new
certificate of title in favor of defendants Pili. Plaintiff Gamaliel Villanueva complained to the
barangay captain of Bahay Turo, Quezon City, on the ground that there was already an
agreement between defendants Dela Cruz and themselves that said portion of the parcel of
land owned by defendants Dela Cruz would be sold to him. As there was no settlement
arrived at, the plaintiffs elevated their complaint to this Court through the instant action.
ISSUE:
Whether or not there was a perfected sale between Villanueva and Dela Cruz.
RULING:
Petitioners contend that private respondents’ counsel admitted that “P10,000 is
partial or advance payment of the property.” Necessarily then, there must have been an
agreement as to price, hence, a perfected sale. They cite Article 1482 of the Civil Code which
provides that “whenever earnest money is given in a contract of sale, it shall be considered
as part of the price and as proof of the perfection of the contract.”Private respondents
contradict this claim with the argument that “what was clearly agreed upon between
petitioners and respondents Dela Cruz was that the P10,000.00 primarily intended as
218
payment for realty tax was going to form part of the consideration of the sale if and when
the transaction would finally be consummated.” Private respondents insist that there “was
no clear agreement as to the true amount of consideration.”
SC: “The price of the leased land not having been fixed, the essential elements which
give life to the contract were lacking. It follows that the lessee cannot compel the lessor to
sell the leased land to him. The price must be certain, it must be real, not fictitious. A
contract of sale is not void for uncertainty when the price, though not directly stated in
terms of pesos and centavos, can be made certain by reference to existing invoices
identified in the agreement. In this respect, the contract of sale is perfected. The price must
be certain, otherwise there is no true consent between the parties. There can be no sale
without a price.
In the instant case, however, what is dramatically clear from the evidence is that
there was no meeting of mind as to the price, expressly or impliedly, directly or
indirectly.Sale is a consensual contract. He who alleges it must show its existence by
competent proof. Here, the very essential element of price has not been proven.
219
MUNICIPALITY OF HAGONOY VS. DUMDUM
G.R. NO. 168289, MARCH 22, 2010
PONENTE: PERALTA, J.
FACTS:
The case stems from a Complaint filed by herein private respondent Emily Rose Go Ko
Lim Chao against herein petitioners, the Municipality of Hagonoy, Bulacan and its chief
executive, Felix V. Ople (Ople) for collection of a sum of money and damages. It was alleged
that sometime in the middle of the year 2000, respondent, doing business as KD Surplus and
as such engaged in buying and selling surplus trucks, heavy equipment, machinery, spare
parts and related supplies, was contacted by petitioner Ople. Respondent had entered into
an agreement with petitioner municipality through Ople for the delivery of motor vehicles,
which supposedly were needed to carry out certain developmental undertakings in the
municipality. Respondent claimed that because of Oples earnest representation that funds
had already been allocated for the project, she agreed to deliver from her principal place of
business in Cebu City twenty-one motor vehicles whose value totaled P5,820,000.00. To
prove this, she attached to the complaint copies of the bills of lading showing that the items
were consigned, delivered to and received by petitioner municipality on different dates.
However, despite having made several deliveries, Ople allegedly did not heed respondents
claim for payment. As of the filing of the complaint, the total obligation of petitioner had
already totaled P10,026,060.13 exclusive of penalties and damages. Thus, respondent prayed
for full payment of the said amount, with interest at not less than 2% per month, plus
P500,000.00 as damages for business losses, P500,000.00 as exemplary damages, attorneys
fees of P100,000.00 and the costs of the suit.
ISSUE:
Whether or not the Statute of frauds applies in the present case.
RULING:
The Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code,[20]
requires for enforceability certain contracts enumerated therein to be evidenced by some
note or memorandum. The term Statute of Frauds is descriptive of statutes that require
certain classes of contracts to be in writing; and that do not deprive the parties of the right
to contract with respect to the matters therein involved, but merely regulate the formalities
of the contract necessary to render it enforceable.
In other words, the Statute of Frauds only lays down the method by which the
enumerated contracts may be proved. But it does not declare them invalid because they are
not reduced to writing inasmuch as, by law, contracts are obligatory in whatever form they
may have been entered into, provided all the essential requisites for their validity are
present.The object is to prevent fraud and perjury in the enforcement of obligations
220
depending, for evidence thereof, on the unassisted memory of witnesses by requiring
certain enumerated contracts and transactions to be evidenced by a writing signed by the
party to be charged.The effect of noncompliance with this requirement is simply that no
action can be enforced under the given contracts. If an action is nevertheless filed in court, it
shall warrant a dismissal under Section 1(i),Rule 16 of the Rules of Court, unless there has
been, among others, total or partial performance of the obligation on the part of either
party.
221
ANUNCIACION VDA. DE OUANO VS. REPUBLIC
G.R. NO. 168770, FEBRUARY 9,2011
PONENTE: VELASCO, JR. ,J.

FACTS:
The National Airport Corporation (NAC), MCIAA's predecessor agency, pursued a
program to expand the Lahug Airport in Cebu City. Through its team of negotiators, NAC
met and negotiated with the owners of the properties situated around the airport, which
included:
Lot Nos. 744-A, 745-A, 746, 747, 761-A, 762-A, 763-A, 942, and 947 of the Banilad Estate.
As the landowners would later claim, the government negotiating team, as a sweetener,
assured them that they could repurchase their respective lands should the Lahug Airport
expansion... project do not push through or once the Lahug Airport closes or its operations
transferred to Mactan-Cebu Airport.Some of the landowners accepted the assurance and
executed deeds of sale with a right of repurchase. Others, however, including the owners of
the aforementioned lots, refused to sell because the purchase price offered was viewed as
way below market, forcing.
ISSUE:
Whether or not petitioners are entitled to reconveyance of the subject properties simply on
the basis of an alleged verbal promise.
RULING:
It has been preponderantly established by evidence that the NAC, through its team of
negotiators, had given assurance to the affected landowners that they would be entitled to
repurchase their respective lots in the event they are no longer used for airport purposes
and point with respect to the representation and promise of the government to return the
lots taken should the planned airport expansion do not materialize is what the Court said in
Heirs of Moreno, thus:
This is a difficult case calling for a difficult but just solution. To begin with there exists
an undeniable historical narrative that the predecessors of respondent MCIAA had
suggested to the landowners of the properties covered by the Lahug Airport expansion
scheme that they could repurchase their properties at the termination of the airport's
venue.
Some acted on this assurance and sold their properties; other landowners held out and
waited for the exercise of eminent domain to take its course until finally coming to terms
222
with respondent's predecessors that they would not appeal nor block further judgment of
condemnation if the right of repurchase was extended to them.
FAUSTINO CRUZ vs. J. M. TUASON & COMPANY, INC., and
GREGORIO ARANETA, INC.
G.R. NO. L-23749, APRIL 29, 1977
PONENTE: BARREDO, J.
FACTS:
A perusal of plaintiff-appellant's complaint below shows that he alleged two
separate causes of action, namely: (1) that upon request of the Deudors (the family of
Telesforo Deudor who laid claim on the land in question on the strength of an "informacion
posesoria" ) plaintiff made permanent improvements valued at P30,400.00 on said land
having an area of more or less 20 quinones and for which he also incurred expenses in the
amount of P7,781.74, and since defendants-appellees are being benefited by said
improvements, he is entitled to reimbursement from them of said amounts and (2) that in
1952, defendants availed of plaintiff's services as an intermediary with the Deudors to work
for the amicable settlement of Civil Case No. Q-135, then pending also in the Court of First
Instance of Quezon City, and involving 50 quinones of land, of Which the 20 quinones
aforementioned form part, and notwithstanding his having performed his services, as in
fact, a compromise agreement entered into on March 16, 1963 between the Deudors and the
defendants was approved by the court, the latter have refused to convey to him the 3,000
square meters of land occupied by him, (a part of the 20 quinones above) which said
defendants had promised to do "within ten years from and after date of signing of the
compromise agreement", as consideration for his services.
ISSUE:
Whether or not petitioner’s claim over the 3000 square meters has prescribed and that the
statute of frauds is no longer applicable thereto.
RULING:
On the issue of statute of fraud, the Court believes that same is applicable to the
instant Case, The allegation in par. 12 of the complaint states that the defendants promised
and agree to cede, transfer and convey unto the plaintiff, 3,000 square meters of land in
consideration of certain services to be rendered then. It is clear that the alleged agreement
involves an interest in real property. Under the provisions of Sec. 2(e) of Article 1403 of the
Civil Code, such agreement is not enforceable as it is not in writing and subscribed by the
party charged.
223
ORDUÑA V. FUENTEBELLA
G.R. NO. 176841, JUNE 29, 2010
PONENTE: VELASCO, JR. J.

