Contracts

 –  A.  In  General  

Case   Decision/Doctrines  
BATCHELDER  VS.  CB   The   Civil   Code   expressly   provides   that   a   contract   is   a   meeting   of  
ISSUE:     WHETHER   OR   NOT   CENTRAL   BANK   HAS   THE   minds   between   two   persons   whereby   one   binds   himself   with  
OBLIGATION   ARISING   FROM   LAW   TO   RESELL   respect  to  the  other  to  give  something  or  render  some  service.  
THEUS$154,094.56  TO  BATCHELDER  AT  THE  PREFERRED  RATE.    
  It  is  therefore  the  union  of  these  adherences    which  constitute  the  
Monetary   Board   Resolution   No.   857  requires   Filipino   and   contract  and  which  gives  birth  to  the  obligations  which  are  derived  
American  resident  contractors  for  constructions  in  U.S.  military   from   it.   It   is   an   act   of   volition,   while   the   preliminary   operation   of  
bases  in  the  Philippines  to  surrender  to  the  Central  Bank  their   discussion  of  the  project  is  a  work  of  the  mind  and  reasoning.  
dollar   earnings   under   their   respective   contracts   but   were    
entitled   to   utilize   90%   of   their   surrendered   dollars   for   It   is,   of   course,   true   that   obligations   arise   from   1)   law;   2)   contracts;  
importation   at   the   preferred   rate   of   commodities   for   use   3)   quasi-­‐contracts;4)   acts   or   omissions   punished   by   law   and   5)  
within   or   outside   said   U.S.   military   bases.   Resolution   695   quasi-­‐delicts.  One  of  the  sources  an  obligation  then  is  a  law.    
moreover,  denies  their  right  to  reacquire  at  the  preferred  rate    
ninety   per   cent   (90%)   of   the   foreign   exchange   the   sold   or   As  early  as  1909  in  Pelayo  v.  Lauron,  Court  through  Justice  Torres,  
surrendered   earnings   to   Central   Bank   for   the   purpose   of   categorically   declared:"   Obligation   arising   from   law   are   not  
determining  whether  the  imports  against  proceeds  of  contracts   presumed."   For   in   the   language   of   Justice   Street   in   LeungBen   v.  
entered   into   prior  to  April  25,  1960   are   classified   as   dollar-­‐to-­‐ O'Brien,   a   1918   decision,   such   an   obligation   is   "a   creation   of   the  
dollar  transactions  or  not.     positive   law."  They   are   ordinarily   traceable   to  code   or  statute.  It   is  
  true  though,   as   noted   in   the  motion   for   reconsideration   following  
George   Batchelder,   an   American   Citizen   permanently   residing   People   v.   Que   Po   Lay,   that   a   Central   Bank   circular   may   have   the  
in   the   Philippines   who   is   engaged   in   the   Construction   Business,   force  and  effect  of  law,  especially  when  issued  in  pursuance  of  its  
surrendered  to  the  Central  Bank  his  dollar  earnings  amounting   quasi-­‐legislative   power.   That   of  itself,   however,   is   no   justification  
to   U.S.   $199,966.00.   He   compels   Central   Bank   of   the   to  conclude  that  it  has  thereby  assumed  an  obligation.  
Philippines   to   resell   to   him$170,210.60   at   the   preferred   rate   of  
exchange   of   two   Philippine   pesos   for   one   American   dollar,  
more  specifically  P2.00375  which  was  denied  by  the  court.  
 
He  then  contended  that  said  decision  failed  to  consider  that  if  
there   was   no   contract  obligating   the   bank   to   resell   to   him   at  
the   preferred   rate,   the   judgment   of  the   lower   court   can   and  
should   nevertheless   be   sustained   on   the   basis   of   there   being  
such  an  obligation  arising  from  law.  
 
B.  FUNDAMENTAL  CHARACTERISTICS/PRINCIPLES  OF  CONTRACT  
REPUBLIC  VS.  PLDT   We  agree  with  the  court  below  that  parties  can  not  be  coerced  to  
ISSUE:   WHETHER   OR   NOT   THE   DEFENDANT   PLDT   CAN   BE   enter  into  a  contract  where  no  agreement  is  had  between  them  as  
COMPELLED   TO   ENTER   INTO   A   CONTRACT   WITH   THE   to   the   principal   terms   and   conditions   of   the   contract.   Freedom   to  
PLAINTIFF.     stipulate   such   terms   and   conditions   is   of   the   essence   of   our  
  contractual   system,   and   by   express   provision   of   the   statute,   a  
Sometime   in   1933,   the   defendant   PLDT   entered   into   an   contract   may   be   annulled   if   tainted   by   violence,   intimidation,   or  
agreement   with   RCA   Communications   Inc.,   an   American   undue  influence.  
corporation,  whereby  telephone  messages  coming  from  the  US    
and  received  by  RCA’s  domestic  station,  could  automatically  be   while   the   Republic   may   not   compel   the   PLDT   to   celebrate   a  
transferred  to  the  lines  of  PLDT,  and  vice  versa.     contract  with  it,  the  Republic  may,  in  the  exercise  of  the  sovereign  
  power   of   eminent   domain,   require   the   telephone   company   to  
The  plaintiff  through  the  Bureau  of  Telecommunications,  after   permit  interconnection  of  the  government  telephone  system  and  
having   set   up   its   own   Government   Telephone   System,   by   that   of   the   PLDT,   as   the   needs   of   the   government   service   may  
utilizing   its   own   appropriation   and   equipment   and   by   renting   require,   subject   to   the   payment   of   just   compensation   to   be  
trunk   lines   of   the   PLDT,   entered   into   an   agreement   with   RCA   determined   by   the   court.   Nominally,   of   course,   the   power   of  
for  a  joint  overseas  telephone  service.     eminent   domain   results   in   the   taking   or   appropriation   of   title   to,  
  and  possession  of,  the  expropriated  property;  but  no  cogent  reason  
Alleging   that   plaintiff   is   in   competition   with   them,   PLDT   appears  why  the  said  power  may  not  be  availed  of  to  impose  only  a  
notified   the   former   and   receiving   no   reply,   disconnected   the   burden   upon   the   owner   of   condemned   property,   without   loss   of  
trunk   lines   being   rented   by   the   same;   thus,   prompting   the   title   and   possession.   It   is   unquestionable   that   real   property   may,  
plaintiff   to   file   a   case   before   the   CFI   praying   for   judgment   through   expropriation,   be   subjected   to   an   easement   of   right   of  
commanding   PLDT   to   execute   a   contract   with   the   Bureau   for   way.  
the  use  of  the  facilities  of  PLDT’s  telephone  system,  and  for  a    
writ   of   preliminary   injunction   against   the   defendant   to   restrain   If,  under  section  6,  Article  XIII,  of  the  Constitution,  the  State  may,  in  
the   severance   of   the   existing   trunk   lines   and   restore   those   the   interest   of   national   welfare,   transfer   utilities   to   public  
severed.     ownership  upon  payment  of  just  compensation,  there  is  no  reason  
why  the  State  may  not  require  a  public  utility  to  render  services  in  
the  general  interest,  provided  just  compensation  is  paid  therefor.  
 
CORPUS  VS.  CA   YES.   While   there   was   an   express   agreement   between   petitioner  
ISSUE:  WHETHER  OR  NOT  PRIVATE  RESPONDENT  ATTY.  JUAN  T.   Corpus  and  respondent  David  as  regards  attorney’s  fees,  the  facts  
DAVID  IS  ENTITLED  TO  ATTORNEY’S  FEES.   of   the   case   support   the   position   of   respondent   David   that   there  
  was   at   least   an   implied   agreement   for   the   payment   of   attorney’s  
The   defendant   was   charged   administratively   by   several   fees.   Petitioner’s   act   of   giving   the   check   to   respondent   David  
employees   of   the   Central   Bank   Export   Department   of   which   indicates   petitioner’s   commitment   to   pay   the   former   attorney’s  
the   defendant   is   the   director.   Pending   the   investigation,   he   fees.   It   is   patent   then   that   respondent   David   agreed   to   render  
was   suspended   from   office.   After   the   investigating   committee   professional   services   to   petitioner   Corpus   secondarily   for   a  
found   the   administrative   charges   to   be   without   merit,   and   professional   fee.   Thereafter,   respondent   David   continued   to  
subsequently   recommended   the   immediate   reinstatement   of   render   legal   services   to   petitioner   Corpus,   in   collaboration   with  
the   defendant,   the   then   Governor   of   Central   Bank,   Atty.   Alverez   until   he   and   Atty.   Alvarez   secured   the   decision  
recommended   that   the   defendant   is   considered   resigned   as   on   directing  petitioner’s  reinstatement  with  back  salaries.  
the  ground  that  he  had  lost  confidence  in  him.    
  Moreover,   the   payment   of   attorney’s   fees   to   respondent   David  
The  defendant  filed  the  CFI  of  Manila  a  petition  for  certiorari,   may   also   be   justified   by   virtue   of   the   innominate   contract   of  facio  
mandamus   and   quo   warranto   with   preliminary   mandatory   ut  des  (I  do  and  you  give  which  is  based  on  the  principle  that  “no  
injunction   and   damages   against   Miguel   Cuaderno,   Sr.,   the   one   shall   unjustly   enrich   himself   at   the   expense   of   another.”  
Central   Bank   and   Mario   Marcos   who   was   appointed   to   the   innominate   contracts   have   been   elevated   to   a   codal   provision   in  
position   of   the   defendant.   Judge   Lantin   dismissed   a   case   for   the   New   Civil   Code   by   providing   under   Article   1307   that   such  
failure  to  exhaust  the  administrative  remedies  available  to  the   contracts   shall   be   regulated   by   the   stipulations   of   the   parties,   by  
herein   defendant.     After   they   talked   about   the   defendants   the   general   provisions   or   principles   of   obligations   and   contracts,   by  
having  lost  his  case  before  Judge  Lantin,  and  knowing  that  the   the  rules  governing  the  most  analogous  nominate  contracts,  and  by  
plaintiff   and   the   defendant   were   both   members   of   the   Civil   the  customs  of  the  people.  
Liberties   Union,   Rafael   Corpus   requested   the   plaintiff   to   go    
over  the  case  and  further  said  that  he  would  send  his  son,  the   It   does   not   appear   that   any   written   contract   was   entered   into  
herein   defendant,   to   the   plaintiff   to   find   out   what   could   be   between   the   parties   for   the   employment   of   the   plaintiff   as  
done  about  the  case.  The  defendant  called  up  the  plaintiff  for   interpreter,  or  that  any  other  innominate  contract  was  entered  into  
an   appointment,   and   the   plaintiff   agreed   to   meet   him   in   the   but   whether   the   plaintiffs   services   were   solicited   or   whether   they  
latter’s  office.  At  said  conference,  the  defendant  requested  the   were  offered  to  the  defendant  for  his  assistance,  inasmuch  as  these  
plaintiff   to   handle   the   case   because   of   Atty.   Alvarez   had   services   were   accepted   and   made   use   of   by   the   latter,   we   must  
already   been   disenchanted   and   wanted   to   give   up   the   case.   consider   that   there   was   a   tacit   and   mutual   consent   as   to   the  
Although   at   first   reluctant   to   handle   the   case,   the   plaintiff   rendition  of  the  services.  This  gives  rise  to  the  obligation  upon  the  
finally   agreed   on   the   condition   that   he   and   Atty.   Alverez   would   person  benefited  by  the  services  to  make  compensation  therefor,  
collaborate  in  the  case.     since   the   bilateral   obligation   to   render   service   as   interpreter,   on  
  the  one  hand,  and  on  the  other  to  pay  for  the  service  rendered,  is  
thereby  incurred.  
 
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EJERCITO  ET.  AL  VS.  ORIENTAL  ASSURANCE  CORP.   The   contract   of   indemnity   is   the   law   between   the   parties.  it   is   a  
ISSUE:   WON   PETITIONERS   ARE   LIABLE   TO   INDEMNIFY   THE   cardinal  rule  in  the  interpretation  of  a  contract  that  if  its  terms  are  
RESPONDENT   UNDER   THE   DEED   OF   INDEMNITY  CONSIDERING   clear   and   leave   no   doubt   on   the   intention   of   the   contracting  
THAT   PETITIONERS   DID   NOT   GIVE   THEIR   CONSENT   TO   BE   parties,  the  literal  meaning  of  its  stipulation  shall  control.  
BOUND   THEREBY   BEYOND   THE   ONE   (1)   YEAR   EFFECTIVITY    
PERIOD  OF  THE  ORIGINAL  SURETY  BOND   Clearly,   as   far   as   respondent   is   concerned,   petitioners   have  
  expressly  bound  themselves  to  the  contract,  which  provides  for  the  
Respondent   Oriental   Assurance   Corporation,   issued   a   Surety   term   granting   authority   to   the   company   to   renew   the   original  
Bond  in  favor  of  FFV  Travel  &  Tours,  Inc.  (Company).  The  bond   bond.  The  terms  of  the  contract  are  clear,  explicit  and  unequivocal.  
was   intended   to   guarantee   the   Company’s   payment   of   airline   Therefore,   the   subsequent   acts   of   the   Company,   through   Somes,  
tickets   purchased   on   credit   from   participating   members   of   the   led   to   the   renewal   of   the   surety   bond   are   binding   on  
International  Air  Transport  Association  (IATA)  to  the  extent  of   petitioners  as  well.  
3million.    
  With   regard   to   the   contention   that   the   Deed   of   Indemnity   is   a  
On   the   same   day,   petitioners   and   Merissa   C.   Somes   (Somes)   contract   of   adhesion,   the   Court   has   consistently   held   that  
executed   a   Deed   of   Indemnity   in   favor   of   respondent.   The   contracts   of   adhesion   are   not   invalid   per   se   and   that   their   binding  
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Surety  Bond  was  effective  for  one  year  from  its  issuance  until   effects   have   been   upheld   on   numerous   occasions.  the  
10   May   2000.   It   was   renewed   for   another   year,   from   10   May   pretension   that   petitioners   did   not   consent   to   the   renewal   of   the  
2000   to   10   May   2001,   as   shown   in   Bond   Endorsement   No.   bond  is  belied  by  the  fact  that  the  terms  of  the  contract  which  they  
OAC-­‐2000/0145  dated  17  April  2000.     voluntarily   entered   into   contained   a   clause   granting   authority   to  
  the   Company   to   grant   or   consent   to   the   renewal   of   the   bond.  
FFV  Travel  &  Tours,  Inc.  has  been  declared  in  default  for  failure   Having  entered  into  the  contract  with  full  knowledge  of  its  terms  
to   pay   its   obligations   amounting   5,484,086.97   and   USD   and   conditions,   petitioners   are   stopped   from   asserting   that   they  
18,760.98   as   of   31   July   2000.   Consequently,   IATA   demanded   did   so   under   the   ignorance   of   the   legal   effect   of   the   contract   or  
payment   of   the   bond.   Respondent   sent   demand   letters   to   the  undertaking.  
petitioners   and   Somes   for   reimbursement   of   the   3   million    
pursuant  to  the  indemnity  agreement.1âwphi1  For  their  failure   It  is  true  that  on  some  occasions,  the  Court  has  struck  down  such  
to  reimburse  respondent,  the  latter  filed  a  collection  suit.   contract   as   void   when   the   weaker   party   is   imposed   upon   in   dealing  
   with  the  dominant  party  is  reduced  to  the  alternative  of  accepting  
the   contract   or   leaving   it,   completely   deprived   of   the   opportunity  
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to  bargain  on  equal  footing.  this  reasoning  cannot  be  used  in  the  
instant   case.   One   of   the   petitioners,   Paulino   M.   Ejercito,   is   a   lawyer  
who   cannot   feign   ignorance   of   the   legal   effect   of   his   undertaking.  
Petitioners   could   have   easily   inserted   a   remark   in   the   clause  
granting   authority   to   the   Company   to   renew   the   original   bond,   if  
the  renewal  thereof  was  their  intention.  
The  rule  that  ignorance  of  the  contents  of  an  instrument  does  not  
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ordinarily   affect   the   liability   of   the   one   who   signs   it  may   also   be  
applied   to   this   Indemnity   Agreement.   And   the   mistake   of  
petitioners  as  to  the  legal  effect  of  their  obligation  is  ordinarily  no  
reason  for  relieving  them  of  liability.  
 
DAISY  TIU  VS.  PLATINUM  PLANS   a   non-­‐involvement   clause   is   not   necessarily   void   for   being   in  
ISSUE:  WHETHER  THE  NON-­‐INVOLVEMENT  CLAUSE  IS  VALID   restraint   of   trade   as   long   as   there   are   reasonable   limitations   as   to  
Respondent   Platinum   Plans   Philippines,   Inc.   is   a   domestic   time,  trade,  and  place.  
corporation   engaged   in   the   pre-­‐need   industry.   From   1987   to   In   this   case,   the   non-­‐involvement   clause   has   a   time   limit:   two   years  
1989,   petitioner   Daisy   B.   Tiu   was   its   Division   Marketing   from  the  time  petitioner’s  employment  with  respondent  ends.  It  is  
Director.  On  January  1,  1993,  respondent  re-­‐hired  petitioner  as   also   limited   as   to   trade,   since   it   only   prohibits   petitioner   from  
Senior  Assistant  Vice-­‐President  and  Territorial  Operations  Head   engaging  in  any  pre-­‐need  business  akin  to  respondent’s.  
in   charge   of   its   Hongkong   and   Asean   operations.   The   parties    
 
executed  a  contract  of  employment  valid  for  five  years. More   significantly,   since   petitioner   was   the   Senior   Assistant   Vice-­‐
  President   and   Territorial   Operations   Head   in   charge   of  
On  September  16,  1995,  petitioner  stopped  reporting  for  work.   respondent’s  Hongkong  and  Asean  operations,  she  had  been  privy  
In  November  1995,  she  became  the  Vice-­‐President  for  Sales  of   to   confidential   and   highly   sensitive   marketing   strategies   of  
Professional  Pension  Plans,  Inc.,  a  corporation  engaged  also  in   respondent’s   business.   To   allow   her   to   engage   in   a   rival   business  
the  pre-­‐need  industry.   soon   after   she   leaves   would   make   respondent’s   trade   secrets  
  vulnerable   especially   in   a   highly   competitive   marketing  
Consequently,  respondent  sued  petitioner  for  damages  before   environment.   In   sum,   we   find   the   non-­‐involvement   clause   not  
the  RTC  of  Pasig  City,  Branch  261.  Respondent  alleged,  among   contrary   to   public   welfare   and   not   greater   than   is   necessary   to  
 
others,  that  petitioner’s  employment  with  Professional  Pension   afford  a  fair  and  reasonable  protection  to  respondent.
Plans,  Inc.  violated  the  non-­‐involvement  clause  in  her  contract    
of  employment,  to  wit:   In   any   event,   Article   1306   of   the   Civil   Code   provides   that   parties  
8.   NON   INVOLVEMENT   PROVISION   –   The   EMPLOYEE   further   to   a   contract   may   establish   such   stipulations,   clauses,   terms   and  
undertakes   that   during   his/her   engagement   with   EMPLOYER   conditions   as   they   may   deem   convenient,   provided   they   are   not  
and   in   case   of   separation   from   the   Company,   whether   contrary   to   law,   morals,   good   customs,   public   order,   or   public  
voluntary  or  for  cause,  he/she  shall  not,  for  the  next  TWO  (2)   policy.  
years   thereafter,   engage   in   or   be   involved   with   any    
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corporation,   association   or   entity,   whether   directly   or   Article   1159  of   the   same   Code   also   provides   that   obligations  
indirectly,   engaged   in   the   same   business   or   belonging   to   the   arising   from   contracts   have   the   force   of   law   between   the  
same   pre-­‐need   industry   as   the   EMPLOYER.   Any   breach   of   the   contracting   parties   and   should   be   complied   with   in   good   faith.  
foregoing   provision   shall   render   the   EMPLOYEE   liable   to   the   Courts  cannot  stipulate  for  the  parties  nor  amend  their  agreement  
EMPLOYER   in   the   amount   of   One   Hundred   Thousand   Pesos   where   the   same   does   not   contravene   law,   morals,   good   customs,  
(P100,000.00)  for  and  as  liquidated  damages   public   order   or   public   policy,   for   to   do   so   would   be   to   alter   the   real  
  intent   of   the   parties,   and   would   run   contrary   to   the   function   of   the  
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Petitioner   countered   that   the   non-­‐involvement   clause   was   courts   to   give   force   and   effect   thereto.  Not   being   contrary   to  
unenforceable   for   being   against   public   order   or   public   policy:   public   policy,   the   non-­‐involvement   clause,   which   petitioner   and  
First,   the   restraint   imposed   was   much   greater   than   what   was   respondent   freely   agreed   upon,   has   the   force   of   law   between  
 
necessary   to   afford   respondent   a   fair   and   reasonable   them,  and  thus,  should  be  complied  with  in  good  faith.
protection.   Petitioner   contended   that   the   transfer   to   a   rival    
company   was   an   accepted   practice   in   the   pre-­‐need   industry.   Thus,   as   held   by   the   trial   court  and   the   Court   of   Appeals,   petitioner  
Since   the   products   sold   by   the   companies   were   more   or   less   is  bound  to  pay  respondent  ₱100,000  as  liquidated  damages.  While  
the   same,   there   was   nothing   peculiar   or   unique   to   protect.   we   have   equitably   reduced   liquidated   damages   in   certain  
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Second,   respondent   did   not   invest   in   petitioner’s   training   or   cases,  we   cannot   do   so   in   this   case,   since   it   appears   that   even  
improvement.  At  the  time  petitioner  was  recruited,  she  already   from   the   start,   petitioner   had   not   shown   the   least   intention   to  
possessed   the   knowledge   and   expertise   required   in   the   pre-­‐ fulfill  the  non-­‐involvement  clause  in  good  faith.  
need   industry   and   respondent   benefited   tremendously   from   it.    
Third,  a  strict  application  of  the  non-­‐involvement  clause  would  
amount   to   a   deprivation   of   petitioner’s   right   to   engage   in   the  
only  work  she  knew.  
 
CUI  VS.  ARELLANO  UNIVERSITY   We  are  of  the  opinion  that  the  stipulation  in  question  is  contrary  
ISSUE:  WHETHER  THE  PROVISION  OF  THE  CONTRACT  BETWEEN   to   public   policy   and,   hence,   null   and   void.   The   aforesaid  
PLAINTIFF   AND   DEFENDANT,   WHEREBY   THE   FORMER   WAIVED   memorandum   merely   incorporates   a   sound   principle   of   public  
HIS   RIGHT   TO   TRANSFER   TO   ANOTHER   SCHOOL   WITHOUT   policy.    
REFUNDING   TO   THE   LATTER   THE   EQUIVALENT   OF   HIS    
SCHOLARSHIP  IN  CASH,  IS  VALID  OR  NOT.   Not   valid.   Memorandum   No.   38   issued   by   the   Director   of   Private  
  Schools   provides   that   “When   students   are   given   a   full   or   partial  
Emetrio   Cui   took   his   preparatory   law   course   at   Arellano   scholarship,   it   is   understood   that   such   scholarship   is   merited   and  
University.    He  then  enrolled  in  its  College  of  Law  from  the  first   earned.   The   amount   in   tuition   and   other   fees   corresponding   to  
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year   until   the   first   semester   of   his   4  year.     During   these   years,   these  scholarships  should  not  be  subsequently  charged  to  recipient  
he   was   awarded   scholarship   grants   of   the   said   university   students  when  they  decide  to  quit  school  or  to  transfer  to  another  
amounting   to   a   total   of   P1,033.87.     He   then   transferred   and   institution.”   Scholarship   should   not   be   offered   merely   to   attract  
took   his   last   semester   as   a   law   student   at   Abad   Santos   and  keep  students  in  a  school.  
University.       To   secure   permission   to   take   the   bar,   he   needed   Memorandum   No.   38   merely   incorporates   a   sound   principle   of  
his   transcript   of   records   from   Arellano   University.     The   public   policy.   The   defendant   uses   the   scholarship   as   a   business  
defendant  refused  to  issue  the  TOR  until  he  had  paid  back  the   scheme   designed   to   increase   the   business   potential   of   an  
P1,033.87   scholarship   grant   which   Emetrio   refunded   as   he   educational  institution.  Thus,  conceived,  it  is  not  only  inconsistent  
could  not  take  the  bar  without  Arellano’s  issuance  of  his  TOR.   with  sound  policy  but  also,  good  morals.  The  practice  of  awarding  
the  scholarship  to  attract  students  and  keep  them  in  school  is  not  a  
good   custom   nor   has   it   received   some   kind   of   social   and   practical  
confirmation   except   in   some   private   institution   as   in   Arellano  
University.   Any   contract   entered   into   between   parties   which   is  
against   the   law,   morals,   good   custom,   public   policy,   or   public   order  
is  void.  
 
 
SAURA  VS.  SANDICO   We   agree   with   the   lower   court   in   adjudging   the   contract   or  
ISSUE:   WHETHER   OR   NOT   THE   WRITTEN   AGREEMENT   agreement  in  question  a  nullity.  Among  those  that  may  not  be  the  
BETWEEN  THE  PARTIES  IS  VALID   subject   matter   (object)   of   contracts   are   certain   rights   of  
  individuals,  which  the  law  and  public  policy  have  deemed  wise  to  
Ramon   E.   Saura   and   Estela   P.   Sindico   were   contesting   for   exclude   from   the   commerce   of   man.   Among   them   are   the   political  
nomination  as  the  official  candidate  of  the  Nacionalista  Party  in   rights  conferred  upon  citizens,  including,  but  not  limited  to,  once's  
the  fourth  district  of  Pangasinan  in  the  congressional  elections   right   to   vote,   the   right   to   present   one's   candidacy   to   the   people  
of   November   12,   1957.   On   August   23,   1957,   the   parties   and   to   be   voted   to   public   office,   provided,   however,   that   all   the  
entered   into   a   written   agreement   bearing   the   same   date,   qualifications   prescribed   by   law   obtain.   Such   rights   may   not,  
containing   among   other   matters   stated   therein,   a   pledge   that   therefore,  be  bargained  away  curtailed  with  impunity,  for  they  are  
—Each   aspirant   shall   respect   the   result   of   the   aforesaid   conferred  not  for  individual  or  private  benefit  or  advantage  but  for  
convention,   i.e.,   no   one   of   us   shall   either   run   as   a   rebel   or   the  public  good  and  interest.  
independent  candidate  after  losing  in  said  convention.    
  The  stipulation  is  void  for  being  contrary  to  public  policy:  
Saura   was   elected   and   proclaimed   the   Party's   official   1. Right   of   the   person   to   present   himself   as   a   candidate  
congressional   candidate   for   the   aforesaid   district   of   cannot   be   limited   by   the   agreement   of   2   or   more  
Pangasinan.  Nonetheless,  Sindico,  in  disregard  of  the  covenant,   persons  (  At  present,  it  is  no  longer  a  right  )  
filed,  on  September  6,  1957,  her  certificate  of  candidacy  for  the    
same  office  with  the  Commission  on  Elections,  and  she  openly   2. Right   of   the   electorate   to   choose   who   among   the  
and   actively   campaigned   for   her   election.   Wherefore,   on   candidates  is  fit  for  the  position  
October   5,   1957,   plaintiff   Saura   commenced   this   suit   for   the    
recovery  of  damages.  
 
LEAL  VS.  IAC   Contracts   are   generally   binding   between   the   parties,   their   assigns  
ISSUE:   WHETHER   OR   NOT   UNDER   THE   AFOREQUOTED   and   heirs;   however,   under   Art.   1255   of   the   Civil   Code   of   Spain,  
PARAGRAPH   (B)   OF   THE   "COMPRAVENTA"   A   RIGHT   OF   which   is   applicable   in   this   instance,   pacts,   clauses,   and   conditions  
REPURCHASE  IN  FAVOR  OF  THE  PRIVATE  RESPONDENT  EXIST   which  are  contrary  to  public  order  are  null  and  void,  thus,  without  
.   any  binding  effect.  
This   case   brings   us   back   almost   half   a   century   ago,   on   March    
21,   1941,   when   a   document   entitled   "Compraventa,"   written   Parenthetically,   the   equivalent   provision   in   the   Civil   Code   of   the  
entirely   in   the   Spanish   language,   involving   three   parcels   of   Philippines   is   that   of   Art.   1306,   which   states:   "That   contracting  
land,   was   executed   by   the   private   respondent's   predecessors-­‐ parties   may   establish   such   stipulations,   clauses,   terms   and  
in-­‐interest,   Vicente   Santiago   and   his   brother,   Luis   Santiago,   in   conditions   as   they   may   deem   convenient,   provided   they   are   not  
favor   of   Cirilio   Leal   the   deceased   father   of   some   of   the   contrary   to   law,   morals,   good   customs,   public   order,   or   public  
petitioners,  Pursuant  to  this  "Compraventa,"  the  title  over  the   policy.  Public  order  signifies  the  public  weal  —  public  policy.  
three   parcels   of   land   in   the   name   of   the   vendors   was   cancelled    
and   a   new   one   was   issued   in   the   name   of   Cirilo   Leal   who   The   law   provides   that   for   conventional   redemption   to   take   place,  
immediately  took  possession  and  exercised  ownership  over  the   the   vendor   should   reserve,   in   no   uncertain   terms,   the   right   to  
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said  lands.  When  Cirilo  died  on  December  10,  1959,  the  subject   repurchase   the   thing   sold.  Thus,   the   right   to   redeem   must   be  
lands   were   inherited   by   his   six   children,   who   are   among   the   expressly  stipulated  in  the  contract  of  sale  in  order  that  it  may  have  
petitioners,  and  who  caused  the  consolidation  and  subdivision   legal  existence.  
of  the  properties  among  themselves.    
   In  the  case  before  us,  we  cannot  and  any  express  or  implied  grant  
Between  the  years  1960  and  1965,  the  properties  were  either   of   a   right   to   repurchase,   nor   can   we   infer,   from   any   word   or  
mortgaged   or   leased   by   the   petitioners-­‐children   of   Cirilo   Leal   words   in   the   questioned   paragraph,   the   existence   of   any   such  
—  to  their  co-­‐petitioners.   right.  
   
Sometime   before   the   agricultural   year   1966-­‐1967,   Vicente   But   even   assuming   that   such   a   right   of   repurchase   is   granted   under  
Santiago   approached   the   petitioners   and   offered   re-­‐   the   "Compraventa,"   the   petitioner   correctly   asserts   that   the   same  
repurchase   the   subject   properties.   Petitioners,   however,   has  already  prescribed.  Under  Art.  1508  of  the  Civil  Code  of  Spain  
refused   the   offer.   Consequently,   Vicente   Santiago   instituted   a   (Art,.  1606  of  the  Civil  Code  of  the  Philippines),  the  right  to  redeem  
complaint   for   specific   performance   before   the   then   Court   of   or  repurchase,  in  the  absence  of  an  express  agreement  as  to  time,  
First  Instance  of  Quezon  City  on  August  2,  1967.   shall  last  four  years  from  the  date  of  the  contract.  In  this  case  then,  
  the   right   to   repurchase,   if   it   was   at   four   guaranteed   under   in   the  
It   is   admitted   by   both   parties   that   the   phrase   "they   shall   not   "Compraventa,"  should  have  been  exercise  within  four  years  from  
sell   to   others   these   three   lots   but   only   to   the   seller   Vicente   March   21,   1941   (indubitably   the   date   of   execution   of   the   contract),  
Santiago   or   to   his   heirs   or   successors"   is   an   express   prohibition   or  at  the  latest  in  1945.  
against  the  sale  of  the  lots  described  in  the  "Compraventa"  to   Since   the   alleged   right   to   repurchase   was   attempted   to   be  
third  persons  or  strangers  to  the  contract.     exercised   by   Vicente   Santiago   only   in   1966,   or   25   years   from   the  
  date  of  the  contract,  the  said  right  has  undoubtedly  expired.  
 
BANCO  FILIPINO  SAVINGS  VS.  NAVARRO   It  is  our  considered  opinion  that  it  may  not.  
ISSUE:   WHETHER   BANCO   FILIPINO   CAN   INCREASE   THE    
INTEREST   RATE   ON   THE   LOAN   FROM   12%   TO   17%   PER   ANNUM   Some   contracts   contain   what   is   known   as   an   "escalator   clause,"  
UNDER  THE  ESCALATION  CLAUSE.   which   is   defined   as   one   in   which   the   contract   fixes   a   base   price   but  
  contains   a   provision   that   in   the   event   of   specified   cost   increases,  
Respondent   Florante   del   Valle   (the   BORROWER)   obtained   a   the  seller  or  contractor  may  raise  the  price  up  to  a  fixed  percentage  
loan   secured   by   a   real   estate   mortgage   (the   LOAN,   for   short)   of   the   base.   Attacks   on   such   a   clause   have   usually   been   based   on  
1  
from   petitioner   BANCO   FILIPINO in   the   sum   of   Forty-­‐one   the   claim   that,   because   of   the   open   price-­‐provision,   the   contract  
Thousand   Three   Hundred   (P41,300.00)   Pesos,   payable   and   to   was  too  indefinite  to  be  enforceable  and  did  not  evidence  an  actual  
be   amortized   within   fifteen   (15)   years   at   twelve   (12%)   per   cent   meeting   of   the   minds   of   the   parties,   or   that   the   arrangement   left  
interest   annually.   Hence,   the   LOAN   still   had   more   than   730   the   price   to   be   determined   arbitrarily   by   one   party   so   that   the  
days   to   run   by   January   2,   1976,   the   date   when   CIRCULAR   No.   contract   lacked   mutuality.   In   most   instances,   however,   these  
494  was  issued  by  the  Central  Bank.   attacks  have  been  unsuccessful.  
   
Stamped   on   the   promissory   note   evidencing   the   loan   is   an   It  is  clear  from  the  stipulation  between  the  parties  that  the  interest  
Escalation  Clause,  reading  as  follows:   rate   may   be   increased   "in   the   event   a  law  should   be   enacted  
I/We   hereby   authorize   Banco   Filipino   to   increasing   the   lawful   rate   of   interest   that   may   be   charged  on   this  
correspondingly   increase   the   interest   rate   stipulated   particular  kind  of  loan."  "  The  Escalation  Clause  was  dependent  on  
in   this   contract   without   advance   notice   to   me/us   in   an  increase  of  rate  made  by  "law"  alone.  
the   event   law   should   be   enacted   increasing   the    
lawful   rates   of   interest   that   may   be   charged   on   this   CIRCULAR  No.  494,  although  it  has  the  effect  of  law,  is  not  a  law.  
particular  kind  of  loan.    
The   Escalation   Clause   is   based   upon   Central   Bank   CIRCULAR   Escalation   clauses   to   be   valid   should   specifically   provide:   (1)   that  
No.   494   issued   on   January   2,   1976,   the   pertinent   portion   of   there   can   be   an   increase   in   interest   if   increased   by   law   or   by   the  
which  reads:   Monetary   Board;   and   (2)   in   order   for   such   stipulation   to   be   valid,   it  
3. The   maximum   rate   of   interest,   including   must   include   a   provision   for   reduction   of   the   stipulated   interest   "in  
commissions,   premiums,   fees   and   other   charges   on   the  event  that  the  applicable  maximum  rate  of  interest  is  reduced  
loans   with   maturity   of   more   than   seven   hundred   by  law  or  by  the  Monetary  Board."  
thirty   (730)   days,   by   banking   institutions,   including    
thrift   banks   and   rural   banks,   or   by   financial   2.  The  Escalation  Clause  specifically  stipulated  that  the  increase  in  
intermediaries  authorized  to  engage  in  quasi-­‐banking   interest  rate  was  to  be  "on  this  particular  kind  of  loan,  "  meaning  
functions   shall   be   nineteen   percent   (19%)   per   one  secured  by  registered  real  estate  mortgage.  
annum.    
  In  the  absence  of  any  indication  in  CIRCULAR  No.  494  as  to  which  
Contending   that   CIRCULAR   No.   494   is   not   the   law   particular   type   of   loan   was   meant   by   the   Monetary   Board,   the  
contemplated  in  the  Escalation  Clause  of  the  promissory  note,   more  equitable  construction  is  to  limit  CIRCULAR  No.  494  to  loans  
the   BORROWER   filed   suit   against   BANCO   FILIPINO   for   guaranteed   by   securities   other   than   mortgage   upon   registered  
"Declaratory   Relief"   with   respondent   Court,   praying   that   the   realty.  
Escalation   Clause   be   declared   null   and   void   and   that   BANCO    
FILIPINO  be  ordered  to  desist  from  enforcing  the  increased  rate   The   Court   rules   that   while   an   escalation   clause   like   the   one   in  
of  interest  on  the  BORROWER's  real  estate  loan.   question   can   ordinarily   be   held   valid,   nevertheless,   petitioner  
  Banco   Filipino   cannot   rely   thereon   to   raise   the   interest   on   the  
For   its   part,   BANCO   FILIPINO   maintained   that   the   Escalation   borrower's  loan  from  12%  to  17%  per  annum  because  Circular  No.  
Clause  signed  by  the  BORROWER  authorized  it  to  increase  the   494   of   the   Monetary   Board   was   not   the   "law"   contemplated   by  
interest   rate   once   a   law   was   passed   increasing   the   rate   of   the   parties,   nor   should   said   Circular   be   held   as   applicable   to   loans  
interest  and  that  its  authority  to  increase  was  provided  for  by   secured   by   registered   real   estate   in   the   absence   of   any   such  
CIRCULAR  No.  494.   specific   indication   and   in   contravention   of   the   policy   behind   the  
  Usury   Law.   The   judgment   appealed   from   is,   therefore,   hereby  
affirmed   in   so   far   as   it   orders   petitioner   Banco   Filipino   to   desist  
from  enforcing  the  increased  rate  of  interest  on  petitioner's  loan.  
 
FLORENDO  VS.  CA   In  light  of  the  CB  issuances  in  force  at  that  time,  respondent  bank  
ISSUE:  MAY  A  BANK  UNILATERALLY  RAISE  THE  INTEREST  RATE   was  fully  aware  that  it  could  have  imposed  an  interest  rate  higher  
ON   A   HOUSING   LOAN   GRANTED   AN   EMPLOYEE,   BY   REASON   OF   than  9%  per  annum  rate  for  the  housing  loans  of  its  employees,  but  
THE  VOLUNTARY  RESIGNATION  OF  THE  BORROWER?   it   did   not.   In   the   subject   loan,   the   respondent   bank   knowingly  
  agreed  that  the  interest  rate  on  petitioners'  loan  shall  remain  at  9%  
Gilda  Florendo  (was)  an  employee  of  (Respondent  Bank)  from   p.a.  unless   a   CB   issuance   is   passed   authorizing   an   increase   (or  
May   17,   1976   until   August   16,   1984   when   she   voluntarily   decrease)   in   the   rate   on   such   employee   loans   and   the   Provident  
resigned.   However,   before   her   resignation,   she   applied   for   a   Fund   Board   of   Trustees   acts   accordingly.   Thus,   as   far   as   the   parties  
housing   loan   of   P148,000.00,   payable   within   25   years   from   were   concerned,   all   other   onerous   factors,   such   as   employee  
(respondent   bank's)   Provident   Fund   on   July   20,   1983;   That   resignations,  which  could  have  been  used  to  trigger  an  application  
(petitioners)   and   (respondent   bank),   through   the   latter's   duly   of  the  escalation  clause  were  considered  barred  or  waived.  If  the  
authorized   representative,   executed   the   Housing   Loan   intention  were  otherwise,   they  —   especially   respondent   bank  —  
Agreement.   should  have  included  such  factors  in  their  loan  agreement.  
   
That   the   loan   .   .   .   was   actually   given   to   (petitioner)   Gilda   ManCom   Resolution   No.   85-­‐08,   which   is   neither   a   rule   nor   a  
Florendo,   .   .   .,   in   her   capacity   as   employee   of   (respondent   resolution  of  the  Monetary  Board,  cannot  be  used  as  basis  for  the  
bank).     escalation   in   lieu   of   CB   issuances,   since   paragraph   (f)   of   the  
  mortgage   contract   very   categorically   specifies   that   any   interest  
That   on   March   19,   1985,   (respondent   bank)   increased   the   rate  increase  be  in  accordance  with  "prevailing  rules,  regulations  
interest  rate  on  (petitioner's)  loan  from  9%  per  annum  to  17%,   and  circulars  of  the  Central  Bank  .  .  .  as  the  Provident  Fund  Board  .  
the   said   increase   to   take   effect   on   March   19,   1985.   That   the   .   .   may   prescribe."   The  Banco   Filipino  and  PNB  doctrines   are  
details  of  the  increase  are  embodied  in  (Landbank's)  ManCom   applicable   four-­‐square   in   this   case.   As   a   matter   of   fact,   the   said  
Resolution  No.  85-­‐08  dated  March  19,  1985,  .  .  .  ,  and  in  a  PF   escalation   clause   further   provides   that   the   increased   interest   rate  
(Provident   Fund)   Memorandum   Circular   (No.   85-­‐08,   Series   of   "shall   only   take   effect   on   the   date   of   effectivity   of   (the)  
1985)   increase/decrease"   authorized   by   the   CB   rule,   regulation   or  
  circular.   Without   such   CB   issuance,   any   proposed   increased   rate  
That  (petitioners)  protested  the  increase  in  a  letter  dated  June   will  never  become  effective.  
11,   1985   to   which   (respondent   bank)   replied   through   a   letter    
dated  July  1,  1985,    That  thereafter,  (respondent  bank)  kept  on   On   the   other   hand,   it   will   not   be   amiss   to   point   out   that   the  
demanding   that   (petitioner)   pay   the   increased   interest   or   the   unilateral  determination  and  imposition  of  increased  interest  rates  
new  monthly  installments  based  on  the  increased  interest  rate,   by  the  herein  respondent  bank  is  obviously  violative  of  the  principle  
but   Plaintiff   just   as   vehemently   maintained   that   the   said   of  mutuality  of  contracts  ordained  in  Article  1308  of  the  Civil  Code.    
increase  is  unlawful  and  unjustifiable.  Because  of  (respondent    
bank's)  repeated  demands,  (petitioners)  were  forced  to  file  the   In   order   that   obligations   arising   from   contracts   may   have   the  
instant  suit  for  Injunction  and  Damages;   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   Court   hereby   REVERSES   and   SETS   ASIDE   the   challenged  
Decision   of   the   Court   of   Appeals.   The   interest   rate   on   the   subject  
housing   loan   remains   at   nine   (9)   percent  per   annum  and   the  
monthly  amortization  at  P1,248.72.  
 
NEW  WORLD  VS.  AMA   AMA  is  liable  for  six  months’  worth  of  rent  as  liquidated  damages.  
ISSUE:  WHETHER  AMA  IS  LIABLE  TO  PAY  SIX  MONTHS’  WORTH    
OF  RENT  AS  LIQUIDATED  DAMAGES.   Item  No.  14  of  the  Contract  of  Lease  states:  
  That   [AMA]   may   pre-­‐terminate   this   Contract   of   Lease   by   notice   in  
New   World   is   the   owner   of   a   commercial   building   located   at   writing  to  [New  World]  at  least  six  (6)  months  before  the  intended  
No.   1104-­‐1118   España   corner   Paredes   Streets,   Sampaloc,   date   of   pretermination,   provided,   however,   that   in   such   case,  
3
Manila.  In  1998,  AMA  agreed  to  lease  the  entire  second  floor   [AMA]  shall  be  liable  to  [New  World]  for  an  amount  equivalent  to  
of  the  building  for  its  computer  learning  center,  and  the  parties   six  (6)  months  current  rental  as  liquidated  damages;  
4
entered   into   a   Contract   of   Lease  covering   the   eight-­‐year    
period  from  15  June  1998  to  14  March  2006.   The   law   does   not   relieve   a   party   from   the   consequences   of   a  
32
  contract   it   entered   into   with   all   the   required   formalities.  Courts  
The  monthly  rental  for  the  first  year  was  set  at  ₱181,500,  with   have   no   power   to   ease   the   burden   of   obligations   voluntarily  
an   annual   escalation   rate   equivalent   to   15%   for   the   succeeding   assumed   by   parties,   just   because   things   did   not   turn   out   as  
5 33
years.  It   was   also   provided   that   AMA   may   preterminate   the   expected   at   the   inception   of   the   contract.  It   must   also   be  
contract  by  sending  notice  in  writing  to  New  World  at  least  six   emphasized  that  AMA  is  an  entity  that  has  had  significant  business  
 6
months   before   the   intended   date.  In   case   of   pretermination,   experience,  and  is  not  a  mere  babe  in  the  woods.  
AMA   shall   be   liable   for   liquidated   damages   in   an   amount    
equivalent  to  six  months  of  the  prevailing  rent.   Articles  1159  and  1306  of  the  Civil  Code  state:  
   
On   the   evening   of   6   July   2004,   AMA   removed   all   its   office   Art.  1159.  Obligations  arising  from  contracts  have  the  force  of  law  
equipment   and   furniture   from   the   leased   premises.   The   between   the   contracting   parties   and   should   be   complied   with   in  
following  day,  New  World  received  a  letter  from  AMA  dated  6   good  faith.  
10
July   2004  stating   that   the   former   had   decided   to    
preterminate  the  contract  effective  immediately  on  the  ground   Art.   1306.   The   contracting   parties   may   establish   such   stipulations,  
of  business  losses  due  to  a  drastic  decline  in  enrollment.  AMA   clauses,   terms   and   conditions   as   they   may   deem   convenient,  
also   demanded   the   refund   of   its   advance   rental   and   security   provided   they   are   not   contrary   to   law,   morals,   good   customs,  
deposit.   public  order,  or  public  policy.  
   
On   27   October   2004,   New   World   filed   a   complaint   for   a   sum   of   The   fundamental   rule   is   that   a   contract   is   the   law   between   the  
money  and  damages  against  AMA.   parties.  Unless  it  has  been  shown  that  its  provisions  are  wholly  or  
  in   part   contrary   to   law,   morals,   good   customs,   public   order,   or  
public  policy,  the  contract  will  be  strictly  enforced  by  the  courts.  
 
The  actions  of  AMA  smack  of  bad  faith.  
 
SALUDO  JR.  VS.  SECURITY  BANK   Comprehensive  or  continuing  surety  agreements  are,  in  fact,  quite  
ISSUE:   WHETHER   OR   NOT   PETITIONER   SHOULD   BE   HELD   commonplace   in   present   day   financial   and   commercial   practice.   A  
SOLIDARILY   LIABLE   FOR   THE   SECOND   CREDIT   FACILITY   bank  or  financing  company  which  anticipates  entering  into  a  series  
EXTENDED  TO  BOOKLIGHT.   of  credit  transactions  with  a  particular  company,  normally  requires  
  the   projected   principal   debtor   to   execute   a   continuing   surety  
On   30   May   1996,   Booklight   was   extended   an   omnibus   line   agreement   along   with   its   sureties.   By   executing   such   an  
3
credit   facility  by   SBC   in   the   amount   of   ₱10,000,000.00.   Said   agreement,   the   principal   places   itself   in   a   position   to   enter   into  
4
loan   was   covered   by   a   Credit   Agreement  and   a   Continuing   the   projected   series   of   transactions   with   its   creditor;   with   such  
5
Suretyship  with  petitioner  as  surety,  both  documents  dated  1   suretyship   agreement,   there   would   be   no   need   to   execute   a  
August   1996,   to   secure   full   payment   and   performance   of   the   separate   surety   contract   or   bond   for   each   financing   or   credit  
obligations  arising  from  the  credit  accommodation.   accommodation  extended  to  the  principal  debtor.  
   
8
For   failure   to   settle   the   loans   upon   maturity,   demands  were   The   two   loan   facilities   availed   by   Booklight   under   the   credit  
made   on   Booklight   and   petitioner   for   the   payment   of   the   agreement   are   the   Omnibus   Line   amounting   to   ₱10,000,000.00  
obligation   but   the   duo   failed   to   pay.   As   of   15   May   2000,   the   granted  to  Booklight  in  1996  and  the  other  one  is  the  Loan  Line  of  
obligation   of   Booklight   stood   at   ₱10,487,875.41,   inclusive   of   the   same   amount   in   1997.   Petitioner   however   seeks   to   muddle   the  
 
interest  past  due  and  penalty. issue   by   insisting   that   these   two   availments   were   two   separate  
  principal   contracts,   conveniently   ignoring   the   fact   that   it   is   the  
On   16   June   2000,   SBC   filed   against   Booklight   and   herein   credit  agreement  which  constitutes  the  principal  contract  signed  by  
petitioner   an   action   for   collection   of   sum   of   money   with   the   Booklight  in  order  to  avail  of  SBC’s  credit  facilities.  The  two  credit  
RTC.   Booklight   initially   filed   a   motion   to   dismiss,   which   was   facilities  are  but  loans  made  available  to  Booklight  pursuant  to  the  
later   on   denied   for   lack   of   merit.   In   his   Answer,   Booklight   credit  agreement.  
asserted  that  the  amount  demanded  by  SBC  was  not  based  on    
the  omnibus  credit  line  facility  of  30  May  1996,  but  rather   on   The  lameness  of  petitioner’s  stand  is  pointed  up  by  his  attempt  to  
the   amendment   of   the   credit   facilities   on   15   October   1996   escape   from   liability   by   labelling   the   Continuing   Suretyship   as   a  
increasing   the   loan   line   from   ₱8,000,000.00   to   contract  of  adhesion.  
₱10,000,000.00.      
In   his   Answer   to   the   complaint,   herein   petitioner   alleged   that   A  contract  of  adhesion  is  defined  as  one  in  which  one  of  the  parties  
under   the   Continuing   Suretyship,   it   was   the   parties’   imposes  a  ready-­‐made  form  of  contract,  which  the  other  party  may  
understanding  that  his  undertaking  and  liability  was  merely  as   accept   or   reject,   but   which   the   latter   cannot   modify.   One   party  
an  accommodation  guarantor  of  Booklight.   prepares   the   stipulation   in   the   contract,   while   the   other   party  
  merely   affixes   his   signature   or   his   ‘adhesion’   thereto,   giving   no  
room   for   negotiation   and   depriving   the   latter   of   the   opportunity   to  
 
bargain  on  equal  footing.
 
A  contract  of  adhesion  presupposes  that  the  party  adhering  to  the  
contract  is  a  weaker  party.  That  cannot  be  said  of  petitioner.  He  is  a  
lawyer.   He   is   deemed   knowledgeable   of   the   legal   implications   of  
the  contract  that  he  is  signing.  
 
It  must  be  borne  in  mind,  however,  that  contracts  of  adhesion  are  
not   invalid   per   se.   Contracts   of   adhesion,   where   one   party  
imposes   a   ready-­‐made   form   of   contract   on   the   other,   are   not  
entirely   prohibited.   The   one   who   adheres   to   the   contract   is,   in  
reality,   free   to   reject   it   entirely;   if   he   adheres,   he   gives   his  
 consent.  
 
