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OBLIGATIONS & CONTRACTS 4TH EXAM
DEFECTIVE CONTRACTS & estoppel
Case list of Atty. Lydia Galas
ADDULAWESTRELLADO2016
RESCISSIBLE CONTRACTS
EQUATORIAL REALTY v MAYFAIR
Carmelo (private petitioner) owned a parcel of land, together
with two 2-storey buildings.
Carmelo entered into a contract of lease with Mayfair
(respondent) for the latter's lease of a portion (1,610 sq
meters) of Carmelo's property for a term of twenty years.
Two years later, on March 31, 1969, Mayfair entered into a
second contract of lease with Carmelo for the lease of
another portion (1,064 sq meters) of Carmelo's property for
another 20 years.
Both contracts of lease provides (sic) identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30-days
exclusive option to purchase the same.
In the event, however, that the leased premises is
sold to someone other than the LESSEE, the LESSOR
is bound and obligated, as it hereby binds and
obligates itself, to stipulate in the Deed of Sale
hereof that the purchaser shall recognize this lease
and be bound by all the terms and conditions
thereof.
In August 1974, Carmelo informed the president of Mayfair
that he was desirous of selling the entire property to a
certain Jose Araneta. Mr. Pascal told Mr. Yang that a certain
Jose Araneta was offering to buy the whole property for US
Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter
was willing to buy the property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Carmelo know of his
decision. Carmelo did not reply to this letter.
Four years later Carmelo sold its entire land and building,
which included the leased premises housing the "Maxim" and
"Miramar" theatres, to Equatorial.
In September 1978, Mayfair instituted the action for specific
performance and annulment of the sale of the leased
premises to Equatorial.
RTC ruled in favour of the petitioners and held that the
identically worded paragraph 8 found in both aforecited lease
contracts to be an option clause which however cannot be
deemed to be binding on Carmelo because of lack of distinct
consideration therefor.
The CA ruled in favour of the respondents ruling that the
existence of four separate parcels of land covering the whole
Recto property demonstrates the legal and physical
possibility that each parcel of land, together with the
buildings and improvements thereof, could have been sold
independently of the other parcels.
At the time both parties executed the contracts, they were
aware of the physical and structural conditions of the
buildings on which the theaters were to be constructed in
relation to the remainder of the whole Recto property. The
peculiar language of the stipulation would tend to limit
Mayfair's right under paragraph 8 of the Contract of Lease to
the acquisition of the leased areas only. Indeed, what is being
contemplated by the questioned stipulation is a departure
from the customary situation wherein the buildings and
improvements are included in and form part of the sale of the
subjacent land. Although this situation is not common,
especially considering the non-condominium nature of the
buildings, the sale would be valid and capable of being
performed. A sale limited to the leased premises only, if
hypothetically assumed, would have brought into operation

the provisions of co-ownership under which Mayfair would
have become the exclusive owner of the leased premises and
at the same time a co-owner with Carmelo of the subjacent
land in proportion to Mayfair's interest over the premises sold
to it. 10
Issue: Whether or not respondents petitioners acted
in bad faith to validly rescind the contract. Yes
We agree with the respondent Court of Appeals that the
aforecited contractual stipulation provides for a right of first
refusal in favor of Mayfair. It is a contract of a right of first
refusal.
The said paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. It also correctly
reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the
instant case.
To rule that a contractual stipulation such as that found in
paragraph 8 of the contracts is governed by Article 1324 on
withdrawal of the offer or Article 1479 on promise to buy and
sell would render in effectual or "inutile" the provisions on
right of first refusal so commonly inserted in leases of real
estate nowadays. It is not also correct to say that there is no
consideration in an agreement of right of first refusal. The
stipulation is part and parcel of the entire contract of lease.
The consideration for the lease includes the consideration for
the right of first refusal. Thus, Mayfair is in effect stating that
it consents to lease the premises and to pay the price agreed
upon provided the lessor also consents that, should it sell the
leased property, then, Mayfair shall be given the right to
match the offered purchase price and to buy the property at
that price.
First and foremost is that the petitioners acted in bad faith to
render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two
lease contracts, was that Mayfair will have the right of first
refusal in the event Carmelo sells the leased premises. It is
undisputed that Carmelo did recognize this right of Mayfair,
for it informed the latter of its intention to sell the said
property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical
end. While it initially recognized Mayfair's right of first
refusal, Carmelo violated such right when without affording
its negotiations with Mayfair the full process to ripen to at
least an interface of a definite offer and a possible
corresponding acceptance within the "30-day exclusive
option" time granted
Mayfair, Carmelo abandoned
negotiations, kept a low profile for some time, and then sold,
without prior notice to Mayfair, the entire Claro M Recto
property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders
the sale to it of the property in question rescissible. We agree
with respondent Appellate Court that the records bear out the
fact that Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said contracts.
As such, Equatorial cannot tenably claim to be a purchaser in
good faith, and, therefore, rescission lies.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its
rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not
act in bad faith. However, this rule is not applicable in the
case before us because the petitioner is not considered a
third party in relation to the Contract of Sale nor may its
possession of the subject property be regarded as acquired
lawfully and in good faith.
I- Estrellado 2016 Ateneo de Davao University College of Law

Outside distribution of this compilation without prior consent from the majority of AdDULAWESTRELLADO2016 is STRICTLY PROHIBITED

A purchaser in good faith and for value is one who buys the
property of another without notice that some other person
has a right to or interest in such property and pays a full and
fair price for the same at the time of such purchase or before
he has notice of the claim or interest of some other person in
the property. Good faith connotes an honest intention to
abstain from taking unconscientious advantage of another.
Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease
of the property by the Bonnevies and such knowledge should
have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its
own interests.
Petitioners assert the alleged impossibility of performance
because the entire property is indivisible property. It was
petitioner Carmelo which fixed the limits of the property it
was leasing out. Common sense and fairness dictate that
instead of nullifying the agreement on that basis, the
stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the
right of first refusal. A valid and legal contract where the
ascendant or the more important of the two parties is the
landowner should be given effect, if possible, instead of being
nullified on a selfish pretext posited by the owner. Following
the arguments of petitioners and the participation of the
owner in the attempt to strip Mayfair of its rights, the right of
first refusal should include not only the property specified in
the contracts of lease but also the appurtenant portions sold
to Equatorial which are claimed by petitioners to be
indivisible. Carmelo acted in bad faith when it sold the entire
property to Equatorial without informing Mayfair, a clear
violation of Mayfair's rights. While there was a series of
exchanges of letters evidencing the offer and counter-offers
between the parties, Carmelo abandoned the negotiations
without giving Mayfair full opportunity to negotiate within the
30-day period.
As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to
the prejudice of Mayfair. In fact, as correctly observed by the
Court of Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. Equatorial's
knowledge of the stipulations therein should have cautioned
it to look further into the agreement to determine if it
involved stipulations that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the
right only if the fraudulent sale is first set aside or rescinded.
All of these matters are now before us and so there should be
no piecemeal determination of this case and leave festering
sores to deteriorate into endless litigation. The facts of the
case and considerations of justice and equity require that we
order rescission here and now. Rescission is a relief allowed
for the protection of one of the contracting parties and even
third persons from all injury and damage the contract may
cause or to protect some incompatible and preferred right by
the contract. 26 The sale of the subject real property by
Carmelo to Equatorial should now be rescinded considering
that Mayfair, which had substantial interest over the subject
property, was prejudiced by the sale of the subject property
to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated
period. 27
ROSENCOR v INQUING
This action was originally for the annulment of the Deed of
Absolute Sale between defendants Rosencor and Eufrocina
de Leon but later amended praying for the rescission of the
deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the
lessees since 1971 of a two-story residential apartment
owned by spouses Faustino and Cresencia Tiangco. The lease
was not covered by any contract. The lessees were renting
the premises then for P150.00 a month and were allegedly

verbally granted by the lessors the pre-emptive right to
purchase the property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the
management of the property was adjudicated to their heirs
who were represented by Eufrocina de Leon (de Leon). The
lessees were allegedly promised the same pre-emptive right
by the heirs of Tiangcos since the latter had knowledge that
this right was extended to the former by the late spouses
Tiangcos. The lessees continued to stay in the premises and
allegedly spent their own money amounting from P50,000.00
to P100,000.00 for its upkeep. These expenses were never
deducted from the rentals which already increased to
P1,000.00.
In June 1990, the lessees received a letter demanding that
they vacate the premises so that the demolition of the
building be undertaken. They refused to leave the premises.
In that same month, de Leon refused to accept the lessees
rental payment claiming that they have run out of receipts
and that a new collector has been assigned to receive the
payments. Thereafter, they received a letter from Eufrocina
de Leon offering to sell to them the property they were
leasing for 2 million.
The lessees offered to buy the property from de Leon for the
amount of 1 million. De Leon told them that she will be
submitting the offer to the other heirs. Since then, no answer
was given by de Leon as to their offer to buy the property. In
November 1990, Rene Joaquin (owner of Rosencor) came to
the leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter
demanding that they vacate the premises. A month
thereafter, the lessees received a letter from de Leon
advising them that the heirs of the late spouses Tiangcos
have already sold the property to Rosencor. The following
month the petitioners, through letter, demanded for payment
of rentals.
The lessees requested from de Leon why she had disregarded
the pre-emptive right. They also asked for a copy of the deed
of sale between her and the new owners thereof but she
refused to heed their request. When they asked petitioner a
copy of the deed of sale, the latter turned down their request
and instead wrote them letters demanding that they vacate
the premises. The lessees offered to tender their rents de
Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the
Building Official, the barangay interceded between the
parties herein after which Rosencor raised the issue as to the
rental payment of the premises. It was also at this instance
that the lessees were furnished with a copy of the Deed of
Sale and discovered that they were deceived by de Leon
since the sale between her and Rene Joaquin/Rosencor took
place in September 4, 1990 while de Leon made the offer to
them only in October 1990 or after the sale with Rosencor
had been consummated. The lessees also noted that the
property was sold only for P726 thousand.
The lessees offered to reimburse de Leon the selling price of
Php 726T plus an additional Php 274T to complete their Php
1M earlier offer. Their offer was rejected hence, they filed a
petition for the rescission of the Deed of sale between the
spouses Tiangcos and petitioner
RTC dismissed the complaint and held that the right of
redemption on which the complaint was based was merely an
oral one and as such, is unenforceable under the law.
Issue:
1.) W/N the right of first refusal should comply


with the statute
enforceable
of
frauds
to
make
it
2.) W/N the sale between the parties be rescinded

on the grounds that it violates a third partys
right of first refusal
1.) Right of first refusal is enforceable.
The term "statute of frauds" is descriptive of statutes which
require certain classes of contracts to be in writing. This
statute does not deprive the parties of the right to contract
with respect to the matters therein involved, but merely
regulates the formalities of the contract necessary to render
it enforceable.
The purpose of the statute is to prevent fraud and perjury in
the enforcement of obligations depending for their evidence
on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged. Moreover, the
statute of frauds refers to specific kinds of transactions and
cannot apply to any other transaction that is not enumerated
therein. The application of such statute presupposes the
existence of a perfected contract.
We have previously held that not all agreements "affecting
land" must be put into writing to attain enforceability. We
have held that the setting up of boundaries, the oral partition
of real property, and an agreement creating a right of way are
not covered by the provisions of the statute of frauds
because these agreements are not among those enumerated
in the provision.
A right of first refusal is not among those listed as
unenforceable under the statute of frauds. Furthermore, the
application of Article 1403, par. 2(e) of the New Civil Code
presupposes the existence of a perfected, albeit unwritten,
contract of sale.18 A right of first refusal is not a perfected
contract of sale of real property. At best, it is a contractual
grant of the right of first refusal over the property sought to
be sold19.
2.) There can be no recission since petitioner is a buyer in
good faith substantiated by Article 1381(3) and 1385
Thus, the prevailing doctrine, as enunciated in the cited
cases, is that a contract of sale entered into in violation of a
right of first refusal of another person, while valid, is
rescissible.
There is, however, a circumstance which prevents the
application of this doctrine in the case at bench. In the cases
cited above, the Court ordered the rescission of sales made
in violation of a right of first refusal precisely because the
vendees therein could not have acted in good faith as they
were aware or should have been aware of the right of first
refusal granted to another person by the vendors therein.
The rationale for this is found in the provisions of the New
Civil Code on rescissible contracts. Under Article 1381 of the
New Civil Code, paragraph 3, a contract validly agreed upon
may be rescinded if it is "undertaken in fraud of creditors
when the latter cannot in any manner collect the claim due
them." Moreover, under Article 1385, rescission shall not take
place "when the things which are the object of the contract
are legally in the possession of third persons who did not act
in bad faith."30
It must be borne in mind that, unlike previous jurisprudence,
the right of first refusal involved in this case was an oral one
given to respondents by the deceased spouses Tiangco and
subsequently recognized by their heirs. As such, in order to
hold that petitioners were in bad faith, there must be clear
and convincing proof that petitioners were made aware of the
said right of first refusal either by the respondents or by the
heirs of the spouses Tiangco.

It is axiomatic that good faith is always presumed unless
contrary evidence is adduced.31 A purchaser in good faith is
one who buys the property of another without notice that
some other person has a right or interest in such a property
and pays a full and fair price at the time of the purchase or
before he has notice of the claim or interest of some other
person in the property. In this regard, the rule on constructive
notice would be inapplicable as it is undisputed that the right
of first refusal was an oral one and that the same was never
reduced to writing, much less registered with the Registry of
Deeds. In fact, even the lease contract by which respondents
derive their right to possess the property involved was an
oral one.
On this point, we hold that the evidence on record fails to
show that petitioners acted in bad faith in entering into the
deed of sale over the disputed property with the heirs of the
spouses Tiangco. Respondents failed to present any evidence
that prior to the sale of the property on September 4, 1990,
petitioners were aware or had notice of the oral right of first
refusal.
Respondents point to the letter sent by the petitioner
demanding that respondent Irene Guillermo vacate the
structure they were occupying to make way for its
demolition.
The letter could give rise to bad faith on the part of the
petitioner. No mention is made of the right of first refusal
granted to respondents. The name of petitioner Rosencor or
any of it officers did not appear on the letter and the letter
did not state that Atty. Aguila was writing in behalf of
petitioner. In fact, Atty. Aguila stated during trial that she
wrote the letter in behalf of the heirs of the spouses Tiangco.
Moreover, even assuming that Atty. Aguila was indeed writing
in behalf of petitioner Rosencor, there is no showing that
Rosencor was aware at that time that such a right of first
refusal existed.
Neither was there any showing that after receipt of this June
1, 1990 letter, respondents notified Rosencor or Atty. Aguila
of their right of first refusal over the property. Respondents
did not try to communicate with Atty. Aguila and inform her
about their preferential right over the disputed property.
There is even no showing that they contacted the heirs of the
spouses Tiangco after they received this letter to remind
them of their right over the property.
Respondents likewise point to the letter dated October 9,
1990 of de Leon, where she recognized the right of first
refusal of respondents, as indicative of the bad faith of
petitioners. This does not hold, De Leon wrote the letter on
her own behalf and not on behalf of petitioners and, as such,
it only shows that de Leon was aware of the existence of the
oral right of first refusal. It does not show that petitioners
were likewise aware of the existence of the said right.
Moreover, the letter was made a month after the execution of
the Deed of Sale on September 4, 1990 between petitioner
Rosencor and the heirs of the spouses Tiangco. There is no
showing that prior to the date of the execution of the said
Deed, petitioners were put on notice of the existence of the
right of first refusal.
Clearly, if there was any indication of bad faith based on
respondents evidence, it would only be on the part of de
Leon as she was aware of the right of first refusal yet she still
sold the disputed property to Rosencor. However, bad faith on
the part of de Leon does not mean that petitioner likewise
acted in bad faith. There is no showing that prior to the
execution of the Deed of Sale, petitioners were made aware
or put on notice of the existence of the oral right of first
refusal. Thus, absent evidence to the contrary, petitioner will
be presumed to have acted in good faith in entering into the
Deed of Sale over the disputed property.


Considering that there is no showing of bad faith on the part
of the petitioners, the CA thus erred in ordering the
rescission. The acquisition by Rosencor of the property
subject of the right of first refusal is an obstacle to the action
for its rescission where, as in this case, it was shown that
Rosencor is in lawful possession of the subject of the contract
and that it did not act in bad faith.34
The remedy of respondents is not an action for the rescission
of the Deed of Sale but an action for damages against the
heirs of the Tiangco for the unjustified disregard of their right
of first refusal35.
SC reversed the CAs decision and reinstated the RTCs
decision.
KHE HONG CHENG v CA

Petitioner Khe Hong Cheng is the owner of Butuan Shipping
Lines. The Philippine Agricultural Trading Corporation shipped
on board the vessel M/V PRINCE ERIC, owned by petitioner
Khe Hong Cheng, 3,400 bags of copra at Masbate for delivery
to Zamboanga del Norte.
The said shipment of copra was covered by a marine

insurance policy issued by American Home Insurance
Company (respondent Philam's assured).
M/V PRINCE ERlC sank resulting in the total loss of the

shipment. Because of the loss American Home, paid the
the value of the copra to the consignee.
Having been subrogated into the rights of the consignee,
American Home instituted Civil Case to recover the money
paid to the consignee, based on breach of contract of
carriage. While the case was still pending, petitioner Khe
Hong Cheng executed deeds of donations of parcels of land
in favor of his children.
RTC: rendered judgment against petitioner Khe Hong Cheng
in Civil Case
An alias writ of execution was applied for and granted.

Despite earnest efforts, the sheriff found no property
under the name of Butuan Shipping Lines and/or
petitioner Khe Hong Cheng to levy or garnish for the
satisfaction of the trial court's decision.
When the sheriff, accompanied by counsel of respondent

Philam, went to Butuan City, they discovered that
petitioner Khe Hong Cheng no longer had any property
and that he had conveyed the subject properties to his
children.
Respondent Philam filed a complaint for the rescission of the
deeds of donation executed by petitioner Khe Hong Cheng in
favor of his children and for the nullification of their titles.
alleged that petitioner Khe Hong Cheng executed the

aforesaid deeds in fraud of his creditors, including
respondent Philam.
Petitioners moved for its dismissal on the ground that the
action had already prescribed. They posited that the
registration of the deeds of donation on December 27, 1989
constituted constructive notice and since the complaint was
filed only on February 25, 1997, or more than four (4) years
after said registration, the action was already barred by
prescription.
ISSUE: WON the action for rescission has prescribed. When
did the four (4) year prescriptive period as provided for in
Article 1389 of the Civil Code for respondent Philam to file its
action for rescission of the subject deeds of donation
commence to run?
HELD:Article 1389: "The action to claim rescission
must be commenced within four years." Since this
provision of law is silent as to when the prescriptive period
would commence, the general rule, i.e., from the moment the
cause of action accrues, therefore, apply Article 1150.
Art. 1150. The time for prescription for all kinds of actions,
when there is no special provision which ordains otherwise,

shall be counted from the day they may be brought.
Court enunciated the principle that it is the legal
possibility of bringing the action which determines the
starting point for the computation of the prescriptive
period for the action.
Art. 1383. An action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no
other legal means to obtain reparation for the same.
An action to rescind or an accion pauliana must be of
last resort, availed of only after all other legal
remedies have been exhausted and have been proven
futile. For an accion pauliana to accrue, the following
requisites must concur:
1) That the plaintiff asking for rescission has a credit prior to,
the alienation, although demandable later;
2) That the debtor has made a subsequent contract
conveying a patrimonial benefit to a third person;
3) That the creditor has no other legal remedy to satisfy his
claim, but would benefit by rescission of the conveyance to
the third person;
4) That the act being impugned is fraudulent;
5) That the third person who received the property conveyed,
if by onerous title, has been an accomplice in the fraud.
To count the four year prescriptive period to rescind an
allegedly fraudulent contract from the date of registration of
the conveyance with the Register of Deeds, as alleged by the
petitioners, would run counter to Article 1383 of the Civil
Code as well as settled jurisprudence. It would likewise
violate the third requisite to file an action for rescission of an
allegedly fraudulent conveyance of property, i.e., the creditor
has no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A
judgment; 2) the issuance by the trial court of a writ of
execution for the satisfaction of the judgment, and 3) the
failure of the sheriff to enforce and satisfy the judgment of
the court. It requires that the creditor has exhausted the
property of the debtor: The date of the decision of the trial
court is immaterial. What is important is that the credit of the
plaintiff precedes that of the fraudulent alienation by the
debtor of his property. After all, the decision of the trial court
against the debtor will retroact to the time when the debtor
became indebted to the creditor.
Even if respondent Philam was aware, as of December 27,
1989, that petitioner Khe Hong Cheng had executed the
deeds of donation in favor of his children, the complaint
against Butuan Shipping Lines and/or petitioner Khe Hong
Cheng was still pending before the trial court.
Respondent Philam had no idea that the trial courts

judgment would be in its favor and further, that such
judgment would not be satisfied due to the deeds of
donation executed by petitioner Khe Hong Cheng during
the pendency of the case.
Had respondent Philam filed his complaint on December

27, 1989, such complaint would have been dismissed for
being premature. Not only were all other legal remedies
for the enforcement of respondent Philam's claims not
yet exhausted at the time the deeds of donation were
executed and registered.
Philam would also not have been able to prove then that
petitioner Khe Hong Cheng had no more property other
than those covered by the subject deeds to satisfy a
favorable judgment by the trial court.
Philam only learned about the unlawful conveyances made
by petitioner Khe Hong Cheng in January 1997 when its
counsel accompanied the sheriff to Butuan City to attach the
properties of petitioner Khe Hong Cheng. There they found
that he no longer had any properties in his name. It was only
then that respondent Philam's action for rescission of the
deeds of donation accrued because then it could be said that
respondent Philam had exhausted all legal means to satisfy
the trial court's judgment in its favor.
Since respondent Philam filed its complaint for accion

pauliana against petitioners on February 25, 1997, barely


a month from its discovery that petitioner Khe Hong
Cheng had no other property to satisfy the judgment
award against him, its action for rescission of the
subject deeds clearly had not yet prescribed.
UNION BANK v ONG
the question of whether the conveyance was a bona

fide transaction or a trick and contrivance to defeat creditors.
To creditors seeking contract rescission on the ground of
fraudulent conveyance rest the onus of proving by competent
evidence the existence of such fraudulent intent on the part
of the debtor, albeit they may fall back on the disputable
presumptions, if proper, established under Article 1387 of the
Code.
Facts:
Respondents spouses Alfredo Ong and Susana Ong, own the
majority capital stock of Baliwag Mahogany Corporation
(BMC). the spouses executed a Continuing Surety Agreement
in favor of Union Bank to secure a P40,000,000.00-credit line
facility made available to BMC. The agreement expressly
stipulated a solidary liability undertaking.
About a year after the execution of the surety agreement, the
spouses Ong, forP12,500,000.00, sold their 974-square meter
lot located in Greenhills, San Juan, Metro Manila, together
with the house and other improvements standing thereon, to
their co-respondent, Jackson Lee. Lee registered the sale and
was then issued Transfer Certificate of Title (TCT) No. 4746-R.
At about this time, BMC had already availed itself of the
credit facilities, and had in fact executed a total of twentytwo (22) promissory notes in favor of Union Bank.
BMC filed a Petition for Rehabilitation and for Declaration of
Suspension of Payments with the Securities and Exchange
Commission (SEC). To protect its interest, Union Bank lost no
time in filing with the RTC of Pasig City an action for
rescission of the sale between the spouses Ong and Jackson
Lee for purportedly being in fraud of creditors.
Union Bank assailed the validity of the sale, alleging that the
spouses Ong and Lee entered into the transaction in question
for the lone purpose of fraudulently removing the property
from the reach of Union Bank and other creditors. The
fraudulent
design
is
evidenced
by
the
following
circumstances: (1) insufficiency of consideration, the
purchase price of P12,500,000.00 being below the fair
market value of the subject property at that time; (2)
lack of financial capacity on the part of Lee to buy the
property. (3) Lee did not assert absolute ownership
over the property as he allowed the spouses Ong to
retain possession thereof under a purported Contract
of Lease.
Respondents maintained that both contracts of sale and
lease over the Greenhills property were founded on good and
valid consideration and executed in good faith.
RTC, applying Article 1381 of the Civil Code and noting that
the evidence on record "present[s] a holistic combination of
circumstances distinctly characterized by badges of fraud,"
rendered judgment for Union Bank, the Deed of Sale
executed on October 22, 1991 by the spouses Ong in favor of
Lee being declared null and void.
CA reversed and set aside the trial court's ruling, observing
that the contract of sale executed by the spouses Ong and
Lee, being complete and regular on its face, is clothed with
the prima facie presumption of regularity and legality.
Issue: Whether or not the sale between Spouses Ong and
Jackson Lee entered in fraud of creditors.
Ruling:NO
Contracts in fraud of creditors are those executed with the
intention to prejudice the rights of creditors. They should not
be confused with those entered into without such mal-intent,
even if, as a direct consequence thereof, the creditor may
suffer some damage. In determining whether or not a certain
conveying contract is fraudulent, what comes to mind first is
In the present case, respondent spouses Ong, as the CA had

determined, had sufficiently established the validity and
legitimacy of the sale in question. The conveying deed, a duly
notarized document, carries with it the presumption of
validity and regularity. Too, the sale was duly recorded and
annotated on the title of the property owners, the spouses
Ong. As the transferee of said property, respondent Lee
caused the transfer of title to his name.
There can be no quibbling about the transaction being
supported by a valid and sufficient consideration. Respondent
Lee, as purchaser, paid the stipulated contract price to the
spouses Ong, as vendors. Receipts presented in evidence
covered and proved such payment. Accordingly, any
suggestion negating payment and receipt of valuable
consideration for the subject conveyance, or worse, that the
sale was fictitious must simply be rejected.
The existence of fraud or the intent to defraud creditors
cannot plausibly be presumed from the fact that the price
paid for a piece of real estate is perceived to be slightly
lower, if that really be the case, than its market value. That
the spouses Ong acquiesced to the price ofP12,500,000.00,
which may be lower than the market value of the house and
lot at the time of alienation, is certainly not an unusual
business phenomenon.
It may be stressed that, when the validity of sales contract is
in issue, two veritable presumptions are relevant: first, that
there was sufficient consideration of the contract ;
and, second, that it was the result of a fair and regular
private transaction. If shown to hold, these presumptions
infer prima facie the transaction's validity, except that it must
yield to the evidence adduced which the party disputing such
presumptive validity has the burden of overcoming.
Unfortunately for the petitioner, it failed to discharge this
burden.
Parenthetically, the rescissory action to set aside contracts in
fraud of creditors is accion pauliana, essentially a subsidiary
remedy accorded under Article 1383 of the Civil Code which
the party suffering damage can avail of only when he has no
other legal means to obtain reparation for the same. In net
effect, the provision applies only when the creditor
cannot recover in any other manner what is due him.
It is true that respondent spouses, as surety for BMC, bound
themselves to answer for the latters debt. Nonetheless, for
purposes of recovering what the eventually insolvent BMC
owed the bank, it behooved the petitioner to show that
it had exhausted all the properties of the spouses
Ong. It does not appear in this case that the petitioner
sought other properties of the spouses other than the
subject Greenhills property. The CA categorically said so.
Absent proof, therefore, that the spouses Ong had no other
property except their Greenhills home, the sale thereof to
respondent Lee cannot simplistically be considered as one in
fraud of creditors.
Neither was evidence adduced to show that the sale in
question peremptorily deprived the petitioner of means to
collect its claim against the Ongs. Where a creditor fails to
show that he has no other legal recourse to obtain
satisfaction for his claim, then he is not entitled to the
rescission asked.
For a contract to be rescinded for being in fraud of creditors,


both contracting parties must be shown to have acted
maliciously so as to prejudice the creditors who were
prevented from collecting their claims. In this case, there is
no evidence tending to prove that the spouses Ong and Lee
were conniving cheats.
Rescission is generally unavailing should a third person,
acting in good faith, is in lawful possession of the
property, that is to say, he is protected by law against a suit
for rescission by the registration of the transfer to him in the
registry.His possession is evidenced by no less than a
certificate of title issued him by the Registry of Deeds after
the usual registration of the corresponding conveying deed of
sale. On the other hand, the bona fides of his acquisition can
be deduced from his conduct and outward acts previous to
the sale. Respondent Lee undertook what amounts to due
diligence on the possible defects in the title of the Ongs
before proceeding with the sale. As it were, Lee decided to
buy the property only after being satisfied of the absence of
such defects.
Petitioner has made much of respondent Lee not taking
immediate possession of the property after the sale, stating
that such failure is an indication of his participation in the
fraudulent scheme to prejudice petitioner bank.
The spouses' continuous possession of the property was by
virtue of a one-year lease they executed with respondent
Lee. Respondent spouses insisted on the lease arrangement
as a condition for the sale in question. And pursuant to the
lease contract aforementioned, the respondent Ongs paid
and Lee collected rentals at the rate of P25,000.00 a month.
Contrary thus to the petitioners asseveration, respondent
Lee, after the sale, exercised acts of dominion over the said
property and asserted his rights as the new owner. So, when
the respondent spouses continued to occupy the property
after its sale, they did so as mere tenants. While the failure of
the vendee to take exclusive possession of the property is
generally recognized as a badge of fraud, the same cannot
be said here in the light of the existence of what appears to
be a genuine lessor-lessee relationship between the spouses
Ong and Lee.
To borrow from Reyes vs. Court of Appeals, possession may
be exercised in ones own name or in the name of another;
an owner of a piece of land has possession, either when he
himself physically occupies the same or when another person
who recognizes his right as owner is in such occupancy.
Petitioners assertion regarding respondent Lees lack of
financial capacity to acquire the property in question is
clearly untenable. It is clearly incorrect to measure ones
purchasing capacity with ones income at a given period. But
the more important consideration in this regard is the
uncontroverted fact that respondent Lee paid the purchase
price of said property. Where he sourced the needed cash is,
for the nonce, really of no moment.
In a last-ditch attempt to resuscitate a feeble cause,
petitioner cites Section 70 of the Insolvency Law which,
unlike the invoked Article 1381 of the Civil Code that deals
with a valid but rescissible contract, treats of a contractual
infirmity resulting in nullity no less of the transaction in
question. Insofar as pertinent, Section 70 of the Insolvency
Law provides:
Sec. 70. If any debtor, being insolvent, or in contemplation of
insolvency, within thirty days before the filing of a petition by
or against him, with a view to giving a preference to any
creditor or person having a claim against him xxx makes any
xxx sale or conveyance of any part of his property, xxx such
xxx sale, assignment or conveyance is void, and the
assignee, or the receiver, may recover the property or the
value thereof, as assets of such insolvent debtor. xxx. Any
payment, pledge, mortgage, conveyance, sale, assignment,
or transfer of property of whatever character made by the
insolvent within one (1) month before the filing of a petition
in insolvency by or against him, except for a valuable

pecuniary consideration made in good faith shall be
void. xxx. (Emphasis added)
Petitioner avers that the Ong-Lee sales contract partakes of a
fraudulent transfer and is null and void in contemplation of
the aforequoted provision, the sale having occurred on
October 22, 1991 or within thirty (30) days before BMC filed a
petition for suspension of payments on November 22, 1991.
Petitioner's reliance on the afore-quoted
misplaced for the following reasons:
is
First, Section 70, supra, of the Insolvency Law

specifically makes reference to conveyance of
properties made by a "debtor" or by an "insolvent"
who filed a petition, or against whom a petition for
insolvency has been filed. Respondent spouses Ong
have doubtlessly not filed a petition for a declaration
of their own insolvency. Neither has one been filed
against them. And as the CA aptly observed, it was
never proven that respondent spouses are likewise
insolvent, petitioner having failed to show that they
were down to their Greenhills property as their only
asset.
It may be that BMC had filed a petition for
rehabilitation and suspension of payments with the
SEC. The nagging fact, however is that BMC is a
different juridical person from the respondent
spouses. Their seventy percent (70%) ownership of
BMCs capital stock does not change the legal
situation. Accordingly, the alleged insolvency of BMC
cannot, as petitioner postulates, extend to the
respondent spouses such that transaction of the
latter comes within the purview of Section 70 of the
Insolvency Law.
Second, the real debtor of petitioner bank in this
case is BMC. The fact that the respondent spouses
bound themselves to answer for BMCs indebtedness
under the surety agreement referred to at the outset
is not reason enough to conclude that the spouses
are themselves debtors of petitioner bank. We have
already passed upon the simple reason for this
proposition. We refer to the basic precept in this
jurisdiction that a corporation, upon coming into
existence, is invested by law with a personality
separate and distinct from those of the persons
composing it.24 Mere ownership by a single or small
group of stockholders of nearly all of the capital
stock of the corporation is not, without more,
sufficient to disregard the fiction of separate
corporate personality.25
Third, Section 70 of the Insolvency Law considers
transfers made within a month after the date of
cleavage void, except those made in good faith and
for valuable pecuniary consideration. The twin
elements of good faith and valuable and sufficient
consideration have been duly established. Given the
validity and the basic legitimacy of the sale in
question, there is simply no occasion to apply
Section 70 of the Insolvency Law to nullify the
transaction subject of the instant case.
HEIRS OF QUIRONG v DBP

