LAW ON OBLIGATIONS AND CONTRACTS

St. Rose College Educational Foundation Inc.

College of Business and Accountancy
Samput, Paniqui, Tarlac

CASE DIGEST

Submittted by:
Lacsamana, Joules N.

Ms. Sapiehia Salonika T. Sapin

Instructor

LACSAMANA, Joules N. | BSA 2

College of Business and Accountancy
 LAW ON OBLIGATIONS AND CONTRACTS

Leonardo V. CA, G.R. No. 125485, September 13, 2004

FACTS:
Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina Paul and Balbino
Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, as well as the late Eduvigis and Dominador, all
surnamed Sebastian, are the illegitimate children of Tomasina with Jose Sebastian. In an action to declare the nullity of
the extrajudicial settlement of the estate of Tomasina Paul and Jose Sebastian before Branch 57, RTC of San Carlos City,
Pangasinan. Corazon Sebastian and her niece Julieta Sebastian, and a certain Bitang, came to petitioner’s house to
persuade her to sign a deed of extrajudicial partition of the estate of Tomasina Paul and Jose Sebastian. Before signing the
document, petitioner allegedly insisted that they wait for her husband Jose Ramos so he could translate the document
which was written in English. Petitioner, however, proceeded to sign the document even without her husband and without
reading the document. Private respondent Corazon and her companions had left without leaving a copy of the document.

Petitioner also claimed that her consent was vitiated because she was deceived into signing the extrajudicial
settlement. Private respondents, in their answer with counterclaim, raised the defense of lack of cause of action. They
insisted that the document in question was valid and binding between the parties. Petitioner’s act of signing the document
estopped her to deny or question its validity. They moreover averred that the action filed by petitioner was incompatible
with her complaint.

ISSUE:
The sole issue in this case is whether the consent given by petitioner to the extrajudicial settlement of estate was
given voluntarily.

RULING:
An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity of one of the
contracting parties, or by mistake, violence, intimidation, undue influence or fraud. By its very nature, annulment
contemplates a contract which is voidable, that is, valid until annulled. Such contract is binding on all the contracting
parties until annulled and set aside by a court of law. It may be ratified. An action for annulment of contract has a four-
year prescriptive period. On the other hand, an action for declaration of nullity of contract presupposes a void contract or
one where all of the requisites prescribed by law for contracts are present but the cause, object or purpose is contrary to
law, morals, good customs, public order or public policy, prohibited by law or declared by law to be void. Such contract
as a rule produces no legal and binding effect even if it is not set aside by direct legal action. Neither may it be ratified. An
action for the declaration of nullity of contract is imprescriptible.

The petitioner’s pleading was for the declaration of nullity of the extrajudicial settlement of estate. However, this
did not necessarily mean the automatic dismissal of the case on the ground of lack of cause of action. Granting that the
action filed by petitioner was incompatible with her allegations, it is not the caption of the pleading but the allegations that
determine the nature of the action. The court should grant the relief warranted by the allegations and the proof even if no
such relief is prayed for. In this case, the allegations in the pleading and the evidence adduced point to no other remedy
but to annul the extrajudicial settlement of estate because of vitiated consent. WHEREFORE, the decision of the Court of
Appeals dated 23 May 1996 is hereby REVERSED. The extrajudicial settlement of the estate of Tomasina Paul and Jose
Sebastian is hereby ANNULLED and SET ASIDE. No cost.

LACSAMANA, Joules N. | BSA 2

College of Business and Accountancy
 LAW ON OBLIGATIONS AND CONTRACTS

Samson V. CA, G.R. N. 108245, November 25, 1994

FACTS:
The subject matter of this case is a commercial unit at the Madrigal Building, located at Claro M. Recto Avenue,
Sta. Cruz, Manila. The building is owned by Susana Realty Corporation and the subject premises was leased to private
respondent Angel Santos. The lessee's haberdashery store, Santos & Sons, Inc., occupied the premises for almost twenty
(20) years on a yearly basis. On June 28, 1984, the lessor Susana Realty Corporation, through its representative Mr. Jes
Gal R. Sarmiento, Jr., informed respondents that the lease contract which was to expire on July 31, 1984 would not be
renewed. Nonetheless, private respondent's lease contract was extended until December 31, 1984.5 Private respondent
also continued to occupy the leased premises beyond the extended term. On February 5, 1985, private respondent received
a letter6 from the lessor, through its Real Estate Accountant Jane F. Bartolome, informing him of the increase in rentals,
retroactive to January 1985, pending renewal of his contract until the arrival of Ms. Ma. Rosa Madrigal.