 
METROPOLITAN  BANK  TRUST  VS.  REYNADO  AND  ADRANDEA   In  a  catena  of  cases,  it  was  ruled  that  criminal  liability  for  estafa  is  
ISSUE:   WHETHER   THE   EXECUTION   OF   THE   DEBT   SETTLEMENT   not  affected  by  a  compromise  or  novation  of  contract.  
AGREEMENT   PRECLUDED   PETITIONER   FROM   HOLDING    
RESPONDENTS   LIABLE   TO   STAND   TRIAL   FOR   ESTAFA   UNDER   "criminal   liability   for   estafa   is   not   affected   by   compromise   or  
ART.  315  (1)(B)  OF  THE  REVISED  PENAL  CODE.   novation   of   contract,   for   it   is   a   public   offense   which   must   be  
  prosecuted   and   punished   by   the   Government   on   its   own   motion  
5
In   the   affidavit  of   petitioner’s   audit   officer,   Antonio   Ivan   S.   even   though   complete   reparation   should   have   been   made   of   the  
Aguirre,  it  was  alleged  that  the  special  audit  conducted  on  the   damage  suffered  by  the  offended  party."    
cash  and  lending  operations  of  its  Port  Area  branch  uncovered    
anomalous/fraudulent   transactions   perpetrated   by   Thus,  the  doctrine  that  evolved  from  the  aforecited  cases  is  that  a  
respondents   in   connivance   with   client   Universal   Converter   compromise   or   settlement   entered   into   after   the   commission   of  
Philippines,  Inc.  (Universal).   the  crime  does  not  extinguish  accused’s  liability  for  estafa.  Neither  
  will   the   same   bar   the   prosecution   of   said   crime.   Accordingly,   in  
that   through   the   so-­‐called   Bills   Purchase   Transaction,   such   a   situation,   as   in   this   case,   the   complaint   for   estafa   against  
Universal,  which  has  a  paid-­‐up  capital  of  only  ₱125,000.00  and   respondents   should   not   be   dismissed   just   because   petitioner  
actual   maintaining   balance   of   ₱5,000.00,   was   able   to   make   entered  into  a  Debt  Settlement  Agreement  with  Universal.  
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withdrawals   totaling   ₱81,652,000.00  against   uncleared    
regional   checks   deposited   in   its   account   at   petitioner’s   Port   Contrary   to   the   conclusion   of   public   respondent,   the   Debt  
Area   branch;   that,   consequently,   Universal   was   able   to   utilize   Settlement   Agreement   entered   into   between   petitioner   and  
petitioner’s   funds   even   before   the   seven-­‐day   clearing   period   Universal   Converter   Philippines   extinguishes   merely   the   civil   aspect  
for   regional   checks   expired;   that   Universal’s   withdrawals   of   the   latter’s   liability   as   a   corporate   entity   but   not   the   criminal  
against   uncleared   regional   check   deposits   were   without   prior   liability  of  the  persons  who  actually  committed  the  crime  of  estafa  
approval  of  petitioner’s  head  office;  that  the  uncleared  checks   against  petitioner  Metrobank  
were   later   dishonored   by   the   drawee   bank   for   the   reason    
"Account   Closed";   and,   that   respondents   acted   with   fraud,   Under   Article   1311   of   the   Civil   Code,   "contracts   take   effect   only  
deceit,  and  abuse  of  confidence.   between  the  parties,  their  assigns  and  heirs,  except  in  case  where  
  the   rights   and   obligations   arising   from   the   contract   are   not  
In   their   defense,   respondents   denied   responsibility   in   the   transmissible   by   their   nature,   or   by   stipulation   or   by   provision   of  
anomalous   transactions   with   Universal   and   claimed   that   they   law."  The  civil  law  principle  of  relativity  of  contracts  provides  that  
only   intended   to  help  the  Port  Area  branch  solicit   and  increase   "contracts   can   only   bind   the   parties   who   entered   into   it,   and   it  
its  deposit  accounts  and  daily  transactions.   cannot  favor  or  prejudice  a  third  person,  even  if  he  is  aware  of  such  
 
Petitioner   and   Universal   entered   into   a   Debt   Settlement   contract  and  has  acted  with  knowledge  thereof."
7
Agreement  whereby  the  latter  acknowledged  its  indebtedness    
8
to   the   former   in   the   total   amount   of   ₱50,990,976.27  as   of   In   the   case   at   bar,   it   is   beyond   cavil   that   respondents   are   not  
February   4,   1997   and   undertook   to   pay   the   same   in   bi-­‐monthly   parties  to  the  agreement.  The  intention  of  the  parties  thereto  not  
amortizations   in   the   sum   of   ₱300,000.00   starting   January   15,   to   include   them   is   evident   either   in   the   onerous   or   in   the  
1997,   covered   by   postdated   checks,   "plus   balloon   payment   of   beneficent   provisions   of   said   agreement.   They   are   not   assigns   or  
the  remaining  principal  balance  and  interest  and  other  charges,   heirs  of  either  of  the  parties.  Not  being  parties  to  the  agreement,  
if  any,  on  December  31,  2001.   respondents   cannot   take   refuge   therefrom   to   bar   their  
anticipated  trial  for  the  crime  they  committed.  It  may  do  well  for  
respondents  to  remember  that  the  criminal  action  commenced  by  
petitioner   had   its   genesis   from   the   alleged   fraud,   unfaithfulness,  
and   abuse   of   confidence   perpetrated   by   them   in   relation   to   their  
positions   as   responsible   bank   officers.   It   did   not   arise   from   a  
contractual   dispute   or   matters   strictly   between   petitioner   and  
Universal.   This   being   so,   respondents   cannot   rely   on   subject  
settlement   agreement   to   preclude   prosecution   of   the   offense  
already   committed   to   the   end   of   extinguishing   their   criminal  
liability  or  prevent  the  incipience  of  any  liability  that  may  arise  from  
the  criminal  offense.  This  only  demonstrates  that  the  execution  of  
the  agreement  between  petitioner  and  Universal  has  no  bearing  on  
the  innocence  or  guilt  of  the  respondents.  
 
PRUDENTIAL  BANK  VS.  ABASOLO   In   the   absence   of   a   lender-­‐borrower   relationship   between  
ISSUE:   WON   PRUDENTIAL   BANK   HAS   THE   OBLIGATION   TO   petitioner   and   Liwayway,   there   is   no   inherent   obligation   of  
RELEASE  THE  PROCEEDS  OF  THE  LOAN  TO  RESPONDENT   petitioner  to  release  the  proceeds  of  the  loan  to  her.  
 
Leonor  Valenzuela-­‐Rosales  inherited  two  parcels  of  land.  After   The   principle   of   relativity   of   contracts   in   Article   1311   of   the   Civil  
she  passed  away,  her  heirs  executed  Special  Power  of  Attorney   Code  supports  petitioner’s  cause:  
(SPA)   in   favor   of   Liwayway   Abasolo   (respondent)   empowering  
her  to  sell  the  properties.  
Art.   1311.  Contracts   take   effect   only   between   the   parties,   their  
 
Corazon   Marasigan   (Corazon)   wanted   to   buy   the   properties   assigns   and   heirs,  except   in   case   where   the   rights   and   obligations  
which   were   being   sold   for   P2,448,960,   but   as   she   had   no   arising   from   the   contract   are   not   transmissible   by   their   nature,   or  
available   cash,   she   broached   the   idea   of   first   mortgaging   the   by  stipulation  or  by  provision  of  law.  The  heir  is  not  liable  beyond  
properties   to   petitioner   Prudential   Bank   and   Trust   Company   the  value  of  the  property  he  received  from  the  decedent.  
(PBTC),   the   proceeds   of   which   would   be   paid   directly   to  
respondent.  Respondent  agreed  to  the  proposal.   If   a   contract   should   contain   some   stipulation   in   favor   of   a   third  
  person,  he  may  demand  its  fulfillment  provided  he  communicated  
To  guarantee  the  payment  of  the  property,  Corazon  executed  a   his   acceptance   to   the   obligor   before   its   revocation.   A   mere  
Promissory   Note   for   P2,448,960   in   favor   of   respondent.   incidental   benefit   or   interest   of   a   person   is   not   sufficient.  The  
  contracting  parties  must  have  clearly  and  deliberately  conferred  a  
By   respondent’s   claim,   Mendiola   advised   her   to   transfer   the   favor  upon  a  third  person  
properties   first   to   Corazon   for   the   immediate   processing   of  
Corazon’s   loan   application   with   assurance   that   the   proceeds  
For   Liwayway   to   prove   her   claim   against   petitioner,   a   clear   and  
thereof   would   be   paid   directly   to   her   (respondent),   and   the  
deliberate   act   of   conferring   a   favor   upon   her   must   be   present.   A  
obligation   would   be   reflected   in   a   bank   guarantee.  
written   request   would   have   sufficed   to   prove   this,   given   the   nature  
 
of  a  banking  business,  not  to  mention  the  amount  involved.  
Heeding   Mendiola’s   advice,   respondent   executed   a   Deed   of  
Absolute   Sale   over   the   properties   in   favor   of   Corazon   following  
which,   Transfer   Certificates   of   Title   Nos.   164159   and   164160   IN  FINE,  Liwayway’s  cause  of  action  lies  against  only  Corazon.  
were  issued  in  the  name  of  Corazon.  
   
Corazon’s   application   for   a   loan   with   PBTC’s   Tondo   Branch   was  
approved.   She   thereupon   executed   a   real   estate   mortgage  
covering   the   properties   to   secure   the   payment   of   the   loan.   In  
the   absence   of   a   written   request   for   a   bank   guarantee,   the  
PBTC  released  the  proceeds  of  the  loan  to  Corazon.  
 
Respondent  eventually  accepted  from  Corazon  partial  payment  
in   kind   consisting   of   one   owner   type   jeepney   and   four  
passenger   jeepneys,   plus   installment   payments,   which,   by   the  
trial   court’s   computation,   totaled   P665,000.  
 
In   view   of   Corazon’s   failure   to   fully   pay   the   purchase   price,  
respondent   filed   a   complaint   for   collection   of   sum   of   money  
and   annulment   of   sale   and   mortgage   with   damages,   against  
Corazon   and   PBTC   (hereafter   petitioner),   before   the   Regional  
Trial  Court.  
 
Corazon   denied   that   there   was   an   agreement   that   the  
proceeds  of  the  loan  would  be  paid  directly  to  respondent.  And  
she  claimed  that  the  vehicles  represented  full  payment  of  the  
properties,  and  had  in  fact  overpaid  P76,040.  
Petitioner   also   denied   that   there   was   any   arrangement  
between   it   and   respondent   that   the   proceeds   of   the   loan  
would  be  released  to  her.  It  claimed  that  it  “may  process  a  loan  
application   of   the   registered   owner   of   the   real   property   who  
requests  that  proceeds  of  the  loan  or  part  thereof  be  payable  
directly  to  a  third  party  [but]  the  applicant  must  submit  a  letter  
request  to  the  Bank.”  
 
ASIAN   CATHAY   FINANCE   AND   LEASING   CORP.   VS.   SPS.   Records   show   that   the   amount   of   loan   obtained   by   respondents   on  
GRAVADOR  ET.  AL   October   22,   1999   was   ₱800,000.00.   Respondents   paid   the  
ISSUE:     WON   THE   THE   INTEREST   RATES   IMPOSED   ON   THE   installment   for   November   1999,   but   failed   to   pay   the   subsequent  
RESPONDENT’S   LOAN   AND   THE   WIAVER   OF   THE   RIGHT   OF   ones.   On   February   1,   2000,   ACFLC   demanded   payment   of  
REDEMPTION  ARE  VALID   ₱1,871,480.00.  In  a  span  of  three  months,  respondents’  obligation  
  ballooned  by  more  than  ₱1,000,000.00.  ACFLC  failed  to  show  any  
On   October   22,   1999,   petitioner   Asian   Cathay   Finance   and   computation   on   how   much   interest   was   imposed   and   on   the  
Leasing  Corporation  (ACFLC)  extended  a  loan  of  Eight  Hundred   penalties   charged.   Thus,   we   fully   agree   with   the   CA   that   the  
4
Thousand   Pesos   (₱800,000.00)  to   respondent   Cesario   amount  claimed  by  ACFLC  is  unconscionable.  
Gravador,   with   respondents   Norma   de   Vera   and   Emma    
Concepcion   Dumigpi   as   co-­‐makers.   The   loan   was   payable   in   Stipulations   authorizing   the   imposition   of   iniquitous   or  
sixty   (60)   monthly   installments   of   ₱24,400.00   each.   To   secure   unconscionable  interest  are  contrary  to  morals,  if  not  against  the  
the   loan,   respondent   Cesario   executed   a   real   estate   law.   Under   Article   1409   of   the   Civil   Code,   these   contracts   are  
5
mortgage  over  his  property.   inexistent   and   void   from   the   beginning.   They   cannot   be   ratified  
  nor  the  right  to  set  up  their  illegality  as  a  defense  be  waived.  The  
Respondents   paid   the   initial   installment   due   in   November   nullity   of   the   stipulation   on   the   usurious   interest   does   not,  
1999.  However,  they  were  unable  to  pay  the  subsequent  ones.   however,   affect   the   lender’s   right   to   recover   the   principal   of   the  
  loan.   A   legal   interest   of   12%   per   annum   will   be   added   in   place   of  
Respondents  requested  for  an  additional  period  to  settle  their   the  excessive  interest  formerly  imposed.  
account,   but   ACFLC   denied   the   request.   Petitioner   filed   a    
petition   for   extrajudicial   foreclosure   of   mortgage   with   the   Settled   is   the   rule   that   for   a   waiver   to   be   valid   and   effective,   it  
Office  of  the  Deputy  Sheriff  of  Malolos,  Bulacan.   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  
On   April   7,   2000,   respondents   filed   a   suit   for   annulment   of   real   right   or   benefit   which   legally   pertains   to   him.   Additionally,   the  
estate   mortgage   and   promissory   note   with   damages   and   intention   to   waive   a   right   or   an   advantage   must   be   shown   clearly  
 
prayer  for  issuance  of  a  temporary  restraining  order  (TRO)  and   and   convincingly. Unfortunately,   ACFLC   failed   to   convince   us   that  
writ   of   preliminary   injunction.   Respondents   claimed   that   the   respondents  waived  their  right  of  redemption  voluntarily.  
real  estate  mortgage  is  null  and  void.  They  pointed  out  that  the    
mortgage   does   not   make   reference   to   the   promissory   note   The   supposed   waiver   by   the   mortgagors   was   contained   in   a  
dated  October  22,  1999.  The  promissory  note  does  not  specify   statement  made  in  fine  print  in  the  REM.  It  was  made  in  the  form  
the  maturity  date  of  the  loan,  the  interest  rate,  and  the  mode   and   language   prepared   by   [petitioner]ACFLC   while   the  
of   payment;   and   it   illegally   imposed   liquidated   damages.   The   [respondents]  merely  affixed  their  signatures  or  adhesion  thereto.  
real   estate   mortgage,   on   the   other   hand,   contains   a   provision   It  thus  partakes  of  the  nature  of  a  contract  of  adhesion.  It  is  settled  
on   the   waiver   of   the   mortgagor’s   right   of   redemption,   a   that   doubts   in   the   interpretation   of   stipulations   in   contracts   of  
provision  that  is  contrary  to  law  and  public  policy.   adhesion   should   be   resolved   against   the   party   that   prepared   them.  
[Petitioner]   ACFLC   presented   no   evidence   hence   it   failed   to   show  
the  efficacy  of  this  waiver.  
 
Moreover,   to   say   that   the   mortgagor’s   right   of   redemption   may  
be   waived   through   a   fine   print   in   a   mortgage   contract   is,   in   the  
last   analysis,   tantamount   to   placing   at   the   mortgagee’s   absolute  
disposal   the   property   foreclosed.   It   would   render   practically  
nugatory  this  right  that  is  provided  by  law  for  the  mortgagor  for  
reasons   of   public   policy.   A   contract   of   adhesion   may   be   struck  
down   as   void   and   unenforceable   for   being   subversive   to   public  
policy,   when   the   weaker   party   is   completely   deprived   of   the  
 
opportunity  to  bargain  on  equal  footing.
 
VELASCO  VS.  CA   It   is   clear   to   Us   that   petitioners   did   construct,   furnishing   the  
ISSUE:   WON   GSIS   HAS   PRIVITY   OF   CONTRACT   WITH   THE   materials   and   labor   needed   for   the   purpose   the   63   houses   that  
PETITIONERS   now  belong  to  or  are  owned  by  respondent  GSIS.  
 
Alta  Farms  secured  from  the  GSIS  a  Three  Million  Two  Hundred   In   other   words,   apart   from-­‐   admitting   expressly   that   "the  
Fifty   Five   Thousand   Pesos   (P3,255,000.00)   loan   and   an   constructions   of   houses   and   improvements   has   greatly   increased  
additional   loan   of   Five   Million   Sixty-­‐Two   Thousand   Pesos   the  value"  of  the  subdivision  it  now  owns,  nowhere  in  its  statement  
(P5,062,000.00)   on   October   5,   1967,   to   finance   a   piggery   of   the   material   facts   in   Paragraph   5   of   its   answer   relative   to   the  
project.   Alta   Farms   defaulted   in   the   payment   of   its   allegations  of  the  petitioners  regarding  the  construction  by  them  of  
amortizations.  it  is  presumably  because  of  this  that  Alta  Farms   the   houses   in   dispute   and   the   cost   thereof   to   each   of   them   does  
executed   a   Deed   of   Sale   With   Assumption   of   Mortgage   with   respondent   deny   said   facts   as   not   true.   What   GSIS   limitedly   alleged  
Asian   Engineering   Corporation   but   without   the   previous   in   its   answer   is   the   legal   proposition   that   it   is   not   liable   therefor  
consent   or   approval   of   the   GSIS   and   in   direct   violation   of   the   because  of  lack  of  contractual  privity  between  it  and  petitioners.  It  
provisions  of  the  mortgage  contracts.   may  be  safely  said  then  that  it  does  not  now  lie  in  the  lips  of  GSIS  to  
maintain  that  petitioners  did  not  build  the  houses  in  question  and  
that   the   cost   thereof   is   different   from   what   petitioners   have   stated  
Even   without   the   approval   of   the   Deed   of   Sale   With  
in  their  complaint.    
Assumption   of   Mortgage   by   the   GSIS,   Asian   Engineering  
Even   if   what   is   unnatural   in   ordinary   business   or   industrial  
Corporation  executed  an  Exclusive  Sales  Agency,  Management  
experience  were  assumed,  that  is,  that  GSIS  was  unaware  all  along  
and   Administration   Contract   in   favor   of   Laigo   Realty  
during  the  period  of  their  construction  of  the  work  then  being  done  
Corporation,  with  the  intention  of  converting  the  piggery  farm  
by   petitioners   -­‐   albeit   it   is   possible   there   was   no   express   consent  
into   a   subdivision.   And   on   October   20,   1969,   Asian   Engineering  
given  to  -­‐  by  and  thru  the  aforementioned  deed  of  quitclaim,  GSIS  
executed   another   contract   with   Laigo,   whereby   Laigo   was   to  
agreed   to   receive   and   did   actually   receive   the   benefits   of   what  
undertake  the  development  of  the  property  into  a  subdivision.  
petitioners   had   accomplished   or   would   accomplish   under   their  
Conformably   with   the   two   contracts,   Laigo   started   the  
contracts   with   Laigo.,   So   much   so,   that   the   dispositive   portion   of  
development  of  the  lot  into  a  subdivision.  
the   quitclaim   dead   does   not   really   relieve   GSIS   from   liability   to  
petitioners.   Properly   viewed,   GSIS   virtually   assumed   under   said  
After  developing  the  area,  on  December  4,  1969,  Laigo  entered   deed,   liability   in   regard   to   claims   like   those   of   petitioners   who  
into   a   contract   with   the   petitioners   in   the   case   at   bar   for   the   might   not   be   paid   by   Laigo   albeit   said   liability   has   been   made  
latter  to  construct  houses  in  the  subdivision.  However,  despite   subject  to  the  reservation  that  it  could  seek  indemnity  from  Laigo.  
completion  of  the  construction  of  the  units.  Laigo  failed  to  pay  
the   petitioners   for   the   labor   and   the   materials   used   by   the  
GSIS   received   Alta   Farms'   proposal   about   the   conversion   of   their  
latter.   piggery   project   into   a   subdivision   (in   which   Laigo   Realty's  
participation   was   mentioned)   as   early   as   February   5,   1970.   It   was  
When   the   petitioners   could   not   collect   from   Laigo   and   the   only  in  November,  1970  that  it  issued  its  "cease  and  desist"  order.  
home   buyers   and   after   the   GSIS   foreclosed   the   subdivision   From  all  indications,  the  jobs  of  petitioners  were  already  practically  
including   the   improvements   (the   houses   constructed),   the   finished  then.  
petitioners  sent  a  letter  of  demand  on  August  3,  1974  for  GSIS  
to  pay  for  the  indebtedness  of  Laigo  Realty  Corporation.   Again,   it   is   thus   obvious   that   GSIS   assumed   ownership   of   the  
houses  built  by  petitioners  and  was  benefited  by  the  same,  and  the  
On  August  12.  1974,  the  Assistant  General  Manager  on  A  legal   fact  that  it  has  not  collected  any  payment  from  the  "house  owners"  
affairs   -­‐   he   GSIS   categorically   and   specifically   denied   the   an   the   or  the  construction  of  the  houses  respectively  occupied  by  them  is  
firm   and   clear   legal   ground,   among   others,   that   the   has  no   of   no   moment   insofar   as   its   liability   to   petitioners   is   concerned.  
privity  of  contract  with  the  petitioners.   Surely,   it   is   not   pretended   that   those   "house   owners"   would   be  
allowed  to  enrich  themselves  at  the  expense  of  petitioners.  
 
 
Upon   the   foregoing   factual   premises,   the   legal   issue   that   arises   is  
whether  or  not  GSIS  is  liable  to  the  petitioners  for  the  cost  of  the  
materials   and   labor   furnished   by   them   in   construction   of   the   63  
houses  now  owned  by  the  GSIS  and  for  the  construction  of  which  
no   payment   has   been   made   on   the   balance   due   petitioners.   Our  
considered  view  is  and  We  so  hold  that  even  in  equity  alone,  GSIS  
should   pay   the   petitioners.   After   all,   it   admits   it   has   not   collected  
from  the  ones  who  appear  to  be  the  buyers  thereof,  albeit  it  must  
be  collecting  the  installments  on  the  lots.  All  it  has  to  do  then  is  to  
pass  on  to  them  what  it  has  to  pay  petitioners.  
 
KAUFFMAN  VS.  PNB   The   only   express   provision   of   law   that   has   been   cited   as   bearing  
ISSUE:   WHETHER   THE   PLAINTIFF   CAN   MAINTAIN   AN   ACTION   directly  on  this  question  is  the  second  paragraph  of  article  1257  of  
AGAINST   THE   BANK   FOR   THE   NONPERFORMANCE   OF   SAID   the   Civil   Code;   and   unless   the   present   action   can   be   maintained  
UNDERTAKING.   IN   OTHER   WORDS,   IS   THE   LACK   OF   PRIVITY   under   the   provision,   the   plaintiff   admittedly   has   no   case.   This  
WITH   THE   CONTRACT   ON   THE   PART   OF   THE   PLAINTIFF   FATAL   provision  states  an  exception  to  the  more  general  rule  expressed  in  
TO  THE  MAINTENANCE  OF  AN  ACTION  BY  HIM?   the  first  paragraph  of  the  same  article  to  the  effect  that  contracts  
  are   productive   of   effects   only   between   the   parties   who   execute  
George  A.  Kauffman,  was  the  president  of  the  Philippine  Fiber   them;   and   in   harmony   with   this   general   rule   are   numerous  
and   Produce   Company,   of   which   company   the   plaintiff   decisions  of  this  court.  
apparently   held   in   his   own   right   nearly   the   entire   issue   of    
capital   stock.   On   February   5,   1918,   the   board   of   directors   of   The   paragraph   introducing   the   exception   which   we   are   now   to  
said  company,  declared  a  dividend  of  P100,000  from  its  surplus   consider   is   in   these   words:   Should   the   contract   contain   any  
earnings  for  the  year  1917,  of  which  the  plaintiff  was  entitled   stipulation   in   favor   of   a   third   person,   he   may   demand   its  
to  the  sum  of  P98,000.  This  amount  was  accordingly  placed  to   fulfillment,  provided  he  has  given  notice  of  his  acceptance  to  the  
his  credit  on  the  books  of  the  company,  and  so  remained  until   person  bound  before  the  stipulation  has  been  revoked.  
in   October   of   the   same   year   when   an   unsuccessful   effort   was    
made   to   transmit   the   whole,   or   a   greater   part   thereof,   to   the   In  the  light  of  the  conclusion  thus  stated,  the  right  of  the  plaintiff  to  
plaintiff  in  New  York  City.   maintain   the   present   action   is   clear   enough;   for   it   is   undeniable  
  that   the   bank's   promise   to   cause   a   definite   sum   of   money   to   be  
In  this  connection  it  appears  that  on  October  9,  1918,  George   paid   to   the   plaintiff   in   New   York   City   is   a   stipulation   in   his   favor  
B.   Wicks,   treasurer   of   the   Philippine   Fiber   and   Produce   within   the   meaning   of   the   paragraph   above   quoted;   and   the  
Company,   presented   himself   in   the   exchange   department   of   circumstances   under   which   that   promise   was   given   disclose   an  
the   Philippine   National   Bank   in   Manila   and   requested   that   a   evident   intention   on   the   part   of   the   contracting   parties   that   the  
telegraphic  transfer  of  $45,000  should  be  made  to  the  plaintiff   plaintiff   should   have   the   money   upon   demand   in   New   York   City.  
in   New   York   City,   upon   account   of   the   Philippine   Fiber   and   The   recognition   of   this   unqualified   right   in   the   plaintiff   to   receive  
Produce   Company.   Accordingly,   Wicks,   as   treasurer   of   the   the   money   implies   in   our   opinion   the   right   in   him   to   maintain   an  
Philippine   Fiber   and   Produce   Company,   thereupon   drew   and   action   to   recover   it;   and   indeed   if   the   provision   in   question   were  
delivered   a   check   for   that   amount   on   the   Philippine   National   not   applicable   to   the   facts   now   before   us,   it   would   be   difficult   to  
Bank;   and   the   same   was   accepted   by   the   officer   selling   the   conceive  of  a  case  arising  under  it.  
exchange  in  payment  of  the  transfer  in  question.    
Upon   receiving   this   telegraphic   message,   the   bank's   It   will   be   noted   that   under   the   paragraph   cited   a   third   person  
representative   in   New   York   sent   a   cable   message   in   reply   seeking  to  enforce  compliance  with  a  stipulation  in  his  favor  must  
suggesting   the   advisability   of   withholding   this   money   from   signify  his  acceptance  before  it  has  been  revoked.  In  this  case  the  
Kauffman,  in  view  of  his  reluctance  to  accept  certain  bills  of  the   plaintiff  clearly  signified  his  acceptance  to  the  bank  by  demanding  
Philippine  Fiber  and  Produce  Company.     payment;   and   although   the   Philippine   National   Bank   had   already  
  directed   its   New   York   agency   to   withhold   payment   when   this  
Meanwhile   Wicks,   the   treasurer   of   the   Philippine   Fiber   and   demand  was  made,  the  rights  of  the  plaintiff  cannot  be  considered  
Produce   Company,   cabled   to   Kauffman   in   New   York,   advising   to   as   there   used,   must   be   understood   to   imply   revocation   by   the  
him  that  $45,000  had  been  placed  to  his  credit  in  the  New  York   mutual   consent   of   the   contracting   parties,   or   at   least   by   direction  
agency  of  the  Philippine  National  Bank;  and  in  response  to  this   of  the  party  purchasing  he  exchange.  
advice   Kauffman   presented   himself   at   the   office   of   the   Upon  the  considerations  already  stated,  we  are  of  the  opinion  that  
Philippine  National  Bank  in  New  York  City  on  October  15,  1918,   the  right  of  action  exists,  and  the  judgment  must  be  affirmed.      
and  demanded  the  money.  By  this  time,  however,  the  message    
from  the  Philippine  National  Bank  of  October  11,  directing  the  
withholding   of   payment   had   been   received   in   New   York,   and  
payment  was  therefore  refused.  
 
In   view   of   these   facts,   the   plaintiff   Kauffman   instituted   the  
present   action   in   the   Court   of   First   Instance   of   the   city   of  
Manila   to   recover   said   sum,   with   interest   and   costs;   and  
judgment  having  been  there  entered  favorably  to  the  plaintiff,  
the  defendant  appealed.  
 
 "if   there   exists   a   cause   of   action   against   the   defendant,   it  
would  not  be  in  favor  of  the  plaintiff  who  had  taken  no  part  at  
all   in   the   transaction   nor   had   entered   into   any   contract   with  
the   plaintiff,   but   in   favor   of   the   Philippine   Fiber   and   Produce  
Company,  the  party  which  contracted  in  its  own  name  with  the  
defendant."  
 
BONIFACIO  BROS.  VS.  MORA   It   is   fundamental   that   contracts   take   effect   only   between   the  
ISSUE:   WON   THERE   IS   PRIVITY   OF   CONTRACT   BETWEEN   parties  thereto,  except  in  some  specific  instance  provided  by  law  
BONIFACIO   AND   AYALA   ON   ONE   HAND   AND   STATE   INSURANCE   where   the   contract   contains   some   stipulation   in   favor   of   a   third  
ON  THE  OTHER   person.     Such  stipulation  is  known  as  a  stipulation  pour  autrui;  or  
  a  provision  in  favor  of  a  third  person  not  a  party  to  the  contract.  
Enrique  Mora  mortgaged  his  Odlsmobile  sedan  car  to  HS  Reyes    
Inc.   with   the   condition   that   Mora   would   insure   the   car   with   HS   Under   this   doctrine,   a   third   person   is   allowed   to   avail   himself   of   a  
Reyes  as  beneficiary.   benefit  granted  to  him  by  the  terms  of  the  contract,  provided  that  
  the   contracting   parties   have   clearly   and   deliberately   conferred   a  
The   car   was   then   insured   with   State   Insurance   Company   and   favor  upon  such  person.    Consequently,  a  third  person  NOT  a  party  
the   policy   delivered   to   Mora.   During   the   effectivity   of   the   to   the   contract   has   NO   action   against   the   parties   thereto,   and  
insurance   contract,   the   car   figured   in   an   accident.     The   cannot  generally  demand  the  enforcement  of  the  same.  
company  then  assigned  the  accident  to  an  insurance  appraiser    
for  investigation  and  appraisal  of  the  damage.   The  question  of  whether  a  third  person  has  an  enforceable  interest  
  in   a   contract   must   be   settled   by   determining   whether   the  
Mora   without   the   knowledge   and   consent   of   HS   Reyes,   contracting   parties   intended   to   tender   him   such   an   interest   by  
authorized   Bonifacio   Bros   to   fix   the   car,   using   materials   deliberately   inserting   terms   in   their   agreement   with   the   avowed  
supplied  by  the  Ayala  Auto  Parts  Company.   purpose   of   conferring   favor   upon   such   third   person.     IN   this  
  connection,  this  court  has  laid  down  the  rule  that  the  fairest  test  
rd
For   the   cost   of   Labor   and   materials,   Mora   was   billed   to   determine   whether   the   interest   of   a   3  person   in   a   contract  
P2,102.73.     The   bill   was   sent   to   the   insurer’s   appraiser.     The   is     a  stipulation  pour  autrui  or  merely  an  incidental  interest,  is  to  
insurance   company   drew   a   check   in   the   amount   of   the   rely   upon   the   intention   of   the   parties   as   disclosed   by   their  
insurance  proceeds  and  entrusted  the  check  to  its  appraiser  for   contract.  
delivery  to  the  proper  party.    
  In   the   instant   case   the   insurance   contract   does   not   contain   any  
The   car   was   delivered   to   Mora   without   the   consent   of   HS   words   or   clauses   to   disclose   an   intent   to   give   any   benefit   to   any  
Reyes,  and  without  payment  to  Bonifacio  Bros  and  Ayala.   repairmen  or  material  men  in  case  of  repair  of  the  car  in  question.  
  The   parties   to   the   insurance   contract   omitted   such   stipulation,  
Upon  the  theory  that  the  insurance  proceeds  should  be  directly   which   is   a   circumstance   that   supports   the   said   conclusion.   On   the  
paid   to   them,   Bonifacio   and   Ayala   filed   a   complaint   against   other   hand,   the   "loss   payable"   clause   of   the   insurance   policy  
Mora   and   the   insurer   with   the   municipal   court   for   the   stipulates  that  "Loss,  if  any,  is  payable  to  H.S.  Reyes,  Inc."  indicating  
collection  of  P2,102.73.   that  it  was  only  the  H.S.  Reyes,  Inc.  which  they  intended  to  benefit.  
   
The  insurance  company  filed  its  answer  with  a  counterclaim  for   A   policy   of   insurance   is   a   distinct   and   independent   contract  
interpleader,  requiring  Bonifacio  and  HS  Reyes  to  interplead  in   between   the   insured   and   insurer,   and   third   persons   have   no   right  
order  to  determine  who  has  a  better  right  to  the  proceeds.   either  in  a  court  of  equity,  or  in  a  court  of  law,  to  the  proceeds  of  it,  
  unless  there  be  some  contract  of  trust,  expressed  or  implied,  by  the  
  insured   and   third   person.     In   this   case,   no   contract   of   trust,   express  
or   implied.   In   this   case,   no   contract   of   trust,   expressed   or   implied  
exists.   We,   therefore,   agree   with   the   trial   court   that   no   cause   of  
action  exists  in  favor  of  the  appellants  in  so  far  as  the  proceeds  of  
insurance   are   concerned.   The   appellant's   claim,   if   at   all,   is   merely  
equitable   in   nature   and   must   be   made   effective   through   Enrique  
Mora  who  entered  into  a  contract  with  the  Bonifacio  Bros  Inc.  This  
conclusion   is   deducible   not   only   from   the   principle   governing   the  
 operation  and  effect  of  insurance  contracts  in  general,  but  is  clearly  
covered   by   the   express   provisions   of   section   50   of   the   Insurance  
Act  (now  Sec.  53).  
 
FLORENTINO  VS.  ENCARNACION   The  stipulation  embodied  in  Exhibit  O-­‐1  on  religious  expenses  is  not  
ISSUE:   WON   THE   STIPULATION   EMBODIED   IN   EXHIBIT   O   ON   revocable  at  the  unilateral  option  of  the  co-­‐owners  and  neither  is  it  
RELIGIOUS  EXPENSES  IS  JUST  AN  ARRANGEMENT  STIPULATION,   binding   only   on   the   petitioners-­‐appellants   Miguel   Florentino,  
OR   GRANT   REVOCABLE   AT   THE   UNILATERAL   OPTION   OF   THE   Rosario   Encarnacion   de   Florentino   Manuel   Arce,   Jose   Florentino,  
COOWNERS.   Victorino  Florentino  Antonio  Florentino,  Remedios  Encarnacion  and  
  Severina   E   It   is   also   binding   on   the   oppositors-­‐appellees   Angel  
On   May   22,   1964,   the   petitioners-­‐appellants   filed   with   the   Encarnacion.  
Court   of   First   Instance   of   ilocos   Sur   an   application   for   the    
registration   under   Act   496   of   a   parcel   of   agricultural   land   Under  Art  1311  of  the  New  Civil  Code,  this  stipulation  takes  effect  
located  at  Barrio  Lubong  Dacquel  Cabugao  Ilocos  Sur.   between  the  parties,  their  assign  and  heirs.  The  article  provides:  
  Art.  1311.  —  Contracts  take  effect  only  between  the  parties,  their  
After  due  notice  and  publication,  the  Court  set  the  application   assigns  and  heirs,  except  in  cases  where  the  rights  and  obligations  
for   hearing.   No   Opposition   whatsoever   was   filed   except   that   of   arising   from   the   contract   are   not   transmissible   by   their   nature,   or  
the   Director   of   Lands   which   was   later   withdrawn,   thereby   by  stipulation  or  by  provision  of  law.  The  heir  is  not  liable  beyond  
leaving  the  option  unopposed.  Thereupon,  an  order  of  general   the  value  of  the  property  he  received  from  the  decedent.  
default   was   withdrawn   against   the   whole   world.   Upon    
application   of   the   asets   the   Clerk   Of   court   was   commission   will   If  a  contract  should  contain  a  stipulation  in  favor  of  a  third  person,  
and  to  have  the  evidence  of  the  agents  and  or  to  submit  the  for   he   may   demand   its   fulfillment   provided   he   communicated   his  
the  Court's  for  resolution.   acceptance  to  the  obligor  before  its  revocation.  A  mere  incidental  
The   crucial   point   in   controversy   in   this   registration   case   is   benefit   or   interest   of   a   person   is   not   sufficient.   The   contracting  
centered  in  the  stipulation  marked  Exhibit  O-­‐1  embodied  in  the   parties  must  have  clearly  and  deliberately  conferred  a  favor  upon  a  
deed   of   extrajudicial   partition   (Exhibit   O)   dated   August   24,   third  person.  
1947.    
In   his   testimony   during   the   trial,   applicant   Miguel   Florentino   The  second  paragraph  of  Article  1311  above-­‐quoted  states  the  law  
asked  the  court  to  include  the  said  stipulation  (Exhibit  O-­‐1)  as   on  stipulations  pour  autrui.  Consent  the  nature  and  purpose  of  the  
an   encumbrance   on   the   land   sought   to   be   registered,   and   motion   (Exh.   O-­‐1),   We   hold   that   said   stipulation   is   a   station  pour  
cause   the   entry   of   the   same   on   the   face   of   the   title   that   will   autrui.   A  stipulation   pour  autrui  is   a   stipulation   in   favor   of   a   third  
finally   be   issued.   Opposing   its   entry   on   the   title   as   an   person  conferring  a  clear  and  deliberate  favor  upon  him,  and  which  
encumbrance,   petitionersappellee   Salvador   Encamacion,   Sr.,   stipulation   is   merely   a   part   of   a   contract   entered   into   by   the  
Salvador   Encarnaciori,   Jr.   and   Angel   Encarriacion   filed   on   parties,   neither   of   whom   acted   as   agent   of   the   third   person,   and  
October   3,   1966   a   manifestation   seeking   to   withdraw   their   such   third   person   and   demand   its   fulfillment   provoked   that   he  
3
application  on  their  respective  shares  of  the  land  sought  to  be   communicates   his   to   the   obligor   before   it   is   revoked.    The  
registered.   The   withdrawal   was   opposed   by   the   petitioners-­‐ requisites   are:   (1)   that   the   stipulation   in   favor   of   a   third   person  
appellants.   should   be   a   part,   not   the   whole,   of   the   contract;   (2)   that   the  
  favorable  stipulation  should  not  be  conditioned  or  compensated  by  
any  kind  of  obligation  whatever;  and  (3)  neither  of  the  contracting  
bears  the  legal  represented  or  authorization  of  third  person.  
 
To  constitute  a  valid  stipulation  pour  autrui  it  must  be  the  purpose  
and  intent  of  the  stipulating  parties  to  benefit  the  third  and  it  is  not  
sufficient   that   the   third   person   may   be   incidentally   benefited   by  
the  stipulation.  The  fairest  test  to  determine  whether  the  interest  
of   third   person   in   a   contract   is   a   stipulation  pour   autrui  or   merely  
an   incidental   interest,   is   to   rely   upon   the   intention   of   the   parties   as  
disclosed   by   their   contract.   In   applying   this   test,   it   meters   not  
whether  the  stipulation  is  in  the  nature  of  a  gift  or  whether  there  is  
an  obligation  owing  from  the  promisee  to  the  third  person.  That  no  
such   obsorption   exists   may   in   some   degree   assist   in   determining  
whether  the  parties  intended  to  benefit  a  third  person  
 
In  the  case  at  bar,  the  determining  point  is  whether  the  co-­‐owners  
intended   to   benefit   the   Church   when   in   their   extrajudicial   partition  
of  several  parcels  of  land  inherited  by  them  from  Doña  Encarnacion  
Florendo   they   agreed   that   with   respect   to   the   land   situated   in  
Barrio   Lubong   Dacquel   Cabugao   Ilocos   Sur,   the   fruits   thereof   shall  
serve  to  defray  the  religious  expenses  specified  in  Exhibit  O-­‐1.  The  
evidence   on   record   shows   that   the   true   intent   of   the   parties   is   to  
confer  a  direct  and  material  benefit  upon  the  Church.  The  fruits  of  
the  aforesaid  land  were  used  thenceforth  to  defray  the  expenses  of  
the  Church  in  the  preparation  and  celebration  of  the  Holy  Week,  an  
annual   Church   function.   Suffice   it   to   say   that   were   it   not   for   Exhibit  
 O-­‐1,  the  Church  would  have  necessarily  expended  for  this  religious  
occasion,   the   annual   relisgious   procession   during   the   Holy   Wock  
and  also  for  the  repair  and  preservation  of  all  the  statutes,  for  the  
celebration  of  the  Seven  Last  Word.  
 
It   is   not   disputed   that   from   the   time   of   the   with   of   Doña  
Encarnacion  Florentino  in  1941,  as  had  always  been  the  case  since  
time  immemorial  up  to  a  year  before  the  firing  of  their  application  
in   May   1964,   the   Church   had   been   enjoying   the   benefits   of   the  
stipulation.   The   enjoyment   of   benefits   flowing   therefrom   for  
almost   seventeen   years   without   question   from   any   quarters   can  
only   be   construed   as   an   implied   acceptance   by   the   Church   of   the  
stipulation  pour   autrui  before   its   revocation.   The   acceptance   does  
not  have  to  be  in  any  particular  form,  even  when  the  stipulation  is  
for  the  third  person  an  act  of  liberality  or  generosity  on  the  part  of  
the  promisor  or  promise.  
 
Hence,  the  stipulation  (Exhibit  O-­‐1)  cannot  now  be  revoked  by  any  
of  the  stipulators  at  their  own  option.  This  must  be  so  because  of  
Article  1257,  Civil  Code  and  the  cardinal  rule  of  contracts  that  it  has  
the  force  of  law  between  the  parties.  
 
 
BANK  OF  AMERICA  VS.  IAC   It   is   our   considered   opinion   that,   in   the   tested   telex,   considered  
ISSUE:   WON   THE   AGREEMENT   BETWEEN   KYOWA   AND   BANK   either   as   a   patent   ambiguity   or   as   a   latent   ambiguity,   the  
AMERICA  CONTAINS  A  STIPULATION  POUR  ATRUI   beneficiary  is  Minami.  The  mention  of  Account  No.  24506-­‐01-­‐7,  as  
  well  as  the  name  of  Minami,  has  to  be  given  more  weight  than  the  
Plaintiff   Air   Cargo   and   Travel   Corporation   is   the   owner   of   mention  of  the  name  of  ACTC.    
Account  Number  19842-­‐01-­‐2  with  defendant  Bank  of  America.    
Defendant  Toshiyuki  Minami,  President  of  plaintiff  corporation   In  Vargas  Plow  Factory,  Inc.  vs.  Central  Bank,  it  was  held  that  "the  
in   Japan,   is   the   owner   of   Account   Number   24506-­‐01-­‐7   with   opening   of   a   letter   of   credit   in   favor   of   the   exporter   becomes  
defendant  Bank.   ultimately   but   the   result   of   a   stipulation  pour   autrui"   (27   SCRA   84  
  [1969]).  Similarly,  when  KYOWA  asked  BANK-­‐AMERICA  to  pay  an  
On   March   10,   1981,   the   Bank   received   a  tested   telex   amount   to   a   beneficiary   (either   ACTC   or   Minami),   the   contract  
advise  from  Kyowa  Bank  of  Japan  stating,   was   between   KYOWA   and   BANK-­‐AMERICA   and   it   had   a  
ADVISE   PAY   USDLS   23,595.   —   TO   YOUR   A/C   NBR   24506-­‐01-­‐7   stipulation  pour  autrui.  
OF  A.  C.  TRAVEL  CORPORATION  MR.  TOSHIYUKO  MINAMI.    
and  the  Bank  Credited  the  amount  of  US$23,595.00  to  Account   As   the   entity   responsible   for   the   tested   telex   was   Tokyo   Tourist  
Number   24506-­‐07-­‐1   (should   be   24506-­‐01-­‐7)   owned,   as   Corporation,  it  can  reasonably  be  concluded  that  if  it  had  intended  
aforesaid,  by  Minami.   that   the   US$23,595.00   should   be   credited   to   ACTC,   upon   learning  
  that   the   amount   was   credited   to   Minami,   it   should   have   gone,  
On  March  12,  1981,  Minami  withdrew  the  sum  of  P180,000.00   together   with   the   representatives   of   ACTC,   in   protest   to   KYOWA  
the  equivalent  in  Philippine  Pesos  of  the  sum  of  US$23,595.00   and  lodged  a  protest.  Since  that  was  not  done,  it  could  well  be  that  
from  the  Bank  on  his  Account  Number  24506-­‐07-­‐1  (should  be   Tokyo  Tourist  Corporation  had  really  intended  its  remittance  to  be  
24506-­‐01-­‐7)   credited   to   Minami.   The   identity   of   the   beneficiary   should   be   in  
Evidently,   there   was   a   previous   contractual   agreement   accordance   with   the   identification   made   by   KYOWA,   and   ACTC  
between   Kyowa   Bank   of   Japan   (KYOWA)   and   Petitioner   cannot   question   that   identification   as   it   is   not   a   party   to   the  
(BANKAMERICA)   that,   from   time   to   time,   KYOWA   can   ask   arrangement   between   KYOWA   and   BANKAMERICA   (see   Manila  
BANKAMERICA   to   pay   amounts   to   a   third   party   (beneficiary)   Railroad  Co.  vs.  Compañia  Trasatlantica,  38  Phil.  875  [1918]).  
with   BANKAMERICA   afterwards   billing   KYOWA   the   indicated  
amount  given  to  the  beneficiary.  To  assure  itself  that  an  Order  
received   from   KYOWA   really   comes   from   KYOWA,   it   is   usually  
agreed   that   KYOWA's   signature   will   be   in   accordance   with   a  
confidential  code.  
 
When   the   tested   telex   was   received   on   May   10,   1981,  
employees   of   BANKAMERICA   noted   its   patent   ambiguity.  
Notwithstanding,  on  the  following  day,  BANKAMERICA  credited  
the   amount   of   US$23,595.00   to   the   account   of   Minami.   ACTC  
claimed   that   the   amount   should   have   been   credited   to   its  
account   and   demanded   restitution,   but   BANKAMERICA  
refused.  
 
MARIMPERIO  VS.  CA   According  to  Article  1311  of  the  Civil  Code,  a  contract  takes  effect  
ISSUE:   WHETHER   OR   NOT   RESPONDENTS   HAVE   THE   LEGAL   between  the  parties  who  made  it,  and  also  their  assigns  and  heirs,  
CAPACITY   TO   BRING   THE   SUIT   FOR   SPECIFIC   PERFORMANCE   except   in   cases   where   the   rights   and   obligations   arising   from   the  
AGAINST  PETITIONER  BASED  ON  THE  CHARTER  PARTY   contract  are  not  transmissible  by  their  nature,  or  by  stipulation  or  
In  1964,  Philippine  Traders  Corporation  and  Union  Import  and   by   provision   of   law.   Since   a   contract   may   be   violated   only   by   the  
Export   Corporation   entered   into   a   joint   business   venture   for   parties,   thereto   as   against   each   other,   in   an   action   upon   that  
the  purchase  of  copra  from  Indonesia  for  sale  in  Europe.  James   contract,   the   real   parties   in   interest,   either   as   plaintiff   or   as  
Liu  President  and  General  Manager  of  the  Union  took  charge  of   defendant,  must  be  parties  to  said  contract.  Therefore,  a  party  who  
the   European   market   and   the   chartering   of   a   vessel   to   take   the   has  not  taken  part  in  it  cannot  sue  or  be  sued  for  performance  or  
copra   to   Europe.   Peter   Yap   of   Philippine   on   the   other   hand,   for  cancellation  thereof,  unless  he  shows  that  he  has  a  real  interest  
found   one   P.T.   Karkam   in   Dumai   Sumatra   who   had   around   affected  thereby.  
4,000   tons   of   copra   for   sale.   Exequiel   Toeg   of   Interocean   was    
commissioned  to  look  for  a  vessel  and  he  found  the  vessel  "SS   In   a   contract   of   sub-­‐lease,   the   personality   of   the   lessee   does   not  
Paxoi"   of   Marimperio   available.   Philippine   and   Union   disappear;   he   does   not   transmit   absolutely   his   rights   and  
authorized   Toeg   to   negotiate   for   its   charter   but   with   obligations  to  the  sub-­‐lessee;  and  the  sub-­‐lessee  generally  does  not  
instructions  to  keep  confidential  the  fact  that  they  are  the  real   have  any  direct  action  against  the  owner  of  the  premises  as  lessor,  
charterers.   to   require   the   compliance   of   the   obligations   contracted   with   the  
Consequently   on   March   21,   1965,   in   London   England,   a   plaintiff  as  lessee,  or  vice  versa.  
"Uniform   Time   Charter"   for   the   hire   of   vessel   "Paxoi"   was    
entered  into  by  the  owner,  Marimperio  Compania  Naviera,  S.A.   However,   there   are   at   least   two   instances   in   the   Civil   Code   which  
through   its   agents   N.   &   J.   Vlassopulos   Ltd.   and   Matthews   allow  the  lessor  to  bring  an  action  directly  (accion  directa)  against  
Wrightson,   Burbridge,   Ltd.   to   be   referred   to   simply   as   the   sub-­‐lessee   (use   and   preservation   of   the   premises   under   Art.  
Matthews,   representing   Interocean   Shipping   Corporation,   1651,  and  rentals  under  Article  1652).  
which   was   made   to   appear   as   charterer,   although   it   merely    
acted   in   behalf   of   the   real   charterers,   private   respondents   It  will  be  noted  however  that  in  said  two  Articles  it  is  not  the  sub-­‐
herein.   lessee,   but   the   lessor,   who   can   bring   the   action.   In   the   instant  
n   view   of   the   aforesaid   Charter,   on   March   30,   1965   plaintiff   case,   it   is   clear   that   the   sub-­‐lessee   as   such   cannot   maintain   the  
Charterer   cabled   a   firm   offer   to   P.T.   Karkam   to   buy   the   4,000   suit  they  filed  with  the  trial  court.  
tons   of   copra   for   U.S.$180.00   per   ton,   the   same   to   be   loaded    
either   in   April   or   May,   1965.   The   offer   was   accepted   and   In  the  law  of  agency  "with  an  undisclosed  principal,  the  Civil  Code  
plaintiffs   opened   two   irrevocable   letters   of   Credit   in   favor   of   in  Article  1883  reads:  
P.T.  Karkam.   If   an   agent   acts   in   his   own   name,   the   principal  
  has  no  right  of  action  against  the  persons  with  
The   Charterer   was   however   twice   in   default   in   its   payments   whom   the   agent   has   contracted;   neither   have  
which  were  supposed  to  have  been  done  in  advance.   such  persons  against  the  principal.  
  In  such  case  the  agent  is  the  one  directly  bound  
Although  the  late  payments  for  the  charter  of  the  vessel  were   in   favor   of   the   person   with   whom   he   has  
received   and   acknowledged   by   Vlassopulos   without   comment   contracted,   as   if   the   transaction   were   his   own,  
or  protest,  said  agent  notified  Matthews,  by  telex  on  April  23,   except   when   the   contract   involves   things  
1965   that   the   shipowners   in   accordance   with   Clause   6   of   the   belonging  to  the  principal.  
Charter   Party   were   withdrawing   the   vessel   from   Charterer's   The   provisions   of   this   article   shag   be  
service   and   holding   said   Charterer   responsible   for   unpaid   understood   to   be   without   prejudice   to   the  
hirings  and  all  legal  claims.   actions  between  the  principal  and  agent.  
   
respondents   Union   Import   and   Export   Corporation   and   While  in  the  instant  case,  the  true  charterers  of  the  vessel  were  the  
Philippine  Traders  Corporation  filed  a  complaint  with  the  Court   private  respondents  herein  and  they  chartered  the  vessel  through  
of   First   Instance   of   Manila,   Branch   VIII,   against   the   Unknown   an   intermediary   which   upon   instructions   from   them   did   not  
Owners  of  the  Vessel  "SS  Paxoi"  for  specific  performance  with   disclose   their   names.   Article   1883   cannot   help   the   private  
prayer   for   preliminary   attachment,   alleging,   among   other   respondents,  because  although  they  were  the  actual  principals  in  
things,   that   the   defendants   (unknown   owners)   through   their   the   charter   of   the   vessel,   the   law   does   not   allow   them   to   bring  
duly   authorized   agent   in   London,   the   N   &   J   Vlassopulos   Ltd.,   any  action  against  the  adverse  party  and  vice,  versa.  
ship  brokers,  entered  into  a  contract  of  Uniform  Time-­‐Charter    
with   the   Interocean   Shipping   Company   of   Manila   through   the    
latter's   duly   authorized   broker,   the   Overseas   Steamship   Co.,    
Inc.,   for   the   Charter   of   the   vessel   SS   PAXOI'   under   the   terms  
and   conditions   appearing   therein   ...;   that,   immediately  
thereafter,   the   Interocean   Shipping   Company   sublet,the   said  
vessel   to   the   plaintiff   Union   Import   &   Export,   Corporation  
which   in   turn   sublet   the   same   to   the   other   plaintiff,   the  
Philippine  Traders  Corporation.  
 