The late Emilio Dalope left a 589-sq meter untitled lot in Sta.
Barbara, Pangasinan, to his wife, Felisa Dalope & their 9
children, one of whom was Rosa Dalope-Funcion. To enable
Rosa & her husband Antonio get a loan from RespondentDevelopment Bank of the Philippines (DBP), Felisa sold the
whole lot to the Funcions.

provision

12 Feb 1979, after the Funcions failed to pay their loan, the
DBP foreclosed the mortgage on the lot & consolidated
ownership in its name on 17 June 1981.
4 years later the DBP conditionally sold the lot to Sofia
Quirong for the price of P78,000. In their contract of sale,
Sofia waived any warranty against eviction. The contract
provided that the DBP did not guarantee possession of the
property & that it would not be liable for any
lien/encumbrance on the same.
2 months after that sale, Felisa & her children (collectively,
the Dalopes) filed an action for partition & declaration of
nullity of documents with damages against the DBP & the
Funcions before the RTC of Dagupan City, in Civil Case D7159.
27 Dec 1984, notwithstanding the suit, the DBP executed a
deed of absolute sale of the subject lot in Sofia favor.
11 May 1985, Sofia died, her heirs filed an answer in
intervention in Civil Case D-7159 in which they asked the RTC
to award the lot to them &, should it instead be given to the
Dalopes, to allow the Quirong heirs to recover the lots value
from the DBP.
16Dec92 the RTC rendered a decision, declaring the DBPs
sale to Sofia valid only with respect to the shares of Felisa &
Rosa in the property. It declared Felisas sale to the Funcions,
the latters mortgage to the DBP, & the latters sale to Sofia
void insofar as they prejudiced the shares of the 8 other
children of Emilio & Felisa who were each entitled to a share
in the subject lot.
DBP received a copy of the decision on 13 Jan 1993 &,
therefore, it had until 28 Jan 1993 w/n w/c to file a motion for
its reconsideration/a notice of appeal from it. But the DBP
failed to appeal. RTC judgment became final & the court
issued a writ of execution.
10 June 1998 the Quirong heirs filed the present action
against the DBP before the RTC of Dagupan City for rescission
of the contract of sale between Sofia, their predecessor, &
the DBP & praying for the reimbursement of the price of
P78,000 that she paid the bank plus damages. The heirs
alleged that they were entitled to the rescission of the sale
because the decision in Civil Case D-7159 stripped them of
nearly the whole of the lot that Sofia, bought from the DBP.
RTC: rendered a decision, rescinding the sale between Sofia &
the DBP & ordering the latter to return to the Quirong heirs
the P78,000 Sofia paid the bank.
CA: reversed the RTC decision & dismissed the heirs action on
the ground of prescription.
ISSUE: WON the CA erred in dismissing the case on the
ground of prescription.
RULING:
The remedy of rescission is not confined to the rescissible
contracts enumerated under Art 1381. Art 1191 gives the
injured party in reciprocal obligations, such as what contracts
are about, the option to choose bet fulfillment & rescission.
The equivalent of Art 1191 in the old code actually uses the
term resolution rather than the present rescission (Arturo
Tolentino). The calibrated meanings of these terms are
distinct.
Rescission is a subsidiary action based on injury to the
plaintiffs economic interests as described in Articles 1380 &
1381. Resolution, the action referred to in Art 1191, on the
other hand, is based on the defendants breach of faith, a
violation of the reciprocity between the parties. As an action
based on the binding force of a written contract, therefore,
rescission (resolution) under Art 1191 prescribes in 10 yrs.
And also 10 yrs based on a written contract under Art 1144.
Art 1191 gives the injured party an option to choose bet, 1st,
fulfillment of the contract &, 2nd, its rescission. An action to
enforce a written contract (fulfillment) is definitely an action
upon a written contract, w/c prescribes in 10 yrs (Art 1144). It

will not be logical to make the remedy of fulfillment prescribe
in 10 years while the alternative remedy of rescission (or
resolution) is made to prescribe after only 4 years as
provided in Art 1389 when the injury from w/c the 2 kinds of
actions derive is the same.
With the loss of 80% of the subject lot to the Dalopes by
reason of the judgment of the RTC in Civil Case D-7159, the
Quirong heirs had the right to file an action for rescission
against the DBP pursuant to the provision of Art 1556.
And that action for rescission, which is based on a
subsequent economic loss suffered by the buyer, was
precisely the action that the Quirong heirs took against the
DBP. Consequently, it prescribed as Art 1389 provides in 4 yrs
from the time the action accrued. Since it accrued on
28Jan93 when the decision in Civil Case D-7159 became final
& executory & ousted the heirs from a substantial portion of
the lot, the latter had only until 28 Jan 1997 within which to
file their action for rescission. Given that they filed their
action on 10 June 1998, they did so beyond the 4-yr period.
ADA v BAYLON
Facts: Petitioners and Respondents were the heirs of the
deceased spouses Florante and Maximina Baylon who left
several parcels of land. To recover what is due for them,
petitioners filed a complaint for partition, accounting and
damages against the defendants and alleged the following:
1) that Spouses Baylon, during their lifetime, owned 43
parcels of land;
2) that after the death of Spouses Baylon, they claimed
that Rita took possession of the said parcels of land
and appropriated for herself the income from the
same.
3) using the income produced by the said parcels of
land, Rita allegedly purchased Lot No. 4709 and half
of Lot No. 4706 of land; and
4) that Rita refused to effect a partition of the said
parcels of land.
In their reply, defendants asserted the following:
a) that they and the petitioners co-owned 22 out of the
43 parcels of land mentioned in the latters
complaint;
b) Rita actually owned 10 parcels of land out of the 43
parcels which the petitioners sought to partition
while the remaining 11 parcels of land are
separately owned by third persons;
c) that Lot No. 4709 and half of Lot No. 4706 were
acquired by Rita using her own money; and
d) denied that Rita appropriated solely for herself the
income of the estate of Spouses Baylon, and
expressed no objection to the partition of the estate
of Spouses Baylon, but only with respect to the coowned parcels of land.
However, during the pendency of the case, Rita through a
Deed of Donation, conveyed Lot No. 4709 and half of Lot No.
4706 to Florante. Consequently, Rita died intestate and
without any issue. Thereafter, learning of the said donation
inter vivos in favor of Florante, the petitioners filed a
Supplemental Pleading, praying that the said donation in
favor of the respondent be rescinded in accordance with
Article 1381(4) of the Civil Code. They further alleged that
Rita was already sick and very weak when the said Deed of
Donation was supposedly executed and, thus, could not have
validly given her consent thereto. RTC granted the decision.
However, it was reversed by the CA.
Issue: W/N the the donation inter vivos of Lot No. 4709 and
half of Lot No. 4706 in favor of Florante may be rescinded
pursuant to Article 1381(4) of the Civil Code on the ground
that the same was made during the pendency of the action
for partition before the RTC.
Ruling: Contracts which are rescissible due to fraud or bad
faith include those which involve things under litigation, if
they have been entered into by the defendant without the


knowledge and approval of the litigants or of competent
judicial authority.
The rescission of a contract under Article 1381(4) of the Civil
Code only requires the concurrence of the following: first, the
defendant, during the pendency of the case, enters into a
contract which refers to the thing subject of litigation; and
second, the said contract was entered into without the
knowledge and approval of the litigants or of a competent
judicial authority. As long as the foregoing requisites concur,
it becomes the duty of the court to order the rescission of the
said contract. The reason for this is simple. Article 1381(4)
seeks to remedy the presence of bad faith among the parties
to a case and/or any fraudulent act which they may commit
with respect to the thing subject of litigation. The petitioners
had sufficiently established the presence of the requisites for
the rescission of a contract pursuant to Article 1381(4) of the
Civil Code. It is undisputed that, at the time they were
gratuitously conveyed by Rita, Lot No. 4709 and half of Lot
No. 4706 are among the properties that were the subject of
the partition case then pending with the RTC. It is also
undisputed that Rita, then one of the defendants in the
partition case with the RTC, did not inform nor sought the
approval from the petitioners or of the RTC with regard to the
donation inter vivos of the said parcels of land to Florante.
Although the gratuitous conveyance of the said parcels of
land in favor of Florante was valid, the donation inter vivos of
the same being merely an exercise of ownership, Ritas
failure to inform and seek the approval of the petitioners or
the RTC regarding the conveyance gave the petitioners the
right to have the said donation rescinded pursuant to Article
1381(4) of the Civil Code.
VIODABLE CONTRACTS
SAMONTE v CA
Facts:
The subject of the dispute is the parcel of land

originally covered by Original Certificate of Title No. RO-238
(555) which was issued in the names of Apolonia Abao and
her daughter IreneaTolero, pro indiviso. In the Regional Trial
Court of Agusan del Norte, two cases were separately filed
involving the entire lot, both cases were filed by the surviving
heirs of Apolonia and Irenea.
The first case (Civil case no. 1672) was an action for
quieting of title and recovery of possession of a parcel of land
which originally formed part of the entire property. The
second case (Civil case no. 1816), is similarly an action for
quieting of title and recovery of possession which involved
the entire Lot 216. The complaint therein sought the
annulment of several certificates of title covering portions of
Lot 216 and the reinstatement of OCT No. RO-238(555).
The present case stems only from the Civil case no.
1816 where Lot 216 which is covered by OCT No. RO-238
(555). That on August 8, 1957 based on an affidavit of Extrajudicial Settlement and Confirmation of Sale it was cancelled
and in lieu thereof a TCT was issued in the name of Irenea ,
share and Nicolas Jadol share. That on February 13, 1959
based on a subdivision plan Lot 216 was subdivided into Lot
216-A and Lot 216-B, the Register of Deeds of Agusan then
cancelled the TCT and issued in its place a new one in the
name of TiburcioSamonte for Lot 216-A and Irenea and
Nicolas for Lot 216-B which was also subdivided to Lot 216-B1 and 216-B-2 issued in the name of Jacob Tagorda and
Irenea and Nicolas Jadol.
Plaintiffs now claims ownership over the entire lot,
as it was registered in the name of their mother IreneaTolero
and the other half was registered in the name of their
grandmother Apolonia Abao. They questioned the series of
cancellation of the certificate of title and the Deed of Extrajudicial Settlement and Confirmation of Sale executed by
Ignacio Atupan on August 7, 1957 who is not a son of
Apolonia but only grew up while living with Apolonia. That
when Lot 216 was subdivided into 2 lots, the plaintiffs or their
predecessors-in-interest have not signed any document
agreeing as to the manner how Lot 2166 was to be divided,
nor have they consented to the partition of the same.
Defendant Samonte claims that he bought portions

of the Lot 216 in good faith as he was made to believe that
all the papers in possession of his vendors were all in order.
One of the documents presented by him is a Deed of
Absolute Sale executed in 1939. That he has been in an open,
continuous, adverse and exclusive possession of the portions
of Lot 216 he bought for more than 20years and have
declared the land for taxation purposes and have paid the
real estate taxes thereon. And that respondents action for
reconveyance, filed only in 1975, had long prescribed as the
registration of the lot was way back 1957.
The trial court in the 2 cases rendered separate
decisions both In favour of the plaintiffs. Defendants
respectively appealed to the decision to the CA. The CA
affirmed the decisions of the trial court and dismissed the
appeals.
Issue: Whether or not the discovery of the fraud is deemed to
have taken place at the time of the registration.
Whether or not petitioner was a buyer in good faith.
Ruling:
Petitioners defense of prescription is untenable. The
general rule that the discovery of fraud is deemed to have
taken place upon the registration of real property does not
apply in this case. Citing the case of Adille vs CA the CA
correctly reckoned the prescriptive period from the time
respondents had actually discovered the fraudulent act of
Atupan.
On the issue whether petitioner is a buyer in bad
faith as he claims, the Court hold in negative. It was
established that he knew that respondents were the only
surviving heirs of IreneaTolero. Despite this knowledge,
petitioner still bought a portion of the subject lot from the
Jadol spouses, when the same was still registered under the
Original certificate title in the name of Abao and Tolero. With
respect to the particular lot, petitioner cannot pretend to be a
purchaser in good faith. It is axiomatic that one who buys
from a person who is not a registered owner is not a
purchaser in good faith.
Further, the general rule is that a person dealing
with registered land has a right to rely on the Torrens
certificate of title and to dispense with need of making
inquiries. Exceptions are when the party has actual
knowledge of facts and circumstances that would impel a
reasonably cautious man to make inquiry or when the
purchaser has knowledge of a defect or lack of title in his
vendor or of sufficient facts to induce a reasonably prudent
man to inquire into the status of the title. One who falls
within the exception can neither be denominated an innocent
purchaser for value nor a purchaser in god faith a.
A holder in bad faith of a certificate title is not
entitled to the protection of the law, for the law cannot be
used as shield for frauds.
MENDEZONA v OZAMIZ
Facts:
A suit was instituted on September 25, 1991 by the petitioner
spouses Mario J. Mendezona and Teresita M. Mendezona as
initial plaintiff and in the amended complaint filed on October
7, 1991, herein co-petitioner spouses Luis J. Mendezona
joined as co-plaintiff. In their compliant, the petitioners as
plaintiff therein alleged that petitioner spouses Mario J.
Mendezona and Teresita M. Mendezona petitioner spouses
Luis J. Mendezona and Maricar Mendezona own a parcel of
land each in Lahug, Cebu city with similar areas 3462, 3466
and 3468 square meters covered and described in TCT Nos
116834, 116835 and 116836. The petitioners ultimately
traced their titles of ownership over their respective
properties from a deed of Absolute Sale executed in their
favor by Carmen Ozamiz and in consideration of P 1,040,000.
It appears than on January 15, 1991, the respondents
instituted the petition for guardianship with RTC Oroquieta,
City alleging that Carmen Ozamiz had become disoriented
and could not recognize most of her friends and could no
longer take care of her properties by reason pf weak mind
and absentmindedness. As guardians Roberto J. Montalvan
and Julio H. Ozamiz filed on August 6, 1991 with the
guardianship court their Inventories and Accounts including


the 10,369 square meters Lahug property. Said Lahug
property covered by deed of Absolute Sale dated April 28,
1989 executed by Carmen Ozamiz in favor of petitioners.
In their Answer, respondents opposed the claim of ownership
of the Lahug property and alleged that the titles issued to the
petitioners are defective and illegal and the ownership of said
properties was acquired in bad faith and without value
inasmuch as the consideration for the sale is grossly
inadequate and unconscionable. Respondents further alleged
that on April 28, 1989 Carmen Ozamiz was already ailing and
not in full possession of her mental faculties; and that her
properties having been placed in administration, she was in
effect incapacitated to contract with petitioners. On
September 23, 1992, the Trial court rendered decision in
favor of petitioners. On appeal the Court of Appeal reversed
its decision and ruled that the Absolute Sale dated April 28,
1989 was a simulated contract since the petitioners failed to
prove that the consideration was actually paid.
Issue:
Whether or not Carmen Ozamiz was incapacitated at the time
of the execution of the Deed of Sale.
Held:
The appellate court erred in ruling that at the time of
the execution of the Deed of Absolute Sale on April 28,
1989 the mental faculties of Carmen Ozamiz were already
seriously impaired.It placed too much reliance upon the
testimonies of the respondents witnesses. However, after a
thorough scrutiny of the transcripts of the testimonies of the
witnesses, we find that the respondents core witnesses all
made sweeping statements which failed to show the true
state of mind of Carmen Ozamiz at the time of the execution
of the disputed document. The testimonies of the
respondents witnesses on the mental capacity of
Carmen Ozamiz are far from being clear and convincing, to
say the least.
Carolina Lagura,
a househelper of
Carmen Ozamiz,
testified that when Carmen Ozamiz was confronted by Paz
O. Montalvan in
January
1989
with
the
sale
of
theLahug property, Carmen Ozamiz denied the same. She
testified that Carmen Ozamiz understood the question
then.However, this declaration is inconsistent with her
(Carolinas) statement that since 1988 CarmenOzamiz could
not fully understand the things around her, that she was
physically fit but mentally could not carry a conversation or
recognize persons who visited her.Furthermore, the disputed
sale occurred on April 28, 1989 or three (3) months after this
alleged confrontation in January 1989. This inconsistency was
not explained by the respondents.
We note that the respondents sought to impugn only

one document, namely, the Deed of Absolute Sale dated April
28, 1989, executed by Carmen Ozamiz. However, there are
nine (9) other important documents that were, signed by
Carmen Ozamiz either before or after April 28, 1989 which
were not assailed by the respondents. Such is contrary to
their assertion of complete incapacity of Carmen Ozamiz to
handle her affairs since 1987. We agree with the trial courts
assessment that it is unfair for the [respondents] to claim
soundness of mind of Carmen Ozamiz when it benefits them
and otherwise when it disadvantages them. A person is
presumed to be of sound mind at any particular time and the
condition is presumed to continue to exist, in the absence of
proof to the contrary. Competency and freedom from undue
influence, shown to have existed in the other acts done or
contracts executed, are presumed to continue until the
contrary is shown.
FAMANILA v CA
FACTS:
NFD International Manning Agents, Inc. (respondents) hired
the services of Famanila as Messman for Hansa Riga, a vessel
registered and owned by Barbership Management Limited.
When Hansa Riga was docked at the port in California, and
while Famanila was assisting in the loading operations, the
latter complained of a headache. He experienced dizziness
and subsequently collapsed.
Upon examination, it was
determined that he had a sudden attack of left cerebral
hemorrhage from a ruptured cerebral aneurysm. Famanila
had a brain operation in Oregon.
Because of this, Famanila was repatriated to the Philippines
and was declared therein that he cannot go back to sea duty
he is being declared permanently, totally disabled.
Thereafter, authorized representatives of the respondents
convinced him to settle his claim amicably by accepting the
amount of US$13,200. This was accepted by Famanila as
evidenced by his signature in the Receipt and Release and
witnessed by his wife and one Richard.
Famanila filed a complaint with the NLRC which was docketed
praying for an award of disability benefits, share in the
insurance proceeds, moral damages and attorneys fees.
He claims that he did not sign the Receipt and
Release voluntarily or freely because he was
permanently disabled and in financial constraints.
His consent was vitiated and thus the Receipt and
Release was void and unforceable.
LA: Dismissed due to prescription.
The revelation of Dr. Faith Go did not also shed light on

the mental capacity of Carmen Ozamiz on the relevant day
- April 28, 1989 when the Deed of Absolute Sale was
executed and notarized. At best, she merely revealed that
Carmen Ozamiz was suffering from certain infirmities in her
body and at times, she was forgetful, but there was no
categorical statement that Carmen Ozamiz succumbed to
what the respondents suggest as her alleged second
childhood as early as 1987. The petitioners rebuttal witness,
Dr. William Buot, a doctor of neurology, testified that no
conclusion of mental incapacity at the time the said deed was
executed can be inferred from Dr. Faith Gos clinical notes nor
can such fact be deduced from the mere prescription of a
medication for episodic memory loss.
It has been held that a person is not incapacitated to
contract merely because of advanced years or by reason of
physical infirmities. Only when such age or infirmities impair
her mental faculties to such extent as to prevent her from
properly, intelligently, and fairly protecting her property
rights, is she considered incapacitated. The respondents
utterly failed to show adequate proof that at the time of the
sale on April 28, 1989 Carmen Ozamiz had allegedly lost
control of her mental faculties.
NLRC: Dismissed.
ISSUE:
WON Famanilas consent was vitiated due to disability and
financial constraints.
HELD:
NO.
A VITIATED CONSENT DOES NOT MAKE A CONTRACT
VOID AND UNENFORCEABLE. A vitiated consent only
gives rise to a voidable agreement. If consent is given
through any of the vices of consent, the contract is voidable.
It is binding unless annulled by a proper action in court.
DISABILITY IS NOT AMONG THE FACTORS THAT MAY
VITIATE CONSENT. Also, there is no proof that Famanilas
consent was vitiated on account of his disability. In the
absence of such proof of vitiated consent, the validity of the
Receipt and Release must be upheld.
Granting that he has not fully recovered at the time
of the signing of the subject document, it cannot still
be concluded that he did not voluntarily accept the
agreement, for his wife and another relative


witnessed his signing.

The Receipt and Release does not show on its face
any violation of law or public policy.
In fact,
Famanila did not present any proof to show that the
consideration for the same is not reasonable and
acceptable.
Not all waivers and quitclaims are invalid as against public

policy. If the agreement was voluntarily entered into
and represents a reasonable settlement, it is binding
on the parties and may not later be disowned simply
because of change of mind. It is only where there is clear
proof that the waiver was wangled from an unsuspecting or
gullible person, or the terms of the settlement are
unconscionable on its face, that the law will step in to annul
the questionable transaction.
TO BE VALID AND EFFECTIVE, WAIVERS MUST BE
COUCHED IN CLEAR AND UNEQUIVOCAL TERMS,
LEAVING NO DOUBT AS TO THE INTENTION OF THOSE
GIVING UP A RIGHT OR A BENEFIT THAT LEGALLY
PERTAINS TO THEM. We have reviewed the terms and
conditions contained in the Receipt and Release and we find
the same to be clear and unambiguous.
A contract is perfected by mere consent and from that
moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in
keeping with good faith, usage and law. Further, dire
necessity is not an acceptable ground for annulling
the Receipt and Release since it has not been shown
that petitioner was forced to sign it.
CATALAN v BASA
FACTS:
On October 20, 1948, Feliciano was discharged from active
military service. The Board of Medical Officers of the
Department of Veteran Affairs found that he was unfit to
render military service due to his schizophrenic reaction,
catatonic type, which incapacitates him because of flattening
of mood and affect, preoccupation with worries, withdrawal,
and sparce (sic) and pointless speech.
On June 16, 1951, Feliciano allegedly donated to his sister
Mercedes of his one-half of the real property.
December 11, 1953, PBTC (now BPI) filed a petition to declare
Feliciano incompetent. This was granted and it appointed BPI
as guardian.
On November 22, 1978, Feliciano and Corazon donated Lots
1 and 3 of their property to their son Eulogio.
On March 26, 1979, Mercedes sold the property in issue in
favor of her children Delia and Jesus.
On June 24, 1983, Feliciano and Corazon donated Lot 2 of
their property registered to their children Alex, Librada and
Zenaida.
On February 14, 1983, Feliciano and Corazon Cerezo donated
Lot 4 of their property to Eulogio and Florida.
On April 1, 1997, BPI, acting as Felicianos guardian, filed a
case for Declaration of Nullity of Documents, Recovery of
Possession and Ownership, as well as damages against the
respondents.
BPI alleged that the Deed of Absolute Donation to
Mercedes was void ab initio, as Feliciano never
donated the property to Mercedes.
BPI averred that even if Feliciano had truly intended
to give the property to her, the donation would still
be void, as he was not of sound mind and was
therefore incapable of giving valid consent. Thus,
the subsequent Deed of Absolute Sale to Delia and
Jesus should likewise be nullified, for Mercedes
Catalan had no right to sell the property to anyone.
The registration of the deed of sale long after the
death of Mercedes indicated fraud.

