Case Digests Contracts

CASES FOR CONTRACTS
BPI vs Boston Bank...............................................................................................................128

Ace-Agro Development vs CA..............................................................................................132
Cui vs Arellano......................................................................................................................135
Talisay-Silay Inc. vs Talisay-Silay Milling............................................................................137
Batchelder vs CB...................................................................................................................140
Asuncion vs CA.....................................................................................................................142
Republic vs PLDT..................................................................................................................143
Saura vs Sandico....................................................................................................................145
Corpus vs CA.........................................................................................................................146
Velasco vs CA........................................................................................................................150
Florentino vs Encarnacion.....................................................................................................152
Bonifacio Bros. Inc., et al. vs. Enrique Mora, et al................................................................154
Daywalt vs La Corporacion de Pp. Agustinos.......................................................................156
Sanchez vs Rigos...................................................................................................................158
Hill vs Veloso.........................................................................................................................162
Mapalo vs Mapalo..................................................................................................................164
Sps. Santos vs CA..................................................................................................................167
Santos vs Heirs of Villanueva................................................................................................169
MMDA vs Jancom.................................................................................................................172
Dumez vs NLRC....................................................................................................................174
Somoso vs CA........................................................................................................................175
yuvienco vs Dacuycuy...........................................................................................................177
Hernaez vs Delos Angeles.....................................................................................................179
Alano vs Barbara....................................................................................................................180
Atilano vs Atilano..................................................................................................................182
Investor Finance Corp. vs CA................................................................................................184
Borromeo vs CA....................................................................................................................186
Obligations & Contracts [Case Digests] S U L AW 2 0 1 5 4

Lim Yhi Luya vs CA..............................................................................................................189
Rivera Filipino vs CA............................................................................................................190
Equatorial vs. Mayfair...........................................................................................................194
Guzman, Bocaling vs. Bonnevie............................................................................................196
Sps. Theis vs CA....................................................................................................................199
Rural Bank of Caloocan vs Desiderio....................................................................................200
BY: K. MoletaMWSS vs CA..................................................................................................202
Coronel vs Constantino..........................................................................................................207
Regal Films vs Concepcion...................................................................................................210
National Power Corp. vs. National Merchandising Corp., et al............................................212
Jovan Land, vs CA.................................................................................................................214
Cenido vs Apacionado...........................................................................................................216
Villanueva vs CIA..................................................................................................................218
Liguez vs CA.........................................................................................................................220
Rellosa vs Gaw Ghee Hun.....................................................................................................223
Phil. Banking Corp. vs Lui Sheh...........................................................................................225
Francisco vs Herrera..............................................................................................................227
Kalalo vs Luz.........................................................................................................................229
Dela Cruz vs Paraz.................................................................................................................232
Miguel vs Catalino.................................................................................................................234
Nyco Sales Corp. Vs Ba Finance Corp..................................................................................236

Contracts – Compromise Agreement
BPI VS BOSTON BANK

G.R. No. 94676
Sept. 30, 1992
Facts:
Southern Industrial Projects (SIP) ventured into steel processing in 1959. Because of
the its success, it ventured to expand and integrate further its steel operations and organized
another company named Visayan Integrated Steel Corporation or VISCO. To finance its
operations, SIP and VISCO mortgaged their machineries, plant and equipment to the
defendant banks. Somehow VISCO and SIP defaulted in the payment of their loans to the
banks and credit was eventually cut-off. VISCO and SIP floundered and eventually had to
close up. The defendant banks banded themselves creditor’s consortium to ensure that bank
credits are preserved. The consortium of banks took over management of VISCO through a
board of trustees.
However, in the implementation of the Memorandum of Agreement, controversy
arose between plaintiff and consortium on the discounting of the promissory notes mentioned
in paragraph 6 of the said agreement. Section 6 states:
6. The BOARD shall cause its members banks to discount the notes issued by
the reorganized VISCO to RAMOS up to the extent of one-third (1/3) of
the total verified claim under terms and conditions acceptable to the parties
concerned.’
This controversy was solved with the execution of the Compromise Agreement In the
said agreement they stipulated that VISCO will issue 5 promissory notes with the sum of Php
500,000.00. The first three would be discounted 30 days after maturity of each note and the
subsequent notes would each be discounted upon signing with a Japanese group. Plaintiff
was able to comply with the agreement. However, the last two promissory notes were not
discounted but was instead the Consortium foreclosed VISCO’s mortgage.
Plaintiff filed a complaint, which was later amended, against the Consortium banks
for recovery of the amount of P1,495,292.70 as the remaining balance of plaintiff’s advances
made to VISCO, plus compensatory, moral, nominal and exemplary damages, including
attorney’s fees. Judgment is hereby rendered in favor of the plaintiff and against the
consortium defendant banks, ordering the latter to pay the former, jointly and severally. The
CA affirmed the lower court decision.

Issues:
1. WON respondent court of appeals erroneously held that petitioners through their
board of trustees, agreed to issue to private respondents promissory notes valued at
p500,000.00 to be discounted on due dates;
2. WON the three (3) basic documents relied upon by the private respondent to support
his claim against the petitioners -- voting trust agreement (exhibit “a”) memorandum
of agreement (exhibit “1”, interbank) and compromise agreement (exhibit “b”) never
provided for the assumption by petitioners of the obligation of VISCO to the private
respondent to pay the latter p1,157,071.97.
3. WON respondent court of appeals erroneously interpreted a “commitment to discount
promissory note” as assumption of liability.
4. WON the findings of the trial court -- sanctioned by the respondent court of appeals --
that there was constructive fulfillment of the resolutory condition does not cure the
fatal infirmity of the decision sought to be reviewed herein.
5. WON the trial court and respondent court of appeals departed from the ordinary
course of judicial proceeding when they failed to uphold the defense of petitioners
that the cause of action of private respondent, if any has prescribed.
Ruling:
1. At first blush, it would appear that VISCO is directly responsible to private
respondent for the amounts specified in the promissory notes, judging from a mere
reading thereof. However, a close scrutiny of the other documents from which these
“notes” were derived would indicate that the Board of Trustees of the consortium,
referred to in the compromise agreement as the board of the reorganized VISCO, is
supposed to absorb all the obligations of VISCO to private respondent. Certainly,
paragraphs 3 and 4 of the Compromise Agreement attest to petitioners’ liability
because it would be absurd to suppose that the reorganized VISCO is controlled by
some corporate entity other than the banks represented by the Board of Trustees of the
consortium. Withal, it is clear from the “WHEREAS” clause that indeed, the Board of
Trustees took the cudgels for VISCO vis-a-vis the moribund company’s liability to
private respondent albeit it was made to appear that it was VISCO which was
indebted under the promissory notes.
2. Surely, private respondent cannot be expected to get his cash advances from VISCO
considering its insolvent condition. Moreover, if We are to pursue the theory of
petitioners, they will be unjustly enriching themselves at the expense of private
respondent (Article 2142, Civil Code) who was anticipating restitution of his cash

advances in exchange for relinquishing control over the assets of the company in
favor of the Board of Trustees, especially so when private respondent could no longer
backtrack and obliterate his signature on the covenant due to the caveat under
paragraph 2(b) thereof.
3. In addition, petitioners acknowledged that the three promissory notes were discounted
as agreed upon (p. 9, Brief for Interbank; p. 90, Rollo in G.R. No. 94461). This
admission in judicio is enough to enjoin petitioners from reneging on the payment of
the remaining accountabilities in favor of private respondent (Article 1431, New Civil
Code; Section 4, Rule 129; Section 2(a), Rule 131, Revised Rules on Evidence;
Laurel v. Civil Service Commission, 203 SCRA 195; 203; 204; Magellan
Manufacturing Marketing Corporation v. Court of Appeals, 201 SCRA 102; 110)
because it is a self-negating representation against petitioners’ assertion that it should
not continue to pay on the pretext that VISCO must answer therefore or that its tie-up
with the Japanese Group did not push through. The scenario herein is akin to the
factual milieu in Ramos vs. Central Bank (41 SCRA 565; 587-588; cited in Central
Bank vs. Court of Appeals, 106 SCRA 143; 155) where the Central Bank committed
itself to the continued operation and rehabilitation of the Overseas Bank of Manila,
and later on reneged on that promise. This Court therein ruled:
“Even in the absence of contract, the record plainly shows that the CB made
express representations to petitioners herein that it would support the OBM, and
avoid its liquidation if the petitioners would execute (a) the Voting Trust Agreement
turning over the management of OBM to the CB or its nominees, and (b) mortgage or
assign their properties to the Central Bank to cover the overdraft balance of OBM.
The petitioners having complied with these conditions and parted with value to the
profit of the CB (which thus acquired additional security for its own advances), the
CB may not now renege on its representations and liquidate the OBM, to the
detriment of its stockholders, depositors and other creditors, under the rule
of promissory estoppel (19 Am. Jur., pages 657-658; 28 Am. Jur. 2d, 656-657; Ed.
Note, 115 ALR, 157).”
4. On the question of whether there was constructive fulfillment of the condition under
paragraph 2(a) of the compromise agreement, petitioners demur to the findings of the
appellate court and the trial court on this score, contending that the signing of the
joint venture for rehabilitation of VISCO between the Board and the Japanese Group
was to be done in 1970 or anterior to the date of foreclosure in 1980. Hence,
petitioners entertain the notion that a paradigm in anachronism was seriously
committed below, and that the posterior foreclosure has no legal bearing to the
expected execution in 1970 of an agreement for a tie-up between the Board and the
Japanese Group. Yet, we are not prepared to absorb a last ditch effort in this regard

since, according to respondent court, petitioners nonchalantly did not bother to
establish on record the alleged refusal of the Japanese Group to Participate in
VISCO’s rehabilitation, as no testimonial evidence was adduced in this connection by
all of the petitioners herein (p. 10, Decision; p. 61, Rollo in G.R. No. 94461). Thus,
petitioners should not now be allowed to rectify a crucial lapse by building blocks for
defense against private respondent’s assertive stance, which should have been
conceptualized earlier prior to rendition of the adverse judgment in the court of
origin. Withal, petitioners’ belated, nay, cold assertion for exculpation, is not the
requisite quantum of evidence that will merit serious consideration of this Court.
Furthermore, it may be recalled that what the Board of Trustees had in mind then was
to rehabilitate VISCO from its financial quagmire, but instead of discharging its noble
task, it foreclosed on the assets of VISCO which were then sold in 1985 to the
National Steel Corporation. These incidents, over which petitioners are mute, are well
within the ambit of Article 1186 of the New Civil Code that: “The condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfillment.”
5. Petitioners continue to advance the proposition that private respondent’s cause of
action has prescribed. But petitioners must concede that private respondent’s cause of
action arose only when that which should not have been done was performed or that
which should have been done was not accomplished (Bruner vs. Martin, 76 Kan. 862,
93 Pac. 165). This principle draws a striking parallelism to the situation that obtained
in the case at bar where petitioners, instead of pursuing the envisioned rehabilitation
of VISCO, foreclosed on the corporate assets of VISCO and then sold these valuable
assets to National Steel Corporation. Under these circumstances, We fully subscribe
to the idea expressed below that prescription, as a mode of extinguishing an
obligation, must be reckoned only from the moment petitioners repudiated the
bilateral agreement when it sold the assets in 1985. Obviously, the action initiated by
private respondent in 1987, or two years after the sale, is not time-barred.
By: N.K. Herrera

Contracts – Force Majeure
ACE-AGRO DEVELOPMENT VS CA
G.R. No 119729
Jan. 21, 1907
Facts:
Petitioner Ace-Agro Development Corporation and private respondent Cosmos
Bottling Corporation entered into service contracts wherein petitioner Ace-Agro obligated
itself of cleaning soft drink bottles and repairing wooden shells for Cosmos within the
company premises in San Fernando, Pampanga. Fire broke out in private respondent’s plant,
destroying the area where petitioner did its work. As a result, petitioner’s work was stopped.
Petitioner asked private respondent to allow it to resume its service. As it received no reply
from private respondent, petitioner informed its employees of the termination of their
employment. This led the employees to file a complaint for illegal dismissal before the Labor
Arbiter against petitioner and private respondent. Petitioner sent another letter to private
respondent, reiterating its request for reconsideration. In response private respondent granted
petitioner priority to resume its work under the terms of their agreement (but outside its
premises), and the petitioner refused the same on the ground that working outside the
respondent’s plant would mean added transportation costs that would offset any profit it
would earn. Thereafter, respondent sent a letter to petitioner, stating that petitioner can now
resume work in accordance with their existing agreement. But again, petitioner refused this
offer to resume work for the reason that it had something to do with the settlement of the
NLRC case filed against it by its employees. But In his cross-examination, it was found out
that its real reason for refusing to resume work with the appellant was because it wanted an
extension of the period or duration of the contract beyond December 31, 1991, to cover the
period within which it was unable to work.
The RTC found private respondent guilty of breach of contract and ordered it to pay
damages to petitioner. Private respondent appealed to the Court of Appeals, which on
December 29, 1994, reversed the trial court’s decision and dismissed petitioner’s
complaint. The appellate court found that it was petitioner which had refused to resume
work, after failing to secure an extension of its contract. Petitioner now seeks a review of the
Court of Appeals’ decision.
Issue:
1. Can the happening of an unforeseen event extinguish the obligation of a contract?
2. Does the suspension of work due to force majeure merit an automatic extension of the
period of the agreement between the parties?
3. Is petitioner justified in refusing to resume performance of the obligation?
3. Is private respondent guilty of breach of contract?
Ruling:
1. NO. The court says that there was no cause for terminating the contract but at most a
“temporary suspension of work.” The court thus rejects private respondent’s claim that,
as a result of the fire, the obligation of contract must be deemed to have been
extinguished. Nonetheless, the Court of Appeals found that private respondent had
reconsidered its decision to terminate the contract and tried to accommodate the request
of petitioner.
2. NO, the suspension of work due to force majeure did not merit an automatic extension of
the period of the agreement between them. According to Tolentino:
The stipulation that in the event of a fortuitous event or force majeure the contract
shall be deemed suspended during the said period does not mean that the happening of
any of those events stops the running of the period the contract has been agreed upon to
run. It only relieves the parties from the fulfillment of their respective obligations during
that time.
3. NO. The Court of Appeals was right that petitioner had no basis for refusing private
respondent’s offer unless petitioner was allowed to carry out its work in the company
premises. That petitioner would incur additional cost for transportation was not a good
reason for its refusal. Petitioner has not shown that when it was notified of the private
respondent’s offer, the latter’s premises had so far been restored so as to permit petitioner
to resume work there. In fact, even when petitioner was finally allowed to resume work
within the plant, it was not in the former work place but in a new one, which shows that
private respondent’s reason for not granting petitioner’s request was not just a pretext.
Nor was petitioner justified in refusing to resume work on November 7 when it was
again notified by petitioner to work. Although it cited the pending labor case as reason
for turning down private respondent’s offer, it would appear that the real reason for
petitioner’s refusal was the fact that the term of the contract was expiring in two months
and its request for an extension was not granted. But, as the appellate court correctly
ruled, the suspension of work under the contract was brought about by force
majeure. Therefore, the period during which work was suspended did not justify an
extension of the term of the contract. For the fact is that the contract was subject to a
resolutory period which relieved the parties of their respective obligations but did not
stop the running of the period of their contract.
4. NO. Petitioner may not be to blame for the failure to resume work after the fire, but neither
is private respondent. Since the question is whether private respondent is guilty of breach
of contract, the fact that private respondent is blameless can only lead to the conclusion
that the appealed decision is correct. By:
By: T.A. Real

G en er al P r ov is io ns - Arts. 1305–1317
CUI VS ARELLANO
2 SCRA 205
Facts:
Plaintiff enrolled in the College of Law of Arellano University from the school year
1948-1949. Plaintiff finished his law studies in the defendant university up to and including
the first semester of the fourth year. Plaintiff enrolled for the last semester of his law studies
in the defendant university but failed to pay his tuition fees because his uncle Dean Francisco
R. Capistrano having severed his connection with defendant and having accepted the
deanship and chancellorship of the College of Law of Abad Santos University, plaintiff left
the defendant's law college and enrolled for the last semester of his fourth year law in the
college of law of the Abad Santos University graduating from the college of law of the latter
university. Plaintiff, during all the time he was studying law in Arellano University was
awarded scholarship grants, for scholastic merit, so that his semestral tuition fees were
returned to him after the ends of semester and when his scholarship grants were awarded to
him. The whole amount of tuition fees paid by plaintiff to defendant and refunded to him by
the latter from the first semester up to and including the first semester of his last year in the
college of law or the fourth year, is in total P1,033.87. After graduating in law from Abad
Santos University he applied to take the bar examination. To secure permission to take the
bar he needed the transcripts of his records in Arellano University. Cui petitioned the latter to
issue to him the needed transcripts. The defendant refused until after he had paid back the
P1,033 87 which defendant refunded to him as above stated. As he could not take the bar
examination without those transcripts, plaintiff paid to defendant the said sum under protest.
This is the sum which plaintiff seeks to recover from defendant in this case.
Before defendant awarded to plaintiff the scholarship grants as above stated, he was
made to sign the following contract covenant and agreement:
"In consideration of the scholarship granted to me by the University, I hereby
waive my right to transfer to another school without having refunded to the
University (defendant) the equivalent of my scholarship cash.
(Sgd.) Emeterio Cui".
Issue:
Whether or not the contract covenant and agreement signed by petitioner is valid or
not?

Ruling:
The stipulation of the waiver contract is contrary to public policy hence it was null
and void.
The policy enunciated in Memorandum No. 38, s. 1949 is sound policy.
Scholarship are awarded in recognition of merit not to keep outstanding
students in school to bolster its prestige. In the understanding of that
university scholarships award is a business scheme designed to increase the
business potential of an education institution. Thus conceived it is not only
inconsistent with sound policy but also good morals.
But what is morals? Manresa has this definition. It is good customs; those generally
accepted principles of morality which have received some kind of social and practical
confirmation. The practice of awarding scholarships to attract students and keep them in
school is not good customs nor has it received some kind of social and practical confirmation
except in some private institutions as in Arellano University. The University of the
Philippines which implements Section 5 of Article XIV of the Constitution with reference to
the giving of free scholarships to gifted children, does not require scholars to reimburse the
corresponding value of the scholarships if they transfer to other schools. So also with the
leading colleges and universities of the United States after which our educational practices or
policies are patterned. In these institutions scholarships are granted not to attract and to keep
brilliant students in school for their propaganda mine but to reward merit or help gifted
students in whom society has an established interest or a first lien.
By: H.P. Descallar

TALISAY-SILAY INC. VS TALISAY-SILAY MILLING

G.R. L-1993
Feb. 19, 1979
Facts:
On 15 February 1966, Talisay-Silay Milling Co., Inc. ("TSMC") and Talisay- Silay
Industrial Cooperative Association, Inc. ("TSICA") instituted an action for damages against
defendants Asociacion de Agricultores de Talisay-Silay, Inc. ("AATSI"), et. al.- On 4 March
1972, the then Court of First Instance of Rizal rendered its decision condemning the
defendants jointly and severally to pay plaintiff Talisay Silay Industrial Cooperative
Association the amount of P6,609,714.32 and to plaintiff Talisay-Silay Milling Co., Inc. the
sum of P8,802,612.89 with legal rate of interest from the filing of the complaint until
fully paid.- The Court of Appeal rendered a decision affirming with modification the decision
of the court a quo by reducing the amount of damages due plaintiffs-appellees TSMC and
TSICA from approximately P15.4million to only P1 million.
Issue:
WON the reduction of damages was proper
Ruling:
In reducing the amount of damages awarded by the court a quo to petitioners TSMC
and TSICA from roughlyP15.4 million to only P1 million, the Court of Appeals, citing
Malayan Insurance Co.. Inc. v. Manila Port Service reasoned that the reduction was dictated
by the failure or TSMC and TSICA to comply with Section 5, Rule 10 of the Rule of Court,
i.e., TSMC and TSICA's failure to amend their complaint to conform to the evidence
presented during trial which showed that TSMC and TSICA suffered damages amounting to
more than P1million by virtue of the illegal transfer of export sugar quota from TSMC to
FFMCI. We are unable to agree with the Court of Appeals on this point.- A court may rule
and render judgment on the basis of the evidence before it even though the relevant pleading
had not been previously amended, so long as no surprise or prejudice is thereby caused to the
adverse party. Put a little differently, so long as the basic requirements of fair play had been
met, as where litigants were given full opportunity to support their respective contentions and
to object to or refute each other's evidence, the court may validly treat the pleadings as if they
had been amended to conform to the evidence and proceed to adjudicate on the basis of all
the evidence before it.- The record of the instant case shows that TSMC and TSICA formally
offered as evidence documents which set out in detail the estimated unrealized income

suffered by TSMC and TSICA during four (4) consecutive crop years, i.e., (CYs) 1964-
1965, 1965-1966, 1966-1967 and 1967-1968, the failure of realization being attributed to the
transfer by AATSI, et al. of their sugar quota to FFMCI. These documents, along with the
corroborative testimony of one Ricardo Yapjoco, a Certified Public Accountant and Internal
Auditor of TSMC, were the basis of the trial court's award of P8,802,612.89 to TSMC and of
P6,609,714.32 to TSICA. It is noteworthy that the joint record on appeal reveals that AATSI,
et al. objected to the Offer of Evidence of TSMC and TSICA not on the basis that such
evidence fell outside the scope of the issues as defined in the pleadings as they then stood,
but rather on the basis that such evidence was "incompetent" and speculative in character,
i.e., as "being mere estimates prepared by witness Yapjoco" and constituting merely his
"opinion." It should also be noted that the testimony of Mr. Yapjoco was subjected to
extensive cross-examination by counsel for AATSI, et al. The trial court did not expressly
overrule AATSI, et al.'s objection to the Offer of Evidence of TSMC and TSICA; it is
nevertheless clear that the trial court did not accord much weight to that objection.- The point
that may be here underscored is that AATSI, et al., having been given the opportunity and
having in fact been able to register their objections to the evidence formally offered by
TSMC and TSICA were not in any way prejudiced by the discrepancy between the
allegations in the complaint filed and the propositions which the evidence submitted by
TSMC and TSICA tended to establish. We conclude that the Court of Appeals erred when it
failed to treat the amended and supplemental complaint of TSMC and TSICA as if such
complaint had in fact been amended to conform to the evidence, and when it limited the
damages due to TSMC and TSICA to the amount prayed for in their original complaint.
A review of the damages actually awarded to TSMC and TSICA by the trial court on
the one hand and the Court of Appeals on the other, reveals the need for a more careful and
thorough examination of the matter. As earlier noted, the Court of Appeals' award
of P1million based simply on the amount set out in the original complaint of TSMC and
TSICA must be discarded. Upon the other hand, the award by the trial court of damages to
TSMC and TSICA was arrived at merely by totaling up the unrealized income sustained by
TSMC and TSICA over the relevant four (4) crop year period:- "Because on the refusal of the
defendants planters to return to TSMC, plaintiff TSMC [and TSICA] suffered an unrealized
profit; of P1,934,847.73 in 1964-65 while for1965-66 crop year, in the amount of
P3,033,301.16, for1966-67 in the amount of P4,656,643.20, and for 1967-1968, in the
amount of P4,805,472.12.- The plaintiff TSMC failed to realize P3,015,077.77 and plaintiff
TASICA failed to realize P6,609,714.32 or a total of P9,624,792.09. In 1967-68 after the
lease to TASICA has expired, TSMC failed to realize a net income of
P4,805,514.12."- We believe, in other words, that the figures and computations utilized by
the trial court in its award on damages need further examination and refinement. For
instance, the award of damages rendered by the trial court took into account the loss of

income suffered by TSMC and TSICA when AATSI, et al. transferred two (2)of sugar quota:
the "domestic quota" and the "export quota." The consent of the sugar central was not
required for the validity of a transfer of the domestic sugar quota. Accordingly, the transfer
by AATSI, et al. of their domestic sugar quota must be regarded as valid and the loss of
income attributable to the transfer of such domestic sugar quota from TSMC and TSICA to
FFMCI must be deducted from the aggregate amount of damages due to TSMC and TSICA.
A second example: Exhibits "P-1" and "W-1" embody figures relating to "molasses."
Molasses are a by-product of milled sugar, whether that sugar be covered by a "domestic
quota" or by an "export quota." The amount of income lost traceable to molasses that would
have been extracted from domestic sugar must be deducted from the aggregate damages due
to TSMC and TSICA.
Disposition
Decision and Resolution of the Court of Appeals MODIFIED insofar as the
award of actual damages due Talisay-Silay Milling Co., Inc. and Talisay-Silay Industrial
Cooperative Association, Inc. are concerned. Subject to the rulings referred to herein, this
case is REMANDED to the Court of Appeals for the determination, with all deliberate
dispatch, of the amount of damages due Talisay-Silay Milling Co., Inc. and Talisay-Silay
Industrial Cooperative Association, Inc.
By: M. Tejano