DAYWALT  VS.  CORP.  DE  PPAGUSTINOS   The  defendant  corporation,  having  notice  of  the  sale  of  the  land  in  
ISSUE:   WHETHER   A   PERSON   WHO   IS   NOT   A   PARTY   TO   A   question  to  Daywalt,  might  have  been  enjoined  by  the  latter  from  
CONTRACT   FOR   THE   SALE   OF   LAND   MAKES   HIMSELF   LIABLE   using   the   property   for   grazing   its   cattle   thereon.   That   the  
FOR   DAMAGES   TO   THE   VENDEE,   BEYOND   THE   VALUE   OF   THE   defendant   corporation   is   also   liable   in   this   action   for   the   damage  
USE   AND   OCCUPATION,   BY   COLLUDING   WITH   THE   VENDOR   resulting   to   the   plaintiff   from   the   wrongful   use   and   occupation   of  
AND  MAINTAINING  HIM  IN  THE  EFFORT  TO  RESIST  AN  ACTION   the   property   has   also   been   already   determined.   But   it   will   be  
FOR  SPECIFIC  PERFORMANCE.     observed  that  in  order  to  sustain  this  liability  it  is  not  necessary  to  
  resort   to   any   subtle   exegesis   relative   to   the   liability   of   a   stranger   to  
Teoderica   Endencia   obligated   herself   to   convey   to   Geo   W.   a  contract  for  unlawful  interference  in  the  performance  thereof.  It  
Daywalt  a  tract  of  land.  The  deed  should  be  executed  as  soon   is   enough   that   defendant   use   the   property   with   notice   that   the  
as   the   tittle   of   the   land   is   perfected.   There   was   a   decree   plaintiff  had  a  prior  and  better  right.  
recognizing   Teoderica   as   the   owner   of   land   but   the   Torrens    
certificate   was   not   issued   until   later.   The   parties   met   Article   1257   of   the   Civil   Code   declares   that   contracts   are   binding  
immediately  upon  the  entering  of  the  decree  and  made  a  new   only  between  the  parties  and  their  privies.  In  conformity  with  this  it  
contract.   has   been   held   that   a   stranger   to   a   contract   has   no   right   of   action  
There   was   a   development   of   Teoderica’s   land   as   the   Torrens   for  the  nonfulfillment  of  the  contract  except  in  the  case  especially  
title   was   issued   and   in   view   of   this   development   she   became   contemplated  in  the  second  paragraph  of  the  same  article.  (Uy  Tam  
reluctant  to  transfer  the  whole  tract  of  land  asserting  that  she   and   Uy   Yet  vs.  Leonard,   30   Phil.   Rep.,   471.)   As   observed   by   this  
never   intended   to   sell   the   large   amount   of   land   and   that   she   court  in  Manila  Railroad  Co.  vs.  Compañia  Transatlantica,  R.  G.  No.  
was  misinformed  by  the  area  of  the  land.   11318  (38  Phil.  Rep.,  875),  a  contract,  when  effectually  entered  into  
After   the   Torrens   title   was   issued   to   Teoderica   she   gave   it   to   between   certain   parties,   determines   not   only   the   character   and  
the   defendant   company   for   safekeeping   in   which   the   extent  of  the  liability  of  the  contracting  parties  but  also  the  person  
defendant  did  so.  As  Teodorica  still  retained  possession  of  said   or  entity  by  whom  the  obligation  is  exigible.  The  same  idea  should  
property   Father   Sanz   entered   into   an   arrangement   with   her   apparently  be  applicable  with  respect  to  the  person  against  whom  
whereby   large   numbers   of   cattle   belonging   to   the   defendant   the  obligation  of  the  contract  may  be  enforced;  for  it  is  evident  that  
corporation  were  pastured  upon  said  land.   there   must   be   a   certain   mutuality   in   the   obligation,   and   if   the  
  stranger   to   a   contract   is   not   permitted   to   sue   to   enforce   it,   he  
cannot  consistently  be  held  liable  upon  it.  
 
Whatever  may  be  the  character  of  the  liability  which  a  stranger  to  a  
contract   may   incur   by   advising   or   assisting   one   of   the   parties   to  
evade   performance,   there   is   one   proposition   upon   which   all   must  
agree.  This  is,  that  the  stranger  cannot  become  more  extensively  
liable   in   damages   for   the   nonperformance   of   the   contract   than  
the   party   in   whose   behalf   he   intermeddles.   To   hold   the   stranger  
liable   for   damages   in   excess   of   those   that   could   be   recovered  
against  the  immediate  party  to  the  contract  would  lead  to  results  
at   once   grotesque   and   unjust.   In   the   case   at   bar,   as   Teodorica  
Endencia   was   the   party   directly   bound   by   the   contract,   it   is  
obvious   that   the   liability   of   the   defendant   corporation,   even  
admitting  that  it  has  made  itself  coparticipant  in  the  breach  of  the  
contract,  can  in  no  even  exceed  hers.  This  leads  us  to  consider  at  
this   point   the   extent   of   the   liability   of   Teodorica   Endencia   to   the  
plaintiff  by  reason  of  her  failure  to  surrender  the  certificate  of  title  
and  to  place  the  plaintiff  in  possession.  
 
The   discussion   contained   in   the   opinion   of   the   court   in   that   case  
leads  to  the  conclusion  that  the  damages  recoverable  in  case  of  the  
breach   of   a   contract   are   two   sorts,   namely,   (1)   the   ordinary,  
natural,  and  in  a  sense  necessary  damage;  and  (2)  special  damages.  
GILCHRIST  VS.  CUDDY   The   ground   upon   which   the   appellants   base   this   contention   is,   that  
ISSUE:   WERE   THE   APPELLANTS   LIKEWISE   LIABLE   FOR   there   was   no   valid   and   binding   contract   between   Cuddy   and  
INTERFERING   WITH   THE   CONTRACT   BETWEEN   GILCHRIST   AND   Gilchrist   and   that,   therefore,   they   had   a   right   to   compete   with  
CUDDY,   THEY   NOT   KNOWING   AT   THE   TIME   THE   IDENTITY   OF   Gilchrist   for   the   lease   of   the   film,   the   right   to   compete   being   a  
ONE  OF  THE  CONTRACTING  PARTIES   justification   for   their   acts.   If   there   had   been   no   contract   between  
  Cuddy   and   Gilchrist   this   defense   would   be   tenable,   but   the   mere  
Cuddy   was   the   owner   of   the   film   Zigomar   and   that   on   the   24th   right   to   compete   could   not   justify   the   appellants   in   intentionally  
of  April  he  rented  it  to  C.  S.  Gilchrist  for  a  week  for  P125,  and  it   inducing  Cuddy  to  take  away  the  appellee's  contractual  rights.  
was   to   be   delivered   on   the   26th   of   May,   the   week   beginning    
that  day.  A  few  days  prior  to  this  Cuddy  sent  the  money  back   In   the   case   at   bar   the   only   motive   for   the   interference   with   the  
to   Gilchrist,   which   he   had   forwarded   to   him   in   Manila,   saying   Gilchrist   —   Cuddy   contract   on   the   part   of   the   appellants   was   a  
that  he  had  made  other  arrangements  with  his  film.  The  other   desire  to  make  a  profit  by  exhibiting  the  film  in  their  theater.  There  
arrangements   was   the   rental   to   these   defendants   Espejo   and   was   no   malice   beyond   this   desire;   but   this   fact   does   not   relieve  
his  partner  for  P350  for  the  week  and  the  injunction  was  asked   them   of   the   legal   liability   for   interfering   with   that   contract   and  
by  Gilchrist  against  these  parties  from  showing  it  for  the  week   causing   its   breach.   It   is,   therefore,   clear,   under   the   above  
beginning  the  26th  of  May.   authorities,   that   they   were   liable   to   Gilchrist   for   the   damages  
  caused  by  their  acts,  unless  they  are  relieved  from  such  liability  by  
It   appears   from   the   testimony   in   this   case,   conclusively,   that   reason  of  the  fact  that  they  did  not  know  at  the  time  the  identity  
Cuddy   willfully   violated   his   contract,   he   being   the   owner   of   the   of  the  original  lessee  (Gilchrist)  of  the  film.  
picture,   with   Gilchrist  because  the  defendants  had   offered   him    
more   for   the   same   period.   Mr.   Espejo   at   the   trial   on   the   The   liability   of   the   appellants   arises   from   unlawful   acts   and   not  
permanent   injunction   on   the   26th   of   May   admitted   that   he   from   contractual   obligations,   as   they   were   under   no   such  
knew  that  Cuddy  was  the  owner  of  the  film.   obligations  to  induce  Cuddy  to  violate  his  contract  with  Gilchrist.  
So  that  if  the  action  of  Gilchrist  had  been  one  for  damages,  it  would  
be  governed  by  chapter  2,  title  16,  book  4  of  the  Civil  Code.  Article  
1902  of  that  code  provides  that  a  person  who,  by  act  or  omission,  
causes  damages  to  another  when  there  is  fault  or  negligence,  shall  
be   obliged   to   repair   the   damage   do   done.   There   is   nothing   in   this  
article  which  requires  as  a  condition  precedent  to  the  liability  of  a  
tort-­‐feasor   that   he   must   know   the   identity   of   a   person   to   whom   he  
causes   damages.   In   fact,   the   chapter   wherein   this   article   is   found  
clearly  shows  that  no  such  knowledge  is  required  in  order  that  the  
injured  party  may  recover  for  the  damage  suffered.  
But   the   fact   that   the   appellants'   interference   with   the   Gilchrist  
contract  was  actionable  did  not  of  itself  entitle  Gilchrist  to  sue  out  
an  injunction  against  them.    
 
So  far  as  the  preliminary  injunction  issued  against  the  appellants  is  
concerned,   which   prohibited   them   from   exhibiting   the   Zigomar  
during  the  week  which  Gilchrist  desired  to  exhibit  it,  we  are  of  the  
opinion   that   the   circumstances   justified   the   issuance   of   that  
injunction  in  the  discretion  of  the  court.  
 
ESTATE  OF  KH  HEMADY  VS.  LUZON  SURETY   We   find   this   reasoning   untenable.   Under   the   present   Civil   Code  
ISSUE:  WON  UPON  THE  DEATH  OF  HEMADY,  HIS  LIABILITY  AS  A   (Article   1311),   as   well   as   under   the   Civil   Code   of   1889   (Article  
GUARANTOR  TERMINATED,  AND  THEREFORE,  IN  THE  ABSENCE   1257),  the  rule  is  that  —  
OF  A  SHOWING  THAT  A  LOSS  OR  DAMAGE  WAS  SUFFERED,  THE   “Contracts   take   effect   only   as   between   the   parties,   their   assigns  
CLAIM  CANNOT  BE  CONSIDERED  CONTINGENT.   and   heirs,   except   in   the   case   where   the   rights   and   obligations  
  arising   from   the   contract   are   not   transmissible   by   their   nature,   or  
The   Luzon   Surety   Co.   had   filed   a   claim   against   the   Estate   based   by  stipulation  or  by  provision  of  law.”  
on   twenty   different   indemnity   agreements,   or   counter   bonds,   While  in  our  successional  system  the  responsibility  of  the  heirs  for  
each  subscribed  by  a  distinct  principal  and  by  the  deceased  K.   the   debts   of   their   decedent   cannot   exceed   the   value   of   the  
H.   Hemady,   a   surety   solidary   guarantor)   in   all   of   them,   in   inheritance  they  receive  from  him,  the  principle  remains  intact  that  
consideration   of   the   Luzon   Surety   Co.’s   of   having   guaranteed,   these  heirs  succeed  not  only  to  the  rights  of  the  deceased  but  also  
the  various  principals  in  favor  of  different  creditors.   to  his  obligations.    
   
The   Luzon   Surety   Co.,   prayed   for   allowance,   as   a   contingent   In   Mojica   vs.   Fernandez,   9   Phil.   403,   this   Supreme   Court  
claim,   of   the   value   of   the   twenty   bonds   it   had   executed   in   ruled:chanroblesvirtuallawlibrary“Under  the  Civil  Code  the  heirs,  by  
consideration   of   the   counterbonds,   and   further   asked   for   virtue   of   the   rights   of   succession   are   subrogated   to   all   the   rights  
judgment   for   the   unpaid   premiums   and   documentary   stamps   and   obligations   of   the   deceased   (Article   661)   and   cannot   be  
affixed  to  the  bonds,  with  12  per  cent  interest  thereon.   regarded   as   third   parties   with   respect   to   a   contract   to   which   the  
  deceased  was  a  party,  touching  the  estate  of  the  deceased.  
 
“The  principle  on  which  these  decisions  rest  is  not  affected  by  the  
provisions  of  the  new  Code  of  Civil  Procedure,  and,  in  accordance  
with  that  principle,  the  heirs  of  a  deceased  person  cannot  be  held  
to  be  “third  persons”  in  relation  to  any  contracts  touching  the  real  
estate  of  their  decedent  which  comes  in  to  their  hands  by  right  of  
inheritance;  chan   roblesvirtualawlibrarythey   take   such   property  
subject   to   all   the   obligations   resting   thereon   in   the   hands   of   him  
from  whom  they  derive  their  rights.”  
 
Under   our   law,   therefore,   the   general   rule   is   that   a   party’s  
contractual   rights   and   obligations   are   transmissible   to   the  
successors.    
 
Of   the   three   exceptions   fixed   by   Article   1311,   the   nature   of   the  
obligation   of   the   surety   or   guarantor   does   not   warrant   the  
conclusion  that  his  peculiar  individual  qualities  are  contemplated  as  
a  principal  inducement  for  the  contract.    
 
The   second   exception   of   Article   1311,   p.   1,   is   intransmissibility   by  
stipulation   of   the   parties.   Being   exceptional   and   contrary   to   the  
general  rule,  this  intransmissibility  should  not  be  easily  implied,  but  
must   be   expressly   established,   or   at   the   very   least,   clearly   inferable  
from   the   provisions   of   the   contract   itself,   and   the   text   of   the  
 agreements   sued   upon   nowhere   indicate   that   they   are   non-­‐
transferable.   Because   under   the   law   (Article   1311),   a   person   who  
enters  into  a  contract  is  deemed  to  have  contracted  for  himself  and  
his  heirs  and  assigns,  it  is  unnecessary  for  him  to  expressly  stipulate  
to  that  effect;  chan  roblesvirtualawlibraryhence,  his  failure  to  do  so  
is  no  sign  that  he  intended  his  bargain  to  terminate  upon  his  death.  
 
The   third   exception   to   the   transmissibility   of   obligations   under  
Article   1311   exists   when   they   are   “not   transmissible   by   operation  
of   law”.   The   provision   makes   reference   to   those   cases   where   the  
law   expresses   that   the   rights   or   obligations   are   extinguished   by  
death,   as   is   the   case   in   legal   support   (Article   300),   parental  
authority  (Article  327),  usufruct  (Article  603),  contracts  for  a  piece  
of  work  (Article  1726),  partnership  (Article  1830  and  agency  (Article  
1919).   By   contract,   the   articles   of   the   Civil   Code   that   regulate  
guaranty  or  suretyship  (Articles  2047  to  2084)  contain  no  provision  
that  the  guaranty  is  extinguished  upon  the  death  of  the  guarantor  
or  the  surety.  
 
The  contracts  of  suretyship  entered  into  by  K.  H.  Hemady  in  favor  
of  Luzon  Surety  Co.  not  being  rendered  intransmissible  due  to  the  
nature  of  the  undertaking,  nor  by  the  stipulations  of  the  contracts  
themselves,   nor   by   provision   of   law,   his   eventual   liability  
thereunder   necessarily   passed   upon   his   death   to   his   heirs.   The  
contracts,  therefore,  give  rise  to  contingent  claims  provable  against  
his  estate  under  section  5,  Rule  87  
 
 
 
SO  PING  BUN  VS.  CA   Damage   is   the   loss,   hurt,   or   harm   which   results   from   injury,   and  
ISSUE:   WHETHER   OR   NOT   SO   PING   BUN   ACTED   AS   damages   are   the   recompense   or   compensation   awarded   for   the  
6
INTERMEDDLER   IN   VIOLATION   OF   ARTICLE   1314   OF   THE   NEW   damage   suffered.    One   becomes   liable   in   an   action   for   damages  
CIVIL  CODE.   for   a   nontrespassory   invasion   of   another's   interest   in   the   private  
  use  and  enjoyment  of  asset  if  (a)  the  other  has  property  rights  and  
Tek   Hua   Trading   Co.   entered   into   lease   agreement   with   the   privileges   with   respect   to   the   use   or   enjoyment   interfered   with,   (b)  
lessor   Dee   C.   Chuan   and   Sons   Inc.   (DCCSI).   When   Tek   Hua   the   invasion   is   substantial,   (c)   the   defendant's   conduct   is   a   legal  
Trading  Co.  was  later  dissolved  and  the  original  members  built   cause  of  the  invasion,  and  (d)  the  invasion  is  either  intentional  and  
Tek  Hua  Trading  Corp.  The  grandson  of  the  partners  named  So   unreasonable   or   unintentional   and   actionable   under   general  
 
Ping   Bun,   after   the   death   of   his   grandfather,   continued   negligence  rules.  
occupying  the  warehouse  for  his  own  textile  business.    
  The   elements   of   tort   interference   are:   (1)   existence   of   a   valid  
In   a   letter   to   petitioner,   the   owner   of   Tek   Hua   Trading   Corp.   contract;   (2)   knowledge   on   the   part   of   the   third   person   of   the  
informed   the   petitioner   to   vacate   the   warehouse.   Petitioner   existence   of   contract;   and   (3)   interference   of   the   third   person   is  
refused  and  requested  formal  contracts  of  lease  with  DCCSI  to   without  legal  justification  or  excuse.  
which   it   acceded   and   a   new   lease   of   contract   in   favor   of    
Trendsetter  was  executed.   In   the   case   before   us,   petitioner's   Trendsetter   Marketing   asked  
  DCCSI   to   execute   lease   contracts   in   its   favor,   and   as   a   result  
Tek   Hua   Enterprises   Corp.   then   petitioned   the   court   for   petitioner   deprived   respondent   corporation   of   the   latter's   property  
injuction,  nullification  of  the  lease  contract  between  DCCSI  and   right.   Clearly,   and   as   correctly   viewed   by   the   appellate   court,   the  
So  Ping  Bun  and  damages,  to  which  the  Regional  Trial  Court  of   three   elements   of   tort   interference   above-­‐mentioned   are   present  
Manila   Branch   35   granted   and   was   affirmed   by   the   Court   of   in  the  instant  case.  
Appeals.    
14
Hence,  this  petition  for  certiorari.   As  early  as  Gilchrist  vs.  Cuddy,    we  held  that  where  there  was  no  
  malice   in   the   interference   of   a   contract,   and   the   impulse   behind  
one's   conduct   lies   in   a   proper   business   interest   rather   than   in  
wrongful  motives,  a  party  cannot  be  a  malicious  interferer.  Where  
the   alleged   interferer   is   financially   interested,   and   such   interest  
motivates   his   conduct,   it   cannot   be   said   that   he   is   an   officious   or  
 
malicious  intermeddler.  
 
In  the  instant  case,  it  is  clear  that  petitioner  So  Ping  Bun  prevailed  
upon   DCCSI   to   lease   the   warehouse   to   his   enterprise   at   the  
expense   of   respondent   corporation.   Though   petitioner   took  
interest   in   the   property   of   respondent   corporation   and   benefited  
from  it,  nothing  on  record  imputes  deliberate  wrongful  motives  or  
 malice  on  him.  
 
Sec.   1314   of   the   Civil   Code   categorically   provides   also   that,   "Any  
third   person   who   induces   another   to   violate   his   contract   shall   be  
liable   for   damages   to   the   other   contracting   party."   Petitioner  
argues   that   damage   is   an   essential   element   of   tort   interference,  
and  since  the  trial  court  and  the  appellate  court  ruled  that  private  
respondents   were   not   entitled   to   actual,   moral   or   exemplary  
damages,   it   follows   that   he   ought   to   be   absolved   of   any   liability,  
including  attorney's  fees.  
It  is  true  that  the  lower  courts  did  not  award  damages,  but  this  was  
only  because  the  extent  of  damages  was  not  quantifiable.  We  had  
a  similar  situation  in  Gilchrist,  where  it  was  difficult  or  impossible  to  
determine  the  extent  of  damage  and  there  was  nothing  on  record  
to  serve  as  basis  thereof.  In  that  case  we  refrained  from  awarding  
damages.  We  believe  the  same  conclusion  applies  in  this  case.  
 
The  respondent  appellate  court  correctly  confirmed  the  permanent  
injunction   and   nullification   of   the   lease   contracts   between   DCCSI  
and   Trendsetter   Marketing,   without   awarding   damages.   The  
injunction   saved   the   respondents   from   further   damage   or   injury  
caused  by  petitioner's  interference.  
SANICO  AND  CASTRO  VS.  COLIPANO   Only  Sanico  breached  the  contract  of  carriage.  
ISSUE:  WHETHER  THE  CA  ERRED  IN  FINDING  THAT  SANICO  AND    
CASTRO   BREACHED   THE   CONTRACT   OF   CARRIAGE   WITH   Here,  it  is  beyond  dispute  that  Colipano  was  injured  while  she  was  
COLIPANO;   a  passenger  in  the  jeepney  owned  and  operated  by  Sanico  that  was  
  being   driven   by   Castro.   Both   the   CA   and   RTC   found   Sanico   and  
Colipano   filed   a   complaint   on   January   7,   1997   for   breach   of   Castro   jointly   and   severally   liable.   This,   however,   is   erroneous  
contract   of   carriage   and   damages   against   Sanico   and   because  only  Sanico  was  the  party  to  the  contract  of  carriage  with  
[4]
Castro.  In   her   complaint,   Colipano   claimed   that   at   4:00   P.M.   Colipano.  
more   or   less   of   December   25,   1993,  Christmas   Day,   she   and   Since   the   cause   of   action   is   based   on   a   breach   of   a   contract   of  
her   daughter   were;   paying   passengers   in   the   jeepney   operated   carriage,   the   liability   of   Sanico   is   direct   as   the   contract   is   between  
[5]
by  Sanico,  which  was  driven  by  Castro.  Colipano  claimed  she   him   and   Colipano.   Castro,   being   merely   the   driver   of   Sanico's  
was  made  to  sit  on  an  empty  beer  case  at  the  edge  of  the  rear   jeepney,  cannot  be  made  liable  as  he  is  not  a  party  to  the  contract  
entrance/exit   of   the   jeepney   with   her   sleeping   child   on   her   of  carriage.  
[6]
lap.  And,   at   an   uphill   incline   in   the   road   to   Natimao-­‐an,    
Carmen,   Cebu,   the   jeepney   slid   backwards   because   it   did   not   In  Soberano  v.  Manila  Railroad  Co.,the  Court  ruled  that  a  complaint  
[7]
have   the   power   to   reach   the   top.  Colipano   pushed   both   her   for   breach   of   a   contract   of   carriage   is   dismissible   as   against   the  
feet   against   the   step   board   to   prevent   herself   and   her   child   employee   who   was   driving   the   bus   because   the   parties   to   the  
from  being  thrown  out  of  the  exit,  but  because  the  step  board   contract  of  carriage  are  only  the  passenger,  the  bus  owner,  and  the  
was   wet,   her   left   foot   slipped   and   got   crushed   between   the   operator.  
step   board   and   a   coconut   tree   which   the   jeepney   bumped,    
causing   the   jeepney   to   stop   its   backward   Since   Castro   was   not   a   party   to   the   contract   of   carriage,   Colipano  
[8]
movement.  Colipano's   leg   was   badly   injured   and   was   had  no  cause  of  action  against  him  and  the  pomplaint  against  him  
[9]
eventually   amputated.  Colipano   prayed   for   actual   damages,   should  be  dismissed.  Although  he  was  driving  the  jeepney,  he  was  a  
loss   of   income,   moral   damages,   exemplary   damages,   and   mere  employee  of  Sanico,  who  was  the  operator  and  owner  of  the  
attorney's  fees.   jeepney.  The  obligation  to  carry  Colipano  safely  to  her  destination  
  was   with   Sanico.   In   fact,   the   elements   of   a   contract   of   carriage  
existeid   between   Colipano   and   Sanico:  consent,   as   shown   when  
Castro,   as   employee   of   Sanico,   accepted   Colipano   as   a   passenger  
when   he   allowed   Colipano   to   board   the   jeepney,   and   as   to  
Colipano,   when   she   boarded   the   jeepney;  cause   or   consideration,  
when   Colipano,   for   her   part,   paid   her   fare;   and,  object,   the  
transportation  of  Colipano  from  the  place  of  departure  to  the  place  
of  destination.  
 
SANCHEZ  VS.  RIGOS   ART.   1479.   A   promise   to   buy   and   sell   a   determinate   thing   for   a  
ISSUE:    WAS  THERE  A  CONTRACT  TO  BUY  AND  SELL  BETWEEN   price  certain  is  reciprocally  demandable.  
THE  PARTIES  OR  ONLY  A  UNILATERAL  PROMISE  TO  SELL   An   accepted   unilateral   promise   to   buy   or   sell   a   determinate   thing  
  for   a   price   certain   is   binding   upon   the   promisor   if   the   promise   is  
Nicolas   Sanchez   and   Severina   Rigos   executed   an   instrument   supported  by  a  consideration  distinct  from  the  price.  
entitled   “Option   toPurchase”   wherein   Mrs.   Rigos   agreed,    
promised   and   committed   to   sell   to   Mr.   Sancheza   parcel   of   land   There  is  no  question  that  under  article  1479  of  the  new  Civil  Code  
for  the  amount  of  P1,  510.  00  within  two  years  from  the  date   "an  option  to  sell,"  or  "a  promise  to  buy  or  to  sell,"  as  used  in  said  
of  the  instrument,  with  the  understanding  that  the  said  option   article,   to   be   valid   must   be   "supported   by   a   consideration   distinct  
shall   be   deemed   terminated   and   elapsed   if   Mr.   Sanchez   shall   from   the   price."   This   is   clearly   inferred   from   the   context   of   said  
fail   to   exercise   his   right   to   buy   the   property   within   the   article  that  a  unilateral  promise  to  buy  or  to  sell,  even  if  accepted,  is  
stipulated  period.   only   binding   if   supported   by   consideration.   In   other   words,   "an  
Mrs.   Rigos   agreed   and   committed   to   sell   and   Mr.   Sanchez   accepted   unilateral   promise   can   only   have   a   binding   effect   if  
agreed   and   committed   to   buy.   But   there   is   nothing   in   the   supported   by   a   consideration   which   means   that   the   option   can  
contract   to   indicate   that   her   agreement,   promise   and   still  be  withdrawn,  even  if  accepted,  if  the  same  is  not  supported  
undertaking   is   supported   by   a   consideration   distinct   from   the   by  any  consideration.  It  is  not  disputed  that  the  option  is  without  
price   stipulated   for   the   sale   of   the   land.   Mr.   Sanchez   has   made   consideration.  It   can   therefore   be   withdrawn   notwithstanding   the  
several   tenders   of   payment   in   the   said   amount   within   the   acceptance  of  it  by  appellee.  
period   before   any   withdrawal   from   the   contract   has   been    
made  by  Mrs.  Rigos,  but  were  rejected  nevertheless.   However,  this  Court  itself,  in  the  case  of  Atkins,  Kroll  and  Co.,  Inc.  v.  
 8
  Cua   Hian   Tek, decided   later   that  Southwestern   Sugar   &   Molasses  
 9
Co.   v.   Atlantic   Gulf   &   Pacific   Co., saw   no   distinction   between  
Articles   1324   and   1479   of   the   Civil   Code   and   applied   the   former  
where   a   unilateral   promise   to   sell   similar   to   the   one   sued   upon  
here   was   involved,   treating   such   promise   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.   Speaking   through   Associate  
Justice,  later  Chief  Justice,  Cesar  Bengzon,  this  Court  said:  
Furthermore,  an  option  is  unilateral:  a  promise  to  sell  at  the  price  
fixed   whenever   the   offeree   should   decide   to   exercise   his   option  
within   the   specified   time.   After   accepting   the   promise   and  before  
he   exercises   his   option,   the   holder   of   the   option   is   not   bound   to  
buy.   He   is   free   either   to   buy   or   not   to   buy   later.   In   this   case,  
however,   upon   accepting   herein   petitioner's   offer   a   bilateral  
promise   to   sell   and   to   buy   ensued,   and   the   respondent  ipso  
facto  assumed  the  obligation  of  a  purchaser.  He  did  not  just  get  the  
right  subsequently  to  buy  or  not  to  buy.  It  was  not  a  mere  option  
then;  it  was  a  bilateral  contract  of  sale.  
 
Lastly,   even   supposing   that   Exh.   A   granted   an   option   which   is   not  
binding  for  lack  of  consideration,  the  authorities  hold  that:  
"If  the  option  is  given  without  a  consideration,  it  is  a  mere  offer  of  
a  contract  of  sale,  which  is  not  binding  until  accepted.  If,  however,  
acceptance   is   made   before   a   withdrawal,   it   constitutes   a   binding  
contract   of   sale,   even   though   the   option   was   not   supported   by   a  
sufficient  consideration.  ...  .  (77  Corpus  Juris  Secundum,  p.  652.  See  
also  27  Ruling  Case  Law  339  and  cases  cited.)  "It  can  be  taken  for  
granted,   as   contended   by   the   defendant,   that   the   option   contract  
was   not   valid   for   lack   of   consideration.   But   it   was,   at   least,   an   offer  
to   sell,   which   was   accepted   by   letter,   and   of   the   acceptance   the  
offerer   had   knowledge   before   said   offer   was   withdrawn.   The  
concurrence  of  both  acts  -­‐  the  offer  and  the  acceptance  -­‐  could  at  
all   events   have   generated   a   contract,   if   none   there   was   before  
(arts.   1254   and   1262   of   the   Civil   Code)."   (Zayco   vs.   Serra,   44   Phil.  
331.)  
 
In   other   words,   since   there   may   be   no   valid   contract   without   a  
cause  or  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.    
 
TONG  BROTHERS  VS.  IAC   The   applicable   laws   on   work   done   upon   a   vessel   are   the   general  
ISSUE:   WHETHER   OR   NOT   THERE   WAS   A   PERFECTED   rules  on  contract.  A  contract  may  be  entered  into  in  whatever  form  
CONTRACT   BETWEEN   THE   PETITIONER   AND   THE   PRIVATE   except  where  the  law  requires  a  document  or  other  special  form  as  
RESPONDENT  TO  REPAIR  THE  VESSEL  ZAMBOANGA-­‐J.   in  the  contracts  enumerated  in  Article  1388  of  the  Civil  Code.  The  
  general  rule,  therefore,  is  that  a  contract  may  be  oral  or  written.    
The   petitioner   is   a   registered   general   partnership   engaged   in    
the   construction   and   repair   of   vessels   with   drydocking   facilities   Article  1315  of  the  Civil  Code  provides:  
at  Recodo  Zamboanga  del  Sur  while  the  private  respondent  is  a   Contracts   are   perfected   by   mere   consent,   and   from   that   moment  
domestic   corporation   engaged   in   the   coastwise   shipping   the  parties  are  bound  not  only  to  the  fulfillment  of  what  has  been  
industry   operating   for   that   purpose   the   vessel   M/S   expressly   stipulated   but   also   to   all   the   consequences   which,  
Zamboanga-­‐J.   according  to  their  nature,  may  be  in  keeping  with  good  faith,  usage  
  and  law.  
The   private   respondent   allegedly   contracted   with   the    
petitioner  the  annual  drydocking  and  repair  of  the  Zamboanga-­‐ while  Article  1319  thereof  provides:  
J.   On   the   ground   that   the   petitioner   did   not   complete   and   Consent   is   manifested   by   the   meeting   of   the   offer   and   the  
execute  all  the  work  necessary,  essential  and  indispensable  to   acceptance   upon   the   thing   and   the   cause   which   are   to   constitute  
rendering   the   vessel   seaworthy   resulting   in   its   deterioration   the   contract.   The   offer   must   be   certain   and   the   acceptance  
and  total  loss,  the  private  respondent  filed  a  complaint  against   absolute.  A  qualified  acceptance  constitutes  a  counter-­‐offer.  
the   petitioner   for   specific   performance   and   damages   with   the    
Court  of  First  Instance  of  Cotabato.   As   can   be   gleaned   from   the   exchange   of   telegrams   between   the  
The   petitioner   denied   that   there   was   a   perfected   contract   to   two   parties,   there   was   not   yet   a   meeting   of   the   minds   as   to   the  
repair  Zamboanga-­‐J  between  the  two  parties.   cause  of  the  contract.  The  cause  of  a  contract  has  been  defined  "as  
  the  essential  reason  which  moves  the  contracting  parties  to  enter  
into   it   (8   Manresa,   5th   Edition,   p.   450).   In   other   words,   the   cause   is  
the   immediate,   direct   and   proximate   reason   which   justifies   the  
creation  of  an  obligation  thru  the  will  of  the  contracting  parties  (3  
Castan,   4th   Edition,   p.   347)."   (General   Enterprises,   Inc.   v.   Lianga  
Bay   Logging   Co.,   Inc.,   11   SCRA   733,   739).   For   the   private  
respondent,   the   cause   of   the   contract   was   the   repair   of   its   vessel  
Zamboanga-­‐J   while   for   the   petitioner   the   cause   would   be   its  
commitment   to   repair   the   vessel   and   make   it   seaworthy.   The  
telegrams   dated   January   17,   January   20,   and   January   28,   1975   sent  
by   the   petitioner   to   the   private   respondent,   however,   indicate   that  
the  former  had  not  accepted  the  repair  of  Zamboanga-­‐J,  the  reason  
being  that  the  extent  of  the  repair  to  be  made  necessitated  a  major  
expense   so   that   the   petitioner   insisted   on   the   presence   of   the  
private   respondent   for   evaluation   before   it   accepted   the   repair   of  
the  wooden  vessel.    
 
Under  the  circumstances,  we  rule  that  the  proximate  cause  of  the  
total   loss   of   Zamboanga-­‐J   was   the   negligence   of   the   private  
respondent.   Breach   of   contract   by   the   appellant   could   not   have  
been   the   proximate   cause   as   there   was   no   perfected   contract  
between   the   parties   to   repair   Zamboanga-­‐J.   Hence,   the   private  
respondent   is   not   entitled   to   recover   damages   against   the   private  
respondent.  
 
VELASCO  VS.  CA   The   court  a   quo  agreed   with   the   respondent's   (defendant   therein)  
ISSUE:    WON  A  CONTRACTED  SALE  WAS  PERFECTED  BETWEEN   contention   that   no   contract   of   sale   was   perfected   because   the  
THE  PARTIES.   minds   of   the   parties   did   not   meet   "in   regard   to   the   manner   of  
  payment."   The   court   a   quo   appraisal   of   this   aspect   of   the   action  
Petitioner:  On   November   29,   1962   parties   entered   into   below   is   correct.   The   material   averments   contained   in   the  
contract   of   sale   of   land   for  P100,000.   The   payment   terms   petitioners'   complaint   themselves   disclose   a   lack   of   complete  
would   be   a   down   payment   of  P10,000   and   20,000   and   "agreement   in   regard   to   the   manner   of   payment"   of   the   lot   in  
the  P70,000   is   payable   in   installment.   Petitioner   then   paid   question.  The  complaint  states  pertinently:  
the  P10,000   down   payment   on   November   29,   1962.   On    
January   8,   1964   he   paid   the   remaining   20,000   but   the   4.  That  plaintiff  and  defendant  further  agreed  that  the  total  down  
respondent  refused  to  accept  and  execute  a  deed  of  sale.   payment   shall   by   P30,000.00,   including   the   P10,000.00   partial  
Respondent:  No   contract   of   sale   was   perfected   because   the   payment   mentioned   in   paragraph   3   hereof,   and   that   upon  
minds  of  the  parties  did  not  meet.  The  property  was  leased  by   completion   of   the   said   down   payment   of   P30,000.00,   the   balance  
Socorro   Velasco   and   the   defendant   indicated   willingness   in   of   P70,000.00   shall   be   said   by   the   plaintiff   to   the   defendant   in   10  
selling   the   property   for   100,000   under   the   terms   of   P30,000   years  from  November  29,  1962;  
down   payment,   20,000   of   which   to   be   paid   on   November   30,    
1962  and  the  remaining  70,000  is  payable  in  10  years  with  9%   5.   That   the   time   within   the   full   down   payment   of   the   P30,000.00  
interest   per   annum.   On   November   29,   1962   Socorro   paid   was   to   be   completed   was   not   specified   by   the   parties   but   the  
10,000,   short   of   the   alleged   20,000   agreed   down   payment.   defendant   was   duly   compensated   during   the   said   time   prior   to  
However,   said   payment   was   accepted.   On   January   8,   1964   completion   of   the   down   payment   of   P30,000.00   by   way   of   lease  
Socorro   tendered   the   20,000   down   payment   but   defendant   rentals   on   the   house   existing   thereon   which   was   earlier   leased   by  
refused   to   accept   because   the   latter   considered   the   contract   defendant   to   the   plaintiff's   sister-­‐in-­‐law,   Socorro   J.   Velasco,   and  
rescinded  on  the  account  the  former’s  failure  to  complete  the   which   were   duly   paid   to   the   defendant   by   checks   drawn   by  
down  payment  on  or  before  December  31,  1962.   plaintiff.  
   
It  is  not  difficult  to  glean  from  the  aforequoted  averments  that  the  
petitioners   themselves   admit   that   they   and   the   respondent   still  
had   to   meet   and   agree   on   how   and   when   the   down-­‐payment   and  
 the   installment   payments   were   to   be   paid.   Such   being   the  
situation,   it   cannot,   therefore,   be   said   that   a   definite   and   firm  
sales  agreement  between  the  parties  had  been  perfected  over  the  
lot  in  question.  Indeed,  this  Court  has  already  ruled  before  that  a  
definite   agreement   on   the   manner   of   payment   of   the   purchase  
price   is   an   essential   element   in   the   formation   of   a   binding   and  
3
unforceable   contract   of   sale.  The   fact,   therefore,   that   the  
petitioners   delivered   to   the   respondent   the   sum   of   P10,000   as   part  
of  the  down-­‐payment  that  they  had  to  pay  cannot  be  considered  as  
sufficient   proof   of   the   perfection   of   any   purchase   and   sale  
agreement   between   the   parties   herein   under   article   1482   of   the  
new   Civil   Code,   as   the   petitioners   themselves   admit   that   some  
essential  matter  —  the  terms  of  payment  —  still  had  to  be  mutually  
covenanted.  
 
CLEMENTE  VS.  CA,  JALANDOON   The  Deeds  of  Absolute  Sale  between  petitioner  and  the  late  Adela  
ISSUE:   WON   THE   DEEDS   OF   ABSOLUTE   SALE   BETWEEN   Shotwell  are  null  and  void  for  lack  of  consent  and  consideration.  
PETITIONER   AND   HER   LATE   GRANDMOTHER   OVER   THE    
PROPERTIES  ARE  SIMULATED  AND  WITHOUT  CONSIDERATION,   A.  Simulated  contract  
AND  HENCE,  VOID  AND  INEXISTENT.   The   Civil   Code   defines   a   contract   as   a   meeting   of   minds   between  
  two  persons  whereby  one  binds  himself,  with  respect  to  the  other,  
43
Adela  owned  three  (3)  adjoining  parcels  of  land  in  Quezon  City,   to   give   something   or   to   render   some   service.  Article   1318  
subdivided   as   Lots   32,   34   and   35-­‐B.   provides   that   there   is   no   contract   unless   the   following   requisites  
  concur:  
Sometime   in   1985   and   1987,   Adela   simulated   the   transfer   of   (1)  Consent  of  the  contracting  parties;  
Lots  32  and  Lot  34  to  her  two  grandsons  (Carlos  Jr  and  Dennis   (2)  Object  certain  which  is  the  subject  matter  of  the  contract;  and  
Shotwell).   (3)  Cause  of  the  obligation  which  is  established.  
   
On   April   18,   1989,   prior   to   Adela   and   petitioner’s   departure   for   All   these   elements   must   be   present   to   constitute   a   valid   contract;  
the   United   States,   Adela   requested   Carlos   Jr.   and   Dennis   to   the   absence   of   one   renders   the   contract   void.   As   one   of   the  
execute   a   deed   of   reconveyance   over   Lots   32   and   34   which   essential  elements,  consent  when  wanting  makes  the  contract  non-­‐
were   in   fact   executed   and   registered   with   the   Register   of   existent.  Consent  is  manifested  by  the  meeting  of  the  offer  and  the  
Deeds.   acceptance  of  the  thing  and  the  cause,  which  are  to  constitute  the  
44
  contract.  A  contract  of  sale  is  perfected  at  the  moment  there  is  a  
On   April   25,   1989,   Adela   executed   a   deed   of   absolute   sale11   meeting   of   the   minds   upon   the   thing   that   is   the   object   of   the  
 
over   Lots   32   and   34,   and   their   improvements,   in   favor   of   contract,  and  upon  the  price.
petitioner,   bearing   on   its   face   the   price   of   ¬250,000.00.   On   the    
same   day,   Adela   also   executed   a   special   power   of   attorney   Here,  there  was  no  valid  contract  of  sale  between  petitioner  and  
(SPA)   in   favor   of   petitioner.   Petitioner’s   authority   under   the   Adela   because   their   consent   was   absent.   The   contract   of   sale   was  
SPA   included   the   power   to   administer,   take   charge   and   a  mere  simulation.  
manage,   for   Adela’s   benefit,   the   Properties   and   all   her   other    
real   and   personal   properties   in   the   Philippines.   Simulation   takes   place   when   the   parties   do   not   really   want   the  
  contract  they  have  executed  to  produce  the  legal  effects  expressed  
46
When  petitioner  returned  to  the  Philippines,  she  registered  the   by   its   wordings.  Article   1345   of   the   Civil   Code   provides   that   the  
sale  over  Lots  32  and  34.  Soon  thereafter,  petitioner  sought  to   simulation   of   a   contract   may   either   be   absolute   or   relative.   The  
eject  Annie  and  Carlos  Sr  who  thereafter  filed  a  complaint  for   former  takes  place  when  the  parties  do  not  intend  to  be  bound  at  
reconveyance   of   the   property.   They   alleged   that   Adela   only   all;  the  latter,  when  the  parties  conceal  their  true  agreement.  
wanted   to   help   petitioner   travel   to   the   United   States,   by    
making   it   appear   that   petitioner   has   ownership   of   the   In   absolute   simulation   there   appears   to   be   a   valid   contract   but  
Properties.   They   further   alleged   that   similar   to   the   previous   there   is   actually   none   because   the   element   of   consent   is  
49
simulated   transfers   to   Carlos   Jr.   and   Dennis,   petitioner   also   lacking.  This  is  so  because  the  parties  do  not  actually  intend  to  be  
undertook   and   warranted   to   execute   a   deed   of   reconveyance   bound  by  the  terms  of  the  contract.  
in  favor  of  the  deceased  over  the  Properties,  if  and  when  Adela    
should  demand  the  same.   In   determining   the   true   nature   of   a   contract,   the   primary   test   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  
50
and   subsequent   acts   of   the   parties.  This   is   especially   true   in   a  
claim   of   absolute   simulation   where   a   colorable   contract   is  
executed.  
 
The   following   circumstances   led   the   RTC   and   the   CA   to   conclude  
that   the   Deeds   of   Absolute   Sale   are   simulated,   and   that   the  
transfers  were  never  intended  to  affect  the  juridical  relation  of  the  
 parties:  
a)   There   was   no   indication   that   Adela   intended   to   alienate   her  
properties   in   favor   of   petitioner.   In   fact,   the   letter   of   Adela   to  
51
Dennis   dated   April   18,   1989  reveals   that   she   has   reserved   the  
ownership  of  the  Properties  in  favor  of  Dennis.  
b)   Adela   continued   exercising   acts   of   dominion   and   control   over  
the   properties,   even   after   the   execution   of   the   Deeds   of   Absolute  
Sale,  and  though  she  lived  abroad  for  a  time.  
c)  The  SPA  executed  on  the  same  day  as  the  Deeds  of  Absolute  Sale  
appointing   petitioner   as   administratrix   of   Adela’s   properties,  
including  the  Properties,  is  repugnant  to  petitioner’s  claim  that  the  
ownership  of  the  same  had  been  transferred  to  her.  
d)   The   previous   sales   of   the   Properties   to   Dennis   and   Carlos,   Jr.  
were   simulated.   This   history,   coupled   with   Adela’s   treatment   of  
petitioner,  and  the  surrounding  circumstances  of  the  sales,  strongly  
show   that   Adela   only   granted   petitioner   the   same   favor   she   had  
granted  to  Dennis  and  Carlos  Jr.  
We  affirm  the  conclusion  reached  by  the  RTC  and  the  CA  that  the  
evidence   presented   below   prove   that   Adela   did   not   intend   to  
alienate  the  Properties  in  favor  of  petitioner,  and  that  the  transfers  
were   merely   a   sham   to   accommodate   petitioner   in   her   travel  
abroad.  
 
B.  No  consideration  for  the  sale  
We  also  find  no  compelling  reason  to  depart  from  the  court  a  quo's  
finding   that   Adela   never   received   the   consideration   stipulated   in  
the  simulated  Deeds  of  Absolute  Sale.  
 
Article   1471   of   the   Civil   Code   provides   that   "if   the   price   is  
simulated,  the  sale  is  void."  Where  a  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   for   lack   of   consideration. Thus,  
although  the  contracts  state  that  the  purchase  price  of  250,000.00  
and  60,000.00  were  paid  by  petitioner  to  Adela  for  the  Properties,  
the   evidence   shows   that   the   contrary   is   true,   because   no   money  
changed   hands.   Apart   from   her   testimony,   petitioner   did   not  
present  proof  that  she  paid  for  the  Properties.  
 
PENTACAPITAL  INVESTMENT  CORP.  VS.  MAHINAY   Under   Article   1354   of   the   Civil   Code,   it   is   presumed   that  
ISSUE:   WON   THE   PROMISSORY   NOTES   LACKED   consideration   exists   and   is   lawful   unless   the   debtor   proves   the  
38
CONSIDERATION  MAKING  THE  RESPONDENT  NOT  LIABLE.       contrary.  Moreover,   under   Section   3,   Rule   131   of   the   Rules   of  
  Court,   the   following   are   disputable   presumptions:   (1)   private  
Petitioner   filed   a   complaint   for   a   sum   of   money   against   transactions  have  been  fair  and  regular;  (2)  the  ordinary  course  of  
respondent   Makilito   Mahinay   based   on   two   separate   loans   business   has   been   followed;   and   (3)   there   was   sufficient  
39
obtained   by   the   latter,   amounting   to   P1,520,000.00   and   consideration  for  a  contract.  A  presumption  may  operate  against  
P416,800.00,  or  a  total  amount  of  P1,936,800.00.  These  loans   an  adversary  who  has  not  introduced  proof  to  rebut  it.  The  effect  
were  evidenced  by  two  promissory  notes[5]  dated  February  23,   of   a   legal   presumption   upon   a   burden   of   proof   is   to   create   the  
1996.   Despite   repeated   demands,   respondent   failed   to   pay   the   necessity  of  presenting  evidence  to  meet  the  legal  presumption  or  
loans,  hence,  the  complaint.   the  prima  facie  case  created  thereby,  and  which,  if  no  proof  to  the  
  contrary   is   presented   and   offered,   will   prevail.   The   burden   of   proof  
In   his   Answer   with   Compulsory   Counterclaim,[7]   respondent   remains  where  it  is,  but  by  the  presumption,  the  one  who  has  that  
claimed   that   petitioner   had   no   cause   of   action   because   the   burden  is  relieved  for  the  time  being  from  introducing  evidence  in  
promissory   notes   on   which   its   complaint   was   based   were   support   of   the   averment,   because   the   presumption   stands   in   the  
 
subject  to  a  condition  that  did  not  occur.   place  of  evidence  unless  rebutted.
   
