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Universal Food Corp.

v CA preparation of said Mafran sauce and that 1960, another memorandum was issued by
Facts: said positions are permanent in nature. the President and General Manager
This is a petition for certiorari by the UFC instructing Ricardo Francisco, as Chief
against the CA decision of February 13, In line with the terms and conditions of the Chemist, and Porfirio Zarraga, as Acting
1968 declaring the BILL OF Bill of Assignment, Magdalo Francisco was Superintendent, to produce Mafran Sauce
ASSIGNMENT rescinded, ordering UFC to appointed Chief Chemist with a salary of and Porky Pops in full swing starting
return to Magdalo Francisco his Mafran P300.00 a month. Magdalo Francisco kept January 2, 1961 with further instructions to
sauce trademark and to pay his monthly the formula of the Mafran sauce secret to hire daily laborers in order to cope with the
salary of P300.00 from Dec. 1, 1960 until himself. Thereafter, however, due to the full blast operation. Magdalo V. Francisco,
the return to him of said trademark and alleged scarcity and high prices of raw Sr. received his salary as Chief Chemist in
formula. materials, on November 28, 1960, the amount of P300.00 a month only until
Secretary-Treasurer Ciriaco L. de Guzman his services were terminated on November
In 1938, plaintiff Magdalo V. Francisco, Sr. of UFC issued a Memorandum duly 30, 1960. On January 9 and 16, 1961, UFC,
discovered a formula for the manufacture of approved by the President and General acting thru its President and General
a food seasoning (sauce) derived from Manager Tirso T. Reyes that only Manager, authorized Porfirio Zarraga and
banana fruits popularly known as MAFRAN Supervisor Ricardo Francisco should be Paula de Bacula to look for a buyer of the
sauce. It was used commercially since retained in the factory and that the salary of corporation including its trademarks,
1942, and in the same year plaintiff plaintiff Magdalo V. Francisco, Sr., should formula and assets at a price of not less than
registered his trademark in his name as be stopped for the time being until the P300,000.00. Due to these successive
owner and inventor with the Bureau of corporation should resume its operation. On memoranda, without plaintiff Magdalo V.
Patents. However, due to lack of sufficient December 3, 1960, President and Francisco, Sr. being recalled back to work,
capital to finance the expansion of the General Manager Tirso T. Reyes, issued a he filed the present action on February 14,
business, in 1960, said plaintiff secured the memorandum to Victoriano Francisco 1961. Then in a letter dated March 20, 1961,
financial assistance of Tirso T. ordering him to report to the factory and UFC requested said plaintiff to report for
Reyes who, after a series of negotiations, produce "Mafran Sauce" at the rate of not duty, but the latter declined the request
formed with others defendant Universal less than 100 cases a day so as to cope with because the present action was already filed
Food Corporation eventually the orders of the corporation's various in court.
leading to the execution on May 11, 1960 of distributors and dealers, and with
the aforequoted "Bill of Assignment" instructions to take only the necessary daily Issue:
(Exhibit A or 1). employees without employing permanent 1. Was the Bill of Assignment really one
employees. Again, on December 6, 1961, that involves transfer of the formula for
On May 31, 1960, Magdalo Francisco another memorandum was issued by the Mafran sauce itself?
entered into contract with UFC stipulating same President and General Manager 2. Was petitioners contention that Magdalo
among other things that he be the Chief instructing the Assistant Chief Chemist Francisco is not entitled to rescission valid?
Chemist and Second Vice-President of UFC Ricardo Francisco, to recall all daily
and shall have absolute control and employees who are connected in the Ruling: The petition is denied.
supervision over the laboratory assistants production of Mafran Sauce and also some 1. No. Certain provisions of the bill would
and personnel and in the purchase and additional daily employees for the lead one to believe that the formula itself
safekeeping of the chemicals used in the production of Porky Pops. On December 29, was transferred. To quote, the respondent
patentee "assign, transfer and convey all its transmission of right of the transfer of the In this case before us, there is no
property rights and interest over said use of the transfer of the formula itself. controversy that the provisions of the Bill of
Mafran trademark and formula for Assignment are reciprocal in nature. The
MAFRAN SAUCE unto the Party of the ART. 1191. The power to rescind petitioner corporation violated the Bill of
Second Part," and the last paragraph states obligations is implied in reciprocal ones, in Assignment, specifically paragraph 5-(a)
that such "assignment, transfer and case one of the obligors should not comply and (b), by terminating the services of the
conveyance is absolute and irrevocable with what is incumbent upon him. "The respondent patentee Magdalo V. Francisco,
(and) in no case shall the PARTY OF THE injured party may choose between the Sr., without lawful and justifiable cause.
First Part ask, demand or sue for the fulfillment and the rescission of the
surrender of its rights and interest over said obligation, with the payment of damages in Upon the factual milieu, is rescission of the
MAFRAN trademark and mafran formula." either case. He may also seek rescission Bill of Assignment proper?
even after he has chosen fulfillment, if the
However, a perceptive analysis of the latter should become impossible. The general rule is that rescission of a
entire instrument and the language "The court shall decree the rescission contrast will not be permitted for a slight or
employed therein would lead one to the claimed, unless there be just cause casual breach, but only for such substantial
conclusion that what was actually ceded and authorizing the fixing of a period. and fundamental breach as would defeat the
transferred was only the use of the Mafran "This is understood to be without prejudice very object of the parties in making the
sauce formula. This was the precise to the rights of third persona who have agreement. 12 The question of whether a
intention of the parties. acquired the thing, in accordance with breach of a contract is substantial depends
articles 1385 and 1388 of the Mortgage upon the attendant circumstances. The
The SC had the following reasons to back up Law. petitioner contends that rescission of the Bill
the above conclusion. First, royalty was paid ART. 1383. The action for rescission is of Assignment should be denied, because
by UFC to Magdalo Francisco. Second, the subsidiary; it cannot be instituted except under article 1383, rescission is a subsidiary
formula of said Mafran sauce was never when the party suffering damage has no remedy which cannot be instituted except
disclosed to anybody else. Third, the Bill other legal means to obtain reparation for when the party suffering damage has no
acknowledged the fact that upon dissolution the same. other legal means to obtain reparation for
of said Corporation, the patentee rights and ART. 1384. Rescission shall be only to the the same. However, in this case the
interests of said trademark shall extent necessary to cover the damages dismissal of the respondent patentee
automatically revert back to Magdalo caused. Magdalo V. Francisco, Sr. as the permanent
Francisco. Fourth, paragraph 3 of the Bill chief chemist of the corporation is a
declared only the transfer of the use of the At the moment, we shall concern ourselves fundamental and substantial breach of the
Mafran sauce and not the formula itself with the first two paragraphs of article 1191. Bill of Assignment. He was dismissed
which was admitted by UFC in its answer. The power to rescind obligations is implied without any fault or negligence on his part.
Fifth, the facts of the case undeniably show in reciprocal ones, in case one of the
that what was transferred was only the use. obligors should not comply with what is The petitioner further contends that it was
Finally, our Civil Code allows only the incumbent upon him. The injured party may error for the Court of Appeals to hold that
least transmission of right, hence, what choose between fulfillment and rescission of the respondent patentee is entitled to
better way is there to show the least the obligation, with payment of damages in payment of his monthly salary of P300 from
either case. December 1, 1960, until the return to him of
the Mafran trademark and formula, arguing impossible to carry out the order to return REMEDIAL LAW; EVIDENCE; FACTS
that under articles 1191, the right to specific the formula to the respondent patentee THAT NEED NOT BE PROVED; FACTS
performance is not conjunctive with the - The petitioner's predicament is ALLEGED IN COMPLAINT AND
right to rescind a reciprocal contract; that a understandable. Article 1385 of the new ADMITTED IN ANSWER; INSTANT
plaintiff cannot ask for both remedies Civil Code provides that rescission creates CASE. It is alleged in paragraph 3 of the
the obligation to return the things which respondents' complaint that what was ceded
- The above contention is without merit. were the object of the contract. But that as it and transferred by virtue of the Bill of
Reading once more the Bill of Assignment may, it is a logical inference from the Assignment is the "use of the formula" (and
in its entirety and the particular provisions in appellate court's decision that what was not the formula itself). This incontrovertible
their proper setting, we hold that the contract meant to be returned to the respondent fact is admitted without equivocation in
placed the use of the formula for Mafran patentee is not the formula itself, but only its paragraph 3 of the petitioner's answer.
sauce with the petitioner, subject to defined use and the right to such use. Thus, the Hence, it does "not require proof and cannot
limitations. One of the considerations for the respondents in their complaint for rescission be contradicted."
transfer of the use thereof was the specifically and particularly pray, among
undertaking on the part of the petitioner others, that the petitioner corporation be CIVIL LAW; PROPERTY;
corporation to employ the respondent adjudged as "without any right to use said CONVEYANCE; INTERPRETATION;
patentee as the Second Vice-President and trademark and formula." INSTANT CASE. Our conclusion that
Chief Chemist on a permanent status, at a what was actually ceded and transferred to
monthly salary of P300, unless "death or The Bill of Assignment (Exhibit A) is petitioner was only the use of the Mafran
other disabilities" supervened. Under these hereby rescinded, and the defendant sauce formula is fortified by the admonition
circumstances, the petitioner corporation corporation is ordered to return and restore in the Civil Code that a conveyance should
could not escape liability to pay the private to the plaintiff Magdalo V. Francisco, Sr. the be interpreted to effect "the least
respondent. patentee his agreed monthly right to the use of his Mafran sauce transmission of rights," and is there a better
salary, as long as the use, as well as the right trademark and formula, subject-matter of the example of least transmission of rights than
to use, the formula for Mafran sauce Bill of Assignment, and to this end the allowing or permitting only the use, without
remained with the corporation. defendant corporation and all its assigns and transfer of ownership, of the formula for
successors are hereby permanently enjoined, Mafran sauce.
The petitioner finally contends that the effective immediately, from using in any OBLIGATIONS AND CONTRACTS;
Court of Appeals erred in ordering the manner the said Mafran sauce trademark and REMEDY WHERE THERE IS BREACH
corporation to return to the respondents the formula OF CONTRACT IN RECIPROCAL
trademark and formula for Mafran sauce, OBLIGATIONS; RESCISSION. The
when both the decision of the appellate court TRADEMARKS AND TRADENAMES; power to rescind is implied in reciprocal
and that of the lower court state that the LICENSE UNDER PATENT; ROYALTY, ones, in case one of the obligors should not
corporation is not aware nor is in possession MEANING. The word "royalty," when comply with what is incumbent upon him.
of the formula for Mafran sauce, and the employed in connection with a license under The injured party may choose between
respondent patentee admittedly never gave a patent, means the compensation paid for fulfillment and rescission of the obligation,
the same to the corporation. According to the use of patented invention. with payment of damages in either case.
the petitioner these findings would render it
REQUIREMENT OF SUBSTANTIAL as the use, as well as the right to use, the DISTINGUISHED FROM ARTICLE 1383.
BREACH; HOW DETERMINED. The formula for Mafran sauce remained with the Under Article 1191, the rescission on
general rule is that rescission of a contract corporation. account of breach of stipulations is not
will not be permitted for a slight or casual predicated on injury to economic interest of
breach as would defeat the very object of the REMEDY WHERE THERE IS BREACH the party plaintiff but on the breach of
parties in making the agreement. The OF CONTRACT IN RECIPROCAL faith by the defendant, that violates the
question of whether a breach of a contract is OBLIGATIONS; RESCISSION, reciprocity between the parties. It is not
substantial depends upon the attendant OBLIGATION TO RETURN OBJECT OF subsidiary action, and Article 1191 may be
circumstances. CONTRACT. Article 1385 of the New scanned without disclosing anywhere that
Civil Code provides that rescission creates the action for rescission thereunder is
INSTANT CASE. In this case the the obligation to return the things which are subordinated to anything other than the
dismissal of the respondent patentee the object of the contract. culpable breach of his obligations by the
Magdalo V. Francisco, Sr. as the permanent defendant. The rescission is a principal
chief chemist of the corporation is a INSTANT CASE. Both the decision of action retaliatory in character, it being
fundamental and substantial breach of the the appellate court and that of the lower unjust that a party be held bound to
Bill of Assignment. He was dismissed court state that the corporation is not aware fulfill his promises when the other violates
without any fault or negligence on his part. nor is in possession ofthe formula for his. On the contrary, in the rescission by
Thus, apart from the legal principle that the Mafran sauce and the respondent patentee reason of lesion or economic prejudice,
option to demand performance or ask for admittedly never gave the same to the under Article 1383 the cause of action is
rescission of a contract belongs to the corporation. According to the petitioner subordinated to the existence of that
injured party, the fact remains that the these findings would render it impossible to prejudice, because it is the raison d'etre
respondents appellees had no alternative carry out the order of the Court of Appeals as well as the measure of the right to
but to file the present action for rescission to return the formula to the respondent rescind. Hence, where the defendant makes
and damages. patentee. Held: It is a logical inference from good the damage caused, the action can not
the appellate court's decision that what was be maintained or continued, as expressly
CONSIDERATION FOR TRANSFER OF meant to be returned to the respondent provided in Article 1383 and 1384. But the
PROPERTY USE; EMPLOYMENT OF patentee is not the formula itself, but only its operation of these two articles is limited to
RESPONDENT-APPELLEE IN INSTANT use and the right to such use. Thus, the the cases of rescission for lesion enumerated
CASE. One of the considerations for the respondents in their complaint for rescission in Article 1381 of the Civil Code of the
transfer of the use of the formula for Mafran specifically and particularly pray among Philippines, and does not apply to cases
sauce to petitioners was the undertaking on others, that the petitioner corporation be under Article 1191.
its part to employ respondent patentee as the adjudged as "without any right to use said
second Vice President and Chief Chemist on trademark and formula. Spouses Cannu v Spouses Galang
a permanent status, at a monthly salary of Facts: A complaint 3 for Specific
P300 unless "death or other disabilities" REYES, J.B.L., J., concurring: Performance and Damages was filed by
supervened. Under these circumstances, the CIVIL LAW; OBLIGATIONS AND petitioners-spouses Felipe and Leticia Cannu
petitioner corporation could not escape CONTRACTS, REMEDY WHEN THERE against respondents-spouses Gil and
liability to pay the private respondent IS BREACH OF CONTRACT; Fernandina Galang and the National Home
patentee his agreed monthly salary, as long POSSESSION; ARTICLE 1191 Mortgage Finance Corporation (NHMFC)
Respondents-spouses Gil and Fernandina Petitioners paid the "equity" or second NHMFC, they paid in full the existing
Galang obtained a loan from Fortune mortgage to CERF Realty. However obligations with NHMFC as an initial step
Savings & Loan Association for Petitioners' formal assumption of mortgage in the rescission and annulment of the Deed
P173,800.00 to purchase a house and lot was not approved by the NHMFC. of Sale with Assumption of Mortgage.
located at Pulang Lupa, Las Pias, with an
area of 150 square meters covered by Because the Cannus failed to fully comply Issue:
Transfer Certificate of Title (TCT) No. T- with their obligations, respondent 1. THE HONORABLE COURT OF
8505 in the names of respondents-spouses. Fernandina Galang, on 21 May 1993, paid APPEALS ERRED WHEN IT HELD
To secure payment, a real estate mortgage P233,957.64 as full payment of her THAT PETITIONERS' BREACH OF THE
was constituted on the said house and lot in remaining mortgage loan with NHMFC OBLIGATION WAS SUBSTANTIAL.
favor of Fortune Savings & Loan 2. THE HONORABLE COURT OF
Association. In early 1990, NHMFC Petitioners opposed the release of TCT No. APPEALS ERRED WHEN IN EFFECT IT
purchased the mortgage loan of respondents- T-8505 in favor of respondents-spouses HELD THAT THERE WAS NO
spouses from Fortune Savings & Loan insisting that the subject property had SUBSTANTIAL COMPLIANCE WITH
Association for P173,800.00. already been sold to them. Consequently, the THE OBLIGATION TO PAY THE
NHMFC held in abeyance the release of said MONTHLY AMORTIZATION WITH
Respondent Fernandina Galang authorized 4 TCT. NHMFC.
her attorney-in-fact, Adelina R. Timbang, to 3. THE HONORABLE COURT OF
sell the subject house and lot. Thereupon, a Complaint for Specific APPEALS ERRED WHEN IT FAILED TO
Performance and Damages was filed asking, CONSIDER THE OTHER FACTS AND
Petitioner Leticia Cannu agreed to buy the among other things, that petitioners CIRCUMSTANCES THAT MILITATE
property for P120,000.00 and to assume the (plaintiffs therein) be declared the owners of AGAINST RESCISSION.
balance of the mortgage obligations with the the property involved subject to 4. THE HONORABLE COURT OF
NHMFC and with CERF Realty 5 (the reimbursements of the amount made by APPEALS ERRED WHEN IT FAILED TO
Developer of the property). respondents-spouses (defendants therein) in CONSIDER THAT THE ACTION FOR
preterminating the mortgage loan with RESCISSION IS SUBSIDIARY
A Deed of Sale with Assumption of NHMFC.
Mortgage Obligation 10 dated 20 August Ruling: The petition is denied.
1990 was made and entered into by and Respondent NHMFC filed its Answer. 21 It
between spouses Fernandina and Gil Galang claimed that petitioners have no cause of Inasmuch as the Deed of Sale with
(vendors) and spouses Leticia and Felipe action against it because they have not Assumption of Mortgage failed to express
Cannu (vendees) over the house and lot in submitted the formal requirements to be the true intent and agreement of the parties
question considered assignees and successors-in- regarding its consideration, the same should
interest of the property under litigation. not be fully relied upon. The foregoing facts
Petitioners immediately took possession and lead us to hold that the case on hand falls
occupied the house and lot. In their Answer, respondents-spouses within one of the recognized exceptions to
alleged that because of petitioners-spouses' the parole evidence rule. Under the Rules of
Petitioners made the following payments to failure to fully pay the consideration and to Court, a party may present evidence to
the NHMFC update the monthly amortizations with the modify, explain or add to the terms of the
written agreement if he puts in issue in his In the case at bar, we find petitioners' failure considered as assignees/successors-in-
pleading, among others, its failure to express to pay the remaining balance of P45,000.00 interest over the property covered by the
the true intent and agreement of the parties to be substantial. Even assuming arguendo mortgage obligation
thereto that only said amount was left out of the
supposed consideration of P250,000.00, or On the fourth assigned error, petitioners,
In the case at bar, when respondents-spouses eighteen (18%) percent thereof, this relying on Article 1383 of the Civil Code,
enumerated in their Answer the terms and percentage is still substantial. Taken maintain that the Court of Appeals erred
conditions for the sale of the property under together with the fact that the last payment when it failed to consider that the action for
litigation, which is different from that stated made was on 28 November 1991, eighteen rescission is subsidiary.
in the Deed of Sale with Assumption with months before the respondent Fernandina
Mortgage, they already put in issue the Galang paid the outstanding balance of the Their reliance on Article 1383 is misplaced.
matter of consideration. Since there is a mortgage loan with NHMFC, the intention
difference as to what the true consideration of petitioners to renege on their obligation is The subsidiary character of the action for
is, this Court has admitted evidence aliunde utterly clear. rescission applies to contracts enumerated in
to explain such inconsistency. Thus, the Article 1381 of the Civil Code. The contract
Court has looked into the pleadings and The fact that petitioners tendered a involved in the case before us is not one of
testimonies of the parties to thresh out the Manager's Check to respondents-spouses those mentioned therein. The provision that
discrepancy and to clarify the intent of the Galang in the amount of P278,957.00 seven applies in the case at bar is Article 1191.
parties. months after the filing of this case is of no
moment. Tender of payment does not by From the foregoing, it is clear that rescission
Settled is the rule that rescission or, more itself produce legal payment, unless it is ("resolution" in the Old Civil Code) under
accurately, resolution, of a party to an completed by consignation. 40 Their failure Article 1191 is a principal action, while
obligation under Article 1191 34 is to fulfill their obligation gave the rescission under Article 1383 is a subsidiary
predicated on a breach of faith by the other respondents-spouses Galang the right to action. The former is based on breach by the
party that violates the reciprocity between rescission other party that violates the reciprocity
them. Article 1191 reads: between the parties, while the latter is not.
Anent the second assigned error, we find In the case at bar, the reciprocity between
Rescission will not be permitted for a slight that petitioners were not religious in paying the parties was violated when petitioners
or casual breach of the contract. Rescission the amortization with the NHMFC. As failed to fully pay the balance of P45,000.00
may be had only for such breaches that are admitted by them, in the span of three years to respondents-spouses and their failure to
substantial and fundamental as to defeat the from 1990 to 1993, their payments covered update their amortizations with the NHMFC.
object of the parties in making the only thirty months. This, indeed, constitutes
agreement. The question of whether a another breach or violation of the Deed of Petitioners maintain that inasmuch as
breach of contract is substantial depends Sale with Assumption of Mortgage. On top respondents-spouses Galang were not
upon the attending circumstances and not of this, there was no formal assumption of granted the right to unilaterally rescind the
merely on the percentage of the amount not the mortgage obligation with NHMFC sale under the Deed of Sale with
paid. because of the lack of approval by the Assumption of Mortgage, they should have
NHMFC 42 on account of petitioners' non- first asked the court for the rescission
submission of requirements in order to be thereof before they fully paid the
outstanding balance of the mortgage loan contract, we, therefore, declare the same is Cynthia and Jose, would purchase Lot No.
with the NHMFC. They claim that such rescinded in favor of respondents-spouses 1083-C for a consideration of
payment is a unilateral act of rescission P2,141,622.50.
which violates existing jurisprudence. As a consequence of the rescission or, more
In Tan v. Court of Appeals: [T]he power to accurately, resolution of the Deed of Sale The following day, Mariano Rivera returned
rescind obligations is implied in reciprocal with Assumption of Mortgage, it is the duty to the office of Atty. Barangan, bringing
ones in case one of the obligors should not of the court to require the parties to with him the signed documents. He also
comply with what is incumbent upon him is surrender whatever they may have received brought with him Fidela and her son Oscar
clear from a reading of the Civil Code from the other. The parties should be del Rosario, so that the latter two may sign
provisions. However, it is equally settled restored to their original situation the mortgage and the Kasunduan there.
that, in the absence of a stipulation to the
contrary, this power must be invoked Rivera v Del Rosario Mariano gave Oscar del Rosario several
judicially; it cannot be exercised solely on a Facts: Respondents Fidela (now deceased), amounts totaling P67,800 upon the latter's
party's own judgment that the other has Oscar, Rosita, Violeta, Enrique Jr., Carlos, demand for the payment of the balance
committed a breach of the obligation. Where Juanito and Eloisa, all surnamed Del despite Oscar's lack of authority to receive
there is nothing in the contract empowering Rosario, were the registered owners of Lot payments under the Kasunduan. While
the petitioner to rescind it without resort to No. 1083-C, a parcel of land situated at Mariano was making payments to Oscar,
the courts, the petitioner's action in Lolomboy, Bulacan Fidela entrusted the owner's copy of TCT
unilaterally terminating the contract in this No. T-50.668 (M) to Mariano to guarantee
case is unjustified. On May 16, 1983, Oscar, Rosita, Violeta, compliance with the Kasunduan
Enrique Jr., Juanito, and Eloisa, executed a
It is evident that the contract under Special Power of Attorney 3 in favor of their When Mariano unreasonably refused to
consideration does not contain a provision mother and co-respondent, Fidela, return the TCT, 14 one of the respondents,
authorizing its extrajudicial rescission in authorizing her to sell, lease, mortgage, Carlos del Rosario, caused the annotation on
case one of the parties fails to comply with transfer and convey their rights over Lot No. TCT No. T-50.668 (M) of an Affidavit of
what is incumbent upon him. This being the 1083-C. 4 Subsequently, Fidela borrowed Loss of the owner's duplicate copy of the
case, respondents-spouses should have P250,000 from Mariano Rivera in the early title on September 7, 1992. This annotation
asked for judicial intervention to obtain a part of 1987. To secure the loan, she and was offset, however, when Mariano
judicial declaration of rescission. Be that as Mariano Rivera agreed to execute a deed of registered the Deed of Absolute Sale on
it may, and considering that respondents- real estate mortgage and an agreement to October 13, 1992, and afterwards caused the
spouses' Answer (with affirmative defenses) sell the land. Consequently, on March 9, annotation of an Affidavit of Recovery of
with Counterclaim seeks for the rescission 1987, Mariano went to his lawyer, Atty. Title on October 14, 1992. Thus, TCT No.
of the Deed of Sale with Assumption of Efren Barangan, to have three documents T-50.668 (M) was cancelled, and in its place
Mortgage, it behooves the court to settle the drafted: the Deed of Real Estate Mortgage 5 was issued TCT No. 158443 (M) in the
matter once and for all than to have the case , a Kasunduan (Agreement to Sell) 6 , and a name of petitioners Adelfa, Cynthia and
re-litigated again on an issue already heard Deed of Absolute Sale Jose Rivera
on the merits and which this court has
already taken cognizance of. Having found The Kasunduan provided that the children of Meanwhile, the Riveras, representing
that petitioners seriously breached the Mariano Rivera, herein petitioners Adelfa, themselves to be the new owners of Lot No.
1083-C, were also negotiating with the she was merely signing additional copies of balance for the price of the land given to
tenant, Feliciano Nieto, to rid the land of the the Kasunduan. 22 They also alleged that Nieto
latter's tenurial right. When Nieto refused to petitioners acquired possession of the TCT
relinquish his tenurial right over 9,000 sq. through fraud and machination Issue:
m. of the land, the Riveras offered to give Did the Court of Appeals correctly rule that
4,500 sq. m. in exchange for the surrender. Petitioners likewise argued that respondents' the Deed of Absolute Sale is valid insofar as
Nieto could not resist and he accepted cause of action had been barred by laches or Lot 1083-A is concerned
estoppel since more than four years had Is the respondents' cause of action barred by
To document their agreement with Feliciano lapsed from the time the parties executed the prescription?
Nieto, the Riveras executed a Kasulatan sa Deed of Absolute Sale on March 10, 1987,
Pagtatakwil ng Karapatan sa Pagmamay-ari to the time respondents instituted their Ruling: The petition is granted.
ng Bahagi ng Isang Lagay na Lupa (Written complaint on February 18, 1993.
Abdication of Rights over a Portion of a On the second issue, contrary to the ruling
Parcel of Land) The trial court ruled that Fidela's signature of the Court of Appeals that the Deed of
in the Deed of Absolute Sale was genuine, Absolute Sale is void only insofar as it
On February 18, 1993, respondents filed a but found that Fidela never intended to sign covers Lot No. 1083-C, we find that the said
complaint 19 in the Regional Trial Court of the said deed. Noting the peculiar deed is void in its entirety. Noteworthy is
Malolos, asking that the Kasunduan be differences between the Kasunduan and the that during the oral arguments before the
rescinded for failure of the Riveras to Deed of Absolute Sale, the trial court Court of Appeals, both petitioners and
comply with its conditions, with damages. concluded that the Riveras were guilty of respondents admitted that Lot No. 1083-A
They also sought the annulment of the Deed fraud in securing the execution of the deed had been expropriated by the government
of Absolute Sale on the ground of fraud and its registration in the Registry of Deeds. long before the Deed of Absolute Sale was
24 This notwithstanding, the trial court entered into. 38 What's more, this case
Respondents claimed that Fidela never sustained the validity of TCT No. T-161784 involves only Lot No. 1083-C. It never
intended to enter into a deed of sale at the (M) in the name of Feliciano Nieto since involved Lot 1083-A. Thus, the Court of
time of its execution and that she signed the there was no fraud proven on Nieto's part. Appeals had no jurisdiction to adjudicate on
said deed on the mistaken belief that she was The trial court found him to have relied in Lot 1083-A, as it was never touched upon in
merely signing copies of the Kasunduan. good faith on the representations of the pleadings or made the subject of
According to respondents, the position ownership of Mariano Rivera. Thus, Nieto's evidence at trial
where Fidela's name was typed and where rights, according to the trial court, were akin
she was supposed to sign her name in to those of an innocent purchaser for value. As to the third issue, petitioners cite Articles
theKasunduan was roughly in the same 1383, 1389 and 1391 of the New Civil Code.
location where it was typed in the Deed of On the foregoing, the trial court rescinded They submit that the complaint for
Absolute Sale. They argued that given the Kasunduan but ruled that the P450,000 rescission of the Kasunduan should have
Fidela's advanced age (she was then around paid by petitioners be retained by been dismissed, for respondents' failure to
72 at the time 21 ) and the fact that the respondents as payment for the 4,500 sq. m. prove that there was no other legal means
documents were stacked one on top of the portion of Lot No. 1083-C that petitioners available to obtain reparation other than to
other at the time of signing, Fidela could gave to Nieto. 26 The trial court likewise file a case for rescission, as required by
have easily and mistakenly presumed that ordered petitioners to pay P191,246.98 as Article 1383. Moreover, petitioners contend
that even assuming respondents had satisfied Article 1381. Consequently, Article 1383 is breach contemplated in Article 1191 of the
this requirement, prescription had already inapplicable. Hence, we rule in favor of the New Civil Code is the obligor's failure to
set in, the complaint having been filed in respondents comply with an obligation already extant,
1992 or five years after the execution of the not a failure of a condition to render binding
Deed of Absolute Sale in March 10, 1987. May the contract entered into between the that obligation. 52 Failure to pay, in this
parties, however, be rescinded based on instance, is not even a breach but an event
Respondents counter that Article 1383 of the Article 1191? that prevents the vendor's obligation to
New Civil Code applies only to rescissible convey title from acquiring binding force.
contracts enumerated under Article 1381 of A careful reading of the Kasunduan reveals Hence, the agreement of the parties in the
the same Code, while the cause of action in that it is in the nature of a contract to sell, as instant case may be set aside, but not
this case is for rescission of a reciprocal distinguished from a contract of sale. In a because of a breach on the part of petitioners
obligation, to which Article 1191 43 of the contract of sale, the title to the property for failure to complete payment of the
Code applies. They assert that their cause of passes to the vendee upon the delivery of the second installment. Rather, their failure to
action had not prescribed because the four- thing sold; while in a contract to sell, do so prevented the obligation of
year prescriptive period is counted from the ownership is, by agreement, reserved in the respondents to convey title from acquiring
date of discovery of the fraud, which, in this vendor and is not to pass to the vendee until an obligatory force
case, was only in 1992 full payment of the purchase price. In a
contract to sell, the payment of the Coming now to the matter of prescription.