Four days later or on February 9, 1985, petitioner Manolo Samson saw private respondent in the latter's house and offered
to buy the store of Santos & Sons and his right to lease the subject premises.7 Petitioner was advised to return after a
week. On February 15, 1985, petitioner returned to private respondent's house to confirm his offer. On said occasion,
private respondent presented petitioner with a letter containing his counter proposal. Petitioner affixed his signature on the
letter-proposal signifying his acceptance.8 They agreed that the consideration for the sale of the store and leasehold right
of Santos & Sons, Inc. shall be P300,000.00. On February 20, 1985, petitioner paid P150,000.00 to private respondent
representing the value of existing improvements in the Santos & Sons store. The parties agreed that the balance of
P150,000.00 shall be paid upon the formal renewal of the lease contract between private respondent and Susana Realty.

ISSUE:
The pivotal issue in the case at bench is whether or not private respondent Angel Santos committed fraud or bad
faith in representing to petitioner that his contract of lease over the subject premises has been impliedly renewed by
Susana Realty.

RULING:
In sum, we hold that under the facts proved, private respondent cannot be held guilty of fraud or bad faith when
he entered into the subject contract with petitioner. Causal fraud or bad faith on the part of one of the contracting parties
which allegedly induced the other to enter into a contract must be proved by clear and convincing evidence. This
petitioner failed to do.

IN VIEW WHEREOF, the appealed decision is hereby AFFIRMED in toto. Costs against petitioner.

LACSAMANA, Joules N. | BSA 2

College of Business and Accountancy
 LAW ON OBLIGATIONS AND CONTRACTS

The Manila Banking Corporation V. Edmundo Silverio, GR. No. 132887, August 11, 2005

FACTS:
Purificacion Ver was the registered owner of two parcels of land located at La Huerta, Parañaque City,
Purificacion Ver sold the properties to Ricardo C. Silverio, Sr. for ₱1,036,475.00.4 The absolute deed of sale evidencing
the transaction was not registered; hence, title remained with the seller, Purificacion Ver. On 22 February 1990, herein
petitioner, The Manila Banking Corporation (TMBC), filed a complaint with the RTC of Makati City for the collection of
a sum of money with application for the issuance of a writ of preliminary attachment against Ricardo, Sr.

Decision in favor of TMBC and against Ricardo, Sr. and the Delta Motors Corporation. The Decision was brought up to
the Court of Appeals for review.
In the meantime, on 22 July 1993, herein private respondent, Edmundo S. Silverio (Edmundo), the nephew of
judgment debtor Ricardo, Sr., requested TMBC to have the annotations on the subject properties cancelled as the
properties were no longer owned by Ricardo, Sr.10 This letter was referred to the Bangko Sentral Ng Pilipinas, TMBC’s
statutory receiver.11 No steps were taken to have the annotations cancelled. Thus, on 17 December 1993, Edmundo filed
in the RTC of Makati City a case for "Cancellation of Notice of Levy on Attachment and Writ of Attachment. In his
petition, Edmundo alleged that as early as 11 September 1989, the properties, subject matter of the case, were already sold
to him by Ricardo, Sr. As such, these properties could not be levied upon on 02 July 1990 to answer for the debt of
Ricardo, Sr. who was no longer the owner thereof. In its Answer with Compulsory Counterclaim, TMBC alleged, among
other things, that the sale in favor of Edmundo was void, therefore, the properties levied upon were still owned by
Ricardo, Sr., the debtor in Civil Case No. 90-513.

ISSUE:
Whether the contract is simulated or real is factual in nature, and the Court eschews factual examination in a
petition for review under Rule 45 of the Rules of Court. This rule, however, is not without exceptions, one of which is
when there exists a conflict between the factual findings of the trial court and of the appellate court, as in the case at bar.

RULING:
Absolute simulation implies that there is no existing contract, no real act executed; while fraudulent alienation
means that there is a true and existing transfer or contract. The former can be attacked by any creditor, including one
subsequent to the contract; while the latter can be assailed only by the creditors before the alienation. In absolute
simulation, the insolvency of the debtor making the simulated transfer is not a prerequisite to the nullity of the contract;
while in fraudulent alienation, the action to rescind, or accion pauliana, requires that the creditor cannot recover in any
other manner what is due him. Finally, the action to declare a contract absolutely simulated does not prescribe (articles
1409 and 1410); while the accion pauliana to rescind a fraudulent alienation prescribes in four years (article 1389).