Respondent  explained  that  he  was  the  counsel  of  Ciudad  Real   In   the   present   case,   as   proof   of   his   claim   of   lack   of   consideration,  
Development   Inc.   (CRDI).   In   1994,   Pentacapital   Realty   respondent   denied   under   oath   that   he   owed   petitioner   a   single  
Corporation  (Pentacapital  Realty)  offered  to  buy  parcels  of  land   centavo.  He  added  that  he  did  not  apply  for  a  loan  and  that  when  
known   as   the   Molino   Properties,   owned   by   CRDI,   located   in   he   signed   the   promissory   notes,   they   were   all   blank   forms   and   all  
Molino,  Bacoor,  Cavite.   the   blank   spaces   were   to   be   filled   up   only   if   the   sale   transaction  
  over   the   subject   properties   would   not   push   through   because   of   a  
Respondent,   Pentacapital   Realty   and   CRDI   allegedly   agreed   possible   adverse   decision   in   the   civil   cases   involving   them   (the  
that   respondent   had   a   charging   lien   equivalent   to   20%   of   the   properties).  He  thus  posits  that  since  the  sale  pushed  through,  the  
total   consideration   of   the   sale   in   the   amount   of   promissory  notes  did  not  become  effective.  
P10,277,040.00.    
Admittedly,  respondent  earlier  instituted  an  action  for  Specific   Contrary   to   the   conclusions   of   the   RTC   and   the   CA,   we   find   such  
Performance   against   Pentacapital   Realty   before   the   RTC   of   proof   insufficient   to   overcome   the   presumption   of   consideration.  
Cebu   City,   Branch   57,   praying   for   the   payment   of   his   The   presumption   that   a   contract   has   sufficient   consideration  
commission  on  the  sale  of  the  Molino  Properties.   cannot   be   overthrown   by   the   bare,   uncorroborated   and   self-­‐
41
  serving  assertion  of  respondent  that  it  has  no  consideration.  The  
In   addition   to   the   damages   that   respondent   prayed   for   in   his   alleged  lack  of  consideration  must  be  shown  by  preponderance  of  
compulsory   counterclaim,   he   sought   the   payment   of   his   evidence.  
commission   amounting...   to   P10,316,640.00,   plus   interest   at    
the   rate   of   16%   per   annum,   as   well   as   attorney's   fees   Respondent’s   liability   is   not   negated   by   the   fact   that   he   has  
equivalent   to   12%   of   his   principal   claim.[20]   Respondent   uncollected  commissions  from  the  sale  of  the  Molino  properties.  As  
claimed   that   Pentacapital   Realty   is   a   100%   subsidiary   of   the   records   of   the   case   show,   at   the   time   of   the   execution   of   the  
petitioner.   promissory   notes,   the   Molino   properties   were   subject   of   various  
  court  actions  commenced  by  different  parties.  Thus,  the  sale  of  the  
Thus,   although   petitioner   did   not...   directly   participate   in   the   properties   and,   consequently,   the   payment   of   respondent’s  
transaction   between   Pentacapital   Realty,   CRDI   and   commissions   were   put   on   hold.   The   non-­‐payment   of   his  
respondent,  the  latter's  claim  against  petitioner  was  based  on   commissions   could   very   well   be   the   reason   why   he   obtained   a   loan  
the   doctrine   of   piercing   the   veil   of   corporate   fiction.     Simply   from  petitioner.  
stated,   respondent   alleged   that   petitioner   and   Pentacapital  
Realty...   are   one   and   the   same   entity   belonging   to   the  
Pentacapital  Group  of  Companies.  
 
ONG  YIU  VS.  CA   From   the   facts   of   the   case,   we   agree   with   respondent   Court   that  
ISSUE:   WHETHER   OR   NOT   CA   COMMITTED   A   GRAVE   ERROR   PAL   had   not   acted   in   bad   faith.   Bad   faith   means   a   breach   of   a  
2
WHEN  IT  LIMITED  PAL’S  CARRIAGE  LIABILITY  TO  THE  AMOUNT   known  duty  through  some  motive  of  interest  or  ill  will.    It  was  the  
OF   P100.00   AS   STIPULATE   AT   THE   BACK   OF   THE   TICKET.   duty   of   PAL   to   look   for   petitioner's   luggage   which   had   been  
(DOCTRINE  OF  LIMITED  LIABILITY)   miscarried.  PAL  exerted  due  diligence  in  complying  with  such  duty.  
   
On  August  26,  1967,  petitioner  was  a  fare  paying  passenger  of   In   the   absence   of   a   wrongful   act   or   omission   or   of   fraud   or   bad  
respondent  Philippine  Air  Lines,  Inc.  (PAL),  on  board  Flight  No.   faith,  petitioner  is  not  entitled  to  moral  damages.  
463-­‐R,   from   Mactan   Cebu,   bound   for   Butuan   City.   He   was   Petitioner   is   neither   entitled   to   exemplary   damages.   In   contracts,  
scheduled   to   attend   the   trial   of   Civil   Case   No.   1005   and   Spec.   as   provided   for   in   Article   2232   of   the   Civil   Code,   exemplary  
Procs.   No.   1125   in   the   Court   of   First   Instance,   Branch   II,   damages   can   be   granted   if   the   defendant   acted   in   a   wanton,  
thereat,  set  for  hearing  on  August  28-­‐31,  1967.  As  a  passenger,   fraudulent,  reckless,  oppressive,  or  malevolent  manner,  which  has  
he  checked  in  one  piece  of  luggage,  a  blue  “maleta”  for  which   not  been  proven  in  this  case.  
he  was  issued  Claim  Check  No.  2106-­‐R  (Exh.  “A”).  The  plane  left   But  petitioner  argues  that  there  is  nothing  in  the  evidence  to  show  
Mactan  Airport,  Cebu,  at  about  1:00  o’clock  P.M.,  and  arrived   that   he   had   actually   entered   into   a   contract   with   PAL   limiting   the  
at  Bancasi  airport,  Butuan  City,  at  past  2:00  o’clock  P.M.,  of  the   latter's   liability   for   loss   or   delay   of   the   baggage   of   its   passengers,  
same   day.   Upon   arrival,   petitioner   claimed   his   luggage   but   it   and   that   Article   1750*   of   the   Civil   Code   has   not   been   complied  
could   not   be   found.   The  petitioner   was   worried   about   the   with.  
missing   luggage   because   it   contained   vital   documents   needed    
for  trial  the  next  day.  At  10:00  o’clock  that  evening,  petitioner   While   it   may   be   true   that   petitioner   had   not   signed   the   plane  
wired  PAL  Cebu  demanding  the  delivery  of  his  baggage  before   ticket,  he  is  nevertheless  bound  by  the  provisions  thereof.  "Such  
noon   the   next   day,   otherwise,   he   would   hold   PAL   liable   for   provisions   have   been   held   to   be   a   part   of   the   contract   of   carriage,  
damages,   and   stating   that   PAL’s   gross   negligence   had   caused   and   valid   and   binding   upon   the   passenger   regardless   of   the  
5
him   undue   inconvenience,   worry,   anxiety   and   extreme   latter's   lack   of   knowledge   or   assent   to   the   regulation".    It   is   what  
embarrassment   (Exh.   “B”).   This   telegram   was   received   by   the   is  known  as  a  contract  of  "adhesion",  in  regards  which  it  has  been  
Cebu   PAL   supervisor   but   the   latter   felt   no   need   to   wire   said   that   contracts   of   adhesion   wherein   one   party   imposes   a  
petitioner  that  his  luggage  had  already  been  forwarded  on  the   ready  made  form  of  contract  on  the  other,  as  the  plane  ticket  in  
assumption   that   by   the   time   the   message   reached   Butuan   City,   the   case   at   bar,   are   contracts   not   entirely   prohibited.   The   one  
the  luggage  would  have  arrived.   who  adheres  to  the  contract  is  in  reality  free  to  reject  it  entirely;  if  
6
  he   adheres,   he   gives   his   consent.    And   as   held   in   Randolph   v.  
Early   in   the   morning   of   the   next   day,   August   27,   1967,   American   Airlines,   103   Ohio   App.   172,   144   N.E.   2d   878;   Rosenchein  
petitioner   went   to   the   Bancasi   Airport   to   inquire   about   his   vs.  Trans  World  Airlines,  Inc.,  349  S.W.  2d  483,  "a  contract  limiting  
luggage.  He  did  not  wait,  however,  for  the  morning  flight  which   liability   upon   an   agreed   valuation   does   not   offend   against   the  
arrived   at   10:00   o’clock   that   morning.   This   flight   carried   the   policy   of   the   law   forbidding   one   from   contracting   against   his   own  
missing  luggage.   negligence.  
   
On   August   22,   1974,   the   Court   of   Appeals,*   finding   that   PAL   Considering,   therefore,   that   petitioner   had   failed   to   declare   a  
was  guilty  only  of  simple  negligence,  reversed  the  judgment  of   higher  value  for  his  baggage,  he  cannot  be  permitted  a  recovery  in  
the   trial   Court   granting   petitioner   moral   and   exemplary   excess   of   P100.00.Besides,   passengers   are   advised   not   to   place  
damages,  but  ordered  PAL  to  pay  plaintiff  the  sum  of  P100.00,   valuable   items   inside   their   baggage   but   "to   avail   of   our   V-­‐cargo  
the   baggage   liability   assumed   by   it   under   the   condition   of   service  "  (Exh.  "1").  I  t  is  likewise  to  be  noted  that  there  is  nothing  
carriage  printed  at  the  back  of  the  ticket.   in  the  evidence  to  show  the  actual  value  of  the  goods  allegedly  lost  
  by  petitioner.  
 
  
WELDON  VS.  CA   Petitioner's   position   is   untenable.   Once   a   contract   is   shown   to  
ISSUE:  WHETHER  THE  AGREEMENT  BETWEEN  THE  PARTIES  IS  A   have   been   consummated   or   fully   performed   by   the   parties  
CONTRACT   OF   SUPERVISION   OF   CONSTRUCTION   ON   thereto,   its   existence   and   binding   effect   can   no   longer   be  
COMMISSION   BASIS,   IN   WHICH   THE   CASE   COMMISSION   WILL   disputed.   It   is   irrelevant   and   immaterial   to   dispute   the   due  
BE   LEGALLY   DEMANDABLE,   OR   A   CONSTRUCTION   CONTRACT   execution   of   a   contract.   i.e..   the   date   of   signing   by   one   of   the  
FOR   A   STIPULATED   PRICE   WHICH   HAS   ALREADY   BEEN   parties,   if   bath   of   them   have   in   fact   performed   their   obligations  
CONSUMMATED.     thereunder   and   their   respective   signatures   and   those   of   their  
  witnesses  appear  upon  the  face  of  the  document.  
The   present   controversy   arose   from   the   construction   of   the    
Gay   Theater   building   on   the   corner   of   Herran   and   Singalong   Thus,  even  as  that  the  Building  Contract  in  Exhibit  "5",  was  signed  
Streets   in   Manila.   Petitioner   WELDON   CONSTRUCTION   by   the   private   respondent   only  after  the   Gay   Theater   building   had  
CORPORATION   sued   the   private   respondent   Manuel   Cancio   in   been   completed   and   the   stipulated   price   of   P600,000.00   Pews   fully  
the   then   Court   of   First   Instance   of   Manila   to   recover   paid,   such   fact   can   no   longer   negate   the   binding   effect   of   that  
P62,378.82   Pesos,   which   is   ten   per   (10%)   of   the   total   cost   of   agreement  if  its  existence  and  especially,  its  consummation  can  be  
construction   of   the   building,   as   commission,   and   P23,788.32   established  by  other  evidence,  e.g.  by  the  contemporaneous  acts  of  
Pesos  as  cost  of  additional  works  thereon.   the  parties  and  their  having  performed  their  respective  obligations  
  pursuant  to  the  agreement.  
The  basis  for  the  claim  for  commission  is  an  alleged  contract  of    
supervision   of   construction   between   the   theater   owner  
Manuel  Cancio,  herein  private  respondent,  and  the  petitioner's  
predecessors-­‐in-­‐interest,   Weldon   Construction,   which   the  
petitioner  seeks  to  enforce.  The  private  respondent  refused  to  
pay   the   amounts   demanded   on   the   ground   that   the   Gay  
Theater   building   was   constructed   by   Weldon   Construction   for  
the   stipulated   price   of   P600,000.00   Pesos   which   has   already  
been   fully   paid.   The   irreconcilable   positions   taken   by   the  
parties  brought  the  controversy  before  the  courts.  
 
C&C  COMMERCIAL  CORP.  VS.  MENOR   We   hold   that   Judge   Cloribel   acted   without   jurisdiction   and   with  
ISSUE:THIS   CASE   IS   ABOUT   THE   REQUIREMENT   OF   A   TAX   grave   abuse   of   discretion   in   issuing   his   erroneous   order,   directing  
CLEARANCE   CERTIFICATE   AS   A   PREREQUISITE   FOR   TAKING   that   the   Nawasa   officials   should   award   the   contract   to   C   &   C  
PART   IN   PUBLIC   BIDDINGS   OR   CONTRACTS   TO   SELL   SUPPLIES   Commercial   Corporation.   The   order   is   erroneous   and   void   for   the  
TO  ANY  GOVERNMENT  AGENCY.   following  reasons:  
   
Judge   Cloribel   of   the   Court   of   First   Instance   of   Manila   in   his   1.   The   said   order   was   an   amendment   of   a   judgment   that   had  
decision   dated   March   1,   1967   in   Civil   Case   No.   66750,   a   already  been  satisfied.  The  case  was  closed  and  terminated.  Judge  
mandamus  case,   ordered   the   Acting   General   Manager   of   the   Cloribel  had  no  right  and  authority  to  issue  such  an  order  after  he  
National   Waterworks   and   Sewerage   Authority   and   the   had  lost  jurisdiction  over  the  case.  The  award  of  the  contract  to  C  &  
members  of  the  Committee  on  Pre-­‐Qualification  to  allow  C  &  C   C   Commercial   Corporation   was   not   the  lis   mota  in   the   mandamus  
Commercial  Corporation  to  participate  as  a  qualified  bidder  in   case  before  Judge  Cloribel.  It  was  an  extraneous  matter  that  could  
the  public  bidding  for  the  supply  of  asbestos  cement  pressure   not   have   been   injected   into   that   case   nor   resolved   therein.   What  
pipes   to   the   Nawasa   in   spite   of   the   fact   that   it   had   a   pending   was   in   issue   was   whether   C   &   C   Commercial   Corporation   should   be  
tax  case  and  had  no  tax  clearance  certificate.   allowed  to  take  part  in  the  bidding  even  if  it  had  no  tax  clearance  
  certificate.  
By   virtue   of   that   judgment,   which   became   final   because   the   2.  The  Nawasa  was  justified  in  not  awarding  the  contract-­‐  to  C  &  C  
Nawasa   did   not   appeal,   C   &   C   Commercial   Corporation   took   Commercial   Corporation   because   it   had   no   tax   clearance  
part   in   the   bidding.   When   the   bids   were   opened   on   May   18,   certificate.   It   had   a   pending   tax   case   in   the   Bureau   of   Internal  
1967,  it  was  found  to  be  the  lowest  bidder.   Revenue.  The  award  to  C  &  C  Commercial  Corporation  would  be  in  
  gross  contravention  of  Administrative  Order  No.  66.  
In   a   letter   dated   July   25,   1967,   Antonio   C.   Menor,   the   acting    
general   manager   of   the   Nawasa,   required   C   &   C   Commercial   3.  Moreover,  it  was  not  the  ministerial  duty  of  the  Nawasa  officials  
Corporation  to  submit  the  tax  clearance  certificate  required  in   to   award   the   contract   to   C   &   C   Commercial   Corporation   even   if   it  
Presidential  Administrative  Order  No,  66.   was   the   lowest   bidder.   The   Nawasa   in   its   addendum   No.   1   to   the  
  invitation   to   bid   dated   July   6,   1966   reserved   the   right   "to   reject   the  
On  that  same  date,  July  25,  1967,  or  long  after  Judge  Cloribel's   bid  of  any  bidder".  
judgment   had   been   executed   and   when   he   had   no   more    
jurisdiction  to  amend  it,  C  &  C  Commercial  Corporation  filed  a   Therefore,   a   bidder   whose   bid   is   rejected   has   no   cause   for  
motion   in   Civil   Case   No.   66750   wherein   it   prayed   that   the   complaint  nor  a  right  to  dispute  the  award  to  another  bidder.    
Nawasa   officials   be   ordered   to   award   to   the   said   corporation    
the  contract  for  the  supply  of  asbestos  cement  pressure  pipes,   It   should   be   noted   that   "advertisements   for   bidders   are   simply  
that  they  be  restrained  from  awarding  the  contract  to  another   invitations  to  make  proposals,  and  the  advertiser  is  not  bound  to  
bidder   and   that   they   be   required   to   show   cause   why   they   accept  the  highest  or  lowest  bidder,  unless  the  contrary  appears"  
should   not   be   held   in   contempt   of   court.   In   effect,   that   motion   (Art.  1326,  Civil  Code).  No  such  contrary  intention  appears  in  this  
was  another  petition  for  mandamus.   case.  
    
TANG  VS.  CA   Art.   1332.   When   one   of   the   parties   is   unable   to   read,   or   if   the  
ISSUE:  THE  ISSUE  IN  THIS  APPEAL  IS  THE  APPLICATION  OF  ART.   contract   is   in   a   language   not   understood   by   him,   and   mistake   or  
1332  OF  THE  CIVIL  CODE   fraud  is  alleged,  the  person  enforcing  the  contract  must  show  that  
  the  terms  thereof  have  been  fully  explained  to  the  former.  
On  September  25,  1965,  Lee  See  Guat,  a  widow,  61  years  old,    
and   an   illiterate   who   spoke   only   Chinese,   applied   for   an   Art.  1332  supplements  Art.  24  of  the  Civil  Code  which  provides  that  
insurance   on   her   life   for   P60,000   with   the   respondent   "   In   all   contractual,   property   or   other   relations,   when   one   of   the  
Company.   The   application   consisted   of   two   parts,   both   in   the   parties   is   at   a   disadvantage   on   account   of   his   moral   dependence,  
English   language.   The   second   part   of   her   application   dealt   with   ignorance,   indigence,   mental   weakness,   tender   age   or   other  
her  state  of  health  and  because  her  answers  indicated  that  she   handicap,  the  court  must  be  vigilant  for  his  protection.  
was   healthy,   the   Company   issued   her   Policy   No.   0690397,    
effective   October   23,   1965,   with   her   nephew   Vicente   E.   Tang,   It   is   the   position   of   the   petitioner   that   because   Lee   See   Guat   was  
herein  Petitioner,  as  her  beneficiary.   illiterate   and   spoke   only   Chinese,   she   could   not   be   held   guilty   of  
  concealment   of   her   health   history   because   the   applications   for  
On   November   15,   1965,   Lee   See   Guat   again   applied   with   the   insurance  were  in  English  and  the  insurer  has  not  proved  that  the  
respondent  Company  for  an  additional  insurance  on  her  life  for   terms  thereof  had  been  fully  explained  to  her.  
P40,000.   Considering   that   her   first   application   had   just   been    
approved,   no   further   medical   examination   was   made   but   she   It   should   be   noted   that   under   Art.   1332   above   quoted,   the  
was  required  to  accomplish  and  submit  Part  I  of  the  application   obligation   to   show   that   the   terms   of   the   contract   had   been   fully  
which   reads:   "I/WE   HEREBY   DECLARE   AND   AGREE   that   all   explained   to   the   party   who   is   unable   to   read   or   understand   the  
questions,   statements   answers   contained   herein,   as   well   as   language   of   the   contract,   when   fraud   or   mistake   is   alleged,  
those  made  to  or  to  be  made  to  the  Medical  Examiner  in  Part  II   devolves   on   the   party   seeking   to   enforce   it.   Here   the   insurance  
are   full,   complete   and   true   and   bind   all   parties   in   interest   company  is  not  seeking  to  enforce  the  contracts;  on  the  contrary,  it  
under   the   policy   herein   applied   for;   that   there   shall   be   no   is  seeking  to  avoid  their  performance.  It  is  petitioner  who  is  seeking  
contract   of   insurance   unless   a   policy   is   issued   on   this   to   enforce   them   even   as   fraud   or   mistake   is   not   alleged.  
application  and  the  fun  first  premium  thereon,  according  to  the   Accordingly,   respondent   company   was   under   no   obligation   to  
mode   of   payment   specified   in   answer   to   question   4D   above,   prove   that   the   terms   of   the   insurance   contracts   were   fully  
actually   paid   during   the   lifetime   and   good   health   of   the   explained   to   the   other   party.   Even   if   we   were   to   say   that   the  
Proposed   Insured."   Moreover,   her   answers   in   Part   II   of   her   insurer   is   the   one   seeking   the   performance   of   the   contracts   by  
previous   application   were   used   in   appraising   her   insurability   avoiding  paying  the  claim,  it  has  to  be  noted  as  above  stated  that  
for   the   second   insurance.   On   November   28,   1965,   Policy   No.   there  has  been  no  imputation  of  mistake  or  fraud  by  the  illiterate  
695632   was   issued   to   Lee   See   Guat   with   the   same   Vicente   E.   insured   whose   personality   is   represented   by   her   beneficiary   the  
Tang  as  her  beneficiary.   petitioner   herein.   In   sum,   Art.   1332   is   inapplicable   to   the   case   at  
  bar.   Considering   the   findings   of   both   the   CFI   and   Court   of   Appeals  
On   April   20,   1966,   Lee   See   Guat   died   of   lung   cancer.   that   the   insured   was   guilty   of   concealment   as   to   her   state   of  
Thereafter,  the  beneficiary  of  the  two  policies,  Vicente  E.  Tang   health,  we  have  to  affirm.  
claimed   for   their   face   value   in   the   amount   of   P100,000   which    
the  insurance  company  refused  to  pay  on  the  ground  that  the  
insured   was   guilty   of   concealment   and   misrepresentation   at  
the   time   she   applied   for   the   two   policies.   Hence,   the   filing   of  
Civil   Case   No.   90062   in   the   Court   of   First   Instance   of   Manila  
which   dismissed   the   claim   because   of   the   concealment  
practised  by  the  insured  in  violation  of  the  Insurance  Law.  
 
CARINO  VS.  CA   This  Court  finds  that  there  is  substantial  and  convincing  evidence  
ISSUE:   WHETHER   THE   RESPONDENT   COURT   OF   APPEALS   that   Exhibit   "D-­‐1"   was   a   simulated   deed   of   sale   and   transfer   of  
COMMITTED   GRAVE   ABUSE   OF   DISCRETION   IN   CONCLUDING   rights,   to   warrant   the   affirmance   of   the   decision   of   the  
THAT   THE   DEED   OF   SALE   OF   HOUSE   AND   TRANSFER   OF   RIGHTS   respondent   Court   of   Appeals.   The   characteristic   of   simulation   is  
(EXHIBIT   D-­‐1   "),   ON   WHICH   THE   PETITIONERS   HAVE   BASED   the   fact   that   the   apparent   contract   is   not   really   desired   or  
THEIR   APPLICATION   OVER   THE   QUESTIONED   LOT,   IS   intended  to  produce  legal  effects  nor  in  any  way  alter  the  judicial  
13  
SIMULATED  AND,  THEREFORE,  AN  INEXISTENT  DEED  OF  SALE.   situation   of   the   parties. Under   the   circumstances   surrounding  
  their  transaction,  the  parties  knew  that  the  document  Exhibit  "D-­‐
On   22   January   1954,   Pablo   Encabo   formally   applied   with   the   1"   was   at   once   fictitious   and   simulated   where   none   of   the   parties  
Land  Estates  Division,  Bureau  of  Lands,  to  purchase  a  parcel  of   intended  to  be  bound  thereby.  
land  designated  as  Lot  1,  Block  4,  Plan  Psd-­‐24819,  which  was  a    
part   of   the   Tuason   Estate   purchased   by   the   government   Strongly   indicative   of   the   simulated   character   of   Exhibit   ,"D-­‐1"   is  
pursuant  to  the  provisions  of  Commonwealth  Act  No.  539,  for   the   fact   that   the   Cariños   could   not   produce   the   receipts  
resale   to   bona   fide   tenants   or   occupants   who   are   qualified   to   evidencing   their   alleged   payments   to   the   Land   Authority   for   the  
 
own  public  land  in  the  Philippines. disputed   lot,   nor   were   they   able   to   produce   the   Agreement   to  
  Sell.     the   receipts   of   payments   to   the   Land   Authority   in   order   to  
Thereafter,   Encabo,   through   petitioner   Cirila   Vicencio,   mortgage   the   land.   The   Cariños,   who   are   the   supposed   vendees,  
supposedly   as   "agent,   "   came   to   an   agreement   with   Josue   did  not  even  remonstrate  or  offer  a  word  of  objection  to  this  act  of  
Quesada   transferring   rights   over   the   lot   to   the   latter,   the  Encabos.    
conditioned   on   approval   by   the   Land   Tenure   Administration    
(LTA,   for   short).   The   husband   of   Cirila   Vicencio   (Juanito   Cariño)   The  respondent  Court  also  found  as  a  fact  that  the  names  of  the  
is  a  relative  of  Quesada;  Cirila  Vicencio  is  also  a  "comadre"  of   Cariños   were   not   mentioned   as   the   proposed   transferees   in   the  
2  
Quesada's   wife. The   transfer   of   rights   by   Encabo   to   Quesada   two   applications   with   the   LTA   filed   by   Pablo   Encabo   for   transfer   of  
was  not  put  in  writing  but  payment  of  the  price  for  the  rights   rights.   If   there   were   really   an   intent,   then   there   was   no   reason  
transferred  was  evidenced  by  receipts  (Exhibits  "A"  and  "B")  on   which   would   stop   the   Encabos   from   putting   the   name   of   the  
which  Cirila  Vicencio  signed  as  a  witness.   Cariños   as   transferees,   just   like   in   the   application   to   transfer   to  
  Quesada  wherein  the  latter's  name  was  specifically  mentioned.  All  
On  30  July  1957,  the  LTA,  unaware  of  the  transfer  of  rights  by   these   appear   to   clearly   indicate   a   positive   lack   of   intention   of   the  
Encabo  to  Quesada,  adjudicated  the  lot  in  favor  of  Encabo,  and   Encabos  to  transfer  any  right  to  the  petitioners  (Cariños).  
the  LTA  and  Encabo  signed  an  "Agreement  to  Sell"  (Exh.  "G-­‐1").    
LTA   later   came   to   know   about   the   "transfer"   of   rights   from   Contracts  of  sale  are  void  and  produce  no  effect  whatsoever  where  
Encabo   to   Quesada.   It   disapproved   the   same   on   the   ground   the   price,   which   appears   therein   as   paid,   has   in   fact   never   been  
23  
that  Quesada  was  not  qualified  to  acquire  the  lot  because  he  is   paid   by   the   vendee   to   the   vendor. A   sale   of   land   without  
3  
already  a  lot  owner. However,  before  the  LTA's  disapproval  of   consideration,   but   intended   merely   to   protect   a   party   to   a   joint  
the   transfer   of   Encabo's   rights   to   Quesada,   the   latter   had   venture   for   the   cash   advances   he   was   to   make   for   the   realty  
24  
entered   into   possession   of   the   lot   in   question.   Quesada   had   subdivision  that  the  parties  wanted  to  put  up,  is  null  and  void. The  
also   allowed   Cirila   Vicencio   to   enter   into   possession   and   law  is  clear  on  this  matter.  The  Civil  Code  provides:  
4
occupancy  of  the  same  lot.   Art.   1409.   The   following   contracts   are   inexistent   and   void  
from  the  beginning:  
x  x  x                      x  x  x                    x  x  x  
(2)  Those  which  are  absolutely  simulated  or  fictitious;  
x  x  x                      x  x  x                    x  x  x  
These  contracts  cannot  be  ratified.  Neither  can  the  right  
to  set  up  the  defense  of  illegality  be  waived.  
 
Furthermore,  even  without  going  into  the  merits  and/or  validity  of  
Exhibit   "D-­‐1",   it   is   clear   that   there   has   been   no   legal   transfer   of  
rights  in  favor  of  the  Cariños  because  neither  the  LTA  nor  the  Land  
Authority   has   approved   or   given   due   course   to   such   transfer   of  
rights.  Since  no  approval  or  due  course  has  yet  been  given  by  the  
LTA  or  LA  to  such  transfer  of  rights,  the  document  Exhibit  "D-­‐1"  is  
not  enforceable  against  the  latter.  
 
LAGUNZAD  VS.  GONZALES   YES.  The  Licensing  Agreement  is  valid  
ISSUE:   WHETHER   OR   NOT   THE   LICENSING   AGREEMENT    
ENTERED   INTO   BY   THE   PETITIONER   AND   RESPONDENTS   IS   SC   did   not   agree   with   petitioner’s   submission   that   the   Licensing  
VALID.   Agreement   is   null   and   void   for   lack   of,   or   for   having   an  illegal   cause  
  or  consideration.  While  it  is  true  that  petitioner  had  purchased  the  
A   Licensing   Agreement   was   entered   into   by   and   between   rights  to  the  book  entitled  “The  Moises  Padilla  Story,”  that  did  not  
Lagunzad  and  Gonzales,  which  contract  petitioner  claims  to  be   dispense   with   the   need   for   prior   consent   and   authority   from   the  
null   and   void   for   having   been   entered   into   by   him   under   deceased   heirs   to   portray   publicly   episodes   in   said   deceased’s   life  
duress,  intimidation  and  undue  influence.   and   in   that   of   his   mother   and   the   members   of   his   family.   As   held  
  in  Schuyler   v.   Curtis,   “a   privilege   may   be   given   the   surviving  
Sometime  in  August,  1961,  petitioner  Manuel  Lagunzad  began   relatives   of   a   deceased   person   to   protect   his   memory,   but   the  
the  production  of  a  movie  entitled  “The  Moises  Padilla  Story”.   privilege   exists   for   the   benefit   of   the   living,   to   protect   their   feelings  
It  was  based  mainly  on  the  copyrighted  but  unpublished  book   and  to  prevent  a  violation  of  their  own  rights  in  the  character  and  
of  Atty.  Ernesto  Rodriguez,  Jr.,  entitled  “The  Long  Dark  Night  in   memory  of  the  deceased.”  
Negros”   subtitled   “The   Moises   Padilla   Story,”   the   rights   to    
which   petitioner   had   purchased   from   Atty.   Rodriguez   in   the   SC   also   found   it   difficult   to   sustain   petitioner’s   posture   that   his  
amount   of   P2,000.00.   The   book   narrates   the   events   which   consent   to   the   Licensing   Agreement   was   procured   thru  duress,  
culminated   in   the   murder   of   Moises   Padilla.   Although   the   intimidation   and   undue   influence  exerted   on   him   by   private  
emphasis   of   the   movie   was   on   the   public   life   of   Moises   Padilla,   respondent  and  her  daughters  at  a  time  when  he  had  exhausted  
there   were   portions   which   dealt   with   his   private   and   family   life   his   financial   resources,   the   premiere   showing   of   the   picture   was  
including   the   portrayal   in   some   scenes,   of   his   mother,   Maria   imminent,  and  “time  was  of  the  essence.”  As  held  in  Martinez  vs.  
Soto  Vda.  de  Gonzales,  private  respondent  herein,  and  of  one   Hongkong  &  Shanghai  Bank,  it  is  necessary  to  distinguish  between  
“Auring”  as  his  girlfriend.   real   duress   and   the   motive   which   is   present   when   one   gives   his  
  consent   reluctantly.  A   contract   is   valid   even   though   one   of   the  
On  October  3,  1961,  petitioner  received  a  telephone  call  from   parties  entered  into  it  against  his  own  wish  and  desires,  or  even  
one  Mrs.  Nelly  Amante,  half-­‐sister  of  Moises  Padilla,  objecting   against  his  better  judgment.  In  legal  effect,  there  is  no  difference  
to   the   filming   of   the   movie   and   the   “exploitation”   of   his   life.   between   a   contract   wherein   one   of   the   contracting   parties  
Shown  the  early  “rushes”  of  the  picture,  Mrs.  Amante  and  her   exchanges   one   condition   for   another   because   he   looks   for   greater  
sister,   Mrs.   Gavieres,   objected   to   many   portions   thereof   profit   or   gain   by   reason   of   such   change,   and   an   agreement  
notwithstanding   petitioner’s   explanation   that   the   movie   had   wherein   one   of   the   contracting   parties   agrees   to   accept   the   lesser  
been   supervised   by   Ernesto   Rodriguez,   Jr.,   based   on   his   book   of  two  disadvantages.  In  either  case,  he  makes  a  choice  free  and  
“The   Long   Dark   Night   in   Negros.”   On   October   5,   1961,   Mrs.   untrammelled  and   must   accordingly   abide   by   it.   The   Licensing  
Amante,   for   and   in   behalf   of   her   mother,   private   respondent,   Agreement   has   the   force   of   law   between   the   contracting   parties  
demanded   in   writing   for   certain   changes,   corrections   and   and   since   its   provisions   are   not   contrary   to   law,   morals,   good  
deletions  in  the  movie.  Petitioner  contends  that  he  acceded  to   customs,   public   order   or   public   policy   (Art.   1306,   Civil   Code),  
the   demands   because   he   had   already   invested   heavily   in   the   petitioner  should  comply  with  it  in  good  faith.  
picture  to  the  extent  of  mortgaging  his  properties,  in  addition    
to   the   fact   that   he   had   to   meet   the   scheduled   target   date   of  
the  premiere  showing.  
 
On   the   same   date,   October   5,   1961,   after   some   bargaining   as  
to  the  amount  to  be  paid,  which  was  P50,000.00  at  first,  then  
reduced   to   P20,000.00,   petitioner   and   private   respondent,  
represented   by   her   daughters   and   Atty.   Ernesto   Rodriguez,   at  
the   law   office   of   Jalandoni   and   Jamir,   executed   a  “Licensing  
Agreement”.  
 
Petitioner  takes  the  position  that  he  was  pressured  into  signing  
the   Agreement   because   of   private   respondent’s   demand,  
through   Mrs.   Amante,   for   payment   for   the   “exploitation”   of  
the   life   story   of   Moises   Padilla,   otherwise,   she   would   “call   a  
press   conference   declaring   the   whole   picture   as   a   fake,   fraud  
and  a  hoax  and  would  denounce  the  whole  thing  in  the  press,  
radio,  television  and  that  they  were  going  to  Court  to  stop  the  
picture.”  
 
On   October   10,   1961,   petitioner   paid   private   respondent   the  
amount   of   P5,000.00   but   contends   that   he   did   so   not   pursuant  
to  their  Agreement  but  just  to  placate  private  respondent.  
On  October  14,  1961,  the  filming  of  the  movie  was  completed.  
The  movie  was  shown  in  different  theatres  all  over  the  country.  
Because   petitioner   refused   to   pay   any   additional   amounts  
pursuant   to   the   Agreement,   on   December   22,   1961,   private  
respondent  instituted  the  present  suit  against  him  praying  for  
judgment   in   her   favor   ordering   petitioner   1)   to   pay   her   the  
amount   of   P15,000.00,   with   legal   interest   from   the   filing   of   the  
Complaint;   2)   to   render   an   accounting   of   the   proceeds   from  
the   picture   and   to   pay   the   corresponding   2-­‐1/2%   royalty  
therefrom;   3)   to   pay   attorney’s   fees   equivalent   to   20%   of   the  
amounts  claimed;  and  4)  to  pay  the  costs.  
 
Traversing   the   Complaint,   petitioner   contended   in   his   Answer  
that   the   episodes   in   the   life   of   Moises   Padilla   depicted   in   the  
movie   were   matters   of   public   knowledge   and   occurred   at   or  
about   the   same   time   that   the   deceased   became   and   was   a  
public   figure;   that   private   respondent   has   no   property   right  
over   those   incidents;  that   the   Licensing   Agreement   was  
without   valid   cause   or   consideration   and   that   he   signed   the  
same   only   because   private   respondent   threatened   him   with  
unfounded   and   harassing   action   which   would   have   delayed  
production;  and  that  he  paid  private  respondent  the  amount  of  
P5,000.00   in   October,   1961,  only   because   of   the   coercion   and  
threat  employed  upon  him.  By  way  of  counterclaim,  petitioner  
demanded  that  the  Licensing  Agreement  be  declared  null  and  
void  for  being  without  any  valid  cause;  that  private  respondent  
be  ordered  to  return  to  him  the  amount  of  P5,000.00;  and  that  
he   be   paid   P50,000.00   by   way   of   moral   damages,   and  
P7,500.00  as  attorney’s  fees.  
 
Private   respondent   duly   filed   her   Answer   to   Counterclaim  
alleging   that   the   transaction   between   her   and   petitioner   was  
entered  into  freely  and  voluntarily.  
 
LAW  VS.  OLYMPIC  SAWMILL   Under  Article  1354  of  the  Civil  Code,  in  regards  to  the  agreement  
ISSUE:  WON  THE  P6,000.00  IS  A  USURIOUS  INTEREST   of   the   parties   relative   to   the   P6,000.00   obligation,   "it   is   presumed  
  that  it  exists  and  is  lawful,  unless  the  debtor  proves  the  contrary".  
It  appears  that  on  or  about  September  7,  1957,  plaintiff  loaned   No   evidentiary   hearing   having   been   held,   it   has   to   be   concluded  
P10,000.00,   without   interest,   to   defendant   partnership   and   that  defendants  had  not  proven  that  the  P6,000.00  obligation  was  
defendant   Elino   Lee   Chi,   as   the   managing   partner.   The   loan   illegal.  Confirming  the  Trial  Court's  finding,  we  view  the  P6,000.00  
became  ultimately  due  on  January  31,  1960,  but  was  not  paid   obligation  as  liquidated  damages  suffered  by  plaintiff,  as  of  March  
on  that  date,  with  the  debtors  asking  for  an  extension  of  three   17,  1960,  representing  loss  of  interest  income,  attorney's  fees  and  
months,  or  up  to  April  30,  1960.   incidentals.  
   
On   March   17,   1960,   the   parties   executed   another   loan   The   main   thrust   of   defendants'   appeal   is   the   allegation   in   their  
document.   Payment   of   the   P10,000.00   was   extended   to   April   Answer   that   the   P6,000.00   constituted   usurious   interest.   They  
30,   1960,   but   the   obligation   was   increased   by   P6,000.00   as   insist   the   claim   of   usury   should   have   been   deemed   admitted   by  
 
follows:   plaintiff  as  it  was  "not  denied  specifically  and  under  oath".  
That   the   sum   of   SIX   THOUSAND   PESOS   (P6,000.00),   Philippine    
currency   shall   form   part   of   the   principal   obligation   to   answer   Section  9  of  the  Usury  Law  (Act  2655)  provided:  
for   attorney's   fees,   legal   interest,   and   other   cost   incident    
thereto   to   be   paid   unto   the   creditor   and   his   successors   in   SEC.   9.  The   person   or   corporation   sued  shall   file   its   answer   in  
interest  upon  the  termination  of  this  agreement.   writing   under   oath   to   any   complaint   brought   or   filed   against   said  
  person   or   corporation   before   a   competent   court   to   recover   the  
Defendants   again   failed   to   pay   their   obligation   by   April   30,   money   or   other   personal   or   real   property,   seeds   or   agricultural  
1960   and,   on   September   23,   1960,   plaintiff   instituted   this   products,  charged  or  received  in  violation  of  the  provisions  of  this  
collection   case.   Defendants   admitted   the   P10,000.00   principal   Act.   The   lack   of   taking   an   oath   to   an   answer   to   a   complaint   will  
obligation,   but   claimed   that   the   additional   P6,000.00   mean  the  admission  of  the  facts  contained  in  the  latter.  
constituted  usurious  interest.    
  The   foregoing   provision   envisages   a   complaint   filed   against   an  
entity   which   has   committed   usury,   for   the  recovery   of   the   usurious  
interest  paid.  In  that  case,  if  the  entity  sued  shall  not  file  its  answer  
under  oath  denying  the  allegation  of  usury,  the  defendant  shall  be  
deemed  to  have  admitted  the  usury.  The  provision  does  not  apply  
to   a   case,   as   in   the   present,   where   it   is   the   defendant,   not   the  
plaintiff,  who  is  alleging  usury.  
 
Moreover,  for  sometime  now,  usury  has  been  legally  non-­‐existent.  
Interest   can   now   be   charged   as   lender   and   borrower   may   agree  
4
upon.    The   Rules   of   Court   in   regards   to   allegations   of   usury,  
procedural   in   nature,   should   be   considered   repealed   with  
retroactive  effect.  
 
Statutes  regulating  the  procedure  of  the  courts  will  be  construed  as  
applicable   to   actions   pending   and   undetermined   at   the   time   of  
their  passage.  Procedural  laws  are  retrospective  in  that  sense  and  
to  that  extent.    
 
FORMS  OF  CONTRACTS  
LAO  SOK  VS.  SABAYSABAY   Where   the   employer   offered   the   employees   payment   of  
ISSUE:  WON  LAO  SOK  MERELY  MADE  A  PROMISE  TO  HIS  SALE   separation   pay   which   offer   was   unconditionally   accepted   a  
LADIES   OR   THERE   WAS   A   PERFECTED   CONTRACT,   THUS   contract   was   perfected;   Contracts,   though   orally   made   are  
OBLIGATED  HIM  TO  PAY  ALSO  FOR  THE  SEPARATION  PAY?   binding   on   the   parties.—Lao   Sok   made   an   offer   which   was   duly  
  accepted   by   the   private   respondents.   There   was,   therefore,   a  
Lao   Sok   owned   and   operated   the   Shelton   Department   Store   meeting   of   the   minds   between   two   parties   whereby   one   bound  
located   at   Carriedo.   Lydia   Sabaysabay,   Amparo   Mangulat,   himself  with  respect  to  the  other,  to  give  something  or  to  render  
Rosita   Salviejo,   Nenita   Ruinata,   Vilma   Capillo   and   Virginia   some   service   (Article   1305,   Civil   Code).   By   the   unconditional  
Sanorjo  were  all  salesladies  of  the  department  store.   acceptance  of  the  offer  that  they  would  be  paid  separation  pay,  a  
  contract  was  therefore  perfected.  As  held  in  the  case  of  Herrera  v.  
The   store   was   razed   by   fire   but   he   did   not   report   the   loss   of   Auditor  General,  (102  Phil.  875):  x  x  x  Contracts  in  whatever  form  
jobs   of   the   salesladies   which   resulted   from   the   burning   of   his   they   may   have   been   entered   into   are   binding   on   the   parties  
department  store.   unless  form  is  essential  for  the  validity  and  enforceability  of  that  
  particular  contract.  (See  Lopez  v.  Auditor  General,  20  SCRA  655).  
Lao   Sok   promised   Lydia   and   others   that   he   would   transfer    
them  to  his  other  department  stores.  Several  weeks  passed  but   Employer   remiss   in   his   obligation   to   his   employees   where   the  
petitioner  still  did  not  fulfill  his  promise.  Instead,  he  would  give   employer   has   other   department   stores   where   he   promised   to  
them  their  separation  pay  and  other  benefits  due  them  as  soon   absorb   the   workers;   Cessation   of   business,   not   a   case   of,   as   the  
as  he  collected  the  insurance  proceeds  arising  from  his  burned   entire   enterprise   of   the   employer   consists   of   the   operation   of  
store.  They  accepted  this  offer.     various  department  stores  that  did  not  really  close  down,  and  the  
  fire  closed  only  a  division  or  unit  of  the  employee’s  business;  Law  
Lao  Sok  later  collected  the  proceeds  of  his  insurance  but  he  did   and   equity   dictate   that   workers   be   compensated   for   the   loss   of   the  
not   give   the   private   respondents   their   separation   pay   and   jobs   as   they   were   kept   waiting   that   they   would   be   reemployed   if  
other  benefits.  Neither  did  he  employ  them  in  his  other  stores   not  paid  their  severance  pay.—Furthermore,  it  was  also  established  
as  earlier  promised.   that   petitioner   Lao   Sok   has   other   department   stores   where   he  
  promised   to   absorb   the   salesladies.   He   was   likewise   remiss   in   this  
Lydia  filed  for  complaint  for  illegal  dismissal  and  non-­‐payment   obligation.   There   is   merit   in   the   Solicitor   General’s   submission   that,  
of   their   separation   pay,   allowance   and   incentive   leave   pay.   in   effect,   the   fire   closed   only   a   division   or   unit   of   Lao   Sok’s  
  business.   His   entire   enterprise   consisting   of   the   operation   of  
various  department  stores  did  not  really  close  down  or  cease.  x  x  x  
Both  the  law  and  equity  dictate  that  private  respondents  must  be  
compensated   for   the   loss   of   their   jobs   considering   that   they   were  
kept   waiting   and   hoping   that   they   would   be   re-­‐employed   by   the  
petitioner,  if  not  paid  their  severance  pay.    
 
GALLARDO  v.  IAC   True,   as   argued   by   appellants,   a   private   conveyance   of   registered  
ISSUE:  WON  AN  UNNOTARIZED  DEED  OF  SALE  ON  A  PARCEL  OF   property   is   valid   as   between   the   parties.   However,   the   only   right  
LAND   CAN   BE   CONSIDERED   A   VALID   INSTRUMENT,   MAKING   the   vendee   of   registered   property   in   a   private   document   is   to  
THE  CONTRACT  OF  SALE  VALID?   compel  through  court  processes  the  vendor  to  execute  a  deed  of  
  conveyance   sufficient   in   law   for   purposes   of   registration.  
This   case   is   of   a   lot   in   Laguna   owned   by   the   late   Pedro   Plaintiffs-­‐appellants'   reliance   on   Article   1356   of   the   Civil   Code   is  
Villanueva.   Such   land   was   claimed   to   be   sold   to   Meliton   unfortunate.  The  general  rule  enunciated  in  said  Art.  1356  is  that  
Gallardo  and  Teresa  Villanueva  through  a  private  document,  an   contracts   are   obligatory,   in   whatever   form   they   may   have   been  
unnotarized  Deed  of  Sale  in  Tagalog.   entered,  provided  all  the  essential  requisites  for  their  validity  are  
  present.   The   next   sentence   provides   the   exception,   requiring   a  
Based  on  that  Deed  of  Sale,  the  original  certificate  of  title  was   contract  to  be  in  some  form  when  the  law  so  requires  for  validity  
cancelled   and   a   new   one   was   issued   under   the   name   of   or  enforceability.  Said  law  is  Section  127  of  Act  496  which  requires,  
petitioners.   among  other  things,  that  the  conveyance  be  executed  "before  the  
  judge  of  a  court  of  record  or  clerk  of  a  court  of  record  or  a  notary  
The  main  issue  was  that  the  private  respondents  countered  the   public   or   a   justice   of   the   peace,   who   shall   certify   such  
Deed   of   Sale   and   wanted   the   titles   be   declared   void   ab   initio.   acknowledgment  substantially  in  form  next  hereinafter  stated."    
The  RTC  of  Laguna  ruled  in  their  favor.    
  Such   law   was   violated   in   this   case.   The   action   of   the   Register   of  
Appeal  to  the  CA  was  made  (then  IAC)  which  affirmed  the  trial   Deeds  of  Laguna  in  allowing  the  registration  of  the  private  deed  of  
court.  Hence,  present  action.   sale   was   unauthorized   and   did   not   lend   a   bit   of   validity   to   the  
defective  private  document  of  sale.    
PAREDES  v.  ESPINO   Under   Article   1403   of   Civil   Code,   Statute   of   Frauds   does   not  
ISSUE:   WON   THE   CONTRACT   IS   BARRED   BY   THE   STATUTE   OF   require   that   the   contract   itself   be   in   writing.   It   is   clear   that   a  
FRAUDS  AND  UNENFORCEABLE?   written   note   or   memorandum   make   the   verbal   agreement  
  enforceable.   In   this   case,   the   deal   had   been   closed   by   letter   and  
Espino  “had  entered  into  the  sale”  to  Paredes  a  parcel  of  land   telegram.  Therefore,  the  contract  of  sale  is  not  under  the  Statute  
and  the  deal  was  closed  by  letter  and  telegram.   of  Frauds.  
   
The   actual   execution   of   the   deed   of   sale   and   payment   of   the   In  the  case  at  bar,  the  complaint  in  its  paragraph  3  pleads  that  the  
price   were   deferred   to   the   arrival   of   defendant   at   Puerto   deal   had   been   closed   by   letter   and   telegram"   and   the   letter  
Princesa;   that   Espino   upon   arrival   had   refused   to   execute   the   referred  to  was  evidently  the  one  copy  of  which  was  appended  as  
deed  of  sale  although  Paredes  was  able  and  willing  to  pay  the   Exhibit  A  to  plaintiff's  opposition  to  the  motion  dismiss.  This  letter,  
price,   and   continued   to   refuse   despite   written   demands;   that   transcribed   above   in   part,   together   with   that   one   marked   as  
as  a  result,  Paredes  had  lost  expected  profits  from  a  resale  of   Appendix   B,   constitute   an   adequate   memorandum   of   the  
the   property,   and   caused   mental   anguish   and   suffering,   for   transaction.   They   are   signed   by   the   defendant-­‐appellee;   refer   to  
which   reason   the   complaint   prayed   for   specific   performance   the  property  sold  as  a  lot  in  Puerto  Princesa,  Palawan,  covered,  by  
and  damages.   TCT  No.  62;  give  its  area  as  1826  square  meters  and  the  purchase  
  price   of   four   (P4.00)   pesos   per   square   meter   payable   in   cash.   We  
Espino   contended   that   the   contract   was   unenforceable   under   have   in   them   therefore,   all   the   essential   terms   of   the   contract,   and  
the  Statute  of  Frauds.     they  satisfy  the  requirements  of  the  Statute  of  Frauds.  
 
Paredes  to  his  opposition  a  copy  of  a  letter  purportedly  signed  
by  Espino  (Annex  "A")  Dear  Mr.  Paredes:     So  far  I  received  two  
letters   from   you,   one   dated   April   17   and   the   other   April   29,  
both   1964.   In   reply   thereto,   please   be   informed   that   after  
consulting   with   my   wife,   we   both   decided   to   accept   your   last  
offer   of   Four   (P4.00)   pesos   per   square   meter   of   the   lot   which  
contains  1826  square  meters  and  on  cash  basis.     In  order  that  
we   can   facilitate   the   transaction   of   the   sale   in   question,   we  
(Mrs.  Espino  and  I),  are  going  there  (Puerto  Princess,  Pal.)  to  be  
there  during  the  last  week  of  the  month,  May.  I  will  send  you  a  
telegram,  as  per  your  request,  when  I  will  reach  Manila  before  
taking   the   boat   for   Pto.   Princess.   As   it   is   now,   there   is   no  
schedule   yet   of   the   boats   plying   between   Manila   and   Pto.  
Princess  for  next  week.  
 
