Chapter 3 Forms of Contracts

Theseexceptionsarecalculatedtoavoidlitigation.
Oralcontractsfrequentlyleadtofraudinthe
fulfillmentofobligations,ortofalsetestimony.So
longasthepossibilityofdishonestyexistsin
contractualrelations,thespiritualsystemcannotbe
adoptedinanunqualifiedmanner.7
CHAPTER 3 FORMS OF CONTRACTS

Art.1356.Contractsshallbeobligatory,in
whateverformtheymayhavebeenenteredinto,
providedalltheessentialrequisitesfortheir
validityarepresent.However,whenthelaw
requiresthatacontractbeinsomeforminorder
thatitmaybevalidorenforceable,orthata
contractbeprovedinacertainway,that
requirementisabsoluteandindispensable.Insuch
cases,therightofthepartiesstatedinthefollowing
articlescannotbeexercised.1
Idem;id.Formalitiesforvalidity.Thereare
certaincontractsforwhichthelawprescribescertain
formsfortheirvalidity.Thesecontractsmaybe
classifiedasfollows:first,those
6Ibid.
7ReportoftheCodeCommission,pp.137138.
480
FORMSOFCONTRACTSArt.1356whichmust
appearinwriting;second,thosewhichmustappearin
a
publicdocument;andthird,thosewhichmustbe
registered.
Contractswhichmustappearinwritingareasfollows:
(1)Donationsofpersonalpropertywhosevalue
exceedsfivethousandpesos.AccordingtoArt.748of
theCode,thedonationandtheacceptanceshallbe
madeinwriting;otherwise,itshallbevoid.
(2)Saleofapieceoflandoranyinteresttherein
throughanagent.AccordingtoArt.1874oftheCode,
theauthorityofthelattershallbeinwriting;otherwise,
thesaleshallbevoid.
(3)Agreementsregardingpaymentofinterestin
contractsofloan.AccordingtoArt.1956oftheCode,
nointerestshallbedueunlessithasbeenexpressly
stipulatedinwriting.Thevalidityofthecontractof
loan,however,isnotaffected.
FormofContracts;GeneralRule.Accordingto
theabovearticle,whatever,maybetheforminwhich
acontractmayhavebeenenteredinto,thegeneralrule
isthatitshallbeobligatory,providedallofthe
essentialrequisitesforitsvalidityarepresent.We
have,therefore,retainedthespiritualsystemofthe
SpanishCodebyvirtueofwhichthelawlooksmoreat
thespiritratherthanattheformofcontracts.Hence,
underourlegalsystem,theforminwhichacontractis
executedhasnoeffect,asageneralrule,uponits
obligatoryforce,providedalloftheessentialrequisites
foritsvalidityarepresent.Thus,ithasbeenheldthat
2ofagency,3andofleaseof
contractsofpartnership,
4
services,
althoughexecutedverbally,areobligatoryas
farasthecontractingpartiesareconcerned.Ithasbeen
alsoheldthataverbalextrajudicialpartitionof
propertyisvalidandbindingamongtheparties
thereto.5Insuchacase,
1Art.1278,SpanishCivilCode,inmodifiedform.
2Fernandezvs.DelaRosa,1Phil.671;ThungaChiu
3GutierrezHnos.vs.
vs.QueBentec,2Phil.561.
Orense,28Phil.571;DelCastillovs.Robinson,CA,
44Off.
Gaz.4981.
4Arroyovs.Azur,76Phil.493.
5Duranvs.Cecilio,CA,43Off.Gaz.2237;Hernandez
vs.Andal,44Off.Gaz.
2672.
(4)Antichresis.AccordingtoArt.2134oftheCode,in
contractsofantichresis,theamountoftheprincipal
andoftheinterestshallbespecifiedinwriting;
otherwise,thecontractshallbevoid.
479
Contractswhichmustappearinapublicdocumentare
asfollows:
however,therightofapartitionerorofhissuccessorin
interestismerelyajusadrem(personal),notajusin
re(real),ifthepartitioninvolvesimmovableproperty;
inotherwords,hisrightoverthelandwhichhasbeen
allotedtohimortohispredecessorininterestis
personal,and,asaconsequence,isenforceableonly
againsttheotherpartitioners,providedthatnoinnocent
purchasersforvalueareprejudiced.6
(1)Donationsofimmovableproperty.Accordingto
Art.749oftheCode,thedonationmustbemadeina
publicdocument.Theacceptance,ontheotherhand,
maybemadeinthesamedeedofdonationorina
separatepublicdocument.Iftheacceptanceismadein
aseparatepublicdocument,thedonorshallbenotified
thereofinanauthenticform,andthisstepshallbe
notedinbothinstruments.Noncompliancewithanyof
theseformalitiesshallrenderthedonationvoid.
(2)Partnershipswhereimmovablepropertyorreal
rightsarecontributedtothecommonfund.According
toArts.1771and1773oftheCode,inacontractof
partnershipwhereimmovablepropertyorrealrights
arecontributedtothecommonfund,itisnecessarythat
thecontractmustappearinapublicinstrumentand
thattheremustbeaninventoryoftheimmovable
propertyorrealrights,signedbythepartners,and
attachedtothepublicinstrument;otherwise,the
contractisvoid.
481
Art.1356CONTRACTS
Idem;Exceptions.Itmustbeobserved,however,
thatwhenArt.1356speaksofcontractsasbeing
obligatoryregardlessoftheforminwhichtheymay
havebeenenteredinto,itdoesnotincludethose
contractsforwhichthelawprescribesacertainform
eitherforvalidityorforenforceability.Itis,therefore,
evidentthattherearetwoexceptionstothegeneral
rule.Theseexceptionsare:(1)whenthelawrequires
thatthecontractmustbeinacertainforminorderto
bevalid;and(2)whenthelawrequiresthatthe
contractmustbeinacertainforminordertobe
enforceable.
Commentingontheseexceptions,theCode
Commissiondeclared:
Theprojectseekstocombinethespiritualsystemof
theSpanishCodeandtheprinciplesofAnglo
AmericanlawasmanifestedintheStatuteofFrauds.
Art.1357CONTRACTS
Contractswhichmustberegisteredareasfollows:
(1)Chattelmortgages.AccordingtoArt.2140ofthe
Code,byachattelmortgage,personalpropertyis
recordedintheChattelMortgageRegisterasasecurity
fortheperformanceofanobligation.Ifthemovable,
insteadofbeingrecorded,isdeliveredtothecreditoror
athirdperson,thecontractisapledgeandnotachattel
mortgage.
Exampleswhenformisessentialtovalidityare
donationsofanimmovable(Art.749)andofa
movableworthmorethanP5,000(Art.748).Instances
whenacontractisunenforceable,unlessitbeina
certainform,arethoseembodiedintheStatuteof
FraudsasformulatedinArticle1403oftheproject.
1 of 50
ordertoinsuretheirefficacyandtoprotecttheinterests
ofthecontractingpartiesaswellasthatofthird
persons.TheCivilCode,recognizingthisnecessity,
enumeratesinArt.1358thedifferentclassesof
contractswhichmustappeareitherinapublicorina
privatedocument,andgrantsinArt.1357acoercive
powertothecontractingpartiesby
483
Art.1358CONTRACTS
whichtheycanreciprocallycompeltheobservanceof
therequiredform.12
Thefollowingprinciplesareclearlydeduciblefroman
examinationofthecasesdecidedbytheSupreme
Courtinwhichtheseprovisionswereapplied:
(1)Arts.1357and1358donotrequiretheexecutionof
thecontracteitherinapublicorinaprivatedocument
inordertovalidateorenforceitbutonlytoinsureits
efficacy,sothatafteritsexistencehasbeenadmitted,
thepartyboundmaybecompelledtoexecutethe
necessarydocument.13
(2)Evenwherethecontracthasnotbeenreducedto
therequiredform,itisstillvalidandbindingasfaras
14Consequently,
thecontractingpartiesareconcerned.
botharticlespresupposetheexistenceofacontract
15
whichisvalidandenforceable.
(3)Fromthemomentoneofthecontractingparties
invokestheprovisionsofArts.1357and1358by
meansofaproperaction,theeffectistoplacethe
existenceofthecontractinissue,whichmustbe
resolvedbytheordinaryrulesofevidence.16
(5)However,althoughtheprovisionsofArt.1357,in
connectionwiththoseofArt.1358,donotoperate
againstthevalidityofthecontractnorthevalidityof
theactsvoluntarilyperformedbythepartiesforthe
fulfillmentthereof,yetfromthemomentwhenanyof
thecontractingpartiesinvokessaidprovisions,itis
evidentthatun
12ThungaChiuvs.QueBentec,2Phil.261;BianHing
vs.TanBomping,48Phil.253;Escuetavs.Pando,76
Phil.256;DaudenHernaezvs.DelosAngeles,27
SCRA1276.
14ThungaChiuvs.QueBentec,2Phil.251;Soriano
vs.Cortez,8Phil.459;Conluvs.Araneta,15Phil.
387;Osoriovs.Cortez,24Phil.653.
15Solisvs.Barroso,53Phil.913.
16Peyervs.Peyer,77Phil.366.17Rodriguezvs.
Pamintuan,37Phil.876.18Art.1357,CivilCode.
484
FORMSOFCONTRACTSArt.1358
Idem;id.Formalitiesforenforceability.There
arealsocertaincontractswhichareunenforceableby
action,unlesstheyareinwritingandproperly
subscribed,orunlesstheyareevidencedbysomenote
ormemorandum,whichmustalsobeinwritingand
properlysubscribed.Thesecontractsaregovernedby
theStatuteofFrauds.9
FormofContractsRequiredbyLaw.Itmustbe
notedthatitisnotonlyinthetwoexceptionalcases
mentionedintheprecedingsectionswherethelaw
prescribesacertainformintheexecutionofcontracts.
Art.1358oftheCodeenumeratescertainkindsof
contractswhichmustappeareitherinapublicorina
privatedocument.Thepurposeoftherequirement,
however,isnottovalidateortoenforcethecontract,
buttoinsureitsefficacy;inotherwords,theform
requiredisneitherforvaliditynorenforceabilitybut
fortheconvenienceofthecontractingparties.Hence,
theformsrequiredbylawfortheexecutionofcertain
contractsmaybedividedinto:(1)thosewhichare
necessaryfortheconvenienceofthecontracting
partiesorfortheefficacyofthecontract;(2)those
whicharenecessaryforthevalidityofthecontract;
and(3)thosewhicharenecessaryfortheenforceability
ofthecontract.ThefirstisgovernedbyArts.1356to
1358oftheCode,thesecondbyscatteredprovisionsof
theCodeandbyspeciallaws,andthethirdbythe
StatuteofFrauds.
Art.1357.Ifthelawrequiresadocumentorother
specialform,asintheactsandcontracts
enumeratedinthefollowingarticle,thecontracting
partiesmaycompel
8Sec.22,ActNo.1147;Art.1581;CivilCode.9Arts.
1403,etseq.,CivilCode.
482
(4)Art.1357doesnotrequirethattheactiontocompel
theexecutionofthenecessarydocumentmustprecede
theactionuponthecontract.17Asamatteroffact,
bothactionsmaybeexercisedsimultaneously.18
13Doliendovs.Depino,12Phil.758;Dievasvs.
Acua,16Phil.447;HawaiianPhilippineCo.vs.
Hernaez,45Phil.760.
(2)Salesortransfersoflargecattle.Accordingtothe
CattleRegistrationAct,nosaleortransferoflarge
cattleshallbevalidunlessitisdulyregisteredanda
certificateoftransferissecured. 8
FORMSOFCONTRACTSArt.1358
eachothertoobservethatform,oncethecontract
hasbeenperfected.Thisrightmaybeexercised 10
simultaneouslywiththeactionuponthecontract.
Art.1358.Thefollowingmustappearinapublic
document:
(1)Actsandcontractswhichhavefortheirobject
thecreation,transmission,modificationor
extinguishmentofrealrightsoverimmovable
property;salesofrealpropertyorofaninterest
thereinaregovernedbyArticles1403,No.2and
1405;
(2)Thecession,repudiationorrenunciationof
hereditaryrightsorofthoseoftheconjugal
partnershipofgains;
(3)Thepowertoadministerproperty,oranyother
powerwhichhasforitsobjectanactappearingor
whichshouldappearinapublicdocument,or
shouldprejudiceathirdperson;
(4)Thecessionofactionsorrightsproceedingfrom
anactappearinginapublicdocument.
Allothercontractswheretheamountinvolved
exceedsfivehundredpesosmustappearinwriting,
evenaprivateone.Butsalesofgoods,chattelsor
thingsinactionaregovernedbyArticles1403,No.
2,and1405.11
FormalitiesforEfficacy.Although,asageneral
rule,contractsshallbeobligatoryinwhateverform
theymayhavebeenenteredinto,yettherearecertain
contractsfallingwithinthepurvieworscopeofthis
rulewhich,byreasonoftheirimportance,shouldbe
executedinaccordancewithcertainformalitiesin
2 of 50
486
derthemtheexecutionoftherequireddocumentmust
precedethedeterminationoftheotherobligations
derivedfromthecontract.19
CHAPTER 4 REFORMATION OF
INSTRUMENTS
Art.1359.When,therehavingbeenameetingofthe
mindsofthepartiestoacontract,theirtrue
intentionisnotexpressedintheinstrument
purportingtoembodytheagreement,byreasonof
mistake,fraud,inequitableconductoraccident,one
ofthepartiesmayaskforthereformationofthe
instrumenttotheendthatsuchtrueintentionmay
beexpressed.
Ifmistake,fraud,inequitableconduct,oraccident
haspreventedameetingofthemindsoftheparties,
theproperremedyisnotreformationofthe
instrumentbutannulmentofthecontract. 1
DoctrineofReformationofInstruments.When
thetrueintentionofthepartiestoaperfectedandvalid
contractarenotexpressedintheinstrumentpurporting
toembodytheiragreementbyreasonofmistake,fraud,
inequitableconductoraccident,oneofthepartiesmay
askforthereformationoftheinstrumentsothatsuch
2Inorderthatthere
trueintentionmaybeexpressed.
canbeareformationoftheinstrument,thefollowing
requisitesmust,therefore,concur:
DaudenHernaezvs.DelosAngeles27SCRA1276
MarleneDauden,amovieactress,filedacomplaint
againsttheHollywoodFarEastProductions,Inc.and
itsPresidentandGeneralManager,RamonValenzuela,
torecoverP14,700representingthebalanceofher
compensationasleadingactressintwomotionpictures
producedbythedefendantcompany.Uponmotionof
defendants,thelowercourtdismissedthecomplaint
becausetheclaimofplaintiffwasnotevidencedby
anywrittendocument,eitherpublicorprivatein
violationofArt.1358oftheNewCivilCode.Asalast
recourse,plaintiffappealedtotheSupremeCourton
thegroundthatthecourtbelowhadabusedits
discretion.
Held:Weholdthattherewasabuse,sincetheruling
hereincontestedbetraysabasicandlamentable
misunderstandingoftheroleofthewrittenformin
contracts,asordainedinthepresentCivilCode.
487
Inthematterofformalities,thecontractualsystemof
ourCivilCodestillfollowsthatoftheSpanishCivil
Codeof1889andoftheOrdenamientodeAlcalaof
upholdingthespiritandintentofthepartiesover
formalities;hence,ingeneral,contractsarevalidand
bindingfromtheirperfectionregardlessofform,
whethertheybeoralorwritten.Thisisplainfrom
Articles1315and1356ofthepresentCivilCode.To
thisgeneralrule,theCodeadmitstwoexceptions,to
wit:(1)Contractsforwhichthelawitselfrequiresthat
theybeinsomeparticularforminordertomakethem
validandenforceable(thesocalledsolemncontracts).
Examplesofthesearethecontractsoragreements
contemplatedinArts.748,749,1744,1773,1874,
1956,and2134ofthepresentCivilCode.(2)
Contractsthatthelawrequirestobeprovedbysome
writing(memorandum)ofitsterms,asinthose
coveredbytheStatuteofFrauds,nowArt.1403(2)of
theCivilCode.Theirexistencenotbeingprobableby
mereoraltestimony(unlesswhollyorpartlyexecuted),
thesecontractsareexceptionalinrequiringawriting
embodyingthetermsthereoffortheirenforceabilityby
actionincourt.
Art.1359CONTRACTS
19Manalovs.DeMesa,25Phil.495.485
(3)Suchfailuretoexpresstheirtrueintentionisdueto
mistake,fraud,inequitableconductoraccident.3
Art.1358CONTRACTS
Thus,wherethecomplaintfailstoallegethatthe
instrumenttobereformeddoesnotexpressthereal
agreementorintentionoftheparties,itisclearthatno
causeofactionisstatedthereinsincesuchallegationis
essentialconsideringthefactthattheobjectofan
actionforreformationistomaketheinstrument
conformtotherealagreementorintentionofthe
parties.4
Thecontractsueduponbypetitionerhereindoesnot
comeundereitherexception.Itistruethatitappears
includedinthelastclauseofArt.1358,butitnowhere
providesthattheabsenceofwrittenforminthiscase
willmaketheagreementinvalidorunenforceable.On
thecontrary,Art.1357clearlyindicatesthatcontracts
coveredbyArt.1358arebindingandenforceableby
actiondespitetheabsenceofwriting.
Idem;Rationaleofdoctrine.Thedoctrineof
reformationofinstrumentsisbasedonjusticeand
equity.AccordingtotheCodeCommission:
Wherefore,theorderdismissingthecomplaintisset
aside,andthecaseisorderedremandedtothecourtof
originforfurtherproceedingsnotatvariancewith
thisdecision.
Equityordersthereformationofaninstrumentin
orderthatthetrueintentionofthecontractingparties
maybeexpressed.
Thecourtsdonotattempttomakeanothercontract
fortheparties.Therationaleofthedoctrineisthatit
wouldbeunjustandinequitabletoallowthe
enforcementofawritteninstrumentwhichdoesnot
reflectordisclosetherealmeetingofthemindsofthe
parties.Therigorofthelegalisticrulethatawritten
instrumentshouldbethefinalandinflexiblecriterion
andmeasureoftherightsandobligationsofthe
contractingpartiesisthustempered,toforestallthe
effectsofmistake,fraud,inequitableconductor
accident.5
ProblemSpousesRobertandYolliewantedtosell
theirhouse.Theyfoundaprospectivebuyer,Nina.
YollienegotiatedwithNinaforthesaleofthe
property.TheyagreedonafairpriceofP2Million.
NinasentYolliealetterconfirmingherintentionto
buytheproperty.Later,anothercouple,Mariusand
Ellen,offeredasimilarhouseatalowerpriceofP1.5
Million.ButNinainsistedonbuyingthehouseof
RobertandYollieforsentimentalreasons.Nina
preparedadeedofsaletobesignedbythecoupleand
amanagerscheckforP2Million.Afterreceivingthe
P2Million,Robertsignedthedeedofsale.However,
Yolliewasnotabletosignitbecauseshewassaying
shechangedhermind.Yolliefiledsuitfornullification
ofthedeedofsaleandformoralandexemplary
damagesagainstNina.DoesNinahaveanycauseof
actionagainstRobertandYollie?(2006BarProblem)
Idem;Distinguishedfromannulmentofcontracts.
Themostfundamentaldistinctionbetweenanaction
forthereformationofaninstrumentandanactionfor
theannulmentofacontractisthatwhilethefirst
presupposesaperfectlyvalidcontractinwhichthere
hasalreadybeenameetingofthemindsofthe
contractingparties,thesecondisbasedonadefective
contractinwhichtherehasbeennomeetingofthe
mindsbecausetheconsentofoneorbothofthe
contractingpartieshasbeenvitiated.Consequently,if
AnswerConsideringthatthecontracthasalready
beenperfectedandtakenoutoftheoperationofthe
statuteoffrauds,NinacancompelRobertandYollieto
observetheformrequiredbylawinorderforthe
propertytoberegisteredinthenameofNinawhich
canbefiledtogetherwiththeactionfortherecoveryof
house.(Art.1357,NCC).Inthealternative,shecan
recovertheamountofP2Millionthatshepaid.
Otherwise,itwouldresultinsolutionindebitiorunjust
enrichment.
(1)Theremustbeameetingofthemindsofthe
contractingparties;
(2)Theirtrueintentionisnotexpressedinthe
instrument;and
1Newprovision.
2Art.1359,par.1,CivilCode.
3 of 50
statesthatthepropertyissoldabsolutelyorwitha
rightofrepurchase,reformationoftheinstrument
isproper.13
mistake,fraud,inequitableconduct,oraccidenthas
preventedameetingofthemindsoftheparties,the
properremedyisnot
Art.1366.Thereshallbenoreformationinthe
followingcases:
3Ibid.
4Garciavs.Bisaya,97Phil.609.Tothesameeffect:
Ongsiacovs.Ongsiaco,101Phil.1196.
(1)Simpledonationsintervivoswhereinno
conditionisimposed;
5ReportoftheCodeCommission,p.56.488
(2)Wills;
(3)Whentherealagreementisvoid.14
REFORMATIONOFINSTRUMENTSArts.1360
1365
Art.1367.Whenoneofthepartieshasbroughtan
actiontoenforcetheinstrument,hecannot
subsequentlyaskforitsreformation.15
Art.1368.Reformationmaybeorderedatthe
instanceofeitherpartyorhissuccessorsininterest,
ifthemistakewasmutual;otherwise,uponpetition
oftheinjuredparty,orhisheirsandassigns.
reformationoftheinstrumentbutannulmentofthe
6Thus,wherethevendeehasbeenledtoenter
contract.
intoacontractofsalethroughfraudormispresentation
onthepartofthevendororinthemistakenbelief,that,
asstatedinthedeed,thepropertyhewasbuyingwas
unregisteredland,itisevidentthattheproperremedy
isnotreformationofthedeedofsalebutannulmentof
thecontract.7
Art.1369.Theprocedureforthereformationof
instrumentsshallbegovernedbyrulesofcourtto
bepromulgatedbytheSupremeCourt.16
Art.1360.Theprinciplesofthegenerallawonthe
reformationofinstrumentsareherebyadopted
insofarastheyarenotinconflictwiththe
provisionsofthisCode.8
ContractsofAdhesion.Acontractofadhesionis
definedasoneinwhichoneofthepartiesimposesa
readymadeformofcontract,whichtheotherparty
mayacceptorreject,butwhichthelattercannot
modify.(PCIBvs.CA,255SCRA299.)
Art.1361.Whenamutualmistakeoftheparties
causesthefailureoftheinstrumenttodisclosetheir
realagreement,saidinstrumentmaybereformed.9
TheSupremeCourtruledinthecaseofAyala
Corporationvs.RayBurtonDevelopmentCorp.,
August7,1998,294SCRA48,thatacontractof
adhesioninitselfisnotaninvalidagreement.Thistype
ofcontractisasbindingasamutuallyexecuted
transaction.TheSupremeCourthasemphaticallyruled
inthecaseofOngYiuvs.CourtofAppeals,etal.,that
contractsofadhesionwhereinonepartyimposesa
readymadeformofcontractontheotherxxxare
contractsnotentirelyprohibited.Theonewhoadheres
tothecontractisinrealityfreetorejectitentirely;ifhe
adhereshegives
13Newprovision.SeeAquinovs.Deala,63Phil.582;
Marquezvs.Valencia,77Phil.782.
14Newprovision.15Newprovision.16Newprovision.
490
Art.1362.Ifonepartywasmistakenandtheother
actedfraudulentlyorinequitablyinsuchawaythat
theinstrumentdoesnotshowtheirtrueintention,
theformermayaskforthereformationofthe
instrument.10
Art.1363.Whenonepartywasmistakenandthe
otherkneworbelievedthattheinstrumentdidnot
statetheirrealagreement,butconcealedthatfact
fromtheformer,theinstrumentmaybe
reformed.11
Art.1364.Whenthroughtheignorance,lackof
skill,negligenceorbadfaithonthepartofthe
persondraftingtheinstrumentoroftheclerkor
typist,theinstrumentdoesnotexpressthetrue
intentionoftheparties,thecourtsmayorderthat
theinstrumentbereformed.12
Art.1365.Iftwopartiesagreeuponthemortgage
orpledgeorrealorpersonalproperty,butthe
instrument
1369
hisconsent.ThisrulingwasreiteratedinPhilippine
AmericanGeneralInsuranceCo.,Inc.vs.SweetLines,
Inc.,etal.,whereintheSupremeCourtfurtherdeclared
throughJusticeFlorenzRegaladothatnotevenan
allegationofignoranceofapartyexcusesnon
compliancewiththecontractualstipulationssincethe
responsibilityforensuringfullcomprehensionofthe
provisionsofacontractofcarriage(acontractof
adhesion)devolvesnotonthecarrierbutontheowner,
shipper,orconsigneeasthecasemaybe.
TheSupremeCourtcontinuedtostateintheabove
citedcasethatcontractsofadhesion,however,stand
outfromothercontracts(whicharebilaterallydrafted
bytheparties)inthattheformerisaccordedinordinate
vigilanceandscrutinybythecourtsinordertoshield
theunwaryfromdeceptiveschemescontainedin
readymadecovenants.AsstatedbytheCourt,
speakingthroughJusticeJ.B.L.Reyes,inQuaChee
Ganvs.LawUnionandRockInsuranceCo.,Ltd.:
Thecourtscannotignorethatnowadays,monopolies,
cartelsandconcentrationofcapital,endowedwith
overwhelmingeconomicpower,managetoimpose
uponpartiesdealingwiththemcunninglyprepared
agreementsthattheweakerpartymaynotchange
onewith,hisparticipationintheagreementbeing
reducedtothealternativetotakeitorleaveitlabeled
7Garciavs.Bisaya,97Phil.609.
8Newprovision.
9Newprovision.ForillustrativecasesseePhilippine
SugarEstateDevelopment
Co.vs.Govt.ofP.I.,247U.S.385;BankoftheP.I.
vs.FidelityandSuretyCo.,51Phil.57;Jardenilvs.
Solas,73Phil.626;DelaCruzvs.DelPilar,95Phil.
444.
10Newprovision.SeeOngChuavs.Carr,53Phil.975.
11Newprovision.
12Newprovision.
489
Arts.13661369CONTRACTS
4 of 50
extricateapartyfromanunwiseorundesirable
contractenteredintowithalltherequiredformalities
andwithfullawarenessofitsconsequences.
PetitionersvoluntarilyexecutedtheREMontheir
propertyinfavorofBPIFSBtosecuretheloan.They
cannotnowbeallowedtorepudiatetheirobligationto
thebankafterTransbuildersdefault.While
petitionersliabilitywaswritteninfineprintandina
contractwrittenbyBPIFSB,ithasbeentheconsistent
holdingoftheCourtthatcontractsofadhesionfooting
arenotinvalidperse.Onnumerousoccasions,the
SupremeCourthasupheldthebindingeffectsofsuch
contracts.
ContractsofCreditCards.InthecaseofSpouses
Ermitanovs.CourtofAppeals,April21,1999,G.R.
No.127246,theSupremeCourtruledthatthecontract
betweenthepartiesisindeedacontractofadhesion,
socalledbecauseitstermsarepreparedbyonlyone
partywhiletheotherpartymerelyaffixeshissignature
signifyinghisadhesionthereto.Suchcontractsarenot
voidinthemselves.Theyareasbindingasordinary
contracts.Partieswhoenterintosuchcontractsarefree
torejectthestipulationsentirely.ThisCourtwillnot
hesitatetoruleoutblindadherencetosuchcontractsif
theyprovetobetooonesidedundertheattendantfacts
andcircumstances.Becauseofthepeculiarnatureof
contractsofadhesion,thevaliditythereofmustbe
determinedinthelightofthecircumstancesunder
whichthestipulationisintendedtoapply.Forthe
cardholdertobeabsolvedfromliabilityfor
unauthorizedpurchasesmadethroughhislostorstolen
card,twostepsmustbefollowed:(1)thecardholder
mustgivewrittennoticetothecreditcardcompany,
and(2)thecreditcardcompanymustnotifyits
memberestablishmentsofsuchlossortheft,which,
naturally,itmayonlydouponreceiptofanoticefrom
thecardholder.Boththecardholderandthecreditcard
company,then,havearesponsibilitytoperform,in
ordertofreethecardholderfromanyliabilityarising
fromtheuseofalostorstolencard.Inthiscase,the
cardholderhascompliedwithwhatwasrequiredofher
underthecontractwithcreditcardcompany.Having
thusperformedherpartofthenotificationprocedure,it
wasreasonableforthecardholdertoexpectthatthe
creditcardcompanywouldperformitspartofthe
procedure,whichistoforthwithnotifyitsmember
establishments.Promptnoticebythecardholdertothe
creditcardcompanyofthelossortheftofhercard
shouldbeenoughtorelievetheformerof
493
sinceRaymondSaleillescontractsbyadherence
(contractsdadhesion)incontrasttothoseenteredinto
bypartiesbargainingonanequalfooting.Such
contracts(ofwhichpoliciesofinsuranceand
internationalbillofladingareprimeexamples)
obviouslycallforgreaterstrictnessandvigilanceon
thepartofthecourtsofjusticewithaviewto
protectingtheweakerpartyfromabusesand
imposition,andpreventtheirbecomingtrapsforthe
unwary.
Thestringenttreatmenttowardscontractsofadhesion
whichthecourtsareenjoinedtoobserveisin
pursuanceofthemandateinArticle24oftheNew
CivilCodethat(i)nallcontractual,propertyorother
relations,whenoneofthepartiesisatadisadvantage
onaccountofhismoraldependence,ignorance,
indigence,mentalweakness,tenderageorother
handicap,courtsmustbevigilantforhisprotection.
(AyalaCorporationvs.RayBurtonDevelopment
Corp.,294SCRA48.)
TheSupremeCourtfurtherruledinthecaseofAyala
Corporationvs.RayBurtonDevelopmentCorp.
(RBDC),thatthevalidityand/orenforceabilityofa
contractofadhesionwillhavetobedeter
491
minedbythepeculiarcircumstancesobtainingineach
caseandthesituationofthepartiesconcerned.Inthe
instantcase,thestipulationsintheDeedRestrictions
andSpecialConditionsareplainandunambiguous
whichleavenoroomforinterpretation.Moreover,
therewasevennoattemptonthepartofRBDCto
provethat,intheexecutionoftheDeedofSaleonthe
subjectlot,itwasaweakeroradisadvantagedpartyon
accountofitsmoraldependence,ignorance,mental
weaknessorotherhandicap.Onthecontrary,as
testifiedtobyEdwinNgo,PresidentofRBDC,the
latterisarealtyfirmandhasbeenengagedinrealty
business,andthathe,abusinessmanfor30years,
representedRBDCinthenegotiationsandinthe
eventualpurchaseofthesubjectlotfrom
PALMCREST.EdwinNgostestimonyprovesthat
RBDCwasnotanunwarypartyinthesubject
transaction.Instead,EdwinNgohasportrayedRBDC
asaknowledgeablerealtyfirmexperiencedinreal
estatebusiness.
anyliabilityoccasionedbytheunauthorizeduseofher
lostorstolencard.Thequestionedstipulationinthis
case,whichstillrequiresthecardholdertowaituntil
thecreditcardcompanyhasnotifiedallitsmember
establishments,putsthecardholderatthemercyofthe
creditcardcompanywhichmaydelayindefinitelythe
notificationofitsmemberstominimizeifnotto
eliminatethepossibilityofincurringanylossfrom
unauthorizedpurchases.Or,asinthiscase,thecredit
cardcompanymayforsomereasonfailtopromptly
notifyitsmembersthroughabsolutelynofaultofthe
cardholder.Torequirethecardholdertostillpayfor
unauthorizedpurchasesafterhehasgivenprompt
noticeofthelossortheftofhercardtothecreditcard
companywouldsimplybeunfairandunjust.TheCourt
cannotgiveitsassenttosuchastipulationthatcould
clearlyrunagainstpublicpolicy.
Problem(a)Whatisacontractofadhesion?
InthecaseofEmmanuelAznarvs.Citibank,N.A.
(Philippines),G.R.No.164273,March28,2007,the
SupremeCourtheldthatthetermsandconditionsof
CitibanksMastercardconstituteacontractof
adhesion.Itissettledthatthecontractsbetween
cardholdersandthecreditcardcompaniesarecontracts
ofadhesion,socalled,becausetheirtermsareprepared
byonlyonepartywhiletheothermerelyaffixeshis
signaturesignifyinghisadhesionthereto.Inthiscase,
paragraph7ofthetermsandconditionsstatesthat
Citibankisnotresponsibleifthecardisnothonoured
byanymerchantaffiliateforanyreason.Whileitis
truethatCitibankmayhavenocontrolofallthe
actionsofitsmerchantaffiliates,andshouldnotbe
heldliabletherefor,itisincorrect,however,togiveit
blanketfreedomfromliabilityifitscardisdishonoured
byanymerchantaffiliateforanyreason.Suchphrase
rendersthestatementvagueandasthesaidtermsand
conditionsconstituteacontractofadhesion,any
ambiguityinitsprovisionsmustbeconstruedagainst
thepartywhopreparedthecontract,inthiscase
Citibank.
(b)Acontractofadhesionisjustasbindingasordinary
contracts.Itistruethatwehave,onoccasion,struck
downsuchcontractsasvoidwhentheweakerpartyis
imposeduponindealingwiththedominantbargaining
partyandisreducedtothe.Nevertheless,contractsof
adhesionarenotinvalidperse;theyarenotentirely
prohibited.Theonewhoadherestothecontractisin
realityfreetorejectitentirely;ifheadheres,hegives
hisconsent.
Citibankalsoinvokesparagraph15ofitstermsand
conditionswhichlimitsitsliabilitytoP1,000.00orthe
actualdamageproven,whicheverislesser.Again,such
stipulationcannotbeconsideredasvalidforbeing
unconscionableasitprecludespaymentofalarger
amounteventhoughdamagemaybeclearlyproven.
TheSupremeCourtisnotprecludedfromrulingout
492
(b)Arecontractsofadhesionvoidorprohibited?
AnswerInthecaseofDevelopmentBankofthe
Philippinesvs.Perez,G.R.No.14854,Nov.11,2004,
theCourtheldthat:
(a)Acontractofadhesionissocalledbecauseits
termsarepreparedbyonlyonepartywhiletheother
partymerelyaffixeshissignaturesignifyinghis
adhesionthereto.
InthecaseofSps.FranciscoandRubyReyesvs.BPI
FamilySavingsBank,Inc.,etal.,G.R.Nos.149840
41,March31,2006,wherethepetitionerspouses
undertooktosecuretheP15MloanofTransbuilders
Resources&DevelopmentCorporationtoBPIFSB
andothercreditaccomodationsofwhatevernature
obtainedbytheBorrower/MortgagorundertheReal
EstateMortgagetheyexecutedinfavorofBPIFSB,
theSupremeCourtheldthatwhilethestipulation
provedtobeoneroustothepetitioners,neitherthelaw
northecourtswill
1369
5 of 50
circumstancesexcludinganintenttopledge.(Lopezvs.
CourtofAppeals,114SCRA671[1982].)
Further,inthecaseofPhilippineNational
ConstructionCorporationvs.TheHon.CA,etal.,
G.R.No.159417,Jan.25,2007,theCourtheldthatthe
contractbetweenpartiesistheformalexpressionof
thepartiesrights,dutiesandobligations.Itisthebest
evidenceoftheintentionoftheparties.Thus,when
thetermsofanagreementhavebeenreducedto
writing,itisconsideredascontainingalltheterms
agreeduponandtherecanbe,betweenthepartiesand
theirsuccessorsininterest,noevidenceofsuchterms
otherthanthecontentsofthewrittenagreement.
Furthermore,itisarulethatifthetermsofacontract
areclearandleavenodoubtastotheintentionofthe
contractingparties,theliteralmeaning
4Nielsen&Co.vs.LepantoConsolidatedMiningCo.,
18SCRA1040.496
INTERPRETATIONOFCONTRACTSArts.1370
1371
ofitsstipulationshallcontrol.Thecontractisthelaw
betweenthepartiesandwhenthewordsofthecontract
areclearandcaneasilybeunderstood,thereisno
roomforcontruction(OlivaresandRoblesvs.
Sarmiento,G.R.158384,June12,2008).
Idem;Howtojudgeintention.Inordertojudge
theintentionofthecontractingparties,their
contemporaneousandsubsequentactsshallbe
principallyconsidered.Thisis,ofcourse,without
prejudicetotheconsiderationofotherfactorsasfixed
ordeterminedbytheotherrulesofinterpretation
mentionedintheCivilCodeandintheRulesof
Courts.Hence,asageneralrule,documentsarein
terpretedintheprecisetermsinwhichtheyare
expressed,butthecourts,intheexerciseoftheirsound
discretion,arecalledupontoadmitdirectand
simultaneouscircumstantialevidencenecessaryfor
theirinterpretationwiththepurposeofmakingthetrue
5Onepatternisto
intentionofthepartiesprevail.
ascertainthecontemporaneousandsubsequentactsof
thecontractingpartiesinrelationtothetransaction
underconsideration.Thus,wherethereisevidence
regardingtheintentionofthepartiestoextendthe
contractequivalenttotheperiodofsuspensioncaused
bythewarandthepartiesunderstoodthesuspensionto
meanextension,itwasheldthatthesuspensionofthe
agreementmeanstheextensionofthesamefora
periodequivalenttothesuspension.6
ProblemWhatisthecardinalruleapplicableina
casewherethetermsofacontractareclearandleave
nodoubtupontheintentionofthecontractingparties?
blindadherencetothetermsofacontractifthe
attendantfactsandcircumstancesshowthatthey
shouldbeignoredforbeingobviouslytooonesided.
494
CHAPTER 5 INTERPRETATION OF
CONTRACTS
Art.1370.Ifthetermsofacontractareclearand
leavenodoubtupontheintentionofthecontracting
parties,theliteralmeaningofitsstipulationsshall
control.
Ifthewordsappeartobecontrarytotheevident
intentionoftheparties,thelattershallprevail
overtheformer.1
Art.1371.Inordertojudgetheintentionofthe
contractingparties,theircontemporaneousand
subsequentactsshallbeprincipallyconsidered. 2
PrimacyofIntentionofParties.Thecardinalrule
intheinterpretationofcontractsistotheeffectthatthe
intentionofthecontractingpartiesshouldalways
prevailbecausetheirwillhastheforceoflawbetween
them.Art.1370oftheCivilCodeconsecratesthisrule
andprovides,further,thatifthetermsofcontractare
clearandleavenodoubtastotheintentionofthe
contractingparties,theliteralsenseofitsstipulations
shallbefollowed;andifthewordsappeartobe
contrarytotheevidentintentionofthecontracting
3Asarule,inthe
parties,theintentionshallprevail.
constructionandinterpretationofadocumentthe
intentionofthepartiesmustbesought.Thisisthe
basicruleintheinterpretationofcontractsbecauseall
otherrulesarebutancilliarytotheascertainmentofthe
meaningintendedbytheparties.Andoncethis
intentionhasbeen
1Art.1281,SpanishCivilCode.
3Kasilagvs.Rodriguez,69Phil.317.Tothesame
effect:ManilaEngineeringCo.
vs.Cranston,45Phil.842;Romanvs.AsiaBanking
Corp.,46Phil.705;Valdezvs.Sibal,46Phil.930;
NationalBankvs.Paez,54Phil.393;Abellavs.
Gonzaga,56Phil.132;Acostavs.Llacuna,59Phil.
540;H.E.HeacockCo.vs.BuntalManufacturingCo.,
66Phil.245;Josevs.Veloso,67Phil.191;Marquez
vs.Valencia,44Off.Gaz.895.
AnswerItisacardinalrulethatifthetermsofa
contractareclearandleavenodoubtastotheintention
ofthecontractingparties,theliteralmeaningofits
stipulationshallcontrol.InthecaseofPhilippine
NationalConstructionCorporationvs.TheHon.CA,
etal.,G.R.No.159417,Jan.25,2007,theCourtheld
thatthecontractbetweenpartiesistheformal
expressionofthepartiesrights,dutiesandobligations.
Itisthebestevidenceoftheintentionoftheparties.
Thus,when
495
5Avesvs.Orillenedo,70Phil.262,citingArts.1370
and1371oftheCivilCode.Tothesameeffect:
AtlanticGulfCo.vs.InsularGovernment,10Phil.
166;Figuerasvs.Rocha,13Phil.504;Tanidovs.
Jumaoan,17Phil.335;Solervs.Chesley,43Phil.529;
Kidneyvs.Carter,43Phil.953;Riverovs.Rabe,54
Phil.982;Gonzalesvs.LaPrevisora,74Phil.165.
TheseprincipleswerereiteratedbytheSCinthecase
ofManilaBankingCorp.vs.Teodoro,Jr.(169SCRA
95),whereitwasheld:Thecharacterofthe
transactionsbetweenthepartiesisnot,however,
determinedbythelanguageusedinthedocumentbut
bytheirintention.Thus,theCourt,quotingfromthe
AmericanJurisprudence(682d,SecuredTransaction,
Section50)said:Thecharacterofthetransaction
betweenthepartiesistobedeterminedbytheir
intention,regardlessofwhatlanguagewasusedor
whattheformofthetransferwas.Ifitwasintendedto
securethepaymentofmoney,itmustbeconstruedasa
pledge.However,eventhoughatransfer,ifregarded
byitself,appearstohavebeenabsolute,itsobjectand
charactermightstillbequalifiedandexplainedbya
contemporaneouswritingdeclaringittohavebeena
depositofthepropertyascollateralsecurity.Ithas
beensaidthatatransferofpropertybythedebtortoa
creditor,evenifsufficientonitsfacetomakean
absoluteconveyance,shouldbetreatedasapledgeif
thedebtcontinuesinexistenceandisnotdischarged
bythetransfer,andthataccordingly,theuseofthe
termsordinarilyimportingconveyance,ofabsolute
ownershipwillnotbegiventhateffectinsucha
transactioniftheyarealsocommonlyusedinpledges
andmortgagesandthereforedonotunqualifiedly
indicateatransferofabsoluteownership,inthe
absenceofclearandambiguouslanguageorother
6Nielsen&Co.vs.LepantoConsolidatedMiningCo.,
18SCRA1040.497
thetermsofanagreementhavebeenreducedto
writing,itisconsideredascontainingalltheterms
agreeduponandtherecanbe,betweenthepartiesand
theirsuccessorsininterest,noevidenceofsuchterms
otherthanthecontentsofthewrittenagreement.
ascertaineditbecomesanintegralpartofthecontract
asthoughithadbeenoriginallyexpressedthereinin
unequivocalterms.4
6 of 50
CHAPTER 6 RESCISSIBLE CONTRACTS

ClassesofDefectiveContracts.Therearefour
classesofdefectivecontractsunderthepresentCivil
Code.Theyare:first,rescissiblecontracts;second,
voidablecontracts;third,unenforceablecontracts;and
fourth,voidorinexistentcontracts.Explainingthe
reasonsbehindthisnewclassification,theCode
Commissiondeclaredinitsreport:
Agreatdealofconfusionhasbeencreatedbythe
faultyterminologyusedbytheSpanishCodeas
regardsdefectivecontracts.Thereisnosufficient
clarityastocontratosnulosandcontratos
anulablesvoidandvoidablecontracts.
Inordertoputanendtotheforegoinguncertaintyand
otherambiguitiesintheSpanishCode,theprojectina
clearcutandunequivocalwayclassifiesanddefines
thevariouskindsofdefectivecontracts,andstatestheir
consequences.Thereare,undertherecommendedplan,
fourkindsofsuchcontracts,namely(intheorderof
defectiveness):(1)rescissible;(2)voidable;(3)
unenforceable;and(4)voidorinexistentcontracts.
Itisfurtherrequiredthatthevariousstipulationsofa
contractshallbeinterpretedtogether,attributingtothe
doubtfulonesthatwhichmayresultfromallofthem
takenjointly(BobieRoseV.Friasvs.FloraSan
DiegoSison,G.R.No.155223,April3,2007).