BATCHELDER VS CB
G.R. No. -25071
March 29, 1972
Facts:
This is a suit filed by plaintiff George W. Batchelder, doing business under the name
and style of Batchelder Equipment, to compel defendant Central Bank of the Philippines,
now appellant, to resell to him $170,210.60 at the preferred rate of exchange of two
Philippine pesos for one American dollar, more specifically P2.00375, or, in the alternative,
to pay to him the difference between the peso cost of such amount at the market rate
prevailing on the date of the satisfaction of the judgment in his favor and the peso cost of
$170,210.60 at said preferred rate.
Central Bank denied certain facts and was quite insistent on the absence of any such
right on the part of plaintiff to re-acquire from it the sum of $170,210.60 at the preferred rate
of exchange. It follows that it was not liable either to plaintiff for the difference between its
peso cost at the rate prevailing on the date of the satisfaction of whatever judgment there may
be in plaintiff's favor and the peso cost of $170,210.60 at said preferred rate.
Issue:
Whether or not there was a contract in law giving rise to an obligation which must be
fulfilled by Central Bank.
Ruling:
The holding of the lower court, that there was a contract and the terms of which had
to be respected by defendant Central Bank, is reversed by the Supreme Court. The law does
not go that far. The governing principle of law applicable to actuation of administrative
agencies, like the Central Bank, precludes a finding that under the circumstances disclosed
by the case, there was a contract in law giving rise to an obligation which must be fulfilled by
such governmental body.
What was done by the Central Bank was merely to issue in pursuance of its rule-
making power the resolutions relied upon by plaintiff, which for him should be impressed
with a contractual character. There is no question that the Central Bank as a public
corporation could enter into contracts. It is so provided for among the corporate powers

vested in it. The establishment of the Central Bank was intended to attain basic objectives in
the field of currency and finance. Its duty is to maintain monetary stability in the Philippines.
It would be then to set at naught fundamental concepts in administrative law that
accord due recognition to the vesting of quasi-legislative and quasi-judicial power in
administrative law for the purpose of attaining statutory objectives. For if such be the case
then, by the judiciary failing to exercise due care in its oversight of an administrative agency,
substituting its own discretion for what usually is the more expert appraisal of such an
instrumentality, there may even be a frustration if not a nullification of the objective of the
law.
Central Bank in its motion to dismiss before the lower court was quite explicit as to
why under the circumstances, no right could be recognized as possessed by him. Had there
been greater care therefore on the part of the plaintiff to show why in his opinion he could
assert a right in accordance not with a contract binding on the Central Bank, because there is
none, but by virtue of compliance with rules and regulations of an administrative tribunal,
then perhaps a different outcome would have been justified.
Hence, for a regulatory permit to be impressed with contractual character, the
administrative agency in issuing the permit must have assumed such obligation on itself.
Other Doctrines:
A CONTRACT is the accord of two or more persons with previously diverging
interests for the purpose of creating, modifying or extinguishing a juridical relation between
them.
The CONSENT is composed of a double operation. (1) The parties must commence
by agreeing as to the contents the "convention" that is to say, by making sufficiently precise
the object and the essential conditions, and discussing the particular clauses which they
desire to introduce to modify or to complete the ordinary effects. (2) This first operation
having been terminated, the parties are in accord on the projected contract: there is between
them the uniformity of opinions, which is one sense of the word "consent", but the contract is
not included, it still exists in a projected state. There remains to give its obligatory force by
an act of will, expressing the individual adherence of each one of the parties to the act thus
prepared. When all the necessary consents are obtained, and manifested in legal form, the
contract is formed, the lien of law is tied. It is therefore the union of these adherences which
constitute the contract and which gives birth to the obligations which are derived from it. It is
an act of volition, while the preliminary operation of discussion of the project is a work of the
mind and reasoning.
By: P.E. Benigay

ASUNCION VS CA
G.R. No. 109125
Dec. 2, 1994
Facts:
Plaintiff is the tenant of the residential and commercial land owned by the defendant.
When the defendant decided to sale the property, the plaintiff was given the priority to
acquire the same. Thus, the plaintiff asks the defendant to put such offer into an agreement
which the latter agreed. The plaintiff then asks the defendant to have the terms and
conditions of the conditions of the offer to sell but the defendant failed to do so. Upon
knowing that the defendant will about to sell the property to other person, the plaintiff is
compelled to file a complaint against the defendant. Later, despite the pending case, the
defendant execute a Deed of Sale in favor of Buen Realty and Development who bought the
property in the amount P15,000,000.00.
Issue:
Is the right of first refusal entitled the plaintiff to compel the defendant to sell the
property to them?
Ruling:
dAs provided in Article 1157 contract is one of the sources of obligation whereby there
should be the meeting of the minds between two person, wherein one binds himself, with
respect to the other, to give something or to render some service as provided for in Article
1305 and only after the contract is perfect that it can be considered as binding. As found out
by the trial court both did not agreed upon the terms and conditions and thus there was no
meeting of the minds. The right of first refusal it is not considered to be as a perfected
contract as provided for in Article 1458 and neither can it be considered as provided for in
the second paragraph of Article 1479, or possibly of an offer under Article 1319. “In a right
of first refusal, while the object might be made determinate, the exercise of the right,
however, would be dependent not only on the grantor’s eventual intention to enter into a
binding juridical relation with another but also on terms, including the price, that obviously
are yet to be later firmed up.”
By: J. Ege

REPUBLIC VS PLDT
G.R. No. L-18841
January 27, 1969
Facts:
The defendant is a public service corporation holding a legislative franchise to install,
operate and maintain a telephone system and the electrical transmission of messages
throughout the Philippines and the telephone systems of other countries. Defendant and the
RCA Communications, Inc., which is not a party to the present case but has contractual
relations with the parties, entered into an agreement whereby telephone messages, coming
from the United States and received by RCA's domestic station, could automatically
transferred to the lines of PLDT and vice-versa.
The Bureau of Telecommunications set up its own Government Telephone System
(GTS) by utilizing its own appropriation and equipment and by renting trunk lines of the
defendant to enable government offices to call private parties and has later extended its
services to the general public. The bureau entered into an agreement with RCA
Communications Inc., for a joint overseas calls received by RCA’s station to and from local
residents.
Defendant complained to the bureau that it was violating the conditions, for it had
used the rented trunk lines not only for the use of government offices but even to serve
private persons or the general public, in competition with the business of the defendant.
Defendant gave a notice that it would disconnect the trunk lines if said violations were not
stopped. When the defendant received no reply, it disconnected the trunk lines being rented
by the bureau.
The bureau proposed to the defendant that both enter into an interconnecting
agreement. The defendant replied that it is willing to enter into an agreement subject to
certain conditions. The proposals were not accepted by either party.
The plaintiff Republic commenced suit against the defendant, praying for judgment
commanding the defendant to execute a contract with the plaintiff, through the bureau, and
for a writ of preliminary injunction to restrain the severance of the existing telephone
connections and/or restore those severed.
Issues:
 Whether or not PLDT can be commanded to execute a contract with the bureau.
 Whether or not interconnection between PLDT and the Government Telephone
System can be a valid object for expropriation.

Ruling:
We agree with the court below that parties cannot be coerced to enter into a contract
where no agreement is had between them as to the principal terms and conditions of the
contract. Freedom to stipulate such terms and conditions is of the essence of our contractual
system, and by express provision of the statute, a contract may be annulled if tainted by
violence, intimidation, or undue influence (Articles 1306, 1336, 1337, Civil Code of the
Philippines). The Republic may, in the exercise of the sovereign power of eminent domain,
require the telephone company to permit interconnection of the government telephone system
and that of the PLDT, as the needs of the government service may require, subject to the
payment of just compensation to be determined by the court.
By: J. Cedrome

SAURA VS SANDICO
Facts:
Saura and Sindico were contesting for nomination as the official candidate of the
Nacionalista Party in the 4th district of Pangasinan in the congressional elections in 1957.
They entered into a written agreement, containing a pledge that “each aspirant shall respect
the result of the aforesaid convention” and that no on shall either run as a rebel or
independent candidate after losing the same. Thereafter, Saura was elected and proclaimed
the Party’s official candidate, yet Sindico, in disregard of the covenant, filed her certificate of
candidacy for the same office with the COMELEC. Saura then filed this suit for collection of
damages, but the lower court dismissed the complaint, saying the agreement is null and void.
The lower court contended that the subject matter of the contract, being a public office, is not
within the commerce of man, and the “pledge” was in curtailment of the free exercise of
elective franchise, therefore against public policy.
Issue:
Is the contract between Saura and Sindico null and void?
Ruling:
Yes. Among those that may not be the object or subject matter of contracts are
personal political rights, such as one’s right to vote, or right to present one’s candidacy to the
people and be voted to public office. Law and public policy dictates that these rights are
excluded from the commerce of man. They are conferred not for individual or private benefit
or advantage, but for public good and interest, and therefore, should not be bargained away
or surrendered for consideration by the citizen.
The Constitution and other laws fix the qualifications of person who may be eligible
for certain elective public offices, and these requirements may not be supplemented by mere
agreements between private parties. A voter who possesses all the qualifications required of
an office may, by himself or through a political party, present his candidacy without other
limitations except those provided by law. The courts have previously condemned certain
agreements in consideration of the withdrawal of candidates for office.
By: K. Moleta

CORPUS VS CA
G.R. No. L-40424
June 30, 1980
Facts:
Corpus contends that respondent David is not entitled to attorney’s fees because there
was no contract to that effect. On the other hand, David contends that the absence of a formal
contract for the payment of the attorney’s fees will not negate the payment thereof because
the contract may be express or implied, and there was an implied understanding between the
Corpus and David that the former will pay the latter attorney’s fees when a final decision
shall have been rendered in favor of the petitioner reinstating him to -his former position in
the Central Bank and paying his back salaries.
The following is what Corpus wrote David:
Dear Juaning
Will you please accept the attached check in the amount of TWO THOUSAND
P2,000.00) PESOS for legal services in the handling of L-17860 recently decided by the
Court? I wish I could give more but as you know we were banking on a SC decision
reinstating me and reimburse my backstage I had been wanting to offer some token of my
appreciation of your legal fight for and in my behalf, and it was only last week that I received
something on account of a pending claim.
Looking forward to a continuation of the case in the lower court, I remain
Sincerely yours, Illegible
xxxxxxxxx
In a reply letter dated April 25, 1962, the plaintiff returned the check, explaining said
act as follows:
April 25, 1962
My dear Marino:
Yesterday, I received your letter of April 18th with its enclosure. I wished thank you
for your kind thoughts, however, please don’t take offense if I have to return the check. I will
explain.
When I decided to render professional services in your case, I was motivated by the
value to me of the very intimate relations which you and I have enjoyed during the past many
years. It was nor primarily, for a professional fee.
Although we were not fortunate to have obtained a decision in your case which
should have put an end to it. I feel that we have reason to be jubilant over the outcome,

because, the final favorable outcome of the case seems certain irrespective of the length of
time required to terminate the same.
Your appreciation of the efforts I have invested in your case is enough compensation
therefor, however, when you shall have obtained a decision which would have finally
resolved the case in your favor, remembering me then will make me happy. In the meantime,
you will make me happier by just keeping the check.
Sincerely yours,
Issues:
1. WON private respondent Atty. Juan T. David is entitled to attorney’s fees.
Ruling:
There was an implied agreement for the payment of attorney’s fees.
While there was express agreement between petitioner Corpus and respondent David as
regards attorney’s fees, the facts of the case support the position of respondent David that
there was at least an implied agreement for the payment of attorney’s fees.
Petitioner’s act of giving the check for P2,000.00 through his aforestated April 18,
1962 letter to respondent David indicates petitioner’s commitment to pay the former
attorney’s fees, which is stressed by expressing that “I wish I could give more but as you
know we were banking on a SC decision reinstating me and reimbursing my back
salaries.” This last sentiment constitutes a promise to pay more upon his reinstatement
and payment of his back salaries.
Moreover, respondent David’s letter-reply of April 25, 1962 confirms the promise of
petitioner Corpus to pay attorney’s fees upon his reinstatement and payment of back salaries.
Said reply states that respondent David decided to be his counsel in the case because of the
value to him of their intimate relationship over the years and “not, primarily, for a
professional fee.” It is patent then that respondent David agreed to render professional
services to petitioner Corpus secondarily for a professional fee. This is stressed by the last
paragraph of said reply which states that “however, when you shall have obtained a decision
which would have finally resolved the case in your favor, remembering me then will make
me happy. In the meantime, you will make me happier by just keeping the check”
xxx
absence of an express contract for attorney's fees between parties is no argument against
the payment of attorney's fees, considering their close relationship which
signifies mutual trust and confidence between them.

It may be advanced that respondent David may be faulted for not reducing the
agreement for attorney's fees with petitioner Corpus in writing. However, this should be
viewed from their special relationship. It appears that both have been friends for several
years and were co-members of the Civil Liberties Union. In addition, respondent David and
petitioner's father, the late Rafael Corpus, were also close friends. Thus, the absence of an
express contract for attorney's fees between respondent David and petitioner Corpus is
no argument against the payment of attorney's fees, considering their close relationship
which signifies mutual trust and confidence between them.
innominate contract of facio ut des justifies payment of attorney’s fees
Moreover, the payment of attorney's fees to respondent David may also be justified
by virtue of the innominate contract of facio ut des (I do and you give which is based on the
principle that â€œno one shall unjustly enrich himself at the expense of another innominate
contracts have been elevated to a codal provision in the New Civil Code by providing under
Article 1307 that such contracts shall be regulated by the stipulations of the parties, by the
general provisions or principles of obligations and contracts, by the rules governing the most
analogous nominate contracts, and by the customs of the people. The rationale of this article
was stated in the 1903 case of Perez vs. Pomar (2 Phil. 982).
Rationale of Article 1307 NCC
The rationale of this article was stated in the 1903 case of Perez vs. Pomar (2 Phil.
982). In that case, the Court sustained the claim of plaintiff Perez for payment of services
rendered against defendant Pomar despite the absence of an express contract to that effect,
thus:
It does not appear that any written contract was entered into between the parties for
the employment of the plaintiff as interpreter, or that any other innominate contract was
entered into but whether the plaintiffs services were solicited or whether they were offered to
the defendant for his assistance, inasmuch as these services were accepted and made use of
by the latter, we must consider that there was a tacit and mutual consent as to the rendition of
the services. This gives rise to the obligation upon the person benefited by the services to
make compensation therefor, since the bilateral obligation to render service as
interpreter, on the one hand, and on the other to pay for the service rendered, is thereby
incurred. (Arts. 1088, 1089, and 1262 of the Civil Code).
xxx
As it does not appear that he did this gratuitously, the duty is imposed upon the
defendant, he having accepted the benefit of the service, to pay a just compensation therefor,
by virtue of the innominate contract of facio ut des implicitly established.
xxx

… because it is a well-known principle of law that no one should permitted to enrich himself
to the damage of another.
xxx
WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance &
Surety Co., Inc. (73 SCRA 564 [1976]) citing the case of Perez v. Pomar, supra thus:
Where one has rendered services to another, and these services are accepted by the
latter, in the absence of proof that the service was rendered gratuitously, it is but just that he
should pay a reasonable remuneration therefor because â€˜it is a well-known principle of
law, that no one should be permitted to enrich himself to the damage of
another (emphasis supplied).
By: I.M. Maxino

VELASCO VS CA
Facts:
This is a suit for specific performance filed by Lorenzo Velasco against the
Magdalena Estate, Inc. on the allegation that on November 29, 1962 the plaintiff and the
defendant had entered into a contract of sale by virtue of which the defendant offered to sell
the plaintiff and the plaintiff in turn agreed to buy a parcel of land with an area of 2,059
square meters for the total purchase price of P100,000.00.
It is alleged by the plaintiff that the agreement was that the plaintiff was to give a
down payment of P10,000.00 to be followed by P20,000.00 and the balance of P70,000.00
would be paid in installments, the equal monthly amortization of which was to be determined
as soon as the P30,000.00 down payment had been completed. It is further alleged that the
plaintiff paid down payment of P10,000.00 on November 29, 1962 and that when on January
8, 1964 he tendered to the defendant the payment of the additional P20,000.00 to complete
the P30,000.00 the defendant refused to accept and that eventually it likewise refused to
execute a formal deed of sale obviously agreed upon. The plaintiff demands P25,000.00
exemplary damages, P2,000.00 actual damages and P7,000.00 attorney's fees.
The defendant, in its Answer, denies that it has had any direct dealings, much less,
contractual relations with the plaintiff regarding the property in question, and contends that
the alleged contract is entirely unenforceable under the Statute of Frauds.
It is the position of the defendant (1) that the sale was never consummated and (2)
that the contract is unenforceable under the Statute of Frauds.
Issue:
Whether the talks between the Magdalena Estate, Inc. and Lorenzo Velasco either
directly or thru his sister-in-law Socorro Velasco ever ripened into a consummated sale.
Ruling:
The court a quo agreed with the respondent's (defendant therein) contention that no
contract of sale was perfected because the minds of the parties did not meet "in regard to the
manner of payment."
It is not difficult to glean from the afore quoted averments that the petitioners
themselves admit that they and the respondent still had to meet and agree on how and when
the down-payment and the installment payments were to be paid. Such being the situation, it

cannot, therefore, be said that a definite and firm sales agreement between the parties had
been perfected over the lot in question. Indeed, the Court has already ruled before that a
definite agreement on the manner of payment of the purchase price is an essential element in
the formation of a binding and enforceable contract of sale. The fact, therefore, that the
petitioners delivered to the respondent the sum of P10,000 as part of the down-payment that
they had to pay cannot be considered as sufficient proof of the perfection of any purchase and
sale agreement between the parties herein under article 1482 of the new Civil Code, as the
petitioners themselves admit that some essential matter — the terms of payment — still had
to be mutually covenanted.
ACCORDINGLY, the instant petition is hereby denied. No pronouncement as to
costs.
NOTE: Sir Maxino said that the Supreme Court made an error of its decision in this case. The manner of
payment of the purchase price is NEVER an essential element of contract. If there was no time stipulated, then
it should be reasonable time. If there was no stipulation as to how it will be paid it will be in cash.
By: L. Tam

FLORENTINO VS ENCARNACION
Facts:
On May 22, 1964, the petitioners-appellants and the petitioners-appellees filed with
CFI an application for the registration under Act 496 of a parcel of agricultural land located
at Cabugao, Ilocos Sur. The application alleged among other things that the applicants are the
common and pro-indiviso owners in fee simple of the said land with the improvements
existing thereon; that to the best of the knowledge and belief, there is no mortgage, hen or
encumbrance of any kind whatsoever affecting said land, nor any other person having any
estate or interest thereon, legal or equitable, remainder, reservation at in expectancy; that said
applicants had acquired the aforesaid land thru and by inheritance from their predecessors in
interest, their aunt, Doña Encarnacion Florentino, and Angel Encarnacion acquired their
respective shares of the land thru purchase from the original heirs, Jesus, Caridad, Lourdes
and Dolores, all surnamed Singson, on one hand and from Asuncion Florentino on the other.
Exhibit O-1 embodied in the deed of extrajudicial partition (Exhibit O), which states
that with respect to the land situated in Barrio Lubong, Dacquel, Cabugao, Ilocos Sur, the
fruits thereof shall serve to defray the religious expenses, was the source of contention in this
case (Spanish text). Florentino wanted to include Exhibit O-1 on the title but the
Encarnacions opposed and subsequently withdrawn their application on their shares, which
was opposed by the former.
According to the CFI, the self-imposed arrangement in favor of the Church is a
simple donation, but is void since the donee has not accepted the donation and Salvador
Encarnacion, Jr. and Angel Encarnacion had not made any oral or written grant at all so the
court allowed the religious expenses to be made and entered on the undivided shares,
interests and participations of all the applicants in this case, except that of Salvador
Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel Encarnacion.
The Motion for Reconsideration and of New Trial was denied for lack of merit, but
the court modified in highlighting that the donee Church has not showed its clear acceptance
of the donation, and is the real party of this case, not the petitioner’s appellants.
Issue:
WON the lower own erred in concluding that the stipulation embodied in Exhibit O
on religious expenses is just an arrangement stipulation, or grant revocable at the unilateral
option of the co-owners.
Ruling:

YES, the court erred in concluding that the stipulation is just an arrangement
stipulation. It cannot be revoked unilaterally.
The contract must bind both parties, based on the principles (1) that obligation arising
from contracts have the force of law between the contracting parties; and (2) that there must
be mutuality between the parties band on their essential equality, to which is repugnant to
have one party bound by the contract leaving the other free therefrom.
The stipulation (Exhibit O-1) is part of an extrajudicial partition (Exh. O) duly agreed
and signed by the parties, hence the same must bind the contracting parties thereto and its
validity or compliance cannot be left to the will of one of them.
The said stipulation is a stipulation pour autrui. A stipulation pour autrui is a
stipulation in favor of a third person conferring a clear and deliberate favor upon him, and
which stipulation is merely a part of a contract entered into by the parties, neither of whom
acted as agent of the third person, and such third person may demand its fulfillment provided
that he communicates his acceptance to the obligor before it is revoked.
Requisites: (1) that the stipulation in favor of a third person should be a part, not the
whole, of the contract, (2) that the favorable stipulation should not be conditioned or
compensated by any kind of obligation whatever; and (3) neither of the contracting parties
bears the legal representation or authorization of third party.
Therefore for a valid stipulation pour autrui, it must be the purpose and intent of the
stipulating parties to benefit the third person, and it is not sufficient that the third person may
be incidentally benefited by the stipulation. The intention of the parties may be disclosed by
their contract. It matters not whether the stipulation is in the nature of a gift or whether there
is an obligation owing from the promise to the third person. That no such obligation exists
may in some degree assist in determining whether the parties intended to benefit a third
person.
The evidence on record shows that the true intent of the parties is to confer a direct
and material benefit upon the Church. While a stipulation in favor of a third person has no
binding effect in itself before its acceptance by the party favored, the law does not provide
when the third person must make his acceptance. As a rule, there is no time limit; such third
person has all the time until the stipulation is revoked. Here, We find that the Church
accepted (implicitly) the stipulation in its favor before it is sought to be revoked by some of
the co-owners.
By: L. Cuevas

BONIFACIO BROS. INC., ET AL. VS. ENRIQUE MORA, ET AL.

G.R. No. L-20853
May 29, 1967
Facts:
Defendant Enrique Mora mortgaged his Oldsmobile sedan to the H.S. Reyes Inc.
(HSR), where the latter was made as the beneficiary of the insurance applied by the former.
During the effectivity of the insurance, the car met an accident. The insurance company
assigned to Bayne Adjustment Co. (BAC) the investigation and appraisal of the damage.
Meanwhile, Mora authorized the Bonifacio Bros. Inc. (BBI) and Ayala Auto Parts Co.
(AAP), herein appellants, to furnish the labor and materials, which the latter billed the cost
through the BAC. Thereafter, the insurance company issued a check for the said amount
payable to Mora or HSR; BBI being in charge to dispose and deliver said check to the proper
party. However, the car was already returned to Mora without any payment to BBI and AAP.
With this, and on the theory that the insurance proceeds should be paid directly to
BBI and AAP as payment for the repairs and materials, BBI and AAP filed a complaint to
recover the insurance proceeds. They rely upon paragraph 4 of the insurance contract which
provides that “the insured may authorize the repair of the motor vehicle… which the
company may be liable…” However, the municipal court declared that HSR has better right
to the insurance proceeds, as affirmed by the Court of First Instance.
Issue:
Whether there is privity of contract between the BBI and AAP on the one hand and the
insurance company on the other.
Ruling:
There is NONE. The appellants are not mentioned in the contract as parties thereto
nor is there any clause or provision thereof from which we can infer that there is an
obligation on the part of the insurance company to pay the cost of repairs directly to them.
It is fundamental that contracts take effect only between the parties thereto, except in
some specific instances provided by law where the contract contains some stipulation in
favor of third person – known as stipulation pour autrui. Wherein a third person is allowed to
avail himself of a benefit granted to him by the terms of the contract, provided that the
contracting parties have clearly and deliberately conferred a favor upon such person.