SPS.  AGUINALDO  v.  TORRES   Article  1357.  If  the  law  requires  a  document  or  other  special  form,  
ISSUE:  WON  THERE  THE  SALE  WAS  NULL  AND  VOID  DUE  TO   as   in   the   acts   and   contracts   enumerated   in   the   following   article  
IMPROPER  NOTARIZATION  OF  THE  DEED  OF  ABSOLUTE  SALE?   [Article   1358],  the   contracting   parties   may   compel   each   other   to  
  observe   that   form,   once   the   contract   has   been   perfected.   This  
Spouses  Aguinaldo  filed  a  complaint  for  the  cancellation  of   right   may   be   exercised   simultaneously   with   the   action   upon   the  
1979  sale  of  their  property  to  Torres,  which  the  Torres   contract.  (Emphasis  supplied)  
contended  that  it  was  sold  to  them  in  another  deed,  the  1991    
Deed  of  absolute  sale.    Article   1358.   The   following   must   appear   in   a   public   document:  
  (1)   Acts   and   contracts   which   have   for   their   object   the   creation,  
RTC  rendered  its  decision  in  favor  of  Torres,  the  spouses  appeal   transmission,   modification   or   extinguishment   of   real   rights   over  
but  the  CA  denied  and  upheld  the  decision  of  the  RTC.   immovable  property;  sales  of  real  property  or  of  an  interest  therein  
  are  governed  by  Articles  1403,  No.  2,  and  1405.  
While   it   ruled   that   the  1979  deed   of   sale   was   spurious   after    
conducting  its  own  examination  of  the  signatures  thereon  and   The  improper  notarization  of  the  1991  deed  of  sale  stripped  it  of  its  
on  other  pertinent  documents,  and  thus,  did  not  transfer  title   public   character   and   reduced   it   to   a   private   instrument.   Although  
over   the   subject   properties   to   Torres,   it   declared   that   there   the   improper   notarization   of   the   1991   deed   of   sale   did   not   affect  
was,  nonetheless,  a  valid  sale  to  the  latter,  considering  that:  (a)   the  validity  of  the  sale   of   the  subject  properties   to   respondent,   the  
the  spouses  failed  to  rebut  the  authenticity  and  due  execution   same,   however,   rendered   the   said   deed   unregistrable,   since  
of  the  1991  deed  of  sale  on  account  of  their  genuine  signatures   notarization   is   essential   to   the   registrability   of   deeds   and  
thereon   as   established   by   the   NBI   reports,  and   the   CA's   own   conveyances.   Bearing   in   mind   that   the   legal   requirement   that   the  
independent   examination   (b)   Nelia   admitted   the   existence   of   sale  of  real  property  must  appear  in  a  public  instrument  is  merely  a  
the   sale   and   (c)   Torres's   religious   payment   of   real   property   coercive  means  granted  to  the  contracting  parties  to  enable  them  
taxes  on  the  subject  properties  from  1993  to  2003  supports  his   to  reciprocally  compel  the  observance  of  the  prescribed  form,  and  
claim  of  ownership   considering  that  the  existence  of  the  sale  of  the  subject  properties  
  in   respondent's   favor   had   been   duly   established,   the   Court   upholds  
However,  the  CA  observed  that  despite  its  authenticity  and  due   the   CA's   directive   for   petitioners   to   execute   a   registrable   deed   of  
execution,   the   1991   deed   of   sale   was   improperly   notarized,   conveyance   in   respondent's   favor   within   thirty   (30)   days   from  
given  that  it  was  signed  by  Torres  and  witness  Lalaine  Bucapal   finality   of   the   decision,   in   accordance   with   the   prescribed   form  
in  Makati  City,  and  by  the  spouses  in  the  USA,  but  notarized  in   under   Articles   1357  and   1358  (1)   of   the   Civil   Code.   Notably,   if  
Tanza,   Cavite;  as   such,   the   same   could   not   be   properly   petitioners  fail  to  comply  with  this  directive  within  the  said  period,  
registered  by  the  Register  of  Deeds.  Accordingly,  the  CA  found   respondent   has   the   option   to   file   the   proper   motion   before   the  
it   equitable   to   compel   the   spouses   to   execute   a   registrable   court  a   quo  to   issue   an   order   divesting   petitioners'   title   to   the  
deed   of   conveyance   in   favor   of   respondent   within   thirty   (30)   subject  properties.  
days   from   finality   of   the   Decision,   in   accordance   with   Articles  
1357  and  1358  (1)  of  the  Civil  Code.  
 
INTERPRTATION  OF  CONTRACTS  
LIM  v.  CA   Interpretation   shall   not   favor   the   party   who   caused   the  
ISSUE:   WON   THE   LIM   HAS   PAID   THE   SUM   OF   P142,975.00   ambiguity.  Thus,  the  one  who  prepared  the  contract  which  states:  
WHICH   IS   THE   PURCHASE   PRICE   OF   4,085   PICULS   OF   SUGAR   “Terms:  Cash  upon  signing  of  this  contract,”  cannot  deny  that  the  
COVERED  BY  THE  CONTRACT  OF  SALE  BETWEEN  THE  PARTIES?   agreement   was   not   a   cash   transaction.—Considering   the   admitted  
  fact   that   the   contract   of   sale   (Exhibit   “A”)   was   prepared   in   the  
Lim   Yhi   Luya   (Lim)   operates   a   grocery   store,   hardware   store   office   of   respondent   company   by   Generoso   Bongato,   Assistant   to  
and   gasoline   station.   Hind   Sugar   Company   (Hind   Sugar)   is   the  Manager  of  the  company,  upon  instruction  of  General  Manager  
engaged   in   the   manufacturing   and   marketing   of   sugar.   Vice   Emiliano   L.   Abalos   who   is   a   lawyer,   and   We   are   now   confronted  
President  and  General  Manager  of  Hind  Sugar  is  Atty.  Emiliano   with   the   varying   or   conflicting   interpretations   of   the   parties  
Abalos.   His   assistant   is   Generoso   Bongato,   while   the   cashier   thereto,   the   respondent   company   contending   that   the   stipulation  
and  accountant  of  the  company  is  Teodoro  Garcia.     “Terms:  Cash  upon  signing  of  this  contract”  does  not  mean  that  the  
  agreement  was  a  cash  transaction  because  no  money  was  paid  by  
Lim  and  Hind  Sugar  since  1958  have  had  business  dealings  with   the   petitioner   at   the   time   of   the   signing   thereof   whereas   the  
each  other,  the  company  selling  sugar  to  the  Lim  and  the  latter   petitioner  insists  that  it  was  a  cash  transaction  inasmuch  as  he  paid  
has   been   supplying   the   company   with   diesoline,   gasoline,   cash   amounting   to   P142,975.00   upon   the   signing   of   the   contract,  
muriatic   acid,   sulfuric   acid,   other   supplies   and   materials   the  payment  having  been  made  at  around  1:30  in  the  afternoon  of  
ordered  on  credit.     November   13,   1970   to   the   cashier,   Teodoro   Garcia,   and   Manager  
  Abalos   although   the   sale   was   agreed   to   in   the   morning   of   the   same  
On  November  12,  1970,  Lim  received  a  telegram  from  Manager   day,   November   13,   1970,   the   conflicting   interpretations   have  
Abalos  in  the  following  tenor:  "Please  come  tomorrow  morning   shrouded   the   stipulation   with   ambiguity   or   vagueness.   Then,   the  
without   fail."   The   following   day,   November   13,   1970,   Lim   cardinal   rule   should   and   must   apply,   which   is   that   the  
proceeded   to   the   company   and   in   the   office   of   Manager   interpretation  shall  not  favor  the  party  who  caused  the  ambiguity  
Abalos,  the  latter  offered  to  sell  sugar  at  P37.00  per  picul.  The   (Art.  1377,  New  Civil  Code).  We  rule  that  in  the  instant  case,  the  
parties   agreed   to   the   purchase   of   4,085   piculs   of   sugar   at   interpretation   to   be   taken   shall   not   favor   the   respondent  
P35.00   per   picul.   The   specific   terms   of   the   contract   (Exhibit   company   since   it   is   the   party   who   caused   the   ambiguity   in   its  
“A”)  are  as  follows:     preparation.  
CONTRACT  OF  SALE  OF  SUGAR      
Seller  :  Hind  Sugar  Company     The   above   facts   show   contemporaneous   and   subsequent   acts   of  
Manaoag,  Pangasinan     the   parties   in   relation   to   the   transaction   between   them   as  
Buyer  :  Lim  Yhi  Luya     embodied   in   the   Contract   of   Sale   of   Sugar   (Exh.   “A”)   from   which  
Lingayen,  Pangasinan     the   intention   of   the   contracting   parties   may   be   judged   correctly.  
Quantity:  Four  Thousand  Eighty-­‐Five  (4,085)     The  trial  court  was  correct  in  judging  and  deciding  the  intention  of  
piculs  of  Hind-­‐2  sugar,  1969-­‐70  crop     the   parties   from   their   actuations   contemporaneous   with   and  
Price  :  Thirty  Five  (?35.00)  Pesos  per     subsequent  to  the  agreement  for  the  sale  of  the  sugar  in  question,  
picul,  f.o.b.  Manaoag     and  we  sustain  the  trial  court,  applying  Art.  1371,  New  Civil  Code.  
Terms  :  Cash  upon  signing  of  this  contract.     In   order   to   judge   the   intention.   Of   the   contracting   parties,   their  
Manaoag,  Pangasina,  Nov.  13,  1970.     contemporaneous   and   subsequent   acts   shall   be   principally  
  considered.  
On  the  same  day,  November  13,  1970,  in  compliance  with  the    
contract,   four   delivery   were   issued   to   Lim   by   cashier   Garcia   There  is  symbolic  delivery  of  sugar  upon  delivery  to  vendee  of  the  
upon   instructions   of   Manager   Abalos   covering   the   total   delivery   orders   which   would   authorize   the   vendee   to   withdraw  
quantity   of   sugar   sold,   4,085   piculs.   Between   November   13,   sugar  from  the  warehouse.—In  the  case  at  bar,  at  the  moment  the  
1970   to   January   27,   1971,   Lim   withdrew   from   the   company   delivery   orders   were   issued   and   given   to   the   petitioner-­‐vendee,  
warehouse  in  varying  quantities  a  total  amount  of  3,735  piculs   there   was   a   symbolic   or   feigned   tradition   of   the   sugar   sold   since  
under   substitute   delivery   orders,   leaving   a   balance   of   350   the   delivery   orders   are   documents   of   title   to   goods   which,   under  
piculs   undelivered.   On   January   22,   1971,   the   question   of   Article   1636,   New   Civil   Code,   includes   any   bill   of   lading,   dock,  
payment  cropped  out  between  the  parties.  Lim  claimed  that  he   warrant,  quedan,  or  warehouse  receipt  or  order  for  the  delivery  of  
had  paid  P142,975.00  to  the  company  officials,  Cashier  Garcia   goods,   or   any   other   document   used   in   the   ordinary   course   of  
and  Manager  Abalos  on  November  13.  1970  and  as  proof  of  his   business  in  the  sale  or  transfer  of  goods,  as  proof  of  the  possession  
payment,  he  referred  to  the  contract  Exhibit  "A",  particularly  to   or   control   of   the   goods,   or   authorizing   or   purporting   to   authorize  
the   stipulation   stating   "Terms:   Cash   upon   signing   of   this   the   possessor   of   the   document   to   transfer   or   receive,   either   by  
contract."   Hind   Sugar   officials   denied   the   claim   of   the   Lim,   indorsement  or  by  delivery,  goods  represented  by  such  document.  
alleging   that   Lim   never   paid   for   the   sugar   on   November   13,   And   when   the   petitioner-­‐buyer   withdraw   from   the   respondent’s  
1970   or   at   any   time   thereafter.   An   audit   report   or   examination   warehouse,  hauled  and  took  delivery  on  various  dates  and  varying  
of   the   books   of   the   company   made   by   an   external   auditor   quantities   of   sugar   piculs   totalling   3,735   piculs,   there   was   actual  
showed  no  payment  by  Lim.     delivery  thereof  which  consummated  the  sale.  
   
REPUBLIC  v.  CASTELLVI   Intention   cannot   prevail   over   the   clear   and   express   terms   of   the  
ISSUE:   WON   THE   TAKING   OF   THE   PROPERTY   HAS   TAKEN   PLACE   lease   contract.   Intent   is   to   be   deduced   from   the   language  
WHEN   THE   REPUBLIC   HAS   ENTERED   AND   OCCUPIED   THE   employed   by   the   parties,   and   the   terms   of   the   contract,   when  
PROPERTY  AS  LESSEE?   unambiguous,   are   conclusive   in   the   absence   of   averment   and  
  proof   of   mistake   or   fraud—the   question   being   not   what   the  
The   Republic   of   the   Philippines   through   the   Armed   Forced   of   intention   was,   but   what   is   expressed   in   the   language   used.  
the   Philippines,   particularly   the   Philippine   Air   Force   occupied   Moreover,   in   order   to   judge   the   intention   of   the   contracting  
the   land   of   Carmen   M.   vda.   de   Castellvi,   the   judicial   parties,   their   contemporaneous   and   subsequent   acts   shall   be  
administratrix   of   the   estate   of   the   late   Alfonso   de   Castellvi,   principally  considered.    
from  1  July  1947,  by  virtue  of  a  contract  of  lease,  on  a  year  to    
year   basis   (from   July   1   of   each   year   to   June   30   of   the   However  general  the  terms  of  a  contract  may  be,  they  shall  not  be  
succeeding  year).  Before  the  expiration  of  the  contract  of  lease   understood   to   comprehend   things   that   are   distinct   and   cases   that  
on   30   June   1956,   the   Republic   sought   to   renew   the   same   but   are   different   from   those   upon   which   the   parties   intended   to  
Castellvi   refused,   informing   the   latter   that   the   heirs   of   the   agree.  
property   had   decided   not   to   continue   leasing   the   property   in    
question.     "Momentary”   means   “lasting   but   a   moment;   of   but   a   moment’s  
  duration   (The   Oxford   English   Dictionary,   Volume   VI,   page   596);  
The   Chief   of   Staff   refused,   saying   that   it   was   difficult   for   the   “lasting   a   very   short   time;   transitory;   having   a   very   brief   life;  
army   to   vacate   the   premises,   and   that,   there   being   no   other   operative   or   recurring   at   every   moment”   (Webster’s   Third  
recourse,   expropriation   proceedings   would   be   necessary.   International   Dictionary,   1963   edition).   The   word   “momentary”  
Castellvi   then   brought   suit   to   eject   the   Philippine   Air   Force   when  applied  to  possession  or  occupancy  of  (real)  property  should  
from   the   land.   While   this   ejectment   case   was   pending,   the   be   construed   to   -­‐mean   “a   limited   period”—not   indefinite   or  
Republic  filed  on  26  June  1959  complaints  for  eminent  domain   permanent.  
against   Castellvi   over   the   3   parcels   of   land.   For   purposes   of    
determining   the   amount   of   just   compensation,   the   Republic   It   might   really   have   been   the   intention   of   the   Republic   to  
argued   that   it   had   taken   the   property   when   the   contract   of   expropriate   the   lands   at   some   future   time,   but   certainly   mere  
lease  commenced  and  not  when  the  expropriation  proceedings   notice—much   less   an   implied   notice—of   such   intention   on   the   part  
began.   of  the  Republic  to  expropriate  the  lands  in  the  future  did  not,  and  
  could   not,   bind   the   landowner,   nor   bind   the   land   itself.   The  
expropriation  must  be  actually  commenced  in  court.  
   
 
EASTERN  SHIPPING  v.  MARGARINA-­‐VERKAUFS  UNION   YES.  The  Court  finds  no  error  and  upholds  the  lower  court’s  ruling  
ISSUE:   WON   PETITIONER   IS   LIABLE   UNDER   THE   TERMS   OF   ITS   sustaining   respondent’s   damage   claim   although   the   amount  
OWN   BILL   OF   LADING   FOR   THE   DAMAGE   SUFFERED   BY   thereof  did  not  exceed  5%  of  respondent’s  interest  in  the  cargo  and  
RESPONDENT'S   COPRA   CARGO   ON   BOARD   PETITIONER'S   would   have   been   barred   by   the   cited   article   of   the   Commerce  
VESSEL?   Code.  We  hold  that  the  lower  court  correctly  ruled  the  cited  codal  
  article  to  be  “not  applicable  in  this  particular  case  for  the  reason  
Respondent   corporation,   a   West   German   corporation   not   that   the   bill   of   lading   (Exhibit   ‘F’)   contains   ‘an   agreement   to   the  
engaged   in   business   in   the   Philippines,   was   the   consignee   of   contrary’   for   it   is   expressly   provided   in   the   last   sentence   of   the  
500   long   tons   of   Philippine   copra   in   bulk   with   a   total   value   of  first   paragraph   (Exhibit   ‘1-­‐A’)   that   ‘In   case   of   average   same   shall  
US$   108,750.00   shipped   from   Cebu   City   on   board   petitioner's   be   adjusted   according   to   York-­‐Antwerp   Rules   of   1950.’   The  
(a   Philippine   corporation)   vessel,   the   SS   "EASTERN   PLANET"   for   insertion   of   said   condition   is   expressly   authorized   by  
discharge   at   Hamburg,   Germany.   Petitioner's   bill   of   lading   for   Commonwealth   Act   No.   65   which   has   adopted   in   toto   the   U.S.  
the  cargo  provided  as  follows:     Carriage   of   Goods   by   Sea   Act.   Now,   it   has   not   been   shown   that  
  said   rules   limit   the   recovery   of   damage   to   cases   within   a   certain  
...   Except   as   otherwise   stated   herein   and   in   -­‐   the   percentage  or  proportion  that  said  damage  may  bear  to  claimant’s  
Charter  Party,  this  contract  shag  be  governed  by  the   interest   either   in   the   vessel   or   cargo   as   provided   in   Article   848   of  
laws   of   the   Flag   of   the   Ship   carrying   the   goods.   In   the   Code   of   Commerce,   On   the   contrary,   Rule   3   of   said   York-­‐
case  of  average,  same  shall  be  adjusted  according  to   Antwerp   Rules   expressly   states   that   ‘Damage   done   to   a   ship   and  
York-­‐Antwerp  Rules  of  1950.     cargo,  or  either  of  them,  by  water  or  otherwise,  including  damage  
  by   breaching   or   scuttling   a   burning   ship,   in   extinguishing   a   fire   on  
While  the  vessel  was  off  Gibraltar,  a  fire  broke  out  aboard  and   board  the  ship,  shall  be  made  good  as  general  average  x  x  x.”  
caused  water  damage  to  the  copra  shipment  in  the  amount  of   A   contract   of   adhesion   is   construed   strictly   against   the   one   who  
US$  591.38.  Petitioner  corporation  rejected  respondent's  claim   drew   its   terms.   There   is   a   clear   and   irreconcilable   inconsistency  
for  payment.   between  the  York-­‐Antwerp  Rules  expressly  adopted  by  the  parties  
as   their   contract   under   the   bill   of   lading   which   sustains  
respondent’s   claim   and   the   codal   article   cited   by   petitioner   which  
would   bar   the   same.   Furthermore,   as   correctly   contended   by  
respondent,   what   is   here   involved   is   a   contract   of   adhesion   as  
embodied   in   the   printed   bill   of   lading   issued   by   petitioner   for   the  
shipment   to   which   respondent   as   the   consignee   merely   adhered,  
having   no   choice   in   the   matter,   and   consequently,   any   ambiguity  
therein  must  be  construed  against  petitioner  as  the  author.  
 
KINDS  OF  CONTRACTS  
1. RESCISSIBLE  
CABALIW  v.  SADORRA   ART.  1387  PAR.  2,  alienations  by  onerous  title  are  also  presumed  
ISSUE:   WON   THERE   IS   A   PRESUMPTION   OF   FRAUD   AGAINST   fraudulent  when  made  by  persons  against  whom  some  judgment  
SADORRA?   has   been   rendered   in   any   instance   or   some   writ   of   attachment  
  has  been  issued.  The  decision  or  attachment  need  not  refer  to  the  
Cabaliw  was  the  second  wife  of  Benigno.  During  their  marriage,   property   alienated,   and   need   not   have   been   obtained   by   the  
they   bought   2   parcels   of   land.   They   had   a   daughter   party  seeking  the  rescission.  
Soledad.    Benigno  abandoned  his  wife  Cabaliw,  thus  the  latter    
filed   an   action   in   court   for   support.   The   Court   ordered   Benigno   A   sale   of   a   parcel   of   land   by   the   husband   is   deemed   fraudulent   if  
to   pay   her   P75   a   month.  However,   Benigno   did   not   pay   and   made  about  seven  months  after  a  judgment  was  rendered  against  
instead   sold   their   property   to   his   son-­‐in-­‐law   Soterro.   The   the   vendor   for   support   of   his   wife   and   the   vendor   has   not   paid   any  
transaction   was   done   without   Isidora’s   consent.  Prior   to   the   part   of   the   judgment.—For   the   heart   of   the   matter   is   that   about  
sale,  Soterro  already  knew  that  there  was  a  judgment  rendered   seven   months   after   a   judgment   was   rendered   against   him   in   Civil  
against   his   father-­‐in-­‐law   but   proceeded   to   buy   the   property   Case  No.  43192  of  the  Court  of  First  Instance  of  Manila  and  without  
anyway.  When   Cabaliw   found   out,   she   instituted   an   action   paying   any   part   of   that   judgment,   Benigno   Sadorra   sold   the   only  
along  with  her  daughter  to  recover  the  properties.   two   parcels   of   land   belonging   to   the   conjugal   partnership   to   his  
son-­‐in-­‐law.  Such  a  sale  even  if  made  for  a  valuable  consideration  is  
presumed  to  be  in  fraud  of  the  judgment  creditor  who  in  this  case  
happens  to  be  the  offended  wife.  
 
Where  sale  of  land  is  presumed  fraudulent,  transferee  has  burden  
of   proving   otherwise.—On   the   part   of   the   transferee,   he   did   not  
present   satisfactory   and   convincing   evidence   sufficient   to  
overthrow   the   presumption   and   evidence   of   a   fradulent  
transaction.  His  is  the  burden  of  rebutting  the  presumption  of  fraud  
established   by   law,   and   having   failed   to   do   so,   the   fraudulent  
nature  of  the  conveyance  in  question  prevails.  
 
The  decision  of  the  Court  of  Appeals  makes  mention  of  Art.  1413  of  
the  old  Civil  Code  which  authorizes  the  husband  as  administrator  to  
 alienate   and   bind   by   onerous   title   the   property   of   the   conjugal  
partnership   without   the   consent   of   the   wife.   x   x   x   On   this   point,  
counsel  for  petitioners  rightly  claims  that  the  lack  of  consent  of  the  
wife  to  the  conveyances  made  by  her  husband  was  never  invoked  
nor   placed   in   issue   before   the   trial   court.   What   was   claimed   all  
along  by  plaintiff-­‐petitioner  was  that  the  conveyances  or  deeds  of  
sale   were   executed   by   her   husband   to   avoid   payment   of   the  
monthly   support   adjudged   in   her   favor   and   to   deprive   her   of   the  
means   to   execute   said   judgment.   In   other   words,   petitioner   seeks  
relief   not   so   much   as   an   aggrieved   wife   but   more   as   a   judgment  
creditor.  Art.  1413  therefore  is  inapplicable;  but  even  if  it  were,  the  
result  would  be  the  same  because  the  very  article  reserves  to  the  
wife   the   right   to   seek   redress   in   court   for   alienations   which  
prejudice  her  or  her  heirs.  
 
 
HONGKONG  &  SHANGHAI  BANK  v.  PAULI   The  four-­‐year  period  to  bring  an  action  for  annulment  of  deed  of  
ISSUE:     sale   of   lot   is   computed   from   the   registration   of   the   conveyance;  
(a)   HAS   THE   ACTION   FOR   ANNULMENT   OF   THE   SALE   OF   LOT   Reason.—When   a   transaction   involves   registered   land,   the   four-­‐
693  TO  THE  GARGANERAS  PRESCRIBED?  YES,   year  period  fixed  in  Article  1391  within  which  to  bring  an  action  for  
(b)   DID   PRESCRIPTION   OF   THE   ACTION   COMMENCE   TO   RUN   annulment  of  the  deed,  shall  be  computed  from  the  registration  of  
FROM   THE   REGISTRATION   OF   THE   SALE,   OR   FROM   THE   the   conveyance   (March   5,   1963)   on   the   familiar   theory   that   the  
DISCOVERY  OF  THE  TRANSACTION  BY  THE  BANK?  YES.   registration   of   the   document   is   constructive   notice   of   the  
  conveyance   to   the   whole   world   (Armentia   vs.   Patriarca,   18   SCRA  
On   June   14,   1957,   the   trial   court   rendered   a   decision   favorable   1253;  Avecilla  vs.  Yatco,  103  Phil.  666).  
to   Hongkong   &   Shanghai   Banking   Corporation   (HSBC)       Ralph    
Pauli,   P219,236.20   with   legal   interest,   in   the   Civil   Case   No.   Effect   if   the   four-­‐year   period   commenced   to   run   from   the   date  
32799.  affirmed  by  SC  in  L-­‐  15713.   when  the  bank  obtained  actual  knowledge  of  the  fraudulent  sale  
  of   the   land   or   that   the   4-­‐year   period   had   not   yet   expired.—
The   HSBC   filed   for   the   writs   of   execution   but,   were   returned   Plaintiff’s  submission  that  the  four-­‐year  period  commenced  to  run  
unsatisfied  because  no  leviable  assets  of  Pauli  could  be  located   from   the   date   when   the   Bank   obtained   actual   knowledge   of   the  
by  the  sheriffs.   fraudulent   sale   of   Pauli’s   land   to   the   Garganeras   (sometime   in  
  1969)   and   that   hence   the   four-­‐year   period   for   bringing   an   action   to  
Unknown   to   the   HSBC,   Pauli   had   on   January   8,   1957   purchased   annul   the   sale   had   not   yet   expired   when   it   filed   the   action   for  
from   the   PNB,   a   sugar   cane   plantation   known   as   Hacienda   annulment   on   February   17,   1971,   is   unacceptable.   That   theory  
Riverside  (Lot  No.  693  of  Saravia  Cadastre,  Negros  Occidental).   would   diminish   public   faith   in   the   integrity   of   torrens   titles   and  
To  avoid  discovery  of  the  transaction  by  his  creditors,  he  did   impair   commercial   transactions   involving   registered   lands   for   it  
not  register  the  deed  of  Sale.  Six  years  later,  on  March  1,  1963,   would   render   uncertain   the   computation   of   the   period   for   the  
he   fraudulently   sold   the   hacienda   to   his   daughter,   Sally   prescription  of  such  actions.    
Garganera,   and   her   husband   Mateo   Garganera.   The   sale   was    
registered   on   March   5,   1963.   Transfer   Certificate   of   Title   No.  
34425  was  issued  to  the  Garganeras.  
 
Having  discovered  that  the  sugar  plantation  belonged  to  Paul,  
HSBC    filed  on  January  13,  1969  Manila  a  complaint  for  revival  
of  the  1962  judgment  in  its  favor  in  Civil  Case  No.  32799.  The  
case   was   docketed   as   Civil   Case   No.   75319.   A   writ   of  
preliminary   attachment   was   issued   against   Pauli's,   rights,  
interests  and  participation  in  Lot  No.  693.  
 
Under   the   pretext   of   amicably   settling   Civil   Case   No.   75319,  
defendant   Ralph   Pauli   repeatedly   postponed   hearings   of   the  
case,   to   enable   defendants-­‐spouses,   Sally   P.   Garganera   and  
Mateo  Garganera,  to  intervene  in  Civil  Case  No.  75319,  which  
they  did  on  October  21,  1969.    
 
On  January  23,  1971,  the  Court  rendered  judgment  in  Civil  Case  
No.  75319,  in  favor  of  HSBC  
1.  x  x  x  
2.   Ordering   defendant   to   pay   to   plaintiff   the   sum   of  
P219,276.20   with   legal   interest   thereon   from   June   14,   1957  
until  fully  paid,  and  the  costs;  
3.   Ordering   the   discharge   of   the   attachment   levied   upon   and  
annotated   on   Transfer   Certificate   of   Title   No.   T-­‐34425   of   the  
land   records   of   the   Province   of   Negros   Occidental   in   virtue   of  
the   writ   issued   in   the   above-­‐entitled   case   on   February   21,  
1969;  and  
4.  Dismissing  all  the  claims  for  damages  respectively  interposed  
by  the  litigants  therein.  
 
On  February  17,  1971,  the  Bank  filed  a  new  complaint  against  
Pauli   and   the   Garganeras   which   was   docketed   as   Civil   Case   No.  
465  in  the  Court  of  First  Instance  of  Negros  Occidental,  Branch  
I,  praying  for  annulment  of  the  Conditional  Sale  as  well  as  the  
Deed   of   Sale,   of   Hacienda   Riverside   to   the   Garganeras   and   also  
for  annulment  of  Garganera's  Certificate  of  Title  No.  T-­‐34425.  
 
Pauli   and   the   Garganeras   filed   a   Motion   to   Dismiss   on   the  
grounds   of  res   judicata,   prescription,   waiver   and   abandonment  
of   claim.   On   June   15,   1971,   the   Court   granted   the   motions   to  
dismiss   on   the   grounds   of   prescription   of   the   action   and  res  
judicata.  
 
2. VOIDABLE    
FELIPE  v.  HEIRS  OF  ALDON   It   is   a   voidable   contract.   According   to   Art.   1390   of   the   Civil   Code,  
ISSUE:   WON   THE   SALE   MADE   BY   GIMENA   IS   A   DEFECTIVE   among   the   voidable   contracts   are   “[T]hose   where   one   of   the  
CONTRACT  BUT  OF  WHAT  CATEGORY?   parties  is  incapable  of  giving  consent  to  the  contract.”  (Par.  1.)  In  
  the   instant   case-­‐Gimena   had   no   capacity   to   give   consent   to   the  
Maximo  Aldon  married  Gimena  Almosara  in  1936.  They  bought   contract   of   sale.   The   capacity   to   give   consent   belonged   not   even  
several   pieces   of   land   sometime   between   1948   and   1950.   In   to  the  husband  alone  but  to  both  spouses.  In  addition,  Judgment  
1951,   Gimena   Almosara   sold   the   lots   to   the   spouses   Eduardo   the  term  used  by  the  court  below,  that  the  contract  is  “invalid”  is  
Felipe   and   Hermogena   V.   Felipe.   The   sale   was   made   without   imprecise.—In   the   instant   case,   Gimena,   the   wife,   sold   lands  
the  consent  of  her  husband.     belonging   to   the   conjugal   partnership   without   the   consent   of   the  
  husband   and   the   sale   is   not   covered   by   the   phrase   “except   in   cases  
On   April   26,   1976,   the   heirs   of   Maximo   Aldon,   namely   his   provided   by   law.”   The   Court   of   Appeals   described   the   sale   as  
widow   Gimena   and   their   children   Sofia   and   Salvador   Aldon   “invalid”—a   term   which   is   imprecise   when   used   in   relation   to  
filed   a   complaint   that   alleged   that   the   plaintiffs   were   the   contracts   because   the   Civil   Code   uses   specific   names   in   designating  
owners   of   Lots   1370,   1371   and   1415;   that   they   had   orally   defective   contracts,   namely:   rescissible   (Arts.   1380   et   seg.),  
mortgaged   the   same   to   the   defendants;   and   an   offer   to   voidable   (Arts.   1390   et   seq.),   unenforceable   (Arts.   1403,   et   seq.),  
redeem   the   mortgage   had   been   refused   so   they   filed   the   and  void  or  inexistent  (Arts.  1409  et  seq.)  The  sale  made  by  Gimena  
complaint  in  order  to  recover  the  three  parcels  of  land.     is  certainly  a  defective  contract  but  of  what  category?  The  answer:  
  it  is  a  voidable  contract.  
The   trial   court   sustained   the   claim   of   the   defendants   and    
rendered  judgment  in  favor  of  Spouses  Felipe  as  lawful  owners.   A  contract  of  sale  of  land  made  by  the  wife  without  the  husband’s  
The  Court  of  Appeals  set  aside  the  decision  of  CFI  declaring  the   consent   is   voidable.   The   view   that   the   contract   made   by   Gimena   is  
parcels  ‘were  purchased  by  plaintiff  Gimena  Almosara  and  her   a   voidable   contract   is   supported   by   the   legal   provision   that  
late   husband   Maximo   Aldon’   (the   lots   having   been   purchased   contracts  entered  by  the  husband  without  the  consent  of  the  wife  
during   the   existence   of   the   marriage,   the   same   are   presumed   when   such   consent   is   required,   are   annullable   at   her   instance  
conjugal)   and   inferentially,   by   force   of   law,   could   not,   be   during   the   marriage   and   within   ten   years   from   the   transaction  
disposed   of   by   a   wife   without   her   husband’s   consent.   Hence   questioned.   (Art.   173,   Civil   Code.)   Wife’s   contract   of   sale   can   be  
this  petition.   annulled   by   the   husband   during   the   marriage,   but   not   by   the   wife  
nor  their  children.  The  voidable  contract  of  Gimena  was  subject  to  
annulment   by   her   husband   only   during   the   marriage   because   he  
was   the   victim   who   had   an   interest   in   the   contract.   Gimena,   who  
was   the   party   responsible   for   the   defect,   could   not   ask   for   its  
annulment.  Their  children  could  not  likewise  seek  the  annulment  of  
the  contract  while  the  marriage  subsisted  because  they  merely  had  
an  inchoate  right  to  the  lands  sold.  
 
The  case  of  Sofia  and  Salvador  Aldon  is  different.  After  the  death  of  
Maximo  they  acquired  the  right  to  question  the  defective  contract  
insofar   as   it   deprived   them   of   their   hereditary   rights   in   their  
father’s   share   in   the   lands.   The   father’s   share   is   one-­‐half   (1/2)   of  
the  lands  and  their  share  is  two-­‐thirds  (2/3)  thereof,  one-­‐third  (1/3)  
pertaining  to  the  widow.    
 
The  petitioners  have  been  in  possession  of  the  lands  since  1951.  It  
was  only  in  1976  when  the  respondents  filed  action  to  recover  the  
lands.   In   the   meantime,   Maximo   Aldon   died.   As   to   the   second  
 question,  the  children’s  cause  of  action  accrued  from  the  death  of  
their   father   in   1959   and   they   had   thirty   (30)   years   to   institute   it  
(Art.  1141,  Civil  Code.)  They  filed  action  in  1976  which  is  well  within  
the  period.    
 
HOUSE  INT'L  v.  IAC   We   agree   with   the   Court   of   Appeals   that   on   this   issues   the  
ISSUE:   WON   HOUSE   INT’L   HAS   CAUSE   OF   ACTION   ON   THE   provision  of  Art.  1397  of  the  Civil  Code  is  in  point,  thus:  Art.  1397.  
GROUND  THAT  IT  IS  NOT  A  PARTY  TO  THE  CONTRACT?   The  action  for  the  annulment  of  contracts  may  be  instituted  by  all  
  who  are  thereby  obliged  principally  or  subsidiarily.    
HOUSE   INT’L   constitutes   the   great   majority   of   more   than   a    
hundred   heads   of   families   who   are   tenants   of   long   and   good   Petitioner  is  neither  a  party  nor  a  privy  to  the  Deed  of  Conditional  
standing  of  the  14-­‐storey  House  International  Building  located   Sale  and  the  assignment  thereof:  thus,  it  cannot  assail  the  validity  
at   777   Ongpin   Street,   Binondo,   Manila.   The   land   and   the   of   the   said   contracts.   In   Ibañez   vs.   Hongkong   and   Shanghai   Bank:  
improvements   thereon   were   formerly   owned   by   Atty.   Felipe   From  these  legal  provisions  it  is  deduced  that  it  is  the  interest  had  
Ang   who   mortgaged   the   same   to   the   Government   Service   in   a   given   contract,   that   is   the   determining   reason   of   the   right  
Insurance   System   (GSIS)   to   secure   payment   of   an   obligation.   which  lies  in  favor  of  the  party  obligated  principally  or  subsidiarily  
After   foreclosure   of   the   mortgage   and   for   failure   of   Ang   to   to   enable   him   to   bring   an   action   for   the   nullity   of   the   contract   in  
exercise  his  right  of  redemption  over  the  foreclosed  property,   which   he   intervened,   and,   therefore,   he   who   has   no   right   in   a  
the   ownership   thereof   was   consolidated   with   the   GSIS   which   contract   is   not   entitled   to   prosecute   an   action   for   nullity,   for,  
subsequently   sold   it   to   Centertown   Marketing   Corporation   according  to  the  precedents  established  by  the  courts,  the  person  
(CENTERTOWN)  in  a  deed  of  conditional  sale,  without  notice  to   who   is   not   a   party   to   a   contract,   nor   has   any   cause   of   action   or  
the   tenants   of   the   building   and   without   securing   the   prior   representation   from   those   who   intervened   therein,   is   manifestly  
clearance  of  the  then  Ministry  of  Human  Settlements.     without   right   of   action   and   personality   such   as   to   enable   him   to  
  assail  the  validity  of  the  contract.    
As   CENTERTOWN   was   not   authorized   by   its   Articles   of   In   the   decision   sought   to   be   reviewed   the   court   agrees   with   the  
Incorporation   to   engage   in   the   real   estate   business,   it   decision  of  the  Court  of  Appeals  that:  The  corollary  issue  is  whether  
organized   a   sister   corporation,   with   almost   an   the   same   appellant  has  the  personality  to  assail  the  validity  of  the  conditional  
incorporators  and  stockholders,  as  CENTERTOWN'S,  under  the   sale   and   its   assignment.   The   answer   is   partly   supplied   by   the   above  
corporate   name   of   Manila   Towers   Development   Corporation   discussion:   further   arguments   against   the   appellant   are   the  
(TOWERS)   for   the   primary   purpose   of   engaging   in   the   real   provisions   of   the   Civil   Code   which   say   that   contracts   take   effect  
estate   business.   Subsequently,   CENTERTOWN   assigned   to   its   only   between   parties   (Art.   1311)   hence   the   action   for   their  
sister   corporation   TOWERS   all   its   rights   and   obligations   under   annulment   may   be   instituted   only   by   those   who   are   thereby  
the   Deed   of   Conditional   Sale,   with   the   consent   and   approval   of   obliged   principally   or   subsidiarily   (Art.   1397).   Appellant   is   not  
the  GSIS.     privy   to   either   the   deed   of   conditional   sale   or   the   assignment.  
  (Decision  of  Court  of  Appeals,  p.  3).    
Thereafter,   herein   HOUSE   INT’L   filed   a   complaint   with   the    
Regional  Trial  Court  of  Manila  against  CENTERTOWN,  TOWERS   Void  contract,  different  from  ultra  vires  contract,  which  is  merely  
and  GSIS  for  annulment  of  the  deed  of  conditional  sale  and  the   voidable.   The   main   thrust   of   the   petitioner’s   challenge   on   the  
subsequent  assignment  thereof  by  CENTERTOWN  to  TOWERS.   validity   of   the   conditional   sale   is   that   the   contract   is   ultra   vires  
The  complaint  alleged  in  part  that  the  Deed  of  Conditional  Sale   because  the  respondent  CENTERTOWN  is  not  qualified  to  acquire  
is  null  and  void  ab  initio  for  being  ultra  vires,  since  defendant   properties   under   its   Articles   of   Incorporation.   The   petitioner   has  
CENTERTOWN   is   not   qualified   to   acquire   real   estate   property   confused   a   void   contract   with   an   ultra   vires   contract   which   is  
or  to  engage  in  real  estate  transactions.     merely  voidable.  
   
The   court   dismissed   the   complaint.   HOUSE   INT’L   appealed   to   Privity   of   petitioner   to   the   deed   of   sale   being   absent,   it   cannot  
the   Court   of   Appeals   after   its   motion   for   reconsideration   was   assail   the   validity   of   the   contract   between   the   GSIS   and   the  
denied   by   the   trial   court.   The   order   of   dismissal   was   affirmed   corporation  and  the  assignment  of  the  deed  by  the  corporation  to  
by  the  appellate  court   its  sister  corporation.  Petitioner  is  neither  a  party  nor  a  privy  to  the  
Deed   of   Conditional   Sale   and   the   assignment   thereof:   thus,   it  
cannot  assail  the  validity  of  the  said  contracts.  
POOLE-­‐BLUNDEN  v.  UNION  BANK   Article  1390  of  the  Civil  Code  stipulates  that  a  contract  is  voidable  
G.R.  NO.  205838,  29  NOVEMBER  2017   or  annullable  even  if  there  is  no  damage  to  the  contracting  parties  
LEONEN,  J   where   “consent   is   vitiated   by   mistake,   violence,   intimidation,  
ISSUE:   WHETHER   OR   NOT   UNIONBANK   COMMITTED   SUCH   A   undue   influence   or   fraud.”—For   there   to   be   a   valid   contract,   all  
DEGREE   OF   FRAUD   THAT   WOULD   ENTITLE   THE   POOLE-­‐ the  three  (3)  elements  of  consent,  subject  matter,  and  price  must  
BLUNDEN   TO   THE   VOIDING   OF   THE   CONTRACT   TO   SELL   THE   be  present.  Consent  wrongfully  obtained  is  defective.  The  party  to  
SAID   CONDOMINIUM   UNIT   FOR   HIS   FAILURE   TO   DISCLOSE   a   contract   whose   consent   was   vitiated   is   entitled   to   have   the  
THAT   THE   95   SQM   AS   ADVETISED   ALREADY   INCLUDED   contract  rescinded.    
COMMON  AREAS?  YES.    
  Respondent's   insistence   on   how   common   spaces   should   be  
Poole-­‐Blunden   (petitioner)   came   across   an   advertisement   for   included   in   reckoning   the   Unit's   total   area   runs   afoul   of   how  
public   auction   of   certain   properties   placed   by   Union   Bank   in   Republic   Act   No.   4726,   otherwise   known   as   the   Condominium.  
the   Manila   Bulletin   sometime   in   March   2001.   One   of   these   Section  3(b)  of  the  Condominium  Act  defines  a  condominium  unit,  
properties   was   Unit   2-­‐C   of   T-­‐Tower   Condominium   located   at   as  follows:      
Makati  City.  The  condominium  unit  was  acquired  by  UnionBank   "Unit"   means   a   part   of   the   condominium   project  
through  foreclosure  proceedings.   intended  for  any  type  of  independent  use  or     ownership,  
  including  one  or  more  rooms  or  spaces  located  in  one  or  
A   week   prior   to   the   auction,   petitioner   visited   the   unit   for   more   floors   (or   part   or   parts   of   floors)   in   a   building   or  
inspection.  He  found  that  the  unit  had  an  irregular  shape,  but   buildings   and   such   accessories   as   may   be   appended  
didn’t  doubt  the  unit’s  area  as  advertised,  the  ceiling  in  a  bad   thereto.  
condition,   and   the   unit   needed   substantial   repairs   to   be    
habitable.   On   the   day   of   the   auction,   he   also   inspected   the   Section   6(a)   of   the   Condominium   Act   specifies   the   reckoning   of   a  
Master   Title   of   the   project   owner   to   the   condominium.   condominium   unit's   bounds.   It   also   specifies   that   areas   of   common  
Petitioner   won   the   bid   and   he   entered   to   a   Contract   to   Sell   use  "are  not  part  of  the  unit":  
with   UnionBank.   He   started   occupying   the   unit   in   June   2001    
and  by  July  2003,  he  was  able  to  fully  pay  for  the  unit,  paying  a   The   boundary   of   the   unit   granted   are   the   interior  
total  amount  of  P  3,257,142.49.00.     surfaces  of  the  perimeter  walls,  floors,  ceilings,  windows  
  and  doors  thereof.  The  following  are  not  part  of  the  unit  
Petitioner  decided  to  construct  two  additional  bedrooms  in  the   bearing   walls,   columns,   floors,   roofs,   foundations   and  
unit.  He  noticed  apparent  problems  in  its  dimensions.  He  took   other   common   structural   elements   of   the   building;  
a   rough   measurement   and   found   that   the   floor   area   was   just   lobbies,  stairways,  hallways,  and  other  areas  of  common  
70   sqm,   not   95   sqm   as   advertised.   He   got   in   touch   with   an   use.    
officer   of   UnionBank   to   raise   the   matter,   but   no   action   was    
taken.   He   then   wrote   to   Unionbank   to   inform   them   of   the   Thus,   the   unit   sold   to   petitioner   was   deficient   in   relation   to   its  
discrepancy  and  asked  for  the  rescission  of  the  Contract  to  Sell,   advertised   area.   This   advertisement   having   been   made   by  
along  with  the  refund  of  the  amounts  he  had  paid.  UnionBank   respondent,   it   is   equally   settled   there   was   a   falsity   in   the  
replied   that   upon   inquiring   with   HLURB,   the   Homeowners’s   declarations   made   by   respondent   prior   to,   and   with   the   intention  
Association   of   T-­‐Tower,   and   its   appraisers,   the   unit   was   of  enticing  buyers  to  the  sale.    
confirmed  to  be  95  sqm  inclusive  of  the  terrace  and  the  comon    
areas   surrounding   it.   The   petitioner   was   not   satisfied   because      
according   to   the   Master   Title,   “boundary   of   each   unit   are   the   Petitioner's  contention  on  how  crucial  the  dimensions  and  area  of  
interior   surfaces   of   the   perimeter   walls,   floors,   ceilings,   the   Unit   are   to   his   decision   to   proceed   with   the   purchase   is   well-­‐
windows   and   doors   thereof."   He   hired   an   independent   taken.   The   significance   of   space   and   dimensions   to   any   buyer   of  
geodetic   engineer,   to   survey   the   unit   and   measure   its   actual   real  property  is  plain  to  see.  This  is  particularly  significant  to  buyers  
floor.  It  was  found  out  that  the  actual  area  was  only  74.4  sqm   of  condominium  units  in  urban  areas,  and  even  more  so  in  central  
and  gave  a  copy  of  the  certification  to  Unionbank.  UnionBank   business   districts,   where   the   scarcity   of   space   drives   vertical  
explained  that  the  total  area  of  the  unit  is  based  on  the     ratio   construction  and  propels  property  values.    
allocation   maintenance   cost   submitted   by   the   developer   to    
HLURB  is  98  square  meters  (60  square  meters  as  unit  area  and   The  defense  of  "as-­‐is-­‐where-­‐is"  terms  of  the  purchase  is  untenable.  
38  square  meters  as  share  on  open  space).  On  the  other  hand,   First,   a   stipulation   absolving   a   seller   of   liability   for   hidden   defects  
the   actual   area   thereof   based   on   the   measurements   made   by   can   only   be   invoked   by   a   seller   who   has   no   knowledge   of   hidden  
its   surveyor   is   74.18   square   meters   which   was   much   higher   defects.  Respondent  here  knew  that  the  Unit's  area,  as  reckoned  in  
than   the   unit   area   of   60   square   meters   that   was   approved   by   accordance  with  the  Condominium  Act,  was  not  95  square  meters.  
HLURB.   The   petitioner   was   dissatisfied   with   the   said   Second,   an   as-­‐is-­‐where-­‐is   stipulation   can   only   pertain   to   the   readily  
explanation.     perceptible   physical   state   of   the   object   of   a   sale.   It   cannot  
  encompass   matters   that   require   specialized   scrutiny,   as   well   as  
Petitioner   filed   for   the   recission   of   the   Contract   to   Sell   with   features   and   traits   that   are   immediately   appreciable   only   by  
Damages  with  the  RTC  of  Makati  and  said  court  dismissed  the   someone  with  technical  competence.  
complaint.   The   CA   affirmed   the   ruling   of   the   RTC   stating   that    
the   sale   was   made   on   a   "as-­‐is-­‐where-­‐is"   basis   as   indicated   in   Thus,   the   Court   ordered   that   the   Contract   to   Sell   between  
their   contract.   Thus,   the   petitioner   supposedly   waived   any   petitioner   and   respondent   be   annulled,   and   petitioner   be   refunded  
errors   in   the   bounds   or   description   of   the   unit.   With   the   denial   all  the  amounts  he  paid  to  respondent  in  respect  of  the  purchase  of  
of   his   Motion   for   Reconsideration,   he   filed   for   a   petition   to   the   the  Unit  plus  damages.  
Supreme   Court   stating   that:   there   is   a   vitiation   of   his   consent    
as   to   the   object   of   the   sale   and   he   charges   UnionBank     with   Reliance  on  Section  12’s  as-­‐is-­‐where-­‐is  stipulation  is  misplaced  for  
fraud   since   it   failed   to   disclose   to   him   that   the   advertised   95   two  (2)  reasons.  First,  a  stipulation  absolving  a  seller  of  liability  for  
square   meters   was   inclusive   of   common   areas.   Thus,   the   hidden   defects   can   only   be   invoked   by   a   seller   who   has   no  
Contract   to   Sell  may   be   voided   and   that   UnionBank   is   liable   for   knowledge   of   hidden   defects.   Respondent   here   knew   that   the  
breach   of   warranty   despite   the   "as-­‐is-­‐where-­‐is"   clause   in   the   Unit’s  area,  as  reckoned  in  accordance  with  the  Condominium  Act,  
Contract  to  Sell.     was  not  95  square  meters.  Second,  an  as-­‐is-­‐where-­‐is  stipulation  can  
  only  pertain  to  the  readily  perceptible  physical  state  of  the  object  
of   a   sale.   It   cannot   encompass   matters   that   require   specialized  
scrutiny,   as   well   as   features   and   traits   that   are   immediately  
appreciable  only  by  someone  with  technical  competence.  A  seller  is  
generally   responsible   for   warranty   against   hidden   defects   of   the  
thing  sold.  As  stated  in  Article  1561  of  the  New  Civil  Code:  Article  
1561.   The   vendor   shall   be   responsible   for   warranty   against   the  
hidden  defects  which  the  thing  sold  may  have,  should  they  render  
it  unfit  for  the  use  for  which  it  is  intended,  or  should  they  diminish  
its  fitness  for  such  use  to  such  an  extent  that,  had  the  vendee  been  
aware  thereof,  he  would  not  have  acquired  it  or  would  have  given  
a   lower   price   for   it;   but   said   vendor   shall   not   be   answerable   for  
patent   defects   or   those   which   may   be   visible,   or   for   those   which  
are  not  visible  if  the  vendee  is  an  expert  who,  by  reason  of  his  trade  
or  profession,  should  have  known.  Article  1566,  paragraph  2  states  
the  seller’s  liability  for  hidden  defects  shall  be  inapplicable  if  there  
is  a  stipulation  made  to  the  contrary.  However,  a  mere  stipulation  
does   not   suffice.   To   be   fully   absolved   of   liability,   Article   1566,  
paragraph   2   also   requires   a   seller   to   be   unaware   of   the   hidden  
defects  in  the  thing  sold.  
 
A   condominium   unit’s   area   is   a   physical   attribute.   In   Hian’s  
contemplation,   it   appeared   that   the   total   area   of   a   condominium  
unit   is   a   valid   object   of   an   as-­‐is-­‐where-­‐is   clause.   However,   while   as-­‐
is-­‐where-­‐is  clauses  exclusively  apply  to  the  physical  attributes  of  a  
thing   sold,   they   apply   only   to   physical   features   that   are   readily  
observable.   The   significance   of   this   Court’s   pronouncements   in  
Hian   and   National   Development   Company   are   in   clarifying   that  
legal  status,  which  is  a  technical  matter  perceptible  only  by  lawyers  
and   regulators,   cannot   be   encompassed   by   an   as-­‐is-­‐where-­‐is  
stipulation.   Hian   and   National   Development   Company   are   not   a  
sweeping   approbation   of   such   stipulations’   coverage   of   every  
corporeal   attribute   or   tangible   trait   of   objects   being   sold.   Thus,   in  
Asset  Privatization  v.  T.J.  Enterprises,  587  SCRA  481  (2009),  the  as-­‐
is-­‐where-­‐is   stipulation   was   understood   as   one   which   “merely  
describes   the   actual   state   and   location   of   the   machinery   and  
equipment   sold,”   and   nothing   else.   Features   that   may   be   physical  
but  which  can  only  be  revealed  after  examination  by  persons  with  
technical   competence   cannot   be   covered   by   as-­‐is-­‐where-­‐is  
stipulations.   A   buyer   cannot   be   considered   to   have   agreed   “to   take  
possession   of   the   things   sold   ‘in   the   condition   where   they   are  
found   and   from   the   place   where   they   are   located’”   if   the   critical  
defect   is   one   which   he   or   she   cannot   even   readily   sense.   In  
inspecting  the  Unit  prior  to  the  auction  sale,  petitioner  took  note  of  
its   actual   state:   “he   noticed   that   the   ceilings   were   down,   [that]  
there   was   water   damage   from   the   leaks   coming   from   the   unit  
above,   and   [that]   the   parquet   floor   was   damaged.”   He   also   took  
note   of   its   irregular   shape   and   the   circular   terrace   outside   it.   These  
observations   represent   the   full   extent   of   what   was   readily  
perceptible   to   petitioner.   The   precise   measurement   of   the   Unit’s  
area,   in   contrast,   could   only   be   determined   by   someone   with  
specialized   or   technical   capabilities.   While   ordinary   persons,   such  
as   petitioner,   may   hold   such   opinions   that   the   Unit   looks   small,  
their   perception   could   not   be   ascertained   until   after   an  
examination  by  someone  equipped  with  peculiar  skills  and  training  
to  measure  real  property.  Indeed,  petitioner’s  suspicions  were  not  
roused   until   years   after   he   had   occupied   the   Unit   and   confirmed  
until  after  a  certification  was  issued  by  a  surveyor.  
 
