Hernaez vs De los Angeles
Respondent
G.R. No. L-27010 April 30, 1969
REYES, J.B.L., Acting C.J.
Facts: Hernaez is an actress filed a complaint against Hollywood Far East Productions, Inc.
and its President and General Manager Ramon Valenzuela to recover the balance for here
services as leading actress in two motion pictures produced by the company. Upon motion of
the defendant, the court through Judge Delos Angeles dismissed the case because the "claim
of plaintiff was not evidenced by any written document, either public or private", and the
complaint "was defective on its face" for violating Articles 1356 and 1358 of the Civil Code, in
that the contract sued upon was not alleged to be in writing; that in Article 1358 the writing
was absolute and indispensable, because the amount involved exceeds five hundred pesos.
Issue: W/N the court below abuse its discretion in ruling that a contract for personal services
involving more than P500.00 was either invalid of unenforceable under the last paragraph of
Article 1358 of the Civil Code of the Philippines
Held: Yes. Both the court a quo as well as the private respondents herein were grossly
mistaken in holding that because petitioner Dauden's contract for services was not in writing
the same could not be sued upon, or that her complaint should be dismissed for failure to
state a cause of action because it did not plead any written agreement.
The basic error in the court's decision lies in overlooking that in our contractual system it is
not enough that the law should require that the contract be in writing, as it does in Article
1358. The law must further prescribe that without the writing the contract is not valid or not
enforceable by action.
Generally under Article 1315 contracts are perfected by mere consent exception is provide
under the second portion of Article 1316 which provides that “when the law requires that a
contract be in some form in order that it may be valid or enforceable, or that a contract be
proved in a certain way, that requirement is absolute and indispensable.”
While, It is true that it appears included in Article 1358, last clause, providing that "all other
contracts where the amount involved exceeds five hundred pesos must appear in writing,
even a private one." But Article 1358 nowhere provides that the absence of written form in
this case will make the agreement invalid or unenforceable. On the contrary, Article 1357
clearly indicates that contracts covered by Article 1358 are binding and enforceable by action
or suit despite the absence of writing.
ZAMORA v. MIRANDA
Peralta, J. (2012)
Art. 1358, which requires the embodiment of certain contracts in a public instrument, is only
for convenience, and registration of the instrument only adversely affects third parties.
Formal requirements are, therefore, for the benefit of third parties. Non-compliance
therewith does not adversely affect the validity of the contract nor the contractual rights and
obligations of the parties thereunder.
Facts
Petitioner is the widow of the late Fernando Zamora, the son of Alberto Zamora.
Beatriz Miranda is the cousin of Alberto, while respondent Rose Marie Miranda-Guanio is the
daughter of Beatriz.
Beatriz was the registered owner of the property in question, which is a parcel of land
located in Davao City.
According to petitioner, her father-in-law, Alberto, through an encargado, Eduardo Cecilio,
was in possession of the property in question. She was designated by Alberto as his assistant
on land matters. The property in question was turned over to her and she was introduced to
Cecilio. Alberto told her that the property in question was owned by Beatriz whose family
was permanently residing in Manila.
Petitioner allegedly contacted Beatriz, and petitioner was given a calling card and was told to
see her. She claimed that she went to the residence of Beatriz in Quezon City. While there,
they talked about the property in question and Beatriz drew a sketch depicting the location
of the property. Thereafter, she alleged that Beatriz sold to her the said property for the sum
of P50,000. An acknowledgment of the receipt of the amount of P50,000 was prepared, and
Beatriz allegedly signed the same. The receipt was dated October 23, 1972. In the sketch and
acknowledgment, there is a notation "Documents for Agdao Property follows." This notation
referred to the property in Agdao, which was the subject of negotiation.
Petitioner prepared the document relative to the Agdao property.
Petitioner further claimed that after 1972, she rented out portions of the property in
question. Cecilio allegedly continued to be her encargado as there were squatters on the
property. The tenants reported to her that there were two men who went to the property in
question. She met Atty. Cabebe and Mr. Joe Ang. She informed them that she was the owner
of the property in question as she bought it in 1972. After sometime, she learned that the
occupants of the property in question were being harassed and were told to vacate. She
went to Manila and confronted Beatriz, and told her that she would file a case in court.
She filed with the RTC an action for specific performance, annulment of sale and certificate of
title, damages, with preliminary injunction and temporary restraining order. She principally
prays that she be declared the owner of the subject property; that Beatriz be ordered to
execute a deed of sale in her favor; and that the sale of the subject property in favor of
respondents Ang be nullified.
Issue
Can the receipt dated October 23, 1972 evidencing sale of real property, being a private
document, be a basis of petitioner's claim over the subject property?
Ruling
NO. Art. 1358, which requires the embodiment of certain contracts in a public instrument, is
only for convenience, and registration of the instrument only adversely affects third parties.
Formal requirements are, therefore, for the benefit of third parties. Non-compliance
therewith does not adversely affect the validity of the contract nor the contractual rights and
obligations of the parties thereunder.
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However, the receipt dated October 23, 1972 cannot prove ownership over the subject
property as Beatriz's signature on the receipt, as vendor, has been found to be forged by the
NBI handwriting expert, the trial court and the CA.
As the receipt has no evidentiary value to prove petitioner's claim of ownership over the
property in question, there is no need to discuss the other issues raised by petitioner based
on the assumption that she has a valid claim over the subject property.
SAN MIGUEL PROPERTIES, INC. (SMPI) v. BF HOMES, INC.
Leonardo-De Castro, J. (2015)
Art. 1358 does not require the accomplishment of the acts or contracts in a public instrument
in order to validate the act or contract but only to insure its efficacy.
The Statute of Frauds simply provides the method by which the contracts enumerated
therein may be proved but does not declare them invalid because they are not reduced to
writing. The effect of non-compliance with the requirement of the Statute is simply that no
action can be enforced unless the requirement is complied with. Clearly, the form required is
for evidentiary purposes only. It is applicable only to contracts which are executory and not
to those which have been consummated either totally or partially.
Facts
BF Homes, Inc. is the owner of several parcels of land located in the BF Homes Parañaque
Subdivision, particularly identified as Italia II lots.
BF Homes, represented by Florencio B. Orendain, as rehabilitation receiver appointed by the
SEC; and SMPI, represented by Federico Gonzales, President, entered into three successive
Deeds of Absolute Sale whereby the former sold to the latter a total of 130 Italia II lots for
the aggregate consideration of P106,247,701.
SMPI completed the payments for the 130 Italia II lots. In compliance with Sec. 3 of all the
three Deeds of Absolute Sale, BF Homes delivered the TCTs to SMPI but only for 110 of the
130 Italia II lots purchased by SMPI.
SMPI, thru counsel, sent BF Homes a letter demanding the delivery of the remaining 20 TCT.
BF Homes failed or refused to heed the demand of SMPI. Consequently, SMPI filed a
Complaint for specific performance with damages before the HLURB to compel BF Homes to
deliver the remaining 20 TCTs to SMPI.
Issue
Whether SMPI is entitled to the delivery of the remaining 20 TCTs for the lots it purchased
from BF Homes
Ruling
YES. Upon full payment of the agreed price, petitioner is mandated by law to deliver the
title of the lot or unit to the buyer.
Art. 1358(1) of the Civil Code requires that "acts and contracts which have for their object the
creation, transmission, modification or extinguishment of real rights over immovable
property" must appear in a public document; and sales of real property or of an interest
therein shall be governed by Art. 1403(2) and 1405 of the same Code.
Art. 1358 does not require the accomplishment of the acts or contracts in a public instrument
in order to validate the act or contract but only to insure its efficacy.
The Statute of Frauds simply provides the method by which the contracts enumerated
therein may be proved but does not declare them invalid because they are not reduced to
writing. By law, contracts are obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. However, when the law
requires that a contract be in some form in order that it may be valid or enforceable, or
that a contract be proved in a certain way, that requirement is absolute and indispensable.
Consequently, the effect of non-compliance with the requirement of the Statute is simply
that no action can be enforced unless the requirement is complied with. Clearly, the form
required is for evidentiary purposes only. Hence, if the parties permit a contract to be
proved, without any objection, it is then just as binding as if the Statute has been complied
with.
The Statute is applicable only to contracts which are executory and not to those which
have been consummated either totally or partially. If a contract has been totally or
partially performed, the exclusion of parol evidence would promote fraud or bad faith, for
it would enable the defendant to keep the benefits already derived by him from the
transaction in litigation, and at the same time, evade the obligations, responsibilities or
liabilities assumed or contracted by him thereby. This rule, however, is predicated on the
fact of ratification of the contract within the meaning of Art. 1405 either (1) by failure to
object to the presentation of oral evidence to prove the same, or (2) by the acceptance of
benefits under them.
The Deeds of Absolute Sale are enforceable. First, the Deeds are already in writing and signed
by the parties, and only lack notarization, a formality which SMPI could compel BF Homes to
comply with. As private documents, the Deeds are still binding between the parties and the
conveyance of the 130 Italia II lots by BF Homes to SMPI by virtue of said Deeds is valid.
And second, the Deeds were already ratified as BF Homes had accepted the benefits from
said contracts when it received full payment from SMPI of the purchase price for the 130
Italia II lots. The Deeds were also substantially performed considering that BF Homes had
previously delivered to SMPI the TCTs for 110 out of the 130 lots, only refusing to deliver the
TCTs for the remaining 20 lots.
KABISIG REAL WEALTH DEV., INC. and FERNANDO C. TIO
vs.
YOUNG BUILDERS CORPORATION
G.R. No. 212375
FACTS:
Sometime in April 2001, Kabisig Real Wealth Dev., Inc. (Kabisig), through Ferdinand Tio (Tio),
contracted the services of Young Builders Corporation (Young Builders) to supply labor, tools,
equipment, and materials for the renovation of its building in Cebu City. Young Builders then
finished the work in September 2001 and billed Kabisig for P4,123,320.95. However, despite
numerous demands, Kabisig failed to pay. It contended that no written contract was ever
entered into between the parties and it was never informed of the estimated cost of the
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renovation. Thus, Young Builders filed an action for Collection of Sum of Money against
Kabisig.
The RTC ruled in favor of Young builder and CA affirmed the RTC ruling finding Kabisig and Tio
liable against Young builder.
Issue:
Whether or not Kabisig is liable to Young Builders for the damages claimed.
HELD:
YES. Under the Civil Code, a contract is a meeting of minds, with respect to the other, to give
something or to render some service. Article 1318 reads:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.
Accordingly, for a contract to be valid, it must have the following essential elements: (1)
consent of the contracting parties; (2) object certain, which is the subject matter of the
contract; and (3) cause of the obligation which is established. Consent must exist, otherwise,
the contract is nonexistent. Consent is manifested by the meeting of the offer and the
acceptance of the thing and the cause, which are to constitute the contract. By law, a
contract of sale, is perfected at the moment there is a meeting of the minds upon the thing
that is the object of the contract and upon the price. Indeed, it is a consensual contract which
is perfected by mere consent
Kabisig's claim as to the absence of a written contract between it and Young Builders simply
does not hold water. It is settled that once perfected, a contract is generally binding in
whatever form, whether written or oral, it may have been entered into, provided the
aforementioned essential requisites for its validity are present. Article 1356 of the Civil
Code provides:
Art. 1356. Contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.
There is nothing in the law that requires a written contract for the agreement in question
to be valid and enforceable. Also, the Court notes that neither Kabisig nor Tio had objected
to the renovation work, until it was already time to settle the bill.
PAULINO GARCIA,
vs.
MARIA BISAYA, ET AL.
G.R. No. L-8060 September 28, 1955
FACTS:
On May 20, 1952, plaintiff filed a complaint against the defendants in the Court of First
Instance of Oriental Mindoro, alleging that on November 12, 1938, defendants executed in
favor of plaintiff a deed of sale covering a parcel of land therein described; that the said land
"was erroneously designated by the parties in the deed of sale as an unregistered land (not
registered under Act 496, nor under the Spanish Mortgage Law) when in truth and in fact
said land is a portion of a big mass of land registered under Original Certificate of Title No.
6579 in the Office of the Register of Deeds of Oriental Mindoro"; that despite persistent
demand from plaintiff to have the error corrected, defendants have refused to do so.
Plaintiff, therefore, prayed for judgment ordering defendants to make the aforesaid
correction in the deed of sale. Answering the complaint, defendants denied having executed
the alleged deed of sale and pleaded prescription as a defense. Traversing the plea of
prescription, plaintiff alleged, among other things, that he "was without knowledge of the
error sought to be corrected at the time the deed of sale was executed and for many years
thereafter," having discovered th e said error "only recently".
The trial court dismissed the case on the ground of prescription, hence this petition.
Issue: Whether or not prescription is proper in this case.
HELD: No. Both appellant and appellees apparently regard the present action as one for the
reformation of an instrument under Chapter 4, Title II, Book IV of the new Civil Code.
Specifically, the object sought is the correction of an alleged mistake in a deed of sale
covering a piece of land. The action being upon a written contract, it should prescribe in ten
years counted from the day it could have instituted his action to correct an error in a deed
until that error was discovered. There being nothing in the pleadings to show that the error
was discovered more than ten years before the present action was filed on May 20, 1952,
while, on the other hand, there is allegation that the error was discovered "only recently",
we think the action prescribed before the factual basis for prescription had been established
and clarified by evidence.
However, the appellant's complaint states no cause of action, for it fails to allege that the
instrument to the reformed does not express the real agreement or intention of the
parties. Such allegation is essential since the object sought in an action for reformation is
to make an instrument conform to the real agreement or intention of the parties. (Art.
1359, new Civil Code; 23 R. C. L., par. 2.) But the complaint does not even allege what the
real agreement or intention was. How then is the court to know that the correction sought
will make the instrument conform to what was agreed or intended by the parties? It is not
the function of the remedy of reformation to make a new agreement, but to establish and
perpetuate the true existing one. (23 R. C. L., par. 4, p.311.)
Moreover, court do not reform instruments merely for the sake of reforming them, but
only to enable some party to asserts right under them as reformed. (23 R. C. L., par. 2). If
the instrument in the present case is reformed by making it state that the land therein
conveyed is already covered by a Torrens certificate of title, what right will the appellant, as
vendee, be able to assert under the reformed instrument when according to himself—or his
counsel states in his brief—said title is in the name of Torcuata Sandoval, obviously a person
other than the vendor? Would not the sale to him then be ineffective, considering that he
would be in the position of one who knowingly purchased property not belonging to the
vendor?.
Perhaps appellant's real grievance is that he has been led to enter into the contract of sale
through fraud or misrepresentation on the part of the vendor or in the mistaken belief that,
as stated in the deed, the property he was buying was unregistered land. But if that be the
case, article 1359 of the new Civil Code expressly provides that "the proper remedy is not
reformation of the instrument but annulment of the contract." Appellant's complaint,
however, does not ask for the annulment of the deed; neither does it contain allegations
essential to an action for that purpose.
YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO PORMIDA, petitioners, vs.
HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge of RTC, Tacloban City,
Branch 8, and LEYTE GULF TRADERS, INC., respondents
G.R. 128991 | April 12, 2000
Kapunan, J. | Topic: Reformation of Instruments
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 A suit for reformation of an instrument may be barred by lapse of time. The prescriptive
period for actions based upon a written contract and for reformation of an instrument is ten
(10) years under Article 1144 of the Civil Code.
FACTS:
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as
respondent corporation) filed a complaint for reformation of instrument, specific
performance, annulment of conditional sale and damages with prayer for writ of injunction
against petitioners Yolanda Rosello-Bentir and the spouses Samuel and Charito Pormida.
Respondent corporation alleged that it entered into a contract of lease of a parcel of land
with petitioner Bentir for a period of twenty (20) years starting May 5, 1968. According to
respondent corporation, the lease was extended for another four (4) years or until May 31,
1992. On May 5, 1989, petitioner Bentir sold the leased premises to petitioner spouses
Samuel Pormada and Charito Pormada.
Respondent corporation questioned the sale alleging that it had a right of first
refusal. Rebuffed, it filed Civil Case No. 92-05-88 seeking the reformation of the expired
contract of lease on the ground that its lawyer inadvertently omitted to incorporate in the
contract of lease executed in 1968, the verbal agreement or understanding between the
parties that in the event petitioner Bentir leases or sells the lot after the expiration of the
lease, respondent corporation has the right to equal the highest offer.
ISSUE:
Whether the complaint for reformation of instrument has prescribed
HELD:
Yes, complaint for reformation of instrument has already prescribed. The remedy
of reformation no longer lies. N
The remedy of reformation of an instrument is grounded on the principle of equity
where, in order to express the true intention of the contracting parties, an instrument
already executed is allowed by law to be reformed.
A suit for reformation of an instrument may be barred by lapse of time. The
prescriptive period for actions based upon a written contract and for reformation of an
instrument is ten (10) years under Article 1144 of the Civil Code. The prescriptive period of
ten (10) years provided for in Art. 1144 applies by operation of law, not by the will of the
parties. Therefore, the right of action for reformation accrued from the date of execution of
the contract of lease in 1968.
In the case at bar, respondent corporation had ten (10) years from 1968, the time
when the contract of lease was executed, to file an action for reformation. Sadly, it did so
only on May 15, 1992 or twenty-four (24) years after the cause of action accrued, making its
cause of action stale, hence, time-barred.
SARMING VS DY
383 SCRA 131 | June 6, 2002
Quisumbing, J. | Topic: Reformation of Instruments
All the requisites for the reformation of an instrument are present in the case at
bar. There was a meeting of the minds between the parties to the contract but the deed did
not express the true intention of the parties due to the designation of the lot subject of the
deed. The totality of the evidence clearly indicates that what was intended to be sold to
Alejandra Delfino was Lot 4163 and not Lot 5734.
FACTS:
A controversy arose regarding the sale of Lot 4163 which was half-owned by the
original defendant, Silveria Flores, although it was solely registered under her name. The
other half was originally owned by Silveria’s brother, Jose. On January 1956, the heirs of Jose
entered into a contract with plaintiff Alejandra Delfino, for the sale of their one-half share of
Lot 4163 after offering the same to their co-owner, Silveria, who declined for lack of money.
Silveria did not object to the sale of said portion to Alejandra.
Atty. Deogracias Pinili, Alejandra’s lawyer then prepared the document of sale. In
the preparation of the document however, OCT no. 4918-A, covering Lot 5734, and not the
correct title covering Lot 4163 was the one delivered to Pinili.
Unaware of the mistake committed, Alejandra immediately took possession of Lot
4163 and introduced improvements on the said lot.
Two years later, when Alejandra Delfino purchased the adjoinin portion of the lot
she had been occupying, she discovered that what was designated in the deed, Lot 5734, was
the wrong lot. Thus, Alejandra and the vendors filed for the feformation of the Deed of Sale.
ISSUE:
Whether reformation is proper in this case
RULING:
Yes, reformation is proper in this case.
Reformation is that remedy in equity by means of which a written instrument is
made or construed so as to express or inform to the real intention of the parties.
An action for reformation of instrument under this provision of law may prosper
only upon the concurrence of the following requisites:
(1) there must have been a meeting of the minds of the parties to the
contract;
(2) the instrument does not express the true intention of the parties; and
(3) the failure of the instrument to express the true intention of the
parties is due to mistake, fraud, inequitable conduct or accident.
In this case, all of the mentioned requisites are present. There was a meeting of
the minds between the parties to the contract but the deed did not express the true
intention of the parties due to the designation of the lot subject of the deed. There is no
dispute as to the intention of the parties to sell the land to Alejandra Delfino but there was a
mistake as to the designation of the lot intended to be sold as stated in the Settlement of
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Estate and Sale. The totality of the evidence clearly indicates that what was intended to be
sold to Alejandra Delfino was Lot 4163 and not Lot 5734.
SPOUSES BONIFACIO AND LUCIA PARAS,
vs.
KIMWA CONSTRUCTION AND DEVELOPMENT CORPORATION,
April 8, 2015 LEONEN, J.:
Interpretation of contracts
Facts:
Lucia Paras was "concessionaire of a sand and gravel permit and Kimwa is a "construction
firm that sells concrete aggregates to contractors and haulers in Cebu." They entered into a
contract "Agreement for Supply of Aggregates" (Agreement) where 40,000 cubic meters of
aggregates were "allotted" by Lucia as supplier to Kimwa.
Pursuant to the Agreement, within few days Kimwa hauled 10,000 cubic meters of
aggregates. Sometime after this, however, Kimwa stopped hauling aggregates. Claiming that
in so doing, Kimwa violated the Agreement, Lucia filed the Complaint for breach of contract
with damages that is now subject of this Petition.
Petitioners’ complaint:
Kimwa wanted to be assured of the 40,000 cubic meters of aggregates; Lucia countered that
her concession area was due to be rechanneled on May 15, 1995, when her Special Permit
expires. Because of this, Lucia emphasized that she would be willing to enter into a contract
with Kimwa ONLY IF Kimwa promises to haul all 40,000 cubic meters before May 15, 1995
Kimwa then assured Lucia that it would take only two to three months for it to completely
haul the aggregates (This was in December, meaning all the aggregates would be hauled by
February or March).
Respondent’s Answer:
Asserted that the Agreement articulated the parties' true intent that 40,000 cubic meters
was a maximum limit and that May 15, 1995 was never set as a deadline.
Invoking the Parol Evidence Rule, it insisted that Spouses Paras were barred from introducing
evidencewhich would show that the parties had agreed differently.
(because in their written agreement no stipulation as to date when the hauling should be
finish)
ISSUE: 1. Whether or not there is violation of the parol evidence rule.
2. W/N respondent is liable for failing to haul 30,000 cubic meters of aggregates from
petitioner Lucia Paras' permitted area by May 15, 1995.YES
Held:
No, Considering how the Agreement’s mistake, imperfection, or supposed failure to express
the parties’ true intent was successfully put in issue in petitioners Spouses Paras’ Complaint
(and even responded to by respondent Kimwa in its Answer), this case falls under the
exceptions provided by Rule 130, Section 9 of the Revised Rules on Evidence. Accordingly,
the testimonial and documentary parol evidence sought to be introduced by petitioners
Spouses Paras, which attest to these supposed flaws and what they aver to have been the
parties’ true intent, may be admitted and considered. The intent of the parties is taken into
consideration.
The Special Permit’s condition also shows that a total of only about 40,000 cubic meters of
aggregates may be extracted by petitioner Lucia Paras from the permitted area lends
credence to the position that the aggregates "allotted" to respondent Kimwa was in
consideration of its corresponding commitment to haul all 40,000 cubic meters.
2. Yes, it is already established that respondent Kimwa was obliged to haul a total of 40,000
cubic meters of aggregates on or before May 15, 1995.
MANUEL ORIA Y GONZALES, plaintiff-appellant,
vs.
JOSE McMICKING, as sheriff of the city of Manila,
GUTIERREZ HERMANOS, MIGUEL GUTIERREZ DE CELIS, DANIEL PEREZ, and LEOPOLDO
CRIADO,defendants-appellees.
G.R. No. L-7003 January 18, 1912
MORELAND, J.:
Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title
are presumed to have been entered into in fraud of creditors, when the donor did not
reserve sufficient property to pay all debts contracted before the donation.
FACTS
Gutierrez Hermanos filed an action for recovery of a sum of money against Oria Hermanos &
Co. and herein plaintiff filed an action for recovery also for the same defendant. Before the
institution of the suits, members of the Company dissolved their relations and entered into
liquidation. Tomas Oria y Balbas acting in behalf of his co-owners entered into a contract
with the herein plaintiff for the purpose of transferring and selling all the property which the
Oria Hermanos & Co. owned and among the goods stated on that instrument was the
steamship Serpantes and which the subject of this litigation. When the Trail Court resolved
the action for recovery filed by Gutierrez Hermanos and jugdment was in his favor, The
sheriff demanded to Tomas Oria y Balbas to make payment but the latter said there were no
funds to pay the same. The sheriff then levied on the steamer, took possession of the same
and announced it for public auction. Herein plaintiff claimed that he is the owner of the
steamer by virtue of the selling of all the properties of the said Company.
ISSUES
is the sale from Oria Hermanos to Manuel Oria y Gonzalez fraudulent against the creditors of
Oria Hermanos, making the transfer of the steamship void as to the creditors, and as to
Gutierrez Hermanos in particular
HELD
At the time of said sale the value of the assets of Oria Hermanos & Co., as stated by the
partners themselves, was P274,000. The vendee of said sale was a son of Tomas Oria y Balbas
and a nephew of the other two persons heretofore mentioned which said three brothers
together constituted all of the members of said company.The plaintiff is a young man of 25
years old and has no property before the said selling. The court had laid down the rules in
determining whether a there has been fraud prejudicing creditors: 1) consideration of
conveyance is fictitious; 2) transfer was made while the suit against him (Tomas Oria y
Balbas) was pending; 3) sale by insolvent debtor; 4) evidence of insolvency; 5) transfer of all
properties; 6) the sale was made between father and son; 7) and the failure of the vendee to
5
take exclusive possession of the property. The case at bar shows every one of the badges of
fraud.
SIGUAN V. LIM
318 SCRA 725 November 19, 1999
1. The action to rescind contracts in fraud of creditors is known as accion pauliana. For this
action to prosper, the following requisites must be present: (1) the plaintiff asking for
rescission has a credit prior to the alienation, although demandable later; (2) the debtor has
made a subsequent contract conveying a patrimonial benefit to a third person; (3) the
creditor has no other legal remedy to satisfy his claim; (4) the act being impugned is
fraudulent; (5) the third person who received the property conveyed, if it is by onerous title,
has been an accomplice in the fraud.
2. Only the creditor who brought the action for rescission can benefit from the rescission;
those who are strangers to the action cannot benefit from its effects. And the revocation is
only to the extent of the plaintiff creditors unsatisfied credit; as to the excess, the alienation is
maintained.
FACTS:
LIM issued two Metrobank checks in the sums of P300,000 and P241,668, respectively,
payable to cash. Upon presentment by petitioner with the drawee bank, the checks were
dishonored for the reason account closed. Demands to make good the checks proved
futile. As a consequence, petitioner filed criminal cases for violation of Batas Pambansa Blg.
22 against LIM. On 29 December 1992, RTC convicted LIM as charged.
Meanwhile, on 2 July 1991, a Deed of Donation conveying parcels of land purportedly
executed by LIM on 10 August 1989 in favor of her children was registered with the Office of
the Register of Deeds of Cebu City. New transfer certificates of title were thereafter issued in
the names of the donees.
Petitioner then filed an accion pauliana against LIM and her children to rescind the
questioned Deed of Donation and to declare as null and void the new transfer certificates of
title issued for the lots covered by the questioned Deed. Petitioner claimed that LIM,
through a Deed of Donation, fraudulently transferred all her real property to her children in
bad faith and in fraud of creditors, including her; that LIM conspired and confederated with
her children in antedating the questioned Deed of Donation, to petitioners and other
creditors prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient
properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She maintained that it was
not antedated but was made in good faith at a time when she had sufficient property.
ISSUE:
Whether the questioned Deed of Donation was made in fraud of petitioner and, therefore, is
rescissible.
RULING:
NO. The general rule is that rescission requires the existence of creditors at the time of the
alleged fraudulent alienation, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. Without any prior existing debt, there can neither
be injury nor fraud. While it is necessary that the credit of the plaintiff in the accion
pauliana must exist prior to the fraudulent alienation, the date of the judgment enforcing it
is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory,
with retroactive effect to the date when the credit was constituted. In the instant case, the
alleged debt of LIM in favor of petitioner was incurred in August 1990, while the deed of
donation was purportedly executed on 10 August 1989.
The fact that the questioned Deed was registered only on 2 July 1991 is not enough to
overcome the presumption as to the truthfulness of the statement of the date in the
questioned deed, which is 10 August 1989. Petitioners claim against LIM was constituted only
in August 1990, or a year after the questioned alienation. Thus, the first two requisites for
the rescission of contracts are absent.
Even assuming arguendo that petitioner became a creditor of LIM prior to the
celebration of the contract of donation, still her action for rescission would not fare well
because the third requisite was not met. Under Article 1381 of the Civil Code, contracts
entered into in fraud of creditors may be rescinded only when the creditors cannot in any
manner collect the claims due them. Also, Article 1383 of the same Code provides that the
action for rescission is but a subsidiary remedy which cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same. The term
subsidiary remedy has been defined as the exhaustion of all remedies by the prejudiced
creditor to collect claims due him before rescission is resorted to. It is, therefore, essential
that the party asking for rescission prove that he has exhausted all other legal means to
obtain satisfaction of his claim. Petitioner neither alleged nor proved that she did so. On
this score, her action for the rescission of the questioned deed is not maintainable even if
the fraud charged actually did exist.
The fourth requisite for an accion pauliana to prosper is not present either.
Article 1387, first paragraph, of the Civil Code provides: All contracts by virtue of which
the debtor alienates property by gratuitous title are presumed to have been entered into in
fraud of creditors when the donor did not reserve sufficient property to pay all debts
contracted before the donation. Likewise, Article 759 of the same Code, second paragraph,
states that the donation is always presumed to be in fraud of creditors when at the time
thereof the donor did not reserve sufficient property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established that the donor did not leave
adequate properties which creditors might have recourse for the collection of their credits
existing before the execution of the donation.
As earlier discussed, petitioners alleged credit existed only a year after the deed of
donation was executed. She cannot, therefore, be said to have been prejudiced or defrauded
by such alienation.
6
 Lastly, It should be noted that the complainant Victoria Suarez in the other Estafa case
filed against LIM, albeit a creditor prior to the questioned alienation, is not a party to
this accion pauliana. Article 1384 of the Civil Code provides that rescission shall only be to
the extent necessary to cover the damages caused. Under this Article, only the creditor who
brought the action for rescission can benefit from the rescission; those who are strangers to
the action cannot benefit from its effects. And the revocation is only to the extent of the
plaintiff creditors unsatisfied credit; as to the excess, the alienation is maintained. Thus,
petitioner cannot invoke the credit of Suarez to justify rescission of the subject deed of
donation.
SPOUSES VELARDE vs. COURT OF APPEALS
G.R. No. 108346 July 11, 2001
A substantial breach of a reciprocal obligation, like failure to pay the price in the manner
prescribed by the contract, entitles the injured party to rescind the obligation. Rescission
abrogates the contract from its inception and requires a mutual restitution of benefits
received.
FACTS:
A Deed of Sale with Assumption of Mortgage was executed by defendant
Raymundo, as vendor, in favor of plaintiff Velarde, as vendee. Under this contract, Velarde
paid P800,000.00 to Raymundo and assumed to pay the mortgage obligations on the
property in the amount of P1,800,000.00 in favor of BPI agreeing to faithfully comply with
the terms and conditions in the Real Estate Mortgage executed by Raymundo in favor of BPI.
It appears that the negotiated terms for the payment of the balance of P1.8 million was from
the proceeds of a loan that plaintiffs were to secure from a bank with defendants
help. Defendants had a standing approved credit line with the Bank of the Philippine Islands
(BPI). The parties agreed to avail of this, subject to BPIs approval of an application for
assumption of mortgage by plaintiffs. Pending BPIs approval of the application, plaintiffs
were to continue paying the monthly interests of the loan secured by a real estate mortgage.
Plaintiffs paid BPI the monthly interest on the loan pursuant to said agreements. Plaintiffs
were then advised that the Application for Assumption of Mortgage with BPI was not
approved. This prompted them not to make further payments. Such non-payment thereafter
prompted the defendants to send a notarial notice of cancellation/rescission of the intended
sale of the subject property allegedly due to the latters failure to comply with the terms and
conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking.
Consequently, petitioners filed a Complaint against private respondents for specific
performance, nullity of cancellation, writ of possession and damages.
Petitioners claim that the rescission of the contract by private respondents was not
justified, inasmuch as the former had signified their willingness to pay the balance of the
purchase price only a little over a month from the time they were notified of the disapproval
of their application for assumption of mortgage. Petitioners also aver that the breach of the
contract was not substantial as would warrant a rescission.
ISSUE:
Whether or not the private respondents have the right to rescind the contract.
RULING:
YES. Private respondents right to rescind the contract finds basis in Article 1191 of the Civil
Code, which explicitly provides as follows:
Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible.
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between
them. The breach contemplated in the said provision is the obligor’s failure to comply with
an existing obligation. When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission.
In the present case, private respondents validly exercised their right to rescind the
contract, because of the failure of petitioners to comply with their obligation to pay the
balance of the purchase price. Indubitably, the latter violated the very essence of
reciprocity in the contract of sale, a violation that consequently gave rise to private
respondents right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price
one month after it became due; however, this was not equivalent to actual payment as
would constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to
pay was conditioned on the performance by private respondents of additional burdens that
had not been agreed upon in the original contract. Thus, it cannot be said that the breach
committed by petitioners was merely slight or casual as would preclude the exercise of the
right to rescind.
In the instant case, petitioners not only failed to pay the P1.8 million balance, but
they also imposed upon private respondents new obligations as preconditions to the
performance of their own obligation. In effect, the qualified offer to pay was a repudiation
of an existing obligation, which was legally due and demandable under the contract of
sale. Hence, private respondents were left with the legal option of seeking rescission to
protect their own interest.
Considering that the rescission of the contract is based on Article 1191 of the Civil
Code, mutual restitution is required to bring back the parties to their original situation prior
to the inception of the contract. Accordingly, the initial payment of P800,000 and the
corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925
(totaling P874,150.00) advanced by petitioners should be returned by private respondents,
lest the latter unjustly enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the contract. It can be carried
out only when the one who demands rescission can return whatever he may be obliged to
restore. To rescind is to declare a contract void at its inception and to put an end to it as
though it never was. It is not merely to terminate it and release the parties from further
7
obligations to each other, but to abrogate it from the beginning and restore the parties to
their relative positions as if no contract has been made.
Miguel vs. Montanez
G.R. No. 191336, January 25, 2012. J. Reyes
Doctrine: The language of this Article 2041, particularly when contrasted with that of Article
2039, denotes that no action for rescission is required in said Article 2041, and that the party
aggrieved by the breach of a compromise agreement may, if he chooses, bring the suit
contemplated or involved in his original demand, as if there had never been any compromise
agreement, without bringing an action for rescission thereof. He need not seek a judicial
declaration of rescission, for he may "regard" the compromise agreement already "rescinded"
Facts:
On February 1, 2001, respondent Jerry Montanez (Montanez) secured a loan of One Hundred
Forty-Three Thousand Eight Hundred Sixty-Four Pesos (₱143,864.00), payable in one (1) year,
or until February 1, 2002, from the petitioner. The respondent gave a collateral therfor his
house and lot.
Due to the respondent’s failure to pay the loan, the petitioner filed a complaint against the
respondent before the Lupong Tagapamayapa of Barangay San Jose, Rodriguez, Rizal. The
parties entered into a Kasunduang Pag-aayos wherein the respondent agreed to pay his loan
in installments in the amount of Two Thousand Pesos (₱2,000.00) per month, and in the
event the house and lot given as collateral is sold, the respondent would settle the balance of
the loan in full. However, the respondent still failed to pay, and on December 13, 2004, the
Lupong Tagapamayapa issued a certification to file action in court in favor of the petitioner.
On April 7, 2005, the petitioner filed before the Metropolitan Trial Court (MeTC) of Makati
City, a complaint for collection of sum of money. After trial, MeTC rendered a decision in
favour of petitioner, on appeal, RTC affirmed the decision. However, in the CA, it reversed
the decision. Hence, this petition.
ISSUE:
Whether or not the petitioner could validly rescind the Kasunduang Pag-aayos without
having it judicially rescinded?
RULING:
YES. It must be emphasized, however, that enforcement by execution of the amicable
settlement, either under the first or the second remedy, is only applicable if the contracting
parties have not repudiated such settlement within ten (10) days from the date thereof in
accordance with Section 416 of the Local Government Code. If the amicable settlement is
repudiated by one party, either expressly or impliedly, the other party has two options,
namely, to enforce the compromise in accordance with the Local Government Code or Rules
of Court as the case may be, or to consider it rescinded and insist upon his original demand.
This is in accord with Article 2041 of the Civil Code, which qualifies the broad application of
Article 2037, viz:
If one of the parties fails or refuses to abide by the compromise, the other party may either
enforce the compromise or regard it as rescinded and insist upon his original demand.
In the instant case, the respondent did not comply with the terms and conditions of the
Kasunduang Pag-aayos. Such non-compliance may be construed as repudiation because it
denotes that the respondent did not intend to be bound by the terms thereof, thereby
negating the very purpose for which it was executed. Perforce, the petitioner has the option
either to enforce the Kasunduang Pag-aayos, or to regard it as rescinded and insist upon his
original demand, in accordance with the provision of Article 2041 of the Civil Code. Having
instituted an action for collection of sum of money, the petitioner obviously chose to rescind
the Kasunduang Pag-aayos. As such, it is error on the part of the CA to rule that enforcement
by execution of said agreement is the appropriate remedy under the
circumstances.Considering that the Kasunduang Pag-aayos is deemed rescinded by the non-
compliance of the respondent of the terms thereof, remanding the case to the trial court for
the enforcement of said agreement is clearly unwarranted.
Ada vs. Baylon
G.R. No. 182435, August 13,2012. J. Villarama
Doctrine: The rescission of a contract under Article 1381(4) of the Civil Code only requires the
concurrence of the following: first, the defendant, during the pendency of the case, enters
into a contract which refers to the thing subject of litigation; and second, the said contract
was entered into without the knowledge and approval of the litigants or of a competent
judicial authority. As long as the foregoing requisites concur, it becomes the duty of the court
to order the rescission of the said contract.
FACTS:
This case involves a donation inter vivos which was executed by Respondent Ada in favour
of Florante, which was executed during the pendency of the case.
On July 3, 1996, the petitioners filed with the RTC a Complaint 4 for partition, accounting and
damages against Florante, Rita and Panfila. They alleged therein that Spouses Baylon, during
their lifetime, owned 43 parcels of land all situated in Negros Oriental. After the death of
Spouses Baylon, they claimed that Rita took possession of the said parcels of land and
appropriated for herself the income from the same. Using the income produced by the said
parcels of land, Rita allegedly purchased two parcels of land, Lot No. 4709 and half of Lot No.
4706, situated in Canda-uay, Dumaguete City. The petitioners averred that Rita refused to
effect a partition of the said parcels of land.
In their Answer, Florante, Rita and Panfila asserted that they and the petitioners co-owned 22
out of the 43 parcels of land mentioned in the latter’s complaint, whereas Rita actually
owned 10 parcels of land out of the 43 parcels which the petitioners sought to partition,
while the remaining 11 parcels of land are separately owned by Petra Cafino
Adanza, Florante, Meliton Adalia, Consorcia Adanza, Lilia and Santiago Mendez. Further, they
claimed that Lot No. 4709 and half of Lot No. 4706 were acquired by Rita using her own
money. They denied that Rita appropriated solely for herself the income of the estate of
Spouses Baylon, and expressed no objection to the partition of the estate of Spouses Baylon,
but only with respect to the co-owned parcels of land.
Upon learning of the said donation, the petitioners filed a Supplemental Pleading dated
February 6, 2002, praying that the said donation in favor of the respondent be rescinded in
accordance with Article 1381(4) of the Civil Code. They further alleged that Rita was already
8
sick and very weak when the said Deed of Donation was supposedly executed and, thus,
could not have validly given her consent thereto.
Florante and Panfila opposed the rescission of the said donation, asserting that Article
1381(4) of the Civil Code applies only when there is already a prior judicial decree on who
between the contending parties actually owned the properties under litigation.
RTC ruled in favour of the petitioners. However, on appeal to the CA, The CA held that before
the petitioners may file an action for rescission, they must first obtain a favorable judicial
ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged to the estate of Spouses
Baylon and not to Rita. Until then, the CA asserted, an action for rescission is premature.
ISSUE/S:
1. Whether or not the deed of donation can be rescinded?
2. Whether or not the Rescission under Article 1381(4) of the Civil Code is preconditioned
upon the judicial determination as to the ownership?
RULING:
1. YES. Here, contrary to the CA’s disposition, the RTC aptly ordered the rescission of
the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of
Florante. The petitioners had sufficiently established the presence of the requisites
for the rescission of a contract pursuant to Article 1381(4) of the Civil Code. It is
undisputed that, at the time they were gratuitously conveyed by Rita, Lot No. 4709
and half of Lot No. 4706 are among the properties that were the subject of the
partition case then pending with the RTC. It is also undisputed that Rita, then one
of the defendants in the partition case with the RTC, did not inform nor sought the
approval from the petitioners or of the RTC with regard to the donation inter vivos
of the said parcels of land to Florante.
Although the gratuitous conveyance of the said parcels of land in favor of Florante
was valid, the donation inter vivos of the same being merely an exercise of
ownership, Rita’s failure to inform and seek the approval of the petitioners or the
RTC regarding the conveyance gave the petitioners the right to have the said
donation rescinded pursuant to Article 1381(4) of the Civil Code.
2. No. It bears stressing that the right to ask for the rescission of a contract under
Article 1381(4) of the Civil Code is not contingent upon the final determination of
the ownership of the thing subject of litigation. The primordial purpose of Article
1381(4) of the Civil Code is to secure the possible effectivity of the impending
judgment by a court with respect to the thing subject of litigation. It seeks to
protect the binding effect of a court’s impending adjudication vis-à-vis the thing
subject of litigation regardless of which among the contending claims therein
would subsequently be upheld. Accordingly, a definitive judicial determination with
respect to the thing subject of litigation is not a condition sine qua non before the
rescissory action contemplated under Article 1381(4) of the Civil Code may be
instituted.
Moreover, conceding that the right to bring the rescissory action pursuant to
Article 1381(4) of the Civil Code is preconditioned upon a judicial determination
with regard to the thing subject litigation, this would only bring about the very
predicament that the said provision of law seeks to obviate. Assuming arguendo
that a rescissory action under Article 1381(4) of the Civil Code could only be
instituted after the dispute with respect to the thing subject of litigation is judicially
determined, there is the possibility that the same may had already been conveyed
to third persons acting in good faith, rendering any judicial determination with
regard to the thing subject of litigation illusory. Surely, this paradoxical eventuality
is not what the law had envisioned.
Cadwallader & Co vs. Smith Bell & Co.
Facts:
In May 1902, the Pacific Export Lumber Company of Portland shipped upon the steamer
Quito five hundred and eighty-one (581) piles to the defendant, Henry W. Peabody &
Company, at Manila, it was stipulated that they’ll receive a commission of one half of
whatever sum was obtained over $15 for each pile and 5 per cent of the price of the piles
sold. August 2, Peabody and Company wrote the agent of the Pacific Company at Shanghai
that for lack of a demand the piles would have to be sold at considerably less than $15 a
piece; in response they telegraphed him an offer of $12 per piece.
On July 9, Peabody & Company had entered into negotiations with the Insular Purchasing
Agent for the sale of piles at $20 a piece. August 4, Insular Purchasing Agent sold to the
Government two hundred and thirteen (213) piles at $19 each. More of them were
afterwards sold to the Government at the same figure. Thus it is clear that at the time when
the agents were buying from their principal these piles at $12 a piece on the strength of their
representation that no better price was obtainable, they had already sold a substantial part
of them at $19. In these transactions the defendant, Smith, Bell & Company, were associated
with the defendants, Henry W. Peabody & Company, who conducted the negotiations, and
are consequently accountable with them.
Issue: Whether or not the contract of sale is subject for annulment.
Held:
Yes. Concealing from their principal the negotiations with the Government, resulting in a sale
of the piles at 19 a piece and in misrepresenting the condition of the market, the agents
committed a breach of duty from which they should benefit. The contract of sale to
themselves thereby induced was founded on their fraud and was subject to annulment by
the aggrieved party. (Civil Code, articles 1265 and 1269.) Upon annulment the parties should
be restored to their original position by mutual restitution. (Article 1303 and 1306.)
Therefore the defendants are not entitled to retain their commission realized upon the piles
included under the contract so annulled. In respect of the 213 piles, which at the time of the
making of this contract on August 5 they had already sold under the original agency, their
commission should be allowed.
PNB vs THE PHILIPPINE VEGETABLE OIL CO.
9
FACTS:
In 1920, the Vegetable Oil Co found itself in financial straits. It was in debt of approximately
P30M. PNB was the largest creditor, owing the bank P17M. PNB was secured principally by a
real and chattel mortgage for P3.5M. The Vegetable Oil Co executed another chattel
mortgage in favor of the bank on its vessels Tankerville and HS Everette to guarantee the
payment of sums not to exceed P4M.
Mr. Phil C. Whitaker, the General Manager of the Vegetable Oil Co., made his first offer to
pledge certain private properties to secure the creditors of the Oil Company. At the instance
of Mr. Whitaker but inspired to action by the PNB, a receiver for the Oil Company was
appointed by the CFI Manila.
During the period when a receiver was in control of the Oil Company, Creditors transferred
to Mr. Whitaker a part of their claims against the Oil Company via an agreement. PNB was
not a direct party to the agreement although its officials had full knowledge of its
accomplishment and its general manager placed his OK at the end of the final draft. PNB then
obtained a new mortgage from the Oil Company. Shortly thereafter, the receivership for the
Oil Company was terminated (Feb 1922). The bank suspended the operations of the
Company, and closed the plant.
PNB Bank filed an action to foreclose its mortgage on the property of the Vegetable Oil
Company. The Vegetable Oil Company on its part countered with certain special defenses
with a counterclaim for P6,000,000. Phil. C. Whitaker presented a complaint in intervention.
The judgment rendered was in favor of the PNB and against the defendant which was
ordered to pay the sum of P15,787,454.54, representing the liquidation between the plaintiff
and the defendant, with legal interest. The counterclaim and the complaint in intervention
were dismissed.
ISSUE: W/N the PNB ever made any contract binding the bank to provide the necessary
operating capital to the Vegetable Oil Co.
HELD:
The issue relates to the applicability or non-applicability of the Statue of Frauds. The broad
view is that the Statute of Frauds applies only to agreements not to be performed on either
side within a year from the making thereof. Mr. Whitaker has entirely performed his part of
the agreement, equity would argue that all evidence be admitted to prove the alleged
agreement.
Portions of the minutes of the Board of Directors disclose that the Board authorized
advances to the Oil Company to the extent of more than P1M. No contract entered into by
the General Manager of the Bank would be valid unless made with the advice and consent of
its Board of Directors. What the Board had decreed was that the Oil Company be financed
under the receivership to the extent of P500,000. No indication that the Board had ever
consented to an agreement for practically unlimited backing of the Oil Company, or that it
had ratified any such promise made by the General Manager.
No definite agreement binding on the bank but only a general intimation proffered by the
General Manager of the Bank in conference that his bank contemplated financing the
operations of the Oil Company.
Case remanded to the lower court for entry of judgment and further proceedings.
Manuel Singsong v Isabela Sawmill
GR No. L-27343 February 28, 1979
Fernandez, J.:
Doctrine:
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a
contract prejudices the rights of a third person, he may file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily under
a contract, may exercised an action for nullity of the contract if he is prejudiced in his rights
with respect to one of the contracting parties, and can show detriment which would
positively result to him from the contract in which he has no intervention.
Facts:
On January 30, 1951, the defendants Leon Garibay, Margarita G. Saldejeno, and
Timoteo Tubungbanua entered into a Contract of Partnership under the firm name "Isabela
Sawmill". Sometime in 1956, the plaintiff Oppen, Esteban, Inc. sold a motor truck and two
tractors to the partnership Isabela Sawmill for the sum of P20,500. In order to pay the said
price, the partnership agreed to make arrangements with International Harvester Company
so that International Harvester Company would sell farm machinery to Oppen, Esteban, Inc.
with the understanding that the price was to be paid by the partnership. The partnership was
not able to pay in full International Harvester Company. As such it was still indebted to
Oppen, Esteban, Inc.
On April 25, 1958, one of the partners, Saldajeno, filed a complaint against the
partnership and her co-partners. A document entitled “Assignment of Rights with Chattel
Mortgage” was executed between Saldajeno and her co-partners over the motor truck and
the 2 tractors. (Partnership was dissolved)
Thereafter, the defendants, Garibay and Tubungbanua instead of liquidating the
partnership, decided not to divide the assets and properties between them but continued
the business of said partnership under the same name.
Sometime in 1959, the Sheriff of Negros Occidental published notices that the truck
and tractors that were involved in the case “Saldajeno vs Leon Garibay’, were to be sold in a
public auction. As a result of the auction, a Certificate of Sale was awarded to Saldajeno.
Saldajeno then sold to Pan Oriental Lumber Company the truck and tractors.
Oppen, Esteban, Inc. filed a case against Isabela Sawmill, Saldajeno, Garibay and
Tubungbanua praying that the Chattel Mortgage executed by them be declared null and void
being in fraud of creditors of the defendant partnership.
Issue:
W/n the Chattel Mortgage can be declared null and void by a person not part of the contract
Ruling:
The contention of the appellant that the appellees cannot bring an action to annul
the chattel mortgage of the properties of the partnership executed by Leon Garibay and
Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a
contract prejudices the rights of a third person, he may file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or
subsidiarily under a contract, may exercise an action for nullity of the contract if he is
10
prejudiced in his rights with respect to one of the contracting parties, and can show
detriment which would positively result to him from the contract in which he has no
intervention.
The plaintiffs-appellees were prejudiced in their rights by the execution of the
chattel mortgage over the properties of the partnership "Isabela Sawmill" in favopr of
Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua.
Hence, said appellees have a right to file the action to nullify the chattel mortgage in
question.
Metropolitan Fabrics, Inc. v Prosperity Credit Resources Inc.
GR No. 154390 March 17, 2014
Bersamin, J.:
Doctrine:
Where the consent was given through fraud, the contract was voidable, not void ab initio.
This is because a voidable or annullable contract is existent, valid and binding, although it can
be annulled due to want of capacity or because of vitiated consent of one of the parties.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the
contracting parties was obtained through fraud, the contract is considered voidable and may
be annulled within 4 years from the time of the discovery of the fraud. The discovery of fraud
is reckoned from the time the document was registered in the Register of Deeds in view of
the rule that registration was notice to the whole world.
Facts:
Metropolitan Fabrics, Incorporated, a family corporation, owned a 5.8 hectare industrial
compound. Pursuant to a loan agreement with Manphil Investment Corporation (Manphil),
the said lot was subdivided into 11 lots, with Manphil retaining four lots as mortgage
security. The other seven lots were released to MFI.
In July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52. PCRI, also a
family–owned corporation licensed since 1980 to engage in money lending, was represented
by Domingo Ang (“Domingo”) its president, and his son Caleb, vice–president. The parties
knew each other because they belonged to the same family association, the Lioc Kui Tong
Fraternity.
On the basis only of his interview with Enrique, feedback from the stockholders and the
Chinese community, as well as information given by his own father Domingo, and without
further checking on the background of Enrique, Caleb recommended the approval of the
P3.44 million with an interest ranging from 24% to 26% per annum and a term of between
five and ten years. It sufficed for Caleb that Enrique was a well–respected Chinese
businessman, that he was the president of their Chinese family association, and that he had
other personal businesses aside from MFI, such as the Africa Trading.
The plaintiffs delivered to PCRI twenty–four (24) checks, bearing no dates and amounts, to
cover the amortization payments, all signed in blank by Enrique and Natividad. The 7 titles to
the lots were also delivered to Domingo and Caleb.
In September 1984, the first amortization check bounced for insufficient fund due to MFI’s
continuing business losses. It was then that the appellees allegedly learned that PCRI had
filled up the 24 blank checks with dates and amounts that reflected a 35% interest rate per
annum, instead of just 24%, and a two–year repayment period, instead of 10 years.
On September 4, 1986, Enrique received a Notice of Sheriff’s Sale dated August 29, 1986,
announcing the auction of the seven lots on September 24, 1986 due to unpaid indebtedness
of P10.5 million. (Enrique subsequently died and was substituted by his daughter Vicky.)
Vicky insisted that prior to the auction notice, they never received any statement or demand
letter from the defendants to pay P10.5 million, nor did the defendants inform them of the
intended foreclosure.
Issues:
a. W/n the mortgage contract and its foreclosure should be declared null and void
b. W/n the action to assail the real estate mortgage already prescribed
Ruling:
a. No. The contract was merely voidable. As the record show, the petitioners really
agreed to mortgage their properties as security for their loan, and signed the deed
of mortgage for the purpose. Thereafter, they delivered the TCTs of the properties
subject of the mortgage to the respondents. The petitioners’ contentions of
absence of consent was unproved. To begin with, they neither alleged nor
established that they had been forced or coerced to enter into the mortgage. Also,
they had freely and voluntarily applied for the loan, executed the mortgage
contract and turned over the TCTs of their properties. Lastly, contrary to the
defense of absence of consent, Vicky’s testimony tended at best to prove the
vitiation of their consent through insidious words, machination or
misrepresentations amounting to fraud, which showed that the contract was
voidable.
Where the consent was given through fraud, the contract was voidable, not void ab
initio. This is because a voidable or annullable contract is existent, valid and
binding, although it can be annulled due to want of capacity or because of vitiated
consent of one of the parties.
b. Yes. Article 1390, in relation to Article 1391 of the Civil Code, provides that if the
consent of the contracting parties was obtained through fraud, the contract is
considered voidable and may be annulled within 4 years from the time of the
discovery of the fraud. The discovery of fraud is reckoned from the time the
document was registered in the Register of Deeds in view of the rule that
registration was notice to the whole world.
Thus, because the mortgage was registered on September 5, 1984, they had until
September 5, 1988, within which to assail the validity of the mortgage. But their
complaint was instituted in the RTC only on October 10, 1991. Hence, the action
was already prescribed and must be dismissed.
11