RTC: Dismissed.
Evidence presented was insufficient to overcome the
presumption that Feliciano was sane and competent
at the time he executed the deed of donation in
favor of Mercedes. The presumption of sanity or
competency not having been duly impugned, the
presumption of due execution of the donation in
question must be upheld.
CA: Affirmed.
All the elements for validity of contracts having been
present in the 1951 donation coupled with
compliance with certain solemnities required by the
Civil Code in donation inter vivos of real property
ISSUE:
WON RTC and CA erred in disposing that petitioners failed to
prove the insanity or mental incapacity of the Feliciano at the
precise moment when the property in dispute was donated.
HELD:
No, the petition is bereft of merit, and SC affirmed the
findings of the CA and the TC.
Donations, like any other contracts, must have consent of the
contracting parties which presupposes the following
requisites:
1. it should be intelligent or with an exact notion of the
matter to which it refers;
2. it should be free; and
3. it should be spontaneous.
The parties intention must be clear and the attendance of a
vice of consent, like any contract, renders the donation
voidable.
IN ORDER FOR DONATION OF PROPERTY TO BE VALID,
WHAT IS CRUCIAL IS THE DONORS CAPACITY TO GIVE
CONSENT AT THE TIME OF THE DONATION. Certainly,
there lies no doubt in the fact that insanity impinges on
consent freely given. However, the burden of proving such
incapacity rests upon the person who alleges it; if no
sufficient proof to this effect is presented, capacity will be
presumed.
EVIDENCE PRESENTED BY THE PETITIONERS WAS
INSUFFICIENT TO OVERCOME THE PRESUMPTION THAT
FELICIANO WAS COMPETENT WHEN HE DONATED THE
PROPERTY IN QUESTION TO MERCEDES.
Petitioners
make much ado of the fact that, as early as 1948, Feliciano
had been found to be suffering from schizophrenia by the
Board of Medical Officers of the Department of Veteran
Affairs. By itself, however, the allegation cannot prove the
incompetence of Feliciano.
A STUDY OF THE NATURE OF SCHIZOPHRENIA WILL
SHOW THAT FELICIANO COULD STILL BE PRESUMED
CAPABLE OF ATTENDING TO HIS PROPERTY RIGHTS.
According to medical references, in persons with
schizophrenia, there is a gradual onset of symptoms, with
symptoms becoming increasingly bizarre as the disease
progresses. The condition improves (remission or residual
stage) and worsens (relapses) in cycles.
Sometimes,
sufferers may appear relatively normal, while other patients
in remission may appear strange because they speak in a
monotone, have odd speech habits, appear to have no
emotional feelings and are prone to have ideas of
reference. The latter refers to the idea that random social
behaviors are directed against the sufferers. It has been
proven that the administration of the correct medicine helps
the patient. xxx The illness will wax and wane over many
years, with only very slow deterioration of intellect.
A PERSON SUFFERING FROM SCHIZOPHRENIA DOES
NOT NECESSARILY LOSE HIS COMPETENCE TO
INTELLIGENTLY DISPOSE HIS PROPERTY.
By merely
alleging the existence of schizophrenia, petitioners failed to
show substantial proof that at the date of the donation (June
16, 1951) Feliciano had lost total control of his mental

10

faculties continued to exist until proof to the contrary was
adduced. Sufficient proof of his infirmity to give consent to
contracts was only established when the TC declared him an
incompetent on December 22, 1953.
Also, petitioners only questioned Felicianos capacity at the
time he donated the property, yet did not see fit to question
his mental competence when he entered into a contract of
marriage with Corazon Cerezo or when he executed deeds of
donation of his other properties in their favor. The
presumption that Feliciano remained competent to execute
contracts, despite his illness, is bolstered by the existence of
these other contracts.
SINCE THE DONATION WAS VALID, MERCEDES HAD THE
RIGHT TO SELL THE PROPERTY TO WHOMEVER SHE
CHOSE. Not a shred of evidence has been presented to
prove the claim that Mercedes sale of the property to her
children was tainted with fraud or falsehood.
VILLANUEVA v CHIONG
Facts:
Respondents Florentino and EliseraChiong were

married but have been separated in fact. During their
marriage, they acquired Lot No. 997 D-1 covered by a
Transfer Certificate of Title issued by the Registry of Deeds of
Zamboanga del Norte. Sometime in 1985, Florentino sold the
one-half western portion of the lot to petitioner Villanueva for
P8,000 payable in instalments. Shortly after the last payment
on December 1986, petitioners demanded for the execution
of a deed of sale in their favour. Elisera, however, refused to
sign a deed of sale.
On July 1991, Elisera filed with the RTC a Complaint
for Quieting of Title with Damages. On 1992, petitioners also
filed with the RTC a complaint for Specific Performance with
damages. Upon proper motion, the RTC consolidated these
2cases.
On May 1992, Florentino executed the questioned
Deed of Absolute Sale in favour of petitioners. The RTC in its
Joint decision annulled the deed of absolute sale and ordered
petitioners to vacate the lot and remove all improvements
therein.
The CA affirmed the RTCs decision. Petitioner
sought reconsideration, but to no avail. Hence, this petition.
Issue:
(1) Is the subject lot an exclusive property of Florentino
or a conjugal property of respondents.
(2) Was its sale by Florentino without Eliseras consent
valid?
Petitioners Contention:
a. They claim that the lot belongs exclusively to
Florentino because respondents were already
separated in fact at the time of the sale and that the
share of Elisera had previously been sold to Spouses
Castro and Cuenca.
b. That there was no formal liquidation of respondents
properties, their separation in fact resulted in its
actual liquidation.
c. That assuming that the lot is still conjugal, the
transaction should not be entirely voided as
Florentino had one-half share over it.
Ruling:
The court held that the respondents separation in

fact neither affected the conjugal nature of the lot nor
prejudicdEliseras interest over it. Under Article 178 of the
Civil Code, the separation in fact between husband and wife
without judicial approval shall not affect the conjugal
partnership. The lot retains its conjugal nature.
Likewise, under Article 160 of the Civil Code, all
property acquired by the spouses during the marriage is
presumed to belong to the conjugal partnership of gains,
unless it is proved that it pertains exclusively to the husband
or wife. Petitioners mere insistence is insufficient to
overcome such presumption taken against all the evidence
for respondents.
(Elisera also presented a real property tax
declaration acknowledging her and Florentino as owners of
the lot. In addition, (2) Florentino and Elisera categorically
declared in the Memorandum of Agreement they executed
that the lot is a conjugal property.(3) the conjugal nature of
the lot was also admitted by Florentino in the Deed of
Absolute Sale where he declared his capacity to sell as a coowner of the subject lot.
Anent the second issue, the sale by Florentino
without Eliseras consent is not, however, void ab initio. It has
been held (Vda. De Ramones vs Agbayani) that without the
wifes consent, the husbands alienation or encumbrance of
conjugal property prior to the effectivity of the Family Code
on August 3, 1988 is not void, but merely voidable.
Art. 166 provides that the husband cannot alienate
or encumber any real property of the conjugal partnership
without the wifes consent. Moreover, Art. 173 provides that
the wife may, during the marriage and within ten years from
the transaction questioned ask the courts for the annulment
of any contract of the husband entered into without her
consent.
Thus, the consent of Elisera and Florentino is
necessary. In the case at bar, the requisite of consent of
Elisera was not obtained. Accordingly, the contract is
annullable at Eliseras instance, during the marriage and
within 10 years from the transaction questioned. Fortunately,
Elisera timely questioned the sale when she filed the Civil
case on July 1991.
It was also held that the alienation by the husband
without the consent of the wife must be annulled in its
entirety and not only insofar as the share of the wie in the
conjugal property. Although the transaction in the said case
was declared void and not merely voidable, the rationale for
the annulment of the whole transaction is the same.
Now, if a voidable contract is annulled, the
restoration of what has been given is proper pursuant to
Article 1398 of the Civil Code. The effect of annulment of the
contract is to wipe it out of existence, and to restore the
parties, insofar as legally and equitably possible, to their
original situation before the contract was entered into.
Thus, petitioners should return to respondents the
land with its fruits and respondent Florentino should return to
petitioners the sum of P8000 which he received plust interest
thereon.
AYSON v PARAGAS
FACTS:
Amado Z. Ayson filed an ejectment complaint against
spouses Felix and Maxima Paragas. They alleged that:
Amado is the registered owner of the property being
occupied by Spouses Paragas as shown in the TCT
Spouses Paragas are occupying the said land
through his tolerance without rent;
Spouses Paragas executed an Affidavit which
declared among others that
Spouses Paragas agree to vacate the

aforesaid land within 3 months from the
date hereof and to remove and transfer
their house to another place;
In consideration of vacating the property,

the amount of P20, 000 shall be paid to
them. P10, 000 is payable upon signing of
the affidavit and the balance shall be paid
upon removal of their house on the third
month from date hereof.
Despite the receipt of the P10,000 upon the

execution of the Affidavit and subsequent demands,
Spouses Paragas refused to vacate the land
MTCC: In favor of petitioner.Duly affirmed by RTC, CA, and

SC. Final and executory.
The Court ordered the Spouses Paragas to vacate
the land.
Spouses Paragas filed against the Amado, heirs of Rayos, and

11

spouses Alog for declaration of nullity of deed of sale,
transactions, documents and titles with a prayer for
preliminary injunction and damages. They alleged that:
Maxima is a co-owner of a parcel of land, her
share having an area of 435.75 square meters.
Sometime prior to April 13, 1955, Felix (husband),
then an employee of the defunct Dagupan Colleges
failed to account for the amount of Php 3,000. It was
agreed that Felix would pay the said amount by
installment to the Dagupan Colleges. Pursuant to
that agreement, Blas and Amado Ll, then both
occupying high positions in the said institution,
required Spouses Paragas to sign, without explaining
to them, a Deed of Absolute Sale over Maximas real
property under threat that respondent Felix would
be incarcerated for misappropriation if they refused
to do so.
Spouses Paragas took pains to pay their obligation in
installments regularly deducted from the salaries
received by Felix from Dagupan Colleges totaling
P5,791.69
Notwithstanding the full payment of the obligation,
Amado, Blas did nothing to cancel the purported
Deed of Absolute Sale and that they were shocked
when they received a copy of the complaint for
ejectment filed by Amado.
Upon partition, Blas sold his share to Spouses Alog
and Amado Li (father) passed his share over the
property to Amado (son)
until the filing of the ejectment case on April 12,

1992.
THE EVIDENCE PRESENTED BY SPOUSES PARAGAS
INDUBITABLY REVEALS THAT THEY SIGNED THE
CONTRACT UNDER THREAT OF PROSECUTION, WITH
THE VIEW TO SECURE THE PAYMENT OF THE P3, 000
DEFALCATED BY RESPONDENT FELIX. Amado LI. Ayson
and Blas obviously exerted undue influence on Felix taking
advantage of the latters lack of education and understanding
of the legal effects of his signing the deed.
Spouses Paragas have clearly proven that they have already
paid the aforesaid amount. That the obligation was paid in
installments through salary deduction over a period of 10
years from the signing of the Deed of Absolute Sale is of no
moment. It is safe to assume that this repayment scheme
was in the nature of an easy payment plan based on the
Spouses Paragas capacity to pay. Also:
The deductions from Felixs salary amounted to P5,
791.69,25 or almost double the obligation of P3,
000.
Petitioner failed to adduce countervailing proof that
the payments, as evidenced by the volume of
receipts, were for some other obligation.
Spouses Paragas only paid for the realty taxes only
for the house since Maxima was not aware that the
land she co-owned was already partitioned, such
that the payments of real estate taxes in her name
were limited to the improvement on the land.
RTC: In favor of Spouses Paragas. It declared the Deed of

Absolute Sale as an equitable mortgage.
CA: Affirmed.
ISSUE/HELD:
WON Spouses Paragas are bound by the judicial admissions
they made both in the ejectment case and in the case for
declaration of nullity of the Deed of Absolute Sale.
AS EARLY AS THE SUBMISSION OF POSITION PAPERS
BEFORE THE MTCC, THEY ALREADY QUESTIONED THE
SALE OF THE SUBJECT PROPERTY TO AMADO LI AND
BLAS FOR BEING FICTITIOUS AND ASSERTED THEIR
OWNERSHIP OVER THE LAND. However, MTCC held them
bound by the admissions made by their counsel and decided
that petitioner had a better right to possess the property.
In ejectment suits the issue to be resolved is merely the
physical possession over the property. Should the defendant
in an ejectment case raise the defense of ownership in his
pleadings and the question of possession cannot be resolved
without deciding the issue of ownership, the issue of
ownership shall be resolved only to determine the issue of
possession. The judgment rendered in such an action shall
be conclusive only with respect to physical possession and
shall in no wise bind the title to the realty or constitute a
binding and conclusive adjudication of the merits on the
issue of ownership.
Also the records show that Spouses Paragas admitted only
the existence thereof, not necessarily the validity of their
issuance.
WON the Deed of Absolute Sale was in reality an Equitable
Mortgage.
YES.
THE DEED OF ABSOLUTE SALE IS, IN REALITY, AN
EQUITABLE MORTGAGE OR A CONTRACT OF LOAN
SECURED BY A MORTGAGE.
Article 1602 of the CC
enumerates the cases in which a contract, purporting to be a
sale, is considered only as a contract of loan secured by a
mortgage and one of which was when the vendor remains in
possession as lessee.
Evidence showed that possession of the property
remained with Spouses Paragas despite the
execution of the Deed of Absolute Sale. Amado
never disturbed the possession of Spouses Paragas
WON the action to declare the Deed of Absolute Sale null and
void had already prescribed.
NO.
An equitable mortgage is a voidable contract and may be
annulled within 4 years from the time the cause of action
accrues. As in this case, it does not only involves a contract
resulting from fraud, but covers a transaction ridden with
threat, intimidation, and continuing undue influence which
prompted Spouses Paragas to sign the Deed of Absolute Sale
under threat of incarceration. The four-year period should
start from the time the defect in the consent ceases. The
defect of consent never ceased up to the time of the signing
of the Affidavit on April 8, 1992 which Amado caused Felix to
be brought to him, and taking advantage of the latter being
unlettered, unduly influenced Felix into executing the said
Affidavit for a fee of P10,000. Since the complaint was filed
on October 11, 1993, it was well within the four-year
prescriptive period.
*** The right of possession is a necessary incident of
ownership. This adjudication of ownership of the property to
respondent-spouses must include the delivery of possession
to them since petitioner has not shown a superior right to
retain possession of the land independently of his claim of
ownership which is herein rejected.
DESTREZA v ALAROS
Facts:
On November 16, 1989 Pedro L. Rioza died leaving

several heirs, which included respondents Ma. Gracia R. Plazo
and Ma. Fe R. Alaras.
In the course of settling Riozas estate, respondent
Plazo wrote a letter to the Registry of Deeds of Nasugbo,
Batangas requesting for the certified true copies of all titles
in Riozas name, including a sugarland located at Brgy. Utod,
Nasugbo, Batangas. Upn the delivey of the letter, she also
asked that she be shown the originals of the titles but they
were not available. She however talked to the Register of
Deeds, Atty. Bonuan. According to him, he had the titles in his
personal files and there were no transactions involving them.
Plazo wrote a letter again to Bonuan, reiterating her

12

request for copies of the titles. It was the acting Register of
Deeds who granted her request and furnished her with
certified true copies of the titles, except that of TCT 40353
which was missing.
On the same day, in an effort to find TCT 40353,
respondent Plazo found another title, TCT 55396, at the
Assessors Office covering the same Utod sugarland and
canceling the missing TCT 40353. The new title, entered on
July 18, 1989, was in the name of petitioner Gregorio M.
Destreza and his wife Bernarda Butiong.
Plazo even went to the BIR Batangas City to inquire
on any record involving the sale of the sugarland and later on
certified by them that they did not have any record of sale of
the sugarland covered by TCT 40353.
Their discovery prodded respondents Plazo and
Alaras to file a complaint against the Destreza spouses and
the Register of Deeds before the RTC of Nasugbu . They claim
serious irregularities in the issuance of TCT 55396 to
petitioner Destreza. They asked, among others, that TCT
55396 be nullified, that TCT 40353 be restored, and that the
Destrezas be ordered to reconvey the land to the Rioza
estate.
The petitioner contends that he bought that Utod
Sugarland from Rioza through Toribio Origerio, a common
kumpadre and paid him PhP100,000. Destreza did not get a
copy of the Deed of Sale nor a receipt for the payment but
Rioza accompanied him to the Registry of Deeds and got a
copy of the TCT 55396 in his name. After the sale, petitioner
took possession of the land, plowing and planting on it even
against the case was filed. There was no communication or
demand letter from the respondents to disturbed his
occupation until he received the summon for the suit.
RTC ruled in favor of the respondents. They declared
that the deed of sale between Rioza and Destreza is not a
public document for the failure of the notary public to submit
his report to the RTC Notarial Section. Thus the RTC has no
basis for the cancellation of the TCT 40253 and the issuance
of the TCT 55396 in the name of the Destreza spouses.
CA affirmed the decision of the RTC with
modification. The CA however found that the deed of sale
and TCT 55396 maybe presumed regularly executed despite
the notarys failure to report to the RTC Notarial Section, but
the petitioners themselves destroyed the presumption when
they failed to prove its authenticity and genuineness. Further
the petitioners claim that they paid PhP100,000 when the
price stated in the Deed of Sale was only PhP60,000 placed
the veracity of the Deed in doubt.
Issue:
W/N sufficient evidence warranted the nullification
of the deed of sale that the late Rioza executed in favor of
the Destrezas?
Held:
NO!
The ruling of the CA was correct, indeed the

notarized deed of sale should be admitted as evidence
despite the failure of the Notary public in submitting his
notarial report to the RTC notarial section. It is the swearing
of a person before the Notary Public and the latters act of
signing and affixing his seal on the deed that is material and
not the submission of the notarial report. Parties who appear
before a notary public to have their documents notarized
should not be expected to follow up on the submission of the
notarial reports. They should not be made to suffer the
consequences of the negligence of the Notary Public in
following the procedures prescribed by the Notarial Law.
Thus, the notarized deed of sale executed by Rioza is
admissible as evidence of the sale of the Utod sugarland to
the Destrezas.
The CA however made a mistake with regard as to
the assignment of the burden of proof. No rule requires a
party who relies on a notarized deed of sale for establishing
his ownership to present further evidence of such deeds

genuineness lest the presumption of its due execution be for
naught.
The burden of proof is the duty of a party to present
such amount of evidence on the facts in issue as the law
deems necessary for the establishment of his claim. Here,
since respondents Plazo and Alaras claim, despite the
Destrezas evidence of title over the property and open
possession of it, that grave and serious doubts plague TCT
55396, the burden is on them to prove such claim. Only when
they are successful in doing so will the court be justified in
nullifying the notarized deed of sale that their father Rioza
executed in favor of the Destrezas.
Respondents alleged that the acquisition of copy of
TCT 55396 is questionable. Petitioner said that he got a copy
of the TCT on July 15, 1989 but such TCT was entered into the
registry of title on July 18, 1989. Moreover, Bunuan testified
that he did not issue the TCT to the petitioners because of
some lacking document. He did however say that he releases
a copy to Rioza upon his request. The circumstances may
appear perplexing but the problem is that they did not touch
the validity of the sale. Respondents did not confront
petitioner regarding this circumstances when he took the
stand. It would be pure speculation to declare that Destreza
defrauded Rioza bases solely on them.
Here, the supposed irregularity lies in the release of
a copy of the title to the Destrezas even before it had been
entered into the books of the Register of Deeds. Furthermore,
the Destrezas were able to acquire a copy of it when they still
needed to submit some registration requirements. But the
premature release of a copy of the registered title cannot
affect the validity of the contract of sale between Rioza and
the Destrezas. Registration only serves as the operative act
to convey or affect the land insofar as third persons are
concerned. It does not add anything to the efficacy of the
contract of sale between the buyer and the seller. In fact, if a
deed is not registered, the deed will continue to operate as a
contract between the parties. Furthermore, the declaration of
Bunuan that he furnished Rioza with copy of TCT 55396
strengthens the case of Destreza. This negates any possible
suggestion that the petitioners merely fabricated the sale of
the sugarland on the evidence that the Notary Public failed to
submit his notarial report.
Alaras also claims that a month after the sale of the
sugarland, her father asked her to mortgage some land. He
gave her the title, impressing on her that such title covered a
land located in Brgy. Utod. She, though admitted that she did
not see the number of the title handed to her. This does not
prove that the sale of the sugarland to petitioners is void.
Lastly, they questioned the testimony of Destreza
that he paid Php100,000 to Rioza when the figure appearing
on the Deed of Sale Php60,000. Again this is not a sufficient
ground to nullify such deed. The fact remains that Rioza
sold his land to the Destreza under that document and they
paid for it. The explanation for the difference in the prices
can be explained only by Rioza and Destreza. Unfortunately,
he had died. On the other hand, respondents chose not to
confront Destreza regarding that difference when the latter
took the witness stands.
In sum, the Court finds the notarized deed of sale
that the late Pedro Rioza executed in favor of the Destrezas
valid and binding upon them and their successors-ininterest. It served as authority to the Register of Deeds to
register the conveyance of the property and issue a new title
in favor of the Destrezas. That the Destrezas occupied and
cultivated the land openly for seven years before and after
Riozas death negates any scheme to steal the land.
KINGS PROPERTIES v GALIDO

13

Facts
On 18 April 1966, the heirs of Domingo Eniceo, namely Rufina
Eniceo and Maria Eniceo, were awarded with Homestead
Patent No. 112947 consisting of four parcels of land located
in San Isidro, Antipolo, Rizal (Antipolo property) which was
registered under Original Certificate of Title (OCT) No. 535.
The issuance of the homestead patent was subject to the
following conditions:
To have and to hold the said tract of land, with the
appurtenances thereunto of right belonging unto the said
Heirs of Domingo Eniceo and to his heir or heirs and assigns
forever, subject to the provisions of sections 118, 121, 122
and 124 of Commonwealth Act No. 141, as amended, which
provide that except in favor of the Government or any of its
branches, units or institutions, the land hereby acquired shall
be inalienable and shall not be subject to incumbrance for a
period of five (5) years next following the date of this patent,
and shall not be liable for the satisfaction of any debt
contracted prior to the expiration of that period; that it shall
not be alienated, transferred or conveyed after five (5) years
and before twenty-five (25) years next following the issuance
of title, without the approval of the Secretary of Agriculture
and Natural Resources; that it shall not be incumbered,
alienated, or transferred to any person, corporation,
association, or partnership not qualified to acquire public
lands under the said Act and its amendments; x x x
On 10 September 1973, a deed of sale covering the Antipolo
property was executed between Rufina Eniceo and Maria
Eniceo as vendors and respondent as vendee. Rufina Eniceo
and Maria Eniceo sold the Antipolo property to respondent for
P250,000. A certain Carmen Aldana delivered the owners
duplicate copy of OCT No. 535 to respondent.
Petitioner alleges that when Maria Eniceo died in June 1975,
Rufina Eniceo and the heirs of Maria Eniceo (Eniceo heirs),
who continued to occupy the Antipolo property as owners,
thought that the owners duplicate copy of OCT No. 535 was
lost.
On 5 April 1988, the Eniceo heirs registered with the Registry
of Deeds of Marikina City (Registry of Deeds) a Notice of Loss
dated 2 April 1988 of the owners copy of OCT No. 535. The
Eniceo heirs also filed a petition for the issuance of a new
owners duplicate copy of OCT No. 535 with Branch 72 of the
Regional Trial Court (RTC) of Antipolo, Rizal.
On 31 January 1989, the RTC rendered a decision finding that
the certified true copy of OCT No. 535 contained no
annotation in favor of any person, corporation or entity. The
RTC ordered the Registry of Deeds to issue a second owners
copy of OCT No. 535 in favor of the Eniceo heirs and declared
the original owners copy of OCT NO. 535 cancelled and
considered of no further value.
On 6 April 1989, the Registry of Deeds issued a second
owners copy of OCT No. 535 in favor of the Eniceo heirs.
Petitioner states that as early as 1991, respondent knew of
the RTC decision in LRC Case No. 584-A because respondent
filed a criminal case against Rufina Eniceo and Leonila
Bolinas (Bolinas) for giving false testimony upon a material
fact during the trial of LRC Case No. 584-A.
Petitioner alleges that sometime in February 1995, Bolinas
came to the office of Alberto Tronio Jr. (Tronio), petitioners
general manager, and offered to sell the Antipolo property.
During an on-site inspection, Tronio saw a house and
ascertained that the occupants were Bolinas relatives. Tronio

also went to the Registry of Deeds to verify the records on
file. Tronio ascertained that OCT No. 535 was clean and had
no lien and encumbrances. After the necessary verification,
petitioner decided to buy the Antipolo property.
On 14 March 1995, respondent caused the annotation of his
adverse claim in OCT No. 535.
From March 20, 1995 to April 5, 1995, the Eniceo heirs
executed several deed of sale covering various lots of the
Antipolo property in favor of the petitioner.
On 17 August 1995, the Secretary of the Department of
Environment and Natural Resources (DENR Secretary)
approved the deed of sale between the Eniceo heirs and
respondent.
On 16 January 1996, respondent filed a civil complaint with
the trial court against the Eniceo heirs and petitioner.
Respondent prayed for the cancellation of the certificates of
title issued in favor of petitioner, and the registration of the
deed of sale and issuance of a new transfer certificate of title
in favor of respondent.
On 4 July 2000, the trial court rendered its decision
dismissing the case for lack of legal and factual basis.
Respondent appealed to the Court of Appeals (CA). On 20
December 2004, the CA rendered a decision reversing the
trial courts decision.[24] Respondent filed a motion for
reconsideration, which the CA denied in its Resolution dated
10 October 2005.
ISSUE: W/N the sale between the heirs of Domingo Eniceo,
namely Rufina and Maria and the respondent is valid.
HELD:
The contract between the Eniceo heirs and respondent
executed on 10 September 1973 was a perfected contract of
sale. A contract is perfected once there is consent of the
contracting parties on the object certain and on the cause of
the obligation. In the present case, the object of the sale is
the Antipolo property and the price certain is P250,000.
The contract of sale has also been consummated because the
vendors and vendee have performed their respective
obligations under the contract. In a contract of sale, the seller
obligates himself to transfer the ownership of the
determinate thing sold, and to deliver the same to the buyer,
who obligates himself to pay a price certain to the seller. The
execution of the notarized deed of sale and the delivery of
the owners duplicate copy of OCT No. 535 to respondent is
tantamount to a constructive delivery of the object of the
sale. In Navera v. Court of Appeals, the Court ruled that since
the sale was made in a public instrument, it was clearly
tantamount to a delivery of the land resulting in the symbolic
possession thereof being transferred to the buyer.
Petitioner alleges that the deed of sale is a forgery. The
Eniceo heirs also claimed in their answer that the deed of
sale is fake and spurious.[42]However, as correctly held by
the CA, forgery can never be presumed. The party alleging
forgery is mandated to prove it with clear and convincing
evidence. Whoever alleges forgery has the burden of proving
it. In this case, petitioner and the Eniceo heirs failed to
discharge this burden.
Petitioner invokes the belated approval by the DENR
Secretary, made within 25 years from the issuance of the
homestead, to nullify the sale of the Antipolo property. The
sale of the Antipolo property cannot be annulled on the

14

ground that the DENR Secretary gave his approval after 21
years from the date the deed of sale in favor of respondent
was executed.
The failure to secure the approval of the Secretary does not
ipso facto make a sale void. The absence of approval by the
Secretary does not a sale made after the expiration of the 5year period, for in such event the requirement of Section 118
of the Public Land Act becomes merely directory or a
formality. The approval may be secured later, producing the
effect of ratifying and adopting the transaction as if the sale
had been previously authorized. (Underscoring supplied)
WHEREFORE, we DENY the petition. We AFFIRM the 20
December 2004 Decision and 10 October 2005 Resolution of
the Court of Appeals in CA-G.R. CV No. 68828.
UNENFORCEABLE CONTRACTS
REGAL FILMS v CONCEPCION
Gabby Concepcion, through his manager Lolit Solis,
entered into a contract with Regal Films for services to be
rendered in petitioners films. Under the said contract, Regal
Films is to give Concepcion two parcels of land on top of the
talent fees it had to pay. In 1993, parties renewed the
contract but still including to give the two parcels of land to
Concepcion.
Subsequently, Regal Films failed to comply with its
promise to convey the lots. Gabby and Lolit filed an action of
rescission of contract with damages at RTC QC. Petitioner
moved for dismissal saying that both parties executed an
agreement which was to operate as an addendum to the
1991 and 1993 contracts; agreement was signed by
petitioners representative and Solis in behalf of Gabby. Solis
filed a motion to dismiss stating that she already settled the
case with Regal Films, acting for herself and Gabby.
Gabby opposed contending that the addendum:
1)
2)
Contains provisions grossly disadvantageous to him;

and
Executed without his knowledge and consent
and Solis had ceased to be his manager and has no

authority to sign the addendum for him.
In the preliminary conference, Regal Films intimated
respondent and his counsel its willingness to allow him to be
released from his contracts rather than to pursue the
addendum. Subsequently, respondent filed with the RTC that
he was now willing to honor the addendum and consider it as
a compromise agreement. The trial court issued an order
rendering a compromise based on the addendum. On the
other hand, the Court of Appeals affirmed the ruling of the
TC.
ISSUE
Whether or not the addendum which lacks knowledge and
consent of the respondet renders it unenforceable
HELD
Yes. Consent could be given not only by the party
himself but by anyone duly authorized and acting for and in
his behalf. But by respondent's own admission, the
addendum was entered into without his knowledge and
consent. A contract entered into in the name of another by
one who ostensibly might have but who, in reality, had no
real authority or legal representation, or who, having such
authority, acted beyond his powers, would be unenforceable.
The addendum, let us then assume, resulted in an
unenforceable contract, might it not then be susceptible to
ratification by the person on whose behalf it was executed?
The answer would obviously be in the affirmative; however,
that ratification should be made before its revocation by the
other contracting party.The adamant refusal of respondent to
accept the terms of the addendum constrained petitioner,
during the preliminary conference, to instead express its

willingness to release respondent from his contracts prayed
for in his complaint and to thereby forego the rejected
addendum.
VALENCIA v LOCQUIAO
Facts:
This case involve a parcel of land consisting of 4876 sq
situated in Pangasinan owned by the spouses Hermigildo and
Raymunda Locquiao as evidenced by original certificate of
title of No. 18383 issued on October 3, 1917 by the Register
of Deeds of Pangasinan.
On May 22, 1944, Hermigildo and Raymunda Locquiao
executed a deed of donation propter nuptias which is written
in "Ilocano dialect" , denominated as "Inventario Ti Sagut" in
favor of their son respondent Benito Locquiao and his
prospective bride Tomasa Mara.
By the terms of the deed, the donees were gifted with 4
parcels of land including the land in question , a cow and a
1/3 portion of the conjugal house of donor parents in
consideration of the impending marriage of the donees.
On June 4, 1944, the donees took their marriage vows and
the fact of their marriage was inscribed at the back of OCT
No. 18383.
Thereafter spouses Hermigildo and Raymunda died leaving
as heirs their six children namely : Respondent Benito ,
Marciano, Lucio , Emeteria , Anastacia and Petitioner
Romana.
With the permission to the respondents, the petitioner
Romana took possession and cultivated the subject land. In
1977 when the Petitioner's husband got sick her daughter
Constacia Valencia took over and since then possession of
the land.
On May 15, 1970 , Respondent spouses registered the
Inventario Ti Sagut with the Office of the Register of Deeds. In
due course the original title was cancelled and instead
Transfer Certificate Title No. 84897 was issued in the name of
the respondents.
On March 18,1973, The heirs executed a Deed of Partition
with the Recognition of Rights, wherein they distributed
among only 3 of them the 12 parcels of land left by their
common progenitors excluding the land in question and other
lots disposed by the locqiao spouses.
Contained in the deed is a statement that Benito, Marciano
and Heirs of Lucio " Have already received our shares in the
estates of our parents by virtue of previous donations and
conveyances" and for that reason heirs of Lucio were not
made parties to the deed.
Later on disagreements among 5 heirs concerning the
distribution of 2 of the lots covered by the deed of partition.
As their differences were settled, the heirs concerned
executed a Deed of Compromise agreement on June 12 ,
1976.Significantly,all the signatories to the compromise
agreement, including petitioner Romana, confirmed all the
other stipulations and provisions of the deed of partition.
Sometime in 1983 petitioner Constancia filed an action for
annulment of title against the respondents before the RTC of
Pangasinan.
On December 13, 1983 respondent Benito filed a complaint
seeking the ejectment of the petitioner Constancia from the
subject property. Subsequently the MTC rendered a decision
ordering petitioner to vacate the land in question.
Petitioners Romana and Constancia countered a complaint for
the annulment of Transfer Certificate of Title 84897 against
the respondents. They alleged that the issuance of the
transfer certificate of title was fraudulent , that the Inventario
Ti Sagut is spurious ,that the notary republic notarized the
document had no authority to do so and the donation did not
observe the form required by law as there was no written
acceptance on the document itself or in a separate public
document.
On January 30,1989 the RTC rendered decision dismissing the
complaint for annulment of title on the grounds of
prescription and laches.It likewise ruled that the Inventario Ti
Sagut is a valid document which transmitted ownership over
the subject land to the respondents. With the dismissal of the
complaint and the confirmation of the subject property.RTC
affirmed in toto the decision of MTC in the ejectment case.