To know a third person’s enforceable interest in a contract, it must be determined

whether the contracting parties intended to tender him such an interest by deliberately
inserting terms in their agreement with the avowed purpose of conferring a favor upon such
third person. The fairest test to determine whether the interest of a third person in a contract
is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the
parties as disclosed by their contract.
In the instant case, the contract does not contain any words or clause to disclose intent
to give any benefit to any repairmen or materialmen in case of repair of the car in question.
On the other hand, the “loss payable” clause of the insurance policy indicates that such loss is
payable only to HSR.
By: G. Bellingan

DAYWALT VS LA CORPORACION DE PP. AGUSTINOS
Facts:
Teodorica Endencia obligated herself to sell a parcel of land to the plaintiff. It was
agreed that the final deed of sale will be executed when the land was registered in Endencia’s
name. Subsequently, the Torrens Title for the land was issued in her favor but in the course of
the proceedings for registration it was found that the land involved in the sale contained a
greater area than what Endencia originally thought and she became reluctant to consummate
the sale of the land to the plaintiff. This reluctance was due to the advice of the defendant
which exercised a great moral influence over her. However, in advising Endencia that she
was not bound by her contract with the plaintiff, the defendant was not actuated with
improper motives but did so in good faith believing that, under the circumstances, Endencia
was not really bound by her contract with the plaintiff. In view of Endencia’s refusal to make
the conveyance, the plaintiff instituted a complaint for specific performance against her and,
upon appeal, the Supreme Court held that she was bound by the contract and she was ordered
to make the conveyance of the land in question to the plaintiff. The plaintiff then instituted an
action against the defendant to recover the following damages: (a) The amount of Pesos
24,000.00 for the use and occupation of the land in question by reason of the pasturing of
cattle therein during the period that the land was not conveyed by Endencia to the plaintiff;
(b) The amount of Pesos 500,000.00 for plaintiff’s failure to sell the land in question to a
sugar growing and milling enterprise, the successful launching of which depended on the
ability of Daywalt to get possession of the land and the Torrens Title. The lower court held
that the defendant was liable to the plaintiff for the use and occupation of the land in question
and condemned the defendant to pay the plaintiff Pesos 2,497.00 as damages. The Supreme
Court affirmed this adjudication of the lower court. With respect to the claim of Pesos
500,000.00 damages, the Supreme Court.
Held:
“The most that can be said with reference to the conduct of Teodorica Endencia is that
she refused to carry out a contract for the sale of certain land and resisted to the last an action
for specific performance in court. The result was that the plaintiff was prevented during a
period of several years from exerting that control over the property which he was entitled to
exert and was meanwhile unable to dispose of the property advantageously. “The extent of
the liability for the breach of a contract must be determined in the light of the situation in
existence at the time the contract is made; and the damages ordinarily recoverable in all
events limited to such as might be reasonably foreseen in the light of the facts then known to

the contracting parties. Where the purchaser desires to protect himself, in the contingency of
the failure of the vendor promptly to give possession, from the possibility of incurring other
damages than such as are incident to the normal value of the use and occupation, he should
cause to be inserted in the contract a clause providing for stipulated amount to be paid upon
failure of the vendor to give possession; and no case has been called to our attention where,
in the absence of such a stipulation, damages have been held to be recoverable by the
purchase in excess of the normal value of use and occupation.
The damages recoverable in case of the breach of a contract are two sorts, namely, (1)
the ordinary, natural, and in a sense, necessary damage; and (2) special damages. “Ordinary
damages is found in all breaches of contract where there are no special circumstances to
distinguish the case especially from other contracts. The consideration paid for an
unperformed promise is an instance of this sort of damage. In all such cases the damages
recoverable are such as naturally and generally would result from such a breach, “according
to the usual course of things”. In cases involving only ordinary damage, it is conclusively
presumed from the immediateness and inevitableness of the damage, and the recovery of
such damage follows as a necessary legal consequence of the breach. Ordinary damage is
assumed as a matter of law to be within the contemplation of the parties. “Special damage, on
the other hand, is such as follows less directly from the breach than ordinary damage. It is
only found in cases where some external condition, apart from the actual terms of the
contract exists or intervenes, as it were, to give a turn to affairs and to increase damage in a
way that the promisor, without actual notice of the external condition, could not reasonably
be expected to foresee.
Plaintiff’s right chiefly as against Teodorica Endencia; and what has been said
suffices in our opinion to demonstrate that the damages laid under the second cause of action
in the complaint could not be recovered from her, first, because the damages in question are
special damages which were not within contemplation of the parties when the contract was
made, and secondly, because said damages are too remote to be subject of recovery. This
conclusion is also necessarily fatal to the right of the plaintiff to recover such damages from
the defendant corporation for, as already suggested, by advising Teodorica Endencia not to
perform the contract, said corporation could in no event render itself more extensively liable
than the principal in the contract. “Our conclusion is that the judgment of the trial court
should be affirmed, and it is so ordered, with costs against the appellant.”
By: B. Magcanta

SANCHEZ VS RIGOS
45 SCRA 368
Facts:
On 3 April 1961, Nicolas Sanchez and Severina Rigos executed an instrument, entitled
“Option to Purchase,” whereby Mrs. Rigos “agreed, promised and committed . . . to sell” to
Sanchez, for the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot,
municipality of San Jose, province of Nueva Ecija, and more particularly described in TCT
NT-12528 of said province, within two (2) years from said date with the understanding that
said option shall be deemed “terminated and elapsed,” if “Sanchez shall fail to exercise his
right to buy the property” within the stipulated period. Inasmuch as several tenders of
payment of the sum of P1,510.00, made by Sanchez within said period, were rejected by Mrs.
Rigos, on 12 March 1963, the former deposited said amount with the CFI Nueva Ecija and
commenced against the latter the present action, for specific performance and damages. On
11 February 1964, after the filing of defendant’s answer, both parties, assisted by their
respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on 28
February 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to
accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney’s fees, and the
costs. Hence, the appeal by Mrs. Rigos to the Court of Appeals, which case was the certified
by the latter court to the Supreme Court upon the ground that it involves a question purely of
law.
Held: The SC affirmed the decision appealed from, with costs against Severina Rigos.
1. Option to purchase not a contract to buy and sell The option did not impose upon
Sanchez the obligation to purchase Rigos’ property. The contract denominated as “Option
to Purchase” is not a “contract to buy and sell,” it merely granted Sanchez an “option” to
buy, and both parties so understood it, as indicated by the caption given by them to said
instrument. Under the provisions thereof, Rigos “agreed, promised and committed”
herself to sell the land therein described to Sanchez for P1,510.00, but there is nothing in
the contract to indicate that her aforementioned agreement, promise and undertaking is
supported by a consideration “distinct from the price” stipulated for the sale of the land.
2. Article 1354 applicable to contracts in general, Article 1479 refers to sales in

particular

Relying upon Article 1354 of the Civil Code, which provides that “when the offerer has
allowed the offeree a certain period to accept, the offer may be withdrawn at any time
before acceptance by communicating such withdrawal, except when the option is founded
upon consideration, as something paid or promised,” the lower court presumed the
existence of a consideration distinct from the price. It must be noted however that Article
1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers
to “sales” in particular, and, more specifically, to “an accepted unilateral promise to buy
or to sell.” In other words, Article 1479 is controlling in the present case. Article 1479
provides that “A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price.”
3. Article 1479 imposes condition for a unilateral promise to be binding; Burden of

proof
In order that a unilateral promise may be “binding” upon the promisor, Article 1479
requires the concurrence of a condition, namely, that the promise be “supported by a
consideration distinct from the price.” Accordingly, the promisee cannot compel the
promisor to comply with the promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the burden of proving such
consideration. In the present case, Sanchez has not even alleged the existence thereof in
his complaint.
4. Implied admission of the truth of the other party’s averment if party joins in the
petition for a judgment based on the pleadings without introducing evidence
In the case of Bauermann v. Casas (14 March 1908), it was held that “one who prays for
judgment on the pleadings without offering proof as to the truth of his own allegations,
and without giving the opposing party an opportunity to introduce evidence, must be
understood to admit the truth of all the material and relevant allegations of the opposing
party, and to rest his motion for judgment on those allegations taken together with such of
his own as are admitted in the pleading. (La Yebana Company vs. Sevilla, 9 Phil. 210).”
This view was reiterated in Evangelista V. De la Rosa and Mercy’s Incorporated v.
Herminia Verde. In the present case, Rigos explicitly averred in her answer, and pleaded
as a special defense, the absence of said consideration for her promise to sell and, by
joining in the petition for a judgment on the pleadings, Sanchez has impliedly admitted
the truth of said averment in Rigos’ answer.

5. Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. case The Court in
the Southwestern Sugar case held that “under article 1479 of the new Civil Code ‘an
option to sell,’ or ‘a promise to buy or to sell,’ as used in said article, to be valid must be
’supported by a consideration distinct from the price.’ This is clearly inferred from the
context of said article that a unilateral promise to buy or to sell, even if accepted, is only
binding if supported by a consideration. In other words, ‘an accepted unilateral promise’
can only have a binding effect if supported by a consideration, which means that the
option can still be withdrawn, even if accepted, if the same is not supported by any
consideration. Here it is not disputed that the option is without consideration. It can
therefore be withdrawn notwithstanding the acceptance made of it by appellee. The Court
held that the general rule regarding offer and acceptance under Article 1324 must be
interpreted as modified by the provision of article 1479, which applies to ‘a promise to
buy and sell’ specifically. In short, the rule requires that a promise to sell to be valid must
be supported by a consideration distinct from the price.
6. Atkins, Kroll and Co. v. Cua Hian Tek In the case of Atkins, Kroll and Co., Inc. v. Cua
Hian Tek, decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf &
Pacific Co., the Court saw no distinction between Articles 1324 and 1479 of the Civil
Code and applied the former where a unilateral promise to sell similar to the one sued
upon here was involved, treating such promise as an option which, although not binding
as a contract in itself for lack of a separate consideration, nevertheless generated a
bilateral contract of purchase and sale upon acceptance.
7. Option is unilateral Furthermore, an option is unilateral: a promise to sell at the price

fixed whenever the offeree should decide to exercise his option within the specified time.
After accepting the promise and before he exercises his option, the holder of the option is
not bound to buy. He is free either to buy or not to buy later. In the present case, however,
upon accepting Rigos’ offer a bilateral promise to sell and to buy ensued, and Sanchez
ipso facto assumed the obligation of a purchaser. He did not just get the right
subsequently to buy or not to buy. It was not a mere option then; it was bilateral contract
of sale.
8. Option without consideration is a mere offer of a contract of sale, which is not

binding until accepted If the option is given without a consideration, it is a mere offer of
a contract of sale, which is not binding until accepted. If, however, acceptance is made
before a withdrawal, it constitutes a binding contract of sale, even though the option was
not supported by a sufficient consideration. . . . (77 Corpus Juris Secundum p. 652. See

also 27 Ruling Case Law 339 and cases cited.) It can be taken for granted that the option
contract was not valid for lack of consideration. But it was, at least, an offer to sell, which
was accepted by latter, and of the acceptance the offerer had knowledge before said offer
was withdrawn. The concurrence of both acts — the offer and the acceptance — could at
all events have generated a contract, if none there was before (arts. 1254 and 1262 of the
Civil Code; Zayco vs. Serra, 44 Phil. 331.) In other words, since there may be no valid
contract without a cause or consideration, the promisor is not bound by his promise and
may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.
9. Proper construction of conflicting provisions of the same law; Harmonize to

implement the same principle rather than to create exceptions In line with the cardinal
rule of statutory construction that, in construing different provisions of one and the same
law or code, such interpretation should be favored as will reconcile or harmonize said
provisions and avoid a conflict between the same. Indeed, the presumption is that, in the
process of drafting the Code, its author has maintained a consistent philosophy or
position. Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf
& pacific Co., holding that Art. 1324 (on the general principles on contracts) is modified
by Art. 1479 (on sales) of the Civil Code, in effect, considers the latter as an exception to
the former, and exceptions are not favored, unless the intention to the contrary is clear,
and it is not so, insofar as said 2 articles are concerned. What is more, the reference, in
both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported
by or founded upon a consideration, strongly suggests that the 2 provisions intended to
enforce or implement the same principle.
10. Atkins, Kroll & Co. case modifies or abandons Southwestern Sugar case insofar as
to inconsistencies Upon mature deliberation, the Court is of the considered opinion that
it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case,
and that, insofar all inconsistent therewith, the view adhered to in the South western
Sugar & Molasses Co. case should be deemed abandoned or modified.
By: M. Villarmea

HILL VS VELOSO
31 Phil 161
Facts:
On December 30, 1910, defendants Veloso and Domingo Franco jointly and
severally executed a promissory note in the amount of P6,319.33 on behalf of Michael & Co.
for goods to be received by the La Cooperativa Filipina company. Goods are proven to have
been delivered to La Cooperativa Filipina Company and it was alleged that four months or
the equivalent of P2000 (P500/month) are already paid in the said debt to Michael & Co.
later on, the promissory note was endorsed to plaintiff Hill and it was the later who brought
and action to collect the remaining balance of P4, 319.33 plus the interest and the attorney’s
fees thereof.
Veloso alleged that she was deceived by Franco into signing the blank sheet of paper
by saying that it was for the promissory note to be executed by Veloso for P8,000 pesos for
the benefit of the minor children of one Ricablanca.
The new guardian is one levering, to whom Veloso thought the obligation was due as
guardian of the estate of the minor children. However, upon Francos’s death, Veloso alleged
that the deceased Franco used his signature to execute the contract with Michael and Co.,
now endorsed to Hill. Therefore, she also alleges that she has no transaction with Michael
and Co. nor with the plaintiff, and never received any kinds of good from the said company.
During the pendency of the case above which was initiated by Hill, Leveling
commenced proceedings for the recovery of P8,000.
Veloso answered that her debt was to Ricablanca in her own right, and not in her
capacity as guardian of her minor children.
Issue:
Whether or not the promissory note is binding on the defendants.
Ruling:
The Promissory is not binding on the defendants because of the reason that there is no
other signed document than the promissory note presented either the intention, on its being
signed, of securing the payment of the goods sold to the La Cooperativa. And the facts
constituting the consideration for the contract contained in the promissory note are fully

proven. With regard to the P8,000, what is logical is that Veloso would have refused to
execute her obligation to Levering in the first instance ( i.e. when she signed the blank sheet
of paper thinking it was for the P8,000) as she did reject it in 1912 saying she did not
consider herself in debt to the minors, but to their mother.
Since the obligation was joint, it is immaterial to know whether La Cooperativa
exclusively belonged to Veloso or to the deceased Franco. The deceit alleged could not annul
the consent of the contracting parties to the promissory note, nor exempt Veloso from the
obligation incurred. There is deceit when by words or insidious machinations on the part of
one of the contracting parties, the other is induced to execute a contract which without them
he would not have made.
Actually, Franco is not one of the contracting parties with regard to Veloso as the
other. They are both but one single contracting party in a relation with or against Michael &
Co. Franco could be as a third person inducing deceit. But, there is no reason for making one
of the parties suffer for the consequences of the act of a third person in whom the other
contracting party may have reposed an imprudent confidence.
With regards with the goods mentioned, it was proven that the goods, the
consideration for the debt, were received by La Cooperativa. It was also proven that the
goods came from the Michael & Co and it was likewise proven that La Cooperativa belonged
to the defendant.
The Judgement appealed from is reversed against defendant Veloso ordering the
payment of the remaining balance of P4,319 plus the one and one-half interest thereof.
By: C. Estera

MAPALO VS MAPALO
G.R. No. L-21489 and L-21628
May 9,1968
Facts:
The spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were
registered owners, with Torrens title certificate O.C.T. No. 46503, of a 1,635-square-meter
residential land in Manaoag, Pangasinan. Said spouses-owners, out of love and affection for
Maximo Mapalo — a brother of Miguel who was about to get married — decided to donate
the eastern half of the land to him. O.C.T. No. 46503 was delivered. As a result, however,
they were deceived into signing, on October 15, 1936, a deed of absolute sale over the entire
land in his favor. Their signatures thereto were procured by fraud, that is, they were made to
believe by Maximo Mapalo and by the attorney who acted as notary public who "translated"
the document, that the same was a deed of donation in Maximo's favor covering one-half (the
eastern half) of their land.
Although the document of sale stated a consideration of Five Hundred (P500.00)
Pesos, the aforesaid spouses did not receive anything of value for the land. Not known to
them, meanwhile, Maximo Mapalo, on March 15, 1938, registered the deed of sale in his
favor and obtained in his name Transfer Certificate of Title No. 12829 over the entire land.
Thirteen years later on October 20, 1951, he sold for P2,500.00 said entire land in favor of
Evaristo, Petronila Pacifico and Miguel all surnamed Narciso. The sale to the Narcisos was in
turn registered on November 5, 1951 and Transfer Certificate of Title No. 11350 was issued
for the whole land in their names.
The Narcisos took possession only of the eastern portion of the land in 1951, after the
sale in their favor was made. On February 7, 1952 they filed suit in the Court of First
Instance of Pangasinan (Civil Case No. 1191) to be declared owners of the entire land, for
possession of its western portion; for damages; and for rentals. It was brought against the
Mapalo spouses as well as against Floro Guieb and Rosalia Mapalo Guieb who had a house
on the western part of the land with the consent of the spouses Mapalo and Quiba.
The Mapalo spouses filed their answer with a counterclaim on March 17, 1965,
seeking cancellation of the Transfer Certificate of Title of the Narcisos as to the western half
of the land, on the grounds that their (Mapalo spouses) signatures to the deed of sale of 1936
was procured by fraud and that the Narcisos were buyers in bad faith. They asked for
reconveyance to them of the western portion of the land and issuance of a Transfer
Certificate of Title in their names as to said portion.

The Court of First Instance of Pangasinan rendered judgment ordering the Register of
Deeds of Pangasinan to issue in lieu of Transfer Certificate of Title No. 11350 two new titles
upon completion of the subdivision plan, one in favor of the spouses Miguel Mapalo and
Candida Quiba covering the western half portion and another for the Narcisos covering the
eastern half portion of the said land, upon payment of the legal fees; meanwhile the right of
the spouses Mapalo and Quiba is hereby ordered to be annotated on the back of Transfer
Certificate of Title No. 11350.
The Narcisos appealed to the Court of Appeals. In its decision on May 28, 1963, the
Court of Appeals reversed the judgment of the Court of First Instance, solely on the ground
that the consent of the Mapalo spouses to the deed of sale of 1936 having been obtained by
fraud, the same was voidable, not void ab initio, and, therefore, the action to annul the same,
within four years from notice of the fraud, had long prescribed. It reckoned said notice of the
fraud from the date of registration of the sale on March 15, 1938. The Court of First Instance
and the Court of Appeals are therefore unanimous that the spouses Mapalo and Quiba were
definitely the victims of fraud. It was only on prescription that they lost in the Court of
Appeals.
From said decision of the Court of Appeals, the Mapalo spouses appealed to this
Court. And here appellants press the contention that the document dated October 15, 1936,
purporting to sell the entire land in favor of Maximo Mapalo, is void, not merely voidable, as
to the western portion of the land for being absolutely simulated or fictitious.
Issue:
Whether the document dated October 15, 1936, purporting to sell the entire land in
favor of Maximo Mapalo, is void, not merely voidable, as to the western portion of the land
for being absolutely simulated or fictitious. Whether there was an onerous conveyance of
ownership, that is, a sale, by virtue of said deed of October 15, 1936, with respect to said
western portion. Specifically, was there a cause or consideration to support the existence of a
contrary of sale?
Ruling:
Starting with fundamentals, under the Civil Code, either the old or the new, for a
contract to exist at all, three essential requisites must concur: (1) consent, (2) object, and (3)
cause or consideration. The Court of Appeals is right in that the element of consent is present
as to the deed of sale of October 15, 1936. For consent was admittedly given, albeit obtained
by fraud. Accordingly, said consent, although defective, did exist. In such case, the defect in

the consent would provide a ground for annulment of a voidable contract, not a reason for
nullity ab initio.
The parties are agreed that the second element of object is likewise present in the
deed of October 15, 1936, namely, the parcel of land subject matter of the same.
Not so, however, as to the third element of cause or consideration. And on this point
the decision of the Court of Appeals is silent. As regards the eastern portion of the land, the
Mapalo spouses are not claiming the same, it being their stand that they have donated and
freely given said half of their land to Maximo Mapalo. The rule under the Civil Code, again
be it the old or the new, is that contracts without a cause or consideration produce no effect
whatsoever.
In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40
Phil. 921, is squarely applicable herein. In that case we ruled that a contract of purchase and
sale is null and void and produces no effect whatsoever where the same is without cause or
consideration in that the purchase price which appears thereon as paid has in fact never been
paid by the purchaser to the vendor. Needless to add, the inexistence of a contract is
permanent and incurable and cannot be the subject of prescription.
Under the existing classification, such contract would be "inexisting" and "the action
or defense for declaration" of such inexistence "does not prescribe". (Art. 1410, New Civil
Code). While it is true that this is a new provision of the New Civil Code, it is nevertheless a
principle recognized since Tipton vs. Velasco, 6 Phil. 67 that "mere lapse of time cannot give
efficacy to contracts that are null and void".
In view of defendants' bad faith under the circumstances we deem it just and equitable
to award, in plaintiffs' favor, attorneys' fees on appeal, in the amount of P1,000.00 as prayed
for in the counterclaim.
Wherefore, the decision of the Court of Appeals is hereby reversed and set aside, and
another one is hereby rendered affirming in toto the judgment of the Court of First Instance a
quo, with attorney's fees on appeal in favor of appellants in the amount of P1,000.00, plus the
costs, both against the private appellees.
By: C. Subrian

SPS. SANTOS VS CA
G.R. No. 120820
August 1, 2000
Facts:
Spouses Santos owned the house and lot in Better Living Subdivision, Paranaque, Metro
Manila. The land together with the house, was mortgaged with the Rural Bank of Salinas,
Inc., to secure a loan of P150K. The bank sent Rosalinda Santos a letter demanding payment
of P16K in unpaid interest and other charges. Since the Santos couple had no funds,
Rosalinda offered to sell the house and lot to Carmen Caseda. After inspecting the
real property, Carmen and her husband agreed. Carmen and Rosalinda signed a document,
involving the sale of the house – P350K as full amount, P54K as downpayment. Among
other condition set is that Caseda will pay the balance of the mortgage in the bank, real estate
taxes and the electric and water bills.
The Casedas complied with the bank mortgage and the bills. The Santoses, seeing that the
Casedas lacked the means to pay the remaining installments and/or amortization of the loan,
repossessed the property. The Santoses then collected the rentals from the tenants. Carmen
approached petitioners and offered to pay the balance of the purchase price for the house and
lot. The parties, however, could not agree, and the deal could not push through because the
Santoses wanted a higher price. Carmen is now praying that the Santoses execute the final
deed of conveyance over the property.
Issue:
WON there was a perfected contract of sale? NO
Ruling:
A contract is what the law defines it to be, taking into consideration its essential elements,
and not what the contracting parties call it. Article 1458 expressly obliges the vendor to
transfer ownership of the thing sold as an essential element of a contract of sale. This is
because the transfer of ownership in exchange for a price paid or promised is the very
essence of a contract of sale. There was no transfer of ownership simultaneously with the
delivery of the property purportedly sold. The records clearly show that, notwithstanding the
fact that the Casedas first took then lost possession of the disputed house and lot, the title to
the property has remained always in the name of Rosalinda Santos. Although
the parties had agreed that the Casedas would assume the mortgage, all amortization
payments made by Carmen Caseda to the bank were in the name of Rosalinda Santos. The
foregoing circumstances categorically and clearly show that no valid transfer of ownership

was made by the Santoses to the Casedas. Absent this essential element, their agreement
cannot be deemed a contract of sale. It was a contract to sell. Ownership is reserved by the
vendor and is not to pass until full payment of the purchase price. This we find fully
applicable and understandable in this case, given that the property involved is a titled realty
under mortgage to a bank and would require notarial and other formalities of law before
transfer thereof could be validly effected.
The CA cannot order rescission. If the vendor should eject the vendee for failure to meet
the condition precedent, he is enforcing the contract and not rescinding it. When the
petitioners in the instant case repossessed the disputed house and lot for failure of private
respondents to pay the purchase price in full, they were merely enforcing the contract and not
rescinding it.
By: M. Dijino

SANTOS VS HEIRS OF VILLANUEVA

G.R. No. 143325
October 24, 2000
Facts:
Macario A. Mariano and Irene Peña-Mariano were spouses who, during their lifetime,
were owners in fee simple of six (6) parcels of land covered by five (5) land titles, to wit: Lot
15-A (TCT No. 1962) Lot 15-B (TCT No. 1963), Lot 15-C (TCT No. 1964), Lots 545 and
2348 (TCT No. 259) and Lot No. 612 (TCT No. 219). The had two judicially adopted
children namely Jose P. Mariano and Erlinda Mariano-Villanueva.
When Macario died on 02 December 1972, his share were passed on to his heirs,
namely, Irene Macario (Irene), Jose Mariano (Jose) and Erlinda Mariano-Villanueva
(Erlinda), who executed an "Indenture of Extra-Judicial Settlement of Estate" (Exh. "B")
appointing Irene "to be their lawful representative and agent with special and/or general
powers to act in their behalf and to represent them in any act or transaction of whatsoever
nature involving the estate, involving but not limited to acts of management, administration,
dominion and ownership. But the settlement excludes Lot 612 which was exclusively
transferred in the name of Irene (TCT No. 7257).
On 09 December 1974, Irene married Rolando Relucio (Rolando), and four months
after their marriage Irene executed a Deed of Absolute Sale (Exh. "G") covering the
aforementioned six (6) parcels of land to Raul Santos (Raul), Rolando's first cousin. On the
other hand , Lot 612 which was solely owned by Irene was also sold to Amado Sanao.
Irene died on 26 June 1988 leaving as her only compulsory heirs judicially adopted
children Jose and Erlinda. Rolando also died on 30 January 1990.
It was only after Irene's death that Jose and Erlinda discovered the disposition of the six (6)
parcels of land in favor of Raul. They caused the expert examination of the Deed of Sale
dated 15 April 1975 by the National Bureau of Investigation (NBI). Per its Questioned
Documents Report, the NBI made the following findings:
1. The questioned typewritten entries were not prepared from one and the same typewriter
and
2. Three pages of the Deed of Absolute Sale were not the original pages of the document in
question.
Supreme Court held "(T)he records of this cases are bereft of proof that the Deed of
Absolute Sale (Exh. A) of Irene Mariano's properties is a falsified document. And that her
signature in Exhibit A is forged."