UY SOO LIM v. BENITO TAN UNCHUAN, et al.
G.R. No. 12605, 7 September 1918, EN BANC (Fisher, J.)
The right of a minor to rescind, upon attaining his majority, a contract entered into
during his minority is subject to the conditions (1) that the election to rescind must be made
within a reasonable time after majority and (2) that all of the consideration which was in the
minor’s possession upon his reaching majority must be returned. The disposal of any part of
the consideration after the attainment of majority imports an affirmance of the contract.
Not only should plaintiff have refunded all moneys in his possession upon filing his
action to rescind, but, by insisting upon receiving and spending such consideration after
reaching majority, knowing the rights conferred upon him by law, he must be held to have
forfeited any right to bring such action.
FACTS:
At the age of about thirteen, Santiago Pastrano Uy Toco, a Chinese, unmarried,
came from China to reside in the Philippines. He married Candida Vivares, a Filipina with
whom he had two daughters, Francisca and Concepcion. At the time of this marriage,
Santiago Pastrano possessed very little property — a tienda worth about two thousand
pesos. The large estate left by him at his death was acquired by him during his marriage with
Candida Vivares. Santiago Pastrano returned to China where he remained for little less than
a year. While there, he entered into illicit relations with a Chinese woman, Chan Quieg, also
referred to as Chan Ni Yu.
Santiago Pastrano then returned to the Philippines where he remained till his death
in Cebu. He never saw Chan Quieg again, but received letters from her informing him that
she had borne him a son, Uy Soo Lim, the present plaintiff. He died without ever having seen
Uy Soo Lim, but under the belief that he was his only son, and it was in this belief that he
dictated the provisions of his will. The persons who survived Santiago Pastrano were his
wife, Candida Vivares, his daughters, Francisca Pastrano and Concepcion Pastrano, Chan
Quieg, and the plaintiff Uy Soo Lim.
By the terms of his will, Santiago Pastrano attempted to dispose of the greater part
of his estate in favor of Uy Soo Lim. The will was duly probated in the CFI, and the defendant
Benito Tan Unchuan, husband of the defendant Francisca Pastrano, was named in the will as
executor. Basilio Uy Bundan, one of the defendants herein and brother of Santiago Pastrano,
was named by the testator as guardian of Francisca Pastrano, Concepcion Pastrano, and Uy
Soo Lim, who were all three minors at the time of the death of the testator.
Candida Vivares filed a motion in the matter of the testamentary estate of Santiago
Pastrano in which she claimed the right as the widow of the deceased to one-half of all the
estate, and asked that the administration of said estate reopened and the rights of the
persons readjudged and determined according to law. A motion of similar purport was filed
by her in the matter of the guardianship of Uy Soo Lim et al.
Francisca Pastrano and Concepcion Pastrano filed a motion in the guardianship of
Uy Soo Lim et al., in which they opposed the distribution of the estate of Santiago Pastrano in
accordance with the terms of his will, alleging that Uy Soo Lim was not entitled under the law
to the amount of the estate assigned him in the will, since the marriage alleged therein of
Santiago Pastrano with Chan Quieg was null and void therefore Uy Soo Lim was not a son,
legitimate or illegitimate, of said Santiago Pastrano.
Chan Quieg, then temporarily in the port of Cebu, executed a deed whereby she
sold and relinquished to Francisca Pastrano all her right, title, and interest in the estate of
Santiago Pastrano. Subsequently, Chan Quieg executed a public document in which she gave
her consent to the sale by Uy Soo Lim of his right and interest in said estate “in case the same
should be necessary by virtue of any legal requirements of the laws of the Philippine Islands.”
Three years after attaining age of minority, Uy Soo Lim commenced the present
action in the CFI for the purpose of vacating the orders of the lower court of December 11,
1911 and to rescind and annul the contract by which he had sold and transferred to Francisca
Pastrano his interest in the estate of Santiago Pastrano. The complaint alleges as one of the
reasons for setting aside plaintiff’s sale of his rights to Francisca Pastrano that defendants
Benito Tan Unchuan and Basilio Uy Bundan induced the plaintiff to execute the deed of
cession by conspiring together to exercise under influence upon the plaintiff, by taking
advantage of his youth, passions, and inexperience, by misrepresenting materials facts
concerning the value of the property and interest in questions, and by concealing others.
ISSUE: WON the contract in question is voidable on the ground that Uy’s consent was
obtained by fraud or undue influence.
RULING: NO. It is expressly stated in the contract, which plaintiff now seeks to repudiate,
that notwithstanding the statement to the contrary in Pastrano’s will, the latter was in fact
the sole owner of the business referred to in that document. Plaintiff therefore had full
information regarding the assets which composed the Pastrano’s estate, and surrounded as
he was by skillful and competent advisers, we have no doubt that he was fully aware of the
value of those assets.
The trial court found that plaintiff was a minor at the time of the execution of the
contract in question, but that he not only failed to repudiate it promptly upon reaching his
majority but tacitly ratified it by disposing of the greater part of the proceeds after he
became of age and after he had full knowledge of the facts upon which he now seeks to
disaffirm the agreement.
The above decisions are based upon justice and sound sense, and have peculiar
application to the case now before us. Here, plaintiff not only showed a personal knowledge
of his rights under this contract prior to and at the time of reaching majority, but he was
surrounded by able advisers, legal and otherwise, retained to protect his interests. As a result
of his failure to disaffirm promptly on reaching majority, he received a balance of P30,000
upon the contact, which amount certainly would not have been paid if it had been known
that he was about to attempt to repudiate his agreement. This amount was not only
collected by Uy Soo Lim after reaching majority, but was effectually disposed of as rapidly as
possible.
When plaintiff reached majority, there was P62,412.67 of the original consideration
available for refund, and there still remained P55,000 when he filed his suit to rescind. This
sum could have been returned to Francisca Pastrano or held by the court for her account.
12