FACTS:
The lot conveyance from Gabriel Jr. to Bernard was effected against the following
backdrop: Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP
50,000, payable in two weeks at a fixed interest rate, with the further condition that the
subject lot would answer for the loan in case of default. Gabriel Jr. failed to pay the loan and
this led to the execution of a Deed of Sale12 dated June 30, 1999 and the issuance later of
TCT for subject lot in the name of Bernard upon cancellation of TCT in the name of Gabriel,
Jr. As the RTC decision indicated, the reluctant Bernard agreed to acquire the lot, since he
had by then ready buyers in respondents Marcos Cid and Benjamin F. Cid.Subsequently,
Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed of Absolute Sale
of a Registered Land14 dated January 19, 2000, the Cids were able to cancel TCT and secure
another TCT covering the subject lot. Just like in the immediately preceding transaction, the
deed of sale between Bernard and the Cids had respondent Eduardo J. Fuentebella as one of
the instrumental witnesses.Marcos and Benjamin, in turn, ceded the subject lot to Eduardo
through a Deed of Absolute Sale16 dated May 11, 2000. Thus, the consequent cancellation of
TCT No. T-72782 and issuance on May 16, 2000 of TCT over subject lot in the name of
Eduardo.
ISSUE:
Whether or not there is a valid action for annulment of title or reconveyance based on fraud
and is imprescriptible where the suitor is in possession of the property subject of the acts.
RULING:
The general rule is that one dealing with a parcel of land registered under the Torrens
System may safely rely on the correctness of the certificate of title issued therefor and is not
obliged to go beyond the certificate.Where, in other words, the certificate of title is in the
name of the seller, the innocent purchaser for value has the right to rely on what appears on
the certificate, as he is charged with notice only of burdens or claims on the res as noted in
the certificate. Another formulation of the rule is that (a) in the absence of anything to
arouse suspicion or (b) except where the party has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make such inquiry or (c) when
the purchaser has knowledge of a defect of title in his vendor or of sufficient facts to induce
a reasonably prudent man to inquire into the status of the title of the property, said
purchaser is without obligation to look beyond the certificate and investigate the title of the
seller.
224
IGLESIA FILIPINA INDEPENDIENTE vs. HEIRS OF BERNARDINO TAEZA
G.R. NO. 179597, FEBRUARY 03, 2014
PONENTE: PERALTA, J.
FACTS:
Lot Nos. 3653-A and 3653-B, with a total area of 10,000 square meters, were likewise sold by
Rev. Macario Ga, in his capacity as the Supreme Bishop of the plaintiff-appellee, to the
defendant Bernardino Taeza, for the amount of P100,000.00, through installment, with
mortgage to secure the payment of the balance. Subsequently, the defendant allegedly
completed the payments.
In 1977, a complaint for the annulment of the February 5, 1976 Deed of Sale with
Mortgage was filed by the Parish Council of Tuguegarao, Cagayan, represented by Froilan
Calagui and Dante Santos, the President and the Secretary, respectively, of the Laymen's
Committee, with the then Court of First Instance of Tuguegarao, Cagayan, against their
Supreme Bishop Macario Ga and the defendant Bernardino Taeza.The said complaint was,
however, subsequently dismissed on the ground that the plaintiffs therein lacked the
personality to file the case.After the expiration of Rev. Macario Ga's term of office as
Supreme Bishop of the IFI on May 8, 1981, Bishop Abdias dela Cruz was elected as the
Supreme Bishop. Thereafter, an action for the declaration of nullity of the elections was filed
by Rev. Ga, with the Securities and Exchange Commission (SEC).
ISSUE:
Whether or not the deed of sale with mortgage is unenforceable.
RULING:
Resulting trusts are based on the equitable doctrine that valuable consideration and
not legal title determines the equitable title or interest and are presumed always to have
been contemplated by the parties. They arise from the nature of circumstances of the
consideration involved in a transaction whereby one person thereby becomes invested with
legal title but is obligated in equity to hold his legal title for the benefit of another. On the
other hand, constructive trusts are created by the construction of equity in order to satisfy
the demands of justice and prevent unjust enrichment. They arise contrary to intention
against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to
property which he ought not, in equity and good conscience, to hold. A constructive trust
having been constituted by law between respondents as trustees and petitioner as
beneficiary of the subject property, may respondents acquire ownership over the said
property.
225
GREGORIO F. AVERIA, et al. v. DOMINGO AVERIA, et al.
G.R. NO. 141877, AUGUST 13, 2004
PONENTE: CARPIO-MORALES, J.
FACTS:
Macaria Francisco (Macaria) was married to Marcos Averia in which they had six
children namely: petitioners Gregorio and Teresa and respondents Domingo, Angel, Felipe
and Felimon. Upon the death of Marcos, Macaria contracted a second marriage with
Roberto Romero in which they had no children. Upon the death of Roberto, he left three
adjoining residential lots. In a Deed of Extrajudicial Partition and Summary Settlement of the
Estate of Romero, a house and lot (Extremadura property) was apportioned to
Macaria.Macaria then filed an action for annulment of title and damages alleging that fraud
was employed by her co-heirs in which she was represented by Atty. Mario C.R. Domingo.
The case lasted for 10 years until the Court of Appeals (CA) decided in favor of Macaria
entitling her to an additional 30 square meters of the estate of Romero. Her son Gregorio
and his family and Teresa‘s family lived with her in the Extremadura property until her death.
After six years, respondents Domingo, Angel, Felipe and Filemon filed an action for judicial
partition against petitioners Gregorio and Teresa.
ISSUE:
Whether or not parol evidence may be admitted in proving partial performance.
RULING:
With respect to the application by the appellate court of the Statute of Frauds,
Gregorio contends that the same refers only to purely executory contracts and not to
partially or completely executed contracts as in the instant case. The finding of the CA that
the testimonies of Gregorio‘s witnesses were timely objected to by Domingo is not, as
Gregorio insist, borne out in the records of the case except with respect to his testimony.
Indeed, except for the testimony of petitioner Gregorio bearing on the verbal sale to him by
Macaria of the property, the testimonies of Gregorio‘s witnesses Sylvanna Vergara Clutario
and Flora Lazaro Rivera bearing on the same matter were not objected to by respondents.
Just as the testimonies of Gregorio, Jr. and Veronica Bautista bearing on the receipt by
respondent Domingo on July 23, 1983 from Gregorio‘s wife of P5,000.00 representing partial
payment of the P10,000.00 valuation of his (Domingo‘s) 1/6 share in the property, and of the
testimony of Felimon Dagondon bearing on the receipt by Domingo of P5,000.00 from
Gregorio were not objected to. Following Article 1405 of the Civil Code, the contracts which
infringed the Statute of Frauds were ratified by the failure to object to the presentation of
parol evidence, hence, enforceable.
Contrary then to the finding of the CA, the admission of parol evidence upon which
the trial court anchored its decision in favor of respondents is not irregular and is not
foreclosed by Article 1405.
226
PHILIPPINE BANKING CORPORATION vs. LUI SHE
G.R. NO. L-17587. SEPTEMBER 12, 1967
PONENTE: CASTRO, J.
TOPIC: VOID CONTRACTS
FACTS:
Justina Santos executed on a contract of lease in favor of Wong, covering the portion
then already leased to him and another portion fronting Florentino Torres street. The lease
was for 50 years, although the lessee was given the right to withdraw at any time from the
agreement.On December 21 she executed another contract giving Wong the option to buy
the leased premises for P120,000, payable within ten years at a monthly installment of
P1,000. The option, written in Tagalog, imposed on him the obligation to pay for the food of
the dogs and the salaries of the maids in her household, the charge not to exceed P1,800 a
month. The option was conditioned on his obtaining Philippine citizenship, a petition for
which was then pending in the Court of First Instance of Rizal.It appears, however, that this
application for naturalization was withdrawn when it was discovered that he was not a
resident of Rizal. On October 28, 1958 she filed a petition to adopt him and his children on
the erroneous belief that adoption would confer on them Philippine citizenship. The error
was discovered and the proceedings were abandoned.In two wills executed on August 24
and 29, 1959, she bade her legatees to respect the contracts she had entered into with
Wong, but in a codicil of a later date (November 4, 1959) she appears to have a change of
heart. Claiming that the various contracts were made by her because of machinations and
inducements practiced by him, she now directed her executor to secure the annulment of
the contracts.
ISSUE:
Whether or not the contracts involving Wong were valid.
RULING:
The contracts show nothing that is necessarily illegal, but considered collectively, they
reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits.
To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien
the right to buy real property on condition that he is granted Philippine citizenship. But 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, this to last for 50 years,
then it becomes clear that the arrangement is a virtual transfer of ownership whereby the
owner divests himself in stages not only of the right to enjoy the land but also of the right to
dispose of it rights the sum total of which make up ownership. If this can be done, then the
Constitutional ban against alien landholding in the Philippines is indeed in grave peril.
227
JULIAN FRANCISCO ET.AL. VS. PASTOR HERRERA
G.R. NO. 139982; NOVEMBER 21, 2002
PONENTE: QUISUMBING, J.
FACTS:
Eligio Herrera, Sr., father of respondent Pastor Herrera, owned two parcels of land
consisting of 500 sq. m. and 451 sq. m. located at Cainta, Rizal. The two parcels of land was
sold at 1M and 750K to the petitioner. Pastor, contending that the contract price for the two
parcels of land was grossly inadequate tried to negotiate with petitioner to increase the
purchase price. When petitioner refused, respondent then filed a complaint for annulment
of sale. Pastor alleged that the contract of sale was null and void on the ground that Eligio,
Sr., at that time, was already afflicted with senile dementia. Petitioner, on the other hand,
contended that respondent had effectively ratified both contracts of sales, by receiving the
consideration offered in each transaction. RTC ruled that the contract of sale is null and void.
CA affirmed, hence, this petition.
ISSUE:
Whether or not the assailed contracts of sale void or merely voidable and hence capable of
being ratified.
RULING:
In the present case, vendor Eligio, Sr. entered into an agreement with petitioner, but
that the former’s capacity to consent was vitiated by senile dementia. Hence, it was ruled
that the assailed contracts are not void or inexistent per se; rather, these are contracts that
are valid and binding unless annulled through a proper action filed in court.
An annullable contract may be rendered perfectly valid by ratification, which can be
express or implied. Implied ratification may take the form of accepting and retaining the
benefits of a contract. As in this case, respondent negotiated for the increase of the
purchase price while receiving the installment payments from the petitioner. Clearly,
respondent was agreeable to the contract. Further, there is no showing that respondent
returned the payments or made an offer to do so. This bolsters the view that indeed there
was ratification.
228
AGAN vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CORPORATION
G.R. NO. 155001, MAY 5, 2003
PONENTE: PUNO, J.
FACTS:
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government
through the DOTC/MIAA for the development of NAIA International Passenger Terminal III
(NAIA IPT III).DOTC constituted the Prequalification Bids and Awards Committee (PBAC) for
the implementation of the project and submitted with its endorsement proposal to the
NEDA, which approved the project. On June 7, 14, and 21, 1996, DOTC/MIAA caused the
publication in two daily newspapers of an invitation for competitive or comparative
proposals on AEDC’s unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as
amended. On September 20, 1996, the consortium composed of People’s Air Cargo and
Warehousing Co., Inc., Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp.
(Security Bank) (collectively, Paircargo Consortium) submitted their competitive proposal to
the PBAC. PBAC awarded the project to Paircargo Consortium. Because of that, it was
incorporated into Philippine International Airport Terminals Co., Inc.
On July 12, 1997, the Government and PIATCO signed the “Concession Agreement for
the Build-Operate-and-Transfer Arrangement of the NAIA Passenger Terminal III” (1997
Concession Agreement). The Government granted PIATCO the franchise to operate and
maintain the said terminal during the concession period and to collect the fees, rentals and
other charges in accordance with the rates or schedules stipulated in the 1997 Concession
Agreement. The Agreement provided that the concession period shall be for twenty-five
(25) years commencing from the in-service date, and may be renewed at the option of the
Government for a period not exceeding twenty-five (25) years. At the end of the concession
period, PIATCO shall transfer the development facility to MIAA.
ISSUE:
Whether or not the State can temporarily take over a business affected with public interest.
RULING:
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional
provision on temporary government takeover and obligate the government to pay
“reasonable cost for the use of the Terminal and/or Terminal Complex.” Article XII, Section
17 of the 1987 Constitution provides: Section 17. In times of national emergency, when the
public interest so requires, the State may, during the emergency and under reasonable
terms prescribed by it, temporarily take over or direct the operation of any privately owned
public utility or business affected with public interest.
The above provision pertains to the right of the State in times of national emergency,
and in the exercise of its police power, to temporarily take over the operation of any
business affected with public interest. The duration of the emergency itself is the
229
determining factor as to how long the temporary takeover by the government would last.
The temporary takeover by the government extends only to the operation of the business
and not to the ownership thereof. As such the government is not required to compensate
the private entity-owner of the said business as there is no transfer of ownership, whether
permanent or temporary. The private entity-owner affected by the temporary takeover
cannot, likewise, claim just compensation for the use of the said business and its properties
as the temporary takeover by the government is in exercise of its police power and not of its
power of eminent domain.
230
MENCHAVEZ VS. TEVES, JR.
G.R. NO. 153201, JANUARY 26,2005
FACTS:
In February 1986, Petitoner Menchavez and Respondent Teves, Jr. executed a
contract of lease for a period of five years. During the lease period, the Cebu Regional Trial
Court sheriffs demolished the fishpond dikes constructed by respondent Teves. Teves
subsequently filed for damages. He alleged that the lessors had violated their Contract of
Lease on the grounds of the provision that they were not able to have peaceful and
adequate enjoyment of the property during the agreed lease period. Respondent also adds
that previous finding of a trial court waswithheld from him wherein the petitioners were
ordered to remove the dikes that were illegally constructed. The RTC declared the Contract
of Lease between both parties as void ab initio as the disputed property wasunder the
propery of the State following the Regalian Doctrine. RTC ruled in favor of the petitioners.
Respondent elevated the case to the CA. The CA disagreed with the RTC’s ruling that both
parties were at equal fault or pari delicto. While there was negligence on the part of the
respondent for having failed to verify the ownership of the property, there was no evidence
that he had knowledge of the petitioner’s lack of ownership. Thus, this petition was made.
ISSUE:
Whether or not the subject property (fishponds) can be leased by the petitioners.
RULING:
Article 12 of the 1987 Constitution provides that all lands of the public domain…
fisheries and other natural resources belong the State. Included are the property in
question, fishponds, which can only be leased but not alienated. Possession for how long a
period cannot be owned even by prescription. The petitioners had not transferrable right
over them and thus rendering the contract void ab initio. No damages may be recovered
from a void contract.
231
CONCHITA NOOL and GAUDENCIO ALMOJERA vs.CA
GR NO. 116635, JULY 24, 1997
FACTS:
One lot formerly owned by Victorio Nool has an area of 1 hectare. Another lot
previously owned by Francisco Nool has an area of 3.0880 hectares. Spouses (plaintiffs)
Conchita Nool and Gaudencio Almojera alleged that they are the owners of the subject
lands. They are in dire need of money, they obtained a loan DBP , secured by a real estate
mortgage on said parcels of land, which were still registered in the names of Victorino and
Francisco Nool, at the time, Since the plaintiffs failed to pay the said loan, the mortgage was
foreclosed; that within the period of redemption, the plaintiffs contacted Anacleto Nool for
the latter to redeem the foreclosed properties from DBP, which the latter did; and as a
result, the titles of the 2 parcels of land in question were transferred to Anacleto; that as
part of their arrangement or understanding, Anacleto agreed to buy from Conchita the 2
parcels of land , for a total price of P100,000.00, P30,000.00 of which price was paid to
Conchita, and upon payment of the balance of P14,000.00, the plaintiffs were to regain
possession of the 2 hectares of land, which amounts spouses Anacleto Nool and Emilia
Nebre failed to pay.
Anacleto Nool signed the private writing, agreeing to return subject lands when
plaintiffs have the money to redeem the same; defendant Anacleto having been made to
believe, then, that his sister, Conchita, still had the right to redeem the said properties.
ISSUE:
Whether or not the purchase of the subject lands to Anacleto is valid.
RULING:
Nono dat quod non habet, No one can give what he does not have; Contract of
repurchase inoperative thus void. Article 1505 of the Civil Code provides that “where goods
are sold by a person who is not the owner thereof, and who does not sell them under
authority or with consent of the owner, the buyer acquires no better title to the goods than
the seller had, unless the owner of the goods is by his conduct precluded from denying the
seller’s authority to sell.” Jurisprudence, on the other hand, teaches us that “a person can
sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no
more than what the seller can legally transfer.” No one can give what he does not have —
nono dat quod non habet. In the present case, there is no allegation at all that petitioners
were authorized by DBP to sell the property to the private respondents. Further, the
contract of repurchase that the parties entered into presupposes that petitioners could
repurchase the property that they “sold” to private respondents. As petitioners “sold”
nothing, it follows that they can also “repurchase” nothing. In this light, the contract of
repurchase is also inoperative and by the same analogy, void.
232
VIGILAR VS. AQUINO
G.R. NO. 180388, JAN. 18, 2011
PONENTE: SERENO, J.
FACTS:
Aquino was invited by DPWH to a bidding for the construction of a dike by bulldozing
a part of the Porac River at Barangay Ascomo-Pulungmasle, Guagua, Pampanga. Aquino was
subsequently awarded the “Contract of Agreement” by the said government agency.
By 9 July 1992, the project was duly completed by respondent, who was then issued a
Certificate of Project Completion dated 16 July 1992. However, claimed that PhP1,262,696.20
was still due him, but petitioners refused to pay the amount. He thus filed a Complaint for
the collection of sum of money with damages before the Regional Trial Court of Guagua,
Pampanga. Petitioners, for their part, set up the defense that the Complaint was a suit
against the state; that respondent failed to exhaust administrative remedies; and that the
“Contract of Agreement” covering the project was void for violating Presidential Decree No.
1445, absent the proper appropriation and the Certificate of Availability of Funds.
The trial court ruled in favor of the respondent. Petitioners (DPWH) then appealed
the case before the CA which ruled in their favor, declaring the contract null and void ab
initio but ordered compensation to Aquino for worked delivered, subject to Commission on
Audit rules. Unsatisfied with the CA’s decision, Petitioners then raised the issue before the
Supreme Court seeking complete dismissal of the case without paying Aquino any money.
ISSUE:
Whether or not the doctrine of sovereign immunity was properly invoked.
RULING:
The Supreme Court said that the doctrine of governmental immunity from suit
cannot serve as an instrument for perpetrating an injustice to a citizen. Citing their decision
in EPG Construction (G.R. No. 131544, March 16, 2001, 354 SCRA 566), the court said that it
would be the apex of injustice and highly inequitable if the respondent is not duly
compensated for actual work performed and services rendered, where both the
government and the public have received benefits from the project and reaped the fruits of
respondent’s honest toil and labor. The Court further said that the no government agency or
agent can conveniently hide under the State’s cloak of invincibility against suit, because this
principle has limitations especially when that the ends of justice would be subverted if we
were to uphold, in this particular instance, the State’s immunity from suit. The Court finally
said that in this case, it can’t be an instrument of injustice by upholding the immunity from
suit principle and affirmed the decision of the Court of Appeals.
233
LAND BANK OF THE PHILIPPINES VS. EDUARDO M. CACAYURAN
G.R. NO. 191667, APRIL 17, 2013
PONENTE: PERLAS-BERNABE, J.
FACTS:
On March 7, 2006, the SB passed Resolution No. 58-2006,9 approving the
construction of a commercial center on the Plaza Lot as part of phase II of the
Redevelopment Plan. To finance the project, Mayor Eriguel was again authorized to obtain a
loan from Land Bank, posting as well the same securities as that of the First Loan. All
previous representations and warranties of Mayor Eriguel related to the negotiation and
obtention of the new loan10 were ratified on September 5, 2006 through Resolution No. 128-
2006. In consequence, Land Bank granted a second loan in favor of the Municipality on
October 20, 2006 in the principal amount of ₱28,000,000.00. In addition, Cacayuran wrote a
letter addressed to Mayor Eriguel, Vice Mayor Antonio Eslao , and the members of the SB
namely, Violeta Laroya-Balbin, Jaime Boado, Jr., Rogelio De Vera, James Dy, Crisogono
Colubong, Ricardo Fronda, Josephus Komiya, Erwina Eriguel, Felizardo Villanueva, and
Gerard Mamuyac, expressing the growing public clamor against the conversion of the Agoo
Plaza into a commercial center. He then requested the foregoing officers to furnish him
certified copies of various documents related to the aforementioned conversion including,
among others, the resolutions approving the Redevelopment Plan as well as the loan
agreements for the sake of public information and transparency.Unable to get any
response, Cacayuran, invoking his right as a taxpayer, filed a Complaint against the
Implicated Officers and Land Bank, assailing, among others, the validity of the Subject Loans
on the ground that the Plaza Lot used as collateral thereof is property of public dominion
and therefore, beyond the commerce of man.
ISSUE:
Whether or not Cacayurin has standing to contest the construction of APC.
RULING:
It is hornbook principle that a taxpayer is allowed to sue where there is a claim that
public funds are illegally disbursed, or that public money is being deflected to any improper
purpose, or that there is wastage of public funds through the enforcement of an invalid or
unconstitutional law. A person suing as a taxpayer, however, must show that the act
complained of directly involves the illegal disbursement of public funds derived from
taxation. In other words, for a taxpayer’s suit to prosper, two requisites must be met
namely, (1) public funds derived from taxation are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or some irregularity is committed; and (2)
the petitioner is directly affected by the alleged act.
234
DOMINGO GONZALO vs. JOHN TARNATE, JR.
G.R. No. 160600, January 15, 2014
PONENTE: Bersamin, J.
TOPIC: Void or inexistent contract
FACTS:
After the DPWH had awarded on July 22, 1997 the contract for the improvement of
the Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road to his company,
Gonzalo Construction, petitioner Gonzalo subcontracted to respondent Tarnate on October
15, 1997, the supply of materials and labor for the project under the latter’s business known
as JNT Aggregates. Their agreement stipulated, among others, that Tarnate would pay to
Gonzalo eight percent and four percent of the contract price, respectively, upon Tarnate’s
first and second billing in the project. In furtherance of their agreement, Gonzalo executed
on April 6, 1999 a deed of assignment whereby he, as the contractor, was assigning to
Tarnate an amount equivalent to 10% of the total collection from the 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 Construction in the processing of the documents relative to the collection
of the 10% retention fee and in encashing the check to be issued by the DPWH for that
purpose. The deed of assignment was submitted to the DPWH on April 15, 1999. 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 an affidavit of cancellation of
deed of assignment dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the
disbursement voucher for the 10% retention fee had then been issued in the name of
Gonzalo, and the retention fee released to him. Tarnate demanded the payment of the
retention fee from Gonzalo, but to no avail.
ISSUE:
Whether or not the subcontract and deed of assignment are void contracts.
RULING:
The Court held that the subcontract agreement and deed of assignment between Gonzalo
and Tarnate are void for being contrary to law. However, even though both parties are in
pare delicto the Court allowed Tarnate to recover his retention fee, as an exception, due to
unjust enrichment.
235
BEUMER VS. AMORES
G.R. NO. 195670, DECEMBER 3, 2012
PONENTE: PERLAS- BERNABE, J.

FACTS:
Willem (Beumer), a Dutch national, married Avelina (Amores) on March 29,
1980.Their marriage was declared null by the RTC on November 10, 2000 by reason of
psychological incapacity, thus Willem filed a petition for dissolution of conjugal partnership
and distribution of properties which he claimed were acquired during their marriage.
BY PURCHASE:
a.Lot 1, Block 3 of the consolidated survey of Lots 2144 & 2147 of the Dumaguete
Cadastre, including a residential house constructed thereon
b.Lot 2142 of the Dumaguete Cadastre, including a residential house constructed
thereon
c.Lot 5845 of the Dumaguete Cadastre
d.Lot 4, Block 4 of the consolidated survey of Lots 2144 & 2147 of the Dumaguete
Cadastre
BY INHERITANCE:
a. 1/7 of Lot 2055-A of the Dumaguete Cadastre(the area that appertains to the
conjugal partnership is 376.45 sq.m.).
b. 1/15 of Lot 2055-I of the Dumaguete Cadastre(the area that appertains to the
conjugal partnership is 24 sq.m.).
The respondent averred that she and petitioner did not acquire any conjugal
properties during their marriage, the truth being that she used her own personal money to
purchase Lots 1, 2142, 5845 and 4 out of her personal funds and Lots 2055-A and 2055-I by
way of inheritance.
ISSUE:
Whether or not the petitioner entitled to assail the decision of the RTC and CA.
RULING:
The petition lacks merit. Firstly, foreigners may not own lands in the Philippines.
However, there are no restrictions to the ownership of buildings or structures on lands of
foreigners. As such, the two houses on Lots 1 and 2142 are considered co-owned by the
parties.
While admitting to have previously executed a joint affidavit that respondent’s
personal funds were used to purchase Lot 1, he likewise claimed that his personal disability
funds were used to acquire the same. The Court cannot, even on the grounds of equity,
grant reimbursement to petitioner given that he acquired no right whatsoever over the
subject properties by virtue of its unconstitutional purchase. A contract that violates the
Constitution and the law is null and void, vests no rights, creates no obligations and
produces no legal effect at all.
236
JOSELITO C. BORROMEO vs. JUAN T. MINA
G.R. No. 193747, June 05, 2013
TOPIC: Void contracts
FACTS:
Petitioner filed a Petition dated June 9, 20036 before the Provincial Agrarian Reform
Office (PARO) of Isabela, seeking that: (a) his landholding over the subject property (subject
landholding) be exempted from the coverage of the government’s OLT program under
Presidential Decree No. 27 dated October 21, 19727 (PD 27); and (b) respondent’s
emancipation patent over the subject property be consequently revoked and cancelled.To
this end, petitioner alleged that he purchased the aforesaid property from its previous
owner, one Serafin M. Garcia (Garcia), as evidenced by a deed of sale notarized on February
19, 1982 (1982 deed of sale). For various reasons, however, he was not able to effect the
transfer of title in his name. Subsequently, to his surprise, he learned that an emancipation
patent was issued in respondent’s favor without any notice to him. He equally maintained
that his total agricultural landholdings was only 3.3635 hectares and thus, within the
landowner's retention limits under both PD 27 and Republic Act No. 6647, otherwise known
as the "Comprehensive Agrarian Reform Law of 1988." In this regard, he claimed that the
subject landholding should have been excluded from the coverage of the government’s OLT
program.
ISSUE:
Whether or not Petitioner’s change of theory on appeal is valid.
RULING:
Settled is the rule that a party who adopts a certain theory upon which the case is
tried and decided by the lower courts or tribunals will not be permitted to change his theory
on appeal,30 not because of the strict application of procedural rules, but as a matter of
fairness.31 Basic considerations of due process dictate that theories, issues and arguments
not brought to the attention of the trial court would not ordinarily be considered by a
reviewing court,32 except when their factual bases would not require presentation of any
further evidence by the adverse party in order to enable him to properly meet the issue
raised,33 such as when the factual bases of such novel theory, issue or argument is (a)
subject of judicial notice; or (b) had already been judicially admitted,34 which do not obtain
in this case.
237
MANOTOK VS. BARQUE
G.R. NO. 162335, MARCH 6, 2012
PONENTE: VILLARAMA, JR., J.

