PART II-B.
interest; consequently, it can be carried out only when he who demands
V. DEFECTIVE CONTRACTS
A. Recissible Contracts NCC 1380 - NCC 1389; Read also NCC Art
1526, 1534, 1539, 1542, 1556, 1560, 1567, 1569
NCC Art. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law.
NCC Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which
are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
(4) Those which refer to 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;
(5) All other contracts specially declared by law to be subject to rescission.
NCC Art. 1382 Payments made in a state of insolvency for obligations to
whose fulfillment the debtor could not be compelled at the time they were
effected, are also rescissible.
NCC Art. 1383. The 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.
NCC Art. 1384. Rescission shall be only to the extent necessary to cover the
damages caused.
NCC Art. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with its
rescission can return whatever he may be obliged to restore.
Neither shall rescission 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.
In this case, indemnity for damages may be demanded from the person
causing the loss.
ARTICLE 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not
take place with respect to contracts approved by the courts.
NCC Art. 1387. All contracts by virtue of which the debtor alienates property
by gratuitous title are presumed to have been entered into in fraud of creditors,
when the donor did not reserve sufficient property to pay all debts contracted
before the donation.
Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been rendered in any instance or
some writ of attachment has been issued. The decision or attachment need
not refer to the property alienated, and need not have been obtained by the
party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be
proved in any other manner recognized by the law of evidence.
NCC Art. 1388. Whoever acquires in bad faith the things alienated in fraud of
creditors, shall indemnify the latter for damages suffered by them on account
of the alienation, whenever, due to any cause, it should be impossible for him
to return them.
If there are two or more alienations, the first acquirer shall be liable first, and
so on successively.
NCC Art. 1389. The action to claim rescission must be commenced within four
years.
For persons under guardianship and for absentees, the period of four years
shall not begin until the termination of the former's incapacity, or until the
domicile of the latter is known.