15

Petitioner elevated the decision to the CA
November 24,1994 CA assailed the decision affirming the
appealed RTC decisions, the CA upheld the conclusion that
the petitioner's cause of action has already been prescribed,
considering that the complaint was filed for more 15 years
after the issuance of the title or beyond 10 years prescriptive
period for actions for reconveyance.It likewise rejected the
Petitioners assertion that the donation propter nuptias is null
and void for want acceptance by the donee, positing that the
implied acceptance flowing the very fact of marriage
between the respondents , coupled with the registration of
the fact of marriage at the back of the OCT No. 18383,
constitutes substantial compliance with the requirements of
the law.
ISSUED: (1) WON the donation propter nuptias is authentic;
propter nuptias suffices under the NCC.
LITOJUA v FERNANDEZ
Sometime in 1995, Alimario and Fisico who worked

as brokers, offered to sell to the petitioners the two
parcels land.
Petitioners met with respondent Fernandez and the

two brokers. The parties agreed that petitioners
would buy the property. Thereafter, they agreed to
meet on December 8, 1995 to finalize the sale. It
was agreed that on the said date, respondent would
present a special power of attorney executed by the
owners of the property, authorizing her to sell the
property for and in behalf, and to execute a deed of
absolute sale thereon. However, it was only Fisico
who attended the said meeting. And informed
petitioners that Fernandez was encountering some
problems with the tenants and was trying to work
out a settlement with them.
Petitioners wrote respondent, demanding that their

transaction be finalized. When respondent did not
respond, the petitioner sent again another letter,
asking that the Deed of sale covering the subject
property be executed in accordance with their verbal
agreement and turnover of the subject properties to
them within 15 days from receipt of the said letter;
otherwise, they would have no option but to protect
their interest through legal means.
In Respondents reply letter to petitioners, she

formally inform the latter that they are no longer
selling the subject property. And since they have not
demanded and received from petitioners any
earnest money, hence, no obligation exist.
Thus, prompted petitioners to file an instant

complaint for specific performance and damages
against respondent Fernandez and the registered
owners of the property. They alleged among others
that after their brief negotiation, defendants
committed and specifically agreed to sell to
petitioners the subject parcels of land.
Respondent Fernandez filed her Answer to the

complaint. She claimed that while the petitioners
offered to buy the property during the meeting of
November 27, 1995, she did not accept the offer;
thus, no verbal contract to sell was ever perfected.
She specifically alleged that the said contract to sell
was unenforceable for failure to comply with the
statute of frauds. She also maintained that even
assuming arguendo that she had, indeed, made a
commitment or promise to sell the property to the
petitioners, the same was not binding upon her in
the absence of any consideration distinct and
separate from the price.
(2) W/ respect on the formal requirements of

donation propter nuptias, which one should be followed? OLD
OR NCC?
HELD:
FIRST ISSUE:
YES. The certification is not sufficient to prove the alleged
inexistence or spuriousness of the challenged document. The
appellate court is correct in pointing out that the mere
absence of the notarial record does not prove that the notary
public does not have a valid notarial commission and neither
does the absence of a file copy of the document with the
archives effect evidence of the falsification of the document.
The ruled that the failure of the notary public to
furnish a copy of the deed to the appropriate office is
a ground for disciplining him, but certainly not for
invalidating the document or for setting aside the
transaction therein involved.
Similarly, Marciano Locquiao and the heirs of Lucio Locquiao
were not allocated any more share in the deed of partition
since they received theirs by virtue of prior donations or
conveyances.
SECOND ISSUE:
Under the Old Civil Code, donations propter nuptias must be
made
in
a
public
instrument in which the property donated must
be
specifically described.However, Article 1330 of the same
Code provides that acceptance is not necessary to the
validity of such gifts. In other words, the celebration of the
marriage between the beneficiary couple, in tandem with
compliance with the prescribed form, was enough to
effectuate the donation propter nuptias under the Old Civil
Code.
Under the New Civil Code, the rules are different. Article 127
thereof provides that the form of donations propter nuptias
are regulated by the Statute of Frauds. Article 1403,
paragraph 2, which contains the Statute of Frauds requires
that the contracts mentioned thereunder need be in writing
only to be enforceable. However, as provided in Article 129,
express acceptance is not necessary for the validity
of these donations.
Thus, implied acceptance is
sufficient.
Since the donation propter nuptias was executed in 1944
and the New Civil Code took effect only on August 30, 1950.
As a consequence, applying Article 1330 of the Old Civil
Code in the determination of the validity of the
questioned donation, it doesn't matter whether or not
the donees had accepted the donation. The validity of
the donation is unaffected in either case.
Even if the provisions of the New Civil Code were to be
applied, still even the implied acceptance of a donation
The RTC, ruled in favor of the Petitioners and held that there
was a perfected contract of sale. On appeal, the Court of
Appeal, reversed and set aside the decision of the RTC. The
CA ruled that the petitioners failed to prove that a sale or
contract to sell over the property between the parties had
been perfected.
Issue
(1) Whether or not there was a perfected contract of
sale between the parties.
(2) Whether or not the letter sent by Fernandez to
petitioner constitute the note or memorandum
contemplated under Article 1403(2)(e) of the New
Civil Code.

16

HELD
The Supreme Court held in the Negative and affirmed the
decision of the Court of Appeals.
Petitioners assert that there was a perfected contract of sale
between the petitioners as buyers and the respondentsowners, through respondents Fernandez, as seller. Petitioners
contend that the perfection of the said contract is evidenced
by the January 16, 1996 Letter of respondent Fernandez.
They argue that the said Letter is a sufficient note or
memorandum of the perfected contract, thus removing it
from the coverage of the Statute of frauds. The Supreme
Court held such contention bereft of merit. Citing the decision
of the appellate court in this case which ruled that the Letter
of respondent is hardly the note or memorandum
contemplated under Article 1403(2)(e) of the New Civil Code
which provides:
Art. 1403. The following contracts are unenforceable, unless
they are ratified:
(2) Those that do not comply with the Statute of Frauds as
set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received
without the writing, or secondary evidence of its contents:
(e) An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest therein.
The appellate court based its ruling on the following
disquisitions:
In the case at bar, the letter dated January 16, 1996 of
defendant-appellant can hardly be said to constitute the note
or memorandum evidencing the agreement of the parties to
enter into a contract of sale as it is very clear that defendantappellant as seller did not accept the condition that she will
be the one to pay the registration fees and miscellaneous
expenses and therein also categorically denied she had
already committed to execute the deed of sale as claimed by
the plaintiffs-appellees. The letter, in fact, stated the reasons
beyond the control of the defendant-appellant, why the sale
could no longer push through because of the problem with
tenants.
The CA cited the case of Rosencor Development
Corporation v. CA which held that, the term statute
of frauds is descriptive of statutes which require
certain classes of contracts to be in writing. The
statute does not deprive the parties of the right to
contract with respect to the matters therein
involved, but merely regulates the formalities of the
contract necessary to render it enforceable. The
purpose of the statute is to prevent fraud and
perjury in the enforcement of obligations, depending
for their existence on the unassisted memory of
witnesses,
by
requiring
certain
enumerated
contracts and transactions to be evidenced by a
writing signed by the party to be charged. The
statute is satisfied or, as it is often stated, a contract
or bargain is taken within the statute by making and
executing a note or memorandum of the contract
which is the statute is satisfied or, as it is often
stated, a contract or bargain is taken within the
statute by making and executing a note or
memorandum of the contract which is sufficient to
state the requirements of the statute. The
application of such statute presupposes the
existence of a perfected contract. However, for a
note or memorandum to satisfy the statute, it must
be complete in itself and cannot rest partly in
writing and partly in parol. The note or
memorandum must contain the names of the
parties, the terms and conditions of the contract and
a description of the property sufficient to render it
capable of identification. Such note or memorandum
must contain the essential elements of the contract
expressed with certainty that may be ascertained
from the note or memorandum itself, or some other
writing to which it refers or within which it is
connected, without resorting to parol evidence. To

be binding on the persons to be charged, such note
or memorandum must be signed by the said party or
by his agent duly authorized in writing.
In City of Cebu v. Heirs of Rubi the Supreme Court

held that the exchange of written correspondence
between the parties may constitute sufficient writing
to evidence the agreement for purposes of
complying with the statute of frauds.
In this case, The Supreme Court agree with the findings of

the appellate court that there was no perfected contract of
sale between the respondents-owners, as sellers, and the
petitioners, as buyers. There is no documentary evidence on
record that the respondents-owners specifically authorized
respondent Fernandez to sell their properties to another,
including the petitioners.
Contrary to the petitioners contention, the letter of January
16, 1996 is not a note or memorandum within the context of
Article 1403(2) because it does not contain the following: (a)
all the essential terms and conditions of the sale of the
properties; (b) an accurate description of the property subject
of the sale; and, (c) the names of the respondents-owners of
the properties.
GOZUN v MERCADO
FACTS:
In
1995,
respondent
Mercado
for
the
campaign materials. Petitioner Gozun, on the other hand,

was an owner a printing shop located in San Fernando,
Pampanga.
Respondents
wife,
Annie
Mercado,
with
respondents
approval, contracted petitioners services in the printing of

respondents campaign materials. Due to time constraints,
petitioner Gozun had to avail the services and facilities of 2
other printing shops which were owned by his daughter and
mother. Upon the completion of the job order, petitioner
delivered
the
campaign
materials
to
respondents
headquarters.
Sometime on March 31, 1995, respondents sister-in-law,
Lilian Soriano (Soriano) came to petitioner Gozun early in the
morning asking to borrow money since they were not able to
withdraw from the bank. Lilian Soriano obtained from
petitioner Gozun a "cash advance" of P253,000 allegedly for
the allowances of poll watchers who were attending a
seminar and for other related expenses. An acknowledgment
receipt was issued, however the same did not specify for
what reason the said amount was delivered and in what
capacity did Soriano receive the money.
Subsequently, petitioner Gozun sent respondent Mercado a
Statement of Account itemized as follows:
Petitioner Gozun's printing shop
P640,310
Other two printing shops
P837,696
P446,900
"Cash advance" obtained by Soriano

P253,000
TOTAL AMOUNT
----

17
vied
gubernatorial post in Pampanga. Obviously, he was in need of
P2,177,906

Respondent's wife paid
P1,000,000
Unpaid Balance subject of litigation --->
P1,177,906
----
unenforceable, unless they are ratified.

Generally, the agency may be oral, unless the law requires a
Less the "Cash advance"
P253,000
Total amount payable by Respondent
specific form. However, a special power of attorney is

necessary for an agent to, as in this case, borrow money,
P924,906
unless it be urgent and indispensable for the preservation of

the things which are under administration. Since nothing in
On August 11, 1995, respondents wife partially paid P1M to
this
petitioner who issued a receipt therefor, leaving a balance of
administration, a determination of whether Soriano had the
case
involves
the
preservation
of
things
under
P1,177,906. For more than 3 years, petitioner demanded that
special authority to borrow money on behalf of respondent is
the balance be paid but to no avail. He then filed a complaint
in order.
in court to collect the said amount.

The requirement of a special power of attorney refers to the
Respondent Mercado in his Counterclaim, denied having
nature of the authorization and not to its form. The
given Lilian Soriano the authority to obtain the said cash
requirements are met if there is a clear mandate from the
advance and having received the same.
principal specifically authorizing the performance of the act.

A mandate may be either oral or written. The one thing vital
RTC:
The case was decided in favor of petitioner Gozun
ordering respondent Mercado to pat the full unpaid balance
being that it shall be express. If the special authority is not

written, then it must be duly established by evidence.
including the cash advance, with interest.

Petitioner submits that his testimony suffices to establish that
CA: Reversed the RTC decision and decreed that:
respondent had authorized Lilian to obtain a loan from him.
Other than petitioners testimony, there was no evidence to
However, Petitioners testimony failed to categorically state,
support his claim that Lilian Soriano was authorized by
however,
respondent to borrow money on his behalf. It noted that the
respondent or of his wife.
whether
the
loan
was
made
on
behalf
of
acknowledgment receipt signed by Lilian Soriano did not
specify in what capacity she received the money. Thus,
As to the acknowledgment receipt presented, the SC stated
applying Article 1317 of the Civil Code, it held that
that nowhere in the note can it be inferred that respondent
petitioners claim for P253,000 is unenforceable.
Mercado was connected with the said transaction.
Moreover, the CA also stated that since petitioner already

received P1M as payment, his claim for the expenses
Under Article 1317 of the New Civil Code, a person cannot be
incurred by his printing shop (P640,310) had already been
bound by contracts he did not authorize to be entered into
settled; and that petitioner could not collect the amounts due
his behalf.
to the other 2 printing shops (P837,696 and P446,900) as his

daughther and mother as owners were not impleaded as
It bears noting that Lilian signed in the receipt in her name
parties to the case, and it was not shown that petitioner
alone, without indicating therein that she was acting for and
Gozun was authorized to prosecute the same on their behalf.
in behalf of respondent. She thus bound herself in her

personal capacity and not as an agent of respondent or
ISSUE:
anyone for that matter.
WON the "cash advance" is unenforceable and ultimately,

WON can petitioner Gozun collect the full unpaid balance of
Also the SC stated that the parties to a contract are the real
P1,177,906 from respondent Mercado.
parties in interest in an action upon it. Indeed, petitioner

Gozun is the real party in interest in this case. The CA
RATIO:
therefore erred in not ruling that petitioner as a real party in
Petitioner Gozun could not collect the full unpaid balance of
interest insofar as recovery of the cost of campaign materials
P1,177,906 as the "cash advance" obtained by Lilian Soriano
made by petitioners mother and sister are concerned, upon
was unauthorized and therefore unenforceable.
the wrong notion that they should have been, but were not,
impleaded as plaintiffs.
Respondent Mercado cannot be bound by contracts he did

not authorize to be entered to on his behalf. Petitioner Gozun
In sum, respondent has the obligation to pay the total cost of
could only collect the balance due less the said cash
printing his campaign materials delivered by petitioner in the
advance, P924,906.
total of P1,924,906, less the partial payment of P1,000,000,

or P924,906.
As enshrined under Article 1317 and Article 1403 (1) of the

Civil Code, Contracts entered into in the name of another
person by one who has been given no authority or legal
representation or who has acted beyond his powers are
classified
as
unauthorized
contracts
and
are
declared
CABALES v CA
Facts: When Rufino Cabales died, he left a 5,714 sq.m.
parcel of land (subject property) to his surviving wife

18

Saturnina and six children named Bonifacio, Albino,
Francisco, Leonora, Alberto and petitioner Rito.
In 1971, Bonifacio, Albino and Alberto sold the subject
property to Dr. Cayetano Corrompido for P2,000 with a right
to repurchase within eight (8) years. The following year, in
1972, Alberto died leaving his wife and son, petitioner
Nelson.
Three years after the death of Alberto and within the eightyear redemption period, Bonifacio and Albino repurchased
the subject property from Dr. Corrompido. But Dr. Corrompido
only released the document of sale with pacto de retro after
Saturnina paid for the share of her deceased son, Alberto.
After repurchasing the subject property, Saturnina and her
four (4) children Bonifacio, Albino, Francisco and Leonora sold
the subject parcel of land to respondents-spouses Jesus and
Anunciacion Feliano for P8,000. The Deed of Sale provides
that:
x x x the amount of P2,686 corresponding
and belonging to the Heirs of Alberto Cabales and to
Rito Cabales who are still minors upon the execution
of the instrument are held in trust by the VENDEE
and to be paid and delivered only to them upon
reaching the age of 21.
When Rito Cabales was already 24 years old, he
acknowledged receipt of the sum of P1,143 from respondent
Jesus Feliano, representing his share in the proceeds of the
sale of the subject property.
With respect to petitioner Nelson, it was only in 1988 when
he learned from his uncle, petitioner Rito, of the sale of the
subject property. In 1993, he signified his intention to redeem
the subject land during a barangay conciliation process that
he initiated.
Subsequently, due to the lack of amicable settlement, the
petitioners filed a complaint for redemption of the subject
property plus damages before the RTC contending that they
could not have sold their respective shares in the subject
property when they were still minors.
Issue: Whether or not the sale in favor of the respondentsspouses Feliano is valid with respect to petitioners Rito and
Nelsons shares
Ruling: The contract of sale is unenforceable with respect to
Ritos share. However, the same contract became valid
because of Ritos ratification of the said contract. With
respect to Nelson, the contract of sale is void.
RITOS SHARE. When Rufino Cabales died intestate, his wife
Saturnina and his six children including petitioner Rito
survived and succeeded him. Pursuant to Article 996 of the
New Civil Code, the seven heirs inherited equally on the
subject property. Thus, Rito owns one-seventh of the subject
property just like the other six heirs.
When the subject property was redeemed from Dr.
Corrompido (the buyer in the first contract of sale), the said
property was resold to respondents-spouses Feliano by the
co-owners. It must be noted that petitioner Rito was a minor
during that time. The SC applied Article 320, NCC. A portion
of Article 320 provides:
Article 320. The father, or in his absence the
mother, is the legal administrator of the property pertaining
to the child under parental authority. x x x
Applying Article 320 in this case, Saturnina is the legal
administrator of petitioner Ritos share since Rufino, his
father, already died.
Corollary to Article 320 is Section 7, Rule 93 of the Revised
Rules of Court of 1964 which provides:
Section 7. Parents as guardians. When the
property of the child under parental authority is worth two
thousand pesos or less, the father or the mother, without the
necessity of court appointment, shall be his legal guardian x
xx
Applying the said provision, the Court held that Saturnina
was clearly petitioner Ritos legal guardian without necessity
of court appointment considering that the amount of his
property, which was basically 1/7 of the subject property, was
only P1,143, which is less than two thousand pesos.
Having established that Saturnina was petitioner Ritos legal
guardian, the question is to what extent shall the
guardianship cover. The SC cited Section 1, Rule 96 of the
Revised Rules of Court. A portion of which provides that:

Section 1. To what guardianship shall extend. A
guardian appointed shall have the care and custody of the
person of his ward, and the management of his estate, or the
management of the estate only, as the case may be. x x x
Thus, the legal guardian only has the plenary power of
administration of the minors property. It does not include the
power of alienation because such act needs judicial authority.
In the case at bar, when Saturnina, as legal guardian of
petitioner Rito, sold the latters pro indiviso share in subject
land, she did not have the legal authority to do so.
Article 1403(1) of the NCC provides that the contract is
UNENFORCEABLE if it is:
entered into the name of another person by one
who has been given no authority or legal representation, or
who has acted beyond his powers; x x x
As provided by Article 1403, the contract of sale as to the pro
indiviso share of petitioner Rito was unenforceable because
Saturnina, as his legal guardian, acted beyond her authority
when she sold Ritos share in favor of respondents-spouses
Feliano.
However, since the contract was unenforceable, it may be
subject to ratification. Now, the court ruled that when
petitioner Rito acknowledged receipt of the proceeds of the
sale when he was already 24 years old, petitioner Rito
effectively ratified the said unenforceable contract.
Therefore, the said act of ratification rendered the sale valid
and binding as to him.
NELSONS SHARE. Petitioner Nelson is the son of Alberto,
one of the heirs of Rufino Cabales. Thus, when Alberto died,
by operation of law, his rights and obligations to one-seventh
(1/7) of the subject land were transferred to his legal heirs
his wife and his son petitioner Nelson.
Despite the fact that Saturnina was the one who paid for the
redemption price of Albertos share in the subject property,
Saturnina only has a right to be reimbursed by what she had
paid for the redemption price. The said payment did not vest
her ownership of Albertos share. Therefore, at the time that
the said subject property was sold to respondents-spouses
Feliano, one-seventh of the subject property was still owned
by Albertos heirs i.e. his wife and his son, petitioner
Nelson.
Just like petitioner Rito, petitioner Nelson was also a minor at
the time the subject property was sold to respondentsspouses Feliano. The SC ruled that Saturnina or any and all
the other co-owners were not the legal guardians of
petitioner Nelson who has judicial authority to alienate or
encumber Nelsons property. In fact, it was Nelsons mother
who was his legal guardian and, if duly authorized by the
courts, could validly sell his undivided share to the property.
However, she did not.
Thus, when Saturnina and the others sold the subject
property in its entirety to respondents-spouses Feliano, they
only sold and transferred title with respect to their pro
indiviso shares and not that part pertaining to petitioner
Nelson and his mother. Therefore, petitioner Nelson and his
mother retained ownership over their undivided share of
subject property.
PENALBER v RAMOS
FACTS:
First Cause of Action
Petitioner alleged in her Complaint that she was the owner
Ugac properties. Petitioner averred that in the middle part of
1986, she discovered that title was cancelled and another
title was issued in its in the name of respondent spouses
Ramos. Upon verification, petitioner learned that the basis for
the cancellation of her title was a Deed of Donation of a
Registered Land, Residential House and Camarin, which
petitioner purportedly executed in favor of respondent
spouses Ramos. Petitioner insisted that her signature on the
said Deed of Donation was a forgery as she did not donate
any property to respondent spouses Ramos. When petitioner
confronted the respondent spouses Ramos about the false
donation, the latter pleaded that they would just pay for the
Ugac properties in the amount of P1 Million. Petitioner agreed
to the proposition of the respondent spouses Ramos.

19

Subsequently, petitioner found out that the respondent
spouses Ramos were selling the Ugac properties to
respondent Bartex, Inc. Petitioner then sent her son, Johnson
to caution respondent Bartex, Inc. that respondent spouses
Ramos were not the lawful owners of the said properties.
Johnson was allegedly able to convey petitioners caveat to a
representative of respondent Bartex, Inc. Petitioner also
warned respondent spouses Ramos not to sell the Ugac
properties anymore, otherwise, she would file the necessary
action against them. The respondent spouses Ramos then
assured her that they would do no such thing. As a
precaution, petitioner executed an Affidavit of Adverse Claim
over the Ugac Properties and caused the same to be
annotated. Despite petitioners warnings, respondent
spouses Ramos still executed in favor of respondent Bartex,
Inc. a Deed of Absolute Sale over the Ugac properties.
Petitioner contended that the Deed of Absolute Sale executed
by respondent spouses Ramos in favor of respondent Bartex,
Inc. did not convey any valid title, not only because
respondent Bartex, Inc. was a buyer in bad faith, but also
because respondent spouses Ramos did not own the Ugac
properties. Thus, petitioner prayed for the declaration of
nullity of Deeds and Titles, Reconveyance, Damages, with
Application for a Writ of Preliminary Prohibitory Injunction
against the respondents.
Second Cause of Action(Unenforceable Contract)-Verbal
Agreement Involving Immovable Property
Petitioner claimed that for many years prior to 1984, she
operated a hardware store in a building she owned along
Bonifacio St., Tuguegarao, Cagayan. However, the Bonifacio
property upon which the building stood is owned by and
registered in the name of Mendoza, from whom petitioner
rented the same.
Petitioner allowed respondent spouses Ramos to manage the
hardware store. Thereafter, in 1984, Mendoza put the
Bonifacio property up for sale. As petitioner did not have
available cash to buy the property, she allegedly entered into
a verbal agreement with respondent spouses Ramos with the
following terms:
1. The lot would be bought by herein respondent spouses
Ramos for and in behalf of herein petitioner;
2. The consideration of P80,000.00 for said lot would be paid
by spouses Ramos from the accumulated earnings of the
store;
3. Since spouses Ramos have the better credit standing, they
would be made to appear in the Deed of Sale as the vendees
so that the title to be issued in their names could be used by
them to secure a loan with which to build a bigger building
and expand the business of petitioner.
In accordance with the above agreement, respondent
spouses Ramos allegedly entered into a contract of sale with
Mendoza over the Bonifacio property, and TCT covering said
property was issued in the names of respondent spouses
Ramos.
Spouses Ramos returned the management of the hardware
store to petitioner. On the bases of receipts and
disbursements, petitioner asserted that the Bonifacio
property was fully paid out of the funds of the store and if
respondent spouses Ramos had given any amount for the
purchase price of the said property, they had already
sufficiently reimbursed themselves from the funds of the
store. Consequently, petitioner demanded from respondent
spouses Ramos the reconveyance of the title to the Bonifacio
property to her but the latter unjustifiably refused.
Petitioner insisted that spouses Ramos were, in reality, mere
trustees of the Bonifacio property, thus, they were under a
moral and legal obligation to reconvey title over the said
property to her. Petitioner, therefore, prayed that she be
declared the owner of the Bonifacio property.
Spouses Ramos accordingly filed before the RTC their Answer
to petitioners Complaint. As regards the first cause of action,

respondent spouses Ramos alleged that petitioner, together
with her son, Johnson, and the latters wife, Maria Teresa
Paredes, mortgaged the Ugac properties to the DBP for the
amount of P150,000.00. When the mortgage was about to be
foreclosed because of the failure of petitioner to pay the
mortgage debt, petitioner asked respondent spouses Ramos
to redeem the mortgaged property or pay her mortgage debt
to DBP. In return, petitioner promised to cede, convey and
transfer full ownership of the Ugac properties to them
With regard to petitioners second cause of action involving
the Bonifacio property,spouses Ramos contended that they
were given not only the management, but also the full
ownership of the hardware store by the petitioner, on the
condition that the stocks and merchandise of the store will be
inventoried, and out of the proceeds of the sales thereof,
respondent spouses Ramos shall pay petitioners outstanding
obligations and liabilities. After settling and paying the
obligations and liabilities of petitioner, respondent spouses
Ramos bought the Bonifacio property from Mendoza out of
their own funds.
RTC DECISION:
On the first cause of action, the Court finds the testimony of
herein petitioner Lina Penalber denying her execution of the
deed of donation over the Ugac property in favor of
respondent spouses Ramos insufficient to support the said
cause of action.
On the second cause of action, the Court finds the evidence
preponderantly in favor of the herein petitioner.
Spouses Ramos filed with the RTC a Motion for
Reconsideration of the afore-mentioned decision, assailing
the ruling of the RTC on petitioners second cause of action
on the ground that the alleged express trust created between
them and petitioner involving the Bonifacio property could
not be proven by parol evidence. The RTC denied respondent
spouses Ramos Motion for Reconsideration for lack of merit,
ratiocinating that respondent spouses Ramos failed to
interpose timely objections when petitioner testified on their
alleged verbal agreement regarding the purchase of the
Bonifacio property. As such, respondent spouses Ramos were
deemed to have waived such objections, which cannot be
raised anymore in their Motion for Reconsideration. The RTC
then reiterated its finding that petitioners evidence clearly
established her second cause of action. Additionally, the RTC
held that the requirement that the parties exert earnest
efforts towards an amicable settlement of the dispute had
likewise been waived by the respondents as they filed no
motion regarding the same before the trial.
The CA rendered the assailed Decision in favor of respondent
spouses Ramos.
ISSUE: Whether
enforceable.
the
trust
agreement
valid
and
RULING:
In its technical legal sense, a trust is defined as the right,
enforceable solely in equity, to the beneficial enjoyment of
property, the legal title to which is vested in another, but the
word "trust" is frequently employed to indicate duties,
relations, and responsibilities which are not strictly technical
trusts. A person who establishes a trust is called the trustor;
one in whom confidence is reposed is known as the trustee;
and the person for whose benefit the trust has been created
is referred to as the beneficiary. There is a fiduciary relation
between the trustee and the beneficiary as regards certain
property, real, personal, money or choses in action.
Trusts are either express or implied. Express trusts are
created by the intention of the trustor or of the parties.
Implied trusts come into being by operation of law. Express
trusts are those which are created by the direct and positive
acts of the parties, by some writing or deed, or will, or by
words either expressly or impliedly evincing an intention to
create a trust. No particular words are required for the