FACTS:
Piedad Estate originally owned by Philippine Sugar Estates Development Company,
Ltd., La Sociedad Agricola de Ultramar, the British-Manila Estate Company, Ltd., and the
Recoleto Order of the Philippine Islands. (It is a Friar Land.)The subject parcel “Lot No. 823”
is part of the Piedad Estate and is located in QC. Piedad Estate was acquired by the
Philippine Government pursuant to the Friar Lands Act. The certificate of title in the name of
the government was OCT No. 614. The Estate was placed under the administration of the
Director of Lands. Controversy arising from conflicting claims over Lot 823 began after a fire
gutted portions of the Quezon City Hall on June 11, 1988 which destroyed records stored in
the Office of the Register of Deeds. Manotoks filed a petition with the LRA for
administrative reconstitution of TCT No. 372302 covering Lot No. 823 with an area of 342,945
square meters à GRANTED à TCT No. RT-22481 (372302) was issued in 1991. 8 years after the
fire the Barques filed a petition with the LRA for administrative reconstitution of TCT No.
210177 in the name of Homer Barque also covering Lot 823. In support of their petition, the
Barques submitted copies of the alleged owner’s duplicate of the TCT, real estate tax
receipts, tax declarations and a Plan Fls 3168-D covering the property. MANOTOKs opposed
alleging that TCT No. 210177 was spurious. Although both titles of the Manotoks and the
Barques refer to land belonging to Lot No. 823, TCT No. 210177 actually involves 2 parcels
with an aggregate area of 342,945 square meters, while TCT No. RT-22481 (372302) pertains
only to a 1 parcel of land, with a similar area of 342,945 square meters.
ISSUE:
Whether or not th lot belongs to either parties.
RULING:
From the proceedings in the CA, it was established that while records of the DENR-
LMB indicate the original claimant/applicant of Lot 823 as a certain Valentin Manahan, only
the Manotoks were able to produce a sale certificate in the name of their predecessors-in-
interest, certified by the LMB Records Management Division. In addition, the Manotoks
submitted photocopies of original documents entitled Assignment of Sale Certificate dated
1919, 1920 and 1923. Sale Certificate No. 1054 was not signed by the Director of Lands nor
approved by the Secretary of the Interior. The Certificates of Assignment of Sale contained
only the signature of the Director of Lands. The Manotoks belatedly secured from the
National Archives a certified copy of Deed of Conveyance No. 29204 dated December 7,
1932, which likewise lacks the approval of the Secretary of Agriculture and Natural
Resources as it was signed only by the Director of Lands.
238
Act No. 1120 SECTION 18. No lease or sale made by Chief of the Bureau of Public
Lands under the provisions of this Act shall be valid until approved by the Secretary of the
Interior.
It is clear from the foregoing provision and from jurisprudence that the sale of friar
lands shall be valid only if approved by the Secretary of the Interior (later the Secretary of
Agriculture and Commerce).
239
DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS V. QUIWA
G.R. NO. 183444, FEBRUARY 8, 2012
PONENTE: SERENO, J.
FACTS:
In 1992, a number of contractors, including herein respondents, were engaged by the
DPWH through its Project Manager, Philip F.Mez, for the aforesaid services pursuant to an
emergency project under the Mount Pinatubo Rehabilitation Project.Respondents claimed
that they had accomplished works on the Sacobia-Bamban-Parua River Control Project
pursuant to this emergency projectunder two construction agreements with the DPWH, his
construction company, the R.E.Q. Construction. Initially, R.E.Q. Construction filed its money
claim with the DPWH, which referred the matter to the Commission on Audit.The COA
returned the claims to the DPWH with the information that the latter had already been given
the funds and the authority to disburse them. When respondent Quiwa filed his claims with
the DPWH, it failed to act on these, resulting in the withholding of the payment due him,
despite the favorable report and Certification of Completion. This prompted respondents
jointly filed an action for a sum of money against the DPWH. The RTC also ruled that the
claim of the respondents against DPWH was proper since they had already made a demand
on the Commission onAudit regarding the payment of their construction services.Thus, they
first availed themselves of the properadministrative remedy in filing their claim with COA,
which unfortunately referred the claim to the DPWH.
ISSUE:
Whether or not the DPWH is liable to pay the claims filed against them by the plaintiffs.
RULING:
It has been settled in several cases that payment for services done on account of the
government, but based on a void contract, cannot be avoided. The cases however, are not
illegal per se, owing to the fact that prior appropriation of funds for the project including
appropriation; and payment to the contractors, uponthe subsequent completion of the
works, was warranted.
Petitioner DPWH primarily argues that the contracts with herein respondents were
void for not complying with Sections 85 and 86 ofP.D. 1445, or the Government Auditing
Code of the Philippines, as amended by Executive Order No. 292.These sections require an
appropriation for the contracts and a certification by the chief accountant of the agency or
by the head of its accounting unit as to the availability of funds.
240
MILAGROS DE BELEN VDA. DE CABALU vs. SPS. RENATO TABU AND DOLORES LAXAMANA
G.R. NO. 188417, SEPTEMBER 24,2012
PONENTE:
FACTS:
The property subject of the controversy is a 9,000 square meter lot situated in
Mariwalo, Tarlac, which was a portion of a property registered in the name of the late
Faustina Maslum (Faustina). On December 8, 1941, Faustina died without any children. She
left a holographic will, dated July 27, 1939, assigning and distributing her property to her
nephews and nieces. The said holographic will, however, was not probated. One of the
heirs was the father... of Domingo Laxamana (Domingo), Benjamin Laxamana, who died in
1960. On March 5, 1975, Domingo allegedly executed a Deed of Sale of Undivided Parcel of
Land disposing of his 9,000 square meter share of the land to Laureano Cabalu. On August 1,
1994, to give effect to the holographic will, the forced and legitimate heirs of Faustina
executed a Deed of Extra-Judicial Succession with Partition. The said deed imparted 9,000
square meters of the land covered by TCT No. 16776 to Domingo.
Thereafter, on December 14, 1995, Domingo sold 4,500 square meters of the 9,000
square meters to his nephew, Eleazar Tabamo. The document was captioned Deed of Sale of
a Portion of Land.
ISSUE:
Whether or not the Deed of Sale of Undivided Parcel of Land covering the 9,000 square
meter property executed by Domingo in favor of Laureano Cabalu is null and void.
RULING:
To reiterate, the RTC and later the CA had ruled that the sale, dated March 5, 1975,
had the earmarks of a simulated deed, hence, the presumption was already rebutted. Even
on the assumption that the March 5, 1975 deed was not simulated, still the sale cannot be
deemed valid because, at that time, Domingo was not yet the owner of the property. In this
case, at the time the deed was executed, Faustina's will was not yet probated; the object of
the contract, the 9,000 square meter property, still formed part of the inheritance of his
father from the estate of Faustina; and Domingo had a mere inchoate hereditary right
therein. Regarding the deed of sale covering the remaining 4,500 square meters of the
subject property executed in favor of Renato Tabu, it is evidently null and void.
241
JACOBUS BERNHARD HULST vs. PR BUILDERS
G.R. NO. 156344, SEPTEMBER 3, 2007
PONENTE: AUSTRIA-MARTINEZ, J.
FACTS:
Petitioner filed the present Motion for Partial Reconsideration[3] insofar as he was
ordered to return to respondent the amount of P2,125,540.00 in excess of the proceeds of
the auction sale delivered to petitioner.Petitioner contends that the Contract to Sell
between petitioner and respondent involved a condominium unit and did not violate the
Constitutional proscription against ownership of land by aliens. He argues that the contract
to sell will not transfer to the buyer ownership of the land on which the unit is situated;thus,
the buyer will not get a transfer certificate of title but merely a Condominium Certificate of
Title as evidence of ownership; a perusal of the contract will show that what the buyer
acquires is the seller's title and rights to and interests in the unit and the common areas.
ISSUE:
Whether or not the partial consideration is valid.
RULING:
Under Republic Act (R.A.) No. 4726, otherwise known as the Condominium Act,
foreign nationals can own Philippine real estate through the purchase of condominium units
or townhouses constituted under the Condominium principle with Condominium Certificates
of Title.Where the common areas in a condominium project are held by a corporation, no
transfer or conveyance of a unit shall be valid if the concomitant transfer of the appurtenant
membership or stockholding in the corporation will cause the alien interest in such
corporation to exceed the limits imposed by existing laws.
The law provides that no condominium unit can be sold without at the same time
selling the corresponding amount of rights, shares or other interests in the condominium
management body, the Condominium Corporation; and no one can buy shares in a
Condominium Corporation without at... the same time buying a condominium unit. It
expressly allows foreigners to acquire condominium units and shares in condominium
corporations up to not more than 40% of the total and outstanding capital stock of a Filipino-
owned or controlled corporation. Under this set up, the ownership of the land is legally
separated from the unit itself. The land is owned by a Condominium Corporation and the
unit owner is simply a member in this Condominium Corporation.
242
REBECCA FULLIDO VS. GINO GRILLI
G.R. NO. 215014, FEBRUARY 29, 2016
PONENTE: MENDOZA, J.
FACTS:
Sometime in 1994, Grilli, an Italian national, met Fullido in Bohol and courted her. In
1995, Grilli decided to build a residential house where he and Fullido would stay whenever he
would be vacationing in the country. Grilli financially assisted Fullido in procuring a lot
located in Biking I, Dauis, Bohol, from her parents which was registered in her name under
Transfer Certificate of Title (TCT) No. 30626. The lease contract stipulated, among others,
that Grilli as the lessee, would rent the lot, registered in the name of Fullido, for a period of
fifty (50) years, to be automatically renewed for another fifty (50) years upon its expiration
in the amount of P10,000.00 for the whole term of the lease contract; and that Fullido as the
lessor, was prohibited from selling, donating, or encumbering the said lot without the
written consent of Grilli. The pertinent provisions of the lease contract over the house and
lot are as follows:
That for and in consideration of the total amount of rental in the amount of TEN
THOUSAND (P10,000.00) PESOS, Philippine Currency, paid by the LESSEE to the LESSOR,
receipt of which is hereby acknowledged, the latter hereby leases to the LESSEE a house and
lot, and all the furnishings found therein, land situated at Biking I, Dauis, Bohol, Philippines,
absolutely owned and belonging to the LESSOR and particularly described as follows, to wit:
That the LESSOR and the LESSEE hereby agree as they have agreed to be bound by
the following terms and conditions, to wit: l. That the term of the lease shall be FIFTY (50)
YEARS from August 16, 1998 to August 15, 2048, automatically renewed for the same term
upon the expiration thereof; lease to any third person, without the written consent of the
LESSEES. The said lease contract was duly registered in the Register of Deeds of Bohol.
ISSUE:
Whether or not the contracts are null and void.
RULING:
A void or inexistent contract may be defined as one which lacks, absolutely either in
fact or in law, one or some of the elements which are essential for its validity.It is one which
has no force and effect from the very beginning, as if it had never been entered into; it
produces no effect whatsoever either against or in favor of anyone.Quod nullum est nullum
producit effectum. Article 1409 of the New Civil Code explicitly states that void contracts
also cannot be ratified; neither can the right to set up the defense of illegality be waived.
Accordingly, there is no need for an action to set aside a void or inexistent contract.
TEJA MARKETING VS. INTERMEDIATE APPELLATE COURT

G.R. NO. L-65510, MARCH 9, 1987
243
PONENTE: PARAS, J.
FACTS:
"'Ex pacto illicito' non oritur actio' (No action arises out of illicit bargain) is the time-
honored maxim that must be applied to the parties in the case at bar. Having entered into...
an illegal contract, neither can seek relief from the courts, and each must bear the
consequences of his acts the defendant bought from the plaintiff a motorcycle with
complete accessories and a sidecar defendant gave a downpayment of P1,700.00 with a
promise that he would pay plaintiff the balance within sixty days. The defendant, however,
failed to comply with his promise and so upon his own request, the period of paying the
balance was extended to one year in monthly installments until January 1976 when he
stopped paying anymore. The plaintiff made demands but just the same the defendant
failed to comply with the same thus forcing the... plaintiff to consult a lawyer and file this
action for his damage... a chattel mortgage was constituted as a security for the payment of
the balance of the purchase price.The records of the LTC show that the motorcycle sold to
the defendant was first mortgaged to the Teja Marketing by Angel Jaucian though... the Teja
Marketing and Angel Jaucian are one and the same, because it was made to appear that way
only as the defendant had no franchise of his own and he attached the unit to the plaintiff's
MCH Line. The agreement also of the parties here was for the plaintiff to undertake the
yearly registration of the motorcycle with the Land Transportation Commission.
ISSUE:
Whether or not respondent court erred in applying the doctrine of pari delicto.
RULING:
Unquestionably, the parties herein operated under an arrangement, commonly
known as the "kabit system" whereby a person who has been granted a certificate of public
convenience allows another person who owns motor vehicles to operate under such
franchise for a fee. A certificate of public convenience is a special privilege conferred by the
government. Abuse of this privilege by the grantees thereof cannot be countenanced. The
"kabit system" has been identified as one of the root causes of the prevalence of graft and
corruption in the government transportation offices.Although not outrightly penalized as a
criminal offense, the kabit system is invariably recognized as being contrary to public policy
and, therefore, void and inexistent under Article 1409 of the Civil Code.
244
ASIAN CATHAY FINANCE AND LEASING CORPORATION VS. SPOUSES CESARIO GRAVADOR
G.R. NO. 186550, JULY 5, 2010
FACTS:
Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of
P800,000.00 to respondent Cesario Gravador (Cesario), with respondents Norma de Vera
and Emma Concepcion Dumigpi as his co-makers. The loan was payable in 60 monthly
installments of P24,000.00 each and secured by a real estate mortgage executed by Cesario
over his property. Respondents paid the first installment for November 1999 but failed to
pay the subsequent installments. In February 2000, ACFLC demanded payment of
P1,871,480.00 from respondents. Respondents asked for more time to pay but ACFLC denied
their request. Respondents filed a case for annulment of the real estate mortgage and
promissory note before the Regional Trial Court (RTC). Respondents averred that the
mortgage did not make reference to the promissory note and contained a provision on the
waiver of the mortgagor’s right of redemption, which is contrary to law and public policy.
Respondents added that the promissory note did not specify the maturity date of the loan,
the interest rate, and the mode of payment, and illegally imposed liquidateddamages.
ISSUE:
Whether or not the provision in the real estate mortgage on the mortgagor’s waiver of right
of redemption.
RULING:
Settled is the rule that for a waiver to be valid and effective, it must, in the first place,
be couched in clear and unequivocal terms which will leave no doubt as to the intention of a
party to give up a right or benefit which legally pertains to him. The intention to waive a
right or an advantage must be shown clearly and convincingly. ACFLC failed to convince the
Court that respondents waived their right of redemption voluntarily.
245
REPUBLIC OF THE PHILIPPINES VS. SANDIGANBAYAN
G.R. NO. 166859, APRIL 12, 2011
PONENTE: CARPIO-MORALES, J.
TOPIC: TRUSTS
FACTS:
A complaint was filed against the defendants Eduardo Cojuangco Jr., the ACCRA
lawyers, Danilo Ursua and 71 corporations by the Presidential Commission on Good
Government (PCGG) referred here as “Republic of the Philippines” with regard to a block of
San Miguel Corporation (SMC) stock which were allegedly bought through the CIIF Holding
Companies and funded by the coconut levy fund passing through the Unicom Oil Mills and
directly from UCPB. The coconut levy funds were considered as government funds since this
came from contributions from the coconut farmers with the purpose of improving and
stabilizing the coconut farming industry, however these were said to be privatized under
presidential directives of then Pres. Marcos. Defendant Cojuangco Jr., being close with the
Marcoses is said to have taken undue advantage of his association, influence and
connection, embarked upon different devices and schemes including the use of the ACCRA
Lawyers as “nominee shareholders” and the defendant corporations as fronts to unjustly
enrich themselves at the expense of the Filipino people when he misused the coconut levy
fund, amounting to $150 million, to purchase 33 million shares of the SMC through the
holding companies. Hence with the allegations mentioned and with different cases and
issues which remain unresolved, the block of shares representing 20% of the outstanding
capital stock of SMC remained sequestered by the government.
During the pre-trial brief, the Sandiganbayan sought clarification from the parties,
particularly the Republic, on their respective positions, but at the end it found the
clarifications "inadequately" enlightening. To resolve various pending motions and
pleadings, Sandiganbayan lifted and declared the Writs of Sequestration null and void.
ISSUE:
Whether or not Sandiganbayan has committed grave abuse of dicretion in:
(a) in lifting the Writ of Sequestrations on the sequestered SMC shares.
(c) in deleting the last two conditions the Sandiganbayan had earlier imposed on the subject
shares of stock.
RULING:
Among the WOS issued, only one writ WOS 87-0218 complied with PCGG Rules and
Regulations requirement that the issuance be made by at least two Commissioners.
However, even if Writ of Sequestration No. 87-0218 complied with the requirement that the
same be issued by at least two Commissioners, the records fail to show that it was issued
with factual basis or with factual foundation. It is the absence of a prima facie basis for the
246
issuance of a writ of sequestration and not the lack of authority of two (2) Commissioners
which renders the said writ void ab initio. Thus, being the case, Writ of Sequestration No.
87-0218 must be automatically lifted. Consequently, the writs of sequestration nos. 86-0062,
86-0069, 86-0085, 86-0095, 86-0096, 86-0097 and 86-0098 must be lifted for not having
complied with the pertinent provisions of the PCGG Rules and Regulations, all of which were
issued by only one Commissioner.
Nor did the Sandiganbayan gravely abuse its discretion in reducing from four to only
two the conditions imposed for the lifting of the WOS. The Sandiganbayan thereby acted
with the best of intentions, being all too aware that the claim of the Republic to the
sequestered assets and properties might be prejudiced or harmed pendente lite unless the
protective conditions were annotated in the corporate books of SMC. Moreover, the issue
became academic following the Sandiganbayan’s promulgation of its decision dismissing the
Republic's Amended Complaint, which thereby removed the stated reason - "the Republic
continues to hold a claim on the shares which is yet to be resolved" - underlying the need for
the annotation of the conditions.
247
HEIRS OF LABANON V. HEIRS OF LABANON
G.R. NO. 160711, AUGUST 14, 2004
PONENTE: VELASCO, JR., J.