Manuel Oria Gonzales v Jose McMicking, sheriff, Gutierrez Hermanos,
et al. | G.R. No. 7003 | 18 Jan 1912 | Moreland, J
Facts: Gutierrez Hermanos brought two actions Oria Hermanos & Co. for
the recovery of sum of money sometime in 1909 and March 1910,
respectively. Subsequent to the beginning of the above actions, the
members of the company of Oria Hermanos & Co., dissolved their relations
and entered into liquidation. Tomas Oria y Balbas, as managing partner in
liquidation, acting for himself and on behalf of his other co-owners entered
into a contract with the plaintiff in this case, Manuel Orio Gonzales, which
said contract was for the purpose of selling and transferring to the plaintiff in
this action all of the property of which the said Oria Hermanos & Co. was
owner. Among the goods transferred by this instrument was the steamship
Serantes, which is the subject of litigation.
One of the actions instituted by Hermanos was decided by the court in his
favor and subsequently, the execution was issued thereon and placed in the
hands of the sheriff. The sheriff immediately demanded that Tomas Oria y
Balbas, as liquidator of the firm of Oria Hermanos & Co. make payment of
the said judgment, to which he replied that there were no funds with which
to pay the same. Thereupon, the sheriff levied upon the said steamer
Serantes, took possession of the same, and announced it for sale at public
auction. 3 days before the sale, the plaintiff Manuel, in this action, presented
to the sheriff a written statement claiming to be the owner of the said
steamship, and to have the right of possession of the same by reason of the
sale to him by Oria Hermanos & Co. of all of the property belonging to said
company, including the said steamer Serantes. Trial judgement ruled in
favor of Hermanos and against plaintiff. Hence, this appeal.
Issue: W/N the sale between Manuel Oria and Gonzales and Herminia Oria
and Co. was valid.
Held/Ratio: No, the sale was not valid. The Court held that in determining
w/n a certain conveyance is to ascertain whether the conveyance was a
bona fide transaction (or one would trick to defeat creditors) or whether it
conserves to debtor a special right. It is not sufficient that it is founded on
good consideration or is made with bona fide intent: it must have both
elements. The court then laid down the badges of fraud, to wit:
1. The fact that the consideration of the conveyance is fictitious or is
inadequate.
2. A transfer made by a debtor after suit has been begun and while it is
pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor, especially
when he is insolvent or greatly embarrassed financially.
6. The fact that the transfer is made between father and son, when there
are present other of the above circumstances.
7. The failure of the vendee to take exclusive possession of all the
property.
The case at bar presents every one of the badges of fraud above
enumerated. Tested by the inquiry, does the sale prejudice the rights of the
creditors, the result is clear. The sale in the form in which it was made leaves
the creditors substantially without recourse. The property of the company is
gone, its income is gone, the business itself is likely to fail, the property is
being dissipated, and is depreciating in value. As a result, even if the claims
of the creditors should live twelve years and the creditors themselves wait
that long, it more than likely that nothing would be found to satisfy their claim
at the end of the long wait.
Since the records shows that there was no property with which the judgment
in question could be paid, the defendants were obliged to resort to and levy
upon the steamer in suit. The court below was correct in finding the sale
fraudulent and void as to Gutierrez Hermanos in so far as was necessary to
permit the collection of its judgment. As a corollary, the court below found
that the evidence failed to show that the plaintiff was the owner or entitled to
the possession of the steamer in question at the time of the levy and sale
complained of, or that he was damaged thereby. Defendant had the right to
make the levy and test the validity of the sale in that way, without first
resorting to a direct action to annul the sale. The creditor may attack the sale
by ignoring it and seizing under his execution the property, or any necessary
portion thereof, which is the subject of the sale.
Siguan v. Lim (Young)
Facts: A criminal case was filed against LIM with RTC-Cebu city for issuing
2 bouncing checks in the amounts of P300,000 andP241,668, respectively
to Siguan.
Meanwhile, on 2 July 1991, a Deed of Donation conveying the following
parcels of land and purportedly executed by LIM on 10 August 1989 in favor
of her children, Linde, Ingrid and Neil, was registered with the Office of the
Register of Deeds of Cebu City. New transfer certificates of title were
thereafter issued in the names of the donees. On 23 June 1993, petitioner
filed an accion pauliana against LIM and her children before RTC-Cebu City
to rescind the questioned Deed of Donation and to declare as null and void
the new transfer certificates of title issued for the lots covered by the
questioned Deed.
Petitioner claimed therein that sometime in July 1991, LIM, through a Deed
of Donation, fraudulently transferred all her real property to her children in
bad faith and in fraud of creditors, including her; that LIM conspired and
confederated with her children in antedating the questioned Deed of
Donation, to petitioner's and other creditors' prejudice; and that LIM, at the
time of the fraudulent conveyance, left no sufficient properties to pay her
obligations.
Respondent claims that the questioned Deed of Donation, LIM maintained
that it was not antedated but was made in good faith at a time when she had
sufficient property. Finally, she alleged that the Deed of Donation was
registered only on 2 July 1991 because she was seriously ill.
Issue: Whether the Deed of Donation executed by Rosa Lim (LIM) in favor
of her children be rescinded for being in fraud ofpetitioner Maria Antonia
Siguan?
Held/Ratio: No
Even assuming arguendo that petitioner became a creditor of LIM prior to
the celebration of the contract of donation, still her action for rescission
would not fare well because the third requisite was not met. Under Article
1381 of the Civil Code, contracts entered into in fraud of creditors may be
rescinded only when the creditors cannot in any manner collect the claims
due them. Also, Article 1383 of the same Code provides that the action for
rescission is but a subsidiary remedy which cannot be instituted except
when the party suffering damage has no other legal means to obtain
reparation for the same. The term "subsidiary remedy" has been defined as
"the exhaustion of all remedies by the prejudiced creditor to collect claims
due him before rescission is resorted to." It is, therefore, "essential that the
party asking for rescission prove that he has exhausted all other legal means
to obtain satisfaction of his claim. Petitioner neither alleged nor proved that
she did so. On this score, her action for the rescission of the questioned
deed is not maintainable even if the fraud charged actually did exist.
Sps. Velarde v. Court of Appeals, G.R. No. 108346, [July 11, 2001],
413 PHIL 360-376
Facts: David Raymundo is the absolute and registered owner of a parcel of
land, together with the house and other improvements thereon. Private
Respondent George Raymundo is David’s father who negotiated with
plaintiffs Avelina and Mariano Velarde, the petitioners, for the sale of said
property, which was, however, under lease. On August 8, 1986, a Deed of
Sale with Assumption of Mortgage was executed by defendant David
Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee. It is
further agreed and understood by the parties that the capital gains tax and
documentary stamps on the sale shall be for the account of the vendor;
whereas, the registration fees and transfer tax thereon shall be for the
account of the vendee. On the same date, and as part of the above-
document, plaintiff Avelina Velarde, with the consent of her husband,
Mariano, executed an Undertaking.
It appears that the negotiated terms for the payment of the balance of
P1.8 million was from the proceeds of a loan that plaintiffs were to secure
from a bank with defendant’s help. Defendants had a standing approved
credit line with the Bank of the Philippine Islands (BPI). The parties agreed
to avail of this, subject to BPI’s approval of an application for assumption of
mortgage by plaintiffs. Pending BPI’s approval of the application, plaintiffs
were to continue paying the monthly interests of the loan secured by a real
estate mortgage. Pursuant to said agreements, plaintiffs paid BPI the
monthly interest on the loan secured by the aforementioned mortgage for
three (3) months, however, plaintiffs were advised that the Application for
Assumption of Mortgage with BPI was not approved, which prompted
plaintiffs not to make any further payment. On January 5, 1987, defendants,
thru counsel, wrote plaintiffs informing the latter that their non-payment to
the mortgage bank constituted non-performance of their obligation.
Thereafter, defendants sent plaintiffs a notarial notice of
cancellation/rescission of the intended sale of the subject property allegedly
due to the latter’s failure to comply with the terms and conditions of the Deed
of Sale with Assumption of Mortgage and the Undertaking.
Issue: W/N the Court of Appeals erred in holding that the rescission
(resolution) of the contract by private respondents was justified.
Held/Ratio:
A substantial breach of a reciprocal obligation entitles the injured party to
rescind the obligation. Rescission abrogates the contract from its inception
and requires a mutual restitution of benefits received. The breach
committed by petitioners was not so much their nonpayment of the mortgage
obligations, as their nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. Private respondents’ right to
rescind the contract finds basis in Article 1191 of the Civil Code.
The right of rescission of a party to an obligation under Article 1191 of the
Civil Code is predicated on a breach of faith by the other party who violates
the reciprocity between them. The breach contemplated in the said provision
is the obligor’s failure to comply with an existing obligation. When the obligor
cannot comply with what is incumbent upon it, the obligee may seek
rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission. The private
respondents therefore validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the
balance of the purchase price.
The breach committed by petitioners was the nonperformance of a
reciprocal obligation, not a violation of the terms and conditions of the
mortgage contract. Therefore, the automatic rescission and forfeiture of
payment clauses stipulated in the contract does not apply. Instead, Civil
Code provisions shall govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of
the Civil Code, mutual restitution is required to bring back the parties to their
original situation prior to the inception of the contract.
[G.R. No. 191336. January 25, 2012.]
CRISANTA ALCARAZ MIGUEL, petitioner, vs. JERRY D. MONTANEZ,
respondent. |||
Facts: Respondent Jerry Montanez (Montanez) secured a loan of
P143,864.00, payable in one (1) year, or until February 1, 2002, from the
petitioner. The respondent gave as collateral therefor his house and lot.
Respondent failed to pay the loan. The petitioner filed a complaint against
the respondent. The parties entered into a Kasunduang Pag-aayos wherein
the respondent agreed to pay his loan in installments in the amount of
P2,000.00 per month, and in the event the house and lot given as collateral
is sold, the respondent would settle the balance of the loan in full. However,
the respondent still failed to pay, the Lupong Tagapamayapa issued a
certification to file action in court in favor of the petitioner.
The petitioner filed before the MeTC of Makati City a complaint for Collection
of Sum of Money. In his Answer with Counterclaim, the respondent raised
the defense of improper venue considering that the petitioner was a resident
of Bagumbong, Caloocan City while he lived in San Mateo, Rizal.
MeTC: ordered def Montanez to pay ptff.
RTC: Affirmed MeTC
CA:REVERSED and SET ASIDE RTC.
Issue: Whether or not the terms of the Kasunduang Pag-aayos is deemed
rescinded because of respondent’s failure to comply with it?
Held/Ratio: Yes
Because the respondent failed to comply with the terms of the Kasunduang
Pag-aayos, said agreement is deemed rescinded pursuant to Article 2041
of the New Civil Code and the petitioner can insist on his original demand.
Perforce, the complaint for collection of sum of money is the proper remedy.
It is true that an amicable settlement reached at the barangay conciliation
proceedings, like the Kasunduang Pag-aayos in this case, is binding
between the contracting parties and, upon its perfection, is immediately
executory insofar as it is not contrary to law, good morals, good customs,
public order and public policy. This is in accord with the broad precept of
Article 2037 of the Civil Code, viz:
A compromise has upon the parties the effect and authority of
res judicata; but there shall be no execution except in
compliance with a judicial compromise.
Being a by-product of mutual concessions and good faith of the
parties, an amicable settlement has the force and effect of res
judicata even if not judicially approved.[17] It transcends being a
mere contract binding only upon the parties thereto, and is akin to a
judgment that is subject to execution in accordance with the Rules.
If the amicable settlement is repudiated by one party, either
expressly or impliedly, the other party has two options, namely, to enforce
the compromise in accordance with the Local Government Code or Rules of
Court as the case may be, or to consider it rescinded and insist upon his
original demand. This is in accord with Article 2041 of the Civil Code, which
qualifies the broad application of Article 2037, viz:
If one of the parties fails or refuses to abide by the compromise, the other
party may either enforce the compromise or regard it as rescinded and insist
upon his original demand.
In the instant case, the respondent did not comply with the terms and
conditions of the Kasunduang Pag-aayos. Such non-compliance may be
construed as repudiation because it denotes that the respondent did not
intend to be bound by the terms thereof, thereby negating the very purpose
for which it was executed. Perforce, the petitioner has the option either to
enforce the Kasunduang Pag-aayos, or to regard it as rescinded and insist
upon his original demand, in accordance with the provision of Article 2041 of
the Civil Code. Having instituted an action for collection of sum of money,
the petitioner obviously chose to rescind the Kasunduang Pag-aayos.
Considering that the Kasunduang Pag-aayos is deemed rescinded by the
non-compliance of the respondent of the terms thereof, remanding the case
to the trial court for the enforcement of said agreement is clearly
unwarranted.
Ada v. Baylon, G.R. No. 182435, [August 13, 2012]
Facts: This case involves the estate (Spouses Baylon) who died. At the time
of their death, they were survived by their legitimate children, namely, Rita
Baylon (Rita), Victoria Baylon (Victoria), Dolores Baylon (Dolores), Panfila
Gomez (Panfila), Ramon Baylon(Ramon) and herein petitioner Lilia B. Ada
(Lilia).
IaEACT
Dolores died intestate and without issue on August 4, 1976. Victoria died on
November 11, 1981 and was survived by her daughter, herein petitioner Luz
B. Adanza. Ramon died intestate on July 8, 1989 and was survived by herein
respondent Florante Baylon (Florante), his child from his first marriage, as
well as by petitioner Flora Baylon, his second wife, and their legitimate
children, namely, Ramon, Jr. and herein petitioners Remo, Jose, Eric,
Florentino and Ma. Ruby, all surnamed Baylon.
On July 3, 1996, the petitioners filed with the RTC a Complaint for partition,
accounting and damages against Florante, Rita and Panfila. They alleged
therein that Spouses Baylon, during their lifetime, owned 43 parcels of land
all situated in Negros Oriental. After the death of Spouses Baylon, they
claimed that Rita took possession of the said parcels of land and
appropriated for herself the income from the same. Using the income
produced by the said parcels of land, Rita allegedly purchased two parcels
of land, Lot No. 4709 and half of Lot No. 4706, situated in Canda-uay,
Dumaguete City. The petitioners averred that Rita refused to effect a
partition of the said parcels of land.
Florante, Rita and Panfila asserted that they and the petitioners co-owned
22 out of the 43 parcels of land mentioned. Further, they claimed that Lot
No. 4709 and half of Lot No. 4706 were acquired by Rita using her own
money. They denied that Rita appropriated solely for herself the income of
the estate of Spouses Baylon.
During the pendency of the case, Rita, through a Deed of Donation dated
July 6, 1997, conveyed Lot No. 4709 and half of Lot No. 4706 to Florante.
On July 16, 2000, 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 dated February 6, 2002, praying that the said
donation in favor of the respondent be rescinded in accordance with Article
1381 (4). 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.
Florante and Panfila opposed the rescission of the said donation, asserting
that Article 1381 (4) applies only when there is already a prior judicial decree
on who between the contending parties actually owned the properties under
litigation.
Issue: W/N the donation inter vivos of Lot No. 4709 and half of Lot No. 4706
in favor of Florante may be rescinded.
Held/Ratio: Yes, because 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. Thus, Article 1381 (4)
provides:
Art. 1381. The following contracts are rescissible:
(4) Those which refer to 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) 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.
Contrary to the CA the RTC ordered the rescission of the donation inter vivos
of Lot No. 4709 and half of Lot No. 4706 in favor of Florante. The petitioners
had sufficiently established the presence of the requisites for the rescission
of a contract pursuant to Article 1381 (4). 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, did not inform nor
sought the approval from the petitioners or of the RTC with regard to the
donation inter vivos of the said parcels of land to Florante.
Although the gratuitous conveyance of the said parcels of land in favor of
Florante was valid, the donation inter vivos of the same being merely an
exercise of ownership, Rita's failure to inform and seek the approval of the
petitioners or the RTC regarding the conveyance gave the petitioners the
right to have the said donation rescinded pursuant to Article 1381 (4)|
B. VOIDABLE CONTRACTS NCC 1390 - 1402
Caldwallader v. Smith, Bell (Delim)
Facts:
In May 1902, the Pacific Export Lumber Company of Portland shipped
upon the steamer Quito five hundred and eighty-one (581) piles to the
defendant, Henry W. Peabody & Company, at Manila, it was stipulated
that they’ll receive a commission of one half of whatever sum was
obtained over $15 for each pile and 5 per cent of the price of the piles
sold. August 2, Peabody and Company wrote the agent of the Pacific
Company at Shanghai that for lack of a demand the piles would have to
be sold at considerably less than $15 a piece; in response they
telegraphed him an offer of $12 per piece.
On July 9, Peabody & Company had entered into negotiations with the
Insular Purchasing Agent for the sale of piles at $20 a piece. August 4,
Insular Purchasing Agent sold to the Government two hundred and
thirteen (213) piles at $19 each. More of them were afterwards sold to
the Government at the same figure. Thus it is clear that at the time when
the agents were buying from their principal these piles at $12 a piece on
the strength of their representation that no better price was obtainable,
they had already sold a substantial part of them at $19. In these
transactions the defendant, Smith, Bell & Company, were associated
with the defendants, Henry W. Peabody & Company, who conducted the
negotiations, and are consequently accountable with them.
Issue: W/N the contract of sale is subject for annulment
Held/Ratio:
Yes. Concealing from their principal the negotiations with the Government,
resulting in a sale of the piles at 19 a piece and in misrepresenting the
condition of the market, the agents committed a breach of duty from which
they should benefit. The contract of sale to themselves thereby induced was
founded on their fraud and was subject to annulment by the aggrieved party.
(Civil Code, articles 1265 and 1269.) Upon annulment the parties should be
restored to their original position by mutual restitution. (Article 1303 and
1306.) Therefore the defendants are not entitled to retain their commission
realized upon the piles included under the contract so annulled. In respect
of the 213 piles, which at the time of the making of this contract on August
5 they had already sold under the original agency, their commission should
be allowed.
THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
THE PHILIPPINE VEGETABLE OIL CO., INC., defendant-appellee.
PHIL. C. WHITAKER, intevenor-appellant.
FACTS: In 1920, Vegetable Oil found itself in financial straits. It was in
debt for approximately PHp30Mn. PNB was the largest creditor. PNB
was secured principally by a real and chattel mortgage for PHp3.5Mn.
The Vegetable Oil executed another chatter mortgage in favor of the
bank on its vessels Tankerville and HS Everette to guarantee payment
of sums not to exceed Php4Mn.
Whitaker (intervenor in this case), the General Manager of Vegetable Oil
made his first offer to pledge certain private properties to secure the
creditors of the Oil Company. At the instance of Mr. Whitaker but inspired
to action by the PNB, a receiver for the Oil Company was appointed bf
CFI Manila.
During the period when a receiver was in control of the Oil Company,
creditors transferred to Mr. Whitaker a part of their claims against the Oil
Company via an agreement. PNB was not a direct party to the
agreement although its officials had full knowledge of its accomplishment
and its general manager placed his “OK” at the end of the final draft.
PNB then obtained a new mortgage from the Oil Company. Shortly
thereafter,, the receivership for the Oil Company was terminated (Feb
1922). The bank suspended operations of the Vegetable Oil and closed
the plant.
PNB Bank filed an action to foreclose its mortgage on the property of the
Vegetable Oil Company. The Vegetable Oil Company on its part
countered with certain special defenses with a counterclaim for Php
6Mn. Whitaker presented a complaint in intervention.
ISSUE: W/N the PNB ever made any contract binding the bank to
provide the necessary operating capital to Vegetable Oil Co? NO.
Was the mortgage voidable? YES.
RULING:
(1) NO. Portions of the minutes of the Board of Directors disclose that
the Board authorized advances to the Oil Company to the extent of more
than Php 1Mn. No contract entered into by the general manager of the
Bank would be valid unless it has the consent of the Board. What the
Board had decreed was that the Oil Company be financed under the
receivership to the extent of Php 500k. No indication that the Board had
ever approved to an agreement for practically unlimited backing of the
Oil Company, or that it had ratified any such promise made by the Gen.
Manager.
No definite agreement binding on the bank but only a general information
proffered by the Gen Manager of the Bank in conference that his bank
contemplated financing the same.
(2) Voidable. To all this the appellee as well as the trial court have answered
that while it is true that the document was executed on February 20, 1922,
at a time when the properties of the mortgagor were under receivership, the
mortgage was not acknowledged before a notary public until March 8, 1922,
after the court had determined that the necessity for a receiver no longer
existed. But the additional fact remains that while the mortgage could not
have been executed without the dissolution of the receivership, such
dissolution was apparently secured through representations made to the
court by counsel for the bank that the bank would continue to finance the
operations of the Vegetable Oil Company (See testimony of Judge Simplicio
del Rosario). Instead of so doing, the bank within less than two months after
the mortgage was recorded, withdrew its support from the Vegetable Oil
Company, and in effect closed its establishment. Also it must not be
forgotten that the hands of other creditors were tied pursuant to the creditors'
agreement of June 27, 1921.
To place emphasis on the outstanding facts, it must be repeated that the
mortgage was executed while a receiver was in charge of the Vegetable
Oil Company. A mortgage accomplished at such a time by the
corporation under receivership and a creditor would be a nullity. The
mortgage was definitely perfected subsequent to the lifting of the
receivership pursuant to implied promises that the bank would continue
to operate the Vegetable Oil Company. It was then accomplished when
the Philippine National Bank was a dominating influence in the affairs of
the Vegetable Oil Company. On the one hand was the Philippine
National Bank in person. On the other hand was the Philippine National
Bank by proxy. Under such circumstances, it would be unconscionable
to allow the bank, after the hands of the other creditors were tied, virtually
to appropriate to itself all the property of the Vegetable Oil Company.
Whether we consider the action taken as not expressing the free will of
the Vegetable Oil Company, or as disclosing undue influence on the part
of the Philippine National Bank in procuring the mortgage, or as
constituting deceit under the civil law, or whether we go still further and
classify the facts as constructive fraud, the result is the same. The
mortgage is clearly voidable.
MANUEL G. SINGSON, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE
L. ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN,
ESTEBAN, INC. vs. ISABELA SAWMILL, MARGARITA G. SALDAJENO
and her husband CECILIO SALDAJENO LEON GARIBAY, TIMOTEO
TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS
OCCIDENTAL, defendants. G.R. No. L-27343 February 28, 1979
Fernandez, J.
Facts: Defendants Saldajeno, Garibay and Tubungbanua entered into a
contract of partnership. Later, Saldajeno withdrew and brought an action to
dissolve the partnership. The suit resulted in the execution of "Assignment
of Rights with Chattel mortgage" in favor of Saldajeno. Garibay and
Tubungbanua, however, continued the business under the same firm name.
Meanwhile, plaintiffs extended credits to the partnership. Later, the chattel
mortgage was foreclosed and the mortgaged properties were sold at public
auction to Saldajeno, who in turn sold the same for P45,000. Plaintiffs sued
defendants to recover the sums of money they advanced to the partnership
and asked for the nullity of the chattel mortgage between Saldajeno and her
former partners. The trial court held that plaintiffs, the partnership's creditors,
had a preferred right over the proceeds of the sale. The Saldajeno appealed
alleging that (1) the trial court had no jurisdiction because plaintiffs sought
to collect sums of money, the biggest amount of which was less than P2,000;
and (2) the chattel mortgage, having been judicially approved and
foreclosed cannot be nullified by another court of co-equal, concurrent and
coordinate jurisdiction.
Issue: 1. W/N the trial court had no jurisdiction
2. W/N the chattel mortgage cannot be nullified by another court of co-equal,
concurrent and coordinate jurisdiction.
Held/Ratio: The Supreme Court held that (1) although the individual claims
of plaintiffs do not exceed P2,000 the trial court had jurisdiction because
plaintiffs also asked for nullity of the chattel mortgage, a cause of action
which is not capable of pecuniary estimation; and (2) that one branch of the
Court of First Instance can take cognizance of an action to nullify a final
judgment of another branch of the same court, where the action springs from
the alleged nullity of the judgment based on fraud.
As a rule, a contract cannot be assailed by one who is not a party thereto.
However, when a contract prejudices the rights of a third person, he may file
an action to annul the contract. This Court has held that a person, who is
not a party obliged principally or subsidiarily under a contract, may exercised
an action for nullity of the contract if he is prejudiced in his rights with respect
to one of the contracting parties, and can show detriment which would
positively result to him from the contract in which he has no intervention.
Decision appealed from is affirmed, and modified with the elimination of the
portion ordering appellants to pay attorney’s fees.