Positive statutory law, no less than uniform court decisions, require, as a condition
precedent to rescission of a contract on account of minority that the consideration received
be refunded. We cite and quote as follows:
ART. 1295 (Civil Code). Rescission obliges the return of the things which were
the objects of the contract, with their fruits and the sum with interest; therefore it can only be
carried into effect when the person who may have claimed it can return that which, on his
part, he is bound to do.
ART. 1304 (Civil Code). When the nullity arises from the incapacity of one of
the contracting parties, the incapacitated person is not obliged to make restitution, except to
the extent he has profited by the thing or by the sum he may have received.
ART. 1308 (Civil Code). While one of the contracting parties does not return
that which he is obliged to deliver by virtue of the declaration of nullity, the other cannot be
compelled to fulfill, on his part, what is incumbent on him.
Not only should plaintiff have refunded all moneys in his possession upon filing his
action to rescind, but, by insisting upon receiving and spending such consideration after
reaching majority, knowing the rights conferred upon him by law, he must be held to have
forfeited any right to bring such action.
Article 1314, Civil Code, provides as follows:
The action for nullity of a contract shall also be extinguished when the thing which
is the object thereof should be lost by fraud or fault of the person having the right to bring the
action.
If the cause of the action should be the incapacity of any of the contracting parties,
the loss of the thing shall be no obstacle for the action to prevail, unless it has occurred by
fraud or fault on the part of the plaintiff after having acquired capacity.
Plaintiff has disposed of the whole of the P85,000 which was paid him in
consideration of the execution of the contract he is now seeking to annul. The record
establishes beyond peradventure of doubt that he is utterly without funds to reimburse this
consideration.
A leading case on the general subject is that of Manning vs. Johnson: “ xxx...If the
infant after he arrives at age is shown to be possessed of the consideration paid him,
whether it be property, money or choses in action, and either disposes of it so that he cannot
restore it, or retains it for an unreasonable length of time after attaining his majority, this
amounts to an affirmance of the contract. So likewise if it be shown that he has the power to
restore the thing that he received, he cannot be allowed to rescind without first making
restitution.”
Certainly the rule as above stated is far and equitable. The contract involved
herein is an executed contract. If plaintiff had succeeded in having the contract set aside it
would have left him in the same position as that in which he stood when it was executed —
that is to say, he would have been compelled to face the contention that he was lawfully
entitled to little or nothing. Had he made restitution of all the money which came into his
hands after he attained his majority, a decision in favor of the claims of the widow and
legitimate daughters of Santiago Pastrano would not have been a wholly barren victory for
them. By consuming the last centavo of the proceeds of the contract plaintiff placed himself
in a position where he was bound to enjoy the most advantageous position whatever might
be the outcome of the litigation. To give countenance to such conduct would be to
encourage deliberate bad faith.
On the assumption, therefore, that plaintiff might have had a right to rescind this
contract on the ground of minority, his action fails.
(1) Because, with a full knowledge of his rights in the premises, he failed to disaffirm
his contract within a reasonable time after reaching majority; and
(2) Because he not only failed to tender, or offer to produce and pay the consideration
in esse when he reached majority, and when he filed his action, but proceeded, after such
events, to demand, collect and dispose of such consideration when according to his own
statement under oath he had no other funds with which to make reimbursement.
SPOUSES FERNANDO and LOURDES VILORIA v. CONTINENTAL AIRLINES, INC.,
G.R. No. 188288, 16 January 2012, SECOND DIVISION (Reyes, J.)
Under Article 1392 of the Civil Code, “ratification extinguishes the action to annul a
voidable contract.”
FACTS:
While in the United States, Fernando Viloria purchased for himself and his wife,
Lourdes, two (2) round trip airline tickets from San Diego, California to Newark, New Jersey
on board Continental Airlines. Fernando purchased the tickets at US$400.00 each from a
travel agency called “Holiday Travel” and was attended by a certain Margaret Mager.
According to Spouses Viloria, Fernando agreed to buy the said tickets after being informed by
Mager that there were no available seats at Amtrak, an intercity passenger train service
provider in the United States. Per the tickets, Spouses Viloria were scheduled to leave for
Newark on August 13, 1997 and return to San Diego on August 21, 1997. Subsequently,
Fernando requested Mager to reschedule their flight to Newark to an earlier date. Mager
informed him that flights to Newark via Continental Airlines were already fully booked and
offered the alternative of a round trip flight via Frontier Air. Fernando decided to reserve two
(2) seats with Frontier Air.
After 3 weeks, as he was having second thoughts on traveling via Frontier Air,
Fernando went to the Greyhound Station where he saw an Amtrak station nearby. Fernando
made inquiries and was told that there are seats available and he can travel on Amtrak
anytime and any day he pleased. Fernando then purchased two (2) tickets for Washington,
D.C. From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak
tickets, telling her that she had misled them into buying the Continental Airlines tickets by
misrepresenting that Amtrak was already fully booked. Fernando demanded for a refund but
Mager was firm in her position that the subject tickets are non-refundable.
13
 Upon returning to the Philippines, Fernando sent a letter to CAI demanding a
refund and alleging that Mager had deluded them into purchasing the subject tickets.
Continental later denied Fernando’s request for a refund and advised him that he may take
the subject tickets to any Continental ticketing location for the re-issuance of new tickets
within two (2) years from the date they were issued. Continental Micronesia informed
Fernando that the subject tickets may be used as a form of payment for the purchase of
another Continental ticket, albeit with a re-issuance fee (March Letter). Fernando went to
Continental’s ticketing office at Ayala Avenue, Makati City to have the subject tickets
replaced by a single round trip ticket to Los Angeles, California under his name but was
informed that Lourdes’ ticket was non-transferable, thus, cannot be used for the purchase of
a ticket in his favour. He was also informed that a round trip ticket to Los Angeles was
US$1,867.40 so he would have to pay what will not be covered by the value of his San Diego
to Newark round trip ticket.
Consequently, Fernando demanded for the refund of the subject tickets as he no
longer wished to have them replaced. In addition to the dubious circumstances under which
the subject tickets were issued, Fernando claimed that CAI’s act of charging him with
US$1,867.40 for a round trip ticket to Los Angeles, which other airlines priced at US$856.00,
and refusal to allow him to use Lourdes’ ticket, breached its undertaking under its March
Letter. The Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to
refund the money they used in the purchase of the subject tickets. According to CAI, one of
the conditions attached to their contract of carriage is the non-transferability and non-
refundability of the subject tickets. The RTC held that Spouses Viloria are entitled to a refund
in view of Mager’s misrepresentation in obtaining their consent in the purchase of the
subject tickets. On appeal, the CA reversed.
Issues:
(1) Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, WON
the representation of Mager as to unavailability of seats at Amtrak be considered fraudulent
as to vitiate the consent of Spouse Viloria in the purchase of the subject tickets.
(2) Assuming that Mager’s representation constitutes causal fraud, WON the Spouses Viloria
were deemed to have ratified the subject contracts.
RULING:
(1) NO. Even on the assumption that CAI may be held liable for the acts of Mager,
still, Spouses Viloria are not entitled to a refund. Mager’s statement cannot be considered
a causal fraud that would justify the annulment of the subject contracts that would oblige
CAI to indemnify Spouses Viloria and return the money they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the
consent of the contracting parties was obtained through fraud, the contract is considered
voidable and may be annulled within four (4) years from the time of the discovery of the
fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same
Code to restore to each other the things subject matter of the contract, including their fruits
and interest.
On the basis of the foregoing and given the allegation of Spouses Viloria that
Fernando’s consent to the subject contracts was supposedly secured by Mager through
fraudulent means, it is plainly apparent that their demand for a refund is tantamount to
seeking for an annulment of the subject contracts on the ground of vitiated consent.
Whether the subject contracts are annullable, the Court is required to determine whether
Mager’s alleged misrepresentation constitutes causal fraud. Under Article 1338 of the Civil
Code, there is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not have
agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente), inducement to the making of the contract. The Court
has defined causal fraud as “a deception employed by one party prior to or simultaneous to
the contract in order to secure the consent of the other.”
To quote Tolentino again, the “misrepresentation constituting the fraud must be
established by full, clear, and convincing evidence, and not merely by a preponderance
thereof. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to
lead an ordinarily prudent person into error; that which cannot deceive a prudent person
cannot be a ground for nullity. The circumstances of each case should be considered, taking
into account the personal conditions of the victim.”
The fraud alleged by Spouses Viloria has not been satisfactorily established as
causal in nature to warrant the annulment of the subject contracts. In fact, Spouses Viloria
failed to prove by clear and convincing evidence that Mager’s statement was fraudulent. The
Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an
Amtrak had assured him of the perennial availability of seats at Amtrak, to be wanting. As
CAI correctly pointed out and as Fernando admitted, it was possible that during the
intervening period of three (3) weeks from the time Fernando purchased the subject tickets
to the time he talked to said Amtrak employee, other passengers may have cancelled their
bookings and reservations with Amtrak, making it possible for Amtrak to accommodate
them.
(2) YES. Even assuming that Mager’s representation is causal fraud, the subject
contracts have been impliedly ratified when Spouses Viloria decided to exercise their right
to use the subject tickets for the purchase of new ones. Under Article 1392 of the Civil Code,
“ratification extinguishes the action to annul a voidable contract.”
Ratification of a voidable contract is defined under Article 1393 of the Civil Code as
follows: “Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable and such
reason having ceased, the person who has a right to invoke it should execute an act which
necessarily implies an intention to waive his right. Implied ratification may take diverse
forms, such as by silence or acquiescence; by acts showing approval or adoption of the
contract; or by acceptance and retention of benefits flowing therefrom.”
Simultaneous with their demand for a refund on the ground of Fernando’s vitiated
consent, Spouses Viloria likewise asked for a refund based on CAI’s supposed bad faith in
reneging on its undertaking to replace the subject tickets with a round trip ticket from Manila
to Los Angeles. In doing so, Spouses Viloria are actually asking for a rescission of the subject
contracts based on contractual breach. Resolution, the action referred to in Article 1191, is
14
based on the defendant’s breach of faith, a violation of the reciprocity between the parties
and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation, this Court ruled that a
claim for a reimbursement in view of the other party’s failure to comply with his obligations
under the contract is one for rescission or resolution.
However, annulment under Article 1390 of the Civil Code and rescission under
Article 1191 are two (2) inconsistent remedies. In resolution, all the elements to make the
contract valid are present; in annulment, one of the essential elements to a formation of a
contract, which is consent, is absent. In resolution, the defect is in the consummation stage
of the contract when the parties are in the process of performing their respective
obligations; in annulment, the defect is already present at the time of the negotiation and
perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under
Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts,
forfeiting their right to demand their annulment. A party cannot rely on the contract and
claim rights or obligations under it and at the same time impugn its existence or validity.
Indeed, litigants are enjoined from taking inconsistent positions.
ECE REALTY AND DEVELOPMENT INC. v. RACHEL G. MANDAP
G.R. No. 196182, September 1, 2014, Peralta, J.
In order to constitute fraud that provides basis to annul contracts, it must be fraud
in obtaining the consent of the party
Facts:
Petitioner ECE Realty started the construction of a condominium project called
Central Park Condominium Building. However, printed advertisements were made indicating
that the said project was to be built in Makati City. Mandap agreed to buy a unit from the
above project by paying a reservation fee, downpayment and monthly installments. Mandap
and the representatives of petitioner executed a Contract to Sell. In the said Contract, it was
indicated that the condominium project is located in Pasay City.
More than two years after the execution of the Contract to Sell, respondent,
through her counsel, wrote petitioner a letter demanding the return of payments she made,
on the ground that the condominium was being built in Pasay City and not in Makati City as
indicated in its printed advertisements. Respondent then filed a complaint for the annulment
of her contract with petitioner, the return of her payments, and damages
Issue:
Whether the fraud is sufficient ground to nullify the contract
Ruling:
NO. Article 1338 of the Civil Code provides that “[t]here is fraud when through
insidious words or machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to.” In addition, under
Article 1390 of the same Code, a contract is voidable or annullable “where the consent is
vitiated by mistake, violence, intimidation, undue influence or fraud.” Also, Article 1344 of
the same Code provides that “[i]n order that fraud may make a contract voidable, it should
be serious and should not have been employed by both contracting parties.”
Jurisprudence has shown that in order to constitute fraud that provides basis to
annul contracts, it must fulfill two conditions: First, the fraud must be dolo causante or it
must be fraud in obtaining the consent of the party. This is referred to as causal fraud. The
deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an
ordinarily prudent person into error; that which cannot deceive a prudent person cannot be
a ground for nullity. The circumstances of each case should be considered, taking into
account the personal conditions of the victim. Second, the fraud must be proven by clear and
convincing evidence and not merely by a preponderance thereof.
Petitioner is guilty of false representation of a fact but the misrepresentation made
by petitioner in its advertisements does not constitute causal fraud which would have been a
valid basis in annulling the contract. This is evidenced by its printed advertisements indicating
that its subject condominium project is located in Makati City when, in fact, it is in Pasay City.
The Supreme Court agreed with the Housing and Land Use Arbiter, the HLURB Board of
Commissioners, and the Office of the President, in condemning petitioner's deplorable act of
making misrepresentations in its advertisements and in issuing a stern warning that a
repetition of this act shall be dealt with more severely. However, the misrepresentation
made by petitioner in its advertisements does not constitute causal fraud.
TONGSON v. EMERGENCY PAWNSHOP BULA, INC. G.R. No. 167874 January 15, 2010,
Carpio, J.
There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to.
Facts:
Napala offered to purchase from the Spouses Tongson their parcel of land for
P3,000,000. The Spouses Tongson executed with Napala a Memorandum of Agreement.
Respondents' lawyer prepared a Deed of Absolute Sale indicating the consideration as only
P400,000. When Carmen Tongson "noticed that the consideration was very low, she called
Napala but the latter told her not to worry as he would be the one to pay for the taxes and
she would receive the net amount of P3,000,000. The parties executed another
Memorandum of Agreement, which allegedly replaced the first Memorandum of Agreement,
showing that the selling price of the land was only P400,000. Upon signing the Deed of
Absolute Sale, Napala paid P200,000 in cash to the Spouses Tongson and issued a postdated
PNB check in the amount of P2,800,000, representing the remaining balance of the purchase
price of the subject property. Thereafter, TCT No. 143020 was cancelled and TCT No. T-
186128 was issued in the name of EPBI.
When presented for payment, the PNB check was dishonored for the reason
"Drawn Against Insufficient Funds." Despite the Spouses Tongson's repeated demands to
either pay the full value of the check or to return the subject parcel of land, Napala failed to
do either. The Spouses Tongson filed a Complaint for Annulment of Contract and Damages
15
with a Prayer for the Issuance of a Temporary Restraining Order and a Writ of Preliminary
Injunction.
Claiming that their consent was vitiated, the Spouses Tongson point out that
Napala's fraudulent representations of sufficient funds to pay for the property induced them
into signing the contract of sale. Such fraud, according to the Spouses Tongson, renders the
contract of sale void. On the contrary, Napala insists that the Spouses Tongson willingly
consented to the sale of the subject property making the contract of sale valid. Napala
maintains that no fraud attended the execution of the sales contract.
Issue:
Whether the consent of the Spouses Tongson was vitiated by fraud.
Ruling:
NO. The subject matter of the sale is the lot owned by the Spouses Tongson and
the selling price agreed upon by the parties is P3,000,000. There is no dispute as regards the
presence of the two requisites for a valid sales contract, namely, (1) a determinate subject
matter and (2) a price certain in money. The problem lies with the existence of the remaining
element, which is consent of the contracting parties, specifically, the consent of the Spouses
Tongson to sell the property to Napala.
While no causal fraud attended the execution of the sales contract, there is fraud in
its general sense, which involves a false representation of a fact, when Napala inveigled the
Spouses Tongson to accept the postdated PNB check on the representation that the check
would be sufficiently funded at its maturity. The fraud surfaced when Napala issued the
worthless check to the Spouses Tongson, which is not during the negotiation and perfection
stages of the sale. The fraud existed in the consummation stage of the sale when the parties
are in the process of performing their respective obligations under the perfected contract of
sale.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words
or machinations of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. In order that fraud may vitiate
consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract. Additionally, the fraud must be serious.
The Court found no causal fraud in this case to justify the annulment of the
contract of sale between the parties. The misrepresentation by Napala that the postdated
PNB check would not bounce on its maturity hardly equates to dolo causante. Napala's
assurance that the check he issued was fully funded was not the principal inducement for the
Spouses Tongson to sign the Deed of Absolute Sale. Even before Napala issued the check, the
parties had already consented to the sale transaction. The Spouses Tongson were never
tricked into selling their property to Napala. On the contrary, they willingly accepted Napala's
offer to purchase the property at P3,000,000. There was a meeting of the minds as to the
object of the sale as well as the consideration therefor.
THE ROMAN CATHOLIC CHURCH v. REGINO PANTE
BRION, J.:
For mistake as to the qualification of one of the parties to vitiate consent, two
requisites must concur:
1. the mistake must be either with regard to the identity or with regard to the
qualification of one of the contracting parties; and
2. the identity or qualification must have been the principal consideration for the
celebration of the contract.
FACTS:
The Church owned a 32-square meter lot that measured 2x16 meters located in Canaman,
Camarines Sur. The said lot was the subject of a contract of sale between the Church and
respondent Regino Pante. The contract between them fixed the purchase price at
P11,200.00, with the initial P1,120.00 payable as down payment, and the remaining balance
payable in three years or until September 25, 1995.
On June 28, 1994, the Church sold in favor of the spouses Rubi a 215-square meter lot that
included the lot previously sold to Pante. The spouses Rubi asserted their ownership by
erecting a concrete fence over the lot sold to Pante, effectively blocking Pante and his
family’s access from their family home to the municipal road. As no settlement could be
reached between the parties, Pante instituted with the RTC an action to annul the sale
between the Church and the spouses Rubi, insofar as it included the lot previously sold to
him.
The Church filed its answer with a counterclaim, seeking the annulment of its contract with
Pante. The Church alleged that its consent to the contract was obtained by fraud when
Pante, in bad faith, misrepresented that he had been an actual occupant of the lot sold to
him, when in truth, he was merely using the 32-square meter lot as a passageway from his
house to the town proper. It contended that it was its policy to sell its lots only to actual
occupants. Since the spouses Rubi and their predecessors-in-interest have long been
occupying the 215-square meter lot that included the 32-square meter lot sold to Pante, the
Church claimed that the spouses Rubi were the rightful buyers.
The RTC ruled in favor of the Church and annulled the contract between the Church and
Pante, pursuant to Article 1390 of the Civil Code. The CA reversed the RTCs ruling.
ISSUE:
Whether or not the contract is voidable.
RULING:
No. The contract is valid. No misrepresentation existed vitiating the seller’s consent and
invalidating the contract.
The Civil Code clarifies the nature of mistake that vitiates consent:
Article 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent
only when such identity or qualifications have been the principal cause of the
contract.
A simple mistake of account shall give rise to its correction.
16
In the present case, the Church contends that its consent to sell the lot was given on the
mistaken impression arising from Pante’s fraudulent misrepresentation that he had been the
actual occupant of the lot.
Contrary to the Church’s contention, the actual occupancy or residency of a buyer over the
land does not appear to be a necessary qualification that the Church requires before it could
sell its land. Had this been indeed its policy, then neither Pante nor the spouses Rubi would
qualify as buyers of the 32-square meter lot, as none of them actually occupied or resided on
the lot since, given the size of the lot, it could serve no other purpose than as a mere
passageway; it is unthinkable to consider that a 2x16-meter strip of land could be mistaken
as anyone’s residence.
The court finds it unlikely that Pante could successfully misrepresent himself as the actual
occupant of the lot; this was a fact that the Church (which has a parish chapel in the same
barangay where the lot was located) could easily verify had it conducted an ocular inspection
of its own property. The surrounding circumstances actually indicate that the Church was
aware that Pante was using the lot merely as a passageway.
ECE REALTY AND DEVELOPMENT INC., v. RACHEL G. MANDAP
G.R. No. 196182, September 01, 2014
PERALTA, J.:
In the present case, this Court finds that petitioner is guilty of false representation of a fact.
This is evidenced by its printed advertisements indicating that its subject condominium
project is located in Makati City when, in fact, it is in Pasay City. However, that
misrepresentation made by ECE in its advertisements does not constitute causal fraud which
would have been a valid basis in annulling the Contract to Sell between the parties.
FACTS:
ECE Realty is a corporation engaged in the building and development of condominium units.
Sometime in 1995, it started the construction of a condominium project called Central Park
Condominium Building located along Jorge St., Pasay City. However, printed advertisements
were made indicating therein that the said project was to be built in Makati City.
In December 1995, Mandap agreed to buy a unit from the above project by paying a
reservation fee and, thereafter, down payment and monthly installments. They executed a
Contract to Sell which indicates that the condominium project is located in Pasay City.
More than two years after the execution of the Contract to Sell, wrote petitioner a letter
demanding the return of the payments she made, on the ground that she subsequently
discovered that the condominium project was being built in Pasay City and not in Makati City
as indicated in its printed advertisements. However, instead of answering respondent's
letter, petitioner sent her a written communication informing her that her unit is ready for
inspection and occupancy should she decide to move in.
Treating the letter as a form of denial of her demand, respondent filed a complaint with the
Housing and Land Use Regulatory Board (HLURB) seeking the annulment of her contract with
ECE, the return of her payments, and damages.
HLURB dismissed Mandap's complaint for lack of merit. Mandap filed an appeal with the
Office of the President which was also dismissed. Mandap then filed a petition for review
with the CA which ruled in her favor. Hence this petition.
ISSUE:
Whether or not ECE was guilty of fraud which is a sufficient ground to nullify its contract with
Mandap.
RULING:
ECE is not guilty of fraud. Article 1338 of the Civil Code provides that “there is fraud when
through insidious words or machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would not have agreed to.” In
addition, under Article 1390 of the same Code provides that a contract is voidable or
annullable “where the consent is vitiated by mistake, violence, intimidation, undue influence
or fraud.”
Also, Article 1344 of the same Code provides that “in order that fraud may make a contract
voidable, it should be serious and should not have been employed by both contracting
parties.”
Jurisprudence has shown that in order to constitute fraud that provides basis to annul
contracts, it must fulfill two conditions.
First, the fraud must be dolo causante or it must be fraud in obtaining the consent
of the party. This is referred to as causal fraud. The deceit must be serious. The
fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent
person into error; that which cannot deceive a prudent person cannot be a ground
for nullity. The circumstances of each case should be considered, taking into
account the personal conditions of the victim.
Second, the fraud must be proven by clear and convincing evidence and not merely
by a preponderance thereof.
In the present case, this Court finds that petitioner is guilty of false representation of a fact.
This is evidenced by its printed advertisements indicating that its subject condominium
project is located in Makati City when, in fact, it is in Pasay City. However, that
misrepresentation made by ECE in its advertisements does not constitute causal fraud which
would have been a valid basis in annulling the Contract to Sell between the parties.
The Court ruled that, Mandap failed to show that “the essential and/or moving factor that
led her to give her consent and agree to buy the unit was precisely the project's
advantageous or unique location in Makati City – to the exclusion of other places or city x x
x.” In other words, respondent failed to prove that the location of the said project was the
causal consideration or the principal inducement which led her into buying her unit in the
said condominium project.
Indeed, evidence shows that respondent proceeded to sign the Contract to Sell despite
information contained therein that the condominium is located in Pasay City. This only
means that she still agreed to buy the subject property regardless of the fact that it is located
in a place different from what she was originally informed. If she had a problem with the
property's location, she should not have signed the Contract to Sell and, instead, immediately
raised this issue with petitioner.
17
METROPOLITAN FABRICS, INC. AND ENRIQUE ANG, Petitioners, v. PROSPERITY CREDIT
RESOURCES INC., DOMINGO ANG AND CALEB ANG, Respondents.
The genuineness and due execution of a deed of real estate mortgage that has been
acknowledged before a notary public are presumed. Any allegation of fraud and forgery
against the deed must be established by clear and competent evidence.
Facts: Metropolitan Fabrics, Incorporated (mortgagor-plaintiff), a family corporation, owned
a 5.8 hectare industrial compound at No. 685 Tandang Sora Avenue, Novaliches, Quezon
City. Pursuant to a P2 million, 10–year 14% per annum loan agreement with Manphil
Investment Corporation (Manphil), the said lot was subdivided into 11 lots, with Manphil
retaining four lots as mortgage security. The other seven lots, were released to MFI.
MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance of the cost of its
boiler machine, to prevent its repossession by the seller. PCRI, also a family–owned
corporation licensed to engage in money lending, was represented by Domingo Ang
(“Domingo”) its president, and his son Caleb, vice–president.
To reciprocate the gesture of PCRI, Enrique, together with his wife Natividad Africa, vice–
president, and son Edmundo signed the blank forms “at their office at 685 Tandang Sora
Avenue, Novaliches, Quezon City.” The signing was allegedly witnessed by Vicky, Ellen and
Alice, all surnamed Ang, without any PCRI representative present. Immediately thereafter,
Enrique and Vicky proceeded to the PCRI office at 1020 Soler St., Binondo.
In order to return the trust of Domingo and Caleb and their gesture of the early release of
the loan, that Enrique and Vicky entrusted to the defendants their seven (7) titles.
Unable to pay the loan, PROSPERITY CREDIT RESOURCES INC forclosed the said property.
Plaintiffs filed a case with the RTC seeking to nullify the real estate mortgage and the
foreclosure. Their contention is that, respondents committed fraud when the officers of
Metropolitan were made to sign the deed of real estate mortgage in blank.
RTC rendered judgment in favour of the plaintiffs declaring the real estate mortgage and the
subsequent foreclosure made by the defendants on the plaintiffs’ properties null and void
and the titles issued in favor of the defendants canceled and ordered reconveyed to the
plaintiffs. On appeal CA reversed the decision of the RTC.
Issue: Whether or not respondents committed fraud when the officers of Metropolitan were
made to sign the deed of real estate mortgage in blank?
Held: No.
According to Article 1338 of the Civil Code, there is fraud when one of the contracting
parties, through insidious words or machinations, induces the other to enter into the
contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate
consent, must be the causal (dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract.14 In Samson v. Court of Appeals,15 causal fraud is
defined as “a deception employed by one party prior to or simultaneous to the contract in
order to secure the consent of the other.” 16
Fraud cannot be presumed but must be proved by clear and convincing evidence. 17 Whoever
alleges fraud affecting a transaction must substantiate his allegation, because a person is
always presumed to take ordinary care of his concerns, and private transactions are similarly
presumed to have been fair and regular.18 To be remembered is that mere allegation is
definitely not evidence; hence, it must be proved by sufficient evidence.
xxx The evidence adduced by Vicky Ang, the lone witness for petitioners, tried to cast doubt
on the contents and due execution of the deed of real estate mortgage by pointing to certain
irregularities. But she could not be effective for the purpose because she had not been
among the signatories of the deed.
Petitioners freely and voluntarily surrendered to respondents the seven transfer certificates
of title (TCTs) of their lots. Such surrender of the TCTs evinced their intention to offer the lots
as collateral for the performance of their obligations contracted with respondents. They
thereby confirmed the genuineness and due execution of the deed of real estate mortgage.
Surely, they would not have surrendered the TCTs had their intention been otherwise.
Contrary to their modified defense of absence of consent, Vicky Ang’s testimony tended at
best to prove the vitiation of their consent through insidious words, machinations or
misrepresentations amounting to fraud, which showed that the contract was voidable.
Where the consent was given through fraud, the contract was voidable, not void ab
initio.29This is because a voidable or annullable contract is existent, valid and binding,
although it can be annulled due to want of capacity or because of the vitiated consent of one
of the parties.30
With the contract being voidable, petitioners’ action to annul the real estate mortgage
already prescribed. Article 1390, in relation to Article 1391 of the Civil Code, provides that if
the consent of the contracting parties was obtained through fraud, the contract is considered
voidable and may be annulled within four years from the time of the discovery of the
fraud.31 The discovery of fraud is reckoned from the time the document was registered in the
Register of Deeds in view of the rule that registration was notice to the whole world.32 Thus,
because the mortgage involving the seven lots was registered on September 5, 1984, they
had until September 5, 1988 within which to assail the validity of the mortgage. But their
complaint was instituted in the RTC only on October 10, 1991.33 Hence, the action, being by
then already prescribed, should be dismissed.
G.R. No. L-25400 January 14, 1927
THE PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.THE PHILIPPINE VEGETABLE OIL CO.,
INC., defendant-appellee.
PHIL. C. WHITAKER, intevenor-appellant.
xxx Undue influence, which is a general and abstract conception, exists to some extent, it
does not constitute a cause for annulment of the contract so far as it affects the consent,
unless the same amounts to violence, or intimidation, or constitutes fraud, or produces
substantial error on the part of the other contracting party.
xxx Fraud is not presumed. In order to annul a contract for fraud it must have been
committed by one of the contracting parties. (under the dissenting opinion it states that: “The
appellant, not having been a party to this mortgage and not being a representative of any of
those who have intervened therein, is not, principally or subsidiarily, bound by virtue thereof,
and, consequently, has no action and cannot impugn its validity.”
xxx Incidental fraud committed by a third party, which is not sufficient cause for the
annulment of a contract, but only for an action for damages against the said third party.
18
Note: Please read dissenting opinion.
Facts: The Vegetable Oil Company owed the PNB P17,000,000. Over P13,000,000 were due
the other creditors. The Philippine National Bank was secured principally by a real and chattel
mortgage for P3,500,000. On The Vegetable Oil Company executed another chattel mortgage
in favor of the bank on its vessels to guarantee the payment of sums not to exceed
P4,000,000.
Mr. Whitaker (stockholder of Vegetable Oil Company) made his first offer to pledge certain
private properties to secure the creditors of the Oil Company. At the instance of Mr.
Whitaker but inspired to such action by the bank, a receiver for the Vegetable Oil Company
was appointed by the Court of First Instance.
There was a new mortgage executed by Vegetable Oil Company on February 20, 1922 in
favor of PNB. Shortly thereafter, the receivership for the Vegetable Oil Company was
terminated. The bank suspended the operation of the Vegetable Oil Company in and
definitely closed the Oil Company's plant.
Philippine National Bank filed an action to foreclose its mortgage on the property of the
Vegetable Oil Company. Phil. C. Whitaker presented a complaint in intervention. The
judgment rendered was in favor of the plaintiff and against the defendant which was ordered
to pay the sum of P15,787,454.54, representing the liquidation between the plaintiff and the
defendant with the addition of the usual order to foreclose the mortgage.
The trial Court rendered judgment declaring that the execution of the mortgage has been
legally and validly executed by the Philippine Vegetable Oil Co., Inc because such was the free
act of the defendant.
Issue: Whether or not the mortgage entered into by PNB and Philippine Vegetable Oil
Company is a voidable contract?
Held: Yes.
Held:
Validity of the Philippine National Bank — Philippine Vegetable Oil Co., Inc., mortgage of
February 10, 1922.
xxx To all this the appellee as well as the trial court have answered that while it is true that
the document was executed on February 20, 1922, at a time when the properties of the
mortgagor were under receivership, the mortgage was not acknowledged before a notary
public until March 8, 1922, after the court had determined that the necessity for a receiver
no longer existed. But the additional fact remains that while the mortgage could not have
been executed without the dissolution of the receivership, such dissolution was apparently
secured through representations made to the court by counsel for the bank that the bank
would continue to finance the operations of the Vegetable Oil Company. Instead of so
doing, the bank within less than two months after the mortgage was recorded, withdrew
its support from the Vegetable Oil Company, and in effect closed its establishment. Also it
must not be forgotten that the hands of other creditors were tied pursuant to the creditors'
agreement of June 27, 1921.
To place emphasis on the outstanding facts, it must be repeated that the mortgage was
executed while a receiver was in charge of the Vegetable Oil Company. A mortgage
accomplished at such a time by the corporation under receivership and a creditor would be
a nullity. The mortgage was definitely perfected subsequent to the lifting of the receivership
pursuant to implied promises that the bank would continue to operate the Vegetable Oil
Company. It was then accomplished when the Philippine National Bank was a dominating
influence in the affairs of the Vegetable Oil Company. It would be unconscionable to allow
the bank, after the hands of the other creditors were tied, virtually to appropriate to itself all
the property of the Vegetable Oil Company.
Whether we consider the action taken as not expressing the free will of the Vegetable Oil
Company, or as disclosing undue influence on the part of the Philippine National Bank in
procuring the mortgage, or as constituting deceit under the civil law, or whether we go still
further and classify the facts as constructive fraud, the result is the same. The mortgage is
clearly voidable.
SC held that the Philippine National Bank-Philippine Vegetable Oil Co., mortgage of February
20, 1922, has not been legally executed by the Philippine Vegetable Oil Co., Inc., and
consequently cannot be given effect.
Separate Opinions AVANCEÑA, C. J., with whom concurs VILLAMOR, J., concurring and
dissenting in part:
The insinuation made in the majority opinion of undue influence, deceit and fraud on the
part of the plaintiff as grounds for declaring this mortgage void, is absolutely unsupported by
the record.
Supposing that undue influence, which is a general and abstract conception, exists to some
extent, it does not constitute a cause for annulment of the contract so far as it affects the
consent, unless the same amounts to violence, or intimidation, or constitutes fraud, or
produces substantial error on the part of the other contracting party. (Art. 1265, Civil Code.)
The mere intervention of the two representatives of the plaintiff in the Board of Directors of
the defendant and, on the other hand, no act has been proved to have been executed by
them in connection with the mortgage which might be considered as undue influence.
Neither has it been shown that anything was done which might constitute a fraud on the part
of the plaintiff in the execution of this mortgage.
Fraud is not presumed. The only thing which can be considered in connection with this point
is the supposed promise given to the defendant to finance its operations. But, according to
the majority opinion, there is no indication of any act of the Board of Directors of the plaintiff
corporation which might imply consent to an agreement to give unlimited support to the
defendant, nor ratification of any promise to this effect made by the general manager. In
19
order to annul a contract for fraud it must have been committed by one of the contracting
parties. (Art. 1269, Civil Code.)
On the other hand, the general manager of the plaintiff as also admitted in the majority
decision, only intimated generally that the plaintiff corporation would finance its operations.
Moreover, it was proven that the plaintiff did in fact furnish the defendant with capital in
order that it might continue operating for some time, and continued to furnish it with capital
even after the execution of the mortgage, which, at any rate, is a compliance with the
supposed promise.
It is evident that, if the plaintiff, either directly or through its general manager, did not
make any promise to furnish capital to the defendant without any limitation for its
operation, and did in fact furnish it with capital to some extent, it cannot be said to have
acted fraudulently. The plaintiff was not bound to take a chance when it was clearly seen
that the defendant was running behind and, in defense of its interests and in consideration of
its resources, it had a right to stop when it deemed it unwise to continue any longer.
Furthermore, any unfulfilled promise made to the defendant by the general manager of the
plaintiff, without the authorization of the latter, does not constitute such fraud and cause
for the annulment of the contract.
Upon this theory, at most, it might be an incidental fraud committed by a third party, which
is not sufficient cause for the annulment of a contract, but only for an action for damages
against the said third party. (Art. 1270, Civil Code.)
At any rate, the appellant-intervenor cannot seek the annulment of this mortgage under the
provisions of article 1302 of the Civil Code, according to which only those persons who are
principally or subsidiarily bound by the contract may bring the action. The appellant, not
having been a party to this mortgage and not being a representative of any of those who
have intervened therein, is not, principally or subsidiarily, bound by virtue thereof, and,
consequently, has not action and cannot impugn its validity.
Carbonnel v Poncio, 103 Phil 655 (1958)
Doctrine:
It is well settled in this jurisdiction that the Statute of Frauds is applicable only to
executory contracts, not to contracts that are totally or partially performed.
Facts:
Plaintiff Rosario Carbonnel alleges that she purchased from defendant Jose Poncio, a parcel
of land excluding the improvements thereon. Plaintiff Carbonnel paid a sum certain and
agreed to assume Poncio’s obligation with the Republic Savings Bank amounting to P1177.48,
with the understanding that the balance would be payable upon execution of the
corresponding deed of conveyance. One of the conditions of the sale was that Poncio would
continue staying in said land for one year, as stated in a document signed by him. However,
Poncio refused to execute the corresponding deed of sale, despite repeated demand.
Thereafter, Poncio sold the same property to defendants Ramon R. Infante and Emma
Infante, who knew, of the first sale to plaintiff. Therefore, Carbonell filed a suit praying that
she be declared owner of the land in question, that the sale to the Infantes be annulled and
that Poncio be required to execute the
corresponding deed of conveyance in her favor; that the Register of Deeds of Rizal be
directed to issue the corresponding title in her name and that defendants be sentenced to
pay damages.
Defendants moved to dismiss said complaint upon the ground that plaintiff’s claim is
unenforceable under the Statute of Frauds.
Issue:
Whether or not the plaintiff’s claim is unenforceable under the Statute of Frauds
Ruling:
It is well settled in this jurisdiction that the Statute of Frauds is applicable only to
executory contracts, not to contracts that are totally or partially performed.
In executory contracts there is a high tendency of fraud because unless they be in writing
there can be no proof or evidence to prove the intention of the contracting parties. The
Statue (of Frauds) has been enacted to prevent fraud.
However, if the contract has been partially or totally performed, the exclusion of parol
evidence (in the absence of statute of frauds) would promote fraud of bad faith for it will
enable the defendant to keep the benefits already denied by him from the transaction in
litigation and at the same time evade the obligations and liabilities assumed or contracted by
him.
Therefore it is not enough for the party to allege partial performance as a defense in order to
benefit from the non-application of the statute of frauds; --- the rejection of any testimonial
evidence on partial performance would nullify the rule that the Statue of Frauds is
inapplicable to partially executed contracts --- would lead to the evil that the statue of fraud
seeks to prevent.
Note:
A sold a parcel of land to B subject to the condition that A will be allowed to stay in the
property for one year while B is still paying the balance in installments. (the contract is
partially executed).
A subsequently sold the same property to C, hence B filed a suit against A.
A alleged that the contract (in favor of B) is unenforceable since it did not comply with the
requirement under the Statute of Frauds.
Issue: W/N the defense of A that the contract is unenforceable will prosper (against a
partially executed contract)
20
Held: NO. in partially executed contracts, the rule on statute of frauds may be relaxed as
the plaintiff may be allowed to prove through oral testimony the validity and due
execution of the contract in issue.
Limketkai vs CA
FACTS:
Philippine Remnants was the owner of a piece of land which it then entrusted to BPI. Pedro
Revilla was authorized by BPI to sell the lot for PHP1000/sqm. Revilla contacted Alfonso Lim
who agreed to buy the land. Alfonso Lim and Albino Limketkai went to BPI and were
entertained by VP Albano and Asst. VP Aromin. BPI set the price at 1,100 while Limketkai
haggled to 900. They subsequently agreed on Php1,000 on cash basis. Alfonso Lim asked if it
was possible to pay on terms and BPI officials said there was no harm in trying to ask for
payment in terms but if disapproved, the price would have to be paid in cash. Limketkai paid
the initial 10% with the remaining 90% to follow. Two or three days later, Alfonso Lim found
out that their offer had been frozen and then went to BPI to tender full payment of 33M to
Albano but was refused by both Albano & Bona.
Issue:
W/N there was a perfected contract of sale
Held:
Perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell
and Alfonso Lim & Albino Limketkai, agreed to buy the lot at Php1000/sqm. A consensual
contract is perfected upon mere meeting of the minds and although the deed of sale had yet
to be notarized, it does not mean that no contract was perfected. Consent is manifested by
the meeting of the offer and acceptance upon the thing, and the cause which are to
constitute the contract. The offer must be certain and acceptance absolute. Limketkai’s
acceptance was qualified and therefore, was actually a counter offer.
SWEDISH MATCH VS. CA | G.R. NO. 128120 | OCTOBER 20, 2004
TINGA, J.
However, when the law requires that a contract be in some form in order that it
may be valid or enforceable, or that a contract be proved in a certain way, that requirement
is absolute and indispensable. Consequently, the effect of non-compliance with the
requirement of the Statute is simply that no action can be enforced unless the requirement is
complied with. Clearly, the form required is for evidentiary purposes only. Hence, if the parties
permit a contract to be proved, without any objection, it is then just as binding as if the
Statute has been complied with.
FACTS:
Swedish Match is a corporation organized under the laws of Sweden not doing
business in the Philippines. It has 3 subsidiary corporations in the Philippines--Phimco,
Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc. STORA, the parent company of
Swedish Match sold the latter to SMNV of Netherlands, a corporation existing under the laws
of Netherlands.
Enriquez, the VP of the management company of the Swedish Match group, was
authorized by SMNV to negotiate subject to the approval by the board. Enriquez was
instructed that Phimco should be sold due to tight loan covenants of SMNV. AFP-RSBS, ALS,
and Lintonjua, herein respondents, tendered offer to acquire the Phimco shares. Lintonjua
submitted with the petitioner a firm offer to buy the entire shares of Phimco. Rossi, the CEO
of petitioner, extended its appreciation of Lintonjua’s offer and suggested to conduct further
studies to assess Phimco’s profitability.
After several exchange of correspondence between petitioner and Lintonjua, the
latter was disappointed as to the petitioner’s change of scheme in the bidding process
particularly the acceptance by the petitioner of new bidders who are not among the 4
contending groups. Lintonjua informed Rossi that it will be impossible for them to submit the
financial statements required on the agreed date. Two days before the deadline of the offer,
Lintonjua again informed Rossi of their inability to submit final offer but stated that on a
certain date, they will be able to have a better offer than their contenders and that they will
pay within 10 days from execution of contract.
Subsequently, Rossi informed Lintonjua of the rejection of the latter’s bid.
However, the bid did not materialize, so the petitioner then offered to Lintonjua the
purchase of Phimco’s share with the condition that failure to complete the negotiation within
15 days, the shares will be offered to other bidders. Lintonjua expressed his disagreement as
to the new terms of the sale. He emphasized that the new offer constituted an attempt to
reopen the already perfected contract of sale of the shares in his favor. He intimated that he
could not accept the new terms and conditions contained therein.
Respondent filed an action before the RTC for specific performance. They averred
that the management of Phimco induced the petitioner to violate its contract with the
respondent. Respondents prayed that the sale and transfer of Phimco’s shares be enjoined
and the sale to third parties shall be annulled. Petitioners filed a motion for a preliminary
hearing of their defense of bar by the Statute of Frauds
RTC: No perfected contract between petitioners and respondents.
CA: The series of written communications between petitioners and respondents
collectively constitute a sufficient memorandum of their agreement under Article 1403 of the
Civil Code.
ISSUE:
Whether the appellate court erred in reversing the trial court’s decision dismissing
the complaint for being unenforceable under the Statute of Frauds.
RULING:
YES.
The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil
Code requires certain contracts enumerated therein to be evidenced by some note or
memorandum in order to be enforceable. The term Statute of Frauds is descriptive of
statutes which require certain classes of contracts to be in writing. The Statute does not
deprive the parties of the right to contract with respect to the matters therein involved, but
merely regulates the formalities of the contract necessary to render it enforceable. Evidence
of the agreement cannot be received without the writing or a secondary evidence of its
contents.
The Statute, however, simply provides the method by which the contracts
enumerated therein may be proved but does not declare them invalid because they are not
reduced to writing. By law, contracts are obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present. However,
when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute and
indispensable. Consequently, the effect of non-compliance with the requirement of the
Statute is simply that no action can be enforced unless the requirement is complied with.
Clearly, the form required is for evidentiary purposes only. Hence, if the parties permit a
21
contract to be proved, without any objection, it is then just as binding as if the Statute has
been complied with.
The purpose of the Statute is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of witnesses, by
requiring certain enumerated contracts and transactions to be evidenced by a writing signed
by the party to be charged.
However, for a note or memorandum to satisfy the Statute, it must be complete in
itself and cannot rest partly in writing and partly in parol. The note or memorandum must
contain the names of the parties, the terms and conditions of the contract, and a description
of the property sufficient to render it capable of identification. Such note or memorandum
must contain the essential elements of the contract expressed with certainty that may be
ascertained from the note or memorandum itself, or some other writing to which it refers or
within which it is connected, without resorting to parol evidence.
Contrary to the Court of Appeals conclusion, the exchange of correspondence
between the parties hardly constitutes the note or memorandum within the context of
Article 1403 of the Civil Code. Rossis letter dated 11 June 1990, heavily relied upon by
respondents, is not complete in itself. First, it does not indicate at what price the shares were
being sold. In paragraph (5) of the letter, respondents were supposed to submit their final
offer in U.S. dollar terms, at that after the completion of the due diligence process. The
paragraph undoubtedly proves that there was as yet no definite agreement as to the price.
Second, the letter does not state the mode of payment of the price. In fact, Litonjua was
supposed to indicate in his final offer how and where payment for the shares was planned to
be made.
Evidently, the trial courts dismissal of the complaint on the ground of
unenforceability under the Statute of Frauds is warranted
NERI V. HEIRS OF UY | G.R. NO. 194366 | OCTOBER 10, 2012
PERLAS-BERNABE, J.
ART. 1317. No one may contract in the name of another without being authorized
by the latter or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it
is revoked by the other contracting party.
ART. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;
FACTS:
Anunciacion had 7 children—2 from her first marriage with Gonzalo and 5 from her
second marriage with Neri. Anunciacion died intestate so Neri executed Extra-Judicial
Settlement of the Estate with Absolute Deed of Sale adjudicating among themselves the
subject property and conveying the same to Spouses Uy.
The children of Neri filed a complaint for annulment of sale of the said homestead
properties against spouses Uy for having been sold during the prohibited period. The heirs of
Uy countered that the sale took place beyond the 5-year prohibitory period from the
issuance of the homestead patents. Likewise, they denied knowledge of the exclusion of the
2 children from the first marriage
RTC: The extrajudicial settlement of the estate with absolute deed of sale is void for
depriving the 2 children of their hereditary rights.
CA: Reversed RTC’s ruling.
ISSUE:
Whether the absolute deed of sale is enforceable.
RULING:
YES.
The disputed sale entered into by Enrique in behalf of his minor children without
the proper judicial authority, unless ratified by them upon reaching the age of majority, is
unenforceable in accordance with Articles 1317 and 1403(1) of the Civil Code which provide:
ART. 1317. No one may contract in the name of another without being authorized by the
latter or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it
is revoked by the other contracting party.
ART. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;
xxx
Ratification means that one under no disability voluntarily adopts and gives
sanction to some unauthorized act or defective proceeding, which without his sanction
would not be binding on him. It is this voluntary choice, knowingly made, which amounts to a
ratification of what was theretofore unauthorized, and becomes the authorized act of the
party so making the ratification. Once ratified, expressly or impliedly such as when the
person knowingly received benefits from it, the contract is cleansed from all its defects from
the moment it was constituted, as it has a retroactive effect.
Records, however, show that Rosa had ratified the extrajudicial settlement of the
estate with absolute deed of sale.
Clearly, the foregoing statements constituted ratification of the settlement of the
estate and the subsequent sale, thus, purging all the defects existing at the time of its
execution and legitimizing the conveyance of Rosa’s 1/16 share in the estate of Anunciacion
to spouses Uy. The same, however, is not true with respect to Douglas for lack of evidence
showing ratification.
Considering, thus, that the extrajudicial settlement with sale is invalid and
therefore, not binding on Eutropia, Victoria and Douglas, only the shares of Enrique,
Napoleon, Alicia, Visminda and Rosa in the homestead properties have effectively been
disposed in favor of spouses Uy. "A person can only sell what he owns, or is authorized to sell
and the buyer can as a consequence acquire no more than what the seller can legally
transfer.
IGLESIA FILIPINA INDEPENDIENTE vs HEIRS of BERNARDINO TAEZA
FACTS: Iglesia Filipina Independiente (IFI) was the owner of a parcel of land (Lot 3653)
subdivided into four. From 1973-1976, Suprme Bishop Rev. Macario Ga, sold one lot to
Bienvenido de Guzman and two lots to Bernardino Taeza.
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Taeza registered the subject parcels of land and transfer certificates were issued in his name.
He then occupied a portion of the land.
In January 1990, IFI filed for annulment of sale annulment of the subject parcels of land
against Rev. Ga and the defendant Bernardino Taeza on the ground that Rev. Ga was not
authorized to sell. The RTC rendered judgment in favor of IFI. The CA reversed such decision.
It ruled that IFI being a corporation sole, validly transferred ownership over the land in
question through its Supreme Bishop, who was at the time the administrator of all properties
and the official representative of the church. It further held that [t]he authority of the then
Supreme Bishop Rev. Ga to enter into a contract and represent the plaintiff-appellee cannot
be assailed, as there are no provisions in its constitution and canons giving the said authority
to any other person or entity.
ISSUE: W/N the deed of sale with mortgage is null and void or unenforceable?
HELD: The issue boils down to the question of whether then Supreme Bishop Rev. Ga is
authorized to enter into a contract of sale in behalf of petitioner.
Petitioner maintains that there was no consent to the contract of sale as Supreme Bishop
Rev. Ga had no authority to give such consent. It emphasized that Article IV (a) of their
Canons provides that "All real properties of the Church located or situated in such parish can
be disposed of only with the approval and conformity of the laymen's committee, the parish
priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally with the
approval of the Supreme Bishop, as administrator of all the temporalities of the Church." It is
alleged that the sale was done without the required approval mentioned in the Canons;
The Trial court also found that the laymen's committee indeed made its objection to the sale
known to the Supreme Bishop but the latter still executed the contract of sale despite such
opposition. He clearly acted beyond his powers: This case clearly falls under the category of
unenforceable contracts mentioned in Article 1403, paragraph (1) of the Civil Code, which
provides, thus:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
Petition Granted. IFI is the rightful owner of subject lots.
Natividad vs. Natividad
The present petition arose from an action for specific performance and/or recovery of sum of
money filed against herein respondents by the spouses Leandro Natividad (Leandro) and
Juliana Natividad (Juliana), who are the predecessors of herein petitioners.
In their Complaint, Leandro and Juliana alleged that sometime in 1974, Sergio Natividad
(Sergio), husband of respondent Juana Mauricio-Natividad (Juana) and father of respondent
Jean Natividad-Cruz (Jean), obtained a loan from the Development Bank of the Philippines
(DBP). As security for the loan, Sergio mortgaged two parcels of land, one of which is co-
owned and registered in his name and that of his siblings namely, Leandro, Domingo and
Adoracion. This property is covered by Original Certificate of Title (OCT) No. 5980. Sergio's
siblings executed a Special Power of Attorney authorizing him to mortgage the said property.
The other mortgaged parcel of land, covered by OCT No. 10271, was registered in the name
of Sergio and Juana. Subsequently, Sergio died without being able to pay his obligations with
DBP. Since the loan was nearing its maturity and the mortgaged properties were in danger of
being foreclosed, Leandro paid Sergio's loan obligations. Considering that respondents were
unable to reimburse Leandro for the advances he made in Sergio's favor, respondents agreed
that Sergio's share in the lot which he co-owned with his siblings and the other parcel of land
in the name of Sergio and Juana, shall be assigned in favor of Leandro and Juliana. Leandro's
and Sergio's brother, Domingo, was tasked to facilitate the transfer of ownership of the
subject properties in favor of Leandro and Juliana. However, Domingo died without being
able to cause such transfer. Subsequently, despite demands and several follow-ups made by
petitioners, respondents failed and refused to honor their undertaking.
Respondents filed their Answer denying the allegations in the complaint and raising the
following defenses: (1) respondents are not parties to the contract between Sergio and DBP;
(2) there is neither verbal nor written agreement between petitioners and respondents that
the latter shall reimburse whatever payment was made by the former or their predecessor-
in-interest; (3) Jean was only a minor during the execution of the alleged agreement and is
not a party thereto; (4) that whatever liability or obligation of respondents is already barred
by prescription, laches and estoppel; (5) that the complaint states no cause of action as
respondents are not duty-bound to reimburse whatever alleged payments were made by
petitioners; and (6) there is no contract between the parties to the effect that respondents
are under obligation to transfer ownership in petitioners' favor as reimbursement for the
alleged payments made by petitioners to DBP.
Petitioners, insist that there was a verbal agreement between respondents and Leandro,
their predecessor-in-interest, wherein the subject properties shall be assigned to the latter as
reimbursement for the payments he made in Sergio's favor. To support this contention,
petitioners relied heavily on the Extrajudicial Settlement Among Heirs, which was executed
by respondents to prove that there was indeed such an agreement and that such a
Settlement is evidence of the partial execution of the said agreement.
Issue: W/N the contract is enforceable.
Held:
Suffice it to say that there is no partial execution of any contract, whatsoever, because
petitioners failed to prove, in the first place, that there was a verbal agreement that was
entered into.
Even granting that such an agreement existed, the CA did not commit any error in ruling that
the assignment of the shares of Sergio in the subject properties in petitioners' favor as
payment of Sergio's obligation cannot be enforced if there is no written contract to such
effect. Under the Statute of Frauds, an agreement to convey real properties shall be
unenforceable by action in the absence of a written note or memorandum thereof and
23
subscribed by the party charged or by his agent. As earlier discussed, the pieces of evidence
presented by petitioners, consisting of respondents' acknowledgment of Sergio's loan
obligations with DBP as embodied in the Extrajudicial Settlement Among Heirs, as well as the
cash voucher which allegedly represents payment for taxes and transfer of title in
petitioners' name do not serve as written notes or memoranda of the alleged verbal
agreement.
The foregoing, notwithstanding, the Court finds it proper to reiterate the CA ruling that, in
any case, since respondents had already acknowledged that Sergio had, in fact, incurred loan
obligations with the DBP, they are liable to reimburse the amount paid by Leandro for the
payment of the said obligation even if such payment was made without their knowledge or
consent.
Article 1236 of the Civil Code clearly provides that:
The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.
Neither can respondents evade liability by arguing that they were not parties to the contract
between Sergio and the DBP. As earlier stated, the fact remains that, in the Extrajudicial
Settlement Among Heirs, respondents clearly acknowledged Sergio's loan obligations with
the DBP. Being Sergio's heirs, they succeed not only to the rights of Sergio but also to his
obligations.
De Leon vs. Dela Llana
Distinction between a relatively simulated contract and an absolutely simulated
contract. In the former, the parties agreed to be bound by their true agreement, though the
contract does not state the true intent of the parties, and the simulation only relates to form
and not to the true intent of the parties; the parties are still bound by their true agreement.
Whereas, in the latter, the parties did not intend to be bound by the contract at all, as in the
present case where the lease contract was entered into only for purposes of formality in
order to satisfy the requirements of the Philippine Charity Sweepstakes Office (PCSO) to
operate a lottery franchise.
Facts: Gilbert dela Llana (Gilbert) filed an ejectment suit against Robert de Leon
and a certain Gil de Leon (collectively referred to as respondents) for non-payment rentals on
the property leased by the respondents for the purpose of operating a lottery outlet. The
respondents, on the other hand, countered that the undated lease contract between them
and Gilbert is simulated, and hence, are not bound by the same.
The trial court ruled that the lease contract is a relatively simulated contract,
although based from its ratiocination, it is one which is absolutely simulated, and therefore,
void.
Issue: Whether or not the lease contract is simulated.
Ruling: Yes. The lease contract is absolutely simulated, and hence, a void contract.
The Supreme Court noted that the lower court erred only in the terminology employed by it,
since based from its (lower court) ratiocination, there is a clear case of absolute simulation of
the lease contract. The Court further delved on the distinction between a relatively simulated
contract and an absolutely simulated contract:
If the parties state a false cause in the contract to conceal their
real agreement, the contract is only relatively simulated and the parties
are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to the
content or terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors-in-interest.
In absolute simulation, there is a colorable contract but it has
no substance as the parties have no intention to be bound by it. “The
main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in any
way alter the juridical situation of the parties.” “As a result, an absolutely
simulated or fictitious contract is void, and the parties may recover from
each other what they may have given under the contract.”
The Court took into consideration the finding of the lower court that the
parties did not intend to be bound by the undated lease contract, mainly because
the same was only entered into for purposes of formality to comply with the
requirements of the PCSO before one can operate a lottery outlet.
Tolentino vs. Latagan
A forged or fraudulent document may become the root of a valid title, if the
property has already been transferred from the name of the owner to that of the forger, and
then to that of an innocent purchaser for value.
Facts: The title to the subject property in this case was disputed by the parties on
the ground that the purchaser acquired her title thereto through a simulated sale on account
of forgery of the sellers’ signatures in the deed of sale. Thus, a suit was filed in the trial court
for quieting of title, recovery of property and damages claim that since the sale was
simulated and/or fictitious for being a forgery, all transactions emanating from it are null and
void.
Issue: Whether or not a forged deed of sale can be the source of a valid title.
Ruling: The Court found that there was forgery of the signatures of Amado and
Modesta in the deed of sale dated January 14, 1970.
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 In Rufloe v. Burgos, the Court held that a forged deed of sale is null and void and
conveys no title, for it is a well-settled principle that no one can give what one does not have;
nemo dat quod non habet. One can sell only what one owns or is authorized to sell, and the
buyer can acquire no more right than what the seller can transfer legally. Due to the forged
Deed of Absolute Sale dated January 14, 1970, Servillano acquired no right over the subject
property which he could convey to his daughter, Maria. All the transactions subsequent to
the falsified sale between the Servillano and his daughter are likewise void, namely, the
Deeds of Absolute Sale of the subject property that Servillano executed on May 25, 1971 and
November 24, 1977 in favor his daughter, as well as the Self-Adjudication of Real Property.
However, it has also been consistently ruled that that a forged or fraudulent
document may become the root of a valid title, if the property has already been transferred
from the name of the owner to that of the forger, and then to that of an innocent purchaser
for value. This doctrine emphasizes that a person who deals with registered property in good
faith will acquire good title from a forger and be absolutely protected by a Torrens title. This
is because a prospective buyer of a property registered under the Torrens system need not
go beyond the title, especially when she has no notice of any badge of fraud or defect that
would place her on guard.
TINGALAN v. SPOUSES MELLIZA
A void contract produces no legal effect whatsoever in accordance with the principle “quad
nullum est nullum producit effectum.” It could not transfer title to the subject property, it is
not susceptible of ratification and the action for the declaration of its absolute nullity is
imprescriptible.
Facts:
Tingalan sold a parcel of land to spouses Melliza Since then, respondents have been in actual,
exclusive, peaceful, uninterrupted and adverse possession of the subject property. The
Owner’s Duplicate of title and Tax Declaration were also issued under the names of the
spouses who paid for the transfer and real property taxes pertaining to the property in
question.20 years later, one Elena Tunanan filed an adverse claim over the subject property.
Petitioner countered and demanded that the respondents vacate the property, but the latter
refused claiming ownership over the same as supported by the Deed of Absolute Sale
executed between them and the petitioner. Petitioner then filed a case for quieting of title
and recovery of possession.
Petitioner claims that he remains to be the owner of the property as his title under the OCT
has never been cancelled and the said sale was null and void since the Deed was executed
within the five-year prohibitory period under the Public Land Act (a free patent was issued
under his name over the property in 1976 and he is the original owner in fee simple of the
same). He also contends that the Deed was written in English language which he could
neither speak nor understand. Also, being a member of the cultural minority, that Deed
should have been approved by the Chairman of the Commission on National Integration.
Issue: Whether the Contract of sale is valid
Ruling:
The contract of sale is null and void from inception for being contrary to law and public
policy. As a void contract, it is imprescriptible and not susceptible of ratification. The law is
clear under Section 118 of the Public Land Act, that unless made in favor of the government
or any of its branches, units or institutions, lands acquired under free patent of homestead
provisions shall not be subject to any form of encumbrance for a term of five years from and
after the date of issuance of the patent or grant.
The subject land could not have been validly alienated or encumbered because at the time
they entered into the contract, it was just 1 year from the grant of the patent to the
petitioner. Hence it was way within 5 years from the date of the issuance of the free patent.
The subject contract, being null and void from inception, did not pass any rights over the
property from the petitioner to respondents.
CLEMENTE v. COURT OF APPEALS
Simulation takes place when the parties do not really want the contract they have executed
to produce the legal effects expressed by its wordings. Under Article 1345, the simulation of a
contract may either be absolute or relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal their true agreement.
Facts:
Adela owned 3 adjoining parcels of land in Quezon City, subdivided as lots 32, 34 and 35-B.
During her lifetime, Adela allowed her 4 children and her grandchildren the use and
possession of the properties and its improvements. Sometime in 1985 and 1987, Adela
simulated the transfer of lots 32 and 34 to her two grandsons, Carlos and Dennis. As a
consequence, TCTs were issued respectively under their names. Lot 35-B remained with
Adela. It is undisputed that the transfers were never intended to vest title to Carlos and
Dennis who both will return the lots to Adela when requested.
On 1989, prior to Adela and petitioner’s departure for the US, Adela requested Carlos and
Dennis to execute a deed of reconveyance over lots 32 and 34. The deed of reconveyance
was executed on the same day and was registered with the Registry of Deeds. Subsequently,
Adela executed a deed of absolute sale over lots 32 and 34 in favor of petitioner, Clemente.
On the same day, Adela also executed a Special Power of Attorney in favor of petitioner.
Petitioner’s authority under the SPA included the power to administer, take charge and
manage, for Adela’s benefit, the properties and all her other real and personal properties in
the Philippines.
Petitioner and Adela then left for US. When petitioner returned to the Philippines, she
registered the sale over lots 32 and 34 with the RD and the respective TCTs were then issued
in the name of petitioner. In 1990, Adela died in the US and was succeeded by her 4 children.
25
Thereafter, petitioner sought to eject 2 of Adela’s children, who were then staying in the
properties. Only then did the children of Adela learn of the transfer of titles to petitioner.
They then filed a complaint for reconveyance of property against petitioner. They sought the
nullification of the Deeds of Absolute Sale. They alleged that Adela only wanted to help
petitioner travel to the US, by making it appear that petitioner has ownership of the
properties. Also, they alleged that no consideration was given by petitioner to Adela in
exchange for the simulated conveyances.
Issue: Whether the conveyances were
Ruling:
The Deeds of Absolute Sale between petitioner and Adela are null and void for lack of
consent and consideration.
While the deeds of absolute sale appear to be valid on their face, the courts are not
completely precluded to consider evidence aliunde in determining the real intention of the
parties. This is especially true when the validity of the contracts was put in issue by one of
the parties in his pleadings. Here, private respondents assail the validity of the Deeds by
alleging that they were simulated and lacked consideration.
Here, there was no valid contract of sale between the parties because of the absence of
consent. The contract was a mere simulation. Simulation takes place when the parties do not
really want the contract they have executed to produce the legal effects expressed by its
wordings. Under Article 1345, the simulation of a contract may either be absolute or relative.
The former takes place when the parties do not intend to be bound at all; the latter, when
the parties conceal their true agreement.
In absolute simulation, there appears to be a valid contract but there 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 terms of the contract. 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 and subsequent acts of the parties. This is especially true in a claim of
absolute simulation where a colorable contract is executed.
Moreover, there is finding that the contract was not supported by a consideration. Article
1471 of the NCC provides that if the price is simulated, the sale is void. Thus, although the
contracts state that the purchase price was paid by petitioner to Adela, the evidence shows
that the contrary is true, because no money changed hands.
TANCHULING VS. CANTELA
G.R. No. 209284, November 10, 2015
PERLAS-BERNABE, J
FACTS
Sps. Vicente and Renee Tanchuling, and Cantela executed a deed of sale covering two parcels
of land. On the face of the deed, the sum of P400,000 appears as the consideration for
Cantela's purported purchase of the properties. Vicente delivered the owner's copies of the
TCTs to Cantela, although it is undisputed that none of the parties are in actual physical
possession of the properties.
When Sps. Tanchuling tried to recover the TCTs from Cantela, the latter refused despite the
former's earnest demands, prompting them to file a complaint. They alleged that the subject
deed was absolutely simulated, hence, null and void, given that: (a) there was no actual
consideration paid by Cantela; (b) the deed was executed to merely show to their neighbors
that they are the true owners of the properties, considering that there are portions thereof
being illegally sold by a certain John Mercado to unsuspecting and ignorant buyers; and (c)
Cantela simultaneously executed an undated Deed of Absolute Sale reconveying the
properties in their favor.
Cantela insisted that the sale of the properties to him was valid as he bought it for P400,000.
He further averred that the undated deed was surreptitiously inserted by Sps. Tanchuling in
the copies of the subject deed presented to him for signing.
ISSUE:
Whether or not the subject deed is simulated, hence, null and void.
RULING:
Sps. Tanchuling never intended to transfer the properties to Cantela; hence, the subject deed
was absolutely simulated and in consequence, null and void.
Simulation takes place when the parties do not really want the contract they have executed
to produce the legal effects expressed by its wordings. Simulation or vices of declaration may
be either absolute or relative.
A contract of purchase and sale is null and void and produces no effect whatsoever where it
appears that the same is without cause or consideration which should have been the motive
thereof, or the purchase price which appears thereon as paid but which in fact has never
been paid by the purchaser to the vendor.
The parties never intended to be bound by any sale agreement. Instead, the subject deed
was executed merely as a front to show the public that Sps. Tanchuling were the owners of
the properties in order to deter the group of John Mercado from illegally selling the same.
26
MILAGROS C. REYES VS. FELIX P. ASUNCION
G.R. No. 196083, November 11, 2015
PERALTA, J.:
FACTS
Petitioner claims that since the early 80s, she and her late husband were the owners of a
parcel of land which is also a sugarcane plantation and forms part of a U.S. Military
Reservation. Sometime in 1986, petitioner hired respondent as a caretaker of the subject
land.
In 1997, the Bases Conversion and Development Authority (BCDA) launched a resettlement
program for the victims of the Mt. Pinatubo eruption and began to look for possible
resettlement sites in Tarlac and the subject lot was among those considered.
Thereafter, according to petitioner, in order to prevent the BCDA from converting her
property into a resettlement site, she and respondent executed a contract, where she
transferred her rights over the subject land to the respondent.
Petitioner claimed to have remained the absolute owner and possessor of the subject land
and presently occupies the same as a sugarcane plantation and even mills the sugarcane
harvested at the Central Azucarera de Tarlac for her own benefit. She also stated that the
respondent continued working for her but the latter's employment was severed when
petitioner discovered that respondent sold the former's pigs and cows.
Respondent then filed a complaint for estafa against petitioner alleging that the latter failed
and refused to give respondent his share of the total harvests on the subject land for the
years 1993-1999, using their contract as basis. However, the said complaint was dismissed
for lack of probable cause.
Petitioner then filed a Complaint against respondent before the RTC for the declaration of
nullity of the subject contract.
ISSUE
Whether the subject contract was merely simulated, thus is null and void.
RULING
The contract is valid. The petitioner failed to prove the contract was simulated.
It is petitioner's contention that the subject contract is purely simulated, since it purports a
transfer of rights over the subject land in favor of the respondent. When petitioner executed
the contract, it was never her intention to transfer her rights over the subject land as the
primordial consideration was to prevent the BCDA from taking over the property. She also
asserts that she and the respondent agreed to make the said false appearance in the
contract. However, the RTC and the CA found no other evidence to support the said
allegations and the self-serving averments of the petitioner. This Court is in agreement with
the RTC and the CA as to the insufficiency of evidence to prove that there was indeed a
simulation of contract.
The Civil Code provides:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when
the parties do not intend to be bound at all; the latter, when the parties conceal their true
agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it
does not prejudice a third person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the parties to their real agreement.
In absolute simulation, there is a colorable contract but it has no substance as the parties
have no intention to be bound by it. The main characteristic of an absolute simulation is that
the apparent contract is not really desired or intended to produce legal effect or in any way
alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious
contract is void, and the parties may recover from each other what they may have given
under the contract. However, if the parties state a false cause in the contract to conceal their
real agreement, the contract is relatively simulated and the parties are still bound by their
real agreement. Hence, where the essential requisites of a contract are present and the
simulation refers only to the content or terms of the contract, the agreement is absolutely
binding and enforceable between the parties and their successors-in-interest.
The primary consideration in determining the true nature of a contract is the intention of the
parties. If the words of a contract appear to contravene the evident intention of the parties,
the latter shall prevail. Such intention is determined not only from the express terms of their
agreement, but also from the contemporaneous and subsequent acts of the parties.
The burden of proving the alleged simulation of a contract falls on those who impugn its
regularity and validity. A failure to discharge this duty will result in the upholding of the
contract.
The finding of the CA is correct when it ruled that petitioner failed to present evidence to
prove that respondent acted in bad faith or fraud in procuring her signature or that he
violated their real intention, if any, in executing it.
Fullido vs. Grilli
GR 215014, February 29, 2016
FACTS: Sometime in 1994, Grilli, an Italian national, met Fullido in Bohol and courted her. In
1995, Grilli decided to build a residential house where he and Fullido would stay whenever
he would be vacationing in the country.
Grilli financially assisted Fullido in procuring a lot located in Biking I, Dauis, Bohol, from her
parents which was registered in her name under Transfer Certificate of Title (TCT) No.
30626.5 On the said property, they constructed a house, which was funded by Grilli. Upon
completion, they maintained a common-law relationship and lived there whenever Grilli was
on vacation in the Philippines twice a year.
In 1998, Grilli and Fullido executed a contract of lease, a memorandum of agreement (MOA)
and a special power of attorney8 (SPA), to define their respective rights over the house and
lot.
The lease contract stipulated, among others, that Grilli as the lessee, would rent the lot,
registered in the name of Fullido, for a period of fifty (50) years, to be automatically renewed
for another fifty (50) years upon its expiration in the amount of P10,000.00 for the whole
27
term of the lease contract; and that Fullido as the lessor, was prohibited from selling,
donating, or encumbering the said lot without the written consent of Grilli. SPA allowed her
to administer, manage, and transfer the house and lot on behalf of Fullido.
Initially, their relationship was harmonious, but it turned sour after 16 years of living
together. Both charged each other with infidelity. They could not agree who should leave the
common property, and Grilli sent formal letters to Fullido demanding that she vacate the
property, but these were unheeded. On September 8, 2010, Grilli filed a complaint for
unlawful detainer with prayer for issuance of preliminary injunction against Fullido before
the MCTC
Grilli’s position: He discovered she was pregnant, led him to believe it was his. But he still
allowed Fullido to live in his house in another room without rent. She let her two children,
siblings and parents stay. Property damaged and his personal belongings stolen or lost. Her
family was hostile to him.
Fullido’s position: Met as 17 when she was a cashier at a supermarket, he was a tourist. She
was young, he assured her and her parents that they would be eventually be married in 3
years. He offered to build a house for her on land she exclusively owned which would
become their conjugal abode. It lasted for 18 years, until Fullido found another woman. He
threatened her and beat her and her children. Even though Grilli funded the construction,
she owned it and contributed to the value by supervising construction and maintaining their
household.
ISSUE: Whether or not the contract is void
HELD: Yes.
The lease contract and the MOA circumvent the constitutional restraint against foreign
ownership of lands.
The prohibition, however, is not limited to the sale of lands to foreigners. It also covers leases
of lands amounting to the transfer of all or substantially all the rights of dominion. In the
landmark case of Philippine Banking Corporation v. Lui She,28 the Court struck down a lease
contract of a parcel of land in favor of a foreigner for a period of ninety-nine (99) years with
an option to buy the land for fifty (50) years. Where a scheme to circumvent the
Constitutional prohibition against the transfer of lands to aliens is readily revealed as the
purpose for the contracts, then the illicit purpose becomes the illegal cause rendering the
contracts void. Thus, if an alien is given not only a lease of, but also an option to buy, a
piece of land by virtue of which the Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years, then it becomes clear that the arrangement is a virtual
transfer of ownership whereby the owner divests himself in stages not only of the right to
enjoy the land but also of the right to dispose of it — rights which constitute ownership. If
this can be done, then the Constitutional ban against alien landholding in the Philippines, is
indeed in grave peril.
Based on the above-cited constitutional, legal and jurisprudential limitations, the Court finds
that the lease contract and the MOA in the present case are null and void for virtually
transferring the reigns of the land to a foreigner.
As can be gleaned from the contract, the lease in favor of Grilli was for a period of fifty (50)
years, automatically extended for another fifty (50) years upon the expiration of the original
period. Moreover, it strictly prohibited Fullido from selling, donating, or encumbering her
land to anyone without the written consent of Grilli. For a measly consideration of PI
0,000.00, Grilli would be able to absolutely occupy the land of Fullido for 100 years, and she
is powerless to dispose the same. The terms of lease practically deprived Fullido of her
property rights and effectively transferred the same to Grilli.
Worse, the dominion of Grilli over the land had been firmly cemented by the terms of the
MOA as it reinforced Grilli's property rights over the land because, first, it brazenly dictated
that ownership of the land and the residential building resided with him. Second, Fullido was
expressly prohibited from transferring the same without Grilli's conformity. Third, Grilli
would permanently reside in the residential building. Fourth, Grilli may capriciously dispose
Fullido's property once their common-law relationship is terminated. This right was recently
exercised when the land was transferred to Guibone. Lastly, Fullido shall be compelled to
transfer the land to Grilli if a law would be passed allowing foreigners to own real properties
in the Philippines.
Evidently, the lease contract and the MOA operated hand-in-hand to strip Fullido of any
dignified right over her own property. The term of lease for 100 years was obviously in excess
of the allowable periods under P.D. No. 471. Even Grilli admitted that "this is a case of an
otherwise valid contract of lease that went beyond the period of what is legally
permissible."34 Grilli had been empowered to deprive Fullido of her land's possession,
control, disposition and even its ownership. The jus possidendi, jus utendi, jus fruendi, jus
abutendi and, more importantly, the jus disponendi - the sum of rights which composes
ownership - of the property were effectively transferred to Grilli who would safely enjoy the
same for over a century. The title of Fullido over the land became an empty and useless
vessel, visible only in paper, and was only meant as a dummy to fulfill a foreigner's desire to
own land within our soils.
It is disturbing how these documents were methodically formulated to circumvent the
constitutional prohibition against land ownership by foreigners. The said contracts attempted
to guise themselves as a lease, but a closer scrutiny of the same revealed that they were
intended to transfer the dominion of a land to a foreigner in violation of Section 7, Article XII
of the 1987 Constitution. Even if Fullido voluntary executed the same, no amount of consent
from the parties could legalize an unconstitutional agreement. The lease contract and the
MOA do not deserve an iota of validity and must be rightfully struck down as null and void
for being repugnant to the fundamental law. These void documents cannot be the source of
rights and must be treated as mere scraps of paper.
A void contract cannot be the source of any right; it cannot be utilized in an ejectment suit.
Clearly, Contracts may be declared void even in a summary action for unlawful detainer
because, precisely, void contracts do not produce legal effect and cannot be the source of
any rights. To emphasize, void contracts may not be invoked as a valid action or defense in
any court proceeding, including an ejectment suit.
On the issue of in pari delicto, the Court held: “The application of the doctrine of in pari
delicto is not always rigid. An accepted exception arises when its application contravenes
well-established public policy. In this jurisdiction, public policy has been defined as that
principle of the law which holds that no subject or citizen can lawfully do that which has a
tendency to be injurious to the public or against public good. Thus, wherever public policy is
advanced by either party, they may be allowed to sue relief against the transaction.
In the present case, both Grilli and Fullido were undoubtedly parties to a void contract.
Fullido, however, was not barred from filing the present petition before the court because
the matters at hand involved an issue of public policy, specifically the Constitutional
prohibition against land ownership by aliens.
28