TOPIC: TRUSTS
FACTS:
During the lifetime of Constancio Labanon, prior to the outbreak of WWII, he settled
upon a piece of alienable and disposable public agricultural land situated at Brgy. Lanao,
Kidapawan, Cotabato x x x. Constancio cultivated the said lot and introduced permanent
improvements that still exist up to the present. Being of very limited educational
attainment, he found it difficult to file his public land application over said lot. Constancio
then asked his brother, Maximo Labanon who was better educated to file the corresponding
public land application under the express agreement that they will divide the said lot as soon
as it would be feasible for them to do so. The offer was accepted by Maximo. During the
time of the application it was Constancio who continued to cultivate the said lot in order to
comply with the cultivation requirement set forth under Commonwealth Act 141, as
amended, on Homestead applications. After which, due to industry of Constancio,
Homestead Application No. 244742 of his brother Maximo was approved with Homestead
Patent No. 67512. Eventually, Original Certificate of Title No. P-14320 was issued by the
Register of Deeds of Cotabato over said lot in favor of Maximo Labanon. On February 11,
1955, Maximo Labanon executed a document denominated as "Assignment of Rights and
Ownership" and docketed as Doc. No. 20; Page No. 49; Book No. V; Series of 1955 of the
Notarial Register of Atty. Florentino Kintanar. The document was executed to safeguard the
ownership and interest of his brother Constancio Labanon. After the death of Constancio
Labanon, his heirs executed an extra-judicial settlement of estate with simultaneous sale
over the aforesaid eastern portion of the lot in favor of Alberto Makilang, the husband of
Visitacion Labanon, one of the children of Constancio. Subsequently, the parcel of land was
declared for taxation purposes in the name of Alberto under TD No. 11593. However, in
March 1991, the defendants heirs of Maximo Labanon namely, Alicia L. Caniedo, Leopoldo
Labanon, Roberto Nieto and Pancho Labanon, caused to be cancelled from the records of
the defendant Provincial Assessor of Cotabato the aforesaid TD No. 11593 and the latter,
without first verifying the legality of the basis for said cancellation, did cancel the same.
Further, after discovering that the defendant-heirs of Maximo Labanon were taking steps to
deprive the heirs of Constancio Labanon of their ownership over the eastern portion of said
lot, the latter, thru Alberto Makilang, demanded the owner’s copy of the certificate of title
covering the aforesaid Lot to be surrendered to the Register of Deeds of Cotabato so that
the ownership of the heirs of Constancio may be fully effected but the defendants refused
and still continue to refuse to honor the trust agreement entered into by the deceased
brothers.
248
ISSUE:
Whether or not the Trust Agreement allegedly made by Constancio Labanon and Maximo
Labanon prescribed.
RULING:
The trust agreement between Maximo Labanon and Constancio Labanon may still be
enforced. Former Vice-President and Senator Arturo Tolentino, a noted civilist, explained the
nature and import of a trust:
Trust is the legal relationship between one person having an equitable ownership in
property and another person owning the legal title to such property, the equitable
ownership of the former entitling him to the performance of certain duties and the exercise
of certain powers by the latter.This legal relationship can be distinguished from other
relationships of a fiduciary character, such as deposit, guardianship, and agency, in that the
trustee has legal title to the property.In the case at bench, this is exactly the relationship
established between the parties.Trusts are classified under the Civil Code as either express
or implied. Such classification determines the prescriptive period for enforcing such trust.
249
SPOUSES RICARDO AND MILAGROS HUANG, petitioners, vs. COURT OF APPELAS, JUDGE,
PEDRO N. LAGGUI, Presiding Judge, RTC, Makati, Br. 60, and SPOUSES DOLORES
ANDANICETO SANDOVAL, respondents.
G.R. No. 108525; September 13, 1994
PONENTE: Bellosillo, J.
TOPIC: Nature/Concepts; Parties; Kinds
FACTS:
Dolores Sandoval bought two (2) lots in Dasmarinas Village, Lot 20 and 21. Lot 21 was
registered in her name; however, Lot 20 was registered in her brother’s name, Petitioner
Ricardo Huang. This was because the spouses Milagros and Ricardo Huang advised Dolores
that the subdivision owner forbade the acquisition of two (2) lots by a single individual.
Dolores constructed a residential house in Lot 21 and Ricardo asked Dolores’ permission to
construct a small residential house in Lot 20. She agreed and she also allowed Ricardo to
mortgage Lot 20 to the Social Security System (SSS) to secure payment for his loan for
putting up the said house. Despite the loan, Dolores actually financed the construction of
the house, the swimming pool and the fence in Lot 20 knowing that the Huang Spouses
merely holds title in trust for her beneficial interest.
Dolores requested the Huangs to execute a Deed of Absolute Sale with Assumption
of Mortgage of Lot 20 with all its improvements in favor of her to protect her rights, and
they obliged. The Huangs then leased the house, years after the execution of Deed of Sale,
to Deltron-Sprague Electronics Corpoation without Dolores’ permission. She tolerated it but
challenges to her ownership arise when Deltron started prohibiting Dolores’ family from
using the swimming pool. The Huangs contented that the implied trust among them was not
supported by evidence that they were the rightful owner of Lot 20 and all its improvements.
ISSUE:
Whether or not an implied trust existed between Dolores and the Huangs, and was
supported by any evidence.
RULING:
Yes. Dolores was able to prove with overwhelming evidence that she purchased Lot
20 with her own money and the spouse Huang’s evidence failed to help them establish
ownership. In the case at bar, Dolores provided the money for the purchase of Lot 20 but
the corresponding Deed of Sale and TCT were placed I the name of Ricardo Huang because
she was advised that it was prohibited by the subdivision owner the acquisition of two (2)
lots by a single individual. In effect, Ricardo became a trustee of Lot 20 and all of its
improvements for the benefit of Dolores. Article 1448 of the New Civil Code provides that
there is an implied trust when property is sold and the legal estate is granted to one party
but the price is paid by another for the purpose of having the beneficial interest of the
property. The former is the trustee, while the latter is the beneficiary.
250
BENITA SALAO, assisted by her husband, GREGORIO MARCELO; ALMARIO ALCURIZA,
ARTURO ALCURIZA, OSCAR ALCURIZA and ANITA ALCURIZA, the latter two being minors
are represented by guardian ad litem, ARTURO ALCURIZA, plaintiffs-appellants, vs.
JUAN S. SALAO, later substituted by PABLO P. SALAO, Administrator of the Intestate of
JUAN S. SALAO; now MERCEDES P. VDA. DE SALAO, ROBERTO P. SALAO, MARIA SALAO
VDA. DE SANTOS, LUCIANA P. SALAO, ISABEL SALAO DE SANTOS, and PABLO P. SALAO, as
successors-in-interest of the late JUAN S. SALAO, together with PABLO P. SALAO,
Administrator, defendants-appellants.
G.R. No. L-26699; March 16, 1976
PONENTE: Aquino, J.
FACTS:
The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit, Malabon, Rizal
begot four children named Patricio, Alejandra, Juan and Ambrosia. Manuel Salao died in
1885. His eldest son, Patricio died in 1886 survived by his only child, Valentin Salao. His
widow died on May 28, 1914. After her death, her estate was administered by her daughter
Ambrosia. It was partitioned extrajudicially in a notarized deed. The deed was signed by her
four legal heirs, namely, her three children, Alejandra, Juan and Ambrosia, and her grandson
Valentin Salao, in representation of his deceased father, Patricio. Prior to the death of
Valentina Ignacio, her two children Juan Y. Salao, Sr. and Ambrosia Salao, secured a Torrens
title in their names for a forty-seven hectare Calanuran fishpond. Juan Y. Salao, Sr. died on
November 3, 1931, at the age of eighty years old. His nephew, Valentin Salao, died on
February 9, 1933 at the age of sixty years according to the death certificate. The intestate
estate of Valentin Salao was partitioned extrajudicially between his two daughters, Benita
Salao-Marcelo and Victorina Salao-Alcuriza. His estate consisted of the two fishponds which
he had inherited in 1918 from his grandmother, Valentina Ignacio. Ambrosia Salao donated
to her grandniece, plaintiff, Benita Salao-Marcelo, three lots. It was only after Ambrosia’s
deth that she thought of filing an action for reconveyance of the Calunuran fishpond which
was allegedly held in trust and which had become the sole property of Juan Salao y
Santiago.
During the Japanese occupation and about a year before Ambrosia Salao’s death on
September 14, 1945, due to senility, she donated her one-half proindiviso share in the two
fishponds in questionto hr nephew, Juan Salao, Jr. At that time, she was living with Juan’s
family. He was already the owner of the other half of the said fishpond, having inherited it
from his father, Juan Y. Salao, Sr. The deed of donation included other pieces of real
property owned by Ambrosia.
ISSUE:
Whether or not plaintiffshave successional rights to Ambrosia’s share.
RULING:
251
No. The plaintiffs would not have any successional rights to Ambrosia’s share. The
sole legal heir of Ambrosia was her nephew, Juan Jr., her nearest relative within third
degree. Valentin Salao, if living in 1945 when Ambrosia died, would have been also her legal
heir, together with his first cousin, Juan Jr. Benita Salao, the daughter of Valentin, could not
represent him in the succession to the estate of Ambrosia since in the collateral line,
representation takes place only in favor of the children of brothers or sisters whether they
be of full or half blood is (Art. 972, Civil Code). The nephew excludes a grandniece like Benita
Salao or great-grandnephew like the plaintiffs Alcuriza.
252
SOLEDAD CAñEZO vs. CONCEPCION ROJAS+
G.R. No. 148788; November 23, 2007
FACTS:
Petitioner alleges she bought the land and only entrusted to her father for she left
and went to Mindanao. In 1948 she found out that her step mother was in possession of the
land. She filed for recovery and damages against defendant. It reached the court of appeals
where the land was awarded to the defendant because there has been a satisfaction that
the father of the petitioner was the owner.
ISSUE:
Whether or not the action of the respondent filed out of time.
RULING:
Resolution of the issue hinges on the determination of trust - express or implied - by
the petitioner and her father. Intention to create a trust cannot be inferred from the
petitioner's testimony; the petitioner only testified to the effect that her agreement with
her father was that she will be given a share in the produce of the property. Petitioner
should not have made an issue in the declaration of taxes in her father's name if there really
was trust. There was no trust that was established. Petitioner is estopped from asserting
ownership by her failure to protest in the decision of the estate of her father. Her action is
barred by laches.
253
PHILIPPINE NATIONAL BANK, Petitioner, vs. MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE
L. AZNAR (deceased), represented by his heirs; RAMON A. BARCENILLA; ROSARIO T.
BARCENILLA; JOSE B. ENAD (deceased), represented by his heirs; and RICARDO GABUYA
(deceased), represented by his heirs, Respondents
G.R. No. 171805; May 30, 2011
TOPIC: Express Trust: How established; How proven
FACTS:
This case is consolidated with G.R. No. 17021, Merelo and Matias Azna vs. PNB. In
1958, Rural Insurance and Surety Company, Inc. (RISCO) ceased operation due to business
reverses. In plaintiff’s desire to rehabilitate RISCO, they contributed a total amount of
P212,720.00. This was used to purchase 3 parcels of land in Cebu. After the purchase of the
lots, titles were issued in the name of RISCO. The amount contributed by plaintiffs
constituted as liens and encumbrances on the properties as annotated in the titles of the
said lots. Such annotation was made pursuant to the made pursuant to the Minutes of the
Special Meeting of the Board of Directors of RISCO on March 14, 1961. Thereafter, various
subsequent annotations were made on the same titiles, including the Notice of Attachment
and Writ of Execution both dated August 3, 1962 in favor of Philippine National Bank. As a
result, a Certificate of Sale was issued in favor of PNB, being the lone and highest bidder of
the 3 parcels of land. This prompted Aznar et al. to file instant case seeking the quieting of
their supposed title to the subject properties. Trial court ruled against PNB on the basis that
there was as express trust created over the subject properties whereby RISCO was the
trustee and the stockholders, Aznar, et al., were the beneficiaries. Court of Appeals opined
that the monetary contributions made by Aznar et al. to RISCO can only be characterized as
a loan secured by a lien on the subjected lots, rather than an expressed trust.
ISSUE:
Whether or not there was a trust contract between RISCO and Aznar, et al.
RULING:
No. At the outset, the Court agrees with the Court of Appeals that the agreement
contained in the Minutes of the Special Meeting of the RISCO Board of Directors held on
March 14, 1961 was a loan by the therein named stockholders to RISCO. Careful perusal of
the Minutes relied upon by plaintiffs-appellees in their contribution shall constitutes as “lien
or interest on the property.” The term lien as used in the Minutes is defined as “a discharge
on property usually for the payment of some debt or obligation. Hence, from the use of the
word “lien” in the Minutes. We find that the money contributed by plaintiffs-appellees was
in the nature of a loan, secured by their liens and interest duly annotated on the titles. The
annotation of their lien serves only as collateral and does not in any way vest ownership of
property to plaintiffs.
We are not persuaded by the contention of Aznar, et al., that the language of the
subject Minutes created an express trust. Trust is the right to the beneficial enjoyment of
254
property, the legal title to which is vested in another. It is a fiduciary relationship that obliges
the trustee to deal with the property for the benefit of the beneficiary.
Express trusts are intentionally created by the direct positive acts of the settlor or the
trustor – by some writing, deed, or will or oral declaration. It is created not necessarily by
some written words, but by the direct and positive acts of parties. The creation of an
express trust must be manifested with reasonable certainty and cannot be inferred from
loose and vague declarations or from ambiguous circumstances susceptible of other
interpretations.
At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to
RISCO. Unfortunately, the right to seek reimbursement of their contributions used to
purchase the subject properties is already barred by prescription.
255
PROSPERO RINGOR, SATURNINO RINGOR, ANDRES RINGOR, substituted by SHAKUNTALA
DEBIE, CLARO ALEJO, GERONIMA and SANDIE LOUR, all surnamed RINGOR, RAYMUNDA
RINGOR, LUISA R. RIMANDO, EMILIANA R. TIU and HEIRS OF JOSE M. RINGOR,
INC., petitioners, vs. CONCORDIA, FELIPA, EMETERIA, all surnamed RINGOR, MARCELINA
RINGOR, in behalf of her deceased father, AGAPITO RINGOR, AVELINA, CRESENCIA, and
FELIMON, all surnamed ALMASEN, in behalf of their deceased mother, ESPIRITA RINGOR,
and TEOFILO M. ABALOS, in behalf of his deceased mother, GENOVEVA
RINGOR, respondents.
G.R. No. 147863; August 13, 2004
FACTS:
The controversy involves lands in San Fabian, Pangasinan, owned by the late Jacobo
Ringor. By his first wife, Gavina Laranang, he had two children, Juan and Catalina. He did not
have offsprings by his second and third wives. Catalina predeceased her father Jacobo who
died sometime in 1935, leaving Juan his lone heir.
Juan married Gavina Marcella. They had seven (7) children, namely: Jose (the father and
predecessor-in-interest of herein petitioners), Genoveva, Felipa, Concordia, Agapito,
Emeteria and Espirita. Genoveva and Agapito are represented in this case by Teofilo Abalos
and Marcelina Ringor, their respective children. Espirita is represented by her children,
Avelina, Cresencia and Felimon Almasen.
Jacobo applied for the registration of his lands under the Torrens system. He filed three land
registration cases alone, with his son Juan, or his grandson Jose, applying jointly with him.
The first application, docketed as Expediente 241, G.L.R.O. Record No. 13152 was
applied for alone by Jacobo. On March 6, 1922, OCT No. 23689 was issued in the names of
Jacobo and Juan. With Jacobo's thumbmark, in a Compraventa dated November 6, 1928, the
one-half (½) undivided interest of Jacobo in the said Parcels 1 and 2 was sold and transferred
to Jose. The OCT was eventually cancelled and replaced by TCT No. 15918, dated November 6,
1928. The sale to Jose was registered only on February 15, 1940.
In the second application, Expediente 244, G.L.R.O. Record No. 13168, Jacobo named
Jose as the applicant. In Decree No. 65500, the five (5) parcels of land in Expediente
244 were adjudicated to Jose as a "donacion de su abuelo" (donation of his grandfather). On
April 18, 1918, OCT No. 18797 was issued exclusively to Jose. The third application docketed
as Expediente 4449, G.L.R.O. Record No. 23643, was filed in the names of Jacobo and his only
son Juan. It covered three parcels of land. Juan died on July 16, 1922, a year before the
decision of the land registration court was issued. On October 10, 1923, in Decree No. 147191,
half of Parcel 1 was adjudicated to Jacobo and the other half to Jose and later, three-fourths
(¾) of parcels 2 and 3 to Jacobo and one-fourth (¼) to Jose. Although Juan was one of the
named applicants, it later appeared that Jose's name was substituted for Juan's name
because of an erroneous information that Jose was the only successor-in-interest of Juan.
256
Thus, on February 29, 1924, OCT Nos. 25885 and 25886 were issued in the names of Jacobo
and Jose respectively.
ISSUE:
Whether or not Jacobo constituted an express trust because respondents did not
present any deed, instrument or document expressly declaring that a trust was constituted.
RULING:
Yes. Express trusts, sometimes referred to as direct trusts, are intentionally created
by the direct and positive acts of the settlor or the trustor – by some writing, deed, or will,
or oral declaration. It is created not necessarily by some written words, but by the direct and
positive acts of the parties. No particular words are required, it being sufficient that a trust
was clearly intended. Unless required by a statutory provision, such as the Statute of Frauds,
a writing is not a requisite for the creation of a trust. Such a statute providing that no
instruments concerning lands shall be "created" or declared unless by written instruments
signed by the party creating the trust, or by his attorney, is not to be construed as
precluding a creation of a trust by oral agreement, but merely as rendering such a trust
unenforceable. Contrary to the claim of petitioners, oral testimony is allowed to prove that a
trust exists. It is not error for the court to rely on parol evidence, - - i.e., the oral testimonies
of witnesses Emeteria Ringor, Julio Monsis and Teofilo Abalos - - which the appellate court
also relied on to arrive at the conclusion that an express trust exists. What is crucial is the
intention to create a trust. While oftentimes the intention is manifested by the trustor in
express or explicit language, such intention may be manifested by inference from what the
trustor has said or done, from the nature of the transaction, or from the circumstances
surrounding the creation of the purported trust.
257
THE HEIRS OF PEDRO MEDINA, represented by MARGARITA MEDINA, petitioners, vs. THE
HON. COURT OF APPEALS, * RESTITUTA ZURBITO VDA. DE MEDINA and ANDRES
NAVARRO, JR., respondents.
G.R. No. L-26107; November 27, 1981
PONENTE: Teehankee, Acting C.J.