The Deed of Sale dated 15 April 1975 gave rise to another court litigation, this time a suit
for annulment of sale with damages, docketed as Civil Case No. 88-1506 filed on 18 July
1988 by Jose and Erlinda against Rolando, Raul and the Register of Deeds of Naga City.
When Jose( Irene’s heir) died on 02 December 1989 he was substituted by the herein
plaintiffs-appellants. Likewise, when Rolando died on 30 January 1990, he was substituted
by his legal wife and children.
A Joint Judgment on a case filed by Jose and Erlinda dated 22 July 1994 was ultimately
rendered after a protracted trial in favor of the defendants, herein appellees Rolando Relucio,
Raul Santos and the Register of Deeds of Naga City, citing the ruling of the Supreme Court
in Mariano vs. Peñas, (supra) the court a quo upheld the validity of the Deeds of Absolute
Sale executed by Irene in favor of Raul.
During the pendency of this appeal, plaintiffs-appellants filed a Motion for New Trial on
the ground of newly-discovered evidence which was granted by this Court in its resolution
dated 31 March 1998.
During the new trial hearing on 08 May 1998, plaintiffs-appellants presented three (3)
witnesses and several documentary evidence. Judgment was rendered by the Court of
Appeals declaring the Deeds of Absolute Sale dated 15 April 1975 and 10 March 1982 null
and void.
Petitioner then filed a Motion for Reconsideration dated December 27, 1999, but was
denied while the Supplemental Motion to Restore Possession and Administration to
Plaintiffs-Appellants is granted.
Issues
The ultimate bone of contention in the instant controversy is whether or not the
supposed contracts of sale of various pieces of real property entered into between Irene Peña-
Mariano, as vendor and the respective vendees were bona fide contracts, legal, and binding
upon respondents Jose P. Mariano and Erlinda Mariano-Villanueva, who were registered co-
owners of those real properties.
Firstly, petitioner argues that apparently "the Court of Appeals seriously erred on a
question of law when it failed to consider and in fact ignored and ruled against the Supreme
Court en banc decision sustaining the regularity and validity of "Exhibit G" which is the
same document inquired into and made subject of the Supreme Court ruling in Mariano vs.
Peñas (supra) in effect setting it aside, and instead erroneously construed the first deed of sale
("Exhibit G") and the second deed of sale ("Exhibit H") as simulated and therefore null and
void"

Secondly, petitioner claims that " the Court of Appeals seriously erred on a question
of law when it granted the motion for new trial filed by respondents heirs of Jose P. Mariano
and Erlinda Mariano-Villanueva alleging newly discovered evidence which allegedly could
alter the result when in truth said documents cannot be so construed and are not under the
rules, newly discovered evidence. He had the opportunity to assail the ruling of the Court of
Appeals when it allowed the reception of newly discovered evidence on appeal, but he did
not. Instead, petitioner participated in the hearing, to give effect to lawful and valid claims
and not to frustrate them" (Mobil Oil Philippines vs. Court of Appeals, 225 SCRA 486
[1993]).
Lastly, petitioner claims that "the Court of Appeals seriously erred on a question of
law when despite its decision not being final, said Court with grave abuse of discretion
tantamount to lack or excess of jurisdiction granted the respondents-appellees' 'motion to
restore possession and administration to plaintiffs-appellants' and 'supplemental motion to
restore possession and administration to plaintiffs-appellants' of subject properties as
appearing in its resolution dated May 19, 2000".
Ruling
The flawed argument fails to mislead this Court. It is basic and elementary in this
jurisdiction that what determines the validity of a contract is contained in (Article 1318, Civil
Code). "The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the provisions of the law governing the
form of contracts" (Article 1475, Civil Code). Even with a duly executed written document
(which apparently is the net result in Mariano vs. Peñas, supra) purporting to be a contract of
sale, the Court cannot rule that the subject contracts of sale are valid, when the evidence
presented in the courts below show that there had been no meeting of the minds between the
supposed seller and corresponding buyers of the parcels of land in this case. The case is
replete with evidence tending to show that there was really no intention to sell the subject
properties,
In view of our disposition of the first two assigned errors, we find it moot and
academic to discuss this third issue. It would be useless, if not illogical to reverse the ruling
of the Court of Appeals on this matter by restoring possession and administration to
petitioner, only to revert the same to respondents upon finality of this resolution. It would be
best to leave these matters in their present status quo.
By: M. Doronila-Porcina

MMDA VS JANCOM
G.R. No. 147465
Jan. 30, 2002
Facts:
In 1994, then President Fidel V. Ramos created the Executive Committee (EXECOM) to
oversee the BOT implementation of solid waste management projects. The EXECOM was to
oversee and develop waste-to-energy projects for the waste disposal sites in San Mateo, Rizal
and Carmona, Cavite under the build-operate-transfer (BOT) scheme. The Pre-qualification,
Bids and Awards Committee (PBAC) recommended the pre-qualification of three
proponents, namely: i) JANCOM; ii) First Philippine International W-E Managers; and iii)
PACTECH, and the EXECOM approved the recommendation of the PBAC. Consequently,
JANCOM and First Philippines were declared the winning bidders, respectively, for the San
Mateo and the Carmona projects. Then MMDA Chairman Oreta informed JANCOM that the
EXECOM had approved the PBAC recommendation to award to JANCOM the San Mateo
Waste-to-Energy Project as the winning bidder for the San Mateo Waste Disposal site,
subject to negotiation and mutual approval of the terms and conditions of the contract of
award. The BOT Contract for the waste-to-energy project was signed between JANCOM
and the Philippine Government. The BOT contract was submitted to President Ramos for
approval but this was too close to the end of his term which expired without him signing the
contract. President Ramos, however, endorsed the contract to incoming President Joseph E.
Estrada.
With the change of administration, the composition of the EXECOM also changed. Too,
the Clean Air Act of 1999, was passed by Congress. And due to the clamor of residents of
Rizal province, President Estrada also ordered the closure of the San Mateo landfill. Due to
these circumstances, the Greater Manila Solid Waste Management Committee adopted a
resolution not to pursue the BOT contract with JANCOM. JANCOM appealed to President
Joseph Estrada the position taken by the EXECOM not to pursue the BOT Contract. Despite
the pendency of the appeal, MMDA, caused the publication in a newspaper of an invitation
to pre-qualify and to submit proposals for solid waste management projects for Metro
Manila. JANCOM thus filed with the Regional Trial Court of Pasig a petition for certiorari
to declare i) the resolution of the Greater Metropolitan Manila Solid Waste Management
Committee disregarding the BOT Contract and ii) the acts of MMDA calling for bids and
authorizing a new contract for Metro Manila waste management, as illegal, unconstitutional,
and void. The trial court rendered a decision in favor of JANCOM.
Petitioner MMDA contends that there is no valid and binding contract between the
Republic of the Philippines and respondents because: a) the BOT contract does not bear the
signature of the President of the Philippines; b) the conditions precedent specified in the
contract were not complied with; and that c) there was no valid notice of award.

Ruling:
Under Article 1305 of the Civil Code, “[a] contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render
some service.” A contract undergoes three distinct stages — preparation or negotiation, its
perfection, and finally, its consummation. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at the moment of
agreement of the parties. The perfection or birth of the contract takes place when the parties
agree upon the essential elements of the contract. The last stage is the consummation of the
contract wherein the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof. Article 1315 of the Civil Code, provides that a
contract is perfected by mere consent. Consent, on the other hand, is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute
the contract. In the case at bar, the signing and execution of the contract by the parties
clearly show that, as between the parties, there was a concurrence of offer and acceptance
with respect to the material details of the contract, thereby giving rise to the perfection of the
contract.
There being a perfected contract, MMDA cannot revoke or renounce the same without
the consent of the other. From the moment of perfection, the parties are bound not only to
the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage, and law (Article 1315,
Civil Code). The contract has the force of law between the parties and they are expected to
abide in good faith by their respective contractual commitments, not weasel out of them. Just
as nobody can be forced to enter into a contract, in the same manner, once a contract is
entered into, no party can renounce it unilaterally or without the consent of the other.
Nonetheless, it has to be repeated that although the contract is a perfected one, it is still
ineffective or implementable until and unless it is approved by the President.
By: J.V. Magno

DUMEZ VS NLRC
G.R. No. 82340
Aug. 12, 1991
Facts:
Petitioner is a French company which hires Filipino workers through a ECCOI, a
company existing in the Philippines. Dumez needed 4 Senior Draftsmen who were willing to
work for $600/month at Saudi Arabia. Private respondent Jose was among the draftsmen that
were hired by ECCOI in behalf of Dumez. The employment agreement of Jose showed that
his monthly base salary would be $680. This discrepancy was discovered when Dumez began
preparing the papers related to respondent’s first month salary. The discrepancy was reported
to ECCOI who in turn claimed that it was a mere typographical error. Meanwhile, Jose
insisted on being paid $680 per month as stated in his employment agreement. Dumez
eventually dismissed Jose on the grounds of “surplus employee, excess of manpower and
retrenchment.” A case was filed by Jose before the POEA and then before the NLRC who
ordered Dumez to pay the respondent’s salary for the unexpired portion of 1 year.
Issue:
WON there existed a valid contract between Dumez and Jose?
Ruling:
NO. The amount of monthly salary base was a prime consideration of the parties in
signing the employment contract. Mutual mistake, however, prevented the proposed contract
from arising.
The mutual mistake here should be distinguished from a mistake which vitiates
consent in a voidable contract.
The element of consent was not present at all in this case. There was no concurrence
of the offer and acceptance upon the subject matter and the cause which are to constitute the
contract.
In a situation wherein one or both parties consider that certain matters or specifics, in
addition to the subject matter and the causa should be stipulated and agreed upon, the area of
agreement must extend to all points that the parties deem material or there is no contract.
By: M.. Dungog

SOMOSO VS CA
G.R. No. 78050
October 23, 1989
Facts:
Documents of sale with reservation of title duly signed by spouses Caesar and Anita
Somoso (herein petitioners) purchased two different units of things (VHS and Cinema
Vision) from the Conpinco Marketing Company (private respondent herein. Before any
delivery was made, a provisional receipt was given to spouses’ down payments, it was made
known and acknowledged by Mrs. Somoso upon delivery August 13, 1979. There were
additional payments that succeeded then came to a halt.
As per request dated August 27, 1979 for demonstration purposes only, there was a
separate delivery of another appliance on October 24, 1979 and eventually pulled out the
next day. On this mark and after several months of the purchase of the VHS, Mr. Somoso
wrote and demanded that these be pulled out and as he claimed that, "not the unit requested
for demonstration" and the return of deposit made (P15,000). He also warned the company of
a consignment to the court if his demands are not met within 10 days from the company’s
receipt of his letter. The response of the company was a collection letter and hence this case
was filed by the spouses.
It was also evident in this case that the petitioner’s counsel, Atty. Francisco withdrew
his services to the spouses Somoso and that the failure of their counsel to inform them of the
decision of the lower court in favor of the company “constitutes an accident, mistake or
excusable negligence which has prevented the petitioners from taking an appeal as provided
for in Rule 38 of the Rules of Court.”
Issue:
1. Whether or not respondent Court of Appeals is correct in affirming the order of
the lower court dismissing the petitioners' petition for relief from judgment?
2. Whether or not there was a perfected contract of sale?
Ruling:
As exhibited in the case of Rizal Commercial Banking Corporation vs. Lood (110
SCRA 205) that, when a party has sufficient alternative on hand and not prevent by fraud,
accident, mistake or excusable negligence in taking actions or appeal, then he cannot benefit
from such Rule

Rule 38, Section 2 of the Rules of Court to warrant the filing of the petition for relief
is not parallel with the case at bar. As what have been said in the comment of Chief Justice
Moran that, the act of their counsel was not tantamount to an excusable negligence in line
with Rule 38 herein. The contention of the petitioners that there was no perfected contract of
sale as there was absence of meeting of minds upon the thing which is the object of the
contract and upon the price of the said thing were clearly false as they were the documents of
sale with title reservations. Both signed in agreement of the purchases as well as those
documents were duly notarized which were the terms of sale were entered on August 13,
1979.
By: A. Conception

YUVIENCO VS DACUYCUY
G.R. No L-55048
May 27, 1981
Facts:
In essence, the theory of petitioners is that while it is true that they did express
willingness to sell to private respondents the subject property (land and building) for
P6,500,000.00 provided the latter made known their own decision to buy it not later than July
31, 1978, the respondents' reply that they were agreeable was not absolute, so much so that
when ultimately petitioners' representative went to Cebu City with a prepared and duly
signed contract for the purpose of perfecting and consummating the transaction, respondents
and said representative found variance between the terms of payment stipulated in the
prepared document and what respondents had in mind, hence the bank draft which
respondents were delivering to the representative was returned and the document remained
unsigned by respondents.
The respondents, in their complaint, contended “That on August 1, 1978 Pedro
Gamboa arrived Tacloban City bringing with him the prepared contract to purchase and to
sell referred to in his telegram dated July 27, 1978 for the purpose of closing the transactions
referred to in paragraphs 8 and 9 hereof, however, to the complete surprise of plaintiffs, the
defendant without giving notice to plaintiffs, changed the mode of payment with respect to
the balance of P4,500,000.00 by imposing upon plaintiffs to pay same amount within thirty
(30) days from execution of the contract instead of the former term of ninety (90) days.”
Issues:
1. Whether or not the complaint sufficiently states a cause of action?
2. Whether or not the claim alleged therein is unenforceable under the Statute of Frauds?
Ruling:
1. The court held that although there was no perfected contract of sale in the light of the letter
of Atty. Gamboa of July 12, 1978 and the letter-reply thereto of Yao; it being doubtful
whether or not, under Article 1319 of the Civil Code, the said letter may be deemed as an
offer to sell that is "certain", and more, the Yao telegram is far from being an "absolute"
acceptance under said article, still there appears to be a cause of action alleged in
Paragraphs 8 to 12 of the respondents' complaint, considering it is alleged therein that
subsequent to the telegram of Yao, it was agreed that the petitioners would sell the

property to respondents for P6.5 M, by paving P2 M down and the balance in 90 days and
which agreement was allegedly violated when in the deeds prepared by Atty. Gamboa and
taken to Tacloban, only 30 days were given to respondents.
2.Further, the court ruled that in any sale of real property on installments, the Statute of
Frauds read together with the perfection requirements of Article 1475 of the Civil Code
must be understood and applied in the sense that the idea of payment on installments
must be in the requisite of a note or memorandum therein contemplated.
By: M.C. Ybio

F or ms o f Co nt ra ct s - Arts. 1356–1358
HERNAEZ VS DELOS ANGELES

27 SCRA 1276
Facts:
Herein petitioner, Marlene Dauden-Hernaez is a motion picture actress. She filed a
complaint against herein private respondents, Hollywood Far East Productions, Inc., and its
President and General Manager, Ramon Valenzuela, to recover P14,700.00 representing a
balance allegedly due said petitioner for her services as leading actress in two motion
pictures produced by the company, and to recover damages. Upon motion of defendants, the
respondent court (Judge Walfrido de los Angeles presiding) ordered the complaint dismissed,
mainly because the "claim of plaintiff was not evidenced by any written document, either
public or private", and the complaint "was defective on its face" for violating Articles 1356
and 1358 of the Civil Code of the Philippines, as well as for containing defective allege,
petitions. The defense contended that “xxx-the contract sued upon was not alleged to be in
writing; that by Article 1358, the writing was absolute and indispensable, because the amount
involved exceeds five hundred pesos-xxx”
Issue:
Is a contract for personal services involving more than P500.00 invalid or
unenforceable under the last paragraph of Article 1358 of the Civil Code of the Philippines?
Ruling:
The contract sued upon by petitioner herein (compensation for services) does not
come under either exception. It is true that it appears included in Article 1358, last clause,
providing that "all other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one." But Article 1358 nowhere provides that the
absence of written form in this case will make the agreement invalid or unenforceable. On
the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding
and enforceable by action or suit despite the absence of writing.
It thus becomes inevitable to conclude that both the court a quo as well as the private
respondents herein were grossly mistaken in holding that because petitioner Dauden's
contract for services was not in writing the same could not be sued upon, or that her
complaint should be dismissed for failure to state a cause of action because it did not plead
any written agreement.
By: D. Picardal

ALANO VS BARBARA
G.R. No. L-4274
March 23, 1908
Facts:
On the 27th of May, 1907, Juana Cantos, assisted by her husband, Jose Alano, filed an
amended complaint alleging that her legitimate father had contracted a debt of P1,030 in
favor of Fulgencio Babasa and Maria Cantos, the parents of the defendant Jose Babasa, and
that in order to guarantee said debt he had pledged a parcel of land upon condition that the
creditors should enjoy the usufruct of said land from the date of the contract, July 18, 1883,
and for such purpose they took possession of the property during seven years, after which
time the debtor would be entitled to redeem it at any time by paying his debt; and on account
of the death of the said creditors, the plaintiff's husband, in her name, spoke personally and
through other persons to the defendant, Babasa, who now holds and enjoys the usufruct of
the land, seeking to redeem the same, and although the defendant in the beginning engaged to
permit its redemption, later on he offered to definitely purchase the land at an increase of
P1,370 in the price, but as the plaintiff did not agree to this, he then absolutely declined to
permit the redemption to which she was entitled, and she therefore asked that judgment be
entered in her favor ordering that the defendant, in compliance with what had been agreed to,
permit the land in question to be redeemed for said amount, or by some other means under
the law, and directing that the land be returned to her without payment for the reason that the
defendant had enjoyed its fruits during so many years of possession of the property, and that
he be sentenced to pay the costs.
In answer to the above the defendant made a general and specific denial of each and
all the facts stated in the complaint, and as a special defense alleged that the land described
had been sold with right of repurchase by the parents of the plaintiff Juana Cantos, to
Fulgencio Babasa, father of the defendant, on the 18th of July, 1883, for the sum of 1,000
pesos, of which 300 pesos were furnished by the defendant himself, and that the period
stipulated for the repurchase was seven years from said date; that the parents of the plaintiff,
who lived many years after the expiration of the said period of seven years granted for said
repurchase, had not exercised their right; and in view thereof he asked that the complaint be
dismissed with the costs against the plaintiffs.
Issues:
Whether or not the right to repurchase has prescribed.

Ruling:
The stipulated contract, owing to its form and the terms in which the document has
been prepared, is in no way a contract of loan with mortgage, but a real contract of sale with
right to repurchase treated of in article 1507 et seq. of the Civil Code. It is valid, perfect, and
efficient, because the three requisites prescribed by article 1261 of the Civil Code are present
therein, and is binding notwithstanding the fact that it had been drawn up as a private
document, in accordance with the provisions of article 1278 of said code, inasmuch as the
legalization of a contract by means of a public writing and its entry in the register are not
essential solemnities or requisites for its validity and efficacy as between the contracting
parties, but conditions of form which the law imposes, and that a publicly executed and
recorded agreement may be respected by the latter.
Moreover, it was agreed by the contracting parties, that from the date of the contract,
July 18, 1883, the sellers of the land would deliver it to the purchaser in order that he might
work the same as if it were his own property for seven years beginning from said date. It was
likewise stipulated that the expiration of the said seven years the sellers would be entitled to
redeem it for the said sum of 1,000 pesos, but that so long as it was not repurchased by return
of the sale price, the property would continue to be at the disposal of the purchaser. So that
the redemption or repurchase could not be effected until after the lapse of the seven years
agreed to, although no period was fixed within which the repurchase, which the plaintiffs
might have demanded since the 19th of July, 1890, was to take place.
Furthermore, it is known that since the time when the Civil Code went into effect no
sale with right of repurchase can be made for an indefinite period inasmuch as article 1508
(now 1606) of the same fixes the period at four years if no term has been agreed to, and in
case of agreement said term can exceed ten years, and said article is applicable even to
contracts entered into prior to the Civil Code, by the reason that property should not be
subject indefinitely or for long time to resolutory conditions such a redemption, and
prescription during its running does not create a vested right but only a hope of the
realization or the effecting of the same; therefore, in answer to the exigencies of the public
good and the interests of society, the provisions of the said article were enacted by the
legislator, employing therein a restricting and limiting system as security for the ever to be
respected right of ownership.
By: E.J. Solon

R ef or ma t i on of I ns t r um en t s - Arts. 1359–1369
ATILANO VS ATILANO
G.R. No. L-22487
28 SCRA 231
May 21, 1969
Facts:
In 1916, Eulogio Atilano I acquired lot No. 535. In 1920 he had the land subdivided
into five parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E, respectively.
On May 18 of the same year, after the subdivision had been effected, Eulogio Atilano I, for
the sum of P150.00, executed a deed of sale covering lot No. 535-E in favor of his brother
Eulogio Atilano II, who thereupon obtained transfer certificate of title No. 3129 in his name.
Three other portions, namely lots Nos. 535-B, 535-C and 535-D, were likewise sold to other
persons, the original owner, Eulogio Atilano I, retaining for himself only the remaining
portion of the land, presumably covered by the title to lot No. 535-A. Upon his death the title
to this lot passed to Ladislao Atilano, defendant in this case, in whose name the
corresponding certificate (No. T-5056) was issued.
Then, on July 16, 1959, when the land purchased by Eulogio Atilano II was
resurveyed so that it could properly be subdivided; it was then discovered that the land they
were actually occupying on the strength of the deed of sale executed in 1920 was lot No.
535-A and not lot 535-E, as referred to in the deed, while the land which remained in the
possession of the vendor, Eulogio Atilano I, and which passed to his successor, defendant
Ladislao Atilano, was lot No. 535-E and not lot No. 535-A. On January 25, 1960, the heirs
of Eulogio Atilano II, who was by then also deceased, filed the present action in the Court of
First Instance of Zamboanga, alleging, inter alia, that they had offered to surrender to the
defendants the possession of lot No. 535-A and demanded in return the possession of lot No.
535-E, but that the defendants had refused to accept the exchange. The plaintiffs' insistence is
quite understandable, since lot No. 535-E has a wider area than lot No. 535-A
The trial court rendered judgment for the plaintiffs on the sole ground that since the
property was registered under the Land Registration Act the defendants could not acquire it
through prescription. There can be, of course, no dispute as to the correctness of this legal
proposition.
Issue:
Whether or not there can be reformation of the contract.