Art.1372.Howevergeneralthetermsofacontract
maybe,theyshallnotbeunderstoodto
comprehendthingsthataredistinctandcasesthat
aredifferentfromthoseuponwhichtheparties
intendedtoagree.7
Art.1373.Ifsomestipulationofanycontractshould
admitofseveralmeanings,itshallbeunderstoodas
bearingthatimportwhichismostadequateto
renderiteffectual.8
Art.1374.Thevariousstipulationsofacontract
shallbeinterpretedtogether,attributingtothe
doubtfulonesthatsensewhichmayresultfromall
ofthemtakenjointly.9
Itisbelievedthatwiththeexplicitprovisionsofthe
Projectuponthesubjectofdefectivecontracts,the
presentnebulousstateofthelawwillbedispelled.Itis
neitherwisenorjustthatpartiesshouldbeleftindoubt
astothedegreeofeffectivenessoftheircontractual
relations.Thelegalprofessionisalsoentitledtoknow
inapositiveandunequivocalmannerwhatcontracts
arerescissible,voidable,unenforceable,andvoid.Itis
hopedthatthisclarificationofthelawonthismostfar
reachingsubjectwillgofartowardforestallingmany
controversiesandlitigations.1
Art.1375.Wordswhichmayhavedifferent
significationsshallbeunderstoodinthatwhichis
mostinkeepingwiththenatureandobjectofthe
contract.10
1ReportoftheCodeCommission,pp.138140.500
Art.1377.Theinterpretationofobscurewordsor
stipulationsinacontractshallnotfavortheparty
whocausedtheobscurity.12
RESCISSIBLECONTRACTS
7Art.1283,SpanishCivilCode.8Art.1284,Spanish
10Art.
CivilCode.9Art.1285,SpanishCivilCode.
11Art.1287,SpanishCivil
1286,SpanishCivilCode.
Code.12Art.1288,SpanishCivilCode.
Idem;Essentialfeatures.Theessentialfeaturesof
thedifferentclassesofdefectivecontractsare:
1.Astodefect:
(a)Inrescissiblecontracts,thereisdamageorinjury
Art.1376.Theusageorcustomoftheplaceshallbe
borneinmindintheinterpretationofthe
ambiguitiesofacontract,andshallfilltheomission
ofstipulationswhichareordinarilyestablished.11
498
eithertooneofthecontractingpartiesortothird
persons;
INTERPRETATIONOFCONTRACTSArts.1378
1379
(b)Invoidablecontracts,thereisvitiationofconsent
orlegalincapacityofoneofthecontractingparties;
(c)Inunenforceablecontracts,thecontractisentered
intoinexcessorwithoutanyauthority,ordoesnot
complywiththeStatuteofFrauds,orbothcontracting
partiesarelegallyincapacitated;
(d)Invoidorinexistentcontracts,oneorsomeofthe
essentialrequisitesofavalidcontractarelackingeither
infactorinlaw.
2.Astoeffect:
(a)Thefirstareconsideredvalidandenforceableuntil
theyarerescindedbyacompetentcourt;
(b)Thesecondareconsideredvalidandenforceable
untiltheyareannulledbyacompetentcourt;
Art.1378.Whenitisabsolutelyimpossibletosettle
doubtsbytherulesestablishedinthepreceding
articles,andthedoubtsrefertoincidental
circumstancesofagratuitouscontract,theleast
transmissionofrightsandinterestsshallprevail.If
thecontractisonerous,thedoubtshallbesettledin
favorofthegreatestreciprocityofinterests.
Ifthedoubtsarecastupontheprincipalobjectof
thecontractinsuchawaythatitcannotbeknown
whatmayhavebeentheintentionorwillofthe
parties,thecontractshallbenullandvoid.13
Art.1379.Theprinciplesofinterpretationstatedin
Rule123oftheRulesofCourtshalllikewisebe
observedintheconstructionofcontracts. 14
(c)Thethirdcannotbeenforcedbyaproperactionin
court;
(d)Thefourthdonot,asageneralrule,produceany
legaleffect.
14Newprovision.TheprovisionsofRule123ofthe
RulesofCourtreferredtoareSecs.5867,nowSecs.
817,Rule130,NewRulesofCourt.
499
3.Astoprescriptibilityofactionordefense:
(a)Inthefirst,theactionforrescissionmayprescribe;
CONTRACTS
7 of 50
RescissibleContractsinGeneral.Inarescissible
contract,alloftheessentialrequisitesofacontract
existandthecontractisvalid,butbyreasonofinjury
ordamagetoeitherofthecontractingpartiesortothird
3A
persons,suchascreditors,itmayberescinded.
rescissiblecontractis,therefore,acontractwhichis
3ReportoftheCodeCommission,p.139.
(b)Inthesecond,theactionforannulmentorthe
defenseofannulabilitymayprescribe;
(c)Inthethird,thecorrespondingactionforrecovery,
iftherewastotalorpartialperformanceofthe
unenforceablecontractunderNo.1orNo.3ofArt.
1403,mayprescribe.
(d)Inthefourth,theactionfordeclarationofnullityor
inexistenceorthedefenseofnullityorinexistencedoes
notprescribed.
502
501
RESCISSIBLECONTRACTSArt.1380
Art.13804.
validbecauseitcontainsalloftheessentialrequisites
prescribedbylaw,butwhichisdefectivebecauseof
injuryordamagetoeitherofthecontractingpartiesor
tothirdpersons,asaconsequenceofwhichitmaybe
rescindedbymeansofaproperactionforrescission.
5.
Beforeitisrescinded,arescissiblecontractisvalid
and,therefore,legallyeffective.Theonlywayby
whichitcanbeattackedisbymeansofadirectaction
forrescissionbasedonanyofthecausesexpressly
specifiedbylaw;hence,itcannotbeattacked
collaterally.4
Astosusceptibilityofratification:
CONTRACTS
Idem;Characteristics.Rescissiblecontracts,
therefore,possessthefollowingcharacteristics:
(1)Theirdefectconsistsininjuryordamageeitherto
oneofthecontractingpartiesortothirdpersons.
(2)Beforerescission,theyarevalidand,therefore,
legallyeffective.
(a)Thefirstarenotsusceptibleof
ratification;
(b)Thesecondaresusceptibleofratification;
(c)Thethirdaresusceptibleofratification;
(d)Thefourtharenotsusceptibleof
ratification.
(3)Theycanbeattackeddirectlyonly,andnot
collaterally.
(4)Theycanbeattackedonlyeitherbyacontracting
partyorbyathirdpersonwhoisinjuredordefrauded.
(5)Theyaresusceptibleofconvalidationonlyby
prescription,andnotbyratification.
Idem;Conceptofrescission.Rescissionisa
remedygrantedbylawtothecontractingparties,and
eventothirdpersons,tosecurethereparationof
damagescausedtothembyacontract,evenifthesame
shouldbevalid,bymeansoftherestorationofthings
totheirconditionpriortothecelebrationofthe
contract.5
Idem;id.Distinguishedfromresolution.
Rescissionofrescissiblecontractsmustnotbe
confusedwiththerescissionorresolutionofreciprocal
obligationsunderArt.1191oftheCode.Although
therearesimilaritiesbothwithrespecttovalidityand
effects,theyaredistinguishedfromeachotherinthe
followingways:
(1)Astopartywhomayinstituteaction:Inrescission
theactionmaybeinstitutednotonlybyapartytothe
contractbutevenbyathirdperson,whileinresolution
theactionmaybeinstitutedonlybyapartytothe
contract.
Astowhomayassailcontracts:
(a)Thefirstmaybeassailednotonlybyacontracting
partybutevenbyathirdpersonwhoisprejudicedor
damagedbythecontract;
(b)Thesecondmaybeassailedonlybyacontracting
party;
(c)Thethirdmaybeassailedonlybyacontracting
party;
(d)Thefourthmaybeassailednotonlybya
contractingpartybutevenbyathirdpersonwhose
interestisdirectlyaffected.
6.Astohowcontractsmaybeassailed:
(a)Thefirstmaybeassaileddirectlyonly,andnot
collaterally;
.
(b)Thesecondmaybeassaileddirectlyor
collaterally;
4Borjavs.Addison,44Phil.895.58Manresa,5thEd.,
Bk.2,p.545.
(c)Thethirdmaybeassaileddirectlyor
collaterally;
503
(d)Thefourthmaybeassaileddirectlyor
collaterally.
Art.1380CONTRACTS
(2)Astocauses:Inrescissionthereareseveralcauses
orgroundssuchaslesion,fraudandothersexpressly
specifiedbylaw,whileinresolutiontheonlygroundis
failureofoneofthepartiestocomplywithwhatis
incumbentuponhim.
Art.1380.Contractsvalidlyagreeduponmaybere
scindedinthecasesestablishedbylaw.2
8 of 50
withouttheknowledgeandapprovalofthelitigants
orofcompetentjudicialauthority;
(5)Allothercontractsspeciallydeclaredbylawto
besubjecttorescission.7
(3)Astopowerofthecourts:Inrescissionthereisno
powerofthecourtstograntanextensionoftimefor
performanceoftheobligationsolongasthereisa
groundforrescission,whileinresolutionthelaw
expresslydeclaresthatcourtsshallhaveadiscretionary
powertograntanextensionforperformanceprovided
thatthereisajustcause.
6Tothesameeffect:LunetaMotorCo.vs.Richey,
7
CA,39Off.Gaz.1101.
Code,inmodifiedform. Art.1291,SpanishCivil
(4)Astocontractswhichmayberescindedor
resolved:Inrescissionanycontract,whetherunilateral
orreciprocal,mayberescinded,whileinresolution
onlyreciprocalcontractsmayberesolved.
505
Art.1382CONTRACTS
Art.1382.Paymentsmadeinastateinsolvencyfor
obligationstowhosefulfillmentthedebtorcould
notbecompelledatthetimetheywereeffected,
arealsorescissible.8
ContractsinBehalfofWard.Thefirstofthe
rescissiblecontractsarethosewhichareenteredinto
byguardianswheneverthewardswhomtheyrepresent
sufferlesionordamagebymorethanonefourthofthe
9This
valueofthethingswhicharetheobjectthereof.
is,however,withoutprejudicetotheprovisionofArt.
1386whichstatesthatrescissionshallnottakeplace
withrespecttocontractsapprovedbythecourts.
ItmustbenotedthatundertheRulesofCourt,a
judicialguardianenteringintoacontractwithrespect
tothepropertyofhiswardmustordinarilysecurethe
10Thisisalsotruein
approvalofacompetentcourt.
thecaseofafatherormotherconsideredasanatural
guardianofthepropertyofachildunderparental
authoritywheresuchpropertyisworthmorethantwo
11Asamatteroffact,ifthecontract
thousandpesos.
involvesthesaleorencumbranceofrealproperty,
12Consequently,ifa
judicialapprovalisindispensable.
guardiansells,mortgagesorotherwiseencumbersreal
propertybelongingtohiswardwithoutjudicial
13andnot
approval,thecontractisunenforceable,
rescissibleevenifthelattersufferslesionordamageof
morethanonefourthofthevalueoftheproperty.
However,ifheentersintoacontractfallingwithinthe
scopeofhispowersasguardianofthepersonand
property,oronlyoftheproperty,ofhisward,suchas
whenthecontractinvolvesactsofadministration,
14inwhich
expressjudicialapprovalisnotnecessary,
casethecontractisrescissibleifthelattersuffersthe
lesionordamagementionedinNo.1ofArt.1381of
theCode.
ContractsinBehalfofAbsentees.Thesecondof
therescissiblecontractsarethoseenteredintoinbehalf
ofabsentees,ifthelattersufferthelesionordamage
statedinthepreceding
9Art.1281,No.1,CivilCode.
10SeeRules9596,NewRulesofCourt.
11Art.326,CivilCode.
12Sec.1,Rule95,NewRulesofCourt.
13Arts.1403,No.1,and1317,CivilCode.
14Sec.1,etseq.,Rule96,NewRulesofCourt.See2
Moran,1957Ed.,p.506.
506
Idem;id.Distinguishedfromrescissionby
mutualconsent.Neithermustrescissionbe
confusedwithrescissionofacontractbymutual
consentofthecontractingparties.Onemustbe
distinguishedfromtheotherfirst,withrespectto
thecausesofrescisssion,second,withrespecttothe
lawsapplicable,andthird,withrespecttotheeffects.
Thefollowingcasewillservetoillustratethese
distinctions:
Aquinovs.Taedo31Phil.517
Therecordsshowthatplaintiffpurchasedsomelands
fromthedefendantand,asaconsequence,took
possessionofthesameandcollectedtheirproducts.
Subsequently,theydissolvedthecontractofsale,and,
asaresultthereof,plaintiffreturnedthelands,while
defendantboundhimselftoreturnthepartofthe
purchasepricewhichplaintiffhaspaid.Thequestion
nowiswhetherornottheplaintiffisobligedtoreturn
tothedefendanttheproductsofthelandswhichhehad
collectedduringhispossession.Thedefendant
contendsthatheisobliged,invokingtheprovisionsof
Art.1295(nowArt.1385)oftheCivilCode.The
SupremeCourt,however,ruled:
Therescissionmentionedinthecontractisnotthe
rescissionreferredtoinArticle1295(nowArt.1385).
Althoughtheplaintiffandthedefendantemployedthe
wordrescind,ithasnot,inthecontractexecutedby
them,eitherthescopeorthemeaningoftheword
rescissiontowhichArticle1295
504
(nowArt.1385)refersandwhichtakesplaceonlyin
thecasesmentionedintheprecedingArticles,1291
and1292(nowArts.1381and1382).Rescission,inthe
lightoftheseprovisions,isareliefwhichthelaw
grants,onthepremisethatthecontractisvalid,forthe
protectionofoneofthecontractingpartiesandthird
personsfromallinjuryanddamagethatthecontract
maycause,ortoprotectsomeincompatibleand
preferentialrightcreatedbythecontract.Article1295
(nowArt.1385)referstocontractsthatarerescissible
inaccordancewithlawinthecasesexpresslyfixed
thereby,butitdoesnotrefertocontractsthatare
rescindedbymutualconsentandforthemutual
convenienceofthecontractingparties.Therescission
inquestionwasnotoriginatedbyanyofthecauses
specifiedinArticles1291and1292(nowArts.1381
and1382),norisitanyreliefforthepurposessought
bythesearticles.Itissimplyanothercontractforthe
dissolutionofapreviousone,anditseffects,inrelation
tothecontractsodissolved,shouldbedeterminedby
theagreementmadebytheparties,orbythe
applicationofotherlegalprovisions,butnotbyArticle
1295(nowArt.1385),whichisnotapplicable.6
Art.1381.Thefollowingcontractsarerescissible:
(1)Thosewhichareenteredintobyguardians
wheneverthewardswhomtheyrepresentsuffer
lesionbymorethanonefourthofthevalueofthe
thingswhicharetheobjectthereof;
number.15However,suchcontractsarenotrescissible
iftheyhavebeenapprovedbythecourts.16
(2)Thoseagreeduponinrepresentationof
absentees,ifthelattersufferthelesionstatedinthe
precedingnumber;
Sincethepowersanddutiesofalegalrepresentativeof
anabsenteeareexactlythesameasthoseofa
17theprinciplesenunciatedinthepreceding
guardian,
sectionarealsoapplicablehere.
(3)Thoseundertakeninfraudofcreditorswhenthe
lattercannotinanymannercollecttheclaimsdue
them;
(4)Thosewhichrefertothingsunderlitigationif
theyhavebeenenteredintobythedefendant
9 of 50
remedyavailabletothecreditoristoproceedagainst
thepersoncausingthelossfordamages.28
AccionpaulianaArticle1381oftheCivilCode
enumeratesthecontractswhicharerescissible,and
amongthemarethosecontractsundertakeninfraud
ofcreditorswhenthelattercannotinanyothermanner
collecttheclaimsduethem.Theactiontorescind
contractsinfraudofcreditorsisknownasaccion
pauliana.Forthisactiontoprosper,thefollowing
requisitesmustbepresent:(1)theplaintiffaskingfor
rescissionhasacreditpriortothealienation;(2)the
debtorhasmadeasubsequentcontractconveyinga
patrimonialbenefittoathirdperson;(3)thecreditor
hasnootherlegalremedytosatisfyhisclaim;(4)the
actbeingimpugnedisfraudulent;(5)the
25Art.1381,No.3,CivilCode.263Castan,7thEd.,p.
27Art.1385,par.2,CivilCode.28Art.1385,par.
422.
3,CivilCode.
508
Whetherthecontractisenteredintobyaguardianin
behalfofhiswardorbyalegalrepresentativeinbehalf
ofanabsentee,beforeitcanberescindedonthe
groundoflesion,itisindispensablethatthefollowing
requisitesmustconcur:
(1)Thecontractmusthavebeenenteredintobya
guardianinbehalfofhiswardorbyalegal
representativeinbehalfofanabsentee;18
(2)Thewardorabsenteemusthavesufferedlesionof
morethanonefourthofthevalueoftheproperty
whichistheobjectofthecontract;19
(3)Thecontractmusthavebeenenteredintowithout
judicialapproval;20
(4)Theremustbenootherlegalmeansforobtaining
reparationforthelesion;21
(5)Thepersonbringingtheactionmustbeableto
returnwhateverhemaybeobligedtorestore;22and
thirdpersonwhoreceivedthepropertyconveyed,ifit
isbyoneroustitle,hasbeenanaccompliceinthefraud.
Thegeneralruleisthatrescissionrequiresthe
existenceofcreditorsatthetimeofthealleged
fraudulentalienation,andthismustbeprovedasoneof
thebasesofthejudicialpronouncementsettingaside
thecontract.Withoutanypriorexistingdebt,therecan
neitherbeinjurynorfraud.Whileitisnecessarythat
thecreditoftheplaintiffintheaccionpaulianamust
existpriortothefraudulentalienation,thedateofthe
judgmentenforcingitisimmaterial.Evenifthe
judgmentbesubsequenttothealienation,itismerely
declaratory,withretraoctiveeffecttothedatewhenthe
creditwasconstituted.(Citationsomitted.)(Chief
JusticeDavide,Jr.,FirstDivision,Siguanvs.Lim,
G.R.No.134685,November19,1999.)
ContractsReferringtoThingsUnderLitigation.
Thefourthoftherescissiblecontractsarethosewhich
refertothingsunderlitigationiftheyhavebeen
enteredintobythedefendantwithouttheknowledge
andapprovalofthelitigantsorofcompetentjudicial
authority.29
Thecasecontemplatedinthisnumberisdifferentfrom
thatcontemplatedintheprecedingnumber.Herethe
purposeistosecurethepossibleeffectivityofaclaim,
whileintheprecedingnumberthepurposeisto
guaranteeanexistingcredit;herethereisarealright
involved,whileintheprecedingnumberthereisa
personalright,bothofwhichdeservetheprotectionof
thelaw.Theyare,however,similarinthesensethatin
bothcasesthepersonwhocanavailoftheremedyof
rescissionisastrangertothecontract. 30
ContractsbyInsolvent.UnderArt.1382,
paymentsmadeinastateofinsolvencyforobligations
towhosefulfillmentthedebtorcouldnotbecompelled
atthetimetheywereeffected,arealsorescissible.
Inorderthatthepaymentcanberescinded,itis
indispensable(1)thatitmusthavebeenmadeinastate
ofinsolvency,and(2)thattheobligationmusthave
beenonewhichthedebtorcouldnotbecompelledto
payatthetimesuchpaymentwaseffected.Itis,
therefore,clearthatthebasisoftherescissible
characterofthetransactionisfraudasinthecaseof
Nos.3and4ofArt.1381.
308Manresa,5thEd.,Bk.2,p.558.
(6)Theobjectofthecontractmustnotbelegallyinthe
possessionofathirdpersonwhodidnotactinbad
faith.23
Iftheobjectofthecontractislegallyinthepossession
ofathirdpersonwhodidnotactinbadfaith,the
remedyavailabletothepersonsufferingthelesionis
indemnificationfordamagesandnotrescission.24
18Art.1381,Nos.1and2,CivilCode.19Ibid.
22Art.1385,par.1,CivilCode.23Art.1385,par.2,
CivilCode.24Art.1385,par.3,CivilCode.
507
Art.1382CONTRACTS
ContractsinFraudofCreditors.Thethirdofthe
rescissiblecontractsarethoseundertakeninfraudof
creditorswhenthelattercannotinanyothermanner
25ThiscomplementsArt.
collecttheclaimsduethem.
1177oftheCodewhichstatesthatoneoftheremedies
availabletothecreditorafterhehasexhaustedallthe
propertyinpossessionofthedebtoristoimpugnthe
actswhichthelattermayhavedonetodefraudhim.
However,beforeacontractcanberescindedonthe
groundthatithasbeenenteredintoinfraudof
creditors,itisindispensablethatthefollowing
requisitesmustconcur:
(1)Theremustbeacreditexistingpriortothe
celebrationofthecontract;
(2)Theremustbeafraud,oratleast,theintentto
commitfraud,oratleast,theintenttocommitfraudto
theprejudiceofthecreditorseekingtherescission;
509
(3)Thecreditorcannotinanyotherlegalmanner
collecthiscredit;26and
Art.1382CONTRACTS
Insolvency,asitisusedinthisarticle,shouldbe
understoodinitspopularorvulgar,nottechnical,
sense.Hence,itreferstothefinancialsituationofthe
debtorbyvirtueofwhichitisimpossibleforhimto
(4)Theobjectofthecontractmustnotbelegallyinthe
faith.27
Iftheobjectofthecontractislegallyinthepossession
ofathirdpersonwhodidnotactinbadfaith,the
10 of 50
fulfillhisobligations.31Ajudicialdeclarationof
insolvencyisnot,therefore,necessary.32
transferredbythedebtortoanotherwashisonly
propertyatthetimeofthetransaction,anactionfor
rescissioncancertainlybemaintainedbecauseitis
clearthatinsuchcasethecreditorcanhavenoother
remedy.40
PartiesWhoMayInstituteAction.Accordingto
Castan,theactionforrescissionmaybeinstitutedby
thefollowing:(1)Thepersonwhoisprejudiced,such
asthepartysufferingthelesioninrescissoryactionson
thegroundoflesion,thecreditorwhoisdefraudedin
rescissoryactionsonthegroundoffraud,andother
personsauthorizedtoexercisethesameinother
rescissoryactions;(2)theirrepresentatives;(3)their
heirs;and(4)theircreditorsbyvirtueofthe
subrogatoryactiondefinedinArt.1177oftheCode.41
Anheir,therefore,mayinstituteanactionforthe
rescissionofarescissiblecontract.Asarule,hemay
dosoasarepresentativeofthepersonwhosuffers
fromlesionorofthecreditorwhois
39Goquiolayvs.Sycip,9SCRA663.
40Regaladovs.Luchsinger&Co.,5Phil.625;Guash
vs.Espiritu,11Phil.184;
413
Honradovs.Mercayda,CA,49Off.Gaz.1492.
Castan,7thEd.,p.433.
AccordingtoManresa,theobligationscontemplated
bythisarticlecomprehendnotonlythosewithaterm
orwhicharesubjecttoasuspensivecondition,but
evenvoidandnaturalobligationsaswellasthose
whicharecondonedorwhichhaveprescribed.33
Aninterestingquestionariseswithrespecttothe
paymentofanobligationwhichissubjecttoa
suspensiveperiod.LetusassumethatAisindebtedto
BforP10,000andtoCforP5,000.Letussaythatthe
obligationinfavorofCissubjecttoasuspensive
period.Whileinastateofinsolvency,Apayshis
obligationtoCbeforetheexpirationofthetermor
period.CanBrescindthepayment?UnderArt.1382,
thereisnoquestionthatthepaymentisrescissible,but
thenthisconclusionwouldbeindirectconflictwith
theprovisionofNo.1ofArt1198oftheCodeunder
whichAcanbecompelledbyCtopaytheobligation
evenbeforetheexpirationofthestipulatedtermor
periodsincebyhisinsolvencyhehasalreadylosthis
righttothebenefitofsuchtermorperiod.According
toManresa,however,theconflictcaneasilybe
resolvedbyconsideringthepriorityofdatesbetween
thetwodebts.Iftheobligationwithaperiodbecame
duebeforetheobligationtothecreditorseekingthe
rescissionbecamedue,thenthelattercannotrescind
thepaymentevenifsuchpaymentwaseffectedbefore
theexpirationoftheperiod;butiftheobligationwitha
periodbecamedueaftertheobligationtothecreditor
seekingtherescissionbecamedue,thenthelattercan
rescindthepayment.34
OtherRescissibleContracts.Besidesthose
enumeratedinArts.1381and1382,therearealso
othercontractswhicharespeciallydeclaredbylawto
besubjecttorescission.35Examplesof
511
Art.1384CONTRACTS
31Ibid.,p.561.
defrauded.Suppose,however,thatitcanbeestablished
thatthedecedent,duringhislifetime,enteredintoa
contractwithanotherinordertodefraudhimofhis
legitime,canheinstituteanactionfortherescissionof
suchcontractafterthedeathofthedecedent?Itisclear
thatinthiscasethecompulsoryheirdoesnothaveany
righttoinstitutetheactionasarepresentativeofthe
decedent,sincethedecedenthimselfdoesnothavethe
right.Itwould,however,bepossibleforhimto
institutetheactioninhisownrightunderNo.3ofArt.
1381oftheCivilCode.Thiswasrecognizedinthe
caseofConcepcionvs.Sta.Ana.Accordingtothe
SupremeCourt:
32UnderSec.70oftheInsolvencyLaw(ActNo.
1956),anypayment,pledge,mortgage,conveyance,
sale,assignmentortransferofpropertymadebyan
insolventwithinonemonthbeforethefilingofthe
petitionininsolvencybyoragainsthim,isvoid,except
whenmadeforavaluableconsiderationandingood
faith.
Thereasonwhyaforcedheirhastherighttoinstitute
anactionofrescissionisthattherighttothelegitimeis
similartoacreditofacreditor.AsManresacorrectly
statesincommentingonArticle1291(nowArt.1381)
oftheCivilCode:Therightsofaforcedheirtothe
legitimeareundoubtedlysimilartoacreditofa
creditorinsofarastherighttothelegitimemaybe
defeatedbyfraudulentcontracts,andaresuperiorto
thewillofthoseboundtorespectthem.Initsjudgment
ofOctober28,1897,theSupremeCourtofSpainheld
thattheforcedheirsinstitutedassuchbytheirfatherin
thelatterstestamenthavetheundeniablerightto
instituteanactiontoannulcontractsenteredintobythe
fathertotheirprejudice.Asitisseentheactionis
calledactionofnullity,butitisratheranactionof
rescissiontakingintoaccountthepurposeforwhichit
isinstitutedandtheconfusionofideasthathas
prevailedinthismatter.42
34Ibid.,p.536.Thisis,ofcourse,withoutprejudiceto
theprovisionsoftheCivilCoderegardingpreference
ofcredits.SeeArts.2241,etseq.,CivilCode.
Art.1384.Rescissionshallbeonlytotheextent
necessarytocoverthedamagescaused.43
Art.1383.Theactionforrescissionissubsidiary;it
cannotbeinstitutedexceptwhentheparty
sufferingdamagehasnootherlegalmeanstoobtain
reparationforthesame.36
ExtentofRescission.Itmustbeobservedthatthe
primarypurposeofrescissionisreparationforthe
damageorinjurywhichissufferedeitherbyapartyto
thecontractorbyathirdperson.Inorderthatthis
purposemayberealizedtherescissiondoesnot
necessarilyhavetobetotalincharacter;itmayalsobe
partial.Consequently,accordingtoArt.1384,
rescissionshallbeonlytotheextentnecessarytocover
thedamagescaused.Thisprecept,which
42Concepcionvs.Sta.Ana,87Phil.787.Theopinion
ofManresaquotedhereisfoundinVol.8,Bk.2,5th
Ed.,pp.555556.SeeArt.221,No.4,CivilCode.
43Newprovision.
510
thesecontractsarethosecontemplatedinArts.1098,
1189,1526,1534,1539,1542,1556,1560,1567,and
1659oftheCode.
SubsidiaryCharacterofAction.Theactionfor
rescissionissubsidiary,consequently,itcannotbe
institutedexceptwhenthepartysufferingdamagehas
nootherlegalmeanstoobtainreparationforthe
37Hence,beforeapartywhoisprejudicedcan
same.
availhimselfofthisremedy,itisessentialthathehas
exhaustedalloftheotherlegalmeanstoobtain
38Thus,evenwherethefraudcharged
reparation.
whichisthegroundforanactionforrescission
actuallydidexist,wherethereisnoallegationor
evidencethatthecreditorhasalreadyexhaustedallof
legalremediestoobtainreparationfromthedebtor,the
actiontorescindthesaleinquestionmadebysaid
39Nevertheless,ifitcanbe
debtorisnotmaintainable.
establishedthatthepropertywhichisalienatedor
11 of 50
faith.Itisevidentthatthisruleisapplicabletoall
kindsofrescissiblecontracts.Thereare,however,two
indispensablerequisiteswhichmustconcurinorder
thattheacquisitionofthethingwhichconstitutesthe
objectofthecontractbyathirdpersonshalldefeatan
actionforrescission.Theserequisitesare:first,thatthe
thingmustbelegallyinthepossessionofthethird
person;andsecond,thatsuchthirdpersonmustnot
haveactedinbadfaith.Wherethethingwhich
constitutestheobjectofthecontracthappenstobe
movableproperty,theconcurrenceoftheserequisites
offersnodifficultybecauseoftheprinciplethat
possessionofmovablepropertyacquiredingoodfaith
51Wherethethinghappensto
isequivalenttoatitle.
beimmovableproperty,however,itisindispensable
thattherightofthethirdpersonmustberegisteredor
recordedintheproperregistrybeforewecansaythat
thethingislegallyinhispossession,orwhat
47UySooLimvs.TanUnchuan,38Phil.522.48Arts.
543,etseq.,CivilCode.
498Manresa,5thEd.,Bk2,pp.577578.50Govt.of
51Art.559,Civil
theP.I.vs.Wagner,54Phil.132.
Code.
514
512
wasnotfoundintheoldCode,isinaccordancewith
thedoctrineenunciatedbytheSupremeTribunalof
SpainonDecember10,1904,totheeffectthata
contractinfraudofcreditorsmaybepartially
rescindedtoanextentwhichissufficienttosatisfythe
damagecausedtothecreditor.44
Art.1385.Rescissioncreatestheobligationto
returnthethingswhichweretheobjectofthe
contract,togetherwiththeirfruits,andtheprice
withitsinterest;consequently,itcanbecarriedout
onlywhenhewhodemandsrescissioncanreturn
whateverhemaybeobligedtorestore.
Neithershallrescissiontakeplacewhenthethings
whicharetheobjectofthecontractarelegallyin
thepossessionofthirdpersonswhodidnotactin
badfaith.
Inthiscase,indemnityfordamagesmaybe45
demandedfromthepersoncausingtheloss.
amountstothesamething,beforeheisprotectedby
law.Thus,Manresa,commentingontheprovisionof
thesecondparagraphofArt.1385,says:
Theacquisitionbyathirdpersonisanobstacletothe
efficaciousnessoftheactionforrescission,wherethe
followingtwocircumstancesarepresent,towit,that
suchthirdpersonisinlawfulpossessionoftherealty,
thatistosaythatheisprotectedbythelawagainstsaid
actionbytheregistrationintheregistry,andthathedid
notactinbadfaith.52
Consequently,ithasbeenheldthatathirdpersonto
whomtherealtyhasbeentransferredwhohasnot
registeredhisrightintheproperregistrycannotbe
protectedagainsttheeffectsofajudgmentrenderedin
53However,wherehehas
theactionforrescission.
registeredhisrightovertherealtyundertheLand
RegistrationAct(ActNo.496),therewouldthenbeno
legalobstacletothetransferofthetitleofthesaid
property,andforthisspecialreasonthesaidtransfer
cannotberescinded.Thisdoctrinewasenunciatedby
theSupremeCourtinthefollowingcase:
Sikatunavs.Guevara45Phil.371
Therecordsshowthatacontractofaleaseofcertain
lotsituatedinManilawasenteredintobetweenthe
partnershipJacinto,PalmayHnos,aslessor,and
PotencianaGuevara,aslessee.Thiscontractcontained
anoptionbywhichthelessorisgiventherightto
purchasewithinaperiodofoneyearfromthetimeof
theexecutionthereofahousewhichthelesseehad
constructedonthelot,butincaseoffailuretoexercise
suchright,thelesseeisgiventherighttopurchasethe
lot.Theperiodfortheoptionhavingexpiredwithout
thelessorexercisingitsright,Guevaraofferedto
purchasethelot,butthesaidlessorrefused.Inviewof
suchrefusal,Guevarabroughtanactiontocompelthe
lessortosellthelottoher.Therewas,however,no
noticeofthecommencementofsuchactionfiledwith
theofficeoftheRegisterofDeeds.Duringthe
pendencyofsuchcase,theaforesaidlessorsoldthelot
underlitigationtotheSikatuna
528Manresa,5thEd.,Bk2,pp.379380,quotedby
theSupremeCourtinCordeverovs.Villaruz,46Phil.
473,andinGatchalianvs.Manalo,68Phil.608.
53Cordeverovs.Villaruz,46Phil.473.515
Art.1385CONTRACTS
Corporation.ThissalewasrecordedintheRegistryin
accordancewithActNo.496,otherwiseknownasthe
LandRegistrationAct.Subsequently,judgmentwas
renderedinthecivilcaseinfavorofGuevara,butit
wasnotexecutedbecausethelothadalreadybeensold
EffectofRescissioninCaseofLesion.Itis
evidentthatthefirstparagraphofArt.1385is
applicableonlytorescissoryactionsonthegroundof
lesionandnottorescissoryactionsonthegroundof
fraud.Thisissobecauseinthelattertherecan
certainlybenoobligationonthepartoftheplaintiff
creditortorestoreanythingsincehehasnotreceived
anything.46
Onceacontractisrescindedonthegroundoflesion,
therearisesanobligationonthepartofboth
contractingpartiestoreturntotheothertheobjectof
thecontract,includingfruitsorinterests.
Consequently,rescissionisnotpossible,unlesshewho
demandsitcanreturnwhateverhemaybeobligedto
restore.Thus,whereaguardianalienatescertain
propertiesofaminorforP85,000toacertainperson,
andsubsequently,theminor,uponreachingtheageof
majority,bringsanactionfortherescissionofthe
contractonthegroundoflesion,theeffectifrescission
isgrantedwouldbetherestorationofthingstotheir
conditionpriortothecelebrationofthecontract.Butif
theplaintiffcannotrefundtheamountincluding
interest,theactionwillcertainlyfailbecausepositive
statutory
448Manresa,5thEd.,Bk.2,p.572.45Art.1295.
SpanishCivilCode.
513
Art.1385CONTRACTS
law,nolessthanuniformcourtdecisions,require,asa
conditionprecedenttorescission,thatthe 47
considerationreceivedshouldberefunded.
ThefruitsofthethingstatedinArt.1385refernot
onlytonatural,industrialandcivilfruitsbutalsoto
otheraccessionsobtainedbythething,whileinterest
referstolegalinterest.Itmustbeobserved,however,
thatasfarastheobligationtorestorethefruitsis 48
concerned,therulesonpossessionshallbeapplied.
Consequently,thedeterminationofthegoodorbad
faithofthepartyobligedtorestoreisoftranscendental
importanceinordertoassessthefruitsorthevalue
thereofwhichmustbereturnedaswellastheexpenses
49Thus,ithasbeenheld
whichmustbereimbursed.
thatasaconditiontotherescissionofacontractofsale
ofaparcelofland,thevendormustrefundtothe
vendees(whoareingoodfaith)anamountequaltothe
purchaseprice,plusthesumexpendedbythemin
improvingtheland.50
EffectofRescissionUponThirdPersons.
AccordingtothesecondparagraphofArt.1385,
rescissionshallnottakeplacewhenthethingwhich
constitutestheobjectofthecontractislegallyinthe
12 of 50
Iftherearetwoormorealienations,thefirst
acquirershallbeliablefirst,andsoon
successively.60
ProofofFraud.Aswehaveseeninaprevious
sectiononeoftherequisiteswhichmustbeestablished
inorderthatacontractmayberescindedontheground
thatithasbeenenteredintoin
totheSikatunaCorporation.Later,thenewowner
orderedGuevaratovacatethepremises.Having
declinedtodoso,thecorporationcommencedthese
proceedingsagainstherforunlawfuldetainer.Inher
answer,shecontendedthatsincethecontractinvolves
thesaleofpropertyunderlitigationwithoutthe
approvalofthelitigantsorofcompetentjudicial
authority,itshouldberescinded.Thiscontentionwas
upheldbythelowercourt.TheSupremeCourt,
speakingthroughJusticeRomualdez,however,ruled:
Astheappellantrightfullycontendstherescissionof
thesaledoesnotlieinthepresentcasebecausethe
propertyisnowinthelegalpossessionofathird
personwhohasnotactedinbadfaith.Thereisno
doubtbutthatinthiscasetheplaintiffcorporationhas
thecharacterofathirdperson,andithasnotbeen
shownthatithadactedinbadfaith.
517
fraudofcreditorsistheexistenceoffraud,oratleast,
theintenttodefraud.Suchfraudorintenttodefraud
maybeeitherpresumedinaccordancewithArt.1387
oftheCodeordulyprovedinaccordancewiththe
ordinaryrulesofevidence.
Idem;Presumptionsoffraud.Thelawpresumes
thatthereisfraudofcreditorsinthefollowingcases:
(1)Alienationsofpropertybygratuitoustitleifthe
debtorhasnotreservedsufficientpropertytopayallof
hisdebtscontractedbeforesuchalienations.61
(2)Alienationsofpropertybyoneroustitleifmadeby
adebtoragainstwhomsomejudgmenthasbeen
renderedinanyinstanceorsomewritofattachment
hasbeenissued.Thedecisionorattachmentneednot
refertothepropertyalienatedandneednothavebeen
62Thus,
obtainedbythepartyseekingtherescission.
wherethedebtoralienatedacertainproperty,which
washisonlyattachableproperty,tohissonafter
judgmenthadbeenrenderedagainsthimandawritof
executionhadbeenissued,thereisapresumptionthat
suchalienationisfraudulentinaccordancewiththe
63
rulestatedinthesecondparagraphofArt.1387.
Thispresumptionbecomesstrongerwhenitis
establishedthattheconveyancebythejudgmentdebtor
isforthepurposeofpreventingthejudgmentcreditor
64But
orothercreditorsfromseizingtheproperty.
wherenojudgmentorpreliminaryattachmentexists
againstthedebtor,thepresumptionisnotapplicable.65
Cabaliwvs.Sadorra64SCRA310
IsidoraCabaliwwasthewifeofBenignoSadorraby
hissecondmarriagesolemnizedonMay5,1915,
beforetheJusticeofthePeaceofBayambang,
Pangasinan.Thiscouplehadadaughternamed
SoledadSadorra.Duringtheirmarriage,the
63Regaladovs.Luchsinger&Co.,5Phil.25.Tothe
sameeffect:seeCabaliwvs.
Sadorra,64SCRA310.
64Bachrachvs.Peterson,7Phil.571.Tothesame
effect:Panlileovs.Victorio,36
Phil.706;Saavedravs.Martinez,68Phil.676;
Contrerasvs.ChinaBankingCorp.,76Phil.709.
65ManilaMercantileCo.vs.Flores,50Phil.759.518
RESCISSIBLECONTRACTSArts.13861388
spousesacquiredtwo(2)parcelsoflandsituatedin
Iniangan,Dupax,NuevaVizcaya.Oneparcelwithan
areaof14.4847hectareswasacquiredbyaSales
Thiscasehasaspecialcircumstanceinthatitdeals
withpropertyregisteredundertheLandRegistration
ActNo.496,Section78,whichprovidesthatacts
concerningpropertiesregisteredunderthelawshall
affectonlythepartieslitigant,unlessanoticeofthe
commencementoftheactionisrecorded,whichdoes
notappeartohavebeendoneinthecasebeforeus.
Therewas,therefore,nolegalobstacletothetransfer
ofthetitleofthesaidproperty,andforthisspecial
reasonthesaidtransfercannotberescinded.54
Inspiteoftheimpossibilityofmaintaininganaction
fortherescissionofthecontractwheretheobject
thereofislegallyinthepossessionofathirdperson
whodidnotactinbadfaith,thepersonwhois
prejudicedisnotleftwithoutanyremedy.Hemaystill
bringanactionforindemnityfordamagesagainstthe
55
personwhocausedtheloss.
directedagainsttheguardian, Thisactionmaybe
54Fromthiscase,itisclearthatwhenthelawspeaks
ofthirdpersons,itrefersnotonlytosubsequent
transfereeswhoarestrangerstothecontractwhichis
soughttoberescinded,buteventotheimmediate
transfereeswhoarenotstrangerstothecontract.
516
representativeoftheabsenteeorlitigantwho
56Itmay
transferredthething,asthecasemaybe.
evenbedirectedagainstathirdpersonwho,inbad
faith,hadpreviouslyacquiredthethingand,
subsequently,hadalienatedittoaninnocentpurchaser
forvalue.57
Art.1386.RescissionreferredtoinNos.1and2of
Article1381shallnottakeplacewithrespectto
contractsapprovedbythecourts.58
Art.1387.Allcontractsbyvirtueofwhichthe
debtoralienatespropertybygratuitoustitleare
presumedtohavebeenenteredintoinfraudof
creditors,whenthedonordidnotreservesufficient
propertytopayalldebtscontractedbeforethe
donation.
Alienationsbyoneroustitlearealsopresumed
fraudulentwhenmadebypersonsagainstwhom
somejudgmenthasbeenrenderedinanyinstance
orsomewritofattachmenthasbeenissued.The
decisionorattachmentneednotrefertothe
propertyalienated,andneednothavebeenob
tainedbythepartyseekingtherescission.
Inadditiontothesepresumptions,thedesignto
defraudcreditorsmaybeprovedinanyother
mannerrecognizedbythelawofevidence.59
Art.1388.Whoeveracquiresinbadfaiththethings
alienatedinfraudofcreditorsshallindemnifythe
latterfordamagessufferedbythemonaccountof
thealienation,whenever,duetoanycause,itshould
beimpossibleforhimtoreturnthem.
13 of 50
October1,1954,butdismissedtheclaimsofthe
intervenorswhoallegedlyboughtpartsoftheland
subsequentthereto;and(3)orderedthepartitionofthe
remainingunsoldlandsbetweenIsidoraCabaliw,
SoteroSadorra,ononehandandthechildrenbythe
firstmarriageofBenignoSadorraontheother.
PatentandcoveredbyOriginalCertificateofTitleNo.
1oftheLandRecordsofNuevaVizcayaissuedinthe
nameofBenignoSadorra.Theotherpieceofland
about11/2hectaresandcoveredbyTaxDeclaration
Nos.6209and6642wassecuredthroughpurchase.
FromtheforegoingdecisionofthelowercourtinCivil
Case634spousesSoteroandEncarnacionSadorra
appealedtotheCourtofAppealsandsodidthe
intervenorswhoseclaimsweredismissed.(CAG.R.
No.26956R.)OnNovember29,1965,theappellate
courtbyavoteof3to2reversedthedecisionofthe
trialcourt,anddismissedtheamendedcomplaintof
IsidoraCabaliw.
Havingbeenabandonedbyherhusband,Isidora
CabaliwinstitutedanactionforsupportwiththeCourt
ofFirstInstanceofManila,entitledIsidoraCabaliw
deOrdenversusBenignoSadorradocketedthereinas
CivilCaseNo.43193.OnJanuary30,1933,judgment
wasrenderedrequiringBenignoSadorratopayhis
wife,IsidoraCabaliw,theamountofP75.00amonth
intermsofsupportasofJanuary1,1933,andP150.00
inconceptofattorneysfeesandthecosts.
Hence,thispetitionfiledbyIsidoraCabaliwandher
daughter,SoledadSadorra,fortheCourttoreviewthe
adversejudgmentoftheCourtofAppeals.
520
TheSupremeCourt,speakingthroughJusticeMuoz
Palma,held:
TheCourtofAppealssustainedthevalidityand
efficacyofthedeedsofsaleexecutedbyBenigno
Sadorrainfavorofhissoninlaw(ExhibitsIandI1)
onthegroundthatthesearepublicdocumentsandas
sucharepresumedbylawtohavebeenfairandlegal;
thatthevendeeSoteroSadorraispresumedtohave
actedingoodfaith,citingArt.44,SpanishCivilCode,
Art.627,NewCivilCode;thatfraudisnever
presumed,anditissettledinthisjurisdictionthat
strongandconvincingevidenceisnecessaryto
overthrowthevalidityofanexistingpublicinstrument.