FACTS:
The late Francisco Medina had eight children, namely, Gregorio, Sotero, Narciso,
Victorina, Simona, Carmen, Pedro and Hospicia, all of whom are deceased. Petitioner
Margarita Medina, who filed the complaint on behalf of the heirs of Pedro Medina in the
Court of First Instance of Masbate, is the daughter of Pedro Medina 1 who predeceased his
father Francisco Medina. Restituta Zurbito Vda. de Medina, herein private respondent, and
defendant in the trial court, is the widow of Sotero Medina (brother of Pedro Medina); and
Andres Navarro, Jr., her herein co-respondent and co-defendant in the trial court, is her
grandson.
On March 6, 1957, herein petitioners filed the complaint in the trial court seeking to
recover from herein respondents a parcel of land situated in the sitio of Oac, municipality of
Milagros, province of Masbate, containing an area of 321.1156 hectares and praying that
respondents be ordered to deliver to them possession and ownership thereof with
accounting, damages and costs and litigation expenses.
Among others, the complaint alleged that petitioner Margarita Medina as plaintiff
inherited with her sister Ana Medina the said parcel of land from their father Pedro Medina;
that upon their father's death, she and her sister Ana Medina being then minors were placed
under the care and custody of the spouses Sotero Medina and Restituta Zurbito, as
guardians of their persons and property; that the land in dispute was placed under the
management of Sotero Medina as administrator thereof, and upon Sotero's death under the
management of his widow, Restituta Zurbito; that she later discovered that the land in
question was surreptitiously declared for taxation purposes in the name of Andres Navarro,
Jr., grandson of Restituta Zurbito; that said respondents as defendants had without color of
title denied petitioners' ownership and instead had claimed ownership thereof since the
year 1948 and exercised acts of possession and ownership thereon to the exclusion of
petitioners; that petitioners had demanded that respondents vacate the premises and
deliver possession and ownership thereof, but the latter failed and refused to do so; that
respondent Andres Navarro, Jr. had excavated soil from the land in question and sold the
same to the Provincial Government of Masbate without the knowledge and consent of
petitioners and appropriated the proceeds thereof to his personal benefit to the damage
and prejudice of the plaintiff; and that respondent Restituta Zurbito Vda. de Medina never
rendered an accounting of the income of the property in question in spite of their repeated
258
demands and instead appropriated all the income therefrom to her personal use and
benefit.
Respondents as defendants alleged on the other hand that petitioner Margarita and
her deceased sister Ana were but illegitimate children of Pedro Medina and for that reason
did not enjoy the status of recognized natural children, such that when Pedro died intestate,
Francisco Medina, Pedro's father who was still living, succeeded to his properties; that upon
the death of Francisco, his children succeeded to his properties and the land in dispute was
adjudicated to Gregorio, Sotero, and Narciso Medina; that in a deed of extrajudicial partition
the land was later adjudicated solely to Narciso Medina; that Narciso Medina having become
sole and exclusive owner of the land in question by virtue of said partition sold the same to
Restituta and her husband Sotero Medina on June 29, 1924, as evidenced by a deed of sale;
that from that day, respondents had actually possessed the land in question in the concept
of owners, publicly, openly and continuously and adversely against the whole world so that
whatever right, interest, title or participation petitioners had or might have had in the
property had been lost by extinctive prescription and by virtue of the 33 years of exclusive
actual possession in the concept of owner of the spouses Sotero and Restituta Medina who
had thereby acquired title thereto by acquisitive prescription, even granting arguendo that
petitioners had some title, right or interest over the land.
ISSUE:
Whether or not there is the absence of the existence of an express trust.
RULING:
Yes. The legal construction most favorable to (petitioners) that can be impressed
upon the facts of the case is that a constructive or implied trust was created by operation of
law upon the property in question," but petitioners' cause of action had prescribed upon the
lapse of the ten-year period of acquisitive prescription provided by the then applicable
statute (section 41 of Act 190) for unregistered lands such as the land herein involved.
As found by the Court of Appeals, the land was sold to Sotero Medina on June 29,
1924 from which date Sotero and his wife took open, public, continuous and adverse
possession of the land in the concept of owner. In 1957 when the present action was filed,
thirty-three (33) years, much more than the 10-year statutory period for acquisitive
prescription, had already elapsed.
In addition, the appellate court further held that petitioners' action to recover was
likewise time-barred, pointing out that "the ten-year period under the statute of limitation
within which plaintiffs could file an action for recovery of real property commenced to run,
in 1933 when plaintiff Margarita Medina was informed that the land in dispute belonged to
her father Pedro Medina, for in that year she could have brought an action for
reconveyance. The period of prescription commences to run from the day the action may be
brought (Article 1150, Civil Code of the Philippines), and in an action based on fraud, as is the
basis of the present action, the period of prescription begins from the discovery of the fraud
(IV Tolentino's Civil Code of the Philippines 40, citing Anuran vs. Aquino, 38 Phil. 29 and
Solatorio vs. Solatorio, 52 Phil. 444.
259
HEIRS OF MAXIMO LABANON, represented by ALICIA LABANON CAñEDO and the
PROVINCIAL ASSESSOR of COTABATO, petitioners, vs. HEIRS OF CONSTANCIO LABANON,
represented by ALBERTO MAKILANG, respondents.
G.R. No. 160711; August 14, 2004

FACTS:
Constancio Labanon with the help of his more educated brother, cultivated and
acquired a property through a homestead patent prior the WW-II. Since Constancio do not
know the formalities necessary in the application of a homestead patent and subsequently a
certificate of title, he asked the assistance of his brother Maximo. In return, he offered to
give half of the property to Maximo.
Upon the acquisition of the homestead patent in 1941 and subsequently the OCT,
Maximo executed a document transferring his rights over the eastern property to his
brother. Upon Constacio’s death, the eastern portion was sold to Alberto Magkilang, his
son-in-law. The heirs of Maximo, however, intervened in the said sale by causing the
cancellation of the said sale. No reasons were given for refusal. Heirs of Constacio Labanon
demanded the surrender of the OCT. But heirs of Maximo Labanon refused to honor the
prior agreement of brothers Constacio and Maximo.
ISSUE:
Whether or not express trust has been established in the case.
RULING:
Yes. In the instant case, such intention to institute an express trust between Maximo
Labanon as trustee and Constancio Labanon as trustor was contained in not just one but
two written documents, the Assignment of Rights and Ownership as well as Maximo
Labanon’s April 25, 1962 Sworn Statement. In both documents, Maximo Labanon recognized
Constancio Labanon’s ownership and possession over the eastern portion of theproperty
covered by OCT No. P-14320, even as he recognized himself as the applicant for the
Homestead Patent over the land. Thus, Maximo Labanon maintained the title over the
property while acknowledging the true ownership of Constacio Labanon over the eastern
portion of the land. The existence of an express trust cannot be doubted nor disputed.
260
BENIGNA SECUYA, MIGUEL SECUYA, MARCELINO SECUYA, CORAZON SECUYA, RUFINA
SECUYA, BERNARDINO SECUYA, NATIVIDAD SECUYA, GLICERIA SECUYA and PURITA
SECUYA, petitioners, vs. GERARDA M. VDA. DE SELMA, respondent.
G.R. No. 136021; February 22, 2000
TOPIC: Express Trust: Repudiation
FACTS:
Maxima partitioned her land and sold it. Secuya eventually held possession of the
land and cultivated it. When he died, his siblings inherited it. A certain Selma came along and
bought a partition of the Maxima’s land. In Selma’s title, the land in the possession of the
Secuyas was within the boundary bought by Selma. Selma now asserts ownership over the
land and files a case of quieting of title. SC says in this case, Selma is the owner because of
the strength of title. Maxima Caballero owned a land. She partitioned the land and executed
a deed selling 1/3 of the land to Pacencia Sabellona. Pacencia took possession of the parted
1/3 portion. Dalmacio Secuya bought the land from Ramon Sabellona, the only heir of
Pacencia. Pursuan to Pacencia’s will, Ramos inherited all Pacencia’s properties. After Secuya
bought the land, Secuya took possession of the land and cultivated it. A certain Edilberto
Superales married Secuya’s niece. With Secuya’s tolerance, Superales was able to build his
house on the land and continuously lived there. Eventually, Secuya died. Being single, his
brothers and sisters ook physical possession of the land. Then, a certain Selma bought a
portion of Lot 5679. The land in the Secuyas’ possession was a portion of Lot 5679 and is
included within the boundary of what Selma acquired. Selma is now assering ownership over
the land on the strength of hid title. RTC Cebu decide in favor of Selma. CA affirmed.
ISSUE:
Whether or not there was a repudiation of the express trust.
RULING:
Yes. While no time limit is imposed for the enforcement of rights under express
trusts, prescription may, however, bar a beneficiary's action for recovery, if a repudiation of
the trust is proven by clear and convincing evidence and made known to the beneficiary.
There was a repudiation of the express trust when the heirs of Maxima Caballero failed to
deliver or transfer the property to Paciencia Sabellona, and instead sold the same to a third
person not privy to the Agreement. In the memorandum of incumbrances of TCT No.
3087 issued in the name of Maxima, there was no notation of the Agreement between her
and Paciencia. Equally important, the Agreement was not registered; thus, it could not bind
third persons. Neither was there any allegation that Silvestre Aro, who purchased the
property from Maxima's heirs, knew of it. Consequently, the subsequent sales transactions
involving the land in dispute and the titles covering it must be upheld, in the absence of
proof that the said transactions were fraudulent and irregular.
261
SPS. FELIZA DUYAN GOMEZ and EUGENIO GOMEZ, Petitioners, vs.PURISIMA DUYAN,
ROLANDO DUYAN, EMERITA DUYAN, DIGNA DUYAN, EDUARDO DUYAN, LUCRECIA DUYAN,
ROBERTO DUYAN, CRESENCIA DUYAN, RODRIGO DUYAN, REULGINA DUYAN, DOMINICIA
DUYAN, AVECENCIO DUYAN, MARIA SALOME DUYAN and DIVINA DUYAN, Respondents.
G.R. No. 144148; March 18, 2005
PONENTE: Austria-Martinez, J.
TOPIC: Express Trust: Repudiation
FACTS:
The parties in this case are relatives residing at 96 General Avenue, Project 8, Quezon
City which consists of four houses situated in an eight hundred-square meter (800 sq.m.) lot,
covered by TCT No. 41717 issued by the Register of Deeds of Quezon City in the name of
Eulogio Duyan (now deceased) married to Purisima Duyan, one of the respondents in this
case. The property in dispute which constitutes one-half of the property previously covered
by TCT No. 41717 is now covered by TCT No. 281115 issued in the name of petitioner spouses.
Eulogio Duyan and Feliza Duyan are siblings. In his desire to help his sister, Eulogio
allowed her to construct a house on the disputed lot sometime in 1968. Petitioners
acknowledged the fact that the disputed property was owned by Eulogio and that they
were staying in the disputed property solely due to his benevolence. Accordingly, an
instrument entitled Pagpapahayag was executed by the siblings on 5 May 1974. The
instrument provides that in the event that the property will be registered in Feliza’s name,
she will continue to acknowledge Eulogio as the owner and will never assert ownership over
the same, except in accordance with her brother’s wishes.
On 11 May 1974, a deed of sale covering a residential house situated on the disputed
lot was executed by Eulogio and Regina Velasquez, a common-law wife of the former, in
favor of petitioners for the sum of One Thousand Pesos (₱1,000.00). Thereafter, petitioners
allegedly asserted ownership not only over the said house but over the whole lot covered by
TCT No. 41717. This prompted Eulogio’s legal wife, Purisima, to file a complaint for recovery
of possession and damages against petitioners with the then Court of First Instance of Rizal,
Branch IV-B, Quezon City. Deciding the case in favor of Purisima, the trial court ordered
petitioners to surrender possession of the property to her. On appeal, the Court of Appeals
dismissed the case after the parties entered into an amicable settlement.
On 25 January 1978, Eulogio and Purisima this time, as vendors, executed a Deed of
Absolute Sale in favor of petitioners with respect to the disputed lot for the sum of Twenty
Thousand Pesos (₱20,000.00).
Purisima claims that the deed of sale was executed merely to give color of legality to
petitioners’ stay in the disputed property so that she and her children will not drive them
away after they (Purisima and her children) manifested their opposition to Eulogio’s decision
262
to let them stay therein. Petitioners claim otherwise, contending that the sale was freely
agreed upon by the parties thereto; hence, it was authentic and validly executed.
Subsequent to the execution of the deed of sale or on 10 February

1978, another Pagpapahayag was executed between Eulogio and Feliza, where the latter
acknowledged that the lot subject of the deed of sale will eventually be transferred to
respondents herein who are her nephews and nieces and the children of Eulogio.
Notwithstanding the second Pagpapahayag, petitioners caused the registration of the

deed of sale dated 25 January 1978 with the Register of Deeds of Quezon City. As a
consequence, TCT No. 281115 covering the disputed lot was issued on 22 September 1981 in
the name of petitioners.
On 20 May 1991, respondents filed a suit for reconveyance of real property and
cancellation of TCT No. 281115 with damages against petitioners before Branch 80 of the
Quezon City RTC.
On 5 September 1994, the trial court rendered a decision, dismissing the complaint
and ordering respondents to pay jointly and severally defendants therein, now petitioners,
the amount of Ten Thousand Pesos (₱10,000,00) as reasonable attorney’s fees and to pay
the costs of the suit.
ISSUE:
Whether or not there was a repudiation of the express trust.
RULING:
No. "Express trusts are those which the direct and positive acts of the parties create,
by some writing, deed or will, or words evincing an intention to create a trust." In this case,
the provisions of the Pagpapahayag dated 10 February 1978 left no room for doubt. It was
clearly intended therein by Eulogio and Feliza that the property subject of the sale will
subsequently be placed by the latter in the name of respondents, thus creating a trust
relationship over the property in dispute.
Even if the word "trust" was not expressly used by the signatories to the 10 February
1978 Pagpapahayag and the document did not expressly state that a trust was being
established by reason thereof, the establishment of an express trust cannot be discounted.
Under the Civil Code, "No particular words are required for the creation of an express trust,
it being sufficient that a trust is clearly intended." In a decision penned by Justice Paras, this
Court held that "…under the law on Trusts, it is not necessary that the document expressly
state and provide for the express trust, for it may even be created orally, no particular words
are required for its creation (Art. 1444, Civil Code).” The Pagpapahayag dated 10 February
1978 having been freely entered into by Eulogio and Feliza, it had the force of law between
them. It was therefore incumbent upon Feliza as trustee to comply with the provisions of
the instrument and have the subject property registered in the names of her nephews and
nieces.
263
Petitioners’ subsequent act of registering the disputed property in their own names and
resisting the action for reconveyance later filed by respondents was clearly a betrayal of the
provisions of the express trust created by the 10 February 1978 Pagpapahayag. By these
actions, petitioners not only failed to comply with the provisions of the Pagpapahayag, but
actually circumvented them.
It is worthy of note that petitioners never denied the existence, authenticity and due
execution of the 10 February 1978 Pagpapahayag as they merely objected to the purpose of
its presentation.
264
HEIRS OF MAXIMO LABANON, represented by ALICIA LABANON CAñEDO and the
PROVINCIAL ASSESSOR of COTABATO, petitioners, vs. HEIRS OF CONSTANCIO LABANON,
represented by ALBERTO MAKILANG, respondents.
G.R. No. 160711; August 14, 2004

TOPIC: Express Trust: Prescription
FACTS:
Constancio Labanon with the help of his more educated brother, cultivated and
acquired a property through a homestead patent prior the WW-II. Since Constancio do not
know the formalities necessary in the application of a homestead patent and subsequently a
certificate of title, he asked the assistance of his brother Maximo. In return, he offered to
give half of the property to Maximo.
Upon the acquisition of the homestead patent in 1941 and subsequently the OCT,
Maximo executed a document transferring his rights over the eastern property to his
brother. Upon Constacio’s death, the eastern portion was sold to Alberto Magkilang, his
son-in-law. The heirs of Maximo, however, intervened in the said sale by causing the
cancellation of the said sale. No reasons were given for refusal. Heirs of Constacio Labanon
demanded the surrender of the OCT. But heirs of Maximo Labanon refused to honor the
prior agreement of brothers Constacio and Maximo.
ISSUE:
Whether or not the Trust Agreement allegedly made by Constacio and Maximo
Labanon prescribed.
RULING:
No, the trust agreement between Maximo Labanon and Constacio Labann may still
be enforced. Unrepudiated express trusts do not prescribed. In the case at bar, Maximo
Labanon never repudiated the express trust instituted between him and Constacio Labanon.
And after Maximo Labanon’s death, the trust could no longer be renounced; thus,
repondents’ right to enforce the trust agreement can no longer be restricted nor prejudiced
by prescription.
265
MARIANO TAMAYO, petitioner, vs. AURELIO CALLEJO and the HON. COURT OF
APPEALS, respondents.
G.R. No. L-25563; July 18, 1972
PONENTE: Concepcion, C.J.

FACTS:
Spouses Vicente Tamayo and Cirila Velasco-Tamayo owned a parcel of land in the
barrio of Oalsic or Gualsic, between the municipalities of Alcala and Malasiqui, Pangasinan.
Prior to February 1, 1912, said spouses sold part of the northern portion of said land, with an
area of 22,125-1/3 square meters, to Fernando Domantay, who took possession thereof.
Sometime after this sale, but before said date, Vicente Tamayo died. His widow having
waived her rights to the remaining portion of their original property in favor of her children
Mariano Tamayo and Marcos Tamayo, these brothers were, on February 1, 1912, declared, in
Civil Case No. 136 of the Court of First Instance of Pangasinan, sole heirs of the deceased.
After appropriate proceedings, judgment was rendered, directing the registration, in
the name of Mariano Tamayo; and Marcos Tamayo, of 205,421 square meters only of the
land applied for, said applicants having acknowledged that the remaining portion thereof
belonged to the estate of Gregorio Flor Mata, deceased. Upon the issuance of the
corresponding decree thereafter, said OCT No. 2612 was, on November 15, 1915, issued in
favor of the brothers Mariano Tamayo and Marcos Tamayo. Not long after, or on August 22,
1918, Fernando Domantay sold his above mentioned land of 22,125-1/3 square meters to
Aurelio Callejo, who took possession thereof since then. Subsequently, or on May 23, 1930,
Marcos Tamayo sold his undivided share in the property covered by OCT No. 2612 to his
brother Mariano Tamayo, who, accordingly, obtained, on May 26, 1930, Transfer Certificate
of Title No. 5486 in his name, in lieu of OCT No. 2612. Then, on February 24, 1940, Mariano
Tamayo sold 70,000 square meters, more or less, on the western portion of said property, to
Proceso Estacio, upon whose request surveyor Fidel Diaz went, sometime in June 1952, to
the land covered by said TCT No. 5486, for the purpose of preparing a subdivision plan and
segregating the seven (7) hectares thus conveyed by Mariano Tamayo, but Diaz did not
accomplish his purpose, for he was not allowed by Callejo to enter the portion held by the
latter. What is more, Callejo asked Mariano Tamayo to cause to be excluded from TCT No.
5486 the land held by the former, but the latter refused to do so. Hence, on June 16, 1952,
Callejo registered his adverse claim over said land, which claim was annotated in TCT No.
5486.
Then, on June 25, 1952, Callejo filed, with the Court of First Instance of Pangasinan,
his present complaint, for reconveyance and damages, against Mariano Tamayo. The
complaint was later amended to include Marcos Tamayo as one of the defendants, he
having, meanwhile, reacquired his share in the land covered before by OCT No. 2612, and
then TCT No. 5486. Having failed to answer the amended complaint, defendant Marcos
Tamayo was declared in default, whereas defendant Mariano Tamayo filed his answer with
counterclaim. His main defense was that the land claimed by Callejo is outside the perimeter
266
of the area covered by the aforementioned certificates of title. In his amended answer,
Mariano Tamayo pleaded, also, the statute of limitations. After due trial, said court rendered
a decision dismissing the complaint, upon the ground that the land purchased by Fernando
Domantay from the parent of Mariano and Marcos Tamayo is not included in said titles. On
appeal taken by plaintiff Callejo, this decision was reversed by the Court of Appeals, which
found, as a fact, that the land claimed by him is part of the land covered by the
aforementioned certificates of title, and overruled the plea of prescription set up by Mariano
Tamayo, upon the theory that the title to said portion of land now claimed by Callejo, and,
before, by Fernando Domantay, is held in trust by the Tamayos and that the action to
enforce said trust does not prescribe. The case is now before Us on petition for review filed
by Mariano Tamayo. The petition was, at first denied by minute resolution, which was later
reconsidered and the petition given due course.
ISSUE:
Whether or not the express trust has prescribed.
RULING:
No. It should be noted, however, that although the trust created by the application
for registration filed by Mariano and Marcos Tamayo, on or about September 29, 1913, and
the inclusion in OCT No. 2612, issued in their names, on November 15, 1915, of the tract of
land previously sold by their parents to Fernando Domantay — and later conveyed by him to
Aurelio Callejo may have had a constructive or implied nature, its status was
substantially affected on June 28, 1918, by the following facts, namely: On the date last
mentioned, Fernando Domantay and petitioner Mariano Tamayo — the latter acting in his
own behalf and on that of his brother Marcos Tamayo — executed the public instrument
Exhibit I whereby Mariano Tamayo explicitly acknowledged that his deceased parents,
Vicente Tamayo and Cirila Velasco, had sold to Fernando Domantay, for the sum of P200, the
parcel of land of about 22,125-1/3 square meters, then held by the latter, and stipulating, inter
alia, that Fernando Domantay is the absolute owner of said land, free from any lien or
encumbrance thereon, and that, in view of the sale thus made by his parents, he (Mariano
Tamayo) "quedo responsible al susodicho Don Fernando Domantay, sus herederos y causa
habientes por la propiedad, cuyo titulo me comprometo a defender contra las reclamaciones
... de quienes las presentare."
This express recognition by Mariano Tamayo — on his behalf and that of his brother
Marcos Tamayo — of the previous sale, made by their parents, to Fernando Domantay had
the effect of imparting to the aforementioned trust the — nature of an express trust — it
having been created by the will of the parties, "no particular words" being "required for the
creation of an express trust, it being sufficient that a trust is clearly intended" — which
express trust is a "continuing and subsisting" trust, not subject to the statute of limitations,
at least, until repudiated, in which event the period of prescription begins to run only from
the time of the repudiation.
267
MINDANAO DEVELOPMENT AUTHORITY, now the SOUTHERN PHILIPPINES DEVELOPMENT
ADMINISTRATION, petitioner, vs. THE COURT OF APPEALS and FRANCISCO ANG
BANSING, respondents.
G.R. No. L-49087; April 5, 1982
PONENTE: Concepcion Jr., J.