20
was

creation of an express trust, it being sufficient that a trust is
clearly intended. However, in accordance with Article 1443 of
the Civil Code, when an express trust concerns an immovable
property or any interest therein, the same may not be proved
by parol or oral evidence.
From the allegations of the petitioners Complaint in Civil
Case No. 3672, the alleged verbal trust agreement between
petitioner and respondent spouses Ramos is in the nature of
an express trust as petitioner explicitly agreed therein to
allow the respondent spouses Ramos to acquire title to the
Bonifacio property in their names, but to hold the same
property for petitioners benefit. Given that the alleged trust
concerns an immovable property, however, respondent
spouses Ramos counter that the same is unenforceable since
the agreement was made verbally and no parol evidence
may be admitted to prove the existence of an express trust
concerning an immovable property or any interest therein.
On this score, we subscribe to the ruling of the RTC that said
spouses were deemed to have waived their objection to the
parol evidence as they failed to timely object when petitioner
testified on the said verbal agreement. The requirement in
Article 1443 that the express trust concerning an immovable
or an interest therein be in writing is merely for purposes of
proof, not for the validity of the trust agreement. Therefore,
the said article is in the nature of a statute of frauds. The
term statute of frauds is descriptive of statutes which require
certain classes of contracts to be in writing. The statute does
not deprive the parties of the right to contract with respect to
the matters therein involved, but merely regulates the
formalities of the contract necessary to render it enforceable.
The effect of non-compliance is simply that no action can be
proved unless the requirement is complied with. Oral
evidence of the contract will be excluded upon timely
objection. But if the parties to the action, during the trial,
make no objection to the admissibility of the oral evidence to
support the contract covered by the statute, and thereby
permit such contract to be proved orally, it will be just as
binding upon the parties as if it had been reduced to writing.
A careful perusal of the records of the case reveals that
respondent spouses Ramos did indeed fail to interpose their
objections regarding the admissibility of the afore-mentioned
testimonies when the same were offered to prove the alleged
verbal trust agreement between them and petitioner.
Consequently, these testimonies were rendered admissible in
evidence. Nevertheless, while admissibility of evidence is an
affair of logic and law, determined as it is by its relevance
and competence, the weight to be given to such evidence,
once admitted, still depends on judicial evaluation. Thus,
despite the admissibility of the said testimonies, the Court
holds that the same carried little weight in proving the
alleged verbal trust agreement between petitioner and
respondent spouses.
Petitioners allegations as to the existence of an express trust
agreement with respondent spouses Ramos, supported only
by her own and her son Johnsons testimonies, do not hold
water. As correctly ruled by the Court of Appeals, a resulting
difference of P116,946.15 in the beginning inventory of the
stocks of the hardware store (before management was
transferred to respondent spouses Ramos) and the second
inventory thereof (after management was returned to
petitioner), by itself, is not conclusive proof that the said
amount was used to pay the purchase price of the Bonifacio
property, such as would make it the property of petitioner
held merely in trust by respondent spouses Ramos. Such a
conclusion adopted by the RTC is purely speculative and non
sequitur.
The resulting difference in the two inventories might have
been caused by other factors and the same is capable of
other interpretations, the exclusion of which rested upon the
shoulders of petitioner alone who has the burden of proof in
the instant case. This petitioner miserably failed to do. The
fact that respondent spouses Ramos never denied the
P116,946.15 difference, or that they failed to present proof
that they indeed used the said amount to pay the other
obligations and liabilities of petitioner is not sufficient to
discharge petitioners burden to prove the existence of the
alleged express trust agreement.
GONZALES v PEREZ
FACTS
The former Municipality of used to own a parcel of land
located in Barrio Concepcion subdivided into three (3) lots,
namely, lots A, B and C.
On January 14, 1966, the Municipal Council of Marikina
passed Resolution No. 9, series of 1966 which authorized the
sale through public bidding of Municipal Lots A and C. A
public bidding was conducted wherein Pedro Gonzales was
the highest bidder.
Sometime in September 1966, Pedro sold to Marcos Perez a
portion of Lot C, denominated as Lot C-3, which contains an
area of 375 square meters. The contract of sale was
embodied in a Deed of Sale which, however, was not
notarized
Subsequently, Pedro and Marcos died.
In 1992, the Municipality of Marikina, through its then Mayor
Rodolfo Valentino, executed a Deed of Absolute Transfer of
Real Property over Lots A and C in favor of the Estate of Pedro
C. Gonzales.
Subsequently, herein petitioners executed an extrajudicial
partition wherein Lot C was subdivided into three lots. As a
result of the subdivision, new titles were issued wherein the
370-square-meter portion of Lot C-3 is now denominated as
Lot C-1 and is covered by TCT No. 2444479 and the
remaining 5 square meters of the subject lot (Lot C-3) now
forms a portion of another lot denominated as Lot C-2 and is
now covered by TCT No. 244448.
On October 1, 1992, herein respondents sent a demand letter
to one of herein petitioners asking for the reconveyance of
the subject property. However, petitioners refused to
reconvey the said lot. As a consequence, respondents filed an
action for "Annulment and/or Rescission of Deed of Absolute
Transfer of Real Property and for Reconveyance with
Damages.
ISSUE: Whether or not the Deed of Absolute Sale between
Gonzales and Perez were unenforceable due to the absence
of notarization as a public document
RULING
NO, the Deed of Sale was valid and enforceable.
On the question of whether the subject Deed of Sale is invalid
on the ground that it does not appear in a public document,
Article 1358 of the same Code enumerates the acts and
contracts that should be embodied in a public document, to
wit:
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment of real
rights over immovable property; sales of real property or of
an interest therein are governed by Articles 1403, No. 2 and
1405;
Art.
1403.
The
following
contracts
are
unenforceable, unless they are ratified: (2) Those
that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an
agreement hereafter made shall be unenforceable
by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its
contents: Under Article 1403(2), the sale of real
property should be in: a. writing and; b. subscribed
by the party charged for it to be enforceable
In the case before the Court, the Deed of Sale between Pedro
and Marcos is in writing and subscribed by Pedro and his wife

21

Francisca; hence, it is enforceable under the Statute of
Frauds.
However, not having been subscribed and sworn to before a
notary public, the Deed of Sale is not a public document and,
therefore, does not comply with Article 1358 of the Civil
Code.
Nonetheless, it is a settled rule that the failure to observe the
proper form prescribed by Article 1358 does not render the
acts or contracts enumerated therein invalid. It has been
uniformly held that the form required under the said Article is
not essential to the validity or enforceability of the
transaction, but merely for convenience.
The Court agrees with the CA in holding that a sale of real
property, though not consigned in a public instrument or
formal writing, is, nevertheless, valid and binding among the
parties, for the time-honored rule is that even a verbal
contract of sale of real estate produces legal effects between
the parties.
Stated differently, although a conveyance of land is not made
in a public document, it does not affect the validity of such
conveyance.
Article
1358
does
not
require
the
accomplishment of the acts or contracts in a public
instrument in order to validate the act or contract but only to
insure its efficacy.
Thus, based on the foregoing, the Court finds that the CA did
not err in ruling that the contract of sale between Pedro and
Marcos is valid and binding.
BUCTON v RURAL BANK OF EL SALVADOR

Facts:
Petitioner Nicanora G. Bucton filed a case 4 for Annulment of
Mortgage, Foreclosure, and Special Power of Attorney (SPA)
against Erlinda Concepcion (Concepcion) and respondents
Rural Bank of El Salvador, Misamis Oriental, and Sheriff
Reynaldo
Cuyong.5
Petitioner alleged that she is the owner of a parcel of land,
covered by Transfer Certificate of Title (TCT) No. T3838, that
Concepcion borrowed the title on the pretext that she was
going to show it to an interested buyer;7 that Concepcion
obtained a loan in the amount of P30,000.00 from respondent
bank;8 that as security for the loan, Concepcion mortgaged
petitioners house and lot to respondent bank using a
SPA9 allegedly executed by petitioner in favor of
Concepcion;10 that Concepcion failed to pay the loan; 11 that
petitioners house and lot were foreclosed by respondent
sheriff without a Notice of ExtraJudicial Foreclosure or Notice
of Auction Sale;12 and that petitioners house and lot were
sold in an auction sale in favor of respondent bank. 13
Respondent bank filed an Answer 14 interposing lack of cause
of action as a defense. 15
It denied the allegation of
petitioner that the SPA was forged16 and averred that,
petitioner went to the bank and promised to settle the loan of
Concepcion. As to the alleged irregularities in the foreclosure
proceedings, respondent bank asserted that it complied with
the requirements of the law in foreclosing the house and lot.
Petitioner testified that a representative of respondent bank
went to her house to inform her that the loan secured by her
house and lot was long overdue. 26 Since she did not
mortgage any of her properties nor did she obtain a loan
from respondent bank, she decided to go to respondent bank
on June 22, 1987 to inquire about the matter. 27 It was only
then that she discovered that her house and lot was
mortgaged by virtue of a forged SPA. 28 She insisted that her
signature and her husbands signature on the SPA were
forged. Petitioner also denied appearing before the notary
public, who notarized the SPA.31 She also testified that the
property referred to in the SPA, TCT No. 3838, is a vacant lot
and that the house, which was mortgaged and foreclosed, is
covered
by
a
different
title,
TCT
No.
3839. 32
Respondent bank, on the other hand, presented the
testimonies of its employees36 and respondent sheriff. Based
on their testimonies, it appears that on June 8, 1982,
Concepcion applied for a loan for her coconut production

business37 in the amount of P40,000.00 but only the amount
of P30,000.00 was approved;38 that she offered as collateral
petitioners house and lot using the SPA; 39 and that the
proceeds of the loan were released to Concepcion and Lugod.
RTC:
The SPA was forged and declares the Real Estate Mortage as
null
and
void.
CA:
Respondent bank elevated the case to the CA arguing that
the SPA was not forged 53 and that being a notarized
document, it enjoys the presumption of regularity. 54
Petitioner, on the other hand, maintained that the signatures
were forged55 and that she cannot be made liable as both
the Promissory Note56 and the Real Estate Mortgage, which
were dated June 11, 1982, were signed by Concepcion in
her own personal capacity.57
CA reversed the findings of the RTC. The CA found no cogent
reason to invalidate the SPA, the Real Estate Mortgage, and
Foreclosure Sale as it was not convinced that the SPA was
forged. The CA declared that although the Promissory Note
and the Real Estate Mortgage did not indicate that
Concepcion was signing for and on behalf of her principal,
petitioner is estopped from denying liability since it was her
negligence in handing over her title to Concepcion that
caused the loss.58
Issue: W/N the real estate mortgage is valid.
Held:
The Real Estate Mortgage is void and unenforceable.
The Real Estate Mortgage was entered into by
Concepcion
in
her
own
personal
capacity.
As early as the case of Philippine Sugar Estates Development
Co. v. Poizat,76 we already ruled that in order to bind the
principal by a deed executed by an agent, the deed must
upon its face purport to be made, signed and sealed in the
name of the principal.77 In other words, the mere fact that
the agent was authorized to mortgage the property is not
sufficient to bind the principal, unless the deed was executed
and signed by the agent for and on behalf of his principal.
In this case, the authorized agent failed to indicate in the
mortgage that she was acting for and on behalf of her
principal. The Real Estate Mortgage, explicitly shows on its
face, that it was signed by Concepcion in her own name and
in her own personal capacity. In fact, there is nothing in the
document to show that she was acting or signing as an agent
of petitioner. Thus, consistent with the law on agency and
established jurisprudence, petitioner cannot be bound by the
acts
of
Concepcion.
In light of the foregoing, there is no need to delve on the
issues of forgery of the SPA and the nullity of the foreclosure
sale. For even if the SPA was valid, the Real Estate Mortgage
would still not bind petitioner as it was signed by Concepcion
in her personal capacity and not as an agent of petitioner.
Simply put, the Real Estate Mortgage is void and
unenforceable
against
petitioner.
Respondent
bank
was
Respondent bank has no one to blame but itself. Not only did
it act with undue haste when it granted and released the loan
in less than three days, it also acted negligently in preparing
the Real Estate Mortgage as it failed to indicate that
Concepcion was signing it for and on behalf of petitioner. We
need not belabor that the words as attorneyinfact of, as
agent of, or for and on behalf of, are vital in order for the

22
negligent.

principal to be bound by the acts of his agent. Without these
words, any mortgage, although signed by the agent, cannot
bind the principal as it is considered to have been signed by
the agent in his personal capacity.
VIOD CONTRACTS
MODINA v CA
FACTS: The parcels of land in question are those under the
name of Ramon Chiang. He theorized that subject properties
were sold to him by his wife, Merlinda Plana Chiang
(hereinafter referred to as MERLINDA), as evidenced by a
Deed of Absolute Sale and were subsequently sold by
CHIANG to the petitioner Serafin Modina (MODINA), as shown
by the Deeds of Sale.
The principle of in pari delicto non oritur actio denies all

recovery to the guilty parties inter se. It applies to cases
where the nullity arises from the illegality of the
consideration or the purpose of the contract. When two
persons are equally at fault, the law does not relieve them.
The exception to this general rule is when the principle is
invoked with respect to inexistent contracts.
In the petition under consideration, the Trial Court found that
subject Deed of Sale was a nullity for lack of any
consideration. This finding duly supported by evidence was
affirmed by the Court of Appeals. Well-settled is the rule that
this Court will not disturb such finding absent any evidence to
the contrary.
ISSUES: Whether the contract is void and whether the
spouses are in pari delicto.
MODINA brought a Complaint for Recovery of Possession with

Damages against the private respondents.
RULING: Yes
Upon learning the institution of the said case, MERLINDA

presented
a
Complaint-in-intervention,
seeking
the
declaration of nullity of the Deed of Sale between her
husband and MODINA on the ground that the titles of the
parcels of land in dispute were never legally transferred to
her husband. Fraudulent acts were allegedly employed by
him to obtain a Torrens Title in his favor. However, she
confirmed the validity of the lease contracts with the other
private
respondents.
Under Article 1409 of the New Civil Code, enumerating void

contracts, a contract without consideration is one such void
contract. One of the characteristics of a void or inexistent
contract is that it produces no effect. So also, inexistent
contracts can be invoked by any person whenever juridical
effects founded thereon are asserted against him. A
transferor can recover the object of such contract by accion
reivindicatoria and any possessor may refuse to deliver it to
the transferee, who cannot enforce the transfer.
After due hearing, the Trial Court decided in favor of

MERLINDA, hereby rendered
(1) declaring as void and inexistent the sale of Lots in favor of
Ramon Chiang;
(2) declaring as void and inexistent the sale of the same
properties by Ramon Chiang in favor of Serafin Modina.
Thus, petitioners insistence that MERLINDA cannot attack

subject contract of sale as she was a guilty party thereto is
equally
unavailing.
On appeal, the Court of Appeals affirmed the aforesaid

decision
in
toto.
Raised for resolution here are: (1) whether the sale of subject
lots should be nullified.
Petitioner theorizes that the sale in question is null and void
for being violative of Article 1490 of the New Civil Code
prohibiting sales between spouses. Consequently, what is
applicable is Article 1412 supra on the principle of in pari
delicto, which leaves both guilty parties where they are, and
keeps undisturbed the rights of third persons to whom the
lots
involved
were
sold;
petitioner
stressed.
Petitioner anchors his submission on the following statements
of the Trial Court which the Court of Appeals upheld, to wit:
Furthermore, under Art. 1490, husband and wife are
prohibited to sell properties to each other. And where, as in
this case, the sale is inexistent for lack of consideration, the
principle of in pari delicto non oritur actio does not apply.
xxx xxx xxx
The Court of Appeals, on the other hand, adopted the
following findings a quo: that there is no sufficient evidence
establishing fault on the part of MERLINDA, and therefore, the
principle of in pari delicto is inapplicable and the sale was
void for want of consideration. In effect, MERLINDA can
recover the lots sold by her husband to petitioner MODINA.
However, the Court of Appeals ruled that the sale was void
for violating Article 1490 of the Civil Code, which prohibits
sales
between
spouses.
But the pivot of inquiry here is whether MERLINDA is barred

by the principle of in pari delicto from questioning subject
Deed
of
Sale.
It bears emphasizing that as the contracts under controversy
are inexistent contracts within legal contemplation, Articles
1411 and 1412 of the New Civil Code are inapplicable. In pari
delicto doctrine applies only to contracts with illegal
consideration or subject matter, whether the attendant facts
constitute an offense or misdemeanor or whether the
consideration involved is merely rendered illegal.
The statement below that it is likewise null and void for being
violative of Article 1490 should just be treated as a
surplusage or an obiter dictum on the part of the Trial Court
as the issue of whether the parcels of land in dispute are
conjugal in nature or they fall under the exceptions provided
for by law, was neither raised nor litigated upon before the
lower Court. Whether the said lots were ganancial properties
was never brought to the fore by the parties and it is too late
to
do
so
now.
Records show that in the complaint-in-intervention of
MERLINDA, she did not aver the same as a ground to nullify
subject Deed of Sale. In fact, she denied the existence of the
Deed of Sale in favor of her husband. In the said Complaint,
her allegations referred to the want of consideration of such
Deed of Sale. She did not put up the defense under Article
1490, to nullify her sale to her husband CHIANG because
such a defense would be inconsistent with her claim that the
same
sale
was
inexistent.
The Trial Court debunked petitioners theory that MERLINDA
intentionally gave away the bulk of her and her late
husbands estate to defendant CHIANG as his exclusive

23

property, for want of evidentiary anchor. They insist on the
Deed of Sale wherein MERLINDA made the misrepresentation
that she was a widow and CHIANG was single, when at the
time of execution thereof, they were in fact already married.
Petitioner insists that this document conclusively established
bad faith on the part of MERLINDA and therefore, the
principle of in pari delicto should have been applied.
Since one of the characteristics of a void or inexistent
contract is that it does not produce any effect, MERLINDA can
recover the property from petitioner who never acquired title
thereover.
DOMINGO v CA
FACTS:
Paulina owned 3 parcels of land including the house and
warehouse on one parcel. She allegedly sold them to spouses
Rigonan, who claim to be her relatives.
In 1966, Domingo, Mangabat and Capalungan (Domingo et
al) who claim to be her closest surviving relatives, allegedly
took possession of the properties by means of stealth, force
and intimidation, and refused to vacate the same.
Spouses Rigonan filed a complaint for reinvindicacion against
Domingo et. al alleging that:
They were the owners of the three parcels of land
through the deed of sale executed by Paulina;
They had been in continuous possession of the
subject properties and had introduced permanent
improvements thereon;
Domingo et. al. entered the properties illegally, and
they refused to leave them when asked to do so.
Domingo et. al. alleged that:
The deed of absolute sale was void for being
spurious as well as lacking consideration.
As her nearest surviving kin within the 5 th degree of
consanguinity, they inherited the three lots and the
permanent improvements thereon when Paulina.
Franco testified that he was a witness to the execution of the
deed of absolute sale. However, when cross-examined and
shown the deed he stated that the deed was not the
document he signed as a witness, but rather it was the will
and testament made by Paulina.
Atty. Tagatag testified that he personally prepared the
deed, he saw Paulina affix her thumbprint on it and he signed
it both as witness and notary public. He also notarized
Paulinas last will and testament. The will mentioned the
same lots sold to Spouses Rigonan. When asked why the
subject lots were still included in the last will and testament,
he could not explain.
Felipe Rigonan claimed that
He was Paulinas close relative. Their fathers were
first cousins. However, he could not recall the name
of Paulinas grandfather and claim was disputed by
Domingo et. al., who lived with Paulina.
He admitted the discrepancies between the Register
of Deeds copy of the deed and the copy in his
possession.
But he attributed them to the
representative from the Office of the Register of
Deeds.
Jose Flores testified that he knew Domingo et. al,, who had
lived on the land with Paulina since he could remember and
continued to live there even after Paulinas death. He said he
did not receive any notice nor any offer to sell the lots from
Paulina, contrary to what was indicated in the deed of sale
that the vendor had notified all the adjacent owners of the
sale.
Ruben Blanco, the acting Registrar of Deeds, testified that
only the carbon copy, also called a duplicate original, of the
deed of sale was filed in his office, but he could not explain
why this was so.
Zosima Domingo testified that her husband, Eugenio, was
Paulinas nephew and that they lived with Paulina and took
care of her, spent for her daily needs and medical expenses,
especially when she was hospitalized prior to her death. She
stated that Paulina was never badly in need of money during
her lifetime.
RTC: In favor of Domingo et. al.
1. Domingo et. al, by virtue of intestate succession, are
the lawful owners and possessors of the properties.
2. The deed of sale is hereby declared null and void
and fake.
CA: Reversed and set aside. Spouses Rigonan are declared
the owners of the properties
ISSUE:
Did Spouses Rigonan sufficiently establish the existence and
due execution of the Deed of Absolute and Irrevocable Sale of
Real Property?
HELD:
NO.
1.
2.
3.
4.
5.
6.
7.
Spouses Rigonan presented only a carbon copy of

this deed.
Register of Deeds was not able to present the
original typewritten deed but only a carbon copy.
The deed contained filled in blanks and alterations.
None of the witnesses directly testified to prove
positively and convincingly Paulinas execution of
the original deed of sale.
The carbon copy did not bear Paulinas signature,
but only her alleged thumbprint.
Juan Franco testified that he was an instrumental
witness to the deed. However, when cross-examined
and shown a copy of the subject deed, he retracted
and said that said deed of sale was not the
document he signed as witness. He declared
categorically he knew nothing about it.
Efren Sibucao, whose testimony should have
corroborated Atty. Tagatags, was not presented and
his affidavit was withdrawn from the court, leaving
only Atty. Tagatags testimony, which aside from
being uncorroborated, was self-serving.
IRREGULARITIES ABOUND REGARDING THE EXECUTION

AND REGISTRATION OF THE ALLEGED DEED OF SALE.
1. Atty. Tagatag testified that he himself registered the
original deed with the Register of Deeds. Yet, the
original was nowhere to be found and none could be
presented at the trial.
2. The carbon copy on file shows intercalations and
discrepancies when compared to purported copies in
existence. The intercalations were allegedly due to
blanks left unfilled by Atty. Tagatag at the time of
the deeds registration. The blanks were allegedly
filled in much later by a representative of the
Register of Deeds
3. The alleged other copies of the document bore
different dates of entry
4. The deed was apparently registered long after its
alleged date of execution and after Paulinas death
5. Paulina was not given a copy.
6. Alleged vendor was never asked to vacate the
premises she had purportedly sold.
Also, the PRICE ALLEGEDLY PAID BY SPOUSES RIGONAN
FOR NINE (9) PARCELS, INCLUDING THE THREE
PARCELS IN DISPUTE, A HOUSE AND A WAREHOUSE,
RAISES FURTHER QUESTIONS. Consideration is the why of
a contract, the essential reason which moves the contracting
parties to enter into the contract.
On record, there is
unrebutted testimony that Paulina as landowner was
financially well off. She loaned money to several people. We
see no apparent and compelling reason for her to sell the
subject parcels of land with a house and warehouse at a
meager price of P850 only.

24

A.
AT THE TIME OF THE EXECUTION OF THE ALLEGED
CONTRACT, PAULINA RIGONAN WAS ALREADY OF
ADVANCED AGE AND SENILE. She died an octogenarian
barely over a year when the deed was allegedly executed,
but before copies of the deed were entered in the registry.
The general rule is that a person is not incompetent to
contract merely because of advanced years or by reason of
physical infirmities. However, when such age or infirmities
have impaired the mental faculties so as to prevent the
person from properly, intelligently, and firmly protecting her
property rights then she is undeniably incapacitated.
The unrebutted testimony of Zosima shows that AT THE
TIME OF THE ALLEGED EXECUTION OF THE DEED,
PAULINA WAS ALREADY INCAPACITATED PHYSICALLY
AND MENTALLY. She narrated that Paulina played with her
waste and urinated in bed. Given these circumstances, there
is in our view sufficient reason to seriously doubt that she
consented to the sale of and the price for her parcels of land.
Moreover, there is no receipt to show that said price was paid
to and received by her. Thus, we are in agreement with the
trial courts finding and conclusion on the matter:
Also, the P850.00 consideration for the nine (9) parcels of
land including the house and bodega is grossly and
shockingly inadequate, and the sale is null and void ab initio.
BAUTISTA v SILVA
FACTS:
A Complaint for Annulment of Deed of Absolute Sale and
Transfer Certificate of Title, Reconveyance and Damages was
filed with the RTC, by Berlina F. Silva (Berlina), through
Hermes Dorado (Dorado) as Attorney-in-Fact, against Spouses
Claro and Nida Bautista (Spouses Bautista).
1. A Transfer Certificate of Title over a parcel of land situated
in xxx Barrio of Parada, Valenzuela, Metro Manila, containing
an area of 216 square meters, more or less, was registered in
the names of Spouses Berlina F. Silva and Pedro M. Silva on
August 14, 1980;
2. That on March 3, 1988, Pedro M. Silva, for himself and as
attorney-in-fact of his wife Berlina F. Silva, thru a Special
Power of Attorney purportedly executed on November 18,
1987 by Berlina F. Silva in his favor, signed and
executed a Deed of Absolute Sale over the said parcel of
land covered by Transfer Certificate of Title No. B-37189 in
favor of defendants-spouses Claro Bautista and Nida
Bautista; and
3. That as a consequence, Transfer Certificate of Title No.
37189 was cancelled and in lieu thereof, Transfer Certificate
of Title No. V-2765 of the Registry of Deeds for the Valenzuela
Branch was issued in the names of Spouses Claro Bautista
and Nida Bautista on March 4, 1988.11
RTC found that the signature appearing on the Special Power
of Attorney (SPA) as that of Berlina Silva is a forgery, and
that consequently the Deed of Absolute Sale executed by
Pedro in favor of Spouses Bautista is not authorized by
Berlina. They declared the Deed of Absolute Sale null and
void and to reconvey the property.
ISSUE:
a.
Whether the petitioners are purchasers in good faith

when they relied on the Special power of attorney
b.
Whether or not the Deed of Absolute Sale is null and

void.
RULING:
There is no merit to petitioners' claim that they are

purchasers in good faith.
That the SPA is a forgery is a finding of the RTC and the

CA on a question of fact. The same is conclusive upon the
Court, especially as it is based on the expert opinion of
the NBI which constitutes more than clear, positive
and convincing evidence that respondent did not sign
the SPA, and on the uncontroverted Certification of Dorado
that respondent was in Germany working as a nurse
when the SPA was purportedly executed in 1987.
The SPA being a forgery, it did not vest in Pedro any authority
to alienate the subject property without the consent of
respondent. Absent such marital consent, the deed of sale
was a nullity.
But then petitioners disclaim any participation in the forgery
of the SPA or in the unauthorized sale of the subject property.
They are adamant that even with their knowledge that
respondent was in Germany at the time of the sale, they
acted in good faith when they bought the subject
property from Pedro alone because the latter was
equipped with a SPA which contains a notarial
acknowledgment that the same is valid and authentic.
They invoke the status of buyers in good faith whose
registered title in the property is already indefeasible and
against which the remedy of reconveyance is no longer
available. In the alternative, petitioners offer that should
respondent be declared entitled to reconveyance, let it affect
her portion only but not that of Pedro.
A holder of registered title may invoke the status of a buyer
for value in good faith as a defense against any action
questioning his title. Such status, however, is never
presumed but must be proven by the person invoking it.
He buys the property with the well-founded belief that
the person from whom he receives the thing had title
to the property and capacity to convey it.36
To prove good faith, a buyer of registered and titled land
need only show that he relied on the face of the title to the
property. He need not prove that he made further inquiry for
he is not obliged to explore beyond the four corners of the
title. Such degree of proof of good faith, however, is sufficient
only when the following conditions concur:
1.
the seller is the registered owner of the land;
2.
the latter is in possession thereof;
3.
at the time of the sale, the buyer was not aware of

any claim or interest of some other person in the
property, or of any defect or restriction in the title of
the seller or in his capacity to convey title to the
property.41
Absent one or two of the foregoing conditions, then the law

itself puts the buyer on notice and obliges the latter to
exercise a higher degree of diligence by scrutinizing the
certificate of title and examining all factual circumstances in
order to determine the seller's title and capacity to transfer
any interest in the property. Under such circumstance, it is
no longer sufficient for said buyer to merely show that
he relied on the face of the title; he must now also
show that he exercised reasonable precaution by
inquiring beyond the title. Failure to exercise such degree
of precaution makes him a buyer in bad faith.
In the present case, petitioners were dealing with a seller
(Pedro) who had title to and possession of the land but, as
indicated on the face of his title, whose capacity to sell was
restricted, in that the marital consent of respondent is
required before he could convey the property

25

According to petitioners, to determine Pedro's capacity to
sell, they conducted the following forms of inquiry:
1.
they inspected the photocopy of the SPA presented

to them by Pedro;
2.
they brought said copy to Atty. Lorenzo Lucero (the

notary public who prepared the deed of sale) and
asked whether it was genuine;
3.
they inspected the original copy of the SPA after

they advanced payment of Php55,000.00 to Pedro.
Essentially, petitioners relied on the SPA, specifically on its

notarial acknowledgment which states that respondent
appeared before the notary public and acknowledged having
executed the SPA in favor of Pedro.
When the document under scrutiny is a special power of
attorney that is duly notarized, we know it to be a public
document where the notarial acknowledgment is prima
facie evidence of the fact of its due execution. A buyer
presented with such a document would have no choice
between knowing and finding out whether a forger lurks
beneath the signature on it. The notarial acknowledgment
has removed that choice from him and replaced it with a
presumption sanctioned by law that the affiant appeared
before the notary public and acknowledged that he executed
the document, understood its import and signed it. In reality,
he is deprived of such choice not because he is incapable of
knowing and finding out but because, under our notarial
system, he has been given the luxury of merely relying on
the presumption of regularity of a duly notarized SPA. And he
cannot be faulted for that because it is precisely that fiction
of regularity which holds together commercial transactions
across borders and time.
In sum, all things being equal, a person dealing with a
seller who has possession and title to the property but whose
capacity to sell is restricted, qualifies as a buyer in good faith
if he proves that he inquired into the title of the seller as well
as into the latter's capacity to sell; and that in his inquiry, he
relied on the notarial acknowledgment found in the seller's
duly notarized special power of attorney. He need not prove
anything more for it is already the function of the notarial
acknowledgment to establish the appearance of the parties
to the document, its due execution and authenticity.
Note that we expressly made the foregoing rule applicable
only under the operative words "duly notarized" and "all
things being equal." Thus, said rule should not apply
when there is an apparent flaw afflicting the notarial
acknowledgment of the special power of attorney as
would cast doubt on the due execution and authenticity of
the document; or when the buyer has actual notice of
circumstances outside the document that would render
suspect its genuineness.
B.
The Deed of Absolute Sale is null and void.
In Domingo v. Reed, we found that the special power of

attorney relied upon by the buyers contained a defective
notarial acknowledgment in that it stated there that only the
agent-wife signed the document before the notary public
while the principal-husband did not. Such flaw rendered the
notarial acknowledgment of no effect and reduced the special
power of attorney into a private document.
In Lao v. Villones-Lao, and Estacio v. Jaranilla, we found that
the buyers knew of circumstances extrinsic to the special
power of attorney which put in question the actual execution
of said document. In Domingo Lao, the buyer knew that the
agent-wife was estranged from the principal-husband but was
living within the same city. In the Estacio case, we found
admissions by the buyers that they knew that at the time of
the purported execution of the special power of attorney, the

alleged principal was not in the Philippines. In both cases we
held that the buyers were not in good faith, not because we
found any outward defect in the notarial acknowledgment of
the special powers of attorney, but because the latter had
actual notice of facts that should have put them on deeper
inquiry into the capacity to sell of the seller.
Thus, the Deed of Absolute Sale in the present case is nulld
and void since Art. 124 of the Civil Code provides that any
disposition or encumbrance of the conjugal properties is null
and void without the courts authority or the consent of the
other spouse.
In the present case, petitioners knew that Berlina was in
Germany at the time they were buying the property and the
SPA relied upon by petitioners
a.
has a defective notarial acknowledgment.
b.
The SPA was a mere photocopy and we are not

convinced that there ever was an original copy of
said SPA as it was only this photocopy that was
testified to by petitioner Nida Bautista and offered
into evidence by her counsel.
c.
Nida Bautista, upon inspection of the photocopy of

the SPA, they gave Pedro an advanced payment of
Php55,000.00; this signifies that, without further
investigation on the SPA, petitioners had agreed to
buy the subject property from Pedro.
d.
But then said photocopy of the SPA contains no

notarial seal. A notarial seal is a mark, image or
impression on a document which would indicate that
the notary public has officially signed it. There
being no notarial seal, the signature of the
notary public on the notarial certificate was
therefore incomplete. The notarial certificate
being deficient, it was as if the notarial
acknowledgment was unsigned. The photocopy of
the SPA has no notarial acknowledgment to speak
of. It was a mere private document which petitioners
cannot foist as a banner of good faith.
All told, it was not sufficient evidence of good faith that

petitioners merely relied on the photocopy of the SPA as this
turned out to be a mere private document. They should have
adduced more evidence that they looked beyond it. They did
not. Instead, they took no precautions at all. They verified
with Atty. Lucero whether the SPA was authentic but then the
latter was not the notary public who prepared the document.
Worse, they purposely failed to inquire who was the notary
public who prepared the SPA. Finally, petitioners conducted
the transaction in haste. It took them all but three days or
from March 2 to 4, 1988 to enter into the deed of sale,
notwithstanding the restriction on the capacity to sell of
Pedro. In no way then may petitioners qualify as buyers for
value in good faith.
RAMIREZ v RAMIREZ
Facts:
On October 8, 1996, petitioner filed a complaint against
respondent Ma. Cecilia Ramirez before the Regional Trial
Court for annulment of: 1) a Deed of Donation; 2) Waiver of
Possessory Rights; and 3) Transfer Certificates of Title (TCT)
Nos. T-5618 and T-5617.
Petitioner claimed that respondent caused the execution of
the Deed of Donation and Waiver of Possessory Rights to
acquire ownership over the land and improvements using the
Deed of Donation and Waiver of Possessory Rights.
The Deed of Donation and Waiver of Possessory Rights were