A  person  not  equipped  with  technical  knowledge  and  expertise  to  
survey  real  property  could  not  reasonably  be  expected  to  recognize  
deficiencies   in   measurement   at   the   first   instance   especially   if   that  
property  was  of  “irregular  shape,”  “neither  square  nor  rectangle,”  
and   having   a   “circular   terrace.”—Any   waiver   of   warranties   under  
Section  12  of  the  Contract  to  Sell  could  have  only  been  concerned  
with  the  readily  apparent  subpar  condition  of  the  Unit.  
 
By   definition,   fraud   presupposes   bad   faith   or   malicious   intent.   It  
transpires   when   insidious   words   or   machinations   are   deliberately  
employed   to   induce   agreement   to   a   contract.   Thus,   one   could  
conceivably   claim   that   respondent   could   not   be   guilty   of   fraud   as   it  
does   not   appear   to   have   crafted   a   deceptive   strategy   directed  
specifically   at   petitioner.   However,   while   petitioner   was   not   a  
specific   target,   respondent   was   so   callously   remiss   of   its   duties   as   a  
bank.  It  was  so  grossly  negligent  that  its  recklessness  amounts  to  a  
 wrongful   willingness   to   engender   a   situation   where   any   buyer   in  
petitioner’s   shoes   would   have   been   insidiously   induced   into   buying  
a  unit  with  an  actual  area  so  grossly  short  of  its  advertised  space.  
3. UNENFORCEABLE    
ORTEGA  v.  LEONARDO   Contract   of   Sale   Of   Realty   Unenforceable   &   Doctrine   of   Part  
ISSUE:   WHETHER   OR   NOT   THE   CONTRACT   ENTERED   INTO   BY   Performance  
THE  PARTIES  IS  UNFORCEABLE?    
   The   Supreme   Court   held   that   while,   as   a   general   rule,   an   oral  
Maria  Ortega  averred  that  long  before  and  until  her  house  has   agreement   to   sell   a   piece   of   land   is   not   provable,   however,   where  
been  completely  destroyed  during  the  liberation  of  the  City  of   there   is   partial   performance   of   the   sale   contract,   the   principle  
Manila,   she   occupied   Lot   1,   Block   3.   Located   at   San   Andres   excluding  evidence  of  parol  contracts  for  the  sale  of  realty  will  not  
Street,  Malate,  Manila.  After  the  liberation,  she  re-­‐occupied  it   apply.   Some   circumstances   indicating   partial   performance   of   an  
but   Daniel   Leonardo   asserted   that   he   too   had   a   right   to   a   oral   contract   of   sale   of   realty   are:   relinquishment   of   rights,  
portion   of   the   land.   During   the   occupation,   Leonardo   asked   continued   possession,   building   of   improvements,   tender   of  
Ortega  to  desist  from  pressing  claims  and  he  promised  her  if  he   payment   rendition   of   services,   payment   of   taxes,   surveying   of   the  
succeeded   in   getting   the   title   to   Lot   1,   he   would   sell   her   a   land  at  the  vendee's  expense,  etc.    
portion  thereof  with  an  area  of  55.60  square  meters,  at  P25.00    
per   square   meter.   In   return,   Ortega   would   pay   for   surveying  
and  subdivision  of  the  lot  and  should  continue  holding  the  lot  
by   paying   a   monthly   rental   of   P10   until   said   portion   has   been  
segregated  and  the  purchase  price  fully  paid.  Ortega  accepted  
the   agreement   and   desisted   from   further   claims.   Defendant  
acquired  the  title  and  in  return  plaintiff  caused  the  survey  and  
segregation   of   the   portion   which   defendant   promised   to   sell.  
She  also  had  a  subdivision  plan,  her  lot  known  as  1B;  had  her  
son’s   house   remodelled   and   it   extended   over   said   lot;   and  
tendered   to   defendant   full   purchase   price   on   July   1954.  
However,   defendant   refused   to   accept   payment.   The   lower  
court  ruled  that  oral  agreement  to  sell  is  not  enforceable.  But  
the   plaintiff   argued   that   the   contract   was   already   partially  
performed   due   to   the   promise   of   defendant,   hence  
enforceable.  
 
CARBONEL  v.  PONCIO   The  Statute  of  Frauds  is  applicable  only  to  executory  contracts,  not  
ISSUE:   WHO   HAS   THE   SUPERIOR   RIGHT   OVER   THE   SUBJECT   to   contracts   that   are   totally   or   partially   performed.   The   reason   is  
PROPERTY?   simple.   In   executory   contracts   there   is   a   wide   field   for   fraud  
  because,  unless  they  be  in  writing  there  is  no  palpable  evidence  of  
On   January   27,   1955,   respondent   Jose   Poncio   executed   a   the  intention  of  the  contracting  parties.  However,  if  a  contract  has  
private   memorandum   of   sale   of   his   parcel   of   land   with   been   totally   or   partially   performed,   the   exclusion   of   parol   evidence  
improvements  situated  in  San  Juan,  Rizal  in  favor  of  petitioner   would   promote   fraud   or   bad   faith,   for   it   would   enable   the  
Rosario   Carbonell   who   knew   that   the   said   property   was   at   that   defendant   to   keep   the   benefits   already   derived   by   him   from   the  
time   subject   to   a   mortgage   in   favor   of   the   Republic   Savings   transaction   in   litigation,   and,   at   the   same   time,   evade   the  
Bank  (RSB)  for  the  sum  of  P1,500.00.  Four  days  later,  Poncio,  in   obligations,   responsibilities   or   liabilities   assumed   or   contracted   by  
another  private  memorandum,  bound  himself  to  sell  the  same   him  thereby.  So  that  when  the  party  concerned  has  pleaded  partial  
property   for   an   improved   price   to   one   Emma   Infante   for   the   performance,   such   party   is   entitled   to   a   reasonable   chance   to  
sum   of   P2,357.52,   with   the   latter   still   assuming   the   existing   ,establish  by  parol  evidence  the  truth  of  this  allegation,  as  well  as  
mortgage  debt  in  favor  of  the  RSB  in  the  amount  of  P1,177.48.   the   contract   itself.   "The   recognition   of   the   exceptional   effect   of  
Thus,   in   February   2,   Poncio   executed   a   formal   registerable   part  performance  in  taking  an  oral  contract  out  of  the  statute  of  
deed   of   sale   in   her   (Infante's)   favor.   So,   when   the   first   buyer   frauds   involves   the   principle   that   oral   evidence   is   admissible   in  
Carbonell  saw  the  seller  Poncio  a  few  days  afterwards,  bringing   such   cases   to   prove   both   the   contract   and   the   part   performance  
the   formal   deed   of   sale   for   the   latter's   signature   and   the   of  the  contract"  (49  Am.  Jur.  927).  
balance   of   the   agreed   cash   payment,   she   was   told   that   he  
could   no   longer   proceed   with   formalizing   the   contract  with   her  
(Carbonell)  because  he  had  already  formalized  a  sales  contract  
in  favor  of  Infante.    
 
To   protect   her   legal   rights   as   the   first   buyer,   Carbonell  
registered  on  February  8,  1955  with  the  Register  of  Deeds  her  
adverse   claim   as   first   buyer   entitled   to   the   property.  
Meanwhile,   Infante,   the   second   buyer,   was   able   to   register   the  
sale  in  her  favor  only  on  February  12,  1955,  so  that  the  transfer  
certificate   of   title   issued   in   her   name   carried   the   duly  
annotated   adverse   claim   of   Carbonell   as   the   first   buyer.   The  
trial  court  declared  the  claim  of  the  second  buyer  Infante  to  be  
superior   to   that   of   the   first   buyer   Carbonell,   a   decision   which  
the   Court   of   Appeals   reversed.   Upon   motion   for  
reconsideration,   however,   Court   of   Appeals   annulled   and   set  
aside  its  first  decision  and  affirmed  the  trial  court’s  decision.  
 
BABAO  v.  PEREZ   Contracts   which   by   their   terms   are   not   to   be   performed   within   one  
ISSUE:  WON  THE  VERBAL  AGREEMENT  FALLS  WITHIN  THE   year,   may   be   taken   out   of   the   statute   through   performance   by   one  
STATURE  OF  FRAUDS?   party   thereto.   All   that   is   required   in   such   case   is   complete  
  performance   within   the   year   by   one   party,   however   many   tears  
Santiago  Babao  married  the  niece  of  Celestina  Perez.  In  1924,   may   have   to   elapse   before   the   agreement   is   performed   by   the  
Santi   and   Celestina   allegedly   had   a   verbal   agreement   where   other   party.   But   nothing   less   than   full   performance   by   one   party  
Santi   was   bound   to   improve   the   land   of   Celestina   by   leveling,   will   suffice,   and   it   has   been   held   that,   if   anything   remains   to   be  
clearing,  planting  fruits  and  other  crops;  that  he  will  act  as  the   done  after  the  expiration  of  the  year  besides  the  mere  payment  of  
administrator   of   the   land;   that   all   expenses   for   labor   and   money,   the   statute   will   apply.   It   is   not   therefore   correct   to   state  
materials  will  be  at  his  cost,  in  consideration  of  which  Celestina   that  Santiago  Babao  has  fully  complied  with  his  part  within  the  year  
in   turn   bound   herself   to   convey   to   Santi   or   his   wife   ½   of   the   from  the  alleged  contract  in  question.    
land   with   all   the   improvements   after   the   death   of   Celestina.    
But,   shortly   before   Celestina’s   death,   she   sold   the   land   to   Having   reached   the   conclusion   that   all   the   parol   evidence   of  
another   party.   Thus,   the   administratrix   of   the   estate   of   the   appellee  was  submitted  in  violation  of  the  Statute  of  Frauds,  or  of  
deceased  Santiago  Babao  filed  a  complaint  alleging  the  sale  of   the   rule   which   prohibits   testimony   against   deceased   persons,   we  
the  land  as  fraudulent  and  fictitious  and  prays  to  recover  the  ½   find   unnecessary   to   discuss   the   other   issues   raised   in   appellants'  
land  or  the  expenses  he  incurred  in  improving  the  land.   brief.    
 
CABAGUE  v.  AUXILIO   There   is   no   question   here   that   the   transaction   was   not   in   writing.  
ISSUE:   WON   THE   CONTRACT   OF   PROMISE   TO   MARRY   IS   The   only   issue   is   whether   it   may   be   proved   in   court.   The  
UNENFORCEABLE,   ON   THE   GROUND   THAT   IT   IS   AN   ORAL   understanding   between   the   plaintiffs   on   one   side   and   the  
CONTRACT?   defendants   on   the   other,   really   involves   two   kinds   of   agreement.  
  One,   the   agreement   between   Felipe   Cabague   and   the   defendants  
In  the  justice  of  the  peace  of  court  of  Basud,  Camarines  Norte,   in   consideration   of   the   marriage   of   Socorro   and   Geronimo.  
Felipe   Cabague   and   his   son   Geronimo   sued   the   defendant   Another,   the   agreement   between   the   two   lovers,   as   "a   mutual  
Matias   Auxilio   and   his   daughter   Socorro   to   recover   damages   promise   to   marry."   For   breach   of   that   mutual   promise   to   marry,  
resulting   from   defendants’   refusal   to   carry   out   the   previously   Geronimo  may  sue  Socorro  for  damages.  This  is  such  action,  and  
agreed  marriage  between  Socorro  and  Geronimo.  Alleging:     evidence   of   such   mutual   promise   is   admissible.   However   Felipe  
(a)   that   defendants   promised   such   marriage   to   plaintiffs,   Cabague’s   action   may   not   prosper,   because   it   is   to   enforce   an  
provided   the   latter   would   improve   the   defendants’   house   in   agreement   in   consideration   of   marriage.   Evidently   as   to   Felipe  
Basud   and   spend   for   the   wedding   feast   and   the   needs   of   the   Cabague   and   Matias   Auxilio   this   action   could   not   be   maintained  
bride;     on   the   theory   of   "mutual   promise   to   marry."   Neither   may   it   be  
(b)   that   relying   upon   such   promises   plaintiffs   made   the   regarded  as  action  by  Felipe  against  Socorro  "on  a  mutual  promise  
improvement  and  spent  P700;  and     to  marry."    
(c)   that   without   cause   defendants   refused   to   honor   their    
pledged  word.     Consequently,   we   declare   that   Geronimo   may   continue   his   action  
  against   Socorro   for   such   damages   as   may   have   resulted   from   her  
The   defendants   arguing   that   the   contract   was   oral,   failure  to  carry  out  their  mutual  matrimonial  promises.  
unenforceable   under   the   rule   of   evidence   hereinbefore  
mentioned.  And  the  court  dismissed  the  case.  
 
YUVIENCO  v.  DACUYCUY   Although   there   was   no   perfected   contract   of   sale,   the   complaint  
ISSUE:   WON   THE   PLAINTIFFS   HAVE   ALLEGED   FACTS   has   a   cause   of   action   when   there   was   an   agreement   of   sale   of   the  
ADEQUATELY   SHOWING   THE   EXISTENCE   OF   A   PERFECTED   property   and   a   down   payment   of   the   sale   was   made.   Our  
CONTRACT   OF   SALE   BETWEEN   HEREIN   PETITIONERS   AND   THE   conclusion,   therefore,   is   that   although   there   was   no   perfected  
OCCUPANT  REPRESENTED  BY  RESPONDENT  YAO  KING  ONG?   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  
In   essence,   the   theory   of   petitioners   is   that   while   it   is   true   that   or   not,   under   Article   1319   of   the   Civil   Code,   the   said   letter   may   be  
they  did  express  willingness  to  sell  to  private  respondents  the   deemed   as   an   offer   to   sell   that   is   “certain”,   and   more,   the   Yao  
subject   property   (land   and   building)   for   P6,500,000.00   telegram   is   far   from   being   an   “absolute”   acceptance   under   said  
provided   the   latter   made   known   their   own   decision   to   buy   it   article,   still   there   appears   to   be   a   cause   of   action   alleged   in  
not   later   than   July   31,   1978,   the   respondents'   reply   that   they   Paragraphs  8  to  12  of  the  respondents’  complaint,  considering  it  is  
were   agreeable   was   not   absolute,   so   much   so   that   when   alleged   therein   that   subsequent   to   the   telegram   of   Yao,   it   was  
ultimately  petitioners'  representative  went  to  Cebu  City  with  a   agreed  that  the  petitioners  would  sell  the  property  to  respondents  
prepared   and   duly   signed   contract   for   the   purpose   of   for  P6.5  M,  by  paying  P2  M  down  and  the  balance  in  90  days  and  
perfecting   and   consummating   the   transaction,   respondents   which   agreement   was   allegedly   violated   when   in   the   deeds  
and   said   representative   found   variance   between   the   terms   of   prepared   by   Atty.   Gamboa   and   taken   to   Tacloban,   only   30   days  
payment   stipulated   in   the   prepared   document   and   what   were  given  to  the  respondents.  
respondents   had   in   mind,   hence   the   bank   draft   which    
respondents   were   delivering   to   the   representative   was   Mere   claim   that   petitioners   have   unjustifiably   refused   to   proceed  
returned   and   the   document   remained   unsigned   by   with   the   sale   of   the   property   is   unenforceable   under   the   Statute   of  
respondents.     Frauds   in   the   absence   of   any   note   or   memorandum   and   signed  
  agreement  of  sale.  It  is  nowhere  alleged  in  said  paragraphs  8  to  12  
The   respondents,   in   their   complaint,   contended   “That   on   of   the   complaint   that   there   is   any   writing   or   memorandum,   much  
August   1,   1978   Pedro   Gamboa   arrived   Tacloban   City   bringing   less   a   duly   signed   agreement   to   the   effect   that   the   price   of  
with   him   the   prepared   contract   to   purchase   and   to   sell   P6,500,000   fixed   by   petitioners   for   the   real   property   herein  
referred  to  in  his  telegram  dated  July  27,  1978  for  the  purpose   involved   was   agreed   to   be   paid   not   in   cash   but   in   installments   as  
of   closing   the   transactions   referred   to   in   paragraphs   8   and   9   alleged  by  respondents.  
hereof,   however,   to   the   complete   surprise   of   plaintiffs,   the    
defendant   without   giving   notice   to   plaintiffs,   changed   the   In  any  sale  of  real  property  on  installments,  the  Statute  of  Frauds  
mode  of  payment  with  respect  to  the  balance  of  P4,500,000.00   read   together   with   the   perfection   requirements   of   Article   1475   of  
by   imposing   upon   plaintiffs   to   pay   same   amount   within   thirty   the   Civil   Code   must   be   applied   such   that   payment   on   installments  
(30)  days  from  execution  of  the  contract  instead  of  the  former   of   the   sale   must   be   in   the   requisite   note   or   memorandum.   We  
term  of  ninety  (90)  days.”   hold  that  in  any  sale  of  real  property  on  installments,  the  Statute  of  
Frauds   read   together   with   the   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.   To   put   it   the  
other  way,  under  the  Statute  of  Frauds,  the  contents  of  the  note  
or   memorandum,   whether   in   one   writing   or   in   separate   ones  
merely   indicative   for   an   adequate   understanding   of   all   the  
essential  elements  of  the  entire  agreement,  may  be  said  to  be  the  
contract   itself,   except   as   to   the   form.   Duty   of   plaintiff   when   a  
motion  to  dismiss  based  on  the  Statute  of  Frauds  is  filed.  
 
CLARIN  v.  RULONA   While   it   is   true   that   Exhibits   A   and   B   are,   in   themselves,   not  
ISSUE:  WON  THE  DOCUMENTS  EXECUTED  BY  CLARIN  ARE  NOT   contracts  of  sale,  they  are,  however,  clear  evidence  that  a  contract  
VALID  AND  ENFORCEABLE  CONTRACTS  OF  SALE  AND  AS  SUCH,   of   sale   was   perfected   between   the   petitioner   and   the   respondent  
CANNOT  CONVEY  TITLE  OF  THE  DISPUTED  LAND  TO  RULONA?   and   that   such   contract   had   already   been   partially   fulfilled   and  
  executed.   A   contract   of   sale   is   perfected   at   the   moment   there   is   a  
Spouses  RULONA  purchased  10  hectares  of  land  from  CLARIN.   meeting   of   minds   upon   the   thing   which   is   the   object   of   the  
The   sale   was   evidenced   by   2   documents   executed   by   CLARIN.   contract   and   upon   the   price.   (Article   1475,   Civil   Code;   Phil.   Virginia  
However,   RULONA   later   filed   a   complaint   for   specific   Tobacco   Administration   v.   De   los   Angeles,   87   SCRA   210).   Such  
performance   and   recovery   of   improvements   on   the   ground   contract   is   binding   in   whatever   form   it   may   have   been   entered  
that  CLARIN  and  his  wife  violated  the  terms  of  the  agreement   into.  (Lopez  v.  Auditor  General,  20  SCRA  655).  Construing  Exhibits  A  
of   sale   "by   returning   by   their   own   volition   and   without   the   and   B   together,   it   can   be   seen   that   the   petitioner   agreed   to   sell  
consent   of   plaintiff,   the   amount   of   P1,100.00   in   six   postal   and   the   respondent   agreed   to   buy   a   definite   object,   that   is,   ten  
money   orders,   covering   the   downpayment   of   P1,000.00   and   hectares   of   land   which   is   part   and   parcel   of   Lot   20   PLD   No.   4,  
first   installment   of   P100.00."   CLARIN,   on   the   other   hand,   owned   in   common   by   the   petitioner   and   his   sisters   although   the  
admitted  the  sale  but  contended  that  such  was  subject  to  the   boundaries  of  the  ten  hectares  would  be  delineated  at  a  later  date.  
following   conditions:   (1)   that   the   contract   would   be   realized   The   parties   also   agreed   on   a   definite   price   which   is   P2,500.00.  
only   if   his   co-­‐heirs   would   give   their   consent   to   the   sale   of   a   Exhibit   B   further   shows   that   the   petitioner   has   received   from   the  
specific   portion   of   their   common   inheritance   from   the   late   respondent   as   initial   payment,   the   amount   of   P800.00.   Hence,   it  
Aniceto   Clarin   before   partition   of   the   said   common   property   cannot   be   denied   that   there   was   a   perfected   contract   of   sale  
and  (2)  that  should  his  co-­‐heirs  refuse  to  give  their  consent,  the   between  the  parties  and  that  such  contract  was  already  partially  
projected   contract   would   be   discontinued   or   would   not   be   executed   when   the   petitioner   received   the   initial   payment   of  
realized.   P800.00.   The   latter’s   acceptance   of   the   payment   clearly   showed  
  his  consent  to  the  contract  thereby  precluding  him  from  rejecting  
CLARIN  further  contended  that  the  respondent  knew  fully  well   its  binding  effect.  (See  Federation  of  United  Namarco  Distributors,  
the  above  terms  and  accepted  them  as  conditions  precedent  to   Inc.  v.  National  Marketing  Corporation,  4  SCRA  884).    
the   perfection   or   consummation   of   the   contract;   that    
respondent   delivered   the   amount   of   P1,000.00   as   earnest   With   the   contract   being   partially   executed,   the   same   is   no   longer  
money,   subject   to   the   above   conditions   and   that   the   amount   covered  by  the  requirements  of  the  Statute  of  Frauds  in  order  to  be  
was  returned  by  the  petitioner  upon  his  learning  definitely  that   enforceable.  (See  Khan  v.  Asuncion,  19  SCRA  996).  Therefore,  with  
his   co-­‐heirs   and   co-­‐owners   refused   to   give   their   consent   to   the   the   contract   being   valid   and   enforceable,   the   petitioner   cannot  
projected  sale.   avoid   his   obligation   by   interposing   that   Exhibit   A   is   not   a   public  
  document.   On   the   contrary,   under   Article   1357   of   the   Civil   Code,  
Trial  court  rendered  judgment  in  favor  of  RULONA,  ruling  that   the  petitioner  can  even  be  compelled  by  the  respondent  to  execute  
there  was  a  perfected  contract  of  sale,  the  same  being  a  pure   a  public  document  to  embody  their  valid  and  enforceable  contract.  
sale  and  not  subject  to  condition.  Aggrieved,  CLARIN  appealed    
to   the   CA,   contending,   among   others,   that   Exhibit   A   was   a   Validity  of  contract  even  though  one  of  the  parties  entered  into  it  
mere   authority   to   survey.   It   is   not   addressed   to   any   definite   against  his  better  judgment.  The  reasons  given  by  the  petitioner  
party,   it   does   not   contain   the   proper   heading,   there   is   no   cannot  operate  against  the  validity  of  the  contract  in  question.  A  
statement   of   the   manner   of   paying   the   purchase   price,   no   contract  is  valid  even  though  one  of  the  parties  entered  into  it  
personal   circumstances   of   the   parties,   and   it   is   not   notarized.   against  his  better  judgment.  (See  Lagunzad  v.  Vda.  de  Gonzales,  92  
On  appeal,  the  CA  affirmed  the  trial  court  decision,  ruling  that   SCRA  476;  citing  Martinez  v.  Hongkong  and  Shanghai  Bank,  15  Phil.  
a  contract  to  be  binding  upon  the  contracting  parties  need  not   252).  
be  notarized.  Neither  should  it  specify  the  manner  of  payment    
of   the   consideration   nor   should   it   specify   the   manner   of    
payment  of  the  consideration  nor  should  it  contain  the  proper  
heading."    
 
Hence,   this   petition   for   review   on   certiorari   before   the   SC,  
wherein  CLARIN  alleged,  aside  from  the  above  contention,  that  
assuming   there   was   indeed   a   perfected   contract   of   sale,   the  
two   documents   introduced   in   evidence   could   not   effectively  
convey   title   to   the   land   because   they   were   not   public  
documents.  
BISAYA  LAND  TRANSPORTATION  v.  SANCHEZ   Status   of   contracts   entered   into   without   Court's   approval.—What  
ISSUE:   WHAT   THEN   IS   THE   STATUS   OF   THE   CONTRACTS   WHICH   then   is   the   status   of   the   Contracts   which   Receiver   Amor   entered  
RECEIVER   AMOR   ENTERED   INTO   WITH   SANCHEZ,   WITHOUT   into   with   Sanchez,   without   the   approval   of   the   court   which  
THE   APPROVAL   OF   THE   COURT   WHICH   APPOINTED   HIM   appointed   him   receiver?   Even   the   petitioners   noticeably   waver   as  
RECEIVER?   to   the   exact   status   of   these   Contracts.   The   petitioners   alleged   in  
  their   Memorandum   submitted   to   this   Court   that   they   are   void  
Petitioner   Bisaya   Land   Transportation   Company,   Inc.   contracts  under  Article   1409(1)   of   the   Civil   Code,  whereas,  in  their  
(BISTRANCO,   for   short)   has   been   engaged   in   the   shipping   Petition,   they   labelled   the   contracts   as   unenforceable   under  
business.   As   early   as   1954,   private   respondent   Marciano   Article  1403(1)  of  the  Civil  Code.  The  determination,  therefore,  of  
Sanchez   was   an   employee   of   BISTRANCO,   specifically,   a   whether   the   questioned   contracts   are   void   or   merely  
quartermaster  in  one  of  its  vessels,  In  1959,  he  ceased  to  be  an   unenforceable   is   important,   because   of   the   settled   distinction  
employee  as  he  engaged  in  stevedoring  services  in  the  port  of   that   a   void   and   inexistent   contract   cannot   be   ratified   and   become  
Butuan  City  and  rendered  steverdoring  services  for  the  vessels   enforceable,   whereas,   an   unenforceable   contract   may   still   be  
of   BISTRANCO.   When   BISTRANCO   was   under   receivership,   ratified   and,   thereafter,   enforced.   The   petitioners   allege   that   the  
Sanchez   was   appointed   by   its   Receiver,   Atty.   Adolfo   V.   Amor,   Contracts   are   void,   citing   Article   1409(1)   of   the   Civil   Code   which  
as   acting   shipping   agent,   also   for   M/V   Doña   Remedies,   in   provides  that  contracts  whose  cause,  object  or  purpose  is  contrary  
addition  to  M/V  Doña  Filomena,  in  the  port  of  Butuan  City.     to   law,     morals,   good   customs,   public   order   or   public   policy,   are  
  inexistent   and   void   from   the   beginning.   In   the   case   at   bar,   the  
After   Sanchez   found   that   Paragraph   16   of   the   Contract   of   contracts   of   agency   were   entered   into   for   the   management   and  
agency   was   quite   prejudicial   to   him,   he   executed   with   operation   of   BISTRANCO's   business   in   Butuan   City.   Said   Contracts  
BISTRANCO   a   Supplemental   Shipping   Agency   Contract.   By   necessarily   imposed   obligations   and   liabilities   on   the   contracting  
virtue   of   the   Contract   of   Agency   and   the   Supplemental   parties,  thereby  affecting  the  disposition  of  the  assets  and  business  
Shipping   Agency   Contract   Sanchez   performed   his   duties   as   of  the  company  under  receivership.  But  a  perusal  of  the  Contracts  
shipping   agent   of   BISTRANCO,   and   he   received   his   in  question  would  show  that  there  is  nothing  in  their  cause,  object  
corresponding  commissions  as  such  shipping  agent.     or  purpose  which  renders  them  void.  The  purpose  of  the  Contracts  
  was  to  create  an  agency  for  BISTRANCO  with  Marciano  Sanchez  as  
While   the   shipping   business   of   BISTRANCO   in   Butuan   City   its   agent   in   Butuan   City.   Even   as   to   the   other   provisions   of   the  
flourished,  evidently  to  the  mutual  benefit  of  both  parties,  on   Contracts,   there   is   nothing   in   their   cause   or   object   which   can   be  
26   December   1979,   co-­‐petitioner   Benjamin   G.   Roa,   as   said   as   contrary   to   law,   morals,   good   customs,   public   order   or  
Executive   Vice-­‐President   of   BISTRANCO,   wrote   Sanchez   a   letter   public   policy   so   as   to   render   them   void.   On   the   other   hand,  
advising  him  that,  effective  1  January  1980,  BISTRANCO  would   paragraph  1,  Article  1403  of  the  Civil  Code  provides  that  contracts  
commence  operating  its  branch  office  in  Butuan  City.     "entered  into  in  the  name  of  another  person  by  one  who  has  been  
  given   no   authority   or   legal   representation,   or   who   has   acted  
Pursuant   to   the   letter   (Exhibit   "FF"),   BISTRANCO   actually   beyond  his  powers"  are  unenforceable,  unless  they  are  ratified.  In  
opened   and   operated   a   branch   office   in   Butuan   City   on   15   the   case   at   bar,   it   is   undisputed   that   Atty.   Adolfo   Amor   was  
January   1980.   BISTRANCO   through   its   new   representative   entrusted,   as   receiver,   with   the   administration   of   BISTRANCO   and  
contacted  the  shippers  in  Butuan  City  and  neighboring  towns,   its   business.   But   the   act   of   entering   into   a   contract   is   one   which  
advising   them   to   transact   their   business   directly   with   its   new   requires   the   authorization   of   the   court   which   appointed   him  
branch   office   in   Butuan   City.   Under   these   circumstances,   the   receiver.  Consequently,  the   questioned  Contracts  can  rightfully  be  
business  of  Sanchez,  as  shipping  agent  of  BISTRANCO  in  Butuan   classified   as   unenforceable   for   having   been   entered   into   by   one  
City,   was   seriously   impaired   and   undermined   He   could   not   who   had   acted   beyond   his   powers,   due   to   Receiver   Amor's   failure  
solicit   as   many   passengers   as   he   used   to,   because   the   to  secure  the  court's  approval  of  said  Contracts.  
passenger   tickets   issued   to   him   by   BISTRANCO   were   limited.   Facts   showing   that   the   unenforceable   contracts   were  
The   cargoes   solicited   by   Sanchez   were   loaded   on   a   "chance   nevertheless   deemed   ratified   in   the   case   at   bar.—Private  
basis"   because   those   that   were   solicited   by   the   branch   office   respondent   Sanchez   filed   his   complaint   in   the   lower   court   on   28  
were  given  priority.     December  1979.  But  on  10  January  1980,  co-­‐petitioner  Benjamin  G.  
  Roa,   as   Executive   Vice-­‐President   of   BISTRANCO,   still   sent   Sanchez  
Realizing   that   the   letter,   marked   as   Exhibit   "FF",   was   in   effect   a   three  (3)  separate  letters  with  the  following  contents:  (1)  reducing  
repudiation   of   the   Contracts,   Sanchez   filed   an   action   for   his   passage   commission   from   10%,   as   he   used   to   receive   in   the  
specific  performance  with  preliminary  injunction  and  damages   previous  years,  to  7½%  "as  stated  in  the  agency  contract  dated  27  
with  the  Regional  Trial  Court  of  Cebu  City.     July  1976;"  (2)  advising  Sanchez  that  in  view  of  "his  failure  to  post  a  
  bond   or   such   other   securities   acceptable   to   the   company   in   the  
What  then  is  the  status  of  the  Contracts  which  Receiver  Amor   sum   of   P5,000.00   pursuant   to   par.   8   of   the   Contract   executed   by  
entered   into   with   Sanchez,   without   the   approval   of   the   court   Sanchez   the   plaintiff   with   BISTRANCO   on   27   July   1976,   we   are  
which  appointed  him  receiver?     recalling   all   unused   passage   tickets   issued   your   agency"   and  
  reminding   him   (Sanchez)   also   that   "pursuant   to   par.   2   of  
The  petitioners  allege  in  their  Memorandum  submitted  to  this   aforementioned  Contract,  solicitation  of  cargo  and  passengers  shall  
Court  that  they  are  void  contracts  under  Article  1409(l)  of  the   be   undertaken   by   you   strictly   in   accordance   with   the   scheduled  
Civil   Code,   whereas,   in   their   Petition,   they   labelled   the   rates   of   the   Company";   and   (3)   informing   Sanchez   that   "we  
contracts   as   unenforceable   under   Article   1403(l)   of   the   Civil   (petitioners)   are   abiding   strictly   with   the   terms   of   the   contracts  
Code.   executed   between   Marciano   C.   Sanchez   and   Atty.   Adolfo   V.   Amor  
in   behalf   of   BISTRANCO,   etc.   etc."   The   three   (3)   letters   of   Benjamin  
G.   Roa   in   effect   recognized   and   gave   efficacy   to   the   Contracts   in  
question.  The  declaration  of  Benjamin  G.  Roa  that  BISTRANCO  did  
not  have  any  knowledge  about  the  Contracts  before  the  complaint  
was   filed   on   28   December   1979   is   contradicted   by   his   own  
testimony   that,   as   early   as   14   December   1979,   he   was   already  
looking   for   the   contract,   after   he   saw   Exhibit   "NN",   wherein  
Sanchez   requested   the   company   "to   abide   with   the   terms   of   the  
contract   which   will   expire   on   July   1981".   Besides,   the   pretended  
lack   of   knowledge   of   Benjamin   G.   Roa   can   not   be   equated   with  
BISTRANCO's.   It   should   be   noted   that   Roa   started   to   work   for  
BISTRANCO   only   on   27   April   1979,   whereas,   the   Contracts   were  
executed  in  1976.  The  people  who  were  more  in  a  position  to  know  
about  the  Contracts,  like  the  company  officers  and  members  of  the  
board   of   directors   at   the   time   the   Contracts   were   entered   into,  
especially   Antonio   V.   Cuenco,   were   never   presented   as   witnesses.  
Aside   from   this,   the   company   cannot   deny   its   ratification   of   the  
Contracts  even  before  the  time  of  Benjamin  G.  Roa,  because  when  
Atty.   Fulveo   Pelaez   succeeded   Atty.   Adolfo   Amor   as   Receiver,   he  
was   represented   by   BISTRANCO's   shipping   manager   as   having  
taken   cognizance   of   these   Contracts   and   sanctioned   the   acts   of  
Sanchez   as   shipping   agent   of   BISTRANCO   in   Butuan   City.   This   is  
shown   by   a   letter,   dated   15,   February   1977,   written   by   Capt.  
Federico  Reyes,  the  shipping  manager  of  BISTRANCO  at  that  time.  
The  letter  states  that  "the  Receiver  (Atty.  Fulveo  Pelaez)  maintains  
that   the   previous   agency   contract   remains   and   (sic)   basically   the  
same   except   that   the   rates   of   the   agency   commission   were  
modified".   Furthermore,   it   is   clear   that   BISTRANCO   received  
material   benefits   from   the   contracts   of   agency   of   Sanchez,   based  
upon  the  monthly  statements  of  income  of  BISTRANCO  upon  which  
the  commissions   of   Sanchez  were  based  A   perusal  of  the   Contracts  
will  also  show  that  there  is  no  single  provision  therein  that  can  be  
said  as  prejudicial  or  not  beneficial  to  BISTRANCO.  
 
4. VOID  OR  INEXISTENT  
CLEMENTE  v.  CA;  JALANDON   The  Deeds  of  Absolute  Sale  between  petitioner  and  the  late  Adela  
ISSUE:   WON   THE   DEEDS   OF   ABSOLUTE   SALE   BETWEEN   Shotwell  are  null  and  void  for  lack  of  consent  and  consideration.  
PETITIONER   AND   HER   LATE   GRANDMOTHER   OVER   THE   While  the  Deeds  of  Absolute  Sale  appear  to  be  valid  on  their  face,  
PROPERTIES  ARE  SIMULATED  AND  WITHOUT  CONSIDERATION,   the   courts   are   not   completely   precluded   to   consider   evidence  
AND  HENCE,  VOID  AND  INEXISTENT?  YES.   aliunde   in   determining   the   real   intent   of   the   parties.   This   is  
  especially   true   when   the   validity   of   the   contracts   was   put   in   issue  
Adela  owned  three  (3)  adjoining  parcels  of  land  in  Scout  Ojeda   by   one   of   the   parties   in   his   pleadings.   Here,   private   respondents  
Street,  Diliman,  Quezon  City.  Among  the  improvements  on  the   assail   the   validity   of   the   Deeds   of   Absolute   Sale   by   alleging   that  
Properties   was   Adela's   house.   During   her   lifetime,   Adela   they   were   simulated   and   lacked   consideration.   Here,   there   was  
allowed   her   children   and   her   grandchildren,   the   use   and   no   valid   contract   of   sale   between   petitioner   and   Adela   because  
possession  of  the  Properties  and  its  improvements.     their  consent  was  absent.    
   
Adela  simulated  the  transfer  of  Lots  32  and  Lot  34  to  her  two   The  contract  of  sale  was  a  mere  simulation.  Simulation  takes  place  
grandsons.  Lot  35-­‐B  remained  with  Adela.  It  is  undisputed  that   when   the   parties   do   not   really   want   the   contract   they   have  
the   transfers   were   never   intended   to   vest   title   to   Carlos   Jr.   and   executed   to   produce   the   legal   effects   expressed   by   its   wordings.  
Dennis  who  both  will  return  the  lots  to  Adela  when  requested.     Article   1345   of   the   Civil   Code   provides   that   the   simulation   of   a  
Prior   to   Adela   and   petitioner's   departure   for   the   United   States,   contract   may   either   be   absolute   or   relative.   The   former   takes  
Adela   requested   Carlos   Jr.   and   Dennis   to   execute   a   deed   of   place  when  the  parties  do  not  intend  to  be  bound  at  all;  the  latter,  
reconveyance  over  Lots  32  and  34.  The  deed  of  reconveyance   when   the   parties   conceal   their   true   agreement.   In   short,   in  
was   executed   on   the   same   day   and   was   registered   with   the   absolute  simulation  there  appears  to  be  a  valid  contract  but  there  
Registry  of  Deeds.   is   actually   none   because   the   element   of   consent   is   lacking.   This   is  
    so   because   the   parties   do   not   actually   intend   to   be   bound   by   the  
Adela   executed   a   deed   of   absolute   sale   over   Lots   32   and   34,   terms   of   the   contract.   In   determining   the   true   nature   of   a   contract,  
and   their   improvements,   in   favor   of   petitioner,   bearing   on   its   the   primary   test   is   the   intention   of   the   parties.   If   the   words   of   a  
face   the   price   of   P250,000.00.   On   the   same   day,   Adela   also   contract  appear  to  contravene  the  evident  intention  of  the  parties,  
executed   a   special   power   of   attorney   (SPA)   in   favor   of   the  latter  shall  prevail.  Such  intention  is  determined  not  only  from  
petitioner.   Petitioner's   authority   under   the   SPA   included   the   the   express   terms   of   their   agreement,   but   also   from   the  
power   to   administer,   take   charge   and   manage,   for   Adela's   contemporaneous   and   subsequent   acts   of   the   parties.   This   is  
benefit,   the   Properties   and   all   her   other   real   and   personal   especially  true  in  a  claim  of  absolute  simulation  where  a  colorable  
properties  in  the  Philippines.  The  deed  of  absolute  sale  and  the   contract  is  executed.  In  ruling  that  the  Deeds  of  Absolute  Sale  were  
SPA  were  notarized  on  the  same  day.     absolutely   simulated,   the   lower   courts   considered   the   totality   of  
  the  prior,  contemporaneous  and  subsequent  acts  of  the  parties.    
Adela   and   petitioner   left   for   the   United   States.   When    
petitioner   returned   to   the   Philippines,   she   registered   the   sale   The   following   circumstances   led   the   RTC   and   the   CA   to   conclude  
over  Lots  32  and  34  with  the  Registry  of  Deeds.  Adela  died  in   that   the   Deeds   of   Absolute   Sale   are   simulated,   and   that   the  
the  United  States  and  was  succeeded  by  her  four  children.     transfers  were  never  intended  to  affect  the  juridical  relation  of  the  
Soon   thereafter,   petitioner   sought   to   eject   Annie   and   Carlos   parties:  a)  There  was  no  indication  that  Adela  intended  to  alienate  
Sr.,   who   were   then   staying   on   the   Properties.   Only   then   did   her  properties  in  favor  of  petitioner.  In  fact,  the  letter  of  Adela  to  
Annie   and   Carlos   Sr.   learn   of   the   transfer   of   titles   to   petitioner.   Dennis   dated   April   18,   1989   reveals   that   she   has   reserved   the  
Thus,   Annie,   Carlos   Sr.   and   Anselmo   filed   a   complaint   for   ownership  of  the  Properties  in  favor  of  Dennis.  b)  Adela  continued  
reconveyance  of  property  against  petitioner.     exercising   acts   of   dominion   and   control   over   the   properties,   even  
  after  the  execution  of  the  Deeds  of  Absolute  Sale,  and  though  she  
In  the  course  of  the  trial,  private  respondents  discovered  that   lived  abroad  for  a  time.  In  Adela's  letter  dated  August  25,  198952  
Adela   and   petitioner   executed   another   deed   of   absolute   sale   to  a  certain  Candy,  she  advised  the  latter  to  stay  in  the  big  house.  
over   Lot   35-­‐B   bearing   on   its   face   the   price   of   F60,000.00.   Thus,   Also,  in  petitioner's  letter  to  her  cousin  Dennis  dated  July  3,  1989,  
private   respondents   amended   their   complaint   to   include   Lot   she   admitted   that   Adela   continued   to   be   in   charge   of   the  
35-­‐B.     Properties;  that  she  has  no  "say"  when  it  comes  to  the  Properties;  
  that  she  does  not  intend  to  claim  exclusive  ownership  of  Lot  35-­‐B;  
The   trial   court   decided   in   favor   of   private   respondents.   On   and   that   she   is   aware   that   the   ownership   and   control   of   the  
appeal,   the   CA   affirmed.   Petitioner   filed   a   Motion   for   Properties   are   intended   to   be   consolidated   in   Dennis.   c)   The   SPA  
Reconsideration   but   was   denied   by   the   CA.   Hence,   this   executed  on  the  same  day  as  the  Deeds  of  Absolute  Sale  appointing  
petition.   petitioner   as   administratrix   of   Adela's   properties,   including   the  
  Properties,   is   repugnant   to   petitioner's   claim   that   the   ownership   of  
  the  same  had  been  transferred  to  her.  d)  The  previous  sales  of  the  
    Properties   to   Dennis   and   Carlos,   Jr.   were   simulated.   This   history,  
coupled  with  Adela's  treatment  of  petitioner,  and  the  surrounding  
circumstances   of   the   sales,   strongly   show   that   Adela   only   granted  
petitioner  the  same  favor  she  had  granted  to  Dennis  and  Carlos  Jr.  
We   agree   with   the   lower   courts   that   the   execution   of   an   SPA   for  
the   administration   of   the   Properties,   on   the   same   day   the   Deeds   of  
Absolute  Sale  were  executed,  is  antithetical  to  the  relinquishment  
of   ownership.   The   SPA   shows   that   it   is   so   worded   as   to   leave   no  
doubt   that   Adela   is   appointing   petitioner   as   the   administratrix   of  
her  properties  in  Scout  Ojeda.  Had  the  SPA  been  intended  only  to  
facilitate   the   processing   of   the   reconstitution   of   the   titles,   there  
would   have   been   no   need   to   confer   other   powers   of  
administration,  such  as  the  collection  of  debts,  filing  of  suit,  etc.,  to  
petitioner.    
 
We  affirm  the  conclusion  reached  by  the  RTC  and  the  CA  that  the  
evidence   presented   below   prove   that   Adela   did   not   intend   to  
alienate   the   Properties   in   favor   of   petitioner,   and   that   the  
transfers   were   merely   a   sham   to   accommodate   petitioner   in   her  
travel   abroad.   Petitioner   claims   that   we   should   consider   that   there  
is   only   one   heir   of   the   late   Adela   who   is   contesting   the   sale,   and  
that   out   of   the   many   transactions   involving   the   decedent's   other  
properties,  the  sale  to  petitioner  is  the  only  one  being  questioned.  
In  a  contest  for  the  declaration  of  nullity  of  an  instrument  for  being  
simulated,   the   number   of   contestants   is   not   determinative   of   the  
propriety   of   the   cause.   Any   person   who   is   prejudiced   by   a  
simulated  contract  may  set  up  its  inexistence.    
 
In   this   instant   case,   it   does   not   matter   if   the   contest   is   made   by  
one,  some  or  all  of  the  heirs.  Neither  would  the  existence  of  other  
contracts   which   remain   unquestioned   deter   an   action   for   the  
nullity   of   an   instrument.   A   contract   is   rendered   meaningful   and  
forceful  by  the  intention  of  the  parties  relative  thereto,  and  such  
intention  can  only  be  relevant  to  that  particular  contract  which  is  
produced   or,   as   in   this   case,   to   that   which   is   not   produced.   That  
the   deed   of   sale   in   [petitioner's]   favor   has   been   held   to   be  
simulated  is  not  indicative  of  the  simulation  of  any  other  contract  
executed   by   the   deceased   Adela   de   Guzman   Shotwell   during   her  
lifetime.  Other  alleged  transactions  made  by  Adela  cannot  be  used  
as  evidence  to  prove  the  validity  of  the  conveyances  to  petitioner.  
For  one,  we  are  not  aware  of  any  of  these  transactions  or  whether  
there  are  indeed  other  transactions.  More  importantly,  the  validity  
of   these   transactions   does   not   prove   directly   or   indirectly   the  
validity   of   the   conveyances   in   question.   B.   No   consideration   for   the  
sale  We  also  find  no  compelling  reason  to  depart  from  the  court  a  
quo's   finding   that   Adela   never   received   the   consideration  
stipulated   in   the   simulated   Deeds   of   Absolute   Sale.   Although   on  
their   face,   the   Deeds   of   Absolute   Sale   appear   to   be   supported   by  
valuable   consideration,   the   RTC   and   the   CA   found   that   there   was  
no   money   involved   in   the   sale.   The   consideration   in   the   Deeds   of  
Absolute   Sale   was   superimposed   on   the   spaces   therein,   bearing   a  
font   type   different   from   that   used   in   the   rest   of   the   document.   The  
lower   courts   also   found   that   the   duplicate   originals   of   the   Deeds   of  
Absolute  Sale  bear  a  different  entry  with  regard  to  the  price.  Article  
1471  of  the  Civil  Code  provides  that  "if  the  price  is  simulated,  the  
sale   is   void."   Where   a   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  for  lack  of  consideration.  Thus,  although  the  contracts  
state  that  the  purchase  price  of  P250,000.00  and  P60,000.00  were  
paid  by  petitioner  to  Adela  for  the  Properties,  the  evidence  shows  
that  the  contrary  is  true,  because  no  money  changed  hands.  Apart  
from  her  testimony,  petitioner  did  not  present  proof  that  she  paid  
for  the  Properties.    
 
There   is   no   implied   trust.   We   also   affirm   the   CA's   deletion   of   the  
pronouncement  of  the  trial  court  as  to  the  existence  of  an  implied  
trust.  The  trial  court  found  that  a  resulting  trust,  a  form  of  implied  
trust  based  on  Article  1453  of  the  Civil  Code,  was  created  between  
Adela   and   petitioner.   Resulting   trusts   arise   from   the   nature   or  
circumstances   of   the   consideration   involved   in   a   transaction  
whereby   one   person   becomes   invested   with   legal   title   but   is  
obligated  in  equity  to  hold  his  title  for  the  benefit  of  another.  It  is  
founded  on  the  equitable  doctrine  that  valuable  consideration  and  
not   legal   title   is   determinative   of   equitable   title   or   interest   and   is  
always  presumed  to  have  been  contemplated  by  the  parties.  Since  
the   intent   is   not   expressed   in   the   instrument   or   deed   of  
conveyance,   it   is   to   be   found   in   the   nature   of   the   parties'  
transaction.   Resulting   trusts   are   thus   describable   as   intention-­‐
enforcing   trusts.   An   example   of   a   resulting   trust   is   Article   1453   of  
the  Civil  Code.    
 
We,   however,   agree   with   the   CA   that   no   implied   trust   can   be  
generated   by   the   simulated   transfers   because   being   fictitious   or  
simulated,   the   transfers   were   null   and   void   ab   initio   —   from   the  
very  beginning  —  and  thus  vested  no  rights  whatsoever  in  favor  of  
petitioner.  That  which  is  inexistent  cannot  give  life  to  anything  at  
all.  Article  1453  contemplates  that  legal  titles  were  validly  vested  
in  petitioner.  Considering,  however,  that  the  sales  lack  not  only  the  
element   of   consent   for   being   absolutely   simulated,   but   also   the  
element   of   consideration,   these   transactions   are   void   and  
inexistent   and   produce   no   effect.   Being   null   and   void   from   the  
beginning,   no   transfer   of   title,   both   legal   and   beneficial,   was   ever  
effected   to   petitioner.   In   any   case,   regardless   of   the   presence   of   an  
implied  trust,  this  will  not  affect  the  disposition  of  the  case.  As  void  
contracts  do  not  produce  any  effect,  the  result  will  be  the  same  in  
that   the   Properties   will   be   reconveyed   to   the   estate   of   the   late  
 Adela  de  Guzman  Shotwell.  
 