Rescission of reciprocal obligations under purchase price is a positive suspensive Contrary to petitioners' assertion, we find
Article 1191 of the New Civil Code should condition, the failure of which is not a that prescription has not yet set in. Article
be distinguished from rescission of contracts breach, casual or serious, but a situation that 1391 states that the action for annulment of
under Article 1383 of the same Code. Both prevents the obligation of the vendor to void contracts shall be brought within four
presuppose contracts validly entered into as convey title from acquiring an obligatory years. This period shall begin from the time
well as subsisting, and both require mutual force. the fraud or mistake is discovered. Here, the
restitution when proper, nevertheless they fraud was discovered in 1992 and the
are not entirely identical Respondents in this case bound themselves complaint filed in 1993. Thus, the case is
to deliver a deed of absolute sale and clean well within the prescriptive period
While Article 1191 uses the term rescission, title covering Lot No. 1083-C after
the original term used in Article 1124 of the petitioners have made the second Siguan v Lim
old Civil Code, from which Article 1191 installment. This promise to sell was subject Facts:
was based, was resolution. Resolution is a to the fulfillment of the suspensive condition Respondent Rosa was charged by petitioner
principal action that is based on breach of a that petitioners pay P750,000 on August 31, with two counts of violation of Batas
party, while rescission under Article 1383 is 1987, and deposit a postdated check for the Pambansa Blg. 22 for issuing checks, in the
a subsidiary action limited to cases of third installment of P1,141,622.50. 51 total amount of P541,668, dishonored by the
rescission for lesion under Article 1381 of Petitioners, however, failed to complete bank for the reason of "account closed." The
the New Civil Code, payment of the second installment. The non- conviction was affirmed by the Court of
fulfillment of the condition rendered the Appeals and is now pending review with
Obviously, the Kasunduan does not fall contract to sell ineffective and without force this Court. Petitioner, thereafter filed action
under any of those situations mentioned in and effect. It must be stressed that the pauliana against respondent Rosa to rescind,
the notarized deed of donation over 4 rescissible when the latter cannot in any the accion pauliana must exist prior to the
parcels of land Rosa executed in favor of her other manner collect the claims due them; fraudulent alienation, the date of the
three children, the other respondents. that rescission is but a subsidiary remedy judgment enforcing it is immaterial. Even if
Petitioner claimed that there was fraudulent which cannot be instituted except when the the judgment be subsequent to the
transfer leaving no sufficient properties to party suffering damage has no other legal alienation, it is merely declaratory, with
pay her obligations with her and that the means to obtain reparation for the same. In retroactive effect to the date when the credit
deed of donation was not antedated. During the case at bar, respondent Rosa has 4 other was constituted.
the hearing of the case, petitioner presented real properties, hence, the presumption of
evidence on Rosa's civil liability to one fraud will not come into play; and that a ALLEGED ANTEDATING OF
Victoria Suarez in the amount of P169,000. party cannot invoke the credit of others to DOCUMENT NOT PROVED BY LATE
For her defense, Rosa denied liability and justify rescission of the deed of donation REGISTRATION OF ACKNOWLEDGED
the alleged antedating of the deed. The trial DOCUMENT. In the instant case, the
court rendered judgment in favor of ACTIONS; ACCION PAULIANA; alleged debt of LIM in favor of petitioner
petitioner, ordered the rescission of the REQUISITE FOR ACTION TO PROSPER. was incurred in August 1990, while the deed
contract and declared the titles in the name The action to rescind contracts in fraud of of donation was purportedly executed on 10
of Rosa's children null and void. On appeal, creditors is known as accion pauliana. For August 1989. We are not convinced with the
the Court of Appeals reversed the trial court this action to prosper, the following allegation of the petitioner that the
and dismissed the action pauliana. It ruled requisites must be present: (1) the plaintiff questioned deed was antedated to make it
that the deed of donation was not fraudulent asking for rescission has a credit prior to the appear that it was made prior to petitioner's
transfer as respondent debtor Rosa still owns alienation, although demandable later; (2) credit. Notably, that deed is a public
4 parcels of land sufficient to cover her the debtor has made a subsequent contract document, it having been acknowledged
debts to petitioner, that the notarized deed of conveying a patrimonial benefit to a third before a notary public. As such, it is
donation, a public document in the absence person; (3) the creditor has no other legal evidence of the fact which gave rise to its
of convincing evidence that the notary and remedy to satisfy his claim; (4) the act being execution and of its date, pursuant to
the parties antedated the instrument, is impugned is fraudulent; (5) the third person Section 23, Rule 132 of the Rules of
evidence of the fact that gave rise to its who received the property conveyed, if it is Court. In the present case, the fact that the
execution and of the date thereof. by onerous title, has been an accomplice in questioned Deed was registered only on 2
Petitioner's motion for reconsideration the fraud. July 1991 is not enough to overcome the
having been denied she resorted to this presumption as to the truthfulness of the
recourse. CREDIT MUST EXIST PRIOR TO statement of the date in the questioned deed,
FRAUDULENT ALIENATION. The which is 10 August 1989. Petitioner's claim
Issue: Whether the questioned Deed of general rule is that rescission requires the against LIM was constituted only in August
Donation was made in fraud of petitioner existence of creditors at the time of the 1990, or a year after the questioned
and, therefore, rescissible alleged fraudulent alienation, and this must alienation. Thus, the first two requisites for
be proved as one of the bases of the judicial the rescission of contracts are absent.
Ruling: The petition is denied. pronouncement setting aside the contract.
Without any prior existing debt, there can CREDITOR CANNOT IN ANY MANNER
The Supreme Court held that contracts neither be injury nor fraud. While it is COLLECT CLAIM. Even assuming
undertaken in fraud of creditors are necessary that the credit of the plaintiff in arguendo that petitioner became a creditor of
LIM prior to the celebration of the contract paragraph, states that the donation is always made between father and son, when there
of donation, still her action for rescission presumed to be in fraud of creditors when at are present other of the above
would not fare well because the third the time thereof the donor did not reserve circumstances; and (7) The failure of the
requisite was not met. Under Article 1381 sufficient property to pay his debts prior to vendee to take exclusive possession of all
of the Civil Code, contracts entered into in the donation. For this presumption of fraud the property. The above enumeration,
fraud of creditors may be rescinded only to apply, it must be established that the however, is not an exclusive list. The
when the creditors cannot in any manner donor did not leave adequate properties circumstances evidencing fraud are as varied
collect the claims due them. Also, Article which creditors might have recourse for the as the men who perpetrate the fraud in each
1383 of the same Code provides that the collection of their credits existing before the case. This Court has therefore declined to
action for rescission is but a subsidiary execution of the donation. As earlier define it, reserving the liberty to deal with it
remedy which cannot be instituted except discussed, petitioner's alleged credit existed under whatever form it may present itself.
when the party suffering damage has no only a year after the deed of donation was
other legal means to obtain reparation for executed. She cannot, therefore, be said to RESCISSION SHALL ONLY BE TO
the same. The term "subsidiary remedy" has have been prejudiced or defrauded by such EXTENT OF CREDITOR'S
been defined as "the exhaustion of all alienation. UNSATISFIED CREDIT. It should be
remedies by the prejudiced creditor to noted that the complainant in that case,
collect claims due him before rescission is BADGES OF FRAUD. Nevertheless, a Victoria Suarez, albeit a creditor prior to the
resorted to." It is, therefore, "essential that creditor need not depend solely upon the questioned alienation, is not a party to this
the party asking for rescission prove that he presumption laid down in Articles 759 and accion pauliana. Article 1384 of the Civil
has exhausted all other legal means to obtain 1387 of the Civil Code. Under the third Code provides that rescission shall only be
satisfaction of his claim. Petitioner neither paragraph of Article 1387, the design to to the extent necessary to cover the damages
alleged nor proved that she did so. On this defraud may be proved in any other manner caused. Under this Article, only the creditor
score, her action for the rescission of the recognized by the law of evidence. Thus in who brought the action for rescission can
questioned deed is not maintainable even if the consideration of whether certain benefit from the rescission; those who are
the fraud charged actually did exist. transfers are fraudulent, the Court has laid strangers to the action cannot benefit from
down specific rules by which the character its effects. And the revocation is only to the
DEBTOR DID NOT RESERVE of the transaction may be determined. The extent of the plaintiff creditors unsatisfied
SUFFICIENT PROPERTY TO PAY DEBT following have been denominated by the credit; as to the excess, the alienation is
PRIORTO DONATION. The fourth Court as badges of fraud: (1) The fact that maintained. Thus, petitioner cannot invoke
requisite for an accion pauliana to prosper is the consideration of the conveyance is the credit of Suarez to justify rescission of
not present either. Article 1387, first fictitious or is inadequate; (2) A transfer the subject deed of donation.
paragraph, of the Civil Code provides: made by a debtor after suit has begun and
"All contracts by virtue of which the debtor while it is pending against him; (3) A sale Adolfo Gaspar v Leopoldo Dorado
alienates property by gratuitous title are upon credit by an insolvent debtor; (4) Facts: One Vicente Alamodin was the
presumed to have been entered into in fraud Evidence of large indebtedness or complete owner of an undivided half portion of a
of creditors when the donor did not reserve insolvency; (5) The transfer of all or nearly residential lot with an area of 391 square
sufficient property to pay all debts all of his property by a debtor, especially meters, situated in the district of Tanque,
contracted before the donation." Likewise, when he is insolvent or greatly embarrassed City of Roxas. The lot is identified as No.
Article 759 of the same Code, second financially; (6) The fact that the transfer is 170-H subdivision plan Psu-39949
Alamodin sold his aforesaid portion to but declared the prior sale to plaintiff as appellee was made after suit had been
plaintiff-appellee Adolfo Gaspar. The sale valid and the one executed by the Sheriff in begun by Hodges against the transferor for
was inscribed in the land registry and favor of Hodges as null and void. collection of an indebtedness. This lone
annotated on the certificate of title on circumstance, by itself alone, is not
February 15, 1956. Ruling: The petition is granted. sufficient to prove fraud and indeed, in the
light of the other facts found by the trial
Meantime, since November 1955, there was The second point raised by appellants refers Court, appears to be purely casual and
pending against Alamodin and two other to the effect of the prior sale to appellee vis- fortuitous. There is no showing that the
persons, Jose Casugbo and Conrado Alegre, a-vis the subsequent sheriff's sale. appellee knew of the pending action against
a complaint in the Municipal Court of the Appellants seek to have said prior sale set Alamodin when he bought the land. That
City of Iloilo, filed by herein appellant C. N. aside on the ground that it was executed in action was before the Municipal Court of
Hodges for collection of a sum of money. fraud of Hodges, upon the presumption set Iloilo, while the land is in Roxas City, where
Judgment was rendered in that case in favor forth in Article 1387 of the Civil Code. This appellee was residing. And the latter had a
of Hodges on February 27, 1956, pursuant to provision says that alienations by onerous special and valid interest in acquiring the
which execution was ordered by the title are presumed fraudulent when made by land for himself because his house was built
Municipal Court on August 3, 1956 persons against whom some judgment has partly on it and partly on the adjoining lot
been rendered in any instance or some writ (No. 170-J), which was owned by him. It
After the land was levied upon on execution of attachment has been issued, although the was a transaction which the parties did not
Adolfo Gaspar filed a third-party claim with decision or attachment does not refer to the attempt to conceal, for it was duly recorded
the Provincial Sheriff on October 8, 1956. property litigated. It is at once obvious that in the land registry of Capiz. There is neither
However, Hodges put up an indemnity bond the presumption does not apply in this case, presumption nor evidence of fraud in
subscribed by the Visayan Surety & because the judgment obtained by Hodges connection with the sale to appellee; on the
Insurance Co., by reason of which the against Vicente Alamodin, owner of the land contrary, the evidence proves that it was
Sheriff proceeded with the auction sale in dispute, was rendered after the sale of the regular and in good faith. And it having
aforementioned same land to appellee. Nor was a writ of been registered prior to the levy on
attachment ever issued. execution in favor of Hodges, the sheriff's
On February 14, 1957 plaintiff commenced sale to the latter was correctly set aside
the present action. In his original complaint It is true Article 1387 also provides that in
he alleged, among other things, that he had addition to the presumptions therein stated PLEADINGS; AMENDMENT OF
acquired ownership of the land in question "the design to defraud creditors may be COMPLAINT SO AS TO CONFER
by virtue of the prior sale to him and its proved in any other manner recognized by JURISDICTION UPON COURT.
registration in the land registry of Capiz and the law of evidence. "Reliance is placed by Whenever possible the amendment of a
that when judgment was rendered by the appellants on the case of Oria vs. defective pleading should be allowed, but
Municipal Court of Iloilo City in favor of McMicking, 21 Phil. 243, in which this when it appears from the very face of the
Hodges and against Alamodin the latter was Court enumerated seven circumstances complaint that the court has no jurisdiction
no longer the owner all present therein which constitute over the subject-matter of the case
badges of fraud. Of those seven, however, amendment of the complaint could not be
In the judgment rendered by said Court on only one is present here, namely, that the allowed so as to confer jurisdiction upon the
February 25, 1959 it did not award damages transfer of the property by Alamodin to court, since the court must first acquire
jurisdiction over the case in order to act sale of the same land to appellee. Nor was a relations and entered into liquidation. On the
validly therein. writ of attachment ever issued. 1st day of June, 1910, Tomas Oria y Balbas,
as managing partner in liquidation, acting
AMENDMENT OF COMPLAINT AS A SALE MADE AFTER SUIT AGAINST for himself and on behalf of his other
MATTER OF FORM; CASE AT BAR. TRANSFEROR HAD BEEN BEGUN. coowners Casimiro Oria y Balbas and
Plaintiff, in his original complaint, put in The transfer of the property to appellee Adolfo Fuster Robles, entered into a
issue the validity of the sheriff's sale in favor made after suit had been begun against the contract with the plaintiff in this case,
of appellant and claimed exclusive and transferor for collection of an indebtedness Manuel Oria Gonzalez, which said contract
absolute ownership of the property on is not, by itself alone, sufficient to prove was for the purpose of selling and
question by virtue of the prior sale in his fraud and indeed, in the light of the other transferring to the plaintiff in this action all
favor and of its registration in the land facts found by the trial Court, appears to be of the property of which the said Oria
registry. The resolution of this question, on purely casual and fortuitous. There is no Hermanos & Co. was owner
which plaintiff's prayer for damages was showing that appellee knew of the pending
predicated and without which no decision action against the transferor when he bought Among the goods transferred by this
could be rendered, was within the the land. And appellee had a special and instrument was the steamship Serantes,
jurisdiction of the Court of First Instance. valid interest in acquiring the land for which is the subject of this litigation
The amendment of the complaint wherein himself because his house was built partly
plaintiff prayed for the annulment of the sale on it. It was a transaction which the parties On the 17th day of September, 1910, case
in favor of appellant, was merely a matter of did not attempt to conceal, for it was duly No. 7719, above referred to, was resolved by
form and not of substance, and the Court a recorded in the land registry of the province. the Court of First Instance in favor of
quo committed no error in allowing it. And the sale having been registered prior to Gutierrez Hermanos and against Oria
the levy on execution in favor of appellant, Hermanos & Co. for the sum demanded in
SALE ALIENATIONS BY ONEROUS the sheriff's sale to the latter was correctly the complaint. The cause was appealed to
TITLE MADE BY PERSONS AGAINST set aside. the Supreme Court and, the judgment
WHOM JUDGMENT HAS BEEN therein having been affirmed, 1 execution
RENDERED; WHEN PRESUMPTION OF Oria v McMicking was issued thereon and placed in the hands
FRAUDULENCY DOES NOT APPLY. Facts: In the month of August, 1909, of the sheriff of Manila. The sheriff
Article 1387 of the Civil Code provides that Gutierrez Hermanos brought an action immediately demanded that Tomas Oria y
alienations by onerous title are presumed against Oria Hermanos & Co. for the Balbas, as liquidator of the firm of Oria
fraudulent when made by persons against recovery of P147,204.28; that action is Hermanos & Co. make payment of the said
whom some judgment has been rendered in known as No. 7289 in the Court of First judgment, to which he replied that there
any instance or some writ of attachment has Instance of Manila were no funds with which to pay the same.
been issued, although the decision or Thereupon the sheriff levied upon the said
attachment does not refer to the property Subsequent to the beginning of the above steamer Serantes, took possession of the
litigated. This presumption does not apply actions, and on or about the 30th day of same, and announced it for sale at public
where, as in the case at bar, the Judgment April, 1910, the members of the company of auction on the 21st day of October, 1910.
obtained by defendant against the owner of Oria Hermanos & Co., on account of the
the land in dispute was rendered after the expiration of the time stated in their On the 18th day of October, 1910, three
agreement of copartnership, dissolved their days before the sale, the plaintiff in this
action presented to the sheriff a written finding. While the evidence is somewhat 2. A transfer made by a debtor after suit has
statement claiming to be the owner of the conflicting, we are of the opinion that there been begun and while it is pending against
said steamship, and to have the right of is sufficient to sustain the findings made him.
possession of the same by reason of the sale 3. A sale upon credit by an insolvent debtor.
to him by Oria Hermanos & Co. of all of the ACTION TO SET ASIDE SALE IN 4. Evidence of large indebtedness or
property belonging to said company, FRAUD OF CREDITORS; PROOF THAT complete insolvency.
including the said steamer Serantes, THE VENDOR HAS No PROPERTY TO 5. The transfer of all or nearly all of his
PAY SUING CREDITOR. While, in an property by a debtor, especially when he is
The sheriff thereupon required Gutierrez action to set aside a conveyance, on the insolvent or greatly embarrassed financially.
Hermanos to present a bond for his ground that it is made in fraud of creditors, it 6. The fact that the transfer is made between
protection, which having been done, the is not necessary to prove the issuance and father and son, when there are present other
sheriff proceeded to the sale of the said return of an execution nulla bona, of the above circumstances.
steamship. At the sale Gutierrez Hermanos nevertheless, it is necessary to show clearly 7. The failure of the vendee to take
became the purchaser, said company being that the alleged fraudulent vendor has no exclusive possession of all of the property.
the highest bidder, and the sum which it paid property with which to pay the suing
being the highest sum bidden for the same. creditor. PROCEDURE BY CREDITOR; ACTION
BY ALLEGED OWNER. Whether or not
Issue: The validity of the sale from Oria SALE DECLARED FRAUDULENT a sale is fraudulent as to a suing creditor, can
Hermanos & Co. to Manuel Oria y Gonzalez ONLY SO FAR AS NECESSARY. be tested and determined without first
as against the creditors of said company. It Where a sale is declared fraudulent, at the resorting to a direct action to annul the sale.
is the contention of Gutierrez Hermanos that suit of a particular creditor, courts will A creditor may attack the sale by ignoring it
said sale is fraudulent as against the declare such sale fraudulent only so far as and seizing under his execution. the property
creditors of Oria Hermanos & Co., and that necessary to pay the suing creditor; it will or any necessary part thereof which is the
the transfer thereby consummated of the not be disturbed any further than that. subject matter of the sale. The character of
steamship in question was void as to said the sale will then be determined in the action
creditors and as to Gutierrez Hermanos in TEST TO DETERMINE WHETHER SALE brought by the alleged owner against the
particular. IS FRAUDULENT. In an action to execution creditor.
determine whether or not a given sale is
Ruling: The petition is denied. fraudulent, the test to determine its real SALE DECLARED FRAUDULENT AS
character is: Did it materially prejudice the TO SUING CREDITOR. The facts in the
There is some contention on the part of the rights of the suing creditor? case at bar examined and held sufficient to
plaintiffs that aside from the property sustain a judgment declaring the sale
included in the sale referred to, Oria CIRCUMSTANCES INDICATING fraudulent as to the suing creditor.
Hermanos & Co. had sufficient other FRAUD. In determining whether or not a
property to pay the judgment of Gutierrez sale is fraudulent, the following Since the record shows that there was no
Hermanos. The trial court found, however, circumstances, attending such sale, are property with which the judgment in
against the plaintiff in this regard. A careful indications of fraud: question could be paid, the defendants were
examination of the record fails to disclose 1. The fact that the consideration of the obliged to resort to and levy upon the
any sufficient reason for the reversal of this conveyance is fictitious or is inadequate. steamer in suit. The court below was correct
in finding the sale fraudulent and void as to anchored on three promissory notes Ruling: The petition is granted.
Gutierrez Hermanos in so far as was amounting to P2,500,000.00 plus stipulated The Supreme Court found the petition
necessary to permit the collection of its interest. On November 7, 1985, the trial impressed with merit. The Court ruled that
judgment. As a corollary, the court below court rendered its decision in favor of China inasmuch as the judgment of the trial court
found that the evidence failed to show that Banking Corporation granting the amount in favor of China Bank against Alfonso
the plaintiff was the owner or entitled to the prayed for. On appeal, the appellate court Chua was rendered as early as 1985, there is
possession of the steamer in question at the dismissed the same for failure to file brief. a presumption that the 1988 sale of his
time of the levy and sale complained of, or On November 21, 1988, Alfonso Roxas property, in this case the right of
that he was damaged thereby. Defendant had Chua executed a public instrument assigning redemption, is fraudulent under Article 1387
the right to make the levy and test the his rights to redeem the 1/2 undivided of the Civil Code. The fact that private
validity of the sale in that way, without first portion of the property to his son, private respondent Paulino Chua redeemed the
resorting to a direct action to annul the sale. respondent Paulino Chua. Paulino redeemed property and caused its annotation on the
The creditor may attack the sale by ignoring said 1/2 share on the very same day. On the TCT more than two years ahead of
it and seizing under his execution the other hand, another notice of levy on petitioner China Bank is of no moment.
property, or any necessary portion thereof, execution was issued on February 4, 1991 Moreover, the mere fact that the conveyance
which is the subject of the sale by the Deputy Sheriff of Manila against the was founded on valuable consideration does
rights and interest of Alfonso Roxas Chua in not necessarily negate the presumption of
China Banking v CA TCT 410603. Thereafter, a certificate of sale fraud under Article 1387 of the Civil Code.
Facts: Alfonso Roxas Chua and his wife on execution dated April 13, 1992 was There has to be a valuable consideration and
were the owners of a residential land subject issued by the sheriff in favor of China Bank the transaction must have been made bona
of this case. On February 2, 1984, a notice and inscribed at the back of the title. On fide. In the case at bar, the presumption that
of levy affecting the property was issued in May 20, 1993, Paulino Chua and Kiang the conveyance is fraudulent has not been
connection with a civil case filed by Ming Chu Chua instituted a civil case before overcome. At the time a judgment was
Metropolitan Bank and Trust Company the RTC of Pasig against China Bank rendered in favor of China Bank against
against Pacific Multi Commercial averring that Paulino has a prior and better Alfonso and the corporation, Paulino was
Corporation and Alfonso Roxas Chua. right over the rights, title, interest, and still living with his parents in the subject
Because of this notice, respondent's wife participation of China Bank in TCT 410603. property. Paulino himself admitted that he
filed a complaint against the City Sheriff of On July 15, 1994, the trial court rendered a knew his father was heavily indebted and
Manila questioning the levy of the decision in favor of private respondent and could not afford to pay his debts. The
questioned property alleging that the against China Bank. The trial court ruled transfer was undoubtedly made between
property was conjugal. Thereafter, the that the assignment was made for a father and son at a time when the father was
parties entered into compromise agreement valuable consideration and was executed insolvent and had no other property to pay
to the effect that the levy was enforceable two years before petitioner China Bank off his creditors. Hence, it is of no
only to the extent of the 1/2 portion of the levied the conjugal share of Alfonso Chua consequence whether or not Paulino had
property. On June 19, 1985, petitioner China on TCT 410603. On appeal, the Court of given valuable consideration for the
Bank filed with the RTC of Manila an action Appeals affirmed the ruling of the trial conveyance. The petition was granted and
for collection of sum of money against court. Hence, this petition. the decision of the Court of Appeals was
Pacific Multi-Agro-Industrial Corporation reversed and set aside.
and Alfonso Roxas Chua which was
CIVIL LAW; OBLIGATIONS AND be proved in any other manner recognized prejudice the rights of creditors?" The mere
CONTRACTS; FRAUD; PRESUMPTION by the law of evidence. In the early case of fact that the conveyance was founded on
OF FRAUDULENT TRANSACTION IS Oria vs. Mcmicking, the Supreme Court valuable consideration does not necessarily
NOT OVERCOME BY FACT THAT considered the following instances as badges negate the presumption of fraud under
DEED OF SALE IS IN THE NATURE OF of fraud: 1. The fact that the consideration of Article 1387 of the Civil Code. There has to
A PUBLIC INSTRUMENT. Such the conveyance is fictitious or is inadequate. be a valuable consideration and the
conclusion, however, runs counter to the law 2. A transfer made by a debtor after suit has transaction must have been made bona fide.
applicable in the case at bar. Inasmuch as begun and while it is pending against him. 3. In the case at bar, the presumption that the
the judgment of the trial court in favor of A sale upon credit by an insolvent debtor. 4. conveyance is fraudulent has not been
China Bank against Alfonso Roxas Chua Evidence of large indebtedness or complete overcome. At the time a judgment was
was rendered as early as 1985, there is a insolvency. 5. The transfer of all or nearly rendered in favor of China Bank against
presumption that the 1988 sale of his all of his property by a debtor, especially Alfonso and the corporation, Paulino was
property, in this case the right of when he is insolvent or greatly embarrassed still living with his parents in the subject
redemption, is fraudulent under Article 1387 financially. 6. The fact that the transfer is property. Paulino himself admitted that he
of the Civil Code. The fact that private made between father and son, when there knew his father was heavily indebted and
respondent Paulino Roxas Chua redeemed are present other of the above circumstances could not afford to pay his debts. The
the property and caused its annotation on the 7. The failure of the vendee to take transfer was undoubtedly made between
TCT more than two years ahead of exclusive possession of all the property. father and son at a time when the father was
petitioner China Bank is of no moment. As insolvent and had no other property to pay
stated in the case of Cabaliw vs. Sadorra, OF VALUABLE CONSIDERATION off his creditors. Hence, it is of no
"the parties here do not stand in DOES NOT NECESSARILY NEGATE consequence whether or not Paulino had
equipoise, for the petitioners have in their THE PRESUMPTION OF FRAUD It given valuable consideration for the
favor, by a specific provision of law, the bears emphasis that it is not sufficient that conveyance.
presumption of fraudulent transaction the conveyance is founded on a valuable
which is not overcome by the mere fact consideration. In the case of Oria vs. MR Holdings v Carlos
that the deeds of sale were in the nature Mcmicking, we had occasion to state that Facts: Asian Development Bank (ADB), a
of public instruments." "In determining whether or not a certain multilateral development finance institution,
conveyance is fraudulent the question in agreed to extend to respondent Marcopper
BADGES OF FRAUD; INSTANCES. every case is whether the conveyance was a Mining Corporation (Marcopper) a loan in
This presumption is strengthened by the fact bona fide transaction or a trick and the aggregate amount of US$40,000,000.00
that the conveyance has virtually left contrivance to defeat creditors, or whether it to finance the latter's mining project at Sta.
Alfonso's other creditors with no other conserves to the debtor a special right. It is Cruz, Marinduque. To secure the loan,
property to attach. It should be noted that the not sufficient that it is founded on good Marcopper executed in favor of ADB a
presumption of fraud or intention to defraud considerations or is made with bona fide "Deed of Real Estate and Chattel Mortgage"
creditors is not just limited to the two intent: it must have both elements. If covering substantially all of its
instances set forth in the first and second defective in either of these, although good (Marcopper's) properties and assets in
paragraphs of Article 1387 of the Civil between the parties, it is voidable as to Marinduque. When Marcopper defaulted in
Code. Under the third paragraph of the same creditors. . . . The test as to whether or not a the payment of its loan obligation, petitioner
article, the design to defraud creditors may conveyance is fraudulent is, does it MR Holdings, Ltd., assumed Marcopper's
obligation to ADB in the amount of that petitioner has no legal capacity to sue in establish the nexus between petitioner's
US$18,453,450.02. Consequently, in an the Philippine courts because it is a foreign business and the acts supposed to constitute
"Assignment Agreement", ADB assigned to corporation doing business here without "doing business." Thus, whether the
petitioner all its rights, interests and license. Hence, the present petition. assignment contracts were incidental to
obligations under the principal and Petitioner alleged that it is not "doing petitioner's business or were continuation
complementary loan agreements. business" in the Philippines and thereof is beyond determination.
Respondent Marcopper likewise executed a characterized its participation in the
"Deed of Assignment" in favor of petitioner. assignment contracts (whereby Marcopper's MERCANTILE LAW; PRIVATE
In the meantime, respondent Solidbank assets were transferred to it) as mere isolated CORPORATIONS; PRINCIPLES
Corporation obtained a Partial Judgment acts that cannot foreclose its right to sue in GOVERNING A FOREIGN
against Marcopper from the RTC, Branch local courts. CORPORATION'S RIGHT TO SUE IN
26, Manila, in Civil Case No. 96-80083 LOCAL COURTS. The Court of Appeals
entitled "Solidbank Corporation vs. Ruling: The petition is granted. ruled that petitioner has no legal capacity to
Marcopper Mining Corporation, John E. sue in the Philippine courts because it is a
Loney, Jose E. Reyes and Teodulo C. The Supreme Court ruled in favor of foreign corporation doing business here
Gabor, Jr.," Having learned of the scheduled petitioner and granted the petition. The without license. A review of this ruling does
auction sale, petitioner filed an "Affidavit of Court ruled that a foreign corporation, which not pose much complexity as the principles
Third-Party Claim" asserting its ownership becomes the assignee of mining properties, governing a foreign corporation's right to
over all Marcopper's mining properties, facilities and equipment, cannot be sue in local courts have long been settled by
equipment and facilities by virtue of the automatically considered as doing business, our Corporation Law. These principles may
"Deed of Assignment." Upon the denial of nor presumed to have the intention of be condensed in three statements, to wit: a)
its "Affidavit of Third-Party Claim" by the engaging in mining business. According to if a foreign corporation does business in the
RTC of Manila, petitioner commenced with the Court, petitioner was engaged only in Philippines without a license, it cannot sue
the RTC of Boac, Marinduque, a complaint isolated acts or transactions. Single or before the Philippine courts; b) if a foreign
for reivindication of properties, etc., with isolated acts, contracts, or transactions of corporation is not doing business in the
prayer for preliminary injunction and foreign corporations are not regarded as a Philippines, it needs no license to sue before
temporary restraining order against doing or carrying on of business. Typical Philippine courts on an isolated transaction
respondents Solidbank, Marcopper, and the examples are the making of a single or on a cause of action entirely independent
sheriffs assigned in implementing the writ of contract, sale, sale with the taking of a note of any business transaction; and c) if a
execution. The trial court denied petitioner's and mortgage in the state to secure payment foreign corporation does business in the
application for a writ of preliminary therefor, purchase, or note, or the mere Philippines with the required license, it can
injunction on the ground that petitioner has commission of a tort. In the said instances, sue before Philippine courts on any
no legal capacity to sue, it being a foreign there is no purpose to do any other business transaction. Apparently, it is not the absence
corporation doing business in the within the country. The Court further ruled of the prescribed license but the "doing (of)
Philippines without license. Unsatisfied, that the Court of Appeals' holding that business" in the Philippines without such
petitioner elevated the matter to the Court of petitioner was determined to be "doing license which debars the foreign corporation
Appeals on a Petition for Certiorari, business" in the Philippines is based mainly from access to our courts.
Prohibition and Mandamus. The Court of on conjectures and speculation. No effort
Appeals affirmed the ruling of the trial court was exerted by the appellate court to
FOREIGN CORPORATION'S RIGHT TO corporation that he was sent to the investments which it poured into
SUE IN LOCAL COURTS; NEXUS Philippines to look into the operation of Marcopper's rehabilitation without it
BETWEEN PETITIONER'S BUSINESS mines, thereby revealing the foreign (petitioner) continuing Marcopper's business
AND THE ACTS SUPPOSED TO corporation's desire to continue engaging in in the country." This is a mere presumption.
CONSTITUTE "DOING BUSINESS"; business here. But in the case at bar, there is Absent overt acts of petitioner from which
NOT ESTABLISHED IN CASE AT BAR. no evidence of similar desire or intent. we may directly infer its intention to
In the case at bar, the Court of Appeals Unarguably, petitioner may, as the Court of continue Marcopper's business, we cannot
categorized as "doing business" petitioner's Appeals suggested, decide to operate give our concurrence. Significantly, a view
participation under the "Assignment Marcopper's mining business, but, of course, subscribed upon by many authorities is that
Agreement" and the "Deed of Assignment." at this stage, that is a mere speculation. Or it the mere ownership by a foreign corporation
This is simply untenable. The expression may decide to sell the credit secured by the of a property in a certain state,
"doing business" should not be given such a mining properties to an offshore investor, in unaccompanied by its active use in
strict and literal construction as to make it which case the acts will still be isolated furtherance of the business for which it was
apply to any corporate dealing whatever. At transactions. To see through the present formed, is insufficient in itself to constitute
this early stage and with petitioner's acts or facts an intention on the part of petitioner to doing business. In Chittim vs. Belle Fourche
transactions limited to the assignment start a series of business transaction is to rest Bentonite Products Co., it was held that
contracts, it cannot be said that it had on assumptions or probabilities falling short even if a foreign corporation purchased and
performed acts intended to continue the of actual proof. Courts should never base its took conveyances of a mining claim, did
business for which it was organized. It may judgments on a state of facts so inadequately some assessment work thereon, and
not be amiss to point out that the purpose or developed that it cannot be determined endeavored to sell it, its acts will not
business for which petitioner was organized where inference ends and conjecture begins. constitute the doing of business so as to
is not discernible in the records. No effort subject the corporation to the statutory
was exerted by the Court of Appeals to A FOREIGN CORPORATION, WHICH requirements for the transacting of business.
establish the nexus between petitioner's BECOMES THE ASSIGNEE OF MINING On the same vein, petitioner, a foreign
business and the acts supposed to constitute PROPERTIES, FACILITIES AND corporation, which becomes the assignee of
"doing business. " Thus, whether the EQUIPMENT CANNOT BE mining properties, facilities and equipment
assignment contracts were incidental to AUTOMATICALLY CONSIDERED AS cannot be automatically considered as doing
petitioner's business or were continuation DOING BUSINESS, NOR PRESUMED TO business, nor presumed to have the intention
thereof is beyond determination. We cannot HAVE THE INTENTION OF ENGAGING of engaging in mining business.
apply the case cited by the Court of Appeals, IN MINING BUSINESS; CASE AT BAR.