Joey R. Peña vs. Jesus Delos Santos and the Heirs of Rosita Delos Santos Flores
G.R. No. 202223 March 2, 2016
Reyes, J.
Article 1491(5) of the Civil Code expressly prohibits lawyers from acquiring property or rights
that may be the object of any litigation in which they may take part by virtue of their
profession.
FACTS: Jesus Delos Santos and Rosita Delos Santos Flores were the judgment awardees of
the two-thirds portion or 9,915 square meters of four adjoining lots designated as Lots 393-
A, 393-B, 394-D and 394-E, located in Boracay Island, Malay, Aklan, representing as their
shares in the intestate estate of Leonardo delos Santos.
Peña averred that he is the transferee of Jesus and Rosita's adjudged allotments over the
subject lots. He claimed that he bought the same from Atty. Romeo Robiso who acquired the
properties from Jesus and Rosita through assignment and sale.
The plaintiffs opposed Pefia's motion claiming that the conveyance made by Jesus and Rosita
in favor of Atty. Robiso was null and void for being a prohibited transaction because the
latter was their counsel in the case.
RTC upheld that the conveyance made by Jesus and Rosita in favor of Atty. Robiso is valid
since it was not made during the pendency of litigation but after judgment has been
rendered. CA reversed the decision of the RTC.
ISSUE: Whether the deeds of conveyance between Atty. Robiso and Jesus and Rosita were
void.
RULING: Yes. Article 1491(5) of the Civil Code expressly prohibits lawyers from acquiring
property or rights that may be the object of any litigation in which they may take part by
virtue of their profession. Records show that the judicial action over the subject lots was still
in the appellate proceedings stage when they were conveyed to Jesus and Rosita's counsel,
Atty. Robiso.
Clearly then, since the property conveyed to Atty. Robiso by Jesus and Rosita was still the
object of litigation, the deeds of conveyance executed by the latter are deemed inexistent.
Under Article 1409 of the Code, contracts, which are expressly prohibited or declared void by
law, are considered inexistent and void from the beginning.
WHEREFORE, foregoing considered, the Motion for Reconsideration is hereby DENIED for
lack of merit.
LIGUEZ v. COURT OF APPEALS
G.R. No. L-11240, December 18, 1957
FACTS:
Conchita Liguez (Conchita) filed a complaint against the widow and heirs of Salvador
Lopez (Salvador) to recover a parcel of 51.84 hectares of land in Davao. She averred to be its
legal owner, pursuant to a deed of donation executed in her favor by Salvador. At the time
the deed was executed, Conchita was 16. She had also been living with Salvador’s parents for
barely a month. The deed of donation recites that the donor Salvador, “for and in
consideration of his love and affection” for Conchita, and “also for the good and valuable
services rendered to [Salvador] by [Conchita], does by these presents, voluntarily give, grant
and donate…”
The Court of Appeals found that the donation was made in view of Salvador Lopez’s
desire to have sexual relations with Conchita. Furthermore, Conchita’s parents would not
allow Conchita to live with him unless he first donated the subject land. The donated land
originally belonged to the conjugal partnership of Salvador and his wife, Maria Ngo.
Conchita averred that under Art. 1274 (of the 1889 Civil Code), “in contracts of pure
beneficence the consideration is the liberality of the donor,” and liberality per se can never
be illegal, since it is neither against law or morals or public policy.
ISSUES:
1. Whether the conveyance was predicated on illegal causa? – YES
2. Whether the alienation of conjugal property was void? Only insofar as it
prejudices Maria Ngo.
RULING:
1. It is argued that under Article 1274 (now Art. 1350) of the Civil Code of 1889 (which
was the governing law in 1948, when the donation was executed), liberality of the donor is
deemed causa only in contracts that are of “pure” beneficence, or contracts designed
solely and exclusively to procure the welfare of the beneficiary, without any intent of
producing any satisfaction for the donor. In this case, Salvador was not moved exclusively
by the desire to benefit Conchita, but also to secure her cohabiting with him, and so that
he could gratify his sexual impulses. This is clear from Salvador’s confession to two
witnesses that he was in love with her.
Lopez would not have conveyed the property in question had he known that
Conchita would refuse to cohabit with him. The cohabitation was an implied condition to the
donation and being unlawful, necessarily tainted the donation. Therefore, the donation was
but one part of an onerous transaction (with Conchita’s parents) that must be viewed in its
totality.
2. Savador Lopez could not donate the entirety of the property to the prejudice of his
wife. The donation is void only insofar as it prejudices the interest of his wife.
No pari delicto: The facts are more suggestive of seduction than of immoral bargaining
on the part of appellant.
In our opinion, the Court of Appeals erred in applying to the present case the pari
delicto rule. First, because it can not be said that both parties here had equal guilt when we
consider that as against the deceased Salvador P. Lopez, who was a man advanced in years
and mature experience, the appellant was a mere minor, 16 years of age, when the donation
was made; that there is no finding made by the Court of Appeals that she was fully aware
of the terms of the bargain entered into by and Lopez and her parents; that, her
acceptance in the deed of donation (which was authorized by Article 626 of the Old Civil
Code) did not necessarily imply knowledge of conditions and terms not set forth therein;
29
and that the substance of the testimony of the instrumental witnesses is that it was the
appellant's parents who insisted on the donation before allowing her to live with Lopez.
These facts are more suggestive of seduction than of immoral bargaining on the part of
appellant. It must not be forgotten that illegality is not presumed, but must be duly and
adequately proved.
In the second place, the rule that parties to an illegal contract, if equally guilty, will not be
aided by the law but will both be left where it finds them, has been interpreted by this Court
as barring the party from pleading the illegality of the bargain either as a cause of action or
as a defense. Memo auditor propriam turpitudinem allegans. The appellant seeks recovery
of the disputed land on the strength of a donation regular on its face. To defeat its effect,
the appellees must plead and prove that the same is illegal. But such plea on the part of
the Lopez heirs is not receivable, since Lopez, himself, if living, would be barred from
setting up that plea; and his heirs, as his privies and successors in interest, can have no
better rights than Lopez himself.
Appellees, as successors of the late donor, being thus precluded from pleading the
defense of immorality or illegal causa of the donation, the total or partial ineffectiveness of
the same must be decided by different legal principles. In this regard, the Court of Appeals
correctly held that Lopez could not donate the entirety of the property in litigation, to the
prejudice of his wife Maria Ngo, because said property was conjugal in character and the
right of the husband to donate community property is strictly limited by law (Civil Code of
1889, Arts. 1409, 1415, 1413; Baello vs. Villanueva, 54 Phil. 213).
FINAL WORDS: Conchita Liguez entitled to so much of the donated property as may be
found, upon proper liquidation, not to prejudice the share of the widow Maria Ngo in the
conjugal partnership or the legitimes of Salvador’s forced heirs. The records are remanded to
the court of origin for further proceedings.
RELLOSA v. GAW CHEE HUN
G.R. No. L-1411. September 29, 1953
FACTS:
On February 2, 1944, Dionisio Rellosa sold to Gaw Chee Hun a parcel of land,
together with the house erected thereon, situated in the City of Manila, Philippines, for the
sum of P25,000. The vendor remained in possession of the property under a contract of lease
entered into on the same date between the same parties.
Alleging that the sale was executed subject to the condition that the vendee, being
a Chinese citizen, would obtain the approval of the Japanese Military Administration in
accordance with (seirei) No. 6 issued on April 2, 1943, by the Japanese authorities, and said
approval has not been obtained, and that, even if said requirement were met, the sale would
at all events be void under article XIII, section 5, of our Constitution.
The vendor instituted the present action in the Court of First Instance of Manila
seeking the annulment of the sale
ISSUES:
1. Whether the sale was void because it is against the constitution? YES.
2. Whether the petitioner can have the sale declared null and void and recover the
property considering the effect of the law governing rescission of contracts? NO.
RULING:
1. The sale in question having been entered into in violation of the Constitution. It is
no longer necessary to consider now the question relative to the validity of Seirei No. 6 of the
Japanese Military Administration for the simple reason that in our opinion the law that
should govern the particular transaction is not the above directive but the Constitution
adopted by the then Republic of the Philippines on September 4, 1943, it appearing that the
aforesaid transaction was executed on February 2, 1944, which provisions are similar to
those contained in our present Constitution. In the recent case of Krivenko vs. Register of
Deeds, 79 Phil. 461, wherein this court held that "under the Constitution aliens may not
acquire private or public agricultural lands, including residential lands." This matter has
been once more submitted to the court for deliberation, but the ruling was reaffirmed. This
ruling fully disposes of the question touching on the validity of the sale of the property herein
involved.
2. The sale in question having been entered into in violation of the Constitution, the
next question to be determined is, can petitioner have the sale declared null and void and
recover the property considering the effect of the law governing rescission of contracts? Our
answer must of necessity be in the negative following the doctrine laid down in the case of
Trinidad Gonzaga de Cabauatan, et al. vs. Uy Hoo, et al., 88 Phil. 103, wherein we made the
following pronouncement: "We can, therefore, say that even if the plaintiffs can still invoke
the Constitution, or the doctrine in the Krivenko Case, to set aside the sale in question, they
are now prevented from doing so if their purpose is to recover the lands that they have
voluntarily parted with, because of their guilty knowledge that what they were doing was in
violation of the Constitution. They cannot escape this conclusion because they are presumed
to know the law. As this court well said: 'A party to an illegal contract cannot come into a
court of law and ask to have his illegal objects carried out. The law will not aid either party
to an illegal agreement; it leaves the parties where it finds them.' The rule is expressed in
the maxims: 'Ex dolo malo non oritur actio,' and 'In pari delicto potior est conditio
defendentis.' (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 210, 216.)"
(Remedy of the State: (1) action for reversion, or (2) escheat to the state.)
ALFRED FRITZ FRENZEL vs. EDERLINA P. CATITO, G.R. No. 143958, July 11, 2003, CALLEJO,
SR., J.
A contract that violates the Constitution and the law, is null and void and vests no rights and
creates no obligations. It produces no legal effect at all.
Facts:
Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He married Teresita
Santos, a Filipino citizen. In 1981, Alfred and Teresita separated from bed and board without
obtaining a divorce.
He met Ederlina Catito, a Filipina and a native of Bajada, Davao City in Sydney. Unknown to
Alfred, she resided for a time in Germany and was married to Klaus Muller, a German
national. Alfred and Ederlina went to the Philippines.
Alfred told Ederlina that he was married but that he was eager to divorce his wife in
Australia. Alfred proposed marriage to Ederlina, but she replied that they should wait a little
bit longer.
30
When Alfred returned to the Philippines, he visited Ederlina in her Manila residence and
found it unsuitable for her. He decided to purchase a house and lot owned by Victoria Binuya
Steckel in San Francisco del Monte, Quezon City. Since Alfred knew that as an alien he was
disqualified from owning lands in the Philippines, he agreed that only Ederlina's name would
appear in the deed of sale as the buyer of the property, as well as in the title covering the
same. After all, he was planning to marry Ederlina and he believed that after their marriage,
the two of them would jointly own the property.
On July 28, 1984, while Alfred was in Papua New Guinea, he received a Letter dated
December 7, 1983 from Klaus Muller who was then residing in Berlin, Germany. Klaus
informed Alfred that he and Ederlina had been married on October 16, 1978 and had a
blissful married life until Alfred intruded.
In the meantime, Alfred decided to purchase another house and lot, owned by Rodolfo
Morelos covered by TCT No. 92456 located in Peña Street, Bajada, Davao City. Alfred again
agreed to have the deed of sale made out in the name of Ederlina.
Alfred purchased another parcel of land from one Atty. Mardoecheo Camporedondo, located
in Moncado, Babak, Davao, covered by TCT No. 35251. Alfred once more agreed for the
name of Ederlina to appear as the sole vendee in the deed of sale.
Alfred and Ederlina's relationship started deteriorating. Ederlina had not been able to secure
a divorce from Klaus.
In the meantime, on November 7, 1985, Alfred filed a complaint against Ederlina with the
Regional Trial Court, Davao City, for specific performance, declaration of ownership of real
and personal properties, sum of money, and damages.
In her answer, Ederlina denied all the material allegations in the complaint, insisting that she
acquired the said properties with her personal funds, and as such, Alfred had no right to the
same. She alleged that the deeds of sale, the receipts, and certificates of titles of the subject
properties were all made out in her name.
The petitioner contends that he purchased the three parcels of land subject of his complaint
because of his desire to marry the respondent, and not to violate the Philippine Constitution.
He was, however, deceived by the respondent when the latter failed to disclose her previous
marriage to Klaus Muller. It cannot, thus, be said that he and the respondent are "equally
guilty;" as such, the pari delicto doctrine is not applicable to him. He acted in good faith, on
the advice of the respondent's uncle, Atty. Mardoecheo Camporedondo. There is no
evidence on record that he was aware of the constitutional prohibition against aliens
acquiring real property in the Philippines when he purchased the real properties subject of
his complaint with his own funds. The transactions were not illegal per se but merely
prohibited, and under Article 1416 of the New Civil Code, he is entitled to recover the money
used for the purchase of the properties. At any rate, the petitioner avers, he filed his
complaint in the court a quo merely for the purpose of having him declared as the owner of
the properties, to enable him to sell the same at public auction. Applying by analogy Republic
Act No. 133 as amended by Rep. Act No. 4381 and Rep. Act No. 4882, the proceeds of the
sale would be remitted to him, by way of refund for the money he used to purchase the said
properties. To bar the petitioner from recovering the subject properties, or at the very least,
the money used for the purchase thereof, is to allow the respondent to enrich herself at the
expense of the petitioner in violation of Article 22 of the New Civil Code.
Issue:
Whether or not the sale of the three parcel of land in favor of petitioner valid
Ruling:
No.
Section 14, Article XIV of the 1973 Constitution provides, as follows:
Save in cases of hereditary succession, no private land shall be transferred or
conveyed except to individuals, corporations, or associations qualified to acquire or
hold lands in the public domain.
Lands of the public domain, which include private lands, may be transferred or conveyed only
to individuals or entities qualified to acquire or hold private lands or lands of the public
domain. Aliens, whether individuals or corporations, have been disqualified from acquiring
lands of the public domain. Hence, they have also been disqualified from acquiring private
lands.
Even if, as claimed by the petitioner, the sales in question were entered into by him as the
real vendee, the said transactions are in violation of the Constitution; hence, are null and
void ab initio. A contract that violates the Constitution and the law, is null and void and vests
no rights and creates no obligations. It produces no legal effect at all. The petitioner, being a
party to an illegal contract, cannot come into a court of law and ask to have his illegal
objective carried out. One who loses his money or property by knowingly engaging in a
contract or transaction which involves his own moral turpitude may not maintain an action
for his losses. To him who moves in deliberation and premeditation, the law is unyielding.
The law will not aid either party to an illegal contract or agreement; it leaves the parties
where it finds them. Under Article 1412 of the New Civil Code, the petitioner cannot have the
subject properties deeded to him or allow him to recover the money he had spent for the
purchase thereof. Equity as a rule will follow the law and will not permit that to be done
indirectly which, because of public policy, cannot be done directly. Where the wrong of one
party equals that of the other, the defendant is in the stronger position . . . it signifies that in
such a situation, neither a court of equity nor a court of law will administer a remedy. The
rule is expressed. in the maxims: EX DOLO ORITUR ACTIO and IN PARI DELICTO POTIOR EST
CONDITIO DEFENDENTIS.
The petitioner cannot feign ignorance of the constitutional proscription, nor claim that he
acted in good faith, let alone assert that he is less guilty than the respondent. The petitioner
31
is charged with knowledge of the constitutional prohibition. As can be gleaned from the
decision of the trial court, the petitioner was fully aware that he was disqualified from
acquiring and owning lands under Philippine law even before he purchased the properties in
question; and, to skirt the constitutional prohibition, the petitioner had the deed of sale
placed under the respondent's name as the sole vendee thereof:
Such being the case, the plaintiff is subject to the constitutional restrictions governing the
acquisition of real properties in the Philippines by aliens.
DOMINGO GONZALO vs. JOHN TARNATE, JR., G.R. No. 160600, January 15, 2014,
BERSAMIN, J.
The illegality of the Sub-Contract Agreement necessarily affects the Deed of Assignment
because the rule is that an illegal agreement cannot give birth to a valid contract.
Facts:
After the Department of Public Works and Highways (DPWH) had awarded on July 22, 1997
the contract for the improvement of the Sadsadan-Maba-ay Section of the Mountain
Province-Benguet Road in the total amount of 7 014 963 33 to his company, Gonzalo
Construction, petitioner Domingo Gonzalo (Gonzalo) subcontracted to respondent John
Tarnate, Jr. (Tarnate) on October 15, 1997, the supply of materials and labor for the project
under the latter’s business known as JNT Aggregates. Their agreement stipulated, among
others, that Tarnate would pay to Gonzalo eight percent and four percent of the contract
price, respectively, upon Tarnate’s first and second billing in the project.
In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment
whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of the
total collection from the DPWH for the project. This 10% retention fee (equivalent to
₱233,526.13) was the rent for Tarnate’s equipment that had been utilized in the project. In
the deed of assignment, Gonzalo further authorized Tarnate to use the official receipt of
Gonzalo Construction in the processing of the documents relative to the collection of the
10% retention fee and in encashing the check to be issued by the DPWH for that purpose.
The deed of assignment was submitted to the DPWH on April 15, 1999. During the processing
of the documents for the retention fee, however, Tarnate learned that Gonzalo had
unilaterally rescinded the deed of assignment by means of an affidavit of cancellation of
deed of assignment dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the
disbursement voucher for the 10% retention fee had then been issued in the name of
Gonzalo, and the retention fee released to him.
Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus, he
brought this suit against Gonzalo to recover the retention fee of ₱233,526.13, moral and
exemplary damages for breach of contract, and attorney’s fees.
In his answer, Gonzalo admitted the deed of assignment and the authority given therein to
Tarnate, but averred that the project had not been fully implemented because of its
cancellation by the DPWH, and that he had then revoked the deed of assignment. He insisted
that the assignment could not stand independently due to its being a mere product of the
subcontract that had been based on his contract with the DPWH; and that Tarnate, having
been fully aware of the illegality and ineffectuality of the deed of assignment from the time
of its execution, could not go to court with unclean hands to invoke any right based on the
invalid deed of assignment or on the product of such deed of assignment.
Issue:
Whether or not the deed of assignment was a valid and binding contract
Ruling:
No.
There is no question that every contractor is prohibited from subcontracting with or
assigning to another person any contract or project that he has with the DPWH unless the
DPWH Secretary has approved the subcontracting or assignment. This is pursuant to Section
6 of Presidential Decree No. 1594.
Gonzalo, who was the sole contractor of the project in question, subcontracted the
implementation of the project to Tarnate in violation of the statutory prohibition. Their
subcontract was illegal, therefore, because it did not bear the approval of the DPWH
Secretary. Necessarily, the deed of assignment was also illegal, because it sprung from the
subcontract. As aptly observed by the CA:
x x x. The intention of the parties in executing the Deed of Assignment was merely to cover
up the illegality of the sub-contract agreement. They knew for a fact that the DPWH will not
allow plaintiff-appellee to claim in his own name under the Sub-Contract Agreement.
Obviously, without the Sub-Contract Agreement there will be no Deed of Assignment to
speak of. The illegality of the Sub-Contract Agreement necessarily affects the Deed of
Assignment because the rule is that an illegal agreement cannot give birth to a valid contract.
To rule otherwise is to sanction the act of entering into transaction the object of which is
expressly prohibited by law and thereafter execute an apparently valid contract to
subterfuge the illegality. The legal proscription in such an instance will be easily rendered
nugatory and meaningless to the prejudice of the general public.
Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is
contrary to law is a void or inexistent contract. As such, a void contract cannot produce a
valid one. To the same effect is Article 1422 of the Civil Code, which declares that "a contract,
which is the direct result of a previous illegal contract, is also void and inexistent."
32
According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract cannot Ruling:
recover from one another and are not entitled to an affirmative relief because they are in Indeed, the contract herein involved is a contract of adhesion. But such an
pari delicto or in equal fault. The doctrine of in pari delicto is a universal doctrine that holds agreement is not per se inefficacious. The rule instead is that, should there be ambiguities in
that no action arises, in equity or at law, from an illegal contract; no suit can be maintained a contract of adhesion, such ambiguities are to be construed against the party that prepared
for its specific performance, or to recover the property agreed to be sold or delivered, or the it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the
money agreed to be paid, or damages for its violation; and where the parties are in pari intention of the parties, the literal meaning of its stipulations must be held controlling.
delicto, no affirmative relief of any kind will be given to one against the other. 1 As held in DBP v National Merchandising Corp., the contracting parties, being of
age and businessmen of experience, were presumed to have acted with due care and to have
Nonetheless, the application of the doctrine of in pari delicto is not always rigid. An accepted signed the assailed documents with full knowledge of their import.
exception arises when its application contravenes well-established public policy. In this A contract duly executed is the law between the parties, and they are obliged to
jurisdiction, public policy has been defined as "that principle of the law which holds that no comply fully and not selectively with its terms. A contract of adhesion is no exception.
subject or citizen can lawfully do that which has a tendency to be injurious to the public or
against the public good."
Alpha Insurance and Surety Co., Petitioner
Vs Arsenia Sonia Castor, Respondent
There is no question that Tarnate provided the equipment, labor and materials for the
Justice Peralta GR No. 1981 74 September 2, 2013
project in compliance with his obligations under the subcontract and the deed of assignment;
A contract of insurance is a contract of adhesion which must be construed liberally
and that it was Gonzalo as the contractor who received the payment for his contract with the
in favor of the insured and strictly against the insurer in order to safeguard the latter’s
DPWH as well as the 10% retention fee that should have been paid to Tarnate pursuant to
interest. Any ambiguity therein should be resolved against the insurer, to preclude the insurer
the deed of assignment. Considering that Gonzalo refused despite demands to deliver to
from non-compliance with his obligation
Tarnate the stipulated 10% retention fee that would have compensated the latter for the use
Facts :
of his equipment in the project, Gonzalo would be unjustly enriched at the expense of
Castor entered in a contract of insurance with Alpha Ins involving her vehicle. The
Tarnate if the latter was to be barred from recovering because of the rigid application of the
contract of insurance obligates Alpha Ins to pay Castor the amount of P 630,000 in case of
doctrine of in pari delicto. The prevention of unjust enrichment called for the exception to
loss or damage to said vehicle during the period Feb 26, 2007 to Feb 26, 2008.
apply in Tarnate’s favor.
On April 16, 2007, Castor instructed her driver to bring vehicle to an auto-shop for
a tune up. However, her driver no longer returned the vehicle. Castor reported the incident
to the police and concomitantly notified Alpha Ins of the said loss and demanded payment of
Pilipino Telelphone Corporation (Piltel), Petitioner
the insurance proceeds.
Vs Delfino Tecson, Respondent
Alpha Ins denied the insurance claim citing a provision in the insurance contract
Justice Vitug GR No. 156966 May 7, 2004
that “ The Company shall not be liable to pay for any malicious damage caused by the
Contract of adhesion is not per se inefficacious. The rule is that, should there be
Insured, any member of his family or by a person in the Insured’s service.”
ambiguities in a contract of adhesion, such ambiguities are to be construed against the party
Castor filed a complaint for Sum of Money with Damages against Alpha Ins before
that prepared it. If, however, the stipulations are not obscure, but are clear and leave no
the RTC
doubt on the intention of the parties, the literal meaning of its stipulations must be held
Alpha Ins argued that the word “damage” means loss due to injury or harm to
controlling.
person, property or reputation, and should be construed to cover malicious “loss” as in
Facts :
“theft”. It asserted that the loss of vehicle as a result of it being stolen by Castor’s driver is
Tecson applied for 6 cellular phone subscriptions with Piltel on various dates. Each
excluded from the policy.
application was approved and covered by a mobile service agreement.
RTC ruled in favor of Castor. CA affirmed ruling of the trial court. CA held that
Subsequently, Tecson filed with the RTC of Iligan City, Lanao del Norte, a complaint
exception does not cover loss but only damage because the terms of the insurance policy are
against Piltel for a “Sum of Money and Damages. Piltel moved for dismissal of the complaint
ambiguous, such that the parties themselves disagree about the meaning of particular
on the ground of improper venue, citing a common provision in the mobile service
provisions. The policy will be construed by the courts liberally in favor of the assured and
agreements – “Venue of all suits arising from the Agreement shall be in the proper courts of
strictly against the insurer.
Makati; subscriber hereby expressly waives any other venues.”
Issue:
RTC denied motion to dismiss. CA affirmed decision of trial court. CA anchored its
Whether or not CA committed grave abuse of discretion when it adjudged in favor
decision on the thesis that the subscription agreement being a mere contract of adhesion,
of Castor
does not bind Tecson on the venue stipulation.
Ruling:
Issue:
If the intention of Alpha Ins was to include “loss” within the term “damage” then
Whether or not the agreement being a contract of adhesion is inefficacious and
logic dictates that it should have used the term “damage” alone in the entire policy. Alpha
does not bind Tecson on the venue stipulation
Ins, after liberally using the words “loss” and “damage” in the entire policy, suddenly went