METROPOLITAN FABRICS INC vs. PROSPERITY
G.R. No. 154390. March 17, 2014
Facts: Metropolitan Fabrics, Incorporated (MFI), a family corporation,
owned a 5.8 hectare industrial compound at No. 685 Tandang Sora Avenue,
Novaliches, Quezon City. Pursuant to a P2 million, 10-year 14% per annum
loan agreement with Manphil Investment Corporation (Manphil) dated April
6, 1983, the said lot was subdivided into 11 lots, with Manphil retaining four
lots as mortgage security. The other seven lots were released to MFI.
In July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52,
the balance of the cost of its boiler machine, to prevent its repossession by
the seller. PCRI, also family-owned corporation licensed since 1980 to
engage in money lending, was represented by Domingo Ang (“Domingo”)
its president, and his son Caleb, vice-president. The parties knew each other
because they belonged to the same family association, the Lioc Kui Tong
Fraternity.
On the basis only of his interview with Enrique, feedback from the
stockholders and the Chinese community, as well as information given by
his own father Domingo, and without further checking on the background of
Enrique and his business and requiring him to submit a company profile and
a feasibility study of MFI, Caleb recommended the approval of the P3.44
million with an interest ranging from 24% to 26% per annum and a term of
between five and ten years. According to the court, it sufficed for Caleb that
Enrique was a well-respected Chinese businessman, that he was the
president of their Chinese family association, and that he had other personal
businesses aside from MFI, such as the Africa Trading.
However, in September 1984, the first amortization check bounced for
insufficient fund due to MFI’s continuing business losses. It was then that
the appellees allegedly learned that PCRI had filled up the 24 blank checks
with dates and amounts that reflected a 35% interest rate per annum,
instead of just 24%, and a two year repayment period, instead of 10 years.
On September 4, 1986, Enrique received a Notice of Sheriff’s Sale dated
August 29, 1986, announcing the auction of the seven lots on September
24, 1986 due to unpaid indebtedness of P10.5 million. Vicky (daughter of
owner of MFI, because their father went into a coma because of intense
pressure from the foreclosure) insisted that prior to the auction notice, they
never received any statement or demand letter from the defendants to pay
P10.5 million, nor did the defendants inform them of the intended
foreclosure.
Issue: Whether or not the mortgage contract and its foreclosure should be
declared null and void.
Held/Ratio: No. As the records show, petitioners really agreed to mortgage
their properties as security for their loan, and signed the deed of mortgage
for the purpose. Thereafter, they delivered the TCTs of the properties
subject of the mortgage to respondents. Consequently, petitioners’
contention of absence of consent had no firm moorings. It remained
unproved. To begin with, they neither alleged nor established that they had
been forced or coerced to enter into the mortgage. Also, they had freely and
voluntarily applied for the loan, executed the mortgage contract and turned
over the TCTs of their properties. And, lastly, contrary to their modified
defense of absence of consent, Vicky Ang’s testimony tended at best to
prove the vitiation of their consent through insidious words,
machinations or misrepresentations amounting to fraud, which
showed that the contract was voidable.
Where the consent was given through fraud, the contract is voidable, not
void ab initio. This is because a voidable or annullable contract is existent,
valid and binding, although it can be annulled due to want of capacity or
because of the vitiated consent of one of the parties. Article 1390, in relation
to Article 1391 of the Civil Code, provides that if the consent of the
contracting parties was obtained through fraud, the contract is considered
voidable and may be annulled within four years from the time of the
discovery of the fraud. The discovery of fraud is reckoned from the time the
document was registered in the Register of Deeds in view of the rule that
registration was notice to the whole world. Thus, because the mortgage
involving the seven lots was registered on September 5, 1984, they had until
September 5, 1988 within which to assail the validity of the mortgage. But
their complaint was instituted in the RTC only on October 10, 1991. Hence,
the action, being by then already prescribed, should be dismissed.
First Philippines Holdings V. Trans Middle East(Phils.) Equites 179505
12/04/2009
Facts: Petitioner First Philippine Holdings Corporation's (FPHC's) formerly
known as Meralco Securities Corporation, , is a holding company engaged
in power generation and distribution, property development and
manufacturing. FPHC's controlling interest is owned by the Lopez family.
TMEE, on the other hand, is also a domestic corporation, allegedly owned
by Benjamin (Kokoy) Romualdez.
FPHC allegedly sold its 6,299,179 shares of common stock in Philippine
Commercial International Bank (PCIB), now Equitable-PCI Bank, to TMEE.
The 6,299,179 shares of common stock in PCIB are part of the sequestered
properties that were allegedly illegally amassed by Benjamin Romualdez
during the twenty-year reign of former President Ferdinand E. Marcos, and
are among the purported ill-gotten wealth sought to be recovered by the
Presidential Commission on Good Government (PCGG) via a civil case
docketed as Civil Case No. 0035 before the Sandiganbayan.
According to FPHC, said shares were obtained by TMEE through fraud and
acts contrary to law, morals, good customs and public policy. Such being
the case, their acquisition is either voidable or void or unenforceable.
On 22 February 2007, the Sandiganbayan ruled in TMEE's favor by granting
its motion to dismiss. The Sandiganbayan, citing Philippine Free Press, Inc.
v. Court of Appeals, found no credible reason why FPHC could not institute
the complaint to annul the sale of the disputed shares of stock, simply for
the alleged fear engendered by the Marcos rule since, in 1984 when the sale
was consummated, martial rule was already lifted; and that, in the same
year, protests against the then president were already mounting and
boisterous. The Sandiganbayan opined that since FPHC's effort to recover
the PCIB shares would have to be addressed by the court, the element of
fear would have been neutralized since the judiciary did not lack gallant
magistrates who refused to be cowed into silence by the dictator. The
Sandiganbayan likewise found suspect FPHC's late pursuit of the recovery
of the subject shares taking which was two years after the late dictator was
deposed.
FPHC filed a motion for reconsideration. In support thereof, FPHC
maintained that the sale of the PCIB shares was void ab initio, since the said
transaction was allegedly approved by the dummy board and signed by the
dummy officers of FPHC. Since the subject sale contract was null and void,
the action for the declaration of its nullity was imprescriptible.
According to FPHC, even assuming that Article 1391 of the Civil Code
applied, the four-year prescriptive period should be reckoned from 26
February 1986, when former President Ferdinand E. Marcos was deposed
from power and left the country, for it was only from that date onwards that
the cause of vitiation of consent, i.e., intimidation, violence and threats,
ceased.
In its Resolution dated 6 September 2007, the Sandiganbayan denied
FPHC's motion for reconsideration stressing anew that the subject sale was
not void ab initio, but merely voidable
Issue: WN the subject sale is a voidable contract
Ruling: Yes. Under Section 23 of B.P. 68, otherwise known as the
Corporation Code of the Philippines, a corporation can act only through its
board of directors. The law is settled that contracts between a corporation
and third persons must be made by or under the authority of its board of
directors and not by its stockholders. FPHC, for its part, was represented by
its board that had the legal right to act on behalf of the corporation and gave
its approval and consent to the Sale of Shares of Stock and Escrow
Agreement entered into on May 24, 1984. From that standpoint therefore it
is clear that the essential element of consent for the existence of a valid
contract was complied with in the transaction in question.
The mere allegation of FPHC that the persons who composed the Board of
Directors of FPHC that approved the contract were mere dummies of the
Marcos and Romualdez group does not make the said contract void. If that
allegation of vitiated consent be true so as to incapacitate the Board from
giving its consent freely, the defect if at all only renders the contract voidable
Undoubtedly, the entirety of the allegations in the complaint-in-intervention
makes up a case of a voidable contract of sale — not a void one.
Thus, contracts where consent is given through fraud, are voidable or
annullable. These are not void ab initio since voidable or anullable contracts
are existent, valid, and binding, although they can be annulled because of
want of capacity or the vitiated consent of one of the parties. However,
before such annulment, they are considered effective and obligatory
between parties
The court ruled that the action prescribed.
“Petitioner was fully aware of the sale of the PCIB shares to TMEE. Despite
all this knowledge, petitioner did not question the said sale from its inception
and some time thereafter. It was only after four years and seven months had
lapsed following the knowledge or discovery of the alleged fraudulent sale
that petitioner assailed the same. By then, it was too late for petitioner to
beset the same transaction, since the prescriptive period had already come
into play.”
CRISOSTOMO V GARCIA G.R. No. 164787 January 31, 2006
FACTS:
Florito Garcia alleged that the mother of petitioner Jose G. Crisostomo, sold
to him, by way of a Deed of Absolute Sale, a parcel of land, including the
improvements and rights thereon.
In the Deed of Sale, petitioner Jose Crisostomo and his sister Cristina
Crisostomo signed as witnesses in the execution of the instrument. Since
they were distant relatives, Florito allowed Victoria and her children,
petitioner Jose and Cristina, to stay in the subject property as lessees under
a Contract of Lease. By virtue of the said deed of sale, Florito effected the
transfer of the tax declaration covering the property, under his name from
the City Assessor’s Office of Caloocan City. However, before the transfer of
title to Florito could be completed, petitioners-spouses Jose and Marlene
Crisostomo were able to secure a loan from the National Home Mortgage
Finance Corporation using the subject property as security through bad faith
and machinations. Worse, petitioners were able to transfer the subject
property under their names without the knowledge and consent of the
Florito.
Petitioners filed an “Urgent Motion to Dismiss Action,” alleging that since
Florito’s cause of action
is based on an alleged deed of sale executed on 24 September 1986, the
cause of action of Florito to enforce and to implement the instrument arose
on 24 September 1986 and pursuant to Article 1144 of the Civil Code, the
action must be brought within 10 years from the time the right of action
accrues. Thus, from 24 September 1986, respondent had only up to 24
September 1996 within which to file the action.
Since the complaint was filed only on 20 June 2002, or after the lapse of
more than 16 years, the cause of action is clearly barred by prescription.
Florito countered that Article 1144 of the Civil Code does not apply to the
case because the complaint is for cancellation of title registered in the
names of the petitioners and for reconveyance. Respondent further points
out that he did not file an action for specific performance based on the deed
of sale. The complaint, he said, is for reconveyance based on an implied or
constructive trust which expires in 10 years counted from the date the
adverse title to the property is asserted by the possessor.
ISSUE: WON the cause of action of Florito prescribed.
RULING:
No. Petitioners’ allegation that an action for the reconveyance of real
property on the ground of fraud must be filed within four years from the
discovery of the fraud is without basis. The four-year prescriptive period
relied upon by the petitioners apply only if the complaint seeks to annul a
voidable contract under Article 1390 of the Civil Code.
In this case, Florito's action which is for Reconveyance and Cancellation of
Title is based on an implied trust under Art. 1456 of the Civil Code since he
averred in his complaint that through fraud petitioners were able to obtain a
Certificate of Title over the property. He does not seek the annulment of a
voidable contract whereby Articles 1390 and 1391 of the Civil Code would
find application such that the cause of action would prescribe in four years.
Thus, it was held that when a party uses fraud or concealment to obtain a
certificate of title of property, a constructive trust is created in favor of the
defrauded party.
Constructive trusts are "created by the construction of equity in order to
satisfy the demands of justice and prevent unjust enrichment. They arise
contrary to intention against one who, by fraud, duress or abuse of
confidence, obtains or holds the legal right to property which he ought not,
in equity and good conscience, to hold."
It is now well-settled that the prescriptive period to recover property obtained
by fraud or mistake, giving rise to an implied trust under Art. 1456 of the Civil
Code, is 10 years pursuant to Art. 1144. This ten-year prescriptive period
begins to run from the date the adverse party repudiates the implied trust,
which repudiation takes place when the adverse party registers the land.
Clearly, the applicable prescriptive period is ten years under Art. 1144 and
not four years under Arts. 1389 and 1391.
Florito has a period of 10 years from the registration of the title within which
to le the action. Since the title was registered in the name of the petitioners
on 16 November 1993, respondent had a period of 10 years from the time
of the registration within which to le the complaint. Since the complaint was
filed on 20 June 2002, the action clearly has not prescribed and was timely-
filed.
The case is ordered remanded to the trial court which is directed to continue
with the hearing and proceed with Civil Case No. C-20128 with deliberate
dispatch. No costs.
FRANCISCO v HERRERA, G.R. No. 139982. November 21, 2002.
Facts: Eligio Herrera, Sr., the father of respondent, was the owner of
two parcels of land, one consisting of 500 sq. m. and another consisting
of 451 sq. m., covered by Tax Declaration (TD) Nos. 01-00495 and
01-00497, respectively. On January 3, 1991, petitioner bought from
said landowner the first parcel, covered by TD No. 01-00495, for the
price of P1,000,000, paid in installments from November 30, 1990 to
August 10, 1991. On March 12, 1991, petitioner bought the second
parcel covered by TD No. 01-00497, for P750,000.
Contending that the contract price for the two parcels of land was
grossly inadequate, the children of Eligio Herrera, Sr., namely, Josefina
Cavestany, Eligio Herrera, Jr., and respondent Pastor Herrera, tried to
negotiate with petitioner to increase the purchase price. When petitioner
refused, respondent filed a complaint for annulment of sale. In his
complaint, respondent claimed ownership over the second parcel, while
the first parcel was subject to the ownership of the surviving heirs of
Francisca A. Herrera, the wife of Eligio, Sr. He further alleged that the
sale of the two lots was null and void on the ground that at the time
of the sale, Eligio, Sr. was incapacitated to give his consent because
he was afflicted with senile dementia. In his answer, petitioner alleged
that respondent was estopped from assailing the sale of the lots
because he effectively ratified both contracts of sale, by receiving the
consideration offered in each transaction. After trial, the court a quo
declared null and void the deeds of sale of the subject properties and
directed petitioner to return the properties to respondent who, in turn,
must refund to petitioner the purchase price of the properties. On
appeal, the Court of Appeals affirmed in toto the decision of the trial
court. Hence, this petition for review on certiorari.
Issue: whether the sale was void or voidable.
Held/Ratio: voidable. The Court ruled that if an insane or demented
person does enter into a contract, the legal effect is that the contract
is voidable or annullable as specifically provided in Article 1390 of the
Civil Code. Thus, an annullable contract may be rendered perfectly
valid by ratification, which can be express or implied. Implied ratification
may take the form of accepting and retaining the benefits of a contract.
This is what happened in this case. Further, there was no showing
that respondent returned the payments or made an offer to do so.
This bolsters the view that indeed there was ratification. One cannot
negotiate for an increase in the price in one breath and in the same
breath contend that the contract of sale is void. It was also found by
both the trial court and the Court of Appeals that Eligio, Sr., was the
"declared owner" of the said lots. This finding is conclusive on this
Court. As declared owner of said parcels of land, it follows that Eligio,
Sr., had the right to transfer the ownership thereof under the principle
of jus disponendi. Accordingly, the instant petition was granted and
the Court of Appeals' decision was reversed.