Far East Int'l Import and Export Corp. vs. The Court of Appeals' holding that PETITIONER IS CONSIDERED
Nankai Kogyo Co., Ltd., which held that a petitioner was determined to be "doing ENGAGED ONLY IN ISOLATED ACTS
single act may still constitute "doing business" in the Philippines is based mainly OR TRANSACTIONS WHICH ARE NOT
business" if "it is not merely incidental or on conjectures and speculation. In REGARDED AS DOING OR CARRYING
casual, but is of such character as distinctly concluding that the "unmistakable intention" ON OF BUSINESS. Long before
to indicate a purpose on the part of the of petitioner is to continue Marcopper's petitioner assumed Marcopper's debt to
foreign corporation to do other business in business, the Court of Appeals hangs on the ADB and became their assignee under the
the state." In said case, there was an express wobbly premise that "there is no other way two assignment contracts, there already
admission from an official of the foreign for petitioner to recover its huge financial existed a "Support and Standby Credit
Agreement" between ADB and Placer Dome would suggest that petitioner corporation, shareholders, dominated mostly by Filipino
whereby the latter bound itself to provide Placer Dome and Marcopper are one and the citizens. The same view applies to
cash flow support for Marcopper's payment same entity. While admittedly, petitioner is a petitioner's payment of Marcopper's
of its obligations to ADB. Plainly, wholly-owned subsidiary of Placer Dome, remaining debt to ADB. With the foregoing
petitioner's payment of US$18,453,450.12 to which, in turn, was then a minority considerations and the absence of fraud in
ADB was more of a fulfillment of an stockholder of Marcopper, however, the the transaction of the three foreign
obligation under the "Support and Standby mere fact that a corporation owns all of the corporations, we find it improper to pierce
Credit Agreement" rather than an stocks of another corporation, taken alone is the veil of corporate fiction that equitable
investment. That petitioner had to step into not sufficient to justify their being treated as doctrine developed to address situations
the shoes of ADB as Marcopper's creditor one entity. If used to perform legitimate where the corporate personality of a
was just a necessary legal consequence of functions, a subsidiary's separate existence corporation is abused or used for wrongful
the transactions that transpired. Also, we shall be respected, and the liability of the purposes.
must hasten to add that the "Support and parent corporation as well as the subsidiary
Standby Credit Agreement" was executed will be confined to those arising in their CIVIL LAW; CONTRACTS;
four (4) years prior to Marcopper's respective business. RESCISSIBLE CONTRACTS; THE
insolvency, hence, the alleged "intention of ASSIGNMENT CONTRACTS WERE
petitioner to continue Marcopper's business" DOCTRINE OF PIERCING THE VEIL OF EXECUTED IN GOOD FAITH AND
could have no basis for at that time, CORPORATE FICTION; NOT CONSIDERED NOT IN FRAUD OF
Marcopper's fate cannot yet be determined. APPLICABLE IN CASE AT BAR; NO CREDITORS. The facts of the case so
In the final analysis, we are convinced that FACTORS INDICATING THAT far show that the assignment contracts were
petitioner was engaged only in isolated acts PETITIONER IS A MERE executed in good faith. The execution of the
or transactions. Single or isolated acts, INSTRUMENTALITY OF ANOTHER "Assignment Agreement" on March 20,
contracts, or transactions of foreign CORPORATION. In this catena of 1997 and the "Deed of Assignment" on
corporations are not regarded as a doing or circumstances, what is only extant in the December 8, 1997 is not the alpha of this
carrying on of business. Typical examples of records is the matter of stock ownership. case. While the execution of these
these are the making of a single contract, There are no other factors indicative that assignment contracts almost coincided with
sale, sale with the taking of a note and petitioner is a mere instrumentality of the rendition on May 7, 1997 of the Partial
mortgage in the state to secure payment Marcopper or Placer Dome. The mere fact Judgment in Civil Case No. 96-80083 by the
therefor, purchase, or note, or the mere that Placer Dome agreed, under the terms of Manila RTC, however, there was no
commission of a tort. In these instances, the "Support and Standby Credit intention on the part of petitioner to defeat
there is no purpose to do any other business Agreement" to provide Marcopper with cash Solidbank's claim. It bears reiterating that as
within the country. flow support in paying its obligations to early as November 4, 1992, Placer Dome
ADB, does not mean that its personality has had already bound itself under a "Support
FACT THAT A CORPORATION OWNS merged with that of Marcopper. This and Standby Credit Agreement" to provide
ALL OF THE STOCKS OF ANOTHER singular undertaking, performed by Placer Marcopper with cash flow support for the
CORPORATION, TAKEN ALONE IS Dome with its own stockholders in Canada payment to ADB of its obligations. When
NOT SUFFICIENT TO JUSTIFY THEIR and elsewhere, is not a sufficient ground to Marcopper ceased operations on account of
BEING TREATED AS ONE ENTITY. merge its corporate personality with disastrous mine tailings spill into the Boac
The record is lacking in circumstances that Marcopper which has its own set of River and ADB pressed for payment of the
loan, Placer Dome agreed to have its RTC of Boac, Marinduque, pursuant to Rule Petitioner's right to stop the further
subsidiary, herein petitioner, paid ADB the 39, Section 16 of the 1997 Rules of Civil execution of the properties covered by the
amount of US$18,453,450.12. Thereupon, Procedures. This remedy has been assignment contracts is clear under the facts
ADB and Marcopper executed, respectively, recognized in a long line of cases decided by so far established. An execution can be
in favor of petitioner an "Assignment this Court. This "reivindicatory action" has issued only against a party and not against
Agreement" and a "Deed of Assignment." for its object the recovery of ownership or one who did not have his day in court. The
Obviously, the assignment contracts were possession of the property seized by the duty of the sheriff is to levy the property of
connected with transactions that happened sheriff, despite the third party claim, as well the judgment debtor not that of a third
long before the rendition in 1997 of the as damages resulting therefrom, and it may person. For, as the saying goes, one man's
Partial Judgment in Civil Case No. 96- be brought against the sheriff and such other goods shall not be sold for another man's
80083 by the Manila RTC. Those contracts parties as may be alleged to have connived debt. To allow the execution of petitioner's
cannot be viewed in isolation. If we may with him in the supposedly wrongful properties would surely work injustice to it
add, it is highly inconceivable that ADB, a execution proceedings, such as the judgment and render the judgment on the
reputable international financial creditor himself. Such action is an entirely reivindicatory action, should it be favorable,
organization, will connive with Marcopper separate and distinct action from that in ineffectual. In Arabay, Inc., vs. Salvador,
to feign or simulate a contract in 1992 just to which execution has been issued. Thus, this Court held that an injunction is a proper
defraud Solidbank for its claim four years there being no identity of parties and cause remedy to prevent a sheriff from selling the
thereafter. And it is equally incredible for of action between Civil Case No. 98-13 property of one person for the purpose of
petitioner to be paying the huge sum of (RTC, Boac) and those cases filed by paying the debts of another; and that while
US$18,453,450.12 to ADB only for the Marcopper, including Civil Case No. 96- the general rule is that no court has authority
purpose of defrauding Solidbank of the 80083 (RTC, Manila) as to give rise to res to interfere by injunction with the judgments
sum of P52,970,756.89. judicata or litis pendentia, Solidbank's or decrees of another court of equal or
allegation of forum-shopping cannot concurrent or coordinate jurisdiction,
REMEDIAL LAW; CIVIL PROCEDURE; prosper. however, it is not so when a third-party
FORUM SHOPPING; ALLEGATION claimant is involved.
CANNOT PROSPER BECAUSE PROVISIONAL REMEDIES;
PETITIONER HAS A SEPARATE PRELIMINARY INJUNCTION;
PERSONALITY AND THEREFORE HAS PETITIONER'S RIGHT TO STOP THE
THE RIGHT TO PURSUE ITS THIRD FURTHER EXECUTION OF THE
PARTY CLAIM BY FILING THE PROPERTIES COVERED BY THE
INDEPENDENT REIVINDICATORY ASSIGNMENT CONTRACTS WAS
ACTION; CASE AT BAR. On the issue SUFFICIENTLY ESTABLISHED; TO
of forum shopping, there could have been a ALLOW EXECUTION WOULD SURELY
violation of the rules thereon if petitioner WORK INJUSTICE TO IT AND RENDER
and Marcopper were indeed one and the THE JUDGMENT ON THE
same entity. But since petitioner has a REIVINDICATORY ACTION, SHOULD
separate personality, it has the right to IT BE FAVORABLE, INEFFECTUAL.
pursue its third-party claim by filing the We find petitioner to be entitled to the
independent reivindicatory action with the issuance of a writ of preliminary injunction.
DBP v CA (1980) separate certificate of title, TCT No. 36533, and Elisa F. Nicandro (hereinafter referred
Facts: On March 18, 1955, the Board of was issued for the segregated portion in the to simply as respondent spouses).
Governors of petitioner-appellant DBP name of PHHC. However, the subdivision
(hereinafter referred to as petitioner or plan on which the segregation was based On November 6, 1958, Honesto G. Nicandro
simply DBP for brevity and convenience), was not annotated on the master title, TCT went to see Atty. Roman Cariaga, Chief of
Under its Resolution No. 2004, appropriated No. 1356, nor was the fact that the latter was the Sales Division, PHHC, and demanded
the sum of P1,204,000.00 to purchase land cancelled pro tanto by TCT No. 36533 as to that the corresponding deeds of sale for Lots
for a housing project for its employees. It the 159 lots (Exhibit 15-DBP). 2 and 4 be executed in their favor. Atty.
was contemplated that the Bank itself will Cariaga accompanied him to the General
build houses on the land to be acquired and On September 29, 1958, Mr. Sergio Ortiz Manager, Bernardo Torres, and in the
these will then be sold to employees who do Luis, a PHHC Director, and, at the time, presence of Mr. Nicandro, the former asked
not yet own homes and who shall pay for Acting Manager of the PHHC, wrote to the Mr. Torres whether the deeds of sale for the
them in monthly installments over a period Chairman of the DBP that Lots 2 and 4, two (2) lots requested by Mr. Nicandro
of twenty (20) years Block WT-21, had been inadvertently should be prepared considering that the DBP
included among the lots sold to the DBP and has not yet relinquished its right thereon.
Pursuant thereto, on October 20, 1955, the for said reason requested that the two lots be However, the General Manager told him to
DBP bought 91,188.30 square meters of excluded from the sale go ahead and prepare the deeds of sale.
land, consisting of 159 lots, in the proposed
Diliman Estate Subdivision, West Triangle, In his reply letter dated October 16, 1958, On November 7, 1958, a deed of sale over
Quezon City, of the People's Homesite and Chairman Gregorio S. Licaros of the DBP Lot 2 in favor of Honesto G. Nicandro and
Housing Corporation (PHHC). Of the price refused to exclude Lots 2 and 4 as requested, another deed of sale over Lot 4 in favor of
of P802,155.56, the DBP paid the amount of insisting that they form part of the 159 lots his wife, Elisa F. Nicandro, were prepared
P400,000.00 as down payment. The area sold to the DBP as shown in the Sales by the Sales Division of the PHHC under
sold was then part of a bigger parcel Agreement dated October 20, 1955 and for Atty. Cariaga.
embraced under TCT No. 1356 and because which DBP has made a partial payment of
the subdivision plan for the area (including P400,000.00 (Exhibit 2-DBP). On October Thereafter, the General Manager, Mr.
the 159 lots sold to the DBP) was still 14, 1958, Acting Manager Sergio Ortiz Luis, Bernardo Torres, signed the deeds of sale
pending approval by the Bureau of Lands, without waiting for the reply of DBP over Lots 2 and 4 in favor of respondent
the sales agreement between the DBP and Chairman Licaros, approved the order of spouses. Notwithstanding this fact, however,
the PHHC was not presented immediately payment for Lots 2 and 4, Block WT-21, in the originals of said deeds of sale (Exhibits
for registration by the DBP. Lots 2 and 4, favor of appellees Honesto G. Nicandro and 10-DBP and 10-A-DBP) were retained at the
which form part of said 159 lots, are the Elisa F. Nicandro who paid the sum of PHHC and were never released to the
properties involved in the instant litigation P700.56 and P660.00 as down payment, respondent spouses.
representing 10% of the price of the lots.
Meanwhile, on June 24, 1957, without the On January 15, 1959, the Sales Agreement
knowledge of the DBP, a portion of the On November 3, 1958, the PHHC accepted dated October 20, 1955 between the PHHC
property covered by the master title, TCT payment in full of Lots 2 and 4 from and the DBP (covering the 159 lots
No. 1356, including the 159 lots sold to the respondents spouses Honesto G. Nicandro including Lots 2 and 4 in question) was
DBP, were segregated therefrom and a presented for registration to the Register of
Deeds of Quezon City. It was entered in the As the DBP's request for issuance of new Secretary of Justice issued Opinion No. 40,
day book and annotated on TCT No. 1356 as certificates of title for Lots 2 and 4 was holding that the deed of sale covering said
a "sale of an unsegregated portion" with the being opposed by the respondent spouses lots is not only ultra vires but is also illegal
note "new titles to be issued upon and unable to decide as to who should be and void and, for that reason, the DBP
presentation of the corresponding issued certificates of title for the two lots, cannot sell the same to its employees even
subdivision plan and technical descriptions the Register of Deeds of Quezon City for cash.
duly approved by the authorities." referred the matter on consulta to the Land
Registration Commission, where it was On November 10, 1961, respondent spouses
On January 20, 1959, pursuant to the docketed as In Re Consulta No. 250. In a then filed the case at bar against the DBP
Executive Secretary's reference of the matter resolution dated July 25, 1959, the Land and the PHHC, to rescind the sale of Lots 2
to the Secretary of Justice for an opinion, as Registration Commission held that and 4 by PHHC in favor of DBP, to cancel
mentioned earlier, the latter issued Opinion respondent spouses Honesto G. Nicandro the transfer certificate of title that may have
No. 16, s. of 1959, holding that and Elisa F. Nicandro were better entitled to been issued covering the two lots to DBP,
"Premises considered, it is our opinion that the issuance of certificates of title for Lots 2 and to order DBP to pay damages to the
the RFC (DBP) has no express or incidental and 4. After its motion for reconsideration of plaintiffs. It was alleged that the acquisition
power to undertake the housing project the resolution was denied, the DBP of Lots 2 and 4 by the DBP is not only in
under consideration and that the same is promptly appealed the decision to this excess of its corporate powers but also a
incongruous with, if not a clear violation of, Court. violation of the express prohibition of
the prohibition contained in Section 13 of Section 13 of its Charter, Republic Act No.
Republic Act No. 85." On April 29, 1961, resolving DBP's appeal 85, as amended. Against the PHHC,
of In Re Consulta No. 250, 6 this Court held respondent spouses alleged that in the
On February 16, 1959, respondent Honesto that the annotation made on January 15, alternative event that the case against the
G. Nicandro attempted to register the sale of 1959 of the sales agreement in favor of the DBP will not prosper, that PHHC be
Lots 2 and 4 in his favor by presenting DBP on TCT No. 1356 constituted sufficient adjudged to pay to the plaintiff the "value
copies of the deeds of sale in their favor (as registration to bind third parties, thereby which the said properties may have on the
mentioned earlier, the originals were reversing the resolution of the Land date of decision
retained by the PHHC and were never Registration Commission of July 25, 1959,
released) before the Register of Deeds of to the effect that the annotation on TCT No. It is important to note that the PHHC alleged
Quezon City, but registration was denied 1356 of the sales agreement between the as defenses the actuations of the plaintiffs
because: (1) the deeds of sale were only PHHC and the vendee DBP did not (Nicandro spouses) which have been
photostatic copies; (2) the consent of the constitute sufficient registration to bind characterized by bad faith
GSIS (to whom the whole property was innocent third parties (referring to the
mortgaged) to the sale is not shown therein; Nicandros), in favor of the appellees. That notwithstanding the information given
and (3) the deeds of sale lacked the by the defendant to the plaintiffs that the
necessary documentary stamps. On the Meanwhile, prior to the aforesaid decision question of legality of the acquisition by the
following day, February 17, affidavits of of this Court, on March 14, 1960, in reply to DBP of lots has not been resolved, plaintiffs
adverse claims on Lots 2 and 4 were filed by the query of the Board of Governors of the insisted in paying on November 3, 1958, the
the respondents and these were registered DBP whether the Bank can sell the 159 lots full purchase price of the lots in question
and annotated on TCT No. 36533 on a cash basis to its employees, the
In their brief, the DBP maintains that the The Court of Appeals, in effect, held that the validity to the transfer or creates a lien upon
Court of Appeals erred in holding that the amendment "cannot validate the sale of Lots the land
respondent spouses have legal personality to 2 and 4 in favor of the DBP because the
question the legality of the sale in question rights of the plaintiffs have already accrued There is evidence to the effect that prior to
before its amendment" and section as or during the preparation of the
Ruling: The petition is granted. subsequently amended contains no express corresponding deeds of sale for lots 2 and 4
provision of retroactive application. It in their favor, the private respondents knew
The general rule is that the action for the necessarily follows that such amended of the previous acquisition of said property
annulment of contracts can only be section cannot be given retroactive effect. by the DBP. Sometime in September 1958,
maintained by those who are bound either the Chief of the Sales Division of the PHHC
principally or subsidiarily by virtue thereof. There is evidence to the effect that prior to informed Honesto G. Nicandro that Lots 2
11 There is, however, an exception to the or during the preparation of the and 4 were part of the 159 lots previously
rule. This Court, in Teves v. People's corresponding deeds of sale for lots 2 and 4 sold by the PHHC to the DBP. On
Homesite and Housing Corporation, 12 held in their favor, the private respondents knew November 6, 1958, when Nicandro asked
that "a person who is not obliged principally of the previous acquisition of said property that the corresponding deeds of sale over
or subsidiarily in a contract may exercise an by the DBP. Sometime in September 1958, Lots 2 and 4 be prepared, the same Chief of
action for nullity of the contract if he is the Chief of the Sales Division of the PHHC the Sales Division expressed his misgivings
prejudiced in his rights with respect to one informed Honesto G. Nicandro that Lots 2 by telling the General Manager of the
of the contracting parties, and can show the and 4 were part of the 159 lots previously PHHC, in the presence of Nicandro, that the
detriment which could positively result to sold by the PHHC to the DBP. On two lots that the Nicandros wanted to buy
him from the contract in which he had no November 6, 1958, when Nicandro asked had already been sold to the DBP and the
intervention." that the corresponding deeds of sale over latter had not yet relinquished its right over
Lots 2 and 4 be prepared, the same Chief of said property. 18 In any event, the
It cannot be denied that respondent spouses the Sales Division expressed his misgivings Nicandros were not able to register their
stand to be prejudiced by reason of their by telling the General Manager of the deeds of sale over Lots 2 and 4. Before the
payment in full of the purchase price for the PHHC, in the presence of Nicandro, that the registration of a deed or instrument, a
same lots which had been sold to the two lots that the Nicandros wanted to buy registered property is not bound thereby
petitioner by virtue of the transaction in had already been sold to the DBP and the insofar as third persons are concerned.
question. We, therefore, hold that latter had not yet relinquished its right over Registration is the means whereby the
respondent spouses have sufficient standing said property. 18 In any event, the property is made subject to the terms of the
to institute the action in the case at bar Nicandros were not able to register their instrument. It is the operative act that gives
deeds of sale over Lots 2 and 4. Before the validity to the transfer or creates a lien upon
Whether or not the Court of Appeals erred in registration of a deed or instrument, a the land
not granting retroactive effect to Republic registered property is not bound thereby
Act No. 3147 amending Republic Act No. insofar as third persons are concerned. WHEREFORE, in view hereof, judgment is
85, which authorizes the DBP to provide for Registration is the means whereby the hereby rendered: (1) reversing the judgment
housing for the benefit of its officials and property is made subject to the terms of the of the Court of Appeals in CA-G.R. No.
employees instrument. It is the operative act that gives 34518-R, dated February 29, 1968, and
dismissing the
complaint filed by the respondent spouses Valisno, daughter of Romulo D. Valisno; Respondent heirs filed a petition for review
for "rescission of the sale"; and (2) ordering and Leonora Valisno Yujuico, Benedicto with the Court of Appeals, arguing that the
the Development Bank of the Philippines to Valisno Yujuico and Gregorio Valisno Secretary of Agrarian Reform erred (1) in
reimburse to the Nicandro spouses the Yujuico, children of Marietta Valisno disallowing the award of one hectare to each
payments which they made to the PHHC in redeemed the same from the mortgagees. 5 of the seven Grandchildren-Awardees of Dr.
connection with said lots, with interest at the At the time of the redemption, Maria Nicolas Valisno, as qualified children-
legal rate from November 6, 1958 until fully Cristina, Leonora and Gregorio were all awardees under the CARL; and (2) in not
paid, which amount shall be deducted from minors; only Benedicto was of legal age, recognizing the redemption made by the
the balance of the purchase price of the being then 26 years old. 6 The redemption four grandchildren of Dr. Nicolas Valisno
property. No special pronouncement as to was made on October 25, 1973, but the titles over the 12-hectare riceland mortgaged to
costs. to the land were not transferred to the Renato and Angelito Banting.
redemptioners until November 26, 1998.
SMSJ v Valisno On March 26, 2002, the Court of Appeals
Facts: The original 57-hectare property, On appeal, the Office of the Regional reversed the Orders of the DAR Secretary,
situated in La Fuente, Sta. Rosa, Nueva Director issued an Order dated January 2, granted the award of one hectare each for
Ecija, was formerly registered in the name 1996, declaring the Valisno property exempt the seven Grandchildren-Awardees, and
of Dr. Nicolas Valisno, Sr. under Transfer from the coverage of PD 27 and RA 6657. affirmed the retention rights of the
Certificate of Title No. NT-38406. Before 11 This was reversed by then Secretary Redemptioner-Grandchildren over three
the effectivity of Presidential Decree No. 27, Garilao, who held that the property is hectares each, or a total of 12 hectares.
1 the land was the subject of a judicial covered by the Comprehensive Agrarian
ejectment suit, whereby in 1971, the Reform Program, subject to the retention Petitioners filed a partial motion for
Valisnos' tenants were ejected from the rights of the heirs of Nicolas, Sr. The reconsideration, assailing the right of
property. 2 Among these tenants was Valisno heirs filed a motion for retention of the four Redemptioner-
Dominador Maglalang, who represents the reconsideration of the said order, but the Grandchildren over the 12-hectare property,
SMSJ in the instant proceedings same was denied. and praying that an amended decision be
rendered placing the 12 hectares under the
Meanwhile, on October 20 and 21, 1972, Dr. On September 25, 1997, the Valisno heirs coverage of the CARP. This motion was
Valisno mortgaged 12 hectares of his filed a Consolidated Application for denied on March 25, 2003
property to Renato and Angelito Banting. 3 Retention and Award under RA 6657
Thereafter, the property was subdivided into Issue: Whether or not the grandchildren of
ten lots and on November 8, 1972, The SMSJ, through Dominador Maglalang, the late Dr. Nicolas Valisno Sr. are entitled
individual titles were issued in the name of opposed the Consolidated Application for to retention rights as landowners under
the eight children of Nicolas, Angelito Retention, specifically objecting to the Republic Act No. 6657, or the
Banting, and Renato Banting award in favor of the Grandchildren- Comprehensive Agrarian Reform Law
Awardees because they are not actually
After the mortgage on the 12 hectare portion tilling nor directly managing the land in Ruling: The petition is denied.
was foreclosed and the property sold at question as required by law.
public auction, four grandchildren of Dr. The Court of Appeals found the following
Nicolas Valisno, namely: Maria Cristina F. facts relevant: First, that the mortgages were
constituted over a 12-hectare portion of Dr. all who are thereby obliged principally or government from the inconvenience of
Valisno's estate in 1972. Second, that the subsidiarily. However, persons who are taking land only to return it to the landowner
titles to the property were transferred to the capable cannot allege the incapacity of those afterwards, which would be a pointless
names of the mortgagees in 1972, viz., TCT with whom they contracted." The action to process
No. NT-118447, covering a 6-hectare annul the minors' redemption in 1973,
property in La Fuente, Sta. Rosa, Nueva therefore, was one that could only have been In the landmark case of Association of
Ecija, issued in the name of Angelito initiated by the minors themselves, as the Small Landowners in the Philippines, Inc. v.
Banting; and TCT No. NT-118448, likewise victims or the aggrieved parties in whom the Secretary of Agrarian Reform, 27 we held
covering a 6-hectare property in La Fuente, law itself vests the right to file suit. This that landowners who have not yet exercised
Sta. Rosa, Nueva Ecija, issued in the name action was never initiated by the minors. their retention rights under PD 27 are
of Renato Banting. Third, these properties entitled to the new retention rights under RA
were redeemed by the Redemptioner- The transfer of the titles to the two 6-hectare 6657. 28 The retention rights of landowners
Grandchildren on October 25, 1973, at the properties in 1972 removed the parcels of are provided in Sec. 6 of RA 6657
time of which redemption three of the four land from the entire Valisno estate. The
Redemptioner-Grandchildren were minors. evidence clearly demonstrates that Renato Malabanan v Gaw Ching
Banting and Angelito Banting became the Facts: Respondent Gaw Ching instituted
The relevant laws governing the minors' registered owners of the property in 1972. two (2) cases against petitioners Angelina
redemption in 1973 are the general Civil These two separate properties were then Malabanan, Leonida Senolos, et al. in
Code provisions on legal capacity to enter transferred to the Redemptioner- connection with the sale of piece of land
into contractual relations. Article 1327 of Grandchildren in 1973. Regardless of the located in Binondo, Manila. The first case,
the Civil Code provides that minors are source of their funds, and regardless of their Civil Case No. R-81-416, sought to annul
incapable of giving consent to a contract. minority, they became the legal owners of such sale and to enjoin the demolition of a
Article 1390 provides that a contract where the property in 1973 building standing on that piece of land, and
one of the parties is incapable of giving also prayed for the award of damages. The
consent is voidable or annullable. Thus, the As owners in their own right of the second case, Civil Case No. G.R. 82-6798,
redemption made by the minors in 1973 was questioned properties, Redemptioner- demanded damages from petitioner Senolos
merely voidable or annullable, and was not Grandchildren enjoyed the right of retention for bringing about the demolition of the
void ab initio, as petitioners argue granted to all landowners. This right of building
retention is a constitutionally guaranteed
Any action for the annulment of the right, which is subject to qualification by the Gaw Ching has been leasing the house and
contracts thus entered into by the minors legislature. It serves to mitigate the effects lot located [in] 697-699 Asuncion Street,
would require that: (1) the plaintiff must of compulsory land acquisition by balancing Binondo, Manila from Mr. Jabit since 1951.
have an interest in the contract; and (2) the the rights of the landowner and the tenant Plaintiff conducted his business (Victoria
action must be brought by the victim and not and by implementing the doctrine that social Blacksmith Shop) on the ground floor and
the party responsible for the defect justice was not meant to perpetrate an lived on the second floor. When Mr. Jabit
injustice against the landowner. 26 A died, his daughter, defendant Malabanan
Thus, Article 1397 of the Civil Code retained area, as its name denotes, is land continued to lease the premises to plaintiff
provides in part that "[t]he action for the which is not supposed to leave the but at an increased rental of P1,000.00 per
annulment of contracts may be instituted by landowner's dominion, thus sparing the month. Before the increase, Gaw Ching paid
P700.00 per month, as evidenced by receipts to them, but according to plaintiff, they were demolition continued. Plaintiff together with
of rentals. There was no written contract of not furnished a copy of said sale. Atty. Sugay, and the City Hall official, went
lease between plaintiff and Mr. Jabit as to its Consequently, plaintiff received a letter to the police precinct where the City Hall
duration but the rentals were evidently, paid from Atty. Techico dated December 5, 1980 Official talked with somebody in the
monthly. On April 27, 1980, Angelina demanding that he vacate the premises and precinct. It was only when they returned to
Malabanan told him that she was selling the to pay the arrearages in rentals from October the premises at about 4:00 p.m. with a
house and lot for P5,000.00 per square meter to December, as they were more policeman that the demolition was stopped
importantly, going to repair and convert the
Atty. Sugay. Gaw Ching claims that he is dwelling into a warehouse. On 10 August 1984, the trial court rendered
not in a position to buy the property at a decision which upheld the validity of the
P5,000.00 per square meter because it was While he was on the ground floor, when contract of sale between petitioner
expensive. Subsequently, Gaw Ching tried there was a sudden brownout, and around 50 Malabanan and petitioner Senolos. The trial
to pay the rent for June, 1980, but people came thereat, climbed the roof with court declared that petitioner Malabanan had
Malabanan refused to accept it. Plaintiffs the use of a ladder, cut the electric wires and not violated Sections 4 and 6 of Presidential
counsel advised him to deposit the rentals in started banging the roof. Plaintiff, his wife, Decree No. 1517 in relation to Presidential
a bank which he did, after which, his and mother-in-law were in the house and Proclamation No. 1893 and Letter of
counsel wrote Malabanan informing her about 7 laborers were in the shop when the Instruction (LOI) No. 935 which provide for
about the deposit (Exh. B). On October 2, incident happened. Plaintiff then a preemptive right on the part of a lessee
1980, plaintiff received another letter from immediately called up Atty. Sugay and told over leased property. The trial court stressed
defendant Malabanan which he gave to his him that Leonida Senolos called some that respondent Gaw Ching had been given
counsel who told him that said defendant is people to demolish the house. Plaintiff ample opportunity to exercise any right of
offering the house and lot at P5,000.00 per further testified that . . . he was not notified first refusal he might have had, but he had
square meter and that if he is not agreeable, of the demolition. . . . . On that same day, chosen not to do so.
she will sell the premises to another person Atty. Sugay arrived at about 10:00 a.m. and
at P4,000.00 per square meter. Plaintiff told plaintiff that he was going to the City On cross examination, plaintiff admitted that
testified that he was willing to buy the Hall. When Atty. Sugay came back he was he received a letter from the Office of the
subject property at P4,000.00 but hastened with Roldan (Building Inspector), who City Engineer dated July 29, 1981 (Exh. 1-
to add that it was still expensive and did not ordered that the demolition be stopped, but Senolos) condemning the building. He also
ask his counsel to write Malabanan about it. Leonida Senolos refused to heed the order. admitted that he was furnished a copy of the
So, also, it was the opinion of his counsel Atty. Sugay and Roldan went back to the Demolition Order (Exh. 2-Senolos) to which
that it was not necessary to reply because the City Hall. . . . . At about 3:00 p.m., Atty. he affixed his signature.
context of the letter was invariably a threat. Sugay came back with another person from After receiving Exhibits '1' and '2,' Gaw
On November 3, 1980, plaintiff received the City Hall who presented a letter to Ching still refused to vacate the premises
another letter from Defendant Malabanan, Leonida Senolos to which defendant affixed because he was told that the building was
informing him that the premises in question her signature. The formal letter was dated still in good condition and he continued
had already been sold to defendant Leonida November 6, 1981 addressed to Leonida paying the monthly rental.