Ruling:
The real issue here is not adverse possession, but the real intention of the parties to
that sale. From all the facts and circumstances we are convinced that the object thereof, as
intended and understood by the parties, was that specific portion where the vendee was then
already residing, where he reconstructed his house at the end of the war, and where his heirs,
the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and that its
designation as lot No. 535-E in the deed of sale was simple mistake in the drafting of the
document. The mistake did not vitiate the consent of the parties, or affect the validity and
binding effect of the contract between them. The new Civil Code provides a remedy for such
a situation by means of reformation of the instrument. This remedy is available when, there
having been a meeting of the funds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the agreement by reason of mistake, fraud,
inequitable conduct on accident (Art. 1359, et seq.) In this case, the deed of sale executed in
1920 need no longer reformed. The parties have retained possession of their respective
properties conformably to the real intention of the parties to that sale, and all they should do
is to execute mutual deeds of conveyance.
By: M. Teves-Solon

INVESTOR FINANCE CORP. VS CA

193 SCRA 547
Facts :
“Plaintiff (appellee herein) brought this action to recover a sum of money and
damages against the defendant R.C. Gonzales Co., Inc. (defendant company) (herein referred
to as Appellant Company) and spouses Ramon and Carmen Gonzales (herein referred to as
Appellant-Spouses) in their capacity as guarantors of the obligations contracted by the
defendant company. The complaint includes a prayer for the issuance of the writ of
preliminary attachment on the ground that defendants have removed or disposed or are so
planning to remove or dispose of their properties with intent to defraud the plaintiff. As a
second cause of action, plaintiff alleged that defendants likewise availed of the purchase-
lease-back financing facility. Under this scheme, plaintiff purchased various items of
construction equipment and leased the same back to the defendant company for a period of
two years commencing on 20 September 1979 and ending on 20 September 1981, pursuant to
the Lease Agreement. Defendants Ramon and Carmen Gonzales likewise executed a
Continuing Guaranty of Lease Obligations dated 5 September 1978. he third, fourth, and fifth
causes of action pleaded by the plaintiff in its complaint merely seek the enforcement of the
stipulation regarding damages and attorney's fees in all the loan agreements with the
defendants.
Issue:
Whether or not the defendant is solidarily liable and liable without extending to
exhaust company's resources?
Ruling:
From the import of the Continuing Guaranty alone, it is beyond doubt that appellant
Spouses Gonzales assumed liability and bound themselves to be jointly and severally liable
to the obligation of the appellant Company. While it is true that the said contract refers to
appellant Spouses as “guarantor” and agreed to “guarantee” to the obligation of the appellant
Company (as the Borrower), this Court believes that the usage of the said terms do not limit
or convert the same to a simple contract of guaranty. In fact, the Court has ruled in favor of
suretyship, though a contract was denominated as a “Continuing Guaranty” [5], as in this
case. On the contrary, the contract executed by the Spouses unequivocally disclosed their true
intention, and that is to be solidarily liable for the obligations incurred by the appellant
Company. Being solidarily liable with the principal debtor, appellant Spouses became a

surety under Article 2047[6] of the Civil Code, and not mere guarantors as appellant Spouses
insist. Indeed, the very terms of a contract govern the obligations of the parties or the extent
of the obligor's liability. In addition, appellants Spouses' claim that appellees cannot proceed
against them without exhausting first the property of the appellant Company, deserves scant
consideration. Appellants Spouses should be reminded that the benefit of excussion under the
Civil Code shall not take place in the following instances, to wit: (a) if the guarantor has
expressly renounced it; (b) if he has bound himself solidarily with the debtor.[7] At the risk
of being repetitive, appellant Spouses, as previously mentioned, bound themselves to be
solidarily liable with the appellant Company when they expressly waived and renounced the
benefit of excussion and therefore, the same cannot be applied in their favor.
By: A. Siglos

BORROMEO VS CA
47 SCRA 65
Facts;
Before the year 1933, defendant [Jose A. Villamor] was a distributor of lumber
belonging to Mr. Miller who was the agent of the Insular Lumber Company in Cebu City.
Defendant being a friend and former classmate of plaintiff [Canuto O. Borromeo] used to
borrow from the latter certain amounts from time to time. On one occasion with some
pressing obligation to settle with Mr. Miller, defendant borrowed from plaintiff a large sum
of money for which he mortgaged his land and house in Cebu City. Mr. Miller filed civil
action against the defendant and attached his properties including those mortgaged to
plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered
because not properly drawn up. Plaintiff then pressed the defendant for settlement of his
obligation, but defendant instead offered to execute a document promising to pay his
indebtedness even after the lapse of ten years. Liquidation was made and defendant was
found to be indebted to plaintiff in the sum of P7,220.00, for which defendant signed a
promissory note therefor on November 29, 1933 with interest at the rate of 12% per annum,
agreeing to pay 'as soon as I have money'. The note further stipulates that defendant 'hereby
relinquish, renounce, or otherwise waive my rights to the prescriptions established by our
Code of Civil Procedure for the collection or recovery of the above sum of P7,220.00. ... at
any time even after the lapse of ten years from the date of this instrument. After the
execution of the document, plaintiff limited himself to verbally requesting defendant to settle
his indebtedness from time to time. Plaintiff did not file any complaint against the defendant
within ten years from the execution of the document as there was no property registered in
defendant's name, who furthermore assured him that he could collect even after the lapse of
ten years. After the last war, plaintiff made various oral demands, but defendants failed to
settle his account, hence the present complaint for collection. Court of First Instance of Cebu
did sentence the original defendant, the deceased Jose A. Villamor, to pay Canuto O.
Borromeo, now represented by petitioners, the sum of P7,220.00 within ninety days from the
date of the receipt of such decision with interest at the rate of 12% per annum from the
expiration of such ninety-day period. Court of Appeals reversed CFI ruling.
Issue:
WON the CA erred in reversing the ruling of CFI in finding the lack of validity of the
stipulation amounting to waiver in line with the principle “that a person cannot renounce
future prescription.”

Held:
YES, between two possible interpretations, that which saves rather than destroys is to
be preferred. It is a fundamental principle in the interpretation of contracts that while
ordinarily the literal sense of the words employed is to be followed, such is not the case
where they “appear to be contrary to the evident intention of the contracting parties.” which
“intention shall prevail.” Another fundamental rule in the interpretation of contracts
specifically referred to in Kasilag vs. Rodriguez, clauses and condition contrary to law,
morals and public order should be separated from valid and legal contract when such
separation can be made because they are independent of the valid contract which expresses
the will of the contracting parties.
There is nothing implausible in the view that such language renouncing the debtor's
right to the prescription established by the Code of Civil Procedure should be given the
meaning, as noted in the preceding sentence of the decision of respondent Court, that the
debtor could be trusted to pay even after the termination of the ten-year prescriptive period.
For as was also made clear therein, there had been since then verbal requests on the part of
the creditor made to the debtor for the settlement of such a loan. Nor was the Court of
Appeals unaware that such indeed was within the contemplation of the parties as shown by
this sentence in its decision: "Plaintiff did not file any complaint against the defendant within
ten years from the execution of the document as there was no property registered in
defendant's name who furthermore assured him that he could collect even after the lapse of
ten years."
Manresa, commenting on article 1255 of the Civil Code and stating the rule of
separation just mentioned, gives his views as follows: 'On the supposition that the various
pacts, clauses, or conditions are valid, no difficulty is presented; but should they be void, the
question is as to what extent they may produce the nullity of the principal obligation. ... The
same view prevails in the Anglo-American law as condensed in the following words: 'Where
an agreement founded on a legal consideration contains several promises, or a promise to do
several things, and a part only of the things to be done are illegal, the promises which can be
separated, or the promise, so far as it can be separated, from the illegality, may be valid. The
rule is that a lawful promise made for a lawful consideration is not invalid merely because an
unlawful promise was made at the same time and for the same consideration, and this rule
applies, although the invalidity is due to violation of a statutory provision, unless the statute
expressly or by necessary implication declares the entire contract void.
The first ten years after November 29, 1933 should not be counted in determining
when the action of creditor, now represented by petitioners, could be filed. From the joint
record on appeal, it is undoubted that the complaint was filed on January 7, 1953. If the first

ten-year period was to be excluded, the creditor had until November 29, 1953 to start judicial
proceedings. After deducting the first ten-year period which expired on November 29, 1943,
there was the additional period of still another ten years. 29 Nor could there be any legal
objection to the complaint by the creditor Borromeo of January 7, 1953 embodying not
merely the fixing of the period within which the debtor Villamor was to pay but likewise the
collection of the amount that until then was not paid.
WHEREFORE, the decision of respondent Court of Appeals of March 7, 1964 is
reversed, thus giving full force and effect to the decision of the lower court of November 15,
1956. With costs against private respondents.
By: M. Bridges

LIM YHI LUYA VS CA

G.R. No. L-40258
Sept. 11, 1980
Facts:
On November 12, 1970, Lim Yhi Luya (petitioner) received from Manager Abalos
(respondent) a telegram, in a manner of invitation: “Please come tomorrow morning without
fail.” Thus, on November 13, 1970 Luya attended to it and came to an agreement with the
latter’s offer to sell sugar. The CONTRACT OF SALE OF SUGAR stated the seller (Hind
Sugar Company), buyer (Lim Yhi Luya), quantity of sugar agreed to purchase: 4,085 piculs
of sugar, at a price: P35.00/picul, and the terms: cash upon signing of this contract, as well
are the signatures and names of buyer and seller.
Issue:
Whether or not the plaintiff-appellee has paid the sum of P142,975.00 which is the
purchase price of the 4,085 piculs of sugar covered by the contract of sale?
Ruling:
The veracity of the stipulation in the contract which is in the terms agreed upon by the
two contracting parties is translucent in its implication that the intention of both parties will
be interpreted in the manner calculated for, and must be in command in this case. Thus, it is
clear that the stipulation is that payment was completed on the occasion of or at the time of
the signing of the contract and not subsequently done. Therefore the trial court succumbed to
the light of Article 1373 of the New Civil Code. As in the case of La Fuerza, Inc. vs. Court of
Appeals (23 SCRA 1217) as also pursuant to Article 1497 of the New Civil Code, “The thing
sold shall be understood as delivered when it is placed in the control and possession of the
vendee. Therefore, when the thing subject of the sale is placed in the control and possession
of the vendee, delivery is complete.” In so affirming with the lower court’s ruling, the trial
court upheld that, "It would be redundant to discuss what are the forms of receipts, but
anything evidencing or admitting payment in compliance with an obligation is a receipt” and
as in the terms of the contract herein. In line with Article 1636, the contract was already
beyond the established meeting of the minds as the parties continued to perform and
consummate the same. Section 7, Rule 130, Rev. Rules of Court also accentuated further that,
all such terms of an agreement are encapsulated when it has been reduced to writing. Oral
testimony cannot prevail over a written one.
In addition, allowing Manuel Chua Lim (son of herein petitioner, Lim Yhi Luya) to
witness the transaction done on November 13, 1970 was also not objected by the
respondent’s officials, thus the appealed judgment by Luya was then and there tenable.
By: A. Conception

RIVERA FILIPINO VS CA
G.R. No. 117355
April 5, 2002
Facts:
Civil Case No. Q – 89n- 3371 is a suit instituted by Riviera Filipina Inc., on August
31, 1989 to compel the defendants therein Juan L. Reyes now deceased, Philippine Cypress
Construction and Development Corporation (Cypress), Cornhill Trading Corporation
(Cornhill) and Urban Development Bank to transfer the title covering a 1018 square meter
parcel of land located along EDSA, Quezon City for alleged violation of Riviera’s right of
first refusal. It appears that on November 23, 1982, respondent Juan L. Reyes executed a
contract of Lease with Riviera. The ten year renewable lease of Riviera, which started on
August 1, 1982, involved a 1018 square meter parcel of land located along EDSA, Quezon
City in the name of Juan L. Reyes. The alleged property was mortgaged to Prudential Bank
as executed by Juan L. Reyes, with the fear that Reyes cannot possibly raise the money,
decided to sell the same. Because Riviera refused to buy the parcel of land at the price
offered by Reyes, Riviera offered a lower price in which Reyes refused the same. The case at
hand speaks of the contention by Riviera that his right of first refusal was violated by the
respondents, on the basis that on the contract stipulated by the parties particularly on
paragraph 11 of the lease contract expressly provided that the “LESSEE shall have the right
of first refusal should the LESSOR decide to sell the property during the term of the lease.”
Issue:
WON Respondents violated Riviera’s right of first refusal.
Held:
The concept and interpretation of the right of first refusal and the consequences of a
breach thereof evolved in Philippine juristic sphere only within the last decade. It all started
in 1992 with Guzman, Bocaling & Co. v. Bonnevie where the Court held that a lease with a
proviso granting the lessee the right of first priority “all things and conditions being equal”
meant that there should be identity of the terms and conditions to be offered to the lessee and
all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale
executed in favor of a third party who cannot be deemed a purchaser in good faith, and which
is in violation of a right of first refusal granted to the lessee is not voidable under the Statute
of Frauds but rescissible under Articles 1380 to 1381 (3) of the New Civil Code.

Thus, the prevailing doctrine is that a right of first refusal means identity of terms and
conditions to be offered to the lessee and all other prospective buyers and a contract of sale
entered into in violation of a right of first refusal of another person, while valid, is rescissible.
Analysis and construction should not be limited to the words used in the contract, as
they may not accurately reflect the parties’ true intent. The court must read a contract as the
average person would read it and should not give it a strained or forced construction.
Reyes was under no obligation to disclose the same. Pursuant to Article 1339 of the
New Civil Code, silence or concealment, by itself, does not constitute fraud, unless there is a
special duty to disclose certain facts, or unless according to good faith and the usages of
commerce the communication should be made. We apply the general rule in the case at bar
since Riviera failed to convincingly show that either of the exceptions are relevant to the case
at bar.
WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court
of Appeals dated June 6, 1994 in CA-G.R. CV No. 26513 is AFFIRMED. No
pronouncement as to costs.
By: M. Tejano

D ef ec t i ve Co nt ra ct s – Voidable Contracts – Arts. 1390 - 1402
UFC VS CA
33 SCRA 1
Facts:
This is a petition for certiorari by the UFC against the CA decision of February 13,
1968 declaring the BILL OF ASSIGNMENT rescinded, ordering UFC to return to Magdalo
Francisco his Mafran sauce trademark and to pay his monthly salary of P300.00 from Dec. 1,
1960 until the return to him of said trademark and formula.
On May 31, 1960, Magdalo Francisco entered into contract with UFC stipulating
among other things that he be the Chief Chemist and Second Vice-President of UFC and shall
have absolute control and supervision over the laboratory assistants and personnel and in the
purchase and safekeeping of the chemicals used in the preparation of said Mafran sauce and
that said positions are permanent in nature.
In line with the terms and conditions of the Bill of Assignment, Magdalo Francisco
was appointed Chief Chemist with a salary of P300.00 a month. Magdalo Francisco kept the
formula of the Mafran sauce secret to himself. Thereafter, however, due to the alleged
scarcity and high prices of raw materials, on November 28, 1960, Secretary-Treasurer
Ciriaco L. de Guzman of UFC issued a Memorandum duly approved by the President and
General Manager Tirso T. Reyes that only Supervisor Ricardo Francisco should be retained
in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should be
stopped for the time being until the corporation should resume its operation. On December 3,
1960, President and General Manager Tirso T. Reyes, issued a memorandum to Victoriano
Francisco ordering him to report to the factory and produce "Mafran Sauce" at the rate of not
less than 100 cases a day so as to cope with the orders of the corporation's various
distributors and dealers, and with instructions to take only the necessary daily employees
without employing permanent employees. Again, on December 6, 1961, another
memorandum was issued by the same President and General Manager instructing the
Assistant Chief Chemist Ricardo Francisco, to recall all daily employees who are connected
in the production of Mafran Sauce and also some additional daily employees for the
production of Porky Pops. On December 29, 1960, another memorandum was issued by the
President and General Manager instructing Ricardo Francisco, as Chief Chemist, and Porfirio
Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky Pops in full swing
starting January 2, 1961 with further instructions to hire daily laborers in order to cope with
the full blast operation. Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the
amount of P300.00 a month only until his services were terminated on November 30, 1960.
On January 9 and 16, 1961, UFC, acting thru its President and General Manager, authorized
Porfirio Zarraga and Paula de Bacula to look for a buyer of the corporation including its
trademarks, formula and assets at a price of not less than P300,000.00. Due to these

successive memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled back to
work, he filed the present action on February 14, 1961. Then in a letter dated March 20,
1961, UFC requested said plaintiff to report for duty, but the latter declined the request
because the present action was already filed in court.
Issue:
Was petitioner’s contention that Magdalo Francisco is not entitled to rescission valid?
Ruling:
No. Petitioner’s contention that Magdalo Francisco’s petition for rescission should be
denied because under Article 1383 of the Civil Code of the Philippines rescission cannot be
demanded except when the party suffering damage has no other legal means to obtain
reparation, was of no merit because “it is predicated on a failure to distinguish between a
rescission for breach of contract under Article 1191 of the Civil Code and a rescission by
reason of lesion or economic prejudice, under Article 1381, et seq.” This was a case of
reciprocal obligation. Article 1191 may be scanned without disclosing anywhere that the
action for rescission thereunder was subordinated to anything other than the culpable breach
of his obligations by the defendant. Hence, the reparation of damages for the breach was
purely secondary. Simply put, unlike Art. 1383, Art. 1191 allows both the rescission and the
payment for damages. Rescission is not given to the party as a last resort, hence, it is not
subsidiary in nature.
By: G.M. Cabusao

EQUATORIAL VS. MAYFAIR

G.R. No. 106063
November 21, 1996
FACTS:
Carmelo entered into a contract with respondent for the latter to lease A PORTION
OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue,
Manila, with a floor area of 1,610 square meters and THE SECOND FLOOR AND
MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a
floor area of 150 square meters.
The contract is set for the next 20 years.
2 years later, the parties entered into yet another contract involving; A PORTION OF
THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila,
with a floor area of 1,610 square meters and THE SECOND FLOOR AND MEZZANINE of
the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 150
square meters.
Stipulated in the contract was; That if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than the
LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to
stipulate in the Deed of Sale hereof that the purchaser shall recognize this lease and be bound
by all the terms and conditions thereof.
Sometime in 1974, Carmelo through Mr. Pascal by a telephone call told the
respondent that it is contemplating to sell the said property and that a certain Jose Araneta is
willing to buy the same for US$1,200,000. It also asked the respondent if it’s willing to the
property for six to seven million pesos. Respondent through Mr. Yang told the petitioner that
it would respond once a decision was made.
Respondent in its reply mentioned a stipulated part of the contract as to when
Carmelo would decide to sell the property. Carmelo did not reply.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land
and building, which included the leased premises housing the "Maxim" and "Miramar"
theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of
P11,300,000.00.

Mayfair instituted the action a quo for specific performance and annulment of the sale
of the leased premises to Equatorial.
Carmelo’s defense; as special and affirmative defense (a) that it had informed Mayfair
of its desire to sell the entire C.M. Recto Avenue property and offered the same to Mayfair,
but the latter answered that it was interested only in buying the areas under lease, which was
impossible since the property was not a condominium; and (b) that the option to purchase
invoked by Mayfair is null and void for lack of consideration.
Equitorial’s allegation; that the option is void for lack of consideration (sic) and is
unenforceable by reason of its impossibility of performance because the leased premises
could not be sold separately from the other portions of the land and building. It
counterclaimed for cancellation of the contracts of lease, and for increase of rentals in view
of alleged supervening extraordinary devaluation of the currency. Equatorial likewise cross-
claimed against co-defendant Carmelo for indemnification in respect of Mayfair's claims.
Trial Court rendered decision in favor of Carmelo and Equitorial.
ISSUE:
Whether or not the OPTION CLAUSE IN THE CONTRACTS OF LEASE IS
ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO.
RULING:
We agree with the respondent Court of Appeals that the afore cited contractual
stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause
or an option contract. It is a contract of a right of first refusal.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the
following language:
A contract by virtue of which A, in consideration of the payment of a certain sum to B,
acquires the privilege of buying from, or selling to B, certain securities or properties within a
limited time at a specified price.
The rule so early established in this jurisdiction is that the deed of option or the option
clause in a contract, in order to be valid and enforceable, must, among other things, indicate
the definite price at which the person granting the option, is willing to sell.
By: M.C. Cui