HERNADEZ  v.  CA   The  OCT  issued  should  be  declared  null  and  void.    
ISSUE:   WHAT   IS   THE   EFFECT   OF   INCLUDING   220-­‐SQUARE-­‐  
METER  AREA  IN  ORIGINAL  CERTIFICATE  OF  TITLE  (OCT)  WHICH   It   is   of   record,   to   begin   with,   that   concrete   monuments   or  
IS   NEITHER   CONTEMPLATED   BY   ANY   WRITTEN   AGREEMENT   "mojones"  were  laid  out  by  government  surveyors  in  1956  between  
NOR   SUPPORTED   BY   THE   OFFICIAL   MONUMENTS   MARKING   the  properties  of  Hernandez  and  Fr.  Garcia.  Hernandez  avows  that  
THE  SEPARATION  OF  THE  LOTS?   these  structures  were  purposely  installed  to  mark  the  limits  of  their  
  estates;   his   opponents   could   only   let   this   statement   pass   with  
The  adjoining  lots  sold  to  Hernandez’s  parents  and  to  Fr.  Garcia   telling   silence.   Neither   did   they   seriously   dispute   that   these  
were  unregistered  and  unsurveyed  at  the  time  of  the  transfer.   "mojones"   were   installed   along   the   line   agreed   upon   by   the   parties  
There   were   no   dividing   boundaries   that   existed   thereon   until   as   marking   their   properties'   boundaries.   All   they   averred   in   their  
cadastral  surveyors  from  the  Bureau  of  Lands  laid  down  official   defense  is  that  the  agreement  did  not  bind  them.  Lastly,  they  freely  
monuments  (“mojones”)  to  mark  the  separation  of  the  lots  in   conceded   the   presence   of   a   fence   along   this   line,   but   were   quick   to  
1956.   These   monuments   were   set   along   a   line   which   the   point   out   that   they   had   merely   "permitted"   Hernandez   to   put   up  
landowners   had   previously   agreed   upon   as   representing   the   this   "temporary"   structure   "to   stop   the   public   (from)   using   ...   this  
correct   boundary   between   their   estates.   Hernandez   relied   on   place   as   a   common   madden   shed."   The   excuse   is   lamentably  
the   visible   landmarks   installed   by   the   government   surveyors   feeble.    
precluded   any   overstepping   of   those   limits.   Yet   unknown   to    
Hernandez,  Fr.  Garcia’s  application  included  220  square  meters   The   respondents’   reliance   on   the   Statute   of   Frauds   to   secure   a  
of   the   former.   It   was   not   until   the   court   had   already   ordered   contrary   judgment   is   misplaced.   The   Statute   of   Frauds   finds   no  
the   registration   of   the   lots   in   Fr.   Garcia's   name   that   Hernandez   application  to  this  case.  Not  every  agreement  “affecting  land”  must  
discovered   the   anomaly   in   the   application.   An   Original   be   put   in   writing   to   attain   enforceability.   Under   the   Statute   of  
Certificate   of   Title   was   issued   in   favor   of   Fr.   Garcia.   Alleging   Frauds,  Article  1403(2)  (e)  of  the  Civil  Code,  such  formality  is  only  
fraud   had   prevented   him   from   proving   their   title   to   land   required  of  contracts  involving  leases  for  longer  than  one  year,  or  
subject   of   registration   proceedings   in   another's   name,   for  the  sale  of  real  property  or  of  an  interest  therein.  Hernandez’s  
Hernandez   sought   review   of   the   decree   of   registration   by   testimony   is   thus   admissible   to   establish   his   agreement   with   Fr.  
petition   in   the   land   registration   court.   Fr.   Garcia   on   the   other   Garcia  as  to  the  boundary  of  their  estates.  
hand   insisted   that   Hernandez’   claim   over   the   parcel   of   land    
does  not  bind  them  and  is  unenforceable  under  the  Statute  of  
Frauds.  
RUBIAS  v.  BATILLER   Article  1491  of  the  Civil  Code  of  the  Philippines  (like  Article  1459  
ISSUE:     of   the   Spanish   Civil   Code)   prohibits   in   its   six   paragraphs   certain  
(a)   WON   THE   SALE   OF   THE   LAND   IS   PROHIBITED   UNDER   persons,  by  reason  of  the  relation  of  trust  or  their  peculiar  control  
ARTICLE  1491?  YES.   either   directly   or   indirectly   and   "even   at   a   public   or   judicial  
(b)   WHAT   IS   THE   LEGAL   EFFECT   OF   A   SALE   FALLING   UNDER   auction,"   as   follows:   (1)   guardians;   (2)   agents;   (3)   administrators;  
ARTICLE  1491?     (4)   public   officers   and   employees;   (5)   judicial   officers   and  
NULL  AND  VOID.  CANNOT  BE  RATIFIED.   employees,   prosecuting   attorneys,   and   lawyers;   and   (6)   others  
  specially  disqualified  by  law.  
Francisco   Militante   claimed   that   he   owned   a   parcel   of   land    
located  in  Iloilo.  He  filed  with  the  CFI  of  Iloilo  an  application  for   The   present   case   clearly   falls   under   this,   especially   since   the   case  
the   registration   of   title   of   the   land.   This   was   opposed   by   the   was  still  pending  appeal  when  the  sale  was  made.  
Director   of   Lands,   the   Director   of   Forestry,   and   other    
oppositors.  The  case  was  docked  as  a  land  case,  and  after  trial   Prohibited  purchase  void  and  produces  no  legal  effect.—Castan's  
the   court   dismissed   the   application   for   registration.   Militante   rationale   for   his   conclusion   that   fundamental   considerations   of  
appealed  to  the  Court  of  Appeals.     public   policy   render   void   and   inexistent   such   expressly   prohibited  
  purchases   (e.g.   by   public   officers   and   employees   of   government  
Pending   that   appeal,   he   sold   to   Rubias   (his   son-­‐in-­‐law   and   a   property   intrusted   to   them   and   by   justices,   judges,   fiscals   and  
lawyer)   the   land.   The   CA   rendered   a   decision,   dismissing   the   lawyers   of   property   and   rights   in   litigation   submitted   to   or   handled  
application   for   registration.   Rubias   filed   a   Forcible   Entry   and   by   them,   under   Article   1491,   paragraphs   (4)   and   (5)   of   the   Civil  
Detainer  case  against  Batiller.     Code   of   the   Philippines)   has   been   adopted   in   a   new   article   of   the  
  Civil   Code   of   the   Philippines,   viz,   Article   1409   declaring   such  
In  that  case,  the  court  held  that  Rubias  has  no  cause  of  action   prohibited  contracts  as  "inexistent  and  void  from  the  beginning."  
because   the   property  in  dispute  which  Rubias  allegedly   bought    
from  Militante  was  the  subject  matter  of  a  land  case,  in  which   The   nullity   of   such   prohibited   contracts   is   definite   and   permanent  
case  Rubias  was  the  counsel  on  record  of  Militante  himself.  It   and  cannot  be  cured  by  ratification.  The  public  interest  and  public  
thus   falls   under   Article1491   of   the   Civil   Code.   Hence,   this   policy   remain   paramount   and   do   not   permit   of   compromise   or  
appeal.   ratification.  
 
The  permanent  disqualification  of  public  and  judicial  officers  and  
lawyers   grounded   on   public   policy   differs   from   the   first   three  
cases   of   guardians,   agents   and   administrators   (Article   1491,   Civil  
Code),   as   to   whose   transactions,   its   has   been   opined,   may   be  
"ratified"   by   means   of   and   "in   the   form   of   a   new   contract,   in   which  
case   its   validity   shall   be   determined   only   by   the   circumstances   at  
 the   time   of   execution   of   such   new   contract.   The   causes   of   nullity  
which   have   ceased   to   exist   cannot   impair   the   validity   of   the   new  
contract.  Thus,  the  object  which  was  illegal  at  the  time  of  the  first  
contract,   may   have   already   become   lawful   at   the   time   of  
ratification  or  second  contract;  or  the  service  which  was  impossible  
may   have   become   possible;   or   the   intention   which   could   not   be  
ascertained  may  have  been  clarified  by  the  parties.  The  ratification  
or   second   contract   would   then   be   valid   from   its   execution;  
however,  it  does  not  retroact  to  the  date  of  the  first  contract.  
JAVIER  v.  VDA.  DE  CRUZ   Contract   is   null   and   void   if   there   is   lack   of   consent   and  
ISSUE:  WON  THE  DEED  OF  SALE  CAN  BE  DECLARED  NULL  AND   consideration.   Eusebio   Cruz   could   not   talk,   was   very   ill   and   was  
VOID   OF   A   PART   OF   A   PARCEL   OF   LAND   LOCATED   IN   BARRIO   about  to  die  when  his  thumbmark  was  affixed  on  the  deed  of  sale.  
SAN   ISIDRO   SAID   TO   BE   OWNED   BY   VDA.   DE   CRUZ   AND   HER   Delfin  Cruz  did  not  have  any  means  of  livelihood.  He  was  only  the  
CHILDREN?  YES.   houseboy   of   Eusebio   Cruz.   It   is   obvious   that   on   January   17,   1941  
  Delfin   Cruz   could   not   have   raised   the   amount   of   P700.00   as  
Benedicto  M.  Javier,  as  administrator  of  the  Estate  of  Eusebio   consideration  of  the  land  supposedly  sold  to  him  by  Eusebio  Cruz.  
Cruz,  instituted  against  Dominga  Vda.  de  Cruz  and  her  children   Although  the  deed  of  sale  purports  to  convey  a  parcel  of  land  with  
Civil  Case  No.  5996  to  declare  null  and  void  a  deed  of  sale  of  a   an  area  of  only  26,577  square  meters,  defendants,  as  heirs  of  Delfin  
part   of   a   parcel   of   land   located   in   Barrio   San   Isidro,   Taytay,   Cruz,   claim   a   much   bigger   land   containing   an   area   of   182,959  
Rizal   containing   an   area   of   182,959   square   meters   and   square  meters  assessed  at  P4,310.00.  The  consideration  of  P700.00  
assessed  at  P4,310.00  under  Tax  No.  9136  under  Tax  No.  9136   is  not  only  grossly  inadequate  but  is  shocking  to  the  conscience.  No  
in  the  name  of  Estate  of  E.  Cruz.     sane   person   would   sell   the   land   claimed   by   the   defendants   for   only  
  about   P40.00   per   hectare.   In   view   of   the   foregoing,   this   Court   finds  
The   amended   complaint  stated   that   Eusebio   Cruz,   who   died   on   that   Eusebio   Cruz   did   not   voluntarily   affix   his   thumbmark   on   the  
February   2,   1941   at   the   age   of   100   years   without   leaving   any   deed  of  sale  and  did  not  receive  any  consideration  for  said  sale.  
will   nor   compulsory   heirs,   was   the   absolute   and   exclusive  
owner   of   a   parcel   of   mountainous   and   unimproved   land  
situated   in   sitio   Matogalo,   Taytay,   Rizal   which   he   inherited  
from  his  forebears,  described  therein;  that  during  his  lifetime,  
Eusebio  Cruz  had  been  living  with  one  Teodora  Santos  'without  
the  sanction  of  marriage";  that  Teodora  Santos  had  with  her  as  
distant   relatives  and  protegees  the  brothers  Gregorio  Cruz  and  
Justo   Cruz;   that   Gregorio   Cruz   was   the   father   of   Delfin   Cruz,  
deceased   husband   of   defendant   Dominga   Vda.   de   Cruz   and  
father   of   defendants   Leonila,   Roman,   Eliseo,   Leberata   and  
Melecio,   all   surnamed   Cruz;   that   on   January   16,   1941   Delfin  
Cruz,  by  means  of  deceit  and  in  collusion  with  persons  among  
them   his   father   Gregorio   Cruz   made   Eusebio   Cruz,   who   could  
read   and   write,   stamp   his   thumbmark   on   a   deed   of   sale   of   a  
portion   of   the   land   described   in   the   complaint   consisting   of  
26,577   square   meters   for   the   sum   of   P700.00   in   favor   of   said  
Delfin  Cruz;  that  at  that  time  Delfin  Cruz  did  not  have  theithin  
thirty   days   from   submittal   of   the   case   for   decision,   but   the  
validity  of  the  law  cannot  be  seriously  challenged."    
 
MENIL  v.  CA   It  is  not  disputed  by  the  parties  that  the  contract  of  sale  executed  
ISSUE:  WHETHER  THE  CONTRACT  OF  SALE  IS  NULL  AND  VOID?   on  May  7,  1960,  having  been  executed  less  than  5  years  from  May  
YES.   7,   1960,   the   date   the   homestead   patent   was   awarded   to   private  
  respondent   Agueda   Garan,   is   null   and   void   for   being   violative   of  
On   November   3,   1955,   Agueda   Garan   obtained   a   homestead   Section  118  of  C.A.  141  [Public  Land  Act]  which  provides:    
patent   over   the   land   in   question.   On   February   4,   1956,   Original   “Sec.   118.   Except   in   favor   of   the   government   or   any   of   its   branches,  
Certificate   of   Title   was   issued   by   the   Register   of   Deeds   of   units,   or   institutions,   lands   acquired   under   free   patent   or  
Surigao  under  her  name.   homestead   provisions   shall   not   be   subject   to   encumbrance   or  
  alienation  from  the  date  of  the  approval  of  the  application  and  for  
On   May   7,   1960,   Garan   then   sold   the   land   to   movant   a   term   of   five   years   from   and   after   the   date   of   issuance   of   the  
Patenciano  Manil  for  P415.00.  But,  for  reasons  not  revealed  in   patent  or  grant,  nor  shall  they  become  liable  to  the  satisfaction  of  
the  records,  the  contracting  parties  did  not  register  the  deed  of   any   debt   contracted   prior   to   the   expiration   of   said   period,   but   the  
sale   in   the   Registry   of   Deeds   in   Surigao.   On   August   30,   1964,   improvements  or  crops  on  the  land  may  be  mortgaged  or  pledged  
Agueda   Garan   executed   another   deeds   of   sale   over   the   same   to  qualified  persons,  associations,  or  corporations.”    
parcel  of  land  in  favor  of  the  same  vendee,  Potenciano  Menil,   Petitioners   contend,   however,   that   the   subsequent   approval  
and  for  the  same  price  P415.00.   thereof  by  the  Secretary  of  Agriculture  and  Natural  Resources,  and  
  the   execution   of   the   confirmatory   deed   of   sale   on   August   10,   1965,  
On   August   30,   1965,   the   contracting   parties   registered   the   cured  any  defect  that  the  first  sale  may  have  suffered.    
second   deed   of   sale   in   the   Registry   of   Deeds   in   Surigao.   On    
February   28,   1966,   Potenciano   Menil   mortgaged   the   land   to   It   cannot   be   claimed   that   there   are   two   contracts:   one   which   is  
the   Development   Bank   of   the   Philippines   to   secure   an   undisputably   null   and   void,   and   another,   having   been   executed  
agricultural   loan   which   the   former   obtained   fromthe   latter.   after   the   lapse   of   the   5-­‐year   prohibitory   period,   which   is   valid.  
Petitioners   were   in   possession   of   the   land   in   question   until   The   second   contract   of   sale   executed   on   March   3,   1964   is  
sometime   in   1967   when   private   respondents   Agueda   Garan,   admittedly   a   confirmatory   deed   of   sale.   Even   the   petitioners  
Francisco   Calanias,   Miguel   Nayve,   Jr.,   Rufo   Nayve,   and   Lucio   concede   this   point.   Inasmuch   as   the   contract   of   sale   executed   on  
Calanias   forcibly   took   possession   of   the   said   land,   and   filed   May  7,  1960  is  void  for  it  is  expressly  prohibited  or  declared  void  by  
against   petitioners   Civil   Case   No.   1692   for   "Quieting   of   Title"   law   [CA-­‐   141,   Section   118],   it   therefore   cannot   be   confirmed   nor  
before   Branch   11   of   the   Court   of   First   Instance   of   Surigao   del   ratified.  Art  1409  are  contracts  that  cannot  be  ratified.  Neither  can  
Norte.   The   said   court   dismissed   the   complaint,   awarded   the  right  to  set  up  the  defense  of  illegality  be  waived.    
damages  to  the  petitioners,  and  granted  the  writ  of  execution    
prayed   for   by   the   latter.   However,   upon   the   claim   that   the   Further,   noteworthy   is   the   fact   that   the   second   contract   of   sale  
above   decision   was   silent   on   the   issue   of   who   are   entitled   to   over   the   said   homestead   in   favor   of   the   same   vendee,   petitioner  
the   possession   of   the   land   under   litigation,   the   private   Potenciano   Menil,   is   for   the   same   price   of   P415.00.   Clearly,   the  
respondents   refused   to   vacate   the   land,   thus,   forcing   unvarying  term  of  the  said  contract  is  ample  manifestation  that  the  
petitioners   to   file   on   July   8,   1968   Civil   Case   No.   1810   for   same   is   simulated   and   that   no   object   or   consideration   passed  
"Recovery   of   Possession"   of   the   said   land   before   Branch   1   of   between   the   parties   to   the   contract.   It   is   evident   from   the   whole  
the   same   Court   of   First   Instance   of   Surigao   del   Norte.   During   record   of   the   case   that   the   homestead   had   long   been   in   the  
the  pendency  of  Civil  Case  No.  1810,  private  respondents  filed   possession  of  the  vendees  upon  the  execution  of  the  first  contract  
against   the   petitioners   Civil   Case   No.   1816   for   the   of  sale  on  May  7,  1960;  likewise,  the  amount  of  P415.00  had  long  
reconveyance   of   the   land   litigated   in   Civil   Case   No.   1692   and   been   paid   to   Agueda   Garan   on   that   same   occasion.   We   find   no  
Civil  Case  No.  1810  before  the  same  court.   evidence  to  the  contrary.  
 
By  agreement  of  the  parties,  Civil  Case  No.  1810  and  Civil  Case  
No.  1816  were  jointly  heard  Judgment  dated  June  13.  1970  was  
rendered  declaring  that  spouses  Menil  were  legally  entitled  to  
the   possession   of   the   land,   ordering   private   respondents   to  
restore  possession  of  the  land  in  litigation  to  petitioners.  
 
On   a   motion   for   reconsideration   filed   by   private   respondents,  
the   appellate   court   set   aside   its   Decision   which   declared   the  
sale   of   the   homestead   in   question   to   petitioners   as   nun   and  
void,   ordered   the   cancellation   of   Transfer   Certificate   of   Title  
and   the   re-­‐issuance   of   Original   Certificate   of   Title   to   Agueda  
Garan,  and  ordered  Garan  to  reimburse  Menil  the  price  of  the  
sale,  the  interest  
 
DIRECTOR  OF  LANDS  v.  ABABA   This   contention   is   without   merit.   Article   1491   prohibits   only   the  
ISSUE:  WON  THE  CONTRACT  FOR  A  CONTINGENT  FEE,  BASIS  OF   sale  or  assignment  between  the  lawyer  and  his  client,  of  property  
THE   INTEREST   OF   ATTY.   FERNANDEZ,   IS   PROHIBITED   BY   THE   which  is  the  subject  of  litigation.  As  WE  have  already  stated:  “The  
ARTICLE  1491  OF  THE  NEW  CIVIL  CODE  BECAUSE  IT  INVOLVES   prohibition  in  said  article  applies  only  to  a  sale  or  assignment  to  
AN  ASSIGNMENT  OF  A  PROPERTY  SUBJECT  OF  LITIGATION?  NO.   the   lawyer   by   his   client   of   the   property   which   is   the   subject   of  
  litigation.  In  other  words,  for  the  prohibition  to  operate,  the  sale  
Maximo   Abarquez   filed   a   claim   against   her   sister   (Agripina   or   assignment   of   the   property   must   take   place   during   the  
Abarquez)  for  the  annulment  of  a  contract  of  sale  with  right  of   pendency  of  the  litigation  involving  the  property.”  
repurchase   and   for   the   recovery   of   the   land   which   was   the    
subject  matter  thereof.     In   the   instant   case,   the   attorney’s   fees   of   Atty.   Fernandez,  
  consisting   of   one   half   (1/2)   of   whatever   Maximo   Abarquez   might  
Litigating   as   a   pauper   in   the   lower   court   and   engaging   the   recover   from   his   share   in   the   lots   in   question,   is   contingent   upon  
services   of   his   lawyer   (Atty.   Alberto   B.   Fernandez)   on   a   the   success   of   the   appeal.   Hence,   the   payment   of   the   attorney’s  
contingent   basis,   petitioner,   unable   to   compensate   his   lawyer   fees,   that   is,   the   transfer   or   assignment   of   one-­‐half   (1/2)   of   the  
whom  he  also  retained  for  his  appeal,  executed  a  document  in   property   in   litigation   will   take   place   only   if   the   appeal   prospers.  
the   Cebuano-­‐Visayan   dialect   whereby   he   obliged   himself   to   Therefore,  the  transfer  actually  takes  effect  after  the  finality  of  a  
give   to   his   lawyer   one   half   (½)   of   whatever   he   might   recover   favorable   judgment   rendered   on   appeal   and   not   during   the  
from  Lots  5600  and  5602  should  the  appeal  prosper.     pendency  of  the  litigation  involving  the  property  in  question.    
   
Maximo   Abarquez   won   the   case.   Then,   Atty.   Alberto   B.   Consequently,  the  contract  for  a  contingent  fee  is  not  covered  by  
Fernandez   (Maximo’s   lawyer)   waited   for   Maximo   to   comply   Article  1491.    
with   his   undertaking,   but   instead,   he   sold   the   property   to   the    
spouses  Juan  Larrazabal  and  Marta  C.  de  Larrazabal.      
 
In   order   to   protect   his   interest,   Atty.   Alberto   B.   Fernandez  
caused   the   annotation   of   “adverse   claim”   on   the   TCT   which  
appeared  to  the  new  TCT  obtained  by  the  spouses  Larrazabal.    
 
The   spouses   Larrazabal   moved   for   the   cancellation   of   said  
annotation  before  the  then  Court  of  First  Instance  or  CFI.    
 
CFI  denied  the  move  to  cancel  the  annotation.    
 
Spouses   appealed.   Their   ground   being   that   contract   for   a  
contingent   fee   violates   Article   14911   because   it   involves   an  
assignment  of  a  property  subject  of  litigation.    
   
TONGOY  v.  CA   A  void  or  inexistent  contract  is  one  which  has  no  force  and  effect  
ISSUE:  WON  THERE  WAS  A  SIMULATED  CONTRACT?   from   the   very   beginning,   as   if   it   had   never   been   entered   into,   and  
  which  cannot  be  validated  either  by  time  or  by  ratification.    
It   will   be   noted   that   the   foreclosure   on   the   original   mortgage    
over  Hacienda  Pulo  was  instituted  by  PNB  as  early  as  June  18,   Nature   of   a   simulated   contract.—The   characteristic   of   simulation   is  
1931,  from  which  time  the  members  of  the  Tongoy-­‐Sonora  clan   the   fact   that   the   apparent   contract   is   not   really   desired   nor  
had  been  in  constant  conference  to  save  the  property.  At  that   intended  to  produce  legal  effects  nor  in  any  way  alter  the  juridical  
time   all   the   respondents-­‐Tongoys   were   still   minors   (except   situation  of  the  parties.  Thus,  where  a  person,  in  order  to  place  his  
Amado,   who   was   already   23   years   old   then),   so   that   there   property  beyond  the  reach  of  his  creditors,  simulates  a  transfer  of  
could   be   truth   to   the   allegation   that   their   exclusion   in   the   it  to  another,  he  does  not  really  intend  to  divest  himself  of  his  title  
Declaration   of   Inheritance   executed   by   Patricio   and   Luis   and   control   of   the   property;   hence,   the   deed   of   transfer   is   but   a  
Tongoy   on   April   29,   1933   was   made   to   facilitate   matters-­‐as   sham.  This  characteristic  of  simulation  was  defined  by  this  Court  in  
part   of   the   general   plan   arrived   at   after   the   family   conferences   the  case  of  Rodriguez  vs.  Rodriguez,  No.  L-­‐23002,  July  31,  1967,  20  
to  transfer  the  administration  of  the  property  to  the  latter.  The   SCRA  908.  
events  that  followed  were  obviously  in  pursuance  of  such  plan,    
thus:     Nature   of   a   contract   void   ab   initio.—A   void   or   inexistent   contract   is  
  one  which  has  no  force  and  effect  from  the  very  beginning,  as  if  it  
March   13,   1934   —   An   Escritura   de   Venta   (Exh.   2   or   W)   was   had   never   been   entered   into,   and   which   cannot   be   validated   either  
executed   in   favor   of   Luis   D.   Tongoy   by   Ana   Tongoy,   Teresa   by  time  or  by  ratification  (p.  592,  Civil  Code  of  the  Philippines,  Vol.  
Tongoy,   Mercedes   Sonora,   Trinidad   Sonora,   Juan   Sonora   and   IV,   Tolentino,   1973   Ed.).   A   void   contract   produces   no   effect  
Patricio   Tongoy,   transferring   their   rights   and   interests   over   whatsoever  either  against  or  in  favor  of  anyone;  hence,  it  does  not  
Hacienda  Pulo  to  the  former.     create,  modify  or  extinguish  the  juridical  relation  to  which  it  refers  
  (p.  594,  Tolentino,  supra).  
October  23,  1935  —  An  Escritura  de  Venta  (Exh.  3  or  DD)  was    
executed   by   Jesus   Sonora,   likewise   transferring   his   rights   and   Characteristics   of   a   void   ab   initio   contract.—The   following   are   the  
interests  over  Hacienda  Pulo  to  Luis  D.  Tongoy;     most   fundamental   characteristics   of   void   or   inexistent   contracts:   1)  
  As   a   general   rule,   they   produce   no   legal   effects   whatsoever   in  
November  5,  1935  —  An  Escritura  de  Venta  (Exh.  5  or  AA)  was   accordance   with   the   principle   “quod   nullum   est   nullum   producit  
also   executed   by   Jose   Tongoy   in   favor   of   Luis   D.   Tongoy   for   the   effectum.”   2)   They   are   not   susceptible   of   ratification.   3)   The   right  
same   purpose;   (Note:   This   was   preceded   by   the   execution   on   to   set   up   the   defense   of   inexistence   or   absolute   nullity   cannot   be  
October  14,  1935  of  an  Assignment  of  Rights  [4  or  Z)  in  favor  of   waived  or  renounced.  4)  The  action  or  defense  for  the  declaration  
Luis   D.   Tongoy   by   the   Pacific   Commercial   Company   as   of   their   inexistence   or   absolute   nullity   is   imprescriptible.   5)   The  
judgment   lien-­‐holder   [subordinate   of   the   PNB   mortgage]   of   inexistence   or   absolute   nullity   of   a   contract   cannot   be   invoked   by   a  
Jose  Tongoy  on  Hacienda  Pulo   person  whose  interests  are  not  directly  affected  (p.  444,  Comments  
  and  Jurisprudence  on  Obligations  and  Contracts.  Jurado,  1969  Ed.;  
November  5,  1935  —  Hacienda  Pulo  was  placed  in  the  name  of   italics  supplied).  
Luis   D.   Tongoy   married   to   Ma.   Rosario   Araneta   with   the    
issuance  of  TCT  20154  (Exh.  20);     The  right  of  action  against  a  simulated,  void  ab  initio  contract  does  
  not   prescribe.—Considering   the   law   and   jurisprudence   on  
June   22,   1936   —   An   Escritura   de   Venta   was   executed   by   simulated   or   fictitious   contracts   as   aforestated,   the   within   action  
Basilisa   Cuaycong   over   the   Cuaycong   property   in   favor   of   Luis   for   reconveyance   instituted   by   herein   respondents   which   is  
D.  Tongoy,  thereby  resulting  in  the  issuance  of  TCT  No.  21522   anchored   on   the   said   simulated   deeds   of   transfer   cannot   and  
in  the  name  of  Luis  D.  Tongoy  married  to  Ma.  Rosario  Araneta;     should   not   be   barred   by   prescription.   No   amount   of   time   could  
  accord  validity  or  efficacy  to  such  fictitious  transactions,  the  defect  
June   26,   1936   —   Luis   D.   Tongoy   executed   a   real   estate   of  which  is  permanent.  
mortgage   over   the   Cuaycong   property   in   favor   of   the   PNB   to    
secure   a   loan   of   P4,500.00;   and   June   29,   1936   —   Luis   D.   A  contract  of  transfer  of  property  that  is  void  ab  initio  and  fictitious  
Tongoy   executed   a   real   estate   mortgage   over   Hacienda   Pulo   to   does   not   create   an   implied   trust.   There   is   no   implied   trust   that   was  
secure  a  loan  of  P21,000.00  payable  for  fifteen  years.     generated   by   the   simulated   transfers;   because   being   fictitious   or  
  simulated,  the  transfers  were  null  and  void  ab  initio—from  the  very  
When   the   mortgages   were   constituted,   respondents   beginning—and   thus   vested   no   rights   whatsoever   in   favor   of   Luis  
Cresenciano   Tongoy   and   Norberto   Tongoy   were   still   minors,   Tongoy   or   his   heirs.   That   which   is   inexistent   cannot   give   life   to  
while   respondent   Amado   Tongoy   became   of   age   on   August   19,   anything  at  all.  
1931,  and  Ricardo  Tongoy  attained  majority  age  on  August  12,  
1935.   Still,   considering   that   such   transfer   of   the   properties   in  
the   name   of   Luis   D.   Tongoy   was   made   in   pursuance   of   the  
master   plan   to   save   them   from   foreclosure,   the   said  
respondents   were   precluded   from   doing   anything   to   assert  
their  rights.  It  was  only  upon  failure  of  the  herein  petitioner,  as  
administrator  and/or  successor-­‐in-­‐interest  of  Luis  D.  Tongoy,  to  
return  the  properties  that  the  prescriptive  period  should  begin  
to  run.    
 
As   above   demonstrated,   the   prescriptive   period   is   ten   year-­‐
from   the   date   of   recording   on   May   5,   1958   of   the   release   of  
mortgage  in  the  Registry  of  Deeds.  
 
 
LITA  ENTERPRISES  v.  IAC   “Kabit  system”  is  defined  as,  when  a  person  who  has  been  granted  
ISSUE:   WON   PETITIONER   CAN   RECOVER   FROM   PRIVATE   a   certificate   of   convenience   allows   another   person   who   owns   a  
RESPONDENT,   KNOWING   THEY   ARE   IN   AN   ARRANGEMENT   motor   vehicle   to   operate   under   such   franchise   for   a   fee.   This  
KNOWN  AS  “KABIT  SYSTEM”?   system   is   not   penalized   as   a   criminal   offense   but   is   recognized   as  
  one  that  is  against  public  policy;  therefore  it  is  void  and  inexistent.    
Spouses   Nicasio   Ocampo   and   Francisca   Garcia   (private   It   is   fundamental   that   the   court   will   not   aid   either   of   the   party   to  
respondents)   purchased   in   installment   from   the   Delta   Motor   enforce  an  illegal  contract,  but  will  leave  them  both  where  it  finds  
Sales   Corporation   five   (5)   Toyota   Corona   Standard   cars   to   be   them.  Upon  this  premise,  it  was  flagrant  error  on  the  part  of  both  
used   as   taxi.   Since   they   had   no   franchise   to   operate   taxicabs,   trial  and  appellate  courts  to  have  accorded  the  parties  relief  from  
they  contracted  with  petitioner  Lita  Enterprise,  Inc.,  through  its   their  predicament.    
representative   Manuel   Concordia,   for   the   use   of   the   latter’s    
certificate   of   public   convenience   for   a   consideration   of   P1,   Specifically   Article   1412   states   that:   “If   the   act   in   which   the  
000.00   and   a   monthly   rental   of   P200.00/taxicab   unit.   For   the   unlawful   or   forbidden   cause   consists   does   not   constitute   a  
agreement  to  take  effect,  the  cars  were  registered  in  the  name   criminal  offense,  the  following  rules  shall  be  observed:  “when  the  
of  Lita  Enterprises,  Inc.  The  possession,  however,  remains  with   fault,   is   on   the   part   of   both   contracting   parties,   neither   may  
spouses  Ocampo  and  Garcia  who  operated  and  maintained  the   recover   what   he   has   given   by   virtue   of   the   contract,   or   demand  
same  under  Acme  Taxi,  petitioner’s  trade  name.     the  performance  of  the  other’s  undertaking.”    
   
A   year   later,   one   of   the   taxicabs,   driven   by   their   employee,   The   principle   of   in   pari   delicto   is   evident   in   this   case.   “the  
Emeterio  Martin,  collided  with  a  motorcycle.  The  driver  of  the   proposition   is   universal   that   no   action   arises,   in   equity   or   at   law,  
motorcycle,  Florante  Galvez  died  from  the  injuries  it  sustained.     from   an   illegal   contract;   no   suit   can   be   maintained   for   its   specific  
Criminal   case   was   filed   against   Emeterio   Martin,   while   a   civil   performance,   or   to   recover   the   property   agreed   to   sold   or  
case   was   filed   by   the   heir   of   the   victim   against   Lita   Enterprises.   delivered,   or   damages   for   its   property   agreed   to   be   sold   or  
In   the   decision   of   the   lower   court   Lita   Enterprises   was   held   delivered,  or  damages  for  its  violation.”  The  parties  in  this  case  are  
liable   for   damages   for   the   amount   of   P25,   000.00   and   P7,   in   pari   delicto,   therefore   no   affirmative   relief   can   be   granted   to  
000.00  for  attorney’s  fees.     them.  
 
A   writ   of   execution   for   the   decision   followed,   2   of   the   cars   of  
the  respondent’s  spouses  were  levied  and  were  sold  to  a  public  
auction.    
 
On   March   1973,   respondent   Ocampo   decided   to   register   his  
taxicabs  in  his  own  name.  The  manager  of  petitioner  refused  to  
give   him   the   registration   papers.   Thus,   making   spouses   file   a  
complaint   against   petitioner.   In   the   decision,   Lita   Enterprise  
was   ordered   to   return   the   three   certificate   of   registration   not  
levied   in   the   prior   case.   Petitioner   now   prays   that   private  
respondent   be   held   liable   to   pay   the   amount   they   have   given  
to  the  heir  of  Galvez.  
ARSENAL  v.  IAC   A  sale  of  homestead  land  within  the  prohibited  period  is  void.  A  
ISSUE:   WHO   AMONG   THE   TWO   ALLEGED   PURCHASERS   OF   A   3rd   person   affected   by   a   void   contract   may   set   up   its   nullity.—
FOUR-­‐HECTARE   PORTION   OF   LAND   GRANTED   IN   HOMESTEAD   Being   void,   the   foregoing   principles   and   rulings   are   applicable.  
HAS  ACQUIRED  A  VALID  TITLE  THERETO?   Thus,  it  was  erroneous  for  the  trial  court  to  declare  that  the  benefit  
  of   the   prohibition   in   the   Public   Land   Act   “does   not   inure   to   any  
Francisca   Arsenal   and   Remedio   Arsenal   became   tenants   of   an   third  party.”  Such  a  sweeping  declaration  does  not  find  support  in  
adjoining   land   owned   by   Eusebio   Pabualan   that   is   separated   the   law   or   in   precedents.   A   third   person   who   is   directly   affected   by  
from   the   land   in   question   only   by   a   public   road.   Filomeno   a  void  contract  may  set  up  its  nullity.  In  this  case,  it  is  precisely  the  
Palaos   and   his   wife   executed   a   notarial   Deed   of   Sale   in   petitioners’  interest  in  the  disputed  land  which  is  in  question.  
consideration   of   the   amount   of   P800.00   supposedly   for   the    
remaining  three  (3)  hectares  of  their  land  without  knowing  that   A   sale   of   homestead   land   within   the   prohibited   period   cannot   be  
the   document   covered   the   entirety   of   Lot   81   including   the   confirmed  or  ratified  later  It  remains  void.  As  to  whether  or  not  the  
four-­‐hectare   portion   previously   deeded   by   them   to   the   execution   by   the   respondents   Palaos   and   Suralta   of   another  
plaintiff.   The   deed   of   sale   was   presented   to   the   Office   of   the   instrument  in  1973  cured  the  defects  in  their  previous  contract,  we  
Commission  on  National  Integration  at  Malaybalay  for  approval   reiterate   the   rule   that   an   alienation   or   sale   of   a   homestead  
because   Palaos   and   his   wife   belong   to   the   cultural   minorities   executed   within   the   five-­‐year   prohibitory   period   is   void   and  
and   unlettered.   The   field   representative   and   inspector   of   that   cannot   be   confirmed   or   ratified.   This   Court   has   on   several  
office  subsequently  approved  the  same  without  inspecting  the   occasions   ruled   on   the   nature   of   a   confirmatory   sale   and   the   public  
land  to  determine  the  actual  occupants  thereon.     policy   which   proscribes   it.   That   the   petitioners   were   in   bad   faith  
  when   they   purchased   the   entire   lot   81   instead   of   excluding   the  
The  Arsenal  took  possession  of  the  three-­‐hectare  portion  of  Lot   portion   sold   earlier   to   Suralta   by   the   homesteader   is   amply  
81   after   their   purchase   and   have   cultivated   the   same   up   to   the   supported   by   the   evidence.—In   this   case,   there   is   substantial  
present  time  but  they  never  disturbed  the  plaintiff's  possession   evidence   to   sustain   the   verdict   of   bad   faith.   We   find   several  
over   the   four-­‐hectare   portion   that   he   had   purchased   in   1957.   significant  findings  of  facts  made  by  the  courts  below,  which  were  
Francisca  Arsenal  caused  the  tax  declaration  of  the  entire  lot  to   not  disputed  by  the  petitioners,  crucial  to  its  affirmance.  First  of  all,  
be   transferred   in   her   name.   Torcuato   Suralta   learned   of   the   we   agree   with   the   lower   court   that   it   is   unusual   for   the   petitioners,  
transfer   of   the   tax   declaration   to   Francisca   Arsenal   and   who   have   been   occupying   the   disputed   land   for   four   years   with  
because   of   their   good   relations   at   the   time,   he   agreed   with   respondent  Suralta  to  believe,  without  first  verifying  the  fact,  that  
Arsenal  to  contribute  in  the  payment  of  the  land  taxes  and  paid   the   latter   was   a   mere   mortgagee   of   the   portion   of   land   he  
yearly  from  1968  to  1973  the  amount  of  P10.00  corresponding   occupies.   Second,   it   is   unlikely   that   the   entire   8.7879   hectares   of  
to  his  four-­‐hectare  portion  to  Francisca  Arsenal.     land  was  sold  to  them  for  only  P800.00  in  1967  considering  that  in  
  1957,   a   four-­‐hectare   portion   of   the   same   was   sold   to   the  
However,   the   plaintiff   saw   for   the   first   time   the   Deed   of   Sale   respondent   Suralta   for   P819.00.   The   increased   value   of   real  
embracing  the  whole  Lot  81  signed  by  Filomeno  Palaos  in  favor   properties   through   the   years   and   the   disparity   of   the   land   area  
of   Francisca   Arsenal.   Immediately   he   asked   Palaos   for   show  a  price  for  the  land  too  inadequate  for  a  sale  allegedly  done  
explanation   but   the   latter   told   him   that   he   sold   only   three   in  good  faith  and  for  value.  
hectares  to  Arsenal.  Plaintiff  approached  Francisca  Arsenal  for    
a   satisfactory   arrangement   but   she   insisted   on   abiding   by   her   Third,   contrary   to   the   usual   conduct   of   good   faith   purchasers   for  
contract.   Because   of   their   disagreement,   Francisca   Arsenal   value,   the   petitioners   actively   encouraged   the   respondent   Suralta  
registered  her  Deed  of  Sale  on  December  6,  1973  and  obtained   to   believe   that   they   were   co-­‐owners   of   the   land.   There   was   no  
Transfer   Certificate   of   Title   No.   T-­‐7879   for   the   entire   Lot   81   dispute   that   the   petitioners.   Without   informing   the   respondent  
without  the  knowledge  of  the  plaintiff.     Suralta   of   their   title   to   the   land,   kept   the   latter   in   peaceful  
  possession  of  the  land  he  occupies  and  received  annual  real  estate  
Plaintiff   however   learned   of   the   cancellation   of   the   original   tax   contributions   from   him.   It   was   only   in   1973   when   the  
certificate   of   title   of   Palaos   and   the   issuance   of   the   Transfer   respondent   Suralta   discovered   the   petitioners’   title   to   the   land   and  
Certificate   to   Arsenal   so   he   sought   the   help   of   the   municipal   insisted   on   a   settlement   of   the   adverse   claim   that   the   petitioners  
authorities   of   Kitaotao   to   reach   an   amicable   settlement   with   registered   their   deed   of   sale   and   secured   a   transfer   certificate   of  
Francisca   Arsenal   who,   on   the   other   hand,   refused   to   entertain   title  in  their  favor.  
all  overture  to  that  effect.      
  Equitable   reasons   will   not   control   a   settled   rule   of   law   or   public  
Torcuato  Suralta  filed  a  case  against  Filomeno  Palaos,  Mahina   policy,  such  as  sale  of  a  homestead  within  the  prohibited  period—
Lagwas,  Francisca  Arsenal,  Remedio  Arsenal  and  the  Register  of   At  first  blush,  the  equities  of  the  case  seem  to  lean  in  favor  of  the  
Deeds   of   Bukidnon   for   the   annulment   of   Transfer   Certificate   of   respondent  Suralta  who,  since  1957,  has  been  in  possession  of  the  
Title  No.  T-­‐7879  issued  to  the  Arsenals  insofar  as  it  covers  the   land  which  was  almost  acquired  in  an  underhanded  manner  by  the  
four-­‐hectare  portion  previously  sold  to  him.   petitioners.   We   cannot,   however,   gloss   over   the   fact   that   the  
respondent   Suralta   was   himself   guilty   of   transgressing   the   law   by  
entering,  in  1957,  into  a  transaction  clearly  prohibited  by  law.  It  is  a  
long   standing   principle   that   equity   follows   the   law.   Courts  
exercising  equity  jurisdiction  are  bound  by  rules  of  law  and  have  no  
arbitrary   discretion   to   disregard   them.   Equitable   reasons   will   not  
control   against   any   well-­‐settled   rule   of   law   or   public   policy  
(McCurdy   v.   County   of   Shiawassee,   118   N.W.   625).   Thus,   equity  
cannot   give   validity   to   a   void   contract.   If,   on   the   basis  of   equity,   we  
uphold   the   respondent   Suralta’s   claim   over   the   land   which   is  
anchored  on  the  contracts  previously  executed  we  would  in  effect  
for  giving  life  to  a  void  contract.  
 
MANOTOK  REALTY  v.  IAC   There   is   nothing   in   the   records   that   wig   show   that   Don   Vicente  
ISSUE:  WON  THE  SALE  BY  DON  VICENTE  LEGARDA  IN  FAVOR  OF   Legarda   was   the   administrator   of   the   paraphernal   properties   of  
FELIPE  MADLANGAWA  IS  VALID,  BINDING,  AND  ENFORCEABLE   Dona   Clara   Tambunting   during   the   lifetime   of   the   latter.   Thus,   it  
AGAINST  MANOTOK  REALTY  INC.?NO.   cannot  be  said  that  the  sale  which  was  entered  into  by  the  private  
  respondent   and   Don   Vicente   Legarda   had   its   inception   before   the  
Felipe   Madlangawa   (private   respondent)   claims   that   he   has   death   of   Dona   Clara   Tambunting   and   was   entered   into   by   the  
been  occupying  a  parcel  of  land  in  the  Clara  de  Tambunting  de   former  for  and  on  behalf  of  the  latter,  but  was  only  consummated  
Legarda   Subdivision   since   1949   upon   permission   being   after   her   death.   Don   Vicente   Legarda,   therefore,   could   not   have  
obtained   from   Andres   Ladores,   then   an   overseer   of   the   validly  disposed  of  the  lot  in  dispute  as  a  continuing  administrator  
subdivision,   with   the   understanding   that   Madlangawa   would   of  the  paraphernal  properties  of  Dona  Clara  Tambunting.  It  is  also  
eventually  buy  the  lot.   undisputed  that  the  probate  court  appointed  Don  Vicente  Legarda  
  as  administrator  of  the  estate  only  on  August  28,  1950,  more  than  
Clara   Tambunting,   died   and   her   entire   estate,   including   her   three  months  after  the  questioned  sale  had  taken  place.  
paraphernal  properties  which  covered  the  lot  occupied  by  the      
Madlangawa   were   placed   under   custodia   legis.   Madlangawa   We   are,   therefore,   led   to   the   inevitable   conclusion   that   the   sale  
made  a  deposit  for  the  said  lot  in  the  sum  of  P1,500.00  which   between   Don   Vicente   Legarda   and   the   private   respondent   is   void  
was  received  by  Vicente  Legarda,  husband  of  the  late  owner.     ab   initio,   the   former   being   neither   an   owner   nor   administrator   of  
As  evidenced  by  the  receipt  issued  by  Vicente  Legarda.   the   subject   property.   Such   being   the   case,   the   sale   cannot   be   the  
  subject   of   the   ratification   by   the   Philippine   Trust   Company   or   the  
 Madlangawa   did   not   pay   (balance   of   P5,700.00)   or   was   unable   probate   court.   As   was   held   in   the   case   of   Arsenal   v.   Intermediate  
to   pay   this   balance   because   after   the   death   of   the   testatrix,   Appellate  Court  (143  SCRA  40,  49):    
Clara   Tambunting   de   Legarda,   her   heirs   could   not   settle   their    
differences.   Under   the   provisions   of   the   Civil   Code,   a   void   contract   is  
  inexistent   from   the   beginning.   It   cannot   be   ratified   neither   can  
Don  Vicente  Legarda  was  appointed  as  a  special  administrator   the   right   to   set   up   the   defense   of   its   illegality   be   waived.   (Art.  
of  the  estate.  Meanwhile  Madlangawa  remained  in  possession   1409,   Civil   Code.   To   further   distinguish   this   contract   from   the  
of   the   lot   in   question.   Subsequently,   the   Manotok   Realty   Inc.   other  kinds  of  contract,  a  commentator  has  stated  that.  The  right  
became   the   successful   bidder   and   vendee   of   the   Tambunting   to  set  up  the  nullity  of  a  void  or  non-­‐existent  contract  is  not  limited  
de  Legarda  Subdivision  consisting  of  44  parcels  of  land  spread   to  the  parties  as  in  the  case  of  annuable  or  voidable  contracts,  it  is  
out  in  the  districts  of  Tondo  and  Sta.  Cruz,  Manila,  pursuant  to   extended   to   third   persons   who   are   directly   affected   by   the  
the   deeds   of   sale   executed   in   its   favor   by   the   Philippine   Trust   contract.   (Tolentino,   Civil   Code   of   the   Philippines,   Vol.   IV,   p.   604,  
Company,   as   administrator   of   the   Testate   Estate   of   Clara   [1973]).    
Tambunting  de  Legarda,  in  Special  Proceeding  No.  10809  of  the    
Manila   probate   court.   The   lot   in   dispute   was   one   of   those   Any  person  may  invoke  the  inexistence  of  the  contract  whenever  
covered   by   the   sale.   The   Deed   of   Sale,   among   others,   provided   juridical  affects  founded  thereon  are  asserted  against  him.  
for  the  following  terms  and  conditions:  
1.   —   The   VENDEE   assumes   the   risk   and   expenses   of   ejecting  
the  tenants  or  squatters  on  the  said  parcels  of  land  if  it  decides  
to   eject   them.   Any   rentals   or   damages   that   may   be   due   or  
collectible   from   the   said   tenants   or   squatters   for   the   period  
subsequent  to  the  date  of  this  deed  of  sale  shall  belong  to  the  
VENDEE   but   rentals   due   from   the   said   tenants   or   squatters  
prior   to   the   execution   of   this   deed   of   sale   shall   belong   to   the  
VENDOR.  x  x  x  
3.   —   The   VENDEE   renounces   the   right   to   warranty   in   case   of  
eviction   with   the   knowledge   of   the   risks   of   eviction   and  
assumes   its   consequences   with   respect   not   only   to   the   lots  
subject-­‐of   the   above   mentioned   cases   and   claims   but   also   with  
respect   to   any   other   lots   subject   of   contracts   of   sale   or  
promises  to  sell  that  may  have  been  executed  by  the  deceased,  
Clara  Tambunting  de  Legarda  and/or  Vicente  L.  Legarda,  and  it  
hereby   relieves   the   estate   of   Clara   Tambunting   de   Legarda   and  
the   Philippine   Trust   Company,   in   its   capacity   as   Administrator  
thereof,   of   any   and   all   liability   with   respect   thereto   in   case   of  
eviction.   All   sums   of   money   that   have   been   paid   to   the  
deceased   Clara   Tambunting   de   Legarda   and/or   Vicente   L.  
Legarda   and/or   the   administrator   of   Clara   Tambunting   de  
Legarda   on   account   of   the   purchase   price   of   said   lots   shall  
belong  to  the  estate,  but  any  sums  of  money  that  are  or  may  
be   due   as   the   balance   of   the   purchase   price   of   said   lots   shall  
belong  to  the  VENDEE.  (pp.  27-­‐28,  Rollo).  
xxx  xxx  xxx  
 
In  its  effort  to  clear  the  Tambunting  Subdivision  of  its  squatters  
and   occupants,   petitioner   caused   the   publication   of   several  
notices  in  the  Manila  Times  issues  of  January  1,  1966  and  the  
Taliba   issues   of   January   2,   and   March   16,   1966,   advising   the  
occupants   to   vacate   their   respective   premises,   otherwise,  
court   action   with   damages   would   follow.   In   addition   to   these  
notices   by   publication,   petitioner   sent   circulars   to   the  
occupants  to  vacate.  
 
Felipe   Madlangawa   was   one   of   the   many   occupants   who  
refused  to  vacate  the  lots  they  were  occupying,  so  that  on  April  
26,   1968,   the   petitioner   filed   the   action   below   to   recover   the  
said   lot.   The   trial   court   dismissed   the   petitioner's   action   after  
finding  that  the  Identity  of  the  parcel  of  land  described  in  the  
complaint   had   not   been   sufficiently   established   as   the   very  
same   piece   of   land   in   the   material   and   physical   possession   of  
Madlangawa.    
 