Senolos. This time Atty. Sugay sent a reply Senolos by Romulo del Rosario, City
dated November 24, 1980, requesting that Engineer and Building Officer. Upon receipt On redirect, plaintiff declared that after
the pertinent documents of the sale be sent of the letter, the policeman remained but the receiving the notice of the City Engineer, he
filed a complaint with the Ministry of Public Ruling: The petition is granted. for nullification of that contract and that
Works and Highways by reason of which, essential interest in a given contract is, in
the MPWH issued an order that the CIVIL LAW; CONTRACT; AS A general, possessed only by one who is a
demotion to be stopped GENERAL RULE, STRANGERS TO A party to the contract. In Ibaez, Mr. Justice
CONTRACT CANNOT SUE; Torres wrote: "From these legal provisions it
The trial court stressed that respondent Gaw EXCEPTION. The firmly settled rule is is deduced that it is the interest had in a
Ching had been given ample opportunity to that strangers to a contract cannot sue either given contract, that is the determining
exercise any right of first refusal he might or both of the contracting parties to annul reason of the right which lies in favor of the
have had, but he had chosen not to do so. and set aside that contract. Article 1397 of party obligated principally or subsidiarily to
the Civil Code embodies that rule in the enable him to bring an action for the nullity
Respondent Gaw Ching went on appeal to following formulation: "Article 1397. The of the contract in which he intervened, and,
the then Intermediate Appellate Court. By a action for the annulment of contracts may be therefore, he who has no right in a contract
vote of three (3) to two (2), the appellate instituted by all who are thereby obliged is not entitled to prosecute an action for
court voted to reverse the decision of the principally or subsidiarily. However, nullity, for, according to the precedents
trial court and hence to nullify the contract persons who are capable cannot allege the established by the courts, the person who is
of sale between petitioners Malabanan and incapacity of those with whom they not a party to a contract, nor has any cause
Senolos inter se. 2 The majority also held contracted; nor can those who exerted of action or representation from those who
that the transaction between petitioners was intimidation, violence, or undue influence, intervened therein, is manifestly without
vitiated by fraud, deceit and bad faith or employed fraud, or caused mistake base right of action and personality such as to
allegedly causing damage to respondent their action upon these flaws of the enable him to assail the validity of the
Gaw Ching. Petitioners were held liable contract." (Emphasis supplied) Article 1397 contract. (Decisions of the Supreme Court of
jointly and severally to respondent for itself follows from Article 1311 of the Civil Spain, of April 18, 1901, and November 23,
moral, exemplary and actual damages in the Code which establishes the fundamental rule 1903, pronounced in cases requiring an
amount of P350,000.00 and for attorney's that: "Article 1311.Contracts take effect application of the preinserted Article 1302
fees in the amount of P20,000.00 "for the only between the parties, their assigns and of the Civil Code." Mr. Justice Torres went
indulgence in inequitous conduct to heirs, except in case where the rights and on to indicate a possible qualification to the
plaintiff-appellant's (respondent Gaw Ching) obligations arising from the contract are not above general principle, that is, a situation
prejudice and for the unwarranted transmissible by their nature, or by where a non-party to a contract could be
demolition of the building by defendants- stipulation or by provision of law. The heir allowed to bring an action for declaring that
appellees (petitioners herein) after the is not liable beyond the value of the property contract null: "He who is not the party
issuance of the cease-and-desist order on he received from the decedent. obligated principally or subsidiarily in a
October 30, 1981." contract may perhaps be entitled to exercise
EXISTENCE OF INTEREST THEREIN IS an action for nullity, if he is prejudiced in
In the instant Petitions for Certiorari, THE BASIS OF THE RIGHT TO SUE FOR his rights with respect to one of the
petitioners assail both the annulment of the NULLIFICATION. As long ago as 1912, contracting parties; but, in order that such be
deed of sale and the grant of P350,000.00 this Court in Ibaez v. Hongkong and the case, it is indispensable to show the
worth of "moral, exemplary and actual Shanghai Bank, pointed out that it is the detriment which positively would result to
damages" to respondent Gaw Ching. existence of an interest in a particular him from the contract in which he had no
contract that is the basis of one's right to sue intervention."
Ching having been a long-time tenant of the condemnation or demolition had been issued
LIMITATION OF RIGHT OF A PERSON property in question, had acquired a by the proper authorities which order was
INJURED BY THE VERY OPERATION preferred right to purchase that property. valid and subsisting at the time the
OF A CONTRACT BETWEEN TWO This holding is simply bereft of any legal demolition was actually carried out.
THIRD PARTIES. There is an basis. We know of no law, outside the Urban Secondly, under Section 5.3 of Rule VII
important and clear, albeit implicit, Land Reform Zone or P.D. No. 1517, that entitled "Abandonment/Demolition of
limitation upon the right of a person who grants such a right to a lessee no matter how Buildings" of the Rules and Regulations
is in fact injured by the very operation of long the period of the lease has been. If such Implementing the National Building Code of
a contract between two (2) third parties to right existed at all, it could only have been the Philippines (P.D. No. 1096, as amended
sue to nullify that contract: that contract created by contract; respondent Gaw Ching dated 19 February 1977), an order for
may be nullified only to the extent that does not, however, pretend that there had demolition may be appealed, by the owner
such nullification is absolutely necessary been such a contractual stipulation between of the building or installation to be
to protect the plaintiff's lawful rights. It him and petitioners. demolished, to the Secretary of Public
may be expected that in most instances, Works and Highways. In the case at bar, it
an injunction restraining the carrying out REMEDIAL LAW; LEGALITY OF was respondent Gaw Ching, a lessee merely
of acts in fact injurious to the plaintiff's ORDER OF DEMOLITION; UPHELD; of the building condemned that sought to
rights would be sufficient and that there FINDINGS OF TRIAL COURT block the implementation of the demolition
should be no need to set aside the contract ENTITLED TO GREAT RESPECT. We order. It does not even appear from the
itself which is a res inter alios acta and note that the appellate court's majority record whether or not Gaw Ching actually
which may have any number of other opinion chose to disregard the above filed a formal appeal to the Secretary, even
provisions, implementation of which conclusions of fact of the trial court and though he was not entitled to do so. What
might have no impact at all upon the instead quoted extensively from respondent does appear from the record is that Gaw
plaintiff's rights and interests. Gaw Ching's brief and, presumably relied Ching's counsel, Atty. Sugay, was able to
upon such brief. The majority opinion, obtain a letter dated 6 November 1981 from
PRE-EMPTIVE OR REDEMPTIVE however, failed to indicate why it preferred the Office of the City Engineer and Building
RIGHT OF LESSEE UNDER PD No. 1517. Gaw Ching's version of the facts set out in Official, enclosing a xerox copy of a letter
In Santos v. Court of Appeals, [(128 his brief over the trial court's findings. No from the Assistant Secretary for Operations,
SCRA 128 (1984]) this Court held that the indication was offered where the trial court Ministry of Public Works and Highways,
preemptive or redemptive rights of a lessee had fallen into error or what evidence had "directing this office to hold the demolition
under P.D. No. 1517 exists only in respect been misapprehended by it. In this situation, in abeyance." This letter, which did not
of the urban land under lease on which the the Court considers that it must go back to purport to set aside the order of demolition,
tenant or lessee had built his home and in the trial court's findings of fact in line with was served upon the demolition team on site
which he had resided for ten (10) years or the time-honored rule that such findings are while the demolition was in progress. After
more and that, in consequence, where both entitled to great respect from appellate some hesitation, the demolition was in fact
land and building belong to the lessor, that courts since the trial court judge had the stopped. Respondent Gaw Ching, in the
preemptive or redemptive right was simply opportunity to examine the evidence directly action that he had filed before the Regional
not available under the law. Finally, we are and to listen to the witnesses and observe Trial Court of Manila to set aside the
unable to understand the respondent their demeanor while testifying. It appears contract of sale between petitioners
appellate court's view that respondent Gaw therefore that firstly, the order of Malabanan and Senolos, had sought
preliminary injunction precisely to restrain 5. Santiago and Quieng never saw each UySoo Lim et al., in which they opposed the
the implementation of the order for other again but she write him letters that she distribution of the estate of Santiago in
demolition. That application for preliminary bore him a son, plaintiff UySoo Lim. accordance with the terms of his will,
injunction was denied by the trial court and Believing this, Santiago allegedly dedicated alleging that UySoo Lim was not entitled
the order for demolition was implemented to him a large amount in his will7/9 to be under the law to the amount of the estate
only after such denial. Thus, there was no exact. assigned him in the will since the alleged
subsisting court order restraining the 6. Oct 21, 1904: CFI Cebu ordered marriage of their dad to his mom was null
demolition at the time such demolition was Benito Tan Unchuan, the executor of the and void. They also claimed that UySoo Lim
carried out. Gaw Ching had ample notice of testamentary estate of Santiago Pastrano to was not a son, legitimate or illegitimate of
the demolition order and had adequate time deliver to BasilioUyBundan (brother of their dad. Thus, they asked for a suspension
to remove his belongings from the premises Santiago), guardian of Francisca Pastrano, of the distribution and a reopening of the
if he was minded to obey the order for Concepcion Pastrano, and UySoo Lim, the matter of the testamentary estate of Santiago
demolition. He chose not to obey that order. property to which they were entitled under Pastrano and that the rights of all persons in
If he did suffer any losses the trial court the Santiagos will.- order was complied interest be readjudged and determined
did not believe his claims that he did he with and the administration of the according to law.
had only himself to blame. testamentary estate declared closed. c. Oct. 7, 1911: Chan Quiengs motion
7. Oct 18, 1910, the court, issued an and asked that she be declared entitled to
Uy Soo Lim v Tan Unchuan order on to Basilio to already present a plan of the estate on account that she was the
Facts: of distribution of the estate in accordance legitimate wife of Santiago according to the
1. Santiago PastranoUyToco, 13 years with the will since Francisca has already laws and customs of China.
old, Chinese came to the Philippines reached majority, Concepcion will in a few 9. Whats with all the fuss?:If UySoo
2. August 2 1882: He married Candida months and UySoo Lim already got married Lim was illegitmate: hes only entitled to
Vivares, a Filipina woman, at Mambajao, in 1910.-> But Basilio didnt readily comply 1/3 of Santiagos share in the conjugal
Cagayan. They had 2 daughters, Francisca witht the order and before the plan of estate or 1/6 total not 7/9. (THOU SHALL
and Concepcion. Francisca is a defendant in distribution, obejections re: implementing NOT GET A LIONS SHARE
this suit and is the wife of the co-defendant, the provisions of the will were brought to ILLEGITMATE CHILDDDDD)
Benito Tan Unchuan. this court. 10. March 13, 1911: UySoo Lim goes to
3. At the time of this marriage, 8. Thus, motions were raised In Court: Manila because he gets paranoid will all the
Santiago Pastrano possessed very little a. May 25, 1991: Candidas motion- protests regarding his inheritance which by
property a tienda worth about P2k. She claimed the right to of the estate as the way he was expecting. He even already
However, when he died, his wealth amassed the legitimate widow of Santiago. She also withdrew from the estate amounts worth
to a large estate that he acquired with asked that the administration of said estate P26,800 for his personal use.and continued
Candida. reopened and the rights of the persons spending thereafter.
4. 1892: Santiago stayed in China for readjudged and determined according to 11. At the end, an agreement was
less than a year and he had an affair with law. A motion of similar purport was filed reached between ChoaTekHee (lawyer/
Chan Quieng or Chan Ni Yu (who later by her in the matter of the guardianship of cunning merchant of the plaintiff) and the
claims that what they did in China was UySoo Lim et al. plaintiff, of the one part, and Tan Unchuan
equivalent to a marriage in Chinese law and b. June 5, 1911: Francisca and and Del Rosario, an attorney of Cebu,
customs). Concepcions motion- re: guardianship of representing the interest of Candida,
Francisca and Concepcion, on the other, to Unchuan, the husband of the defendant the will of Santiago Pastrano. It recites that
submit the entire matter in dispute to the Francisca Pastrano. The first note was for plaintiff's interest in the estate of Santiago
judgment of three respectable Chinese P22,500 payable twelve-days after date, and Pastrano was reasonably worth P200,000;
merchants/lawyers designated. the other five for P10,000 each, payable in that this interest had been liquidated and
12. These advisers came to the six, twelve, eighteen, twenty-four and thirty "reduced to a money basis," and that in
conclusion that the sum of P82, 500 should months, respectively. These notes were consequence money and choses in action
be accepted by plaintiff in full satisfaction made payable to Choa Tek Hee, or order, as had come into the hand of Choa Tek Hee
and relinquishment of all his right, title, and attorney in fact for Uy Soo Lim. amounting to P83,000 more or less. There is
interest in and to the estate of the deceased also an allegation that the power of attorney
Santiago, and this recommendation was Of these notes the first three, amounting to was executed while plaintiff was still a
accepted by ChoaTekHee and plaintiff and P42,500 were paid to Choa Tek Hee as they minor.
by Tan Unchuan and Del Rosario. fell due. It appears, however, that Choa Tek
13. Candida and Concepcion later sold Hee failed to account to the satisfaction of These allegations are important as showing
their shares to Francisca. But after the Uy Soo Lim for the money so received, that on March 31, 1913, plaintiff, while
agreed amount was paid in installments by whereupon the latter returned to Manila on claiming his interest in the estate of Santiago
Francisca and after the plaintiff spent most February 20, 1913, to seek an adjustment of Pastrano was reasonably worth P200,000
of it, UySoo Lim, 3 years after attaining the his affairs with his attorney in fact. knew such interest had been sold for
age of majority, commenced this present Uy Soo Lim, upon his arrival in Manila, sent P83,000, more or less, and also knew he was
action to rescind and annul the contract by the following cable to Tan Unchuan at a minor under Philippine laws at the time of
which he had sold and transferred to Cebu: such sale.
Francisca Pastrano his interest in the estate "I revoke power to Tek Hee. Don't pay him
of Santiago Pastrano. any more money please forward account Ruling: The petition is denied.
14. TC: UySoo Lim was a minor at the payments to him Urgent, Address P. O.
time of the execution of the contract in 1360. The record shows that of the P2,867.94
question, but that he not only failed to (Sgd.) "UY SOO LIM." deposited in court by Choa Tek Hee, and the
repudiate it promptly upon reaching his P30,000 paid into court by Tan Unchuan,
majority but tacitly ratified it by disposing This cable, sent to forestall further payment only P1,967.20 was withdrawn by plaintiff
of the greater part of the proceeds after he to Choa Tek Hee, evidences a clear and before reaching majority. Seven thousand
became of age and after he had full convincing knowledge by plaintiff both of five hundred and fifty pesos was withdrawn
knowledge of the facts upon which he now the conditions of the bill of sale and his after he became of age and before filing suit
seeks to disaffirm the agreement. rights thereunder. to rescind. There was still uncollected the
P31,511.93, with interest represented by
By the terms of the contract by which Not being able amicably to adjust with Choa the Choa Tek Hee judgment. When plaintiff
appellant transferred to the appellee Tek Hee the matter of such moneys, Uy Soo reached majority, therefore, there was
Francisca Pastrano his interest in the Lim filed suit against him in the Court of P62,412.67 of the original consideration
Pastrano Estate he was paid P10,000 in cash, First Instance, Manila, asking that the power available for refund, and there still remained
the balance of the P82,500 being represented of attorney be canceled, and for an P5,000 when he filed his suit to rescind.
by six promissory notes dated November 18, accounting. This complaint is dated March This sum could have been returned to
1911, signed as maker by the defendant Tan 31, 1913, and has attached thereto a copy of
Francisca Pastrano or held by the court for Article 1314, Civil Code, provides as laws of China he was of age when he
her account. follows: executed the contract here in dispute his
"The action for nullity of a contract shall contractual capacity must be determined by
Positive statutory law, no less than uniform also be extinguished when the thing which is his national law (estatuto personal). The
court decisions, require, as a condition the object thereof should be lost by fraud or conclusion Pre have reached upon the
precedent to rescission of a contract on fault of the person having the right to bring assumption most favorable to appellant, that
account of minority, that the consideration the action. he was a minor at the time of the execution
received be refunded. We cite and quote as "If the cause of the action should be the of the contract makes it unnecessary for us
follows: incapacity of any of the contracting partiest to decide this question or to consider the
"ART. 1295 (Civil Code). Rescission the loss of the thing shall be no obstacle for effect of the marriage of appellant before
obliges the return of the things which were the action to prevail, unless it has occurred attaining the age of twenty-one upon his
the objects of the contract, with their fruits by fraud or fault on the part of the plaintiff contractual capacity.
and the sum with interest; therefore it can after having acquired capacity."
only be carried into effect when the person For the reasons stated we are of the opinion
who may have claimed it can return that Plaintiff has disposed of the whole of the that the judgment of the trial court is without
which, on his part, he is bound to do. P85,000 which was paid him in error, and it is, therefore, affirmed, with the
"ART. 1304 (Civil Code). When the nullity consideration of the execution of the costs of both instances. So ordered
arises from the capacity of one of the contract he is now seeking to annul. The
contracting parties, the incapacitated person record establishes beyond peradventure of CONTRACTS; MINORS; RESCISSION;
is not obliged to make restitution,except to doubt that he is utterly without funds to RESTITUTION. The right of a minor to
the extent he has profited by the thing or by reimburse this consideration. In the Choa rescind, upon attaining his majority, a
the sum he may have received. Tek Hee suit (Exhibit 10) there appears at contract entered into during his minority is
"ART. 1308 (Civil Code). While one of the folio 17 a motion by plaintiff, under oath, subject to the conditions (1) that the election
contracting parties does not return that wherein he recites as a ground for realizing to rescind must be made within a reasonable
which he is obliged to deliver by virtue of certain of the moneys deposited under this time after majority and (2) that all of the
the declaration of nullity, the other cannot be contract that he (plaintiff) "has no funds consideration which was in the minor's
compelled to fulfill, on his part, what is with which to support himself except such possession upon his reaching majority must
incumbent on him " as may be advanced to him out of the be returned. The disposal of any part of the
moneys belonging to him which is now or consideration after the attainment of
Not only should plaintiff have refunded all may hereafter be in the hands of the clerk of majority imports an affirmance of the
moneys m his possession upon filing his this court." Being without other funds, there contract.
action to rescind, but, by insisting upon was the greater reason why this deposit,
receiving and spending such derived from the very contract sought to be Miguel Katipunan et.al v Braulio
considerationafter reaching majority, repudiated, should have been held intact to Katipunan Jr.
knowing the rights conferred upon him by reimburse his vendee Facts: Respondent, who reached only grade
law, he must be held to have forfeited any three, signed a deed of sale written in
right to bring such action. It is argued on behalf of appellee that it English covering his five-door apartment
having been shown that appellant is a and lot in favor of petitioners Edgardo and
Chinese subject or citizen, and that under the Leopoldo Baguma, Jr. Respondent later
sought to annul this deed on ground of (petitioners) and Atty. Balguma. It was his Extant from the records is the fact that
vitiated consent. At the trial, Dr. Annette brother Miguel who negotiated with Atty. Miguel profited from the entire transaction
Revilla, resident psychiatrist at the PGH, Balguma. However, they did not explain to and gave only small amounts of money to
testified as an expert witness and declared him the nature and contents of the respondent,
that respondent has a very low IQ, an document. Worse, they deprived him of a
illiterate, cannot read, slow in reasonable freedom of choice. It bears A contract where one of the parties is
comprehension and with a mental age of that stressing that he reached only grade three. incapable of giving consent or where
of a six-year old child. Respondent testified Thus, it was impossible for him to consent is vitiated by mistake, fraud, or
that he was forced by his brother, Miguel understand the contents of the contract intimidation is not void ab initio but only
Katipunan, and Atty. Balguma, father of the written in English and embellished in legal voidable and is binding upon the parties
petitioners, to sign allegedly a contract for jargon. Even the trial court, in reinstating the unless annulled by proper Court action. The
his employment abroad; that he did not case which it earlier dismissed, took effect of annulment is to restore the parties
know the contents thereof; and that he was cognizance of the medical finding of Dr. to the status quo ante insofar as legally and
only given small amounts of money, even Revilla (presented by respondent's counsel equitably possible this much is dictated by
coins, by Miguel and Atty. Balguma. as expert witness) who testified during the Article 1398 of the Civil Code. As an
Petitioners did not refute the findings of the hearing of respondent's motion for exception however to the principle of mutual
expert witness and the statements made by reconsideration of the first order dismissing restitution, Article 1399 provides that when
respondent. Nonetheless, the trial court the complaint. According to her, based on the defect of the contract consists in the
dismissed the complaint, ruling that the tests she conducted, she found that incapacity of one of the parties, the
respondent failed to prove his causes of respondent has a very low IQ and a mind of incapacitated person is not obliged to make
action having admittedly signed the deed. a six-year old child. 19 In fact, the trial court any restitution, except when he has been
On appeal, the decision was reversed. The had to clarify certain matters because benefited by the things or price received by
appellate court found that the trial court Braulio was either confused, forgetful or him. Thus, since the Deed of Absolute Sale
arbitrarily disregarded the testimony of Dr. could not comprehend. 20 Thus, his lack of between respondent and the Balguma
Revilla, a skilled witness, and made an education, coupled with his mental brothers is voidable and hereby annulled,
unsupported finding contrary to her opinion. affliction, placed him not only at a then the restitution of the property and its
It ruled that the contract of sale was voidable hopelessly disadvantageous position vis-a- fruits to respondent is just and proper.
under the provision of Article 1390 of the vis petitioners to enter into a contract, but Petitioners should turn over to respondent all
Civil Code. Petitioners moved for virtually rendered him incapable of giving the amounts they received starting January,
reconsideration, but the same was denied, rational consent. To be sure, his ignorance 1986 up to the time the property shall have
hence, this petition and weakness made him most vulnerable to been returned to the latter. During the pre-
the deceitful cajoling and intimidation of trial and as shown by the Pre-Trial Order,
Ruling: The petition is denied. petitioners. The trial court obviously erred the contending parties stipulated that the
when it disregarded Dr. Revilla's testimony Balguma brothers received from the lessees
The circumstances surrounding the without any reason at all. It must be monthly rentals
execution of the contract manifest a vitiated emphasized that petitioners did not rebut her
consent on the part of respondent. Undue testimony. REMEDIAL LAW; EVIDENCE;
influence was exerted upon him by his Even the consideration, if any, was not CREDIBILITY OF WITNESSES;
brother Miguel and Inocencio Valdez shown to be actually paid to respondent. FACTUAL FINDINGS OF THE TRIAL
COURT, GENERALLY ENTITLED TO fraud. The presence of any of these vices Civil Code enjoins courts to be vigilant for
FULL FAITH AND CREDIT; CASE AT renders the contract voidable. the protection of a party to a contract who is
BAR, AN EXCEPTION. While it may be VOIDABLE CONTRACTS; CONTRACT placed at a disadvantage on account of his
true that findings of a trial court, given its VOIDABLE WHERE ONE OF THE ignorance, mental weakness or other
peculiar vantage point to assess the CONTRACTING PARTIES IS handicap, like respondent herein. We give
credibility of witnesses, are entitled to full INCAPABLE OF GIVING CONSENT; substance to this mandate.
faith and credit and may not be disturbed on RESTITUTION PROPER IN CASE AT
appeal, this rule is not infallible, for it BAR. A contract where one of the parties Arra Realty Corp. v GDC
admits of certain exceptions. One of these is incapable of giving consent or where Facts:
exceptions is when there is a showing that consent is vitiated by mistake, fraud, or Arra Realty Corporation (ARC) was the
the trial court had overlooked, intimidation is not void ab initio but only owner of a parcel of land, located in
misunderstood or misapplied some fact or voidable and is binding upon the parties Alvarado Street, Legaspi Village, Makati
circumstance of weight and substance, unless annulled by proper Court action. The City, covered by Transfer Certificate of Title
which, if considered, could materially affect effect of annulment is to restore the parties (TCT) No. 112269 issued by the Register of
the result of the case. Also, when the factual to the status quo ante insofar as legally and Deeds. 1 Through its president, Architect
findings of the trial court contradict those of equitably possible this much is dictated Carlos D. Arguelles, the ARC decided to
the appellate court, this Court is constrained by Article 1398 of the Civil Code. As an construct a five-story building on its
to make a factual review of the records and exception however to the principle of mutual property and engaged the services of
make its own assessment of the case. The restitution, Article 1399 provides that when Engineer Erlinda Pealoza as project and
instant case falls within the said exception. the defect of the contract consists in the structural engineer
incapacity of one of the parties, the
CIVIL LAW; OBLIGATIONS AND incapacitated person is not obliged to make In the process, Pealoza and the ARC,
CONTRACTS; SALES; ELEMENTS. A any restitution, except when he has been through Carlos Arguelles, agreed on
contract of sale is born from the moment benefited by the things or price received by November 18, 1982 that Pealoza would
there is a meeting of minds upon the thing him. Thus, since the Deed of Absolute Sale share the purchase price of one floor of the
which is the object of the contract and upon between respondent and the Balguma building,
the price. This meeting of the minds speaks brothers is voidable and hereby annulled,
of the intent of the parties in entering into then the restitution of the property and its The parties further agreed that the payments
the contract respecting the subject matter fruits to respondent is just and proper. of Pealoza would be credited to her
and the consideration thereof. Thus, the Petitioners should turn over to respondent all account in partial payment of her stock
elements of a contract of sale are consent, the amounts they received starting January, subscription in the ARC's capital stock. 2
object, and price in money or its equivalent. 1986 up to the time the property shall have Sometime in May 1983, Pealoza took
been returned to the latter. possession of the one-half portion of the
CONTRACTS; CONSENT; HOW second floor, with an area of 552 square
VITIATED. Under Article 1330 of the CIVIL LAW; HUMAN RELATIONS; meters 3 where she put up her office and
Civil Code, consent may be vitiated by any COURTS SHOULD BE VIGILANT FOR operated the St. Michael International
of the following: (1) mistake, (2) violence, PROTECTION OF PARTY TO A Institute of Technology.
(3) intimidation, (4) undue influence, and (5) CONTRACT PLACED AT A
DISADVANTAGE. Article 24 of the
Unknown to her, ARC had executed a real rejection of her offer to assume its On May 28, 1987, Pealoza filed a
estate mortgage over the lot and the entire equivalent loan from the bank and reminded complaint against the ARC, the GDCIA, and
building in favor of the China Banking it that it had conformed to her proposal to the Spouses Arguelles, with the Regional
Corporation as security for a loan on May assume the payment of its loan from the Trial Court of Makati, Branch 61, for
12, 1983. 4 The deed was annotated at the bank up to the equivalent amount of the "specific performance or damages" with a
dorsal portion of TCT No. 112269 on June balance of the purchase price of the second prayer for a writ of preliminary injunction.
3, 1983. 5 From February 23, 1983 to May floor of the building as agreed upon, and the
31, 1984, Pealoza paid P1,175,124.59 for consequent execution by the ARC of a deed Issue: W/N contract of sale over the subject
the portion of the second floor of the of absolute sale over the property in her property was perfected between the
building she had purchased from the ARC. 6 favor. petitioner ARC, on the one hand, and
She learned that the property had been respondent Pealoza
mortgaged to the China Banking When the ARC failed to pay its loan to
Corporation sometime in July 1984. China Banking Corporation, the subject Ruling: The petition is denied.
Thereafter, she stopped paying the property was foreclosed extrajudicially, and,
installments due on the purchase price of the thereafter, sold at public auction to China As gleaned from the agreement, the
property. Banking Corporation on August 13, 1986 petitioner ARC, as vendor, and respondent
for P13,953,171.07. 14 On April 29, 1987, Pealoza, as vendee, entered into a contract
Pealoza wrote the China Banking the ARC and the Guarantee Development of sale over a portion of the second floor of
Corporation on August 1, 1984 informing Corporation and Insurance Agency the building yet to be constructed for the
the bank that the ARC had conveyed a (GDCIA) executed a deed of conditional price of P3,105,838 payable in installments,
portion of the second floor of the building to sale covering the building and the lot for the first installment of P901,738 to be paid
her, and that she had paid P1,175,124.59 out P22,000,000, part of which was to be used within sixty (60) days from November 20,
of the total price of P3,105,838. She offered to redeem the property from China Banking 1982 or on or before January 20, 1983, and
to open an account with the bank in her Corporation. 15 With the money advanced the balance payable in twenty (20) equal
name in the amount of P300,000, and to by the GDCIA, the property was redeemed quarterly payments of P110,205. As soon as
make monthly deposits of P50,000 each, to on May 4, 1987. 16 On May 14, 1987, the the second floor was constructed within five
serve as payments of the equivalent loan of petitioner executed a deed of absolute sale (5) months, respondent Pealoza would take
the ARC upon the execution of the over the lot and building in favor of the possession of the property, and title thereto
appropriate documents. She also proposed GDCIA for P22,000,000. 17 The ARC would be transferred to her name. The
for the bank to assist her in requesting the obliged itself under the deed to deliver parties had agreed on the three elements of
ARC to execute a deed of absolute sale over possession of the property without any subject matter, price, and terms of payment.
the portion of the second floor she had occupants therein. The Register of Deeds, Hence, the contract of sale was perfected, it
purchased and the issuance of the title in her thereafter, issued TCT No. 147846 in favor being consensual in nature, perfected by
name upon the payment of the purchase of the GDCIA over the property without any mere consent, which, in turn, was
price. However, the bank rejected her liens or encumbrances on May 15, 1987. 18 manifested the moment there was a meeting
proposal Of the purchase price of P22,000,000, the of the minds as to the offer and the
GDCIA retained P1,000,000 to answer for acceptance thereof. 35 The perfection of the
She then wrote the ARC on August 31, 1984 any damages arising from any suits of the sale is not negated by the fact that the
informing it of China Banking Corporation's occupants of the building property subject of the sale was not yet in
existence. This is so because the ownership pushed for the issuance of her title to the ARC, conformably to Article 1398 of the
by the seller of the thing sold at the time of property after taking possession thereof, the New Civil Code
the perfection of the contract of sale is not ARC failed to comply. She was aghast when
an element of its perfection. A perfected she discovered that in July 1984, even Art. 1398. An obligation having been
contract of sale cannot be challenged on the before she took possession of the property, annulled, the contracting parties shall
ground of non-ownership on the part of the the petitioner ARC had already mortgaged restore to each other the things which have
seller at the time of its perfection. What the the lot and the building to the China been the subject matter of the contract, with
law requires is that the seller has the right to Banking Corporation; when she offered to their fruits, and the price with its interest,
transfer ownership at the time the thing is pay the balance of the purchase price of the except in cases provided by law.
delivered. Perfection per se does not transfer property to enable her to secure her title In obligations to render service, the value
ownership which occurs upon the actual or thereon, the petitioner ARC ignored her thereof shall be the basis for damages.
constructive delivery of the thing sold offer. Under Article 1590 of the New Civil
Code, a vendee may suspend the payment of We reject the petitioners' claim that
In a contract of sale, until and unless the the price of the property sold respondent Pealoza is liable for P2,177,935
contract is resolved or rescinded in by way of advances and unpaid rentals. We
accordance with law, the vendor cannot Contrary to the claim of the petitioners, note that in their answer to the amended
recover the thing sold even if the vendee respondent Pealoza did not waive her right complaint of respondent Pealoza, the
failed to pay in full the initial payment for to enforce the letter-agreement or abandon petitioners did not interpose any
the property. The failure of the buyer to pay the property she had purchased from the counterclaims for actual damages in the
the purchase price within the stipulated petitioner ARC. While she transferred the form of unpaid rentals. Neither did the
period does not by itself bar the transfer of school to another location, the respondent petitioners assign as error in their brief in the
ownership or possession of the property maintained her office in the subject CA the failure of the trial court to award
sold, nor ipso facto rescind the contract. 37 property, only to discover that the petitioner P302,753.06 to them for advances. It was
Such failure will merely give the vendor the had had her office padlocked. Nevertheless, only when they moved for the
option to rescind the contract of sale she had her office reopened and continued reconsideration of the decision of the CA
judicially or by notarial demand as provided holding office thereat for a year or so, did they claim, for the first time on appeal,
for by Article 1592 of the New Civil thereafter their entitlement to P302,753.06 as refund
for advances. The petitioner ARC is, thus,
Admittedly, respondent Pealoza failed to The bare fact that the respondent filed her barred from raising the said issue in this
pay the downpayment on time. But then, the complaint shortly after vacating the property Court.
petitioner ARC accepted, without any is evidence of her determination to pursue
objections, the delayed payments of the her claims against the petitioners. In this case, respondent Pealoza suspended
respondent; hence, as provided in Article In view of the failure of the petitioner ARC the payment of the balance of the purchase
1235 of the New Civil Code, the obligation to transfer the title of the property to her price of the property because she had the
of the respondent is deemed complied name because of the mortgage thereof to right to do so. While she failed to pay the
China Banking Corporation and the purchase price on time, the petitioner ARC
The respondent cannot be blamed for subsequent sale thereof to the GDCIA, nevertheless accepted such delayed
suspending further remittances of payment respondent Pealoza is entitled to the refund payments. The respondent even proposed to
to the petitioner ARC because when she of the amount she paid to the petitioner assume the loan account of the petitioner
ARC with the China Banking Corporation in the property to China Banking Corporation rendering judgment in their favor declaring
an amount equivalent to the balance of the even after having sold the same to the said deeds rescinded.