Theappellatecourtcontinuedthatinasmuchasunder
theoldCivilCodeinforceatthetimeofthesale,the
husbandwasempoweredtodisposeoftheconjugal
propertywithouttheconsentofthewife,thesales
madebyBenignoSadorrawerevalid,andthewife
Isidoracannotnowrecoverthepropertyfromthe
vendee.
ThejudgmentoftheCourtofAppealscannotbe
sustained.
ThefactsnarratedinthefirstportionofthisDecision
whicharenotdisputed,convincinglyshoworprove
thattheconveyancesmadebyBenignoSadorrain
favorofhissoninlawwerefraudulent.Fortheheart
ofthematteristhataboutsevenmonthsaftera
judgmentwasrenderedagainsthiminCivilCaseNo.
43192oftheCourtofFirstInstanceofManilaand
withoutpayinganypartofthatjudgment,Benigno
Sadorrasoldtheonlytwoparcelsoflandbelongingto
theconjugalpartnershiptohissoninlaw.Suchasale
evenifmadeforavaluableconsiderationispresumed
tobeinfraudofthejudgmentcreditorwhointhiscase
happenstobetheoffendedwife.
Article1297oftheoldCivilCode(nowArt.1387of
theNewCivilCode)whichwasthelawinforceatthe
timeofthetransactionprovides:
Contractsbyvirtueofwhichthedebtoralienates
propertybygratuitoustitlearepresumedtobemadein
fraudofcreditors.
Alienationsbyoneroustitlearealsopresumed
fraudulentwhenmadebypersonsagainstwhomsome
judgmenthasbeenrenderedinanyinstanceorsome
writofattachmenthasbeenissued.Thedecisionor
attachmentneednotrefertothepropertyalienatedand
neednothavebeenobtainedbythepartyseeking
rescission.(Emphasissupplied.)
521
UnknowntoIsidoraCabaliw,onAugust19,1933,
BenignoSadorraexecutedtwo(2)deedsofsaleover
thetwoparcelsoflandabovedescribedinfavorofhis
soninlaw,SoteroSadorra,thelatterbeingmarriedto
EncarnacionSadorra,adaughterofBenignoSadorra
byhisfirstmarriage.Thesedeedsweredulyregistered
andOriginalCertificateofTitleNo.1wascancelled
andreplacedwithT.C.T.No.522oftheRegisterof
DeedsofNuevaVizcaya.
Becauseofthefailureofherhusbandtocomplywith
thejudgmentofsupport,IsidoraCabaliwfiledinCivil
Case43192amotiontociteBenignoSadorrafor
contemptandtheCourtofFirstInstanceofManilain
itsOrderofMay12,1937,authorizedIsidoratotake
possessionoftheconjugalproperty,toadministerthe
same,andtoavailherselfofthefruitsthereofin
paymentofthemonthlysupportinarrears.Withthis
orderoftheCourt,IsidoraproceededtoNueva
Vizcayatotakepossessionoftheaforementioned
parcelsofland,anditwasthenthatshediscoveredthat
herhusbandhadsoldthemtohissoninlawSotero.
OnFebruary1,1940,IsidorafiledwiththeCourtof
FirstInstanceofNuevaVizcayaCivilCaseNo.449
againstherhusbandandSoteroSadorraforthe
recoveryofthelandsinquestiononthegroundthatthe
salewasfictitious;atthesametimeanoticeoflis
pendenswasfiledwiththeRegisterofDeedsofNueva
Vizcaya.
InMayof1940,BenignoSadorradied.
OnJune7,1948,theabovementionednoticeoflis
pendenswascancelledbytheRegisterofDeedsof
NuevaViscayaupon
519
thefilingofanaffidavitbySoteroSadorratotheeffect
thatCivilCaseNo.449hadbeendecidedinhisfavor
andthathewasadjudgedtheowneroftheland
coveredbyT.C.T.No.522,butthathiscopyofthe
decisionwaslostduringthewar.
OnOctober1,1954,IsidoraandherdaughterSoledad
filedwiththeCourtofFirstInstanceofNuevaVizcaya
CivilCase634torecoverfromthespousesSoteroand
EncarnacionSadorratheaforementionedtwoparcels
ofland;theyalsocausedtheannotationofacautionary
noticeandnoticeoflispendensoverT.C.T.522.
OnNovember22,1955,thecomplaintwasamended
andnamedadditionalpartydefendantswerethe
childrenofBenignoSadorrabyhisfirstmarriage.The
amendedcomplaintprayedamongothers:(1)thatthe
deedsofsaleexecutedbyBenignoSadorrabedeclared
nullandvoid;(2)thatdefendantspousesSoteroand
EncarnacionSadorrabedirectedtoyieldthe
possessionofthelandsinquestion;and(3)thatsaid
landsbeorderedpartitionedamongplantiffsand
defendantswhoarechildrenbythefirstmarriageof
BenignoSadorraintheproportionsprovidedbylaw.
DuringthependencyofCivilCase634certainparties
intervenedclaimingthattheyhadpurchasedpartsof
thelandcoveredbyT.C.T.522.
Theabovequotedlegalprovisionwastotally
disregardedbytheappellatecourt,andthereliesits
basicerror.
Weagreewithpetitionersthatthepartiesheredonot
standinequipoise,forthepetitionershaveintheir
Aftertrial,thelowercourtrenderedjudgmentand
amongotherthings:(1)declaredthedeedofsale
executedbyBenignoSadorratobesimulatedand
fictitious;(2)recognizedandupheldtherightsofthe
intervenorpurchaserswhoacquiredtheirportionsprior
totheregistrationofthenoticeoflispendenson
14 of 50
PREMISESCONSIDERED,Wefindmerittothis
PetitionforReviewandWesetasidethedecisionof
theappellatecourtforbeingcontrarytothelaw
applicabletothefactsofthecase.Thedecisionofthe
trialcourtstandsaffirmedwithcostsagainstprivate
respondents.
SoOrdered.
523
Itmustbeobserved,however,thattheabove
presumptionsaredisputable,andtherefore,maybe
rebuttedbysatisfactoryandconvincingevidencetothe
66Thus,ifitcanbeestablishedthatthe
contrary.
transfereeacquiredthepropertyingoodfaith,without
theleastintentionofimpairingthejudgmentobtained
bythecreditoragainstthetransferor,andthathepaid
thepurchasepriceinthebeliefthatthelattercould
freelydisposeofthesaidproperty,thepresumptionof
fraudisoverthrown.67
Honradovs.Marcayda,etal.49Off.Gaz.1492,
C.A.
Thisisanactioncommencedbyplaintiffagainstthe
defendantsfortherescissionofacontractofsaleon
thegroundthatsuchcontractwasenteredintoinfraud
ofcreditors.TherecordsshowthatFelipeLotivio
purchasedaparceloflandfromLuisaMarcaydafor
P1,000,althoughatthetimethecontractwasexecuted
therewasalreadyajudgmentinfavoroftheplaintiff
againstthelatterwithregardtothepropertyandawrit
ofattachmenthadalreadybeenissued.Theplaintiff
contendsthatthesaleisfraudulentinaccordancewith
therulestatedinthesecondparagraphofArt.1297
(nowArt.1387)oftheCivilCode;thedefendantFelipe
Lotivio,ontheotherhand,contendsthatheisa
purchaseringoodfaithandforvalue.Consequently,
thequestionsuponwhichthiscasehingesare(1)
whetherornotFelipeLotiviowasapurchaseringood
faithandforvalue,and(2)ifheis,whetherornotthe
contractofsaleexecutedcouldberescinded.
Held:ThesalewasconsummatedonJanuary6,1936,
inconsiderationofP1,000.Originalcertificateoftitle
No.14567showedthatthelandwasfreefromanylien
orencumbrance.FelipeLotiviowasnot,underthelaw,
supposedtogofarthertofindoutwhetherthelandhas
anyotherliennotappearingonthefaceofthetitleas
heldinthecasesofReynesvs.Barrera,68Phil.656;
Hernandezvs.Vda.deSalas,69Phil.744;Visayan
SuretyandInsuranceCorp.vs.Verzosa,72Phil.362.
Itiswellsettledthatwhenthepropertysoldon
executionisregisteredundertheTorrenssystem,
registrationistheoperativeact
66Peavs.Mitchell,9Phil.587&Streiffvs.Coll.of
Customs,31Phil.643;NationalExchangeCo.vs.
Katigbak,54Phil.599;Buencaminovs.Bantug,58
Phil.521;Gatchalianvs.Manalo,68Phil.708.
67Buencaminovs.Bantug,58Phil.521.Tothesame
effect:Peavs.Mitchell,9Phil.587;Gatchalianvs.
Manalo,68Phil.706.
524
thatgivesvaliditytothetransferorcreatesalienon
thelandandapurchaseronexecutionisnotrequiredto
gobehindtheregistrytodeterminetheconditionofthe
property,andheisonlychargedwithnoticeofthe
burdensofthecertificateoftitle.Torequirehimtodo
moreistodefeatoneoftheprimaryobjectsofthe
Torrenssystem.
Inthepresentcase,thewritofattachmentissuedby
thejusticeofthepeacecourtofDaraga,Albaywasnot
annotatedonthebackoftheoriginalcertificateoftitle.
Trueenoughthatitwasfiledwiththeofficeofthe
RegisterofDeedsofAlbay,butsuchfactisnota
noticetothewholeworld.Consequently,such
unregisteredorderofattachmentdoesnotcreateany
lienorburdenuponthelandinquestion.
favor,byaspecificprovisionoflaw,thepresumption
offraudulenttransactionwhichisnotovercomebythe
merefactthatthedeedsofsaleinquestionwereinthe
natureofpublicinstruments.Aswellsaidinthe
dissentingopinionofJusticeMagnoGatmaitan,the
principleinvokedbythemajorityopinionthatto
destroythevalidityofanexistingpublicdocument
strongandconvincingevidenceisnecessaryoperates
wheretheactionwasbroughtbyonepartyagainstthe
othertoimpugnthecontract...butthatrulecannot
operateanddoesnot,wherethecaseisonewhereinin
thesuitisnotbetweenthepartiesintersebutisone
institutedbyathirdperson,notapartytothecontract
butpreciselythevictimofitbecauseexecutedtohis
prejudiceandbehindhisback;neitherlaw,norjustice,
norreason,norlogic,shouldsopermit,otherwise,in
suchcase,thecourtswouldbefurnishingamost
effectiveshieldofdefensetotheaggressor.(pp.30
31,CADecision)
Furthermore,thepresumptionoffraudestablishedby
thelawinfavorofpetitionersisbolsteredbyother
indiciaofbadfaithonthepartofthevendorand
vendee.Thus(1)thevendeeisthesoninlawofthe
vendor.IntheearlycaseofRegaladovs.Luchsinger&
Co.,5Phil.625,thisCourtheldthattheclose
relationshipbetweenthevendorandthevendeeisone
oftheknownbadgesoffraud.(2)Atthetimeofthe
conveyance,thevendee,Sotero,waslivingwithhis
fatherinlaw,thevendor,andheknewthattherewasa
judgmentdirectingthelattertogiveamonthlysupport
tohiswifeIsidoraandthathisfatherinlawwas
avoidingpaymentandexecutionofthejudgment.(3)It
wasknowntothevendeethathisfatherinlawhadno
propertiesotherthanthosetwoparcelsoflandwhich
werebeingsoldtohim.Thefactthatavendortransfers
allofhispropertytoathirdpersonwhenthereisa
judgmentagainsthimisastrongindicationofa
schemetodefraudonewhomayhaveavalidinterest
overhisproperties.
Addedtotheabovecircumstancesistheundisputed
factthatthevendeeSoteroSadorrasecuredthe
cancellationofthelispendensonNo.O.C.T.1,which
wasannotatedin1940attheinstanceofIsidora
Cabaliw,andtheissuanceofatransfercertificateof
titleinhisfavor,byexecutinganaffidavit(ExhibitH)
onJune7,1948,whereinhereferredtoIsidoraasthe
lateIsidoraCabaliwwhenheknewforafactthatshe
wasalive,
522
andallegedthatCivilCase449oftheCourtofFirst
InstanceofNuevaVizcayawasdecidedinhisfavor
whereintruththerewasnosuchdecisionbecausethe
proceedingsinsaidcasewereinterruptedbythelast
worldwar.SuchconductofSoteroSadorrareveals,as
statedbythelowercourt,anutterlackofsincerity
andtruthfulnessandbelieshispretensionsofgood
faith.
Onthepartofthetransferee,hedidnotpresentsatis
factoryandconvincingevidencesufficientto
overthrowthepresumptionandevidenceofa
fraudulenttransaction.Hisistheburdenofrebutting
thepresumptionoffraudestablishedbylaw,and
havingfailedtodoso,thefraudulentnatureofthe
conveyanceinquestionprevails.
ThedecisionoftheCourtofAppealsmakesmention
ofArt.1413oftheoldCivilCode(nowArt.166ofthe
NewCivilCode)whichauthorizesthehusbandas
administratortoalienateandbindbyoneroustitlethe
propertyoftheconjugalpartnershipwithoutthe
consentofthewife,andbyreasonthereofconcludes
thatpetitionerIsidoraCabaliwcannotnowseek
annulmentofthesalemadebyherhusband.Onthis
point,counselforpetitionersrightlyclaimsthatthe
lackofconsentofthewifetotheconveyancesmadeby
herhusbandwasneverinvokednorplacedinissue
beforethetrialcourt.Whatwasclaimedallalongby
plaintiff,IsidoraCabaliwnowpetitioner,wasthatthe
conveyancesordeedsofsalewereexecutedbyher
husbandtoavoidpaymentofthemonthlysupport
adjudgedinherfavorandtodepriveherofthemeans
toexecutesaidjudgment.Inotherwords,petitioner
seeksreliefnotsomuchasanaggrievedwifebutmore
asajudgmentcreditorofBenignoSadorra.Art.1413
thereforeisinapplicable;butevenifitwere,theresult
wouldbethesamebecausetheveryarticlereservesto
thewifetherighttoseekredressincourtfor
alienationswhichprejudiceherorherheirs.The
undisputedfactsbeforeUsclearlyshowthatthesales
madebythehusbandweremerelyaschemetoplace
beyondthereachofthewifetheonlyproperties
belongingtotheconjugalpartnershipanddepriveher
ofwhatrightlybelongstoherandheronlydaughter
Soledad.
15 of 50
(6)
son,whentherearepresentothersoftheabove
circumstances.
Thefactthatthetransferismadebetweenfatherand
(7)Thefailureofthevendeetotakeexclusive
possessionofalltheproperty.
ThevaluableconsiderationofP1,000paidtoLuisa
MarcaydabyFelipeLotivio,whodoesnotappeartobe
herrelativeis,inouropinion,notsmallforthe
propertysinceitsimprovementsareassessedatnoless
thanP800.Itisfittingtoapplyinthiscasetheprinciple
ofinnocentpurchaserforvalueasdeclaredand
appliedinthecaseofBailonvs.Cacias,etal.,40Off.
Gaz.,p.1896,August,1941.
AccordingtoourSupremeCourtinthecaseofCui,
etal.vs.Henson,51Phil.600:Apurchaseringood
faithisonewhobuyspropertyofanotherwithout
noticethatsomeotherpersonhasarightto,oran
interestin,suchpropertyandpaysafullandfairprice
forthesame,atthetimeofsuchpurchase,orbeforehe
hasnoticeoftheclaimorinterestofsomeotherperson
intheproperty.Goodfaithconsistsinanhonest
intentiontoabstainfromtakinganyunconscientious
advantageofanother.Goodfaithistheoppositeof
fraudandofbadfaithanditsnonexistencemustbe
establishedbycompetentproofs.
68Aylesvs.Reyes,18Phil.243.69Oriavs.
McMicking,21Phil.243.70Ibid.
526
Thus,whereitisprovedthatacertaincorporation,
whichisheavilyindebtedtoacertainbank,solda
largetractoflandworthP400,000tothevendeefor
onlyP36,000inspiteofthefactthatatthetimeofsuch
saleitdidnothaveanyliquidatedassetsandthatallof
itsotherassetswerepledgedormortgaged,someof
whichwereforfarmorethantheiractualvalue,such
circumstanceswouldbesufficienttoestablishthe
71
fraudulentcharacteroftheconveyance.
Consequently,thesalecanbesetasidebymeansofan
actionforrescissionattheinstanceofthecreditor.But
wherethesaleisfoundedonafictitiouscauseor
considerationitwouldbefutileforsuchcreditorto
invokeitsrescissionsincesuchactionpresupposesthe
72The
existenceofavalid,notinexistent,contract.
remedyofthecreditorinsuchcasewouldbetoaskfor
adeclarationofnullityoftheconveyance.
Similarly,whereitisprovedthatthepersontowhom
thepropertyconveyedisasonofthetransferorora
motherinlaworanearrelative,coupledwiththefact
thatatthetimeofthetransferorconveyancethesaid
transferorwasfinanciallyembarrassedorhadnoother
meanswithwhichhecouldsettlehispersonal
obligations,theweightofevidencewouldbesufficient
tojustifyadecreeofrescissiononthegroundof
73Theevidencebecomesmoreconclusiveifthe
fraud.
factofrelationshipbetweenthevendorandthevendee
isaggravatedbythefactthattheconveyancewasmade
insecrecyandforaninadequateconsiderationata
timewhenthevendorhadnoothermeanswithwhich
74Itmustbenoted,
hecouldsettlehisobligations.
however,thatthemerefactofrelationshipbetween
vendorandvendee,aswhenthevendoristhevendees
mother,isnotinitselfanelementoffraud,ifthesale
wasmadeforavaluableconsiderationandsaidvendor
wasnotatthetimeoftheconveyanceinsolvent.75
71AsiaBankingCorp.vs.NableJose,51Phil.763.
72Onglengcovs.Ozaeta,70Phil.43.
73Gastonvs.Hernaez,58Phil.823.
74Aylesvs.Reyes,18Phil.243;Alpuertovs.Perez,38
Phil.785.75StandardOilCo.vs.Castro,64Phil.716.
527
Testedbythesedoctrines,weholdanddeclarethat
defendantFelipeLotiviowas,undertheforegoing
circumstances,apurchaseringoodfaithandforvalue;
andforthisreason,wealsoholdthatthepresumption
offraudascontemplatedinArticle1297oftheold
CivilCode(nowArt.1387ofthenewCivilCode)can
beconsideredovercomeandoverthrownasheldinthe
casesofPeavs.Mitchell,9Phil.587;Guashvs.
Espiritu,11Phil.184;Kuenklevs.Watson&Co.,13
Phil.26;Golinkovs.Monjardin,31Phil.643;Asia
BankingCorp.vs.Corcuera,51Phil.781.
Therefore,thecontractofsale,forthereasonsabove
stated,isnotrescissible.
525
Idem;Badgesoffraud.Itisnot,however,
indispensablethatthecreditorshallhavetodepend
uponthetwopresumptionsestablishedinthefirstand
secondparagraphsofArt.1387inordertoprovethe
existenceoffraudortheintentiontodefraud.
Accordingtothethirdparagraphofthesamearticle,
thedesigntodefraudcreditorsmaybeprovedinany
68
othermannerrecognizedbythelawofevidence.
Thus,indeterminingwhetherornotacertain
conveyanceisfraudulentthequestionineverycase,in
thewordsofJusticeMoreland,iswhetherthe
conveyancewasabonafidetransactionormerelya
trickorcontrivancetodefeatcreditors.Itisnot
sufficientthatitisfoundedonagoodorvaluablecause
orconsiderationorismadewithbonafideintent:it
musthavebothelements.Ifdefectiveineitherofthese
particulars,althoughgoodbetweentheparties,itis
rescissibleasfarasthecreditorsareconcerned.The
ruleisuniversalbothatlawandinequitythatwhatever
fraudcreatesjusticewilldestroy.Thetestasto
whetherornotaconveyanceisfraudulentisdoesit
prejudicetherightsofcreditors?69
Intheconsiderationofwhetherornotcertaintransfers
orconveyancesarefraudulent,thefollowing
circumstanceshavebeendenominatedbythecourtsas
badgesoffraud.70
(1)Thefactthatthecauseorconsiderationofthe
conveyanceisinadequate.
(2)whileitis
Riveravs.LiTam&Co.4SCRA1072
RafaelLiTamdiedintestate,survivedbyhiswife,
MarcosaRivera,andseveralchildrenbyaChinese
wife.MarcosafiledaclaimforP252,658.33against
theintestatewhichthecourtapprovedonthestrength
ofadeedwhereinthedecedentacknowledgedsaid
indebtednesstohiswife.Thereafter,ArminioRivera,
administratoroftheestate,proceededagainstthe
defendantcompanyforanaccountingoftheincome
derivedfromthesharesofstockownedbythe
decedentinsaidcompany.Inanswer,defendant
companyallegedthatthedecedentwasnolongera
stockholderinsaidcompany,havingtransferredhis
sharestohischildrenbyhisChinesewife.Hence,
Riverabroughtthisactionaskingfortherescissionof
thetransferonthegroundthatitwasmadeinfraudof
creditors.
Held:Thefraudulentcharacterofthetransferisclearly
inferablefromthefactsthatthetransfereesarethe
(3)(4)(5)
especially
Atransfermadebyadebtoraftersuithasbeenbegun
andpendingagainsthim.
Asaleoncreditbyaninsolventdebtor.
Evidenceoflargeindebtednessorcomplete
insolvency.
Thetransferofallornearlyallofhispropertybya
debtor,whenheisinsolventorgreatlyembarrassed
financially.
16 of 50
529
Art.1389CONTRACTS
countedfromthetimethedomicileoftheabsenteeis
known;underNos.3and4andalsounderArt.1382,it
mustbecountedfromthetimeofthediscoveryofthe
fraud.Incertaincasesofcontractsofsalewhichare
speciallydeclaredbylawtoberescissible,however,
theprescriptiveperiodforthecommencementofthe
actionissixmonthsorevenfortydays,countedfrom
thedayofdelivery.81
CHAPTER 7 VOIDABLE CONTRACTS
VoidableContractsinGeneral.Voidable
contractsmaybedefinedasthoseinwhichallofthe
essentialelementsforvalidityarepresent,althoughthe
elementofconsentisvitiatedeitherbylackoflegal
capacityofoneofthecontractingparties,orby
mistake,violence,intimidation,undueinfluence,or
fraud.1
Themostessentialfeatureofavoidablecontractisthat
itisbindinguntilitisannulledbyacompetentcourt.
Consequently,onceitisexecutedthereareonlytwo
possiblealternativeslefttothepartywhomayinvoke
itsvoidablecharactertoattackitsvalidityorto
convalidateiteitherbyratificationorbyprescription.
Itsvaliditymaybeattackedeitherdirectlybymeansof
aproperactionincourtorindirectlybywayof
defense.Theactionitselfiscalledannulmentinorder
todistinguishitfromanactionfortherescissionof
rescissiblecontractsorfromanactionforthe
declarationofabsolutenullityorinexistenceofvoidor
inexistentcontracts,whilethedefenseitselfiscalled
annulabilityorrelativenullityinordertodistinguishit
fromthedefenseofabsolutenullityorinexistencein
voidorinexistentcontractsorthedefenseof2
unenforceabilityinunenforceablecontracts.
Idem;Characteristics.Voidablecontractspossess
thefollowingcharacteristics:
(1)Theirdefectconsistsinthevitiationofconsentof
oneofthecontractingparties.
1SeeArt.1390,CivilCode,andArt.1300,Spanish
CivilCode.
2Castancallsthedefectofvoidablecontracts
(contratasanulables)anulabilidadonulidad
relativainordertodistinguishitfromthedefectof
voidcontracts(contratosinexistentes)whichhecalls
nulidadabsoluta.DerechoCivil,Vol.3,7thEd.,
pp.409415.
531
CONTRACTS
(2)Theyarebindinguntiltheyareannulledbya
competentcourt.3
decedentsownchildren,thatnoconsiderationwas
givenforthetransfer,thatthecorporationwasthe
businessofthedecedent,andthathehasan
outstandingobligationofmorethanP250,000withhis
wifewhichhehadinvestedinthecorporation.Andto
completethefraudulentscheme,thedefendants
dissolvedtheoldcorporationandformedanewonefor
noapparentreason.Inviewofsuchfraud,thetransfer
is,therefore,ofnoeffect.
Idem;id.Acquisitionbythirdpersoningood
faith.
Whileitistruethatthetestastowhetherornota
conveyanceisfraudulentistodeterminewhetheror
notitisprejudicialtotherightsofthecreditors,
nevertheless,itisalsotruethatsuchatestwouldnotbe
applicableiftheconveyanceismadeingoodfaithor
withabonafideintentandforavaluablecauseor
76Inotherwords,ifthepropertyis
consideration.
acquiredbyapurchaseringoodfaithandforvalue,the
acquisitionasfarasthelawisconcernedisnot
fraudulent.Therightofsuchpurchaseroverthe
propertyislegallysuperiortothatofanyotherperson
evenasagainstthecreditorwhoisprejudicedbythe
conveyance.Consequently,thecontractorconveyance
isnotrescissible.77
76Oriavs.McMicking,21Phil.243.
77SeeHonradovs.Marcayda,supra,fordefinitionof
purchaseringoodfaithandforvalueandalsofor
authorities
528
Idem;id.Acquisitionbythirdpersoninbad
faith.Ontheotherhand,ifthepropertyisacquired
byonewhoisnotapurchaseringoodfaithandfor
value,itisclearthatthecontractorconveyanceis
rescissible.Insuchcasethecreditorwhoisprejudiced
canstillproceedaftertheproperty.Thisisso,even
thoughthesaidpropertymayhavebeentransferredor
conveyedtootherpersonswhoarenotinnocent
purchasersforvalue.However,ifforanycauseor
reason,itshouldbeimpossiblefortheacquirerinbad
faithtoreturntheproperty,heshallindemnifythe
creditorseekingtherescissionfordamagessufferedon
accountofthealienation.Ifithappensthatthereare
twoormorealienations,thefirstacquirershallbe
78Thus,ifA,
liablefirst,andsoonsuccessively.
againstwhomajudgmentforthepaymentofacertain
debtinfavorofXhasbeenrendered,conveyshisonly
propertytoBinfraudofX,andB,whoisawareofthe
fraud,inturn,conveysthepropertytoC,andthelatter,
whoisalsoawareofthefraud,alsoconveysthe
propertytoD,whoisapurchaseringoodfaithandfor
value,althoughtheconveyancetoDcannotbe
rescinded,yetXcanstillproceedagainstBfor
damagessufferedbyhimonaccountofthefraudulent
alienation,andifhefailstorecoverhecanstillproceed
againstC.Itmustbenoted,however,thatifthereason
fortheimpossibilityofreturningthepropertyacquired
inbadfaithisafortuitousevent,thenunderthe
principleannouncedinArt.1174oftheCode,there
canbenoliabilityoftheacquirer.79
Art.1389.Theactiontoclaimrescissionmustbe
commencedwithinfouryears.
(3)Theyaresusceptibleofconvalidationby
ratificationorbyprescription.4
Theirdefectorvoidablecharactercannotbeinvoked
bythirdpersons.5
Idem;Distinguishedfromrescissiblecontracts.
Voidableandrescissiblecontractsmaybe
distinguishedfromeachotherinthefollowingways:
(1)Inavoidablecontractthedefectisintrinsicbecause
itconsistsofavicewhichvitiatesconsent,whileina
rescissiblecontractthedefectisexternalbecauseit
consistsofdamageorprejudiceeithertooneofthe
contractingpartiesortoathirdperson.6
Forpersonsunderguardianshipandforabsentees,
theperiodoffouryearsshallnotbeginuntilthe
terminationoftheformersincapacity,oruntilthe
domicileofthelatterisknown.80
PrescriptivePeriod.Asageneralrule,theaction
fortherescissionofacontractmustbecommenced
withinfouryears.UnderNo.1ofArt.1391,thisperiod
mustbecountedfromthetimeoftheterminationofthe
incapacityoftheward;underNo.2,itmustbe
798Manresa,5thEd.,Bk.2,p.549.80Art.1299,
SpanishCivilCode.
17 of 50
12NewprovisionsupersedingArt.1300,SpanishCivil
Code.
13SeecommentsonArts.13271329,withrespectto
legalincapacity,andonArts.13301344,withrespect
tomistake,violence,intimidation,undueinfluence,
andfraud.
(2)Intheformerthecontractisvoidableevenifthere
isnodamageorprejudice,whileinthelatterthe
contractisnotrescissibleifthereisnodamageor
prejudice.7
14Arts.1345,1409,No.2,CivilCode.533
(3)Intheformertheannulabilityofthecontractis
basedonthelaw,whileinthelattertherescissibilityof
thecontractisbasedonequity.Hence,annulmentis
notonlyaremedybutasanction,whilerescissionisa
mereremedy.Publicinterest,therefore,predominates
inthefirst,whileprivateinterestpredominatesinthe
second.8
Art.1390CONTRACTS
(4)Thecausesforannulmentaredifferentfromthe
causesforrescission.9
Felipevs.HeirsofAldon120SCRA628
(5)Theformerissusceptibleofratification,whilethe
latterisnot.10
MaximoAldonmarriedGimenaAlmosarain1936.
Thespousesboughtseveralpiecesoflandsometime
between1948and1950.In196062,thelandswere
dividedintothreelots,1370,1371and1415oftheSan
JacintoPublicLandSubdivision,SanJacinto,Masbate.
In1951,GimenaAlmosarasoldthelotstothespouses
EduardoFelipeandHermogenaV.Felipe.Thesale
wasmadewithouttheconsentofherhusband,
Maximo.
OnApril26,1976,theheirsofMaximoAldon,namely
hiswidowGimenaandtheirchildrenSofiaand
SalvadorAldon,filedacomplaintintheCourtofFirst
InstanceofMasbateagainsttheFelipes.Thecomplaint
whichwasdocketedasCivilCaseNo.2372alleged
thattheplaintiffsweretheownersofLots1370,1371
and1415;thattheyhadorallymortgagedthesameto
thedefendants;andanoffertoredeemthemortgage
hadbeenrefusedsotheyfiledthecomplaintinorderto
recoverthethreeparcelsofland.
Thedefendantsassertedthattheyhadacquiredthelots
fromtheplaintiffsbypurchaseandsubsequent
deliverytothem.Thetrialcourtsustainedtheclaimof
thedefendantsandrenderedthefollowingjudgment:
(6)Annulmentmaybeinvokedonlybyacontracting
party,whilerescissionmaybeinvokedeitherbya
contractingpartyorbyathirdpersonwhois
prejudiced.11
4Arts.1390,1391,13921396,CivilCode.5Art.1397,
CivilCode.
6Arts.1381,1390,CivilCode.
7Ibid.
88Manresa,5thEd.,Bk.2,pp.544545.9Arts.1381,
1390,CivilCode.
10Ibid.
532
VOIDABLECONTRACTSArt.1390
a.declaringthedefendantstobethelawfulownersof
thepropertysubjectofthepresentlitigation;
Art.1390.Thefollowingcontractsarevoidableor
annullable,eventhoughtheremayhavebeenno
damagetothecontractingparties:
b.declaringthecomplaintinthepresentactiontobe
withoutmeritandisthereforeherebyordered
dismissed;
(1)Thosewhereoneofthepartiesisincapableof
givingconsenttoacontract;
c.orderingtheplaintiffstopaytothedefendantsthe
amountofP2,000.00asreasonableattorneysfeesand
topaythecostsofthesuit.
TheplaintiffsappealedthedecisiontotheCourtof
Appealswhichrenderedthefollowingjudgment:
PREMISESCONSIDERED,thedecisionappealed
fromisherebyREVERSEDandSETASIDE,anda
newoneisherebyRENDERED,orderingthe
defendantsappelleestosurrenderthelotsinquestion
aswellastheplaintiffsappellantsmunimentsoftitle
thereoftosaidplantiffsappellants,tomakean
accountingoftheproducederivedfromthelands
includingexpensesincurredsince1951,andto
solidarilyturnovertotheplaintiffsappellantstheNET
monetaryvalueoftheprofits,afterdeductingthe
534
sumofP1,800.00.Noattorneysfeesnormoral
damagesareawardedforlackofanylegaljustification;
therefore,Nocosts.
Theratioofthejudgmentisstatedinthefollowing
paragraphsofthedecisionpennedbyJusticeEdgardo
L.ParaswiththeconcurrenceofJusticesVenicio
EscolinandMarianoA.Zosa:
Oneoftheprincipalissuesinthecaseinvolvesthe
natureoftheaforementionedconveyanceor
(2)Thosewheretheconsentisvitiatedbymistake,
violence,intimidation,undueinfluenceorfraud.
Thesecontractsarebinding,unlesstheyare
annulledbyaproperactionincourt.Theyare
susceptibleofratification.12
ContractsWhichAreVoidable.Thetwogeneral
classesofvoidablecontractsenumeratedinArt.1390
oftheCodehavealreadybeendiscussedindetailin
ourdiscussionofconsentasanessentialrequisiteof
13Hence,itisunnecessarytodiscussthem
contracts.
againinthischapter.
Itmustbeobservedthatinavoidablecontractallof
theessentialrequisitesforvalidityarepresent,
althoughtherequisiteofconsentisdefectivebecause
oneofthecontractingpartiesdoesnotpossessthe
necessarylegalcapacity,orbecauseitisvitiatedby
mistake,violence,intimidation,undueinfluenceor
fraud.Consequently,ifconsentisabsolutelylackingor
simulated,thecontractisinexistent,notvoidable.14
Itmustalsobeobservedthateventhoughtheremay
havebeennodamagetothecontractingparties,the
contractsenumeratedinArt.1390arestillvoidable.
Hence,whetheracontractwhichthelawconsidersas
voidablehasalreadybeenconsummatedorismerely
executoryisimmaterial;itcanalwaysbeannulledbya
properactionincourt.
ThefollowingdecisionpennedbyJusticeAbadSantos
isquiteinteresting:
18 of 50
annullableatherinstanceduringthemarriageand
withintenyearsfromthetransactionquestioned.(Art.
173,CivilCode.)
Gimenascontractisnotrescissibleforinsuchcontract
alltheessentialelementsareuntaintedbutGimenas
consentwas
536
tainted.Neithercanthecontractbeclassifiedas
unenforceablebecauseitdoesnotfitanyofthose
describedinArt.1403oftheCivilCode.Andfinally,
thecontractcannotbevoidorinexistentbecauseitis
notoneofthosementionedinArt.1409oftheCivil
Code.Byprocessofelimination,itmustperforcebea
voidablecontract.
ThevoidablecontractofGimenawassubjectto
annulmentbyherhusbandonlyduringthemarriage
becausehewasthevictimwhohadaninterestinthe
contract.Gimena,whowasthepartyresponsiblefor
thedefect,couldnotaskforitsannulment.Their
childrencouldnotlikewiseseektheannulmentofthe
contractwhilethemarriagesubsistedbecausethey
merelyhadaninchoaterighttothelandssold.
Theterminationofthemarriageandthedissolutionof
theconjugalpartnershipbythedeathofMaximo
AldondidnotimprovethesituationofGimena.What
shecouldnotdoduringthemarriage,shecouldnotdo
thereafter.
ThecaseofSofiaandSalvadorAldonisdifferent.
AfterthedeathofMaximotheyacquiredtherightto
questionthedefectivecontractinsofarasitdeprived
themoftheirhereditaryrightsintheirfatherssharein
thelands.Thefathersshareisonehalf(1/2)ofthe
landsandtheirshareistwothirds(2/3)thereof,one
third(1/3)pertainingtothewidow.
transaction,withappellantsclaimingthesametobean
oralcontractofmortgageorantichresis,the
redemptionofwhichcouldbedoneanytimeupon
repaymentoftheP1,800.00involved(incidentallythe
onlythingwrittenaboutthetransactionisthe
aforementionedreceiptretheP1,800).Upontheother
hand,appelleesclaimthatthetransactionwasoneof
sale,accordingly,redemptionwasimproper.The
appelleesclaimthatplaintiffsneverconveyedthe
propertybecauseofaloanormortgageorantichresis
andthatwhatreallytranspiredwastheexecutionofa
contractofsalethroughaprivatedocumentdesignated
asaDeedofPurchaseandSale(Exhibit1),the
executionhavingbeenmadebyGimenaAlmosarain
favorofappelleeHermogenaV.Felipe.
Afterastudyofthiscase,wehavecometothe
conclusionthattheappellantsareentitledtorecover
theownershipofthelotsinquestion.Wesohold
becausealthoughExh.1concerningthesalemadein
1951ofthedisputedlotsis,inOuropinion,nota
forgerythefactisthatthesalemadebyGimena
Almosaraisinvalid,havingbeenexecutedwithoutthe
neededconsentofherhusband,thelotsbeingconjugal.
Appelleesargumentthatthiswasanissuenotraised
inthepleadingsisbaseless,consideringthefactthat
thecomplaintallegesthattheparcelswerepurchased
byplaintiffGimenaAlmosaraandherlatehusband
MaximoAldon(thelotshavingbeenpurchased
duringtheexistenceofthemarriage,thesameare
presumedconjugal)andinferentially,byforceoflaw,
couldnotbedisposedofbyawifewithouther
husbandsconsent.
Thedefendantsarenowtheappellantsinthispetition
forreview.Theyinvokeseveralgroundsinseekingthe
reversalofthedecisionoftheCourtofAppeals.One
ofthegroundsisfactualinnature;petitionersclaim
thatrespondentCourtofAppealshasfoundasafact
thattheDeedofPurchaseandSale
535
Art.1390CONTRACTS
Thepetitionershavebeeninpossessionofthelands
since1951.Itwasonlyin1976whentherespondents
filedactiontorecoverthelands.Inthemeantime,
MaximoAldondied.
executedbyrespondentGimenaAlmosaraisnota
forgeryandthereforeitsauthenticityanddueexecution
isalreadybeyondquestion.Wecannotconsiderthis
groundbecauseasaruleonlyquestionsoflaware
reviewedinproceedingsunderRule45oftheRulesof
Courtsubjecttowelldefinedexceptionsnotpresentin
theinstantcase.
Twoquestionscometomind,namely:(1)Havethe
petitionersacquiredthelandsbyacquisitive
prescription?(2)IstherightofactionofSofiaand
SalvadorAldonbarredbythestatuteoflimitations?
Thelegalgroundwhichdeservesattentionisthelegal
effectofasaleoflandsbelongingtotheconjugal
partnershipmadebythewifewithouttheconsentof
thehusband.
Anentthefirstquestion,Wequotewithapprovalthe
followingstatementoftheCourtofAppeals:
Itisusefulatthispointtorestatesomeelementary
rules:Thehusbandistheadministratoroftheconjugal
partnership.(Art.165,CivilCode)Subjecttocertain
exceptions,thehusbandcannotalienateorencumber
anyrealpropertyoftheconjugalpartnershipwithout
thewifesconsent.(Art.166,Idem.)Andthewife
cannotbindtheconjugalpartnershipwithoutthe
husbandsconsent,exceptincasesprovidedbylaw.
(Art.172,Idem.)
Wewouldliketostatefurtherthatappellees
[petitionersherein]couldnothaveacquiredownership
ofthelotsbyprescriptioninviewofwhatweregardas
theirbadfaith.Thisbadfaithisrevealedbytestimony
totheeffectthatdefendantappelleeVicenteV.Felipe
(sonofappelleesEduardoFelipeandHermogenaV.
Felipe)attemptedinDecemberin1970tohave
GimenaAlmosarasignareadymadedocument
purportingtosellthedisputedlotstotheappellees.
Thisactuationclearlyindicatedthattheappellees
knewthelotsdidnotstill
537
Art.1390
CONTRACTS
belongtothem,otherwise,whyweretheyinterestedin
adocumentofsaleintheirfavor?Againwhydid
VicenteV.FelipetellGimenathatthepurposeofthe
documentwastoobtainGimenasconsenttothe
constructionofanirrigationpumponthelotsin
question?Theonlypossiblereasonforpurportingto
obtainsuchconsentisthattheappelleesknewthelots
werenottheirs.Whywasthereanattempted
improvement(theirrigationtank)onlyin1970?Why
wasthedeclarationofpropertymadeonlyin1974?
Whywerenoattemptsmadetoobtainthehusbands
signature,despitethefactthatGimenaandHermogena
werecloserelatives?Alltheseindicatethebadfaithof
theappellees.Nowthen,evenifweweretoconsider
appelleespossessioninbadfaithaspossessioninthe
Intheinstantcase,Gimena,thewife,soldlands
belongingtotheconjugalpartnershipwithoutthe
consentofthehusbandandthesaleisnotcoveredby
thephraseexceptincasesprovidedbylaw.The
CourtofAppealsdescribedthesaleasinvalida
termwhichisimprecisewhenusedinrelationto
contractsbecausetheCivilCodeusesspecificnames
indesignatingdefectivecontracts,namelyrescissible
(Arts.1380,etseq.),voidable(Arts.1390,etseq.),
unenforceable(Arts.1403,etseq.),andvoidor
inexistent(Arts.1409,etseq.)
ThesalemadebyGimenaiscertainlyadefective
contractbutofwhatcategory?Theanswer:itisa
voidablecontract.
AccordingtoArt.1390oftheCivilCode,amongthe
voidablecontractsareThosewhereoneoftheparties
isincapableofgivingconsenttothecontract.(Par.1.)
IntheinstantcaseGimenahadnocapacitytogive
consenttothecontractofsale.Thecapacitytogive
consentbelongednoteventothehusbandalonebutto
bothspouses.
TheviewthatthecontractmadebyGimenaisa
voidablecontractissupportedbythelegalprovision
thatcontractsenteredbythehusbandwithoutthe
consentofthewifewhensuchconsentisrequired,are
19 of 50
conceptofowners,thispossessionattheearliest
startedin1951,hencetheperiodforextraordinary
prescription(30years)hadnotyetlapsedwhenthe
presentactionwasinstitutedonApril26,1976.
16Navalvs.Enriquez,3Phil.699;Ullmanvs.
Hernaez,30Phil.69;Villanuevavs.Villanueva,91
Phil.43.
Astothesecondquestion,thechildrenscauseof
actionaccruedfromthedeathoftheirfatherin1959
andtheyhadthirty(30)yearstoinstituteit(Art.1141,
CivilCode).Theyfiledactionin1976whichiswell
withintheperiod.
539
Art.1391CONTRACTS
Carantesvs.CourtofAppeals76SCRA514
Thisisanappealbycertiorarifromthedecisionofthe
CourtofAppealsinCAG.R.36078Rpromulgatedon
December23,1970reversingthejudgmentofthe
CourtofFirstInstanceofBaguioCity,BranchII,in
CivilCase804,andfromtheappellatecourts
resolutiondatedMarch7,1971denyingherein
petitionersmotionforreconsideration.
MateoCaranteswastheoriginalownerofLotNo.44
situatedatLoakan,BaguioCity,asevidencedby
OriginalCertificateofTitleNo.3issuedinhisname
onSeptember22,1910byvirtueofFreePatentNo.5
grantedtohimonthesamedate.In1913Mateodied.
HewassurvivedbyhiswidowOgasiaandsixchildren,
namely,Bilad,Crispino,Maximino,Apungand
Sianang,allsurnamedCarantes.
In1930,constructionoftheLoakanAirportwas
commencedbytheGovernment.Becauseaportionof
LotNo.44wasneededforthelandingfield,the
Governmentinstitutedproceedings(CivilCase338)
foritsexpropriation.Forthepurpose,LotNo.44was
subdividedintoLotsNos.44A,44B,44C,44D,and
44E.TheportionexpropriatedbytheGovernmentwas
LotNo.44A.
In1933,SpecialProceedingsNos.409to413were
filedwiththecourtforthesettlementoftheestateof
thelateMateoCarantes.Oneofhissons,herein
petitionerMaximinoCarantes,wasappointedand
qualifiedasjudicialadministratoroftheestate.Inhis
capacityasadministrator,MaximinofiledonJune20,
1939aprojectofpartitionwhereinhelistedasthe
heirsofMateoCaranteswhowereentitledtoinherit
theestate,himselfandhisbrothersandsisters,orthe
latterssurvivingchildren.Apparentlybecause
negotiationswere,bythattime,underwayforthe
purchasebytheGovernmentofLotsNos.44Band
44CforthepurposeofwideningtheLoakanAirport,
theonlypropertylistedbyMaximinointheprojectof
partitionwastheremainingportionofLotNo.44.