33
specific by using the word “damage” only in the policy’s exception regarding “malicious Respondent sent demand letters to petitioners and Somes for reimbursement of the 3
damage”. Now, Alpha Ins would like this Court to believe that it really intended the word million pursuant to the indemnity agreement. For their failure to reimburse respondent, the
“damage” in the term “malicious damage” to include theft of the vehicle. The Court does not latter filed a collection suit.
find this contention of Alpha Ins to be well taken.
When the terms of insurance contract contain limitations on liability, courts should Issue: Whether or not the Deed of Indemnity is a contract of adhesion, therefore, invalid
construe them in such a way as to preclude the insurer from non-compliance with his
obligation. Being a contract of adhesion, the terms of an insurance contract are to be
Ruling: No.
construed strictly against the party which prepared the contract, the insurer. By reason of
the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in The contract of indemnity is the law between the parties. it is a cardinal rule in the
favor of the insured, especially to avoid forfeiture. interpretation of a contract that if its terms are clear and leave no doubt on the intention of
the contracting parties, the literal meaning of its stipulation shall control. The CA aptly found
provisions in the contract that could not exonerate petitioners from their liability.
PAULINO M. EJERCITO, JESSIE M. EJERCITO and JOHNNY D. CHANG vs. ORIENTAL
ASSURANCE CORPORATION, G.R. No. 192099, July 8, 2015, SERENO, CJ. Clearly, as far as respondent is concerned, petitioners have expressly bound themselves to
the contract, which provides for the term granting authority to the company to renew the
original bond. The terms of the contract are clear, explicit and unequivocal. Therefore, the
With regard to the contention that the Deed of Indemnity is a contract of adhesion, the Court
subsequent acts of the Company, through Somes, the led to the renewal of the surety bond
has consistently held that contracts of adhesion are not invalid per se and that their binding
are binding on petitioners as well.
effects have been upheld on numerous occasions. the pretension that petitioners did not
consent to the renewal of the bond is belied by the fact that the terms of the contract which
they voluntarily entered into contained a clause granting authority to the Company to grant The intention of Somes to renew the bond cannot be denied, as she paid the renewal
or consent to the renewal of the bond. Having entered into the contract with full knowledge premium and even submitted the renewed bond to IATA.
of its terms and conditions, petitioners are stopped from asserting that they did so under the
ignorance of the legal effect of the contract or the undertaking. With regard to the contention that the Deed of Indemnity is a contract of adhesion, the Court
has consistently held that contracts of adhesion are not invalid per se and that their binding
Facts: effects have been upheld on numerous occasions. the pretension that petitioners did not
consent to the renewal of the bond is belied by the fact that the terms of the contract which
they voluntarily entered into contained a clause granting authority to the Company to grant
On 10 May 1999, respondent Oriental Assurance Corporation, through its Executive Vice
or consent to the renewal of the bond. Having entered into the contract with full knowledge
President Luz N. Cotoco issued a Surety Bond in favor of FFV Travel & Tours, Inc. (Company).
of its terms and conditions, petitioners are stopped from asserting that they did so under the
The bond was intended to guarantee the Company’s payment of airline tickets purchased on
ignorance of the legal effect of the contract or the undertaking.
credit from participating members of International Air Transport Association (IATA) to the
extent of 3million.
It is true that on some occasions, the Court has struck down such contract as void when the
weaker party is imposed upon in dealing with the dominant party is reduced to the
On the same day, petitioners and Merissa C. Somes (Somes) executed a Deed of Indemnity in
alternative of accepting the contract or leaving it, completely deprived of the opportunity to
favor of respondent. The Surety Bond was effective for one year from its issuance until 10
bargain on equal footing. This reasoning cannot be used in the instant case. One of the
May 2000. It was renewed for another year, from 10 May 2000 to 10 May 2001, as shown in
petitioners, Paulino M. Ejercito, is a lawyer who cannot feign ignorance of the legal effect of
Bond Endorsement No. OAC-2000/0145 dated 17 April 2000. The corresponding renewal
his undertaking. Petitioners could have easily inserted a remark in the clause granting
premium amounting to 15,024.54 was paid by the insured corporation under Official Receipt
authority to the Company to renew the original bond, if the renewal thereof was their
No. 100262.
intention.

FFV Travel & Tours, Inc. has been declared in default for failure to pay its obligations
The rule that ignorance of the contents of an instrument does not ordinarily affect the
amounting 5,484,086.97 and USD 18,760.98 as of 31 July 2000. Consequently, IATA
liability of the one who signs it may also be applied to this Indemnity Agreement. And the
demanded payment of the bond, and respondent heeded the demand on 28 November 2000
mistake of petitioners as to the legal effect of their obligation is ordinarily no reason for
as evidenced by China Bank Check No. 104949. IATA executed a Release of Claim on 29
relieving them of liability.
November 2000 acknowledging payment of the surety bond.