purchase price of the subject property, respondent Pealoza, and, thereafter, sold
which the petitioner ARC rejected. In fine, the same anew to GDCIA; respondent Bumanlag v Alzate
respondent Pealoza acted in accord with Pealoza was, thus, left holding the Facts: On January 21, 1976, this Court
law and in utmost good faith. Hence, she is proverbial bag. declared as submitted for decision a case
not liable for damages to the petitioners where the principal issue was the validity of
under Article 19 of the New Civil Code. On the last issue, the petitioners contend that a compromise agreement (which
the deed of conditional sale and deed of subsequently was embodied in a judgment
The law is that men, singly or in absolute sale executed by them and the by compromise) where the agreement was
combination, may use any lawful means to respondent GDCIA were automatically signed (on behalf of one of the parties
accomplish a lawful purpose, although the nullified because the latter had actual or thereto) by a lawyer who did so without
means adopted may cause injury to another. personal knowledge that the property sold authorization of said party or client. We hold
42 When a person is doing a lawful thing in had tenants. Furthermore, the respondent that such a compromise agreement is merely
a lawful way, his conduct is not actionable GDCIA retained P1,000,000 on account of unenforceable 1 (not void) and may
though it may result in damages to another; the claims of respondent Pealoza, Paces therefore be ratified by said party expressly
for, though the damage caused is undoubted, Industrial Development Corporation, and or implicitly
no legal right of another is invaded; hence, it Emeterio Samson over the portions of the
is said to be damnum absque injuria. property. Herein petitioners sued herein private
respondents for partition of the lots inherited
Good faith refers to the state of the mind First. The petitioners did not file a by both parties from their deceased father;
which is manifested by the acts of the counterclaim against the respondent GDCIA respondents however moved to dismiss on
individual concerned. It consists of the for the rescission of the aforesaid decision. the ground that some years before a final
intention to abstain from taking an 48 Moreover, the petitioners did not adduce and executory judgment (based on a
unconscionable and unscrupulous advantage evidence to prove bad faith on the part of the compromise agreement) involving the same
of another. 46 Bad faith, on the other hand, respondent GDCIA. Additionally, the parties, same subject matter, and same
does not simply connote bad judgment to petitioners warranted in the aforesaid deeds causes of action had already been rendered
simple negligence. It imports a dishonest in favor of the said respondent by a court of competent jurisdiction and that
purpose or some moral obliquity and therefore the doctrine of res judicata clearly
conscious doing of a wrong, a breach of Second. The respondent GDCIA relied on bars the present case; petitioners contend
known duty due to some motive or interest the representations of the petitioners. that said judgment is void because the
or ill-will that partakes of the nature of However, the respondent received claims for compromise agreement had been signed in
fraud. 47 Malice connotes ill-will or spite ownership of portions of the property from their behalf by their lawyer who had not
and speaks not in response to duty. It tenants of the building, including respondent been authorized by them to enter into such
implies an intention to do ulterior and Pealoza, which impelled it to retain agreement, consequently there can be no res
unjustifiable harm. The petitioners failed to P1,000,000 of the purchase price to answer judicata.
adduce evidence of bad faith or malice on for said claims. There is, thus, no factual and
the part of respondent Pealoza. This cannot legal basis for the plea of the petitioners that Ruling: The petition is denied.
be said of the petitioner ARC. It mortgaged the trial court and the CA erred in not
The compromise agreement is not void but silence for sixteen (16) years and by their presented by any person, and in the sale that
merely unenforceable. The petitioners by overt acts of exchanging or bartering some followed, the Manotok Realty, Inc. emerged
their silence for sixteen (16) years and by of the lots awarded to them with some of the the successful bidder at the price of
their overt acts of exchanging or bartering lots of the private respondents have P840,000.00. By order of the Probate Court,
some of the lots awarded to them with some doubtless ratified the act their attorney. the Philippine Trust Co. executed the Deed
of the lots of the private respondents have of Absolute Sale of the subdivision dated
doubtless ratified the act of their attorney; Leabres v CA January 7, 1959 in favor of the Manotok
ergo, the requisites of res judicata being all Facts: Clara Tambunting de Legarda died Realty, Inc. which deed was judicially
present, the principle applies to the instant testate on April 22, 1950. Among the approved on March 20, 1959, and recorded
case. properties left by the deceased is the immediately in the proper Register of Deeds
"Legarda Tambunting Subdivision which issued the corresponding Certificates
One final point. The argument that the of Title to the Manotok Realty, Inc., the
partition in the first case was not one with Shortly after the death of said deceased, defendant appellee herein
metes and bounds is bankrupt. There was plaintiff Catalino Leabres bought, on a
such a physical and actual partition, not partial payment of P1,000.00 a portion (No. A complaint dated February 8, 1966, was
merely a metaphysical one VIII, Lot No. 1) of the Subdivision from filed by herein plaintiff, which seeks, among
surviving husband Vicente J, Legarda who other things, for the quieting of title over the
CIVIL LAW; CONTRACTS; acted as special administrator, the deed or lot subject matter herein, for continuing
COMPROMISE AGREEMENT ENTERED receipt of said sale appearing to be dated possession thereof, and for damages
BY LAWYER WITHOUT AUTHORITY May 2, 1950 (Annex "A"). Upon petition of
OF THE CLIENT; UNENFORCEABLE. Vicente L. Legarda, who later was appointed In the scheduled hearing of the case,
On January 21, 1976, this Court declared as a regular administrator together with plaintiff Catalino Leabres failed to appear
submitted for decision a case where the Pacifica Price and Augusto Tambunting on although he was duly notified, and so the
principal issue was the validity of a August 28, 1950, the Probate Court of trial Court, in its order dated September 14,
compromise agreement (which subsequently Manila in the Special Proceedings No. 1967, dismissed the complaint (Annex "E").
was embodied in a judgment by 10808) over the testate estate of said Clara
compromise) were the agreement was Tambunting, authorized through its order of The motion for reconsideration dated
signed (on behalf of one of the parties there November 21, 1951 the sale of the property January 22, 1968 (Annex "I"), was filed by
to) by a lawyer who did so without plaintiff, and an opposition thereto dated
authorization of said party or client. We hold In the meantime, Vicente L. Legarda was January 25, 1968, was likewise filed by
that such a compromise agreement is merely relieved as a regular Administrator and the defendant but the Court a quo dismissed said
unenforceable (not void) and may therefore Philippine Trust Co. which took over as motion in its order dated January 12, 1970
be ratified by said party expressly or such administrator advertised the sale of the (Annex "K"), "for lack of merits" (pp. 71-
implicitly. subdivision which includes the lot subject 72, Record on Appeal)
matter herein
MAY BE RATIFIED BY OVERT ACTS It is argued that had the trial Court
OF THE PARTIES. The compromise In the aforesaid Special Proceedings No. reconsidered its order dated September 14,
agreement is not void but merely 10808, no adverse claim or interest over the 1967 dismissing the complaint for failure to
unenforceable. The petitioners by their subdivision or any portion thereof was ever prosecute, plaintiff-appellant might have
proved that he owns the lot subject-matter of Petitioner anchors his main arguments on Anent his possession of the land, petitioner
the case, citing the receipt (Annex "A") the receipt (Exh. 1) dated May 2, 1950, as a cannot be deemed a possessor in good faith
issued in his favor; that he has introduced basis of a valid sale. An examination of the in view of the registration of the ownership
improvements and erected a house thereon receipt reveals that the same can neither be of the land. To consider petitioner in good
made of strong materials; that appellee's regarded as a contract of sale or a promise to faith would be to put a premium on his own
adverse interest over the property was sell. There was merely an acknowledgment gross negligence.
secured in bad faith since he had prior of the sum of One Thousand Pesos
knowledge and notice of appellant's physical (P1,000.00). There was no agreement as to Bisaya Land Trans Inc. V Sanchez
possession or acquisition of the same; that the total purchase price of the land nor to the Facts: Petitioner Bisaya Land
due to said bad faith appellant has suffered monthly installment to be paid by the Transportation Company, Inc.
damages, and that for all the foregoing, the petitioner. The requisites of a valid Contract (BISTRANCO, for short) has been engaged
judgment should be reversed and equitable of Sale namely 1) consent or meeting of the in the shipping business, operating several
relief be given in his favor minds of the parties; 2) determinate subject passenger-cargo vessels, and among the
matter; 3) price certain in money or its ports of call of these vessels has been
Trial Court: Admittedly, however, Catalino equivalent are lacking in said receipt and Butuan City. As early as 1954, private
Leabres has not registered his supposed therefore the "sale" is not valid nor respondent Marciano Sanchez (Sanchez, for
interest over the lot in the records of the enforceable short) was an employee of BISTRANCO,
Register of Deeds, nor did he present his specifically, a quartermaster in one of its
claim for probate in the testate proceedings It is a fact that Doa Clara Tambunting died vessels. In 1959, he ceased to be an
over the estate of the owner of said on April 22, 1950. Her estate was thereafter employee as he engaged in stevedoring
subdivision, in spite of the notices under custodia legis of the Probate Court services in the port of Butuan City and
advertised in the papers which appointed Don Vicente Legarda as rendered steverdoring services for the
Special Administrator on August 28, 1950. vessels of BISTRANCO
Issue: Don Vicente Legarda entered into said sale
(1) Whether or not the petitioner was denied in his own personal-capacity and without In May 1975, Sanchez was appointed by
his day in court and deprived of due process court approval, consequently, said sale BISTRANCO as shipping agent in Butuan
of law. cannot bind the estate of Clara Tambunting City for the vessel M/V Don Mariano
(2) Whether or not the petitioner had to
submit his receipt to the probate court in Petitioner should have submitted the receipt When BISTRANCO was under
order that his right over the parcel of land in of alleged sale to the Probate Court for its receivership, Sanchez was appointed by its
dispute could be recognized valid and approval of the transactions. Thus, the Receiver, Atty. Adolfo V. Amor, as acting
binding and conclusive against the Manotok respondent Court did not err in holding that shipping agent, also for M/V Doa
Realty, Inc. the petitioner should have submitted his Remedios, in addition to M/V Doa
(3) Whether or not the petitioner could be receipt to the probate court in order that his Filomena, in the port of Butuan City
considered as a possessor in good faith and right over the subject land could be "pending the execution of the formal
in the concept of owner. recognized - assuming of course that the contract of agency". 4 When Sanchez was
receipt could be regarded as sufficient proof constituted as acting shipping agent, he
Ruling: The petition is denied. received the same commission as his
predecessor, one ONG YUI, who received
10% for all freight and passenger revenues Realizing that the letter, marked as Exhibit A VIOLATION OF THE CONTRACT OF
coming from Butuan City and 5% for all "FF", was in effect a repudiation of the AGENCY AND SUPPLEMENTAL
freight going to Butuan. Contracts, Sanchez filed an action for SHIPPING AGENCY CONTRACT
specific performance with preliminary EXHIBITS "F" and "G") ASSUMING
Thereafter, or on 27 July 1976, a formal injunction and damages with the Regional THEM TO BE VALID?
Contract of Agency, marked as Exhibit "F", Trial Court of Cebu City on 28 December III. WHAT EFFECT DID THE WORKING
was executed between BISTRANCO, 1979 AGREEMENTS (EXHIBITS "S" and "U")
represented by Receiver Atty. Adolfo V. HAVE ON AFORESAID QUESTIONED
Amor and Marciano C. Sanchez, represented Pursuant to the letter (Exhibit "FF"), CONTRACTS?
by his authorized representative Exequiel BISTRANCO actually opened and operated IV. IS THE AWARD FOR UNEARNED
Aranas. On 30 July 1976, after Sanchez a branch office in Butuan City on 15 January COMMISSION AND DAMAGES
found that Paragraph 16 of the Contract of 1980. BISTRANCO through its new JUSTIFIED?
agency was quite prejudicial to him, he representative contacted the shippers in
executed with BISTRANCO a Supplemental Butuan City and neighboring towns, Ruling: The petition is denied.
Shipping Agency Contract, marked as advising them to transact their business CIVIL LAW; OBLIGATION AND
Exhibit "G", which was duly signed by directly with its new branch office in Butuan CONTRACTS; CONTRACTS ENTERED
Receiver Atty. Adolfo V. Amor on behalf of City. Under these circumstances, the INTO BY RECEIVER WITHOUT THE
BISTRANCO and Marciano C. Sanchez business of Sanchez, as shipping agent of APPROVAL OF THE COURT;
himself. 6 But, both the Contract of Agency BISTRANCO in Butuan City, was seriously UNENFORCEABLE; CASE AT BAR.
and the Supplemental Shipping Agency impaired and undermined. He could not The general powers of a court-appointed
Contract were never submitted by Atty. solicit as many passengers as he used to, receiver are provided in Section 7, Rule 59
Adolfo Amor to the receivership court for its because the passenger tickets issued to him of the Rules of Court. Under such rule, the
approval by BISTRANCO were limited. The cargoes receiver is "subject to the control of the
solicited by Sanchez were loaded on a court in which the action is pending" and he
As shipping agent, Sanchez put up "chance basis" because those that were can "generally do such acts respecting the
billboards and other forms of advertisement solicited by the branch office were given property as the court may authorize". The
to enhance the shipping business of priority act of Receiver Amor in entering into a
BISTRANCO. He established good business contract of agency with Sanchez is not one
relations with the business community of After due hearing and their respective of the acts specifically allowed in the
Butuan City. 8 In these endeavors, Sanchez memorandum filed, the trial court rendered mentioned rule. While such act of Amor
succeeded in increasing the volume of the judgment in favor of Sanchez, may be arguably implied from the power of
shipping business of BISTRANCO at the the receiver to "take and keep possession of
Butuan City port, so much so that his Issue: the property in controversy", and that the act
earnings on freight alone increased from an I. CAN A COURT APPOINTED of Amor is covered by the broad phrase that
average of P8,535.00 a month in 1975 to an RECEIVER VALIDLY ENTER INTO A a receiver can "generally do such acts
average of about P32,000.00 a month in the CONTRACT WITHOUT COURT respecting the property as the court may
last seven months of 1979 APPROVAL? authorize", still, it is necessary that the acts
II. IS THE OPENING BY BISTRANCO OF of the receiver have the approval or
A BRANCH OFFICE IN BUTUAN CITY authorization of the court which appointed
him as a receiver. As held in one case, a should be noted that Roa started to work for between the old and the new obligations in
court-appointed receiver cannot validly enter BISTRANCO only on 27 April 1979, every aspect.
into a contract without the approval of the whereas, the Contracts were executed in
court. In the case at bar, it is undisputed that 1976. Furthermore, it is clear that TEST OF INCOMPATIBILITY OF
Atty. Adolfo Amor was entrusted, as BISTRANCO received material benefits OBLIGATIONS. The test of
receiver, with the administration of from the contracts of agency of Sanchez, incompatibility between two obligations or
BISTRANCO and it business. But the act of based upon the monthly statements of contracts, is whether or not they can stand
entering into a contract is one which income of BISTRANCO, upon which the together, each one having an independent
requires the authorization of the court which commissions of Sanchez were based. A existence. If they cannot, they are
appointed him receiver. Consequently, the perusal of the Contracts will also show that incompatible, and the later obligation
questioned Contracts can rightfully be there is no single provision therein that can novates the first.
classified as unenforceable for having been be said as prejudicial or not beneficial to
entered into by one who had acted beyond BISTRANCO. Considering that the contract of agency and
his powers, due to Receiver Amor's failure the supplemental shipping agency contract
to secure the court's approval of said CIVIL LAW; ESTOPPEL; PARTY are valid and binding between BISTRANCO
Contracts. PRECLUDED FROM REPUDIATING AN and Sanchez, the former's opening of a
OBLIGATION VOLUNTARILY branch in Butuan City was, in effect, a
CONTRACT RATIFIED IN CASE AT ASSUMED AFTER HAVING ACCEPTED violation of the Contracts. Sanchez entered
BAR. These unenforceable Contracts BENEFITS THEREFROM. The doctrine into the agency Contract because of the
were nevertheless deemed ratified in the of estoppel precludes BISTRANCO from expected income and profits for himself.
case at bar, based upon the facts and repudiating an obligation voluntarily There could be no other motive from a
circumstances on record which have led this assumed by it, after having accepted benefits businessman's point of view
Court to conclude that BISTRANCO had therefrom. To countenance such repudiation
actually ratified the questioned Contracts. would be contrary to equity and would put a AGENCY; OPENING OF A BRANCH
The three (3) letters of Benjamin G. Roa in premium on fraud or misrepresentation, DURING EFFECTIVITY OF CONTRACT;
effect recognized and gave efficacy to the which this Court will not sanction. EFFECT. It may be true that there is no
Contracts in question. The declaration of express prohibition for BISTRANCO to
Benjamin G. Roa that BISTRANCO did not CONTRACTS; NOVATION; DEFINED. open its branch in Butuan City. But, the very
have any knowledge about the Contracts Novation is not equivalent or reason why BISTRANCO agreed not to
before the complaint was filed on 28 synonymous to mere alteration, modification employ or appoint another agent in Butuan
December 1979 is contradicted by his own or amendment. Novation is the substitution City was to prevent competition against
testimony that, as early as 14 December of a new obligation for an existing or old Sanchez' agency, in order that he might
1979, he was already looking for the one, which is thereby extinguished. recover what he invested and eventually
contract, after he saw Exhibit "NN", wherein Novation takes place when the object or maximize his profits. The opening by
Sanchez requested the company "to abide principal condition of an obligation is BISTRANCO of a branch in Butuan City
with the terms of the contract which will changed or altered. Novation is never virtually resulted in consequences to
expire on July 1981." Besides, the pretended presumed; it must be explicitly stated or Sanchez worse than if another agent had
lack of knowledge of Benjamin G. Roa can there must be a manifest incompatibility been appointed. In effect, the opening of a
not be equated with BISTRANCO's. It branch office in Butuan City was a violation
of the Contracts of agency. (Article 1315 of defendant in 1903, he paid to a lawyer for the appellant herein, the sum of P1,434.10
the Civil Code) account of the latter, P100 and the costs of the proceedings.
Oral testimony having been offered by both
CANNOT BE REVOKED IF A parties, the Court of First Instance of Iloilo, Ruling: The petition is denied.
BILATERAL CONTRACT DEPENDS before whom the litigation was brought,
UPON IT. The opening of a branch decided the cause in favor of the plaintiff, With regard to the first error, the appellant
office which, in effect, was a revocation of allowing him to recover from the defendant cites section 335 of the Code of Civil
the contracts of agency is not sanctioned by the sum of P1,434.10 and the costs of the Procedure under which a contract for the
law because the agency was the means by proceedings. lease of real estate for a period longer than
which Sanchez could fulfill his obligations one year must be proven by means of
under Exhibits "F" and "G". Article 1927 of The defendant duly excepted to the above written evidence.
the Civil Code, among others, provides: "An decision and moved for a new trial on the
agency cannot be revoked if a bilateral ground that the evidence did not justify the It is true that in paragraph 3 and 4 of the
contract depends upon it, or if it is the means decision of the court; this motion was complaint the existence of a contract of
of fulfilling an obligation already overruled and excepted to by the defendant rental on shares for the hacienda "Soledad"
contracted" who, in consequence thereof, has submitted for the term of two years is set forth; but the
to this court his bill of exceptions complaint does not refer to said contract
DOMINGO LIM, plaintiff-appellee, vs. of lease, nor is any action or obligation
JOSE LIM, defendant-appellant Issue: arising therefrom, brought therein
Facts: On the 23d of October, 1905, an 1. That the court erred when admitting the
amended complaint based on two causes of evidence of witnesses with regard to the Said contract is cited in the complaint as a
action was presented, alleging (1) that contract of rental on shares, alleged in the basis for the action brought. The act on
during the time the plaintiff leased the complaint as having been made between the which the complaint is based is that the
hacienda "Soledad" from the defendant, plaintiff and the defendant for the term of defendant dispossessed the plaintiff of the
namely, the period of cultivation from 1904 two years. sugar cane that he had sown in the field and,
to 1905, he had planted sugar cane to the 2. That the court also erred when declaring consequently, of one-half of the profit which
extent of 45 lacsas, 20 of new planting and that the existence of said contract and been and converted it into sugar; the action
25 of old, which, being ready to be proven, even though the testimony offered brought is, therefore, an action for damages,
harvested, was sold by the defendant to for such purpose were considered arising purely and simply from said fact.
Telesforo Garcia, the plaintiff thereby losing admissible. Therefore, section 335 of the Code of Civil
one-half of the crop that should have 3. That the court likewise erred in Procedure is not applicable herein, and
appertained to him, which one-half would acknowledging the validity of the verbal no error whatever has been committed in
have yielded him at the time P3,000; and contract, which was held to have existed this respect. Paragraphs 3 and 4 of the
that during the period of cultivation from between the parties in this matter, complaint may, and should be, ignored as if
1903 to 1904, he paid for account of the compelling the defendant to fulfill what was the same had not been alleged, because, for
defendant, for repairs made to the mill said to have been stipulated by virtue of the the action that has been commenced, facts 5
machinery and warehouse, P487; and (2) same. and 6 thereof are sufficient, as they are
that when acting as general agent for the 4. That, lastly, the court erred in adjudging strictly fundamental. For a similar reason the
that the plaintiff recover from the defendant,
allegation and conclusion upon which the planting made by one on the land of another were once owned by one Andres San
second alleged error rests are ignored. is not questioned and the latter dispossesses Buenaventura, 5 no dividing boundaries
the former of the crop existing thereon, and existed thereon until cadastral surveyors
As to the third error. It must be taken into prevents him from gathering his crop and from the Bureau ofLands laid down official
account that the action brought is for the profits, this fact is sufficient to support monuments to mark the separation of the
damages, not for violation of a contract, but an action for damages, no good reason lots. These monuments were set along a line
for the reason that the plaintiff was having been shown for doing it. which the landowners had previously agreed
dispossessed of a planting from which he upon as representing the correct boundary
expected to obtain a crop and a profit, and SECTION 335, CIVIL PROCEDURE. between their estates
because he was prevented from obtaining Section 335 of the Code of Civil Procedure
either. is not applicable to the case unless the Unknown to Hernandez, the Advance Plan
complaint arises from a contract of lease, or Psu-172410-B submitted in Fr. Garcia's
The above conclusions are disputed by the is an action derived from such contract of behalf to the land registration court in 1959
appellant, and the appellee opposes his lease relative to rights or obligations arising included 220 square meters of land now
contention by alleging that the former has no therefrom and is not applicable to a general disputed - Lots ABC and 4057-A of Lot 1-
right to ask for a review of the facts, for the action arising from an unlawful act. B. This area fell beyond the stipulated
reason that the motion for a new trial was, boundaries of Fr. Garcia's land and
only made in accordance with section 145 of Victorino Hernandez v CA encroached pro tanto on the land of
the Code of Civil Procedure, under which Facts: To those prevented by fraud from Hernandez
there can be no review of facts. proving their title to land subject of
registration proceedings in another's name, It was not until the court had already ordered
We consider that the claim on the part of the the law affords the remedy of review of the the registration of the lots in Fr. Garcia's
appellee has no foundation in law, inasmuch decree ofregistration by petition in the land name that Hernandez discovered the
as Act No. 1596 authorizes a review of the registration court within one year from its anomaly in the application. He at once filed
facts upon a motion for a new trial on the issuance of the order. 1 This was the remedy a petition for review of the decree, but in
ground upon which it has been made. availed of by Victorino Hernandez, but as he view of the new trial ordered by the court
could convince neither the Court of First upon motion of the heirs-oppositors, the
But, at all events, the court below has Instance of Rizal nor the Court of Appeals 2 petition was dismissed on the ground
reached the conclusions set forth, supported of the merits of his petition, he failed in his ofprematurity. 8 The court thereafter
by a preponderance of evidence which it has bid to reopen and correct the decree in Land adjudged Fr. Garcia as the owner of Lots 1-
considered to be in favor of the plaintiff, and Registration Case No. N-2488 declaring Fr. A and 2 and the heirs-oppositors as owners
this court finds nothing in such review of the Lucio V. Garcia the absolute owner of three of Lot 1-B.
case that constitutes an actual error of law or parcels of land in Paraaque.
of fact Hernandez promptly refiled his petition for
Fr. Garcia applied in 1959 for the the reopening of the decree. He argued that
LEASE; CONTRACT; ACTION FOR registration in his name of Lots 1-A, 1-B, the decree covered a substantial portion of
DAMAGES. When the existence of a and 2 of Plan Psu-172410-B in Bo. San his land to which Fr. Garcia could claim no
contract of lease is denied, and the validity Dionisio, Paraaque. His property adjoined title. He averred anew that the Advance Plan
of the contract is ignored, if the fact of the that ofHernandez, and since both estates supporting the application was "irregular,
because it disregarded the existing Bureau of bind them. Lastly, they freely conceded the relief sought. The respondents' reliance on
Lands monuments designating the actual presence of a fence along this line, but were the Statute of Frauds to secure a contrary
possessions of the petitioner and the quick to point out that they had merely judgment is misplaced. The Statute of
applicant "permitted" Hernandez to put up this Frauds finds no application to this case.
"temporary" structure "to stop the public Not every agreement "affecting land" must
Thus fraudulently giving the false (from) using . . . this place as a common be put in writing to attain enforceability.
impression to petitioner that no alteration midden shed." The excuse is lamentably Under the Statute of Frauds, Article 1403(2)
has actually been made in originally agreed- feeble. (e) of the Civil Code, such formality is only
upon boundaries in the course of the required of contracts involving leases for
preparation of (the) Plan." Thus having been Lastly, the Appellate Court may have been longer than one year, or for the sale of real
"misled to believe that no encroachment has convinced of the impossibility of the property or ofan interest therein.
been made by applicant," and "conscious of inclusion of the disputes lot in the 516 Hernandez's testimony is thus admissible to
the previous agreement and the fact that the square meters stated as sold to Hernandez's establish his agreement with Fr. Garcia as to
Bureau of Lands monuments have not been parents in the deed of sale in their favor, 17 the boundary of their estates. It is also to be
altered." but only because the Court missed sight of noted that the presence of Hernandez's
the fact that the adjoining lots sold to the tenants on the land within his side of the
Both courts were of the view essentially that spouses and to Fr. Garcia were unregistered border, were this to be reckoned from the
the evidence did not bear out the claim of and unsurveyed at the time of the transfer. "mojones," further buttresses his claim.
fraud; that under the Statute of Frauds, the This explains the discrepancy between the
parties' covenant as to their properties' metes area of the land purportedly conveyed to the Simprosa v Abaya
and bounds was unenforceable since it was Hernandezes in the instrument (516 square Facts: Marcos Espina died on February 14,
not reduced to writing; and that Hernandez's meters) and the actual area falling within the 1953 and was survived by his spouses,
parents and predecessors-in-interest, 13 boundaries described in the same document, Simprosa Vda. de Espina and their children
Victorino and Tranquilino, acquired title by which, after the survey, was found to be 716 namely, Recaredo, Timoteo, Celia,
purchase from San Buenaventura to only square meters. The respondents cannot Gaudiosa, Necifora, Sofia and Jose, all
516 square meters of land, which could not hold Hernandez to the approximate area surnamed Espina. Decedent's estate
have included the disputed property. fixed in the deed and claim ownership comprises of four (4) parcels of land located
over the excess. All the land embraced at the Municipality of Barobo, Province of
Ruling: The petition is granted. within the stated boundaries was sold. If the Surigao del Sur.
respondent insist on the figures named in
Hernandez avows that these structures were the deeds of sale, then they themselves stand An action for partition of the
purposely installed to mark the limits of to lose 736 square meters of land. San aforementioned parcels of land was filed by
their estates; his opponents could only let Buenaventura had only sold 1,545 square petitioners Simprosa and her children
this statement pass with telling silence. meters to Fr. Garcia, 19 but the estate was Recaredo, Timoteo, Celia, Gaudencia and
Neither did they seriously dispute that these later found to be actually 2,328 square Necifora.
"mojones" were installed along the line meters in area.
agreed upon by the parties as marking their It also alleges that parcel No. 1 has been
properties' boundaries. All they averred in Given the weight they deserve, the recorded subdivided into two lots. Lot No. 994 PL8-
their defense is that the agreement did not facts prove Hernandez's entitlement to the 44 is covered by Original Certificate of Title
No. 5570 in the name of one of the heirs, private respondents filed a motion to dismiss
Sofia Espina, who acquired the title as a the complaint Ruling: The petition is denied.
trustee for the beneficiaries or heirs of CIVIL LAW; SUCCESSION; PARTITION;
Marcos Espina, while lot No. 1329 PCS-44 The trial court granted the motion and AN ACTION FOR PARTITION IS
is covered by Original Certificate of Title thereafter dismissed the complaint. IMPRESCRIPTIBLE. We already ruled
No. 3732 issued in the name of one of the in Lebrilla, et al. v. Intermediate Appellate
heirs, Jose Espina as trustee for the heirs of Petitioners maintain that the present action is Court (G.R. No. 72623, December 18, 1989,
Marcos Espina. Said parcel of land is in the not for reconveyance but one for partition. 180 SCRA 188; 192) that an action for
possession of petitioners and private Hence, the rule insisted by the private partition is imprescriptible. However, an
respondents who have their respective respondents on prescriptibility of an action action for partition among co-heirs ceases
houses thereon for reconveyance of real property based on to be such, and becomes one for title
an implied trust is not applicable in the case where the defendants allege exclusive
Simprosa presently occupies parcel No. 2 at bar. In addition, petitioners, argue that ownership.
while parcel No. 3 is occupied by Timoteo, private respondents cannot set up the
although the same is actually titled in the defense of prescription or laches because MAY NOT BE INVOKED WHERE CO-
name of Sofia. Parcel No. 4 is occupied by their possession of the property no matter HEIRS CLAIM ABSOLUTE AND
Recaredo. how long cannot ripen into ownership. EXCLUSIVE OWNERSHIP OF
PROPERTIES. In the case at bar, the
Petitioners have several times demanded the However, the private respondents stress that imprescriptibility of the action for partition
partition of the afore-mentioned properties, "any supposed right of the petitioners to cannot be invoked because two of the co-
but notwithstanding such demands, private demand a new division or partition of said heirs, namely private respondents Sofia and
respondents refused to accede estate of Marcos Espina has long been Jose Espina possessed the property as
barred by the Statute of Limitations and has exclusive owners and their possession for a
Private respondents alleged in their answer long prescribed." period of twenty one (21) years is sufficient
that in or about April, 1951, the late Marcos to acquire it by prescription. Hence, from
Espina and his widow, Simprosa, together The petitioners claim that the alleged oral the moment these co-heirs claim that they
with their children made a temporary verbal partition is invalid and strictly under the are the absolute and exclusive owners of the
division and assignment of shares among coverage of the Statute of Frauds properties and deny the others any share
their children. After the death of Marcos, the therein, the question involved is no longer
temporary division was finalized by the Issue: one of partition but of ownership.
heirs. Thereafter the heirs took immediate 1. Whether or not an action for partition
possession of their respective shares on among co-heirs prescribes. MAY BE MADE ORALLY OR IN
April 20, 1952. Private respondents took "2. Whether or not an oral partition among WRITING. Anent the issue of oral
actual physical possession of their respective co-heirs is valid. partition, We sustain the validity of said
shares including the portions ceded to them "3. Whether or not a hearing on a motion for partition. "An agreement of partition may be
by Simprosa upon their payment of P50.00 reconsideration is indispensable the lack of made orally or in writing. An oral agreement
each per quarter starting April, 1952 until which is a denial of due process. for the partition of the property owned in
the latter's death pursuant to their contract of "4. Whether or not the second motion for common is valid and enforceable upon the
cession reconsideration is pro forma. parties. The Statute of Frauds has no
operation in this kind of agreements, for motion is reduced to an unnecessary 1955 a right-of-way through the said Lot
partition is not a conveyance of property but ceremony and should be overlooked (see 2136 of the Cadastral Survey of Zamboanga
simply a segregation and designation of the Ethel Case, et al. v. Jugo, 77 Phil. 517, 522). from Mr. Luciano Hernandez, then the
part of the property which belong to the co- registered owner, a copy of the agreement
owners." (Tolentino, Commentaries and PRO-FORMA MOTION FOR being
Jurisprudence on the Civil Code of the RECONSIDERATION DID NOT
Philippines, Vol. II, 1983 Edition, 182-183 SUSPEND RUNNING OF THE PERIOD The former owners of the logging
citing Hernandez v. Andal, et. al., G.R. No. OF APPEAL. Where the second motion concession operated by the Plaintiff
L-275, March 29, 1957) for reconsideration is pro forma it did not constructed and maintained the said road
suspend the running of the period of appeal. through Lot 2136, but the Plaintiff improved
REMEDIAL LAW; MOTION FOR Thus, the lower court committed no error the said road, paying to the registered owner
RECONSIDERATION; HEARING OF when it held that the notice of appeal was for all the improvements damaged by the
MOTION FOR RECONSIDERATION IN filed after the lapse of thirty five (35) days, improvement of the road
ORAL ARGUMENT RESTS UPON THE which is clearly beyond the period of thirty
DISCRETION OF COURT. Time and (30) days allowed by the rules. Long before the execution of the right-of-
again, the Court stresses that the hearing of a way agreement on September 8, 1955, since
motion for reconsideration in oral argument SPECIAL CIVIL ACTION; CERTIORARI; then and up to the present time the said road
is a matter which rests upon the sound NOT A SUBSTITUTE FOR APPEAL, has been maintained and used not only by
discretion of the Court. Its refusal does not BUT RULE MAY BE RELAXED. It has the predecessor of the Plaintiff and the
constitute a denial of due process in the been a basic rule that certiorari is not a Plaintiff, but also by the public;
absence of a showing of abuse of discretion. substitute for appeal which had been lost.