OnOctober23,1939adeeddenominatedAssignment
ofRighttoInheritancewasexecutedbyfourofMateo
Caranteschildren,namely,Bilad,Sianang,Lauroand
Crispino,andtheheirsofApungCarantes(alsoason
ofMateowhodiedin1923),namely,Pitag,Bill,
Alson,EduardoandJuan,assigningtoMaximino
CarantestheirrightstoinheritanceinLotNo.44.The
statedmonetaryconsiderationfortheassignmentwas
P1.00.However,thedocumentcontainsarecitaltothe
effect
540
WHEREFORE,thedecisionoftheCourtofAppealsis
herebymodified.Judgmentisenteredawardingto
SofiaandSalvadorAldontheirsharesofthelandsas
statedinthebodyofthisdecision;andthepetitioners
aspossessorsinbadfaithshallmakeanaccountingof
thefruitscorrespondingtotheshareaforementioned
from1959andsolidarilypaytheirvaluetoSofiaand
SalvadorAldon;costsagainstthepetitioners.
SOORDERED.
Note:Thereareotherswhobelievethatwhenawife
sellsorencumbersconjugallandwithouttheconsent
ofherhusband,thecontractisunenforceable,not
voidable.Accordingtothem,thedefectofthecontract
consistsoflackofauthority,notincapacity.Therefore,
No.(1)ofArt.1403oftheCivilCodeisapplicable.
InthecaseofGuiangvs.CourtofAppeals(June26,
1998,291SCRA372),theSupremeCourtclearly
statedthatArticle1390,par.2,referstocontracts
visitedbyvicesofconsent,i.e.,contractswhichwere
enteredintobyapersonwhoseconsentwasobtained
andvitiatedthroughmistake,violence,intimidation,
undueinfluenceorfraud.Inthesaidcase,private
respondentsconsenttothecontractofsaleoftheir
conjugal
538
propertywastotallyinexistentorabsent.xxxThis
beingthecase,saidcontractproperlyfallswithinthe
ambitofArticle124oftheFamilyCode,whichwas
correctlyappliedbythetwolowercourts.xxxInthe
eventthatonespouseisincapacitatedorotherwise
unabletoparticipateintheadministrationofthe
conjugalproperties,theotherspousemayassumesole
powersofadministration.Thesepowersdonotinclude
thepowersofdispositionorencumbrancewhichmust
havetheauthorityofthecourtorthewrittenconsentof
theotherspouse.Intheabsenceofsuchauthorityor
consent,thedispositionorencumbranceshallbevoid.
However,thetransactionshallbeconstruedasa
continuingofferonthepartoftheconsentingspouse
andthethirdperson,andmaybeperfectedasabinding
contractupontheacceptancebytheotherspouseor
authorizationbythecourtbeforetheofferiswithdrawn
byeitherorbothofferors.(165a)
Art.1391.Theactionforannulmentshallbe
broughtwithinfouryears.
Thisperiodshallbegin:Incasesofintimidation,
violenceorundueinfluence,fromthetimethe
defectoftheconsentceases.
Incaseofmistakeorfraud,fromthetimeofthe
discoveryofthesame.
thatthesaidlots,byagreementofallthedirectheirs
andheirsbyrepresentationofthedeceasedMateo
Carantesasexpressedandconveyedverballybyhim
duringhislifetime,rightlyandexclusivelybelongto
theparticularheir,MaximinoCarantes,nowandinthe
pastintheexclusive,continuous,peacefuland
notoriouspossessionofthesameformorethanten
years.
OnthesamedateMaximinoCarantessoldtothe
GovernmentLotsNos.44Band44Canddividedthe
proceedsofthesaleamonghimselfandtheotherheirs
ofMateo.
OnFebruary6,1940,uponjointpetitionoftheheirsof
MateoCarantes,theCourtofFirstInstanceofBaguio
CityissuedanOrderinanotherproceeding
AdministrativeCaseNo.368cancellingO.C.T.No.
3.Pursuanttheretothesaidtitlewascancelled,andin
Andwhentheactionreferstocontractsenteredinto
byminorsorotherincapacitatedpersons,fromthe
timetheguardianshipceases. 15
PrescriptivePeriod.AccordingtoArt.1391,the
actionforannulmentmustbecommencedwithina
periodoffouryears.Iftheactionreferstocontracts
enteredintobyincapacitatedpersons,theperiodshall
becountedfromthetimetheguardianshipceases;ifit
referstothosewhereconsentisvitiatedbyviolence,
intimidationorundueinfluence,theperiodshallbe
countedfromthetimesuchviolence,intimidationor
undueinfluenceceasesordisappears;andifitrefersto
thosewhereconsentisvitiatedbymistakeorfraud,the
periodshallbecountedfromthetimeofthediscovery
ofsuchmistakeorfraud.Iftheactionisnot
commencedwithinsuchperiod,therightoftheparty
entitledtoinstitutetheactionshallprescribe. 16
20 of 50
Asadvertedtoabove,theCourtofAppealsreversed
thejudgmentofthetrialcourt,hencethepresent
recourse.
itsplaceTransferCertificateofTitleNo.2533was
issuedinthejointnamesofthefivechildrenofMateo
CarantesandthechildrenofApungCarantes
(representingtheirdeceasedfather)ascoownerspro
indiviso,oronesixthshareforeachchild.
542
SpeakingthroughChiefJusticeFredRuizCastro,the
SupremeCourtheld:
Wedonotagreewiththerespondentcourtslegal
conclusionthatthedeedofAssignmentofRightto
Inheritanceisvoidabinitioandinexistentonthe
groundsthatrealconsentwaswantingandthe
considerationofP1.00issoshockingtotheconscience
thattherewasinfactnoconsideration,hence,the
actionforthedeclarationofthecontractsinexistence
doesnotprescribepursuanttoArticle1410ofthenew
CivilCode.
Article1409(2)oftheNewCivilCoderelieduponby
therespondentcourtprovidesthatcontractswhichare
absolutelysimulatedorfictitiousareinexistentand
voidfromthebeginning.Thebasiccharacteristicof
simulationisthefactthattheapparentcontractisnot
reallydesiredorintendedtoproducelegaleffectsorin
anywayalterthejuridicalsituationoftheparties.
Therespondentsactionmaynotbeconsideredasone
todeclaretheinexistenceofacontractforlackof
consideration.Itistotalabsenceofcauseor
considerationthatrendersacontractabsolutelyvoid
andinexistent.Inthecaseatbar,considerationwasnot
absent.ThesumofP1.00appearsinthedocumentas
oneoftheconsiderationsfortheassignmentof
inheritance.Inadditionandthisisofgreatlegal
importthedocumentrecitesthatthedecedent
MateoCaranteshad,duringhislifetime,expressedto
thesignatoriestothecontractthatthepropertysub
matterthereofrightlyandexclusivelybelongedtothe
petitionerMaximinoCarantes.Thisacknowledgment
bythesignatoriesdefinitelyconstitutesvaluable
considerationforthecontract.
Thepresentactionisonetoannulthecontractentitled
AssignmentofRighttoInheritanceonthegroundof
fraud.
Article1390ofthenewCivilCodeprovidesthata
contractwheretheconsentisvitiatedbymistake,
violence,intimidation,undueinfuenceorfraud,is
voidableorannullable.EvenArticle1359,whichdeals
onreformationofinstruments,providesinits
paragraph2thatIfmistake,fraud,inequitable
conduct,oraccidenthaspreventedameetingofthe
mindsoftheparties,theproperremedyisnot
reformationoftheinstrumentbutannulmentofthe
contract.Whentheconsenttoacontract
543
Art.1391
CONTRACTS
wasfraudulentlyobtained,thecontractisvoidable.
Fraudordeceitdoesnotrenderacontractvoidab
initio,andcanonlybeagroundforrenderingthe
contractvoidableorannullablepursuanttoArticle
1390ofthenewCivilCodebyaproperactionincourt.
Thepresentaction,beingonetoannulacontracton
thegroundoffraud,itsprescriptiveperiodisfouryears
fromthetimeofthediscoveryofthefraud.
Thenextquestionthatmustberesolvedis:fromwhat
timemustfraud,assumingthattherewasfraud,be
deemedtohavebeendiscoveredinthecaseatbar?
FromFebruary,1958,whenaccordingtotheprivate
respondents,andasfoundbytherespondentcourt,the
privaterespondentsactuallydiscoveredthattheywere
defraudedbythepetitionerMaximinoCaranteswhen
rumorsspreadthathewassellingthepropertyforhalf
amillionpesos?OrfromMarch16,1940,when,as
admittedbythepartiesandfoundbyboththetrial
courtandtherespondentcourt,thedeedof
AssignmentofRighttoInheritancewasregistered
bythepetitionerintheOfficeoftheRegisterof
Deeds?
OnMarch16,1940,MaximinoCarantesregisteredthe
deedofAssignmentofRighttoInheritance.
Accordingly,T.C.T.No.2533inthenamesoftheheirs
wascancelled,andinlieuthereofTransferCertificate
ofTitleNo.2540wasissuedonthesamedateinthe
nameofMaximinoCarantes.Alsoonthesamedate,
Maximino,actingasexclusiveowneroftheland
coveredbyT.C.T.No.2540,executedaformaldeedof
saleinfavoroftheGovernmentoverLotsNos.44B
and44C.
OnFebruary21,1947,asaresultoftheapprovalofthe
SubdivisionSurveyPlanpsd16786,andpursuantto
thedeedofsaleexecutedin1940byMaximino
CarantesinfavoroftheGovernment,T.C.T.No.2540
inMaximinosnamewascancelled,andinlieuthereof
TransferCertificateofTitleNo.T98,coveringLots
Nos.44A,44Band44C,wasissuedinthenameof
theGovernment,whileTransferCertificateofTitle
No.T99,coveringtheremainingLotsNos.44D
(100,345squaremeters)and44E(10,070square
meters)wasissuedinthenameofMaximinoCarantes,
whohasuptothepresentremainedtheregistered
ownerofsaidlots.
OnSeptember4,1958,thepresentcomplaintwasfiled
bythreechildrenofthelateMateoCarantes,namely,
Bilad,LauroandCrispino,andbysomeofthe
survivingheirsofApungandofSianang(alsochildren
ofMateoCarantes).MaximinoCaranteswasnamed
principaldefendant,andsomeoftheheirsofApung
541
Art.1391CONTRACTS
andSianangwereimpleadedaspartiesdefendantsin
viewoftheirallegedreluctancetojoinasparties
plaintiffs.
Intheircomplaint,theplaintiffsallegedinteraliathat
theyand/ortheirpredecessorsininterestexecutedthe
deedofAssignmentofRighttoInheritanceon
October23,1939,onlybecausetheyweremadeto
believebythedefendantMaximinoCarantesthatthe
saidinstrumentembodiedtheunderstandingamongthe
partiesthatitmerelyauthorizedthedefendant
MaximinotoconveyportionsofLotNo.44tothe
Governmentintheirbehalftominimizeexpensesand
facilitatethetransaction;andthatitwasonlyon
February18,1958,whentheplaintiffssecuredacopy
ofthedeed,thattheycametoknowthatthesame
purportedtoassigninfavorofMaximinotheirrightsto
inheritancefromMateoCarantes.Theplaintiffsprayed
thatthedeedofAssignmentofRighttoInheritance
bedeclarednullandvoid;thatLotsNos.44Dand44
EcoveredbyT.C.T.No.T99beorderedpartitioned
intosix(6)equalsharesandthedefendantMaximino
Carantesbeaccordinglyorderedtoexecutethe
necessarydeedsofconveyanceinfavoroftheother
distributees;andthatthesaiddefendantbeorderedto
paytheplaintiffsthesumofP1,000asattorneysfees
andthesumofP200ascostsofsuit.
Aftertrial,thecourtrendereditsdecisiononJanuary
28,1965.Itwasthetrialcourtsopinionthatsincean
actionbasedonfraudprescribesinfouryearsfromthe
discoveryofthefraud,andinthiscasethefraud
allegedlyperpetratedbythedefendantMaximino
Carantesmustbedeemedtohavebeendiscoveredon
March16,1940whenthedeedofassignmentwas
registered,theplaintiffsrightofactionhadalready
prescribedwhentheyfiledtheactionin1958;andeven
assumingthatthelandremainedthecommonproperty
oftheplaintiffsandthedefendantMaximinoCarantes
notwithstandingtheexecutionofthedeedof
assignment,thecoownershipwascompletely
repudiatedbythesaiddefendantbyperformanceof
severalacts,thefirstofwhichwashisexecutionofa
deedofsaleinfavoroftheGovernmentonOctober23,
1939,hence,ownershiphadvestedinthedefendant
MaximinoCarantesbyacquisitiveprescription.The
courtaccordinglydismissedthecomplaint.Itlikewise
dismissedthecounterclaim.
Theplaintiffsmovedforreconsideration.Theirmotion
havingbeendeniedinanOrderdatedMarch8,1965,
theyappealedtotheCourtofAppeals.
21 of 50
AnswerNo.2Thedefenseshouldnotbesustained.
Itmustbenotedthattheactionforannulmentwas
institutedbyPGagainstMariowhenthelatterwas
already26yearsold.Therefore,therightofMarioto
invokehisminorityasadefensehasalready
prescribed.AccordingtotheCivilCode,actionsfor
annulmentofvoidablecontractsshallprescribeafter
fouryears.Inthecaseofcontractswhicharevoidable
byreasonofminorityorincapacity,thefouryear
periodshallbecountedfromthetimetheguardianship
ceases(Art.1391,CivilCode).Thesameruleshould
alsobeappliedtothedefense.Intheinstantcase,since
morethanfouryearsalreadyelapsedfromthetime
Mariohadattainedtheageof21,therefore,hecanno
longerinterposehisminorityasadefense.Itwould
havebeendifferentiffouryearshadnotyetelapsed
fromthetimeMariohadattainedtheageof21.Since
therewasnoactivefraudormisrepresentationonhis
partatthetimeofexecutionofthepromissorynote,it
isclearthatthecontractisvoidableasfarasheis
concerned.Insuchcase,thedefenseofminorityshould
thenbesustained.(Braganzavs.VillaAbrille,105
Phil.456.)
Art.1392.Ratificationextinguishestheactionto
annulavoidablecontract.19
Art.1393.Ratificationmaybeeffectedexpresslyor
tacitly.Itisunderstoodthatthereisatacit
ratificationif,withknowledgeofthereasonwhich
rendersthecontractvoidableandsuchreason
havingceased,thepersonwhohasarighttoinvoke
itshouldexecuteanactwhichnecessarilyimplies
anintentiontowaivehisright.20
Art.1394.Ratificationmaybeeffectedbythe
guardianoftheincapacitatedperson.21
Art.1395.Ratificationdoesnotrequirethe
conformityofthecontractingpartywhohasno
righttobringtheactionforannulment.22
Theweightofauthoritiesistotheeffectthatthe
registrationofaninstrumentintheOfficeofthe
RegisterofDeedsconstitutesconstructivenoticetothe
wholeworld,and,therefore,discoveryofthefraudis
deemedtohavetakenplaceatthetimeofthe
registration.Inthiscasethedeedofassignmentwas
registeredonMarch16,1940,andinfactonthesame
dateT.C.T.No.2533inthenamesoftheheirsof
MateoCaranteswascancelled,andT.C.T.No.2540in
thenameofthepetitionerwasissuedinlieuthereof.
Thefouryearperiodwithinwhichtheprivate
respondentscouldhavefiledthepresentaction
consequentlycommencedonMarch16,1940;and
sincetheyfileditonlyonSeptember4,1958,it
followsthatthesameisbarredbythestatuteof
limitations.
Shouldthedefensealsoprescribewithinthesame
periodastheactionforannulment?AlthoughArt.
1391speaksonlyoftheaction,Spanishcommentators
advancetheviewthatthedefenseshallalsoprescribe
afterthelapseoffouryears,sincethebasisofthe
17In
actionandthebasisofthedefenseareidentical.
Braganza
173Castan,7thEd.,pp.415416,citingManresa,De
BuenandRamos.544
18however,theSupremeCourt
vs.VillaAbrille,
declaredthatthereisreasontodoubtthepertinencyof
theperiodfixedbyArt.1301nowArt.1391ofthe
CivilCodewhereminorityissetuponlyasadefense
toanaction,withouttheminorsaskingforanypositive
relieffromthecontract.Althoughthisstatementin
thedecisionisnotcontrollingbecauseitisbasedonan
assumption,nevertheless,webelievethatthisviewis
morejustandlogical.
Itisinterestingtonotethattheaboveaspectofthelaw
wastakenupintheBarExaminationsof1979.Thus
21Newprovision.
ProblemMrs.SborrowedP20,000.00fromPG.She
andher19yearoldson,Mario,signedthepromissory
notefortheloan,whichnotedidnotsayanything
aboutthecapacityofthesigners.Mrs.Smadepartial
paymentslittlebylittle.Afterseven(7)years,shedied
leavingabalanceofP10,000.00onthenote.PG
demandedpaymentfromMariowhorefusedtopay.
Whensuedfortheamount,Marioraisedthedefense:
thathesignedthenotewhenhewasstillaminor.
Shouldthedefensebesustained?Why?
546
Art.1396.Ratificationcleansesthecontractfrom23
allitsdefectsfromthemomentitwasconstituted.
ConceptofRatification.Besidesprescription,the
actionforannulmentofavoidablecontractmayalso
beextinguishedbyratification.24
Ratificationorconfirmationasitisknowninthe
SpanishCivilCodeisdefinedastheactormeansby
virtueofwhichefficacyisgiventoacontractwhich
suffersfromaviceofcurablenullity.25
RequisitesofRatification.Ratificationor
confirmationrequirestheconcurrenceofthefollowing
requisites:26
First:Thecontractshouldbetaintedwithavicewhich
issusceptibleofbeingcured.
AnswerNo.1Thedefenseshouldbesustained.
Mariocannotbeboundbyhissignatureinthe
promissorynote.Itmustbeobservedthatthe
promissorynotedoesnotsayanythingaboutthe
capacityofthesigners.Inotherwords,thereisno
activefraudormisrepresentation;thereismerely
silenceorconstructivefraudormisrepresentation.It
wouldhavebeendifferentifthenotesaysthatMariois
ofage.Theprincipleofestoppelwouldthenapply.
Mariowouldnotbeallowedtoinvokethedefenseof
minority.Thepromissorynotewouldthenhaveallthe
effectsofaperfectlyvalidnote.Hence,asfaras
Mariosshareintheobligationisconcerned,the
promissorynoteisvoidablebecauseofminorityor
nonage.Hecannot,however,beabsolvedentirely
frommonetaryresponsibility.UndertheCivilCode,
evenifhiswrittencontractisvoidablebecauseof
minorityheshallmakerestitutiontotheextentthathe
mayhavebeenbenefitedbythemoneyreceivedby
him(Art.1399,CivilCode).True,morethanfour
yearshavealreadyelapsedfromthetimethatMario
hadattainedtheageof21.Apparently,hisrightto
interposethedefensehasalreadyprescribed.Ithas
beenheld,however,thatwhereminorityisusedasa
defenseandnopositivereliefisprayedfor,thefour
yearperiod(Art.1391,
Second:Theconfirmationshouldbeeffectedbythe
personwhoisentitledtodosounderthelaw.
18105Phil.456.
Third:Itshouldbeeffectedwithknowledgeofthevice
ordefectofthecontract.
545
Fourth:Thecauseofthenullityordefectshouldhave
alreadydisappeared.
CivilCode)doesnotapply.Here,Marioismerely
interposinghisminorityasanexcusefromliability.
(Braganzavs.VillaAbrille,105Phil.456.)
22 of 50
548
hisdesiretoconvalidateit,orwhatamountstothe
samething,torenouncehisrighttoannulthe
33Ontheotherhand,thereisatacit
contract.
confirmation,if,withknowledgeofthereasonwhich
rendersthecontractvoidableandsuchreasonhaving
ceased,thepersonwhohasarighttoinvokeitshould
executeanactwhichnecessarilyimpliesanintention
towaivehisright.34
Thus,whereitisestablishedthataminorwhohad
enteredintoacontractofsale,notonlyfailedto
repudiateituponreachingtheageofmajority,butalso
disposedofthegreaterpartoftheproceedsafterhe
becameofageandafterhehadknowledgeofthefacts
whichhenowseekstodisaffirm,itwasheldthatthere
wasatacitratificationorconfirmationofthe
35Similarly,ifthepersonwhocaneffectthe
contract.
confirmation,insteadofdemandingtheannulmentofa
contractofsale,shouldproceedtocollectthegreater
partofthepurchaseprice,assetoutinapromissory
note,itisclearthatthereisalreadyatacitconfirmation
ofthecontract.36
EffectsofRatification.Theeffectsofratification
orconfirmationareclearlypointedoutinArts.1392
and1396.Inthefirstplace,ratificationextinguishes
theactiontoannulthecontract;andinthesecond
place,itcleansesthecontractofitsdefectsfromthe
momentitwasconstituted.37
Art.1397.Theactionfortheannulmentof
contractsmaybeinstitutedbyallwhoarethereby
obligedprincipallyorsubsidiarily.However,
personswhoarecapablecannotallegethe
incapacityofthosewithwhomtheycontracted;nor
canthosewhoexertedintimidation,violence,or
undueinfluence,oremployedfraud,orcaused
mistakebasetheiractionupontheseflawsofthe
contract.38
WhoMayInstituteAction.FromArt.1397ofthe
Codeitcanbeinferredthattwodifferentrequisitesare
requiredtoconferthenecessarycapacityforthe
exerciseoftheactionforannulment.
35UySooLimvs.TanUnchuan,38Phil.552.
36Tacalinarvs.Corro,34Phil.8898.
37Arts.1392,1396,CivilCode;3Castan,7thEd.,p.
38
420.
form. Art.1302,SpanishCivilCode,inmodified
Thefirstrequisiteofconfirmationisthatthecontract
shouldbetaintedwithavicewhichissusceptibleof
beingcured.Itisevidentthatconfirmationpresupposes
theexistenceofaviceinthecontractbecause
otherwiseitwouldnothaveanyobject.Furthermore,
suchviceshouldbesusceptibleofbeingcuredbecause
otherwisethecontractwouldbevoidorinexistentand,
therefore,notsusceptibleofconfirmation.27
Thesecondrequisiteisthattheconfirmationshouldbe
effectedonlybythepersonwhoisentitledtodoso
underthelaw.Thisisimpliedfromtheprovisionsof
Arts.1394and1395.Hence,ifthecontractwas
enteredintobyanincapacitatedperson,the
confirmationcanbeeffectedonlybysuchpersonupon
attainingor
24Art.1392,CivilCode.Forathirdmodeof
extinguishingtheaction,seeArt.1401,CivilCode.
263Castan,7thEd.,p.419;8Manresa,5thEd.,2,pp.
668671.278Manresa,5thEd.,Bk.2,pp.668670.
547
Art.1396CONTRACTS
regainingcapacityorbyhisguardianifhehasnotyet
attainedorregainedcapacity,andifthecontractwas
executedthroughmistake,violence,intimidation,
undueinfluence,orfraud,itcanbeeffectedonlybythe
innocentparty.28
Thethirdrequisiteisthattheconfirmationshouldbe
effectedwithknowledgeoftheviceordefectofthe
contract.ThisisclearfromtheprovisionofArt.1393.
Sinceconfirmationisaboveallaformofexpressing
thewill,assuchitrequires,independentlyoftheactto
whichitrefers,thesameconditionsoffreedom,
knowledgeandclaritywhichconsentalsorequires,
althoughitdoesnotrequiretheconformityoftheother
partywhohasnorighttoinvokethenullityofthe
contract.Consequently,confirmationmayalsobe
invalidatedbymistake,violence,intimidation,undue
29Itmustbenoted,however,that
influence,orfraud.
thecontractmaybetaintedwithseveralvices,suchas
whenithasbeenexecutedthroughmistakeandfraud.
Insuchcase,ifthepersonentitledtoeffectthe
confirmationratifiesorconfirmsthecontractwith
knowledgeofthemistake,butnotofthefraud,his
righttoaskforannulmentisnotextinguishedthereby
sincetheratificationorconfirmationhasonlypurged
thecontractofmistake,butnotoffraud.30
Thefourthrequisiteisthatthecauseofnullityshould
havealreadyceasedordisappearedbecauseotherwise
theactofconfirmationwouldalsosufferfromthe
31Itmustbe
veryviceordefectwhichitseekstocure.
observed,however,thatinthecaseofcontractsentered
intobyincapacitatedpersons,thisisnotindispensable
inasense,becauseevenwhiletheincapacitycontinues
toexist,theconfirmationmaybeeffectedbythe
guardianoftheincapacitatedperson.32
549
Art.1397CONTRACTS
Thefirstrequisiteisthattheplaintiffmusthavean
interestinthecontract.Thesecondisthatthevictim
andnotthepartyresponsiblefortheviceordefect
mustbethepersonwhomustassertthesame.39
Discussingthefirstrequisite,theSupremeCourt,ina
leadingcase,declared:
Fromtheselegalprovisions(referringtowhatare
nowArts.1390and1397oftheCivilCode)itis
deducedthatitistheinteresthadinagivencontract,
thatisthedeterminingreasonoftherightwhichliesin
favorofthepartyobligatedprincipallyorsubsidiarily
toenablehimtobringanactionfortheannulmentof
thecontractinwhichheintervenedandthereforehe
whohasnorightinacontractisnotentitledto
prosecuteanactionforannulment,foraccordingtothe
precedentsestablishedbythecourtsthepersonwhois
notapartytoacontract,orwhohasnocauseofaction
orrepresentationfromthosewhointervenedtherein,is
manifestlywithoutrightofactionandpersonalitysuch
astoenablehimtoassailthevalidityofthe
contract.40
FormsofRatification.Thereisnospecialform
requiredforconfirmation,but,asthelawprovides,it
maybeeffectedexpresslyortacitly.Thefirstisnot
definedintheCode,but,undoubtedly,thereisan
expressconfirmationif,withknowledgeofthereason
whichrendersthecontractvoidableandsuchreason
havingceased,thepersonwhohasarighttoinvokeit
shouldexpresslydeclare
28Arts.13941395,CivilCode.See3Castan,7thEd.,
298Manresa,5thEd.,Bk.2,pp.670671.
p.419.
30Ibid.,p.672.
313Castan,7thEd.,p.419.
23 of 50
551
dead,anditishisheirswhoarenowassailingthe
validityofthesale.However,undertheprincipleof
relativityofcontractsrecognizedinArt.1311ofthe
CivilCode,thecontracttakeseffectnotonlybetween
thecontractingparties,butalsobetweentheirassigns
andheirs.
(Note:Anotherwayofansweringtheaboveproblem
wouldbetostatethetworequisiteswhichmustconcur
inorderthatavoidablecontractmaybeannulled.
Theserequisitesare:(a)thattheplaintiffmusthavean
interestinthecontract;and(b)thatthevictimorthe
incapacitatedpartymustbethepersonwhomustassert
thesame.Thesecondrequisiteislackingintheinstant
case.)
Art.1398.Anobligationhavingbeenannulled,the
contractingpartiesshallrestoretoeachotherthe
thingswhichhavebeenthesubjectmatterofthe
contract,withtheirfruits,andthepricewithits
interest,exceptincasesprovidedbylaw.
Inobligationstorenderservice,thevaluethereof
shallbethebasisfordamages.45
Art.1399.Whenthedefectofthecontractconsists
intheincapacityofoneoftheparties,the
incapacitatedpersonisnotobligedtomakeany
restitutionexceptinsofarashehasbeenbenefited
bythethingorpricereceivedbyhim.46
EffectsofAnnulment.Ifthecontracthasnotyet
beenconsummated,itisevident,althoughtheCode
doesnotexpresslysayso,thatthecontractingparties
shallbereleasedfromtheobligationsarising
47However,ifthecontracthasalreadybeen
therefrom.
consummated,therulesprovidedforinArts.1398to
1402oftheCodeshallgovern.
Idem;Obligationofmutualrestitution.Uponthe
annulmentofthecontract,iftheprestationthereof
consistedinobligationstogive,thepartiesshall
restoretoeachotherthethingswhichhavebeenthe
subjectmatterofthecontract,withtheirfruits,andthe
pricewithitsinterest,exceptincasesprovidedbylaw.
If,on
473Castan,7thEd.,pp.416417.
552
VOIDABLECONTRACTSArts.13981399
theotherhand,theprestationconsistedinobligations
todoornottodo,therewillhavetobean
apportionmentofdamagesbasedonthevalueofsuch
48Inother
prestationwithcorrespondinginterests.
words,uponannulmentthecontractingpartiesshould
berestoredtotheiroriginalpositionbymutual
restitution.49
Thereis,therefore,practicallynodifferencebetween
theeffectofrescissionbasedonlesionasenunciatedin
thefirstparagraphofArt.1385oftheCodeandthe
generaleffectofannulmentasenunciatedinArt.1398.
Asinthecaseofrescission,thequestionoffruitsshall
begovernedbytherulesonpossession.Interestof
course,referstothelegalinterest.50
Idem;id.Ruleincaseofincapacity.The
principleofmutualrestitutionasenunciatedinArt.
1398is,however,modifiedbytheprovisionofArt.
1399.Whenthedefectofthecontractconsistsinthe
incapacityofoneofthecontractingparties,the
incapacitatedpersonisnotobligedtomakeany
restitutionexceptinsofarashehasbeenbenefitedby
thethingorpricereceivedbyhim.51Itisevidentthat
Consequently,athirdpersonwhoisastrangertothe
contractcannotinstituteanactionforitsannulment.
Thereis,however,anexceptiontothisrule.According
totheSupremeCourt,apersonwhoisnotaparty
obligedprincipallyorsubsidiarilyunderacontract
mayexerciseanactionforannulmentofthecontractif
heisprejudicedinhisrightswithrespecttooneofthe
contractingparties,andcanshowdetrimentwhich
wouldpositivelyresulttohimfromthecontractin
41Thus,wherethe
whichhehasnointervention.
remainingpartnersofapartnershipexecutedachattel
mortgageoverthepropertiesofthepartnershipinfavor
ofaformerpartnertotheprejudiceofcreditorsofthe
partnership,thelatterhaveaperfectrighttofilethe
actiontonullifythechattelmortgage.42
398Manresa,6thEd.,Bk.2,p.639;Wolfsonvs.
EstateofMartinez,20Phil.340.
40Ibaezvs.Hongkong&ShanghaiBank,22Phil.
572.Tothesameeffect:CompaniaGeneralvs.
Topino,4Phil.33;MartellOngvs.Jariol,17Phil.244;
DySunvs.Brilliantes,93Phil.175.
41Tevesvs.PeoplesHomesite&HousingCorp.,23
SCRA1141;DeSantosvs.CityofManila,45SCRA
409;Singsongvs.IsabelaSawmill,88SCRA623.
42Singsongvs.IsabelaSawmill,88SCRA623.But
wouldthisnotbeconfusingtheconceptofannulment
ofvoidablecontractswiththeconceptofrescissionof
rescissiblecontracts?
550
Thesecondrequisite,ontheotherhand,isbasedonthe
wellknownprincipleofequitythatwhoevergoesto
43Some
courtmustdosowithcleanhands.
commentatorssaythatonlythepartywhoisprejudiced
caninstitutetheaction.Thisstatement,however,is
misleadingforthesimplereasonthattheactionfor
annulmentisindependentofthelesionordamage
sufferedbytheplaintiff.Thisisclearfromthe
provisionofArt.1390whichstatesthatthecontracts
enumeratedthereinarevoidable,eventhoughthere 44
mayhavebeennodamagetothecontractingparties.
ProblemNo.1X,ofage,enteredintoacontract
withY,aminor.Xknewandthecontractspecifically
statedtheageofY.MayXsuccessfullydemand
annulmentofthecontract?Reason.(1971Bar
Problem)
AnswerXcannotsuccessfullydemandannulmentof
thecontract.True,saidcontractisvoidablebecauseof
thefactthatatthetimeofthecelebrationofthe
contract,Y,theothercontractingparty,wasaminor,
andsuchminoritywasknowntoX(Arts.1327,No.1,
1390CC).However,thelawiscategoricalwithregard
towhomayinstitutetheactionforannulmentofthe
contract.Inadditiontotherequirementthattheaction
maybeinstitutedonlybythepartywhohasaninterest
inthecontractinthesensethatheisobligedthereby
eitherprincipallyorsubsidiarily,Art.1397oftheCivil
Codefurtherrequiresthatincaseofcontractsvoidable
byreasonofincapacityofoneofthecontracting
parties,thepartywhohascapacitycannotallegethe
incapacityofthepartywithwhomhecontracted.
Becauseofthisadditionalrequisite,itisclearthatY
andnotXcaninstitutetheactionforannulment.
ProblemNo.2.Pedrosoldapieceoflandtohis
nephewQuintin,aminor.Onemonthlater,Pedrodied.
Pedrosheirsthenbroughtanactiontoannulthesale
onthegroundthatQuintinwasaminorandtherefore
withoutlegalcapacitytocontract.Ifyouarethejudge,
wouldyouannulthesale?(1974BarProblem)
AnswerIfIamthejudge,Iwillnotannulthesale.
TheCivilCodeinArt.1397isexplicit.Personswho
arecapablecannotallegetheincapacityofthosewith
whomtheycontracted.True,Pedrowhosoldtheland
totheminorQuintinisalready
43Bastidavs.DyBuncio&Co.,93Phil.195.448
Manresa,5thEd.,Bk.2,p.641.
24 of 50
Off.Gaz.953.
thisruleisapplicableonlyandexclusivelytothose
caseswherethenullityarisesfromtheincapacityof
oneofthecontractingparties.Consequently,ifthe
nullityshouldarisefromsomeothercause,thegeneral
ruleenunciatedinArt.1398shallgovern.52
554
lostthroughthefraudorfaultofthepersonwho
hasarighttoinstitutetheproceedings.
Iftherightofactionisbasedupontheincapacityof
anyoneofthecontractingparties,thelossofthe
thingshallnotbeanobstacletothesuccessofthe
action,unlesssaidlosstookplacethroughthefraud
orfaultoftheplaintiff.57
Art.1402.Aslongasoneofthecontractingparties
doesnotrestorewhatinvirtueofthedecreeof
annulmentheisboundtoreturn,theothercannot
becompelledtocomplywithwhatisincumbent
uponhim.58
EffectofFailuretoMakeRestitution.Sometimes,
forsomereasonorother,theactionforannulmentis
commencedafterthelapseofseveralyearsfromthe
timeoftheconsummationofthecontract.Suppose
thenthatpriortothecommencementoftheaction,the
thingwhichconstitutestheobjectofthecontractis
lost,whatistheeffectupontherightofthepartywho,
ordinarily,isentitledtoinstitutetheactionfor
annulment?Thisquestionisresolvedinpartbythe
provisionsofArts.1400to1402oftheCode.
Idem;Wherelossisduetofaultofdefendant.
AccordingtoArt.1400,whenthepersonobligedby
thedecreeofannulmenttoreturnthethingcannotdo
sobecauseithasbeenlostthroughhisfault,heshall
returnthefruitsreceivedandthevalueofthethingat
thetimeoftheloss,withinterestfromthesamedate.It
isevidentthatthisruleisapplicableonlywhentheloss
ofthethingisduetothefaultofthepartyagainst59
whomtheactionforannulmentmaybeinstituted.
Thisissobecauseifthelossisduetothefaultofthe
partywhohasarighttoinstitutetheaction,the
provisionofArt.1401shallapply.Thelossofthe
thingwhichconstitutestheobjectofthecontract
throughthefaultofthepartyagainstwhomtheaction
forannulmentmaybeinstitutedshallnot,therefore,
extinguishtheactionforannulment.Theonly
differencefromanordinaryactionforannulmentis
that,insteadofbeingcompelledtorestorethething,
thedefendantcanonlybecompelledtopaythevalue
thereofatthetimeoftheloss.
555
Art.1402CONTRACTS
Idem;Wherelossisduetofaultofplaintiff.
However,ifthelossofthethingisduetothefraudor
faultofthepartywhoisentitledtoinstitutethe
proceedings,accordingtothefirstparagraphofArt.
1401,theactionforannulmentshallbeextinguished.
Thereare,therefore,threemodeswherebysuchaction
maybeextinguished.Theyare:(1)prescription;(2)
ratification;and(3)thelossofthethingwhichisthe
objectofthecontractthroughthefraudorfaultofthe
personwhoisentitledtoinstitutetheaction.
ThesecondparagraphofArt.1401,ontheotherhand,
whichatfirstblushseemstobeanexceptiontothe
rulestatedinthefirstparagraph,hascreatedalegal
absurdity.UndertheoldCode,theprovisionwasas
follows:Ifthecauseofactionistheincapacityofany
ofthecontractingparties,thelossofthethingshallnot
beanobstacletothesuccessoftheaction,unlessithas
occurredthroughthefraudorfaultoftheplaintiffafter
60Hence,undertheoldlaw,
havingacquiredcapacity.
ifthelossofthethingwasduetothefraudorfaultof
theplaintiffafterhehadacquiredcapacity,thegeneral
rulewasapplicable;inotherwords,theactionwas
extinguished.Butifthelosswasduetothefraudor
faultoftheplaintiffduringhisincapacity,the
ThebenefitspokenofinArt.1399whichobligesthe
incapacitatedpersontomakerestitutiondoesnot
necessarilypresupposeamaterialandpermanent
augmentationoffortune;itissufficientiftherehas
beenaprudentandbeneficialusebytheincapacitated
personofthethingwhichhehasreceived.Inorderto
determinethis,itisnecessarytoknowhisnecessities,
hissocialpositionaswellashisdutiesasa
consequencethereoftoothers.Thus,suchbenefitis
presentifthethingreceivedisusedforfood,
clothing,shelter,health,andothersofasimilar
character.Itis,however,clearthattheproofofsuch
benefitiscastuponthepersonwhohascapacity,since
itispresumedintheabsenceofproofthatnosuch
benefithasaccrued
48Art.1398CivilCode;3Castan,7thEd.,pp.416
417.
49Cadwallader&Co.vs.Smith,Bell&Co.,7Phil.
461.Tothesameeffect:Dumasugvs.Modelo,34
Phil.252;Oliverosvs.Porciongcola,69Phil.305;
Talagvs.Tankengco,92Phil.1066.
508Manresa,5thEd.,Bk.2,p.646.51SeeArt.1426,
CivilCode.
553
53Thus,wheretwominors
totheincapacitatedperson.
borrowedacertainamountfromthecreditorduringthe
Japaneseoccupation,andsuchindebtednessis
evidencedbyapromissorynote,whileitistruethat
theycannotbeboundbytheirsignaturesbecauseof
theirminority,theycanstillbecompelledtomake
restitutiontotheextentthattheymayhavebeen
benefitedbythemoneywhichtheyreceived.Since
thereisproofthatthefundswereusedfortheirsup
portduringtheJapaneseoccupation,itisbutfairto
holdthattheyhadprofitedtotheextentofthevalueof
suchmoney.Theymust,therefore,reimbursethe
creditorthevalueofsuchmoney,whichvaluemustbe
computedinaccordancewiththeBallantyneSched
ule.54
ItmustbeobservedthatArt.1399cannotbeappliedto
thosecaseswheretheincapacitatedpersoncanstill
returnthethingwhichhehasreceived.Thus,according
totheSupremeCourt,whateverdifferencemayexistin
theauthoritiesastotheobligationofanincapacitated
persontoreturntheentireconsiderationreceivedby
virtueofacontractofsaleasaconditionprecedentto
disaffirmingthecontract,theyareunanimousin
holdingthathemustreturnsuchportionthereofas
remainsinhispossessionuponreachingorattaining
capacity.Hence,ifafterattainingcapacity,itis
establishedthathenotonlyfailedtoaskforthe
annulmentofthecontractbuthealsosquanderedthat
partoftheconsiderationwhichremained,itisclear
thatthereisalreadyanimpliedratificationor
confirmation.55
Art.1400.Wheneverthepersonobligedbythe
decreeofannulmenttoreturnthethingcannotdo
sobecauseithasbeenlostthroughhisfault,heshall
returnthefruitsreceivedandthevalueofthething
atthetimeoftheloss,withinterestfromthesame
date.56
Art.1401.Theactionforannulmentofcontracts
shallbeextinguishedwhenthethingwhichisthe
objectthereofis
53Ibid.,pp.648649.
54Braganzavs.VillaAbrille,105Phil.456.
55UySooLimvs.TanUnchuan,38Phil.552.Seealso
Youngvs.Tecson,CA,39
25 of 50
defectsfromwhicheachofthesethreeclassesof
unenforceablecontractssuffersareessentiallydifferent
2ReportoftheCodeCommission,p.139.
3Whiletheclassificationintheotherdefective
contractsisbasedonthedefect
exceptionwasapplicable;inotherwords,theloss
wouldnotbeanobstacletothesuccessoftheaction.
However,withthedeletionofthephraseafterhaving
acquiredcapacityfromtheprovisionofthesecond
paragraphofArt.1401ofthepresentCode,theresult
isanabsoluteredundancy.Whetherthelossoccurred
duringtheplaintiffsincapacityorafterhehad
acquiredcapacity,theactionforannulmentwouldstill
beextinguishedinaccordancewiththerulestatedin
thefirstparagraph.
fromwhichthecontractssuffer,hereitisbasedonthe
consequence.Asaresult,theclassificationfoundin
Art.1403hasbeencriticizedonthegroundthatit
placescontractswhicharetaintedwithaviceordefect
whichaffectsnotonlytheirenforceabilitybutalso
theirvalidityinthesamecategoryascontractswhich
aretaintedwithamereformaldefectwhichaffectonly
theirenforcement.
Idem;Wherelossisduetofortuitousevent.
Unfortunately,theCodeinArts.1400and1401does
notprovidefortheeffectofthelossoftheobjectof
thecontractthroughafortuitouseventupontherightto
askfortheannulmentofthecontract.Inspiteofthis
omission,itis,however,possibletoapplythegeneral
principlesregardingtheeffectsoffortuitouseventsto
anyproblemthatmayarise.
558
Ifthepersonobligedbythedecreeofannulmentto
returnthethingcannotdosobecauseithasbeenlost
throughafortuitousevent,thecontractcanstillbe
annulled,butwiththisdifference
UNENFORCEABLECONTRACTS
fromeachother.Inthefirst,thereisabsolutelyno
consentinsofarasthepersoninwhosenamethe
contractisenteredintoisconcerned;inthesecond,
thereisnowriting,noteormemorandumbywhichthe
contractmaybeproved;whileinthethird,consentis
absolutelyvitiatedbythelegalincapacityofbothof
thecontractingparties.Fromthesedifferences,
consequenceswhicharealsoessentiallydifferentfrom
eachotherarise.
Idem;Characteristics.Althoughtheyare
essentiallydifferentfromeachother,yetall
unenforceablecontractspossessthefollowing
characteristics:
.
(1)Theycannotbeenforcedbyaproper
actionincourt;4
(2)Theyaresusceptibleofratification;5
(3)Theycannotbeassailedbythird
persons.6
556
thedefendantcanbeheldliableonlyforthevalueof
thethingatthetimeoftheloss,butwithoutinterest
thereon.Thedefendant,andnottheplaintiff,must
sufferthelossbecausehewasstilltheownerofthe
thingatthetimeoftheloss;heshould,therefore,pay
thevalueofthething,butnottheinterestthereon
becausethelosswasnotduetohisfault.61
Ifitistheplaintiffwhocannotreturnthethingbecause
ithasbeenlostthroughafortuitousevent,thecontract
maystillbeannulled,butwiththisdifferencehe
mustpaytothedefendantthevalueofthethingatthe
timeoftheloss,butwithoutinterestthereon.
AccordingtoDr.Tolentino,iftheplaintiffoffersto
paythevalueofthethingatthetimeofitslossasa
substituteforthethingitself,theannulmentofthe
contractwouldstillbepossible,because,otherwise,we
wouldarriveattheabsurdconclusionthatanactionfor
annulmentwouldineffectbeextinguishedbytheloss
ofthethingthroughafortuitousevent.62
Idem;Distinguishedfromrescissiblecontracts.
Anunenforceablecontractmaybedistinguishedfrom
arescissiblecontractinthefollowingways:
(1)Anunenforceablecontractcannotbeenforcedbya
properactionincourt,whilearescissiblecontractcan
beenforced,unlessitisrescinded.