34
VICENTE D. CABANTING and LALAINE V. CABANTING vs. BPI FAMILY SAVINGS BANK,
INC., G.R. No. 201927, PERALTA, J.
A contract of adhesion, wherein one party imposes a ready-made form of contract on the
other, is not strictly against the law. A contract of adhesion is as binding as ordinary
contracts, the reason being that the party who adheres to the contract is free to reject it
entirely. Contrary to petitioner's contention, not every contract of adhesion is an invalid
agreement
Facts:
On January 14, 2003, petitioners bought on installment basis from Diamond Motors
Corporation a 2002 Mitsubishi Adventure SS MT and for value received, petitioners also
signed, executed and delivered to Diamond Motors a Promissory Note with Chattel
Mortgage. Therein, petitioners jointly and severally obligated themselves to pay Diamond
Motors the sum of P836,032.00, payable in monthly installments in accordance with the
schedule of payment indicated therein, and which obligation is secured by a chattel
mortgage on the aforementioned motor vehicle. On the day of the execution of the
document, Diamond Motors, with notice to petitioners, executed a Deed of Assignment,
thereby assigning to BPI Family Savings Bank, Inc. (BPI Family) all its rights, title and interest
to the Promissory Note with Chattel Mortgage.
Come October 16, 2003, however, a Complaint was filed by BPI Family against petitioners for
Replevin and damages before the Regional Trial Court of Manila (RTC), praying that
petitioners be ordered to pay the unpaid portion of the vehicle's purchase price, accrued
interest thereon at the rate of 36% per annum as of August 26, 2003, 25% attorney's fees and
25% liquidated damages, as stipulated on the Promissory Note with Chattel Mortgage. BPI
Family alleged that petitioners failed to pay three (3) consecutive installments and despite
written demand sent to petitioners through registered mail, petitioners failed to comply with
said demand to pay or to surrender possession of the vehicle to BPI Family.
In their Answer, petitioners alleged that they sold the subject vehicle to one Victor S. Abalos,
with the agreement that the latter shall assume the obligation to pay the remaining monthly
installments. It was then Abalos who made payments to BPI Family through his personal
checks, and BPI Family accepted the post-dated checks delivered to it by Abalos. The checks
issued by Abalos for the months of May 2003 to October 2003 were made good, but
subsequent checks were dishonored and not paid. Petitioners pointed out that BPI Family
should have sued Abalos instead of them.
Issue: Whether or not such stipulation (waiving the necessity of notice and demand to make
the obligation due and payable ) should be deemed invalid as the document they executed
was a contract of adhesion
Ruling: No.
No prior demand was necessary to make petitioners' obligation due and payable. The
Promissory Note with Chattel Mortgage clearly stipulated that "[i]n case of my/our
[petitioners'] failure to pay when due and payable, any sum which I/We x x x or any of us
may now or in the future owe to the holder of this note x x x then the entire sum outstanding
under this note shall immediately become due and payable without the necessity of notice or
demand which I/We hereby waive." Petitioners argue that such stipulation should be
deemed invalid as the document they executed was a contract of adhesion. It is impmiant to
stress the Court's ruling in Dia v. St. Ferdinand Memorial Park, Inc., 7 to wit:
A contract of adhesion, wherein one party imposes a ready-made form of contract on the
other, is not strictly against the law. A contract of adhesion is as binding as ordinary
contracts, the reason being that the party who adheres to the contract is free to reject it
entirely. Contrary to petitioner's contention, not every contract of adhesion is an invalid
agreement. As we had the occasion to state in Development Bank of the Philippines v. Perez:
x x x In discussing the consequences of a contract of adhesion, we held in Rizal Commercial
Banking Corporation v. Court of Appeals:
It bears stressing that a contract of adhesion is just as binding as ordinary contracts. It is true
that we have, on occasion, struck down such contracts as void when the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely deprived of the opportunity to bargain on
equal footing, Nevertheless, contracts of adhesion are not invalid per se; they 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.
The validity or enforceability of the impugned contracts will have to be determined by the
peculiar circumstances obtaining in each case and the situation of the parties
concerned.Indeed, Article 24 of the New Civil Code provides that "[in] all contractual,
property or other relations, when one of the·parties is at a disadvantage on account of his
moral dependence, ignorance, indigence, mental weakness, tender age, or other handicap,
the courts must be vigilant for his protection." x x x8
Here, there is no proof that petitioners were disadvantaged, uneducated or utterly
inexperienced in dealing with financial institutions; thus, there is no reason for the court to
step in and protect the interest of the supposed weaker party.
Verily, petitioners are bound by the aforementioned stipulation in the Promissory Note with
Chattel Mortgage waiving the necessity of notice and demand to make the obligation due
and payable.
35
Buenaventura vs. Metrobank
Facts:
Buenaventura executed 2 Promissory notes in favor of Metrobank. After their
maturity, there remained unpaid balance despite repeated demands.
Metrobank filed an action for recovery of sum of money.
Buenaventura claimed she rediscounted checks with Metrobank. She received
these checks from Imperial as partial payment of the purchase price of a property she sold to
him. However, Metrobank required her to execute the said PNs making her a guarantor of
the payments of these checks.
Buenaventura’s defenses:
1. Rediscounting does not create a loan obligation.
2. PNs she executed were contracts of adhesion because her only participation in
their execution was affixing her signature; and that the terms of the promissory
notes should be strictly construed against the respondent as the party responsible
for their preparation.
Metrobank’s defense:
The terms and conditions of the promissory notes were clear and unambiguous;
hence, there was no room or need for interpretation thereof.
Issue:
WON the PNs were contracts of adhesion?
Ruling:
Yes, but such circumstance alone did not necessarily entitle her to bar their literal
enforcement against her if their terms were unequivocal.
The promissory notes were written as follows:
FOR VALUE RECEIVED, I/we jointly and severally promise to pay Metropolitan Bank and Trust
Company, at its office x x x the principal sum of PESOS xx x, Philippine currency, together
with interest and credit evaluation and supervision fee (CESF) thereon at the effective rate
of• x x x per centum x x x per annum, inclusive, from date hereof and until fully paid.
As a rule, indeed, the contract of adhesion is no different from any other contract. Its
interpretation still aligns with the literal meaning of its terms and conditions absent any
ambiguity, or with the intention of the parties. The terms and conditions of the promissory
notes involved herein, being clear and beyond doubt, should then be enforced accordingly.
Sanchez vs. Mapalad Realty
Facts:
Mapalad Realty was the registered owner of 4 parcels of land. Jose Campos executed
an affidavit admitting that Mapalad was one of the companies held in trust for former
President Marcos.
Campos turned over, all assets, properties, records and documents pertaining to
Mapalad Realty to the Cory Administration. Writs of sequestration were against Mapalad and
all its properties.
Rolando Josef, appointed Vice President/Treasurer and GM of Mapalad, discovered for
that there was 4 TCTs missing. He inquired about it and discovered Mapalad’s former
director and general manager took them.
Nordelak Development Corporation filed a notice of adverse claim over the subject
properties based on deed of sale purportedly executed by Miguel Magsaysay in his capacity
as President and board chairman of Mapalad.
Magsaysay Inc., a corporation controlled by Miguel Magsaysay, acquired ownership of
all the shares of stock of Mapalad however was terminated after selling all his shares to Novo
Properties
Mapalad commenced the present action for annulment of deed of sale and
reconveyance of title against Nordelak. During the pendency of the case, Nordelak sold the
subject property to a certain Manuel Luis Sanchez, now petitioner.
Issue:
Whether or not there is a valid sale between Mapalad and Nordelak.
Ruling:
None.
By the contract of sale, one of the contracting parties obligates himself to transfer
ownership of and to deliver a determinate thing and the other party to pay therefore a price
certain in money or its equivalent
The essential requisites of a valid contract of sale are
(a) consent of the contracting parties,
(b) object certain, and
(c) cause of obligation.
Consent may be given only by a person with legal capacity to give consent. In the case
of juridical person such as corporation like Mapalad, consent may only be granted through its
officers who have been duly authorized by its board of directors.
In the present case, consent was purportedly given by Miguel Magsaysay, the person
who signed for and in behalf of Mapalad in the deed of absolute sale. However, during the
trial, he admitted to be no longer connected with Mapalad because he already divested all
his interests in said corporation as early as 1982. Even assuming, for the sake of argument,
the signatures were genuine, it would still be voidable for lack of authority resulting in his
capacity to give consent on the part of Mapalad.
JUAN P. CABRERA vs. HENRY YSAAC
G.R. No. 166790, November 19, 2014
LEONEN, J.:
Doctrine: A contract is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service." For there to be a valid
contract, there must be consent of the contracting parties, an object certain which is the
subject matter of the contract, and cause of the obligation which is established. Sale is a
special contract. The seller obligates himself to deliver a determinate thing and to transfer its
ownership to the buyer. In turn, the buyer pays for a price certain in money or its
equivalent. A "contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price." The seller and buyer must
36
agree as to the certain thing that will be subject of the sale as well as the price in which the
thing will be sold. The thing to be sold is the object of the contract, while the price is the cause
or consideration.
FACTS: The heirs of Luis and Matilde Ysaac co-owned a 5,517-square-meter parcel of land
located in Sabang, Naga City. One of them is respondent, Henry Ysaac. Ysaac leased out
portions of the property to several lessees. Juan Cabrera, one of the lessees, leased a 95-
square-meter portion of the land beginning in 1986.
Later, Henry Ysaac needed money and offered to sell the 95-square-meter piece of land to
Cabrera. He told Ysaac that the land was too small for his needs because there was no
parking space for his vehicle. To address Cabrera’s concerns, Ysaac expanded his offer to
include the two adjoining lands he was then leasing to the Borbe family and the Espiritu
family. Those three parcels of land have a combined area of 439-square-meters. However,
Ysaac warned Cabrera that the sale for those two parcels could only proceed if the two
families agree to it.
Cabrera accepted the new offer. The settled price was ₱250.00 per square meter, but
Cabrera could only pay in full after his retirement on June 15, 1992. Ysaac agreed but
demanded for an initial payment of ₱1,500.00, which was paid.
According to Cabrera, Ysaac informed him that the Borbe family and the Espiritu family were
no longer interested in purchasing the properties they were leasing. Since Mamerta Espiritu
of the Espiritu family initially considered purchasing the property and had made an initial
deposit for it, Cabrera agreed to reimburse this earlier payment. Cabrera paid ₱6,100.00.
Ysaac issued a receipt for this amount. ₱3,100.00 of the amount was reimbursed to Mamerta
and, in turn, she gave Cabrera the receipts issued to her by Ysaac.
On June 15, 1992, Cabrera tried to pay the balance of the purchase price to Ysaac. However,
he was in the United States. The only person in Ysaac’s residence was his wife who refused to
accept Cabrera’s payment.
Sometime in September 1993, Cabrera alleged that Ysaac approached him, requesting to
reduce the area of the land subject of their transaction. Part of the 439-square-meter land
was going to be made into a barangay walkway, and another part was being occupied by a
family that was difficult to eject of which Cabrera agreed to. The land was surveyed again.
According to Cabrera, Ysaac agreed to shoulder the costs of the resurvey, which Cabrera
advanced in the amount of ₱3,000.00.
The resurvey shows that the area now covered by the transaction was 321 square meters.
Cabrera intended to show the sketch plan and pay the amount due for the payment of the
lot. However, on that day, Ysaac was in Manila. Once more, Ysaac’s wife refused to receive
the payment because of lack of authority from her husband.
On September 21, 1994, Ysaac’s counsel, Atty. Luis Ruben General, wrote a letter addressed
to Atty. Leoncio Clemente, Cabrera’s counsel. Atty. General informed Atty. Clemente that his
client is formally rescinding the contract of sale because Cabrera failed to pay the balance of
the purchase price of the land between May 1990 and May 1992. The letter also stated that
Juan Cabrera’s initial payment of ₱1,500.00 and the subsequent payment of ₱6,100.00 were
going to be applied as payment for overdue rent of the parcel of land Cabrera was leasing.
The allegation of Cabrera that Ysaac agreed to shoulder the costs of the resurveying was
denied. Cabrera, together with his uncle, Delfin Cabrera, went to Ysaac’s house on
September 16, 1995 to settle the matter. Ysaac told Cabrera that he could no longer sell the
property because the new administrator of the property was his brother, Franklin Ysaac.
Due to Cabrera’s inability to enforce the contract of sale between him and Ysaac, he decided
to file a civil case for specific performance he prayed for the execution of a formal deed of
sale and for the transfer of the title of the property in his name. He tendered ₱69,650.00 to
the clerk of court as payment of the remaining balance of the original sale price.
Before the RTC decided the case, the property was sold to the local government of Naga City.
The property was turned into a project for the urban poor of the city. During the trial,
Corazon Borbe Combe of the Borbe family testified that contrary to what Cabrera claimed,
her family never agreed to sell the land they were formerly leasing from Ysaac. The Borbe
family bought the property from Naga City’s urban poor program.
RTC: Ruled that the contract of sale between Cabrera and Ysaac was duly rescinded when the
former failed to pay the balance of the purchase price in the period agreed upon. That there
was an agreement between them as to the sale of land and the corresponding unit price.
However, aside from the receipts turned over by Mamerta Espiritu to Cabrera, there was no
"evidence that the other adjoining lot occupants agreed to sell their respective
landholdings". It also doubted that Cabrera was willing and able to pay Henry Ysaac on June
15, 1992 because after the said refusal of Ysaac’s wife, he did not bother to write Ysaac or to
any of the co-owners his intention to pay for the land or he could have consigned the amount
in court at the same time notifying Ysaac of the consignation.
CA: Agreed with the RTC that there was a perfected contract of sale. That even if the subject
of the sale is part of Henry Ysaac’s undivided property, a co-owner may sell a definite portion
of the property. The contract of sale was not validly rescinded for the rescission to be valid
under Article 1592, it should have been done through a judicial or notarial act and not merely
through a letter.
ISSUE: Whether there was a valid contract of sale.
RULING: There was no valid contract of sale between petitioner and respondent.
As defined by the Civil Code, "[a] contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some
service." For there to be a valid contract, there must be consent of the contracting parties, an
object certain which is the subject matter of the contract, and cause of the obligation which
is established. Sale is a special contract. The seller obligates himself to deliver a determinate
thing and to transfer its ownership to the buyer. In turn, the buyer pays for a price certain in
money or its equivalent. A "contract of sale is perfected at the moment there is a meeting of
37
minds upon the thing which is the object of the contract and upon the price." The seller and
buyer must agree as to the certain thing that will be subject of the sale as well as the price in
which the thing will be sold. The thing to be sold is the object of the contract, while the price
is the cause or consideration.
The object of a valid sales contract must be owned by the seller. If the seller is not the owner,
the seller must be authorized by the owner to sell the object.
Specific rules attach when the seller co-owns the object of the contract. Sale of a portion of
the property is considered an alteration of the thing owned in common. Under the Civil Code,
such disposition requires the unanimous consent of the other co-owners. However, the rules
also allow a co-owner to alienate his or her part in the co-ownership.
If the alienation precedes the partition, the co-owner cannot sell a definite portion of the
land without consent from his or her co-owners. He or she could only sell the undivided
interest of the co-owned property. As summarized in Lopez v. Ilustre, "[i]f he is the owner of
an undivided half of a tract of land, he has a right to sell and convey an undivided half, but he
has no right to divide the lot into two parts, and convey the whole of one part by metes and
bounds."
The undivided interest of a co-owner is also referred to as the "ideal or abstract quota" or
"proportionate share." On the other hand, the definite portion of the land refers to specific
metes and bounds of a co-owned property. Hence, prior to partition, a sale of a definite
portion of common property requires the consent of all co-owners because it operates to
partition the land with respect to the co-owner selling his or her share. The co-owner or
seller is already marking which portion should redound to his or her autonomous ownership
upon future partition.
The object of the sales contract between petitioner and respondent was a definite portion of
a co-owned parcel of land. At the time of the alleged sale between petitioner and
respondent, the entire property was still held in common.
Respondent has "no right to sell or alienate a concrete, specific or determinate part of the
thing owned in common, because his right over the thing is represented by quota or ideal
portion without any physical adjudication."
There was no showing that respondent was authorized by his co-owners to sell the portion of
land occupied by Juan Cabrera, the Espiritu family, or the Borbe family. Without the consent
of his co-owners, respondent could not sell a definite portion of the co-owned property.
Respondent had no right to define a 95-square-meter parcel of land, a 439-square-meter
parcel of land, or a 321-square-meter parcel of land for purposes of selling to petitioner. The
determination of those metes and bounds are not binding to the co-ownership and, hence,
cannot be subject to sale, unless consented to by all the co-owners.
At best, the agreement between petitioner and respondent is a contract to sell, not a
contract of sale. A contract to sell is a promise to sell an object, subject to suspensive
conditions. Without the fulfillment of these suspensive conditions, the sale does not operate
to determine the obligation of the seller to deliver the object.
AGNES V. GUISON VS. HEIRS OF LOREÑO TERRY, ET AL.
G.R. No. 191914, August 9, 2017
SERENO, C.J.:
Doctrine: Article 1458 of the Civil Code describes a contract of sale as a transaction by which
“one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefore a price certain in money or its equivalent.”
The elements of a perfected contract of sale are the following: (1) the meeting of the minds of
the parties or their consent to a transfer of ownership in exchange for a price; (2) the
determinate object or subject matter of the contract; and (3) the price certain in money or its
equivalent as consideration for the sale. The absence of any of these elements renders a
contract void.
FACTS: Sometime in 1995, a Deed of Absolute Sale of parcel of land in Moonwalk, Danicop,
Catanduanes, with an area of 1.3894 hectares, identified as Lot No. 10628-pt. was executed
in favor of respondent Terry by Angeles Vargas, the father of petitioner Agnes Guison. In the
deed, Vargas acknowledged receipt of the payment for the lot in the amount of P5,557.60.
Later, Terry sold certain parts of the lot to third parties. In 1996, Vargas and Terry executed
an Agreement of Revocation of Sale (Revocation Agreement) relating to the same parcel of
land. The instrument stated that Vargas had erroneously sold the entire area of Lot 10628-pt
to Terry. That their true intention was only to convey a 3,000-square-meter portion of the
land whose actual location would later be determined by both parties in a separate
document, considering that there was no monetary consideration for the transaction. They
agreed to revoke the earlier Deed of Absolute Sale and affirmed the conveyance of the
3,000-square-meter potion,
Vargas died with no agreement executed regarding the actual location of the land. Then, a
Partition Agreement was entered into by the Heirs of Vargas, represented by Guison, and
Terry. The instrument, which was executed for the purpose of physically segregating the
3,000-square-meter portion allotted to Terry.
Thereafter, Terry sold other portions of the property to third parties. Later, the heirs of
Vargas executed an Extrajudicial Settlement of Estate Among Heirs. In that instrument, Lot
10628-pt was allotted to Guison as part of her share of the estate.
Then, Guison filed a Complaint for annulment of contracts, accion publiciana, and damages
against Terry and all those who had allegedly purchased portions of Lot 10628-pt from him.
The instruments sought to be annulled were the following: (a) the original Deed of Absolute
Sale executed by Vargas in favor of Terry; (b) the Agreement of Revocation of Sale signed by
Vargas and Terry; (c) the Partition Agreement entered into by petitioner and Terry; and (d)
the Deeds of Absolute Sale executed by Terry in favor of third parties.
Guison argued that the original Deed of Absolute Sale and the Agreement of Revocation of
Sale should be considered void for lack of consideration. That the nullity of those earlier
instruments led to the invalidity of the Partition Agreement, because it was signed in the
mistaken belief that Terry had a right to the property.
Terry filed refuted those assertions, he insisted that the 3,000-square-meter lot was
conveyed to him by Vargas. Terry explained that the property was in fact originally owned by
his grandfather, but incorrectly registered in the name of Vargas. That the original Deed of
Absolute Sale was executed to rectify the error in registration and restore the property to its
38
rightful owner. He further alleged that he had only signed the Agreement of Revocation of
Sale in consideration of his closeness to the Vargas family and in order to avoid litigation.
That petitioner herself confirmed the validity of the instruments of sale by executing the
Partition Agreement after the death of Vargas.
RTC: Rendered a Decision in favor of Gusion citing the absence of certain elements of a sale,
it declared that the Deed of Absolute Sale, Revocation Agreement, and Partition Agreement
were invalid contracts because of want of monetary consideration and failure of the contract
to reflect the true intention of the parties. Thus, there was no sale at all. That The Agreement
of Revocation of [S]ale merely affirms the intention of the parties to transfer the 3,000 sq. m.
lot and specify the actual location in a separate document and the absence of agreement as
to the price confirms that it was also without valuable consideration.
CA: Reversed the RTC ruling. While recognizing the nullity of the Deed of Absolute Sale given
the parties’ admission that there was no consideration for the transaction, it found no reason
to invalidate the Revocation Agreement. It ruled that this independent document proved the
true intent of the parties to transfer 3,000 square meters of the disputed property to Terry,
even without consideration.
ISSUE: Whether or not the Revocation Agreement and Partition Agreement are null and void
on the ground that there is absence of the meeting of the minds as to the consideration of
the sale.
RULING: The Revocation Agreement and the Partition Agreement are null and void because
of the absence of the required meeting of the minds regarding the consideration for the sale.
Consequently, the property was never validly conveyed to Terry.
Nevertheless, petitioner is estopped from questioning the title of those who purchased the
lot from Terry and relied upon petitioner’s representations in the Partition Agreement.
Based on the provisions of the Revocation Agreement and the Partition Agreement, we
conclude that the two instruments must be read as part of a single contract of sale. In the
Revocation Agreement, the parties recognized the transfer of a 3,000-square meter portion
of Lot No. 10628-pt to Terry. However, instead of identifying the specific segment of the
property allegedly conveyed, they stipulated that “the actual location of the said 3,000
square meters shall be determined by both parties in a separate document consonant with
this agreement, but forming a part hereof.” That separate document was the Partition
Agreement subsequently executed by the parties to physically segregate the portion of the
property sold to Terry.
It is therefore evident that the two instruments in question are not separate contracts, but
are mere components of the same sales transaction. Accordingly, we must examine both
documents together to determine whether a valid contract of sale exists.
Article 1458 of the Civil Code describes a contract of sale as a transaction by which “one of
the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefore a price certain in money or its equivalent.”
The elements of a perfected contract of sale are the following: (1) the meeting of the minds
of the parties or their consent to a transfer of ownership in exchange for a price; (2) the
determinate object or subject matter of the contract; and (3) the price certain in money or its
equivalent as consideration for the sale. The absence of any of these elements renders a
contract void.
In this case, the Revocation Agreement and the Partition Agreement are silent on the
matter of consideration. Neither instrument mentions the purchase price for the sale of the
lot. Not all the elements of a perfected contract of sale were present. In particular, there was
no sufficient evidence that the parties ever agreed on a specific purchase price for the
property.
While the purchase price for the property was not indicated on either of the
instruments, Terry insist that consideration was paid twice for the same lot (P5,557.60 upon
the execution of the original Deed of Absolute Sale and P3,000 upon the signing of the
Revocation Agreement). On the other hand, petitioner contends that there was no
consideration stated in the Revocation Agreement, because the parties agreed to determine
the price of the property in a separate document.
Terry failed to present any evidence other than his bare testimony. He insisted during his
testimony that he had paid for the property. In his Answer, however, he never asserted the
payment of consideration as a defense. Instead, he emphasized that the Deed of Absolute
Sale was executed by Vargas to return the land to him as the heir of the true owner of the
property.
Further, Terry did not mention any form of consideration in connection with the Revocation
Agreement. In fact, he admitted that no consideration was given to him in exchange for his
consent to the revocation of the earlier contract. He supposedly agreed to the revocation
only because of his closeness to the Vargas family and in order to avoid litigation. This
statement directly contradicts his later assertion that there was monetary consideration for
the sale.
In the same manner, the allegation made by petitioner that the parties agreed to the sale of
the lot at the prevailing market price is bereft of factual basis. Given that both the Revocation
Agreement and the Partition Agreement are silent on the issue of consideration, and further
considering the conflicting accounts of the parties themselves as to the exact amount of the
purchase price, the parties therefore did not reach any agreement as to the amount of
monetary consideration for the property.
This lack of consensus as to the price prevented the perfection of the sale. The law requires a
definite agreement as to a “price certain”. As there was no sufficient evidence of a meeting
of the minds between the parties with regard to the consideration for the sale, the
transaction is null and void.
DIRECTOR OF LANDS vs. ABABA (1979)
FACTS:
Atty. Alberto Fernandez is the adverse claimant of Lots No. 5600 and 5602 in Cebu.Fernandez
was retained as counsel by petitioner Maximo Abarquez in a civil case for the annulment of a
contract of sale with right of repurchase andfor the recovery of the land for said lots against
Agripina Abarquez.
The CFI of Cebu ruled against Maximo so he appealed to the CA.
Maximo litigated as a pauper in the lower court and engaged the services of Fernandez on a c
ontingent basis, liable to compensate his lawyer forthe appeal by obliging himself to give 1/2
of whatever he might recover from the 2 lots should the appeal prosper.
Lots 5600 and 5602 were part of the estate of Maximo’s deceased parents, which were partit
ioned to Maximo and Agripina, his sister, as heirs.
Subsequently, CA annulled the deed of pacto de retro and ruled in favor of Maximo. A TCT w
as issued in Maximo’s name over his adjudged share.
39
Atty. Fernandez waited for Maximo to comply with his obligation under the executed docum
ent by him to deliver 1/2 of the recovered land.Maximo refused to comply with his obligation
and instead offered to sell the whole land to petitioner-spouses Larrazabal.
Atty. Fernandez took stops to protect his interest by filing to annotate an attorney’s lien on t
he TCT and by notifying the Larrazabal spouses of hisclaim over 1/2 portion of the land.
Notwithstanding the annotation of the adverse claim, Maximo conveyed by deed of absolute
sale 2/3 of the lands to spouses Larrazabal.Spouses Larrazabal subsequently filed for cancella
tion of adverse claim on the new TCT.Atty. Fernandez filed the present appeal to deny the pe
tition for cancellation of adverse claim.
ISSUE: Whether or not the contract for contingent fee as basis of the interest of Atty.
Fernandez is prohibited by article 1491 of the Civil Code
HELD:
Art.1491only prohibits the sale or assignment between the lawyer and his client, of property
which is the subject of litigation.In other words, for theprohibition to operate, the sale or tra
nsfer of the property must take place'during the pendencyof the litigation
involving the property.
UnderAmerican Law, the prohibition does not applyto cases where after completion of litigat
ion the lawyer accepts on account of his fee, an interest the assets realized by the litigation.
There is a clear distraction between such cases and one in which the lawyer speculates on th
e outcomeof the matter in which he is employed.
A contract for a contingent fee is not covered by Article 1491 because the tranfer or
assignment of the property in litigation takes effect only after the finality of a favorable
judgment. In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half
(1/2) of whatever Maximo Abarquez might recover from his share in the lots in question, is
contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that
is, the transfer or assignment of one-half (1/2) of the property in litigation will take place only
if the appeal prospers. Therefore, the tranfer actually takes effect after the finality of a
favorable judgment rendered on appeal and not during the pendency of the litigation
involving the property in question. Consequently, the contract for a contingent fee is not
covered by Article 1491.
Spouses Larrazabal having purchased the property with the knowledge of the adverse claim,
they are therefore in bad faith. Consequently, they are estopped from questioning the
validity of the adverse claim.
(At your own risk : Topic is parties in a contract of sale, medyo vague yung case pero siguro
gusto lang sabihin is dapat parties must be limited to sell only their interest, parang nemo dat
quod non habet...)
Vda de Laig vs CA
FACTS
On June 1, 1948, a deed of sale was executed by and between Petre Galero as vendor and
Atty. Benito K. Laig as vendee, whereby the former sold to the latter the land. This deed of
sale was executed in the house of Carmen Verzo and witnessed by Claudio Muratalla and
Rosario Verzo Villarente, sister of Carmen Verzo. Original Certificate of Title No. 1097 was
delivered by Galero to Atty. Laig
Unfortunately, vendee Atty. Benito failed to solicit the approval of the Secretary of
Agriculture and Natural Resources. It was only after Atty. Laig's death that his wife,Rosario,
noticed the deficiency. Petitioner then wrote to the Register of Deeds, respondent
Baldomero M. Lapak, stating that the land had been sold to her late husband, requesting that
she be informed of any claim of ownership by other parties. Lapak replied it was still intact
and took note of her letter. Petitioner filed with the Bureau of Lands an affidavit together
with copy of the deed of sale in her husband's favor to have the ownership over the land
transferred to her husband's name. Meanwhile, Galero, with the assistance of Atty. Jose L.
Lapak, son of Baldomero M. Lapak, sought in court the issuance of a second owner's
duplicate copy of OCT No. 1097, claiming that his first duplicate of said OCT was lost during
World War 11.
In a span of four days - a second owner's duplicate copy was issued by respondent in favor of
Galero. And right on that same day, Galero executed in favor of respondent Carmen Verzo a
deed of sale of the land in issue for the sum of P600.00. The deed of sale in Verzo's favor was
registered, and Transfer Certificate of Title No. T-1055, in lieu of OCT No. 1097, which was
cancelled, was issued in her name. On January 26, 1953, petitioner Vda. de Laig, thru
counsel, her brother Atty. Dimaano, inquired from the Register of Deeds of Camarines Norte
if it was true that OCT No. 1097 in favor of Galero had already been cancelled and a transfer
certificate of title had been issued in favor of another person. Respondent Register of Deeds
Lapak replied in the affirmative.
Petitioner together with her minor children, filed the present action against respondents
Carmen Verzo, Petre Galero, the Director of Lands, the Register of Deeds of Camarines Norte
and the Secretary of Agriculture and Natural Resources praying for the annulment of the sale
in favor of Carmen Verzo and the cancellation of the second owner's duplicate of Original
Certificate of Title No. 1097 and Transfer Certificate of Title No. T-1055 by declaring the first
OCT No. 1097 valid and effective or in the alternative, by ordering Carmen Verzo to reconvey
the land in question to petitioners, plus P5,000.00 by way of damages.
ISSUE: WON respondent Carmen Verzo should be considered as the rightful owner of the
land in question; and
HELD:
No, according to Article 19. “Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
40

observe honesty and good faith.” The records reveal that respondent Carmen Verzo was not
in good faith when she facilitated the registration of her deed of sale. The following indicia of
bad faith characterized NOT ONLY her act of registering her deed of sale, BUT ALSO her
purchase of the disputed realty.
At the time of the sale of the land in question by Petre Galero to Atty. Benito K. Laig, the
latter was a boarder of Carmen Verzo in her house. Atty. Benito K. Laig, as her boarder, must
have mentioned to Carmen Verzo, his landlady, the land sold to him by Galero. By the same
token, Carmen Verzo must have known such sale. One of the witnesses to the deed of sale
executed by and between Atty. Laig and Petre Galero was Rosario Verzo Villarente, Carmen
Verzo's very own sister who was at that time living with her in her house, where Atty. Laig
then boarded.
SARILI v. LAGROSA | G.R. No. 193517 | January 15, 2014
Article 1874 of the Civil Code provides that "[w]hen a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void."
FACTS
On February 17, 2000, respondent, represented by his attorney-in-fact Lourdes
Labios Mojica (Lourdes) via a special power of attorney dated November 25, 1999
(November 25, 1999 SPA), filed a complaint against Sps. Sarili and the Register of Deeds of
Caloocan City (RD) before the RTC, alleging, among others, that he is the owner of a certain
parcel of land situated in Caloocan City covered by TCT No. 55979 (subject property) and has
been religiously paying the real estate taxes therefor since its acquisition on November 29,
1974. Respondent claimed that he is a resident of California, USA, and that during his
vacation in the Philippines, he discovered that a new certificate of title to the subject
property was issued by the RD in the name of Victorino married to Isabel Amparo (Isabel),
i.e., TCT No. 262218, by virtue of a falsified Deed of Absolute Saledated February 16, 1978
(February 16, 1978 deed of sale) purportedly executed by him and his wife, Amelia U.
Lagrosa (Amelia). He averred that the falsification of the said deed of sale was a result of the
fraudulent, illegal, and malicious acts committed by Sps. Sarili and the RD in order to acquire
the subject property and, as such, prayed for the annulment of TCT No. 262218, and that Sps.
Sarili deliver to him the possession of the subject property, or, in the alternative, that Sps.
Sarili and the RD jointly and severally pay him the amount of ₱1,000,000.00, including moral
damages as well as attorney’s fees.
In their answer, Sps. Sarili maintained that they are innocent purchasers for value,
having purchased the subject property from Ramon B. Rodriguez (Ramon), who possessed
and presented a Special Power of Attorney (subject SPA) to sell/dispose of the same, and, in
such capacity, executed a Deed of Absolute Sale dated November 20, 1992 (November 20,
1992 deed of sale) conveying the said property in their favor. In this relation, they denied any
participation in the preparation of the February 16, 1978 deed of sale, which may have been
merely devised by the "fixer" they hired to facilitate the issuance of the title in their
names. Further, they interposed a counterclaim for moral and exemplary damages, as well as
attorney’s fees, for the filing of the baseless suit.
ISSUE: Whether or not there was a valid conveyance of the subject property to Sps. Sarili.
RULING
NO.
The general rule is that every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefor and the law will in no way oblige him to
go beyond the certificate to determine the condition of the property. However, a higher
degree of prudence is required from one who buys from a person who is not the registered
owner, although the land object of the transaction is registered. In such a case, the buyer is
expected to examine not only the certificate of title but all factual circumstances necessary
for him to determine if there are any flaws in the title of the transferor. The buyer also has
the duty to ascertain the identity of the person with whom he is dealing with and the latter’s
legal authority to convey the property.
The strength of the buyer’s inquiry on the seller’s capacity or legal authority to sell depends
on the proof of capacity of the seller. If the proof of capacity consists of a special power of
attorney duly notarized, mere inspection of the face of such public document already
constitutes sufficient inquiry. If no such special power of attorney is provided or there is one
but there appears to be flaws in its notarial acknowledgment, mere inspection of the
document will not do; the buyer must show that his investigation went beyond the
document and into the circumstances of its execution.
In the present case, it is undisputed that Sps. Sarili purchased the subject property from
Ramos on the strength of the latter’s ostensible authority to sell under the subject SPA. The
said document, however, readily indicates flaws in its notarial acknowledgment since the
respondent’s community tax certificate (CTC) number was not indicated thereon. Despite this
irregularity, however, Sps. Sarili failed to show that they conducted an investigation beyond
the subject SPA and into the circumstances of its execution as required by prevailing
jurisprudence. Hence, Sps. Sarili cannot be considered as innocent purchasers for value.
Settled is the rule that a defective notarization will strip the document of its public character
and reduce it to a private instrument, and the evidentiary standard of its validity shall be
based on preponderance of evidence. The due execution and authenticity of the subject SPA
are of great significance in determining the validity of the sale entered into by Victorino and
Ramon since the latter only claims to be the agent of the purported seller (i.e., respondent).
Article 1874 of the Civil Code provides that "[w]hen a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void." In other words, if the subject SPA was not proven to be duly executed and
authentic, then it cannot be said that the foregoing requirement had been complied with;
hence, the sale would be void.
41
After a judicious review of the case, the Court holds that the due execution and authenticity
of the subject SPA were not sufficiently established.
While Ramon identified the signature of respondent on the subject SPA based on his alleged
familiarity with the latter’s signature, he, however, stated no basis for his identification of the
signatures of respondent’s wife Amelia and the witness, Evangeline F. Murral, and even failed
to identify the other witness, who were also signatories to the said document. In other
words, no evidence was presented to authenticate the signatures of the other signatories of
the subject SPA outside from respondent.
Besides, respondent’s signature appearing on the subject SPA is not similar to his genuine
signature appearing in the November 25, 1999 SPA in favor of Lourdes, especially the
signature appearing on the left margin of the first page.
Unrebutted too is the testimony of respondent who, during trial, attested to the fact that he
and his wife, Amelia, had immigrated to the USA since 1968 and therefore could not have
signed the subject SPA due to their absence.
Further, records show that the notary public, Atty. Ramon S. Untalan, failed to justify why he
did not require the presentation of respondent’s CTC or any other competent proof of the
identity of the person who appeared before him to acknowledge the subject SPA as
respondent’s free and voluntary act and deed despite the fact that he did not personally
know the latter and that he met him for the first time during the notarization. He merely
relied on the representations of the person before him and the bank officer who
accompanied the latter to his office, and further explained that the reason for the omission
of the CTC was "because in [a] prior document, [respondent] has probably given us already
his residence certificate." This "prior document," was not, however, presented during the
proceedings below, nor the CTC number ever identified.
Thus, in light of the totality of evidence at hand, the Court agrees with the CA’s conclusion
that respondent was able to preponderate his claims of forgery against the subject SPA. In
view of its invalidity, the November 20, 1992 sale relied on by Sps. Sarili to prove their title to
the subject property is therefore void.
ARCHES vs. DIAZ | G.R. No. L-27136 | April 30, 1973
Where the petition of the vendee in a pacto de retro sale is for a judicial order pursuant to
Article 1607 of the Civil Code, so that consolidation of ownership by virtue of the failure of the
vendor to redeem may be recorded in the Registry of Property, the right of action to foreclose
the mortgage or to collect the indebtedness arises from the judgment of the court declaring
the contract as equitable mortgage.
FACTS
On January 21, 1954 Maria B. Vda. de Diaz allegedly executed in favor of the late
Jose A. Arches a deed of sale with pacto de retro * over a parcel of land for and in
consideration of P12,500.00. Jose A. Arches during his lifetime filed a petition to consolidate
ownership over the lot but the defendant opposed the petition alleging among other things
that the said deed of sale with pacto de retro did not express the true intention of the
parties, which was merely to constitute a mortgage on the proper security for a loan. The
petition was denied, with the court holding that the contract was indeed an equitable
mortgage. This judgment became final and executory on August 29, 1965. Pursuant to this
judgment, the petitioner demanded the return of the consideration amounting to P12,
500.00 plus the costs he incurred for the reconstitution of the title to the subject Lot in the
name of the vendor and in paying the real estate taxes on said lot for the years 1951 to 1960.
Instead of answering the complaint the defendant moved to dismiss it on the
grounds of multiplicity of suit and res judicata, alleging that the decision of the cadastral
court declaring the sale with pacto de retro as an equitable mortgage constitutes an
adjudication of the right to foreclose the mortgage or to collect the indebtedness.
ISSUE: Whether or not the petitioner can recover the consideration of the pacto de retro sale
despite it being declared an equitable mortgage.
RULING: YES.
The decision of the cadastral court, holding in effect that the sale with pacto de
retro was an equitable mortgage and consequently dismissing the petition to consolidate
ownership, did not constitute an adjudication of the right to foreclose the mortgage or to
collect the indebtedness. In the case of Correa vs. Mateo and Icasiano, wherein an
unrecorded pacto de retro sale was construed as an equitable mortgage, it was ruled that the
plaintiff had the right "within sixty days after final judgment, for a failure to pay the amount
due and owing him, to foreclose his mortgage in a proper proceeding and sell all or any part
of the ten parcels of land to satisfy his debt." In effect this Court recognized the right of the
plaintiff to enforce his lien in a separate proceeding notwithstanding the fact that he had
failed to obtain judgment declaring him the sole and absolute owner of the parcels of land in
question.
Strictly speaking, where the petition of the vendee in a pacto de retro sale is for a
judicial order pursuant to Article 1607 of the Civil Code, so that consolidation of ownership
by virtue of the failure of the vendor to redeem may be recorded in the Registry of
Property, the right of action to foreclose the mortgage or to collect the indebtedness arises
from the judgment of the court declaring the contract as equitable mortgage. Although an
alternative prayer to this effect may be made in the petition, the same cannot but be
conditional, that is, only in the event such a declaration made, contrary to the plaintiff's claim
and the principal relief he seeks. His failure to make that alternative prayer, and the failure of
the court to grant it in the judgment dismissing the petition, should not be considered as a
bar to collecting the indebtedness in a proper action for that purpose.
42