IN SUM, considering that an absolutely simulated contract is not a recognized mode of acquiring ownership, the
levy of the subject properties on 02 July 1990 pursuant to a writ of preliminary attachment duly issued by the RTC in
favor of TMBC and against its debtor, Ricardo, Sr., was validly made as the properties were invariably his. Consequently,
Edmundo, who has no legal interest in these properties, cannot cause the cancellation of the annotation of such lien for the
reasons stated in his petition.

LACSAMANA, Joules N. | BSA 2

College of Business and Accountancy
 LAW ON OBLIGATIONS AND CONTRACTS

Domingo Realty, Inc. V. Antonio M. Acero, Gr. No. 126236 January 26, 2007

FACTS:

Petitioner Domingo Realty filed its complaint with the Pasay City RTC against Antonio M. Acero, who
conducted business under the firm name A.M. Acero Trading, David Victorio, John Doe, and Peter Doe, for recovery of
possession of three (3) parcels of land located in Cupang, Muntinlupa, Metro Manila. Defendants Acero and Victorio filed
their Answer to the Complaint, Acero alleged that he merely leased the land from his co-defendant David Victorio, who,
in turn, claimed to own the property on which the hollow blocks factory of Acero stood. On December 3, 1987, Mariano
Yu representing Domingo Realty, Luis Recato Dy, and Antonio M. Acero, all assisted by counsels, executed a
Compromise Agreement. Acting on the Compromise Agreement, the Pasay City RTC rendered the December 7, 1987
Decision which adopted the aforequoted six (6) stipulations and approved the Compromise Agreement. To implement the
said Decision, Domingo Realty filed its motion asking the trial court for permission to conduct a re-survey of the subject
properties, which was granted. Respondent Acero filed his Motion to Nullify the Compromise Agreement, claiming that
the Order authorizing the survey plan of petitioner Domingo Realty as the basis of a resurvey would violate the
Compromise Agreement since the whole area he occupied would be adjudged as owned by the realty firm.

The said motion was opposed by Acero claiming that "this case has already been terminated in accordance with
the compromise agreement of the parties, hence, substitution will no longer be necessary and justified under the
circumstances." The motion was not resolved which explains why both transferor Domingo Realty and transferee Ayala
Steel are co-petitioners in the instant petition. The trial court directed Acero to conduct his own re-survey of the lots based
on the technical description appearing in the TCTs of Domingo Realty and to have the re-survey plans approved by the
Bureau of Lands. The Order resulted from Acero’s contention that he occupied only 2,000 square meters of petitioners’
property Respondent’s Motion for Reconsideration of the Order was denied in the Order of the Pasay City RTC. In the
petition, respondent sought to nullify and set aside the RTC Orders dated December 6, 1991, January 15, 1992, October 6,
1992, January 12, 1994, and February 1, 1994, all of which pertain to the execution of the December 7, 1987 Decision on
the Compromise Agreement. Significantly, respondent did not seek the annulment of said judgment but merely reiterated
the issue that under the Compromise Agreement, he would only be vacating a portion of the property he was occupying.

ISSUE:
The respondent Court of Appeals erred in nullifying and setting aside the judgment on Compromise Agreement
and the Compromise Agreement itself as well as the subsequent Orders of the Court of quo [sic] though in the Petition for
Certiorari and Mandamus before respondent Court of Appeals, private respondent argued that judgment on Compromise
Agreement is final, executory, immutable and unalterable.

RULING:
Petitioners assail the ruling of the appellate court that David Victorio who is claimed to be the lessor of Acero,
and who is impleaded as a defendant in Civil Case No. 9581-P, was not made a party to the Compromise Agreement and
hence, he may later "assail the compromise agreement as not binding upon him, thereby giving rise to another suit." We
find merit in petitioners’ position. The CA was unable to cite a law or jurisprudence that supports the annulment of a
compromise agreement if one of the parties in a case is not included in the settlement. The only legal effect of the non-
inclusion of a party in a compromise agreement is that said party cannot be bound by the terms of the agreement. The
Compromise Agreement shall however be "valid and binding as to the parties who signed thereto." The issue of
ownership between petitioners and David Victorio can be threshed out by the trial court in Civil Case No. 9581-P. The
proper thing to do is to remand the case for continuation of the proceedings between petitioners and defendant David
Victorio but not to annul the partial judgment between petitioners and respondent Acero which has been pending
execution for 20 years.