FACTS:
Francisco Ang Bansing was the owner of a big tract of land with an area of about
300,000 sq.m., situated in Barrio Panacan Davao City. On February 25, 1939, Ang Bansing
sold a portion thereof, with an area of about 5 hectares to Juan Cruz Yap Chuy. After the
sale, the land of Ang Banging was surveyed and designated as Lot 664-B and was further
subdivided into five (5) lots and the portion sold to Juan Cruz Yap Chuy shortened to Juan
Cruz, was designated as Lot 664B-3. On June 15-17 and December 15, 1939, a cadastral survey
was made and Lot 664-B-3 was designated as Lot 1846-C of the Davao Cadastre. On
December 23, 1939, Juan Cruz sold Lot 1846-C to the Commonwealth of the Philippines for
the amount of P6,347.50. On that same day, Juan Cruz, as vendor, and C.B. Cam and Miguel
N. Lansona as sureties, executed a surety bond in favor of the vendee to guarantee the
vendor's absolute title over the land sold.
On that day, March 31, 1941, Ang Banging sold Lot 1846-A to Juan Cruz and TCT No.
1783 was cancelled. TCT No. 1784 was issued in the name of Juan Cruz, for Lot 1846-A and
TCT No. 1785 was issued in the name of Ang Bansing for the remaining Lots 1846-B, 1846-C,
1846-D, and 1846-E. Later, Ang Bansing sold two subdivision lots of Lot 1846-B, namely: Lot
1846-B-2-C and Lot 1846-B-1 to Vedasto Corcuera for which TCT No. 2551 and TCT No. 2552,
respectively, were issued in the name of the said Vedasto Corcuera on August 10, 1946.
Thereafter, Lot 1848-A, with an area of 9.6508 hectares, and Lots 1846-B-A and 1848- B-2-D
all subdivided portions of Lot 1846-B, were similarly conveyed to Juan Cruz for which TCT
No. 2599 and TCT No. 2600, respectively, were issued in the name of Juan Cruz on
September 26, 1946. TCT No. 2601 was issued in the name of Ang Bansing for the remainder
of the property, including the lot in question. Then, another portion of 1846-B, designated in
the subdivision plan as Lot 1848-B-2-B was sold to Juan Cruz for which TCT No. 184 was
issued in the latter's name. On November 28, 1946, after these conveyances, there remained
in the possession of Ang Bansing under TCT No. 2601, Lot 1846-C, the lot in question; Lot
1846-D; and Lot 1846-E. However, TCT No. 2601 was again partially cancelled when Ang
Bansing sold Lot 1846-D to Vedasto Corcuera.
On February 25, 1965, the President of the Philippines issued Proclamation No. 459,
transferring ownership of certain parcels of land situated in Sasa Davao City, to the
Mindanao Development Authority, now the Southern Philippines Development
Administration, subject to private rights, if any. Lot 1846-C, the disputed parcel of land, was
among the parcels of land transferred to the Mindanao Development Authority in said
proclamation.
On March 31, 1969, Atty. Hector L. Bisnar counsel for the Mindanao Development
Authority, wrote Ang Bansing requesting the latter to surrender the Owner's duplicate copy
268
of TCT No. 2601 so that Lot 1846-C could be formally transferred to his client but Ang
Bansing refused. Consequently, on April 11, 1969, the Mindanao Development Authority filed
a complaint against Francisco Ang Bansing before the Court of First Instance of Davao City,
docketed therein as Civil Case No. 6480, for the reconveyance of the title over Lot 1846-C.
ISSUE:
Whether or not the express trust has prescribed.
RULING:
No. First, no express trust had been agreed upon by Ang Bansing and Juan Cruz is
evident from the fact that Juan Cruz, the supposed beneficiary of the trust, never made any
attempt to enforce the alleged trust and require the trustee to transfer the title over Lot
1846-C in his name. Thus, the records show that the deed of sale, covering Lot 1846-C, was
executed by Ang Bansing in favor of Juan Cruz on February 25, 1939. Two years later, or on
March 31, 1941, Ang Bansing sold Lot 1846-A to the said Juan Cruz for which TCT No. 1784
was issued in the name of Juan Cruz. Subsequently thereafter, Lot 1848-A, with an area of
9.6508 hectares, and Lots 1846-A and 1848-B-2-D, all subdivided portions of Lot 1846-B, were
similarly conveyed to the said Juan Cruz for which TCT No. 2599 and TCT No. 2600,
respectively, were issued in the name of Juan Cruz on September 26, 1946. Then, another
portion of 'Lot 1¬846-B, designated in the subdivision plan as Lot 1848-B-2-13, was sold to
Juan Cruz for which TCT No. 184 was issued in his name on November 28, 1948. Despite
these numerous transfers of portions of the original 30-hectare parcel of land of Ang
Bansing to Juan Cruz and the issuance of certificates of title in the name of Juan Cruz, the
latter never sought the transfer of the title to Lot 1846-C in his name. For sure, if the parties
had agreed that Ang Bansing shall hold the property in trust for Juan Cruz until after the
former shall have obtained a certificate of title to the land, the latter would have asked for
the reconveyance of the title to him in view of the surety bond executed by him in favor of
the Commonwealth Government wherein he warrants his title over the property. The
conduct of Juan Cruz is inconsistent with a trust and may well have probative effect against
a trust.
269
ESTATE OF MARGARITA D. CABACUNGAN, represented by LUZ LAIGO-ALI, Petitioner, vs.
MARILOU LAIGO, PEDRO ROY LAIGO, STELLA BALAGOT and SPOUSES MARIO B. CAMPOS
AND JULIA S. CAMPOS, Respondents.
G.R. No. 175073; August 15, 2011
TOPIC: Resulting Trust and Constructive Trust
FACTS:
Margarita Cabacungan owned three parcels of unregistered land in Paringao and in
Baccuit, Bauang La Union. The properties were individually covered by tax declaration all in
her name. When Margarita’s son Roberto applied for non-immigrant visa to the United
States, he asked Margarita to transfer the tax declarations of the properties in his name to
support his visa application. Margarita, unknown to her other children, executed an Affiavit
of Transfer of Real Property whereby the subject properties were transferred by donation to
Roberto.
In July 1990, Roberto sold one of the property to the spouses Mario and Julia
Campos, and on 1992, the other two properties to Marilou and to Pedro without Margarta’s
knowledge. It was only in August 1995 at Roberto’s wake that Margarita came to know of
the sales told by Pedro himself. It prompted Margarita, represented by her daughter, Luz, to
institute an instant complaint for the annulment of said sales and for the recovery of
ownership and possession of the subject properties as well as for the cancellation of
Ricardo’s tax declarations on February 1996. She prayed that the subject lands be
reconveyed to her.
Both Regional Trial Court and Court of Appeals ruled against the petitioner. Hence,
this petition for review.
ISSUE:
Whether or not the rules on limitation of actions to a resulting trust is on point.
RULING:
No. The invocation of the rules on limitation of actions relative to a resulting trust is
not on point because the resulting trust relation between Margarita and Roberto had been
extinguished by the latter’s death. A trust, it is said, terminates upon the death of the
trustee, particularly where the trust is personal to him. Besides, prescription and laches, in
respect of this resulting trust relation, hardly can impair petitioner’s cause of action. On the
one hand, in accordance with Article 1144 of the Civil Code, an action for reconveyance to
enforce an implied trust in one’s favor prescribes in ten (10) years from the time the right of
action accrues, as it is based upon an obligation created by law. It sets in from the time the
trustee performs unequivocal acts of repudiation amounting to an ouster of the cestui que
trust which are made known to the latter. In this case, it was the 1992 sale of the properties
to respondents that comprised the act of repudiation which, however, was made known to
Margarita only in 1995 but nevertheless impelled her to institute the action in 1996 – still well
within the prescriptive period. Hardly can be considered as act of repudiation Roberto’s
open court declaration which he made in the 1979 adoption proceedings involving
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respondents to the effect that he owned the subject properties, nor even the fact that he in
1977 had entered into a lease contract on one of the disputed properties which contract had
been subject of a 1996 decision of the Court of Appeals. These do not suffice to constitute
unequivocal acts in repudiation of the trust.
271
TALA REALTY SERVICES CORPORATION, petitioner, vs. BANCO FILIPINO SAVINGS AND
MORTGAGE BANK, respondent.
G.R. No. 137533; November 22, 2002
PONENTE: Puno, J.
FACTS:
Petitioner Tala Realty Services Corporation ("Tala") alleges that it is the absolute
owner of nine parcels of land and their improvements located in Manila, Malabon, Marikina
City, La Union, Lucena City, Iloilo City, Davao City, Pangasinan, and Bulacan by virtue of
separate Deeds of Absolute Sale executed between Tala and the respondent Banco Filipino
Savings and Mortgage Bank (the "Bank") on August 25, 1981. The Bulacan property is the
subject matter of this case.
On that same day, August 25, 1981, Tala and the Bank entered into separate lease
contracts over the aforementioned nine properties. The contracts had the same form and
terms, except for the description of the property and the amount of the monthly rentals.
The contracts provided for twenty-year lease periods renewable for another twenty years at
the option of the Bank. The monthly rental for the Bulacan property was P9,800.00. Later
that same day, the parties revised these nine lease contracts. The terms of the lease were
shortened to eleven years’ renewable for a period of nine years "at the option of the lessee
under terms and conditions mutually agreeable to both parties." The monthly rental for the
Bulacan property remained P9,800.00.
On January 20, 1993, the Bank requested Tala to send its representative to the Bank’s
office to negotiate the renewal of the lease.
On March 4, 1993, the Bank requested Tala to furnish it some documents regarding the lease
of Tala’s properties. For several months from the time of negotiation, the Bank failed to take
action on Tala’s proposed terms for the renewal of the lease contract, prompting Tala to
write to the Bank on June 22, 1993; it billed the Bank the difference between the old monthly
rental rate of P9,800.00 it had been paying for the past ten months and the increased rate
of P31,800.00 which, according to Tala, was agreed upon by the parties during the
negotiation. Tala also informed the Bank in its June 22, 1993 letter that since it had been ten
months since the expiration of the lease contracts in August 1992 and the Bank had not
taken any definite action to renew the contracts despite being furnished copies of the same
in December 1992, Tala declared itself free to "lease, dispose, sell and/or in any way alienate
the bank branch sites subject of the lease agreement."
The Bank responded on June 29, 1993, clarifying that it was the Bank which had the option
to renew the lease and that it had communicated to Tala it was exercising its option to do
so. However, Tala failed to furnish some documents relevant to the lease the Bank had
earlier requested. The Bank needed the requested documents to help clear up (1) its sale of
the leased properties to Tala and (2) the basis of its lease negotiations with the latter, but
could not find the pertinent deeds of sale and lease contracts over some of the lease sites.
On January 15, 1985, the Central Bank closed the Bank, placed it under receivership, and took
272
possession of its records; but this Court in 1991 declared the closure null and void, and the
records were returned. However, the Bank could not find in the returned records some
deeds of sale, lease contracts, and transfer certificates of title regarding the properties Tala
leased to it.
From the time the lease contract over the Bulacan property expired in August 1992 until
March 1994, the Bank continued to occupy the subject Bulacan property. It paid Tala
monthly rentals at the old rate of P9,800.00 from September 1, 1992 until March 1994, but
refused to pay the P22,000.00 difference between the old monthly rate and the new rate of
P31,800.00. Beginning April 1994 until the filing of the instant case, however, the Bank did
not pay any rent at all. Nor did it pay the goodwill money and deposit Tala required for the
renewal of the lease.
On April 14, 1994, Tala wrote to the Bank demanding payment of the latter’s outstanding
obligations of P1,102,440.00 over the Bulacan property, consisting of unpaid rental
adjustment of P440,260.00, deposit of P127,200.00, and goodwill money of P500,000.00.
Tala also informed the Bank that at the end of the month, the month-to-month lease would
no longer be renewed, thus, it should vacate the premises by that time, otherwise,
petitioner would resort to legal action. Still, the Bank refused to pay its outstanding
obligations, prompting Tala’s lawyer to write to it on May 2, 1994 demanding the latter to
vacate the premises and to pay its outstanding obligation within five days from receipt of
the letter, otherwise a legal action would be filed against it. The petitioner wrote similar
letters for the nine other properties it leased to the Bank.
As the Bank did not comply with Tala’s demands, the latter filed complaints for ejectment
and/or unlawful detainer in the courts where the nine properties are located. The complaint
in the case at bar was filed in the Municipal Trial Court of Malolos on November 11, 1994. Tala
prayed therein that the Bank vacate the premises, and pay it P653,638.00 accrued rentals as
of September 30, 1994 and rental of P42,325.00 a month with an annual 10% escalation from
October 1994 until it vacates the premises, and to pay the costs.
Parenthetically, on August 5, 1985, while the Bank was closed, placed under receivership and
being liquidated by order of the Monetary Board, counsel for the Bank’s liquidator wrote
Tala regarding the lease contracts that have expired and others that would expire in 2001. It
appeared from some lease contracts that the Bank had paid Tala advance rentals/deposits
amounting to P13,937,300.00 which were to cover rentals accruing from the eleventh to the
twentieth year of the lease, i.e., from 1992 to 2001. Since the Bank was under liquidation at
that time and had no more need for the leased premises for that ten-year period, the
liquidator’s counsel asked Tala to apply the advance deposit to the rentals of the properties
totaling P423,550.00 a month for the period during which the Bank was closed and under
receivership.
In a letter dated October 7, 1987, Tala’s lawyer replied to the counsel of the Bank’s liquidator
that the amended 11-year lease contracts of August 25, 1981 provided for the payment of
security deposits and not advance rentals so that said payment could not be used to cover
unpaid rentals during the period that the Bank was closed and under receivership and
liquidation. According to Tala’s lawyer, the only time that said security deposits may be
applied to unpaid rents is when the rentals for the last year of the lease contracts were not
paid, but the lease contracts were still due to expire in 1992. The Bank, therefore, could not
273
apply the security deposits to the payment of rentals and thus had to pay its accrued rentals.
However, on February 21, 1990, the Bank’s liquidator wrote Tala informing the latter that it
had approved payment of accrued rents on Tala’s properties leased by the Bank, less the
security deposit of P13,937,300.00 that the Bank had earlier paid for all the properties it
leased from Tala. The letter indicated that the total rent due on all the leased properties as
of November 1989 was P19,169,625.00. Applying the security deposit of P13,937,300.00 to
this amount, the net amount due Tala for unpaid rent as of November 1989 was
P5,232,325.00. The representative of Tala, Elizabeth H. Palma, agreed to this net amount due
for unpaid rent as of November 1989 and signed in the liquidator’s letter to show conformity
to said net amount. Of the unpaid rent due as of November 1989, P509,600.00 was due with
respect to the Bulacan property for the period covering August 1985 to November 1989.
Petitioner notes that since the Bank paid only P487,500.00 advance rental/security deposits
on the Bulacan property, there was still a balance of P22,100.00 to be paid by the Bank.
ISSUE:
Whether or not an implied trust has been formed between Tala and the Bank.
RULING:
No. An implied trust could not have been formed between the Bank and Tala as this
Court has held that "where the purchase is made in violation of an existing statute and in
evasion of its express provision, no trust can result in favor of the party who is guilty of the
fraud." In Ramos v. Court of Appeals, Lydia Celestino was a Central Bank employee
disqualified from owning a lot through the People’s Homesite & Housing Corporation
(PHHC) which awarded rights to buy certain parcels of land to employees of the Central
Bank. Only those who did not own lots in Quezon City were qualified, but she already owned
a residential lot in Quezon City. To circumvent her disqualifaction, she "purchased" a lot
from the PHHC through a qualified Central Bank employee. After Celestino paid the full
purchase price of the PHHC-awarded lot and issues arose regarding the ownership of the
property, Celestino filed an action for reconveyance to enforce the resulting trust between
her and the qualified Central Bank employee based on Article 1448 of the New Civil Code.
274
NESTOR MENDIZABEL, ELIZABETH MENDIZABEL, IGNACIO MENDIZABEL, and ADELINA
VILLAMOR,Petitioners, vs. FERNANDO APAO and TEOPISTA PARIDELA-APAO, Respondents.
G.R. No. 143185; February 20, 2006
PONENTE: Carpio, J.
FACTS:
On 21 March 1955, Fernando Apao ("Fernando") purchased from spouses Alejandro
and Teofila Magbanua ("vendors") a parcel of land with an area of 61,616 square meters
("property") situated in Malangas, Zamboanga del Sur. Fernando bought the property for
P400. The vendors executed a deed of sale which stated inter alia that they could purchase
back the property within six months for P400, failing which, the sale would become
absolute. The vendors failed to repurchase the property. Fernando thus took possession of
the same.
On 1 April 1958, Fernando had the property surveyed by Engr. Ernesto Nuval together
with the piece of land adjacent to it. On 12 January 1989, respondents filed an Urgent Motion
to Declare Defendants and Hired Hands in Contempt of Court. Respondents asserted that
despite the restraining order issued by the trial court, petitioners, through their hired hands,
namely, Brañanula, Francisco Briones, and Oscar Guevarra, harvested palay, corn, and
coconuts from the property in October 1988 and on 2 December 1988.
On 13 January 1989, the trial court issued an Order citing petitioners and their hired
hands in contempt of court. Upon petitioners' Motion for Reconsideration, the trial court set
aside the order.
On 28 October 1994, petitioners filed a Motion to Offer Documentary Exhibits with
Prayer to Submit Memorandum. The trial court granted the motion in its Order dated 3
November 1994.
ISSUE:
Whether implied trust exists in this case.
RULING:
No. implied trusts are those which, without being expressed, are deducible from the
nature of the transaction as matters of intent or which are superinduced on the transaction
by operation of law as matters of equity, independently of the particular intention of the
parties. In turn, implied trusts are either resulting or constructive trusts. x x x
x x x constructive trusts are created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise contrary to intention against
one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to
property which he ought not, in equity and good conscience, to hold. (Emphasis supplied)
The records show that respondents bought the property from spouses Alejandro and Teofila
Magbanua on 21 March 1955 as evidenced by a deed of sale. Fernando testified that he was
in actual, open, peaceful, and continuous possession of the property at the time he filed his
application for a free patent and was then enjoying its fruits. These facts were corroborated
by the testimonies of BraÃ±anula and Lizardo, residents of Barangay Mabini, Malangas,
275
Zamboanga del Sur. Petitioners, however, assert that the deed of sale, "although Annex A of
respondents' complaint," should not be given weight for it was not offered in evidence.
Petitioners' assertion has no merit. All documents attached to a complaint, the due
execution and genuineness of which are not denied under oath by the defendant, must be
considered as part of the complaint without need of introducing evidence. In petitioners'
answer, there was no denial under oath of the due execution and genuineness of the deed
of sale. Thus, the deed of sale is not only incorporated into respondents' complaint, it is also
deemed admitted by petitioners. This has the effect of relieving respondents from the duty
of expressly presenting such document as evidence. The court, for the proper resolution of
the case, may and should consider without the introduction of evidence the facts admitted
by the parties.
Moreover, despite the opportunities given them by the trial court, petitioners still failed to
prove that they were the owners of the property or that they had been in possession of the
same. In fact, it was only on 21 March 1988, or after respondents had filed their complaint,
that petitioners tried to occupy the property by attempting to eject respondents' tenants.
Hence, petitioners never exercised any right of ownership over the land.
276
IGLESIA FILIPINA INDEPENDIENTE, Petitioner, vs. HEIRS of BERNARDINO
TAEZA, Respondents.
G.R. No. 179597; February 3, 2014
FACTS:
Iglesia Filipina independiente (IFI) was the owner of a parcel of land (Lot 3653)
subdivided into four. From 1973-1976, Supreme Bishop Rev. Macario Ga, sold one lot to
Bienvenido de Guzman and two lots to Bernardino Taeza.
Taeza registered the subject parcels of land and transfer certificates were issued in
his name. He then occupied a portion of the land.
In January 1990, IFI filed for annulment of sale annulment of the subject parcels of
land against Rev. Ga and the defendant Bernardino Taeza on the ground that Rev. Ga was
not authorized to sell. The RTC rendered judgment in favor of IFI. The CA reversed such
decision. It ruled that IFI being a corporation sole, validly transferred ownership over the
land in question through its Supreme Bishop, who was at the time the administrator of all
properties and the official representative of the church. It further held that the authority of
the then Supreme Bishop Rev. Ga to enter in to a contract and represent the plaintiff-
appellee cannot be assailed, as there are no provisions in its constitution and canons giving
the said authority to any other person or entity.
ISSUE:
Whether the deed of sale with mortgage is null and void or unenforceable.
RULING:
The issue boils down to the question of whether then Supreme Bishop Rev. Ga had
no authority to give such consent. It emphasized that Article IV (a) of their Canons provides
that “All real properties of the Church located or situated in such parish can be disposed of
only with the approval and conformity of the laymen’s committee, the parish priest, the
parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally with the
approval of the Supreme Bishop, as administrator of all temporalities of the Church. It is
alleged that the sale was done without the required approval mentioned in the Canons.
The trial court also found that the laymen’s committee indeed made its objection to
the sale known to the Supreme Bishop but the latter still executed the contract of sale
despite such opposition. He clearly acted beyond his powers; This case clearly falls under the
category of unenforceable contracts mentioned in Article 1403, paragraph (1) of the Civil
Code of the Philippines.
277
ALEJANDRO B. TY, petitioner, vs. SYLVIA S. TY, in her capacity as Administratrix of the
Intestate Estate of Alexander Ty, respondent.
G.R. No. 165696; April 30, 2008
TOPIC: Resulting Trust and Implied Trust
FACTS:
Alexander Ty died and was succeeded by his wife Sylvia and his daughter Krizia. A
few months after his death, a petition for the settlement of his intestate estate was filed.
Sylvia, as administratix, was ordered by the California Court to distribute his property in the
United States. In the Philippines, Sylvia submitted to the intestate Court in Quezon City an
inventory of the assets of Alexander’s estate, consisting of shares of stocks and various
properties (EDSA Property, Meridien, and Wack-Wack). She asked the court to pay
additional estate tax as assessed by the BIR.
Apparently, this action did not sit well with her father-in-law, Alejandro, who later
filed a complaint for recovery of properties with prayer for preliminary injunction and/or
temporary restraining order. In her opposition, Sylvia claimed that plaintiff Alejandro had no
actual or existing right, which entitles him to the writ of preliminary injunction, for the
reason that no express trust concerning an immovable maybe proved by parole evidence
under the law. In addition, Sylvia Ty argued that the claim is barred by laches, and more than
that, the irreparable injury will be suffered by the estate of Alexander Ty should the
injunction be issued.
ISSUE:
Whether or not there was an implied trust under Article 1448 of the Civil Code.
RULING:
No, there was no implied trust created in relation to the EDSA Property. If the person
to whom the title is conveyed is the child of the one paying the price of the sale, no trust is
implied by the law under Art. 1448, the so-called purchase money resulting trust. The said
article provides an exception: “if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it
being disputable presumed that there is a gift in favor of the child.” The court also noted
that plaintiff failed to prove that he did not intend a donation.
Regarding the Merdien Condo and Wack-Wack property, the court said that the
plaintiff failed to prove that purchase money came from him. They also said that Alexander
was capable of purchasing the property as he had been working for nine years, had a car
care business, and was actually engaged in the business dealings of several families.
278
EMILIA O'LACO and HUCO LUNA, petitioners, vs. VALENTIN CO CHO CHIT, O LAY KIA and
COURT OF APPEALS, respondents.
G.R. No. 58010; March 31, 1993.
TOPIC: How established; How proven
FACTS:
This case involves half-sisters each claiming ownership over a parcel of land. While
petitioner Emilia O'Laco asserts that she merely left the certificate of title covering the
property with private respondent O Lay Kia for safekeeping, the latter who is the former's
older sister insists that the title was in her possession because she and her husband bought
the property from their conjugal funds. To be resolved therefore is the issue of whether a
resulting trust was intended by them in the acquisition of the property. The trial court
declared that there was no trust relation of any sort between the sisters. The Court of
Appeals ruled otherwise. 2 Hence, the instant petition for review on certiorari of the decision
of the appellate court together with its resolution denying reconsideration.
It appears that on 31 May 1943, the Philippine Sugar Estate Development Company, Ltd., sold
a parcel of land, Lot No. 5, Block No. 10, Plan Psu-10038, situated at Oroquieta St., Sta. Cruz,
Manila, with the Deed of Absolute Sale naming Emilia O'Laco as vendee; thereafter, Transfer
Certificate of Title No. 66456 was issued in her name.
On 17 May 1960, private respondent-spouses Valentin Co Cho Chit and O Lay Wa