On   appeal,   the   Court   of   Appeals   found   the   Identity   of   the   lot  
sought  to  be  recovered  by  petitioner  to  be  the  same  as  that  in  
the   physical   possession   of   Madlangawa   and   ruled   that   the   only  
right  remaining  to  petitioner  is  to  enforce  the  collection  of  the  
balance   because   accordingly,   it   stepped   into   the   shoes   of   its  
predecessor;  and  that  since  the  area  now  in  possession  of  the  
petitioner  which  is  that  involved  in  the  present  case  is  only  115  
square   meters,   the   balance   after   deducting   the   deposit   of  
P1,500.00  is  P2,551.85,  and  as  per  order  of  the  CFI  of  Manila,  
the   said   balance   should   be   paid   in   18   equal   monthly  
installments.  
PORTUGAL  v.  IAC   There  is  really  nothing  novel  in  this  case  as  an  the  issues  raised  had  
ISSUE:   WHAT   IS   THE   STATUS   OF   THE   CONTRACT   OF   SALE   been,   on   several   occasions,   ruled   upon   by   the   Court.   Apropos   the  
EXECUTED  BY  RESPONDENT  HUGO?   first   issue,   which   is   the   timeliness   of   the   action,   the   trial   court  
  correctly  ruled  that  the  action  instituted  by  the  petitioners  has  not  
Petitioner   Cornelia   Clanor   and   her   late   husband   Pascual   yet   prescribed.   Be   that   as   it   may,   the   conclusion   was   reached  
Portugal,   during   the   lifetime   of   the   latter,   were   able   to   through   an   erroneous   rationalization,   i.e.,   the   case   is   purely   for  
accumulate  several  parcels  of  real  property.  Among  these  were   reconveyance   based   on   an   implied   or   constructive   trust.   Obviously,  
a   parcel   of   residential   land   situated   in   Poblacion,   Gen.   Trias,   the  trial  court  failed  to  consider  the  lack  of  consideration  or  cause  
Cavite,  designated  as  Lot  No.  3201,  consisting  of  2,069  square   in   the   purported   deed   of   sale   by   which   the   residential   lot   was  
meters,   more   or   less,   and   covered   by   T.C.T.   No.   RT-­‐9355,   in   allegedly  transferred  to  the  private  respondent  by  his  parents.  On  
their   names,   and   an   agricultural   land   located   at   Pasong   the  other  hand,  the  respondent  Intermediate  Appellate  Court  held  
Kawayan,   Gen.   Trias,   Cavite,   with   an   area   of   43,587   square   that   since   the   action   for   reconveyance   was   fathered   by   a  
meters,   more   or   less,   known   as   Lot   No.   2337,   and   also   fraudulent   deed   of   sale,   Article   1391   of   the   Civil   Code   which   lays  
registered   in   their   names   under   T.C.T.   No.   RT-­‐9356   of   the   down  the  rule  that  an  action  to   annul  a  contract  based  on  fraud  
Registry  of  Deeds  for  the  Province  of  Cavite.     prescribes   in   four   years,   applies.   Hence,   according   to   the  
  respondent   court,   as   more   than   four   years   had   elapsed   from  
Sometime   in   January,   1967,   the   private   respondent   Hugo   January   23,   1967   when   the   assailed   deed   was   registered   and   the  
Portugal,   a   son   of   the   spouses,   borrowed   from   his   mother,   petitioners'   cause   of   action   supposedly   accrued,   the   suit   has  
Cornelia,   the   certificates   of   title   to   the   above-­‐mentioned   already   become   stale   when   it   was   commenced   on   October   26,  
parcels   of   land   on   the   pretext   that   he   had   to   use   them   in   1976,   in   the   Court   of   First   Instance   of   Cavite.   For   reasons   shortly   to  
securing   a   loan   that   he   was   negotiating.   Cornelia,   the   loving   be  shown,  we  cannot  give  our  imprimatur  to  either  view.    
and   helpful   mother   that   she   was,   assented   and   delivered   the    
titles  to  her  son.  The  matter  was  never  again  brought  up  until   The  case  at  bar  is  not  purely  an  action  for  reconveyance  based  on  
after   Pascual   Portugal   died   on   November   17,   1974.   (Cornelia   an   implied   or   constructive   trust.   Neither   is   it   one   for   the  
herself  died  on  November  12,  1987.)  When  the  other  heirs  of   annullment   of   a   fraudulent   contract.   A   closer   scrutiny   of   the  
the   deceased   Pascual   Portugal,   the   petitioners   herein,   for   the   records   of   the   case   readily   supports   a   finding   that   fraud   and  
purposes   of   executing   an   extra-­‐judicial   partition   of   Pascual's   mistake   are   not   the   only   vices   present   in   the   assailed   contract   of  
estate,   wished   to   have   all   the   properties   of   the   spouses   sale   as   held   by   the   trial   court.   More   than   these,   the   alleged  
collated,  Cornelia  asked  the  private  respondent  for  the  return   contract  of  sale  is  vitiated  by  the  total  absence  of  a  valid  cause  or  
of   the   two   titles   she   previously   loaned,   Hugo   manifested   that   consideration.  The  petitioners  in  their  complaint,  assert  that  they,  
the  said  titles  no  longer  exist.  When  further  questioned,  Hugo   particularly   Cornelia,   never   knew   of   the   existence   of   the  
showed   the   petitioners   Transfer   Certificate   of   Title   T.C.T.   No.   questioned   deed   of   sale.   They   claim   that   they   came   to   know   of   the  
23539   registered   in   his   and   his   brother   Emiliano   Portugal's   supposed   sale   only   after   the   private   respondent,   upon   their  
names,  and  which  new  T.C.T.  cancelled  the  two  previous  ones.   repeated   entreaties   to   produce   and   return   the   owner's   duplicate  
This  falsification  was  triggered  by  a  deed  of  sale  by  which  the   copy  of  the  transfer  certificate  of  title  covering  the  two  parcels  of  
spouses  Pascual  Portugal  and  Cornelia  Clanor  purportedly  sold   land,  showed  to  them  the  controversial  deed.  And  their  claim  was  
for   P8,000.00   the   two   parcels   of   land   adverted   to   earlier   to   immeasurably   bolstered   when   the   private   respondent's   co-­‐
their   two   sons,   Hugo   and   Emiliano.   Confronted   by   his   mother   defendant  below,  his  brother  Emiliano  Portugal,  who  was  allegedly  
of   this   fraud,   Emiliano   denied   any   participation.   And   to   show   his   co-­‐vendee   in   the   transaction,   disclaimed   any   knowledge   or  
his   good   faith,   Emiliano   caused   the   reconveyance   of   Lot   No.   participation  therein.  If  this  is  so,  and  this  is  not  contradicted  by  the  
2337   previously   covered   by   TCT   No.   RT-­‐9356   and   which   was   decisions   of   the   courts   below,   the   inevitable   implication   of   the  
conveyed   to   him   in   the   void   deed   of   sale.   Hugo,   on   the   other   allegations   is   that   contrary   to   the   recitals   found   in   the   assailed  
hand,   refused   to   make   the   necessary   restitution   thus   deed,   no   consideration   was   ever   paid   at   all   by   the   private  
compelling   the   petitioners,   his   mother   and   his   other   brothers   respondent.   Applying   the   provisions   of   Articles   1350,   1352,   and  
and   sisters,   to   institute   an   action   for   the   annulment   of   the   1409   of   the   new   Civil   Code   in   relation   to   the   indispensable  
controversial   deed   of   sale   and   the   reconveyance   of   the   title   requisite  of  a  valid  cause  or  consideration  in  any  contract,  and  what  
over  Lot  No.  3201  (the  residential  land).   constitutes  a  void  or  inexistent  contract,  we  rule  that  the  disputed  
deed  of  sale  is  void  ab  initio  or  inexistent,  not  merely  voidable.  And  
it  is  provided  in  Article  1410  of  the  Civil  Code,  that  '(T)he  action  or  
defense  for  the  declaration  of  the  inexistence  of  a  contract  does  
not  prescribe.  
  
YANAS  v.  ACAYLAR   Badges  of  fraud  and  fictitiousness  –  The  SC  hold  that  the  sale  was  
ISSUE:  WON  THE  CONTRACT  OF  SALE  IS  VALID  AND  BINDING?   fictitious   and   fraudulent.   Among   the   badges   of   fraud   and  
NO.   fictitiousness   taken   collectively   are   the   following:   (1)   the   fact   that  
  the  sale  is  in  English,  the  alleged  vendor  being  illiterate;  (2)  the  fact  
Yanas,   also   known   as   Sulung   Subano,   had   occupied,   even   that  his  wife  did  not  join  in  the  sale  and  that  her  name  is  indicated  
before   1926,   Lot   No.   5408   located   at   Sitio   Dionom   (Lower   in  the  deed  as  “Maria  S.  Yanas”  when  the  truth  is  that  her  correct  
Gumay),   Barrio   Sianib,   Piñan   (Dipolog),   Zamboanga   del   Norte.   name   is   Maria   Aglimot   Yanas;   (3)   the   obvious   inadequacy   of   P200  
Such   land   was   subsequently   awarded   to   him   on   1941   by   a   as  price  for  a  13hectareland  (P15.40  a  hectare);  (4)  the  notarization  
judicial  decree,  adjudicating  Lot  No.  5408  to  Yanas  “married  to   of  the  sale  on  the  day  following  the  alleged  thumb  marking  of  the  
Maria  Aglimot”.     document;  (5)  the  failure  to  state  the  boundaries  of  the  lot  sold;  (6)  
  the   fact   that   the   governor   approved   it   more   than   two   years   after  
After  Yanas’  death,  his  son  filed  an  adverse  claim  for  Yanas.  His   the  alleged  sale;  (7)  its  registration  more  than  three  years  later,  and  
heirs   Hamoy   allegedly   taking   advantage   of   his   illiteracy,   made   (8)   the   fact   that   the   Acaylars   were   able   to   occupy   only   four  
Yanas   affix   his   thumbmark   to   a   deed   of   sale   in   English.   When   hectares  out  of  the  13  hectares  and  were  eventually  forcibly  ousted  
Yanas   discovered   that   his   title   was   cancelled,   he   caused   on   therefrom   by   the   children   and   agents   of   the   vendor.   It   was   not   a  
August   28,   1958   an   adverse   claim   to   be   annotated   on   Acaylar’s   fair   and   regular   transaction   done   in   the   ordinary   course   of  
title.  He  stated  in  his  adverse  claim  that  he  never  sold  his  land   business.  
and   that   the   price   of   P200   was   grossly   inadequate   because   the    
land  was  worth  not  less  than  P6,000.     Patent  contradictions  in  the  testimonies  of  the  principal  witnesses  
  of   the   buyers   fatal   to   their   alleged   ownership   of   the   land.   The  
Yanas  died  in  1962.  His  widow,  Maria  Aglimot,  also  a  Subano,   grave   flaws   in   the   evidence   for   defendants   Acaylar   are   the   patent  
and   his   children   filed   an   action   to   declare   void   Acaylar’s   title   contradictions  in  the  testimonies  of  Antonio  L.  Acaylar  and  lawyer  
claiming   that   that   deed   of   sale   is   fictitious   and   fraudulent   Hamoy,   their   principal   witnesses   on   the   validity   of   the   sale.   Acaylar  
because   what   Yanas   thumbmarked   on   August   7,   1950   was   testified  that  he  signed  the  deed  of  sale  and  that  one  Tupas  was  an  
supposed  to  be  a  receipt  attesting  that  he  owed  Hamoy  P200   instrumental   witness   (1213   tsn   May   4,   1970).   The   truth   is   that  
for  his  legal  services.  The  trial  court  found  the  sale  to  be  valid   Acaylar  never  signed  the  deed  and  Tupas  was  not  a  witness.  The  
and   binding.   The   Appellate   Court   affirmed   the   trial   court’s   instrumental   witnesses   were   Hamoy   and   Paulino   Empeynado.  
decision.   The   heirs   of   Yanas   appealed   to   this   Court.   They   Hamoy   at   first   testified   on   November   20,   1968   that   on   August   7,  
contend  that  the  Appellate  Court  erred  in  not  holding  that  the   1950  he  was  a  witness  in  the  deed  of  sale  executed  by  Yanas  who  
deed  of  sale  was  fabricated  and  simulated  and,  therefore,  void   had  requested  him  to  look  for  a  buyer  of  his  lot  (122124  tsn).  That  
ab   initio   and   that   Maria   Aglimot   as   surviving   spouse   could   means   that   Hamoy   met   Yanas   in   August,   1950.   More   than   a   year  
recover  the  lot.     later,  or  on  June  22,  1970,  Hamoy,  testifying  as  a  rebuttal  witness  
  for   Acaylar,   declared   on   direct   and   cross   examination   that   he   last  
The  heirs  of  Acaylar,  through  counsel  who  did  not  take  part  in   saw   Yanas   in   1946.   He   absurdly   stated   that   his   name   appears   as   an  
the  trial,  maintain  that  the  sale  was  “true  and  faithful”  and  that   instrumental   witness   in   the   deed   of   sale   but   he   testified;   “That   is  
the  widow  had  no  right  to  recover  onehalf  of  the  lot.   my  name  but  I  did  not  sign  that”.  
 
Action  or  defense  for  the  declaration  of  inexistence  of  a  contract  
does   not   prescribe.   The   fact   that   the   alleged   sale   took   place   in  
1950  and  the  action  to  have  it  declared  void  or  inexistent  was  filed  
in  1963  is  immaterial.  The  action  or  defense  for  the  declaration  of  
the   inexistence   of   a   contract   does   not   prescribe   (Art.   1410,   Civil  
Code).  
BARSOBIA  v.  CUENCO   There  should  be  no  question  that  the  sale  of  the  land  in  question  in  
ISSUE:   WON   VALLAR   IS   THE   RIGHTFUL   OWNER   OF   THE   1936  by  Epifania  to  Ong  King  Po  was  inexistent  and  void  from  the  
COCONUT   LAND   BECAUSE   THE   SALE   BETWEEN   EPIFANIA   AND   beginning   (Art.   1409   [7],   Civil   Code)   because   it   was   a   contract  
ONG  KING  PO  IS  VOID  AND/OR  INEXISTENT?  NO.   executed   against   the   mandatory   provision   of   the   1935  
  Constitution,   which   is   an   expression   of   public   policy   to   conserve  
Leocadia   Balisado   (original   owner)   sold   the   disputed   coconut   lands  for  the  Filipinos.    
land   to   SPOUSES   Patricio   Barsobia   and   Epifania   Sarsosa    
(petitioner),  both  Filipino  citizens.    When  Patricio  died,  Epifania   Had  this  been  a  suit  between  Epifania  and  Ong  King  Po,  she  could  
sold  the  land  to  a  Chinese  National,  Ong  King  Po,  who  later  sold   have   been   declared   entitled   to   the   litigated   land   on   the   basis,   as  
the   same   to   one   Victoriano   Cuenco,   herein   respondent,   a   claimed,  of  the  ruling  in  Philippine  Banking  Corporation  vs.  Lui  She,  
naturalized  Filipino  citizen.     reading:     For   another   thing,   and   this   is   not   only   cogent   but   also  
  important.   Article   1416   of   the   Civil   Code   provides   as   an   exception  
Epifania,  however,  unilaterally  repudiated  the  sale  to  Ong  King   to  the  rule  on  pari  delicto  that  when  the  agreement  is  not  illegal  
Po  and  later  sold  1/2  portion  of  the  same  land  to  Pacita  Vallar   per  se  but  is  merely  prohibited,  and  the  prohibition  by  the  law  is  
(petitioner).   She   claimed   that   it   was   not   her   intention   to   sell   designed   for   the   protection   of   the   plaintiff,   he   may,   if   public  
the  land  to  Ong  King  Po.     policy  is  thereby  enhanced,  recover  what  he  has  sold  or  delivered.    
   
Cuenco   then   filed   an   action   for   recovery   of   possession   and   But  the  factual  set-­‐up  has  changed.  The  litigated  property  is  now  in  
ownership   of   the   coconut   land   against   Epifania   and   Vallar.   In   the   hands   of   a   naturalized   Filipino.   It   is   no   longer   owned   by   a  
their  Answer,  they  insisted,  among  others,  that  Epifania's  sale   disqualified   vendee.   Respondent,   as   a   naturalized   citizen,   was  
to  Ong  King  Po,  a  Chinese  national,  was  inexistent  and/or  void   constitutionally   qualified   to   own   the   subject   property.   There  
ab  initio.   would   be   no   more   public   policy   to   be   served   in   allowing  
petitioner  Epifania  to  recover  the  land  as  it  is  already  in  the  hands  
of  a  qualified  person.    
 
While,  strictly  speaking,  Ong  King  Po,  private  respondent's  vendor,  
had   no   rights   of   ownership   to   transmit,   it   is   likewise   inescapable  
that   petitioner   Epifania   had   slept   on   her   rights   for   26   years   from  
1936   to   1962.   By   her   long   inaction   or   inexcusable   neglect,   she  
should   be   held   barred   from   asserting   her   claim   to   the   litigated  
property  (Sotto  vs.  Teves,  86  SCRA  157  [1978]).    
 
Respondent,  therefore,  must  be  declared  to  be  the  rightful  owner  
of  the  property.    
GODINEZ  v.  FONG   A   parcel   of   land   sold   to   a   Chinese   citizen   which   the   latter  
ISSUE:   WON   CONTRACT   MAY   NO   LONGER   BE   VALID   DUE   TO   subsequently   sold   to   a   Filipino   Citizen   can   no   longer   be   recovered  
PRESCRIPTION  OF  THE  COMPLAINT  TO  FILE  AN  ACTION?   by  the  vendor.  
   
The   plaintiffs   filed   a   case   to   recover   a   parcel   of   land   sold   by   There  can  be  no  dispute  that  the  sale  in  1941  by  Jose  Godinez  of  his  
their   father   Jose   Godinez   to   defendant   Fong   Pak   Luen.   Said   residential  lot  acquired  from  the  Bureau  of  Lands  as  part  of  the  Jolo  
defendant   executed   a   power   of   attorney   in   favour   of   his   co-­‐ townsite  to  Fong  Pak  Luen,  a  Chinese  citizen  residing  in  Hongkong,  
defendant  Kwan  Pun  Ming,  who  conveyed  and  sold  the  above   was   violative   of   Section   5,   Article   XIII   of   the   1935   Constitution  
described   parcel   of   land   to   co-­‐defendant   Trinidad   S.   Navata.   which  provided:    
The   latter   is   aware   of   and   with   full   knowledge   that   Fong   Pak   Sec.   5.   Save   in   cases   of   hereditary   succession,   no   private  
Luen   is   a   Chinese   citizen   as   well   as   Kwan   Pun   Ming,   who   under   agricultural   land   will   be   transferred   or   assigned   except   to  
the   law   are   prohibited   and   disqualified   to   acquire   real   individuals,   corporations,   or   associations   qualified   to   acquire   or  
property;   that   Fong   Pak   Luen   has   not   acquired   any   title   or   hold  lands  of  the  public  domain  in  the  Philippines.    
interest   in   said   parcel   of   land   as   purported   contract   of   sale   The   meaning   of   the   above   provision   was   fully   discussed   in  Krivenko  
executed   by   Jose   Godinez   alone   was   contrary   to   law   and   v.  Register  of  Deeds  of  Manila  (79  Phil.  461)  which  also  detailed  the  
considered  non-­‐existent.     evolution  of  the  provision  in  the  public  land  laws,  Act  No.  2874  and  
  Commonwealth   Act   No.   141.   The   Krivenko   ruling   that   "under   the  
The   defendant   filed   her   answer   that   the   complaint   does   not   Constitution   aliens   may   not   acquire   private   or   agricultural   lands,  
state  a  cause  of  action  since  it  appears  from  the  allegation  that   including   residential   lands"   is   a   declaration   of   an   imperative  
the  property  is  registered  in  the  name  of  Jose  Godinez  so  that   constitutional   policy.   Consequently,   prescription   may   never   be  
as  his  sole  property  he  may  dispose  of  the  same;  that  the  cause   invoked  to  defend  that  which  the  Constitution  prohibits.  However,  
of   action   has   been   barred   by   the   statute   of   limitations   as   the   we   see   no   necessity   from   the   facts   of   this   case   to   pass   upon   the  
alleged   document   of   sale   executed   by   Jose   Godinez   on   nature  of  the  contract  of  sale  executed  by  Jose  Godinez  and  Fong  
November   27,   1941,   conveyed   the   property   to   defendant   Fong   Pak   Luen   whether   void   ab   initio,   illegal   per   se   or   merely   pro-­‐
Pak   Luen   as   a   result   of   which   a   title   was   issued   to   said   exhibited.    
defendant;   that   under   Article   1144(1)   of   the   Civil   Code,   an    
action   based   upon   a   written   contract   must   be   brought   within   It   is   enough   to   stress   that   insofar   as   the   vendee   is   concerned,  
10   years   from   the   time   the   right   of   action   accrues;   that   the   prescription   is   unavailing.   But   neither   can   the   vendor   or   his   heirs  
right   of   action   accrued   on   November   27,   1941   but   the   rely   on   an   argument   based   on   imprescriptibility   because   the   land  
complaint   was   filed   only   on   September   30,   1966,   beyond   sold  in  1941  is  now  in  the  hands  of  a  Filipino  citizen  against  whom  
the10-­‐year   period   provided   by   law.   The   trial   court   issued   an   the   constitutional   prescription   was   never   intended   to   apply.   The  
order   dismissing   the   complaint.   A   motion   for   reconsideration   lower   court   erred   in   treating   the   case   as   one   involving   simply   the  
was  filed  by  plaintiffs  but  was  denied.   application  of  the  statute  of  limitations.    
 
From   the   fact   that   prescription   may   not   be   used   to   defend   a  
contract   which   the   Constitution   prohibits,   it   does   not   necessarily  
follow  that  the  appellants  may  be  allowed  to  recover  the  property  
sold   to   an   alien.   As   earlier   mentioned,   Fong   Pak   Luen,   the  
disqualified   alien   vendee   later   sold   the   same   property   to   Trinidad  
S.  Navata,  a  Filipino  citizen  qualified  to  acquire  real  property.    
 
YAP  v.  GRAGEDA   Sale   of   a   residential   lot   to   a   Chinese   national   who   had   been   a  
ISSUE:  WON  THE  SALE  OF  THE  LOTS  TO  A  CHINESE  NATIONAL   naturalized  Filipino  citizen  for  15  years  at  time  of  sale,  valid;  Ban  on  
WHO   LATER   BECAME   A   NATURALIZED   FILIPINO   CITIZEN   IS   aliens  from  acquiring  agricultural  and  urban  lands  under  the  1935.  
VALID?  VALID.    
  The   rulings   in   Vasquez   v.   Li   Seng   Giap   et   al.   (96   Phil.   447)   and  
Sometime  in  April  1939,  Maximo  Rico,  the  father  of  respondent   Sarosa   Vda.   de   Bersabia   v.   Cuenco   (113   SCRA   547)   sustain   the  
Jose  Rico,  executed  a  Deed  of  Absolute  Sale  over  two  (2)  lots  in   petitioner’s   contentions.   We   stated   in   Sarosa   Vda.   de   Bersabia:  
favor  of  the  petitioner  Donato  Yap,  a  Chinese  national.     “There  should  be  no  question  that  the  sale  of  the  land  in  question  
  in  1936  by  Epifania  to  Ong  King  Po  was  inexistent  and  void  from  the  
After  the  lapse  of  almost  15  years  from  and  after  the  execution   beginning   (Art.   1409   [7],   Civil   Code)   because   it   was   a   contract  
of  the  Deed  of  Absolute  Sale,  petitioner  Donato  Yap  became  a   executed   against   the   mandatory   provision   of   the   1935  
naturalized  Filipino  citizen.     Constitution,   which   is   an   expression   of   public   policy   to   conserve  
  lands  for  the  Filipinos.  x  x  x  “But  the  factual  set-­‐up  has  changed.    
Since   1939,   Petitioner   Donato   Yap   has   been   in   possession   of    
subject   lots,   openly,   publicly,   continuously,   and   adversely   in   The   litigated   property   is   now   in   the   hands   of   a   naturalized  
the  concept  of  owner.     Filipino.   It   is   no   longer-­‐owned   by   a   disqualified   vendee.  
  Respondent,   as   a   naturalized   citizen,   was   constitutionally  
qualified   to   own   the   subject   property.   There   would   be   no   more  
public   policy   to   be   served   in   allowing   petitioner   Epifania   to   recover  
the   land   as   it   is   already   in   the   hands   of   a   qualified   person.   Applying  
by  analogy  the  ruling  of  this  Court  in  Vasquez  vs.  Giap  and  Li  Seng  
Giap   &   Sons:   “   ‘x   x   x   if   the   ban   on   aliens   from   acquiring   not   only  
agricultural  but  also  urban  lands,  as  construed  by  this  Court  in  the  
Krivenko   case,   is   to   preserve   the   nation’s   lands   for   future  
generations   of   Filipinos,   that   aim   or   purpose   would   not   be  
thwarted   but   achieved   by   making   lawful   the   acquisition   of   real  
estate  by  aliens  who  became  Filipino  Citizens  by  naturalization.’    
PINEDA  v.  DE  LA  RAMA   Promissory  note  void  ab  initio  where  consideration  for  the  note  is  
ISSUE:   WON   THE   PRESUMPTION   OF   VALUABLE   to  influence  public  officers  in  the  performance  of  their  duties.  
CONSIDERATION  MAY  BE  RELIED  UPON  THOUGH  THE  PURPOSE    
FOR  WHICH  THE  PROMISSORY  NOTE  WAS  ISSUED  TO  STOP  OR    The  Court  of  Appeals'  reliance  on  the  above  provision  is  misplaced.  
DELAY   THE   INSTITUTION   OF   CRIMINAL   CHARGES   AGAINST   The   presumption   that   a   negotiable   instrument   is   issued   for   a  
PINEDA?   valuable   consideration   is   only   prima   facie.   It   can   be   rebutted   by  
  proof   to   the   contrary.   (Bank   of   the   Philippine   Islands   v.   Laguna  
The  case  involves  a  contract  of  loan  between  Pineda  and  Atty.   Coconut  Oil  Co.  et  al.,  48  Phil.  5)."    
dela  Rama,  evidenced  by  a  promissory  note  amounting  to  Php    
9,300.00,   the   purpose   of   which   is   to   stop   or   delay   the   According  to  Dela  Rama,  he  loaned  the  P9,300.00  to  Pineda  in  two  
institution   of   criminal   charges   against   Pineda   who   allegedly   installments   on   two   occasions   five   days   apart   —   first   loan   for  
misappropriated   11,000   cavans   of   palay   deposited   at   his   P5,000.00   and   second   loan   for   P4,300.00,   both   given   in   cash.   He  
ricemill   in   Concepcion,   Tarlac   through   Atty.   Dela   Rama   who   also   alleged   that   previously   he   loaned   P3,000.00   but   Pineda   paid  
was   purportedly   an   intimate   friend   of   the   National   Rice   and   this  other  loan  two  days  afterward.    
Corn  Administration  (NARIC)  general  manager.  Atty.  Dela  Rama    
files  a  complaint  for  collection  on  the  basis  of  said  note  but  was   These  allegations  of  Dela  Rama  are  belied  by  the  promissory  note  
denied   by   the   trial   on   the   ground   that   the   purpose   of   the   itself.   The   second   sentence   of   the   note   reads   —   "This   represents  
promissory   note   was   illegal   when   appealed,   the   CA   ruled   in   the   cash   advances   made   by   him   in   connection   with   my   case   for  
favor   of   Atty.   dela   Rama   on   the   ground   of   presumption   of   which  he  is  my  attorney-­‐in-­‐law."    
valuable  consideration.      
  Considering   the   foregoing,   we   agree   with   the   trial   court   that   the  
promissory  note  was  executed  for  an  illegal  consideration.  Articles  
1409  and  1412  of  the  Civil  Code  in  part,  provide:    
Art.   1409.   The   following   contracts   are   inexistent   and   void   from  
the   beginning:   (1)   Those   whose   cause,   object   or   purpose   is  
contrary   to   law,   morals,   good   customs,   public   order   and   public  
policy;    
xxx  xxx  xxx    
Art.   1412.   If   the   act   in   which   the   unlawful   or   forbidden   cause  
consists   does   not   constitute   a   criminal   offense,   the   following   rules  
shall   be   observed:   (1)   When   the   fault   is   on   the   part   of   both  
contracting   parties,   neither   may   recover   what   he   has   given   by  
virtue   of   the   contract,   or   demand   the   performance   of   the   other's  
undertaking.    
xxx  xxx  xxx    
Whether   or   not   the   supposed   cash   advances   reached   their  
destination  is  of  no  moment.  The  consideration  for  the  promissory  
note   —   to   influence   public   officers   in   the   performance   of   their  
duties  —  is  contrary  to  law  and  public  policy.  The  promissory  note  
is  void  ab  initio  and  no  cause  of  action  for  the  collection  cases  can  
arise  from  it.  
LIGUEZ  v.  CA   Under   Article   1274,   liberality   of   the   do   or   is   deemed   causa   in  
ISSUE:     those   contracts   that   are   of   "pure"   beneficence;   that   is   to   say,  
(a)   WON   THE   MOTIVE   FOR   THE   DONATION   DETERMINES   THE   contracts   designed   solely   and   exclusively   to   procure   the   welfare  
LEGALITY  OF  THE  CONTRACT?  YES.   of   the   beneficiary,   without   any   intent   of   producing   any  
(b)  WON  THE  DONATION  IS  VALID?  YES.   satisfaction  for  the  donor;  contracts,  in  other  words,  in  which  the  
  idea   of   self-­‐interest   is   totally   absent   on   the   part   of   the   transferor.  
Conchita  Liguez  filed  a  complaint  against  the  widow  and  heirs   For   this   very   reason,   the   same   Article   1274   provides   that   in  
of   the   late   Salvador   P.   Lopez   to   recover   a   parcel   of   51.84   remuneratory  contracts,  the  consideration  is  the  service  or  benefit  
hectares   of   land,   situated   in   barrio   Bogac-­‐Linot,   of   the   for   which   the   remuneration   is   given;   causa   is   not   liberality   in  
municipality  of  Mati,  Province  of  Davao.  Plaintiff  averred  to  be   these  cases  because  the  contract  or  conveyance  is  not  made  out  
its   legal   owner,   pursuant   to   a   deed   of   donation   of   said   land,   of  pure  beneficence,  but  "solvendi  animo."  The  facts  as  found  by  
executed  in  her  favor  by  the  late  owner,  Salvador  P.  Lopez,  on   the  Court  of  Appeals  (and  which  we  can  not  vary)  demonstrate  that  
18   May   1943.   The   defense   interposed   was   that   the   donation   in  making  the  donation  in  question,  the  late  Salvador  P.  Lopez  was  
was   null   and   void   for   having   an   illicit   causa   or   consideration,   not   moved   exclusively   by   the   desire   to   benefit   appellant   Conchita  
which   was   the   plaintiff's   entering   into   marital   relations   with   Liguez,   but   also   to   secure   her   cohabiting   with   him,   so   that   he   could  
Salvador   P.   Lopez,   a   married   man;   and   that   the   property   had   gratify  his  sexual  impulses.    
been   adjudicated   to   the   appellees   as   heirs   of   Lopez   by   the   In   the   present   case,   it   is   scarcely   disputable   that   Lopez   would   not  
court   of   First   Instance,   since   1949.   The   Court   of   Appeals   held   have   conveyed   the   property   in   question   had   he   known   that  
that  the  deed  was  indeed  inoperative,  and  null  and  void.     appellant   would   refuse   to   cohabit   with   him;   so   that   the  
  cohabitation   was   an   implied   condition   to   the   donation,   and   being  
In   this   appeal,   Liguez   contends   such   decisions   by   the   CFI   and   unlawful,   necessarily   tainted   the   donation   itself.   Motive   may   be  
the   CA,   arguing   that   under   Article   1274   of   the   Civil   Code   of   regarded   as   causa   when   it   predetermines   the   purpose   of   the  
1889  (which  was  the  governing  law  in  1948,  when  the  donation   contract.    
was   executed),   "in   contracts   of   pure   beneficence   the    
consideration  is  the  liberality  of  the  donor",  and  that  liberality   The  right  of  the  husband  to  donate  community  property  is  strictly  
per   se   can   never   be   illegal,   since   it   is   neither   against   law   or   limited  by  law  (Articles  1409,  1413,  1415,  Civil  Code  of  1889;  Baello  
morals  or  public  policy.  Furthermore,  it  was  averred  by  Liguez   vs.   Villanueva,   54   Phil.   213).   However,   the   donation   made   in  
that   the   CA   erred   in   the   application   of   the   principle   of   in   pari   contravention  of  the  law  is  not  void  in  its  entirety,  but  only  in  so  
delicto.   The   principle   was   applied   in   the   case,   barring   the   far   as   it   prejudices   the   interest   of   the   wife.   The   rule   applies  
appellant  from  alleging  the  illegality  of  the  bargain.   whether   the   donation   is   gratuitous   or   for   a   consideration.   The  
    forced  heirs  are  entitled  to  have  the  donation  set  aside  in  so  far  as  
inofficious;  i.e.,  in  excess  of  the  portion  of  free  disposal  (Civil  Code  
of  1889,  Arts.  636,  654).  
PHILBANKING  v.  LUI  SHE   Article   1308   of   the   Civil   Code   creates   no   impediment   to   the  
ISSUE:  WON  THE  CONTRACTS  ARE  VOID?   insertion   in   a   contract   for   personal   services   of   a   resolutory  
  condition   permitting   the   cancellation   of   the   contract   by   one   of  
Justina   Santos   y   Canon   Faustino,   owner   of   a   piece   of   land   in   the  parties.  Such  a  stipulation  does  not  make  either  the  validity  or  
Manila.  This  parcel,  with  an  area  of  2,582.30  square  meters,  is   the  fulfillment  of  the  contract  dependent  upon  the  will  of  the  party  
located   on   Rizal   Avenue   and   opens   into   Florentino   Torres   to   whom   is   conceded   the   privilege   of   cancellation;   for   where   the  
street   at   the   back   and   Katubusan   street   on   one   side.   Wong   contracting   parties   have   agreed   that   such   option   shall   exist,   the  
Heng,  a  Chinese  had  been  a  long-­‐time  lessee  of  a  portion  of  the   exercise  of  the  option  is  as  much  in  the  fulfillment  of  the  contract  
property,  paying  a  monthly  rental  of  P2,620.     as   any   other   act   which   may   have   been   the   subject   of   the  
  agreement.   Indeed,   the   cancellation   of   a   contract   in   accordance  
Justina   Santos   executed   on   November   15,   1957   a   contract   of   with  conditions  agreed  upon  beforehand  is  fulfillment.  
lease   in   favor   of   Wong.   The   lease   was   for   50   years,   although    
the   lessee   was   given   the   right   to   withdraw   at   any   time   from   A  provision  in  a  lease   contract  that  the  lessee,  at  any  time  before  
the  agreement.     he   erected   any   building   on   the   land   may   rescind   the   lease   can  
  hardly  be  regarded  as  a  violation  of  Article  1308  of  the  Civil  Code.  
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   The   testimony   just   quoted,   while   dispelling   doubt   as   to   the  
option,   written   in   Tagalog,   imposed   on   him   the   obligation   to   intention  of  Justina  Santos,  at  the  same  time  gives  the  clue  to  what  
pay   for   the   food   of   the   dogs   and   the   salaries   of   the   maids   in   we   view   as   a   scheme   to   circumvent   the   Constitutional   prohibition  
her  household,  the  charge  not  to  exceed  P1,800  a  month.  The   against   the   transfer   of   lands   to   aliens.   "The   illicit   purpose   then  
option  was  conditioned  on  his  obtaining  Philippine  citizenship,   becomes  the  illegal  causa"  rendering  the  contracts  void.    
a   petition   for   which   was   then   pending   in   the   Court   of   First    
Instance  of  Rizal.  It  appears,  however,  that  this  application  for   Taken  singly,  the  contracts  show  nothing  that  is  necessarily  illegal,  
naturalization   was   withdrawn   when   it   was   discovered   that   he   but   considered   collectively,   they   reveal   an   insidious   pattern   to  
was   not   a   resident   of   Rizal.   On   October   28,   1958   she   filed   a   subvert   by   indirection   what   the   Constitution   directly   prohibits.   To  
petition  to  adopt  him  and  his  children  on  the  erroneous  belief   be   sure,   a   lease   to   an   alien   for   a   reasonable   period   is   valid.   So   is   an  
that  adoption  would  confer  on  them  Philippine  citizenship.  The   option   giving   an   alien   the   right   to   buy   real   property   on   condition  
error  was  discovered  and  the  proceedings  were  abandoned.     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  
On  November  18,  1958  she  executed  two  other  contracts,  one   virtue   of   which   the   Filipino   owner   cannot   sell   or   otherwise  
extending   the   term   of   the   lease   to   99   years,   and   another   fixing   dispose  of  his  property,  this  to  last  for  50  years,  then  it  becomes  
the  term  of  the  option  of  50  years.  Both  contracts  are  written   clear   that   the   arrangement   is   a   virtual   transfer   of   ownership  
in  Tagalog.     whereby  the  owner  divests  himself  in  stages  not  only  of  the  right  
  to   enjoy   the   land   (   jus   possidendi,   jus   utendi,   jus   fruendi   and   jus  
In   two   wills   executed   on   August   24   and   29,   1959,   she   bade   her   abutendi)  but  also  of  the  right  to  dispose  of  it  (   jus  disponendi)  —  
legatees   to   respect   the   contracts   she   had   entered   into   with   rights   the   sum   total   of   which   make   up   ownership.   It   is   just   as   if  
Wong,  but  in  a  codicil  of  a  later  date  (November  4,  1959)  she   today   the   possession   is   transferred,   tomorrow,   the   use,   the   next  
appears   to   have   a   change   of   heart.   Claiming   that   the   various   day,   the   disposition,   and   so   on,   until   ultimately   all   the   rights   of  
contracts   were   made   by   her   because   of   machinations   and   which  ownership  is  made  up  are  consolidated  in  an  alien.  And  yet  
inducements  practiced  by  him,  she  now  directed  her  executor   this   is   just   exactly   what   the   parties   in   this   case   did   within   the   space  
to  secure  the  annulment  of  the  contracts.     of   one   year,   with   the   result   that   Justina   Santos'   ownership   of   her  
  property  was  reduced  to  a  hollow  concept.  If  this  can  be  done,  then  
The   complaint   alleged   that   the   contracts   were   obtained   by   the  Constitutional  ban  against  alien  landholding  in  the  Philippines,  
Wong  "through  fraud,  misrepresentation,  inequitable  conduct,   as   announced   in   Krivenko   v.   Register   of   Deeds,   is   indeed   in   grave  
undue  influence  and  abuse  of  confidence  and  trust  of  and  (by)   peril.    
taking  advantage  of  the  helplessness  of  the  plaintiff  and  were  
made   to   circumvent   the   constitutional   provision   prohibiting  
aliens   from   acquiring   lands   in   the   Philippines   and   also   of   the  
Philippine  Naturalization  Laws."  The  court  was  asked  to  direct  
the   Register   of   Deeds   of   Manila   to   cancel   the   registration   of  
the   contracts   and   to   order   Wong   to   pay   Justina   Santos   the  
additional   rent   of   P3,120   a   month   from   November   15,   1957   on  
the   allegation   that   the   reasonable   rental   of   the   leased  
premises  was  P6,240  a  month.    
 
In  the  meantime  as  a  result  of  a  petition  for  guardianship  filed  
in  the  Juvenile  and  Domestic  Relations  Court,  the  Security  Bank  
&  Trust  Co.  was  appointed  guardian  of  the  properties  of  Justina  
Santos,   while   Ephraim   G.   Gochangco   was   appointed   guardian  
of  her  person.    
 
The   lower   court   ruled   that   all   the   documents   mentioned   in   the  
first  cause  of  action,  with  the  exception  of  the  first  which  is  the  
lease  contract  of  15  November  1957,  are  declared  null  and  void    
From   this   judgment   both   parties   appealed   directly   to   this  
Court.  After  the  case  was  submitted  for  decision,  both  parties  
died,   Wong   Heng   on   October   21,   1962   and   Justina   Santos   on  
December  28,  1964.  Wong  was  substituted  by  his  wife,  Lui  She,  
the   other   defendant   in   this   case,   while   Justina   Santos   was  
substituted  by  the  Philippine  Banking  Corporation.  
 
 
 
 
 
HEIRS  OF  AVILA  v.  CA   While  it  is  true  that  Marciana  Avila,  their  mother  and  predecessor-­‐
ISSUE:   WON   THE   SALE   OF   THE   SUBJECT   LAND   TO   THE   MOTHER   in-­‐interest,  purchased  the  questioned  property  at  a  public  auction  
OF   THE   PETITIONERS   IS   VALID   THAT   WOULD   ENTITLED   THEM   conducted   by   the   government;   paid   the   purchase   price;   and   was  
TO  THE  POSSESSION  OF  THE  LAND?  NO.   issued   a   final   bill   of   sale   after   the   expiration   of   the   redemption  
  period,  it  is  however  undisputed  that  such  purchase  was  prohibited  
In   1939,   the   Court   of   First   Instance   of   Misamis   Oriental,   as   a   under   Section   579   of   the   Revised   Administrative   Code,   as  
cadastral  court,  adjudicated  Lots  594  and  828  of  the  Cadastral   amended.  Thus,  the  sale  to  her  of  Lot  594  is  void.  
Survey   of   Cagayan   to   Paz   Chavez.   But   because   Paz   Chavez    
failed   to   pay   the   property   taxes   of   Lot   594,   the   government   On   the   other   hand,   under   Article   1409   of   the   Civil   Code,   a   void  
offered  the  same  for  sale  at  a  public  auction.  Marciana  G.  Avila,   contract   is   inexistent   from   the   beginning.   It   cannot   be   ratified  
a   teacher,   wife   of   Leonardo   Avila   and   the   mother   of   the   herein   neither   can   the   right   to   set   up   the   defense   of   its   illegality   be  
petitioners,   participated   in   and   won   the   bidding.   Despite   the   waived.   Moreover,   Marciana   Avila   was   a   party   to   an   illegal  
provision   of   Section   579   of   the   Revised   Administrative   Code   transaction,   and   therefore,   under   Art.   1412   of   the   Civil   Code,   she  
prohibiting   public   school   teachers   from   buying   delinquent   cannot   recover   what   she   has   given   by   reason   of   the   contract   or   ask  
properties,   nobody,   not   even   the   government   questioned   her   for  the  fulfillment  of  what  has  been  promised  her.    
participation  in  said  auction  sale.  In  fact  on  February  20,  1940,    
after   the   expiration   of   the   redemption   period,   the   Provincial   Under   the   circumstances,   possession   cannot   be   claimed   by  
Treasurer  executed  in  her  favor  the  final  bill  of  sale.     petitioners,   because   their   predecessor-­‐in-­‐interest   besides   being   at  
  fault  is  not  the  successful  claimant  in  the  registration  proceedings  
Sometime   in   1947,   OCT   Nos.   100   and   101,   covering   said   Lots   and  hence  not  entitled  to  a  writ  of  possession.  As  correctly  stated  
594  and  828,  were  issued  in  favor  of  Paz  Chavez.  In  opposition   by  the  Court  of  Appeals  when  respondent  Court  issued  the  writ  of  
thereto,   private   respondents   filed   a   petition   for   review   of   the   execution   as   to   Lot   594,   there   really   was   no   legal   basis   for   the  
decrees   on   August   25,   1947   at   the   Court   of   First   Instance   of   same,   for   Avila   had   not   secured   a   decree,   nor   a   judgment   of  
Misamis   Oriental,   Branch   II,   in   Cadastral   Case   No.   17,   Lot   No.   confirmation  of  title  over  said  lot.    
594.   After   hearing   on   the   merits,   the   Cadastral   Court    
promulgated  a  Decision  setting  aside  the  decision  of  the  Court   Much  less  can  possession  be  claimed  by  private  respondents  as  it  is  
adjudicated   the   lots   in   question   in   favor   of   respondent   Paz   undisputed  that  the  land  in  question  has  been  the  subject  of  a  tax  
Chavez,   and   declaring   NULL   and   VOID   Decrees   Nos.   433   and   sale  of  delinquent  property  with  a  final  bill  of  sale.    
434  issued  by  the  Chief  of  Land  Registration  Office  on  June  19,    
1947  as  well  as  the  certification  of  title  covering  Lots  Nos.  594   Neither   did   the   government   file   any   claim   for   possession;   nor  
and   828   of   the   Cadastral   Survey   of   Cagayan   issued   by   the   appear   to   be   impleaded   in   any   of   the   actions   or   petitions   before  
Register  of  Deeds.     the   Courts,   Its   only   interest   in   the   land   in   question   appears   to   be   in  
  the  collection  of  taxes.    
Paz   Chavez   appealed   the   said   decision   with   the   Court   of    
Appeals   which   the   later   rendered   modifying   the   decision   Consequently,   the   situation   is   evidently   one   of   failure   of   ownership  
appealed   from   by   disallowing   the   registration   of   Lot   No.   594   in   because   of   the   violation   of   Section   579   of   the   Administrative   Code.  
the  name  of  Marciana  G.  Avila,  but  affirming  said  decision  in  all   Otherwise  stated,  the  property  apparently  has  no  owner.  
other   respects.   Avila   moved   for   execution,   and   a   writ   of  
possession   which   was   opposed   by   Paz   Chavez,   who   was  
succeeded   by   the   herein   private   respondent   Aladino   Ch.  
Bacarrisas   on   the   alleged   ground   that   he   has   the   actual   and  
physical  possession  of  Lot  594  where  his  residential  house  has  
stood   since   1946.   Petitioner   based   their   view   that   ownership  
and   possession   are   separated   in   aforesaid   decision,   so   that  
they  assert  that  they  are  entitled  to  the  possession  of  Lot  594,  
although  they  are  not  entitled  to  its  registration  in  their  names.    
 
Private   respondent   filed   a   certiorari   and   mandamus   with  
preliminary  injunction  suit  was  filed  with  the  Court  of  Appeals  
when  his  urgent  motion  for  correction  of  writ  of  execution  was  
denied,  alleging,  among  other  things,  that  the  Avilas,  the  have  
no   interest,   right,   claims,   title   or   participation   in   Lot   No.   594   to  
which  they  could  claim  possession.  The  Court  of  Appeals  grant  
the  private  respondent’s  certiorari.  
 
 
 
 
 
 
TEJA  MARKETING  v.  IAC   Both   are   in   pari   delicto.   Nale’s   purchase   of   the   motorcycle   for  
ISSUE:  WON  THE  PARTIES  ARE  ENTITLED  TO  RELIEF?  NO.   operation   as   a   trimobile   to   be   used   under   the   transportation  
  franchise   of   Jaucian,   pursuant   to   what   is   commonly   known   as   the  
Nale  bought  a  motorcycle  from  Teja  Marketing/Jaucian.  In  the   "kabit   system,"   without   the   prior   approval   of   the   Board   of  
LTC   records,   Nale,   in   order   to   use   the   motorcycle   for   public   Transportation   (formerly   the   Public   Service   Commission),   was   an  
transport,  attached  the  motorcycle  to  Jaucian’s  transportation   illegal  transaction.    
franchise   since   Nale   had   no   franchise   of   his   own.   When   Teja    
Marketing’s   demands   on   Nale   for   the   outstanding   balance   It   involved   the   fictitious   registration   of   the   motor   vehicle   in   the  
failed,  it  instituted  a  collection  case  against  Nale.     name   of   Jaucian   so   that   Nale   may   traffic   with   the   privileges   of  
  Jaucian’s   franchise,   or   certificate   of   public   convenience,   to  
Nale’s   defense   against   the   non-­‐payment   was   that   Jaucian   operate  a  tricycle  service.    
failed  to  register  the  motorcycle  to  the  LTC,  in  contravention  of    
their  agreement.  City  Court  and  CFI  ruled  against  Nale.     Kabit  system:    
  A  person  who  has  been  granted  a  certificate  of  public  convenience  
IAC  reversed,  on  the  ground  of  in  pari  delicto.  SC  held  that  both   allows  another  person  who  owns  motor  vehicles  to  operate  under  
parties  are  in  pari  delicto  and  were  thus  not  entitled  to  relief.   such  franchise  for  a  fee.    
The  parties’  use  of  the  kabit  system  was  illegal  and  abused  the    
certificate   of   public   convenience   granted   by   the   government.   The   parties   being   in   pari   delicto,   neither   of   them   may   bring   an  
Though   the   system   is   not   expressly   punished   as   criminal,   it   is   action  against  the  other  to  enforce  their  illegal  contract  [Art.  1412  
contrary   to   public   policy;   thus,   void.   Having   entered   into   an   (a),   Civil   Code].   A   certificate   of   public   convenience   is   a   special  
illegal   contract,   neither   can   seek   relief   from   the   courts,   and   privilege   conferred   by   the   government.   Abuse   of   this   privilege   by  
each  must  bear  the  consequences  of  his  acts.   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   out   rightly   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.    
 
It   is   a   fundamental   principle   that   the   court   will   not   aid   either  
party   to   enforce   an   illegal   contract,   but   will   leave   bothwhere   it  
finds   then.   Upon   this   premise   it   would   be   error   to   accord   the  
parties  relief  from  their  predicament.  Article1412  of  the  Civil  Code  
 denies  them  such  aid.  Art.  1412.  If  the  act  in  which  the  unlawful  or  
forbidden  cause  consists  does  not  constitute  a  criminal  offense,  the  
following  rules  shall  be  observed.    
 
When   the   fault   is   on   the   part   of   both   contracting   parties,   neither  
may  recover  that  he  has  given  by  virtue  of  the  contract,  or  demand,  
the   performance   of   the   other's   undertaking.   The   defect   of   in  
existence   of   a   contract   is   permanent   and   cannot   be   cured   by  
ratification  or  by  prescription.  The  mere  lapse  of  time  cannot  give  
efficacy  to  contracts  that  are  null  and  void.    
 
Ex   pacto   illicito   non   oritur   actio   (No   action   arises   out   of   illicit  
bargain)   is   the   time-­‐honored   maxim   that   must   be   applied   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.  (Lita  Enterprises  vs.  IAC)  
 
BRIONES  v.  CAMMAYO   Loan   is   valid   but   usurious   interest   is   void.   Creditor   has   the   right   to  
ISSUE:  CAN  BRIONES  RECOVER  THE  AMOUNT  OF  P1,500.00?   recover  his  capital  by  judicial  action.  To  discourage  stipulations  on  
  usurious   interest,   said   stipulations   are   treated   as   wholly   void,   so  
Aurelio   G.   Briones   filed   an   action   in   the   Municipal   Court   of   that   the   loan   becomes   one   without   stipulation   as   to   payment   of  
Manila   against   Primitivo,   Nicasio,   Pedro,   Hilario   and   Artemio,   interest.  It  should  not,  however,  be  interpreted  to  mean  forfeiture  
all   surnamed   Cammayo,   to   recover   from   them,   jointly   and   even  of  the  principal,  for  this  would  unjustly  enrich  the  borrower  at  
severally,   the   amount   of   P1,500.00,   plus   damages,   attorney's   the   expense   of   the   lender.   Furthermore,   penal   sanctions   are  
fees   and   costs   of   suit.   Defendants   executed   the   real   estate   available   against   a   usurious   lender,   as   a   further   deterrence   to  
mortgage   as   security   for   the   loan   of   P1,200.00   given   to   usury.    
Primitivo   P.   Cammayo   upon   the   usurious   agreement   that    
defendant   pays   to   the   plaintiff,   out   of   the   alleged   loan   of   In   simple   loan   with   stipulation   of   usurious   interest,   the   prestation  
P1,500.00   (which   includes   as   interest   the   sum   of   P300.00)   for   of   the   debtor   to   pay   the   principal   debt,   which   is   the   cause   of   the  
one  year.     contract   (Article   1350,   Civil   Code),   is   not   illegal.   The   illegality   lies  
  only   as   to   the   prestation   to   pay   the   stipulated   interest;   hence,  
Although  the  mortgage  contract  was  executed  for  securing  the   being  separable,  the  latter  only  should  be  deemed  void,  since  it  is  
payment   of   P1,500.00   for   a   period   of   one     year,   without   the  only  one  that  is  illegal.    
interest,   the   truth   and   the   real   fact   is   that   plaintiff   delivered   to    
the   defendant   Primitivo   P.   Cammayo   only   the   sum   of   Barrredo,  J.,  concurring    
P1,200.00   and   withheld   the   sum   of   P300.00   which   was   The   Usury   law   is   clear   that   he   may   recover   only   all   interests,  
intended  as  advance  interest  for  one  year.     including   of   course,   the   legal   part   thereof,   with   legal   interests   from  
  the   date   of   judicial   demand,   without   maintaining   that   he   can   also  
On   account   of   said   loan   of   P1,200.00,   defendant   Primitivo   P.   recover  the  principal  he  has  already  paid  to  the  lender.    
Cammayo   paid   to   the   plaintiff   during   the     period   from   October    
1955   to   July   1956   the   total   sum   of   P330.00   which   plaintiff,   Castro  Fernando,  and  Conception,  JJ.,  dissenting    
illegally   and   unlawfully   refused   to   acknowledge   as   part   In  a  contract  which  is  tainted  with  usury,  that  is,  with  a  stipulation  
payment  of  the  account  but  as  in  interest  of  the  said  loan  for   (whether   written   or   unwritten)   to   pay   usurious   interest,   the  
an  extension  of  another  term  of  one  year.   prestation   to   pay   such   interest   is   an   integral   part   of   the   cause   of  
the  contract.  It  is  also  the  controlling  cause,  for  a  usurer  lends  his  
money   not   just   to   have   it   returned   but   indeed,   to   acquire   in  
coordinate  gain.    
 
Article   1957,   which   declares   the   contract   itself   –   not   merely   the  
stipulation  to  pay  usurious  interest  -­‐-­‐  void,  necessarily  regards  the  
prestation  to  pay  usurious  interest  as  an  integral  part  of  the  cause,  
making  it  illegal.