RATIFICATION NCC 1392 - NCC 1396
UySoo Lim v. Tan Unchuan
Facts:
(APPEAL from a judgment of the CFI of Cebu dismissing the annulment of
a contract made by Uy Soo Lim to Francisca Pastrano re: transferring all his
interest in the estate of the late Santiago to Francisca.)
Santiago Pastrano Uy Toco, 13 years old, Chinese came to the Philippines
On August 2 1882: He married Candida Vivares, a Filipina woman, at
Mambajao, Cagayan. They had 2 daughters, Francisca and Concepcion.
Francisca is a defendant in this suit and is the wife of the co-defendant,
Benito Tan Unchuan.
At the time of this marriage, Santiago Pastrano possessed very little property
— a tienda worth about P2k. However, when he died, on March 6, 1901, his
wealth amassed to a large estate that he acquired with Candida.
However, On 1892: Santiago stayed in China for less than a year and he
had an affair with Chan Quieng or Chan Ni Yu (who later claims that what
they did in China was equivalent to a marriage in Chinese law and customs).
Santiago and Quieng never saw each other again but she write him letters
that she bore him a son, plaintiff Uy Soo Lim. Believing this, Santiago
allegedly dedicated to him a large amount in his will—7/9 to be exact.
Oct 21, 1904: CFI Cebu ordered Benito Tan Unchuan, the executor of the
testamentary estate of Santiago Pastrano to deliver to Basilio Uy Bundan
(brother of Santiago), guardian of Francisca Pastrano, Concepcion
Pastrano, and Uy Soo Lim, the property to which they were entitled under
the Santiago’s will.- order was complied with and the administration of the
testamentary estate declared closed.
Oct 18, 1910, the court, issued an order on to Basilio to already present a
plan of distribution of the estate in accordance with the will since Francisca
has already reached majority, Concepcion will in a few months and Uy Soo
Lim already got married in 1910.-> But Basilio didn’t readily comply witht the
order and before the plan of distribution, obejections re: implementing the
provisions of the will were brought to this court.
Thus, motions were raised In Court:
May 25, 1991: Candida’s motion-She claimed the right to ½ of the estate as
the legitimate widow of Santiago. She also asked that the administration of
said estate reopened and the rights of the persons readjudged and
determined according to law. A motion of similar purport was filed by her in
the matter of the guardianship of Uy Soo Lim et al.
June 5, 1911: Francisca and Concepcion’s motion- re: guardianship of Uy
Soo Lim et al., in which they opposed the distribution of the estate of
Santiago in accordance with the terms of his will, alleging that Uy Soo Lim
was not entitled under the law to the amount of the estate assigned him in
the will since the alleged marriage of their dad to his mom was null and void.
They also claimed that Uy Soo Lim was not a son, legitimate or illegitimate
of their dad. Thus, they asked for a suspension of the distribution and a
reopening of the matter of the testamentary estate of Santiago Pastrano and
that the rights of all persons in interest be readjudged and determined
according to law.
Oct. 7, 1911: Chan Quieng’s motion and asked that she be declared entitled
to ½ of the estate on account that she was the legitimate wife of Santiago
according to the laws and customs of China.
What’s with all the fuss?: If Uy Soo Lim was illegitmate: he’s only entitled to
1/3 of Santiago’s ½ share in the conjugal estate or 1/6 total not 7/9. (THOU
SHALL NOT GET A LION’S SHARE ILLEGITMATE CHILDDDDD)
March 13, 1911: Uy Soo Lim goes to Manila because he gets paranoid will
all the protests regarding his inheritance which by the way he was expecting.
He even already withdrew from the estate amounts worth P26,800 for his
personal use. and continued spending thereafter.
At the end, an agreement was reached between Choa Tek Hee (lawyer/
cunning merchant of the plaintiff) and the plaintiff, of the one part, and Tan
Unchuan and Del Rosario, an attorney of Cebu, representing the interest of
Candida, Francisca and Concepcion, on the other, to submit the entire
matter in dispute to the judgment of three respectable Chinese
merchants/lawyers designated.
These advisers came to the conclusion that the sum of P82, 500 should be
accepted by plaintiff in full satisfaction and relinquishment of all his right,
title, and interest in and to the estate of the deceased Santiago, and this
recommendation was accepted by Choa Tek Hee and plaintiff and by Tan
Unchuan and Del Rosario.
Candida and Concepcion later sold their shares to Francisca. But after the
agreed amount was paid in installments by Francisca and after the plaintiff
spent most of it, Uy Soo Lim, 3 years after attaining the age of majority,
commenced this present action to rescind and annul the contract by which
he had sold and transferred to Francisca Pastrano his interest in the estate
of Santiago Pastrano.
TC: Uy Soo Lim was a minor at the time of the execution of the contract in
question, but that he not only failed to repudiate it promptly upon reaching
his majority but tacitly ratified it by disposing of the greater part of the
proceeds after he became of age and after he had full knowledge of the facts
upon which he now seeks to disaffirm the agreement.
Issue: WON the plaintiff might have the right to rescind this contract
on the ground of minority?
Held/Ratio:
NO. The right of the minor to rescind, upon attaining his majority, a contract
entered into during his minority is subject to the conditions (1) that the
election to rescind must be made within a reasonable time after majority and
(2) that all of the consideration which was in the minor's possession upon
his reaching the majority must be returned. The disposal of any part of the
consideration after the attainment of majority imports an affirmance of the
contract.
Because, with full knowledge of his rights in the premises, he failed to
disaffirm his contract within a reasonable time after reaching majority; and
Because he not only failed to tender, or offer, to produce and pay the
consideration in esse when he reached majority, and when he filed his
action, but proceeded, after such events, to demand, collect and dispose of
such consideration, when according to his own statement under oath he had
no other funds with which to make reimbursement.
NOTE RE: MINORITY AND NATIONALITY PRINCIPLE: Argument for
appellee: it having been shown that appellant is a Chinese citizen, and that
under the law of China he was of age when he executed the contract here
in dispute his contractual capacity must be determined by his national law
(estatuti personal). ->SC: decide on what’s more favorable to appellant, that
is-> he was a minor at the time of the execution of the contract makes it
unnecessary for us to decide this question or to consider the effect of the
marriage of appellant before attaining the age of twenty-one upon his
contractual capacity.
VILORIA V CONTINENTAL AIRLINES, INC.
G.R. No. 188288; 16 January 2012
Reyes, J.:
Facts: On or about July 21, 1997 and while in the United States, Fernando
purchased for himself and his wife, Lourdes, two (2) round trip airline tickets
from San Diego, California to Newark, New Jersey on board Continental
Airlines. Fernando purchased the tickets from a travel agency called
“Holiday Travel” and was attended by Margaret Mager (Mager). According
to Spouses Viloria, Fernando agreed to buy the said tickets after Mager
informed them that there were no available seats at Amtrak.
Subsequently, Fernando requested to reschedule their flight to an
earlier date but Mager informed him that flights to Newark was fully booked
and offered flight via Frontier Air but it was a higher fare so Fernando opted
to request a refund. Mager denied his request as the subject tickets are non-
refundable and the only option that Continental Airlines can offer is the re-
issuance of new tickets within one (1) year from the date the subject tickets
were issued and consequently reserved two seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air,
Fernando went to the Greyhound Station where he saw an Amtrak station
nearby and made inquiries. Amtrak told Fernando that there are seats
available and he can travel on Amtrak anytime and any day he pleased so
he purchased two tickets for Washington.
Upon returning to Philippines, Fernando sent a letter to CAI
demanding a refund but was denied and was advised for re-issuance of
ticket within two years from the date they were issued. Fernando availed of
re-issuance of Lourdes’ ticket but was informed that it was non-transferable.
Spouses Viloria filed a complaint against CAI praying for their
refund, moral and exemplary damages. They claim that the
misrepresentation of Mager, agent of CAI, lead him to avail the ticket and
that CAI is liable for her misrepresentation.
Trial Court rendered an order in favor of the Spouses declaring that
Mager of Holiday Ticket is an agent of CAI and was in bad faith when she
was less candid and diligent in presenting to plaintiffs spouses their booking
option.
Issue: Whether or not a claim for refund is availing?
Held/Ratio: No. Viloria tacitly ratified the contract at issue.
Even assuming that Mager’s representation is causal fraud, the subject
contracts have been impliedly ratified when Spouses Viloria decided to
exercise their right to use the subject tickets for the purchase of new ones.
Under Article 1392 of the Civil Code, “ratification extinguishes the
action to annul a voidable contract.” And Art. 1393. Ratification may be
effected expressly or tacitly. It is understood that there is a tacit ratification
if, with knowledge of the reason which renders the contract voidable and
such reason having ceased, the person who has a right to invoke it should
execute an act which necessarily implies an intention to waive his right.
Implied ratification may take diverse forms, such as by silence or
acquiescence; by acts showing approval or adoption of the contract; or by
acceptance and retention of benefits flowing therefrom
Simultaneous with their demand for a refund on the ground of Fernando’s
vitiated consent, Spouses Viloria likewise asked for a refund based on CAI’s
supposed bad faith in reneging on its undertaking to replace the subject
tickets with a round trip ticket from Manila to Los Angeles.
CE REALTY AND DEVELOPMENT INC v. RACHEL G. MANDAP
G.R. No. 196182, September 01, 2014
Facts: Petitioner is a corporation engaged in the building and development
of condominium units. Sometime in 1995, it started the construction of a
condominium project called Central Park Condominium Building located
along Jorge St., Pasay City. However, printed advertisements were made
indicating therein that the said project was to be built in Makati City.3 In
December 1995, respondent, agreed to buy a unit from the above project by
paying a reservation fee and, thereafter, downpayment and monthly
installments. On June 18, 1996, respondent and the representatives of
petitioner executed a Contract to Sell. In the said Contract, it was indicated
that the condominium project is located in Pasay City.
More than two years after the execution of the Contract to Sell, respondent,
through her counsel, wrote petitioner a letter dated October 30, 1998
demanding the return of P422,500.00, representing the payments she
made, on the ground that she subsequently discovered that the
condominium project was being built in Pasay City and not in Makati City as
indicated in its printed advertisements.
However, instead of answering respondent's letter, petitioner sent her a
written communication dated November 30, 1998 informing her that her unit
is ready for inspection and occupancy should she decide to move in.
Treating the letter as a form of denial of her demand for the return of the
sum she had paid to petitioner, respondent filed a complaint with the
Expanded National Capital Region Field Office (ENCRFO) On September
30, 2005, the ENCRFO dismissed respondent's complaint for lack of merit
and directed the parties to resume the fulfillment of the terms and conditions
of their sales contract. The ENCRFO held that respondent “failed to show or
substantiate the legal grounds that consist of a fraudulent or malicious
dealing with her by the [petitioner], such as, the latter's employment of
insidious words or machinations which induced or entrapped her into the
contract and which, without them, would not have encouraged her to buy
the unit.
Respondent filed a petition for review with the HLURB Board of
Commissioners questioning the decision of the ENCRFO. On April 25, 2006,
the HLURB Board of Commissioners rendered judgment dismissing
respondent's complaint and affirming the decision of the ENCRFO
Aggrieved, respondent filed an appeal with the Office of the President
REVERSE and SET ASIDE thereby ANNULLED contract between Rachel
G. Mandap and ECE Realty is hereby. The CA held that petitioner employed
fraud and machinations to induce respondent to enter into a contract with it.
Issue: whether petitioner was guilty of fraud and if so, whether such fraud
is sufficient ground to nullify its contract with respondent.
Held/Ratio: Yes. The Court finds that petitioner is guilty of false
representation of a fact. This is evidenced by its printed advertisements
indicating that its subject condominium project is located in Makati City
when, in fact, it is in Pasay City.
HOWEVER.
Evidence shows that respondent proceeded to sign the Contract to Sell
despite information contained therein that the condominium is located in
Pasay City. This only means that she still agreed to buy the subject property
regardless of the fact that it is located in a place different from what she was
originally informed. If she had a problem with the property's location, she
should not have signed the Contract to Sell and, instead, immediately raised
this issue with petitioner. But she did not. As correctly observed by the Office
of the President, it took respondent more than two years from the execution
of the Contract to Sell to demand The return of the amount she paid on the
ground that she was misled into believing that the subject property is located
in Makati City. In the meantime, she continued to make payments.
The Court is not persuaded by the ruling of the CA which expresses doubt
on the due execution of the Contract to Sell. The fact remains that the said
Contract to Sell was notarized. It is settled that absent any clear and
convincing proof to the contrary, a notarized document enjoys the
presumption of regularity and is conclusive as to the truthfulness of its
contents.
In any case, even assuming that petitioner’s misrepresentation consists of
fraud which could be a ground for annulling their Contract to Sell,
respondent's act of affixing her signature to the said Contract, after having
acquired knowledge of the property's actual location, can be construed as
an implied ratification thereof.
Ratification of a voidable contract is defined under Article 1393 of the Civil
Code as follows:
Art. 1393. Ratification may be effected expressly or tacitly. It is understood
that there is a tacit ratification if, with knowledge of the reason which renders
the contract voidable and such reason having ceased, the person who has
a right to invoke it should execute an act which necessarily implies an
intention to waive his right.
Implied ratification may take diverse forms, such as by silence or
acquiescence; by acts showing approval or adoption of the contract;
or by acceptance and retention of benefits flowing therefrom.
Under Article 1392 of the Civil Code, “ratification extinguishes the action to
annul a voidable contract.” In addition, Article 1396 of the same Code
provides that “ratification cleanses the contract from all its defects from
the moment it was constituted.”
Hence, based on the foregoing, the findings and conclusions of the Housing
and Land Use Arbiter, the HLURB Board of Commissioners and the Office
of the President, should be sustained.
CA decision reversed and set aside.
1. Incapable of Giving Consent NCC 1327
NCC Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to
write.
Catalan v Basa | G.R. No. 159567 | Jul 31, 2007 | Puno, J
Facts: On October 20, 1948, Feliciano Catalan 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 mental
disorder (schizophrenia). On September 28, 1949, Feliciano married
Corazon Cerezo. On June 16, 1951, Feliciano allegedly donated to his sister
Mercedes one-half of the real property through the execution of a document,
titled, “Absolute deed of Donation”. In December 1953, People’s Bank and
Trust Company filed Special Proceedings to declare Feliciano incompetent.
On December 22, 1953, the trial court issued its Order of Adjudication of
Incompetency for Appointing Guardian for the Estate and Fixing Allowance
of Feliciano. Thus, Bank of the Philippine Islands (BPI), which is formerly
2. Insanity NCC 1328 - 1329
the People’s Bank and Trust Company, was appointed to be his guardian
by the trial court. On March 26, 1979, Mercedes sold the property donated
by Feliciano to her in issue in her children Delia and Jesus Basa. On April
1, 1997, BPI, acting as Feliciano’s guardian filed a case for Declaration of
Nullity of Documents, Recovery of Possession and Ownership, as well as
damages against herein respondents. BPI alleged that the Deed of Absolute
Donation of Mercedes was void ab initio, as Feliciano never donated the
property to Mercedes. In addition, 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. On August 14, 1997, Feliciano passed away. Both the lower court
and Court of Appeals dismissed the case because of insufficient evidence
presented by the complainants to overcome the presumption that Feliciano
was sane and competent at the time he executed the deed of donation in
favor of Mercedes Catalan.
Issue: W/N the donation was valid.
Held/Ratio: Yes, the donation was valid.
The parties’ intention must be clear and the attendance of a vice of consent,
like any contract, renders the donation voidable. A person suffering from
schizophrenia does not necessarily lose his competence to intelligently
dispose his property. By merely alleging the existing of schizophrenia,
petitioners failed to show substantial proof that at the date of the donation,
June 16, 1951, Feliciano Catalan had lost total control of his mental facilities.
Thus, the lower court correctly held that Feliciano was of sound mind at that
time and this condition continued to exist until proof to the contrary was
adduced. Since the donation was valid, Mercedes has 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 property to her children
was tainted with fraud or falsehood. Thus, the property in question belongs
to Delia and Jesus Basa. The Supreme Court notes the issue of prescription
and laches for the first time on appeal before the court. It is sufficient for the
Supreme Court to note that even if it prospered, the deed of donation was
still a voidable, not a void, contract. As such, it remained binding as it was
not annulled in a proper action in court within 4 years. Petition was denied.
Crewlink v. Teringtering (Young)
Facts: Respondent Editha Teringtering, spouse of the deceased Jacinto
Teringtering, and in behalf of her minor child filed a complaint against
Crewlink for the payment of death benefits, benefit for minor child, burial
assistance, damages and attorney’s fees.
Editha alleged that her husband entered into an overseas employment
contract with Crewlink – he took a medical exam and was declared fit to
work. On April 9, 2001 Jacinto died due to drowning. Editha claimed for
compensation but was denied by Crewlink. She claimed that in order for her
to get compensation it is enough that Jacinto died during the term of his
contract and while still on board. She asserted that Jacinto was suffering
from a psychotic disorder, or mood disorder bipolar type. She further alleged
that the death was not deliberate and of his own will but as a result of a
mental disorder.
Crewlink alleged that Jacinto jumped off the ship twice. He was saved the
first time and someone was assigned to watch over him. He jumped off a
second time and was no longer saved. Crewlink asserted that Editha was
not entitled to the benefits because Jacinto committed suicide.
Issue: WON Jacinto was insane?
Held/Ratio: No
In the instant case, petitioner was able to substantially prove that Jacinto's
death was attributable to his deliberate act of killing himself by jumping into
the sea. Meanwhile, respondent, other than her bare allegation that her