26

allegedly executed by petitioner and his wife, Dolores
Ramirez, on January 29, 1993 and October 24, 1995,
respectively. However, the death certificate presented
showed that Dolores died on April 5, 1991 and, consequently,
could not have executed the assailed documents. Petitioner
repudiated the other signatures and insisted that he did not
intend to transfer the properties to respondent.
to enter into the transaction. Petitioner wrongly asserts that

the donated real properties are both the object and cause of
the donation.
Respondent claimed that it was her fathers idea to cause the

preparation of the Deed of Donation and Waiver of
Possessory Rights to save on expenses for publication and
inheritance taxes.
The donated properties pertain only to the object and the

cause which moved the parties to execute the Deed of
Donation and the Waiver of Possessory Rights, the motive
behind the forgery, is the desire to evade the payment of
publication expenses and inheritance taxes, which became
due upon the death of Dolores. Undeniably, the Deed of
Donation and the Waiver of Possessory Rights were executed
for an illegal cause, thus completing all the requisites for the
application of Article 1411.
RTC ruled that the signature of Dolores on the Deed of

Donation was a forgery and petitioners signatures on both
documents to be genuine. It then held petitioner and
respondent in pari delicto, as participants to the forgery, and
ruled that they must bear the consequences of their
acts without cause of action against each other in accordance
with Article 1412 of the Civil Code.
CA likewise held both parties in pari delicto.[4]
Issue: whether or not petitioner and respondent are
in pari delicto.
Ruling: YES
Donations inter vivos are additionally governed by the
general provisions on obligations and contracts in all that is
not determined by the title governing donations.[5] Hence, the
rule on pari delicto under the general provisions of contracts
is applicable to the present case.
The Court agrees with the rulings of the CA and the RTC that
petitioner and respondent are in pari delicto. Nevertheless,
both courts erred on the applicable law. Article 1412 of the
Civil Code, which refers to a situation where the cause of the
contract is unlawful or forbidden but does not constitute a
violation of the criminal laws, thus:
On the other hand, where the act involved constitutes a
criminal offense, the applicable provision is Article 1411:
ARTICLE 1411. When the nullity proceeds from the illegality
of the cause or object of the contract, and the act constitutes
a criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is
guilty; but the innocent one may claim what he has given,
and shall not be bound to comply with his promise.
Forging a persons signature corresponds to the felony of
falsification under Section 4, Title IV of the Revised Penal
Code. Hence, the act of forging Doloress signature
constitutes a criminal offense under the terms of Article 1411
of the Civil Code.
Under Article 1411 of the Civil Code for both parties to be in
Pari Delico it must be shown that the nullity of the
contract proceeds from an illegal cause or object, and
the act of executing said contract constitutes a
criminal offense.
Petitioner claims that the object or cause of the Deed of
Donation and of the Waiver of Possessory Rights is the
transferred real properties and that there is nothing illegal
about them. He even maintains that the illegality instead
stems from the act of forgery which pertains to consent,
which is not material to the application of Article 1411.
The argument is untenable. Object and cause are two
separate elements of a donation and the illegality of either
element gives rise to the application of the doctrine
of pari delicto. Object is the subject matter of the donation,
while cause is the essential reason which moves the parties
While he is correct in stating that the object of the donation is

legal, his argument misses the point insofar as the cause is
concerned.
BAUTISTA v BAUTISTA
FACTS:
During her lifetime, Teodora Rosario was
the owner of a 211.80-square meter parcel of land in San
Carlos City, Pangasinan She died intestate on January 19,
1970, leaving behind her spouse Isidro Bautista (Isidro) and
five children, namely: Teofilo Bautista, Alegria Bautista,
Angelica Bautista, Pacita Bautista and Gil Bautista.
On April 21, 1981, Isidro and four of his five children executed
a Deed of Extra-Judicial Partition of the property in which
Isidro waived his share in favor of his said four children.
Teofilo was excluded from the partition.
Alegria and Angelica, sold their share of property to their
sibling Pacita and her common-law husband Pedro who soon
obtained tax declarations of the property. Pacita, with Pedros
conformity, later conveyed via Deed of Absolute Sale of the
property in favor of Cesar Tamondong, Pedros nephew.
On January 24, 1994, herein petitioner Teofilo, filed a
Complaint against his siblings for annulment of documents,
partition, recovery of ownership, possession and damages.
In his complaint, petitioner claimed that his co-heirs
defrauded him of his rightful share of the property and that
the deed of sale executed by Pacita in favor of Cesar
Tamondong was fictitious as it was impossible for her to have
executed the same in Manila, she being already seriously ill
at the time.
In their Answer, the defendants-herein claimed that it was
Pacita who caused the execution of the Deed of Extra-Judicial
Partition and because they trusted Pacita, they signed the
document without scrutinizing it; and that they learned about
the contents of the partition only upon Teofilos filing of the
Complaint.
In their Answer with Counterclaim, Pedro and Cesar
Tamondong claimed that they were buyers in good faith. In
any event, they contended that prescription had set in.
The RTC rendered judgment in favor of Teofilo, Declaring as
null and void and of no force and effect the Deed of ExtraJudicial Partition.
The CA reversed the RTCs decision in favor of the
respondents that the action to nullify the Deed of Extrajudicial partition had already prescribed.
ISSUE:
WON the Deed of Extra-judicial partition is
void and that the action to have it annulled had already
prescribe.
HELD:
The SC ruled that extra-judicial partition
executed by Teofilos co-heirs was VOID. The SC sited the

27

case of Segura v. Segura wherein in the partition was void
because it excluded six of the nine heirs who were entitled to
equal shares in the partitioned property. Under the rule, "no
extra-judicial settlement shall be binding upon any person
who has not participated therein or had no notice thereof."
As the partition was a total nullity and did not affect the
excluded heirs, it was not correct for the trial court to hold
that their right to challenge the partition had prescribed after
two years.
The deed of extra-judicial partition in the case at bar being
VOID, the action to have it annulled does not prescribe.
HULST v PR BUILDERS
Facts:
Jacubos Bernard Hulst (Petitioner) and his spouse Ida

Johanna Hulst - Van Ijzeren, Dutch nationals, entered into a
Contract to sell with PR Builders Inc. the purchase of 210 sq
residential unit in respondents town house project in Brgy.
Niyugan, Batangas.
When respondent failed to comply with its verbal
promise to complete the project in June 1995, the spouse
Hulst filed before the Housing and Land Use Regulatory Board
for complaint for rescission of contract with interest,
damages, and attorneys fees.
On April 1997 HLURB Arbiter Aquino rendered
decision in favor of spouses Hulst and issued a writ of
execution. The Sheriff proceeded to implement the writ of
execution. However upon complaint of respondent with CA on
a Petition for Certiorari and Prohibition, the levy made by the
sheriff was se aside, requiring the sheriff to levy first on
respondent personal properties. He tried to implement the
writ as directed but the writ was returned and satisfied.
On January 1999, upon the petitioners motion, the
HLUB issued an Alias writ of execution. The sheriff levied
respondents 15 parcel of land in Brgy. Niyugan, Laurel,
Batangas.
2 days before the scheduled public auction,
respondent filed an urgent motion to quash writ of levy with
the HLURB on the ground that the sheriff made an overlay
since the aggregate appraised value s the levied properties is
at PhP6,500.00 per square meter is Php83,000.00, based on
the Appraisal Report of Henry Hunter Bayne Co. Inc dated
December 11, 1996, which is over and above the judgment
award.
Absent from any restraining order from the HLURB, the sheriff
proceed to sell the 15 parcel of Land. Holy Properties
Corporation was the winning bidder for the total amount of
Php5,450,000.00. The sum total was turned over to the
petitioner in satisfaction with the judgment award.
On August 2000, the HLURB Arbiter and HLURB
Director issued an order setting aside the sheriffs levy on
respondents real properties.
Petitioner filed a Petition for Certiorari and
Prohibition with the CA. But the CA dismissed the petition
affirming the HLURBs decision.
Issue: W/N the contract to sell entered into by the petitioner
together with his wife and the respondent is void and
inexistent?
Held:
YES!
Since petitioner and his wife being a

are proscribed under the constitution from
property, it is unequivocal that the contract
into by the petitioner together with his
respondent is void.
Dutch National
acquiring real
to sell entered
wife and the
Under Article 1409 (1) and (7) of the Civil Code, all
contracts whose cause, object or purpose is contrary to law
or public policy and those expressly prohibited or declared
void by the law are inexistent and void from the beginning. A
void contract is equivalent to nothing, produces no civil
effects, it does not creat, modify or extinguish a juridical
relation.
Generally, parties to a void contract cannot expect
the aid of the law. The court leave hem as they are because
they are deemed in pari delicto or in equal fault. In pari
delicto is "a universal doctrine which holds that no action
arises, in equity or at law, from an illegal contract; no suit can
be maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money agreed
to be paid, or damages for its violation; and where the parties
are in pari delicto, no affirmative relief of any kind will be
given to one against the other."
This rule, however, is subject to exceptions that
permit the return of that which may have been given under a
void contract to: (a) the innocent party (Arts. 1411-1412, Civil
Code); (b) the debtor who pays usurious interest (Art. 1413,
Civil Code); (c) the party repudiating the void contract
before the illegal purpose is accomplished or before
damage is caused to a third person and if public
interest is subserved by allowing recovery (Art. 1414,
Civil Code); (d) the incapacitated party if the interest of
justice so demands (Art. 1415, Civil Code); (e) the party for
whose protection the prohibition by law is intended if the
agreement is not illegal per se but merely prohibited and if
public policy would be enhanced by permitting recovery (Art.
1416, Civil Code); and (f) the party for whose benefit the law
has been intended such as in price ceiling laws (Art. 1417,
Civil Code) and labor laws (Arts. 1418-1419, Civil Code).
It is significant to note that the agreement executed
by the parties in this case is a Contract to Sell and not a
contract of sale. A distinction between the two is material in
the determination of when ownership is deemed to have
been transferred to the buyer or vendee and, ultimately, the
resolution of the question on whether the constitutional
proscription has been breached.
In a contract of sale, the title passes to the buyer
upon the delivery of the thing sold. The vendor has lost and
cannot recover the ownership of the property until and unless
the contract of sale is itself resolved and set aside. On the
other hand, a contract to sell is akin to a conditional sale
where the efficacy or obligatory force of the vendor's
obligation to transfer title is subordinated to the happening of
a future and uncertain event, so that if the suspensive
condition does not take place, the parties would stand as if
the conditional obligation had never existed. In other words,
in a contract to sell, the prospective seller agrees to transfer
ownership of the property to the buyer upon the happening
of an event, which normally is the full payment of the
purchase price. But even upon the fulfillment of the
suspensive condition, ownership does not automatically
transfer to the buyer. The prospective seller still has to
convey title to the prospective buyer by executing a contract
of absolute sale.
Since the contract involved here is a Contract to
Sell, ownership has not yet transferred to the petitioner when
he filed the suit for rescission. While the intent to circumvent
the constitutional proscription on aliens owning real property
was evident by virtue of the execution of the Contract to Sell,
such violation of the law did not materialize because
petitioner caused the rescission of the contract before the
execution of the final deed transferring ownership.
Thus, exception (c) finds application in this case.
Under Article 1414, one who repudiates the agreement
and demands his money before the illegal act has
taken place is entitled to recover. Petitioner is therefore
entitled to recover what he has paid, although the basis of his
claim for rescission, which was granted by the HLURB, was

28

not the fact that he is not allowed to acquire private land
under the Philippine Constitution. But petitioner is entitled to
the recovery only of the amount of P3,187,500.00,
representing the purchase price paid to respondent. No
damages may be recovered on the basis of a void contract;
being nonexistent, the agreement produces no juridical tie
between the parties involved. Further, petitioner is not
entitled to actual as well as interests thereon, moral and
exemplary damages and attorney's fees.
QUIMPO v BELTRAN
FACTS:
Eustaquia was the owner of FOUR parcels of land in Goa,
Camarines Sur, described as follows:
(1) Residential land @ CAMSUR 684
sqm;
(2) Coconut land 4.3731 hectares;
(3) Residential land situated at San
Jose Street 1,395 sqm
(4) Abaca and coconut land 42.6127
hectares.
Eustaquia died intestate in 1948 leaving these parcels of land
to her grandchild and great grandchildren, namely, petitioner
Juaquin and respondents Abad.
In 1966, Joaquin and respondents undertook an oral
partition of parcel III (San Joseproperty) and parcel IV. Half of
the properties was given to Joaquin and the other half to the
respondents. However, no document of partition was
executed,
because Joaquin
refused
to
execute
a
deed. Consuelo and Ireneo occupied their respective shares
in the San Jose property, and installed several tenants over
their share in parcel IV. Joaquin, on the other hand, became
the administrator of the remaining undivided properties and
of the shares of respondents Danilo, Marites, Anita and Helen,
who were still minors at that time.
In 1989, Danilo, Marites, Anita and Helen wanted to take
possession of the portions allotted to them, but Joaquin
prevented them from occupying the same. Joaquin also
refused to heed respondents demand for partition of parcels I
and II, prompting respondents to file a complaint for
judicial partition and/or recovery of possession with
accounting and damages with the Regional Trial Court (RTC)
of Camarines Sur.[3]
Joaquin denied the material allegations in the complaint, and
averred, as his special and affirmative defenses, lack of
cause of action and prescription. He asserted absolute
ownership over parcels III and IV, claiming that he
purchased these lands from Eustaquia in 1946,
evidenced by deeds of sale executed on August 23,
1946 and December
2,
1946. He,
likewise,
claimed
continuous, peaceful and adverse possession of these lots
since 1946, and alleged that Consuelos occupation of the
portion of the San Jose property was by mere tolerance.
During the pendency of the case, Joaquin died. Accordingly,
he was substituted by his wife, Estela Tena-Quimpo and his
children, namely, Jose, Adelia, Joaquin, Anita, Angelita,
Amelia, Arlene, Joy and Aleli, all surnamed Quimpo (the
Quimpos).
RTC declared respondents as co-owners of all the properties
left by Eustaquia. It rejected Joaquins claim of absolute
ownership over parcels III and IV, and declared VOID the
purported deeds of sale executed by Eustaquia for lack of
consideration and consent.
the deeds of sale state a false and fictitious
consideration because at the time of the execution
of these deeds, Joaquin was not gainfully
employed and had no known source of income,
Likewise, Eustaquia was already 91 years old at
that time, hence she could not possibly give her
consent
oral partition among the heirs in 1966 sustained
possession and occupation of land by respondents
Consuelo and Ireneo, and Joaquins acquiescence

for 23 years, furnish sufficient evidence that there
was actual partition of the properties.
Joaquin and his heirs are now estopped from
claiming ownership over the entire San Jose property
as well as over parcel IV.
CA affirmed
it was plausible that Eustaquias consent was vitiated
because she was then 91 years old and sickly.
deeds of sale only surfaced 43 years after its
alleged execution and 23 years from the time of the
oral partition.
prescription does not run against the heirs so long
as the heirs, for whose benefit prescription is
invoked, have not expressly or impliedly repudiated
the co-ownership.
The CA found no repudiation on Joaquins part. It,
therefore, concluded that respondents action could
not be barred by prescription or laches.
The Quimpos insist on the validity of the deeds of sale
between Joaquin and Eustaquia. They assail the probative
value and weight given by the RTC and the CA in favor of the
respondents pieces of evidence while refusing to give
credence or value to the documents they presented
which they contend should have adequately established
Joaquins ownership of parcels III and IV.
notarized deeds of sale &
tax declarations
ISSUE:
1. W/N the contract is void for lack of cause or
consideration? YES
2. W/N respondents action is already barred by
prescription? NO
HELD:
1.
The stated consideration for the sale are P5,000.00

and P6,000.00, respectively, an amount which was
so difficult to raise in the year 1946. Respondents
established that at the time of the purported sale
Joaquin Quimpo was not gainfully employed. He was
studying inManila and Eustaquia was the one
supporting him; that when Eustaquia died two (2)
years later, Joaquin was not able to continue his
studies. The Quimpos failed to override this. Except
for the incredible and unpersuasive testimony of
Joaquins daughter, Adelia Magsino, no other
testimonial or documentary evidence was offered to
prove that Joaquin was duly employed and had the
financial capacity to buy the subject properties in
1946.
A deed of sale, in which the stated
consideration has not been, in fact, paid is a
false
contract;
that
it
is
void ab
initio. Furthermore, a contract of purchase and sale
is null and void and produces no effect whatsoever
where it appears that the same is without cause or
consideration which should have been the motive
thereof, or the purchase price which appears
thereon as paid but which in fact has never been
paid by the purchaser to the vendor.
Likewise, both TC and CA found that Eustaquia was
91 years old, weak and senile, at the time the deeds
of sale were executed. In other words, she was
already mentally incapacitated by then, and
could no longer be expected to give her
consent to the sale. The RTC and CA cannot,
therefore, be faulted for not giving credence to the
deeds of sale in favor of Joaquin.
RE: Tax declarations as proof in claiming absolute
dominion over parcels III and IV. These tax

29

declarations are all in the name of Eustaquia
Perfecto-Abad. These documents, therefore, do not
support their claim of absolute dominion since 1946,
but enervate it instead. Besides, the fact that the
disputed property may have been declared for
taxation purposes in the name of Joaquin Quimpo
does not necessarily prove ownership for it is well
settled that a tax declaration or tax receipts are
not conclusive evidence of ownership.
For forty-three (43) years, Consuelo and Ireneo
occupied
their
portions
of
the San
Joseproperty and significantly, Joaquin never
disturbed their possession. They also installed
tenants in parcel IV, and Joaquin did not prevent
them from doing so, nor did he assert his ownership
over the same. These unerringly point to the fact
that there was indeed an oral partition of
parcels III and IV.
2.
Similarly, we affirm the CA ruling that respondents

are co-owners of the subject four (4) parcels of land,
having inherited the same from a common ancestor
Eustaquia Perfecto-Abad. Petitioners assertion that
respondents failed to prove their relationship to the
late Eustaquia deserves scant consideration.
Consuelo was the grandchild of Eustaquia, while
respondents Danilo, Helen, Marites, Anita and also
Joaquin
Quimpo
were
Eustaquias
great
grandchildren. As such, respondents can rightfully
ask for the confirmation of the oral partition over
parcels III and IV, and the partition of parcels I and
II. Jurisprudence is replete with rulings that any coowner may demand at any time the partition
of the common property unless a co-owner has
repudiated the co-ownership. This action for
partition does not prescribe and is not subject
to laches.
ALINAS v ALINAS
Facts:
Spouses Onesiforo and

Rosario Alinas (petitioners)
separated sometime in 1982. They left behind two lots
identified as Lot 896-B-9-A with a bodega standing on it
and Lot 896-B-9-B with petitioners' house.
Petitioner Onesiforo Alinas (Onesiforo) and respondent
Victor Alinas (Victor) are brothers.
Petitioners allege that they entrusted their properties to
Victor and Elena Alinas (respondent spouses) with the
agreement that any income from rentals of the
properties should be remitted to the Social Security System
(SSS) and to the Rural Bank of Oroquieta City (RBO) to pay
off petitioners' loans with said institutions.
Onesiforo's signature also appears in an Absolute Deed

of
Sale[9]
selling Lot 896-B-9-B
to
respondent
spouses. The records also show a notarized document
and
a
captioned
Agreement[10] whereby
petitioner Onesiforo acknowledged that his brother Victor
used his own money to redeem Lot 896-B-9-B from the SSS
and, thus, Victor became the owner of said lot.
petitioners filed with the Regional Trial Court (RTC)

of Ozamis City a complaint for recovery of possession and
ownership of their conjugal properties with damages
against respondent spouses.
Issue: WON the sale of the conjugal property is void

Ruling:
*petitioners did no appeal to the Court of Appeals thus they can no
longer seek the reversal or modification of the RTCs decision
regarding its affirmation of the validity of the respondents acquisition
of the first lot from RBO
evidence on record which shows that ownership over the lot

had duly passed on to the RBO, as shown by TCT No. T11853 registered in its name; and subsequently, RBO
sold the lot with its improvements to respondent spouses.
with regard to Lot 896-B-9-B (with house), the Court finds it

erroneous for the CA to have applied the principle of equity
in sustaining the validity of the sale of Onesiforos one-half
share in the subject property to respondent spouses.
Although petitioners were married before the
enactment of the Family Code on August 3, 1988, the
sale in question occurred in 1989. Thus, their property
relations are governed by Chapter IV on Conjugal
Partnership of Gains of the Family Code.
Article 124 of the Family Code provides:

Art. 124. The administration and enjoyment of the conjugal
partnership property shall belong to both spouses
jointly. x x x
In the event that one spouse is incapacitated or otherwise
unable to participate in the administration of the conjugal
properties, the other spouse may assume sole powers of
administration. These powers do not include the powers of
disposition or encumbrance which must have the authority
of the court or the written consent of the other spouse. In
the absence of such authority or consent the
disposition
or
encumbrance
shall
be
void. x x x (Underscoring and emphasis supplied)
Thus, pursuant to Article 124 of the Family Code and jurisprudence,
the sale of petitioners' conjugal property made by
petitioner Onesiforo alone is void in its entirety.
respondent spouses were well aware that Lot 896-B-9-B is

a conjugal property of petitioners.
knew that the disposition being made by Onesiforo is
without the consent of his wife, as they knew that
petitioners had separated, and, the sale documents do not
bear the signature of petitioner Rosario.
petitioners discovered that their two lots were already

titled in the name of respondent spouses.
Lot 896-B-9-A was extra-judicially foreclosed, a TCT was

issued in the name of mortgagee RBO -> RBO executed a
Deed of Installment Sale of Bank's Acquired
Assets[4] conveying Lot 896-B-9-A to respondent spouses a TCT was issued in the name of respondent spouses.
Facts:
Lot 896-B-9-B was also foreclosed by the SSS -> however,

pursuant to a Special Power of Attorney [7] signed
by Onesiforo in favor of Victor the latter was able to
redeem Lot 896-B-9-B from the SSS for the sum
of P111,110.09.
1st case: agrarian case; Carlito Campos, the father of the

Petitioners, refused to surrender the possession of a fishpond
he leased from respondents mother, Salvacion Buenvenida,
despite the expiration of their contract of lease in 1980.
CAMPOS v PASTRANA
This case is the third one between essentially the

same parties and the 2nd among those cases to reach this
CA, spanning a period of close to three decades.

30

1 agricultural lessee, Carlito filed an agrarian case docketed
as CAR Case No. 1196 against his lessor
2 RTC found that Carlito was not an agricultural tenant
2nd case: possession case; Respondents filed the civil case
No. V-5417, against Carlito for Recovery of Possession and
Damages with Preliminary Mandatory Injunction case
involving the same fishpond subjct of the 1st case
- RTC found Carlito to have retained possession of the
fishpond notwithstanding the expiration of the contract
of lease and ordering him to pay rentals, the value of
the produce and damages to the herein respondents
- Decision became final and executory and Writ of Execution
was issued on February 7, 1995
- September 19, 1995, an Alias Writ of Execution was also
issued
- Both were however returned unsatisfied as per Sheriffs
Return of Service dated November 14, 1995
During the pendency of the Agrarian Case and prior to the
filing of the Possession Case, Carlito was the registered
owner of the following properties:
1. Residential Lots 3715-A and 3715-B-2 covered by TCTs
18205 and 18417
2. Agricultural Lots 850 and 852 covered by OCT P-9199 and
P-9200
Spouses Carlito and Margarita had already transferred

the lots to their children: Petitioners Rosemarie and Jesus
Campos by virtue of Deeds of Absolute Sale dated October
18, 1985 and November 2, 1988.
lots 850 and 852
7,972 sqm
P7,000 Rosemarie
P5,600 Jesus
3rd case: February 18, 1997, Respondents filed the Nullity of
the Sale Case, seeking to declare as null the aforesaid Deeds
of Sale.
They alleged that the contracts of sale between
spouses Campos and petitioners were simulated for the sole
purpose of evading the levy of the abovementioned
properties in satisfaction of a money judgment that might be
rendered in the Possession Case.
RTC: dismissed the complaint

- Jesus Campos was already leasing a fishpond in Capiz
- Rosemarie was engaged in the sari-sari store business
starting 1985 so that they were able to purchase the
properties of their parents out of their profits derived
therefrom.
CA: Contracts were simulated. Thus void ab initio The
conveyances were made in 1990, and not in 1985 or 1988, or
just before their actual registration with the Registry of
Deeds, evidently to avoid the properties from being attached
or levied upon by the respondents.
The zonal value of the subject properties we much
higher than the value for which they were actually sold.
Spouses Campos retained possession of the properties
Issues:
W/N the deeds of sale are simulated
W/N the action to declare them null and void have
already prescribed
W/N Art. 1409 or Art. 1381(3) on rescissible contracts
should be applied.
Petitioner:
1. Article 1409 of the CC on void contracts should not be
applied
2. Art. 1381(3) of the CC on rescissible contracts in fraud of
creditors, considering that the questioned conveyances
executed by the spouses Campos to their children were
allegedly done to evade the enforcement of the writ of
execution in the Possession Case.
3. CA misappreciated the facts of this case when it found
that the questioned transactions were tainted with badges
of fraud
Respondents:
1. application of Article 1409 on void contracts was a natural
and logical consequence of the CAs finding that subject
deeds of sale were absolutely simulated and fictitious,
consistent with the nature of the respondents cause of
action which was for declaration of nullity of said
contracts and the transfer certificates of titles issued
pursuant thereto
2. CA finding is conclusive upon SC
Ruling:
THE SUBJECT DEED OF ABSOLUTE SALE EXECUTED BY
THE SPOUSES CAMPOS TO THEIR CHILDREN (HEREIN
PETITIONERS)
ARE
ABSOLUTE
SIMULATED
AND
FICTITIOUS. CA correctly held that the assailed Deeds of
Absolute Sale were executed when the Possession Case was
already pending, evidently to avoid the properties subject
thereof from being attached or levied upon by the
respondents. While the sales in question transpired on
October 18, 1985 and November 2, 1988, as reflected on the
Deeds of Absolute Sale, the same were registered with the
Registry of Deeds only on October 25, 1990 and September
25, 1990.
PETITIONERS FAILED TO EXPLAIN THE REASONS FOR
THE DELAY IN THE registration of the sale, leading the
appellate court to conclude that the conveyances were made
only in 1990 or sometime just before their actual registration
and that the corresponding Deeds of Absolute Sale were
antedated. This conclusion is bolstered by the fact that the
supposed notary public before whom the deeds of sale were
acknowledged had no valid notarial commission at the time
of the notarization of said documents.
The Deeds of Absolute Sale were executed for the
purpose of putting the lots in question beyond the
reach of creditors.
1. Deeds of Absolute Sale were registered exactly one month
apart from each other and about another one month from
the time of the promulgation of the judgment in the
Possession Case. The Deeds of Absolute Sale were
antedated and that the same were executed when the
Possession Case was already pending.
2. there was a wide disparity in the alleged
consideration specified in the Deeds of Absolute Sale
and actual zonal valuation of the subject properties as per
the BIR Certification
- appraised value of the properties subject of this

controversy may be lower at the time of the sale in
1990 but it could not go lower than P7000 and P5600.
- considerations are inadequate considering the market
values presented in the tax declaration and the BIR
zonal valuation
1. Rosemarie, the buyer of the 1,393 sqm residential land
could not recall the exact area of the two lots she
purchase
2. The money judgement in the Possession Case has not
been discharged with
3. Spouses Campos continue to be in actual
possession of the properties in question
- testimony of Rolando Azoro was unrebutted
- Sps Campos continued to cultivate the rice lands which
they purportedly sold to their son Jesus
- despite the transfer to their children, the latter have not
exercised complete dominion over the same
- the petiitioners have not shown that their parents are
paying rent for the use of the properties
COURT HAS RULED IN SPS SANTIAGO VS. CA: THAT THE
FAILURE OF THE PETITIONERS TO TAKE EXCLUSIVE
POSSESSION OF THE PROPERTY ALLEGEDLY SOLD TO
THEM, OR IN THE ALTERNATIVE TO COLLECT RENTALS
FROM THE ALLEGED VENDOR IS CONTRARY TO THE
PRINCIPLE OF OWNERSHIP AND A CLEAR BADGE OF
SIMULATION
THAT
RENDERS
THE
WHOLE