GUZMAN, BOCALING VS. BONNEVIE

G.R. No. 86150
March 2, 1992
Facts:
A parcel of land with two buildings belonging to the Intestate Estate of Jose L.
Reynoso, was leased to Raoul S. Bonnevie and Christopher Bonnevie, by the administratrix,
Africa Valdez de Reynoso. Paragraph 20 of the Contract of Lease states that, “In case the
LESSOR desire or decides to sell the lease property, the LESSEES shall be given a first
priority to purchase the same, all things and considerations being equal.”
According to Reynoso, she notified Bonnevie by registered mail on November 3,
1976 that she was selling the leased premises for P600.000.00, less a mortgage loan of
P100,000.00, and was giving them 30 days from receipt of the letter within which to exercise
their right of first priority; and if they don’t, she would expect them to vacate the property not
later than March, 1977.On January 20, 1977, she sent another letter advising them that in
view of their failure to exercise their right of first priority, she had already sold the property.
Upon receipt of this letter, Bonnevie wrote Reynoso informing her that neither of them had
received her first letter.
On March 7, 1977, the leased premises were formally sold to petitioner Guzman,
Bocaling& Co., for immediate payment of P137,500.00 on the purchase price, the balance of
P262,500.00 to be paid only when the premises were vacated.
On April 12, 1977, Reynoso demanded Bonnevie to vacate the premises. Upon
refusal, Reynoso filed a complaint for ejectment, submitting themselves into a Compromise
Agreement, which provided inter alia that the defendant vacate the premises not later than
October 31, 1979. When private respondents failed to comply, Reynoso filed a motion for
execution of the judgment by compromise.
On November 12, 1979, Bonnevie filed a motion to set aside the decision of the City
Court as well as the Compromise Agreement on the sole ground that Reynoso had not
delivered to him the "records of payments and receipts of all rentals by or for the account of
defendant ..." The motion was denied and the case was elevated to the then Court of First
Instance which remanded it to the City Court of Manila.
On April 29, 1980, Bonnevie filed an action for annulment of the sale between
Reynoso and herein petitioner Guzman, Bocaling & Co.; and, cancellation of the transfer
certificate of title in the name of the latter. They also asked that Reynoso be required to sell
the property to them under the same terms and conditions agreed upon in the Contract of Sale
in favor of the petitioner. The City Court decided the ejectment case, ordering defendants and
all persons holding under them to vacate the premises & deliver possession thereof to the

plaintiff, and to pay to the latter rental, reasonable compensation for the continued unlawful
use and occupation of said premises, attorney's fees& costs of suit.
The decision was appealed to the then Court of First Instance of Manila and
consolidated with another case. On the first, the court ordered the Bonnevies and all persons
holding under them to vacate the premises and deliver possessions thereof to the plaintiff;
and, pay the latter the sum (when possession of the premises was turned over to the Sheriff)
after deducting whatever payments were made and accepted by Reynoso during said period.
As to the other case, the Court declared the deed of sale with mortgage null and void;
cancelling the Certificate of Title; ordering the defendant Reynoso to execute in favor of
Bonnevie, a deed of sale with mortgage over the property leased by him under the same
terms and conditions should there be any other occupants or tenants in the premises; ordering
the defendants to pay temperate damages, rent(from the time the property was sold up to the
execution of a deed of sale),exemplary damages, attorney’s fees, &the cost of suit.
Both Reynoso and the petitioner company filed with the Court of Appeals a petition
for review of this decision. The appeal was eventually resolved against them. Upon denial of
their motion for reconsideration, petitioner went to the Supreme Court, where the petition
was DENIED, with costs against the petitioner; the challenged decision is AFFIRMED in
toto.
ISSUES:
(1) Whether the Contract of Sale was not voidable but rescissible
(2) Whether the petitioner is a buyer in bad or good faith
HELD:
(1) Even if the letter had indeed been sent to and received by the private respondent and they
did not exercise their right of first priority, Reynoso would still be guilty of violating
Paragraph 20 of the Contract of Lease which specifically stated that the private respondents
could exercise the right of first priority, "all things and conditions being equal." The Court
reads this mean that there should be identity of the terms and conditions to be offered to the
Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the right of first
priority. Only if the Bonnevies failed to exercise their right of first priority could Reynoso
lawfully sell the subject property to others, and at that only under the same terms and
conditions offered to the Bonnevies.
The respondent court correctly held that the Contract of Sale was not voidable,
but rescissible. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid
may nonetheless be subsequently rescinded by reason of injury to third persons, like
creditors. The status of creditors could be validly accorded the Bonnevies for they had

substantial interests that were prejudiced by the sale of the subject property to the petitioner
without recognizing their right of first priority under the Contract of Lease
According to Tolentino, rescission is a remedy granted by law to the contracting
parties and even to third persons, to secure reparation for damages caused to them by a
contract, even if this should be valid, by means of the restoration of things to their condition
at the moment prior to the celebration of said contract. It is a relief allowed for the protection
of one of the contracting parties and even third persons from all injury and damage the
contract may cause, or to protect some incompatible and preferment right created by the
contract. Recission implies a contract which, even if initially valid, produces a lesion or
pecuniary damage to someone that justifies its invalidation for reasons of equity.
(2) It is true that the acquisition by a third person of the property subject of the contract is an
obstacle to the action for its rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not act in bad faith. However, this
rule is not applicable in the case before us because the petitioner is not considered a third
party in relation to the Contract of Sale nor may its possession of the subject property be
regarded as acquired lawfully and in good faith.
The petitioner cannot be deemed a purchaser in good faith for the record shows that it
categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it. Although the Contract of Lease
was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was
equivalent to and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another
without notice that some other person has a right to or interest in such property and pays a
full and fair price for the same at the time of such purchase or before he has notice of the
claim or interest of some other person in the property. Good faith connotes an honest
intention to abstain from taking unconscientiously advantage of another.
By: N.R. Uy

SPS. THEIS VS CA
G.R. No. 126013
February 12, 1997
Facts:
The dispute in the case at bar are adjacent parcels of land (parcel nos.1, 2 and 3). All
three parcels of land are situated in Tagaytay City. Adjacent to parcel no.3 is a vacant lot
denominated as parcel no. 4. These lots which was subjected to a contract of sale was owned
by Calsons Development Corporation. in 1985 private respondent have both lot no. 3 and
constructed therein a two storey house. On 1990 private respondent discovered that the parcel
of they acquired was owned by another. This being a mistake on the survey and thus resulted
in wrong classification. The vendor being aware of the mistake remedied the vendee by,
offering parcel nos. 1 and 2 as these two were precisely the two vacant lots which vendor
owned and intended to sell. vendee rejected the good faith offer. vendor made another offer,
this time the return of an amount double the price paid by petitioners. Petitioners still refused.
Private respondent was then compelled to file an action for annulment of deed of sale and
reconveyance of the properties subject thereof in the RTC which ruled on their favor and on
appeal, the CA affirmed the same.
Issue:
Whether or not petitioners should be allowed to take parcel no. 3? Does mistake in
good faith can be a grounds for annulment of contract?
Ruling:
The law itself explicitly recognizes that consent of the parties is one of the essential
elements to the validity of the contract and where consent is given through mistake; the
validity of the contractual relations between the parties is legally impaired. The decision of
the Supreme Court emphasize a mistake in good faith this was shown by the atonement of the
vendor by substituting the lot with lots 1 and 2 which was the supposed lot for sale, the
second was payment in double which the vendee unjustly denied. Thus honest mistake
essential in the effectivity of the contract. To allow the petitioners to take parcel no. 3 would
be to countenance unjust enrichment. Considering that petitioners intended at the outset to
purchase a vacant lot, their refusal to accept the offer of the private respondent to give them
two (2) other vacant lots in exchange, as well as their insistence on parcel no. 3, which is a
house and lot, is manifestly unreasonable.
By: S.K. Saycon

RURAL BANK OF CALOOCAN VS DESIDERIO

G.R. No. L-32116
April 21, 1981
Facts:
In 1959, respondent Castro applied for an industrial loan of P3,000 with Rural Bank
of Caloocan. It was later approved, and she was made to sign a promissory note
corresponding to her loan. Thereafter, the Valencia spouses, who were with Castro, obtained
from the same bank another loan for P3,000, and had Castro affix her signature as co-maker.
These two loans were secured by mortgage on Castro’s house and lot. In 1961, the sheriff of
Manila sent her a notice of sheriff’s sale, announcing that her property would be sold at
public auction to satisfy the obligations on the two loans.
Castro alleged that it was only when she received the letter that she learned that the
mortgage contract which was an encumbrance on her property was for P6,000 and not for
P3,000. She filed a suit, claiming that through mistake on her part or fraud on the part of the
Valencias, she was induced to sign as co-maker of a promissory note and to constitute a
mortgage to secure the same. She prayed for the annulment of the promissory note and
mortgage insofar as it exceeds P3,000; for the discharge of her obligation with the bank by
reason of a deposit of P3,383 with the court in full payment of her personal loan plus interest;
and for the annulment of the foreclosure sale of her property in favor of Reyes.
The CA affirmed in toto the decision of the CFI Manila, declaring the contract of
mortgage null and void in so far as the amount exceeds P3,000, and annulling the
extrajudicial foreclosure sale of the mortgaged property. The CA ordered that her deposit of
P3,383 to the court be applied to the payment of the loan, that defendant Bank return to
Reyes the purchase price the latter paid for the mortgaged property, and that the Valencia
spouses pay the bank their loan plus interest.
Issues:
1. Can the promissory note and mortgage contract be invalidated on the ground of
fraud?
2. Is Castro’s negligence and acquiescence what made the fraud possible?
3. Was Castro’s consignation of P3,383 in court valid?

Ruling:
1. The CA declared that Castro’s consent to the promissory note and the mortgage
contract was obtained by fraud, perpetrated on her by the Valencias, who abused her
confidence, taking advantage of her old age and ignorance. Records show that the
findings of fraud were well supported by evidence. Petitioner argued that since the
Valencias were solely declared responsible for the fraud against Castro, in light of the
res inter alios acta rule, a finding of fraud cannot be taken to operate prejudicially
against the bank.
Article 1342 of the NCC states that, “Misrepresentations by a third person
does not vitiate consent, unless such misrepresentation has created substantial mistake
and the same is mutual.”
The Court cannot declare the promissory note valid between the bank and
Castro and the mortgage contract binding on Castro beyond the amount of P3,000 for
while the contracts may not be invalidated insofar as they affect the bank and Castro
on the ground of fraud because the bank was not a participant thereto, such may
however be invalidated on the ground of substantial mistake mutually committed by
them as a consequence of the fraud and misrepresentation inflicted by the Valencias.
The Valencias also misrepresented to the bank Castro’s personal qualifications in
order to secure its consent to the loan. As a result of the fraud upon Castro and the
misrepresentation to the bank inflicted by the Valencias both Castro and the bank
committed mistake in given their consents to the contracts. Substantioal mistake
vitiated their consents given. If Castro had been aware of what she signed and the
bank of the true qualifications of the applicant, they would not have given their
consent to the contract.
2. Petitioners’ argument utterly disregards the findings of the CA. Desiderio claimed
that he had subjected Castro to several interviews, and yet in her application, her age
was placed at 61 instead of 70; she was described as a drug manufacturer when she
was not; she had an income of P20,000 when she didn’t. It is evident that the bank
was as much guilty as Castro was of negligence in giving its consent to the contracts.
The bank relied on the representations made by the Valencias when it should have
directly obtained the data from Castro herself, who was the acknowledged owner of
the property offered as collateral.
Moreover, considering Castro’s circumstances – her lack of education,
ignorance and old age – she cannot be considered utterly neglectful for having been
defrauded. The bank, considering that it is engaged in a business affected with public
interest, should have ascertained Castro's awareness of what she was signing or made

her understand what obligations she was assuming, considering that she was giving
accommodation to, without any consideration from the Valencia spouses.
When the Valencias borrowed from the bank a personal loan of P3,000, the
Valencias acted for their own behalf. Considering however that for the loan in which
the Valencias appeared as principal borrowers, it was the property of Castro that was
being mortgaged to secure said loan, the bank should have exercised due care and
prudence by making proper inquiry if Castro's consent to the mortgage was without
any taint or defect. The possibility of her not knowing that she signed the promissory
note as co-maker with the Valencias and that her property was mortgaged to secure
the two loans instead of her own personal loan only, in view of her ignorance, lack of
education and old age should have placed the bank on prudent inquiry to protect its
interest and that of the public it serves.
3. It is contended that the consignation was made without prior offer or tender of
payment to the bank, and therefore, is not valid. In holding that there is a substantial
compliance with the provision of Article 1256 of the NCC, the CA considered that the
Bank was holding Castro liable for P6,000 plus 12% interest per annum, while the
amount consigned was only P3,000 plus 12% interest; that at the time of
consignation, the bank had long foreclosed the mortgage extra-judicially and the sale
of the mortgage property had already been scheduled for non-payment of the
obligation, and that despite the fact that the bank already knew of the deposit made by
Castro because the receipt of the deposit was attached to the record of the case, said
bank had not made any claim of such deposit, and that therefore, Castro was right in
thinking that it was futile and useless for her to make previous offer and tender of
payment directly to the bank only in the aforesaid amount of P3,000 plus 12%
interest. Under the foregoing circumstances, the consignation made by Castro was
valid, if not under the strict provision of the law, under the more liberal considerations
of equity.
BY: K. MOLETA

MWSS VS CA
G.R. No. 126000
October 7, 1998
Facts:
Sometime in 1965, petitioner MWSS leased around one hundred twenty eight (128)
hectares of its land to respondent CHGCCI for twenty five (25) years and renewable for
another fifteen (15) years or until the year 2005, with the stipulation allowing the latter to
exercise a right of first refusal should the subject property be made open for sale. The terms
and conditions of respondent CHGCCI's purchase thereof shall nonetheless be subject to
presidential approval. Upon being informed that petitioner MWSS and respondent CHGCCI
had already agreed in principle on the purchase of the subject property, President Marcos
expressed his approval of the sale as shown in his marginal note on the letter sent by
respondents Jose Roxas and Pablo Roman, Jr. dated December 20, 1982. The Board of
Trustees of petitioner MWSS thereafter passed Resolution 36-83, approving the sale of the
subject property in favor of respondent SILHOUETTE, as assignee of respondent CHGCCI.
Subsequently, respondent SILHOUETTE, under a deed of sale dated July 26, 1984, sold to
respondent AYALA about sixty-seven (67) hectares of the subject property at P110.00 per
square meter.
Almost a decade later, petitioner MWSS on March 26, 1993 filed an action against all
herein named respondents before the Regional Trial Court of Quezon City seeking for the
declaration of nullity of the MWSS-SILHOUETTE sales agreement and all subsequent
conveyances involving the subject property, and for the recovery thereof with damages.
Respondent AYALA filed its answer pleading the affirmative defenses of (1)
prescription, (2) laches, (3) waiver/estoppel/ratification, (4) no cause of action, (5) non-
joinder of indispensable parties, and (6) non-jurisdiction of the court for non-specification of
amount of damages sought.
Issue:
Whether or not respondent court based their rulings unfavorable to petitioner MWSS;
i.e., prescription, laches, estoppel/ratification and non-joinder of indispensable parties.
Ruling: As noted by both lower courts, petitioner MWSS admits that it consented to the sale
of the property, with the qualification that such consent was allegedly unduly influenced by
then President Marcos. Taking such allegation to be hypothetically true, such would have
resulted in only voidable contracts because all three elements of a contract, still obtained

nonetheless. The alleged vitiation of MWSS’ consent did not make the sale null and void ab
initio. Thus, “a contract where consent is given through mistake, violence, intimidation,
undue influence or fraud, is voidable.” Hence, it is valid until it is set aside and its validity
may be assailed only in an action for that purpose. They can be confirmed or ratified.
As the contract were voidable at the most, the fourth-year prescriptive period under
Article 1391 of the New Civil Code will apply. This article provides that the prescriptive
period shall begin in the cases of intimidation, violence or undue influence, from the time the
defect of the consent ceases", and "in case of mistake or fraud, from the time of the discovery
of the same time".
If petitioner MWSS' consent was vitiated by fraud, then the prescriptive period
commenced upon discovery. Discovery commenced from the date of the execution of the sale
documents as petitioner was party thereto. At the least, discovery is deemed to have taken
place on the date of registration of the deeds with the register of Deeds as registration is
constructive notice to the world. 5 Given these two principles on discovery, the prescriptive
period commenced in 1983 as petitioner MWSS actually knew of the sale or, in 1984 when
the agreements were registered and titles thereafter were issued to respondent SILHOUTTE.
At the latest, the action would have prescribed by 1988, or about five years before the
complaint was instituted.
Verily, the principle on prescription of actions is designed to cover situations such as
the case at bar, where there have been a series of transfers to innocent purchasers for value.
To set aside these transactions only to accommodate a party who has slept on his rights is
anathema to good order.
Even assuming, for argument's sake, that the allegations in the complaint establish the
absolute nullity of the assailed contracts and hence imprescriptible, the complaint can still be
dismissed on the ground of laches which is different from prescription.
There is no denying that petitioner MWSS' action against herein respondents for the
recovery of the subject property now converted into a prime residential subdivision would
ultimately affect the proprietary rights of the many lot owners to whom the land has already
been parceled out. They should have been included in the suit as parties-defendants, for "it is
well established that owners of property over which reconveyance is asserted are
indispensable parties without whom no relief is available and without whom the court can
render no valid judgment." 14 Being indispensable parties, the absence of these lot-owners in
the suit renders all subsequent actions of the trial court null and void for want of authority to
act, not only as to the absent parties but even as to those present. 15 Thus, when indispensable
parties are not before the court, the action should be dismissed.
By: G.M. Cabusao

SPS. GUIANG VS CA.

G.R. No. 125172
June 26, 1998
Facts:
Gilda Corpuz, therein respondent, left for Manila sometime in June 1989. She was
trying to look for work abroad, in [the] Middle East, with which without luck, was not able to
go abroad. She stayed for some time in Manila however, coming back to Koronadal, South
Cotabato, . . . on March 11, 1990.
During her absence on March 1, 1990, Judie Corpuz, the husband, sold the one-half
portion of Lot 9, Block 8, (LRC) Psd-165409, which the spouses owned to defendant
Luzviminda Guiang, therein petitioner thru a document known as "Deed of Transfer of
Rights" (Exh. "A") the remaining one-half portion of their lot and the house standing thereon
for a total consideration of P30,000.00 of which P5,000.00 was to be paid in June, 1990.
Transferor Judie Corpuz's children Junie and Harriet signed the document as witness.
Sometimes on March 11, 1990, plaintiff returned home. She found her children
staying with other households. Only Junie was staying in their house. Harriet and Joji were
with Mr. Panes. Her husband was nowhere to be found. She was informed by her children
that their father had a wife already.
On May 28, 1990, Private Respondent Gilda Corpuz filed an Amended Complainant
against her husband Judie Corpuz and Petitioner-Spouses Antonio and Luzviminda Guiang.
The said Complaint sought the declaration of a certain deed of sale, which involved the
conjugal property of private respondent and her husband, null and void.
Issues:
1. Was the contract of sale (Deed of Transfer of Rights) void or voidable?
2. Was the amicable settlement entered into by Mrs. Gilda Corpuz and spouses Guiang with
the Brgy. Captain on March 16, 1990 docketed as case No. 38 made the contract voidable?
Ruling:
1. Private respondent's(Gilda Corpuz) consent to the contract of sale of their conjugal
property was totally inexistent or absent. This being the case, said contract properly falls
within the ambit of Article 124 of the Family Code, which was correctly applied by the
lower court:

Art. 124. The administration and enjoyment of the conjugal partnership properly shall
belong to both spouses jointly. In case of disagreement, the husband's decision shall
prevail, subject recourse to the court by the wife for proper remedy, which must be
availed of within five years from the date of the contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in the
administration of the conjugal properties, the other spouse may assume sole powers of
administration. These powers do not include the powers of disposition or encumbrance
which must have the authority of the court or the written consent of the other spouse. In
the absence of such authority or consent, the disposition or encumbrance shall be void.
However, the transaction shall be construed as a continuing offer on the part of the
consenting spouse and the third person, and may be perfected as a binding contract upon
the acceptance by the other spouse or authorization by the court before the offer is
withdrawn by either or both offerors. (165a) (Emphasis supplied)
2. By the specific provision of the law in Art. 1390 of the Civil Code stipulates that the
Deed to Transfer of Rights cannot be ratified, even by an "amicable settlement". The
participation by some barangay authorities in the "amicable settlement" cannot otherwise
validate an invalid act. Moreover, it cannot be denied that the "amicable settlement
entered into by plaintiff Gilda Corpuz and defendant spouses Guiang is a contract. By
express provision of law, such a contract is also void. Thus, the legal provision, to wit:
Art. 1422. A contract which is the direct result of a previous illegal contract, is also
void and inexistent. (Civil Code of the Philippines).
In summation therefore, both the Deed of transfer of Rights (Exh. "A") and the
"amicable settlement" (Exh. "3") are null and void.
In summation, a void contract cannot be ratified.
By: M. Doronila-Porcina

D ef ec t i ve Co nt ra ct s – Unenforceable Contracts – Arts. 1403 - 1408
CORONEL VS CONSTANTINO
G.R. No. 121069
February 7, 2003
FACTS:
The subject property consists of two parcels of land The property is originally owned
by Honoria Aguinaldo. One-half (1/2) of it was inherited by Emilia Meking Vda. de Coronel
together with her sons Benjamin, Catalino and Ceferino, all surnamed Coronel. The other
half was inherited by Florentino Constantino and Aurea Buensuceso.
Constantino and Buensuceso filed a complaint for declaration of ownership RTC
against respondents Plaintiffs allege that Jess C. Santos and Priscilla Bernardo purchased the
property belonging to respondent by virtue of a deed of sale signed by Emilia; Santos and
Bernardo in turn sold the same to Constantino and Buensuceso by virtue of a compromise
agreement. they are the owners of the subject property and defendants have illegally started
to introduce construction on the premises in question; and pray that "defendants respect,
acknowledge and confirm the right of ownership of the plaintiffs to the share, interest and
participation of the one-third (1/3) portion of the above described property”
ISSUES:
Whether or not the contract of sale executed by a parent-co-owner, in her own behalf, is
unenforceable with respect to the shares of her co-heirs-children. Whether or not the minor
children can ratify unauthorized actions of their parents.
RULING:
Further, the deed of sale is not a competent proof that petitioner Benjamin had sold
his own share of the subject property. It cannot be disputed that Benjamin did not sign the
document and therefore, it is unenforceable against him. Emilia executed the instrument in
her own behalf and not in representation of her three children.
Article 493 of the Civil Code states:
"Each co-owner shall have the full ownership of his part and of the fruits and
benefits pertaining thereto, and he may therefore alienate, assign or
mortgage it, and even substitute another person in its enjoyment, except
when personal rights are involved. But the effect of the alienation or the
mortgage, with respect to the co-owners, shall be limited to the portion

which may be allotted to him in the division upon the termination of the co-
ownership."
Consequently, the sale of the subject property made by Emilia in favor of
Santos and Bernardo is limited to the portion which may be allotted to her
upon the termination of her co-ownership over the subject property with her
children.
As to the first, second and fourth issues – it has been established that at the time of
execution of the "Kasulatan ng Bilihang Patuluyan" on April 23, 19819, the subject property
was co-owned, pro-indiviso, by petitioner Emilia together with her petitioner son Benjamin,
and her two other sons, Catalino and Ceferino. No proof was presented to show that the co-
ownership that existed among the heirs of Ceferino and Catalino and herein petitioners has
ever been terminated. Applying Articles 1317 and 1403 of the Civil Code, the Court of
Appeals ruled that through their inaction and silence, the three sons of Emilia are considered
to have ratified the aforesaid sale of the subject property by their mother.
Articles 1317 and 1403 (1) of the Civil Code provide:
"Art. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him.
"A contract entered into in the name of another by one who has no authority or
legal representation or who has acted "beyond his powers shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other contracting
party.
"Art. 1403. The following contracts are unenforceable, unless they are ratified:
"(1) Those entered into in the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his powers.
We do not agree with the appellate court. The three sons of Emilia did not ratify
the sale. In Maglucot-Aw vs. Maglucot10 we held that:
"Ratification means that one under no disability voluntarily adopts and gives sanction
to some unauthorized act or defective proceeding, which without his sanction would not be
binding on him. It is this voluntary choice, knowingly made, which amounts to a ratification
of what was theretofore unauthorized, and becomes the authorized act of the party so making
the ratification.
No evidence was presented to show that the three brothers were aware of the sale made
by their mother. Unaware of such sale, Catalino, Ceferino and Benjamin could not be
considered as having voluntarily remained silent and knowingly chose not to file an action

for the annulment of the sale. Their alleged silence and inaction may not be interpreted as an
act of ratification on their part. To repeat, the sale is valid insofar as the share of petitioner
Emilia Meking Vda. de Coronel is concerned. The due execution of the "Kasulatan ng
Bilihang Patuluyan" was duly established when petitioners, through their counsel, admitted
during the pre-trial conference that the said document was signed by Emilia. While
petitioners claim that Emilia erroneously signed it under the impression that it was a contract
of mortgage and not of sale, no competent evidence was presented to prove such allegation.
By: E.J. Solon

REGAL FILMS VS CONCEPCION

G.R. No 139532
August 9, 2001
Facts
Respondent gabby Concepcion entered into a contract with regal films for services to
be rendered by him and in turn he would get two parcels of land from petitioner on top of the
“talent fees.” two years later, both parties renewed the contract, incorporating the same
undertaking on the part of petitioner to give respondent on the part of petitioner to give
respondent the two parcels of land mentioned in the first agreement. Petitioner failed to
comply with its obligations to give the two parcels of land to the respondent. a year later,
respondent filed an action against regal films claiming that he is entitled to rescind the
contract with damages. Petitioner moved to dismiss the case averring that they had settled
amicably in an addendum in the 2 previous contracts. Respondent was represented by Lolit
Solis acting on his behalf. Two month later Solis filed a motion to dismiss the case, however
this was opposed by Concepcion and was executed without his consent and stated that Solis
ceased to be his manager. The following year, respondent filed a manifestation stating that he
is willing to honor the addendum. The trail court rendered a judgment on compromise based
on the subject addendum. Petitioner filed a motion for reconsideration then elevated it to the
ca claiming that the trial court erred in treating the addendum as being a compromise
agreement and in depriving it of its right to procedural due process. The CA ruled in favor of
conception. Dissatisfied with the ca’s decision, petitioner appealed to the SC.
Issues:
 WON . claiming that the CA erred in affirming the trial court's action in rendering
judgment on a compromise based on the addendum when petitioner regal films
submitted this document to the trial court merely to serve as basis for its motion to
dismiss;
 WON the court of appeals erred in rendering judgment on a compromise when the
parties did not agree to such a compromise;
 WON the court of appeals erred in holding that the minds of the parties had met to
elevate the previously rejected addendum to the level of a judgment on a compromise.
Ruling:
A compromise is an agreement between two or more persons who, for preventing or
putting an end to a lawsuit, adjust their respective positions by mutual consent in the way

they feel they can live with. Reciprocal concessions are the very heart and life of every
compromise agreement, where each party approximates and concedes in the hope of gaining
balanced by the danger of losing. It is, in essence, a contract. Law and jurisprudence recite
three minimum elements for any valid contract – (a) consent; (b) object certain which is the
subject matter of the contract; and (c) cause of the obligation which is established. Consent is
manifested by the meeting of the offer and cause which are to constitute the agreement. The
offer, however, must be certain and the acceptance seasonable and absolute; if qualified, the
acceptance would merely constitute a counter-offer.
In this instance, the addendum was flatly rejected by respondent on the theses (a) that
he did not give his consent thereto nor authorized anyone to enter into the agreement, and (b)
that it contained provisions grossly disadvantageous to him. The outright rejection of
the addendum made known to the other ended the offer. When respondent later filed his
Manifestation, stating that he was, after all, willing to honor the addendum, there was nothing
to still accept.
Verily, consent could be given not only by the part himself but by anyone duly
authorized and acting for and in his behalf. But by respondent's own admission,
the addendum was entered into without his knowledge and consent. A contract entered into in
the name of another by one who ostensibly might have but who, in reality, had no real
authority or legal representation, or who, having such authority, acted beyond his powers,
would be unenforceable. The addendum, let us then assume, resulted in an unenforceable
contract, might it not then be susceptible to ratification by the person on whose behalf it was
executed? The answer would obviously be in the affirmative; however, that ratification
should be made before its revocation by the other contracting party. The adamant refusal of
respondent to accept the terms of the addendum constrained petitioner, during the
preliminary conference held on 23 June 1995, to instead express its willingness to release
respondent from his contracts prayed for in his complaint and to thereby forego the
rejected addendum. Respondent's subsequent attempt to ratify the addendum came much too
late for, by then, the addendum had already been deemed revoked by petitioner.
By: N.K. Herrera

NATIONAL POWER CORP. VS. NATIONAL MERCHANDISING CORP., ET AL.