learned from the newspapers that Emilia O'Laco sold the same property to the Roman
Catholic Archbishop of Manila for P230,000.00, with assumption of the real estate mortgage
constituted thereon.
On 22 June 1960, respondent-spouses Valentin Co Cho Chit and O Lay Kia sued
petitioner-spouses Emilia O'Laco and Hugo Luna to recover the purchase price of the land
before the then Court of First Instance of Rizal, respondent-spouses asserting that
petitioner Emilia O'Laco knew that they were the real vendees of the Oroquieta property
sold in 1943 by Philippine Sugar Estate Development Company, Ltd., and that the legal title
thereto was merely placed in her name. They contend that Emilia O'Laco breached the trust
when she sold the land to the Roman Catholic Archbishop of Manila. Meanwhile, they asked
the trial court to garnish all the amounts still due and payable to petitioner-spouses arising
from the sale, which was granted on 30 June 1960. 5
Petitioner-spouses deny the existence of any form of trust relation. They aver that
Emilia O'Laco actually bought the property with her own money; that she left the Deed of
Absolute Sale and the corresponding title with respondent-spouses merely for safekeeping;
that when she asked for the return of the documents evidencing her ownership,
respondent-spouses told her that these were misplaced or lost; and, that in view of the loss,
she filed a petition for issuance of a new title, and on 18 August 1944 the then Court of First
Instance of Manila granted her petition.
279
On 20 September 1976, finding no trust relation between the parties, the trial court
dismissed the complaint together with the counterclaim. Petitioners and respondents
appealed.
On 9 April 1981, the Court of Appeals set aside the decision of the trial court thus —
". . . We set aside the decision of the lower court dated September 20, 1976 and the order of
January 5, 1977 and another one is hereby entered ordering the defendants-appellees to pay
plaintiffs-appellants jointly and severally the sum of P230,000.00 representing the value of
the property subject of the sale with assumption of mortgage to the Roman Catholic
Archbishop of Manila with legal interest from the filing of the complaint until fully paid, the
sum of P10,000.00 as attorney's fees, plus costs."
On 7 August 1981, the Court of Appeals denied reconsideration of its decision,