(2)Thecausesfortheunenforceablecharacterofthe
formeraredifferentfromthecausesfortherescissible
characterofthelatter.
(3)Theformerissusceptibleofratification,whilethe
latterisnot.
(4)Theformercannotbeassailedbythirdpersons,
whilethelattermaybeassailedbythirdpersonswho
areprejudiced.
Idem;Distinguishedfromvoidablecontracts.An
unenforceablecontractmaybedistinguishedfroma
voidablecontractinthefollowingways:
(1)Anunenforceablecontractcannotbeenforcedbya
properactionincourt,whileavoidablecontractcanbe
enforced,unlessitisannulled.
5Arts.1403,1405,1407,1371,CivilCode.6Art.1408,
CivilCode.
614Tolentino,CivilCode,1956Ed.,pp.558559.
62Ibid.,pp.557558.
557
CONTRACTS
CHAPTER 8 UNENFORCEABLE CONTRACTS
UnenforceableContractsinGeneral.
Unenforceablecontractsarethosewhichcannotbe
enforcedbyaproperactionincourt,unlesstheyare
ratified,because,eithertheyareenteredintowithoutor
inexcessofauthorityortheydonotcomplywiththe
statuteoffraudsorbothofthecontractingpartiesdo
1Asregardsthe
notpossesstherequiredlegalcapacity.
degreeofdefectiveness,theyoccupyanintermediate
groundbetweenvoidableandvoidcontracts.2
Idem;Classes.Therearethreegeneralclassesof
unenforceablecontracts.Theyare:first,thosecontracts
enteredintointhenameofanotherpersonbyone
withoutanyauthorityorinexcessofhisauthority;
second,thosewhichdonotcomplywiththeStatuteof
Frauds;andthird,thosewherebothcontractingparties
arelegallyincapacitated.Undertheoldlaw,thefirst
wereconsideredasaspecialtypeofvoidcontracts
voidcontractswhichweresusceptibleofratificationas
distinguishedfromvoidandinexistentcontractswhich
were(andstillare)notsusceptibleofratification.
Underthepresentlaw,theyarenowplacedinthesame
categoryascontractswhichdonotcomplywiththe
StatuteofFrauds.3Yetthereisnoquestionthatthe
26 of 50
10
whohasactedbeyondhispowers,isunenforceable.
Thisprincipleisreiteratedinthelawonagency.11
(3)However,suchcontractmayberatified,expressly
orimpliedly,bythepersoninwhosebehalfithasbeen
executed,beforeitisrevokedbytheothercontracting
party.12
Itmustbenotedthatundertheoldlaw(SpanishCivil
Code),thetermsconfirmationandratification
werenotinterchangeable.
7Newprovision.
8Tiptonvs.Velasco,6Phil.67;GutierrezHnos.vs.
Orense,28Phil.517;Tacalinarvs.Corro,34Phil.
898;Ibaezvs.Rodriguez,47Phil.554;Zamboanga
Trans.Co.vs.BachrachMotorCo.,62Phil.244;Gana
vs.ArchbishopofManila,43Off.Gaz.3224.
10Arts.1403,No.1,1317,CivilCode.
11Art.1898,CivilCode.Iftheagentcontractsinthe
nameoftheprincipal,ex
ceedingthescopeofhisauthority,andtheprincipal
doesnotratifythecontract,itshallbevoidiftheparty
withwhomtheagentcontractedisawareofthelimits
ofthepowersgrantedbytheprincipal.Inthiscase,
however,theagentisliableifheundertooktosecure
theprincipalsratification.Itmustbenotedthatthis
articlesaysthatthecontractisvoid,whereasArt.1403,
No.1,saysthatitisunenforceable.Now,whichis
which?ThemistakeisinArt.1898.Thecorrecttermis
unenforceable.
561
Art.1403CONTRACTS
Confirmationwasatermusedtodesignatetheactby
whichavoidablecontractwascuredofitsviceor
defect,whileratificationwasusedexclusivelyto
designatetheactbywhichacontractenteredintobya
personinbehalfofanotherwithoutorinexcessof
authorityiscuredofitsdefect.UnderthepresentCode,
thetermratificationisnowusedtodesignatetheactof
validatinganykindofdefectivecontract.
559
Art.1403CONTRACTS
(2)Thecausesfortheunenforceablecharacterofthe
formeraredifferentfromthecausesforthevoidable
characterofthelatter.
Art.1403.Thefollowingcontractsare
unenforceable,unlesstheyareratified:
(1)Thoseenteredintointhenameofanother
personbyonewhohasbeengivennoauthorityor
legalrepresentation,orwhohasactedbeyondhis
powers;
(2)ThosethatdonotcomplywiththeStatuteof
Fraudsassetforthinthisnumber.Inthefollowing
casesanagreementhereaftermadeshallbe
unenforceablebyaction,unlessthesame,orsome
noteormemorandumthereof,beinwriting,and
subscribedbythepartycharged,orbyhisagent;
evidence,therefore,oftheagreementcannotbe
receivedwithoutthewriting,orasecondary
evidenceofitscontents:
(a)Anagreementthatbyitstermsisnottobe
performedwithinayearfromthemakingthereof;
(b)Aspecialpromisetoanswerforthedebt,
default,ormiscarriageofanother,
(c)Anagreementmadeinconsiderationofmar
riage,otherthanamutualpromisetomarry;
(d)Anagreementforthesaleofgoods,chattelsor
thingsinaction,atapricenotlessthanFive
hundredpesos,unlessthebuyeracceptandreceive
partofsuchgoodsandchattels,ortheevidences,or
someofthem,ofsuchthingsinaction,orpayatthe
timesomepartofthepurchasemoney,butwhena
saleismadebyauctionandentryismadebythe
auctioneerinhissalesbook,atthetimeofthesale,
oftheamountandkindofpropertysold,termsof
sale,price,namesofthepurchasersandpersonon
whoseaccountthesaleismade,itisasufficient
memorandum;
(e)Anagreementfortheleasingforalongerperiod
thanoneyear,orforthesaleofrealpropertyorof
aninteresttherein;
Undertheoldlaw,itwasalsocustomarytodistinguish
confirmationandratificationfromrecognition.
Recognitionoracknowledgmentreferstoanact
wherebyadefectofproofiscured,suchaswhenan
oralcontractisputinwriting,orwhenaprivateinstru
mentisconvertedintoapublicinstrument.Thus,
accordingtotheSupremeCourt,inthecaseofLuna
vs.Linatoc:13
560
Confirmationtendstocureaviceofnullity,andratifi
cationisforthepurposeofgivingauthoritytoaperson
whopreviouslyactedinthenameofanotherwithout
authority.Recognition,ontheotherhand,ismerely
tocureadefectofproof.Inrecognition,thereisno
vicetoberemediedsuchasfraud,violenceormistake,
sothatthecaseisdistinguishedfromconfirmation.In
recognition,thepersonactingonbehalfofanotheris
dulyauthorizedtodoso,sothesituationisdifferent
fromratification.
(3)Thosewherebothpartiesareincapableofgiving
consenttoacontract.7
ContractsInfringingStatuteofFrauds.The
secondclassofunenforceablecontractsarethose
whichdonotcomplywiththeStatuteofFrauds.The
StatuteofFrauds,beingessentiallyaruleof
substantivelaw,isnowfoundinNo.2oftheArt.1403
oftheCivilCode,thussupersedingthestatuteas
enunciatedinSec.21ofRule123oftheoldRulesof
Court.
Idem;PurposeofStatute.TheStatuteofFrauds
wasenactedforthepurposeofpreventingfrauds.
Hence,itshouldnotbemadetheinstrumenttofurther
them.14
UNENFORCEABLECONTRACTSArt.1403
(f)Arepresentationastothecreditofathird
person.
ContractsWithoutorinExcessofAuthority.
Contractsenteredintointhenameofanotherperson
byonewhohasbeengivennoauthorityorlegal
representation,orwhohasactedbeyondhispowersare
unenforceable.Undertheoldlaw,suchcontractswere
classifiedasvoidcontracts,althoughsusceptibleof
8AccordingtoArt.1404,suchcontracts
ratification.
shallbegovernedbyArt.1317andbytheprinciplesof
agencyinTitleXoftheCode.Consequently,the
followingprinciplesareapplicable:
(1)Noonemaycontractinthenameofanother
withoutbeingauthorizedbythelatterorunlesshehas
arighttorepresenthim.Ifheisdulyauthorized,he
mustactwithinthescopeofhispowers.9
(2)Acontractenteredintointhenameofanotherby
onewhohasnoauthorityorlegalrepresentation,or
27 of 50
(2)Aspecialpromisetoanswerforthedebt,defaultor
miscarriageofanother.Itiswellsettledthata
promiseinordertofallunderthestatutemustbe
collateral,notindependentororiginal.Thus,inthe
caseofReissvs.Memije,21theSupremeCourtheld:
Idem;FormrequiredbyStatute.Underthe
StatuteofFrauds,theonlyformalityrequiredisthat
thecontractoragreementmustbeinwritingand
subscribedbythepartychargedorbyhis
Thetruetestastowhetherapromiseiswithinthe
statutehasbeensaidtolieintheanswertothequestion
whetherthepromiseisanoriginaloracollateralone.
Ifthepromiseisanoriginaloranindependentone,that
is,ifthepromisorbecomestherebyprimarilyliablefor
thepaymentofthedebt,thepromiseisnotwithinthe
statute.But,ontheotherhand,ifthepromiseis
collateraltotheagreementofanotherandthepromisor
becomestherebymerelyasurety,thepromisemustbe
inwriting.
14Phil.NationalBankvs.Phil.VegetableOilCo.,49
Phil.857;Shoemakervs.LaTondea,68Phil.24.
Justwhatisthecharacterofapromiseasoriginalor
collateralisaquestionoflawandfactwhichmustin
eachcasebedeterminedfromtheevidenceastothe
languageusedinmakingthepromise,andthe
circumstancesunderwhichthepromisewasmade;and
sinceasageneralrulethepartiesmakingapromiseof
thisnaturerarelyunderstandthelegalandtechnical
differencebetweenanoriginalandcollateralpromise,
thepreciseformofwordsused,evenwhenestablished
byundisputedtestimony,isnotalwaysconclusive.So
thatitissaidthatWhile,asamatteroflaw,apromise,
absoluteinform,topayortoberesponsibleortobe
thepaymasterisanoriginalpromise,andwhileonthe
otherhand,ifthepromisorsays,Iwillseeyoupaid,
orIwillpayifhedoesnot,orusesequivalentwords,
thepromisestandingaloneiscollateral,yetunderall
thecircumstancesofthecase,anabsolutepromiseto
pay,orapromisetoberesponsible,maybefoundtobe
collateral,orpromisesdeemedprimafaciecollateral
maybeadjudgedoriginal.
20Shoemakervs.LaTondea,68Phil.24.2115Phil.
350.
1374Phil.15.
562
15However,ithasbeenheldthatatelegram
agent.
advisingapersontowhomaverbalpromiseforthe
saleoflandhadbeenpreviouslymadetocomeatonce
inordertocompletethepurchase,butwhichtelegram
neitherdescribesthepropertynorstatesthepurchase
price,andwhichisnotsignedbyanypersonhaving
authoritytobindtheseller,isnotasufficient
memorandumofsaletosatisfytherequirementofthe
statute.16
Idem;EffectofnoncompliancewithStatute.In
caseofnoncompliancewiththeStatuteofFrauds,the
contractoragreementisunenforceablebyaction.This
isclearfromthestatuteitselfwhichstatesthat
evidenceoftheagreementcannotbereceivedwithout
thewriting,orasecondaryevidenceofitscontents.
Whatis,therefore,affectedbythedefectofthe
contractoragreementisnotitsvalidity,butits
enforceability.
(3)Anagreementmadeinconsiderationofmarriage,
22Thus,
otherthanamutualpromisetomarry.
marriagesettlementsanddonationsbyreasonof
marriage,accordingtotheCode,shallberegulatedby
theStatuteofFrauds.23
TheStatuteofFraudssimplyprovidesthemethodby
whichthecontractsenumeratedthereinmaybeproved.
Itdoesnotdeclarethatsaidcontractsareinvalid
becausetheyarenotreducedtowriting.Acontract
existsandisvalideventhoughitisnotclothedwith
thenecessaryform.Consequently,theeffectofnon
compliancewiththerequirementofthestatuteis
simplythatnoactioncanbeenforcedunlessthe
17Itis,therefore,clear
requirementiscompliedwith.
thattheformrequiredisforevidentialpurposesonly.
Hence,ifthepartiespermitacontracttobeproved,
withoutanyobjection,itisthenjustasbindingasifthe
statutehasbeencompliedwith.18
(4)Anagreementforthesaleofgoods,chattelsor
thingsinaction,atapricenotlessthanFivehundred
pesos.24
Idem;ContractsCoveredbyStatute.Thereare
sixclassesofcontractswhicharecoveredbythe
StatuteofFrauds.Theyare:
(5)Anagreementfortheleasingofrealpropertyfora
longerperiodthanoneyear,orforthesaleofreal
propertyoraninteresttherein.25
(1)Anagreementthatbyitstermsisnottobe
performedwithinayearfromthemakingthereof.Itis
wellsettledthatthisrefersonlytoagreementswhich
bytheirtermsarenottobeperformedoneitherside
withinayearfromtheexecutionthereof.Hence,those
whicharetobefullyperformedononesidewithina
19
yeararetakenoutoftheoperationofthestatute.
Thus,wheninan
564
Thus,inthecaseofSyquiavs.CA(151SCRA507),
theSupremeCourtruledthatanallegedoralassurance
orpromiseoftherepresentativesofthelessorthatthe
lesseeshouldbegivenpriorityorarenewalofthelease
cannotbeenforceable.ThisisbecauseunderArticle
1403,No.2(e),oftheNewCivilCode,anagreement
fortheleasingforalongerperiodthanoneyearis
unenforceablebyactionunlessthesame,orsomenote
ormemorandumthereof,beinwritingandsubscribed
bythepartycharged,orbyhisagent.Inthesubsequent
caseofZaidevs.CA(163SCRA705),theSC
reiteratedtheprincipleenunciatedinSyquiacaseand
furtherruledthatthewritingbeintheformofapublic
document,thusitheld:Iftheagreementconcernsthe
saleoflandorofaninteresttherein,thelawrequires
notonlythatthesame,orsomenoteormemorandum
thereof,beinwriting,andsubscribedbytheparty
charged,inorderthatitmaybeenforceablebyaction
(Article1403[2]),butalsothatthewritingbeinthe
formofapublicdocument(Article1358).Thelaw
finallyprovidesthat,ifthelawrequiresadocumentor
otherspecialform,asintheactsandcontracts
enumeratedinArticle1358,thecontractingparties
maycompeleachothertoobservethatform,oncethe
contracthasbeenperfectedandsuchrightmaybe
exercisedsimultaneouslywiththeactionuponthe
contract(Article1357).
22Forillustrativecases,seeAtienzavs.Castillo,72
Phil.589;Cabaguevs.Auxilio,48Off.Gaz.4823.
15Jimenezvs.Rabot,38Phil.378.
16Basavs.Raquel,45Phil.655.
17Gallemitvs.Tabilaran,20Phil.241.
18Domalaganvs.Bolifer,33Phil.471.
19Phil.NationalBankvs.Phil.VegetableOilCo.,49
Phil.857.
563
Art.1403CONTRACTS
oralcontract,whichbyitstermsisnottobeperformed
withinoneyearfromtheexecutionthereof,oneofthe
contractingpartieshasalreadycompliedwithinthe
yearwiththeobligationsimposeduponhimbysaid
contract,theotherpartycannotavoidthefulfillmentof
thoseincumbentuponhimunderthesamecontractby
invokingtheStatuteofFrauds,becausesuchstatute
aimstopreventandnottoprotectfraud.20
28 of 50
injunctionwasissued,restrainingthedefendantsfrom
closingtheroad.
Insteadofaresponsivepleading,thedefendantfileda
motiontodismissthecomplaintonJanuary4,1961,
uponthegroundthattheclaimonwhichtheactionor
suitisfoundedisunenforceableundertheprovisionsof
theStatuteofFraudsandspeciallaw,inthatthefirst
pageofthesaidroadrightofwayagreementwasnot
signedbybothpartiesandtheirinstrumentalwitnesses;
pagetwothereofisnotdated,andthesignatureofthe
plaintiffscorporateagentdoesnotappear;andthat
saidagreementisnotacknowledgedbeforeaperson
authorizedtoadministeroaths.
Theplaintiffopposedthemotion,statingthatthe
agreementbetweenplaintiffandLucianoHernandez
isnotoneofthoseagreementsspecifiedintheStatute
ofFrauds.Nevertheless,thetrialcourtgrantedthe
motiontodismissonJanuary17,1961anddismissed
thecases.
Theplaintifffiledamotionforreconsiderationofthe
saidorder,insistingthattheroadrightofway
agreementisnotcoveredbytheStatuteofFrauds.
Then,onMarch4,1961,theplaintifffiledan
AmendedComplaint,accompaniedbyamotionforits
admission.Theplaintiffthereinprayed,amongothers,
thattheDefendantsbeorderedtokeeptheroadopen
andtorespecttherightofwayagreementandshould
itbeascertainedthatunderthelawtheplaintiffis
boundtopaycompensationfortherightofwaytothe
defendants,itisprayedthatthereasonableamountof
suchcompensationbefixed.
Afterhearingtheparties,thetrialcourtissuedanorder
onSeptember6,1961,denyingthemotionfor
reconsideration.
Whereupon,theplaintiffperfectedanappealtothe
CourtofAppeals.Theappellatecourt,findingthat
onlyquestionsoflawareraised,elevatedtheappealto
thisCourt.
567
24Forillustrativecase,seeRoblesvs.LizarragaHnos,
50Phil.387.
25Forillustrativecases,seeGorospevs.Ilayat,29Phil.
21;Fernandezvs.Bayan,
62Phil.909;Pascualvs.RealtyInvestment,Inc.,91
Phil.257;Valinovs.Medina,CA,49Off.Gaz.592.
565
Art.1403CONTRACTS
WesternMindanaoCo.vs.Medalle79SCRA703
AppealfromtheorderoftheCourtofFirstInstanceof
ZamboangaCitydismissingthecomplaintuponthe
groundthattheclaimonwhichitisfoundedis
unenforceableundertheStatuteofFraudsandspecial
law.
Thecomplaint,filedonDecember16,1960,alleges
that:
2.ThePlaintiffisengagedinloggingoperationsin
Curuan,ZamboangaCityandinconnectionwiththe
saidloggingoperationitobtainedonSeptember8,
1955arightofwaythroughthesaidLot2136ofthe
CadastralSurveyofZamboangafromMr.Luciano
Hernandez,thentheregisteredowner,acopyofthe
agreementbeingenclosedasAnnexA;
3.Theformerownersoftheloggingconcession
operatedbythePlaintiffconstructedandmaintained
thesaidroadthroughLot2136,butthePlaintiff
improvedthesaidroad,payingtotheregisteredowner
foralltheimprovementsdamagedbytheimprovement
oftheroad;
4.Longbeforetheexecutionoftherightofway
agreementonSeptember8,1955,sincethenandupto
thepresenttimethesaidroadhasbeenmaintainedand
usednotonlybythepredecessorofthePlaintiffand
thePlaintiff,butalsobythepublic;
Art.1403CONTRACTS
TheSupremeCourt,speakingthroughJusticeH.
Concepcion,held:
Theappealismeritorious.TheStatuteofFraudsrefers
tospecifickindsoftransactionsandcannotapplyto
anythatisnotenumeratedtherein.Thetransactionsor
agreementscoveredbysaidstatutearethefollowing:
5.ThesaidLot2136waspurchasedbythe
defendantsin1958andthesaidroadthenexistedand
wasinpublicuseandthedefendantsdidnotoppose
butinsteadallowedthecontinueduseandmaintenance
oftheroadbythePlaintiffandthepublic;
(a)Anagreementthatbyitstermsisnottobe
performedwithinayearfromthemakingthereof;
6.Thesaidroadisindispensabletothebusiness
operationsofthePlaintiff,becauseitistheonlyaccess
fromtheirconcessiontothehighway;
(b)Aspecialpromisetoanswerforthedebt,default,
ormiscarriageofanother;
7.ThatdefendantshavenowsenttothePlaintiffa
notice(AnnexB)oftheirintentiontoclosetheroad;
and
(c)Anagreementmadeinconsiderationofmar
riage,otherthanamutualpromisetomarry;
(d)Anagreementforthesaleofgoods,chattelsor
thingsinaction,atapricenotlessthanfivehundred
pesosunlessthebuyeracceptandreceivepartofsuch
goodsandchattels,ortheevidences,orsomeofthem,
ofsuchthingsinaction,orpayatthetimesomepartof
thepurchasemoney;butwhenasaleismadeby
auctionandentryismadebytheauctioneerinhissales
bookatthetimeofthesale,oftheamountandkindof
propertysold,termsofsale,price,namesofpurchasers
andpersononwhoseaccountthesaleismade,itis
sufficientmemorandum;
(e)Anagreementfortheleasingforalongerperiod
thanoneyear,forthesaleofrealpropertyorofan
interesttherein;
(f)Arepresentationastothecreditofathirdperson.
Obviously,anagreementcreatinganeasementofright
ofwayisnotoneofthosecontractscoveredbythe
statuteoffraudssinceitisnotasaleofrealpropertyor
ofaninteresttherein.Thetrialcourt,thereforeerredin
dismissingthecaseuponthedefendantsclaimthatthe
8.ThePlaintiffhastherighttothecontinueduse
ofsaidroad,theclosingofwhichwillcauseinjustice
andirreparabledamagestothePlaintiffandthe
Plaintiffiswillingtopostabondfortheissuanceofa
writofpreliminaryinjunctiontostopthedefendants
fromclosingtheroad.
566
xxxxxxxxx
Wherefore,theplaintiffprayedthatawritof
preliminaryinjunctionbeissuedrestrainingthe
defendantsfromclosingthesaidroad,andafter
hearing,maketheinjunctionpermanent.Italsoprayed
thatthedefendantsbedirectedtorecognizeandrespect
thesaidroadrightofwayagreement.Copiesofthe
roadrightofwayagreementandtheletterofthe
defendantsadvisingtheplaintiffoftheclosureofthe
roadwereattachedthereto.Uponthefilingofabond
intheamountofP1,000.00,awritofpreliminary
29 of 50
Held:Itiswellsettledinthisjurisdictionthatthe
StatuteofFraudsisapplicableonlytoexecutory
contracts(Facturanvs.Sabanal,81Phil.512),notto
contractsthataretotallyorpartiallyperformed.
(Almirol,etal.vs.Monserrat,48Phil.67,70;Robles
vs.LizarragaHermanos,50Phil.387;Dianavs.
Macalibo,74Phil.70)Thereasonissimple.In
executorycontractsthereisawidefieldforfraud
becauseunlesstheybeinwritingthereisnopalpable
evidenceoftheintentionofthecontractingparties.The
statutehaspreciselybeenenactedtopreventfraud.
(Moran,CommentsontheRulesofCourt,Vol.III,
1957ed.,p.178)However,ifacontracthasbeen
totallyorpartiallyperformed,theexclusionofparol
evidencewouldpromotefraudorbadfaith,forit
wouldenablethedefendanttokeepthebenefits
alreadyderivedbyhimfromthetransactionin
litigation,and,atthesametime,evadetheobligations,
responsibilitiesorliabilitiesassumedorcontractedby
himthereby.Sothatwhenthepartyconcernedhas
pleadedpartialperformance,suchpartyisentitledtoa
reasonablechancetoestablishbyparolevidencethe
truthofhisallegation,aswellasthecontractitself.
roadrightofwayagreementinquestionis
unenforceableundertheStatuteofFrauds.Besides,the
complaint,asamended,maybeviewednotonlyasa
claimfortherecognitionoftheexistenceofan
easementofrightofwayondefendantsestate,but
alsoademandfortheestablishmentofaneasementof
rightofway,ifnoneexists,pursuanttoArt.649ofthe
CivilCode,inviewoftheplaintiffsoffertopay
reasonablecompensationfortheuseoftheland.
Idem;Ratification.ContractsinfringingtheStatute
ofFraudsaresusceptibleofratification.Accordingto
Art.1405oftheCivilCode,suchcontractsmaybe
ratifiedeither(1)bythefailuretoobjecttothe
presentationoforalevidencetoprovethesame,or(2)
bytheacceptanceofbenefitsunderthem.
UNENFORCEABLECONTRACTSArt.1403(6)A
representationastothecreditofathirdperson.
ProblemCananoralsaleoflandbejudicially
enforcedasbetweenthecontractingparties,iftheland
hasnotbeendeliveredbutthebuyerhaspaidten
percent(10%)ofthepurchaseprice?(1974Bar
problem)
AnswerYes,anoralsaleoflandwherethelandhas
notbeendeliveredbutthebuyerhaspaidtenpercent
(10%)ofthepurchasepricemaybejudicially
enforced.WellsettledistherulethattheStatuteof
Fraudsbyvirtueofwhichoralcontracts
570
areunenforceablebycourtactionisapplicableonlyto
thosecontractswhichareexecutoryandnottothose
whichhavebeenconsummatedeithertotallyor
partially.Thereasonisobvious.Ineffect,thereis
alreadyaratificationofthecontractbecauseof
acceptanceofbenefits.Asamatteroffact,thisreason
isnowembodiedintheNewCivilCode.Accordingto
Art.1405ofsaidCode,contractsinfringingtheStatute
ofFraudsareratifiedbythefailuretoobjecttothe
presentationoforalevidencetoprovethesame,orby
theacceptanceofbenefitsunderthem.
ProblemOverballyleasedhishouseandlotto
LfortwoyearsatamonthlyrentalofP250.00a
month.Afterthefirstyear,Odemandedarentalof
P500.00claimingthatduetotheenergycrisis,withthe
suddenincreaseinthepriceofoil,whichnoone
expected,therewasalsoageneralincreaseinprices.
Oprovedaninflationrateof100%.WhenL
refusedtovacatethehouse,Obroughtanactionfor
ejectment.Odeniedthattheyhadagreedtoalease
fortwoyears.
QuestionNo.1Canthelesseetestifyonaverbal
contractoflease?Reason.(1981Barproblem)
AnswerYes,thelesseeLmaytestifyonthe
verbalcontractoflease.Wellsettledistherulethatthe
StatuteofFraudsbyvirtueofwhichoralcontracts
(suchasthecontractintheinstantcase)are
unenforceablebycourtactionisapplicableonlyto
thosecontractswhichhavenotbeenconsummated,
eithertotallyorpartially.Thereasonforthisis
obvious.Ineffect,thereisalreadyaratificationofthe
contractbyacceptanceofbenefits.HereLhasbeen
payingtoOamonthlyrentalofP250.00forone
year.Thecaseis,therefore,withdrawnfromthe
coverageoftheStatuteofFrauds.
(Note:TheaboveanswerisbasedonArts.1403,No.2
and1405oftheCivilCode,andondecidedcases.)
QuestionNo.2AssumingthatOadmitsthetwo
yearcontract,ishejustifiedinincreasingtherental?
Why?(1981Barproblem)
WHEREFORE,thejudgmentappealedfromishereby
reversedandtheordersofJanuary17,1961and
September6,1961setaside.Costsagainstthe
defendantappellees.
SOORDERED.
568
ProblemAandBenteredintoaverbalcontract
wherebyAagreedtoselltoBhisonlyparcelof
landforP20,000.00andBagreedtobuyatthe
aforementionedprice.Bwenttothebank,withdrew
thenecessaryamount,andreturnedtoAforthe
consummationofthecontract.A,however,had
changedhismindandrefusedtogothroughwiththe
sale.Istheagreementvalid?WillanactionbyB
againstAforspecificperformanceprosper?Reason.
(1982Barproblem)
AnswerItmustbeobservedthattherearetwo
questionswhichareasked.Theyare:
(1)Istheagreementvalid?Theanswerisyes.Itisa
timehonoredrulethatevenaverbalagreementtosell
landisvalidsolongasthereisalreadyanagreement
withrespecttotheobjectandthepurchaseprice.
(2)WillanactionbyBagainstAforspecificper
formanceprosper?Theanswerisno,unlessitis
ratified.Thereasonisobvious.Theagreement,being
anagreementofsaleofrealproperty,iscoveredbythe
StatuteofFrauds.Itcannot,therefore,beenforcedby
acourtactionbecauseitisnotevidencedbyanynote
ormemorandumorwritingproperlysubscribedby
thepartycharged.
(Note:TheaboveanswerisbasedonNo.2ofArt.
1403oftheCivilCodeandondecidedcases.)
Idem;EffectofPerformanceofContract.The
ruleiswellestablishedthattheStatuteofFraudsis
applicableonlytothosecontractswhichareexecutory
andnottothosewhichhavebeenconsummatedeither
26Thebasisofthisruleis,of
totallyorpartially.
course,thefactthatinsuchcasethereisalreadya
ratificationofthecontractwithinthemeaningofArt.
1405oftheCivilCode.Thereisacceptanceof
benefits.
26Arroyovs.Azur,76Phil.493.Tothesameeffect:
Almirolvs.Monserrat,48Phil.67;AsturiasSugar
Central,Inc.vs.Montinola,69Phil.725;Dianavs.
Macalibo,74Phil.70;Facturanvs.Sabanal,46Off.
Gaz.310;Carbonnelvs.Poncio,103Phil.655.
569
Art.1403CONTRACTS
Carbonnelvs.Poncio,etal.103Phil.655
Therecordsshowthatplaintiffpurchasedfrom
defendantPoncioaparcelofland;thatshepaidpartof
theagreedpricewiththeunderstandingthatshewill
paythebalanceupontheexecutionofthedeedof
conveyance;thatdefendantrefusedtoexecutethedeed
inspiteofrepeateddemands;andthatdefendantsold
thelandtohiscodefendantswhoknewofthefirst
sale.Defendants,however,contendthatplaintiffs
claimisunenforceableundertheStatuteofFrauds.
30 of 50
CHAPTER 9
VOID OR INEXISTENT CONTRACTS
VoidandInexistentContractsinGeneral.In
general,avoidorinexistentcontractmaybedefinedas
onewhichlacksabsolutelyeitherinfactorinlawone
orsomeoftheelementswhichareessentialforits
1Thus,ifthereisabsolutelynoconsent,object
validity.
orcause,oriftheformalitieswhichareessentialfor
validityarenotcompliedwith,orevenifthereisa
causeandanobject,ifsuchcauseorobjectiscontrary
tolaw,morals,goodcustoms,publicorderorpublic
policy,orifthecontractisexpresslyprohibitedor
declaredbylawtobevoid,thecontractisvoidor
inexistent.
Althoughusedinterchangeably,strictlyspeaking,void
andinexistentcontractsaredifferentfromeachother.
Contractswhicharevoidrefertothosewhereallofthe
requisitesofacontractarepresent,butthecause,
objectorpurposeiscontrarytolaw,morals,good
customs,publicorderorpublicpolicy,orcontract
itselfisprohibitedordeclaredvoidbylaw.Onthe
otherhand,contractswhichareinexistentrefertothose
whereoneorsomeorallofthoserequisiteswhichare
essentialforthevalidityofacontractareabsolutely
lacking,suchasthosewhichareabsolutelysimulated
orfictitious,orthosewherethecauseorobjectdidnot
existatthetimeofthetransaction.Thisdistinction
betweenvoidandinexistentcontracts,whichhas
alreadybeenexpresslyrecognizedbytheSupreme
2isimportantespeciallyinconnectionwiththe
Court,
applicationoftheinparidelictoprincipleas
enunciatedinArts.1411and1412oftheCode.Thisis
sobecauseifthecontractisinexistent,itisopento
attackevenbythepartiesthereto,butifthecontractis
2Liguezvs.CourtofAppeals,102Phil.577;Motion
forReconsideration,Feb.13,1958.
574
VOIDORINEXISTENTCONTRACTS
notinexistentbutmerelyvoidorillegal,specific
articlesoftheCivilCodecommandthatneitherparty
theretomaybeheardtoinvokeitsunlawfulcharacter
3Consequently,thetwomaybe
asagroundforrelief.
distinguishedfromeachotherasfollows:
(1)Inavoidcontract,alloftherequisitesofacontract
arepresent,butthecause,objectorpurposeiscontrary
tolaw,morals,goodcustoms,publicorderorpublic
policy,orthecontractitselfisprohibitedordeclared
bylawtobevoid;inaninexistentcontract,oneor
someorallofthoserequisiteswhichareessentialfor
validityareabsolutelylacking.
(2)Theprincipleofparidelictoisapplicableinthe
first,butnotinthesecond.Consequently,thefirstmay
producelegaleffects,butthesecondcannotproduce
anyeffectwhatsoever.
Idem;DistinguishedfromRescissibleContracts.
Avoidorinexistentcontractmaybedistinguished
fromarescissiblecontractinthefollowingways:
(1)Avoidorinexistentcontractproducesasaruleno
effectevenifitisnotsetasidebyadirectaction,while
arescissiblecontractisvalid,unlessitisrescinded. 4
(2)Thedefectoftheformerconsistsinabsolutelackin
factorinlawofoneorsomeoftheessentialelements
ofacontract,whilethedefectofthelatterconsistsin
lesionordamagetooneofthecontractingpartiesorto
thirdpersons.5
(3)Intheformer,thenullityorinexistenceofthe
contractisbasedonthelaw,whi1einthelatterthe
rescissiblecharacterisbasedonequity.Hence,
absolutenullityisnotonlyaremedybutasanction,
whilerescissionisamereremedy.Publicinterest,
therefore,predominatesinthefirst,whileprivate
interestpredominatesinthesecond.6
AnswerYes,Oisjustifiedinincreasingthe
monthlyrental.Sinceitisadmittedthatthecontractof
leaseisforadefinitetermorperiodoftwoyears,itis
crystalclearthatthecaseiswithdrawnfromthe
coverageofthenewrentallaw.Nowduringthe
hearingofthecase,Owasabletoproveaninflation
rateof100%.Therefore,anincreaseisjustified.
(Note:TheaboveanswerisbasedonBatasPambansa
Blg.25.)
571
ContractsWhereBothPartiesAreIncapacitated.
Contractswherebothpartiesarelegally
incapacitatedarealsounenforceable.27Ifonlyoneof
thepartiesisincapacitated,thecontractisvoidable.28
Asinthecaseofthoseenteredintointhenameof
anotherbyonewithoutorinexcessofauthority,
contractswherebothpartiesarelegallyincapacitated
mayberatifiedeitherexpresslyorimpliedly.Such
ratificationmaybeeffectedbytheparentsorguardians
ofthecontractingparties.AlthoughtheCodedoesnot
sayso,thereisnoreasonwhyitcannotalsobeeffected
bythepartiesthemselvesuponattainingorregaining
capacity.Wemust,however,distinguishbetweenthe
effectofratificationbytheparentorguardianofoneof
thecontractingpartiesorbythelatterhimselfupon
attainingcapacityandtheeffectofratificationbythe
parentsorguardiansofbothpartiesorbybothofsuch
themselvesuponattainingcapacity.Inthefirst,the
contractbecomesvoidable;hence,theruleson
voidablecontractsshallgovern.Inthesecond,the
contractshallbevalidatedfromitsinception.29
Art.1404.Unauthorizedcontractsaregovernedby
Article1317andtheprinciplesofagencyinTitleX
ofthisBook.30
Art.1405.ContractsinfringingtheStatuteof
Frauds,referredtoinNo.2ofArticle1403,are
ratifiedbythefailuretoobjecttothepresentation
oforalevidencetoprovethesame,orbythe
acceptanceofbenefitsunderthem.31
Art.1406.Whenacontractisenforceableunderthe
StatuteofFrauds,andapublicdocumentis
necessaryforitsregistrationintheRegistryof
Deeds,thepartiesmayavailthemselvesoftheright
underArticle1357.32
Art.1407.Inacontractwherebothpartiesare
incapableofgivingconsent,expressorimplied
ratificationbythepar
27Art.1403,No.3,CivilCode.28Art.1390,No.1,
CivilCode.29Art.1407,CivilCode.30Newprovision.
31Newprovision.32Newprovision.
572
ent,orguardian,asthecasemaybe,ofoneofthe
contractingpartiesshallgivethesameeffectasif
onlyoneofthemwereincapacitated.
Ifratificationismadebytheparentsorguardians,
asthecasemaybe,ofbothcontractingparties,the
contractshallbevalidatedfromtheinception.33
Art.1408.Unenforceablecontractscannotbe
assailedbythirdpersons.34
31 of 50
(4)Theformercanbeassailedbythirdpersonswhose
interestsaredirectlyaffected,whilethelattercannot
beassailedbythirdpersons.17
(4)Theactionforthedeclarationofthenullityor
inexistenceofacontractisimprescriptible,whilethe7
actionfortherescissionofacontractisprescriptible.
Art.1409.Thefollowingcontractsareinexistent
andvoidfromthebeginning:
3Ibid.
4Art.1380,1409,CivilCode.
5Ibid.
68Manresa,5thEd.,Bk.2,pp.544545.7Arts.1389,
1410,CivilCode.
(1)Thosewhosecause,objectorpurposeis
contrarytolaw,morals,goodcustoms,publicorder
orpublicpolicy;
.
(2)Thosewhichareabsolutelysimulated
orfictitious;
(3)Thosewhosecauseorobjectdidnot
existatthe
575
CONTRACTS
(5)Thenullityorinexistenceofacontractcannotasa
rulebeassailedbythirdpersons,whiletherescissible
characterofacontractmaybeassailedbythird
persons.8
timeofthetransaction;
(4)Thosewhoseobjectisoutsidethecommerceof
men;
Idem;DistinguishedfromVoidableContracts.A
voidorinexistentcontractmaybedistinguishedfroma
voidablecontractinthefollowingways:
(5)Thosewhichcontemplateanimpossible
service;
(1)Avoidorinexistentcontractproducesasaruleno
effectevenifitisnotsetasidebyadirectaction,while
avoidablecontractisbinding,unlessitisannulled.9
(6)Thosewheretheintentionoftheparties
relativeto
(2)Thecausesfortheinexistenceorabsolutenullityof
theformeraredifferentfromthecausesforthe
annulabilityorrelativenullityofthelatter.10
theprincipalobjectofthecontractcannotbe
ascertained;
(3)Theformerisnotsusceptibleofratification,while
thelatterissusceptibleofratification.11
(7)Thoseexpresslyprohibitedordeclaredvoidby
law.Thesecontractscannotberatified.Neithercan
theright
(4)Theactionforthedeclarationofthenullityor
inexistenceofacontractisimprescriptible,whilethe
actionfortheannulmentofacontractis
prescriptible.12
tosetupthedefenseofillegalitybewaived.18
(5)Thedefenseofinexistenceorabsolutenullityis
availabletothirdpersonswhoseinterestsaredirectly
affected,whilethedefenseofannulabilityisnot
availabletothirdpersons.13
ContractsWhichAreVoidorInexistent.The
sevenclassesofvoidorinexistentcontracts
enumeratedinArt.1409havealreadybeendiscussed
19Itis,therefore
inpreviouschaptersofthistext.
unnecessarytodiscussthemalloveragaininthis
chapter.Itmustbeobserved,however,thatNos.1,4,
5,6and7refertocontractswhicharevoid,whileNos.
2and3refertocontractswhichareinexistent.
16Arts.1404,1405,1407,1409,CivilCode.
18Newprovision.
19Forcomments,casesandrelatedprovisionsonNo.
1,seethoseunderArts.
1306,1346,1347,1352;onNo.2,seethoseunder
Arts.1345,1346,onNo.3,seethoseunderArts.1347,
1352;onNo.4,seethoseunderArt.1347;onNo.5,
seethoseunderArt.1348;onNo.6,seethoseunder
Art.1378.
577
Idem;DistinguishedfromUnenforceableContracts.
Avoidorinexistentcontractmaybedistinguished
fromanunenforceablecontractinthefollowingways:
(1)Inavoidorinexistentcontract,thereisinrealityno
contractatall,whileinanunenforceablecontract,
thereisactuallyacontractwhichcannotbeenforced
byacourtaction,unlessitisratified.14
(2)Thecausesfortheinexistenceorabsolutenullityof
theformeraredifferentfromthecausesforthe
unenforceabilityofthelatter.15
8Arts.1381,1382,1409,CivilCode.9Arts.1390,
10Ibid.
1409,CivilCode.
11Ibid.
12Arts.1391,1410,CivilCode.13Arts.1397,1421,
CivilCode.14Arts.1403,1409,CivilCode.15Ibid.
Art.1409CONTRACTS
Besidesthoseenumeratedinthearticle,wecaninclude
thosewhicharethedirectresultsofpreviousillegal
20thosewherethereisnoconcurrence
contracts,
betweentheofferandtheacceptancewithregardtothe
objectandthecauseofthecontract,andthosewhich
donotcomplywiththerequiredformwhensuchform
isessentialforvalidity.21
No.7,however,isbroadenoughtoincludeallother
contractswhicharenotincludedintheenumeration.
576
VOIDORINEXISTENTCONTRACTSArt.1409
(3)Theformerisnotsusceptibleofratification,while
thelatterissusceptibleofratification.16
32 of 50
(5)Theinexistenceorabsolutenullityofacontract
cannotbeinvokedbyapersonwhoseinterestsarenot
directlyaffected.26
Idem;Effects.Asfarasinexistentcontractsare
concerned,itisclearthatsuchcontractscanproduce
nolegaleffectwhatsoeverinaccordancewiththe
principlequodnullumestnullumproducit
27However,inthecaseofvoidcontracts
effectum.
wherethenullityproceedsfromtheillegalityofthe
causeorobject,acertainqualificationmustbemade.
UnderArts.1411and1412oftheCivilCode,nullity
ofcontractsduetoillegalcauseorobject,when
executed
22Ibid.,p.410.
24Ibid.
26Art.1421,CivilCode;3Castan,7thEd.,p.410.273
Castan,7thEd.,p.409.
579
Art.1409CONTRACTS
(andnotmerelyexecutory),willproducetheeffectof
barringanyactionbyaguiltytorecoverwhathehas
alreadygivenunderthecontract.
Theaboveprincipleisverywellillustratedinthecase
28Here,thedeceased,
ofLiguezvs.CourtofAppeals.
SalvadorLopez,amarriedmanofmatureyears,
donatedaparceloflandbelongingtotheconjugal
partnershiptoConchitaLiguez,aminorofsixteen,
subjecttotheconditionthatthelattershallbecomehis
mistress.Thedonationwasdulyaccepted.Afterthe
perfectionofthedonation,Conchitabecamethe
mistressofLopez.WhenLopezdied,hiswidowand
heirstookpossessionoftheland.Subsequently,
Conchitacommencedanactionfortherecoveryofthe
property.Thewidowandheirsofthedeceasednow
maintainthatsincethecauseofthecontractisillegal
orimmoral,consequently,itisinexistent,and
therefore,canproducenoeffectwhatsoever;hence,
theyareentitledtothepropertydonated.Plaintiff,on
theotherhand,contendsthatwhatisillegalisthe
motiveofthedonorandnotthecause,sincethe
contractinthiscaseisoneofpurebeneficence.Hence,
theprincipalquestionstoberesolvedare:(1)Whatis
thecharacterofthecontractvalid,voidor
inexistent?(2)Assumingthatthecontractiseithervoid
orinexistent,whatareitseffects,ifany?Thedecision
oftheSupremeCourtmaybesummarizedasfollows:
(1)Accordingtotheplaintiff,thecontractisvalid
becausetheconditionthatshewillbecomethemistress
ofthedonorismerelythemotiveofapartytothe
contractandnotthecausa.Inotherwords,according
toher,thecontracthereisacontractofpure
beneficence;hence,thecausaistheliberalityofthe
29andcertainly,underthelaw,liberality
benefactor,
persecanneverbeillegal.Thiscontentionis
untenable.Thecontractisonerousincharacter.Here
thefactsclearlydemonstratethatinmakingthe
donation,thedonorwasnotmovedexclusivelybythe
desiretobenefitthedonee,butalsotogratifyhis
sexualimpulse.Whileitistruethatwemustnot
confusethecausaofacontractwiththemotivesofthe
30thereisanexception.The
contractingparties,
motivemayberegardedascausawhenitpre
determinesthepurposeofthecontract.Inotherwords,
wemustexceptfromtherulethosecontractsthatare
conditionedupon
Thefirstpartisareiterationoftheprincipledeclaredin
Art.5oftheCodethatactswhichareexecutedagainst
theprovisionsofmandatoryorprohibitorylawsshall
bevoid,exceptwhenthelawitselfauthorizestheir
validity.Examplesofsuchactsarethoseregulatedby
Arts.133,1490,1491,1689,1782,1799,2035,2088
and2130oftheCode.