husband was suffering from a mental disorder, no evidence, witness, or any
medical report was given to support her claim of Jacinto's insanity. The
record does not even show when the alleged insanity of Jacinto did start.
Homesickness and/or family problems may result to depression, but the
same does not necessarily equate to mental disorder. The issue of insanity
is a question of fact; for insanity is a condition of the mind not susceptible of
the usual means of proof. As no man would know what goes on in the mind
of another, the state or condition of a person’s mind can only be measured
and judged by his behavior. Establishing the insanity of an accused requires
opinion testimony which may be given by a witness who is intimately
acquainted with the person claimed to be insane, or who has rational basis
to conclude that a person was insane based on the witness’ own perception
of the person, or who is qualified as an expert, such as a psychiatrist. No
such evidence was presented to support respondent's claim.
3. Mistake NCC 1330 - NCC 1343
Article 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable. (1265a)
Article 1331. In order that mistake may invalidate consent, it should refer to
the substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into the
contract.
Mistake as to the identity or qualifications of one of the parties will vitiate
consent only when such identity or qualifications have been the principal cause
of the contract.
A simple mistake of account shall give rise to its correction. (1266a)
Article 1332. When one of the parties is unable to read, or if the contract is in
a language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully
explained to the former. (n)
Article 1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract. (n)
Article 1334. Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent. (n)
Article 1335. There is violence when in order to wrest consent, serious or
irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse, descendants
or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and condition of the
person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just
or legal, does not vitiate consent. (1267a)
Article 1336. Violence or intimidation shall annul the obligation, although it
may have been employed by a third person who did not take part in the
contract. (1268)
Article 1337. There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between the
parties, or the fact that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in financial distress. (n)
Article 1338. There is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. (1269)
Article 1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud. (n)
Article 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent. (n)

Article 1341. A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the former's special
knowledge. (n)
Article 1342. Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial mistake and the same
is mutual. (n)
Article 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error. (n)
City of Manila v. Entote, G.R. No. L-24776, [June 28, 1974],
156 PHIL 498-516
Facts: Entote owned five lots which are contiguous to `each other and form
one integrated parcel which abuts Padre Herrera Street, a public
thoroughfare. When Entote acquired Lot 3 Pcs-2672 which is the lot involved
in this litigation and to which We shall refer simply as Lot 3, the same was
already subject to an easement of a right-or-way annotated on the TCT of
Lot 3 as the same was part of the 9 conditions given by the City Engineer of
Manila when Entote applied for a permit to construct a two-storey building
on his aforementioned property.
Sometime in 1959, a respondent Entote wanted to construct an adobe stone
fence and a guardhouse at the dead end portion of Lot 3 because of thefts
committed inside his property, and he applied for a building permit but his
application was denied on the ground that Lot 3 was an approved private
alley which was to remain accessible not only to the adjacent lot-owners but
to the public in general. On September 17, 1959, Entote sent a letter to the
City Mayor and the City Engineer stating that he was withdrawing Lot 3 as
an approved private alley, but this was opposed and denied by the City.
Entote was thus compelled to go to court for relief through the present
action.
On February 2, 1961, instituted the present action for Certiorari, Mandamus
and Prohibition against the City of Manila, its Mayor and City Engineer,
docketed as civil case 46352 of the Court of First Instance of Manila, to
compel the City and its officials to release the lot from said easement by
virtue of which it was made open to the public in general as an approved
private alley. After trial, the Court of First Instance presided then by Hon.
Edilberto Soriano rendered judgment dismissing Juan Entote's complaint.
Juan Entote appealed to the Court of Appeals and on August 24, 1964, a
decision was rendered by the Fourth Division of said Courts 1 which set
aside the trial court's decision.
CA ruled that the subject area is a private alley limiting the use thereof and
further ordering the intervenors Vinzons and Vinzons-Cu to close completely
all openings and apertures of their houses abutting the said private alley.
Issue: W/N Enote can validly claim that was under the mistaken impression
that the city could validly impose the nine conditions, hence, he can be was
correctly allowed to cancel the undertaking.
Held/Ratio: Yes.
The Supreme Court sustained CA’s contention when it said;
". . . Entote entered into the said agreement in the belief that the interpretation
given h section 103 of the Revised City Ordinances by the city officials is
correct. He was under the mistaken impression that the city could validly
impose the nine conditions.
"Mistake vitiates consent (See art. 1330, new Civil Code.) This is especially
true where mistake is made upon conditions which have moved the parties to
enter into the agreement. (See art. 1331, supra.) Therefore, it is obvious that
where mistake invalidates consent, the agreement is not binding. In this case,
the consent of Entote was vitiated by mistake in believing that the City could
validly impose the conditions. Hence, said agreement is not binding.
"The argument that Entote could have had the assistance of counsel, and that
considering his intelligence he could not have committed the mistake, is
neither here nor there. Entote sincerely believed that the respondents could
legally impose the condition that the alley must always be open to the public.
He committed a mistake in good faith. Hence, he is entitled to relief from the
adverse effects of his mistake. . . ." (pp. 34-35, rollo)
4. Violence NCC 1335(1)
Sps. Victor EunaBinua v. Lucia P. Ong (Calaro)
Facts: Petitioner Edna was convicted of Estafa and was sentenced to
imprisonment. She was likewise ordered to pay the respondent the amount Petition is denied.
of P2.3M, with ten percent (10%) interest, and damages. To avoid criminal
liability, petitioner settled her indebtedness by mortgaging her husband
5. Intimidation NCC1335(2)
Victor’s properties.
6. Undue Influence NCC 1337
7. Fraud NCC 1332, 1338-1344
However, Edna failed to settle her obligation, thus the mortgage was
foreclosed. The Sps. Binua then filed the case to nullify the Mortgage
Contracts, alleging that it was “executed under duress, that at the time of Sierra v CA
the execution of said deeds Edna was still suffering from the effect of the
conviction, and could not have been freely entered into said contracts.” Facts: Armando Sierra filed a complaint against Epifania, Sol, and Ele
Ebarle in the RTC. Petitioner sought recovery of a sum of money he
RTC dismissed the case, citing Art. 1335 of the Civil Code, “A threat to allegedly lent the respondents under a promissory note for P85,000.
enforce one’s claim through competent authority, if the claim is just or legal,
does not vitiate consent.” CA affirmed the decision of the lower court.

Issue: Whether the mortgage contracts were executed under duress.

Held/Ratio: No. Article 1335 of the Civil Code states that, “[a] threat to
enforce one’s claim through competent authority, if the claim is just or legal,
does not vitiate consent.”

In De Leon v. Court of Appeals, the Court held that in order that intimidation
may vitiate consent and render the contract invalid, the following requisites
must concur:

that the intimidation must be the determining cause of the contract, or must
have caused the consent to be given;
that the threatened act be unjust or unlawful;
that the threat be real and serious, there being an evident disproportion
between the evil and the resistance which all men can offer, leading to the
choice of the contract as the lesser evil; and
that it produces a reasonable and well-grounded fear from the fact that the
person from whom it comes has the necessary means or ability to inflict the
threatened injury.
Petitioner Edna’s conviction was a result of a valid judicial process and her
imprisonment is a legal consequence of such conviction. The threat to
prosecute for estafa is not an unjust act, but rather a valid and legal act to
enforce a claim, and cannot at all be considered as intimidation.
Private respondents denied under oath the genuineness of the the petitioner only for the loan of P20,000. The CA affirmed the RTC
promissory note. They alleged that the note was executed "under decision.
duress, fear and undue influence." As affirmative defenses, they
claimed that they had been tricked into signing the note for P85,000
(and another note for P54,550, but not the subject of this suit) and that
the amount owing to the petitioner was only P20,000.

At the trial, the petitioner testified that he had lent the private
respondents the sum of P85,000 which they said they needed "to pay
some cattle for fattening to be inspected by the inspector of the Land
Bank that day" in connection with their application for a loan of
P400,000 from the said bank to finance their logging and cattle
business. The application was apparently not approved. When the
note fell due, he made demands for their payment, which were
ignored.

Private respondents declared they were asked by the petitioner to sign

two promissory notes, one for P85,000 and another for P54,550, in
consideration of Epifania Ebarle's outstanding debt of P20,000 to him.
They said they initially objected because of the amounts indicated in
the said notes. They eventually agreed, however, on the petitioner's
assurance that the documents were a mere formality that he had to
show his business partner, who was demanding immediate payment of
the said loan.

The petitioner also said that if a complaint was filed against them for
recovery under the notes, what they should do was not answer so that
they would be declared in default. A new agreement would then be
concluded for the correct amount of Epifania Ebarle's loan and with
easier terms of payment.