G.R. No. L-33819 and L-33897
117 SCRA 789
October 23, 1982
Facts:
This case is about the recovery of liquidated damages form a seller’s agent that
allegedly exceeds its authority in negotiating the sale.
The National Power Corp. (NPC) and National Merchandising Corp. (Namerco),
representative of the International Commodities Corp., executed a contract for the purchase
by the NPC from the New York firm of four thousand long tons of crude sulfur. An insurance
bond was executed by the Domestic Insurance Co. (DIC) in favor of the NPC to guarantee
the seller’s obligations. As stipulated in the contract, that failure of the seller to deliver the
sulfur would subject the latter and its surety to the payment of liquidated damages.
Namerco was unable to deliver because the New York supplier was not able to deliver
the sulfur due to the inability to secure shipping space. This caused NPC’s fertilizer plant to
shutdown leading the latter to file a suit against the New York firm, Namerco and the DIC for
the recovery of the stipulated liquidation.
The defendant contend that the trial court erred in holding as enforceable the
stipulation for liquidated damages despite its findings that the contract was executed by the
agent in excess of its authority and is, therefore, allegedly unenforceable.
Issue:
Is Art. 1403 of the civil code – contract entered into by an agent beyond his authority
is unenforceable – applies where the contract is being enforced as to damages against the
agent itself for doing what it did without authority?
Ruling:
The rule in Art. 1403 does not apply where the contract is being enforced as to
damages against the agent itself for doing what it did without authority. Defendants’
contention in untenable because art. 1403 refers to the unenforceability of the contract
against the principal. In the instant case, the contract containing the stipulation for liquidated
damages is not being enforced against its principal but against the agent and its surety.
It is being enforced against the agent because art. 1897 implies that the agent who
acts in excess of his authority is personally liable to the party with whom he contracted. And
that rule is complemented by article 1898 of the Civil Code which provides that “if the agent

contracts in the name of the principal, exceeding the scope of his authority and the principal
does not ratify the contract, it shall be void if the party with whom the agent contracted is
aware of the limits of the powers granted by the principal.
Namercom, as agent, exceeded the limits of its authority in contracting with the NPC
in the name of its principal. The NPC was unaware of the limitations on the powers granted
by the New York firm to Namerco.
By: G. Bellingan

JOVAN LAND, VS CA
G.R. No. 125531
February 12, 1997
Facts:
Jovan Land, Inc. is a corporation engaged in the real estate business; and respondent
Quesada is owner of the Q Building at the corner of Mayhaligue Street and Rizal Avenue,
Sta. Cruz, Manila.
Quesada was selling May haligue property; Land made a written offer. The first offer
was rejected; the second offer was for the same price but inclusive of an undertaking to pay
the documentary stamp tax, transfer tax, registration fees and notarial charges. A check for P1
M was enclosed therein as earnest money. It was again rejected. The third offer was for P12
M with a similar check for P1 M as earnest money. Annotated on the third letter-offer was the
phrase received original, 9-4-89â€ beside which appears the signature of Quesada .
Petitioner insists there has already existed a valid, perfected agreement to sell the property.
Land filed a complaint for specific performance and collection of sum of money with
damages. The trial court held that the business encounters between parties had not passed the
negotiation stage.
Issue:
1. Was there already a perfected contract between Land and Quesada?
2. Was there an implied acceptance of the offer by Land to Quesada?
3. Was the contract of sale enforceable?
Held:
1. No. In the case of Ang Yu Asuncion v. Court of Appeals, we held that:
xxx [A] contract (Art. 1157, Civil Code), x x x is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to
render some service xxx. A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its consummation. Negotiation
covers the period from the time the prospective contracting parties indicate interest in
the contract to the time the contract is concluded xxx. The perfection of the contract
takes place upon the concurrence of the essential elements thereof.

Moreover, it is a fundamental principle that before contract of sale can be valid, the
following elements must be present, viz: (a) consent or meeting of the minds; (b)
determinate subject matter; © price certain in money or its equivalent. Until the
contract of sale is perfected, it cannot, as an independent source of obligation, serve
as a binding juridical relation between the parties.
In the case at bench, petitioner, anchors its main argument on the annotation
on its third letter-offer of the phrase Received original, 9-4-89, beside which appears
the signature of Conrado Quesada.
xxxxxxx
The court cannot believe that this notation marked as Exhibit D-2 would
signify the acceptance of the offer. Neither does it signify, as Sy had testified that the
check was duly received on said date .If this were true Sy, who appears to be an
intelligent businessman could have easily asked Conrado Quesada to indicate on
Exhibit D the alleged fact of acceptance of said check. And better still, Sy could have
asked Quesada the acceptance in writing separate of the written offer if indeed there
was an agreement as to the price of the proposed sale of the property in question.
Clearly then, a punctilious examination of the receipt reveals that the same
can neither be regarded as a contract of sale nor a promise to sell.
2. No. Such an annotation by Conrado Quesada amounts to neither a written nor an

implied acceptance of the offer of Joseph Sy. It is merely a memorandum of the
receipt by the former of the latter's offer. The requisites of a valid contract of sale are
lacking in said receipt and therefore the sale is neither valid nor enforceable.
3. No.
By: I.M. Maxino

CENIDO VS APACIONADO
G.R. No. 132474
Nov. 19, 1999
Facts:
Respondent spouses Amadeo Apacionado and Herminia Sta. Ana filed with the
Regional Trial Court, Branch 70, Rizal a complaint against petitioner Renato Cenido for,
"Declaration of Ownership, Nullity, with Damages." 3 The spouses alleged that they are the
owners of a parcel of unregistered land, 123 square meters in area and located at Rizal Street,
Barrio Layunan, Binangonan, Rizal from their purchase from the previous owner, the
deceased Bonifacio Aparato. Respondent spouses' claim of ownership over the subject
property is anchored on a one-page typewritten document entitled "Pagpapatunay," executed
by Bonifacio Aparato.
Petitioner claim ownership claiming that he is the illegitimate son of Bonifacio
Aparato, the deceased owner of the subject property; as Aparato's sole surviving heir, he
became the owner of the property as evidenced by the cancellation of Tax Declaration No.
02-0274 in Bonifacio's name and the issuance of Tax Declaration No. 02-0368 in his name;
and the instrument attesting to the alleged sale of the house and lot by Bonifacio Aparato to
the spouses is not a public document, among others.
The trial court rendered judgment. The court upheld petitioner Cenido's ownership
over the property by virtue of the recognition made by Bonifacio's then surviving brother,
Gavino, in the compromise judgment of the MTC. Concomitantly, the court also did not
sustain the deed of sale between Bonifacio and the spouses because it was neither notarized
nor signed by Bonifacio and was intrinsically defective.
The appellate court found the appeal meritorious and reversed the decision of the trial
court. It held that the recognition of Cenido's filiation by Gavino, Bonifacio's brother, did not
comply with the requirements of the Civil Code and the Family Code; that the deed between
Bonifacio and respondent spouses was a valid contract of sale over the property; and
Cenido's failure to object to the presentation of the deed before the trial court was a waiver of
the defense of the Statute of Frauds.
Issue:
The unsigned, unnotarized and highly doubtful private document designated as
"Pagpapatunay" which is solely relied upon by the respondents in support of their case is not
sufficient to vest ownership of and transfer the title, rights and interest over the subject
property to the respondents.

Ruling:
The "Pagpapatunay" is indisputably a private document. And this fact does not detract
from its validity. Generally, contracts are obligatory, in whatever form such contracts may
have been entered into, provided all the essential requisites for their validity are present.
When, however, the law requires that a contract be in some form for it to be valid or
enforceable, that requirement must be complied with. When the required form is for
enforceability, non-compliance therewith will not permit, upon the objection of a party, the
contract, although otherwise valid, to be proved or enforced by action.
According to Article 1403(2) the sale of real property should be in writing and
subscribed by the party charged for it to be enforceable. The "Pagpapatunay" is in writing
and subscribed by Bonifacio Aparato, the vendor; hence, it is enforceable under the Statute of
Frauds. Not having been subscribed and sworn to before a notary public, however, the
"Pagpapatunay" is not a public document, and therefore does not comply with Article 1358,
paragraph 1 of the Civil Code.
Article 1358 does not require the accomplishment of the acts or contracts in a public
instrument in order to validate the act or contract but only to insure its efficacy, so that after
the existence of said contract has been admitted, the party bound may be compelled to
execute the proper document. The private conveyance of the house and lot is therefore valid
between Bonifacio Aparato and respondent spouses. The question of whether the
"Pagpapatunay" is sufficient to transfer and convey title to the land for purposes of original
registration or the issuance of a real estate tax declaration in respondent spouses' names, as
prayed for by respondent spouses, is another matter altogether. For greater efficacy of the
contract, convenience of the parties and to bind third persons, respondent spouses have the
right to compel the vendor or his heirs to execute the necessary document to properly convey
the property.
By: L. Cuevas

VILLANUEVA VS CIA
G.R. No. 107624
January 28, 1997
Facts:
This is a petition assailing the decision of the CA dismissing the appeal of the
petitioners. CA rendered that there was no contract of sale.
In 1985, Gamaliel Villanueva (tenant) of a unit in the 3-door apartment building
owned by defendants-spouses (now private respondents) Jose Dela Cruz and Leonila dela
Cruz located at Project 8, Quezon City.
About February of 1986, Dela Cruz offered said parcel of land with the 3-door
apartment building for sale and plaintiffs, son and mother, showed interest in the property.
Because said property was in arrears (overdue) in the payment of the realty taxes,
dela Cruz approached Irene Villanueva and asked for a certain amount to pay for the taxes so
that the property would be cleared of any encumbrance.
Irene Villanueva gave P10, 000.00 on two occasions. It was agreed by them that said
P10, 000.00 would form part of the sale price of P550, 000.00.
Dela Cruz went to plaintiff Irene Villanueva bringing with him Mr. Ben Sabio, a
tenant of one of the units in the 3-door apartment building and requested Villanueva to allow
said Sabio to purchase one-half (1/2) of the property where the unit occupied by him
pertained to which the plaintiffs consented, so that they would just purchase the other half
portion and would be paying only P265, 000.00, they having already — given an amount of
P10, 000.00 used for paying the realty taxes in arrears.
Accordingly the property was subdivided and two (2) separate titles were secured by
defendants Dela Cruz. Mr. Ben Sabio immediately made payments by installments.
March 1987 Dela Cruz executed in favor of their co-defendants, the spouses Guido
Pili and Felicitas Pili, a Deed of Assignment of the other one-half portion of the parcel of
land wherein plaintiff Gamaliel Villanueva’s apartment unit is situated, purportedly as full
payment and satisfaction of indebtedness obtained from defendants Pili. The Transfer
Certificate of Title No. 356040 was issued in the name of defendants Pili on the same day.
The plaintiffs came to know of such assignment and transfer and issuance of a new
certificate of title in favor of defendants Pili.
Plaintiff Gamaliel Villanueva complained to the barangay captain of Bahay Turo,
Quezon City, on the ground that there was already an agreement between defendants Dela

Cruz and themselves that said portion of the parcel of land owned by defendants Dela Cruz
would be sold to him. As there was no settlement arrived at, the plaintiffs elevated their
complaint to this Court through the instant action.
RTC rendered its decision in favor of Dela Cruz. CA affirmed.
Issue:
WON there was a perfected sale between Villanueva and Dela Cruz.
Held:
“The price of the leased land not having been fixed, the essential elements which give
life to the contract were lacking. It follows that the lessee cannot compel the lessor to sell the
leased land to him. The price must be certain, it must be real, not fictitious. A contract of sale
is not void for uncertainty when the price, though not directly stated in terms of pesos and
centavos, can be made certain by reference to existing invoices identified in the agreement.
In this respect, the contract of sale is perfected. The price must be certain, otherwise there is
no true consent between the parties. There can be no sale without a price.
In the instant case, however, what is dramatically clear from the evidence is that there
was no meeting of mind as to the price, expressly or impliedly, directly or indirectly.
Sale is a consensual contract. He who alleges it must show its existence by competent
proof. Here, the very essential element of price has not been proven.
Lastly, petitioners’ claim that they are ready to pay private respondents is immaterial
and irrelevant as the latter cannot be forced to accept such payment, there being no perfected
contract of sale in the first place.
By: M.C. Cui

D ef ec t i ve Co nt ra ct s – Void or Inexistent Contracts – Arts. 1409 - 1422
LIGUEZ VS CA
102 Phil
Facts:
The case began upon complaint filed by petitioner-appellant against the widow and
heirs of the late Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in
barrio Bogac-Linot, of the municipality of Mati, Province of Davao. Plaintiff averred to be its
legal owner, pursuant to a deed of donation of said land, executed in her favor by the late
owner, Salvador P. Lopez, on 18 May 1943. The defense interposed was that the donation
was null and void for having an illicit causa or consideration, which was the plaintiff's
entering into marital relations with Salvador P. Lopez, a married man; and that the property
had been adjudicated to the appellees as heirs of Lopez by the court of First Instance, since
1949.
The Court of Appeals rejected the appellant's claim on the basis of the well- known
rule "in pari delicto non oritur actio" as embodied in Article 1306 of 1889 (reproduced in
Article 1412 of the new Civil Code):
ART. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what
he has given by virtue of the contract, or demand the performance of the other's
undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover, what he has
given by reason of the contract, or ask for fulfillment of what has been promised him.
The other, who is not at fault, may demand the return of what he has given without
any obligation to comply with his promise.
The Court of Appeals affirmed the decision of the Court of First Instance of Davao
dismissing the complaint for recovery of land. Conchita Liguez has resorted to the Supreme
Court, praying that the decision of the CA be reversed on points of law.
Issues:
Whether or not the donation was null and void?
What are the effects of the guilt of the parties in an illegal contract?

Ruling:
The contract in this case is void but the Court of Appeals erred in applying to the
present case the pari delicto rule. First, because it can not be said that both parties here had
equal guilt when we consider that as against the deceased Salvador P. Lopez, who was a man
advanced in years and mature experience, the appellant was a mere minor, 16 years of age,
when the donation was made; that there is no finding made by the Court of Appeals that she
was fully aware of the terms of the bargain entered into by and Lopez and her parents; that,
her acceptance in the deed of donation (which was authorized by Article 626 of the Old Civil
Code) did not necessarily imply knowledge of conditions and terms not set forth therein; and
that the substance of the testimony of the instrumental witnesses is that it was the appellant's
parents who insisted on the donation before allowing her to live with Lopez. These facts are
more suggestive of seduction than of immoral bargaining on the part of appellant. It must not
be forgotten that illegality is not presumed, but must be duly and adequately proved.
In the second place, the rule that parties to an illegal contract, if equally guilty, will
not be aided by the law but will both be left where it finds them, has been interpreted by this
Court as barring the party from pleading the illegality of the bargain either as a cause of
action or as a defense. Memo auditor propriam turpitudinem allegans.
the Court of Appeals correctly held that Lopez could not donate the entirety of the
property in litigation, to the prejudice of his wife Maria Ngo, because said property was
conjugal in character and the right of the husband to donate community property is strictly
limited by law (Civil Code of 1889, Arts. 1409, 1415, 1413; Baello vs. Villanueva, 54 Phil.
213).
ART. 1409. The conjugal partnership shall also be chargeable with anything which
may have been given or promised by the husband alone to the children born of the
marriage in order to obtain employment for them or give then, a profession or by both
spouses by common consent, should they not have stipulated that such expenditures
should be borne in whole or in part by the separate property of one of them.".
ART. 1415. The husband may dispose of the property of the conjugal partnership for
the purposes mentioned in Article 1409.)
ART. 1413. In addition to his powers as manager the husband may for a valuable
consideration alienate and encumber the property of the conjugal partnership without
the consent of the wife.
The text of the articles makes it plain that the donation made by the husband in
contravention of law is not void in its entirety, but only in so far as it prejudices the interest
of the wife. In this regard, as Manresa points out , the law asks no distinction between
gratuitous transfers and conveyances for a consideration.

To determine the prejudice to the widow, it must be shown that the value of her share
in the property donated can not be paid out of the husband's share of the community profits.
The requisite data, however, are not available to us and necessitate a remand of the records to
the court of origin that settled the estate of the late Salvador P. Lopez.
The decisions appealed from are reversed and set aside, and the appellant Conchita
Liguez declared entitled to so much of the donated property as may be found, upon proper
liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal partnership
with Salvador P. Lopez or the legitimes of the forced heirs of the latter. The records are
ordered remanded to the court of origin for further proceedings in accordance with this
opinion. Costs against appellees. So ordered
By: H.P. Descallar

RELLOSA VS GAW GHEE HUN

93 Phil. 827
Facts:
Dionisio Rellosa sold to Gaw Chee Hun a parcel of land, together with the house
erected thereon, situated in Manila for the sum of P25,000. The vendor remained in
possession of the property under a contract of lease entered into on the same date between the
same parties. Alleging that the sale was executed subject to the condition that the vendee,
being a Chinese citizen, would obtain the approval of the Japanese Military Administration in
accordance with Seirei No. 6 issued by the Japanese authorities, and said approval has not
been obtained, and that, even if said requirement were met, the sale would at all events be
void under Art. XIII, Sec. 5, of our Constitution, the vendor instituted the present action in
the Court of First Instance of Manila seeking the annulment of the sale as well as the lease
covering the land and the house above mentioned, and praying that, once the sale and the
lease are declared null and void, the vendee be ordered to return to vendor the duplicate of
the title covering the property, and be restrained from in any way dispossessing the latter of
the property.
The court declared both the sale and the lease valid and binding and dismissed the
complaint. The court likewise ordered plaintiff to turn over the property to defendant and to
pay a rental of P50 a month until the property has been actually delivered. This decision was
affirmed by the Court of Appeals, hence, the present petition for review.
Issues:
1. WON the sale in question cannot have any validity under the Japanese military
directive in view of the failure of respondent to obtain the requisite approval.
2. Can petitioner have the sale declared null and void and recover the property
considering the effect of the law governing rescission of contracts?
Ruling:
1. We do not believe it necessary to consider now the question relative to the validity of
Seirei No. 6 of the Japanese Military Administration for the simple reason that in our
opinion, the law that should govern, the particular transaction is not the above
directive but the Constitution adopted by the then Republic of the Philippines, which
provides that “no private agricultural land shall be transferred or assigned except to

individuals, corporations or associations qualified to acquire or hold lands of the

public domain in the Philippines.”
2. NO. As ruled in the case of Trinidad Gonzaga de Cabauatan, et. al. versus Uy Hoo, et.
al., 88 Phil 103, “We can, therefore, say that even if the plaintiffs can still invoke the
Constitution, or the doctrine in the Krivenko Case, to set aside the sale in question,
they are now prevented from doing so if their purpose is to recover that they have
voluntarily parted with, because of their guilty knowledge that what they were doing
was in violation of the Constitution. They cannot escape this conclusion because they
are presumed to know the law. As this Court well said: ‘A party to an illegal contract
cannot come into a court of law and ask to have his illegal objects carried out. The
law will not aid either party to an illegal agreement; it leaves the parties where it finds
them.’ This is the doctrine of In Pari Delicto, which is stated in the United States
jurisdiction thus: “The proposition is universal that no action arises in equity or at
law, from an illegal contract; no suit can be maintained for its specific performance,
or to recover the property agreed to be sold or delivered, or the money agreed to be
paid, or damages for its violation.”
This doctrine is subject to one important limitation, namely, “whenever public
policy is considered as advanced by allowing either party to sue for relief against the
transaction”. The cases in which this limitation may apply only “include the class of
contracts which are intrinsically contrary to public policy. The contract in question
does not come under this exception because it is intrinsically contrary to public
policy, nor one where the illegality itself consists in its opposition to public policy. It
is illegal not because it is against public policy but because it is against the
Constitution. Nor may it be contended that to apply the doctrine of pari delicto would
be tantamount to contravening the fundamental policy embodied in the constitutional
prohibition that it would not allow an alien to remain in the illegal possession of the
land, because in this case, the remedy is lodged elsewhere. At present, there are two
ways by which his situation may be remedied, to wit, (1) action for reversion, and (2)
escheat to the State.
An escheat is nothing more or less than the reversion of property to the state,
which takes place when the title fails. Reversion would seem to a consequence of the
annulment and cancellation of the original grant or title, and this is so for in the event
of such annulment or cancellation no one else could legitimately claim the property
except its original owner or grantor--- the state.
By: T.A. Real