Problem(a)Citeanexampleofacontractwhichis
contrarytomorals.
(b)Canthenullityofthestipulationontheusurious
interestaffect
(i)thelendersrightstorecovertheprincipalloan;
(ii)thetermsoftherealestatemortgage?
Answer(a)Stipulationsauthorizinginiquitousor
unconscionableinterestsarecontrarytomorals,ifnot
againstthelaw.UnderArt.1409oftheNewCivil
Code,thesecontractsareinexistentandvoidfromthe
verybeginning.Theycannotberatifiednortherightto
setuptheirillegalityasadefensebewaived.
(b)Thenullityofthestipulationontheusuriousinter
estdoesnot,however,affectthelendersrightto
recovertheprincipalloan.Norwoulditaffectthe
termsoftherealestatemortgage(REM).Therightto
foreclosethemortgageremainswiththecreditorsand
saidrightcanbeexerciseduponthefailureofthe
debtorstopaythedebtdue.Thedebtdueistobecon
sideredwithoutthestipulationoftheexcessiveinterest.
Alegalinterestof12%perannumwillbeaddedin
placeoftheexcessiveinterestformerlyimposed.
213Castan,7thEd.,p.409.
578
Butinasituationwherethetotalamountof
indebtednessduringtheforeclosureproceedingsis
peggedinanamountwhichincludedinterestwhichis
excessive,iniquitousandexorbitant,theforeclosure
proceedingscannotbegiveneffectandwillbe
consideredinvalid..Iftheforeclosureproceedings
wereconsideredvalid,thiswouldresultinan
inequitablesituationwhereintheborrowerswillhave
theirlandforeclosedforfailuretopayanoverinflated
loanonlyasmallpartofwhichtheywereobligatedto
pay.(HeirsofZoiloEspirituandPrimitivaEspirituvs.
Sps.MaximoLandritoandPazLandrito,etc.,G.R.No.
169617,April3,2007).
Idem;Characteristics.InTongoyvs.Courtof
Appeals,123SCRA99(1983),theCourtsaidthatthe
followingarethemostfundamentalcharacteristicsof
voidorinexistentcontracts:
(1)Asageneralrule,theyproducenolegaleffects
whatsoeverinaccordancewiththeprinciplequod
nullumestnullumproduciteffectum.22
28102Phil.577.
29Art.1350,CivilCode.30Art.1351,CivilCode.
580
(2)Theyarenotsusceptibleofratification.23
(3)Therighttosetupthedefenseof
inexistenceorabsolute
nullitycannotbewaivedorrenounced.24
theattainmentofthemotivesofeitherparty.Inthe
presentcase,itisscarcelydisputablethatthedonor
wouldnothaveconveyedthepropertyinquestionhad
thedoneerefusedtoaccepttheconditionthatshewill
cohabitwithhim.Hence,thecohabitationwasan
(4)Theactionordefenseforthedeclarationoftheir
inexistenceorabsolutenullityisimprescriptible. 25
33 of 50
NewCivilCodestates:Thewifemay,duringthe
marriageandwithintenyears
impliedconditionofthedonation,andbeingunlawful,
necessarilytaintedthedonation.
31ThelawwhichisnowapplicableisfoundinArts.
173and174oftheNewCivilCode.
Becauseoftheillegalityofthecausa,accordingtothe
defendants,thecontractisinexistent.Againthis
contentionisuntenable.Thecontracthereisvoid,not
inexistent.Avoidcontractisdifferentfroman
inexistentcontract.Thefirstreferstothosecontracts
wherealloftherequisitesofacontractarepresent,but
thecause,objectorpurposeiscontrarytolaw,morals,
goodcustoms,publicorderorpublicpolicy,orthe
contractitselfisprohibitedordeclaredbylawtobe
void,whilethesecondreferstothosecontractswhere
oneorsomeofthoserequisiteswhichareessentialfor
validityareabsolutelylacking.
582
fromthetransactionquestioned,askthecourtsforthe
annulmentofanycontractofthehusbandenteredinto
withoutherconsent,whensuchconsentisrequired,or
anyactorcontractofthehusbandwhichtendsto
defraudherorimpairherinterestintheconjugal
partnershipproperty.Shouldthewifefailtoexercise
thisright,sheorherheirs,afterthedissolutionofthe
marriage,maydemandthevalueoftheproperty
fraudulentlyalienatedbythehusband.Doesthis
provision,whichwasnotfoundintheSpanishCivil
Code,spelltheremedyofthewifeinLiguez?Idonot
thinkso;itonlyindicatesit.Itmustbeobservedthat
thearticlepresupposeseitheravoidable(or
unenforceable)contractexecutedbythehusband,and
notavoidcontract.Therefore,theremedyofthewife
istobringanactionforthedeclarationofabsolute
nullityofthecontractofdonation,aremedywhichwill
havealloftheeffectsofanactionforreconveyance.
Theactionwouldbeimprescriptiblebecauseitwould
bebasedonavoidcontract.Ifshedieswithout
bringingtheaction,herheirsintheircapacityasheirs,
wouldbeabletoinstitutetheaction.Theprincipleof
paridelictoinsuchacasecannotbeappliedbecause
thewifeorherheirswerenotpartiestotheillegal
contract.
ThecaseofFranciscoJ.Chavezvs.PCGG(May19,
1999,307SCRA394)states,amongothersthatwhere
theAgreementsundeniablycontaintermsand
conditionsthatareclearlycontrarytotheConstitution
andthelawsandarenotsubjecttocompromise,such
termsandconditionscannotbegrantedbythePCGG
toanyone.Beingso,noargumentofthecontractors
willmakesuchillegalandunconstitutionalstipulations
passthetestofvalidity.Thevoidagreementwillnot
berenderedoperativebythepartiesalleged
performance(partialorfull)oftheirrespective
prestations.AcontractthatviolatestheConstitution
andthelawisnullandvoidabinitioandvestsno
rightsandcreatesnoobligations.Itproducesnolegal
effectatall.
Avoidcontractcannotberatified.Inthecaseof
Guiangvs.CourtofAppeals(June26,1998,291
SCRA372),theSupremeCourtruledthatthetrial
courtcorrectlyheld:Bythespecificprovisionofthe
law(Art.1390,CivilCode)therefore,theDeedof
TransferofRightscannotberatified,evenbyan
amicablesettlement.Theparticipationbysome
barangayauthoritiesintheamicablesettlement
cannototherwisevalidateaninvalidact.Moreover,it
cannotbedeniedthattheamicablesettlemententered
intobyplaintiffGildaCorpuzanddefendantspouses
Guiangisa
583
Art.1410CONTRACTS
contract.ItisadirectoffshootoftheDeedofTransfer
ofRights.Byexpressprovisionoflaw,suchacontract
isalsovoid.Thus,thelegalprovision,towit:Art.
1422.Acontractwhichisthedirectresultofa
previousillegalcontract,isalsovoidandinexistent.
(CivilCodeofthePhilippines.)Insummation
therefore,boththeDeedofTransferofRightsandthe
amicablesettlementarenullandvoid.Doctrinally
andclearly,avoidcontractcannotberatified.Inthe
samecase,theSupremeCourtalsoruledthatthesale
ofaconjugalpropertyrequirestheconsentofboththe
husbandandthewife.Theabsenceoftheconsentof
onerendersthesalenullandvoid,whilethevitiation
thereofmakesitmerelyvoidable.Onlyinthelatter
casecanratificationcurethedefect.
Art.1410.Theactionordefenseforthedeclaration
oftheinexistenceofacontractdoesnot
prescribe.32
ImprescriptibilityofActionorDefense.Because
ofthefactthatthedefectofvoidorinexistentcontracts
isofamoreorlesspermanentcharacter,merelapseof
timecannotgiveefficacytosuchcontracts.Inother
(2)Sincethecontractisvoidbyreasonoftheillegality
ofthecause,theprovisionsofArt.1412oftheCivil
Codeare,therefore,applicable.Itmustbenoted,
however,thattheprincipleofinparidelictoisnot
applicablehere.Plaintiffwasonlyaminorof16atthe
timeofthedonation,whilethedonorwasamarried
manofmatureyearsandexperience.Itiswellknown
thatminorsoccupyaprivilegedpositionunderourlaw.
Asamatteroffact,thelawstendercareforthemis
nowemphasizedinArt.1415oftheCivilCode.
Consequently,thetwopartiesarenotinparidelicto.
Atanyrate,eveniftheywereinparidelictothesame
ruleswouldstillapply.UnderArts.1411and1412of
theCode,nullityofcontractsduetoillegalcauseor
object,whenexecuted(andnotmerelyexecutory)will
producetheeffectofbarringanyactionbyaguilty
partytorecoverwhathehasalreadygivenunderthe
contract.Thesearticlesmakeitplainthat,asfarasthe
guiltypartyisconcerned,hisactofconveyingproperty
pursuanttoanillicitcontractoperatestodivesthimof
theownershipoftheproperty,andtobarhimfrom
recoveringitfromhistransferee,justasifthetransfer
werethroughabargainlegalfromitsinception.
Althoughrepugnant,thelawdeemsitmorerepugnant
thatapartyshouldinvokehisownguiltasareasonfor
relieffromasituationwhichhehasdeliberately
entered.Thisservestoexplainwhythetainted
conveyancetotheextentthatithasbeencarriedout
becomesconclusiveasbetweentheguiltyparties,even
ifwithouteffectagainststrangerswithoutnotice;and
581
Art.1409CONTRACTS
whyaguiltypartymaynotaskthecourtsfora
restorationtothestatusquoante.Thesamereasons
canalsobeappliedtothecaseofthesuccessorsor
heirsoftheguiltyparty.Theycannotattackthe
validityofthedonationintheirqualityassuccessorsor
heirsofthedonor,sinceitisundeniablethatthey
cannotbeplacedinabetterpositionthantheir
predecessor.
Itmustbeobserved,however,thattheproperty
donatedisconjugal.Doesthatmeanthatthedonation
madebyLopeztotheplaintiffshallnotbegivenany
effectwithrespecttotheshareofthewidow?The
answerissimple.Sincethedonationwasmadeunder
theoldlaw,theCivilCodeof1889shallapply.The
secondparagraphofArt.1419oftheoldCode
considersthedonationasmerelyfraudulent,subjectto
collationuponliquidationoftheconjugalpartnership
anddeductionofitsvaluefromthedonorsshareinthe
conjugalprofits.31
Therefore,theplaintiffisentitledtosomuchofthe
donatedpropertyasmaybefounduponproper
liquidationnottoprejudicetheshareofthewidowor
thelegitimesofthecompulsoryheirs.
Butsupposethattheabovedonationhadbeenmade
aftertheeffectivityoftheNewCivilCode,wouldthe
samerulesstatedinthedecisionstillapply?
Itissubmittedthatasfarasthedonorisconcerned,the
sameruleswithrespecttotheillegalityofthedonation
anditsconsequenceswouldstillapply.Thecontract
wouldstillbevoidbecauseoftheillegalityofthe
causaorconsiderationforthereasonsstatedinLiguez.
ItwouldalsobevoidunderArt.174oftheNewCivil
Code(aprovisionnotfoundintheSpanishCivilCode)
whichdeclaresthatwiththeexceptionofmoderate
donationsforcharity,neitherhusbandnorwifecan
donateanypropertyoftheconjugalpartnership
withouttheconsentoftheother.Consequently,asfar
asthedonorisconcerned,Art.1412oftheCivilCode
wouldbeapplicable.
However,asfarasthewifeofthedonorisconcerned
theapplicableruleswouldbedifferent.Art.173ofthe
34 of 50
belongingtotheirlatefatherPaulinoGalvanthrough
legalandvalidconveyanceandthisfactisknownto
theplaintiffslongbeforethefilingofthecomplaint.
Threeyearsthereafter,oronAugust24,1964,but
beforethecasewastried,thedefendantsfiledan
amendedanswerwiththecorrespondingmotionto
admitit,whichamendedanswercontainedan
allegationthattheactionofplaintiffsisbarredbythe
statuteoflimitations.
Theplaintiffsfiledobjectionstothedefendants
motiontoamendtheiranswer.Plaintiffsprincipal
objectionwastheircontentionthatthedefendantshad
waivedtherighttopleadthestatuteoflimitationsand
wereestoppedfrompleadingitbyreasonofthefact
thattheyhadtriedtodosoafterthefilingoftheir
answertothecomplaint.Theplaintiffsfurthercontend
thattheinclusionofthedefenseofprescription
substantiallyalteredthedefense.
Overplaintiffsobjections,thetrialcourtpermittedthe
defendantstoamendtheiranswerbyaddingthe
defenseofstatuteoflimitations.
ThentwomoreyearslateroronAugust27,1966,the
defendantsfiledamotiontodismissthecomplaint
uponthegroundthattheactionisbarredbythestatute
oflimitationsforthereasonthatthepresentactionfor
theannulmentoftheinstrumentofsaleisbasedupon
fraudwhichshouldbebroughtwithinfour(4)years
fromthetimeofthediscoveryofthesamein
accordancewithArticle1391oftheCivilCode;and
fraud,asagroundforannulment,shallbedeemedto
bediscoveredfromthedateoftheregistrationofthe
allegedfraudulentdocuments;andconsideringthatthe
deedofsaleinquestionwasregisteredonAugust4,
1955,whiletheactionforitsannulmentwas
commencedonlyonAugust1,1961,orafterthelapse
ofmorethanfour(4)yearsfromitsregistrationwith
theRegisterofDeeds,theactionforannulmenthad
prescribed.
Thetrialcourtsustainedthedefendantscontention,
and,consequently,dismissedthecomplaintwithout
costs,onSeptember22,1966.Amotionforthe
reconsiderationofthisorderhavingbeendeniedon
November2,1966,theplaintiffsinterposedthepresent
appeal.
Onthequestionofextinctiveprescription,theSupreme
Court,speakingthroughJusticeH.Concepcion,ruled:
Theotherissueraisediswhetherornotthetrialcourt
improperlydismissedthecomplaintontheground
586
ofprescription.InitsorderdatedSeptember22,1966,
dismissingthecomplaint,thetrialcourtsaid:
Thecomplaint,amongothers,praysfortheannul
mentofdocument,whichisadeedofsaledated
August3,1955,purportingconveyanceofthetwo
parcelsdescribedinthecomplaintinfavorof
defendantsJosefaGalvanandNatividadGalvanand
EmilioSamson.Saiddocument(Exh.1fordefendants)
wasregisteredonAugust4,1955(Exhs.1Aand1B).
Itisthecontentionofthedefendantsthatplaintiffs
actionhasprescribedasthesamewasnotpresented
withinfouryearsfromtheregistrationofthe
document.
Thecourtsustainsdefendantscontention.Thebasis
oftheannulmentisallegedfraud,andtheactionforthe
annulmentofthedocumentshouldbebroughtwithin4
(four)yearsfromthediscoveryoffraud(Mauriciovs.
Villanueva,L11072,September24,1959),andthat
suchdiscoveryoffraudisdeemedtohavetakenplace
whentheinstrumentwasfiledandregisteredwiththe
RegisterofDeedsandanewtransfercertificateoftitle
isissuedinthenameofthevendeefortheregistration
ofthedeedconstitutesconstructivenoticetothewhole
world(Diazvs.Gorricho,L11229,March29,1958;
IgnacioGerona,etal.vs.CarmendeGuzman,etal.,
L19060,May29,1964).
Inviewoftheforegoing,thecourtresolvestodis
missasitherebydismisses,thecomplaintwithout
costs.
words,thedefectisofsuchanaturethatitcannotbe
33Thisprincipleofimpres
curedbyprescription.
criptibilityisapplicablenotonlytotheactionforthe
declarationoftheinexistenceorabsolutenullityofthe
contractbutalsotothedefense.
Castillovs.Galvan85SCRA526
AppealfromtheorderoftheCourtofFirstInstanceof
PangasinandismissingthecomplaintfiledinCivil
CaseNo.D1227andtheorderdenyingthemotionfor
thereconsiderationofsaidorder.
Thecomplaint,filedonAugust1,1961,isforthe
annulmentofadocument,denominatedDEEDOF
ABSOLUTESALE,executedonAugust3,1965,by
andbetweenPaulinoGalvan,professedlythe
predecessorininterestofhereinplaintiffs,and
defendantsJosefaGalvanandNatividadS.Galvan,
andfordamagesandattorneysfees.Theplaintiffs
thereinallegedthatPaulinoGalvan,duringhis
lifetime,wastheregisteredowner
32Newprovision.
33Eugeniovs.Perdido,97Phil.41.Buthowaboutthe
doctrineofstaledemands(laches)hasnotthis
doctrineerodedentirelytheprovisionofArt.1410?
584
ofanundividedonehalf(1/2)interestovertwoparcels
ofland,knownasLotNos.4541and4542ofthe
DagupanCadastreandcoveredbyOCTNos.3813and
3917,respectively,oftheRegisterofDeedsof
DagupanCity.Theotherundividedhalfisownedby
histwodaughtersbyafirstmarriage,herein
defendantsJosefaGalvanandNatividadGalvan.On
theselots,whicharecontiguous,isbuiltthefamily
home.OnFebruary10,1961,PaulinoGalvandiedand
theplaintiffs,outofdelicadezawaitedforthe
defendantstoinitiatethemoveforthesettlementofhis
estate.But,afterwaitingforsometimeandfindingthat
nonewasforthcoming,theplaintiffsbecame
apprehensive,sothattheybegantogooverthepapers
concerningthepropertiesofthedecedent.Intheoffice
oftheRegisterofDeedsofDagupanCity,theywere
surprisedtofindadeedofsale,signedbythelate
PaulinoGalvanandtheplaintiff,MariaEncarnacion
Castillo,wherebytheyhadpurportedlysoldfor
P500.00theonehalfundividedportionofPaulino
Galvanoversaidlotsinfavorofthedefendants.When
apprisedoftheexistenceofadeedofsale,plaintiff
MariaEncarnacionCastillorememberedthatwayback
in1953,sheandherhusbandPaulinoGalvanwere
madetosignacertaindocumentbyJosefaGalvan
uponthefraudulentmisrepresentationthatthesaid
documentwasonlyforpurposeofenablingthem,the
coownersoftheparcelsoflandinquestion,tohave
theirseparatetaxdeclarationsfortherespective
portionsownedbythemsothattheycanpaytheir
respectiverealestatetaxesseparately,thesaidspouses
notknowingthatthesaiddocumentisadeedofsale
forwhichnoconsiderationwasevenpaid.The
plaintiffsfurtherallegedthatPaulinoGalvancouldnot
haveintentedtosellhisshareandparticipationover
thelotsinquestionduringhislifetimeashehadno
otherresidentiallottoliveinandthereisnonecessity
forhimtosellthesameasheandhiswifehad
sufficientincometosustainthem.Besides,the
undividedhalfshareofPaulinoGalvanwasworth
aroundP22,500.00sothathecouldnothavesolditfor
onlyP500.00.Wherefore,theyprayedthatthedeedof
salebedeclarednullandvoid;thattheplaintiffsbe
declaredtheownersoffoursixths(4/6)ofthe
undividedhalfsharepertainingtoPaulinoGalvan;that
thedefendantsbeorderedtopaytheamountof
P1,500.00asattorneysfees;andtopaythecostsof
suit.
Thedefendantsfiledtheiranswerwithcounterclaimon
August23,1961whereintheyinterposednegativeand
affirmativedefenses.Astheiraffirmativedefense,the
defendantsclaimthattheyaretheabsoluteand
exclusiveownersofwholeparcelsoflanddescribedin
thecomplaintforhavingacquiredtheportions
585
Art.1410CONTRACTS
35 of 50
Existingonthosetwolotsistheconjugalhouseofthe
spousesPaulinoGalvanandEncarnacionCastillo.The
houseismadeofwoodwithgalvanizedironroofing.
OnAugust3,1955,whenPaulinoGalvan,whodidnot
havemucheducation,wasalreadyseventyeightyears
old,hisdaughter,Josefa,askedhimandhiswife,
Encarnacion,alsooldandnothighlyeducated,tosign
adocumentwhich,accordingtoJosefa,wasnecessary
inordertohaveseparatetaxdeclarationsfortheir
respectiveonehalfportionsofthetwolots.
TheGalvanspousessignedthedocument.Paulino
GalvandiedonFebruary10,1961attheageofeighty
fouryears.Hewassurvivedbyhissecondwifeandhis
fiveabovenamedchildren.
ItwasonlyafterthedeathofPaulinoGalvanthathis
widowandtheirthreechildrendiscoveredthatthe
document,whichJosefahadaskedherfathertosign,
wasadeedofsale,whichisinEnglish,alanguagenot
knowntotheGalvanspouses.
PaulinoGalvancouldnothavesoldhisonehalfshare
inthetwolotsforameaslysumofP500,theprice
statedinthedeedofsale,becausein1961thetwolots
wereworthP45,000,atfortypesosasquaremeter.
PaulinoGalvansonehalfsharewasworthatleast
P22,500.
Theallegationsofthecomplaintshow,however,that
theplaintiffsactionistodeclarevoidandinexistent
thedeedofsaleexecutedbyPaulinoGalvanand
EncarnacionCastilloonAugust3,1955infavorof
JosefaandNatividadGalvan,uponthegroundsthat:
(a)thereisfraudinsecuringthesignaturesofthe
vendorsinsaiddeedofsale;and(b)therewasno
considerationgivenatthetimeofthetransaction.In
otherwords,theplaintiffsareseekingajudicial
declarationthatthedeedofsaleinquestionisvoidab
initio,whichactionisimprescriptible.Thetrialcourt
erred,therefore,indismissingthecomplaintforthe
reasonsstated.
WHEREFORE,thejudgmentappealedfromis
reversedandtheorderofSeptember22,1966,
dismissingthecomplaint,isherebysetaside.Letthis
caseberemandedtothecourtoforiginforfurther
proceedings.Withoutcosts.
SOORDERED.
587
Art.1410CONTRACTS
TheconcurringopinionofJusticeAquinototheabove
decisionisasfollows:
TheactiontodeclarethesalevoidwasfiledonAugust
1,1961againstNatividadGalvanandJosefaGalvan.
Theypleadedasadefensethatthesalewasvalid.
Later,theyamendedtheiranswerbypleading
prescription.Thetrialcourtdismissedthecomplainton
thatground.
Iconcur.Thetrialcourtcommittedagrievouserrorin
dismissingthecomplaintonthegroundofprescription.
Iterroneouslyassumedthatplaintiffscauseofaction
isfortheannulmentofadeedofsaleonthegroundof
fraud.
Thetrialcourtoverlookedthefactthatthefraudulent
mannerbywhichthesignaturesoftheGalvanspouses
inthedeedwereobtainedstrengthensplaintiffstheory
thatthesaleisvoidorinexistentbecauseitwould
appearthatthesaidspousesdidnotconsentatalltothe
sale.
Inreality,plaintiffsactionistodeclarevoidor
inexistentthefictitiousdeedofsaleofAugust3,1955
onthegroundthatitsconsiderationdidnotexistatthe
timeofthetransaction.Thatactionisimprescriptible
(Arts.1409[3]and1410,CivilCode).
IntheMapalocase,supra,thespouses,MiguelMapalo
andCandidaQuiba,illiteratefarmers,decidedto
donatetoMaximoMapalothebrotherofMiguel,the
easternhalfoftheir1,635squaremeterresidentialland
locatedinManaoag,Pangasinan.
However,theyweredeceivedintosigningonOctober
15,1936adeedofabsolutesalefortheentirelandin
favorofMiguelMapalo.Theirsignatureswere
procuredbyfraud.Theyweremadetobelieveby
Maximoandthenotarypublicthatthe
589
Art.1410CONTRACTS
documentwasadeedofdonationcoveringtheeastern
halfoftheirland.
Althoughthedeedofsalestatedaconsiderationof
P500(asintheinstantcase),thesaidspousesdidnot
receiveanythingofvaluefortheland.Thespouses
remainedinpossessionofthewesternhalfoftheland.
OnMarch15,1938MaximoMapaloregisteredthe
saleandobtainedaTorrenstitlefortheentireland.On
October20,1951Maximosoldtheentirelandto
Evaristo,Petronila,PacificoandMiguel,allsurnamed
Narciso.Atransfercertificateoftitlewasissuedtothe
Narcisosforthewholeland.Theytookpossessionof
theeasternhalfoftheland.
OnFebruary7,1952theNarcisossuedtheMapalo
spouses.Theyprayedthattheybedeclaredtheowners
oftheentireland.Theysoughttorecoverpossessionof
itswesternportion.TheMapalospousesfileda
counterclaim,whereintheyprayedthatthewestern
halfofthelandbeconveyedtothem.Theyallegedthat
theirsignaturestothedeedofsalewereobtained
throughfraud.TheysuedtheNarcisosin1957.They
askedthatthe1936and1951deedsofsalebedeclared
voidastothewesternportion.
TheCourtofAppealsheldthatthesalewasmerely
voidableonthegroundoffraud;thattheactionfor
Fraudwasallegedinthecomplaintmerelytoshow
whytheallegedvendor(theseptuagenarianfatherof
thevendees)signedthedeedofsale.
Theplaintiffscategoricallyallegedinparagraph9of
thecomplaintthatnoconsiderationwaspaidforthe
sale.Theyprayedthatthesalebedeclarednulland
void.(pp.46,RecordonAppeal.)Thethrustofthe
actionistosecureajudicialdeclarationthatthesaleis
voidabinitio.
Acontractofsaleisvoidandproducesnoeffect
whatsoeverwheretheprice,whichappearsthereonas
paid,hasinfactneverbeenpaidbythepurchaserto
thevendor(Arts.1352and1353,CivilCode;Ocejo,
PerezandCo.vs.FloresandBas,40Phil.921;
Mapalovs.Mapalo,L21489,May19,1966,17SCRA
114,122.)
Suchasaleisnonexistentandcannotbeconsidered
consummated.(Borromeovs.Borromeo,98Phil.432;
Cruzadovs.BustosandEscaler,34Phil.17;
Garanciangvs.Garanciang,L22351,May21,1969,
28SCRA229.)
Plaintiffscauseofactionissupportedbythefollowing
ultimatefactsallegedintheircomplaint:
PaulinoGalvanmarriedtwice.Byhisfirstmarriage,he
begottwodaughters,defendantsJosefaGalvanand
NatividadGalvan.HissecondwifewasEncarnacion
Castillowithwhomhebegotthreechildrennamed
Elisea,PatrocinioandFlorangel.
PaulinoGalvanwastheownerofaonehalfpro
indivisoshareintwoparcelsoflandlocatedatBurgos
Street,DagupanCitywithatotalareaof1,115square
meters.Theotheronehalfshareisownedby
NatividadGalvanandJosefaGalvan,histwodaughters
ofthefirstmarriage.
588
36 of 50
ofthecontract,ordemandtheperformanceofthe
othersundertaking;
annulmentshouldhavebeenbroughtwithinfouryears
fromtheregistrationofthesale,andthat,asthatperiod
hadalreadyexpired,theactionhadalsoprescribed.
(2)Whenonlyoneofthecontractingpartiesisat
fault,hecannotrecoverwhathehasgivenby
reasonofthecontract,oraskforthefulfillmentof
whathasbeenpromisedhim.Theother,whoisnot
atfault,maydemandthereturnofwhathehas
givenwithoutanyobligationtocomplywithhis
promise.35
ThisCourt,reversingthedecisionoftheCourtof
Appeals,heldthatthe1936salewasnotmerely
voidablebutwasvoidorinexistentandthatthe
inexistenceofacontractispermanentandincurable
andcannotbethesubjectofprescription.The
holdingofthetrialcourtthattheMapalospouses
shouldbeissuedaTorrenstitleforthewesternhalfof
thelandwasaffirmed.
PrincipleofInPariDelicto.Whenthedefectofa
voidcontractconsistsintheillegalityofthecauseor
objectofthecontract,andbothofthepartiesareat
faultorinparidelicto,thelawrefusesthemevery
remedyandleavesthemwheretheyare.Thisrule
whichisembodiedinArts.1411and1412oftheCode
iswhatiscommonlyknownastheprincipleofinpari
delicto.
TherulingintheMapalocaseissquarelyapplicableto
thiscase.
Thus,wherethecontractinvolvesaviolationofour
coastwisetradelaw,36orofourcontrabandlaws,
37
suchastheimportationofsilverintothiscountry,
andbothofthecontractingpartiesareinparidelicto,it
isevidentthatunderArt.1411oftheCodeneither
partywouldhaveanyremedyagainsttheother.The
ruleisexpressedinthemaxims:Exdolomalonon
orituractioandInparidelictopotiorestconditio
defendantis.Thelawwillnotaideitherpartytoan
illegalagreementitleavesthemwheretheyare.Of
course,thispresupposesthatthefaultofonepartyis
moreorlessequalorequivalenttothefaultofthe
otherparty.38
Rodriguezvs.Rodriguez20SCRA908
ThisisanappealbyConcepcionFelixVda.de
RodriguezfromthedecisionoftheCourtofFirst
InstanceofBulacaninCivilCaseNo.2565,whichshe
commencedonMay28,1962,tosecuredeclarationof
nullityoftwocontractsexecutedonJanuary24,1934
andfortherecoveryofcertainproperties.
36Perezvs.Herranz,7Phil.693.
37Iribarvs.Millat,5Phil.362.Forcasesillustrating
Art.1411,seeGoChiocovs.
Martinez,45Phil.256;Hardenvs.Benguet
38Boughvs.
ConsolidatedMiningCo.,58Phil.141.
Cantiveros,40Phil.209.
592
VOIDORINEXISTENTCONTRACTSArts.1411
1412
Thefactsofthiscasemaybebrieflystatedasfollows:
ConcepcionFelix,widowofthelateDonFelipe
Calderon,andwithwhomshehadonelivingchild,
ConcepcionCalderon,contractedasecondmarriageon
June20,1929,withDomingoRodriguez,awidower
withfourchildrenbyapreviousmarriage,named
Geronimo,Esmeragdo,JoseandMauricio,all
surnamedRodriguez.Therewasnoissueinthissecond
marriage.
PriortohermarriagetoRodriguez,ConcepcionFelix
wastheregisteredownerof2fishpondslocatedinthe
barrioofBabagad,municipalityofBulacan,Bulacan
province,Nos.605and807.UnderthedateofJanuary
24,1934,ConcepcionFelixappearedtohaveexecuted
adeedofsaleconveyingownershipoftheaforesaid
propertiesofherdaughter,ConcepcionCalderon,for
thesumofP2,500.00,whichthelatterinturnappeared
tohavetransferredtohermotherandstepfatherby
meansofadocumentdatedJanuary27,1934.Both
deeds,notarizedbyNotaryPublicJoseD.Mendoza,
wereregisteredintheofficeoftheRegisterofDeeds
ofBulacanonJanuary29,1934,asaconsequenceof
which,theoriginaltitleswerecancelledandTCTNos.
13815and13816wereissuedinthenamesofthe
spousesDomingoRodriguezandConcepcionFelix.
OnMarch6,1953,DomingoRodriguezdiedintestate,
survivedbythewidow,ConcepcionFelix,hischildren
Intheinstantcase,theplaintiffs,thewidowandachild
ofthefirstmarriage,ascompulsoryheirsofPaulino
Galvan,thevictimoftheallegedfraud,havetheright
tosuetodeclarethesalevoidbecausetheywere
deprivedoftheirlegitimeintheestateofPaulino
Galvan.(Art.221[4],CivilCode;Reyesvs.Courtof
Appeals,95Phil.952;Armentiavs.Patriarca,L
18210,December29,1966,18SCRA1253,1258
1260.)
590
1412
Itisinterestingtonotethattheabovecasebecamethe
basisofaproblemaskedintheBarExaminationsof
1979.Theproblemisasfollows:
OnthebasisofadocumententitledDeedof
AbsoluteSaleacertainlotandbuildingthenleasedby
itsowner,PC,toJGwithmonthlyrentalofP1,000.00
wassoldto,andthusregisteredinthelattersname.
SixyearsaftertheissuanceofthetitletoJG,MCthe
soleheirofPCwhohadjustdied,broughtanactionfor
recoveryofthepropertyalleginginhiscomplaint,
amongothers,thatPCthenveryoldandwithweak
eyesightwastrickedbyJGintosigningtheDeedof
AbsoluteSaleuponthefraudulentmisrepresentation
thatsaiddocumentwasonlyarenewalofthelease
contractovertheproperty;thatthepricestatedinthe
documentisonlyP10,000.00althoughtheproperty
wasthenworthaboutP50,000.00.JGmovedto
dismisstheactiononthegroundofprescription.
Shouldthemotionbegranted?
Also,inthecaseofPaluwaganngBayanSavings
Bankvs.King(172SCRA60),itwasheldthatan
actiontodeclarethenullityofavoidjudgmentdoes
notprescribe.
Art.1411.Whenthenullityproceedsfromthe
illegalityofthecauseorobjectofthecontract,and
theactconstitutesacriminaloffense,bothparties
beinginparidelicto,theyshallhavenoaction
againsteachother,andbothshallbeprosecuted.
Moreover,theprovisionsofthePenalCoderelative
tothedisposalofeffectsorinstrumentsofacrime
shallbeapplicabletothethingsorthepriceofthe
contract.
Thisruleshallbeapplicablewhenonlyoneofthe
partiesisguilty;buttheinnocentonemayclaim
whathehasgiven,andshallnotbeboundto
complywithhispromise.34
Art.1412.Iftheactinwhichtheunlawfulor
forbiddencauseconsistsdoesnotconstitutea
criminaloffense,thefollowingrulesshallbe
observed:
(1)Whenthefaultisonthepartofbothcontracting
parties,neithermayrecoverwhathehasgivenby
virtue
34Art.1410inrelationtoArt.1409(3)oftheCivil
Code.591
37 of 50
RiveraandRenatoDiazdeRivera,asguardiansofthe
minorsMariaAna,Mercedes,Margarita,Mauricio,Jr.
andDomingo(childrenofMauricioRodriguezwho
hadalsodied).
Geronimo,Esmeragdo,andMauricioand
grandchildrenOscar,JuanandAna,surnamed
Rodriguez,childrenofason,Jose,whohad
predeceasedhim.
Theactiontodeclarenullandvoidthedeedsof
transferofplaintiffspropertiestotheconjugal
partnershipwasbasedontheforceandpressureonher;
thattheconveyancesofthepropertiesfromplaintiff
toherdaughterandthentotheconjugalpartnershipof
plaintiffandherhusbandarebothwithout
consideration;thatplaintiffparticipatedinthe
extrajudicialsettlementofestate(ofthedeceased
DomingoRodriguez)andinothersubsequentdeedsor
instrumentsinvolvingthepropertiesindispute,onthe
falseassumptionthatthesaidpropertieshadbecome
conjugalbyreasonoftheexecutionofthedeedsof
transferin1934,thenlaboringunderthesamefalse
assumption,plaintiffdeliveredtodefendants,as
incomeofthepropertiesfrom1953to1961,thetotal
amountofP56,976.58.Asalternativecauseofaction,
shecontentedthatshewouldclaimforhershare,as
survivingwidow,of1/5ofthepropertiesin
controversy,shouldsuchpropertiesbeadjudgedas
belongingtotheconjugalpartnership.Thus,plaintiff
prayedthatthedeedsoftransfermentionedinthe
complaintbedeclaredfictitiousandsimulated;thatthe
ExtrajudicialSettlementofEstatebealsodeclared
nullandvoid;thatTCTNo.16660oftheRegistryof
DeedsofBulacanbecancelledandanotheronebe
issuedinthenameofplaintiff,ConcepcionFelixVda.
deRodriguez;thatdefendantsbeorderedtopay
plaintiffthesumofP56,976.58,withlegalinterest
thereonfromthedateofthefilingofthecomplaint,
andforappropriatereliefinconnectionwithher
alternativecauseofaction.
OnMarch16,1953,theabovenamedwidow,children
andgrandchildrenofthedeceasedenteredintoan
extrajudicialsettlementofhis(Domingos)estate,
consistingofonehalfofthepropertiesallegedly
belongingtotheconjugalpartnership.Amongthe
propertieslistedasconjugalweretwoparcelsofland
inBulacan,Bulacan,which,togetherwithanother
pieceofproperty,weredividedamongtheheirsinthis
manner:
Intheirseparateanswers,defendantsnotonlydenied
thematerialallegationsofthecomplaint,butalsoset
upasaffirmativedefenseslackofcauseofaction,
prescription,estoppelandlaches.Ascounterclaim,
theyaskedforpaymentbytheplaintiffoftheunpaid
balanceoftheearningsofthelanduptoAugust15,
1962inthesumofP3,000.00,forattorneysfeesand
expensesoflitigation.
OnOctober5,1963,judgmentwasrenderedforthe
defendants.Inupholdingthevalidityofthecontracts,
thecourtfoundthatalthoughthetwodocuments,
ExhibitsAandB,wereexecutedforthepurposeof
convertingplaintiffsseparatepropertiesintoconjugal
assetsofthemarriagewithDomingoRodriguez,the
consentofthepartiestheretowasvoluntary,contrary
totheallegationsofplaintiffandherwitness.Thecourt
alsoruledthathavingtakenpartinthequestioned
transactions,
595
plaintiffwasnottheproperpartytopleadlackof
considerationtoavoidthetransfers;thatcontracts
withoutconsiderationarenotinexistent,butareonly
voidable,followingtherulinginthecaseof
Concepcionvs.Sta.Ana(87Phil.787);thattherewas
ratificationorconfirmationbytheplaintiffofthe
transferofherproperty,byherexecution(withthe
otherheirs)oftheextrajudicialsettlementofestate;
thatbeingavoluntarypartytothecontracts,ExhibitsA
andB,plaintiffcannotrecoverthepropertiesshegave
thereunder.Plaintiffsalternativecauseofactionwas
alsorejectedonthegroundthatactionforrescissionof
thedeedofextrajudicialsettlementshouldhavebeen
filedwithin4yearsfromitsexecution(onMarch16,
1953).
FromthedecisionoftheCourtofFirstInstance,
plaintiffdulyappealedtothisCourt,insistingthatthe
conveyancesinissuewereobtainedthroughduress,
andwereinexistent,beingsimulatedandwithout
consideration.
SpeakingthroughJusticeJ.B.L.Reyes,theSupreme
Courtheld:
WeagreewiththetrialCourtthattheevidenceisnot
convincingthatthecontractsoftransferfrom
ConcepcionFelixtoherdaughter,andfromthelatter
hermotherandstepfatherwereexecutedthrough
violenceorintimidation.Thechargeispredicated
solelyupontheimprobableandbiasedtestimonyof
appellantsdaughter,ConcepcionC.Martelino,whom
thetrialcourtrefusedtobelieve,consideringthather
versionofviolenceandharassmentwascontradicted
byBartolomeGualberto,whohadlivedwiththe
Rodriguezspousesfrom1917to1953,andbythe
improbabilityofRodriguezthreateninghis
stepdaughterinfrontoftheNotaryPublicwhoratified
WHEREAS,thepartieshavefurthermoreagreedthat
thefishpondcoveredbyTCTNos.13815,13816,and
24109oftheOfficeoftheRegisterofDeedsof
Bulacan,containinganareaof557,971sq.m.,whichis
likewisetheconjugalpropertyofthedeceasedandhis
survivingspouse;1/2ofthesameor278,985.50sq.m.
belongstosaidConcepcionFelixVda.deRodriguez,
ashershareintheconjugalproperty;and3/4ofthe
remaininghalf
593
or209,239.125sq.m.aretransferredinfullownership
toGeronimoRodriguez.EsmeragdoRodriguezand
MauricioRodriguez,shareandsharealike,whilethe
other1/4or69,746.375sq.m.ofthesaidremaining
halfgoesinequalsharestoOscarRodriguez,Juan
RodriguezandAnaRodriguez.
Asaresultofthispartition,TCTNos.13815and
13816werecancelledandTCTNos.T11431andT
14432wereissuedinthenamesofthesaidheirsofthe
deceased.
OnMarch23,1953,inapowerofattorneyexecutedby
thechildrenandgrandchildrenofDomingoRodriguez,
ConcepcionFelixVda.deRodriguezwasnamedtheir
attorneyinfact,authorizedtomanagetheirsharesin
thefishponds(Exh.4).
OnJuly2,1954,theheirsendedtheircoownershipby
executingadeedofpartition,dividingandsegregating
theirrespectivesharesintheproperties,pursuanttoa
consolidationandsubdivisionplan(PCS3702),in
accordancewithwhich,ConcepcionFelixVda.de
RodriguezobtainedTCTNo.T12910,fortheportion
pertainingtoher(Exh.L),whileTCTNo.T12911
wasissuedtotheotherheirs,fortheirshares.This
lattertitlewassubsequentlyreplacedbyTCTNo.
16660(Exh.M).
OnOctober12,1954,theRodriguezchildrenexecuted
anotherdocumentgrantinguntothewidowlifetime
usufructoveronethirdofthefishpondwhichthey
receivedashereditaryshareintheestateofDomingo
Rodriguez,whichgrantwasacceptedbyConcepcion
FelixVda.deRodriguez.
Then,inacontractdatedDecember15,1961,the
widowappearedtohaveleasedfromtheRodriguez
childrenandgrandchildrenthefishpond(coveredby
TCTNo.16660)foraperiodof5yearscommencing
August16,1962,foranannualrentalofP7,161.37
(Exh.5).
Ataboutthistime,itseemedthattherelationship
betweenthewidowandherstepchildrenhadturnedfor
theworse.Thus,whenshefailedtodelivertothemthe
balanceoftheearningsofthefishponds,intheamount
ofP3,000.00,herstepchildrenendorsedthematterof
theirlawyerwho,onMay16,1962,sentaletterof
demandtothewidowforpaymentthereof.OnMay28,
1962,ConcepcionFelixVda.deRodriguezfiledthe
presentactionintheCourtofFirstInstanceofManila
namingasdefendants,GeronimoRodriguez,
EsmeragdoRodriguez,OscarRodriguez,Concepcion
BautistaVda.deRodriguez,asguardianoftheminors
JuanandAnaRodriguez,andAntonioDiazde
594
1412
38 of 50
elegida.Muchasveces,estasconsecuenciascon
incomodasparaunauotradelaspartes,aunqueserian
muchomasincomodaslasconsecuenciasquellevaria
consigoelactoprohibido.
xxxxxxxxx
Elresultadodelasprecedentesinvestigacionesesel
siguiente:elnegociosimuladoquiereproduciruna
apariencia;elnegociofraudulente,unarealidad;los
negociossimuladossonficticios,noqueridos;los
negociosinfraudemsonserios,reales,yrealizadosen
talformaporlaspartesparaconsequirunresultado
prohibido:lasimulacionnuncaesunmedioparaeludir
laley,sinoparaocultarsuviolacion.Latransgresion
delcontenidoverbaleinmediatodelanormase
encubrebajoelmantodeunnegociolicito,locualno
alteraelcaracterdelcontralegemagere.Tanverdad
es,quesiseharedactadounacontraescrituraque
documentaydeclaralaverdaderanaturalezadel
negociorealizado,noquedamasqueaplicarpuray
simplementelaprohibicion.
hersignature.Furthermore,aspointedoutbythe
appealeddecision,thechargeofduressshouldbe
treatedwithcautionconsideringthatRodriguezhad
alreadydiedwhenthesuitwasbroughtforduress,like
fraud,isnottobelightlylaidatthedoorofmen
alreadydead.(Cf.Prevostvs.Gratz,6Wheat.[U.S.]
481,498;Sincovs.Longa,51Phil.507.)
Whatismoredecisiveisthatduressbeingmerelya
viceordefectofconsent,anactionbaseduponitmust
39and
bebroughtwithinfouryearsafterithasceased;
thepresentaction
39Article1301oftheCivilCodeof1889,inforce
whentheassailedcontractswereexecuted(1934).
596
1412
Tambienelfraudequiereperjudicarlaley,pero
empleaparaellomediosdiversosysiguedistintos
caminos.Noocultaelactoeterior,sinoquelodeja
claroyvisible,tratandodehuirsesgadamentedela
aplicaciondelaleymercedaunaartisticaysabia
combinaciondevariosmediosjuridicosno
reprobados.