LACSAMANA, Joules N. | BSA 2

College of Business and Accountancy
 LAW ON OBLIGATIONS AND CONTRACTS

Elias L. Penaco V. Zoilo H. Ruaya And Felicitas E. Ruaya GR. No. L-28102 December 14, 1981

FACTS:
On January 14, 1957, the defendants, spouses Zoilo H. Ruaya and Felicitas E. Ruaya, executed a document
donominated: "PACTO DE RETRO SALE OF RESIDENTIAL BUILDING WITH GUARANTY TO RELINQUISH
RIGHTS AS PUBLIC LAND APPLICANT ON THE LOT ON WHICH CONSTRUCTED," the terms and conditions of
which are as follows:

That we, ZOILO H. RUAYA and FELICITAS E. RUAYA, husband and wife, both 41 years old, Filipinos and
residents of the City of Ozamis for and in consideration of the sum of One Thousand Pesos (Pl,000.00), Philippine
Currency, receipt whereof in full is hereby acknowledged and to us paid by PERSHING TAN QUETO, 44 years old,
married to Cristina Yap Sick Tin Filipino citizen and resident of the City of Ozamis, do by these presents hereby sell, cede
and convey by way of PACTO DE RETRO unto the said Pershing Tan Queto, his heirs, successors and assigns, one (1)
two-storey residential building of 88 square meters floor area declared for taxation purposes under Tax Dec. No. 36964 in
the name of Zoilo H. Ruaya and therein assessed at P 1,500.00 and erected on a public land along the road to the wharf,
City of Ozamis, claimed by herein vendors with a right as actual claimant-applicant given standing and recognition by the
Bureau of Lands in B.L. Claim No. 181 (N), Portion of Lot 373 of the Misamis Cadastre.

IT IS A CONDITION OF THIS SALE that we hereby reserve unto ourselves, our heirs, successors and assigns
the right to repurchase the herein conveyed building by paying back and returning to the vendee, Pershing Tan Queto, his
heirs, successors and assigns the agreed purchase price of P1,000.00 within the period of one (1) year after the lapse of
one (1) year from the date of the execution hereof; and that upon our failure to exercise the right of repurchase within the
period herein stipulated, title to the building shall pass to and become vested unto the vendee, his heirs, successors and
assigns, as in the law made and provided. The vendors a retro failed to exercise their right to repurchase within the
stipulated period so that the vendee a retro filed an action with the Court of First Instance of Misamis Occidental,
docketed therein as Civil Case No. 2263, for consolidation of title.

ISSUES:
The vendors may repurchase the same within the period of one year after the lapse of one year from the execution
of sale, by paying back and returning to the vendee the amount of P1,000.00; upon the failure of the vendors to exercise
their right to repurchase within the stipulated period, title to the building shall pass and become vested in the vendee.

RULING:
The terms and language of the contract are clear and explicit and leave no doubt as to the intention of the parties
that the vendors a retro are obligated to transfer to the vendee a retro and his assigns all their rights, interests and
participation, as public land claimants, in and to the lot on which the building sold a retro is constructed, after the vendee a
retro has consolidated his title over the building sold a retro. In the contract of pacto de retro sale, the appellants described
the land on which the building is constructed as "a public land along the road to the wharf, City of Ozamis, claimed by
herein vendors with a right as actual claimant-applicant given standing and recognition by the Bureau of Lands to B.L.
Claim No. 181 (N), Portion of Lot 373 of the Misamis Cadastre. Such description is sufficient, as reference to the decision
of the Director of Lands of June 8, 1954, adverted to, which in all probability had delineated the parcel of land applied for
by the appellants in metes and bounds would pinpoint the lot in question. WHEREFORE, there being no error committed
in the judgment appealed from, the said judgment should be, as it is hereby, AFFIRMED. With costs against the
appellants.

LACSAMANA, Joules N. | BSA 2

College of Business and Accountancy
 LAW ON OBLIGATIONS AND CONTRACTS

Mario and Elizabeth Torcuator Vs. Remedio and Gloria Bernabe G.R. No. 134219 June 08, 2005.

LACSAMANA, Joules N. | BSA 2

College of Business and Accountancy
 LAW ON OBLIGATIONS AND CONTRACTS

William Alain Miailhe V. Court Of Appeals G.R. No. 108991 March 20, 2001

LACSAMANA, Joules N. | BSA 2

College of Business and Accountancy
 LAW ON OBLIGATIONS AND CONTRACTS

China Banking Corporation Vs. Court Of Appeals G.R. No. 129644 March 7, 2000

LACSAMANA, Joules N. | BSA 2

College of Business and Accountancy