The trial court rendered a decision holding that the promissory note for
P85,000 was invalid and that the private respondents were liable to
Hence this appeal.
Issue: W/N there was undue influence in the said promissory note
Held/Ratio: No, Art. 1337. There is undue influence when a person takes
improper advantage of his power over the will of another, depriving the latter
of a reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between the
parties, or the fact that the person alleged to have been unduly influenced
was suffering from mental weakness, or was ignorant or in financial distress.
This definition is amplified by Tolentino, who says that "undue influence is
any means employed upon a party which, under the circumstances, he could
not well resist, and which controlled his volition and induced him to give his
consent to the contract, which otherwise he would not have entered into. It
must, in some measure, destroy the free agency of a party and interfere with
the exercise of that independent discretion which is necessary for
determining the advantage or disadvantage of a proposed contract. In every
such case, there is a moral coercion. The moral coercion may be effected
through threats, expressed or implied, or through harassing tactics."
The private respondents have admitted signing the two notes and they have
not succeeded in proving that they did so "under duress, fear and undue
influence.
ECE Realty and Development Inc. V. Rachel Mandap (Garcia)
Doctrine: In order to constitute fraud that provides basis to annul contracts,
it must fulfill two conditions: First, the fraud must be dolo causante or it must
be fraud in obtaining the consent of the party. This is referred to as causal
fraud. The deceit must be serious. The fraud is serious when it is sufficient
to impress, or to lead an ordinarily prudent person into error; that which
cannot deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account the
personal conditions of the victim. Second, the fraud must be proven by clear
and convincing evidence and not merely by a preponderance thereof.
FACTS:
1. Petitioner ECE Realty is a corporation engaged in the building and
development of condominium units. Sometime in 1995, it started the
construction of a condominium project called Central Park
Condominium Building located along Jorge St., Pasay City.
However, printed advertisements were made indicating therein that
the said project was to be built in Makati City.
2. December 1995: respondent Mandap, agreed to buy a unit from the
above project by paying a reservation fee and, thereafter,
downpayment and monthly installments. On June 18, 1996,
respondent and the representatives of petitioner executed a
Contract to Sell. In the said Contract, it was indicated that the
condominium project is located in Pasay City.
3. More than two years after the execution of the Contract to Sell,
respondent Mandap, through her counsel, wrote petitioner a letter
demanding the return of P422,500.00, representing the payments
she made, on the ground that she subsequently discovered that the
condominium project was being built in Pasay City and not in Makati
City as indicated in its printed advertisements. Instead on answering
the letter, petitioner ECE Realty sent a letter informing her that her
unit is already ready for inspection and occupancy should she
decide to move in.
4. Treating the letter as a form of denial of her demand for the return
of the sum she had paid to petitioner ECE Realty, respondent
Mandap filed a complaint with the Expanded National Capital
Region Field Office (ENCRFO) of the HLURB seeking the
annulment of her contract with petitioner, the return of her
payments, and damages.
5. Sept. 30, 2005: ENCRFO dismissed the complaint and directed the
parties to resume the fulfillment of the terms and conditions of their
sales contract. ENCRFO held that the respondent “failed to show or
substantiate the legal grounds that consist of a fraudulent or
malicious dealing with her by the [petitioner], such as, the latter's
employment of insidious words or machinations which induced or
entrapped her into the contract and which, without them, would not
have encouraged her to buy the unit.”
6. The HLURB Board of Commissioner and the Office of the President
affirmed the decision of the ENCRFO.
 7. CA reverses the decision. It annulled the contract between the
parties. ECE ordered to return the payments made with legal
interest. It held that petitioner employed fraud and machinations to
induce respondent Mandap to enter into a contract with it. It also
expressed doubt on the due execution of the Contract to Sell
between the parties.
Issue: Whether or not ECE Realty was guilty of fraud and if so, whether
such fraud is sufficient ground to nullify its contract with Mandap.
Held/Ratio:
NO. Jurisprudence has shown that in order to constitute fraud that provides
basis to annul contracts, it must fulfill two conditions. First, the fraud must
be dolo causante or it must be fraud in obtaining the consent of the party.
This is referred to as causal fraud. The deceit must be serious. The fraud is
serious when it is sufficient to impress, or to lead an ordinarily prudent
person into error; that which cannot deceive a prudent person cannot be a
ground for nullity. The circumstances of each case should be considered,
taking into account the personal conditions of the victim. Second, the fraud
must be proven by clear and convincing evidence and not merely by a
preponderance thereof.
In the present case, this Court finds that petitioner is guilty of false
representation of a fact. This is evidenced by its printed advertisements
indicating that its subject condominium project is located in Makati City
when, in fact, it is in Pasay City. However, insofar as the present case is
concerned, that the misrepresentation made by petitioner in its
advertisements does not constitute causal fraud which would have been a
valid basis in annulling the Contract to Sell between petitioner and
respondent.
The Housing and Land Use Arbiter found that respondent failed to show that
“the essential and/or moving factor that led the [respondent] to give her
consent and agree to buy the unit was precisely the project's advantageous
or unique location in Makati [City] – to the exclusion of other places or city x
x x.” Both the HLURB Board of Commissioners and the Office of the
President affirmed the finding of the Arbiter and unanimously held that
respondent failed to prove that the location of the said project was the causal
consideration or the principal inducement which led her into buying her unit
in the said condominium project. The Court finds no cogent reason to depart
from the foregoing findings and conclusion of the above agencies.
Indeed, evidence shows that respondent proceeded to sign the Contract to
Sell despite information contained therein that the condominium is located
in Pasay City. This only means that she still agreed to buy the subject
property regardless of the fact that it is located in a place different from what
she was originally informed. If she had a problem with the property's
location, she should not have signed the Contract to Sell and, instead,
immediately raised this issue with petitioner. But she did not. It took
respondent more than two years from the execution of the Contract to Sell
to demand the return of the amount she paid on the ground that she was
misled into believing that the subject property is located in Makati City. In
the meantime, she continued to make payments.
In any case, even assuming that petitioner’s misrepresentation
consists of fraud which could be a ground for annulling their Contract
to Sell, respondent's act of affixing her signature to the said Contract,
after having acquired knowledge of the property's actual location, can
be construed as an implied ratification thereof. Ratification of a voidable
contract is defined under Article 1393 of the Civil Code as follows: Art. 1393.
Ratification may be effected expressly or tacitly. It is understood that there
is a tacit ratification if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a
right to invoke it should execute an act which necessarily implies an intention
to waive his right.
Implied ratification may take diverse forms, such as by silence or
acquiescence; by acts showing approval or adoption of the contract; or by
acceptance and retention of benefits flowing therefrom. Under Article 1392
of the Civil Code, “ratification extinguishes the action to annul a voidable
contract.” In addition, Article 1396 of the same Code provides that
“[r]atification cleanses the contract from all its defects from the moment it
was constituted.”
Hence, based on the foregoing, the findings and conclusions of the Housing
and Land Use Arbiter, the HLURB Board of Commissioners and the Office
of the President, should be sustained.