AppellantinvokesourdecisioninVasquezvs.Porta,
98Phil.490,buttonopurpose.Themortgageand
foreclosuresaleinvolvedinthatcaseweretypical
simulations,merelyapparentbutnotreallyintendedto
producelegaleffects,asprovedbytheCourtsfinding
thattheallegedcreditorandbuyerattheforeclosure
salePortahimselfostensiblyacknowledgedbyhis
inertiainallowingthedoctor(allegedmortgagor
debtor)toexercisedominicalpowerthereonwithout
anyprotestonhispart(cas.cit.,p.495).Notonly
this,butthemortgagorswife,whenherhusbanddied
foundamonghispapersPortas
598
1412
cancellationofthemortgageinhisfavorandthedraft
ofthecomplaintforforeclosure.Plainly,the
precedentcitedishereinapplicable.
Werethetwoconveyancesfromappellanttoher
daughterandfromthelattertothespousesRodriguez
voidabinitioorinexistentforlackofconsideration?
Wedonotfindthemtobeso.Inthefirsttransaction,
thepriceofP2,500.00isrecitedinthedeeditself(Exh.
A);inthesecond(Exh.B),theconsiderationsetforth
isP3,000.00.Now,Article1274oftheCivilCodeof
1889(inforcewhenthedeedswereexecuted)provided
that
Inonerouscontractsthecauseisunderstoodtobefor
eachcontractingparty,theprestationorpromiseofa
thingorservicebytheother.(Italicssupplied.)
Sinceineachconveyancethebuyerbecameobligated
topayadefinitepriceinmoney,suchundertaking
constitutedinthemselvesactualcausaorconsideration
fortheconveyanceofthefishponds.Thattheprices
werenotpaid(assumingadarguendothatConcepcion
Martelinostestimonytothiseffectistrue)doesnot
makethesalesinexistentforwantofcausa.Asruledin
EnriquezdelaCavadavs.Diaz,37Phil.982,the
consideration(causa)neednotpassfromone(party)to
theotheratthetimethecontractisenteredinto.xxx
Theconsiderationneednotbepaidatthetimeofthe
promise.Theonepromiseisaconsiderationforthe
other.
Whatwouldinvalidatetheconveyancesnowunder
scrutinyisthefactthattheywereresortedtoinorder
tocircumventthelegalprohibitionagainstdonations
betweenspousescontainedinArticle1334,paragraph
1,oftheCivilCodeof1889,thenprevailing.That
illegalpurposetaintedthecontracts,forasheldbythe
SpanishTribunalSupremoinitsdecisionof2April
1941:hadeserreputadoineficaz,porexigencias
ineludiblesdelcaractersocialymoraldelDerecho,
todocontratoquepersigaunfinilicitooinmoral,sea
cualquieraelmedioempleadoporloscontratantes
paralograresafinalidad,nojustificadaporun
interesdignodesersocialmenteprotegido.Theillicit
purposethenbecomesillegalcausawithinthetermsof
theoldCivilCode,forasdeclaredbythesameSpanish
wasinstitutedonlyin1962,twentyeight(28)years
aftertheintimidationisclaimedtohaveoccurred,and
nolessthannine(9)yearsafterthesupposedculprit
died(1953).Ontopofit,appellantenteredintoaseries
ofsubsequenttransactionswithappelleesthat
confirmedthecontractsthatshenowtriestosetaside.
Therefore,thiscauseofactionisclearlybarred.
Appellantsmainstandinattackingtheconveyancesin
questionisthattheyaresimulatedorfictitious,and
inexistentforlackofconsideration.Weshallexamine
eachpurporteddefectseparately.
Thechargeofsimulationisuntenable,forthe
characteristicofsimulationisthefactthattheapparent
contractisnotreallydesiredorintendedtoproduce
legaleffectsorinanywayalterthejuridicalsituation
oftheparties.Thus,whereaperson,inordertoplace
hispropertybeyondthereachofhiscreditors,
simulatesatransferofittoanother,hedoesnotreally
intendtodivesthimselfofhistitleandcontrolofthe
property,hence,thedeedoftransferisbutasham.But
appellantcontendsthatthesalebyhertoherdaughter,
andthesubsequentsalebythelattertoappellantand
herhusband,thelateDomingoRodriguez,weredone
forthepurposeofconvertingthepropertyfrom
paraphernaltoconjugal,therebyvestingahalfinterest
inRodriguez,andevadingtheprohibitionagainst
donationsfromonespousetoanotherduringcoverture
(CivilCodeof1889,Art.1334).Ifthisistrue,thenthe
appellantandherdaughtermusthaveintendedthetwo
conveyancestoberealandeffective;forappellant
couldnotintendtokeeptheownershipofthe
fishpondsandatthesametimevesthalfoftheminher
husband.Thetwocontractsofsalethencouldnothave
beensimulated,butwererealandintendedtobefully
operative,beingthemeanstoachievetheresult
desired.
Nordoestheintentionofthepartiestocircumventby
thesecontractsthelawagainstdonationsbetween
spousesmakethemsimulatedones.
Ferrara,inhisclassicbookLaSimulaciondelos
NegociosJuridicos(Sp.trans,1926),pp.95,105,
clearlyexplainsthedifferencebetweensimulated
transactionsandtransactionsinfraudemlegis:
Otrafiguraquedebedistinguirsedelasimulacionesel
frauslegis.Tambienaquisediunagranconfucionque
persisteaunenlajurisprudencia,apegadatenazmentea
antiguoserrores.SedebeaBahrelhaberdefendido
convigorlaantitesisteoricaqueexisteentrenegocio
597
fingidoyhaberatacadaladoctrinacomunquehacia
unamescolanzaconlosdosconceptos.
Seconfundedice(2),elnegocioinfraudem
legisconelnegociosimulado;aunquelanaturalezade
ambosseatotalmentediversa.Elnegociofraudulento
noes,enabsoluto,unnegocioaparante.Es
perfectamenteserio:sequiererealmente.Esmas,se
quieretalcomoseharealizado,contodaslas
consecuenciasquecorrespondenalaformajuridica
39 of 50
Soordered.
Itmustbeobserved,however,thattheprincipleofin
paridelictoappliesonlytocasesofexistingcontracts
withanillegalcauseorobjectandnottosimulatedor
fictitiouscontractsnortothosewhichareinexistentfor
lackofanessentialrequisitesuchascauseor
41Inotherwords,theprinciplecanhave
consideration.
noapplicationtoinexistentcontracts,sincesuch
contractsarealwaysopentoattackevenbytheparties
thereto.Butwherethecontractisvoidbecauseofthe
illegalityofthecauseortheobject,theprincipleis
applicablesincetheCodeinArts.1411and1412
commandsthatneitherpartytheretomaybeheardto
42
invokeitsunlawfulcharacterasagroundforrelief.
Itmustalsobeobservedthattheillegalitymustbewith
respecttothecauseortheobjectofthecontractand
notwithrespecttothemotivesofthecontracting
parties.Thus,iftheplaintifftransferstothedefendant
aparceloflandbymeansofafictitiousdeedofsale
forthepurposeofavertingitsattachmentbyhis
creditors,itisclearthattheprinciple,enunciatedin
Art.1412oftheCivilCodeisnotapplicable,since
whatisillegalisthemotiveofthetransferorandnot
theobjectorthecauseofthecontract. 43
Idem;Effectifonlyonepartyisatfault.When
onlyoneofthecontractingpartiesisatfault,wemust
havetodistinguishbetweenacasewherethecontract
hasalreadybeenexecutedandonewhereitismerely
executory.Ifthecontracthasalready
41Vasquezvs.Porta,98Phil.490.42Liguezvs.Court
43Gonzalesvs.Trinidad,67Phil.
ofAppeals,supra.
682.
Courtinitsdecisionof14December1940toda
vezquetoquecaracterizafundamentalmentela
ilicituddelacausaeslalesiondeuninteresgeneral
juridicoomoral,arulingreiteratedinthedecisionof
2April1941whentheCourtruled:Elconceptodela
causailicita,talcomoladesenvuelveyaplicacon
granamplitudyflexibilidadladoctrinamoderna,
permitecobijar,nosolo
599
lascovencionesilicitasporrazondesuobjetoodesu
motivoxxxsinotambienmultiplesconvencionesque
noencerrandoensiningundedirectaantijuricidad
sonilicitasporelmatizinmoralquerevistela
operacionensuconjuntoxxx.
Unfortunatelyforhereinappellant,incontracts
invalidatedbyillegalsubjectmatterorillegalcausa,
Articles1305and1306oftheCivilCodetheninforce
applyrigorouslytheruleinparidelictononoritur
actio,denyingallrecoverytotheguiltypartyinterse.
Andappellantisclearlyasguiltyasherhusbandinthe
attempttoevadethelegalinterdictionofArticle1334
oftheCode,alreadycited.Wherefore,herpresent
actiontoreinvindicatetheconveyedpropertieswas
correctlyrepulsedbytheCourtbelow.
ART.1306.Iftheactwhichconstitutestheillicitcon
siderationisneitheracrimenoramisdemeanor,the
followingrulesshallbeobserved:
601
1.Whenbothpartiesareguilty,neitherofthemcan
recoverwhathemayhavegivenbyvirtueofthe
contract,orenforcetheperformanceoftheundertaking
oftheotherparty;
xxxxxxxxx
beenexecuted,theguiltypartyisbarredfrom
recoveringwhathehasgiventotheotherpartyby
reasonofthecontract.Althoughrepugnant,thelaw
deemsitmorerepugnantthatapartyshouldinvokehis
ownguiltasareasonforrelieffromasituationwhich
44Theinnocentparty,
hehaddeliberatelyentered.
however,maydemandforthereturnofwhathehas
45Ontheotherhand,ifthecontractismerely
given.
executory,itisclearthatitcannotproduceanylegal
effectwhatsoever.Neitherofthecontractingparties
candemandforthefulfillmentofanyobligation
arisingfromthecontractnorbecompelledtocomply
withsuchobligation.46
ThatArticle1306appliestocaseswherethenullity
arisesfromtheillegalityoftheconsiderationofthe
purposeofthecontractwasexpresslyrecognizedby
thisSupremeCourtinGustilovs.Maravilla.48Phil.
449450.40
Idem;Exceptions.Theprincipleofparidelictois
not,however,absoluteincharacter.TheCivilCode
recognizesthefollowingexceptions:
(1)Paymentofusuriousinterest.Insuchcase,thelaw
allowsthedebtortorecovertheinterestpaidinexcess
ofthatallowedbytheusurylaws,withinterestthereon
fromthedateofpayment.47
Finally,itcannotbedeniedthatplaintiffappellanthad
knowledgeofthenullityofthecontractforthetransfer
ofherpropertiesin1934,becauseshewasevenaparty
thereto.Andyet,herpresentactionwasfiledonlyon
May28,1962andafterthebreakingupoffriendly
relationsbetweenheranddefendantsappellees.
Appellantsinactiontoenforceherright,for28years,
cannotbejustifiedbythelameexcusethatshe
assumedthatthetransferwasvalid.Knowledgeofthe
effectofthattransactionwouldhavebeenobtainedby
theexerciseofdiligence.Ignorancewhichistheeffect
ofinexcusablenegligence,ithasbeensaid,isno
excuseforlaches.(GoChiGun,etc.,etal.vs.CoCho,
etal.,G.R.No.L5208,Feb.28,1955.)Evenassuming
forthesakeofargumentthatappellantheldherpeace,
duringthelifetimeofherhusband,outoflegitimate
fearforherlife,thereisnojustificationforherfailure
tobringtheproperactionafterhis
(2)Paymentofmoneyordeliveryofpropertyforan
illegalpurpose,wherethepartywhopaidordelivered
repudiatesthecontractbeforethepurposehasbeen
accomplished,orbeforeanydamagehasbeencaused
toathirdperson.Insuchcase,thecourtsmayallow
suchpartytorecoverwhathehaspaidordelivered,if
thepublicinterestwillthusbesubserved.48
40SeealsoLiguezvs.CourtofAppeals,102Phil.581
582;Perezvs.Herranz,7Phil.695.
(3)Paymentofmoneyordeliveryofpropertybyan
incapacitatedperson.Insuchcase,thecourtsmay
allowsuchpersontorecoverwhathehaspaidor
delivered,iftheinterestofjusticesodemands.49
1412
(4)Agreementorcontractwhichisnotillegalperse
butismerelyprohibitedbylaw,andtheprohibitionis
designedfortheprotectionoftheplaintiff.Insuch
case,suchplaintiff,ifpublicpolicyisthereby
enhanced,mayrecoverwhathehaspaidor
delivered.50
44Liguezvs.CourtofAppeals,supra.45Arts.1411,
46Ibid.
1412,CivilCode.
600
deathin1953.Instead,sheenteredintoaseriesof
agreementswithhereinappellees,thechildrenofher
husbandbyapriormarriage,ofpartition,usufructand
leaseoftheirshareinthefishponds,transactionsthat
necessarilyassumedthatRodriguezhasacquiredone
halfofthelitigatedfishponds.Inthecircumstances,
appellantscausehasbecomeastaledemandandher
conductplacedherinestoppeltoquestionthevalidity
ofthetransferofherproperties.(Manila,etal.vs.
Galvan,etal.,G.R.No.L23507,May24,1967;Perez
vs.Herranz,7Phil.695696.)
Inviewoftheforegoing,thedecisionappealedfromis
affirmed.CostsagainstappellantConcepcionFelix
Vda.deRodriguez.
40 of 50
TheAngelJoseWarehousingCo.casenotonly
resolvedalldoubtswithrespecttotheapparentconflict
betweenArt.1413oftheNewCivilCodeandSec.6of
theUsuryLaw;italsoresolvedalldoubtswithrespect
tothequestionastowhetherornotthecreditorwillbe
allowedtorecovertheamountloaned.Thefactual
backdropofthiscaseisasfollows:Theactionisone
fortherecoveryofanunpaidloan,withlegalinterest
fromthefilingofthecomplaint,plusattorneysfees.
Defendantsinterposedthedefensethatsincetheloanis
usuriousandthereforevoid,theprincipleofpari
delictoasenunciatedinArt.1411oftheNewCivil
Codeisapplicable.Tostrengthenthisdefense,they
invokedtheprovisionsofArts.1413and1961ofthe
CivilCodeaswellasthecaseofSebastianvs.
56whereintheCourtofAppealsheldthatin
Bautista
usuriouscontract,althoughtheCivilCodeinArt.1413
providesforanexceptiontotheruleofparidelictoin
thecaseofthedebtor,itdoesnotprovideforan
exceptioninthecaseofthecreditor.Isthiscorrect?
AccordingtotheSupremeCourt,thisisnotcorrect.A
contractofloanwithusuriousinterestconsistsof
principalandaccessorystipulation;theprincipal
5523SCRA119.
5658Off.Gaz.3146.SeealsoPeoplevs.Masangkay,
58Off.Gaz.3565.
602
(5)Paymentofanyamountinexcessofthemaximum
priceofanyarticleorcommodityfixedbylaw.Insuch
case,thebuyermayrecovertheexcess.51
(6)Contractwherebyalaborerundertakestowork
longerthanthemaximumnumberofhoursfixedby
law.Insuchcase,thelaborermaydemandfor
overtimepay.52
(7)Contractwherebyalaboreracceptsawagelower
thantheminimumwagefixedbylaw.Insuchcase,the
laborermaydemandforthedeficiency.53
Art.1413.Interestpaidinexcessoftheinterest
allowedbytheusurylawsmayberecoveredbythe
debtor,withinterestthereonfromthedateofthe
payment.54
604
oneistopaythedebt;theaccessoryistopayinterest
thereon.Thesetwostipulationsaredivisible.
AccordingtoArt.1420oftheNewCivilCode,in
caseofadivisiblecontract,iftheillegaltermscanbe
separatedfromthelegalones,thelattermaybe
enforced.Inasimplecontractofloanwithusurious
interest,theprestationofthedebtortopaytheprincipal
debtisnotillegal;whatisillegalistopaythe
stipulatedinterest.Hence,beingseparable,thelatter
onlyshouldbedeemedvoid.
Plaintiffisthereforeentitledtotherecoveryofthe
principaloftheloanpluslegalinterestof6%per
annumfromthefilingofthecomplaintpursuanttoArt.
2209oftheNewCivilCode.Attorneysfees,however,
cannotberecoveredsincethereisnoshowingthatthe
casefallsunderanyoftheexceptionsprovidedforin
Art.2208oftheNewCivilCode.Besides,defendants
hadreasonstoresisttheclaimsincetherewasyetno
definiterulingonthepointoflawinvolvedhereinin
thelightoftheNewCivilCode.57
TheabovedoctrinewasreiteratedinBrionesvs.
Cammayo.Inorderthatweshallhaveacomplete
pictureofthecase,wearereproducingtheentire
decisionpennedbyJusticeDizon,includingthe
dissentingopinionpennedbyJusticeCastroandthe
concurringopinionpennedbyJusticeBarredo.
RecoverybyDebtorofUsuriousInterest.The
firstexceptiontotheprincipleofparidelictoas
enunciatedinArts.1411and1412isgiveninthe
abovearticle.
Itmustbenoted,however,thattheruleenunciatedin
thisarticle,althoughconsistentwiththerule
enunciatedinArt.1961,whichstatesthatusurious
contractsshallbegovernedbytheUsuryLawand
otherspeciallawssofarastheyarenotinconsistent
withthisCode,isinconsistentwiththerule
enunciatedinArt.1175,whichstatesthatusurious
transactionsshallbegovernedbyspeciallaws,and
Art.1957,whichstatesthattheborrowermayrecover
inaccordancewiththelawsonusury.Insofarasthe
amountrecoverablebythedebtorfromthecreditoris
concerned,itisquiteevidentthatthereisabsolute
incompatibilitybetweentheprovisionofArt.1961
whichupholdstherulestatedinArt.1413,andthe
provisionsofArts.1175and1957,whichincorporate
byreferencetherulestatedinSec.6oftheUsuryLaw
(ActNo.2655).UnderArt.1413,thedebtormay
recovertheinterestpaidinexcessoftheinterest
allowedbytheUsuryLaw,withinterestthereonfrom
thedateofpayment;underSec.6oftheUsuryLaw,on
theotherhand,thedebtormayrecoverthewhole
interestpaidwithcostsand
53Art.1419,CivilCode.54Newprovision.
Brionesvs.Cammayo41SCRA404
DIZON,J.:
603
OnFebruary22,1962,AurelioG.Brionesfiledan
actionintheMunicipalCourtofManilaagainst
Primitivo,Nicasio,Pedro,HilarioandArtemio,all
surnamedCammayo,torecoverfromthem,jointlyand
severally,theamountofP1,500.00,plusdamages,
attorneysfeesandcostsofsuit.Thedefendants
answeredthecomplaintwithspecificdenialsandthe
followingspecialdefensesandcompulsory
counterclaim:
Art.1413CONTRACTS
xxx;
Bywayof
57AngelJoseWarehousingCo.vs.CheldaEnterprises,
supra.605
Art.1413CONTRACTSSPECIALDEFENSES
DefendantsAllege:
attorneysfeesinsuchsumasmaybeallowedbythe
courtinanactionagainstthecreditorifsuchactionis
broughtwithintwoyearsaftersuchpayment.
Theabovestatedconflict,however,ismoreapparent
thanreal.Thus,inAngelJoseWarehousingCo.vs.
55theSupremeCourtdeclaredthat,inreality,
Chelda
thereisnoconflictbetweentheCivilCodeandthe
UsuryLaw.Underthelatter,inSec.6,thedebtormay
recoverthewholeinterestpaid.UndertheCivilCode,
inArt.1413,interestpaidinexcessoftheinterest
allowedbytheusurylawsmayberecoveredbythe
debtor,withinterestthereonfromthedateof
payment.WhentheCodespeaksofinterestpaidin
excessofthatallowedbytheusurylaw,itmeansthe
wholeusuriousinterest.Thus,iftheloanisP1,000.00,
withinterestof20%perannumorP200peryear,and
theborrowerpaidP200,thewholeP200isthe
usuriousinterest.Theonlychangeeffected,therefore,
byArt.1413oftheCivilCodeisnottoprovideforthe
recoveryoftheinterestpaidinexcessofthatallowed
bylaw,whichtheUsuryLawalreadyprovidedfor,but
toaddthatthesamecanberecoveredwithinterest
thereonfromthedateofpayment.
41 of 50
Inthepresentappealdefendantsclaimthatthetrial
courterredinsentencingthemtopaytheprincipalof
theloannotwithstandingitsfindingthatthesamewas
taintedwithusury,anderredlikewiseinnotdismissing
thecase.
Itisnowdisputedthatthecontractofloaninquestion
wastaintedwithusury.Theonlyquestionstobe
resolved,therefore,arefirstly,whetherthecreditoris
entitledtocollectfromthedebtortheamount
representingtheprincipalobligation;secondly,inthe
affirmative,ifheisentitledtocollectintereststhereon,
andifso,atwhatrate.
TheUsuryLawpenalizesanypersonorcorporation
who,foranyloanorrenewalthereoforforbearance,
shallcollectorreceiveahigherrateorgreatersumor
valuethanisallowedbylaw,andprovidesfurtherthat,
insuchcase,thedebtormay
607
Art.1413CONTRACTS
recoverthewholeinterest,commissions,premiums,
penaltiesandsurchargespaidordelivered,withcosts
andattorneysfees,inanappropriateactionagainsthis
creditor,withintwo(2)yearsaftersuchpaymentor
delivery.(Section6,Act2655,asamendedbyActs
3291and3998.)
Construingtheaboveprovision,WeheldinGoChioco
vs.Martinez,45Phil.256,thatevenifthecontractof
loanisdeclaredusuriousthecreditorisentitledto
collectthemoneyactuallyloanedandthelegalinterest
duethereon.
InGuiJong&Co.vs.Rivera,etal.,45Phil.778,this
Courtlikewisedeclaredthat,inanyevent,thedebtorin
ausuriouscontractofloanshouldpaythecreditorthe
amountwhichhejustlyoweshim,citinginsupportof
thisrulingitspreviousdecisionsinGoChioco,supra,
Aguilarvs.Rublato,etal.,40Phil.570,andDelgado
vs.DuqueValgona,44Phil.739.
Inalltheabovecitedcasesitwasrecognizedandheld
thatunderAct2655ausuriouscontractisvoid;thatthe
creditorhasnorightofactiontorecovertheinterestin
excessofthelawfulrate;butthatthisdidnotmeanthat
thedebtormaykeeptheprincipalreceivedbyhimas
loanthusunjustlyenrichinghimselftothedamage
ofthecreditor.
TheninLopezandJavelonavs.ElHogarFilipino,47
Phil.249,Wealsoheldthatthestandingjurisprudence
ofthisCourtonthequestionunderconsiderationwas
clearlytotheeffectthattheUsuryLaw,byitsletter
andspirit,didnotdeprivethelenderofhisrightto
recoverfromtheborrowerthemoneyactuallyloaned
toandenjoyedbythelatter.ThisCourtwentfurtherto
saythattheUsuryLawdidnotprovideforthe
forfeitureofthecapitalinfavorofthedebtorin
usuriouscontracts,andthatwhiletheforfeituremight
appeartobeconvenientasadrasticmeasureto
eradicatetheevilofusury,thelegalquestioninvolved
shouldnotberesolvedonthebasisofconvenience.
OthercasesupholdingthesameprinciplearePalileo
vs.Cosio,97Phil.919andPascuavs.Perez,L19554,
January31,1964,10SCRA199,200202.Inthelatter,
Weexpresslyheldthatwhenacontractisfoundtobe
taintedwithusurytheonlyrightoftherespondent
(creditor)xxxwasmerelytocollecttheamountofthe
loan,plusinterestduethereon.
Theviewhasbeenexpressed,however,thattheruling
thusconsistentlyadheredtoshouldnowbeabandoned
becauseArticle1957ofthenewCivilCodea
subsequentlaw
608
providesthatcontractsandstipulations,underany
cloakordevicewhatever,intendedtocircumventthe
lawsagainstusury,shallbevoid,andthatinsuchcases
theborrowermayrecoverinaccordancewiththelaws
onusury.Fromthistheconclusionisdrawnthatthe
wholecontractisvoidandthat,therefore,thecreditor
hasnorighttorecovernotevenhiscapital.
4.Defendantsexecutedtherealestatemortgage,
AnnexAofthecomplaint,assecurityfortheloanof
P1,200.00giventodefendantPrimitivoO.Cammayo
upontheusuriousagreementthatdefendantpaystothe
plaintiffandthattheplaintiffreserveandsecure,asin
factplaintiffreservedandsecuredhimself,outofthe
allegedloanofP1,500.00asinterestthesumof
P300.00foroneyear;
5.Thatalthoughthemortgagecontract,AnnexAwas
executedforsecuringthepaymentofP1,500fora
periodofoneyear,withoutinterest,thetruthandthe
realfactisthatplaintiffdeliveredtothedefendant
PrimitivoP.CammayoonlythesumofP1,200.00and
withheldthesumofP300.00whichwasintendedas
advanceinterestforoneyear;
6.ThatonaccountofsaidloanofP1,200.00,defendant
PrimitivoP.Cammayopaidtotheplaintiffduringthe
periodfromOctober,1955toJuly,1956thetotalsum
ofP330.00whichplaintiff,illegallyandunlawfully
refusetoacknowledgeaspartpaymentoftheaccount
butasininterestofsaidloanforanextensionof
anothertermofoneyear;
7.Thatsaidcontractofloanenteredintobetween
plaintiffanddefendantPrimitivoP.Cammayoisa
usuriouscontractandiscontrarytolaw,morals,good
customs,publicorderorpublicpolicyandis,therefore,
inexistentandvoidfromthebeginning(Art.1407,
CivilCode);
Andas
COMPULSORYCOUNTERCLAIM
Defendantsrepleadalltheirallegationsinthe
precedingparagraphs;
8.Thatplaintiff,bytakingandreceivinginterestin
excessofthatallowedbylaw,withfullintentionto
violatethelaw,attheexpenseofthedefendants,
committedaflagrantviolationofAct2655,otherwise
knownastheUsuryLaw,causingthedefendants
damagesandattorneysfees,theamountofwhichwill
beprovenatthetrial;
9.Thatthisisthesecondtimethissamecaseisfiled
beforethiscourt,thefirsthavingbeenpreviouslyfiled
and
606
docketedinthiscourtasCivilCaseNo.75845(Branch
VII)andthesamewasdismissedbytheCourtofFirst
Instance(BranchofManila)onJuly13,1961inCivil
CaseNo.43121(BranchXVII)andforrepeatedly
bringingthiscasetothecourt,harassingand
persecutingdefendantsinthemanner,defendantshave
sufferedmentalanguishandanxietyforwhichthey
shouldbecompensatedformoraldamages.
OnSeptember7,1962,Brionesfiledanunverified
replyinwhichhemerelydeniedtheallegationsofthe
counterclaim.Thereupon,thedefendantsmovedforthe
renditionofasummaryjudgmentonthegroundthat,
upontherecord,therewasnogenuineissueoffact
betweentheparties.TheMunicipalCourtgrantedthe
motionandrenderedjudgmentsentencingthe
defendantstopaytheplaintiffthesumofP1,500.00,
withintereststhereonatthelegalratefromFebruary
22,1962,plusthesumP150.00asattorneysfees.
Fromthisjudgment,thedefendantsappealedtothe
CourtofFirstInstanceofManilawhere,accordingto
theappealeddecision,defendanthasaskedfor
summaryjudgmentandplaintiffhasagreedtothe
same.(RecordonAppeal,p.21.)Havingfoundthe
motionforsummaryjudgmenttobeinorder,thecourt
thenproceededtorenderjudgmentasfollows:
Judgmentis,therefore,rendered,orderingdefendant
topayplaintiffthesumofP1,180.00withinterest
thereonatthelegalratefromOctober16,1962until
fullypaid.Thisjudgmentrepresentsdefendantsdebts
ofP1,500.00lessusuriousinterestofP120.00andthe
additionalsumofP200.00asattorneysfeesoratotal
deductionofP320.00.Plaintiffshallpaythecosts.
42 of 50
True,asstatedinArticle1411oftheNewCivilCode
theruleofparidelictoapplieswhereacontracts
nullityproceedsfromillegalityofthecauseorobject
ofsaidcontract.
However,appellantsfailtoconsiderthatacontractof
loanwithusuriousinterestconsistsofprincipaland
accessorystipulations;theprincipaloneistopaythe
debt;theaccessorystipulationistopayinterest
thereon.
610
Andsaidtwostipulationsaredivisibleinthesensethat
theformercanstillstandwithoutthelatter.Article
1273,CivilCode,atteststothis:Therenunciationof
theprincipaldebtshallextinguishtheaccessory
obligations;butthewaiverofthelattershallleavethe
formerinforce.
Thequestionthereforetoresolveiswhethertheillegal
termsastopaymentofinterestlikewiserendersa
nullitythelegaltermsastopaymentsoftheprincipal
debt.Article1420oftheNewCivilCodeprovidesin
thisregard:Incaseofadivisiblecontract,ifthe
illegaltermscanbeseparatedfromthelegalones,the
lattermaybeenforced.
Insimpleloanwithstipulationofusuriousinterestthe
prestationofthedebtortopaytheprincipaldebt,which
isthecauseofthecontracts(Article1350,CivilCode),
isnotillegal.Theillegalityliesonlyastothe
prestationtopaythestipulatedinterest;hence,being
separable,thelatteronlyshouIdbedeemedvoid,since
itistheonlyonethatisillegal.
NeitheristhereaconflictbetweentheNewCivilCode
andtheUsuryLaw.Underthelatter,inSec.6,any
personwhoforaloanshallhavepaidahigherrateor
greatersumorvaluethanisallowedinsaidlaw,may
recoverthewholeinterestpaid.TheNewCivilCode,
inArticle1413states:Interestpaidinexcessofthe
interestallowedbytheusurylawsmayberecovered
bythedebtor,withinterestthereonfromthedateof
payment.Article1413,inspeakingofinterestpaid
inexcessoftheinterestallowedbytheusurylaws
meansthewholeusuriousinterest;thatis,inaloanof
P1,000.00,withinterestof20%perannumorP200.00
foroneyear,iftheborrowerpayssaidP200thewhole
P200.00istheusuriousinterest,notjustthatpart
thereofinexcessoftheinterestallowedbylaw.Itisin
thiscasethatthelawdoesnotallowdivision.The
wholestipulationastointerestvoid,sincepaymentof
saidinterestisillegal.Theonlychangeeffected,
therefore,byArticle1413,NewCivilCode,isnotto
providefortherecoveryoftheinterestpaidinexcess
ofthatallowedbylaw,whichtheUsuryLawalready
providedfor,buttoaddthatthesamecanberecovered
withinterestthereonfromthedateofpayment.
Theforegoinginterpretationisreachedwiththe
philosophyofusurylegislationinmind;todiscourage
stipulationsonusuriousinterest,saidstipulationsare
treatedaswhollyvoid,sothattheloanbecomesone
withoutstipulationastopaymentofinterest.Itshould
not,however,beinterpretedtomeanforfeitureevenof
theprincipalforthiswouldunjustlyenrich
611
Art.1413CONTRACTS
theborrowerattheexpenseofthelender.Furthermore,
penalsanctionsareavailableagainstausuriouslender,
asafurtherdeterrencetousury.
Theprincipaldebtremainingwithoutstipulationfor
paymentofinterestcanthusberecoveredbyjudicial
action.Andincaseofsuchdemand,andthedebtor
incursindelay,thedebtearnsinterestfromthedateof
thedemand(inthiscasefromthefilingofthe
complaint).Suchinterestisnotduetostipulation,for
therewasnone,thesamebeingvoid.Rather,itisdue
tothegeneralprovisionoflawthatinobligationsto
paymoney,wherethedebtorincursindelay,hehasto
payinterestbywayofdamages(Art.2209,Civil
Code).TheCourtaquotherefore,didnoterrin
orderingdefendantstopaytheprincipaldebtwith
interestthereonatthelegalrate,fromthedateoffiling
ofthecomplaint.
Themeaningandscopeofourrulinginthecases
mentionedheretoforeisclearlystatedandtheview
referredtointheprecedingparagraphisadequately
answered,inAngelJose,etc.vs.CheldaEnterprises,
etc.(L25704,April24,1968).Onthequestionof
whetheracreditorinausuriouscontractmayormay
norrecovertheprincipaloftheloan,and,inthe
affirmative,whetherornothemayalsorecover
interestthereonatthelegalrate,Wesaidthefollowing:
xxx.
Thecourtfoundthatthereremainedduefrom
defendantsanunpaidprincipalamountofP20,287.50;
thatplaintiffchargedusuriousinterests,ofwhich
P1,048.15hasactuallybeendeductedinadvanceby
plaintifffromtheloan;thatsaidamountofP1,048.15
shouldthereforebedeductedfromtheunpaidprincipal
ofP20,287.50leavingabalanceofP19,247.35still
payabletotheplaintiff.Saidcourtheldthat
notwithstandingtheusuriousinterestscharged,
plaintiffisnotbarredfromcollectingtheprincipalof
theloanoritsbalanceofP19,247.35.Accordingly,it
statedinthedispositiveportionofthedecision,thus:
WHEREFORE,judgmentisherebyrendered,
orderingthedefendantpartnershiptopaytothe
plaintifftheamountofP19,247.35,withlegalinterest
thereonfromMay29,1964untilpaid,plusan
additionalsumofP2,000.00asdamagesforattorneys
fee;and,incasetheassetsofdefendantpartnershipbe
insufficienttosatisfythisjudgmentinfull,orderingthe
defendantDavidSyjuecotopaytotheplaintiffone
half(1/2)oftheunsatisfiedportiononthisjudgment.
Withcostsagainstthedefendants.
AppealingdirectlytoUs,defendantsraisetwo
questionsoflaw:(1)Inaloanwithusuriousinterest,
maythecreditorrecovertheprincipaloftheloan?(2)
Shouldattorneysfeesbeawardedinplaintiffsfavor?
609
Art.1413
CONTRACTS
GreatrelianceismadebyappellantsonArt.1411of
theNewCivilCodewhichstates:
ART.1411.Whenthenullityproceedsfromthe
illegalityofthecauseorobjectofthecontract,andthe
actconstitutesacriminaloffense,bothpartiesbeingin
paridelicto,theyshallhavenoactionagainsteach
other,andbothshallbeprosecuted.Moreover,the
provisionsofthePenalCoderelativetothedisposalof
effectsorinstrumentsofacrimeshallbeapplicableto
thethingsorthepriceofthecontract.
partiesisguilty;buttheinnocentonemayclaimwhat
hehasgiven,andshallnotbeboundtocomplywith
hispromise.
Since,accordingtotheappellants,ausuriousloanis
voidduetoillegalityofcauseorobject,theruleof
paridelictoexpressedinArticle1411,supra,applies,
sothatneitherpartycanbringactionagainsteach
other.Saidrule,however,appellantsadd,ismodified
astotheborrower,byexpressprovisionofthelaw
(Art.1413,NewCivilCode),allowingtheborrowerto
recoverinterestpaidinexcessoftheinterestallowed
bytheUsuryLaw.Astothelender,noexceptionis
madetotherule;hence,hecannotrecoveronthe
contract.SotheycontinuetheNewCivilCode
provisionsmustbeupheldasagainsttheUsuryLaw,
underwhichaloanwithusuriousinterestisnottotally
void,becauseofArticle1961oftheNewCivilCode,
that:Usuriouscontractsshallbegovernedbythe
UsuryLawandotherspeciallaws,sofarastheyare
notinconsistentwiththisCode.(Italicsours.)
Wedonotagreewithsuchreasoning.Article1411of
theNewCivilCodeisnotnew;itisthesameasArticle
1305oftheOldCivilCode.Therefore,saidprovision
isnowarrantfordepartingfrompreviousinterpretation
that,asprovidedintheUsuryLaw(ActNo.2655,as
amended),aloanwithusuriousinterestisnottotally
voidonlyastotheinterest.
43 of 50
Itisclear,therefore,thatintheMuletcase,the
principaloftheobligationhadbeenfullypaidbythe
debtortothecreditor;thatthelatterwasnotsentenced
topayitbacktotheformer,andthatwhatthisCourt
declaredrecoverablebydebtorwereonlytheusurious
interestpaidaswellasthefruitsofthepropertysold
underpactoderetro.
INVIEWOFTHEFOREGOING,thedecision
appealedfromismodifiedinthesensethatappellee
mayrecoverfromappellanttheprincipaloftheloan
(P1,180.00)only,withinterestthereonatlegalrateof
6%perannumfromthedateofthefilingofthe
complaint.Withcosts.
Makalintal,Zaldivar,Teehankee,Villamorand
Makasiar,JJ.,concur.
Inanswertothecontentionthattheforefeitureofthe
principaloftheusuriousloanisnecessarytopunishthe
usurer.Wesaythis:UndertheUsuryLawthereis
alreadyprovisionforadequatepunishmentforthe
usurernamely,criminalprosecutionwhere,if
convicted,hemaybesentencedtopayafinebenot
lessthanP50.00northanP500.00,orimprisonmentof
notlessthan30daysnormorethanoneyear,orboth,
inthediscretionofthecourt.Hemayfurtherbe
sentencedtoreturntheentiresumreceivedasinterest,
withsubsidiaryimprisonmentincaseofnonpayment
thereof.Itis,ofcourse,tobeassumedthatthislast
penaltymaybeimposedonlyifthereturnoftheentire
sumreceivedasinteresthadnotyetbeenthesubjectof
judgmentinacivilactioninvolvingtheusurious
contractofloan.
Inarrivingattheaboveconclusion,Wealso
consideredourdecisioninMuletvs.People,butfound
thatthesamedoesnotapplytothepresentcase.The
factsthereininvolvedwereasfollows:
Concepcion,C.J.,andFernando,J.,concurinthe
dissentingopinionofJusticeCastro.
Reyes,J.B.L.,J.,concurswithJusticeBarredo.Castro,
J.,dissents.
Barredo,Jr.,concursinseparateopinion.CastroJ.,
dissenting:
Beyondtheareaofdebateistheprinciplethatina
contractofloanofsumofmoney,thecause,with
respecttothelender,isgenerallytheborrowers
prestationtoreturnthesameamount.Itismyview,
however,thatinacontractwhichistaintedwithusury,
thatis,withastipulation(whetherwrittenor
unwritten)topayusuriousinterest,theprestationto
paysuchinterestisanintegralpartofthecauseofthe
58Itisalsothecontrollingcause,forausurer
contract.
lendshismoneynotjusttohaveitreturnedbutindeed
toacquireinordinategain.Article1957,whichisa
newprovisionintheCivilCode,providesasfollows:
Contractsandstipulations,underanycloakordevice
whatever,intendedtocircumventthelawsagainst
usuryshallbevoid.Theborrowermayrecoverin
accordancewiththelawsonusury.Thisarticlewhich
declaresthecontractitselfnotmerelythestipulation
topayusuriousinterestvoid,necessarilyregardsthe
prestationtopaysuchusuriousinterestasanintegral
partofthecause,makingitillegal.
58SeeArticles1933,1950and1957,NewCivilCode.
614
Undoubtedly,themotiveoftheusurerishisdesireto
acquireinordinategain;thismotivebecomesan
integralandcontrollingpartofthecausebecauseits
realizationcanbeachievedonlybycompliancebythe
borrowerwiththestipulatedprestationtopayusurious
interest.
Thelawneverproscribesacontractmerelybecauseof
theimmoralmotiveofacontractingparty,forthe
reasonthatitdoesnotconcernitselfwithmotivebut
59Anexceptioniswheresuchmotive
onlywithcause.
becomesanintegralpartofthecause,likethe
stipulatedusuriousinterestinacontractofloan.
60
Whiletheoldlaw,accordingtoElHogar,
consideredtheusuriousloanvalidastotheloanand
voidastotheusuriousinterest,thenewlaw,inArticle
1957ofthenewCivilCode,declarestheusuriousloan
voidastotheloanandvoidastotheusuriousinterest.
Whatisthereasonforthenewlaw?Inmyview,itis
noneotherthanitsintentiontoregardtheusurious
interestasanintegralpartofthecause,thusmakingit
illegal;otherwise,thenewlawwouldbedevoidof
reason.Anyinterpretationthatdiveststhenewlawof
reason,thatdeclarestheusuriouscontractvoidandin
thesamebreathpermitsrecoveryoftheprincipalofthe
loanwhichwasthesameresultundertheoldlaw,
aswellasunderElHogarthatconsideredtheusurious
contractvalidastotheloanrendersArticle1957of
thenewCivilCodemeaninglessandpointless.
OnJuly25,1929,AlejandraRubillosandEspecta
cionRubillossecuredfrompetitionerMiguelMuleta
loanofP550,payablewithin5yearsat30percent
interestperannum.Inthedeedofmortgageexecuted
bytheRubillosasasecurity,thesumofP1,375.00was
madetoappearascapitalloanofP550.00andthetotal
interestofP825.00computedat30percentperannum
of5years.Withinfouryearsfollowingtheexecution
ofthemortgage,thedebtorsmadepartialpayments
aggregatingP278.27,onaccountofinterest.
Thereafter,thedebtorspaidthewholecapital
612
ofP550.00duetopetitionerspromisetocondonethe
unpaidinterestuponpaymentofsuchcapital.Butto
theirsuprise,petitionerinformedthemthattheywere
stillindebtedinthesumofP546.73which
representedthebalanceoftheusuriousinterest.And
inconsiderationofthisamount,petitionerpressed
uponthedebtorstoexecuteinOctober,1933inhis
favor,adeedofsalewithpactoderetroofaparcelof
land,insubstitutionoftheoriginalmortgagewhich
wascancelled.Fromthedateoftheexecutionofthe
newdeedupto1936,petitionerreceived,ashisshare
oftheproductsofthelandthetotalsumofP480.00.
ProsecutedonNovember18,1936,fortheviolation
oftheUsuryLaw,petitionerwasconvictedbythetrial
court,andonappeal,thejudgmentwasaffirmedbythe
CourtofAppeals.Theinstantpetitionforcertiorariis
directedatthatportionofthedecisionoftheappellate
courtorderingpetitionertoreturntotheoffended
partiesthesumofP373.27,representinginterests
receivedbyhiminexcessofthatallowedbylaw.
ItwasMuletsclaimthat,astheamountofP373.27
hadbeenpaidmorethantwoyearspriortothefilingof
thecomplaintforusuryagainsthim,itsreturncouldno
longerbeorderedinaccordancewiththeprescriptive
periodprovidedthereforinSection6oftheUsury
Law.Saidamountwasmadeupoftheusuriousinterest
amountingtoP278.27paidtoMulet,incash,andthe
sumofP480.00paidtohiminkind,fromthetotalof
whichtwoamounts14%interestallowedbylaw
amountingtoP385.00wasdeducted.Ourdecision
wasthatMuletshouldreturntheamountofP480.00
whichrepresentedthevalueoftheproduceoftheland
soldtohimunderpactoderetrowhich,withthe
unpaidbalanceoftheusuriousinterest,wasthe
considerationofthetransactionmeaningthepacto
deretrosale.ThisCourtthensaid:
xxx.Thislastamountisnotusuriousinterestonthe
capitaloftheloanbutthevalueoftheproduceofthe
landsoldtopetitionerunderpactoderetrowiththe
unpaidbalanceoftheusuriousinterest(P546.73)asthe
considerationofthetransaction.Thisconsideration,
becausecontrarytolaw,isillicit,andthecontract
whichresultstherefrom,isnullandvoid.(Art.1275,
CivilCode).AndundertheprovisionsofArticle1305,
inconnectionwithArticle1303,oftheCivilCode,
whenthenullityofacontractarisesfromtheillegality
oftheconsiderationwhichinitselfconstitutesas
felony,theguiltypartyshallbesubjecttocriminal
proceedingwhiletheinnocentparty
613
Theprestationtopayusuriousinterestbeingan
integralandcontrollingpartofthecause,makingit
illegalandthecontractofloanvoid,Article1411of
thenewCivilCodeshouldbeapplied.Thisarticle
provides:
Art.1413CONTRACTS
Whenthenullityproceedsfromtheillegalityofthe
causeorobjectofthecontract,andtheactconstitutesa
mayrecoverwhateverhehasgiven,includingthe
fruitsthereof.(Italicssupplied.)