(see Philippine Manufacturing Co. v. Ang (see Edra v. Intermediate Appellate Court, The said Lot 2136 was purchased by the
Bisig ng PMC, et. al., 118 Phil. 431, 434) G.R. No. 75041, November 13, 1989, 179 defendants in 1958 and the said road then
SCRA 344) A special civil action under existed and was in public use and the
ORAL ARGUMENT ON MOTION, THE Rule 65 of the Rules of Court will not be a defendants did not oppose but instead
ISSUE OF WHICH IS DISCUSSED substitute or cure for failure to file a timely allowed the continued use and maintenance
THEREIN AND IN THE OPPOSITION, IS petition for review on certiorari (appeal) of the road by the Plaintiff and the public;
UNNECESSARY. A cursory reading of under Rule 45 of the Rules of Court.
the aforequoted order will show that there (Escudero v. Dulay, G.R. No. 60578, The said road is indispensable to the
was indeed no formal hearing on the motion February 23, 1988, 158 SCRA 69, 77) The business operations of the Plaintiff, because
for reconsideration. There is no question application of the abovecited rule should be it is the only access from their concession to
however, that the motion is grounded on the relaxed where it is shown that it will result the highway;
lack of basis in fact and in law of the order in a manifest failure or miscarriage of justice
of dismissal and the existence or lack of it is That defendants have now sent to the
determined by a reference to the facts Western Mindanao Co. v Medella Plaintiff a notice (Annex 'B') of their
alleged in the challenged pleading. The issue Facts: The Plaintiff is engaged in logging intention to close the road
raised in the motion was fully discussed operations in Curuan, Zamboanga City and
therein and in the opposition thereto. Under in connection with the said logging The plaintiff prayed that a writ of
such circumstances, oral argument on the operation it obtained on September 8, preliminary injunction be issued restraining
the defendants from closing the said road, erred in dismissing the case upon the Lessees made a counter offer of 1M but no
and after hearing, make the injunction defendants' claim that the road right-of-way reply was made by the lessors.
permanent. It also prayed that the defendants agreement in question is unenforceable
be directed to recognize and respect the said under the statute of frauds. Besides, the De leon subsequently informed the lessees
road right-of-way agreement complaint, as amended, may be viewed not that the property was already sold to
only as a claim for the recognition of the Rosencor. Lessees claimed that they were
Instead of a responsive pleading, the existence of an easement of right-of-way on deceived because the property was already
defendants filed a motion to dismiss the defendants' estate, but also a demand for the sold to Rosencor before it was offered to
complaint on January 4, 1961, upon the establishment of an easement of right-of- them. They offered to reimburse the
ground that the claim on which the action or way, if none exists, pursuant to Art. 649 of payment to the lessors but the offer was
suit is founded is unenforceable under the the Civil Code, in view of the plaintiff's declined as hence, this petition.
provisions of the Statute of Frauds and offer to pay reasonable compensation for the
special law, in that the first page of the said use of the land. Ruling: The petition is granted.
road right-of-way agreement was not signed The purpose of the statute is to prevent fraud
by both parties and there instrumental ROSENCOR DEVELOPMENT and perjury in the enforcement of
witnesses; page two thereof is not dated, and CORPORATION and RENE JOAQUIN, obligations depending for their evidence on
the signature of the plaintiff's corporate petitioners, vs. PATERNO INQUING, the unassisted memory of witnesses by
agent does not appear, and that said IRENE GUILLERMO, FEDERICO requiring certain enumerated contracts and
agreement is not acknowledged before a BANTUGAN, FERNANDO transactions to be evidenced by a writing
person authorized to administer oaths. MAGBANUA and LIZZA TIANGCO, signed by the party to be charged. 11
respondents.
The trial court granted the motion to dismiss Moreover, the statute of frauds refers to
Facts: Respondents are tenants of a two- specific kinds of transactions and cannot
Issue: storey residential apartment in Tomas apply to any other transaction that is not
1. The trial court erred in dismissing the Morato QC. The lease was not covered by enumerated therein. 12 The application of
complaint on the ground that the claim on any contract. such statute presupposes the existence of a
which the action or suit is founded is Lessees were verbally given by the lessors perfected contract.
unenforceable under the provisions of the the pre-emptive right to purchase the
Statute of Frauds and special law; property in case of sale. The question now is whether a "right of first
2. The trial court erred in denying plaintiff's refusal" is among those enumerated in the
motion for reconsideration. The original lessors died and their heir also list of contracts covered by the Statute of
promised the lessees the same pre-emptive Frauds. More specifically, is a right of first
Ruling: The petition is granted. right to purchase. The new lessors refusal akin to "an agreement for the leasing
represented by Eufrocina de Leon demanded of a longer period than one year, or for the
Obviously, an agreement creating an the lessees to vacate the property because sale of real property or of an interest
easement of right-of-way is not one of those the building will allegedly be demolished therein" as contemplated by Article 1403,
contracts covered by the statute of frauds but after the lessees declined, she sent them par. 2(e) of the New Civil Code.
since it is not a sale of real property or of an a letter offering to sell the property for 2M. We have previously held that not all
interest therein. The trial court, therefore, agreements "affecting land" must be put into
writing to attain enforceability 14 . Thus, we Rosencor could not have acted in bad faith On March 14, 1922, one Julian Visecio, a
have held that the setting up of boundaries because they are not aware of the right of clerk or employee in the office of Sr.
15 , the oral partition of real property 16 , first refusal given verbally. Respondents Chicote in Manila, sent a telegram to the
and an agreement creating a right of way 17 should instead file for damages. plaintiff in Cavite in words to the following
are not covered by the provisions of the effect: " Come. Urgent to arrange purchase
statute of frauds. The reason simply is that Basa v Raquel of house for Sr. Chicote
these agreements are not among those Facts: This action was instituted in the
enumerated in Article 1403 of the New Civil Court of the First Instance of the Province of In response to this telegram the plaintiff
Code. Cavite by Jose Basa (alias Lim Chian), provided himself with the sum of P11, 500.
against Gavina Raquel y Salud and the two which was understood to be the amount of
A right of first refusal is not among those codefendants named in the complaint, for the purchase price, and came to Manila for
listed as unenforceable under the statute of the purpose of obtaining a declaration of the purpose of effecting the purchase of the
frauds. Furthermore, the application of nullity of a conveyance of certain property property. However, the plaintiff alleges that
Article 1403, par. 2(e) of the New Civil described in the complaint which had been he did not succeed in getting admission at
Code presupposes the existence of a sold by the corporation of Dominican once to the office where the transaction
perfected, albeit unwritten, contract of sale. Fathers to said Gavina Raquel y Salud, to would have been consummated, and while
18 A right of first refusal, such as the one compel said corporation to execute a deed of he was waiting the defendant, Gavina
involved in the instant case, is not by any conveyance to the same property in favor of Raquel y Salud, obtained admission and
means a perfected contract of sale of real the plaintiff in conformity with an alleged purchased the property for the sum stated,
property. At best, it is a contractual grant, contract made by an authorized agent of said thereby causing a disappointment of the
not of the sale of the real property involved, corporation with the plaintiff, and to recover hopes and expectations that had been
but of the right of first refusal over the a sum of money as damages for breach of entertained by the plaintiff
property sought to be sold. contract.
Ruling: The petition is denied.
It is thus evident that the statute of frauds It appears that the property which is the The defense in brief is that the plaintiff has
does not contemplate cases involving a right subject of this action formerly belonged to no writing evidencing the agreement for the
of first refusal. As such, a right of first the corporation of Dominican Fathers, purchase of this land, sufficient to satisfy the
refusal need not be written to be enforceable whose procurator is the defendant Fray requirements of section 335 of the Code of
and may be proven by oral evidence. Pedro Prat. It also appears that the defendant the Civil Procedure. This point is
Alfredo Chicote was acting as attorney of undoubtedly well taken, and the trial judge
The prevailing doctrine is that a contract of the aforementioned Pedro Prat and as agent committed no error in excluding the oral
sale entered in violation of right of first of the corporation of Dominican Fathers at testimony which the plaintiff's attorney
refusal is rescissible. However, this doctrine and prior to the time of incidents which gave wished to offer in court concerning the
cannot be applied here because the vendees rise to this action. The corporation, it seems alleged agreement.The telegram to which
(Rosencor) is in good faith. Under Art.1358, , had decided to sell the property in question, reference has been made is not a sufficient
recission cannot take place when things and it appears to have been understood the memorandum because it does not describe
which are the object of sale is legally in plaintiff, who was occupying the property as the property nor state the purchase price;
possession of third person who did not act in a renter, would be given preference in the and it is not signed by any person who had
bad faith. matter of the purchase of the property. authority to bind the seller.
Paredes v Espino embodying the essentials of the contract and on that point, and not dismissed the
Facts: signed by the party charged, or his agent, complaint.
Paredes filed an action to compel suffices to make the verbal agreement
(i.e. specific performance and damages) enforceable, taking it out of the operation of Exhibits A and B constitute an
Espino to execute a deed of sale and to pay the statute. adequate memorandum of the transaction.
damages. The complaint alleged that Espino All essential terms of the contract are
had entered into the sale to Paredes of Lot. COMPLIANCE WITH STATUTE OF present; hence, they satisfy the requirements
67 of the Puerto Princesa Cadastre at P4.00 FRAUDS. The letter, sent by defendant- of the Statue of Frauds
a square meter. According to Paredes, said appellee marked as annex "A" coupled with o Signed by Espino
deal had been closed by letter and telegram that one marked as appendix B, constitute an o Refered to property sold as Lot. 67
but the actual execution of the deed of sale adequate memorandum of the transaction. covered by TCT No. 62
and payment of the price were deferred to They are signed by the defendant-appellee; o Stipulated its area as 1826 square
the arrival of Espino at Puerto Prinsesa. refer to the property sold as a lot in Puerto meters
However, upon Espinos arrival, he refused Princesa, Palawan, covered by T.C.T. No. o Purchase price payable in cash
and to execute the deed of sale. As a result, 62; give its area as 1026 square meters and
Paredes lost expected profits from a resale the purchase price of four (P4) pesos per Dispositive: Appealed order is set aside and
of the property. square meter payable in cash. We have in the case remanded to the Court of origin for
o Exhibit A: Letter from Espino them, therefore, all the essential terms of the trial and decision.
accepting Paredes offer re: purchase price contract, and they satisfy the requirements
of P4.00 a square meter of the Statute of Frauds. We have ruled that Acabal v Acabal
o Exhbit B: Telegram from Espino a sufficient memorandum may be contained Facts: Alejandro Acabal and Felicidad
advising Paredes of his arrival by boat in two or more documents. (Berg vs. Balasabas, owned a parcel of land situated in
Espino filed a MD on the ground that Magdalena Estate, Inc., 92 Phil., 110, 115). Barrio Tanglad, Manjuyod, Negros Oriental,
the complaint stated no cause of action and containing an area of 18.15 hectares more or
was unenforceable under the Statute of PRELIMINARY HEARING, NOT less, described in Tax Declaration No.
Frauds. DISMISSAL THE PROPER COURSE OF 15856. By a Deed of Absolute Sale dated
CFI: Dismissed complaint there ACTION IN CASE OF DOUBT ABOUT July 6, 1971, his parents transferred for
being no written contract (CC 1403). THE EXISTENCE OF MEMORANDUM. P2,000.00 ownership of the said land to
The establishment of the authenticity of [Villaner Acabal], who was then married to
Ruling: The petition is granted the letters is not necessary for the purpose of Justiniana Lipajan. On April 19, 1990,
CONTRACTS; WRITTEN NOTE OR showing prima facie that the contract is Villaner executed the deed in question, by
MEMORANDUM, ENFORCEABILITY enforceable. Whether the agreement is in which the lot was transferred to his nephew
OF; ARTICLE 1403, N.C.C., writing or not, is a question of evidence. and godson Leonardo Acabal, who later sold
APPLICATION OF. The Statute of (Shaffer vs. Palma, L-24115, March 1, it to Ramon Nicolas. On October 11, 1993
Frauds, embodied in Article 1403, Civil 1968). The authenticity of the writing need Villaner filed a case for annulment of the
Code of the Philippines, does not require not be established until the trial is held. If sale to Leonardo and to Nicolas. Villaner
that the contract itself be in writing. The the court below entertained any doubts about claimed that he did not know the contents of
plain text of Art. 1403, paragraph (2) is clear the existence of the written memorandum, it the deed he signed, which he claimed was a
that a written note or memorandum, should have called for a preliminary hearing Deed of Sale (earlier in the proceedings he
said it was a Lease Contract). The RTC The principle of pari delicto is grounded on In fine, Villaner is estopped from assailing
dismissed the complaint. Villaner appealed two premises: first, that courts should not and annulling his own deliberate acts.
to the CA, who reversed the RTC and held lend their good offices to mediating disputes
that the deed in question was simulated and among wrongdoers; 64 and second, that More. Villaner cannot feign ignorance of the
fictitious. Leonardo and Ramon thus denying judicial relief to an admitted law, nor claim that he acted in good faith, let
appealed to the SC on certiorari. wrongdoer is an effective means of deterring alone assert that he is less guilty than
illegality. 65 This doctrine of ancient Leonardo. Under Article 3 of the Civil
Issue: W/N the deed is valid. vintage is not a principle of justice but one Code, "ignorance of the law excuses no one
of policy from compliance therewith."
Ruling: The petition is granted.
YES. The failure to deny the genuineness Thus, to serve as both a sanction and as a Angeles v CA
and due execution of an actionable deterrent, the law will not aid either party to Facts: On March 12, 1935, homestead
document does not preclude a party from an illegal agreement and will leave them patent No. 31613 was issued for a parcel of
arguing against it by evidence of fraud, where it finds them. land in the municipality of Santo Domingo,
mistake, compromise, payment, statute of Nueva Ecija
limitations, estoppel, and want of The principle of pari delicto, however, is not
consideration. It is a basic rule in evidence absolute, admitting an exception under Pursuant to the issuance of this homestead
that the burden of proof lies on the party Article 1416 of the Civil Code. patent, original certificate of title No. 4906
who makes the allegations. If he claims a was issued to the patentee Juan Angeles
right granted by law, he must prove it by ART. 1416. When the agreement is not
competent evidence, relying on the strength illegal per se but is merely prohibited, and Juan Angeles sold the above land to
of his own evidence and not upon the the prohibition by the law is designed for the defendants Gregorio Santa Ines and
weakness of that of his opponent. Villaner protection of the plaintiff, he may, if public Anastacia Divino, who thereupon took
failed to prove his allegations for he failed to policy is thereby enhanced, recover what he possession thereof. Juan Angeles died in the
adduce evidence to support his claims of has paid or delivered. year 1938, and thereafter his heirs, the
simulation and lack of knowledge as to the petitioners herein, sought to recover the land
nature of the deed. Leonardos witness (the Under this article, recovery for what has from the defendants on the ground that the
drafter of the actual deed) on the other hand been paid or delivered pursuant to an sale was null and void
was able to prove that the deed was duly inexistent contract is allowed only when the
drafted, read and signed by Villaner. following requisites are met: (1) the contract The defendants refused to return the land, so
Even assuming that the disposition of the is not illegal per se but merely prohibited; said heirs, petitioners herein, brought this
property by Villaner was contrary to law, he (2) the prohibition is for the protection of the action in the Court of First Instance of
would still have no remedy under the law as plaintiffs; and (3) if public policy is Nueva Ecija.
he and Leonardo were in pari delicto, enhanced thereby. The exception is
hence, he is not entitled to afirmative relief unavailing in the instant case, however, In the amended complaint filed by the
one who seeks equity and justice must come since the prohibition is clearly not for the plaintiffs the allegation is made that
to court with clean hands. In pari delicto protection of the plaintiff-landowner but defendants' possession of the land was by
potior est conditio defendentis. for the beneficiary farmers. virtue of a sale which is against the law and
therefore did not convey title to them. It is
also alleged that the homestead produces an ordered plaintiffs to return the price of the violation of the homestead law, the principle
average of 200 cavans per year as share for land of P2,500.00 to the defendants and to of in pari delicto is not applicable. Reason
the owner reimburse the latter in the amount of P3,000, for the rule is that the policy of the law is to
for expenses incurred in levelling the land give land to a family for home and
Defendants answered the amended and the construction of the dike thereon. The cultivation and the law allows the
complaint alleging that the purchase was for court ordered the defendants to return the homesteader to reacquire the land even if it
a valuable consideration, in utmost good homestead to the plaintiffs upon the has been sold; hence the right may not be
faith, and that the defendants took payment to the defendants of 2,500.00 and waived. In the case at bar, the sale of the
possession of the land with the knowledge, that the P3,000.00, value of the homestead by the deceased homesteader
consent and acquiescence of plaintiffs. They improvements, should constitute a lien on within five years from the issuance of the
denied that the harvest of the land is 200 the land. patent was null and void and his heir have
cavans per year for the owner and that the the right to recover the homestead illegally
alleged price is P12 per cavan. As special The case having been appealed to the Court disposed.
defenses, they alleged that the plaintiffs are of Appeals LIMITATION OF ACTION; ACTION TO
guilty of laches for having allowed 12 years Article 1306, paragraph 1 of the Spanish RECOVER HOMESTEAD ILLEGALLY
to pass, after the death of the original Civil Code, which provides: SOLD; DOES NOT PRESCRIBE.
homesteader, before they brought the action; ". . . When both parties are guilty, neither of Where the sale of a homestead is null and
that the plaintiff's right of action had them can recover what he may have given void, the action to recover the same does not
prescribed; that more than five years had by virtue of the contract, or enforce the prescribe because mere lapse of the time
elapsed from the date of the final approval performance of the undertaking of the other cannot give efficacy to the contracts that are
of the homestead, when the sale was made party;" null and void and inexistent.
VALUE OF PRODUCTS GATHERED;
That trial court found that when the sale was which legal provision is founded on the USEFUL AND NECESSARY EXPENSES.
made by the deceased Angeles, five years principle of in pari delicto, is applicable. In Although the rule of in pari delicto
had not passed from the issuance of the accordance with said principle, it held that should not apply to the sale of the
certificate of title to the homestead; that both none of the parties should be given any homestead, because such sale is contrary to
vendor and vendee knew that the sale was remedy due to the fact that they did not only the public policy enunciated in the
void because the five-year period prescribed violate the prohibition contained in the homestead law, the loss of the products
by law had not yet elapsed; as a Public Land Law but because they realized by the defendants and the value of
consequence of this bad faith of both parties, knowingly tried to cheat the prohibition the necessary improvements made by them
they should be considered as having acted in on the land should be excepted from the
good faith (Art. 364, Civil Code of Spain), Issue: whether the doctrine of in pari delicto application of said rule because no cause or
and that defendants are entitled to the fruits is applicable to sales of homesteads. reason can be cited to justify an exception.
of the land. The court further held that the In the case bar the heirs of the homestead
right of action of plaintiffs had already Ruling: should be declared to have lost and
prescribed before the complaint was filed HOMESTEAD; SALES; RECOVERING; forfeited, the value of the products gathered
HOMESTEAD, ILLEGALLY SOLD; from the land and so should the defendants
Wherefore, the court declared that the sale PRINCIPLE OF "IN PARI DELICTO. lose the value of the necessary
of the homestead is null and void and Where a homestead was illegally sold in improvements that they have made thereon
Frenzel v Catito proposed to put up a beauty parlor. Alfred been married on October 16, 1978 and had a
Facts: Petitioner Alfred Fritz Frenzel is an happily agreed. blissful married life until Alfred intruded
Australian citizen of German descent. He is therein.
an electrical engineer by profession, but Alfred told Ederlina that he was married but
worked as a pilot with the New Guinea that he was eager to divorce his wife in Klaus stated that he knew of Alfred and
Airlines. He arrived in the Philippines in Australia. Alfred proposed marriage to Ederlinas amorous relationship, and
1974, started engaging in business in the Ederlina, but she replied that they should discovered the same sometime in November
country; two years thereafter, he married wait a little bit longer. 1983 when he arrived in Manila. He also
Teresita Santos, a Filipino citizen. begged Alfred to leave Ederlina alone and to
Alfred went back to Papua New Guinea to return her to him, saying that Alfred could
In 1981, Alfred and Teresita separated from resume his work as a pilot. not possibly build his future on his (Klaus)
bed and board without obtaining a divorce. Since Alfred knew that as an alien he was misfortune.
disqualified from owning lands in the
In 1983, Alfred arrived in Sydney, Australia Philippines, he agreed that only Ederlinas Alfred had occasion to talk to Sally
for a vacation. He went to Kings Cross, a name would appear in the deed of sale as the MacCarron, a close friend of Ederlina. He
night spot in Sydney, for a massage where buyer of the property, as well as in the title inquired if there was any truth to Klaus
he met Ederlina Catito, a Filipina and a covering the same. After all, he was statements and Sally confirmed that Klaus
native of Bajada, Davao City. planning to marry Ederlina and he believed was married to Ederlina.
that after their marriage, the two of them
Unknown to Alfred, she resided for a time in would jointly own the property. When Alfred confronted Ederlina, she
Germany and was married to Klaus Muller, admitted that she and Klaus were, indeed,
a German national. She left Germany and When Ederlina left for Germany to visit married. But she assured Alfred that she
tried her luck in Sydney, Australia, where Klaus, she had her father Narciso Catito and would divorce Klaus. Alfred was appeased.
she found employment as a masseuse in the her two sisters occupy the property. He agreed to continue the amorous
Kings Cross nightclub. relationship and wait for the outcome of
Alfred decided to stay in the Philippines for Ederlinas petition for divorce. After all, he
Alfred was so enamored with Ederlina that good and live with Ederlina. He returned to intended to marry her. He retained the
he persuaded her to stop working at Kings Australia and sold his fiber glass pleasure services of Rechtsanwltin Banzhaf with
Cross, return to the Philippines, and engage boat to John Reid in 1984. He also sold his offices in Berlin, as her counsel who
in a wholesome business of her own. He television and video business in Papua New informed her of the progress of the
also proposed that they meet in Manila, to Guinea. He had his personal properties proceedings. Alfred paid for the services of
which she assented. Alfred gave her money shipped to the Philippines and stored at San the lawyer.
for her plane fare to the Philippines. Within Francisco del Monte, Quezon City.
two weeks of Ederlinas arrival in Manila, Ederlina often wrote letters to her family
Alfred joined her. Alfred reiterated his On July 28, 1984, while Alfred was in Papua informing them of her life with Alfred. In a
proposal for Ederlina to stay in the New Guinea, he received a Letter dated Letter dated January 21, 1985, she wrote
Philippines and engage in business, even December 7, 1983 from Klaus Muller who about how Alfred had financed the
offering to finance her business venture. was then residing in Berlin, Germany. Klaus purchases of some real properties, the
Ederlina was delighted at the idea and informed Alfred that he and Ederlina had
establishment of her beauty parlor business, affidavit for the said purpose and send it to Ederlina failed to file her answer and was
and her petition to divorce Klaus. her for her signature. The last straw for declared in default. Alfred adduced his
Alfred came on September 2, 1985, when evidence ex-parte.
In the meantime, Ederlinas petition for someone smashed the front and rear
divorce was denied because Klaus opposed windshields of Alfreds car and damaged the Alfred prayed that after hearing, judgment
the same. A second petition filed by her met windows. Alfred thereafter executed an be rendered in his favor.
the same fate. Klaus wanted half of all the affidavit-complaint charging Ederlina and
properties owned by Ederlina in the Sally MacCarron with malicious mischief. Issues:
Philippines before he would agree to a a) Whether the Court of Appeals erred in
divorce. Worse, Klaus threatened to file a On October 15, 1985, Alfred wrote to applying the rule of In Pari Delicto since
bigamy case against Ederlina. Ederlinas father, complaining that Ederlina both parties are not equally guilty but rather
had taken all his life savings and because of it was the respondent who employed fraud
Alfred proposed the creation of a partnership this, he was virtually penniless. He further when she did not inform petitioner that she
to Ederlina, or as an alternative, the accused the Catito family of acquiring for was already married?
establishment of a corporation, with themselves the properties he had purchased
Ederlina owning 30% of the equity thereof. with his own money. He demanded the b) Whether the intention of the petitioner is
She initially agreed to put up a corporation return of all the amounts that Ederlina and not to own real properties in the Philippines
and contacted Atty. Armando Dominguez to her family had stolen and turn over all the but to sell them as public auction to be able
prepare the necessary documents. Ederlina properties acquired by him and Ederlina to recover his money used in purchasing
changed her mind at the last minute when during their coverture. them?
she was advised to insist on claiming
ownership over the properties acquired by Alfred filed a Complaint dated October 28, Ruling: The petition is denied.
them during their coverture. 1985, against Ederlina, with the Regional The trial court ruled that based on
Trial Court of Quezon City, for recovery of documentary evidence, the purchaser of the
Alfred and Ederlinas relationship started real and personal properties located in three parcels of land subject of the
deteriorating. Ederlina had not been able to Quezon City and Manila. In his complaint, complaint was Ederlina. The court further
secure a divorce from Klaus. The latter Alfred alleged, inter alia, that Ederlina, stated that even if Alfred was the buyer of
could charge her for bigamy and could even without his knowledge and consent, the properties, he had no cause of action
involve Alfred, who himself was still managed to transfer funds from their joint against Ederlina for the recovery of the same
married. To avoid complications, Alfred account in HSBC Hong Kong, to her own because as an alien, he was disqualified
decided to live separately from Ederlina and account with the same bank. Using the said from acquiring and owning lands in the
cut off all contacts with her. In one of her funds, Ederlina was able to purchase the Philippines.
letters to Alfred, Ederlina complained that properties subject of the complaints. He also
he had ruined her life. She admitted that the alleged that the beauty parlor in Ermita was The sale of the three parcels of land to the
money used for the purchase of the established with his own funds, and that the petitioner was null and void ab initio.
properties in Davao were his. She offered to Quezon City property was likewise acquired Applying the pari delicto doctrine, the
convey the properties deeded to her by Atty. by him with his personal funds. petitioner was precluded from recovering
Mardoecheo Camporedondo and Rodolfo the properties from the respondent.
Morelos, asking Alfred to prepare her
Alfred appealed the decision to the Court of objective carried out. One who loses his DETREMENTO PROTEST (No person
Appeals in which the petitioner posited the money or property by knowingly engaging should unjustly enrich himself at the
view that although he prayed in his in a contract or transaction which involves expense of another). An action for recovery
complaint in the court a quo that he be his own moral turpitude may not maintain of what has been paid without just cause has
declared the owner of the three parcels of an action for his losses. To him who moves been designated as an accion in rem verso.
land, he had no intention of owning the in deliberation and premeditation, the law is This provision does not apply if, as in this
same permanently. unyielding. The law will not aid either party case, the action is proscribed by the
to an illegal contract or agreement; it leaves Constitution or by the application of the pari
His principal intention therein was to be the parties where it finds them. delicto doctrine. It may be unfair and unjust
declared the transient owner for the purpose to bar the petitioner from filing an accion in
of selling the properties at public auction, Under Article 1412 of the New Civil Code, rem verso over the subject properties, or
ultimately enabling him to recover the the petitioner cannot have the subject from recovering the money he paid for the
money he had spent for the purchase thereof. properties deeded to him or allow him to said properties, but, as Lord Mansfield
recover the money he had spent for the stated in the early case of Holman vs.
On March 8, 2000, the CA rendered a purchase thereof. Equity as a rule will Johnson: The objection that a contract is
decision affirming in toto the decision of the follow the law and will not permit that to be immoral or illegal as between the plaintiff
RTC. The appellate court ruled that the done indirectly which, because of public and the defendant, sounds at all times very
petitioner knowingly violated the policy, cannot be done directly. Where the ill in the mouth of the defendant. It is not for
Constitution; hence, was barred from wrong of one party equals that of the other, his sake, however, that the objection is ever
recovering the money used in the purchase the defendant is in the stronger position ... it allowed; but it is founded in general
of the three parcels of land. It held that to signifies that in such a situation, neither a principles of policy, which the defendant has
allow the petitioner to recover the money court of equity nor a court of law will the advantage of, contrary to the real justice,
used for the purchase of the properties administer a remedy. The rule is expressed as between him and the plaintiff.
would embolden aliens to violate the in the maxims: EX DOLO MALO NON
Constitution, and defeat, rather than ORITUR ACTIO and IN PARI DELICTO IN LIGHT OF ALL THE FOREGOING, the
enhance, the public policy. POTIOR EST CONDITIO DEFENDENTIS. petition is DISMISSED. The decision of the
Court of Appeals is AFFIRMED in toto.
Even if, as claimed by the petitioner, the Futile, too, is petitioners reliance on Article
sales in question were entered into by him as 22 of the New Civil Code which reads: Costs against the petitioner. SO ORDERED.
the real vendee, the said transactions are in
violation of the Constitution; hence, are null Art. 22. Every person who through an act of CIVIL LAW; CONTRACTS; A
and void ab initio. performance by another, or any other means, CONTRACT THAT VIOLATES THE
acquires or comes into possession of CONSTITUTION AND THE LAW IS
A contract that violates the Constitution and something at the expense of the latter NULL AND VOID AND VESTS NO
the law, is null and void and vests no rights without just or legal ground, shall return the RIGHTS AND CREATES NO
and creates no obligations. It produces no same to him. OBLIGATION. Lands of the public
legal effect at all. The petitioner, being a domain, which include private lands, may be
party to an illegal contract, cannot come into The provision is expressed in the maxim: transferred or conveyed only to individuals
a court of law and ask to have his illegal MEMO CUM ALTERIUS DETER or entities qualified to acquire or hold
private lands or lands of the public domain. it signifies that in such a situation, neither a the purchase of the parcels of land would be
Aliens, whether individuals or corporations, court of equity nor a court of law will subversive of public policy. AcHCED
have been disqualified from acquiring lands administer a remedy. The rule is expressed
of the public domain. Hence, they have also in the maxims: EX DOLO ORITUR ACTIO PETITIONER'S RELIANCE ON ARTICLE
been disqualified from acquiring private and IN PARI DELICTO POTIOR EST 22 OF THE NEW CIVIL CODE IS
lands. Even if, as claimed by the petitioner, CONDITIO DEFENDENTIS. The petitioner MISPLACED. Futile, too, is petitioner's
the sales in question were entered into by cannot feign ignorance of the constitutional reliance on Article 22 of the New Civil
him as the real vendee, the said transactions proscription, nor claim that he acted in good Code. The provision is expressed in the
are in violation of the Constitution; hence, faith, let alone assert that he is less guilty maxim: "MEMO CUM ALTERIUS DETER
are null and void ab initio. A contract that than the respondent. The petitioner is DETREMENTO PROTEST" (No person
violates the Constitution and the law, is null charged with knowledge of the should unjustly enrich himself at the
and void and vests no rights and creates no constitutional prohibition. As can be gleaned expense of another). An action for recovery
obligations. It produces no legal effect at all. from the decision of the trial court, the of what has been paid without just cause has
The petitioner, being a party to an illegal petitioner was fully aware that he was been designated as an accion in rem verso.
contract, cannot come into a court of law disqualified from acquiring and owning This provision does not apply if, as in this
and ask to have his illegal objective carried lands under Philippine law even before he case, the action is proscribed by the
out. One who loses his money or property purchased the properties in question; and, to Constitution or by the application of the pari
by knowingly engaging in a contract or skirt the constitutional prohibition, the delicto doctrine. It may be unfair and unjust
transaction which involves his own moral petitioner had the deed of sale placed under to bar the petitioner from filing an accion in
turpitude may not maintain an action for his the respondent's name as the sole vendee rem verso over the subject properties, or
losses. To him who moves in deliberation thereof: from recovering the money he paid for the
and premeditation, the law is unyielding. said properties, but, as Lord Mansfield
ARTICLE 1416 OF THE CIVIL CODE stated in the early case of Holman vs.