ROCKVILLE EXCEL INTERNATIONAL EXIM CORPORATION v. SPOUSES OLIGARIO CULLA and
BERNARDITA MIRANDA
G.R. No. 155716 October 2, 2009 BRION, J.:
Facts:
The spouses Oligario and Bernardita (Sps. Culla) are the registered owners of a parcel of land.
They mortgaged this property to PS Bank to secure a loan of ₱1,400,000.00. Sometime in
1993, the Office of the Clerk of Court and the Ex-Officio Sheriff issued a Sheriff’s Notice of
Sale for the extrajudicial foreclosure of the property. To prevent the foreclosure, Oligario
approached Rockville – represented by its president and chairman, Diana Young – for
financial assistance. Rockville accommodated Oligario’s request and extended him a loan of
₱1,400,000.00. This amount was increased by ₱600,000.00 for the cash advances Oligario
requested, for a total loan amount of ₱2,000,000.00.
According to Rockville, when Oligario failed to pay the ₱2,000,000.00 loan after repeated
demands and promises to pay, the Sps. Culla agreed to pay their indebtedness by selling to
Rockville another property the spouses owned in Brgy. Calicanto, Batangas City (property).
The property has an area of approximately 7,074 square meters. Since a survey of the
surrounding properties revealed that the property is worth more than the Sps. Culla’s
₱2,000,000.00 loan, the parties agreed to fix the purchase price at ₱3,500,000.00. As
narrated by Rockville, it accepted the offer for a dacion en pago; on June 25, 1994, Rockville
and Oligario executed a Deed of Absolute Sale over the property. While the property was a
conjugal property of the Sps. Culla, only Oligario signed the Deed of Absolute Sale. Rockville
asserted that, by agreement with the Sps. Culla, Rockville would pay the additional
₱1,500,000.00 after Bernardita affixes her signature to the Deed of Absolute Sale. However,
when Bernardita continued to refuse to sign the Deed of Absolute Sale, Rockville caused the
annotation of an adverse claim on TCT No. T-19538 in order to protect its interest in the
property. Furthermore, Rockville tried to transfer the title of the property in its name but the
Registry of Deeds refused to carry out the transfer, given the absence of Bernardita’s
signature in the Deed of Absolute Sale.
Rockville filed a complaint for Specific Performance and Damages before the Regional Trial
Court (RTC) of Batangas City, Branch 2 against the Sps. Culla, praying that the lower court
order Bernardita to sign the Deed of Absolute Sale or, in the alternative, to authorize the sale
even without Bernardita’s signature. In their Answer, the Sps. Culla alleged that the
purported Deed of Absolute Sale failed to reflect their true intentions, as the deed was
meant only to guarantee the debt to Diana Young, not to Rockville. Contrary to Rockville’s
contention, the agreement was that the ₱1,500,000.00 had to be paid before Bernardita
would sign the Deed of Absolute Sale. When neither Rockville nor Diana Young paid the
₱1,500,000.00, the Sps. Culla volunteered to repay the ₱2,000,000.00 and opted to rescind
the sale. RTC, on October 26, 1999 decided the case in favour of the respondents. It
dismissed Rockville’s complaint after finding that the transaction between the parties was in
reality an equitable mortgage, not an absolute sale. On October 9, 2002 decision, the CA
concluded that the purported contract of sale between Rockville and the Sps. Culla was in
reality an equitable mortgage based on the following factual circumstances: (a) the glaring
inadequacy in the consideration for the sale and the actual market value of the property; (b)
the fact that the Sps. Culla remained in possession of the property even after the execution
of the Deed of Absolute Sale; (c) the fact that Rockville never paid the Sps. Culla the agreed
₱1,500,000.00 balance in the purchase price; and (d) Rockville’s continuous grant of
extensions to the Sps. Culla to pay their loan despite the execution of the deed of sale. Hence
this petition.
Issue/s: Whether the Deed of Absolute Sale is really an absolute sale of real property or an
equitable mortgage
Held:
The factual findings of the RTC and the CA that no agreement of sale was perfected between
Rockville and the Sps. Culla is correct. On the contrary, what they denominated as a Deed of
Absolute Sale was in fact an equitable mortgage. An equitable mortgage has been defined
"as one which although lacking in some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to charge real
property as security for a debt, there being no impossibility nor anything contrary to law in
this intent."A contract of sale is presumed to be an equitable mortgage when any of the
following circumstances, enumerated in Article 1602 of the Civil Code, is present.
In the present case, three attendant circumstances indicate that the purported sale was in
fact an equitable mortgage. First, the Sps. Culla retained possession of the property. Second,
Rockville kept a part of the purchase price. Third, as previously discussed, Rockville continued
to give the Sps. Culla extensions on the period to repay their loan even after the parties
allegedly agreed to a dacion en pago. These circumstances, coupled with the clear and
unequivocal testimonies of Oligario and Bernardita that the purpose of the Deed of Absolute
Sale was merely to guarantee their loan, clearly reveal the parties’ true intention to execute
an equitable mortgage and not a contract of sale. That a contract where the vendor remains
in physical possession of the land, as lessee or otherwise, is an equitable mortgage is well-
settled. The reason for this rule lies in the legal reality that in a contract of sale, the legal title
to the property is immediately transferred to the vendee; retention by the vendor of the
possession of the property is inconsistent with the vendee’s acquisition of ownership under a
true sale. It discloses, in the alleged vendee, a lack of interest in the property that belies the
truthfulness of the sale.
According to Rockville, it took possession of the property, albeit constructively and not
through actual occupation. Rockville contends, too, that its possession of the title to the
property and its subsequent attempt to register the property in its name are clear indicators
of its intent to enforce the contract of sale. We cannot agree with these positions. In the first
place, the Sps. Culla retained actual possession of the property and this was never disputed.
Rockville itself admits this in its petition, but claims in justification that since the property is
contiguous to the site of the Sps. Culla’s family home, it would have been impossible for
Rockville to obtain actual possession of the property. Regardless of where the property is
located, however, if the transaction had really been a sale as Rockville claimed, it should have
asserted its rights for the immediate delivery and possession of the lot instead of allowing
the Sps. Culla to freely stay in the premises. Its failure to do so suggests that Rockville did not
truly intend to enforce the contract of sale.
Moreover, we observe that while Rockville did take steps to register the property in its name,
it did so more than two years after the Deed of Absolute Sale was executed, and only after
Oligario’s continued failure to pay the ₱2,000,000.00 loan. In addition, Rockville admitted
that it never paid the ₱1,500,000.00 balance to the Sps. Culla. As found by the RTC, while
43
Rockville claims that it deposited this amount with May Bank of Malaysia and notified
Oligario of the deposit, no evidence was presented to support this claim. Besides, even if this
contention had been true, the deposit in a foreign bank was neither a valid tender of
payment nor an effective consignation. Lastly, the numerous extensions granted by Rockville
to Oligario to pay his debt after the execution of the Deed of Sale convince us that the parties
never intended to enter into a contract of sale; instead, the intent was merely to secure the
payment of Oligario’s loan. WHEREFORE, premises considered, we DENY the petition for lack
of merit; the assailed Decision dated is thus AFFIRMED. Costs against the petitioner. SO
ORDERED.
DOLORES ADORA MACASLANG v. RENATO AND MELBA ZAMORA
G.R. No. 156375 May 30, 2011 BERSAMIN, J.:
Facts: On March 10, 1999, the respondents filed a complaint for unlawful detainer in the
MTCC, alleging that "the [petitioner] sold to [respondents] a residential land located in
Sabang, DanaoCity" and that "the [petitioner] requested to be allowed to live in the house"
with a "promise to vacate as soon as she would be able to find a new residence." They
further alleged thatdespitetheir demand after a year, the petitioner failed or refused to
vacate the premises.
Despite the due service of the summons and copy of the complaint, the petitioner did not file
heranswer. The MTCC declared her in default upon the respondents’ motion to declare her in
default, and proceeded to receive the respondents’ oral testimony and documentary
evidence. Thereafter, on September 13, 1999, the MTCC rendered judgment against her. The
petitioner appealed to the RTC, which rendered a decision on May 18, 2000 dismissing the
complaint for failure to state a cause of action. The respondents appealed to the CA, assailing
the RTC’s decision for "disregarding the allegations in the complaint" in determining the
existence or non-existence of a cause of action. On July 3, 2002, the CA reversed and set
aside the RTC’s decision and reinstated the MTCC’s decision in favor of the respondents.
Issue/s: Whether there was a sale or an equitable mortgage
Held: Equitable mortgage. The respondents’ cause of action for unlawful detainer was based
on their supposed right to possession resulting from their having acquired it through sale.
The RTC dismissed the complaint based on its following findings, [that] there is conflict
between the allegation of the complaint and the document attached thereto. Simply stated,
plaintiff alleged that she bought the house of the defendant for ₱100,000.00 on September
10, 1997 as stated in an alleged Deed of Absolute Sale marked as Exhibit "A" to the
complaint. Insofar as plaintiff is concerned, the best evidence is the said Deed of Absolute
Sale.
The Court is surprised why in plaintiff’s letter dated February 11, 1998, marked as Exhibit "C"
and attached to the same complaint, she demanded from the defendant the whooping sum
of ₱1,101,089.90. It must be remembered that this letter was written five (5) months after
the deed of absolute sale was executed. The same letter (Exhibit "C") is not a letter of
demand as contemplated by law and jurisprudence. The plaintiff simply said that she will
appreciate payment per notarized document. There is no explanation what this document is.
Plaintiff’s letter dated April 28, 1998 (Exhibit "D") contradicts her allegation that she
purchased the house and lot mentioned in the complaint. Exhibit "D", which is part of the
pleading and a judicial admission clearly shows that the house and lot of the defendant was
not sold but mortgaged. A portion of the letter (Exhibit "D") reads: ‘This is to give notice that
since the mortgage to your property has long expired and that since the property is already
in my name, I will be taking over the occupancy of said property two (2) months from date of
this letter.’ Exhibit "E", which is a letter dated January 21, 1999, shows the real transaction
between the parties in their case. To reiterate, the consideration in the deed of sale (Exhibit
"A") is ₱100,000.00 but in their letter (Exhibit "E") she is already demanding the sum of
₱1,600,000.00 because somebody was going to buy it for ₱2,000,000.00.
There are indications that point out that the real transaction between the parties is one of
equitable mortgage and not sale. Despite holding herein that the respondents’ demand to
vacate sufficed, we uphold the result of the RTC decision in favor of the petitioner. This we
do, because the respondents’ Exhibit C and Exhibit E, by demanding payment from the
petitioner, respectively, of ₱1,101,089.90 and ₱1,600,000.00, revealed the true nature of the
transaction involving the property in question as one of equitable mortgage, not a sale. Our
upholding of the result reached by the RTC rests on the following circumstances that tended
to show that the petitioner had not really sold the property to the respondents, contrary to
the latter’s averments, namely: (a)The petitioner, as the vendor, was paid the amount of only
₱100,000.00, a price too inadequate in comparison with the sum of ₱1,600,000.00
demanded in Exhibit E; (b) The petitioner retained possession of the property despite the
supposed sale; and (c) The deed of sale wasexecuted as a result or by reason of the loan the
respondents extended to the petitioner,because they still allowed the petitioner to "redeem"
the property by paying her obligation under the loan.
Submissions of the petitioner further supported the findings of the RTC on the equitable
mortgage. Firstly, there was the earlier dated instrument (deed of pacto de retro) involving
the same property, albeit the consideration was only ₱480,000.00, executed between the
petitioner as vendor a retro and the respondent Renato Zamora as vendee a retro. Secondly,
there were two receipts for the payments the petitioner had made to the respondents
totaling ₱300,000.00. And, thirdly, the former secretary of respondent Melba Zamora
executed an affidavit acknowledging that the petitioner had already paid a total of
₱500,000.00 to the respondents. All these confirmed the petitioner’s claim that she
remained the owner of the property and was still entitled to its possession.
Article 1602 of the Civil Code enumerates the instances when a contract, regardless of its
nomenclature, may be presumed to be an equitable mortgage, namely:
(a) When the price of a sale with right to repurchase is unusually inadequate;
(b) When the vendor remains in possession as lessee or otherwise;
(c) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(d)When the purchaser retains for himself a part of the purchase price;
(e)When the vendor binds himself to pay the taxes on the thing sold; and,
(f) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
44
The circumstances earlier mentioned were, indeed, badges of an equitable mortgage within
the context of Article 1602 of the Civil Code. WHEREFORE, we grant the petition for review
on certiorari; set aside the decision promulgated on July 3, 2002 by the Court of Appeals; and
dismiss the complaint for unlawful detainer for lack of a cause of action. The respondents
shall pay the costs of suit. SO ORDERED.
LOMISES ALUDOS, deceased, substituted by FLORA ALUDOS v. JOHNNY M. SUERTE
June 18, 2012 (BRION, J.)
FACTS:
Lomises acquired from the Baguio City Government the right to occupy two stalls in the
Hangar Market in Baguio City. Subsequently, he entered into an agreement with respondent
Johnny M. Suerte for the transfer of all improvements and rights over the two market stalls
(Stall Nos. 9 and 10) for the amount of P260,000.00. Johnny gave a down payment of
P45,000.00 to Lomises, who acknowledged receipt of the amount in a document executed on
the same date as the agreement.
Johnny made a subsequent payment of P23,000.00; hence, a total of P68,000.00 of the
P260,000.00 purchase price had been made. Before full payment could be made, however,
Lomises backed out of the agreement and returned the P68,000.00 the mother and the
father of Johnny, respectively.
Johnny protested the return of his money, and insisted on the continuation and enforcement
of his agreement with Lomises. When Lomises refused Johnnys protest, Johnny filed a
complaint against Lomises before the RTC Baguio City, for specific performance with
damages.
RTC nullified the agreement between Johnny and Lomises for failure to secure the consent of
the Baguio City Government to the agreement. Lomises appealed the RTC decision to the CA,
arguing that the real agreement between the parties was merely one of loan, and not of sale;
he further claimed that the loan had been extinguished upon the return of the P68,000.00 to
Johnnys mother, Domes.
CA rejected Lomises claim that the true agreement was one of loan. The CA found that there
were two agreements entered into between Johnny and Lomises: one was for the
assignment of leasehold rights and the other was for the sale of the improvements on the
market stalls. The CA agreed with the RTC that the assignment of the leasehold rights was
void for lack of consent of the lessor, the Baguio City Government. The sale of the
improvements, however, was valid because these were Lomises private properties.
ISSUE: What is the nature of the contract of sale of improvements and assignment of
leasehold rights?
HELD:
What existed was an equitable mortgage, as contemplated in Article 1602, in relation with
Article 1604, of the Civil Code. An equitable mortgage has been defined as one which
although lacking in some formality, or form or words, or other requisites demanded by a
statute, nevertheless reveals the intention of the parties to charge real property as security
for a debt, there being no impossibility nor anything contrary to law in this intent. Article
1602 of the Civil Code lists down the circumstances that may indicate that a contract is an
equitable mortgage:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee
as rent or otherwise shall be considered as interest which shall be subject to the usury laws.
Based on Lomises allegations in his pleadings, we consider three circumstances to determine
whether his claim is well-supported. First, Johnny was a mere college student dependent on
his parents for support when the agreement was executed, and it was Johnnys mother,
Domes, who was the party actually interested in acquiring the market stalls. Second, Lomises
received only P48,000.00 of the P68,000.00 that Johnny claimed he gave as down payment;
Lomises said that the P20,000.00 represented interests on the loan. Third, Lomises retained
possession of the market stalls even after the execution of the agreement. Whether
separately or taken together, these circumstances do not support a conclusion that the
parties only intended to enter into a contract of loan.
That Johnny was a mere student when the agreement was executed does not indicate that
he had no financial capacity to pay the purchase price. At that time, Johnny was a 26-year old
third year engineering student who operated as a businessman as a sideline activity and who
helped his family sell goods in the Hangar Market. During trial, Johnny said he would get a
loan from his grandfather. That he did not have the full amount at the time the agreement
was executed does not necessarily negate his capacity to pay the purchase price, since he
had 16 months to complete the payment. Apart from Lomises bare claim that it was Johnnys
mother, Domes, who was interested in acquiring his market stalls, we find no other evidence
supporting the claim that Johnny was merely acting as a dummy for his mother.
Lomises contends that of the P68,000.00 given by Johnny, he only received P48,000.00, with
the remaining P20,000.00 retained by Johnny as interest on the loan. If the transaction was
indeed a loan and the P20,000.00 interest was already prepaid by Lomises, the return of the
full amount of P68,000.00 by Lomises to Johnny (through his mother, Domes) would not
make sense.
That Lomises retained possession of the market stalls even after the execution of his
agreement with Johnny is also not an indication that the true transaction between them was
one of loan. Johnny had yet to complete his payment and, until Lomises decided to forego
with their agreement, had four more months to pay; until then, Lomises retained ownership
and possession of the market stalls. Lomises cannot feign ignorance of the import of the
terms of the receipt of September 8, 1984 by claiming that he was an illiterate old man. A
witness testified not only of the fact of the sale, but also that Lomises daughter, Dolores,
translated the terms of the agreement from English to Ilocano for Lomises benefit; Lomises
45
himself admitted this fact. If Lomises believed that the receipt of September 8, 1984 did not
express the parties true intent, he could have refused to sign it or subsequently requested
for a reformation of its terms. Lomises rejected the agreement only after Johnny sought to
enforce it.
Hence, the CA was correct in characterizing the agreement between Johnny and Lomises as a
sale of improvements and assignment of leasehold rights, and uphold the validity of the sale
of improvements because these were Lomises private properties.
PABLO P. GARCIA vs. YOLANDA VALDEz VILLAR
June 27, 2012 (LEONARDO-DE CASTRO, J.)
FACTS:
Lourdes Galas (with daughter), mortgaged the subject property to Yolanda Villar as security
for a loan (P2,000,000). Subsequently, Galas (with Pingol), mortgaged the same property to
Pablo Gacia as security for a loan (P1,000,000). Both REMs provided that the mortgagee’s
consent is necessary in case of subsequent encumbrance or alienation of the property. Galas
sold said property to Villar.
Upon default of Galas, Garcia sought to foreclose the property. Garcia alleged that when
Villar purchased the subject property, she acted in bad faith and with malice as she
knowingly and willfully disregarded the provisions on laws on judicial and extrajudicial
foreclosure of mortgaged property. Garcia further claimed that when Villar purchased the
subject property, Galas was relieved of her contractual obligation and the characters of
creditor and debtor were merged in the person of Villar. Villar opposed saying that the
second REM made in favour of Garcia was without her knowledge and consent, hence void.
She averred that there could be no subrogation as the assignment of credit was done with
neither her knowledge nor prior consent. Villar added that Garcia should seek recourse
against Galas and Pingol, with whom he had privity insofar as the second mortgage of
property is concerned.
Issue: 1) WON the mortgage to Garcia and the sale to Villar is valid
2) Whether or not the sale of the subject property to Villar was in violation of the prohibition
on pactum commissorium;
3) WON Garcia could judicially foreclose the subject property.
Held:
1. Second REM to Garcia and the sale of the subject property to Villar are valid. While it is
true that the annotation of the first REM to Villar on contained a restriction on further
encumbrances without the mortgagee’s prior consent, this restriction was nowhere to be
found in the Deed of REM. If it were the intention of the parties to impose such restriction,
they would have and should have stipulated such in the Deed of REM itself. Neither did this
Deed proscribe the sale or alienation of the subject property during the life of the mortgages.
Nowhere was it stated in the Deed that Galas could not opt to sell the subject property to
Villar, or to any other person. Such stipulation would have been void anyway, as it is not
allowed under Article 2130 of the Civil Code, to wit:
Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall
be void.
2. Garcia claims that the stipulation appointing Villar, the mortgagee, as the mortgagors
attorney-in-fact, to sell the property in case of default in the payment of the loan, is in
violation of the prohibition on pactum commissorium, as stated under Article 2088 of the
Civil Code, viz:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void.
The following are the elements of pactum commissorium:
(1) There should be a property mortgaged by way of security for the payment of the principal
obligation; and (2) There should be a stipulation for automatic appropriation by the creditor
of the thing mortgaged in case of non-payment of the principal obligation within the
stipulated period.[39]
Villars purchase of the subject property did not violate the prohibition on pactum
commissorium. The power of attorney did not provide that the ownership over the subject
property would automatically pass to Villar upon Galas’s failure to pay the loan on time.
What it granted was the mere appointment of Villar as attorney-in-fact, with authority to sell
or otherwise dispose of the subject property, and to apply the proceeds to the payment of
the loan. This provision is customary in mortgage contracts, and is in conformity with Article
2087 of the Civil Code, which reads:
Art. 2087. It is also of the essence of these contracts that when the principal obligation
becomes due, the things in which the pledge or mortgage consists may be alienated for the
payment to the creditor.
Galass decision to eventually sell the subject property to Villar for an additional
P1,500,000.00 was well within the scope of her rights as the owner of the subject property.
The subject property was transferred to Villar by virtue of another and separate contract,
which is the Deed of Sale. Garcia never alleged that the transfer of the subject property to
Villar was automatic upon Galass failure to discharge her debt, or that the sale was simulated
to cover up such automatic transfer.
3. Garcia’s action of foreclosure of mortgage cannot prosper.
Real nature of a mortgage:
Art. 2126. The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose
security it was constituted.
A mortgage is a real right, which follows the property, even after subsequent transfers by the
mortgagor. “A registered mortgage lien is considered inseparable from the property
inasmuch as it is a right in rem.” The sale or transfer of the mortgaged property cannot affect
or release the mortgage; thus the purchaser or transferee is necessarily bound to
acknowledge and respect the encumbrance. In fact, under Art. 2129 of the Civil Code, the
mortgage on the property may still be foreclosed despite the transfer, viz:
Art. 2129. The creditor may claim from a third person in possession of the mortgaged
property, the payment of the part of the credit secured by the property which said third
person possesses, in terms and with the formalities which the law establishes.
While we agree with Garcia that since the second mortgage, of which he is the mortgagee,
has not yet been discharged, we find that said mortgage subsists and is still enforceable.
However, Villar, in buying the subject property with notice that it was mortgaged, only
undertook to pay such mortgage or allow the subject property to be sold upon failure of the
mortgage creditor to obtain payment from the principal debtor once the debt matures. Villar
did not obligate herself to replace the debtor in the principal obligation, and could not do so
in law without the creditor’s consent. Therefore, the obligation to pay the mortgage
indebtedness remains with the original debtors Galas and Pingol.
The mere fact that the purchaser of an immovable has notice that the acquired realty is
encumbered with a mortgage does not render him liable for the payment of the debt
guaranteed by the mortgage, in the absence of stipulation or condition that he is to assume
payment of the mortgage debt.
46

SPS. FELIPE SOLITARIOS and JULIA TORDA vs. SPS. GASTON JAQUE and LILIA JAQUE
G.R. No. 199852 November 12, 2014 VELASCO, JR., J.
A purported contract of sale where the vendor remains in physical possession of the land, as
lessee or otherwise, is an indicium of an equitable mortgage. The reason for this rule lies in
the legal reality that in a contract of sale, the legal title to the property is immediately
transferred to the vendee. Thus, retention by the vendor of the possession of the property is
inconsistent with the vendee’s acquisition of ownership under a true sale. It discloses, in the
alleged vendee, a lack of interest in the property that belies the truthfulness of the sale.
Facts:
The property subject of this suit is a parcel of agricultural land designated as Lot 4089,
consisting of 40,608 square meters, and located in Calbayog, Samar. It was originally
registered in the name of petitioner Felipe Solitarios and thereafter, in the name of the
respondents, spouses Gaston and Lilia Jaque (the Jaques).
In a Complaint for Ownership and Recovery of Possession with the RTC of Calbayog City, the
respondents spouses Jaque alleged that they purchased Lot 4089 from the petitioners,
spouses Solitarios in stages. According to respondents, they initially bought one-half of Lot
No. 4089 for ₱7,000.00. This sale is allegedly evidenced by a notarized Deed of Sale dated
May 8, 1981. Two months later, the spouses Solitarios supposedly mortgaged the remaining
half of Lot 4089 to the Jaques via a Real Estate Mortgage (REM) dated July 15, 1981, to
securea loan amounting to ₱3,000.00.
After almost two (2) years, the spouses Solitarios finally agreed to sell the mortgaged half.
However, instead of executing a separate deed of sale for the second half, they executed a
Deed of Sale dated April 26, 1983 for the whole lot to save on taxes, by making it appear that
the consideration for the sale of the entire lot was only ₱12,000.00 when the Jaques actually
paid ₱19,000.00 in cash and condoned the spouses Solitarios’ ₱3,000.00 loan.
On the basis of this second notarized deed, the Jaques had OCT No. 1249 cancelled and
registered Lot 4089 in their name under TCT No. 745.
For their part, the spouses Solitarios denied selling Lot 4089 and explained that they merely
mortgaged the same to the Jaques after the latter helped them redeem the land from the
Philippine National Bank (PNB).
The spouses Solitarios narrated that, way back in 1975, they obtained a loan from PNB
secured by a mortgage over Lot 4089. They were able to pay this loan and redeem their
property with their own funds. Shortly thereafter, in 1976, they again mortgaged their
property to PNB to secure a ₱5,000.00 loan. This time, the Jaques volunteered to pay the
mortgage indebtedness, including interests and charges and so gave the spouses Solitarios
₱7,000.00 for this purpose. However, this accommodation was made, so the spouses
Solitarios add, with the understanding that they would pay back the Jaques by delivering to
them a portion of the produce of Lot 4089, in particular, one half of the produce of the rice
land and one-fourth of the produce of the coconut land. The spouses Solitarios contended
that this agreement was observed by the parties until May 2000, when Gaston Jaque
informed them that he was taking possession of Lot 4089 as owner. And to their surprise,
Gaston Jaque showed them the Deeds of Sale dated May 8, 1981 and April 26, 1983, the REM
contract dated July 15, 1981, and TCT No. 745 to prove his claim. The spouses Solitarios
contended that these deeds of sale were fictitious and their signatures therein forged.
Further, the spouses Solitarios challenge the validity of the title, alleging that the Jaques
acquired it through fraud and machinations and by taking advantage of their ignorance and
educational deficiency. Thus, they prayed that the RTC: (1) cancel TCT No. 745; (2) declare
the adverted deeds of sales dated May 8, 1981 and April 26, 1983 as null and void; (3)
declare them the true and lawful owners of Lot 4089; and (4) award them moral and actual
damages.
During the course of the trial, and in compliance with the February 7, 2001 Order of the RTC,
the spouses Solitarios deposited with the court a quothe Jaques’ purported share in the
produce of Lot 4089 for the years 2001-2003, which amounted to 16,635.60.
On April 15, 2004, the RTC rendered a Decision upholding the validity of the deeds of sale in
question and TCT No. 745, rejecting the allegations of forgery and fraud. However, in the
same breath, the RTC declared that what the parties entered into was actually an equitable
mortgage as defined under Article 1602 in relation to Article 1604 of the New Civil Code, and
not a sale. Consequently, the RTC ordered, among others, the reformation of the Deeds
ofSale dated May 9,1981 and April 26, 1983, and the cancellation of TCT No. 745 in the name
of the Jaques.
On appeal, the CA reversed and set aside the RTC Decision, rejecting the trial court’s holding
that the contract between the parties constituted an equitable mortgage
Issue: Whether or not the parties effectively entered into a contract of absolute sale or an
equitable mortgage of Lot 4089.
Ruling: The transaction is actually one of equitable mortgage.
Article 1602 in relation to Article 1604 of the Civil Code enumerates several instances whena
contract, purporting to be, and in fact styled as, an absolute sale, is presumed to be an
equitable mortgage, thus:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
(1) When the price of a sale withright to repurchase is unusually inadequate;
(2) When the vendor remains inpossession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the
vendee as rent or otherwise shall be considered as interest which shall be subject to the
usury laws. Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting
to be an absolute sale.
As evident from Article 1602 itself, the presence of any of the circumstances set forth therein
suffices for a contract to be deemed an equitable mortgage. No concurrence or an
overwhelming number is needed.
With the foregoing in mind, We thus declare that the transaction between the parties of the
present case is actually one of equitable mortgage pursuant to the foregoing provisions ofthe
Civil Code. It has never denied by respondents that the petitioners, the spouses Solitarios,
have remained in possession of the subject property and exercised acts of ownership over
the said lot even after the purported absolute sale of Lot 4089. This fact is immediately
apparent from the testimonies of the parties and the evidence extant on record, showing
47
that the real intention of the parties was for the transaction to secure the payment of a debt.
Nothing more.
During pre-trial, the Jaques admitted that the spouses Solitarios were in possession of the
subject property. Gaston Jaque likewise confirmed that petitioners were allowed to produce
copra and till the rice field, which comprise one-half of the lot that was previously covered by
the real estate mortgage, after said portion was allegedly sold to them.
This Court had held that a purported contract of sale where the vendor remains in physical
possession of the land, as lessee or otherwise, is an indicium of an equitable mortgage. In
Rockville v. Sps. Culla, We explained that the reason for this rule lies in the legal reality that in
a contract of sale, the legal title to the property is immediately transferred to the vendee.
Thus, retention by the vendor of the possession of the property is inconsistent with the
vendee’s acquisition of ownership under a true sale. It discloses, in the alleged vendee, a lack
of interest in the property that belies the truthfulness of the sale.
During the period material to the present controversy, the petitioners, spouses Solitarios,
retained actual possession of the property. This was never disputed. If the transaction had
really been one of sale, as the Jaques claim, they should have asserted their rights for the
immediate delivery and possession of the lot instead of allowing the spouses Solitarios to
freely stay in the premises for almost seventeen (17) years from the time of the purported
sale until their filing ofthe complaint. Human conduct and experience reveal that an actual
owner of a productive land will not allow the passage of a long period of time, as in this case,
without asserting his rights of ownership.
To stress, Article 1602(6) of the Civil Code provides that a transaction is presumed to be an
equitable mortgage:
(6) In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.
This provision may very well be applied in this case. There is sufficient basis to indulge in the
presumption that the transaction between the parties was that of an equitable mortgage and
that the spouses Solitarios never wanted to sell the same to the Jaques.
HEIRS OF ANTERO SOLIVA vs. SEVERINO, JOEL, GRACE, CENON, JR., RENATO, EDUARDO,
HILARIO, all surnamed SOLIVA, ROGELIO V. ROLEDA, and SANVIC ENTERPRISES, INC.
G.R. No. 159611 April 22, 2015 BRION, J.
In the absence of any evidence which shows intent, on the part of Juana and Cenon, to enter
into a mortgage or to use the property sold to secure a debt; or of any fact or circumstance
which may reasonably lead this Court to conclude the existence of such intent, we cannot but
be convinced that the transaction covered by the 1970 Deed is a true and valid sale, not an
equitable mortgage.
Facts:
The Spouses Ceferino (also known as Rufino) Soliva and Juana Endeza possessed and owned,
during their lifetime, three parcels of land in Calbayog City.
Ceferino died in 1954, while Juana died in 1972. They had five children, namely: Dorotea
(deceased), Cenon, Severino, Victoriano and Antero. Dorotea is survived by Romeo and
Sergio. Earlier or on June 22, 1949, Mancol sold to Cenon the 1,600-square meter portion of
Parcel 2 through a notarized deed entitled "Escritura de Compra-Venta Absoluta." As Cenon
then lived in Manila, he left the possession and enjoyment of this portion to his parents.
However, when Ceferino died in 1954, Cenon took over the administration of the entire
estate, including Parcel 1.
In March 1959, Severino received as his share in their parents’ estate the 5,136-square meter
rice land covered by TD No. 14298. Severino subsequently sold this lot through a Deed of
Absolute Sale to Fortunato Calagos on April 30, 1959.
On November 13, 1970, Juana sold to Cenon Parcel 2 through a Deed of Conditional Sale with
Pacto A Retro (1970 Pacto de Retro Sale). In 1975, TD No. 24419 covering Parcel 2 was
cancelled and TD No. 38009 was issued in the name of Cenon.
On January 21, 1986, Cenon sold to Roleda a 4,092-square meter portion of Parcel 2. TD No.
38009 was subsequently cancelled and TD No. 4778 was issued in Roleda’s name.
On August 14, 1991, Roleda sold to SEI, through Poraque, the 4,092-square meter portion
which he bought from Cenon, along with Lot 2-C of the Plan of Land which Roleda acquired
from a certain Silverio Agura.
Meanwhile, Cenon died in 1987; he was survived by his children, namely: Joel, Grace, Cenon,
Renato, Eduardo and Hilario.
Issue: Whether or not the 1970 Pacto de Retro sale is a true sale or an equitable mortgage.
Ruling:
The 1970 Conditional Sale with Pacto de Retro is a true sale, not an equitable mortgage
under Article 1602 of the Civil Code.
An equitable mortgage is one which, although lacking the proper formalities, form or words,
or other requisites prescribed by law for a mortgage, nonetheless shows the real intention of
the parties to make the property subject of the contract as security for debt and contains
nothing impossible or anything contrary to law in this intent.
A contract of sale, whether an absolute sale or with a right of repurchase, is presumed by law
to be an equitable mortgage under any of the following circumstances:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
1. When the price of a sale with right to repurchase is unusually inadequate;
2. When the vendor remains in possession as lessee or otherwise;
3. When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
4. When the purchaser retains for himself a part of the purchase price;
5. When the vendor binds himself to pay the taxes on the thing sold;
6. In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the
vendee as rent or otherwise shall be considered as interest which shall be subject to the
usury laws.
For the presumption of an equitable mortgage to arise under any of the circumstances
enumerated in Article1602, however, two requisites must concur: (a) that the parties
entered into a contract denominated as a contract of sale; and (b) that their intention was to
secure an existing debt by way of mortgage.
The CA debunked Antero’s argument that the 1970 Pacto de Retro Sale was an equitable
mortgage because it found nothing which supports his theory that the "sale with right to
repurchase was executed to secure a debt." Moreover, it pointed out that Cenon’s
administration of the property from 1962 up to his death in 1987 indubitably shows that he
had, all the while, been in constructive possession of the property.
48
Of course, we did not fail to notice the clause in the 1970 Deed stating that "after the lapse
of said period the parties may execute another document for any extension of the right of
repurchase." Antero equates this with Article 1602 (3) of the Civil Code which states that
"[w]hen upon or after the expiration of the right to repurchase, another instrument
extending the period of redemption or granting a new period is executed."
This clause alone, however, did not and cannot sufficiently give the 1970 Pacto de Retro sale
the character of an equitable mortgage. Note that the clause used the word "may" in
allowing the parties to execute another contract to extend the right of repurchase. "May" is a
permissive word which simply provides for a situational possibility – of extending Juana’s
exercise of her repurchase right – that, in this case did not even materialize.
Thus, in the absence of any evidence which shows intent, on the part of Juana and Cenon, to
enter into a mortgage or to use the property sold to secure a debt; or of any fact or
circumstance which may reasonably lead this Court to conclude the existence of such intent,
we cannot but be convinced that the transaction covered by the 1970 Deed is a true and
valid sale, not an equitable mortgage.
Finally, we are not unaware of the equitable-mortgage presumption that the law accords in
situations when doubt exists as to the true intent of the parties to the contract. This legal
presumption, however, applies only when doubt, in fact, exists as to the nature of the
agreement of the parties.
When no doubt exists from the facts and the evidence, and the parties to the transaction
(specifically Juana as the vendor a retro in this case), never questioned the nature of their
agreement as one of mortgage, then this legal presumption shall not and cannot apply. After
all, the contract is the law between them and where its terms are clear and leaves no doubt
on their intention, the courts would have no choice but to uphold them.
MARCELINO REPUELA AND CIPRIANO REPUELA v. STATE OF THE SPOUSES OTILLO
LARAWAN AND JULIANA BACUS
G.R. No. 219638, December 07, 2016
FACTS:
Spouses Repuela owned Lot No. 3357 (subject property) in Talisay City, Cebu. After
they had passed away, their children Marcelino and Cipriano, succeeded them as owners of
the subject property. After the death of their parents, the Repuela brothers went to the
house of Otillo Larawan to borrow P200.00 for Marcelino's fare to Iligan City; that to secure
the loan, the Spouses Larawan required them to turn over the certificate of title for Lot No.
3357; that they were made to sign a purported mortgage contract but they were not given a
copy of the said document; that Cipriano affixed his signature while Marcelino, being
illiterate, just placed his thumb mark on the document; that they remained in possession of
the land despite the mortgage and had been planting bamboos, corn, bananas, and papayas
thereon and sharing the produce between them; and that they also paid the taxes due on the
property.
In October 2002, the Repuelas discovered that the Spouses Larawan did not pay
the taxes and the tax declaration on the subject property was already in the latter’s names as
early as 1964; that in the Registry of Deeds of Cebu, the TCT was already cancelled and a new
TCT had been issued to Otillo; that Spouses Larawan were able to transfer the certificate of
title to their names by virtue of the Extajudicial Declaration of Heirs and Sale bearing the
signature of her father Cipriano and the thumb mark of her uncle Marcelino; and that her
father and uncle remembered that they were made to sign a blank document. Hence, the
Repuela brothers were compelled to file a complaint for the annulment of the Extrajudicial
Declaration of Heirs and Sale and the cancellation of the new TCT.
For the Estate of Spouses Larawan, on the other hand, the transaction between the
Repuela brothers and Otillo was a sale and not a mortgage of a parcel of land; that the
document prepared was Extrajudicial Declaration of Heirs and Sale was prepared; that their
family had been in possession of the subject property and they had harvested and enjoyed
the produce of the land such as bamboos, jackfruit and 100 coconut trees; and that there
were no other persons claiming ownership over the land, as the Repuela brothers never
offered to redeem the subject property from their family.
After the trial, the RTC decided in favor of the Repuela brothers. It held that the
transaction between the parties was not a sale but an equitable mortgage. However, the CA
reversed the said ruling of the RTC. Hence, this present petition.
ISSUE: WON the Extrajudicial Declaration of Heirs and Sale amounted to an equitable
mortgage.
RULING: YES
An equitable mortgage is one which, although lacking in some formality, or form, or
words, or other requisites demanded by a statute, reveals the intention of the parties to
charge real property as security for a debt, and contains nothing impossible or contrary to
law. For a presumption of an equitable mortgage to arise, two requisites must first be
satisfied, namely: that the parties entered into a contract denominated as a contract of sale
and that their intention was to secure an existing debt by way of mortgage. There is no single
conclusive test to determine whether a deed of sale, absolute on its face, is really a simple
loan accommodation secured by a mortgage. Article 1602, in relation to Article 1604 of the
Civil Code, however, enumerates several instances when a contract, purporting to be, and in
fact styled as, an absolute sale, is presumed to be an equitable mortgage. Thus:
ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
49
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.
In any of the foregoing case, any money, fruits, or other benefit to be received by the vendee
as rent or otherwise shall be considered as interest which shall be subject to the usury laws.
ART. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be
an absolute sale. [Emphases and underscoring supplied]
Evident from Article 1602, the presence of any of the circumstances set forth
therein suffices for a contract to be deemed an equitable mortgage. No concurrence or an
overwhelming number is needed. In other words, the fact that some or most of the
circumstances mentioned are absent in a case will not negate the existence of an equitable
mortgage. In this case, it appears that two (2) instances enumerated in Article 1602 —
possession of the subject property and inference that the transaction was in fact a mortgage
attended the assailed transaction.
From the attending circumstances of the case, it can be inferred that the real
intention of the Repuela brothers was to secure their indebtedness from Spouses Larawan.
They needed money for Marcelino's fare so they went to the house of Otillo to borrow
P200.00. Considering that Spouses Larawan would only agree to extend the loan if they
would surrender their certificate of title over the subject property, they obliged in the belief
that its purpose was only to secure their loan. In other words, they surrendered the title to
Spouses Larawan as security to obtain the much needed loan. It was never their intention to
sell the subject property.
Granting that indeed Cipriano and Marcelino, signed and thumbmarked,
respectively, the Extrajudicial Declaration of Heirs and Sale, there is still reason to believe
that they did so without understanding the real nature, effects and consequences of what
they did as they were never explained to them. Cipriano, who only finished Grade One, and
Marcelino, an illiterate, were in dire need of money. As such, the possibility that they affixed
their conformity to the onerous contract to their detriment just to get the loan was not
remote. In dire need as they were, they signed a document despite knowing that it did not
express their real intention. "Necessitous men are not, truly speaking, free men; but to
answer a present emergency, will submit to any terms that the crafty may impose upon
them." For this reason, the Repuela brothers should be given the protection afforded by the
Civil Code provisions on equitable mortgage. Furthermore, it must be pointed out that the
law accords the equitable mortgage presumption in situations when doubt exists as to the
true intent of the parties to the contract, as in this case. Courts are generally inclined to
construe one purporting to be a sale as an equitable mortgage, which involves a lesser
transmission of rights and interests over the property in controversy.
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS Z.
LAFORTEZA, and LEA Z. LAFORTEZA vs. ALONZO MACHUCA
G.R. No. 137552. June 16, 2000
FACTS:
In the exercise of the authority of Special Power of Attorney , on January 20, 1989,
the heirs of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza and Gonzalo
Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with the Alonzo
Machucha over the subject property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS
(P630,000.00) payable as follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of the Lafortezas
if the sale is not effected due to the fault of the Machucha;
(b) P600,000.00 upon issuance of the new certificate of title in the name
of the late Francisco Q. Laforteza and upon execution of an extra-judicial
settlement of the decedents estate with sale in favor of Machucha.
On January 20, 1989, Machucha paid the earnest money of 30,000.00 plus rentals
for the subject property. On September 18, 1998, the heirs of Laforteza furnished to
Machucha a copy of the reconstituted title to the subject property, advising him that he had
thirty (3) days to produce the balance of P600,000.00 under the MOA. Machucha sent the
heirs a letter requesting for an extension of the THIRTY (30) DAYS deadline up to November
15, 1989 within which to produce the balance. The extension, however, does not appear to
have been approved by Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity
does not appear to have been secured.
On November 15, 1989, Machucha informed the defendant heirs that he already
had the balance of P600,000.00 covered by United Coconut Planters Bank Managers Check.
However, the heirs refused to accept the balance and informed him that the subject property
was no longer for sale. They informed Machucha that they were canceling the MOA (Contract
to Sell) in view of his failure to comply with his contractual obligations. Thereafter, Machucha
reiterated his request to tender payment of the balance but the heirs insisted on the
rescission of the Memorandum of Agreement. Thereafter, Machucha filed an action for
specific performance.
The petitioners contend that the Memorandum of Agreement is merely a lease
agreement with "option to purchase". As it was merely an option, it only gave the
respondent a right to purchase the subject property within a limited period without imposing
upon them any obligation to purchase it. Since the respondents tender of payment was made
after the lapse of the option agreement, his tender did not give rise to the perfection of a
contract of sale. However, both the lower court and the CA still ruled in favor of Machucha.
Hence, this present petition.
50
ISSUE: WON the MOA is an Option Contract, Contract to Sell, or a Contract of Sale.
RULING: The MOA entered into between the parties was one of sale and lease.
A contract of sale is a consensual contract and is perfected at the moment there is
a meeting of the minds upon the thing which is the object of the contract and upon the price.
From that moment the parties may reciprocally demand performance subject to the
provisions of the law governing the form of contracts. The elements of a valid contract of sale
under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate
subject matter and (3) price certain in money or its equivalent.
In the case at bench, there was a perfected agreement between the petitioners
and the respondent whereby the petitioners obligated themselves to transfer the ownership
of and deliver the house and lot and the respondent to pay the price amounting to six
hundred thousand pesos (P600,000.00). All the elements of a contract of sale were thus
present.
The issuance of the new certificate of title in the name of the late Francisco
Laforteza and the execution of an extrajudicial settlement of his estate was not a condition
which determined the perfection of the contract of sale. Petitioners contention that since the
condition was not met, they no longer had an obligation to proceed with the sale of the
house and lot is unconvincing. In the case at bar, there was already a perfected contract. The
condition was imposed only on the performance of the obligations contained therein.
Considering however that the title was eventually "reconstituted" and that the petitioners
admit their ability to execute the extrajudicial settlement of their fathers estate, the
respondent had a right to demand fulfillment of the petitioners obligation to deliver and
transfer ownership of the house and lot.
What further militates against petitioners argument that they did not enter into a
contract of sale is the fact that the respondent paid thirty thousand pesos (P30,000.00) as
earnest money. Earnest money is something of value to show that the buyer was really in
earnest, and given to the seller to bind the bargain. Whenever earnest money is given in a
contract of sale, it is considered as part of the purchase price and proof of the perfection of
the contract.
Although the memorandum agreement was also denominated as a "Contract to
Sell", we hold that the parties contemplated a contract of sale. A deed of sale is absolute in
nature although denominated a conditional sale in the absence of a stipulation reserving title
in the petitioners until full payment of the purchase price, In such cases, ownership of the
thing sold passes to the vendee upon actual or constructive delivery thereof, The mere fact
that the obligation of the respondent to pay the balance of the purchase price was made
subject to the condition that the petitioners first deliver the reconstituted title of the house
and lot does not make the contract a contract to sell for such condition is not inconsistent
with a contract of sale.
Spouses Valenzuela v. Kalayaan Development & Industrial corporation
G.r. No. 163244 June 22, 2009 Ponente: J Peralta
The non-payment of the purchase price renders the contract to sell ineffective and without
force and effect. Unlike a contract of sale, where the title to the property passes to the vendee
upon the delivery of the thing sold, in a contract to sell, ownership is, by agreement, reserved
to the vendor and is not to pass to the vendee until full payment of the purchase price.
Otherwise stated, in a contract of sale, the vendor loses ownership over the property and
cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract
to sell, title is retained by the vendor until full payment of the purchase price. In the latter
contract, payment of the price is a positive suspensive condition, failure of which is not a
breach but an event that prevents the obligation of the vendor to convey title from becoming
effective.
FACTS: Kalayaan Development & Industrial Corporation (Kalayaan) discovered that Spouses
Jose and Gloria Valenzuela (Sps. Valenzuela) occupied and built a house on a parcel of land it
owned. Kalayaan demanded that they vacate said property, however, upon negotiation, Sps.
Valenzuela and Kalayaan entered into a Contract to Sell wherein Sps. Valenzuela would
purchase 236 square meters of the subject property for P1,416,000 in twelve equal monthly
installments. Unfortunately, Sps. Valenzuela were only able to pay 10 monthly installments.
They then requested Kalayaan to issue a deed of sale for 118 square meters of the lot where
their house stood since they had paid half the purchase price. Meanwhile, the sister of one of
the Sps. Valenzuela assumed the remaining balance for the 118 square meters of the subject
property which Kalayaan accepted. Kalayaan however still demanded Sps. Valenzuela to pay
their outstanding obligation, but such demands remained unheeded. Kalayaan thus filed a
Complaint for the Rescission of Contract and Damages against Sps. Valenzuela.
Sps. Valenzuela on the other hand argued that the original contract was novated. When
Kalayaan accepted the payments made by the new debtor (sister of one of the Sps.
Valenzuela), it waived its right to rescind the previous contract. Thus, the action for rescission
filed by Kalayaan against them is unfounded.
ISSUE: Whether or not Kalayaan may validly rescind the contract to sell with Sps. Valenzuela
HELD: YES. The parties' contract to sell explicitly provides that Kalayaan "shall execute and
deliver the corresponding deed of absolute sale over" the subject property to the petitioners
"upon full payment of the total purchase price." Since Sps. Valenzuela failed to fully pay the
purchase price for the entire property, Kalayaan's obligation to convey title to the property
did not arise as well. Thus, Kalayaan may validly cancel the contract to sell its land to
petitioner, not because it had the power to rescind the contract, but because their obligation
thereunder did not arise (emphasis supplied )
The non-fulfillment by Sps. Valenzuela of their obligation to pay, which is a suspensive
condition for the obligation of Kalayaan to sell and deliver the title to the property, rendered
the Contract to Sell ineffective and without force and effect. The parties stand as if the
conditional obligation had never existed. Inasmuch as the suspensive condition did not take
place, Kalayaan cannot be compelled to transfer ownership of the property to petitioners.
51