44 of 50
omittedaffirmanceoftherightofthelendertorecover
theprincipal,andinsteademphasizedthatthe
borrowermayrecoverinaccordancewiththelawson
usury.
BARREDO,J.,concurring:Iconcur.
Ibelievethatthisdecisionexpressesthefairandjust
intentofourusurylawsandsufficientlyeffectuatesthe
publicpolicythatshouldbepursuedinusurycases.
Iconsiderusurytobeunchristianandinhuman,
particularlybecauseitthrivesbestinthemiseryof
peoplebytakingadvantageofthemwhentheyare
preciselyinurgentneedofmoneytosavethemselves
fromatightsituation.Usuryhasalwaysbeen
consideredasascourgeeverywhereintheworldsince
thetimeoftheHolyScriptures.Allthese
notwithstanding,Idonotbelieveincondoningthe
wholeindebtednessofapersonwhoborrowsmoney,
onlybecausehehasbeenmadetoagree,directlyor
indirectly,topaymoreinterestthanthatauthorizedby
law.Itismyconsideredviewthatwhatthelaw
proscribesanddeclaresnullandvoidisnotthelending
ofmoney,butonlythecollectionofexcessiveinterest.
Thereisnothingmorallywronginallowingamoney
lendertogetbackthemoneyhehasloanedbecause,
afterall,theborrowerhasusedthesameforhisown
needs,anditisonlyfairthatheshouldnotbeenriched
attheexpenseofanother.Andthis,tomymind,is
obviousfromthelanguageofArticle1957oftheCivil
Codewhichprovidesthat:
Contractsandstipulations,underanycloakordevice
whatever,intendedtocircumventthelawsagainst
usurybevoid.Theborrowermayrecoverin
accordancewiththelawsonusury.(n)
617
Art.1413CONTRACTS
Properlyconstrued,thephrasecontractsand
stipulationsinthisprovisiondoesnotcontemplatethe
totalityofthecontractofloanbutonlytheportion
thereofthatisintendedtocircumventthelawsagainst
usury,andthatnecessarilyisnomorethananyterm,
cloakordevicewhichresultsinthecollectionof
interestinexcessoftherateallowedbylaw.Infact,
thesameprovisionexpresslyprovidesthatinspiteof
thenullityitordains,theborrowermayrecoverin
accordancewiththelawsonusury.Inotherwords,
insteadofleavingtheconsequencesofthedeclared
nullitytobeinaccordancewithgeneralprinciples,the
articleitselfspellsoutinblackandwhitewhatshould
bedonewiththeproceedsoftheproscribedact,andit
saysthatthespeciallawsonusuryshallbefollowedin
thatrespect.
TothesameeffectisArticle1961oftheCivilCode.It
providesthat:
UsuriouscontractsshallbegovernedbytheUsury
Lawandotherspeciallaws,sofarastheyarenot
inconsistentwiththisCode.(n)
AndIseenopointofcollisionbetweentheCivilCode
andtheUsuryLawforthesimplereasonthateven
beforeArt.1957declaredusuriouscontractsand
transactionsnullandvoid,Section7oftheUsuryLaw
alreadyprovidedthus:
Allcovenantsandstipulations,constrainedin
conveyances,mortgages,bonds,bills,notesandother
contractsorevidencesofdebts,andalldepositsof
goodsorotherthings,whereuponorwherebythere
shallbestipulated,charged,demanded,reserved,
secured,taken,orreceived,directlyorindirectly,a
higherrateorgreatersumorvaluefortherenewal
thereoforforbearanceofmoney,goods,orcreditsthan
ishereinbeforeallowed,shallbevoid:Provided,
however,Thatnomerelyclericalerrorinthe
computationofinterest,madewithoutintenttoevade
anyoftheprovisionsofthisAct,shallrendera
contractvoid:Andprovided,further,Thatnothing
hereincontainedshallbeconstruedtopreventthe
purchasebyaninnocentpurchaserofanegotiable
mercantilepaper,usuriousorotherwise,forvaluable
considerationbeforematurity,whentherehasbeenno
intentonthepartofsaidpurchasertoevadethe
provisionsofthisActandsaidpurchasewasnotapart
oftheoriginalusurioustransaction.Inanycase,
however,themakerofsaidnoteshallhavetherightto
recoverfromsaidoriginalholder
criminaloffense,bothpartiesbeinginparidelicto,
theyshallhavenoactionagainsteachother,andboth
shallbeprosecuted.Moreover,theprovisionsofthe
PenalCoderelativetothedisposalofeffectsor
instrumentofacrimeshallbeapplicabletothethings
orthepriceofthecontract.
partiesisguilty;buttheinnocentonemayclaimwhat
hehasgiven,andshallnotbeboundtocomplywith
hispromise.
59DeJesusvs.Urrutia&Company,32Phil.171.
60LopezandJavelonavs.ElHogarPilipino,47Phil.
249.
615
Art.1413CONTRACTS
Anexceptionis,however,providedinthesecond
sentenceofArticle1957whichstates:Theborrower
mayrecoverinaccordancewiththelawsonusury.As
anexceptiontothegeneralruleinArticle1411,the
debtorisallowedinaccordancewiththeUsuryLawto
recovertheamounthehaspaidasusuriousinterest.
Thus,Article1413explicitlyauthorizesthatInterest
paidinexcessoftheinterestallowedbytheusurylaws
mayberecoveredbythedebtor,withinterestthereon
fromthedateofpayment.Butthelenderisnot
allowedtorecovertheprincipal,becausenosuch
exceptionismade;hence,hefallswithinthegeneral
rulestatedinArticle1411.
61theSupremeCourt,ineffect,
InMuletvs.People,
reconsidereditsopinioninElHogar.InMulet,the
plaintiffextendedausuriousloantoRubillos.When
thedebtorfailedtopaythewholeusuriousinterest,the
creditor,inconsiderationofthesaidunpaidinterests,
madethedebtorexecuteapactoderetrosaleofcertain
propertiestohim.Hethensoughttobeexemptfrom
returningthevalueoftheproduceofthelandsso
transferred.Mr.JusticeMoran,speakingforthe
SupremeCourt,said:
***Weareoftheopinionthatthepetitionershould
beorderedtoreturn***theamount***ofP480.00.
Thislastamountisnotusuriousinterestonthecapital
oftheloanbutthevalueoftheproduceofthelandsold
topetitionerunderpactoderetro,withtheunpaid
balanceoftheusuriousinterestastheconsideration,
becausecontrarytolaw,isillicit,andthecontract
whichresultstherefrom,isnullandvoid.
Iftheunpaidusuriousinterestsastheconsiderationof
thepactoderetrosalerendersuchsalenullandvoid,
afortiori,theusuriousinterestasconsiderationofthe
contractofloan,alsorenderssuchloannullandvoid.
62theSupreme
InAsturias,etal.vs.CourtofAppeals,
Court,speakingthroughMr.JusticeJesusBarrera,
stressedthat:Acontractdesignedtohideausurious
agreementnotonlyviolatesthelawbutcontravenes
publicpolicy.Suchacontractcannotbecountenanced
andisthereforeillegalandvoidfromitsinception.
6173Phil.60.
62L17895,promulgatedSept.30,1963,9SCRA131.
616
TherulinginElHogarthatausuriousloanwasvalid
astotheprincipalbutvoidastotheusuriousinterest
wasbaseduponthelawstheninforce,namely,theold
CivilCodeandtheUsuryLaw,bothofwhichdidnot
containanyspecificexplicitprovisionprescribingthe
contractitself.Iamfullypersuadedthatindrafting
Chapter2,TitleXIofBookIVofthenewCivilCode,
theCodeCommissionknewofthemajorityopinionin
ElHogar,tooknoteofit,and,tooffsetanydoubt
concerningtheintentionoftheCommissiontooverrule
ElHogar,formulatedArticles1957and1961.Anditis
ofgreatsignificancetomethatwhentheCommission
formulatedArticle1957,knowingthatunderElHogar
theusurermayrecovertheprincipaloftheloan,it
45 of 50
recoveredbythedebtor,withinterestthereonfromthe
dateofpayment.WhentheCodespeaksofinterest
paidinexcessoftheinterestallowedbyusurylaws,it
meansthewholeusuriousinterest.Thetwoprovisions,
therefore,arealmostidentical.Theonlychange
effectedbyArt.1413,NCC,isnottoprovideforthe
recoveryoftheinterestpaidinexcessofthatallowed
bylaw,whichtheUsuryLawalreadyprovidedfor,but
toaddthatthesamecanberecoveredwithinterest
thereonfromthedateofpayment.(AngelJose
WarehousingCo.vs.CheldaEnterprises,23SCRA
119.)
(Note:PriortoJanuary1,1983andundertheTreasury
Laws,nopersonshallreceivearateofinterest,
includingcommissions,premiums,finesandpenalties,
higherthan12%perannumorthemaximumrate
prescribedbytheMonetaryBoardforaloansecured
byamortgageuponrealestatethetitletowhichisduly
registered.Therefore,the18%interestrateplusthe
additionalinterestandpenaltychargesof18%and8%,
respectively,arehighlyusurious.[DevelopmentBank
ofthe
620
1416
Philippinesvs.Perez,G.R.No.148541,Nov.11,
2004.]UnderCentralBank(CB)CircularNo.905,
whichbecameeffectiveonJan.1,1983,wherebythe
MonetaryBoardisauthorizedtofixinterestrates,the
ceilingratesundertheUsurylaw[ActNo.2655,as
amendedbyP.D.No.116]havebeenabolished.
ItshouldbenotedthatCircularNo.905didnotrepeal
norinanywayamendtheUsuryLawbutsimply
suspendedthelatterseffectivity.Thelegislationof
usuryiswhollythecreatureoflegislation.ACB
Circularcannotrepealalaw.Onlyalawcanrepeal
anotherlaw.Thus,retroactiveapplicationofaCB
Circularcannot,andshouldnot,bepresumed.
(DevelopmentBankofthePhilippinesvs.Perez,G.R.
No.148541,Nov.11,2004.)
Indeclaringvoidthestipulationsauthorizingexcessive
interestandcharges,theSCdeclaredthatalthoughthe
UsuryLawwassuspendedbyCBCircularNo.905and
consequentlythepartiesaregivenwidelatitudeto
agreeonanyinterestrate,nothinginthesaidCircular
grantslenderscarteblancheauthoritytoraiseinterest
ratestolevelswhichwilleitherenslavetheirborrowers
orleadtoahemorrhagingoftheirassets.(Heirsof
ZoiloEspirituandPrimitivaEspirituvs.Sps.Maximo
LandritoandPazLandrito,etc.,G.R.No.169617,
April3,2007)
Art.1414.Whenmoneyispaidorproperty
deliveredforanillegalpurpose,thecontractmay
berepudiatedbyoneofthepartiesbeforethe
purposehasbeenaccomplished,orbeforeany
damagehasbeencausedtoathirdperson.Insuch
case,thecourtsmay,ifthepublicinterestwillthus
besubserved,allowthepartyrepudiatingthe
contracttorecoverthemoneyorproperty.63
Art.1415.Whenoneofthepartiestoanillegal
contractisincapableofgivingconsent,thecourts
may,iftheinterestofjusticesodemands,allow
recoveryofmoneyorpropertydeliveredbythe
incapacitatedperson.64
Art.1416.Whentheagreementisnotillegalperse
butismerelyprohibited,andtheprohibitionbythe
lawisdesigned
621
fortheprotectionoftheplaintiff,hemay,ifpublic
policyistherebyenhanced,recoverwhathehas
paidordelivered.65
618
thewholeinterestpaidbyhimthereonand,incaseof
litigation,alsothecostsandsuchattorneysfeesas
maybeallowedbytheCourt.
Inthisconnection,itistobenotedthatSection6ofthe
UsuryLawprovides:
Anypersonorcorporationwho,foranysuchloanor
renewalthereoforforbearance,shallhavepaidor
deliveredahigherrateorgreatersumorvaluethanis
hereinbeforeallowedtobetakenorreceived,may
recoverthewholeinterest,commissions,premiums
penaltiesandsurchargespaidordeliveredwithcosts
andattorneysfeesinsuchsumasmaybeallowedby
thecourtinanactionagainstthepersonorcorporation
whotookorreceivedthemifsuchactionisbrought
withintwoyearsaftersuchpaymentordelivery:
Provided,however,Thatthecreditorshallnotbe
obligedtoreturntheinterest,commissionsand
premiumsforaperiodofnotmorethanoneyear
collectedbyhiminadvancewhenthedebtorshallhave
paidtheobligationbeforeitisdue,providedsuch
interest,andcommissionsandpremiumsdonotexceed
theratesfixedinthisAct.
Asamatteroffact,then,evenastheCivilCodeyields
totheUsuryLawinArticles1957and1413,inreality,
thereisnoconflictbetweentheircorresponding
provisions.Tosaythatbecausetheselawsspecifyonly
theremediesinfavoroftheborrower,theyimpliedly
denytothelenderanyremedytorecovertheprincipal
oftheloanis,Isubmit,anonsequitur.Itappearstome
morelogicaltoconstruetheprovisionsallowingthe
borrowertorecoveralltheinteresthehaspaid,as
Article1413oftheCivilCodeandSection6ofthe
UsuryLawhavebeenconstruedtogethertomeanin
AngelJosevs.CheldaEnterprises,citedinthemain
opinion,asindicatingthattheborrowermaynot
recoverfromthelendertheamounthehaspaidas
paymentofhisprincipaldebt,andconversely,thatthe
lendermaycollectthesameifithasnotbeenpaidby
theborrower.
Inbrief,mypointisthatwhileitistruethatArticle
1957oftheCivilCodedeclaresthatallusurious
contractsandstipulationsarevoid,thisisnothingnew,
forsuchhasbeenthelawevenundertheUsuryLaw
beforetheCivilCodewentintoeffect,and,moreover,
itisevidentthattheCivilCodeitselfyieldstothe
UsuryLawwhenitcomestothequestionofhowmuch
oftheloanandinterestspaidbytheborrowermaybe
recoveredbyhim,andtheUsuryLawisclearthathe
may
619
Art.1413CONTRACTS
recoveronlyalltheinterests,including,ofcourse,the
legalpartthereof,withlegalinterestfromthedateof
judicialdemand,withoutmaintainingthathecanalso
recovertheprincipalhehasalreadypaidtothelender.
AsfirstdiscussedunderArt.1175,thereisnowno
longeranyceilingininterestratesonloanspursuantto
CentralBankCircularNo.224issuedlastDec.1,
1982.
ProblemOnJan.15,1958,DborrowedP10,000
fromC.asevidenceoftheindebtedness,Dexecuteda
promissorynotepromisingtopaytheentireobligation
onJan.15,1959,at24%interestperannum.As
securityforthepaymentoftheobligation,healso
executedarealestatemortgageonahouseandlot
registeredinhisnameinfavorofC.Thismortgage
wasdulyregistered.Whenthenotematured,Dpaid
theentireobligationplusinterestamountingtoP2,400.
Consideringthatthecontractisusurious,ifDinstitutes
anactionagainstCfortherecoveryoftheusurious
interestwhichhehaspaid,howmuchcanherecover?
Reason.
AnswerDcanrecovertheentireinterestofP2,400
whichhehaspaidplus6%interestthereonfromthe
dateofpayment.ThisisinaccordancewithSec.6of
theUsuryLawandArt.1413oftheNewCivilCode.It
mustbeobservedthatunderSec.6oftheUsuryLaw,
thedebtormayrecoverthewholeinterestpaid.Under
theNewCivilCode,inArt.1413,interestpaidin
excessoftheinterestallowedbytheusurylawsmaybe
46 of 50
optionimposedonWongtheobligationtospend
P1,800.00amonthforthesalariesofhermaidsandthe
foodofthedogs.Inaddition,italsoimposedthe
conditionthatWongmustbecomeaFilipinocitizen.In
orderthatthisconditionwouldbecompliedwith,
66Tothesameeffect:Santandervs.Villanueva,103
Phil.1;Feliceovs.Iriola103Phil.125;Rasvs.Sua,25
SCRA153.
623
JustinafiledapetitiontoadoptWongandhischildren
ontheerroneousbeliefthatadoptionwouldconferon
themPhilippinecitizenship.Theerrorwasdiscovered
andtheproceedingswereabandoned.OnNov.18,
1958,sheexecutedtoothercontracts,oneextending
thetermoftheleaseto99yearsandanotherfixingthe
termoftheoptionat50years.
OnAug.24and29,1959,sheexecutedtwowills
whereinshebadeherlegateestorespectthecontracts
shehadenteredintowithWong,butinacodicil
executedonNov.4,1959,sheappearstohave
undergoneachangeofheart.Claimingthatthevarious
contractsweremadebyherbecauseofmachinations
andinducementspractisedbyWongHeng,shenow
directedherexecutortosecuretheannulmentofthe
contracts.
OnNov.18,1959,thepresentactionwasfiledinthe
CourtofFirstInstanceofManila.Thecasewasheard
afterwhichthecourtrenderedjudgmentdeclaringall
theabovestatedcontracts,withtheexceptionofthe
leasecontractofNov.15,1957,nullandvoid.From
thisjudgmentbothpartiesappealeddirectlytothe
SupremeCourt.Afterthecasewassubmittedfor
decision,bothpartiesdied.Wongwassubstitutedby
hiswife,LuiShe,whileJustinaSantoswassubstituted
bythePhilippineBankingCorporation.
Theonlyquestionthathastoberesolvednowinthis
caseiswhetherornottheabovestatedcontractsare
valid.TheSupremeCourt,speakingthroughJustice
Castro,held:
Withrespecttothelowercourtsfindingthatinall
probabilityJustinaSantoscouldnothaveintendedto
partwithherpropertywhileshewasalivenorevento
leaseitinitsentiretyasherhousewasbuiltinit,
sufficeittoquotethetestimonyofherownwitnessand
lawyerwhopreparedthecontractsinquestion,Atty.
Alonzo:Theambitionoftheoldwoman,beforeher
death,accordingtoherrevelationtome,wastoseeto
itthatthesepropertiesbeenjoyed,eventoownthem,
byWongHengbecauseDoaJustinatoldmethatshe
didnothaveanyrelativesnearorfar,andshe
consideredWongHengasasonandhischildrenher
grandchildren;especiallyherconsolationinlifewas
whenshewouldhearthechildrenrecitingprayersin
Tagalog.Shewasveryemphaticinthecareofthe
seventeen(17)dogsandofthemaidswhohelpedher
much,andshetoldmetoseetoitthatnoonewould
disturbWongHengfromthoseproperties.Thatiswhy
wethoughtoftheninetynine(99)yearslease,we
thoughtof
624
1416
adoption,believingthatthruadoptionWongHeng
mightacquireFilipinocitizenship;beingtheadopted
childofaFilipinocitizen.
Thisnottosay,however,thatthecontractsarevalid.
Forthetestimonyjustquoted,whiledispellingdoubt
astotheintentionofJustinaSantos,atthesametime
givesthecluetowhatweviewasaschemeto
circumventtheConstitutionalprohibitionagainstthe
transferoflandstoaliens.Theillicitpurposethen
67renderingthecontracts
becomestheillegalcausa
void.
Takensingly,thecontractsshownothingthatis
necessarilyillegalbutconsideredcollectively,they
revealaninsidiouspatterntosubvertbyindirection
ArticleApplied.Theaboveexceptiontothe
principleofparidelictoisillustratedinthefollowing
cases:
Angelesvs.CourtofAppeals102Phil.1006
TherecordsshowthatonMarch12,1935,ahomestead
patentwasissuedtoJuanAngeles.OnMay28,1937,
Angelessoldhehomesteadtodefendants,Gregorio
InezandAnastaciaDivino.Thisisnowanaction
commencedbytheheirsofAngelestorecoverthe
homesteadfromthedefendantsonthegroundthatthe
saleisvoidsinceitwasmadewithintheprohibited
periodoffiveyearsasenumeratedinSec.118ofthe
PublicLandLaw.Defendants,however,maintainthat
undertheprincipleofparidelicto,therecanbeno
recovery.TheSupremeCourt,speakingthrough
JusticeLabrado,held:
Theprincipleofinparidelictoisnotapplicabletoa
homesteadwhichhasbeenillegallysoldinviolationto
thehomesteadlaw.Thereasonfortheruleisthatthe
policyofthelawistogivelandtoafamilyforhome
andcultivation;consequently,thelawallowsthe
homesteadertoreacquirethelandevenifithasbeen
sold;hence,therightmaynotbewaived.Thesaleof
thehomesteadinthecaseatbaris,therefore,nulland
voidandpetitionershavetherighttorecoverthe
homesteadillegallydisposedof.Consequently,the
actiontorecoverthesamedoesnotprescribe.
Whiletheruleofinparidelictoshouldnotapplyto
thesaleofthehomestead,becausesuchsaleiscontrary
tothepublicpolicyenunciatedinthehomesteadlaw,
thelossoftheproductsrealizedbythedefendantsand
thevalueofthenecessaryimprovementsmadebythem
onthelandshouldnotbeexceptedfromthe
applicationofthesaidrulebecausenocauseorreason
canbecitedtojustifyanexception.Ithasbeenheld
thattheruleofinparidelictoisinapplicableonly
wherethesameviolatesawellestablishedpublic
policy.Theheirsofthehomesteadershould,therefore,
bedeclaredtohavelostandforfeitedthevalueofthe
productsgatheredfromtheland,and
65Newprovision.
622
1416
soshouldthedefendantslosethevalueofthe
necessaryimprovementsthattheyhavemadethereon.
Withrespecttothepricefortheland,inviewofthe
rulethatnooneshouldenrichhimselfattheexpenseof
another,thereturnofthepricebytheplaintiffsshould
bedecreed,beforetheplaintiffsmaybeallowedto
recoverbackthepossessionofthehomestead.66
PhilippineBankingCorp.vs.LuiShe21SCRA52
JustinaSantosandhersisterLorenzawereownersin
commonofavaluablepieceoflandlocatedinManila.
Initaretworesidentialhouseswithentranceon
FlorentinoTorresstreetwhichwereoccupiedby
JustinaandLorenzaandtheHenWahRestaurantwith
entranceonRizalAvenuewhichwasoccupiedand
operatedbyWongHeng,alongtimelessee.When
Lorenzadiedin1957,Justinabecametheabsolute
owneroftheproperty.Thenalreadywelladvancedin
years,being90yearsold,blind,crippled,andan
invalid,withnoothercompanionsexcept8maidsand
17dogs,herdrearyexistencewasbrightenedonlynow
andthenbythevisitsofthefourchildrenofherfriend,
WongHeng.Wong,ontheotherhand,whohadalways
beenhertrustedmanandfriend,becameclosertoher.
OnNov.15,1957,ingratefulacknowledgmentofthe
personalservicesofthelesseetoher,Justinaexecuted
acontractofleaseinfavorofWong,coveringthe
portionthenalreadyleasedtohimandanotherportion
frontingFlorentinoTorresstreet.Theleasewasfor50
yearsatamonthlyrentalofP3,120.00.Tendayslater
(Nov.25),thecontractwasamendedsoastomakeit
covertheentirepropertyatanadditionalmonthly
rentalofP360.00.Forhispart,Wongundertooktopay
outoftherentalduefromhimanamountnot
exceedingP1,000.00amonthforthesalariesofthe
maidsandthefoodofherdogs.OnDec.21,1957,she
executedanothercontractgivingWongtheoptionto
buytheleasedpremisesforP120,000,payablewithin
tenyearsatamonthlyinstallmentofP1,000.00.The
47 of 50
1416
filingoftheamendedcomplaint;andtheamountscon
signedincourtbyWongHengshallbeappliedtothe
paymentofrentalfromNovember15,1959untilthe
premisesshallhavebeenvacatedbyhisheirs.Costs
againstthedefendantappellant.
Fernando,J.,concurring:
WiththeableandwellwrittenopinionofJustice
Castro,Iaminfullagreement.Theexpositionofthe
factsleavesnothingtobedesiredandthestatementof
thelawisnotableforitscomprehensivenessand
clarity.Thisconcurringopinionhasbeenwrittensolely
toexpresswhatIconsidertobetheunfortunateand
deplorableconsequencesofapplyingtheparidelicto
concept,aswas,tomymind,indiscriminatelydone,to
alienlandholdingdeclaredillegalundertheKrivenko
doctrinesinsomepastdecisions.
ItistoberememberedthatinKrivenkovs.The
72thisCourtoverstrong
RegisterofDeedsofManila,
dissentsheldthatresidentialandcommerciallotsmay
beconsideredagriculturalwithinthemeaningofthe
constitutionalprovisionprohibitingthetransferofany
privateagriculturallandtoindividuals,corporationsor
associationsnotqualifiedtoacquireorholdlandsof
thepublicdomaininthePhilippinessaveincasesof
hereditarysuccession.
ThatprovisionoftheConstitutiontookeffecton
November15,1935whentheCommonwealth
Governmentwasestablished.Theinterpretationasset
forthintheKrivenkodecisionwasonlyhandeddown
onNovember15,1947.Priortothatdatetherewere
manywhowereoftheopinionthatthephrase
agriculturallandshouldbeconstruedstrictlyandnot
bemadetocoverresidentialandcommerciallots.
Actingonthatbelief,severaltransactionswereentered
intotransferringsuchlotstoalienvendeesby
Filipinovendors.
AftertheKrivenkodecision,someFilipinovendors
soughtrecoveryofthelotsinquestionontheground
thatthesaleswerenullandvoid.Nodefiniteruling
wasmadebythisCourtuntilSeptemberof1953,when
onthe20thofsaidmonth,Rellosavs.
7279Phil.461(1947).
627
73Bautistavs.UyIsabelo,74Talento
GawCheeHun,
vs.Mckiki,75
Caoilevs.ChiaoPeng76weredecided.
OfthefourdecisionsinSeptember,1953,themost
estensivediscussionofthequestionisfoundinRellosa
vs.GawCheeHun,theopinionbeingpennedbythe
retiredJusticeBautistaAngelo,withtheconcurrence
onlyofoneJustice,JusticeLabrador,alsoretired.
FormerChiefJusticeParasaswellasformerJustices
TuazonandMontemayorconcurredintheresult.The
necessarysixthvoteforadecisionwasgivenbythen
JusticeBengzon,whohadatwoparagraphconcurring
opiniondisagreeingwiththemainopinionastothe
77thereincited.
forcetobeaccordedtothetwocases
ThereweretwodissentingopinionsbyformerJustices
PabloandAlexReyes.
ThedoctrineasannouncedintheRellosacaseisthat
whilethesalebyaFilipinovendortoanalienvendee
ofaresidentialoracommerciallotisnullandvoidas
heldintheKrivenkocase,stilltheFilipinovendorhas
norighttorecoverunderacivillawdoctrine,the
partiesbeinginparidelicto.Theonlyremedyto
preventthiscontinuingviolationoftheConstitution
whichthedecisionimpliedlysanctionsbyallowingthe
alienvendeestoretainthelotsinquestioniseither
escheatorreversion.Thus:Byfollowingeitherof
theseremedies,orbyapprovinganimplementarylaw
asabovesuggested,wecanenforcethefundamental
policyofourConstitutionregardingournatural
resourceswithoutdoingviolencetotheprincipleof
paridelicto.
whattheConstitutiondirectlyprohibits.Tobesure,a
leasetoanalienforareasonableperiodisvalid.Sois
anoptiongivinganalientherighttobuyrealproperty
onconditionthatheisgrantedPhilippinecitizenship.68
AsthisCourtsaidinKrivenkovs.RegisterofDeeds:
Aliensarenotcompletelyexcludedbythe
Constitutionfromtheuseoflandsforresidential
purposes.SincetheirresidenceinthePhilippinesis
temporary,theymaybegrantedtemporaryrightssuch
asaleasecontractwhichisnotforbiddenbythe
Constitution.Shouldtheydesiretoremainhereforever
andshareourfortunesandmisfortunes,Filipino
citizenshipisnotimpossibletoacquire.
Butanalienisgivennotonlyaleaseof,butalsoan
optiontobuy,apieceofland,byvirtueofwhichthe
Filipinoownercannotsellorotherwisedisposeofhis
property,thistolastfor50years,thenitbecomesclear
thatthearrangementisavirtualtransferofownership
wherebytheownerdivestshimselfinstages,notonly
oftherighttoenjoytheland(juspossidendi,jus
utendi,jusfruendiandjusabutendi)butalsoofthe
righttodisposeofit(jusdisponendi)rightsthesum
totalofwhichmakeupownership.Itisjustasiftoday
thepossessionistransferred,tomorrow,theuse,the
nextday,thedisposition,andsoon,untilultimatelyall
therightsofwhichownershipismadeupare
consolidatedinanalien.Andyetthisisjustexactly
whatthepartiesinthiscasedidwithinthespaceofone
year,withtheresultthatJustina
67Rodriguezvs.Rodriguez,20SCRA908.6829Phil.
480481(1947).
625
Santosownershipofherpropertywasreducedtoa
hollowconcept.Ifthiscanbedone,thenthe
Constitutionalbanagainstalienlandholdinginthe
Philippines,asannouncedinKrivenkovs.Registerof
Deeds,isindeedingraveperil.
Itdoesnotfollowfromwhathasbeensaid,however,
thatbecausethepartiesareinparidelictotheywillbe
leftwheretheyare,withoutrelief.Foronething,the
originalpartieswhowereguiltyofaviolationofthe
fundamentalcharterhavediedandhavesincebeen
substitutedbytheiradministratorstowhomitwouldbe
69Foranotherthing,and
unjusttoimputetheirguilt.
thisisnotonlycogentbutalsoimportant,Article1416
oftheCivilCodeprovides,asanexceptiontotherule
onparidelicto,thatWhentheagreementisnotillegal
persebutismerelyprohibited,andtheprohibitionby
lawisdesignedfortheprotectionoftheplaintiff,he
may,ifpublicpolicyistherebyenhanced,recoverwhat
hehaspaidordelivered.TheConstitutionalprovision
thatSaveincasesofhereditarysuccession,noprivate
agriculturallandshallbetransferredorassignedexcept
toindividuals,corporations,orassociationsqualified
toacquireorholdlandsofthepublicdomaininthe
70isanexpressionofpublicpolicyto
Philippines
conservelandsfortheFilipinos.
Thatpolicywouldbedefeatedanditscontinued
violationsanctionedif,insteadofsettingthecontracts
asideandorderingtherestorationofthelandtothe
estateofthedeceasedJustinaSantos,thisCourtshould
applythegeneralruleofparidelicto.Totheextentthat
ourrulinginthiscaseconflictswiththatlaiddownin
71andsubsequentsimilar
Rellosavs.GawCheeHun
cases,thelattermustbeconsideredasprotanto
qualified.
Accordingly,thecontractsinquestionareannulled
andsetaside;thelandsubjectmatterofthecontractsis
orderedreturnedtotheestateofJustinaSantosasrep
resentedbythePhilippineBankingCorporation;Wong
Heng(assubstitutedbythedefendantappellantLui
She)isorderedtopaythePhilippineBanking
CorporationthesumP56,564.35,withlegalinterest
fromthedateofthe
69Cf.ConcurringopinionofJusticeBengzonin
Rellosavs.GawCheeHun,93Phil.827,836(1953).
70Const.,Art.XIII,Sec.5.7193Phil.827(1953).
626
48 of 50
(Rep.ActNo.133)makesnodistinctionbetween
privatelandsthatarestrictlyagriculturalandprivate
landsthatareresidentialorcommercial.The
prohibitionembracesthesaleofprivatelandsofany
kindinfavorofaliens,whichisagainaclear
implementationandalegislativeinterpretationofthe
constitutionalprohibition.xxxItiswelltonoteatthis
juncturethatinthepresentcasewehavenochoice.We
areconstruingtheConstitutionasitisandnotaswe
maydesireittobe.Perhapstheeffectofour
constructionistoprecludealiens,admittedfreelyinto
thePhilippines,fromowningsiteswheretheymay
buildtheirhomes.Butifthisisthesolemnmandateof
theConstitution,wewillnotattempttocompromiseit
eveninthenameofamityorequity.78
Werethepartiesreallyinparidelicto?Hadthesale
byandbetweenFilipinovendorandalienvendee
occurredafterthedecisionintheKrivenkocase,then
theaboveviewwouldbecorrectthatbothFilipino
vendorandalienvendeecouldnotbeconsideredas
innocentpartieswithinthecontemplationofthelaw.
Bothofthemshouldbeheldequallyguiltyofevasion
oftheConstitution.
Alienvendeeisthereforeincapacitatedordisqualified
toacquireandholdrealestate.Thatincapacityandthat
disqualificationshoulddatefromtheadoptionofthe
ConstitutiononNovember15,1935.Thatincapacity
andthatdisqualification,however,wasmadeknownto
Filipinovendorandtoalienvendeeonlyuponthe
promulgationoftheKrivenkodecisiononNovember
15,1947.Alienvendee,therefore,cannotbeallowed
tocontinueowningandexercisingactsofownership
oversaidproperty,whenitisclearlyincludedwithin
theConstitutionalprohibition.Alienvendeeshould
thusbemadetorestorethepropertywithitsfruitsand
rentstoFilipinovendor,itspreviousowner,ifitcould
beshownthatintheutmostgoodfaith,hetransferred
histitleoverthesametoalienvendee,uponrestitution
ofthepurchasepriceofcourse.
7393Phil.827.
7493Phil.843.
7593Phil.855.
7693Phil.861.SeealsoArambulovs.CuaSo,95Phil.
749(1954);Dinglasanvs.
TheConstitutionbarsalienvendeesfromowningthe
propertyinquestion.Bydismissingthosesuits,thelots
remainedinalienhands.Notwithstandingthesolution
ofescheatorreversionoffered,theyarestillatthe
momentofwriting,forthemostpartinalienhands.
Therehavebeenafteralmosttwentyyearsno
proceedingsforescheatorreversion.
628
Yetitisclearthatanalienvendeecannotconsistently
withtheconstitutionalprovision,asinterpretedinthe
Krivenkodecision,continueowningandexercising
actsofownershipovertherealestateinquestion.It
oughttofollowthen,ifsuchacontinuingviolationof
thefundamentallawistobeputanendto,thatthe
Filipinovendor,whoingoodfaithenteredinto,a
contractwithanincapacitatedperson,transferring
ownershipofapieceoflandaftertheConstitution
wentintofullforce
againstthesaleofcommercialorresidentiallotsby
Filipinovendortoalienvendee,intheabsenceofa
definitedecisionbytheSupremeCourt,itwouldnotbe
doingviolencetoreasontofreethemfromthe
imputationofevadingtheConstitution.Forevidently
evasionimpliesattheveryleastknowledgeofwhatis
beingevaded.ThenewCivilCode(Art.526)expressly
provides:Mistakesuponadoubtfulordifficult
questionoflawmaybethebasisofgoodfaith.
7879Phil.461,480(1947).
630
1419
andeffect,inthelightoftherulingintheKrivenko
case,berestoredtothepossessionandownership
thereof,whenhehasfiledtheappropriatecaseor
proceeding.Anyotherconstructionwoulddefeatthe
endsandpurposesnotonlyofthisparticularprovision
inquestionbuttherestoftheConstitutionitself.
TheConstitutionfrownsuponthetitleremainingin
thealienvendee.Restorationofthepropertyupon
paymentofthepricereceivedbyFilipinovendororits
reasonableequivalentasfixedbythecourtisthe
answer.Togivetheconstitutionalprovisionfullforce
andeffect,inconsonancewiththedictatesofequity
andjustice,therestorationtoFilipinovendoruponthe
paymentofapricefixedbythecourtisthebetter
remedy.Hethoughthecouldtransferthepropertyto
analienanddidso.AftertheKrivenkocasehadmade
clearthathehadnorighttosellnoranalienvendeeto
purchasethepropertyinquestion,theobvioussolution
wouldbeforhimtoreacquirethesame.Thatwaythe
Constitutionwouldbegiven,asitoughttobegiven
respectanddeference.
Itmaybesaidthatitistoolateatthisstagetohope
forsuchasolution,theRellosaopinion,although
originallyconcurredinbyonlyonejustice,beingtoo
firmlyinbedded.Thewriterhoweverseesawelcome
signintheadoptionbytheCourtinthiscaseofthe
concurringopinionofthethenJustice,laterChief
JusticeBengzon.Haditbeenfollowedthen,the
problemwouldnotbestillwithusnow.Fortunately,it
isnevertoolatenoteveninconstitutional
adjudication.
Art.1417.Whenthepriceofanyarticleor
commodityisdeterminedbystatute,orby
Since,however,thesalesinquestiontookplaceprior
totheKrivenkodecision,atatimewhenthe
assumptioncouldbehonestlyentertainedthatthere
wasnoconstitutionalprohibition
LeeBunTing,99Phil.427(1955).
77Boughvs.Cantiveros,40Phil.210(1919)andPerez
vs.Herranz,7Phil.693
(1902).
1416
AccordingtotheRellosaopinion,bothpartiesare
equallyguiltyofevasionoftheConstitution,basedon
thebroaderprinciplethatbothpartiesarepresumedto
knowthelaw.Thisstatementthatthesalesentered
intopriortotheKrivenkodecisionwereatthattime
alreadyvitiatedbyaguiltyknowledgeoftheparties
maybetooextremeaview.Itappearstoignorea
postulateofaconstitutionalsystem,whereinthewords
oftheConstitutionacquiremeaningthroughSupreme
Courtadjudication.
AftertheKrivenkodecision,thereisnodoubtthat
continuedpossessionbyalienvendeeofproperty
acquiredbeforeitspromulgationisviolativeofthe
Constitution.Itisasifanactgrantingalienstheright
toacquireresidentialandcommerciallotswere
annulledbytheSupremeCourtascontrarytothe
provisionoftheConstitutionprohibitingaliensfrom
acquiringagriculturalland.
Thequestionthenasnow,therefore,wasandishow
todivestthealienofsuchpropertyrightsonterms
equitabletobothparties.Thatquestionshouldbejustly
resolvedinaccordancewiththemandatesofthe
Constitutionnotbyawholesalecondemnationofboth
partiesforenteringintoacontractatatimewhenthere
wasnobanasyetarisingfromtheKrivenkodecision,
whichcouldnothavebeenanticipated.Unfortunately,
undertheRellosacase,itwasassumedthattheparties,
beinginparidelicto,wouldbeleftinthesituationin
whichtheywere,neitherbeinginapositiontoseek
judicialredress.
Woulditnothavebeenmoreinconsonancewiththe
Constitution,ifinsteadthedecisioncompelledthe
restitutionofthepropertybythealienvendeetothe
Filipinovendor?Krivenkodecisionheldinclear,
explicitandunambiguouslanguagethat:Weare
decidingtheinstantcaseunderSection5ofArticle
XIIIoftheConstitutionwhichismorecomprehensive
andmoreabsoluteinthesensethatitprohibitsthe
transfertoaliensofanyprivateagriculturalland
includingresidentiallandwhateveritsoriginmight
havebeenxxx.Thisprohibition
629
49 of 50
oftheCivilCode.Hence,attorneysfeesmayalsobe
awarded.)
authorityoflaw,anypersonpayinganyamountin
excessofthemaximumpriceallowedmayrecover
suchexcess.79
Art.1418.Whenthelawfixes,orauthorizesthe
fixingofthemaximumnumberofhoursoflabor,
andacontractisenteredintowherebyalaborer
undertakestoworklongerthanthemaximumthus
fixed,hemaydemandadditionalcompensationfor
servicerenderedbeyondthetimelimit.80
632
Inadissentingopinion,however,inBrionesvs.
Cammayo,thethenJusticeCastro(withChiefJustice
ConcepcionandJusticeFernandoconcurring)
declared:
Beyondtheareaofdebateistheprinciplethatina
contractofloanofasumofmoney,thecause,with
respecttothelender,isgenerallythelenders
prestationtoreturnthesameamount.Itismyview,
however,thatinacontractwhichistaintedwithusury,
thatis,withastipulationxxxtopayusuriousinterest,
theprestationtopaysuchinterestisanintegralpartof
thecauseofthecontract.Itisalsothecontrolling
cause,forausurerlendshismoneynotjusttohaveit
returnedbutindeedtoacquireinordinategain.xxx
Undoubtedly,themotiveoftheusurerishisdesireto
acquireinordinategain;thismotivebecomesan
integralandcontrollingpartofthecausebecauseits
realizationcanbeachievedonlybycompliancebythe
borrowerwiththestipulatedprestationtopayusurious
interest.
Art.1419.Whenthelawsets,orauthorizesthe
settingofaminimumwageforlaborers,anda
contractisagreedupon
631
Art.1420CONTRACTS
bywhichalaboreracceptsalowerwage,heshallbe
entitledtorecoverthedeficiency.81
Art.1420.Incaseofadivisiblecontract,ifthe
illegaltermscanbeseparatedfromthelegalones,
thelattermaybeenforced.82
Thelawneverproscribesacontractmerelybecauseof
theimmoralmotiveofacontractingparty,forthe
reasonthatitdoesnotconcernitselfwithmotivebut
onlywithcause.Anexceptioniswheresuchmotive
becomesanintegralpartofthecause,likethe
stipulatedusuriousinterestinacontractofloan.xxx
ArticleApplied.Theabovearticlewasappliedto
usuriouscontractsofloaninAngelJosevs.Chelda
(supra)andBrionesvs.Cammayo(supra).The
doctrineisillustratedinthefollowingproblemaskedin
the1975BarExaminations:
Theprestationtopayusuriousinterestbeingan
integralpartandcontrollingpartofthecause,making
itillegalandthecontractofloanvoid,Article1411of
theNewCivilCodeshouldbeapplied.xxx
ProblemApartnershipborrowedP20,000.00from
Aatclearlyusuriousinterest.Canthecreditor
recoveranythingfromthedebtor?Explain.
Anexceptionis,however,providedinthesecond
sentenceofArticle1957whichstates:Theborrower
mayrecoverinaccordancewiththelawsonusury.As
anexceptiontothegeneralruleinArticle1411,the
debtorisallowedinaccordancewiththeUsuryLawto
recovertheamounthehaspaidasusuriousinterest.
Thus,Article1413explicitlyauthorizesthatInterest
paidinexcessoftheinterestallowedbytheusurylaws
mayberecoveredbythedebtor,withinterestthereon
fromthedateofpayment.Butthelenderisnot
allowedtorecovertheprincipal,becausenoexception
ismade;hence,hefallswithinthegeneralrulestated
inArticle1411.
Webelievethattheabovepronouncementisthe
correctlaw.633
Art.1421.Thedefenseofillegalityofcontractsis
notavailabletothirdpersonswhoseinterestsare
notdirectlyaffected.83
Art.1422.Acontractwhichisthedirectresultofa
previousillegalcontract,isalsovoidand
inexistent.84
AnswerYes,thecreditorcanrecoverfromthe
debtorthefollowing:theprincipal,legalinterestonthe
principalfromthedateofdemand(Art.2209,CC),
legalinterestonthelegalinterestsfromthetimeof
judicialdemand(Art.2212,CC),andattorneysfees,if
proper,underArt.2208oftheCivilCode.
Thatthecreditorcanrecovertheprincipalfromthe
debtorisnowwellsettled.(AngelJosevs.Chelda
Enterprises,23SCRA119;Brionesvs.Cammayo,41
SCRA404.)Inausuriouscontractofloan,thereare
alwaystwostipulations.Theyare:first,theprincipal
stipulationwherebythedebtorundertakestopaythe
principal;andsecond,theaccessorystipulation
wherebythedebtorundertakestopayausurious
interest.Thesetwostipulationsaredivisible.
AccordingtoArt.1420oftheCivilCode,incaseofa
divisiblecontract,iftheillegaltermscanbeseparated
fromthelegalones,thelattermaybeenforced.Itis
clearthatwhatisillegalistheprestationtopaythe
stipulatedinterest.Hence,beingseparable,thelatter
onlyshouldbedeemedvoid.
(Note:ItmustbenotedthatinAngelJosevs.Chelda,it
washeldthatattorneysfeescannotbeawarded.The
principalreasonisthat,atthetimewhenthedecision
waspromulgated,therewasyetnodefiniterulingon
thepointoflawinvolved.Now,itisalreadywell
settledthatthecreditormayrecovertheprincipal.
Consequently,plaintiffcreditormayrecoverthe
principalpluslegalinterestunderArts.2209and2212
50 of 50

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CHAPTER 3 FORMS OF CONTRACTS

CHAPTER 6 RESCISSIBLE CONTRACTS

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