31

TRANSACTION VOID AND WITHOUT FORCE
EFFECT, PURSUANT TO ART. 1409 OF THE CC.
AND
THE ISSUANCE OF TCT TO PETITIONERS DID NOT VEST

UPON THEM THE OWNERSHIP OF THE PROPERTIES.
That act has never been recognized as a mode of acquiring
ownership. The Torrens system does not create or vest title. It
only confirms and records title already existing and vested. It
does not protect a usurper from the true owner. It cannot be
a shield for the commission of fraud.
ROSEMARIE CAMPOS IS NOT AN INNOCENT BUYER FOR
VALUE.
1. the purported deed was antedated: she bought the
residential properties in 1985 but did not have the
assailed Deed of Absolute Sale registered with the proper
Registry of Deeds for more than five years, or until a
month before the promulgation of the judgment in the
Possession Case
2. her failure to take exclusive possession of the
property allegedly sold, or, alternatively, to collect
rentals is contrary to the principle of ownership and a
clear badge of simulation.
JESUS CAMPOS IS NOT AN INNOCENT BUYER FOR
VALUE
1. the purported deed was antedated: bought the
riceland sin 1988 but did not have the assailed Deed of
Absolute Sale registered with the proper Registry of Deeds
for more than 2 years, or until two months before the
promulgation of the judgement in the Possession Case
2. he had knowledge of the prior pending cases when
he supposedly purchased his parents rice land
SINCE BOTH TRANSFEREES ARE NOT INNOCENT
BUYERS FOR VALUE, THE SUBSEQUENT REGISTRATION
PROCURED BY THE PRESENTATION OF THE VOID DEEDS
OF ABSOLUTE SALE IS LIKEWISE NULL AND VOID.
THE ACTION FOR THE DECLARATION OF THE
INEXISTENCE OF THE ASSAILED DEEDS OF ABSOLUTE
SALE DOES NOT PRESCRIBE. The sale of subject properties
to herein petitioners are null and void. And under Article 1410
of the Civil Code, an action or defense for the declaration of
the inexistence of a contract is imprescriptible. Hence,
petitioners contention that respondents cause of action is
already barred by prescription is without legal basis.
SINCE THE ASSAILED DEEDS OF ABSOLUTE SALE ARE
NULL AND VOID, THE CC PROVISIONS ON RESCISSION
HAVE NO APPLICATION. An action to rescind is founded
upon and presupposes the existence of a contract. A contract
which is null and void is no contract at all and hence could
not be the subject of rescission.
It is true that CA cited instances that may constitute
badges of fraud under Art. 1387 of the CC on rescissible
contracts. But there is nothing else in the appealed decision
to indicate that rescission was contemplated under the said
provision of the Civil Code. The aforementioned badges must
have been considered merely as grounds for holding that the
sale is fictitious. Consequently, we find that the CA properly
applied the governing law over the matter under
consideration which is Article 1409 of the Civil Code on void
or inexistent contracts.
TECSON v FAUSTO
FACTS:
In 1974, Atty Agustin Fausto and his sister decided to
partition a property they owned in common designated as Lot
2189 with an area of 1015 sqm located in Pagadian City. The
mother title is silent to the extent of the respective shares. A
subdivision plan (first plan) has been prepared and approved.
Based on the first plan, Atty. Faustos share was 508 sqm and
his sisters 507 sqm. They executed the partition agreement
but the same was not registered on the Registry of Deeds.
The following year, Atty. Fausto died.
On 7 July 1977, Waldetrudes entered into a Contract to Sell
with herein petitioner Aurora L. Tecson (Aurora).

In it,
Waldetrudes undertook to sell, among others, her ideal
share in the lot. A second subdivision plan for Lot 2189 was
prepared without the knowledge of the respondents. The
Second Plan drastically altered the division of the subject lot.
On the plan, Waldetrudes share was increased by 964sqm.
On 28 September 1977, a second partition over the lot was
executed between the respondents (heirs of Atty. Fausto) on
one hand, and Waldetrudes on the other, presumably with
the Second Plan as a new basis. The heirs were made to
believe that it was required to facilitate the sale of
Waldetrudes share. Also, the Second Partition Agreement
failed to state the specific areas allotted for each component
of the lots. Up to that point, they do not have knowledge
about the existence of the second plan. The document was
presented to them by Atty. Tecson. The latter was a family
friend and a long time neighbor.
On 8 May 1978, Waldetrudes sold her share to Aurora which
in turn sold it to Atty. Tecson.
On 28 May 1987, the respondents filed a Complaint for the
Declaration of Nullity of Documents, Titles, Reconveyance
and Damages the petitioners before the Regional Trial Court
(RTC) of Pagadian City. In essence, the respondents seek the
recovery of the portion which they believe was unlawfully
taken from the lawful share of their predecessor-in-interest,
Atty. Fausto.
ISSUE:
WON the Second Partition Agreement is void.
RULING: YES
The mother title of the subject lot is silent to the extent of the
share of each co-owner. This gives rise to presumption that
the share is equal as provided under Art. 485 of the Civil
Code.
The Second Plan and Second Partition Agreement is VOID.
Respondents are misled by Atty. Tecson into signing the
Second Partition Agreeement without giving them notice of
the existence of a Second Plan. Therefore it cannot have a
binding effect between the parties. It is absolutely simulated
because the parties thereto did not intend to be bound at all.
Atty. Tecson cannot be considered as an innocent purchaser.
The fact that he is the one behind the execution of the
Second Partition Agreement, there is no doubt that Atty.
Tecson knew that Lot 2189 was owned in common by
Waldetrudes and Atty. Fausto. This, taken together with the
instruments unusual silence as to the definite area allotted
for each component lot and the Second Plan, reveals a
deliberate attempt on the part of Atty. Tecson to conceal from
Waldetrudes and the respondents the unequal division of Lot
2189. Based on the facts and circumstances prevailing in this
case, Atty. Tecson may be charged with actual notice of the
defect plaguing the Second Partition Agreement.
The respondents may, therefore, recover.
BORROMOEO v MINA
FACTS:
Petitioner filed a Petition before the Provincial Agrarian
Reform Office (PARO) seeking that
a. His landholding over the subject landholding be
exempted from the coverage of the governments
OLT program under Presidential Decree No. 27
b. Respondents emancipation patent over the subject
property be consequently revoked and cancelled.
Petitioner alleged that he purchased the property from
Garcia, as evidenced by notarized 1982 deed of sale although
he was not able to effect the transfer of title in his name.
Subsequently, to his surprise, he learned that an
emancipation patent was issued in respondents favor
without any notice to him. He equally maintained that his
total agricultural landholdings was only 3.3635 hectares and
thus, within the landowner's retention limits under both PD
27 and Republic Act No. 6647. Thus, he claimed that the
subject landholding should have been excluded from the
coverage of the governments OLT program.
Municipal Agrarian Reform Officer (MARO) discovered the
property was erroneously identified as the property of
petitioners father. Because of this, MARO recommended and

32

was duly adopted by PARO:
a. The subject landholding be exempted from the
coverage of the OLT; and
b. Petitioner be allowed to withdraw any amortizations
deposited by respondent with LBP to serve as rental
payments for use of the subject property.
DAR Regional Director:
Affirmed PAROs decision with
modification.
He did not order for cancellation of respondents
emancipation patent. He merely directed petitioner
to institute the proper proceedings for such purpose
before the DAR Adjudication Board (DARAB).
DAR Secretary: Affirmed in toto the DAR Regional Directors
ruling
CA: Reversed and set aside.
Doubted petitioners claim of ownership based on
the 1982 deed of sale due to the inconsistent
allegations regarding the dates of its notarization
divergently stated in the two PARO Petitions, this
alongside the fact that a copy of the same was not
even attached to the records of the case for its
examination.
The sale was null and void for being a prohibited
transaction under PD 27 which forbids the transfers
or alienation of covered agricultural lands after
October 21, 1972 except to the tenant-beneficiaries
thereof, of which petitioner was not.
ISSUE:
WON the 1982 Deed of Sale was null and void.
HELD:
YES.
Validity of the sale of the subject property to
petitioner
PD 27 PROHIBITS THE TRANSFER OF OWNERSHIP OVER
TENANTED RICE AND/OR CORN LANDS AFTER OCTOBER
21, 1972 EXCEPT ONLY IN FAVOR OF THE ACTUAL
TENANT-TILLERS THEREON.
Records reveal that the
subject landholding fell under the coverage of PD 27 on
October 21, 1972 and as such, could have been subsequently
sold only to the tenant thereof, i.e., the respondent. Notably,
the status of respondent as tenant is now beyond dispute
considering petitioners admission of such fact. Likewise, as
earlier discussed, petitioner is tied down to his initial theory
that his claim of ownership over the subject property was
based on the 1982 deed of sale. Therefore, as Garcia sold the
property in 1982 to the petitioner who is evidently not the
tenant-beneficiary of the same, the said transaction is null
and void for being contrary to law.
PETITIONER CANNOT ASSERT ANY RIGHT OVER THE
SUBJECT LANDHOLDING, SUCH AS HIS PRESENT CLAIM
FOR LANDHOLDING EXEMPTION, BECAUSE HIS TITLE
SPRINGS FROM A NULL AND VOID SOURCE. A void
contract is equivalent to nothing; it produces no civil effect;
and it does not create, modify or extinguish a juridical
relation.
Hence, notwithstanding the erroneous identification of the
subject landholding by the MARO as owned by Cipriano
Borromeo, the fact remains that petitioner had no right to file
a petition for landholding exemption since the sale of the said
property to him by Garcia in 1982 is null and void. Proceeding
from this, the finding that petitioners total agricultural
landholdings is way below the retention limits set forth by law
thus, becomes irrelevant to his claim for landholding
exemption precisely because he has no right over the
aforementioned landholding.
GONZALO v TARNATE, JR
FACTS:
After the DPWH had awarded on July 22, 1997 the
contract for the improvement of the Sadsadan-Maba-ay
Section of the Mountain Province-Benguet Road to his
company,
Gonzalo
Construction,
petitioner
Gonzalo
subcontracted to respondent Tarnate on October 15, 1997,
the supply of materials and labor for the project under the
latters business known as JNT Aggregates. Their agreement
stipulated, among others, that Tarnate would pay to Gonzalo
eight percent and four percent of the contract price,
respectively, upon Tarnates first and second billing in the
project.
In furtherance of their agreement, Gonzalo
executed on April 6, 1999 a deed of assignment whereby he,
as the contractor, was assigning to Tarnate an amount
equivalent to 10% of the total collection from the DPWH for
the project. This 10% retention fee was the rent for Tarnates
equipment that had been utilized in the project. In the deed
of assignment, Gonzalo further authorized Tarnate to use the
official receipt of Gonzalo Construction in the processing of
the documents relative to the collection of the 10% retention
fee and in encashing the check to be issued by the DPWH for
that purpose. The deed of assignment was submitted to the
DPWH on April 15, 1999. During the processing of the
documents for the retention fee, however, Tarnate learned
that Gonzalo had unilaterally rescinded the deed of
assignment by means of an affidavit of cancellation of deed
of assignment dated April 19, 1999 filed in the DPWH on April
22, 1999; and that the disbursement voucher for the 10%
retention fee had then been issued in the name of Gonzalo,
and the retention fee released to him.
Tarnate demanded the payment of the retention
fee from Gonzalo, but to no avail.
RTC ruled in favor of Tarnate.
CA affirmed RTCs decision. Hence, this petition.
ISSUE:
Whether or not the subcontract and deed of
assignment are void contracts.
HELD: YES
Section 6 of Presidential Decree No.1594, which provides:
Assignment and Subcontract. he contractor shall not assign,
transfer, pledge, subcontract or make any other disposition of
the contract or any part or interest therein except with the
approval of the Minister of Public Works, Transportation and
Communications, the Minister of Public Highways, or the
Minister of Energy, as the case may be. Approval of the
subcontract shall not relieve the main contractor from any
liability or obligation under his contract with the Government
nor shall it create any contractual relation between the
subcontractor and the Government.
Under Article 1409 (1) of the Civil Code, contract whose
cause, object or purpose is contrary to law is a void or
inexistent contract. As such, a void contract cannot produce a
valid one. To the same effect is Article 1422 of the Civil Code,
which declares that contract, which is the direct result of a
previous illegal contract, is also void and inexistent.
According to Article 1412 (1) of the Civil Code, the guilty
parties to an illegal contract cannot recover from one another
and are not entitled to an affirmative relief because they are
in pari delicto or in equal fault. The doctrine of in pari delicto
is a universal doctrine that holds that no action arises, in
equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money agreed
to be paid, or damages for its violation; and where the parties
are in pari delicto, no affirmative relief of any kind will be
given to one against the other.
The letter and spirit of Article 22 of the Civil Code command
Gonzalo to make a full reparation or compensation to Tarnate.
The illegality of their contract should not be allowed to
deprive Tarnate from being fully compensated through the
imposition of legal interest.
ESTOPPEL
LIM v QUEENSLAND TOKYO COMMODITIES
FACTS:
Private respondent Queensland Tokyo Commodities,
Incorporated is a duly licensed broker engaged in the trading

33

of commodities futures with full membership and with a floor
trading right at the Manila Futures Exchange, Inc.
Sometime in 1992, Benjamin Shia, a market analyst and
trader of Queensland, was introduced to petitioner Jefferson
Lim
Shia suggested that Lim invest in the Foreign Exchange
Market, trading U.S. dollar against the Japanese yen, British
pound, Deutsche Mark and Swiss Franc.
Before investing, Lim requested Shia for proof that the
foreign exchange was really lucrative. They conducted mock
tradings without money involved. As the mock trading
showed profitability, Lim decided to invest with a marginal
deposit of US$5,000 in managers check. The marginal
deposit represented the advance capital for his future
tradings. It was made to apply to any authorized future
transactions, and for all obligations, which the investor would
incur with the broker.
Because respondent Queensland dealt in pesos only, it
had to convert US$5,000 in managers check to pesos,
amounting to P125,000.
To accommodate petitioners request to trade right
away, it advanced the P125,000 from its own funds while
waiting for the managers check to clear. Thereafter, a deposit
notice in the amount of P125,000 was issued to Queensland,
marked as Exhibit E. This was sent to Lim who received it as
indicated by his signature marked as Exhibit E-1. Then, Lim
signed the Customers Agreement, marked as Exhibit F, which
provides as follows:
25. Upon signing of this Agreement, I shall deposit an
initial margin either by personal check, managers check
or cash. In the case of the first, I shall not be permitted
to trade until the check has been cleared by my bank
and credited to your account. In respect of margin calls
or additional deposits required, I shall likewise pay them
either by personal check, managers check or cash. In
the event my personal check is dishonored, the
company has the right without call or notice to
settle/close my trading account against which the
deposit was made. In such event, any loss of whatever
nature shall be borne by me and I shall settle such loss
upon demand together with interest and reasonable
cost of collection. However, in the event such
liquidation gives rise to a profit then such amount shall
be
credited
to
the
Company. The
above
notwithstanding, I am not relieved of any legal
responsibility as a result of my check being dishonored
by my bank.[6]
Petitioner Lim was then allowed to trade with
respondent company which was coursed through Shia by
virtue of the blank order forms, marked as Exhibits G, G-1 to
G-13,[7]all signed by Lim. Respondent furnished Lim with the
daily market report and statements of transactions as
evidenced by the receiving forms, marked as Exhibits J, J-1 to
J-4,[8] some of which were received by Lim.
During the first day of trading or on October 22, 1992,
Lim made a net profit of P6,845.57.[9] Shia went to the office
of Lim and informed him about it and he agreed to continue
trading. However, on October 23, 1992, they lost P44,465.[10]
Meanwhile, on October 22, 1992, respondent learned
that it would take seventeen (17) days to clear the managers
check given by petitioner. Hence, on October 23, 1992, Shia
returned the check to petitioner who informed Shia that
petitioner would rather replace the managers check with a
travelers check
Shia went with petitioner to the bank to purchase a
travelers check at the PCI Bank. Shia noticed that the
travelers check was not indorsed but Lim told Shia
that Queensland could sign the indorsee portion. [12] Because
Shia trusted the latters good credit rating, and out of
ignorance, he brought the check back to the office
unsigned. Later, the travelers check was deposited with
Citibank.[14]
October 26, 1992: Shia informed petitioner that they
incurred a floating loss of P44,695[15] on October 23, 1992.
October 27, 1992: Citibank informed respondent that
the travelers check could not be cleared unless it was duly
signed by Lim, the original purchaser of the travelers check.
A staff of Queensland, returned the check to Lim for his

signature, but the latter, aware of his P44,465 loss,
demanded for a liquidation of his account and said he would
get back what was left of his investment. Lim signed only one
portion of the travelers check, leaving the other half blank.
He then kept it.
Respondent asked Shia to talk to petitioner for a
settlement of his account but petitioner refused to talk with
Shia. Shia made follow-ups for more than a week
beginning October 27, 1992.
Respondent was compelled to engage the services of a
lawyer, who sent a demand letter [18] to petitioner. This letter
went unheeded. Thus, respondent filed a complaint[19] against
petitioner, docketed as Civil Case No. CEB-13737, for
COLLECTION OF A SUM OF MONEY.
RTC: Dismissed the case without pronouncement as to cost
CA: REVERSED and SET ASiDE the decision of the RTC and
ordered petitioner to pay the 125 K
ISSUE: W/N the Petitioner is stopped from questioning the
validity of the Customers agreement
HELD:
Yes. He is stopped from questioning its validity.
The essential elements of estoppel are:
(1) conduct of a party amounting to false
representation or concealment of material facts or at least
calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
subsequently attempts to assert
2) intent, or at least expectation, that this conduct shall
be acted upon by, or at least influence, the other party; and
(3) knowledge, actual or constructive, of the real facts
Indicators that the petitioner treated the Customers
agreement as a valid and binding contract:
He had signed the Customers Agreement in

the morning of October 22, 1992, knowing
fully well the nature of the contract he was
entering into.
Next, petitioner paid his investment deposit

to respondent in the form of a managers
check in the amount of US$5,000 as
evidenced by PCI Bank Managers Check No.
69007, dated October 22, 1992.
Moreover, we agree that, on petitioners part, there was
MISREPRESENTATION
OF
FACTS. He
replaced
the
managers check with an unendorsed travelers check, instead
of
cash,
while
assuring
Shia
that
respondentQueensland could sign the indorsee portion
thereof.[27] As it turned out, Citibank informed respondent that
only the original purchaser (i.e. the petitioner) could sign said
check. When the check was returned to petitioner for his
signature, he refused to sign. Petitioner even admitted in his
Memorandum that he used the travelers check for his travel
expenses.[29]
More significantly, petitioner already availed himself
of the benefits of the Customers Agreement whose
validity he now impugns. As found by the CA, even before
petitioners initial marginal deposit (in the form of the PCI
managers check dated October 22, 1992) [30] was converted
into cash, he already started trading on October 22, 1992,
thereby making a net profit of P6,845.57. On October 23, he
continued availing of said agreement, although this time he
incurred a floating loss of P44,645.[31] While he claimed he
had not authorized respondent to trade on those dates, this
claim is belied by his signature affixed in the order forms,
marked as Exhibits G, G-1 to G-13.[32]
Clearly, by his own acts, petitioner is estopped from
impugning the validity of the Customers Agreement. For a
party to a contract cannot deny the validity thereof after
enjoying its benefits without outrage to ones sense of justice
and fairness.
It appears that petitioners reason to back out of the
agreement is that he began sustaining losses from the
trade. However, this alone is insufficient to nullify the
contract or disregard its legal effects. By its very nature it is
already a perfected, if not a consummated, contract. Courts
have no power to relieve parties from obligations voluntarily
assumed, simply because their contracts turned out to be

34

disastrous or unwise investments.Notably, in the Customers
Agreement, petitioner has been forewarned of the high risk
involved in the foreign currency investment as stated in the
Risk Disclosure Statement,located in the same box where
petitioner signed.
WON the government is estopped from questioning the

approved subdivision plan which expanded the areas covered
by the TCTs in question.
The decision of the Court of Appeals is AFFIRMED. Costs

against petitioner.
YES.
REPUBLIC v CA
Is the immunity of the government from laches and
estoppel absolute? May it still recover the ownership of lots
sold in good faith by a private developer to innocent
purchasers for value. Notwithstanding its approval of the
subdivision plan and its issuance of separate individual
certificates of title thereto?
FACTS:
St. Judes Enterprises, Inc. is the registered owner of a parcel
of land located in Caloocan City containing an area of 40,623
square meters.
Sometime in March 1966, St. Judes Enterprises subdivided
the said Lot and subsequently sold several to the private
respondent buyers.
The subdivision of the subject lot was later found to
have expanded and enlarged from its original area of
40,523 sqm to 42,044 sqm or an increase of 1,421 sqm. This
expansion or increase in area was confirmed by the Land
Registration Commission to have been made on the northern
portion of Lot.
In January 1985, the Solicitor General filed an action seeking
the annulment and cancellation of TCT issued in the name of
St. Jude's Enterprises and the other private respondents,
principally on the ground that said Certificates of Title were
issued on the strength of a null and void subdivision plan
which expanded the original area of the subject lot from
40,623 square meters to 42,044 square meters upon its
subdivision.
Contentions of the Respondents:
The private respondent buyers interposed defenses,

among others, that they acquired the lots in
question in good faith from their former owner, St.
Jude's Enterprises, Inc. and for value and that the
titles issued to them were rendered incontrovertible,
conclusive and indefeasible after one year from the
date of the issuance of the titles by the ROD of
Caloocan City.
On the other hand, St. Jude's Enterprises, Inc.

interposed defenses, among others, that the cause
of action of petitioner is barred by prior
judgment; that the subdivision plan submitted
having been approved by the LRC, the government
is now in estoppel to question the approved
subdivision plan; and the petitioner's allegation
that the area of the subdivision increased by 1,421
sqm is without any basis in fact and in law.
RTC: Dismissed the Complaint and held that the government

was already "in estoppel to question the approved
subdivision plan."
CA: Affirmed the decision of the RTC and berated petitioner
for bringing the suit only after 19 years had passed since the
issuance of St. Jude's title and the approval of the subdivision
plan.
ISSUE:
RULING:
The General Rule is that the State cannot be put in

estoppel by the mistakes or error of its officials or
agents. However, like all general rules, this is also
subject to exceptions.
Estoppels against the public are little favored. They should
not be invoked except in rare and unusual circumstances,
and may not be invoked where they would operate to defeat
the effective operation of a policy adopted to protect the
public. They must be applied with circumspection and should
be applied only in those special cases where the interests of
justice clearly require it. Nevertheless, the government must
not be allowed to deal dishonorably or capriciously with its
citizens, and must not play an ignoble part or do a shabby
thing; and subject to limitations x x x, the doctrine of
equitable estoppel may be invoked against public authorities
as well as against private individuals.
The State is immune from estoppel, but this concept is
understood to refer to acts and mistakes of its officials
especially those which are irregular, which peculiar
circumstances are absent in the case at bar. It is non
sequitur* to suggest that a contract, freely and in good faith
executed between the parties thereto is susceptible to
disturbance ad infinitum. A different interpretation will lead
to the absurd scenario of permitting a party to unilaterally
jettison a compromise agreement which is supposed to have
the authority of res judicata (Article 2037, NCC), and like any
other contract, has the force of law between parties thereto
(Article 1159, NCC).
The Court further declared that the real office of the
equitable norm of estoppel is limited to supplying deficiency
in the law, but it should not supplant positive law.
In the case at bar, for nearly twenty years
(starting from the issuance of St. Judes titles in 1966
up to the filing of the Complaint in 1985), petitioner
failed to correct and recover the alleged increase in
the land area of St. Jude. Its prolonged inaction
strongly militates against its cause, as it is
tantamount to laches, which means the failure or neglect,
for an unreasonable and unexplained length of time, to do
that which by exercising due diligence could or should have
been done earlier; it is negligence or omission to assert a
right within a reasonable time, warranting a presumption that
the party entitled to assert it either has abandoned it or
declined to assert it.
The Court notes private respondents argument that,
prior to the subdivision, the surveyors erred in
the original survey of the whole tract of land. So that less
than the actual land area was indicated on the
title. Otherwise,
the
adjoining
owners
would
have
complained upon the partition of the land in accordance with
the LRC-approved subdivision plan. As it is, the owner of the
Quintos Village adjoining the northern portion of St. Judes
property (the portion allegedly expanded), even attested
on that there was no overlapping of boundaries as per the
approved plan. None of the other neighboring owners ever
complained against St. Jude or the purchasers of its
property. It is clear, therefore, that there was no actual
damage to third persons caused by the resurvey and the
subdivision.
Significantly, the other private respondents -- Spouses
Santos, Spouses Calaguian, Dela Fuente and Madaya -bought such expanded lots in good faith, relying on the
clean certificates of St. Jude, which had no notice of any flaw
in them either. It is only fair and reasonable to apply
the equitable principle of estoppel by laches against

35

the government to avoid an injustice to the innocent
purchasers for value.
Likewise time-settled is the doctrine that where
innocent third persons, relying on the correctness of the
certificate of title, acquire rights over the property, courts
cannot disregard such rights and order the cancellation of the
certificate. Such cancellation would impair public confidence
in the certificate of title, for everyone dealing with property
registered under the Torrens system would have to inquire in
every instance whether the title has been regularly issued or
not. This would be contrary to the very purpose of the law,
which is to stabilize land titles. Verily, all persons dealing
with registered land may safely rely on the correctness of the
certificate of title issued therefor, and the law or the courts
do not oblige them to go behind the certificate in order to
investigate again the true condition of the property. They are
only charged with notice of the liens and encumbrances on
the property that are noted on the certificate.
When private respondents-purchasers bought their lots
from St. Jude, they did not have to go behind the titles
thereto to verify their contents or search for hidden defects
or inchoate rights that could defeat their rights to said
lots. Although they were bound by liens and encumbrances
annotated on the titles, private respondents-purchasers could
not have had notice of defects that only an inquiry beyond
the face of the titles could have satisfied.
Petitioner never presented proof that the private
respondents who had bought their lots from St. Jude were
buyers in bad faith. Consequently, their claim of good faith
prevails. A purchaser in good faith and for value is one who
buys the property of another without notice that some other
person has a right to or an interest in such property; and who
pays a full and fair price for the same at the time of such
purchase or before he or she has notice of the claims or
interest of some other person. Good faith is the honest
intention to abstain from taking any unconscientious
advantage of another.
Furthermore, it should be stressed that the total area of
40,623 sqm indicated on St. Judes original title was not
an exact area. Such figure was followed by the phrase more
or less. This plainly means that the land area indicated
was not precise.
The discrepancy in the figures could have been caused
by
the
inadvertence
or
the
negligence
of
the
surveyors. There is no proof, though, that the land area
indicated was intentionally and fraudulently increased. The
property originally registered was the same property that was
subdivided. It is well-settled that what defines a piece of
titled property is not the numerical date indicated as the area
of the land, but the boundaries or metes and bounds of the
property specified in its technical description as enclosing it
and showing its limits.
THEREFORE, the petition is hereby DENIED and the
assailed Decision is AFFIRMED.
SO ORDERED.
HERMOSILLA v REMOQUILLO
Facts:
The subject of the controversy is a 65-square meter portion
of a lot located in Poblacion, San Pedro, Laguna.
On August 31, 1931, the Republic of the Philippines
acquired through purchase the San Pedro Tunasan Homesite.
On April 30, 1962, Apolinario executed a Deed of

Assignment transferring possession of Lot 19 in favor
of
his
grandson,
herein
respondent
Jaime
Remoquillo (Jaime). As the Land Tenure Administration
(LTA) later found that Lot 19 was still available for disposition
to qualified applicants, Jaime, being its actual occupant,
applied for its acquisition before the LTA on May 10, 1963.
On July 8, 1963, Apolinario conveyed Lot 12 to his son
Salvador Hermosilla (Salvador), Jaimes uncle.
Salvador later filed an application to purchase Lot 12 which
was awarded to him by the defunct Land Authority on
December 16, 1971.
On February 10, 1972, Jaime and his uncle Salvador forged a
"Kasunduan ng Paglipat Ng Karapatan sa Isang Lagay na
Lupang
Solar"
(Kasunduan)
whereby
Jaime
transferred ownership of the 65 square meters (the
questioned property) in favor of Salvador.
After Apolinario died, his daughter Angela Hermosilla filed a
protest before the Land Authority, which became the National
Housing Authority (NHA),5 contending that as an heir of the
deceased, she is also entitled to Lots 12 and 19. By
Resolution of June 10, 1981, the NHA dismissed the protest.
The NHA later awarded on March 16, 1986 Lot 19 to Jaime for
which he and his wife were issued a title, Transfer Certificate
of Title No. T-156296, on September 15, 1987.
On May 25, 1992, petitioners filed an action for Annulment of
Title on the ground of fraud with damages against Jaime and
his spouse, together with the Register of Deeds, before the
Regional Trial Court (RTC) of Bian, Laguna, alleging that by
virtue of the Kasunduan executed in 1972, Jaime had
conveyed to his uncle Salvador.
RTC
They found the Kasunduan a perfected contract of sale, there
being a meeting of the minds upon an identified object and
upon a specific price, and that ownership over the questioned
property had already been transferred and delivered to
Salvador.
TC
On the alleged failure of consideration of the Kasunduan,
they held that the same did not render the contract void, but
merely allowed an action for specific performance.
CA
The Kasunduan was void because at the time of its execution
in 1972, the Republic of the Philippines was still the owner of
Lot 19, hence, no right thereover was transmitted by Jaime
who was awarded the Lot in 1986, and consequently no right
was transmitted by Salvador through succession to
petitioners. And it found no evidence of fraud in Jaimes act of
having Lot 19, including the questioned property, registered
in his and his wifes name in 1987.
ISSUE: Whether or not the principle of estoppel applies
RULING: No.
Apolinario Hermosilla (Apolinario), who was occupying a lot in

San Pedro Tunasan Homesite until his death in 1964, caused
the subdivision of the lot into two, Lot 12 with an area of 341
square meters, and Lot 19 with an area of 341 square meters
of which the 65 square meters subject of this controversy
form part.
The Kasunduan executed in 1972 by Jaime in favor of

Salvador petitioners predecessor-in-interest Lot 19, of
which the questioned property forms part, was still owned by
the Republic. Nemo dat quod non habet. Nobody can give
what he does not possess. Jaime could not thus have
transferred anything to Salvador via the Kasunduan.