SPS. MONTECALVO vs. HEIRS OF EUGENIA T. PRIMERO
In contract to sell, the payment of the purchase price in installments within the period
stipulated, constituted a positive suspensive condition, the failure of which is not really a
breach but an event that prevents the obligation of the seller to convey title in accordance
with Article 1184 of the Civil Code. A contract to sell is commonly entered into in order to
protect the seller against a buyer who intends to buy the property in installment by
withholding ownership over the property until the buyer effects full payment therefor
FACTS: A property registered in the name of Eugenia Primero (Primero) is leased to Irene
Montecalvo (Montecalvo). Primero eventually entered into an un-notarized Agreement with
Montecalvo under the condition that Montecalvo would deposit the amount of P40,000.00
which shall form part of the down payment equivalent to 50% of the purchase price and that
Montecalvo would pay the balance of the down payment during the term of negotiation of
30 to 45 days from receipt of said deposit. In case of default in the payment of the down
payment, the deposit would be returned and the Agreement will be deemed terminated.
Subsequently, Montecalvo failed to pay the full down payment within the stipulated
negotiation period. Nonetheless, she continued to stay on the disputed property, and still
made several payments. On the other hand, Primero did not return the deposit and refused
to accept further payments.
Montecalvo caused a survey of lot and the segregation of a portion but Primero opposed her
claim and asked her to vacate the property. Primero filed a complaint for unlawful detainer
against Montecalvos before the MTC of Iligan City
ISSUE: Whether the Primero can be compelled to execute the required deed of sale after the
agreed consideration was paid and possession thereof is delivered to and enjoyed by the
buyer
HELD: NO. In resolving the issue, we have to determine first whether the agreement entered
into by Montecalvo and Primero is contact to sell or contract of sale. The absence of a
provision in the Agreement transferring title from the owner to the buyer is taken as a strong
indication that the Agreement is a contract to sell. As stated in the Agreement, the payment
of the purchase price, in installments within the period stipulated, constituted a positive
suspensive condition, the failure of which is not really a breach but an event that prevents
the obligation of the seller to convey title in accordance with Article 1184 of the Civil Code.
Hence, for petitioners' failure to comply with the terms and conditions laid down in the
Agreement, the obligation of the predecessor-in-interest of the respondents to deliver and
execute the corresponding deed of sale never arose.
July 11, 2012 MENDOZA, J.
VIRGILIO S. DAVID vs. MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE, INC.
David was engaged in the business of supplying electrical hardware for rural electric
cooperatives like respondent Misamis.
Misamis, represented by Engr. Rada and Dir. Jimenez, entered into an agreement with David
for the latter to import a transformer in behalf of Misamis. They agreed to the total value of
P5.2M with 50% to be paid as downpayment, and other expenses for the account of the
buyer.
However, the Board Resolution of Misamis states that the purchase was to be financed
through a loan from the National Electrification Administration (NEA). As there was no
immediate action on the loan application, Engr. Rada requested David to deliver the
transformer even without the downpayment. David agreed provided that an interest of 24%
per annum shall be paid. Engr. Rada acquiesced to the condition. The goods were shipped to
Ozamiz City. In the Bill of Lading, a sales invoice was included which stated the agreed
interest rate of 24% per annum.
Nothing was heard from Misamis for sometime after the shipment, Medina, a representative
of David went to Ozamiz City to check on the shipment as well as confered with Engr. Rada
who told him that the loan was not yet released and asked if it was possible to withdraw the
shipped items. Medina agreed.
No payment was made for months. A demand letter was sent to Misamis, to which Engr.
Rada replied that the goods were still in the warehouse of the shipping company and that the
loan had not been approved. Medina went back to Ozamiz City where he found out that the
goods had already been released to Misamis evidenced by the shipping company’s copy of
the Bill of Lading.
Demand letters and statements of accounts were regularly sent to Misamis and were never
disputed.
David filed a complaint for specific performance with damages with the RTC.
The RTC dismissed the complaint. It found that although a contract of sale was perfected, it
was not consummated because David failed to prove that there was indeed a delivery of the
subject item and that MOELCI received it.
Aggrieved, David appealed his case to the CA.
The CA affirmed the ruling of the RTC, reasoning out that David failed to offer any textual
support that the “quotation letter” was a contract of sale instead of a mere price quotation
agreed to by Misamis’ representatives; that the RTC erred in stating that a contract of sale
was perfected between the parties despite the irregularities that tainted their transaction.
Further, the fact that MOELCI’s representatives agreed to the terms embodied in the
agreement would not preclude the finding that said contract was at best a mere contract to
sell.
Issue: WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE.
Held:
Yes. An examination of the alleged contract to sell, "Exhibit A," despite its unconventional
form, would show that said document, with all the stipulations therein and with the
attendant circumstances surrounding it, was actually a Contract of Sale. The rule is that it is
not the title of the contract, but its express terms or stipulations that determine the kind of
contract entered into by the parties.
First, there was meeting of minds as to the transfer of ownership of the subject matter.
Second, the document specified a determinate subject matter.
Third, there is delivery by presumption of law, Article 1523 of the Civil Code provides:
Where, in pursuance of a contract of sale, the seller is authorized or required to send the
goods to the buyer delivery of the goods to a carrier, whether named by the buyer or not, for
the purpose of transmission to the buyer is deemed to be a delivery of the goods to the
buyer, except in the cases provided for in Article 1503, first, second and third paragraphs, or
unless a contrary intent appears. (Emphasis supplied)
Thus, the delivery made by David to the shipping company was deemed to be a delivery to
Misamis.
PETITION GRANTED - Misamis ordered to pay David Php 5,472,722.27 with 12% interest per
annum, to be reckoned from the filing of the complaint until fully paid.
52

G.R. No. 179965 February 20, 2013 DEL CASTILLO,
J.
NICOLAS P. DIEGO vs. RODOLFO P. DIEGO and EDUARDO P. DIEGO
It is settled jurisprudence, to the point of being elementary, that an agreement which
stipulates that the seller shall execute a deed of sale only upon or after payment of the
purchase price is a contract to sell, not a contract of sale. In Reyes v. Tuparan, this Court
declared in categorical terms that "[w]here the vendor promises to execute a deed of
absolute sale upon the completion by the vendee of the payment of the price, the contract is
only a contract to sell. The aforecited stipulation shows that the vendors reserved title to the
subject property until full payment of the purchase price."
In this case, it is not disputed as in tact both parties agreed that the deed of sale shall only be
executed upon payment of the remaining balance of the purchase price. Thus, pursuant to the
above stated jurisprudence, we similarly declare that the transaction entered into by the
parties is a contract to sell.
Nicolas and his brother Rodolfo entered into an oral contract to sell covering Nicolas’s share,
fixed at ₱500,000.00, as co-owner of the family’s Diego Building. Rodolfo made a
downpayment of ₱250,000.00. It was agreed that the deed of sale shall be executed upon
payment of the remaining balance of ₱250,000.00. However, Rodolfo failed to pay the
remaining balance.
Nicolas’s share in the rents were not remitted to him by his other brother Eduardo, but were
given to Rodolfo instead.
Nicolas filed a Complaint against Rodolfo and Eduardo before the RTC, praying that an
accounting be rendered, his shares in the rents be delivered, and that Eduardo and Rodolfo
be held solidarily liable for attorney’s fees and litigation expenses.
The trial court dismissed the complaint for lack of merit and ordering Nicolas to execute a
deed of absolute sale in favor of Rodolfo upon payment by the latter of the ₱250,000.00
balance of the agreed purchase price. The trial court ruled that as early as 1993, Nicolas was
no longer entitled to the fruits of his aliquot share in the Diego Building because he had
"ceased to be a co-owner" thereof. That when Nicolas received the ₱250,000.00
downpayment, a "contract of sale" was perfected. Consequently, Nicolas is obligated to
convey such share to Rodolfo, without right of rescission. Finally, the trial court held that the
₱250,000.00 balance from Rodolfo will only be due and demandable when Nicolas executes
an absolute deed of sale.
The CA sustained the trial court’s Decision in toto. The CA held that since there was a
perfected contract of sale between Nicolas and Rodolfo, the latter may compel the former to
execute the proper sale document. Besides, Nicolas’s insistence that he has since rescinded
their agreement in 1997 proved the existence of a perfected sale. It added that Nicolas could
not validly rescind the contract because: "1) Rodolfo ha[d] already made a partial payment;
2) Nicolas ha[d] already partially performed his part regarding the contract; and 3) Rodolfo
opposes the rescission."10
The CA then proceeded to rule that since no period was stipulated within which Rodolfo shall
deliver the balance of the purchase price, it was incumbent upon Nicolas to have filed a civil
case to fix the same. But because he failed to do so, Rodolfo cannot be considered to be in
delay or default.
Finally, the CA made another interesting pronouncement, that by virtue of the agreement
Nicolas entered into with Rodolfo, he had already transferred his ownership over the subject
property and as a consequence, Rodolfo is legally entitled to collect the fruits thereof in the
form of rentals. Nicolas’ remaining right is to demand payment of the balance of the
purchase price, provided that he first executes a deed of absolute sale in favor of Rodolfo.
Issues: Whether or not the contract entered into by Nicolas and Rodolfo was a contract to
sell.
Held:
This stipulation, i.e., to execute a deed of absolute sale upon full payment of the purchase
price, is a unique and distinguishing characteristic of a contract to sell. In Reyes v. Tuparan,
this Court ruled that a stipulation in the contract, "[w]here the vendor promises to execute a
deed of absolute sale upon the completion by the vendee of the payment of the
price," indicates that the parties entered into a contract to sell. According to this Court, this
particular provision is tantamount to a reservation of ownership on the part of the vendor.
Explicitly stated, the Court ruled that the agreement to execute a deed of sale upon full
payment of the purchase price "shows that the vendors reserved title to the subject property
until full payment of the purchase price."
b) The acknowledgement receipt signed by Nicolas as well as the contemporaneous acts of
the parties show that they agreed on a contract to sell, not of sale. The absence of a formal
deed of conveyance is indicative of a contract to sell. The parties could have executed a
document of sale upon receipt of the partial payment but they did not. This is thus an
indication that Nicolas did not intend to immediately transfer title over his share but only
upon full payment of the purchase price. Having thus reserved title over the property, the
contract entered into by Nicolas is a contract to sell. In addition, Eduardo admitted that he
and Rodolfo repeatedly asked Nicolas to sign the deed of sale but the latter refused because
he was not yet paid the full amount.
c) Nicolas did not surrender or deliver title or possession to Rodolfo. Moreover, there could
not even be a surrender or delivery of title or possession to the prospective buyer Rodolfo.
This was made clear by the nature of the agreement, by Nicolas’s repeated demands for the
return of all rents unlawfully and unjustly remitted to Rodolfo by Eduardo, and by Rodolfo
and Eduardo’s repeated demands for Nicolas to execute a deed of sale which, as we said
before, is a recognition on their part that ownership over the subject property still remains
with Nicolas.
It must be stressed that it is anathema in a contract to sell that the prospective seller should
deliver title to the property to the prospective buyer pending the latter’s payment of the
price in full. It certainly is absurd to assume that in the absence of stipulation, a buyer under
a contract to sell is granted ownership of the property even when he has not paid the seller
in full. If this were the case, then prospective sellers in a contract to sell would in all
likelihood not be paid the balance of the price.
This ponente has had occasion to rule that "[a] contract to sell is one where the prospective
seller reserves the transfer of title to the prospective buyer until the happening of an event,
such as full payment of the purchase price. What the seller obliges himself to do is to sell the
subject property only when the entire amount of the purchase price has already been
delivered to him. ‘In other words, the full payment of the purchase price partakes of a
suspensive condition, the nonfulfillment of which prevents the obligation to sell from arising
and thus, ownership is retained by the prospective seller without further remedies by the
prospective buyer.’ It does not, by itself, transfer ownership to the buyer."43
The remedy of rescission is not available in contracts to sell. We hold that when Rodolfo
failed to fully pay the purchase price, the contract to sell was deemed terminated or
cancelled. In Reyes v. Tuparan, we held that "petitioner’s obligation to sell the subject
properties becomes demandable only upon the happening of the positive suspensive
condition, which is the respondent’s full payment of the purchase price. Without
53
respondent’s full payment, there can be no breach of contract to speak of because petitioner
has no obligation yet to turn over the title. Respondent’s failure to pay in full the purchase
price in full is not the breach of contract contemplated under Article 1191 of the New Civil
Code but rather just an event that prevents the petitioner from being bound to convey title
to respondent." Otherwise stated, Rodolfo has no right to compel Nicolas to transfer
ownership to him because he failed to pay in full the purchase price.
G.R. No.171692, June 03, 2013
SPOUSES DELFIN O. TUMIBAY AND AURORA T. TUMIBAY-DECEASED; GRACE JULIE ANN
TUMIBAY MANUEL, LEGAL REPRESENTATIVE, Petitioners, v. SPOUSES MELVIN A. LOPEZ
AND ROWENA GAY T. VISITACION LOPEZ, Respondents.
DEL CASTILLO, J.:
In a contract to sell, the seller retains ownership of the property until the buyer has paid the
price in full. A buyer who covertly usurps the seller's ownership of the property prior to the
full payment of the price is in breach of the contract and the seller is entitled to rescission
because the breach is substantial and fundamental as it defeats the very object of the parties
in entering into the contract to sell.
Facts:
In their Complaint, petitioners alleged that they are the owners of a parcel of land
located in Sumpong, Malaybalay, Bukidnon which is in the name of petitioner Aurora.
According to Aurora, her sister Reynalda Visitacion (Reynalda) sold the subject land to her
daughter, Rowena Gay T. Visitacion Lopez (respondent Rowena), through a deed of sale for
an unconscionable amount of P95,000.00 although said property had a market value of more
than P2,000,000.00. Further, the subject sale was done without the knowledge and consent
of petitioners. Petitioners prayed that (1) the deed of sale be declared void ab initio, (2) the
subject land be reconveyed to petitioners, and (3) respondents be ordered to pay damages.
Respondents averred that the petitioners executed a special power of attorney
(SPA) in favor of Reynalda granting the latter the power to offer for sale the subject land and
that sometime in 1994, respondent Rowena and petitioners agreed that the former would
buy the subject land for the price of P800,000.00 to be paid on installment. Respondent
Rowena paid the monthly installments and a deed of sale was executed and the
corresponding title was issued in favor of respondent Rowena.
Petitioners admitted the existence of the SPA but claimed that Reynalda violated
the terms thereof when she (Reynalda) sold the subject land without seeking the approval of
petitioners as to the selling price.
RTC rendered a Decision in favor of petitioners, In ruling in favor of petitioners, the
trial court held: (1) the SPA merely authorized Reynalda to offer for sale the subject land for a
price subject to the approval of the petitioners; (2) Reynalda violated the terms of the SPA
when she sold the subject land to her daughter, respondent Rowena, without first seeking
the approval of petitioners as to the selling price thereof; (3) the SPA does not sufficiently
confer on Reynalda the authority to sell the subject land; (4) Reynalda, through fraud and
with bad faith, connived with her daughter, respondent Rowena, to sell the subject land to
the latter.
CA rendered the assailed Decision reversing the judgment of the trial court. In
reversing the trial court’s Decision, the appellate court ruled that: (1) the SPA sufficiently
conferred on Reynalda the authority to sell the subject land; (2) although there is no direct
evidence of petitioners’ approval of the selling price of the subject land, petitioner Aurora’s
acts of receiving two money orders and several dollar checks from respondent Rowena over
the span of three years amount to the ratification of any defect in the authority of Reynalda
under the SPA; (3) petitioners are estopped from repudiating the sale after they had received
the deposits totaling $12,000.00; (5) petitioners impliedly ratified the subject SPA and
contract of sale as well as its effects.
Issue: Whether there was a perfected contract of sale between petitioners and respondent
Rowena is a contract of sale or contract to sell.
Ruling:
Petitioners and respondent Rowena entered into a contract to sell over the subject land.
There was, indeed, a contractual agreement between the parties for the purchase of the
subject land and that this agreement partook of an oral contract to sell for the sum of
P800,000.00. A contract to sell has been defined as “a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject property despite
delivery thereof to the prospective buyer, binds himself to sell the said property exclusively
to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment
of the purchase price.” In a contract to sell, “ownership is retained by the seller and is not to
pass until the full payment of the price x x x.” It is “commonly entered into so as to protect
the seller against a buyer who intends to buy the property in installment[s] by withholding
ownership over the property until the buyer effects full payment therefor.”
In the case at bar, while there was no written agreement evincing the intention of the parties
to enter into a contract to sell, its existence and partial execution were sufficiently
established by, and may be reasonably inferred from the actuations of the parties, to wit: (1)
the title to the subject land was not immediately transferred, through a formal deed of
conveyance, in the name of respondent Rowena prior to or at the time of the first payment
of $1,000.00 by respondent Rowena to petitioner Aurora on January 25, 1995; (2) after this
initial payment, petitioners received 22 intermittent monthly installments from respondent
Rowena in the sum of $500.00; and, (3) in her testimony, respondent Rowena admitted that
she had the title to the subject land transferred in her name only later on or on July 23, 1997,
through a deed of sale, because she believed that she had substantially paid the purchase
price thereof, and that she was entitled thereto as a form of security for the installments she
had already paid.
G.R. No. 190016 October 2, 2013
FREDERICK VENTURA, MARITES VENTURA-ROXAS, and PHILIP VENTURA (HEIRS OF
DECEASED DOLORES C. VENTURA), Petitioners,
vs.
HEIRS OF SPOUSES EUSTACIO T. ENDAYA and TRINIDAD L. ENDAYA, namely, TITUS L.
ENDAYA, ENRICO L. ENDAYA, and JOSEPHINE ENDAYA-BANTUG, Respondents.
PERLAS-BERNABE, J.:
54
A contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the latter upon his
fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or
compliance with the other obligations stated in the contract to sell. Given its contingent
nature, the failure of the prospective buyer to make full payment and/or abide by his
commitments stated in the contract to sell prevents the obligation of the prospective seller
to execute the corresponding deed of sale to effect the transfer of ownership to the buyer
from arising.
Facts:
On June 29, 1981, Dolores Ventura (Dolores) entered into a Contract to Sell (contract to sell)
with spouses Eustacio and Trinidad Endaya (Sps. Endaya) for the purchase of two parcels of
land denominated as Lots 8 and 9, Block 3, situated in Marian Road II, Marian Park (now
Barangay San Martin de Porres), Parañaque City, Metro Manila. The contract to sell provides
that the purchase price of ₱347,760.00shall be paid by Dolores in the following manner: (a)
down payment of ₱103,284.00 upon execution of the contract; and (b) the balance of
₱244,476.00 within a 15-year period (payment period), plus 12% interest per annum (p.a.) on
the outstanding balance and 12% interest p.a. on arrearages. It further provides that all
payments made shall be applied in the following order: first, to the reimbursement of real
estate taxes and other charges; second, to the interest accrued to the date of payment; third,
to the amortization of the principal obligation; and fourth, to the payment of any other
accessory obligation subsequently incurred by the owner in favor of the buyer. It likewise
imposed upon Dolores the obligation to pay the real property taxes over the subject
properties, or to reimburse Sps. Endaya for any tax payments made by them, plus 1% interest
per month. Upon full payment of the stipulated consideration, Sps. Endaya undertook to
execute a final deed of sale and transfer ownership over the same in favor of Dolores.
Meanwhile, Dolores was placed in possession of the subject properties and allowed to erect
a building thereon. However, on April 10, 1992, before the payment period expired, Dolores
passed away. On November 28, 1996, Dolores’ children, Frederick Ventura, Marites Ventura-
Roxas, and Philip Ventura (petitioners), filed before the RTC a Complaint for specific
performance, seeking to compel Sps. Endaya to execute a deed of sale over the subject
properties. In this regard, they averred that due to the close friendship between their
parents and Sps. Endaya, the latter did not require the then widowed Dolores to pay the
down payment stated in the contract to sell and, instead, allowed her to pay amounts as her
means would permit. The payments were made in cash as well as in kind, and the same were
recorded by respondent Trinidad herself in a passbook16 given to Dolores to evidence the
receipt of said payments. As of June 15, 1996, the total payments made by Dolores and
petitioners amounted to ₱952,152.00, which is more than the agreed purchase price of
₱347,760.00, including the 12%interest p.a. thereon computed on the outstanding balance.
However, when petitioners demanded the execution of the corresponding deed of sale, Sps.
Endaya refused. For their part, Sps. Endaya countered that Dolores did not pay the stipulated
down payment and remitted only a total of 22 installments. After her death in1992,
petitioners no longer remitted any installment. Sps. Endaya also averred that prior to
Dolores' death, the parties agreed to a restructuring of the contract to sell whereby Dolores
agreed to give a "bonus" of ₱265,673.93 and to pay interest at the increased rate of 24% p.a.
on the outstanding balance. They further claimed that in April 1996, when the balance of the
purchase price stood at ₱1,699,671.69, a final restructuring of the contract to sell was agreed
with petitioners, fixing the obligation at ₱3,000,000.00. Thereafter, the latter paid a total of
₱380,000.00 on two separate occasions, leaving a balance of ₱2,620,000.00. In any event,
Sps. Endaya pointed out that the automatic cancellation clause under the foregoing contract
rendered the same cancelled as early as 1981 with Dolores’ failure to make a down payment
and to faithfully pay the installments hence, petitioners’ complaint for specific performance
must fail.
RTC found that petitioners were able to prove by a preponderance of evidence the fact of full
payment of the purchase price for the subject properties. As such, it ordered Sps. Endaya to
execute a deed of absolute sale covering the sale of the subject properties in petitioners’
favor and to pay them attorney's fees and costs of suit.
CA reversed and set aside the RTC ruling. It found that petitioners were not able to show that
they fully complied with their obligations under the contract to sell. It observed that aside
from the payment of the purchase price and 12% interest p.a. on the outstanding balance,
the contract to sell imposed upon petitioners the obligations to pay 12% interest p.a. on the
arrears and to reimburse Sps. Endaya the amount of the pertinent real estate taxes due on
the subject properties, which the former, however, totally disregarded as shown in their
summary of payments.
Issues: Whether or not the contract between the parties is a contract of sale or contract to
sell.
Ruling:
It is a contract to sell.
Thorough review of the records reveals no sufficient reason to warrant the reversal of the
CA’s August 18, 2006 Decision dismissing petitioners' complaint for specific performance
which sought to enforce the contract to sell and to compel respondents to execute a deed of
sale over the subject properties.
To note, while the quality of contingency inheres in a contract to sell, the same should not be
confused with a conditional contract of sale. In a contract to sell, the fulfillment of the
suspensive condition will not automatically transfer ownership to the buyer although the
property may have been previously delivered to him. The prospective seller still has to
convey title to the prospective buyer by entering into a contract of absolute sale. On the
other hand, in a conditional contract of sale, the fulfillment of the suspensive condition
renders the sale absolute and the previous delivery of the property has the effect of
automatically transferring the seller’s ownership or title to the property to the buyer.
Keeping with these principles, the Court finds that respondents had no obligation to
petitioners to execute a deed of sale over the subject properties. As aptly pointed out by the
CA, aside from the payment of the purchase price and 12% interest p.a. on the outstanding
balance, the contract to sell likewise imposed upon petitioners the obligation to pay the real
property taxes over the subject properties as well as 12% interest p.a. on the arrears.
55
However, the summary of payments as well as the statement of account submitted by
petitioners clearly show that only the payments corresponding to the principal obligation and
the 12% interest p.a. on the outstanding balance were considered in arriving at the amount
of ₱952,152.00. The Court has examined the petition as well as petitioners'
memorandum and found no justifiable reason for the said omission. Hence, the reasonable
conclusion would therefore be that petitioners indeed failed to comply with all their
obligations under the contract to sell and, as such, have no right to enforce the same.
Consequently, there lies no error on the part of the CA in reversing the RTC Decision and
dismissing petitioners’ complaint for specific performance seeking to compel respondents to
execute a deed of sale over the subject properties.
ACE FOODS, INC. v MICRO PACIFIC TECHNOLOGIES CO., LTD.
G.R. No. 200602 December 11, 2013
PERLAS-BERNABE, J.:
A contract is what the law defines it to be, taking into consideration its essential elements,
and not what the contracting parties call it. The real nature of a contract may be determined
from the express terms of the written agreement and from the contemporaneous and
subsequent acts of the contracting parties. However, in the construction or interpretation of
an instrument, the intention of the parties is primordial and is to be pursued. The
denomination or title given by the parties in their contract is not conclusive of the nature of
its contents.
Facts: ACE Foods, Inc. is engaged in the trading and distribution of consumer goods, while
MTCL is one engaged in the supply of computer hardware and equipment.
MTCL sent a letter-proposal for the delivery and sale of the subject products to be installed
at various offices of ACE Foods. The said proposal provides for the following terms: “TERMS:
Thirty (30) days upon delivery. VALIDITY: Prices are based on current dollar rate and subject
to changes without prior notice. DELIVERY: Immediate delivery for items on stock, otherwise
thirty (30) to forty-five days upon receipt of Purchase Order. WARRANTY: One (1) year on
parts and services. Accessories not included in warranty.”
It was accepted by ACE Foods and accordingly issued purchase order for the subject products
amounting to ₱646,464. Thereafter, MTCL delivered the said products to ACE Foods as
reflected in the invoice receipt. The fine print of the invoice states that "title to sold property
is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and
conditions of above and payment of the price" (title reservation stipulation). After delivery,
the subject products were then installed and configured in ACE Foods’s premises.
MTCL’s demanded for the payment of the purchase price. Instead of paying the purchase
price, ACE Foods sent MTCL a Letter, stating that it "has been returning the subject products
to MTCL thru its sales representative, Mr. Mark Anteola who has agreed to pull out the said
products but had failed to do so up to now."
Eventually, ACE Foods filed a Complaint against MTCL before the RTC, praying that the latter
pull out from its premises the subject products since MTCL breached its "after delivery
services" obligations to it, particularly, to: (a) install and configure the subject products; (b)
submit a cost benefit study to justify the purchase of the subject products; and (c) train ACE
Foods’s technicians on how to use and maintain the subject products. ACE Foods likewise
claimed that the subject products MTCL delivered are defective and not working.
MTCL maintained that it had duly complied with its obligations to ACE. For its part, MTCL
alleged that ACE Foods refused and failed to pay the purchase price for the subject products
despite the latter’s use of the same for a period of 9 months. Hence, MTCL prayed that ACE
Foods be compelled to pay the purchase price with damages.
Issues: Whether or not the contract was a contract of sale or a contract to sell.
Ruling: The contract was a perfected contract of sale.
A contract is what the law defines it to be, taking into consideration its essential elements,
and not what the contracting parties call it. The real nature of a contract may be determined
from the express terms of the written agreement and from the contemporaneous and
subsequent acts of the contracting parties. However, in the construction or interpretation of
an instrument, the intention of the parties is primordial and is to be pursued. The
denomination or title given by the parties in their contract is not conclusive of the nature of
its contents.
A contract of sale is a consensual contract and does not require a specific form for its validity.
Upon perfection of the contract, the parties may reciprocally demand performance, i.e., the
vendee may compel transfer of ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold.
In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the property despite delivery thereof to the
prospective buyer, binds himself to sell the property exclusively to the prospective buyer
upon fulfilment of the condition agreed upon, i.e., the full payment of the purchase price. A
contract to sell may not even be considered as a conditional contract of sale where the seller
may likewise reserve title to the property subject of the sale until the fulfilment of a
suspensive condition, because in a conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a contingent event which may or
may not occur.
In this case, the Court concurs with the CA that the parties have agreed to a contract of sale
and not to a contract to sell as adjudged by the RTC. Bearing in mind its consensual nature, a
contract of sale had been perfected at the precise moment ACE Foods, as evinced by its act
of sending MTCL the Purchase Order, accepted the latter’s proposal to sell the subject
products in consideration of the purchase price of ₱646,464.00. From that point in time, the
reciprocal obligations of the parties – i.e., on the one hand, of MTCL to deliver the said
products to ACE Foods, and, on the other hand, of ACE Foods to pay the purchase price
therefor within thirty (30) days from delivery – already arose and consequently may be
demanded. From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts.
The title reservation stipulation in the sales invoice did not novate the perfected contract of
sale into a contract to sell in the absence of any proof that the said stipulation was accepted
by the other party with the intention to novate.
56
OPTIMUM DEVELOPMENT BANK vs. SPOUSES BENIGNO V. JOVELLANOS and LOURDES R. In a contract to sell, the prospective seller binds himself to sell the property subject of the
JOVELLANOS agreement exclusively to the prospective buyer upon fulfilment of the condition agreed upon
which is the full payment of the purchase price but reserving to himself the ownership of the
G.R. No. 189145 December 4, 2013 subject property despite delivery thereof to the prospective buyer. The full payment of the
purchase price in a contract to sell is a suspensive condition, the non-fulfilment of which
prevents the prospective seller’s obligation to convey title from becoming effective, as in this
PERLAS-BERNABE, J.:
case.

In a contract to sell, the prospective seller binds himself to sell the property subject of the
Further, it is significant to note that given that the Contract to Sell in this case is one which
agreement exclusively to the prospective buyer upon fulfilment of the condition agreed upon
has for its object real property to be sold on an installment basis, hence, RA 6552, or the
which is the full payment of the purchase price but reserving to himself the ownership of the
"Realty Installment Buyer Protection Act" (Maceda Law) will apply. The Maceda Law
subject property despite delivery thereof to the prospective buyer. The full payment of the
recognizes in conditional sales of all kinds of real estate the right of the seller to cancel the
purchase price in a contract to sell is a suspensive condition, the non-fulfilment of which
contract upon non-payment of an installment by the buyer, which is simply an event that
prevents the prospective seller’s obligation to convey title from becoming effective.
prevents the obligation of the vendor to convey title from acquiring binding force. It also
provides the right of the buyer on installments in case he defaults in the payment of
Facts: succeeding installments, viz.:

In 2005, Sps. Jovellanos entered into a Contract to Sell with Palmera Homes, Inc. for the xxx
purchase of a residential house and lot in Caloocan City for a total consideration of
₱1,015,000. Sps. Jovellanos took possession of the subject property upon a down payment of
(2) Where he has paid less than two years in installments,
₱91,500.00, undertaking to pay the remaining balance of the contract price in equal monthly
installments of ₱13,107.00 for a period of 10 years starting June 12, 2005.
Sec. 4. x x x the seller shall give the buyer a grace period of not less than sixty
days from the date the installment became due. If the buyer fails to pay the
Subsequently, Palmera Homes assigned all its rights, title and interest in the Contract to Sell
installments due at the expiration of the grace period, the seller may cancel the
in favor of petitioner Optimum Development Bank through a Deed of Assignment. Optimum
contract after thirty days from receipt by the buyer of the notice of cancellation
then issued a notarized Notice of Delinquency and Cancellation of Contract to Sell on April
or the demand for rescission of the contract by a notarial act.
10, 2006 for Sps. Jovellanos’ failure to pay their monthly installments despite several written
and verbal notices.
Since Sps. Jovellanos failed to pay the monthly instalments, Optimum may cancel the
contract provided it complies with Section 4 of RA 6552 as when the buyers have paid less
In a final Demand Letter dated May 25, 2006, Optimum required Sps. Jovellanos to vacate
than two (2) years-worth of installments. There are three (3) requisites, namely: 1.) the seller
and deliver possession of the subject property within seven (7) days which, however,
shall give the buyer a 60-day grace period to be reckoned from the date the installment
remained unheeded. Hence, Optimum filed a complaint for unlawful detainer before the
became due; 2.) the seller must give the buyer a notice of cancellation/demand for
MeTC. Despite having been served with summons, together with a copy of the complaint,
rescission by notarial act if the buyer fails to pay the installments due at the expiration of the
Sps. Jovellanos failed to file their answer within the prescribed reglementary period, thus
said grace period; and 3.) the seller may actually cancel the contract only after thirty (30)
prompting Optimum to move for the rendition of judgment.
days from the buyer’s receipt of the said notice of cancellation/demand for rescission by
notarial act.
Thereafter, Sps. Jovellanos filed their opposition with motion to admit answer, questioning
the jurisdiction of the court, among others. (SC held that MeTC has jurisdiction over the
In the present case, the 60-day grace period automatically operated in favor of the buyers,
unlawful detainer suit and that it has the authority to provisionally determine the validity of
Sps. Jovellanos, and took effect from the time that the maturity dates of the installment
the contract upon which the right to possession mainly rests.)
payments lapsed. With the said grace period having expired without any payment on the
part of Sps. Jovellanos, Optimum then issued a notarized Notice of Delinquency and
Issue: Whether or not the contract to sell was validly cancelled. Cancellation of Contract on April 10, 2006. Finally, in proceeding with the actual cancellation
of the contract to sell, Optimum gave Sps. Jovellanos an additional thirty (30) days within
which to settle their arrears and reinstate the contract, or sell or assign their rights to
Ruling: another.

57
It was only after the expiration of the thirty day (30) period did Optimum treat the contract
to sell as effectively cancelled – making as it did a final demand upon Sps. Jovellanos to
vacate the subject property only on May 25, 2006. Thus, based on the foregoing, the Court
finds that there was a valid and effective cancellation of the Contract to Sell in accordance
with Section 4 of RA 6552 and since Sps. Jovellanos had already lost their right to retain
possession of the subject property as a consequence of such cancellation, their refusal to
vacate and turn over possession to Optimum makes out a valid case for unlawful detainer as
properly adjudged by the MeTC.

58