PHIL. BANKING CORP. VS LUI SHEH

21 SCRA 52
Facts:
Justina Santos and sister Lorenzo were the owners in common of a piece of land in
Manila. In it are two residential houses including the Hen Wah Restaurant. The sisters lived
in one of the houses, while Wong Heng, a Chinese, lived with his family in the restaurant.
Wong had been a long-time lessee of a portion of the property.
Wong Heng entered into a contract of lease with Justina Santos providing among
others that Wong Heng can withdraw at any time from the agreement. She later on executed
another contract giving Wong the option to buy the leased premises.
Then an action was filed alleging that the contracts were obtained by Wong through
fraud, misrepresentation, inequitable conduct, undue influence and abuse of confidence and
trust of and by taking advantage of the helplessness of the plaintiff and were made to
circumvent the constitutional provision prohibiting aliens from acquiring lands in the
Philippines. In his answer, Wong insisted that the various contracts were freely and
voluntarily entered into by the parties.
Issue:
Whether or not the contract entered into by Justina Santos and Wong Heng was valid.
Ruling:
The charge of undue influence in this case rests on a mere inference drawn from the
fact that Justina Santos could not read (as she was blind) and did not understand the English
language in which the contract is written, but that inference has been overcome by her own
evidence. Nor is there merit in the claim that her consent to the lease contract, as well as to
the rest of the contracts in question, was given out of a mistaken sense of gratitude to Wong.
As it was with the lease contract, so it was with the rest of the contracts — the
consent of Justina Santos was given freely and voluntarily.
However, he Supreme Court held that the contracts show nothing that is necessarily
illegal, but considered collectively, they reveal an insidious pattern to subvert by indirection
what the Constitution directly prohibits. To be sure, a lease to an alien for a reasonable period
is valid. So is an option giving an alien the right to buy real property on condition that he is
granted Philippine citizenship. But if an alien is given not only a lease of, but also an option

to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose
of his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual
transfer of ownership whereby the owner divests himself in stages not only of the right to
enjoy the land but also of the right to dispose of it — rights the sum total of which make up
ownership.
For another thing, Article 1416 of the Civil Code provides, as an exception to the rule
on pari delicto, that "When the agreement is not illegal per se but is merely prohibited, and
the prohibition by law is designed for the protection of the plaintiff, he may, if public policy
is thereby enhanced, recover what he has paid or delivered."
By: P.E. Benigay

FRANCISCO VS HERRERA
G.R. No. 139982
November 21, 2002
Facts:
This is a petition for review on certiorari of the decision[1] of the Court of Appeals,
which affirmed in toto the judgment[2] of the Regional Trial Court (RTC) of Antipolo City.
The appellate court sustained the trial court’s ruling which: (a) declared null and void the
deeds of sale of the properties covered by Tax Declaration Nos. 01-00495 and 01-00497; and
(b) directed petitioner to return the subject properties to respondent who, in turn, must refund
to petitioner the purchase price of P1,750,000.The facts are as follows: Eligio Herrera, Sr.,
the father of respondent, was the owner of two parcels of land, one consisting of 500 sq. m.
and another consisting of 451 sq. m., covered by Tax Declaration (TD) Nos. 01-00495 and
01-00497, respectively. Both were located at Barangay San Andres, Cainta, Rizal.[3]On
January 3, 1991, petitioner bought from said landowner the first parcel, covered by TD No.
01-00495, for the price of P1,000,000, paid in installments from November 30, 1990 to
August 10, 1991.On March 12, 1991, petitioner bought the second parcel covered by TD No.
01-00497, for P750,000.Contending that the contract price for the two parcels of land was
grossly inadequate, the children of Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera, Jr.,
and respondent Pastor Herrera, tried to negotiate with petitioner to increase the purchase
price. When petitioner refused, herein respondent then filed a complaint for annulment of
sale, with the RTC of Antipolo City, docketed as Civil Case No. 92-2267. In his complaint,
respondent claimed ownership over the second parcel, which is the lot covered by TD No.
01-00497, allegedly by virtue of a sale in his favor since 1973. He likewise claimed that the
first parcel, the lot covered by TD No. 01-00495, was subject to the co-ownership of the
surviving heirs of Francisca A. Herrera, the wife of Eligio, Sr., considering that she died
intestate on April 2, 1990, before the alleged sale to petitioner. Finally, respondent also
alleged that the sale of the two lots was null and void on the ground that at the time of sale,
Eligio, Sr. was already incapacitated to give consent to a contract because he was already
afflicted with senile dementia, characterized by deteriorating mental and physical condition
including loss of memory.
Issue:
Won the court of appeals completely ignored the basic difference between a void and
a merely voidable contract thus missing the essential significance of the established fact of
ratification by the respondent which extinguished whatever basis respondent may have had in
having the contract at bench annulled.

Ruling:
A void or inexistent contract is one which has no force and effect from the very
beginning. Hence, it is as if it has never been entered into and cannot be validated either by
the passage of time or by ratification. There are two types of void contracts: (1) those where
one of the essential requisites of a valid contract as provided for by Article 1318[10] of the
Civil Code is totally wanting; and (2) those declared to be so under Article 1409[11] of the
Civil Code. By contrast, a voidable or annullable contract is one in which the essential
requisites for validity under Article 1318 are present, but vitiated by want of capacity, error,
violence, intimidation, undue influence, or deceit. Article 1318 of the Civil Code states that
no contract exists unless there is a concurrence of consent of the parties, object certain as
subject matter, and cause of the obligation established. Article 1327 provides that insane or
demented persons cannot give consent to a contract. But, if an insane or demented person
does enter into a contract, the legal effect is that the contract is voidable or annullable as
specifically provided in Article 1390.[12]In the present case, it was established that the
vendor Eligio, Sr. entered into an agreement with petitioner, but that the former’s capacity to
consent was vitiated by senile dementia. Hence, we must rule that the assailed contracts are
not void or inexistent per se; rather, these are contracts that are valid and binding unless
annulled through a proper action filed in court seasonably.
An annullable contract may be rendered perfectly valid by ratification, which can be
express or implied. Implied ratification may take the form of accepting and retaining the
benefits of a contract.[13] This is what happened in this case. Respondent’s contention that
he merely received payments on behalf of his father merely to avoid their misuse and that he
did not intend to concur with the contracts is unconvincing. If he was not agreeable with the
contracts, he could have prevented petitioner from delivering the payments, or if this was
impossible, he could have immediately instituted the action for conveyance and have the
payments consigned with the court. None of these happened. As found by the trial court and
the Court of Appeals, upon learning of the sale, respondent negotiated for the increase of the
purchase price while receiving the installment payments. It was only when respondent failed
to convince petitioner to increase the price that the former instituted the complaint for
reconveyance of the properties. Clearly, respondent was agreeable to the contracts, only he
wanted to get more. Further, there is no showing that respondent returned the payments or
made an offer to do so. This bolsters the view that indeed there was ratification. One cannot
negotiate for an increase in the price in one breath and in the same breath contend that the
contract of sale is void.
By: D.E. Timagos

Estoppel – Arts. 1431 - 1439
KALALO VS LUZ
G.R. No. L-2778
July 31, 1970
Facts:
In 1959, plaintiff-appellee Kalalo, a civil engineer, entered into an agreement with
defendant-appellant Luz, an architect, whereby Kalalo was to render engineering design
services to the latter for a percentage of the architect’s fees as follows: Structural
engineering 12.5%, Electrical engineering 2.5%. This was supplemented by a clarification
proposal, which, among other things, provided that the fees in the agreement do not cover:
D. Foundation soil exploration, testing and evaluation;
E. Projects that are principally engineering works such as industrial plants
...and that O.A. Kalalo and Associates reserve the right to increase fees on projects which
cost less than P100,000.
Pursuant to the agreement, appellee rendered services in several projects. Subsequently,
Kalalo sent Luz an itemized statement of his account, according to which amounted to
P116,565, less previous payments of P57,000, thus leaving a balance due of P59,565. Luz
claimed instead that he only owed P10,861.08, and later sent Kalalo a check for that amount,
which Kalalo refused to accept. Kalalo filed a complaint against Luz, with four causes of
action:
1. For services rendered, there was due him fees of $28,000 and P100,204.46,
excluding interests, of which only P69,323.21 was paid, thus leaving unpaid the
$28,000 and P30,881.25.
2. He claimed P17,000 as consequential and moral damages.
3. He claimed P55,000 as moral damages, attorney’s fees and expenses of litigation.
4. He claimed P25,000 as actual damages, attorney’s fees and expenses of litigation.
Luz claimed that the aggregate amount actually due was only P80,336.29, of which
P69,475.21 had already been paid, leaving a balance of only P10,861.08. He denied liability
for any damage in the second, third and fourth causes of action. He also alleged that Kalalo
had no cause of action, that Kalalo was in estoppel, that his claim regarding the Menzi
project was premature as Luz had not yet been paid for the project, and that Kalalo’s services
were not complete or were performed in violation of the agreement and/or otherwise
unsatisfactory. He also set up a counterclaim for actual and moral damages for such amount
deemed by the court to be fair, and for attorney’s fees of P10,000.

The Commissioner rendered a report, stating that the amount due to appellee was
$28,000 as his fee in the International Research Institute Project which was 20% of the
$140,000 that was paid to appellant, and P51,539.91 for the other projects, less the sum of
P69,475.46 which was already paid by the appellant. The Commissioner also recommended
the payment to appellee of the sum of P5,000 as attorney's fees.
RTC decision was in favor of Kalalo, ordering Luz to pay P51,539.91 and $28,000,
converted to peso on the current exchange rate at the time of payment of the judgment, to be
deducted P69,475.46, which had already been paid, plus interest; and P8,000 for attorney’s
fees. Luz’s counterclaim is dismissed.
During pendency of appeal, Kalalo filed a petition for the issuance of a writ of
attachment on the ground that Luz is a permanent resident in Canada, which the Court
granted. The Provincial Sheriff of Rizal was ordered to attach the estate, real and personal, of
Luz to the value of not less than P140,000.
Issue & Ruling (CONTENTION 1):

Luz claims that the letter with attached statement of account that Kalalo sent him
already listed the various projects he was to render service, with the precise amount due for
each project. Such statement, according to Luz barred Kalalo from making any more claims
contrary to what was already stated therein, and the RTC could not award fees more than
what was in the statement of accounts. He claims that being a statement of account, it
establishes prima facie the accuracy and correctness of the items stated therein.
Court: Court finds merit in Kalalo’s stand. Kalalo admits that the statement of account
itemized the services rendered for the various projects, and the total fees charged was
P116,565, but that he was not in estoppels because: (1) when he prepared the statement of
account, he was laboring under an innocent mistake, as found by the RTC, and (2) because
Luz was not ignorant of the services actually rendered by Kalalo and the fees due him under
the original agreement. The statement of accounts could not estop Kalalo because Luz did not
rely thereon as found by the Commisioner. Under article 1431 of the Civil Code, in order that
estoppel may apply, the person to whom representations have been made and who claims the
estoppel in his favor must have relied or acted on such representations. An essential element
of estoppel is that the person invoking it has been influenced and has relied on the
representations or conduct of the person sought to be estopped, and this element is wanting in
the instant case. It had been previously rule that estoppels cannot be invoked by one who has
not been misled by the false statements contained in a document (Cristobal vs. Gomez).
*Essential elements of estoppel (in relation to the party to be stopped):

1. Conduct amounting to false representation or concealment of material facts or at

least calculated to convey the impression that the facts are inconsistent with those
which the party attempts to assert;
2. Intent, or at least expectation that his conduct shall influence the other party;
3. Knowledge, actual or constructive, of the real facts.
The first essential element in relation to the party sought to be estopped is not present
in the instant case, as it was found that Kalalo prepared the statement of accounts through
ignorance or mistake, and it has been held that if an act, conduct or misrepresentation of the
party sought to be estopped is due to ignorance founded on innocent mistake, estoppel will
not arise. Also in this case, the Court held that the ignorance of mistake that attended the
writing of the statement of accounts was sufficient to overcome the prima facie evidence of
correctness and accuracy of the same, as claimed by Luz.
Issue & Ruling (CONTENTION 2):

The RTC ruled that exchange rate to be applied in converting the $28,000 is the
exchange rate at the time the judgment shall be paid. There was no provision in the basic
contract that stated that Kalalo should be paid in dollars, so Luz couldn’t have committed a
breach of his obligation, as ruled by the RTC, to pay in dollars for the IRRI project. Luz
claims that the official rate at the time he received his fees for the IRRI project was P2 to $1,
and it cannot be said that he made no payment as he already paid Kalalo P57,000, and under
Art. 125 of the CC, payment could be said to have been applied to the fees due from the IRRI
project, this project being the biggest and this debt being the most onerous.
Court: Under their agreement, Kalalo was entitled to 20% of $140,000, or $28,000, but
Kalalo cannot oblige Luz to pay him in dollars, even if Luz himself received his fee for the
IRRI project in dollars. This is prohibited by R.A. 529 which says that obligations which give
the obligee the right to require payment in any other currency other than Philippine currency
is against public policy, and should be converted to Philippine currency measured at the
exchange rate at the time the obligation was incurred, but since the prevailing exchange rate
at the time the obligation was incurred cannot be applied, the logical conclusion would be to
apply the exchange rate during the time of payment. Court ruled that Luz should pay Kalalo
the peso equivalent of $28,000 at the free market exchange rate.
By: K. Moleta

DELA CRUZ VS PARAZ

69 SCRA 556
Facts:
Sometime in 1962, Pedro San Miguel, the predecessor-in-interest of the herein
petitioners, commenced a "Complaint for Partition of Real Estate" before the Court of First
Instance of Bulacan against private respondent Pablo San Miguel. The complaint, sought the
partition of Lot No. 4543 of the Lolomboy Estate, which is a portion of original Lot No.
3237. Respondent Pablo San Miguel disclaimed co-ownership and asserted exclusive
ownership of Lot No. 4543.
The then trial judge, Ricardo C. Puno, ordered the dismissal of the case pursuant to
Section 3, Rule 17 of the Revised Rules of Court for "apparent lack of interest in the
prosecution of the respective claims of the litigants."
Eleven years thereafter, another complaint for partition, of the Court of First Instance
of Bulacan, was instituted by the same Pedro San Miguel against private respondent Pablo
San Miguel. This time, the complaint prayed for the partition of Lot No. 4543 and Lot No.
3269. Respondent filed his answer, pleading therein the defense of res judicata. For him, the
same subject matter and cause of action had already been litigated upon and resolved in the
previous Civil case.
After preliminary hearing, the respondent Judge dismissed the case "insofar as Lot
4543 is concerned" in view of the principle of res judicata. The case was ordered to proceed
as regards Lot No. 3269.
After the denial of their motion for reconsideration on lot number 4543, petitioners
filed a "Petition for certiorari and/or Mandamus" before the Court of Appeals on February 5,
1975, but the latter court elevated the petition to the supreme court upon discovering that
only questions of law are raised.
Issue:
Whether or not the order of the respondent Judge, dated December 10, 1973,
dismissing Civil Case No. 4300-M as regards Lot No. 4543, is final and appealable.
Ruling:
The dismissal order of the said trial Judge has the effect and consequences of a
dismissal on the merits under Section 3, Rule 17 of the Revised Rules of Court since it was
neither without prejudice nor based upon lack of jurisdiction. It is worthy to note that the

deceased Pedro San Miguel interposed no appeal there from. Instead, he attempted to revive
the subject matter of that Civil Case No. 2624 (Lot No. 4543) eleven years after, when he
commenced Civil Case No. 4300-M, praying for the partition of Lot No. 3629 and Lot No.
4543. This, the deceased Pedro San Miguel could not do so. Litigation on this particular Lot
No. 4543 must reach a terminal point. The principle of estoppel by judgment, one of the
aspects of the doctrine of res judicata, precludes the re-litigation in another action of a
specific question actually litigated and determined in a former one. The second case, Civil
Case No. 4300-M, is barred by the prior judgment in the first case, Civil Case No. 2624,
insofar as it relates to Lot No. 4543. For there is Identity of parties, subject matter and cause
of action between the first case where the judgment was rendered and the second case which
is sought to be barred as far as Lot No. 4543 is concerned. Likewise, the judgment in the first
case is a final one rendered by a court of competent jurisdiction upon the merits.
It results, therefore, that respondent Judge did not abuse his discretion when he issued
the order of December 9, 1974, approving petitioners' corrected record on appeal "insofar
only as Lot 3269 is concerned ... because the case with respect to Lot 4543 has long became
final."
By: L. Tam

MIGUEL VS CATALINO
26 SCRA 234
Facts:
On January 22, 1962, appellants Simeon, Emilia and Marcelina Miguel, and appellant
Grace Ventura brought suit in the Court below against Florendo Catalino for the recovery of
the land above-described, plaintiffs claiming to be the children and heirs of the original
registered owner, and averred that defendant, without their knowledge or consent, had
unlawfully taken possession of the land, gathered its produce and unlawfully excluded
plaintiffs there from. Defendant answered pleading ownership and adverse possession for 30
years, and counterclaimed for attorney's fees. After trial the Court dismissed the complaint,
declared defendant to be the rightful owner, and ordered the Register of Deeds to issue a
transfer certificate in lieu of the original. Plaintiffs appealed directly to the Supreme Court,
assailing the trial Court's findings of fact and law.
Issue:
Is the sale of the land invalid? Does the principle on laches bar the plaintiffs from
recovering the said land?
Ruling:
The 1928 sale is technically invalid; Bacaquio remained, in law, the owner of the land
until his death in 1943, when his title passed on, by the law on succession, to his heirs, the
plaintiffs-appellants. However, the Supreme Court said that the judgment in favor of
defendant-appellee Florendo Catalino must be sustained. For despite the invalidity of his sale
to Catalino Agyapao, father of defendant-appellee, the vendor Bacaquio suffered the latter to
enter, possess and enjoy the land in question without protest, from 1928 to 1943, when the
seller died; and the appellants, in turn, while succeeding the deceased, also remained
inactive, without taking any step to revindicate the lot from 1944 to 1962, when the present
suit was commenced in court. Even granting appellants' proposition that no prescription lies
against their father's recorded title, their passivity and inaction for more than 34 years (1928-
1962) justifies the defendant-appellee in setting up the equitable defense of laches in his own
behalf.
The four elements of laches are present in the case at bar, namely: (a) conduct on the
part of the defendant, or of one under whom he claims, giving rise to the situation of which
complaint is made and for which the complaint seeks a remedy; (b) delay in asserting the

complainant's rights, the complainant having had knowledge or notice, of the defendant's
conduct and having been afforded an opportunity to institute a suit; (c) lack of knowledge or
notice on the part of the defendant that the complainant would assert the right on which he
bases his suit; and (d) injury or prejudice to the defendant in the event relief is accorded to
the complainant, or the suit is not held to be barred. Bacaquio sold the land in 1928 but the
sale is void for lack of the governor's approval. The vendor, and also his heirs after him,
could have instituted an action to annul the sale from that time, since they knew of the
invalidity of the sale, which is a matter of law; they did not have to wait for 34 years to
institute suit. The defendant was made to feel secure in the belief that no action would be
filed against him by such passivity, and also because he "bought" again the land in 1949 from
Grace Ventura who alone tried to question his ownership; so that the defendant will be
plainly prejudiced in the event the present action is not held to be barred.
Wherefore, the plaintiffs-appellants are barred from recovery and the Court a quo was
justified in ordering that Bacaquio's original certificate be cancelled, and a new transfer
certificate in the name of Florendo Catalino be issued in lieu thereof by the Register of
Deeds.
By: L. Tam

NYCO SALES CORP. VS BA FINANCE CORP.

G.R. No. 71694
August 16, 1991
Facts:
It appears on record that petitioner whose president and general manager is Rufino
Yao, is engaged in the business of selling construction materials. Sometime in 1978, the
brothers Santiago and Renato Fernandez, both acting in behalf of Sanshell Corporation,
approached Rufino Yao for credit accommodation. They requested Nyco, thru Yao, to grant
Sanshell discounting privileges which Nyco had with BA Finance. Yao apparently
acquiesced, hence on or about November 15, 1978, the Fernandezes went to Yao for the
purpose of discounting Sanshell's post-dated check payable to Nyco. Nyco, thru Yao,
endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check payable to
Nyco which endorsed it in favor of Sanshell. Accompanying the exchange of checks was a
Deed of Assignment executed by Nyco in favor of BA Finance with the conformity of
Sanshell.
Nyco was represented by Rufino Yao, while Sanshell was represented by the
Fernandez brothers. Under the said Deed, the subject of the discounting was the aforecited
check. At the back thereof and of every deed of assignment was the Continuing Suretyship
Agreement whereby the Fernandezes unconditionally guaranteed to BA Finance the full,
faithful and prompt payment and discharge of any and all indebtedness of Nyco. The BPI
check, however, was dishonored by the drawee bank upon presentment for payment. BA
Finance immediately reported the matter to the Fernandezes who thereupon issued a
substitute check dated February 19,1979 for the same amount in favor of BA Finance. It was
a Security Bank and Trust Company check bearing the number 183157, which was again
dishonored when it was presented for payment. Despite repeated demands, Nyco and the
Fernandezes failed to settle the obligation with BA Finance, thus prompting the latter to
institute an action in court. Nyco and the Fernandezes, despite having been served with
summons and copies of the complaint, failed to file their answer and were consequently
declared in default.
Issue and Ruling:

 Whether or not NyCo is liable for the BPI check despite a similar finding of
liability for the SBTC check rendered by the same lower court.
An assignment of credit is the process of transferring the right of the assignor
to the assignee, who would then be allowed to proceed against the debtor. It may be

done either gratuitously or generously, in which case, the assignment has an effect
similar to that of a sale.
According to Article 1628 of the Civil Code, the assignor-vendor warrants
both the credit itself (its existence and legality) and the person of the debtor (his
solvency), if so stipulated, as in the case at bar. Consequently, if there be any breach
of the above warranties, the assignor-vendor should be held answerable therefor.
There is no question then that the assignor-vendor is indeed liable for the invalidity of
whatever he assigned to the assignee-vendee.
 Whether or not NyCo is discharged of its liability over the SBTC check when BA
Finance failed to give it a notice of dishonor.
Nyco's pretension that it had not been notified of the fact of dishonor is belied
not only by the formal demand letter but also by the findings of the trial court that
Rufino Yao of Nyco and the Fernandez Brothers of Sanshell had frequent contacts
before, during and after the dishonor (Rollo, p. 40). More importantly, it fails to
realize that for as long as the credit remains outstanding, it shall continue to be liable
to BA Finance as its assignor. The dishonor of an assigned check simply stresses its
liability and the failure to give a notice of dishonor will not discharge it from such
liability. This is because the cause of action stems from the breach of the warranties
embodied in the Deed of Assignment, and not from the dishonoring of the check
alone
 Whether or not there was novation when BA finance accepted the SBTC check in
replacement of the BPI check.
There are only two ways which indicate the presence of novation and thereby
produce the effect of extinguishing an obligation by another which substitutes the
same. First, novation must be explicitly stated and declared in unequivocal terms as
novation is never presumed Secondly, the old and the new obligations must be
incompatible on every point. The test of incompatibility is whether or not the two
obligations can stand together, each one having its independent existence If they
cannot, they are incompatible and the latter obligation novates the first In the instant
case, there was no express agreement that BA Finance's acceptance of the SBTC
check will discharge Nyco from liability. Neither is there incompatibility because
both checks were given precisely to terminate a single obligation arising from Nyco's
sale of credit to BA Finance. As novation speaks of two distinct obligations, such is
inapplicable to this case.

 Whether or not NyCo is estopped from denying the authority of Yao, its president,
in extending the credit accommodation to Sanshell.
Finally, Nyco disowns its President's acts claiming that it never authorized
Rufino Yao (Nyco's President) to even apply to BA Finance for credit
accommodation. It supports its argument with the fact that it did not issue a Board
resolution giving Yao such authority. However, the very evidence on record readily
belies Nyco's contention. Its corporate By-Laws clearly provide for the powers of its
President, which include, inter alia, executing contracts and agreements, borrowing
money, signing, indorsing and delivering checks, all in behalf of the corporation.
Furthermore, the appellate court correctly adopted the lower court's observation that
there was already a previous transaction of discounting of checks involving the same
personalities wherein any enabling resolution from Nyco was dispensed with and yet
BA Finance was able to collect from Nyco and Sanshell was able to discharge its own
undertakings. Such effectively places Nyco under estoppel in pais which arises when
one, by his acts, representations or admissions, or by his silence when he ought to
speak out, intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other rightfully relies and acts on such belief, so that he
will be prejudiced if the former is permitted to deny the existence of such facts
(Panay Electric Co., Inc. v. Court of Appeals, G.R. No. 81939, June 29,1989). Nyco
remained silent in the course of the transaction and spoke out only later to escape
liability. This cannot be countenanced. Nyco is estopped from denying
By: M. Teves-Solon

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