VOID OR INEXISTENT CONTRACTS; APPLIES ONLY TO CONTRACTS Johnson: "The objection that a contract is
THE LAW WILL NOT AID EITHER WHICH ARE MERELY PROHIBITED IN immoral or illegal as between the plaintiff
PARTY TO AN ILLEGAL CONTRACT ORDER TO BENEFIT PRIVATE and the defendant, sounds at all times very
OR AGREEMENT. The law will not aid INTERESTS; IT DOES NOT APPLY TO ill in the mouth of the defendant. It is not for
either party to an illegal contract or CONTRACTS VOID AB INITIO. The his sake, however, that the objection is ever
agreement; it leaves the parties where it provision applies only to those contracts allowed; but it is founded in general
finds them. Under Article 1412 of the New which are merely prohibited, in order to principles of policy, which the defendant has
Civil Code, the petitioner cannot have the benefit private interests. It does not apply to the advantage of, contrary to the real justice,
subject properties deeded to him or allow contracts void ab initio. The sales of three as between him and the plaintiff."
him to recover the money he had spent for parcels of land in favor of the petitioner who
the purchase thereof. Equity as a rule will is a foreigner is illegal per se. The
follow the law and will not permit that to be transactions are void ab initio because they
done indirectly which, because of public were entered into in violation of the
policy, cannot be done directly. Where the Constitution. Thus, to allow the petitioner to
wrong of one party equals that of the other, recover the properties or the money used in
the defendant is in the stronger position . . .
Philippine Banking v Lui She 5. This contract covering the portion December 28, 1964. Wong was substituted
Facts: 1. Justina Santos y Canon was then already leased to him and another by his wife, Lui She, the other defendant in
Faustino (aka Lola Jmy nickname not the portion fronting Florentino Torres street. this case, While Lola J was substituted by
cases :P) and her sister Lorenza were the The lease was for 50 years, although the the Philippine Banking Corporation (PBC).
owners in common of a piece of land in lessee was given the right to withdraw at any Lola J maintained now reiterated by the
Manila. (They are 2 very rich old maid time from the agreement; the monthly rental PBC that the lease contract should have
doas.)In it are 2 residential houses with was P3,120. 10 days later (November 25), been annulled along with the four other
entrance on Florentino Torres street and the the contract was amended so as to make it contracts because it lacks mutuality, among
Hen Wah Restaurant with entrance on Rizal cover the entire property, including the others
Avenue. portion on which the house of Justina Santos
stood, at an additional monthly rental of 9. Paragraph 5 of the lease contract
2. The sisters lived in one of the P360. states that "The lessee may at any time
houses, while Wong Heng, a Chinese, lived withdraw from this agreement." It is claimed
with his family in the restaurant. Wong had 6. December 21: she executed contract that this stipulation offends article 1308 of
been a long-time lessee of a portion of the giving Wong the option to buy the leased the Civil Code which provides that "the
property, having a monthly rental of P2,620. premises for P120 K payable within 10 contract must bind both contracting parties;
years at a monthly instalment of P1K. The its validity or compliance cannot be left to
3. September 22, 1957: Lola J became option was conditioned on his obtaining the will of one of them."
the owner of the entire property as Lorenza Philippine citizenship,a petition for which
died with no other heir. At that tim, she was was then pending in the CFI Rizal. 10. RTC: Contracts are null and void
already 90 years old, blind, crippled and an except for the Nov. 15, 1957 lease contract.
invalid, she was left with no other relative to 7. November 18, 1958: she executed 2
live with, but she was taken cared of by other contracts, one extending the term of 11. Pets arguments: 1) The contracts
Wong. (BONUS INFO: Lola had 17 dogs the lease to 99 years, and another fixing the were obtained by Wong through fraud,
and 8 maids naman with her. :P) term of the option at 50 years. Both misrepresentation, inequitable conduct,
contracts are written in Tagalog. In 2 wills undue influence and abuse of confidence
4. November 15, 1957: Lola J executed on August 24 and 29, 1959, she and trust and by taking advantage of the
executed a contract of lease in favour of bade her legatees to respect the contracts she helplessness of the plaintiff were made to
Wong for the "grateful acknowledgment of had entered into with Wong, but in a codicil circumvent the consti. Prohibition re: aliens
the personal services of the Lessee to her," of a later date (November 4, 1959) she acquiring lands in the Phil and also of the
(Note: Wong was the one who managed her appears to have a change of heart. Claiming Phil. Naturalization laws (Note: there was a
affairs like checking Lola JS account to pay that the various contracts were made by her time Lola J wanted to adopt Wong to speed
for the maids and pay for dog food. His 4 because of machinations and inducements up the process.) 2) lease contract should also
kids also frequently visited her. She also practised by him, she now directed her be annulled because it lacks mutuality;
believed that Wong saved her and Lorenza executor to secure the annulment of the because it included a portion which, at the
from the fire after the liberation of Manila contracts. times, was in custodial legis because the
but a witness said they were actually saved contract was obtained in violation of the
by 2 other guys.) 8. Both parties however died, Wong fiduciary relations of the parties, and that the
Heng on October 21, 1962 and Lola J on
contract was absolutely simulated (undue the Constitutional ban against alien conversely, although the owner should
influence, etc.) landholding in the Philippines, is indeed in desire the lease to continue, the lessee could
grave peril. effectively thwart his purpose if he should
12. Respondents arguments: Lola Js prefer to terminate the contract by the
trust wasnt taken advantage of in order to LEASE CONTRACT; RESOLUTORY simple expedient of stopping payment of the
secure the execution of the contracts. Still, CONDITION; OPTION, VALIDITY OF. rentals." Here in contrast, the right of the
he admitted that he did enjoy her trust and Plaintiff-appellant assails the validity of lessee to continue the lease or to terminate it
confidence proof of which are the sums of the lease agreement for want of mutuality. is so circumscribed by the term of the
P3K that she entrusted to him for Paragraph 5 of the lease contract states that contract that it cannot be said that the
safekeeping and P22K that was deposited in the lessee may at any time withdraw from continuance of the lease depends upon his
their joint account that she head with one of the agreement. It is claimed that this will. At any rate, even if no term had been
her maids. stipulation offends article 1308 of the Civil fixed in the agreement, this case would at
Code. Held: Art. 1256 (now 1308) of the most justify the fixing of a period but not the
Issue: 1.WON the contracts are void for Civil Code in our opinion creates no annulment of the contract.
trying to circumvent Philippine Constitution impediment to the insertion in a contract of a PURCHASE AND SALE; CUSTODIA
against alienation of property to foreigners? resolutory condition permitting the LEGIS; SALE, VALIDITY OF. That the
cancellation of the contract by one of the land could not ordinarily be levied upon
Ruling: parties. Such a stipulation, as can be readily while in custodia legis does not mean that
The contracts show nothing that is seen, does not make either the validity or the one of the heirs may not sell the right,
necessarily illegal, but considered fulfillment of the contract upon the will of interest or participation which he had or
collectively, they reveal an insidious pattern the party to whom is conceded the privilege might have in the land under administration.
to subvert by indirection what the of cancellation; for where the contracting The ordinary execution of property in
Constitution directly prohibits. To be sure, a parties have agreed that such option shall custodia legis is prohibited in order to avoid
lease to an alien for a reasonable period is exist, the exercise of the option is as much in interference with the possession by the
valid. So is an option giving an alien the the fulfillment of the contract as any other court. But the sale made by an heir of his
right to buy real property on condition that act which may have been the subject of share in an inheritance, subject to the result
he is granted Philippine citizenship. agreement. Indeed, the cancellation of a of the pending administration, in no wise
contract in accordance with conditions stands in the way of such administration."
But if an alien is given not only a lease of, agreed upon beforehand is fulfillment (Jakosalem vs. Esfols, 73 Phil. 628).
but also an option to buy, a piece of land, by (Taylor vs. Tang Pao, 43 Phil. 873). CONTRACTS; CONSIDERATION;
virtue of which the Filipino owner cannot In the case of Singson Encarnacion vs. EFFECT OF. The fact that no money was
sell or otherwise dispose of his property, this Baldomar, 77 Phil. 470, the lessees argued paid at the time of the execution of the
to last for 50 years, then it becomes clear that they could occupy the premises as long document does not rule out the possibility
that the arrangement is a virtual transfer of as they paid the rent. This is of course that the considerations were paid some other
ownership whereby the owner divests untenable,for as this Court said, "If this time as the contracts in fact recite. What is
himself in stages not only of the right to defense were to be allowed, solong as more, the consideration need not pass from
enjoy the land but also of the right to defendants elected to continue the lease by one party to the other at the time a contract
dispose of it rights the sum total of which continuing the payment of the rentals, the is executed because the promise of one is the
make up ownership. If this can be done, then owner would never be able to discontinue it; consideration of the other.
ALIENS; CONSTITUTIONAL AGRICULTURAL LAND; REASON FOR APPLICATION OF THE PARI DELICTO
PROHIBITION, CIRCUMVENTION OF. PROVISION. The constitutional RULE IN PREVIOUS CASES TOO
Where a scheme to circumvent the provision that 'save in cases of hereditary EXTREME. Since the sales in question
Constitutional prohibition against the succession, no private agricultural land shall took place prior to the Krivenko decision, at
transfer of lands to aliens is readily revealed be transferred or assigned except a time when the assumption could be
as the purpose for the contracts then the individuals, corporations, or associations honestly entertained that there was no
illicit purpose becomes the illegal cause qualified to acquire or hold lands of the constitutional prohibition against the sale of
rendering the contracts void. Thus, if an public domain in the Philippines (Art. XIII, commercial or residential lots by Filipino-
alien is given not only a lease of, but also an Sec. 5) is an expression of public policy to vendor to alien-vendee, in the absence of a
option to buy, a piece of land by virtue of conserve lands for the Filipinos. definite decision by the Supreme Court, it
which the Filipino owner cannot sell or FERNANDO, J., concurring: would not be doing violence to reason to
otherwise dispose of his property, this to last CONSTITUTIONAL LAW; LANDS OF free them from the imputation of evading
for 50 years, then it becomes clear that the THE PUBLIC DOMAIN; PROHIBITION the Constitution. For evidently evasion
arrangement is a virtual transfer of AGAINST ALIEN LANDHOLDING; implies at the very least knowledge of what
ownership whereby the owner divests RECOVERY OF PROPERTY IN SALES is being evaded. The new Civil Code
himself in stages not only of the right to ENTERED INTO PRIOR TO THE expressly provides: "Mistakes upon a
enjoy the land (jus possidendi jus utendi, KRIVENKO DECISION NOT doubtful or difficult question of law may be
just fruendi and jus abutendi) but also of the AVAILABLE IN VIEW OF THE PARE the basis of good faith." (Art. 526, par. 3).
right to dispose of it (jus disponendi) DELICTO DOCTRINE. The doctrine as According to the Rellosa opinion, both
rights the sum total of which make up announced in the case of Rellosa v. Gaw parties are equally guilty of evasion of the
ownership. If this can be done, then the Chee Hun, 93 Phil. 827 is that while the sale Constitution, based on the broader principle
Constitutional ban against alien landholding by a Filipino-vendor to an alien-vendee of a that "both parties are presumed to know the
in the Philippines, as announced in Krivenko residential or a commercial lot is null and law." This statement that the sales entered
vs. Register of Deeds, is indeed in grave void as held in the Krivenko case, still the into prior to the Krivenko decision were at
peril. Filipino-vendor has no right to recover that time already vitiated by a guilty
REMEDY OF PARTIES. It does not under a civil law doctrine, the parties being knowledge of the parties may be too
follow that because the parties are in pari in pari delicto. The only remedy to prevent extreme a view. It appears to ignore a
delicto they will be left where they are this continuing violation of the Constitution postulate of a constitutional system, wherein
without relief. Article 1416 of the Civil which the decision impliedly sanctions by the words of the Constitution acquire
Code provides as an exception to the rule in allowing the alien vendees to retain the lots meaning through Supreme Court
pari delicto that "when the agreement is not in question is either escheat or reversion. adjudication.
illegal per se but is merely prohibited, and Thus: "By following either of these RESTORATION BY ALIEN-VENDEE OF
the prohibition by law is designed for the remedies, or by approving an implementary PROPERTY TO FILIPINO-VENDOR
protection of the plaintiff, he may, if public law as above suggested, we can enforce the MAY BE ALLOWED UPON
policy is thereby enhanced, recover what he fundamental policy of our Constitution RESTITUTION OF PURCHASE PRICE.
has paid or delivered." regarding our natural resources without Alien-vendee is incapacitated or
doing violence to the principle ofpari disqualified to acquire and hold real estate.
CONSTITUTIONAL LAW; TRANSFER delicto. That incapacity and that disqualification
OR ASSIGNMENT OF PRIVATE should date from the adoption of the
Constitution on November 15, 1935. That in Halili v CA issue, it held that the subject land was urban;
capacity and that disqualification, however, Facts: Simeon de Guzman, an American hence, petitioners had no reason to invoke
was made known to Filipino-vendor and to citizen, died sometime in 1968, leaving real their right of redemption under Art. 1621 of
alien-vendee only upon the promulgation of properties in the Philippines. His forced the Civil Code
the Krivenko decision on November 15, heirs were his widow private respondent
1947 Alien-vendee therefore, cannot be Helen Meyers Guzman, and his son, private The Halilis sought a reversal from the Court
allowed to continue owning and exercising respondent David Rey Guzman, both of of Appeals which, however, denied their
acts of ownership over said property, when whom are also American citizens. On appeal. Respondent Court affirmed the
it is clearly included within the August 9, 1989, Helen executed a deed of factual finding of the trial court that the
constitutional prohibition. Alien-vendee quitclaim, assigning, transferring and subject land was urban. Citing Tejido vs.
should thus be made to restore the property conveying to David Rey all her rights, titles Zamacoma 8 and Yap vs. Grageda, 9 it
with its fruits and rents to Filipino-vendor, and interests in and over six parcels of land further held that, although the transfer of the
its previous owner, if it could be shown that which the two of them inherited from land to David Rey may have been invalid for
in the utmost good faith, he transferred his Simeon. Among the said parcels of land is being contrary to the Constitution, there was
title over the same to alien-vendee, upon that now in litigation Guzman then sold the no more point in allowing herein petitioners
restitution of the purchase price of course. parcel of land to Catanaig, who is one of to recover the property, since it has passed
REACQUISITION OF PROPERTY SOLD respondents in this case. on to and was thus already owned by a
THE BETTER REMEDY IN qualified person.
CONSONANCE WITH THE DICTATES Petitioners, who are owners of the adjoining
OF JUSTICE AND EQUITY. The lot, filed a complaint before the Regional Issue:
Constitution frowns upon the title remaining Trial Court of Malolos, Bulacan, The Honorable Court of Appeals
in the alien-vendees. Restoration of the questioning the constitutionality and validity 1. Erred in affirming the conclusion of the
property upon payment of price received by of the two conveyances between Helen trial court that the land in question is urban,
Filipino vendor or its reasonable equivalent Guzman and David Rey Guzman, and not rural
as fixed by the court is the answer. To give between the latter and Emiliano Cataniag 2. Erred in denying petitioners' right of
the constitutional provision full force and and claiming ownership thereto based on redemption under Art. 1621 of the Civil
effect, in consonance with the dictates of their right of legal redemption under Art. Code
equity and justice, the restoration to 1621 of the Civil Code. 3. Having considered the conveyance from
Filipino-vendor upon the payment of a price Helen Meyers Guzman to her son David
fixed by the court is the better remedy. He The trial court dismissed the complaint. It Rey Guzman illegal, erred in not declaring
thought he could transfer the property to an ruled that Helen Guzman's waiver of her the same null and void[.]"
alien and did so. After the Krivenko case inheritance in favor of her son was not
had made clear that he had no right to sell contrary to the constitutional prohibition Ruling: The petition is denied.
nor an alien-vendee to purchase the property against the sale of land to an alien, since the
in question, the obvious solution would be purpose of the waiver was simply to First Issue : The Land Is Urban ;
for him to reacquire the same. That way the authorize David Rey Guzman to dispose of Thus, No Right of Redemption
Constitution would be given, as it ought to their properties in accordance with the
be given, respect and deference. Constitution and the laws of the Philippines, As observed by the court, almost all the
and not to subvert them. On the second roadsides along the national ghighway [sic]
of Bagbaguin, Sta. Maria, Bulacan, are lined a piece of rural land, the area of which does resources of the Philippines' for Filipino
up with residential, commercial or industrial not exceed one hectare, is alienated, unless citizens or corporations at least sixty
establishments. Lined up along the the grantee does not own any rural land." percent of the capital of which was owned
Bagbaguin Road are factories of feeds, Under this article, both lands that sought by Filipinos. Aliens, whether individuals or
woodcrafts [sic] and garments, commercial to be redeemed and the adjacent lot corporations, have been disqualified from
stores for tires, upholstery materials, feeds belonging to the person exercising the right acquiring public lands; hence, they have
supply and spare parts. Located therein of redemption must be rural. If one or also been disqualified from acquiring
likewise were the Pepsi-Cola Warehouse, both are urban, the right cannot be invoked. private lands."
the Cruz Hospital, three gasoline stations, 15 The purpose of this provision, which is In fine, non-Filipinos cannot acquire or hold
apartment buildings for commercial limited in scope to rural lands not exceeding title to private lands or to lands of the public
purposes and construction firms. There is no one hectare, is to favor agricultural domain, except only by way of legal
doubt, therefore, that the community is a development.16 The subject land not being succession.
commercial area thriving in business rural and, therefore, not agricultural, this
activities. Only a short portion of said road purpose would not be served if petitioners But what is the effect of a subsequent sale
[is] vacant. It is to be noted that in the Tax are granted the right of redemption under by the disqualified alien vendee to a
Declaration in the name of Helen Meyers Art. 1691 Plainly, under the circumstances, qualified Filipino citizen? This is not a novel
Guzman[,] the subject land is termed they cannot invoke it. question. Jurisprudence is consistent that "if
agricultural[,] while in the letter addressed land is invalidly transferred to an alien who
to defendant Emiliano Cataniag, dated Second Issue: Sale to Cataniag Valid subsequently becomes a citizen or transfers
October 3, 1991, the Land Regulatory Board The landmark case of Krivenko vs. Register it to a citizen, the flaw in the original
attested that the subject property is of Deeds 1settled the issue as to who are transaction is considered cured and the title
commercial and the trend of development qualified (and disqualified) to own public as of the transferee is rendered valid.
along the road is commercial. The Board's well as private lands in the Philippines
classification is based on the present The Krivenko rule was recently reiterated in Thus, in United Church Board of World
condition of the property and the community Ong Ching Po vs. Court of Appeals, 19 Ministries vs. Sebastian, 23 in which an
thereat. Said classification is far more later which involves a sale of land to a Chinese alien resident who owned properties in the
[sic] than the tax declaration." citizen. The Court said: Philippines devised to an American non-
"The capacity to acquire private land is stock corporation part of his shares of stock
No Ground to Invoke made dependent upon the capacity to in a Filipino corporation that owned a tract
Right of Redemption acquire or hold lands of the public domain. of land in Davao del Norte, the Court
In view of the finding that the subject land is Private land may be transferred or conveyed sustained the invalidity of such legacy.
urban in character, petitioners have indeed only to individuals or entities 'qualified to However, upon proof that ownership of the
no right to invoke Art 1621 of the Civil acquire lands of the public domain' (II American corporation has passed on to a
Code, which presupposes that the land Bernas, The Constitution of the Philippines 100 percent Filipino corporation, the Court
sought to be redeemed is rural. The 439- 440 [1988 ed.]). ruled that the defect in the will was
provision is clearly worded and admits of no The 1935 Constitution reserved the right to "rectified by the subsequent transfer of the
ambiguity in construction: participate in the 'disposition, exploitation, property."
"ART. 1621. The owners of adjoining lands development and utilization' of all 'lands of
shall also have the right of redemption when the public domain and other natural
The present case is similar to De Castro vs. CIVIL LAW; OBLIGATIONS AND of the transferee is rendered valid."
Tan. 24 In that case, a residential lot was CONTRACTS; SALE; RIGHT OF Accordingly, since the disputed land is now
sold to a Chinese. Upon his death, his REDEMPTION OF ADJOINING owned by Private Respondent Cataniag, a
widow and children executed an OWNERS; LAND MUST BE RURAL Filipino citizen, the prior invalid transfer can
extrajudicial settlement, whereby said lot NOT URBAN; CASE AT BAR. In view no longer be assailed. The objective of the
was allotted to one of his sons who became of the finding that the subject land is urban constitutional provision to keep our land
a naturalized Filipino The Court did not in character, petitioners have indeed no right in Filipino hands has been served.
allow the original vendor to have the sale to invoke Art. 1621 of the Civil Code, which
annulled and to recover the property, for the presupposes that the land sought to be RATIONALE. The rationale of this
reason that the land has since become the redeemed is rural. Under this article, both principle was explained in Vasquez vs. If
property of a naturalized Filipino citizen lands that sought to be redeemed and the Seng Giap thus: ". . . [I]f the ban on aliens
who is constitutionally qualified to own adjacent lot belonging to the person from acquiring not only agricultural but also
land. exercising the right of redemption must urban lands, as construed by this Court in
be rural. If one or both are urban, the right the Krivenko case, is to preserve the nation's
Likewise, in the cases of Sarsosa vs. cannot be invoked. The purpose of this lands for future generations of Filipinos, that
Cuenco, 25 Godinez vs. Pak Luen, 26 provision, which is limited in scope to rural aim or purpose would not be thwarted but
Vasquez vs. Li Seng Giap 27 and Herrera lands not exceeding one hectare, is to favor achieved by making lawful the acquisition
vs. Luy Kim Guan, 2 8 which similarly agricultural development. The subject land of real estate by aliens who became Filipino
involved the sale of land to an alien who not being rural and, therefore, not citizen by naturalization.
thereafter sold the same to a Filipino citizen, agricultural, this purpose would not be
the Court again applied the rule that the served if petitioners are granted the right of DEVELOPMENT BANK OF THE
subsequent sale can no longer be impugned redemption under Art. 1621. Plainly, under PHILIPPINES, petitioner, vs. COURT
on the basis of the invalidity of the initial the circumstances, they cannot invoke it. OF APPEALS, CELEBRADA
transfer. MANGUBAT and ABNER
IF LAND IS INVALIDLY MANGUBAT, respondents
The rationale of this principle was explained TRANSFERRED TO AN ALIEN WHO Facts: herein petitioner Development Bank
in Vasquez vs. Li Seng Giap thus: SUBSEQUENTLY BECOMES A CITIZEN of the Philippines (DBP) executed a "Deed
". . . [I]f the ban on aliens from acquiring OR TRANSFERS IT TO A CITIZEN, THE of Absolute Sale" in favor of respondent
not only agricultural but also urban lands, ORIGINAL TRANSACTION IS CURED spouses Celebrada and Abner Mangubat
as construed by this Court in the Krivenko AND THE TITLE TO THE TRANSFEREE over a parcel of unregistered land identified
case, is to preserve the nation's lands for IS RENDERED VALID; CASE AT BAR. as Lot 1, PSU-142380, situated in the Barrio
future generations of Filipinos, that aim or But what is the effect of a subsequent of Toytoy, Municipality of Garchitorena,
purpose would not be thwarted but achieved sale by the disqualified alien vendee to a Province of Camarines Sur, containing an
by making lawful the acquisition of real qualified Filipino citizen? This is not a novel area of 55.5057 hectares, more or less.
estate by aliens who became Filipino question. Jurisprudence is consistent that "if
citizens by naturalization." land is invalidly transferred to an alien who The land, covered only by a tax declaration,
subsequently becomes a citizen or transfers is known to have been originally owned by
it to a citizen, the flaw in the original one Presentacion Cordovez, who, on
transaction is considered cured and the title February 9, 1937, donated it to Luciano
Sarmiento. On June 8, 1964, Luciano work for the release of the land by the severally, the total amount of P118,540.00
Sarmiento sold the land to Pacifico Chica. former Ministry of Natural Resources with interest at 15% per annum, plus charges
Later on mortgage the land to DBP to and other expenses
secure a loan of P6,000.00 However, he The loan was then released to respondent
defaulted in the payment of the loan, hence spouses on a staggered basis. After a the trial court rendered judgment annulling
DBP caused the extrajudicial foreclosure of substantial sum of P118,540.00 had been the subject deed of absolute sale and
the mortgage. Pacifico Chica failed to received by private respondent, they asked ordering DBP to return the P25,500.00
redeem the property, and DBP consolidated for the release of the remaining amount of purchase price, plus interest; to reimburse to
its ownership over the same. the loan. It does not appear that their request respondent spouses the taxes paid by them,
was acted upon by DBP, ostensibly because the cost of the relocation survey, incidental
Respondent spouses offered to buy the the release of the land from the then expenses and other damages in the amount
property for P18,599.99. DBP made a Ministry of Natural Resources had not been of P50,000.00; and to further pay them
counter-offer of P25,500.00 which was obtained attorney's fees and litigation expenses in the
accepted by respondent spouses. The parties amount of P10,000.00, and the costs of suit.
further agreed that payment was to be made Respondent spouses, as plaintiffs, filed a
within six months thereafter for it to be complaint against DBP in the trial court 4 Issue: Whether or not private respondent
considered as cash payment. On July 20, seeking the annulment of the subject deed of spouses Celebrada and Abner Mangubat
1981, the deed of absolute sale, which is absolute sale on the ground that the object should be ordered to pay petitioner DBP
now being assailed herein, was executed by thereof was verified to be timberland and, their loan obligation due under the mortgage
DBP in favor of respondent spouses. Said therefore, is in law an inalienable part of the contract executed between them and DBP
document contained a waiver of the seller's public domain. They also alleged that
warranty against eviction petitioner, as defendant therein, acted Ruling: The petition granted.
fraudulently and in bad faith by Considering that neither party questioned
Thereafter, respondent spouses applied for misrepresenting itself as the absolute owner the legality and correctness of the judgment
an industrial tree planting loan with DBP. of the land and in incorporating the waiver of the court a quo, as affirmed by respondent
The latter required the former to submit a of warranty against eviction in the deed of court, ordering the annulment of the deed of
certification from the Bureau of Forest sale. absolute sale, such decreed nullification of
Development that the land is alienable and the document has already achieved finality.
disposable. However, on October 29, 1981, In its answer, DBP contended that the We only need, therefore, to dwell on the
said office issued a certificate attesting to annulment of the sale and the return of the effects of that declaration of nullity.
the fact that the said property was classified purchase price to respondent spouses would
as timberland, hence not subject to redound to their benefit but would result in CIVIL LAW; SPECIAL CONTRACTS;
disposition petitioner's prejudice, since it had already SALE; DECLARATION OF NULLITY;
released P118,540.00 to the former while it EFFECT WHEN BOTH PARTIES NOT
The loan application of respondent spouses would be left without any security for the GUILTY; CASE AT BAR. If both
was nevertheless eventually approved by P140,000.00 loan; and that in the remote parties have no fault or are not guilty, the
DBP in the sum of P140,000.00, despite the possibility that the land is reverted to the restoration of what was given by each of
aforesaid certification of the bureau, on the public domain, respondent spouses should them to the other is consequently in order.
understanding of the parties that DBP would be made to immediately pay, jointly and This is because the declaration of nullity of a
contract which is void ab initiooperates to expenses for the relocation survey, mortgage is not valid, as where it is
restore things to the state and condition in respectively. The list of damages prepared executed by one who is not the owner of the
which they were found before the execution extrajudicially without any supporting property, or the consideration of the contract
thereof. The purchaser is entitled to recover receipts as bases thereof is necessarily self- is simulated or false, the principal obligation
the money paid by him where the contract is serving and, on that account, should have which it guarantees is not thereby rendered
set aside by reason of the mutual material been declared inadmissible in evidence as null and void. That obligation matures and
mistake of the parties as to the identity or the factum probans. In order that damages becomes demandable in accordance with the
quantity of the land sold. And where a may be recovered, the best evidence stipulation pertaining to it. Under the
purchaser recovers the purchase money from obtainable by the injured party must be foregoing circumstances, what is lost is only
a vendor who fails or refuses to deliver the presented. Actual or compensatory damages the right to foreclose the mortgage as a
title, he is entitled as a general rule to cannot be presumed, but must be duly special remedy for satisfying or settling the
interest on the money paid from the time of proved, and so proved with a reasonable indebtedness which is the principal
payment. A contract which the law degree of certainty. A court cannot rely on obligation. In case of nullity, the mortgage
denounces as void is necessarily no contract speculation, conjecture or guesswork as to deed remains as evidence or proof of a
whatever, and the acts of the parties in an the fact and amount of damages, but must personal obligation of the debtor, and the
effort to create one can in no wise bring depend upon competent proof that they have amount due to the creditor may be enforced
about a change of their legal status. The been suffered and on evidence of the actual in an ordinary personal action.
parties and the subject matter of the contract amount thereof. If the proof is flimsy and
remain in all particulars just as they did unsubstantial, no damages will be awarded. It was likewise incorrect for the Court of
before any act was performed in relation CIVIL LAW; SPECIAL CONTRACTS; Appeals to deny the claim of petitioner for
thereto. An action for money had and CONTRACT OF LOAN; NOT AFFECTED payment of the loan on the ground that it
received lies to recover back money paid on BY ANNULMENT OF SALE failed to present the promissory note
a contract, the consideration of which has RESULTING IN THE INVALIDITY OF therefor. While respondent court also made
failed. As a general rule, if one buys the land MORTGAGE. In its legal context, the the concession that its judgment was
of another, to which the latter is supposed to contract of loan executed between the accordingly without prejudice to the filing
have a good title, and, in consequence of parties is entirely different and discrete from by petitioner of a separate action for the
facts unknown alike to both parties, he has the deed of sale they entered into. The collection of that amount, this does not
no title at all, equity will cancel the annulment of the sale will not have an effect detract from the adverse effects of that
transaction and cause the purchase money to on the existence and demandability of the erroneous ruling on the proper course of
be restored to the buyer, putting both parties loan. One who has received money as a loan action in this case
in status quo. The return by DBP to is bound to pay to the creditor an equal
respondent spouses of the purchase price, amount of the same kind and quality. The SUFFICIENTLY ESTABLISHED IN
plus corresponding interest thereon, is fact that the annulment of the sale will also MORTGAGE CONTRACT AND BY
ineluctably called for. result in the invalidity of the mortgage does JUDICIAL ADMISSION. The mortgage
REMEDIAL LAW; EVIDENCE; not have an effect on the validity and contract executed embodies not only the
DAMAGES; HOW PROVED. The efficacy of the principal obligation, for even mortgage but the complete terms and
admitted list of damages as evidence cannot an obligation that is unsupported by any conditions of the loan agreement as well. It
constitute sufficient legal basis for an award security of the debtor may also be enforced is so precise and clear as to thereby render
of reimbursement for land taxes and by means of an ordinary action. Where a unnecessary the introduction of the
promissory note which would merely serve EIGHTY (P5,419,180.00) PESOS, HUNDRED THOUSAND (P1,500,000.00)
the same purpose. Furthermore, respondent specifically "for the construction of Cebu PESOS.
expressly acknowledged in her testimony City Abbatoir (sic)." 1 After a public
that she and her husband are indebted to bidding, H. Franco Construction Company, On the strength of the Court's Order dated
petitioner. Admissions made by the parties Inc. (HFCCI) was awarded to do the March 3, 1989 the Provincial Deputy
in the pleadings or in the course of the trial construction of the abattoir. Thus, the City Sheriff, RTC, Branch 5, Cebu City was
or other proceedings do not require proof of Cebu, through its Mayor, Ronald R. ordered on March 8, 1989, to serve a writ of
and can not be contradicted unless Duterte, entered into a contract with HFCCI, execution against the City of Cebu through
previously shown to have been made its Mayor, Tomas R. Osmea. Thus, the
through palpable mistake. On April 24, 1986, HFCCI claimed the amount of P1,500,000.00 and P15,052.00, as
REMEDIAL LAW; CIVIL PROCEDURE; amount of TWO MILLION ONE lawful fees, were garnished from the City's
COUNTERCLAIMS, ENCOURAGED. HUNDRED FORTY TWO THOUSAND funds deposited in the Philippine National
The adjustment and allowance of petitioner's NINE HUNDRED SIXTY FOUR AND Bank
demand by counterclaim or set-off in the 29/100(P2,142,964.29) PESOS as the value
present action, rather than by another of the work accomplished. The trial court's judgment based on the
independent action is favored or encouraged compromise agreement was referred to the
by law. Such a practice serves to avoid Unable to collect the said amount after so COA's Regional Director, who in turn
circuitry of action, multiplicity of suits, many demands, HFCCI instituted a civil indorsed the same to the Chairman of the
inconvenience, expense, and unwarranted action, 3 dated May 21, 1987 against the COA In its 3rd Indorsement dated May 2,
consumption of the time of the court. The City of Cebu, for recovery of investment and 1989, the COA ruled that:
trend of judicial decisions is toward a liberal damages.
extension of the right to avail of Consequently, 'if a compromise is based
counterclaims or set-offs. The rules on In its answer dated June 5, 1987, the City of upon an antecedent claim which is
counterclaim are designed to achieve the Cebu, while admitting having entered into a undisputedly and undoubtedly illegal, the
disposition of a whole controversy of the contract with HFCCI, alleged that the compromise may be considered invalid on
conflicting claims of interested parties at one contract it entered into was null and void as the ground of illegality as well as lack of
time and in one action, provided all parties declared by the Commission on Audit in its consideration.' (Sec. 29, 15 Am. Jur 2d)
can be brought before the court and the 2nd Indorsement dated September 4, 1986. Besides the compromise agreement entered
matter decided without prejudicing the Therefore whatever amount is due to HFCCI into by the City of Cebu with H. Franco
rights of any party. is to the sole liability of the officer or Construction Co., Inc., after the contract by
officers who entered into the said contract. and between them had been declared void
Osmena v COA by this Commission, is a circumvention of
Facts: City of Cebu decided to construct a Nevertheless, on December 15, 1988, the the constitutional provision that the party
modern abattoir. For this project, the City City of Cebu, through its Mayor, Tomas R. aggrieved by any decision, order or ruling
Treasurer, Ricardo Pestao, issued a Osmea, entered into a compromise of the Commission may within thirty (30)
certificate of availability of funds dated agreement, approved by the court, to the days from receipt of a copy thereof appeal
April 30, 1985, in the amount of FIVE effect that as a full and final settlement to on certiorari to the Supreme Court (Sec. 2-
MILLION FOUR HUNDRED NINETEEN the claim of HFCCI, the City of Cebu shall 2, Art. XII-D,1973 Constitution; Sec. 7, Art,
THOUSAND AND ONE HUNDRED pay the amount of ONE MILLION FIVE IX-A, 1987 Constitution). LexLib
"Under the circumstances, this Commission and the amount necessary to cover the petition for certiorari within thirty days from
concurs in the view expressed by that Office proposed contract for the current fiscal year receipt of a copy of the COA decision in the
that the expenditure involved would be the is available for expenditure on account manner provided by law and the Rules of
personal liability of the officer directly thereof. (Emphasis added) Any contract Court. A decision of the Commission or of
responsible for its incurrence (Sec. 103, entered into contrary to the foregoing any of its Auditor not appealed within the
P.D. No. 1445)." requirements shall be VOID. Clearly then, period provided by law, shall be final and
the contract entered into by the former executory.