36

Claiming exception to the rule, petitioners posit that at the
time the Kasunduan was executed by Jaime in 1972, his
application which was filed in 1963 for the award to him of
Lot 19 was still pending, hence, the Kasunduan transferred to
Salvador Jaimes vested right to purchase the same, in
support of which they cite a law on estoppel,
Art. 1434 of the Civil Code, which provides that "[w]hen a
person who is not the owner of a thing sells or alienates and
delivers it and later, the seller or grantor acquires title
thereto, such title passes by operation of law to the buyer or
grantee."15
Petitioners reliance on Article 1434 of the Civil Code does not
lie. The principles of estoppel apply insofar as they are not in
conflict with the provisions of the Civil Code, the Code of
Commerce, the Rules of Court and special laws.
Land Authority Administrative Order No. 4 (1967), "Rules and
Regulations governing Disposition of the Laguna Settlement
Project in San Pedro, Laguna," proscribes the conveyance of
the privilege or preference to purchase a land from the San
Pedro Tunasan project before it is awarded to a tenant or
bona fide occupant, thus:
SEC. 6. Privilege of Preference to Purchase Intransferable;
Waiver or Forfeiture Thereof. From the date of acquisition of
the estate by the Government and before issuance of the
Order of Award, no tenant or bona fide occupant in whose
favor the land may be sold shall transfer or encumber the
privilege or preference to purchase the land, and any
transfer or encumbrance made in violation hereof
shall be null and void: Provided, however, That such
privilege or preference may be waived or forfeited only in
favor of the Land Authority .
Petitioners insistence on any right to the property under
the Kasunduan thus fails.
[T]he transfer "became one in violation of law (the rules of
the PHHC being promulgated in pursuance of law have the
force of law) and therefore void ab initio." Hence, appellant
acquired no right over the lot from a contract voidab initio, no
rights are created. Estoppel, as postulated by petitioner, will
not apply for it cannot be predicated on an illegal act. It is
generally considered that as between the parties to a
contract, validity cannot be given to it by estoppel if it is
prohibited by law or is against public policy.
Petitioners go on to postulate that if the Kasunduan is void, it
follows that the 1962 Deed of Assignment executed by
Apolinario in favor of Jaime is likewise void to thus deprive
the latter of any legal basis for his occupation and acquisition
of Lot 19.
Petitioners position fails. Petitioners lose sight of the fact
that, as reflected above, Jaime acquired Lot 19 in his own
right, independently of the Deed of Assignment.
In another vein, since the property was previously a public
land, petitioners have no personality to impute fraud or
misrepresentation against the State or violation of the
law.19 If the title was in fact fraudulently obtained, it is the
State which should file the suit to recover the property
through the Office of the Solicitor General. The title
originated from a grant by the government, hence, its
cancellation is a matter between the grantor and the
grantee.
ACCESSORIES SPECIALISTS, INC. v ALABANZA

On September 22, 2002, Private respondent Erlinda B.
Alabanza for and in behalf of her husband Jones B. Alabanza
filed a complaint against Petitioners Accessories Specialist,

Inc. also known as Arts 21 Corporation, and Tadahiko
Hashimoto for non-payment of salaries, separation pay and
13th month pay.
Respondent Erlinda alleged, among others, that her husband
Jones was the Vice-president, Manager and Director of ASI.
Jones rendered outstanding services for the petitioners from
1975 to October 1997.
On October 17, 1997, Jones was compelled by the owner of
ASI, here in petitioner Tadahiko Hashimoto, to file his
involuntary resignation on the ground that ASI allegedly
suffered losses due to lack of market and incurred several
debts caused by a slam in the market. At the time of his
resignation, Jones had unpaid salaries for 18 months from
May 1995 to October 1997 equivalent to P396000 and
$38880.
He was not paid for his separation pay commensurate to his
21 years of service in the amount of P462000 and $45360
and 13 month pay amounting to P33,000.
Jones demanded payment of his money claims upon
resignation but ASI informed him that it would just settle first
the money claims of the rank-and-file employees.
Jones patiently waiting and made several demands but ASI
just assuring him that he will be paid his monetary claims but
Jones died on August 5, 2002 and failed to receive the same.
Petitioners contend that Jones voluntarily resigned on
October 31, 1997. Thus, Respondent cause of action has
already prescribed and is forever barred under Article 291 of
the Labor code, all money claims arising from an employeremployee relationship shall be filed with in 3 years from the
time of the cause of action accrues. Since the complaint was
filed on September 27, 2002. Almost 5 years from the date of
the alleged illegal dismissal of her husband Jones, Erlindas
complaint is now barred.
Issue: Whether the cause of action of respondents has
already prescribed.
Petitioners aver that the action of the respondents of unpaid
wages, separation pay and 13th month pay has already
prescribed since the action was filed almost five years from
the time Jones severed his employment from ASI. Jones filed
his resignation on October 31, 1997. While the complaint
before the LA was instituted on September 29, 2002.
Petitioners contend that the three year prescriptive period
under Article 291 of the Labor code had already set-in,
thereby barring all of respondents money claims arising from
their employer-employee relations.
Article 291:
All money claims arising from an employer-employee
relationship shall be filed with in years from the time the
cause of action accrued. Otherwise they shall be forever
barred.
Based on the Labor arbiter, It was the ASI which was
responsible for the delay in the institution of the complaint.
When Jones filed his resignation. He asked for the payment of
his money claims immediately. However, the management of
ASI promised him that he would be paid immediately after
the claims of the rank-and-file employees had been paid.
Jones relied on this representation. Unfortunately, the
promise was never fulfilled even until the time of Jones
death.
We can apply the principle of promissory estoppel, which is
an exception to the three-year prescriptive period enunciated
in Article 291 of the Labor code.
Promissory Estoppel may arise from the making of a promise,
even though with out consideration. If it was intended that
the promise should be relied upon. As in fact it was relied
upon, and if a refusal to enforce it would virtually sanction
the perpetration of fraud or would result in other injustice.
Promissory estoppel presupposes the existence of a promise
on the part of one against whom estoppel is claimed. The
promise must be plain and unambiguous and sufficiently
specific so that the court can understand the obligation
assumed and enforce the promise according to its terms.
Requisites in arising a promissory estoppel.
1. A promise was reasonably expected to induce action
or forbearance
2. Such promise did. In fact, induce such action or
forbearance
3. The party suffered detrimental

37

All the requisites of promissory estoppel are present in the
case. Jones relied on the promise of ASI that he would be paid
soon as the claims of all the rank-and-file employees had
been paid. If not for the promise that he had held on to until
the time of his death. There is no reason why he would delay
filing his complaint before the LA. It was the petitioners own
action that prevented respondent from interposing the claims
with in the required period.
ASILO, JR. v PEOPLE & SPS. BOMBASI

Ponente: Perez, J
Facts:
On March 15, 1978 Private Respondent Visitacion Bombasis
late mother Marciana and the Municipality of Nagcarlan,
Laguna entered into a lease contract whereby the
Municipality allowed the use and enjoyment of property
comprising of a lot and a store located at the corner of
Coronado and E. Fernandez Sts. At Poblacion Nagcarlan,
Laguna in favor of respondents mother for a period of 20
years beginning March 15, 1978 until March 15, 1998
extendible for another 20 years.
The lease contract provided that the late respondents
mother could build a firewall on her rented property which
must be at least as high as the store; and in case of
modification of the public market, she or her heir/s would be
given preferential right.
Visitacion took over the store when her mother died
sometime in 1984. From then on up to January 1993,
Visitacion secured the yearly Mayors permits.
Sometime in 1986, a fire razed the public market of
Nagcarlan, Laguna. Upon Visitacion Bombasis request for
inspection on May 15, 1986 found that the store of Visitacion
remained intact and strong. The finding of then Ministry of
Public Works and Highways was contested by the Municipality
of Nagcarlan.
On September 1, 1993, Visitacion received a letter from the
Municipal Mayor Comendador directing her to demolish her
store within 5 days from notice. Attached to the letter were
copies of Sangguniang Bayan Resolution dated August 30,
1993 and a Memorandum issued by Asst. Provincial
Prosecutor Sasondoncillo of Laguna.
It is also provided in the resolution that it authorized Mayor
Comendador to enforce and order the demolition to give way
for the construction of a new municipal market building. It
further authorizes Mayor Comendador to file an Unlawful
Detainer Case with damages for the expenses incurred due to
the delay in the completion of the project if Visitacion resists
the order.
Visitacion in her reply addressed to the mayor stated that: (1)
the lease contract between her late mother and the
municipality of Nagcarlan was still existing and legally
binding; (2) she was willing to vacate as long as same place
and area would be given to her in the new public market; and
(3) in case her proposals are not acceptable to Mayor
Comendador, he can file the appropriate action to enable the
court to finally thresh out their differences.
On October 11, 1993, the Sangguniang Bayan of Nagcarlan
authorize Mayor Comendador to demolish the store being
occupied by Visitacion Bombasi using legal means.
On October 14, 1993, Municipal Administrator Asilo, Jr.
petitioner of this case, sent a letter to Visitacion informing
her of the impending demolition of her store the next day.
Within the same day, Visitacion wrote a reply letter to Asilo,
Jr., alleging that there is no legal right to demolish the store
in the absence of the court order and that the Resolutions did
not sanction the demolition of her store only the filing of an
appropriate unlawful detainer case against her. She further
replied that if the demolition will take place, appropriate
administrative, criminal and civil actions will be filed against
Mayor Comendador, Asilo, Jr. and all persons who will take
part in the demolition.
On October 15, 1993, Mayor Comendador relying on the
strength of Sangguniang Bayan resolutions authorized the
demolition of the store with petitioner Asilo, Jr. Supervising
the work.
On August 19, 1994, Visitacion together with her husband
Cesar Bombasi (Spouses Bombasi) filed with the RTC of San

Pablo City, Laguna a Civil Case for damages with preliminary
injunction against the Municipality of Nagcarlan, Laguna,
Mayor Demeterio Comendador and Paulino Asilo, Jr.
Spouses Bombasi thereafter filed a criminal complaint
against Mayor Commendador and Asilo Jr. for violation of
Section 3 of Republic Act No. 3019 known as the Anti-Graft
and Corrupt Practices Act.
On March 4, 1997 Sandiganbayan promulgated a Resolution
consolidating the Civil and Criminal Case pending before the
3rd division pursuant to Section 4, Presidential Decree No.
1606.
Sandiganbayan: held for the criminal case Mayor
Comendador and Asilo Jr. guilty beyond reasonable doubt. For
the civil case, it ruled in favor of the respondent spouses
Bombasi.
Legal Issue:
W/N Mayor Comendador, Asilo, Jr. and the Municipality of
Nagcarlan, Laguna is placed in estoppel?
Held:
Yes. In the petitions for certiorari, the Supreme Court had the
chance to discuss estoppel on the part of the petitioner Asilo,
Jr., Mayor Commendador, and the Municipality of Nagcaralan,
Laguna.
The Municipality of Nagcarlan, Laguna, as represented by the
then Mayor Comendador, was placed in estoppel after it
granted yearly business permits in favor of the Spouses
Bombasi. According to Article 1431 of the New Civil Code
provides that, through estoppel, an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the
person relying thereon.
The representation made by the municipality that the
Spouses Bombasi had the right to continuously operate its
store bind the municipality. It is utterly unjust for the
municipality to receive the benefits of the store operation
and later claim the illegality of the business.
Therefore, the Municipality of Nagcarlan together with Mayor
Comendador and Municipal Administrator Asilo, Jr. is
estopped from claiming illegality of the spouses Bombasis
business or its operations therefrom.
PRISMA CONSTRUCTION v MENCHAVEZ

On December 8, 1993, Pantaleon, the President and
Chairman
of
the
Board
of
PRISMA,
obtained
a
P1,000,000.00[4]
loan
from
the
respondent
Menchavez, with a monthly interest of P40,000.00
payable for six months, or a total obligation of
P1,240,000.00 to be paid within six (6) months, from January
8, 1994 to June 8, 1994.
To secure the payment of the loan, Pantaleon issued a
promissory note and six (6) postdated checks corresponding
to the schedule of payments. Pantaleon signed the
promissory note in his personal capacity, and as duly
authorized by the Board of Directors of PRISMA. The
petitioners failed to completely pay the loan within the
stipulated six (6)-month period.
As of January 4, 1997, the petitioners had already paid a total
of P1,108,772.00. However, the respondent found that the
petitioners still had an outstanding balance of P1,364,151.00
as of January 4, 1997, to which it applied a 4% monthly
interest basing on the board resolution of PRISMA board of
directors which authorizes Pantaleon to enter into a loan
contract with an interest of not more than 4%.
Menchavez filed a complaint for sum of money to
enforce the unpaid balance.
Pantaleon denied the stipulation on the 4% interest arguing
that such was not stated in the promissory note.
RTC RULING: inding that the respondent issued a check for
P1,000,000.00 in favor of the petitioners for a loan that would
earn an interest of 4% or P40,000.00 per month, or a total of
P240,000.00 for a 6-month period. It noted that the
petitioners
made
several
payments
amounting
to

38

P1,228,772.00, but they were still
indebted to the
respondent for P3,526,117.00 as of February 11,1999
after considering the 4% monthly interest.
CA RULING: Affirmed RTC ruling but reduced interest rate
from 4% per month to 12% per annum for being
unconscionable.
The petitioners submit that the CA mistakenly relied on their
board resolution to conclude that the parties agreed to a 4%
monthly interest because the board resolution was not an
evidence of a loan or forbearance of money, but merely an
authorization for Pantaleon to enter into a contract of loan.
Even assuming that the loan is subject to 4% monthly
interest, the interest covers the six (6)-month period only and
cannot be interpreted to apply beyond it.
The respondent counters that the CA correctly ruled that the
loan is subject to a 4% monthly interest because the board
resolution is attached to, and an integral part of, the
promissory note. The respondent further contends that the
petitioners are estopped from assailing the 4% monthly
interest, since they agreed to pay the 4% monthly
interest on the principal amount under the promissory
note and the board resolution.
ISSUE:
1.
2.
3.
Whether the parties agreed to the 4% monthly

interest on the loan.
Does the rate of interest apply to the 6-month
payment period only or until full payment of the loan
Are petitioners estopped from assailing the 4%
interest?
RULING:
The loan shall be payable in six months and shall earn
40,000.00 interest, although this agreed sum can be
computed at 4% interest per month, no such rate of
interest was stipulated in the promissory note; rather
a fixed sum equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that no
interest shall be due unless it has been expressly stipulated
in writing. Under this provision, the payment of interest in
loans or forbearance of money is allowed only if: (1) there
was an express stipulation for the payment of interest; and
(2) the agreement for the payment of interest was reduced in
writing. The concurrence of the two conditions is
required for the payment of interest at a stipulated
rate.
Applying this provision, the court found that the interest of
P40,000.00 per month corresponds only to the six (6)-month
period of the loan, or from January 8, 1994 to June 8, 1994,
as agreed upon by the parties in the promissory note.
Thereafter, In the absence of a stipulation the interest on
the loan should be at the legal interest rate of 12% per
annum.
Doctrine of Estoppel not applicable
The respondent submits that the petitioners are estopped
from disputing the 4% monthly interest beyond the six-month
stipulated period, since they agreed to pay this interest on
the principal amount under the promissory note and the
board resolution.
We cannot apply the doctrine of estoppel in the present case
since the facts and circumstances, as established by the
record, negate its application. Under the promissory note,
what the petitioners agreed to was the payment of a
specific sum of P40,000.00 per month for six months
not a 4% rate of interest per month for six (6) months
on a loan whose principal is P1,000,000.00, for the
total amount of P1,240,000.00. Thus, no reason exists to
place the petitioners in estoppel, barring them from raising
their present defenses against a 4% per month interest after

the six-month period of the agreement.
The board resolution, on the other hand, simply authorizes
Pantaleon to contract for a loan with a monthly interest of not
more than 4%. This resolution merely embodies the extent of
Pantaleons authority to contract and does not create any
right or obligation except as between Pantaleon and the
board. Again, no cause exists to place the petitioners in
estoppel.
DIZON v PHIL. VETERANS BANK

FACTS:
Rogelio Dizon and his wife Corazon were the owners of three
parcels of land. The Spouses Dizon mortgaged these lots to
herein respondent Philippine Veterans Bank (PVB) as security
for a credit accommodation which they obtained from
PVB. The Spouses Dizon failed to pay their obligation. As a
consequence, PVB extrajudicially foreclosed the mortgage
and was able to acquire the subject properties at public
auction. Subsequently, a Certificate of Sale was issued in
favor of PVB which was registered with the Register of Deeds.
PVB filed with the RTC a Petition for Issuance of Owner's
Duplicate Copy of Transfer Certificate of Title over the same
parcels of land. Herein petitioner opposed the petition.
Petitioner anchors his opposition to the petition filed by PVB
on the contention that the titles, which he presented to the
bank as evidence that the subject properties were used as
security for the loan he and his wife incurred with the said
bank, were genuine but were later on altered by the bank's
officials and employees with whom he allegedly entered a
deal in order to have his loan approved. Petitioner claims that
this altered and spurious titles were the ones presented by
PVB in its first petition filed with the RTC in June 1986.
The RTC rendered judgment granting the petition of PVB.
Feeling aggrieved, Rogelio filed an appeal with the CA. CA
dismissed the appeal.
ISSUE: WON the petitioner may oppose or question the
validity of the titles in question.
HELD: No, the petition lacks merit.
Petitioner anchors his opposition to the petition filed by PVB
on the contention that the titles, which he presented to the
bank as evidence that the subject properties were used as
security for the loan he and his wife incurred with the said
bank, were genuine but were later on altered by the bank's
officials and employees with whom he allegedly entered a
deal in order to have his loan approved. Petitioner claims that
this altered and spurious titles were the ones presented by
PVB in its first petition filed with the RTC in June 1986.
However, these allegations remain unsubstantiated. They
are self-serving statements which are not supported by any
evidence whatsoever. It is settled that one who alleges a fact
has the burden of proving it and mere allegation is not
evidence. The established fact remains that petitioner and his
wife were the ones who submitted to PVB the authentic
owner's copy of the titles over the subject properties and that
these copies were lost.
The Court cannot follow the logic in petitioner's arguments
considering that, in the first place, he and his wife were the
ones who submitted the titles to PVB. Now that PVB seeks to
obtain a duplicate copy of the titles covering the subject
properties which it legally acquired, petitioner has made a
complete turnaround and now assails the authenticity of
these titles which he and his wife used to obtain their loan.
Nonetheless, petitioner is estopped from doing so.
Settled is the rule that a person, who by his deed or conduct
has induced another to act in a particular manner, is barred
from adopting an inconsistent position, attitude or course of
conduct that thereby causes loss or injury to the latter. The

39

doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is
to forbid one to speak against his own act, representations,
or commitments to the injury of one to whom they were
directed and who reasonably relied thereon.
Article 1431 of the Civil Code states that through estoppel, an
admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as
against the person relying thereon.
The essential elements of estoppel are: (1) conduct of a party
amounting to false representation or concealment of material
facts or at least calculated to convey the impression that the
facts are otherwise than, and inconsistent with, those which
the party subsequently attempts to assert; (2) intent, or at
least expectation, that this conduct shall be acted upon by,
or at least influence, the other party; and (3) knowledge,
actual or constructive, of the real facts.
In the present case, petitioner may not renege on his own
acts and representations to the prejudice of respondent bank,
which has relied on them. Since petitioner entered into a
binding contract on his own volition using the titles which he
now assails, he is therefore estopped from questioning the
authenticity of these documents which paved the way for the
consummation of the contract from which he derived benefit.
Other than to harass the respondent, the Court is at a loss as
to what petitioner really desires to achieve in opposing the
respondent bank's petition. The Court agrees with
respondent's observation that petitioner's actuations are
demonstrative of his desperate attempt to cling on to the
subject properties despite the fact that he has lost them by
reason of foreclosure due to his failure to pay his obligations
and his subsequent inability to redeem them during the
period allowed by law.
HOJAS v PHILIPPINE AMANAH BANK

Facts:
The petitioners, Spouses Rubin and Portia Hojas, alleged that
on April 11, 1980, they secured a loan from respondent
Philippine Amanah Bank in the amount of P450,000.00; that
this loan was secured by a mortgage, covering both personal
and real properties; that from May 14, 1981 to June 27, 1986,
they made various payments amounting to P486,162.13; that
PAB, however, did not properly credit their payments; that
based on the summary of payments furnished by PAB to
them on February 24, 1989, only 13 payments were credited,
erroneously amounting to P317,048.83; that PAB did not
credit the payment they made totalingP165,623.24; and that,
in the statement of their account as of October 17, 1984, PAB
listed their total payment as 412,211.54 on the principal,
and P138,472.09 as 30% interest, all amounting to
P550,683.63, despite the fact that at that time, petitioners
had already paid the total sum of P486,162.13.2
Petitioners further averred that for failure to pay the loan,
PAB applied for the extrajudicial foreclosure of the mortgaged
real properties of petitioners with the Ex-Officio Sheriff; that
consequently, a Notice of Extrajudicial Foreclosure was issued
on January 12, 1987 setting the foreclosure sale on April 21,
1987 and, stating therein the mortgage debt in the sum of
P450,000.00; and that, in the public auction conducted, PAB
acquired said real property.3
RTC dismissed petitioners complaint.
Petitioners filed an appeal assailing the May 27, 1996 RTC
Decision. They asserted that the March 9, 1988 Letter of
Carpizo to Roberto Hojas extended the redemption period
from April 21 to December 31, 1988. Considering that they
had relied on Carpizos representation, PAB violated the
principle of estoppel when it conducted the public sale on
November 4, 1988.7 Their basis was the portion of said letter
which stated:
xxxx
As the Bank has adopted an incentive scheme whereby
payments are liberalized to give chances to former owners to
repossess their properties, we suggest that you advise your
parents to drop by at our Zamboanga Office so they can avail
of this rare privilege which shall be good only up to
December 31, 1988. (Emphasis supplied) 8
The CA affirmed the RTCs decision. It held that the period of
redemption was never extended. The date "December 31,
1988" was not an extension of the redemption period. It was
merely the last day for the availment of the liberalized
payment for the repossession of foreclosed assets under
PABs incentive scheme. PAB, through said letter, did not
make an unqualified representation to petitioners that it had
extended the redemption period. As such, PAB could not be
said to have violated the principle of estoppel when it
conducted a public sale on November 4, 1988.
Issue:
W/N the respondents violated the principles of estoppels.
Held:
No!
Through estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied
or disproved as against the person relying on it. 16 This
doctrine is based on the grounds of public policy, fair dealing,
good faith, and justice and its purpose is to forbid one to
speak against his own act, representations or commitments
to the injury of one to whom they were directed and who
reasonably relied on it.17 Thus, in order for this doctrine to
operate, a representation must have been made to the
detriment of another who relied on it. In other words,
estoppel would not lie against one who, in the first place, did
not make any representation.
In this case, a perusal of the letter, on which petitioners
based their position that the redemption period had been
extended, shows otherwise. Pertinent portions of the said
letter read:
xxxx
Our records show that the above account has already been
foreclosed by the bank. However, the borrowers concerned
can still exercise the one (1) year right of redemption over
the foreclosed properties until April 21, 1988.
As the Bank has adopted an incentive scheme whereby
payments are liberalized to give chances to former owners to
repossess their properties, we suggest that you advise your
parents to drop by at our Zamboanga Office so they can avail
of this rare privilege which shall be good only up to
December 31, 1988. [Emphases and Underscoring Supplied]18
As correctly held by the RTC and upheld by the CA, the date
"December 31, 1988" refers to the last day when owners of
foreclosed properties, like petitioners, could submit their
payment proposals to the bank. The letter was very clear. It
was about the availment of the liberalized payment scheme
of the bank. On the last day for redemption, the letter was
also clear. It was April 21, 1988. It was never extended.
The opportunity given to the petitioners was to avail of the
liberalized payment scheme which program would expire on
December 31, 1988. As explained by Abraham Iribani

40

(Iribani), the OIC of the Project Development Department of
PAB, it was to give a chance to previous owners to repossess
their properties on easy term basis, possibly by condonation
of charges and penalties and payment on instalment. The
letter of Carpizo was an invitation to the petitioners to come
to the bank with their proposal. It appears that the petitioners
could not come up with a proposal acceptable to the bank.
For said reason, the mortgaged property was included in the
list of mortgaged properties that would be sold through a
scheduled public bidding. Thus, on August 11, 1988, Iribani
wrote the petitioners about the scheduled bidding. In
response, the petitioners told Iribani that they would go
Manila to explain their case. They did not, however, return
even after the public bidding. In this regard, the CA was
correct when it wrote:
positing that the public sale conducted on November 4, 1988

was null and void for having been prematurely conducted.19
Moreover, petitioners allegation that they had signified their
intention to avail of the incentive scheme (which they have
equated to their intention to redeem the property), did not
amount to an exercise of redemption precluding the bank
from making the public sale.20 In the case of China Banking
Corporation v. Martir,21 this Court expounded on what
constitutes a proper exercise of the right of redemption, to
wit:
The general rule in redemption is that it is not sufficient that
a person offering to redeem manifests his desire to do so.
The statement of intention must be accompanied by an
actual and simultaneous tender of payment. This constitutes
the exercise of the right to repurchase.
Here, there is no estoppel to speak of. The letter does not

show that the Bank had unqualifiedly represented to the
Hojases that it had extended the redemption period to
December 31, 1988. Thus, the Hojases have no basis in

41

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OBLIGATIONS & CONTRACTS 4TH EXAM

DEFECTIVE CONTRACTS & estoppel

Case list of Atty. Lydia Galas

hypothetically assumed, would have brought into operation

I- Estrellado 2016 Ateneo de Davao University College of Law

OBLIGATIONS & CONTRACTS 4TH EXAM

Case list of Atty. Lydia Galas

the premises then for P150.00 a month and were allegedly

I- Estrellado 2016 Ateneo de Davao University College of Law

OBLIGATIONS & CONTRACTS 4TH EXAM

Case list of Atty. Lydia Galas

2.) W/N the sale between the parties be rescinded

heirs of the spouses Tiangco.

I- Estrellado 2016 Ateneo de Davao University College of Law

OBLIGATIONS & CONTRACTS 4TH EXAM

Case list of Atty. Lydia Galas

KHE HONG CHENG v CA

The said shipment of copra was covered by a marine

M/V PRINCE ERlC sank resulting in the total loss of the

An alias writ of execution was applied for and granted.

When the sheriff, accompanied by counsel of respondent

alleged that petitioner Khe Hong Cheng executed the

when there is no special provision which ordains otherwise,

Respondent Philam had no idea that the trial courts

Had respondent Philam filed his complaint on December

Since respondent Philam filed its complaint for accion

I- Estrellado 2016 Ateneo de Davao University College of Law

OBLIGATIONS & CONTRACTS 4TH EXAM

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UNION BANK v ONG

the question of whether the conveyance was a bona

In the present case, respondent spouses Ong, as the CA had

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OBLIGATIONS & CONTRACTS 4TH EXAM

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in insolvency by or against him, except for a valuable

First, Section 70, supra, of the Insolvency Law

HEIRS OF QUIRONG v DBP

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OBLIGATIONS & CONTRACTS 4TH EXAM

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upon a written contract, w/c prescribes in 10 yrs (Art 1144). It

I- Estrellado 2016 Ateneo de Davao University College of Law

OBLIGATIONS & CONTRACTS 4TH EXAM

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The subject of the dispute is the parcel of land

Defendant Samonte claims that he bought portions

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OBLIGATIONS & CONTRACTS 4TH EXAM

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We note that the respondents sought to impugn only

The revelation of Dr. Faith Go did not also shed light on

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OBLIGATIONS & CONTRACTS 4TH EXAM

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witnessed his signing.

Not all waivers and quitclaims are invalid as against public

death of Mercedes indicated fraud.

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OBLIGATIONS & CONTRACTS 4TH EXAM

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Respondents Florentino and EliseraChiong were

The court held that the respondents separation in