prompting petitioners to come to this Court for relief. Petitioners contend that the present
action should have been dismissed. They argue that the complaint fails to allege that earnest
efforts toward a compromise were exerted considering that the suit is between members of
the same family, and no trust relation exists between them. Even assuming ex argumenti
that there is such a relation, petitioners further argue, respondents are already barred by
laches.
ISSUE:
Whether or not the trust has been established.
RULING:
Yes, the trial court itself determined that "Valentin Co Cho Chit and O Lay Kia had
some money with which they could buy the property”. In fact, Valentin was the Chief
Mechanic of the Paniqui Sugar Mills, was engaged in the buy and sell business, operated a
gasoline station, and owned an auto supply store as well as a ten-door apartment in
Caloocan City. In contrast, Emilia O'Laco failed to convince the Court that she was financially
capable of purchasing the Oroquieta property. In fact, she opened a bank account only in
1946 and likewise began filing income tax returns that same year, while the property in
question was bought in 1943. Respondent-spouses even helped Emilia and her brothers in
their expenses and livelihood. Emilia could only give a vague account on how she raised the
money for the purchase of the property. Her narration of the transaction of sale abounds
with "I don't know" and "I don't remember."
280
ESPERANZA FABIAN, BENITA FABIAN and DAMASO PAPA Y FABIAN, plaintiffs-
appellants, vs.
SILBINA FABIAN, FELICIANO LANDRITO, TEODORA FABIAN and FRANCISCO DEL
MONTE, defendants-appellees.
G.R. No. L-20449; January 29, 1968
PONENTE: Castro, J.
TOPIC: Prescription; Laches
FACTS:
Before us is the appeal taken by Esperanza Fabian, Benita I Fabian and Damaso Papa
y Fabian from the decision of the Court of First Instance of Rizal which dismissed their
complaint for reconveyance, in civil case 295-R, filed against the defendant’s spouses Silbina
Fabian and Feliciano Landrito and Teodora Fabian and Francisco del Monte, upon the ground
that the latter had acquired a valid and complete title to the land in question by acquisitive
prescription.
This case traces its origin way back to January 1, 1909 when Pablo Fabian bought from the
Philippine Government lot 164 of the Friar Lands Estate in Muntinlupa, Rizal, of an area 1
hectare, 42 ares and 80 centares, for the sum of P112 payable in installments. By virtue of this
purchase, he was issued sale certificate 547. He died on August 2, 1928, survived by four
children, namely, Esperanza, Benita I, Benita II, and Silbina.
On October 5, 1928 Silbina Fabian and Teodora Fabian, niece of the deceased, executed an
affidavit. On July 18, 1960 the plaintiffs filed the present action for reconveyance against the
defendants spouses, averring that Silbina and Teodora, through fraud perpetrated in their
affidavit aforesaid, made it appear that "el finado Pablo Fabian no dejo ningun otro
heredero sino los declarantes con derecho a heredar el lote No. 164 de la hacienda de
Muntinlupa", which is a false narration of facts because Silbina knew that she is not the only
daughter and heir of the deceased Pablo Fabian, and Teodora likewise knew all along that,
as a mere niece of the deceased, she was precluded from inheriting from him in the
presence of his four surviving daughters; that by virtue of this affidavit, the said defendants
succeeded in having sale certificate 547 assigned to them and thereafter in having lot 164
covered by said certificate transferred in their names; and that by virtue also of these
assignment and transfer, the defendants succeeded fraudulently in having lot 164 registered
in their names under TCT 33203. They further allege that the land has not been transferred
to an innocent purchaser for value. A reconveyance thereof is prayed for, aside from P3,000
attorney's fees and costs.
In their answer of August 31, 1960, the defendant’s spouses claim that Pablo Fabian was not
the owner of lot 164 at the time of his death on August 2, 1928 because he had not paid in
full the amortizations on the lot; that they are the absolute owners thereof, having
purchased it from the Government for the sum of P120, and from that year having exercised
all the attributes of ownership thereof up to the present; and that the present action for
reconveyance has already prescribed. The dismissal of the complaint is prayed for.
On the basis of a partial stipulation of facts together with annexes, the lower court rendered
judgment on June 28, 1962, declaring that the defendant’s spouses had acquired a valid and
281
complete title to the property by acquisitive prescription, and accordingly dismissed the
complaint, with costs against the plaintiffs. The latter's motion for reconsideration was
thereafter denied.
Hence, the present recourse.
ISSUE:
Has title to the land vested in the appellees through the mode of acquisitive
prescription?
RULING:
Upon the undisputed facts in the case at bar, not only had laches set in when the
appellants instituted their action for, reconveyance in 1960, but as well their right to enforce
the constructive trust had already prescribed. It logically follows from the above disquisition
that acquisitive prescription has likewise operated to vest absolute title in the appellees,
pursuant to the provisions of section 41 of Act 190 that
Ten years actual adverse possession by any person claiming to be the owner for that
time of any land or interest in land, uninterruptedly continued for ten years by
occupancy, descent, grants, or otherwise, in whatever way such occupancy may have
commenced or continued, shall vest in every actual occupant or possessor of such
land a full and complete title. . . . (Emphasis ours.)
The stringent mandate of said section 41 that "the possession by the claimant or by the
person under or through whom he claims must have been actual, open, public, continuous
under a claim of title exclusive of any other right and adverse to all other claimants," was
adjudged by the lower court as having been fulfilled in the case at hand. And we agree.
Although paragraph 13 of the stipulation of facts hereinbefore adverted to does not
explicitly employ the word "adverse" to characterize the possession of the defendants from
1928 up to the filing of the complaint in 1960, the words, "defendants have been in
possession of the land since 1928 up to the present [1960] publicly and continuously under
claim of ownership; they have cultivated it, harvested and appropriated the fruits for
themselves," clearly delineate, and can have no other logical meaning than,
the adverse character of the possession exercised by the appellees over the land.
If the import of the abovequoted portion of the stipulation of facts is at all doubted, such
doubt is dispelled completely by additional cumulative facts in the record which are
uncontroverted. Thus, the appellees declared the lot for taxation purposes in their names,
and the resulting tax declaration was later concelled and two tax declarations were issued in
favor of Silbina Fabian and Teodora Fabian, respectively. They have been paying the real
estate taxes thereon from 1929 to the present. And in 1945 they subdivided the lot into two
equal parts, and two transfer certificates of title were issued separately in their names.
282
Upon the foregoing disquisition, we hold not only that the appellants' action to enforce the
constructive trust created in their favor has prescribed, but as well that a valid, full and
complete title has vested in the appellees by acquisitive prescription.
283
EMILIA O'LACO and HUCO LUNA, petitioners, vs. VALENTIN CO CHO CHIT, O LAY KIA and
COURT OF APPEALS, respondents.
G.R. No. 58010. March 31, 1993.
FACTS:
This case involves half-sisters each claiming ownership over a parcel of land. While
petitioner Emilia O'Laco asserts that she merely left the certificate of title covering the
property with private respondent O Lay Kia for safekeeping, the latter who is the former's
older sister insists that the title was in her possession because she and her husband bought
the property from their conjugal funds. To be resolved therefore is the issue of whether a
resulting trust was intended by them in the acquisition of the property. The trial court
declared that there was no trust relation of any sort between the sisters. The Court of
Appeals ruled otherwise. Hence, the instant petition for review on certiorari of the decision
of the appellate court together with its resolution denying reconsideration.
It appears that on 31 May 1943, the Philippine Sugar Estate Development Company, Ltd., sold
a parcel of land, Lot No. 5, Block No. 10, Plan Psu-10038, situated at Oroquieta St., Sta. Cruz,
Manila, with the Deed of Absolute Sale naming Emilia O'Laco as vendee; thereafter, Transfer
Certificate of Title No. 66456 was issued in her name.
On 17 May 1960, private respondent-spouses Valentin Co Cho Chit and O Lay Wa
learned from the newspapers that Emilia O'Laco sold the same property to the Roman
Catholic Archbishop of Manila for P230,000.00, with assumption of the real estate mortgage
constituted thereon.
On 22 June 1960, respondent-spouses Valentin Co Cho Chit and O Lay Kia sued
petitioner-spouses Emilia O'Laco and Hugo Luna to recover the purchase price of the land
before the then Court of First Instance of Rizal, respondent-spouses asserting that
petitioner Emilia O'Laco knew that they were the real vendees of the Oroquieta property
sold in 1943 by Philippine Sugar Estate Development Company, Ltd., and that the legal title
thereto was merely placed in her name. They contend that Emilia O'Laco breached the trust
when she sold the land to the Roman Catholic Archbishop of Manila. Meanwhile, they asked
the trial court to garnish all the amounts still due and payable to petitioner-spouses arising
from the sale, which was granted on 30 June 1960.
Petitioner-spouses deny the existence of any form of trust relation. They aver that
Emilia O'Laco actually bought the property with her own money; that she left the Deed of
Absolute Sale and the corresponding title with respondent-spouses merely for safekeeping;
that when she asked for the return of the documents evidencing her ownership,
respondent-spouses told her that these were misplaced or lost; and, that in view of the loss,
she filed a petition for issuance of a new title, and on 18 August 1944 the then Court of First
Instance of Manila granted her petition.
On 20 September 1976, finding no trust relation between the parties, the trial court
dismissed the complaint together with the counterclaim. Petitioners and respondents
appealed.
284
On 9 April 1981, the Court of Appeals set aside the decision of the trial court thus —
". . . We set aside the decision of the lower court dated September 20, 1976 and the order of
January 5, 1977 and another one is hereby entered ordering the defendants-appellees to pay
plaintiffs-appellants jointly and severally the sum of P230,000.00 representing the value of
the property subject of the sale with assumption of mortgage to the Roman Catholic
Archbishop of Manila with legal interest from the filing of the complaint until fully paid, the
sum of P10,000.00 as attorney's fees, plus costs."
On 7 August 1981, the Court of Appeals denied reconsideration of its decision,
prompting petitioners to come to this Court for relief.
Petitioners contend that the present action should have been dismissed. They argue
that the complaint fails to allege that earnest efforts toward a compromise were exerted
considering that the suit is between members of the same family, and no trust relation
exists between them. Even assuming ex argumenti that there is such a relation, petitioners
further argue, respondents are already barred by laches.
ISSUE:
Whether or not the action filed has not yet prescribed.
RULING:
A resulting trust is repudiated if the following requisites concur: (a) the trustee has
performed unequivocal acts of repudiation amounting to an ouster of the cestui qui trust;
(b) such positive acts of repudiation have been made known to the cestui qui trust; and, (c)
the evidence thereon is clear and convincing. 42
In Tale v. Court of Appeals 43 the Court categorically ruled that an action for reconveyance
based on an implied or constructive trust must perforce prescribe in ten (10) years, and not
otherwise, thereby modifying previous decisions holding that the prescriptive period was
four (4) years.
Neither the registration of the Oroquieta property in the name of petitioner Emilia
O'Laco nor the issuance of a new Torrens title in 1944 in her name in lieu of the alleged loss
of the original may be made the basis for the commencement of the prescriptive period. For,
the issuance of the Torrens title in the name of Emilia O'Laco could not be considered
adverse, much less fraudulent. Precisely, although the property was bought by respondent-
spouses, the legal title was placed in the name of Emilia O'Laco. The transfer of the Torrens
title in her name was only in consonance with the deed of sale in her favor. Consequently,
there was no cause for any alarm on the part of respondent-spouses. As late as 1959, or just
before she got married, Emilia continued to recognize the ownership of respondent-spouses
over the Oroquieta property. Thus, until that point, respondent-spouses were not aware of
any act of Emilia which would convey to them the idea that she was repudiating the
resulting trust. The second requisite is therefore absent. Hence, prescription did not begin to
run until the sale of the Oroquieta property, which was clearly an act of repudiation.
But immediately after Emilia sold the Oroquieta property which is obviously a disavowal of
the resulting trust, respondent-spouses instituted the present suit for breach of trust.
Correspondingly, laches cannot lie against them.
285
After all, so long as the trustee recognizes the trust, the beneficiary may rely upon
the recognition, and ordinarily will not be in fault for omitting to bring an action to enforce
his rights. There is no running of the prescriptive period if the trustee expressly recognizes
the resulting trust. 45 Since the complaint for breach of trust was filed by respondent-
spouses two (2) months after acquiring knowledge of the sale, the action therefore has not
yet prescribed.
286
DELFINA Vda. de RIGONAN and Spouses VALERIO LAUDE and VISMINDA
LAUDE, Petitioners, vs. ZOROASTER DERECHO Representing the Heirs of RUBEN DERECHO,
ABEL DERECHO, HILARION DERECHO, NUNELA D. PASAOL, EFRAIM DERECHO, NOEL
DERECHO, CORAZON D. OCARIZA Representing the Heirs of Marcial Derecho, LANDILINO
D. PRIETO Representing the Heirs of Pilar D. Prieto, JUSTA D. BUENO, ADA D. MAPA,
EMMANUEL DERECHO, POMPOSO DERECHO Representing the Heirs of Apolinar Derecho,
VICENTE D. RIGONAN, RUFA D. JAYME Representing the Heirs of Gerardo Derecho,
MARDONIO D. HERMOSILLA Representing the Heirs of Oliva D. Hermosilla, Respondents.
G.R. No. 159571; July 15, 2005
FACTS:
The instant controversy revolves around a parcel of land located at Tuburan Sur,
Danao City, originally owned by Hilarion Derecho. When Hilarion died long before World War
II, his eight children became pro indiviso co-owners of the subject property by intestate
succession. Subsequently, Tax Declaration No. 00267 was issued under the name "Heirs of
Hilarion."
On July 16, 1921, five of the co-owners sold the inherited property to Francisco
Lacambra, subject to a five-year redemption clause. Notably, the three other Derecho were
not parties to the pacto de retro sale.
More than five decades passed without any controversy. On April 24, 1980, Leandro
Rigonan executed the assailed Affidavit of Adjudication in favor of his son, Teodoro Rigonan
(the deceased husband of Petitioner Delfina vda. de Rigonan). Under this instrument,
Leandro declared himself to be the sole heir of Hilarion, while Teodoro obtained the
cancellation of Tax Declaration No. 00267, and acquired Tax Declaration No. 00667 in his
own name.
During the same year, Teodoro mortgaged the subject property to the Rural Bank of
Compostela of Cebu. Dreading foreclosure, he settled his obligations with the bank by
securing the aid of Spouses Valerio and Visminda Laude. On April 5, 1984, Teodoro executed
the assailed Deed of Absolute Sale of Unregistered Land in favor of Valerio Laude, who then
obtained Tax Declaration No. 00726 under the latter’s name on May 10, 1984.
On November 10, 1993, respondents -- as the alleged heirs of Hilarion and pro
indiviso owners of the subject realty -- brought an action before the Regional Trial Court
(RTC) of Danao City (Branch 25), first, to recover the property; and, second, to annul the
Deed of Sale in favor of Laude and the Affidavit of Adjudication, whose validity and
authenticity they assailed on the ground of fraud. They likewise maintained that the subject
property had not been partitioned among the heirs; thus, it was still co-owned at the time it
was conveyed to Petitioner Laude.
Petitioners did not deny the imputed fraud in the execution of the Affidavit of
Adjudication. They, however, averred that the document had no bearing on their claim of
ownership, which had long pertained to the Rigonan spouses following the 1928 conveyance
from the absolute owner, Lacambra. They theorized that the co-ownership over the
287
property ended when the period for redemption lapsed without any action on the part of
the co-owners. Therefore, the Rigonan spouses bought the property as legitimate vendees
for value and in good faith, not in the capacity of redeeming co-owners.
Petitioners likewise argued that they and their predecessors-in-interest had
continuously owned and possessed the subject property for 72 years. Accordingly,
acquisitive prescription had allegedly set in, in their favor, when the case was filed in 1993.
Lastly, petitioners maintained that they were entitled to the equitable defense of
laches. Respondents and their forebears were rebuked for not asserting their rights over the
property for the past 72 years. They supposedly did so only after finding that the land had
been developed, and that it had appreciated in value.
ISSUE:
Whether or not the respondents can no longer recover the property despite the
nullity of the assailed contracts and would laches bar respondents from belatedly asserting
their claim.
RULING:
In the present case, we hold that respondents can no longer recover the property
despite the nullity of the assailed contracts, because they have lost their ownership by
reason of prescription. Possession of the property by petitioners commenced way back in
1928, when the prescriptive periods applicable were those provided in Act 190 (Code of Civil
Procedure). Their argument finds basis in Article 1116 of the new Civil Code, which states that
"prescription already running before the effectivity of this Code shall be governed by laws
previously in force x x x."
Under Section 40 of the Code of Civil Procedure, an action for recovery of real
property, or of an interest therein, can be brought only within ten years after the cause of
action accrues.
The cause of action of respondents accrued in 1928, when they lost possession of the
property to the forebears of petitioners. These predecessors-in-interest took possession
from 1928 until 1980 when Laude, their successor-in-interest, continued possession up to the
present. During this entire time, respondents inexcusably failed to take action to recover the
property. In 1993, they finally rose from their seeming slumber when they filed the present
suit. Unfortunately, 65 years had already lapsed and, by that time, their right of action had
clearly been barred by extinctive prescription.
Assuming arguendo that the action does not prescribe, laches would still bar
respondents from belatedly asserting their claim. The defense of laches, which is a question
of inequity in permitting a claim to be enforced, applies independently of prescription, which
is a question of time. Prescription is statutory; laches is equitable.
288
ERLINDA PILAPIL, HEIRS OF DONATA ORTIZ BRIONES, namely: ESTELA, ERIBERTO AND
VIRGILIO SANTOS, ANA SANTOS CULTURA, ELVIRA SANTOS INOCENTES, ERNESTO
MENDOZA, RIZALINA SANTOS, ADOLFO MENDOZA and PACITA MENDOZA, Petitioners,
vs. HEIRS OF MAXIMINO R. BRIONES, namely: SILVERIO S. BRIONES, PETRA BRIONES,
BONIFACIO CABAHUG, JR., ANITA TRASMONTE, CIRILITA FORTUNA, CRESENCIA BRIONES,
FUGURACION MEDALLE and MERCEDES LAGBAS, Respondents.
G.R. No. 150175; March 10, 2006
FACTS:
Petitioners are the heirs of the late Donata Ortiz-Briones. Respondents are the heirs
of the late Maximino Briones. Maximino was married to Donata but their union did not
produce any children. In 1952, Maximino died, Donata instituted intestate proceedings to
settle her husband’s estate with the CFI Cebu City. CFI issued a Letters of Administration in
favor of Donata who submitted an inventory of Maximino’s properties included the disputed
land. In same year 1952, CFI issued order awarding ownership to Donata. In 1960, such order
was recorded in Register of Deeds and by virtue thereof, a new TCT was issued in her name.
In 1977, Donata died. Her niece, Erlinda, one of the Petitioners, instituted with the RTC a
Petiton for Administration of the Intestate Estate of Donata. RTC appointed her and her
husband Gregorio as Administrators of Donatoa’s estate. In 1985, Silverio, Maximino’s
nephew, one of the Respondents, filed with the RTC for Letters of Administration for the
Intestate Estate of Maximino which initially granted ordering him to collect rentals from
Maximino’s properties. But Gregorio filed a motion to set aside the Order claiming that said
properties were already under his and his wife’s administration as part of intestate estate of
Donata. Hence, Silverio’s Letters of Administration was subsequently set aside. In 1987,
Respondents filed a complaint with RTC against Petitioners for Annulment/Recovery of
possession of real property. In 1992, Respondents amended their complaint alleging that
Donata, as Administrarix of Maximino’s Estate, through fraud and misrepresentation, in
breach of trust, and without the knowledge of the other heirs, succeeded in registering in
her name the real properties belonging to the Intestate Estate of Maximino. RTC favored
Respondents and Ordered Petitioners to reconvey subject properties and render Accounting
to the former. Petitioners appealed to CA but the CA affirmed the RTC, hence, they
petitioned to SC.
ISSUE:
Whether Respondents have rightful claim to recover their share from Maximino’s
Estate based on the alleged misrepresentation of Donata that eventually resulted to her
being registered the disputed estate properties?
RULING:
No. Because Respondent’s cause of action had already been prescribed.
289
Assuming that Donata had employed misrepresentations that constitute fraud on her
part that resulted to her successful registration of the estate properties under her name,
such act would necessarily result to an imposition of an implied trust upon her provided
under Art. 1456 of the Civil Code.
There are two kinds of implied trusts. One is the resulting trust and the other one is
the constructive trust. Both are created by operation of law. But the latter is not created by
any words, either expressly or impliedly, evidencing a direct intention to create a trust, but
only by construction of equity in order to satisfy the demands of justice, as
contradistinguished from the former which is always presumed to have been contemplated
by the parties and their intention thereto is traceable in their transaction but not however
expressed in any deed or instrument of conveyance and may be proven by parole evidence
as opposed to that of expressed trust (a trust relation created by express of intention of the
parties thereto).
The rule that an action to compel a trustee to convey property registered in his name
in trust for the benefit of the cestui que trust does not prescribe, only applies to express
trust. Basis: the possession of the trustee is not adverse. It may also apply to resulting trust
so long as the trustee has not repudiated the trust. But with respect to constructive trust,
the rule is different, prescriptibility applies.
While Respondent’s right to inheritance was transferred or vested upon them at the
time of Maximino’s death, their enforcement of said right by appropriate legal action may be
barred by prescription of action.
Art. 1144 of the Civil Code provides that actions must be brought within ten (10) years
from the time the right of action accrues:
 Upon written contract;
 Upon an obligation created by law;
 Upon a judgment.
Since implied trust is an obligation created by law (Art. 1456 CC), then, Respondents had ten
(10) years within which to bring an action for reconveyance of their shares in Maximino’s
estate.
290
AZNAR BROTHERS REALTY COMPANY, Petitioner, v. LAURENCIO AYING, IN HIS OWN
BEHALF AND IN BEHALF OF THE OTHER HEIRS OF EMILIANO AYING, PAULINO AYING, IN
HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF SIMEON AYING, AND
WENCESLAO SUMALINOG, IN HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF
ROBERTA AYING, Respondents.
G.R. NO. 144773; May 16, 2005
PONENTE: Austria-Martinez, J.
FACTS:
Crisanta Maloloy-on petitioned for the issuance of a cadastral decree in her favor
over Lot No. 4399 located in Lapu-Lapu City. Crisanta died, so the Cadastral court issued a
decision directing the issuance of a decree of title in the name of her 8 children, namely:
Juan, Celedonio,Emiliano, Francisco, Simeon, Bernabe, Roberta and Fausta, all surnamed
Aying. However, the certificate was lost during the war.
All the heirs of the Aying siblings executed an Extra-Judicial Partition of Real Estate with
Deed of Absolute Sale conveying the lot in issue to the Aznar Brothers Realty Company. The
deed was registered with the ROD of Lapu-Lapu City on March 6, 1994 under Act. No. 3344
(the law governing registration of unregistered land) and since then, the realty company
religiously paid the real property taxes on the property. Later, Aznar Brothers Realty
Company filed a Petition for Reconstitution of the Original Title since the original title of the
lot was lost during the war. This was granted by the court and the ROD of Lapu-Lapu was
directed to issue a reconstituted title in the name of the Aying Siblings. Thus, OCT No. RO-
2856 was issued.
The Aznar Brothers Realty Company then sent out notices to vacate the lot to the persons
occupying the property, reasoning that they were the rightful owner. The occupants refused
to vacate, hence an ejectment case was filed against them before the MTC. The MTC
ordered the occupants to vacate. Eventually, this case reached the Supreme Court and a
decision was rendered in favor of the realty company declaring them as the rightful
possessor of the land.
Meanwhile, persons claiming to be the descendants of the eight Aying siblings, numbering
around 220 persons submitted an amended complaint before the RTC and alleged that they
are co-owners of the land being the descendants of the registered owners under OCT No.
RO-2856; that they had been in actual, peaceful, physical, open, adverse, continuous and
uninterrupted possession in concept of owner of subject parcel of land since time
immemorial; and that the deed of absolute sale executed in favor of the realty company by
the alleged heirsof Crisanta Maloloy-on is a fraud and is null and void ab initio because not all
the co-owners of subject property affixed their signature on said document and some of the
co-owners who supposedly signed said document had been dead at the time of the
execution thereof; that Aznar Brothers Realty Company held the land in bad faith, knowing
291
fully well that it did nothave any right to the land and used force, threat and intimidation
against them thus, suffering moral damages.
Aznar Brothers Realty Company denied that the Ayings are the lawful owners of the land
and alleged it had been in actual possession of subject land as owner thereof by virtue of the
extra-judicial partition of real property and deed of absolute sale executed in its favor; that
in fact, it had been paying taxes thereon religiously. The realty company further alleged that
they are barred by prescription to file an action for recovery of property which should be
instituted within 4 years from discovery of the fraud. It took the Aying heirs 27 years to file
their action against the realty company.
ISSUE:
Whether or not the realty company’s defense, that they acquired the entire parcel of
land with the mistaken belief that all the heirs have executed the document, entitle them to
ownership over the land by prescription.
RULING:
No, Aznar Brothers Realty Company cannot be entitled ownership over the land
based on mistaken belief. The law provides that if property is acquired through mistake or
fraud, the person obtaining it is considered a trustee of an implied trust for the benefit of
the person from whom the property comes. Based on this rule, a trustee cannot acquire by
prescription ownership over property entrusted to him until and unless he repudiates the
trust. However, in constructive implied trusts, prescription may supervene even if the
trustee does not repudiate the relationship. Necessarily, repudiation of said trust is not a
condition precedent to the running of the prescriptive period.
292
293

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Table of Contents

PONENTE: Reyes, R.T., J.

PONENTE: Villarama, JR., J.

PONENTE: Del Castillo, J.

PONENTE: Del Castillo, J.

PONENTE: Leonardo-De Castro, J.

Respondent subsequently filed a Motion for Judgment on the ground of petitioner’s

Nonetheless, the application of the doctrine of in pari delicto is not always

More importantly, it was a defiance of the constitutional provision guaranteeing to

PONENTE: DEL CASTILLO, J.

On September 3, 2003, petitioner, through its Special Audit Department Head

PONENTE: Justice Carpio-Morales

Whether or not the said period stipulated in the contract is valid?

On September 30, 1994, Mario, petitioners' predecessor-in-interest, filed an

PONENTE: PERLAS-BERNABE, J.:

PONENTE: YNARES-SANTIAGO, J.:

PONENTE: QUISUMBING, J.:

PONENTE: CONCEPCION, C.J.

PONENTE: CALLEJO, SR., J.:

PONENTE: PUNO, C.J.

Whether or not Feliciano has the capacity to execute the donation.

PONENTE: DE LEON, JR., J.

PONENTE: Hermosisima, Jr., J.:

Petitioner Dumez Company of France ("Dumez") is a French corporation which hires

On 23 January 1985, private respondent commenced working at Medical City, Riyadh,

Was there a breach of contract that would amount to illegal dismissal?

The evidence of both parties corroborate petitioner's claim. The employment

PONENTE: Leonardo-De Castro, J.

Whether or not there was Fraud or Deceit.

CATINDIG VS. VDA. DE MENESES

PONENTE: Velasco, Jr., J.

Whether or not the contract has a valid Object/ Subject Matter.

PONENTE: Velasco, Jr., J.

PONENTE: Villarama, Jr., J.

Res judicata (meaning, a “matter adjudged”) is a fundamental principle of law which

Petitioners filed a complaint for annulment and revocation of an Affidavit of Self-

FIRST ISSUE: No.

It would be more practical, as Portugal teaches, to dispense with a separate special

SECOND ISSUE: Yes.

PONENTE: Reyes, J.B.L.,

WON said contract must be in writing to be valid and enforceable.

No. The aforementioned contract needs not to be in writing.

Whether or not the deed of sale is valid

On 9 November 1996, Jesus Cabahug executed two documents denominated as

PONENTE: Callejo, Jr., J.

Cheng made a downpayment of P50,000.00 and executed a promissory note,

PONENTE: Hermosisima, Jr., J.

Hence, the petition was denied.

Africa Valdez de Reynoso leased a parcel of land to Raoul S. Bonnevie and

Whether the deed of donation to Florante Baylon is subject for rescission.

1. those which are rescissible because of lesion or prejudice;

PONENTE: CALLEJO, SR., J.

PONENTE: VELASCO, JR. ,J.

PONENTE: VELASCO, JR. J.

TOPIC: Void or inexistent contract

PONENTE: PERLAS- BERNABE, J.

PONENTE: VILLARAMA, JR., J.

TEJA MARKETING VS. INTERMEDIATE APPELLATE COURT