Petitioner's request for reconsideration of the Mayor Duterte was void from the very
above ruling was denied in COA's 5th beginning since the agreed cost for the The trial court's decision based on the
Indorsement. Hence this petition. project (P8,368,920.00) was way beyond the compromise agreement could not have
appropriated amount (P5,419,180.00) as ratified a contract which is void ab initio.
Petitioner argues that the decision of COA certified by the City Treasurer. Hence, the Consequently the settlement of the supposed
invalidating the contract between the City of contract was properly declared void and obligation of the City of Cebu arising out of
Cebu and HFCCI was void since it was unforceable in COA's 2nd Indorsement, a void contract becomes a personal liability
already executed and fulfilled. Petitioner dated September 4, 1986. of petitioner who is directly responsible
further stresses that COA has no authority to REMEDIAL LAW; JURISDICTION; therefor.
declare a contract already executed void. INVOKING THEN DENYING THE
And since the 2nd Indorsement is a nullity, SAME; ESTOPPEL. A party cannot PUBLIC EXPENDITURE BY VIRTUE OF
it never attained finality invoke the jurisdiction of a court or an A COMPROMISE AGREEMENT IN
administrative body to secure affirmative PURSUANCE OF A VOID CONTRACT,
Ruling: The petition is denied. relief against his opponent and after NOT WELL-FOUNDED. Petitioner
POLITICAL LAW; COMMISSION ON obtaining or failing to obtain such relief, cannot rely on the principle of Quantum
AUDIT; POWER OVER PUBLIC repudiate or question that same jurisdiction. Meruit. Quantum Meruit is based on justice
EXPENDITURES. The Commission on It is not right for a party who has affirmed and equity, to compensate a property or
Audit has the power, authority and duty to and invoked the jurisdiction of a court in a benefit received if restitution is equitable
examine, audit and settle all accounts particular matter to secure an affirmative and if such action involves no violation,
pertaining to revenue and receipts of and relief, to afterwards deny the same frustration or opposition to public policy. In
expenditures or uses of funds and property, jurisdiction to escape a penalty. the present case, however, the payment due
owned or held in trust by, or pertaining to, POLITICAL LAW; COMMISSION ON to HFCCI was due to the compromise
the Government, or any of its subdivisions, AUDIT; DECISION NOT APPEALED agreement which in turn was made in
agencies or instrumentalities. The Auditing WITHIN THE PERIOD PROVIDED BY pursuance to a supposed abattoir contract,
Code of the Philippines (P.D. 1445) further LAW IS FINAL AND EXECUTORY. which is a void contract. Furthermore, there
provides that no contract involving the Neither the petitioner nor H. Franco was no evidence presented as to the extent
expenditure of public funds shall be entered Construction Company, Inc. (HFCCI) of work accomplished by HFCCI as to
into unless there is an appropriation therefor questioned the ruling of COA declaring the substantiate the amount stipulated in the
and the proper accounting official of the invalidity of the abattoir contract, thereby compromise agreement. Finally, as observed
agency concerned shall have certified to the resulting in its finality even before the civil by the Solicitor General: "In any event, it is
officer entering into the obligation that funds case was instituted. Petitioner could have respectfully submitted that since petitioner's
have been duly appropriated for the purpose brought the case to the Supreme Court on a act in entering into said Compromise
Agreement . . . came after public respondent Petitioner, acting through its representative were not, however, communicated to private
had voided petitioner's abattoir contract (he) Architect Ma. Rebecca M. Peafiel, by respondents. 18 Due to such deficiencies,
may not be allowed to evade the legal separate letters 12 to the respective chiefs of petitioner withheld payment of the
sanctions resulting from his failure to hospitals, all dated October 15, 1996, consultancy fees due to private respondents.
comply with the law's safeguards against confirmed its acceptance of private And petitioner did not return the documents,
undue expenditures of public funds." respondents' complete Contract or Bid plans, specifications and estimates submitted
Documents including the A & E Design by private respondents.
DOH V C.V. Cancela &Associates Plans and Technical Specifications and the
Facts: Petitioner entered into three Owner- Detailed Cost Estimates for each project, As despite written demands for payment, 19
Consultant Agreements (Agreements) with and accordingly recommended the payment petitioner continued to withhold payment of
private respondents covering infrastructure of 7.5% of the project allocation to private their professional fees, private respondents
projects for the Baguio General Hospital and respondents as consultancy fees in appealed, by letter dated August 29, 1997, to
Medical Center (Baguio Project),the accordance with the Agreements. 13 In the then Department of Health Secretary
Batangas Regional Hospital (Batangas same letters, petitioner advised that private Carmencita C. Reodica, they stating that
Project) and the Corazon L. Montelibano respondents' performance of full-time their appeal was "purposely done as our
Memorial Regional Hospital in Bacolod construction supervision services shall ultimate administrative remedy before
City (Bacolod Project) commence upon issuance of the Notices to resorting to arbitration under E.O. 1008
Proceed to the winning contractors.
The Agreements, which contained almost In a demand letter (undated) for payment
identical language, required the preparation Before the Notices to Proceed could be addressed to Secretary Reodica and the
by private respondents of the following issued to the winning contractors, however, chiefs of hospital concerned, private
documents: detailed architectural and petitioner amended the three Agreements on respondents expressed their intention to
engineering design plans; technical December 10, 1996 by deleting from private resort to arbitration in accordance with
specifications and detailed estimates of cost respondents' scope of work the item "full- Article 12 of each of the Agreements
of construction of the hospital, including the time construction supervision" and replacing
preparation of bid documents and it with "periodic visits The demands for payment remained
requirements; and construction supervision unheeded, prompting private respondents to
until completion of hand-over and issuance The Amendment to each of the three file on September 21, 1998 with the CIAC
of final certificate Agreements was likewise duly witnessed their request for adjudication of their claim
and signed by the hospitals' respective chief for payment of professional fees, escalation
While the Agreements were witnessed by accountants and approved by the Secretary costs, attorney's fees and costs of arbitration.
the respective chief accountants of the of Health. Just the same, no certifications of The case was docketed as CIAC Case No.
hospitals and were duly approved by the availability of funds for the purpose were 31-98.
Secretary of Health, the former did not issue issued
corresponding certificates of availability of In its Answer dated January 21, 1999, 22
funds to cover the professional or During the construction of the projects, petitioner alleged, inter alia,that payment
consultancy fees various deficiencies in the performance of was withheld because the hospitals
the agreed scope of private respondents' concerned were not satisfied with the
work were allegedly discovered 17 which performance of private respondents who did
not fulfill the terms and conditions of the review by certiorari under Rule 45 on the concerned. 3.The certificate signed by the
contracts; withholding of payment is following assigned errors proper accounting official and the auditor
sanctioned by Section 8.2 of the NEDA who verified it shall be attached to and
Board Approval Guidelines on the Issue: become an integral part of the proposed
Procurement of Consultancy Services for I. THE COURT OF APPEALS ERRED IN contract. 50 Any contract entered into
government projects (Implementing Rules NOT FINDING THAT THE CLAIMS contrary to the foregoing requirements is
and Regulations) FILED BY RESPONDENT C.V. void.
CANCHELA WERE PREMATURE
The delay in the implementation of the II. THE COURT OF APPEALS ERRED IN E.O. 292 (The Administrative Code of 1987)
project, as well as the payment of fees, is not HOLDING THAT THE MONETARY provides too that no funds shall be disbursed
due to the fault of the hospitals but to private AWARD BY RESPONDENT without first securing the certification of a
respondents' failure to rectify its ARBITRATOR WAS IN ACCORD WITH government agency's chief accountant or
unsatisfactory work; and the consultancy THE TENOR OF THE AGREEMENT AS head of the accounting unit as to the
fees shall be on a per project basis and at 6% THERE WAS NO BASIS AT ALL FOR availability of funds. 52 The issuance of
of the project contract cost. THE AWARD THEREOF such certification is thus a condition sine
qua non to entering into any contract or
The Respondent, however, maintains that Ruling: The petition is granted. incurring any obligation that may be
the 6% payment must be based upon the An inquiry into the fundamental issue of chargeable against the authorized allotment
actual project contract cost of each building nullity of the Agreements is then warranted in any department, office or agency. Unless
which is defined as the cost of the winning to determine if petitioner duly observed the the certification is issued, the contract can
bid price of the contractor which performed constitutional prescription for the prevention not be considered final or binding
the work and disallowance of irregular, unnecessary,
excessive, extravagant, or unconscionable The formalities expressly required by the
After the presentation of evidence and expenditures, or uses of public funds and Auditing Code of the Philippines and The
submission of memoranda by the parties, the properties. Administrative Code of 1987 not having
Sole Arbitrator rendered a decision in favor been complied with, the subject three
of the respondents P.D. 1445 (The Auditing Code of the Agreements are null and void from the very
Philippines) 1. provides that no contract beginning. The signatures of the chief
Petitioner elevated the case to the Court of involving the expenditure of public funds accountants as instrumental witnesses do not
Appeals via petition for review under Rule shall be entered into unless there is an constitute substantial compliance with the
43 of the Rules of Court appropriation therefor 49 and 2. unless the explicit requirements of said Codes. As
proper accounting official of the agency Melchor v. Commission on Audit 54
The Court of Appeals dismissed the petition concerned shall have certified to the officer teaches, the certification, not the
for having been filed out of time. entering into the obligation that funds have accountant's signature as contract witness, is
been duly appropriated for the purpose and "the basic and more important validating
The Court of Appeals having denied that the amount necessary to cover the document," and "the more reliable indicium
petitioner's Motion for Reconsideration 38 proposed contract for the current fiscal year of fund availability," notwithstanding
for being "barren of merit," 39 petitioner is available for expenditure on account paragraph 2 of Letter of Instructions No. 968
now comes before this Court on petition for thereof, subject to verification by the auditor 55 (LOI No. 968) which considers the
signature of the chief accountant as itself even entering into the Agreements with The Court believes, however, that declaring
constituting a certification that funds are private respondents, these officers failed to the individual officers of petitioner who
indeed available. 56 For LOI No. 968, being heed the guidelines embodied in above- entered into the Agreements personally
an administrative issuance, must yield to the quoted Section 525 of the GAA Manual. liable for the unpaid professional fees due to
explicit provisions of The Auditing Code of The records do not show any explanation for private respondents would be highly unjust,
the Philippines and Revised Administrative these lapses. the government having already received and
Code of 1987. accepted the benefits of the services
The issuance of a certification that funds are rendered. En passant,it is, however,non
The illegality of the subject Agreements available is a legal duty imposed on the sequitor to let these officers go scot-free
proceeds, it bears emphasis, from an express chief accountant or the head of the from their negligence.
declaration or prohibition by law, 59 not accounting unit. And ascertainment that
from any intrinsic illegality. As such, the such certification exists prior to entering into In the case at bar then, the nullity of the
Agreements are not illegal per se 60 and the any government contract or incurring any herein Agreements notwithstanding, the
party claiming thereunder may recover what obligation chargeable against public funds is ends of substantial justice and equity will be
had been paid or delivered a responsibility which devolves on the better served if payment to private
officer concerned. respondents for their consultancy services is
The Court thus finds that private allowed on a quantum meruit basis.
respondents are entitled to be compensated For their failure to discharge their duties
for the services they actually performed for under the law, The Revised Administrative The measure of recovery under the principle
the benefit of petitioner, as shown by Code of 1987 provides that the officer or of quantum meruit should relate to the
petitioner's acceptance and use 62 of the officers entering into the contract shall be reasonable value of the services performed,
complete Contract or Bid Documents liable to the Government or other 69 taking into account the standard of
including the A & E Design Plans and contracting party for any consequent practice in the profession, the architectural
Technical Specifications and the Detailed damage to the same extent as if the and engineering skills of private
Cost Estimates for each project that private transaction had been wholly between private respondents, and their professional expertise
respondents promptly submitted, as in fact parties. and standing.
petitioner itself recommends that private
respondents be paid therefor. On the other hand, COA Circular No. 76-34 Respecting petitioner's argument that the
65 directs the COA to call the attention of State is immune from suit, the same
The compensation must, however, exclude management, within five days from receipt deserves scant consideration. To sustain the
services for "periodic visits" which the of a copy of the contract, any defects or argument would not only perpetuate a grave
records irrefutably show not to have been deficiencies therein and to suggest injustice on private respondents who
rendered. corrective measures as appropriate and performed their services in good faith and
warranted to facilitate the processing of the were given the run-around for over eight
Thus, on top of the chief accountants' claim upon presentation. The records do not years, but would sanction as well unjust
unexplained failure to issue the requisite show that COA complied with said enrichment on the part of the State.
certificates of availability of funds 63 and directive. It was thus negligent. 66
the unjustified omission of the chiefs of WHEREFORE, the petition is GRANTED.
hospital to secure such certification before The Owner-Consultant Agreements entered
into between petitioner Department of "(a) A bonus is an act of liberality and the A.O. FISHER, plaintiff-appellee, vs. JOHN
Health, through the respective chiefs of court takes it that it is not within its judicial C. ROBB, defendant-appellant.
hospitals, and private respondents are powers to command respondents to be Facts: Defendant John C. Robb was told by
declared null and void ab initio. liberal; the board of directors of the Philippine
"(b) Petitioners admit that respondents are Greyhound Club, Inc. to make a business
The Commission on Audit is hereby directed not under legal duty to give such bonus but trip to Shanghai to study the operation of a
to determine and ascertain with dispatch, on that they had only ask that such bonus be dog racing course. In Shanghai, defendant
a quantum meruit basis, the total given to them because it is a moral met plaintiff A.O. Fisher who was a
compensation due to private respondents for obligation of respondents to give that but as manager of a dog racing course. Plaintiff
the performance of consultancy services and this Court understands, it has no power to upon knowing defendants purpose of his
to allow payment thereof upon the compel a party to comply with a moral trip, became interested in the Philippine
completion of said determination. obligation (Art. 142, New Civil Code). Greyhound Club and asked defendant if he
"IN VIEW WHEREOF, dismissed. No could be one of the stockholders. Defendant
Ansay et.al v Natl Development pronouncement as to costs." answered in affirmative which thereupon
Facts: On July 25, 1956, appellants filed filed a blank subscription and sent
against appellees in the Court of First A motion for reconsideration of the afore- Greyhound Club Php3,000 in payment of
Instance of Manila a complaint praying for a quoted order was denied. Hence this appeal. the first installment of his subscription.
20% Christmas bonus for the years 1954 and Upon receiving a call from the said club, he
1955 Ruling: The petition is denied. paid the second installment amounting to
NATURAL OBLIGATIONS; ELEMENT Php2,000.
"Considering the motion to dismiss filed on OF; VOLUNTARY FULFILLMENT;
15 August, 1956, set for this morning; WHEN RETENTION CAN BE ORDERED. Due to the manipulations of those who
considering that at the hearing thereof, only An element of natural obligation before it controlled the Philippine Greyhound Club,
respondents appeared thru counsel and there can be cognizable by the court is voluntary Inc., during the absence of the defendant in
was no appearance for the plaintiffs fulfillment by the obligor. Retention can be Manila, the enterprise failed. Upon his
although the court waited for sometime for ordered only after there has been voluntary return to Manila, the defendant-appellant
them; considering, however, that petitioners performance. undertook the organization of a company
have submitted an opposition which the called The Philippine Racing Club, which
court will consider together with the BONUS NOT DEMANDABLE AND now manages the race track of the Santa
arguments presented by respondents and the ENFORCEABLE; EXCEPTION. A Ana Park. The defendant immediately
Exhibits marked and presented, namely, bonus is not a demandable and enforceable endeavored to save the investment of those
Exhibits 1 to 5, at the hearing of the motion obligation, except when it is made a part of who had subscribed to the Philippine
to dismiss; considering that the action in the wage or salary compensation. Greyhound Club, Inc., by having the
brief is one to compel respondents to declare (Philippine Education Co. vs. CIR and the Philippine Racing Club acquire the
a Christmas bonus for petitioners workers in Union of Philippine Education Co. remaining assets of the Philippine
the National Development Company; Employees (NLU), 92 Phil., 381; 48 Off. Greyhound Club, Inc. The defendant-
considering that the Court does not see how Gaz. 5278.) Hence, the grant thereof does appellant wrote a letter to the plaintiff-
petitioners may have a cause of action to not generally constitute a natural obligation appellee in Shanghai explaining in detail the
secure such bonus because: on the part of the company.
critical condition of the Philippine "ART. 1261. There is no contract unless the In onerous contracts the consideration as to
Greyhound Club, Inc., and outlining his following requisites exist: each of the parties is the delivery or
plans to save the properties and assets of the "1. The consent of the contracting parties; performance or the promise of delivery or
plaintiff-appellee that he felt morally "2. A definite object which is the subject- performance of a thing or service by the
responsible to the stockholders who had paid matter of the contract; other party; in remuneratory contracts the
their second installment "3. A consideration for the obligation consideration is the service or benefit for
established." which the remuneration is given, and in
In answer to said letter, the plaintiff-appellee contracts of pure beneficence the
wrote the defendant-appellant requiring him In the present case, while the defendant- consideration is the liberality of the
to return the entire amount said by him to appellant told the plaintiff-appellee that he benefactors."
the Philippine Greyhound Club, Inc., felt morally responsible for the second And article 1275 of the same Code provides:
(Exhibit E). Upon receiving this letter, the payments which had been made to carry out "ART. 1275. Contracts without
defendant-appellant answered the plaintiff- his plan, and that Mr. Hilscher and he would consideration or with an illicit consideration
appellee on March 16, 1936, to the effect do everything possible so that the produce no effect whatsoever. A
that it was not his duty under the law to stockholders who had made second consideration is illicit when it is contrary to
reimburse the plaintiff-appellee for any loss payments may receive the amount paid by law or morality."
which he might have suffered in connection them from their personal funds without
with the Philippine Greyhound Club, Inc., in delay, not because they were bound to do so, The contract sought to be judicially enforced
the same way that he could not expect but because they voluntarily assumed the by the plain tiff-appellee against the
anyone to reimburse him for his own losses responsibility to make such payment as soon defendant-appellant is onerous in character,
which were much more than those of the as they receive from the Philippine Racing because it supposes the deprivation of the
plaintiff-appellee Club certain shares for their services as latter of an amount of money which impairs
promoters of said organization, nevertheless, his property, which is a burden, and for it to
Issue: Whether or not the trial court erred in it does not appear that the plaintiff-appellee be legally valid it is necessary that it should
holding that there was sufficient had consented to said form of have a consideration consisting in the
consideration to justify the promise made by reimbursement of the P2,000 which he had lending or promise of a thing or service by
the defendant-appellant in his letters directly paid to the Philippine Greyhound such party. The defendant-appellant JOHN
Exhibits B and C. Club, Inc., in satisfaction of the second ROBB is required to give a thing, namely,
installment. the payment of the sum of P2,000, but the
Ruling: The petition is granted. plaintiff-appellee FISHER has not given or
The first essential requisite, therefore, promised anything or service to the former
Article 1254 of the Civil Code provides as required by the cited article 1261 of the which may compel him to make such
follows: Civil Code for the existence of a contract, payment. The promise which said
"A contract exists from the moment one or does not exist. defendant-appellant has made to the plain
more persons consent to be bound with As to the third essential requisite, namely, tiff-appellee to return to him P2,000 which
respect to another or others to deliver "A consideration for the obligation he had paid to the Philippine Greyhound
something or to render some services." established," article 1274 of the same Code Club, Inc., as second installment of the
And article 1261 of the same Civil Code payment of the amount of the shares for
provides the following: which he had subscribed, was prompted by a
feeling of pity which said defendant- liability; (4) cases in which the moral essential element for the legal existence of
appellant had for the plaintiff-appellee as a obligation arose from, or was connected an onerous contract which would bind the
result of the loss which the latter had with, a previous request or promise which, promisor to comply with his promise.
suffered because of the failure of the however, never created any enforceable
enterprise. The obligation which the said legal liability, because of a rule of law OCTAVIO A. KALALO, plaintiff-
defendant-appellant had contracted with the which rendered the original agreement void, appellee, vs. ALFREDO J. LUZ,
plaintiff-appellee is, therefore, purely moral or at least unenforceable; and (5) cases in defendant-appellant.
and, as such, is not demand able in law but which the moral obligation arose out of, or Facts: 11/17/1959Kalalo (an
only in conscience, over which human was connected with, the receipt of actual engineer) entered into an agreement w/ Luz
judges have no jurisdiction. material or pecuniary benefit by the (an architect) under their firm names (O. A.
promisor, without, however, any previous Kalalo & Associates and A.J. Luz &
As to whether a moral obligation is a request or promise on his part, ex press or Associates, respectively) where the former
sufficient consideration implied, and therefore, of course, without was to render engineering design services to
any original legal liability, perfect or the latter for fees, as stipulated in the
"SEC. 96. Moral obligation. Although imperfect. agreement
there is authority in support of the broad Pursuant to the agreement, Kalalo
proposition that a moral obligation is "Sec. 97. Moral obligation unconnected with gave his services for several projects.
sufficient consideration, such proposition is legal liability or legal benefit. Although, 12/11/1961Kalalo sent a statement
usually denied . . . as subsequently shown there was formerly account asking for P116,565.00 engineering
"The case presenting the question whether a some doubt as to the point. it is now well fees
moral obligation will sustain an express established that a mere moral obligation or o Also stated: P57K = Luzs previous
executory promise may be divided into five conscientious duty arising wholly from payment, thus P59,565.00= actual balance
classes: (1) Cases in which the moral ethical motives or a mere conscientious duty 05/18/1962Luz sent resume of
obligation arose wholly from ethical unconnected with any legal obligation, fees to appellant, said they only owe
considerations, unconnected with any legal perfect or imperfect, or with the receipt of P10,861.08
obligations, perfect or imperfect, and benefit by the promisor of a material or 06/14/1962Luz sent a check w/
without the receipt of actual pecuniary or pecuniary nature will not furnish a P10,861.08; Kalalo accepted but refused to
material benefit by the promisor prior to the consideration for an executory promise. . . . accept it as full payment for services
subsequent promise; (2) cases in which the rendered
moral obligation arose from a legal liability In view of the foregoing considerations, we 08/10/1962Kalalo filed a
already performed or still enforceable; (3) are of the opinion and so hold, that the complaint against Luz
cases in which the moral obligation arose promise made by an organizer of a dog o 4 causes of action: (1)$28K and
out of, or was connected with, a previous racing course to a stockholder to return to P30,881.25 was due to him for his services;
request or promise creating originally an him certain amounts paid by the latter in (2) P17,000.00 as consequential and moral
enforceable legal liability, which, however, satisfaction of his subscription upon the damages; (3) P55Kas moral damages,
at the time of the subsequent express belief of said organizer that he was morally attorney's fees and expenses of litigation; (4)
promise had become discharged or barred by responsible because of the failure of the P25K as actual damages, and also for
operation of a positive rule of law, so that at enterprise, is not the consideration required attorney's fees and expenses of litigation.
that time there was no enforceable legal by article 1261 of the Civil Code as an
Note: $28K fee is in dollars because related to the party to be estopped, the
it was for the International Research Issue:(1) WoN Kalalos was in estoppel essential elements are: (1) conduct
Institute project (because of statement of accounts) amounting to false representation or
Luzs Answer: some of Kalalos Ruling: The petition is denied. concealment of material facts or at least
services were not in accordance w/ the An essential element of estoppel is that the calculated to convey the impression that the
agreement and Kalalos claims were not person invoking it has been influenced and facts are otherwise than, and inconsistent
justified by the services actually rendered, has relied on the representations or conduct with, those which the party subsequently
and the amount they owe is of the person sought to be estopped, and this attempts to assert; (2) intent, or at least
P10,861.08.Kalalo has no cause of action element is wanting in the instant case. In expectation that this conduct shall be acted
and is in estoppel because of the statement Cristobal vs. Gomez, 5 this Court held that upon by, or at least influence, the other
of accounts, alsoKalalo's claim regarding no estoppel based on a document can be party; and (3) knowledge, actual or
one of the project swas premature because invoked by one who has not been mislead by constructive, of the real facts. As related to
Luz had not yet been paid for said project, the false statements contained therein. And the party claiming the estoppel, the essential
and Kalalos services were not complete or in Republic of the Philippines vs. Garcia, elements are
were performed in violation of the et al., 6 this Court ruled that there is no (1) lack of knowledge and of the means of
agreement and/or otherwise unsatisfactory. estoppel when the statement or action knowledge of the truth as the facts in
TC: authorized that the case be invoked as its basis did not mislead the question;
brought to a Commissioner since the only adverse party. Estoppel has been (2), reliance, in good faith, upon the conduct
question is on the assessment of the proper characterized as harsh or odious, and not or statements of the party to be estopped;
fees and the balance due to Kalalo after favored in law. When misapplied, estoppel (3) action or inaction based thereon of such
deducting the admitted payments made by becomes a most effective weapon to character as to change the position or status
Luz accomplish an injustice, inasmuch as it shuts of the party claiming the estoppel, to his
Based on Commissioners report, TC a man's mouth from speaking the truth and injury, detriment or prejudice
rules that the fees due to Kalalo are: debars the truth in a particular case. 8
o [($28K +P51,539.91)-sum they Estoppel cannot be sustained by mere The first essential element in relation to the
already paid] + the legal rate of interest argument or doubtful inference; it must be party sought to be estopped does not obtain
thereon from the filing of the complaint in clearly proved in all its essential elements by in the instant case, for, as appears in the
the case until fully paid for + P 8K clear, convincing and satisfactory evidence. Report of the Commissioner, appellee
Attorneys fees No party should be precluded from making testified "that when he wrote Exhibit 1 and
$28K was to be converted into peso out his case according to its truth unless by prepared Exhibit 1-A, he had not yet
on the basis of the rate of exchange of the force of some positive principle of law, and, consulted the services of his counsel and it
U.S. dollar to the Philippine peso at the time consequently, estoppel in pains must be was only upon advice of counsel that the
of payment of judgment as Certified by the applied strictly and should not be enforced terms of the contract were interpreted to him
Central Bank of the Philippines unless substantiated in every particular resulting in his subsequent letters to the
[note: case says sum they payed is defendant demanding payments of his fees
P69,475.46 but if you add up their previous The essential elements of estoppel in pais pursuant to the contract Exhibit A." 12 This
payments mentioned in the case its just may be considered In relation to the party finding of the Commissioner was adopted by
P67,861.08 weird, maybe its lawphil] sought to be estopped, and in relation to the the trial court. 13 It is established, therefore,
Luz appealed to SC. party invoking the estoppel in his favor. As that Exhibit 1-A was written by appellee
through ignorance or mistake, Anent this the items stated therein. If prima facie, as of in pari delicto, the petitioner cannot have
matter, it has been held that if an act, contended by appellant, then it is not the sale annulled and recover the lot she
conduct or misrepresentation of the party absolutely conclusive upon the parties. An herself has sold. While the vendee was an
sought to be estopped is due to ignorance account stated may be impeached for fraud, alien at the time of the sale, the land has
founded on innocent mistake, estoppel will mistake or error. since become the property of respondent
not arise. 14Regarding the essential Joaquin Teng, a naturalized Philippine
elements of estoppel in relation to the party In the instant case, it is Our view that the citizen, who is constitutionally qualified to
claiming the estoppel, the first element does ignorance or mistake that attended the own land. What the Court said in Sarsosa
not obtain in the instant case, for it cannot be writing of Exhibit 1-A by appellee was Vda. de Barsobia vs. Cuenco, 113 SCRA
said that appellant did not know, or at least sufficient to overcome the prima facie 547 and 553 applies with equal force to the
did not have the means of knowing, the evidence of correctness and accuracy of said petitioner. It held that if the ban on aliens
services rendered, to him by appellee and Exhibit 1-A. from acquiring not only agricultural but also
the fees due thereon as provided in Exhibit urban lands, as construed by this Court in
A. The second element is also wanting, for, De Castro v Tang Queen Tan the Krivenko case, is to preserve the nations
as adverted to, appellant did not rely on Facts:Residential lot was sold by petitioner lands for future generation of Filipinos, that
Exhibit 1-A but consistently denied the Filomena De Castro to Tan Tai, a Chinese, aim or purpose would not be thwarted but
accounts stated therein. Neither does the who died leaving herein respondents-heirs, achieved by making lawful the acquisition
third element obtain, for appellant did not his widow and children. In an extra-judicial of real estate by aliens who became Filipino
act on the basis of the representations in settlement of estate with sale executed by citizens by naturalization.
Exhibit 1-A, and there was no change in his the respondents after Tan Tais death, the CIVIL LAW; LACHES; CASE AT BAR.
position, to his own injury or prejudice. parcel of land in question was allotted in its Laches also militates against petitioner's
entirety to Joaquin, one of Tan Tais sons cause. She sold the disputed lot in 1938. She
Appellant, however, insists that if Exhibit 1- who became a naturalized Filipino before instituted the action to annul the sale only on
A did not put appellee in estoppel, it at least the latters death. Petitioner filed a July 15, 1968.
constituted an admission binding upon the complaint against the respondents,
latter. In this connection, it cannot be contending that the sale be annulled for
gainsaid that Exhibit 1-A is not a judicial violation of the 1935 Constitution, to which LBP V Republic of the Phil.
admission. Statements which are not respondents moved to dismiss. Facts:
estoppels nor judicial admissions have no
quality of conclusiveness, and an opponent Ruling:
whose admissions have been offered against
him may offer any evidence which serves as CONSTITUTIONAL LAW;
an explanation for his former assertion of CONSERVATION AND UTILIZATION
what he now denies as a fact. This may OF NATURAL RESOURCES; SALE OF
involve the showing of a mistake RESIDENTIAL LOTS TO ALIENS; CAN
NO LONGER BE ANNULLED WHERE
Appellant further contends that Exhibit 1-A, LAND IS SUBSEQUENTLY
being a statement of account, establishes TRANSFERRED TO A QUALIFIED
prima facie the accuracy and correctness of PERSON. Independently of the doctrine

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