METROPOLITAN FABRICS, INC. and ENRIQUE ANG, vs. PROSPERITY
CREDIT RESOURCES, INC., DOMINGO ANG and CALEB ANG,
respondents.
G.R. No. 154390. March 17, 2014
Bersamin, J.
Facts: Metropolitan Fabrics, Incorporated (MFI), a family corporation,
owned a 5.8hectare industrial compound at No. 685 Tandang Sora Avenue,
Novaliches, Quezon City which was covered by TCT No. 241597.Pursuant
to a P2 million, 10-year 14% per annum loan agreement with Manphil
Investment Corporation (Manphil) dated April 6, 1983, the said lot was
subdivided into11 lots, with Manphil retaining four lots as mortgage security.
The other seven lots, now covered by TCT Nos. 317699 and 317702 to
317707, were released to MFI. In July 1984, MFI sought from PCRI a loan
in the amount of P3,443,330.52, the balance of the cost of its boiler machine,
to prevent its repossession by the seller. PCRI, also family-owned
corporation licensed since 1980 to engage in money lending, was
represented by Domingo Ang (“Domingo”) its president, and his son Caleb,
vice-president. The parties knew each other because they belonged to the
same familyassociation, the Lioc Kui Tong Fraternity.
On the basis only of his interview with Enrique, feedback from the
stockholders and the Chinese community, as well as information given by
his own father Domingo, and without further checking on the background of
Enrique and his business and requiring him to submit a company profile and
a feasibility study of MFI, Caleb recommended the approval of the P3.44
million with an interest ranging from 24% to 26% per annum and a term of
between five and ten years (Decision, p. 5).
According to the court, it sufficed for Caleb that Enrique was a well-
respected Chinese businessman, that he was the presidentof their Chinese
family association, and that he had other personal businesses aside
fromMFI, such as the Africa Trading.However, in September 1984, the first
amortization check bounced for insufficient fund due to MFI’s continuing
business losses. It was then that the appellees allegedly learnedthat PCRI
had filled up the 24 blank checks with dates and amounts that reflected a
35%interest rate per annum, instead of just 24%, and a two year repayment
period, instead of10 years.
On September 4, 1986, Enrique received a Notice of Sheriff’s Sale dated
August 29, 1986, announcing the auction of the seven lots on September
24, 1986 due to unpaid indebtedness of P10.5 million. Vicky (daughter of
owner of MFI, because their father went into a coma because of intense
pressure from the foreclosure) insisted that prior to the auction notice, they
never received any statement or demand letter from the defendants to pay
P10.5 million, nor did the defendants inform them of the intended
foreclosure.
Issue: W/N the mortgage contract was void
Held/Ratio: No. As the records show, petitioners really agreed to mortgage
their properties as security for their loan, and signed the deed of mortgage
for the purpose. Thereafter, they delivered the TCTs of the properties
subject of the mortgage to respondents. Consequently, petitioners’
contention of absence of consent had no firm moorings. It remained
unproved. To begin with, they neither alleged nor established that they had
been forced or coerced to enter into the mortgage. Also, they had freely and
voluntarily applied for the loan, executed the mortgage contract and turned
over the TCTs of their properties. And, lastly, contrary to their modified
defense of absence of consent, Vicky Ang’s testimony tended at best to
prove the vitiation of their consent through insidious words, machinations or
misrepresentations amounting to fraud, which showed that the contract was
voidable.
Where the consent was given through fraud, the contract was voidable, not
void ab initio. This is because a voidable or annullable contract is existent,
valid and binding, although it can be annulled due to want of capacity or
because of the vitiated consent of one of the parties. Article 1390, in relation
to Article 1391 of the Civil Code, provides that if the consent of the
contracting parties was obtained through fraud, the contract is considered
voidable and may be annulled within four years from the time of the
discovery of the fraud.
According to Article 1338 of the Civil Code, there is fraud when one of the
contracting parties, through insidious words or machinations, induces the
 other to enter into the contract that, without the inducement, he would not
have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo
causante), not merely the incidental (dolo incidente), inducement to the
making of the contract. In Samson v. Court of Appeals, causal fraud is
defined as “a deception employed by one party prior to or simultaneous to
the contract in order to secure the consent of the other.”
C. Unenforceable contract NCC 1403 - NCC 1408, 1317
PNB v. Philippine Vegetable Oil
Facts: In 1920, the Philippine Vegetable Oil Co., Inc., which will hereafter
be called the Vegetable Oil Company, found itself in financial straits. It was
in debt to the extent of approximately P30,000,000. The Philippine National
Bank was the largest creditor. The Vegetable Oil Company owed the bank
P17,000,000. Over P13,000,000 were due the other creditors. The
Philippine National Bank was secured principally by a real and chattel
mortgage for P3,500,000. On January 10, 1921, the Vegetable Oil Company
executed another chattel mortgage in favor of the bank on its vessels
Tankerville and H. S. Everett to guarantee the payment of sums not to
exceed P4,000,000. This was the precarious situation which in the latter part
of 1920 and the early part of 1921 confronted the Vegetable Oil Company,
its General Manager Phil. C. Whitaker, the Philippine National Bank, and the
various creditors of the Vegetable Oil Company. Bankruptcy was imminent.
On January 1, 1921, Mr. Whitaker made his first offer to pledge certain
private properties to secure the creditors of the Oil Company. In February of
the same year, a creditors' meeting was held. At the instance of Mr. Whitaker
but inspired to such action by the bank, a receiver for the Vegetable Oil
Company was appointed by the Court of First Instance of Manila.
During the period when a receiver was in control of the property of the
Vegetable Oil Company, a number of events occurred. The first was the
agreement perfected by the Vegetable Oil Company, Mr. Whitaker, and
some of the creditors of the Oil Company whereby the creditors transferred
to Mr. Whitaker a part of their claims against the Vegetable Oil Company in
consideration of the execution by Mr. Whitaker of a trust deed of his
property. The Philippine National Bank was not a direct party to the
agreement although the officials of the bank had full knowledge of its
accomplishment and the general manager of the bank placed his O. K. at
the end of the final draft. The next move of the bank was to obtain a new
mortgage from the Vegetable Oil Company. Shortly thereafter, the
receivership for the Vegetable Oil Company was terminated. The bank
suspended the operation of the Vegetable Oil Company and definitely
closed the Oil Company's plant on August 14. 1922. Out of the foregoing
facts which are not in dispute and others which are in dispute, arose the
action of the Philippine National Bank of May 7, 1924, to foreclose its
mortgage on the property of the Vegetable Oil Company. Phil. C. Whitaker
presented a complaint in intervention. The judgment rendered was in favor
of the plaintiff and against the defendant which was ordered to pay the sum
of P15,787,454.54.
Issues:
(1) W/N the PNB ever made any contract binding the bank to provide the
necessary operating capital to Vegetable Oil Co?
(2) Was the mortgage voidable?
Held/Ratio:
(1) NO. Portions of the minutes of the Board of Directors disclose that
the Board authorized advances to the Oil Company to the extent of more
than Php 1Mn. No contract entered into by the general manager of the
Bank would be valid unless it has the consent of the Board. What the
Board had decreed was that the Oil Company be financed under the
receivership to the extent of Php 500k. No indication that the Board had
ever approved to an agreement for practically unlimited backing of the
Oil Company, or that it had ratified any such promise made by the Gen.
Manager. No definite agreement binding on the bank but only a general
information proffered by the Gen Manager of the Bank in conference that
his bank contemplated financing the same.
(2) Voidable. To all this the appellee as well as the trial court have answered
that while it is true that the document was executed on February 20, 1922,
at a time when the properties of the mortgagor were under receivership, the
mortgage was not acknowledged before a notary public until March 8, 1922,
after the court had determined that the necessity for a receiver no longer
existed. But the additional fact remains that while the mortgage could not
have been executed without the dissolution of the receivership, such
dissolution was apparently secured through representations made to the
court by counsel for the bank that the bank would continue to finance the
operations of the Vegetable Oil Company (See testimony of Judge Simplicio
del Rosario). Instead of so doing, the bank within less than two months after
the mortgage was recorded, withdrew its support from the Vegetable Oil
Company, and in effect closed its establishment. Also it must not be
forgotten that the hands of other creditors were tied pursuant to the creditors'
agreement of June 27, 1921.
To place emphasis on the outstanding facts, it must be repeated that the
mortgage was executed while a receiver was in charge of the Vegetable
Oil Company. A mortgage accomplished at such a time by the
corporation under receivership and a creditor would be a nullity. The
mortgage was definitely perfected subsequent to the lifting of the
receivership pursuant to implied promises that the bank would continue
to operate the Vegetable Oil Company. It was then accomplished when
the Philippine National Bank was a dominating influence in the affairs of
the Vegetable Oil Company. On the one hand was the Philippine
National Bank in person. On the other hand was the Philippine National
Bank by proxy. Under such circumstances, it would be unconscionable
to allow the bank, after the hands of the other creditors were tied, virtually
to appropriate to itself all the property of the Vegetable Oil Company.
Whether we consider the action taken as not expressing the free will of
the Vegetable Oil Company, or as disclosing undue influence on the part
of the Philippine National Bank in procuring the mortgage, or as
constituting deceit under the civil law, or whether we go still further and
classify the facts as constructive fraud, the result is the same. The
mortgage is clearly voidable.
Carbonnel V. Poncio 103 Phil 655 1958
Facts: Plaintiff Rosario Carbonnel alleges that she purchased from
defendant José Poncio a parcel of land of about 195 square meters in San
Juan del Monte, Rizal; that one of the conditions of the sale was that Poncio
would continue staying in said land for one year, as stated in a document
signed by him; that Poncio refuses to execute the corresponding deed of
sale, despite repeated demands.
Defendants moved to dismiss said complaint upon the ground that plaintiff's
claim is unenforceable under the Statute of Frauds, and that said pleading
does not state facts sufficient to constitute a cause of action. The motion
was denied, "without prejudice to considering, when this case is decided on
the merits, whether the same falls under the Statute of Frauds."
As, the case came up for trial, plaintiff introduced the testimony of one
Constancio Meonada, who said that, after making a rough draft, based upon
data furnished by plaintiff, he typed Exhibit A, which is in the Batanes dialect;
that, thereafter, Poncio came to plaintiff's house, where he was shown
Exhibit A; that after the witness had read its contents to Poncio and given
him a copy thereof, Poncio signed Exhibit A and so did the plaintiff; and that
translated freely into English, Exhibit A, reads as follows:
"From this date, January 27, José Poncio may stay in this lot that I bought
from him until one year without payment. After that one year and he cannot
find any place where to transfer his house, he can also stay in this lot and
he will pay according to agreement."
Then, taking the witness stand, plaintiff testified that she has known Poncio
since childhood, he being related to her mother; that one day Poncio told
her that he wanted to sell his property; that, after both had agreed on its
price, he said that his lot is mortgaged to the Republic Savings Bank; and
that, at noon time, on the same day, he came back stating that both would
"go to the bank to pay the balance in arrears." At this juncture, defense
counsel moved to strike out the statement of the witness, invoking, in
support of the motion, the Statute of Frauds.
Later on, the lower court issued an order dismissing plaintiff's complaint,
without costs, upon the ground that her cause of action is unenforceable
under the Statute of Frauds. The counterclaims were, also, dismissed.
Hence, this appeal by plaintiff.
Issue: WN the contract is unenforceable under the Statute of Frauds
Ruling: No. The case is remanded to investigate further whether the
contract is unenforceable under the Statute of Frauds.
It is well settled in this jurisdiction that the Statute of Frauds is applicable
only to executory contracts not to contracts that are totally or partially
performed.In executory contracts there is a wide field for fraud because
unless they be in writing there is no palpable evidence of the intention of the
contracting parties. The statute has precisely been enacted to prevent fraud.
However, if a contract has been totally or partially performed, the exclusion
of parol evidence would promote fraud or bad faith, for it would enable the
defendant to keep the benefits already derived by him from the transaction
in litigation, and, at the same time, evade the obligations, responsibilities or
liabilities assumed or contracted by him thereby.
For obvious reasons, it is not enough for a party to allege partial
performance in order to hold that there has been such performance and to
render a decision declaring that the Statute of Frauds is inapplicable. But
neither is such party required to establish such partial performance by
documentary proof before he could have the opportunity to introduce oral
testimony on the transaction. Indeed, such oral testimony would usually be
unnecessary if there were documents proving partial performance. Thus, the
rejection of any and all testimonial evidence on partial performance, would
nullify the rule that the Statute of Frauds is inapplicable to contracts which
have been partly executed, and lead to the very evils that the statute seeks
to prevent
Limketkai v. CA (Perez)
Facts:
Issue:
Held/Ratio: Yes/No
Swedish Match v. CA, G.R. No. 128120; 20 October 2004
Facts: Swedish Match AB (SMAB) had 3 subsidiary corporations in the
Philippines, all organized under Philippine laws, to wit: Phimco Industries
(Phimco), Provident Tree Farms (PTF), and OTT/Louie. STORA, the parent
company of SMAB, decided to sell SMAB of Sweden and its worldwide
match, lighter, and shaving products operation to Swedish Match NV
(SMNV).
Ed Enriquez, VP of Swedish Match Sociedad Anonimas (SMSA) which is
SMAB’s management company, was held under strict instructions that the
sale of Phimco shares should be executed on or before 30 June 1990 in
view of the tight loan covenants of SMNV. He came to the Philippines and
informed the Philippine financial and business circles that the Phimco
shares were for sale. Several interested parties tendered offers to acquire
the Phimco shares one of which was private respondent, Antonio Litonjua,
the president and general manager of ALS Management & Development
Corporation.
On November 1989, Litonjua submitted to SMAB a firm offer to buy all of the
latter’s shares in Phimco and all of Phimco’s shares in PTF and OTT for
P750,000,000.00. However, CEO Massimo Rossi informed respondents
that their price offer was below their expectations. Again, on May 1990,
Litonjua offered to buy the disputed shares, excluding the lighter division for
US$36M. Rossi wrote that ALS should undertake a due diligence process
or pre-acquisition audit and review of the draft contract for the Match and
Forestry activities of Phimco at ALS convenience. 2 days prior to the
deadline for submission of the final bid, Litonjua told Rossi that they would
be unable to submit the final offer by 30 June 1990, considering that the
acquisition audit of Phimco and the review of the draft agreements had not
yet been completed. Thus, Enriquez sent notice to Litonjua that they would
be constrained to entertain bids from other parties in view of Litonjua’s failure
to make a firm commitment for the shares of Swedish Match. In his letter,
Litonjua asserted that they submitted the best bid and that they were already
finalizing the terms of the sale.
More than 2 months from receipt of Litonjua’s last letter, Enriquez advised
the former that the proposed sale of SMAB’s shares in Phimco with local
buyers did not materialize. Enriquez then invited Litonjua to resume
negotiations with SMAB for the sale of Phimco shares. He indicated that
SMAB would be prepared to negotiate with ALS on an exclusive basis for a
period of 15 days from 26 September 1990 subject to the terms contained
in the letter. Additionally, Enriquez clarified that if the sale would not be
completed at the end of the 15-day period, SMAB would enter into
negotiations with other buyers. Litonjua emphasized that the new offer
constituted an attempt to reopen the already perfected contract of sale of
the shares in his favor. CA ruled that the series of written communications
between petitioners and respondents collectively constitute a sufficient
memorandum of their agreement under Article 1403 of the Civil Code. Thus,
letters exchanged by and between the parties, taken together, were
sufficient to establish that an agreement to sell the disputed shares to
respondents was reached. On the other hand, petitioners stress that
Litonjua made it clear in his letters that the quoted prices were merely
tentative and still subject to further negotiations between him and the seller.
They point out that there was no meeting of the minds on the essential terms
and conditions of the sale because SMAB did not accept respondent’s offer
that consideration would be paid in Philippine pesos. They argued as well
that the foregoing circumstances prove that they failed to reach an
agreement on the sale of the Phimco shares.
Issue: w/n there was a perfected contract of sale with respect to Phimco
shares.
Held/Ratio: No. There was no perfected contract of sale since Litonjua’s
letter of proposing acquisition of the Phimco shares for US$36M was merely
an offer. Consent in a contract of sale should be manifested by the meeting
of the offer and acceptance upon the thing and the cause which are to
constitute the contract. The lack of a definite offer on the part of respondents
could not possibly serve as the basis of their claim that the sale of the
Phimco shares in their favor was perfected, for one essential element of a
contract of sale was obviously wanting the price certain in money or its
equivalent. The price must be certain, otherwise there is no true consent
between the parties. Respondents’ failure to submit their final bid on the
deadline set by petitioners prevented the perfection of the contract of sale.
It was not perfected due to the absence of one essential element which was
the price certain in money or its equivalent.
Neri v. Heirs of Uy
Facts:
Anunciacion Neri had seven children: first marriage with Gonzalo Illut,
namely: Eutropia and Victoria and second marriage with Enrique Neri,
namely: Napoleon, Alicia, Visminda, Douglas and Rosa.
Throughout the marriage of spouses Enrique and Anunciacion, they
acquired several homestead properties located in Samal, Davao del Norte.
In 1977, Anunciacion died intestate. Enrique, in his personal capacity and
as natural guardian of his minor children Rosa and Douglas, with Napoleon,
Alicia, and Visminda executed an Extra-Judicial Settlement of the Estate
with Absolute Deed of Sale on 7/7/1979, adjudicating among themselves
the said homestead properties and thereafter, conveying them to the late
spouses Uy for a consideration of P 80,000.00.
In June 1996, the children of Enrique filed a complaint for annulment
of sale of the homestead properties against spouses Uy before the RTC,
assailing the validity of the sale for having been sold within the prohibited
period. The complaint was later amended to include Eutropia and Victoria
additional plaintiffs for having been excluded and deprived of their legitimes
as children of Anunciacion from her first marriage.
RTC Ruling: Rendered the sale void because Eutropia and Victoria were
deprived of their hereditary rights and that Enrique had no judicial authority
to sell the shares of his minor children, Rosa and Douglas.
CA Ruling: Reversed the RTC ruling and declared the extrajudicial
settlement and sale valid. While recognizing Rosa and Douglas to be minors
at that time, they were deemed to have ratified the sale when they failed to
question it upon reaching the age of majority. It also found laches to have
set in because of their inaction for a long period of time.
Issue: Whether the father or mother, as the natural guardian of the
minor under parental authority, has the power to dispose or encumber
the property of the minor?
Held/Ratio:
No.
All the petitioners are legitimate children of Anunciacion from her first and
second marriages and consequently, they are entitled to inherit from her in
equal shares, pursuant to Articles 979 and 980 of the Civil Code.
In the execution of the Extra-Judicial Settlement of the Estate with Absolute
Deed of Sale in favor of spouses Uy, all the heirs of Anunciacion should
have participated. Considering that Eutropia and Victoria were admittedly
excluded and that then minors Rosa and Douglas were not properly
represented therein, the settlement was not valid and binding upon them.
While the settlement of the estate is null and void, the subsequent sale of
the properties made by Enrique and his children, Napoleon, Alicia and
Visminda, in favor of the spouses is valid but only with respect to their
proportionate shares.
With respect to Rosa and Douglas who were minors at the time of the
execution of the settlement and sale, their natural guardian and father,
Enrique, represented them in the transaction. However, on the basis of
the laws prevailing at that time, Enrique was merely clothed with
powers of administration and bereft of any authority to dispose of their
2/16 shares in the estate of their mother.
Administration includes all acts for the preservation of the property and the
receipt of fruits according to the natural purpose of the thing. Any act of
disposition or alienation, or any reduction in the substance of the
patrimony of child, exceeds the limits of administration. Thus, a father
or mother, as the natural guardian of the minor under parental
authority, does not have the power to dispose or encumber the
property of the latter. Such power is granted by law only to a judicial
guardian of the ward’s property and even then only with courts’ prior
approval secured in accordance with the proceedings set forth by the Rules
of Court.
Consequently, the disputed sale entered into by Enrique in behalf of
his minor children without the proper judicial authority, unless ratified
by them upon reaching the age of majority, is unenforceable in
accordance with Articles 1317 and 1403(1) of the Civil Code.
However, records show that Napoleon and Rosa had ratified the
extrajudicial settlement of the estate with absolute deed of sale. In their
Joint-Affidavit and Manifestation before the RTC, “they both confirmed,
respect and acknowledge the validity of the Extra-Judicial Settlement of the
Estate with Absolute Deed of Sale in 1979.” The ratification thus purged all
the defects existing at the time of its execution and legitimizing the
conveyance of Rosa’s 1/16 share in the estate of Anunciacion to spouses
Uy. The same, however, is not true with respect to Douglas for lack of
evidence showing ratification.
Iglesia v. Heirs of Bernardino Taeza (Santos)
Facts:
Issue:
Held/Ratio: Yes/No
D. VOID CONTRACTS NCC 1409-1410, 1411-1412, 1413-1416, 1417-1419,
1420-1422
1. NCC 1435 - 1346
2. NCC 1490 - 1491
3. NCC 1378
4. NCC 1409
HEIRS OF POLICRONIO M. URETA, SR vs HEIRS OF LIBERATO M.
URETA | HEIRS OF LIBERATO M. URETA v HEIRS OF POLICRONIO M.
URETA, SR | September 14, 2011 | J. Mendoza
Facts: Alfonso was financially well-off during his lifetime. He has 14 children.
He owned several fishpens, a fishpond, a sari-sari store, a passenger jeep,
and was engaged in the buying and selling of copra. In order to reduce
inheritance tax Alfonso made it appear that he sold some of his lands to his
children. Accordingly, Alfonso executed four (4) Deeds of Sale covering
several parcels of land in favor of Policronio, Liberato, Prudencia, and his
common-law wife, Valeriana Dela Cruz. The Deed of Sale executed on
October 25, 1969, in favor of Policronio, covered six parcels of land, which
are the properties in dispute in this case.
Since the sales were only made for taxation purposes and no monetary
consideration was given, Alfonso continued to own, possess and enjoy the
lands and their produce.
On April 19, 1989, Alfonso's heirs executed a Deed of Extra-Judicial
Partition, which included all the lands that were covered by the four (4)
deeds of sale that were previously executed by Alfonso for taxation
purposes. Conrado, Policronio's eldest son, representing the Heirs of
Policronio, signed the Deed of Extra-Judicial Partition in behalf of his co-
heirs.
After their father's death, the Heirs of Policronio found tax declarations in his
name covering the six parcels of land. On June 15, 1995, they obtained a
copy of the Deed of Sale executed on October 25, 1969 by Alfonso in favor
of Policronio.
Believing that the six parcels of land belonged to their late father, and as
such, excluded from the Deed of Extra-Judicial Partition, the Heirs of
Policronio sought to amicably settle the matter with the Heirs of Alfonso.
Earnest efforts proving futile, the Heirs of Policronio filed a Complaint for
Declaration of Ownership, Recovery of Possession, Annulment of
Documents, Partition, and Damages against the Heirs of Alfonso before the
RTC on November 17, 1995
RTC dismissed the Complaint of the Heirs of Policronio and ruled in favor of
the Heirs of Alfons, the court stated that although tax declarations were
issued in the name of Policronio, he or his heirs never took possession of
the subject lands except a portion of parcel 5; The RTC opined that
Policronio must have been aware that the transfer was merely for taxation
purposes because he did not subsequently take possession of the
properties even after the death of his father. The Deed of Extra-Judicial
Partition, on the other hand, was declared valid by the RTC and no damages
were awarded to neither parties.
CA affirmed the finding of the RTC that the Deed of Sale was void. With
regard to the Extra-judicial partition, Contrary to the finding of the RTC, the
CA annulled the Deed of Extrajudicial Partition due to the incapacity of one
of the parties to give his consent to the contract.
Issue: 1.Whether or not the Deed of Sale was valid; No
2. Whether or not the Deed of Extra-Judicial Partition was valid:YES
Held/Ratio:
1. No. Policronio’s failure to take exclusive possession of the subject
properties or, in the alternative, to collect rentals, is contrary to the principle
of ownership. Such failure is a clear badge of simulation that renders the
whole transaction void.
The Deed of Sale was void because it is simulated as the parties did not
intend to be legally bound by it. As such, it produced no legal effects and did
not alter the juridical situation of the parties. It is only made to avoid tax
purposes.
The Civil Code provides:

Art. 1345. Simulation of a contract may be absolute or relative. The former
takes place when the parties do not intend to be bound at all; the latter, when
the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for
any purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement.
The CA also noted that Alfonso continued to exercise all the rights of an
owner even after the execution of the Deed of Sale, as it was undisputed
that he remained in possession of the subject parcels of land and enjoyed
their produce until his death.
Art. 1409. The following contracts are inexistent and void from the beginning:
(2) Those which are absolutely simulated or fictitious;
For guidance, the following are the most fundamental characteristics of
void or inexistent contracts:
1)As a general rule, they produce no legal effects whatsoever in accordance
with the principle "quod nullum est nullum producit effectum."
2) They are not susceptible of ratification.
3) The right to set up the defense of inexistence or absolute nullity cannot
be waived or renounced.
4) The action or defense for the declaration of their inexistence or absolute
nullity is imprescriptible.
5) The inexistence or absolute nullity of a contract cannot be invoked by a
person whose interests are not directly affected.[22]
Since the Deed of Sale is void, the subject properties were properly included
in the Deed of Extra-Judicial Partition of the estate of Alfonso.
2. Yes. It has been held in several cases that partition among heirs is not
legally deemed a conveyance of real property resulting in change of
ownership. It is not a transfer of property from one to the other, but rather, it
is a confirmation or ratification of title or right of property that an heir is
renouncing in favor of another heir who accepts and receives the
inheritance. It is merely a designation and segregation of that part which
belongs to each heir. The Deed of Extra-Judicial Partition cannot, therefore,
be considered as an act of strict dominion. Hence, a special power of
attorney is not necessary.
Formaran v. Ong | G.R. No. 186264 | 08 Jul 2013
Facts: According to plaintiff’s complaint, she owns the parcel of land which
was donated to her intervivos by her uncle and aunt, spouses Melquiades
Barraca and Praxedes Casidsid; that upon the prodings and representation
of defendant, Glenda, that she badly needed a collateral for a loan which
she was applying from a bank to equip her dental clinic, plaintiff made it
appear that she sold one-half of the parcel of land to the defendant Glenda;
that the sale was totally without any consideration and fictitious as Glenda
did not ask for the actual possession of the land until she filed a case for
unlawful detainer against the plaintiff. Defendant Glenda insisted on her
ownership over the land in question on account of a Deed of Absolute Sale
(DAS) executed by the plaintiff in her favor and even registered the DAS on
May 25, 1991.
Petitioner filed on action for annulment of the Deed of Sale against
respondents before the Regional Trial Court. The trial court rendered a
Decision in favor of petitioner and against the respondent by declaring the
Deed of Absolute Sale null and void for being an absolutely simulated
contract and for want of consideration; declaring the petitioner as the lawful
owner entitled to the possession of the land in question. Respondents
coursed an appeal to the CA. The CA reversed and set aside the Decision
of the trial court and ordered petitioner to vacate the land in question and
restore the same to respondents.
Issue: W/N the Deed of Absolute Sale is an absolutely simulated contract,
thus, shall be null and void.
Held/Ratio: Yes, the deed of Absolute sale is null and void.
The Court believes and so holds that the subject Deed of Sale is indeed
simulated, 2 as it is: (1) totally devoid of consideration; (2) it was executed Held/Ratio: Yes/No
on August 12, 1967, less than two months from the time the subject land
was donated to petitioner on June 25, 1967 by no less than the parents of
respondent Glenda Ong; (3) on May 18, 1978, petitioner mortgaged the land
to the Aklan Development Bank for a P23,000.00 loan; (4) from the time of Conjugal Partnership of the Spouses Cadavedo v. Lacaya,
the alleged sale, petitioner has been in actual possession of the subject land; G.R. No. 173188, [January 15, 2014], 724 PHIL 300-327 (Agpawa)
(5) the alleged sale was registered on May 25, 1991 or about twenty four
(24) years after execution; (6) respondent Glenda Ong never introduced any Facts:
improvement on the subject land; and (7) petitioner's house stood on a part
of the subject land. These are facts and circumstances which may be Issue:
considered badges of bad faith that tip the balance in favor of petitioner.
Held/Ratio: Yes/No
The Court is in accord with the decision of the RTC in holding that the
amplitude of foregoing undisputed facts and circumstances clearly shows
that the sale of the land in question was purely simulated. It is void from the
very beginning. If the sale was legitimate, defendant Glenda should have De Leon v. Delallana (Calaro)
immediately taken possession of the land, declared in her name for taxation
purposes, registered the sale, paid realty taxes, introduced improvements Facts:
therein and should not have allowed plaintiff to mortgage the land. These
omissions properly militated against defendant Glenda’s submission that the Issue:
sale was legitimate and the consideration was paid. That although the Deed
of Absolute Sale was notarized, such cannot justify the conclusion that the Held/Ratio: Yes/No
sale is a true conveyance to which the parties are irrevocably and
undeniably bound. Although the notarization of Deed of Absolute Sale, vests
in its favor the presumption of regularity, it does not validate nor make
binding an instrument never intended, in the first place, to have any binding Tolentino v. Sps. Latagan (Calimosa)
legal effect upon the parties thereto
Facts:
Petition was granted, thus, reversing the decision made by the CA and
reinstating the decision made by the RTC Br 5 Kalibo Aklan. Issue:

Held/Ratio: Yes/No

Constantino v. Heirs of Constantino (Young)

Facts: Tingalan v. Melliza (Delim)

Issue: Facts:
 Issue:
Held/Ratio: Yes/No
Clemente v. CA (Garcia)
Facts:
Issue:
Held/Ratio: Yes/No
5. NCC 1422
6. NCC 1782
7. FC 87
CONCHITA LIGUEZ, vs. THE HONORABLE COURT OF APPEALS,
MARIA NGO VDA. DE LOPEZ, ET AL.
G.R. No. L-11240. December 18, 1957.
Reyes, J.B.L., J.
Facts: Conchita Liguez filed a complaint against the widow and heirs of
Salvador Lopez to recover a parcel of 51.84 hectares of land in Davao. She
averred to be its legal owner, pursuant to a deed of donation executed in her
favor by Salvador. At the time the deed was executed, Conchita was 16.
She had also been living with Salvador’s parents for barely a month. The
deed of donation recites that the donor Salvador, “for and in consideration
of his love and affection” for Conchita, and “also for the good and valuable
services rendered to [Salvador] by [Conchita], does by these presents,
voluntarily give, grant and donate…”
The donation was made in view of Salvador’s desire to have sexual relations
with Conchita. Furthermore, Conchita’s parents would not allow Conchita to
live with him unless he first donated the subject land. The donated land
originally belonged to the conjugal partnership of Salvador and his wife,
Maria Ngo. The deed of donation was inoperative, and null and void
because: (a) Lopez had no right to donate conjugal property to Conchita;
and (b) the donation was tainted with illegal causa or consideration.
Issue: W/N the conveyance was predicated on illegal causa.
Held/Ratio: Yes. Conchita Liguez entitled to so much of the donated
property as may be found, upon proper liquidation, not to prejudice the share
of the widow Maria Ngo in the conjugal partnership or the legitimes of
Salvador’s forced heirs. Under the cited Art. 1274, liberality of the donor is
deemed causa only in contracts that are of “pure” beneficence, or contracts
designed solely and exclusively to procure the welfare of the beneficiary,
without any intent of producing any satisfaction for the donor.
In this case, Salvador was not moved exclusively by the desire to benefit
Conchita, but also to secure her cohabiting with him, and so that he could
gratify his sexual impulses. This is clear from Salvador’s confession to two
witnesses that he was in love with her but her parents would not agree
unless he donated the land in question to her. Actually, therefore, the
donation was but one part of an onerous transaction (at least with Conchita’s
parents) that must be viewed in its totality. Thus considered, the conveyance
was clearly predicated upon an illicit causa. Lopez would not have conveyed
the property in question had he known that Conchita would refuse to cohabit
with him. The cohabitation was an implied condition to the donation and
being unlawful, necessarily tainted the donation.
Moreover, the CA erred in applying the pari delicto rule. It cannot be said
that both parties had equal guilt. Salvador was a man advanced in years
and mature experience, and Conchita was only 16 when the donation was
made. Her acceptance of the deed does not imply knowledge of conditions
and terms not set forth therein. Witnesses testified that it was Conchita’s
parents who insisted on the donation. The rule that parties to an illegal
contract, if equally guilty, will not be aided by the law but will both be left
where it finds them, has been interpreted by this Court as barring the party
from pleading the illegality of the bargain either as a cause of action or as a
defense. But where the plaintiff can establish a cause of action without
exposing its illegality, the vice does not affect the right to recover.
RELLOSA v. GAW CHEE HUN
GR No. L-1411 September 29, 1953
Facts: On February 2, 1944, Dionisio Rellosa sold to Gaw Chee Hun a
parcel of land, together with the house erected thereon, situated in the City
of Manila, for the sum of P25,000. The vendor remained in possession of
the property under a contract of lease entered into on the same date
between the same parties. Alleging that the sale was executed subject to
the condition that the vendee, being a Chinese citizen, would obtain the
approval of the Japanese Military Administration in accordance with (seirei)
No. 6 issued on April 2, 1943, by the Japanese authorities, and said approval
has not been obtained, and that, even if said requirement were met, the sale
would at all events be void under article XIII, section 5, of our Constitution,
the vendor instituted the present action in the Court of First Instance of
Manila seeking the annulment of the sale as well as the lease covering the
land and the house above mentioned, and praying that, once the sale and
the lease are declared null and void, the vendee be ordered to return to
vendor the duplicate of the title covering the property, and be restrained from
in any way dispossessing the latter of said property.
Defendant answered the complaint setting up as special defense that the
sale referred to in the complaint was absolute and unconditional and was in
every respect valid and binding between the parties, it being not contrary to
law, morals and public order, and that plaintiff is guilty of estoppel in that, by
having executed a deed of lease over the property, he thereby recognized
the title of defendant to that property.
Issues having been joined, and the requisite evidence presented by both
parties, the court declared both the sale and the lease valid and binding and
dismissed the complaint. The (trial) court likewise ordered plaintiff to turn
over the property to defendant and to pay a rental of P50 a month from
August 1, 1945 until the property has been actually delivered. As this
decision was affirmed in toto by the Court of Appeals, plaintiff sued out the
present petition for review.
Issue: Whether or not the petitioner can have the sale declared null and
void and recover the property considering the effect of the law governing
rescission of contracts.
Held/Ratio: No. According to the Doctrine in the Krivenko case, to set aside
the sale in question, they are now prevented from doing so if their purpose
is to recover the lands that they have voluntarily parted with, because of their
guilty knowledge that what they were doing was in violation of the
Constitution. They cannot escape this conclusion because they are
presumed to know the law. As this court well said: 'A party to an illegal
contract cannot come into a court of law and ask to have his illegal objects
carried out. The law will not aid either party to an illegal agreement; it leaves
the parties where it finds them.
The doctrine above adverted to is the one known as In Pari Delicto. In the
latter jurisdiction, the doctrine is stated thus: "The proposition is universal
that no action arises, in equity or at law, from an illegal contract; no suit can
be maintained for its specific performance, or to recover the property agreed
to be sold or delivered, or the money agreed to be paid, or damages for its
violation. The rule has sometimes been laid down as though it were equally
universal, that where the parties are in pari delicto, no affirmative relief of
any kind will be given to one against the other."
It is true that this doctrine is subject to one important limitation, namely,
"whenever public policy is considered as advanced by allowing either party
to sue for relief against the transaction". But not all contracts which are illegal
because opposed to public policy come under this limitation. The cases in
which this limitation may apply only "include the class of contracts which are
intrinsically contrary to public policy, — contracts in which the illegality itself
consists in their opposition to public policy, and any other species of illegal
contracts in which, from their particular circumstances, incidental and
collateral motives of public policy require relief." Examples of this class of
contracts are usurious contracts, marriage-brokerage contracts and
gambling contracts.
In our opinion, the contract in question does not come under this exception
because it is not intrinsically contrary to public policy, nor one where the
illegality itself consists in its opposition to public policy. It is illegal not
because it is against public policy but because it is against the Constitution.
Nor may it be contended that to apply the doctrine of pari delicto would be
tantamount to contravening the fundamental policy embodied in the
constitutional prohibition in that it would allow an alien to remain in the illegal
possession of the land, because in this case the remedy is lodged
elsewhere. To adopt the contrary view would be merely to benefit petitioner
and not to enhance public interest.
And even if this legislation be not forthcoming in the near future, we do not
believe that public interest would suffer thereby if only our executive
department would follow a more militant policy in the conservation of our
natural resources as ordained by our Constitution. And we say so because
there are at present two ways by which this situation may be remedied, to
wit, (1) action for reversion, and (2) escheat to the state. An action for
reversion is slightly different from escheat proceeding, but in its effects they
are the same. They only differ in procedure. Escheat proceedings may be
instituted as a consequence of a violation of article XIII, section 5 of our
Constitution, which prohibits transfers of private agricultural lands to aliens,
whereas an action for reversion is expressly authorized by the Public Land
Act
In view of the foregoing, we hold that the sale in question is null and void,
but plaintiff is barred from taking the present action under the principle of
pari delicto.
Frenzel V. Catito 406 SCRA 55 2003
Facts: Petitioner Alfred Fritz Frenzel is an Australian citizen of German
descent. He is an electrical engineer by profession, but worked as a pilot
with the New Guinea Airlines. He arrived in the Philippines in 1974, started
engaging in business in the country two years thereafter, and married
Teresita Santos, a Filipino citizen. In 1981, Alfred and Teresita separated
from bed and board without obtaining a divorce. Sometime in February
1983, Alfred arrived in Sydney, Australia for a vacation. He went to King's
Cross, a night spot in Sydney, for a massage where he met respondent
Ederlina Catito, a Filipina and a native of Bajada, Davao City. Unknown to
Alfred, she resided for a time in Germany and was married to Klaus Muller,
a German national. She left Germany and tried her luck in Sydney, Australia,
where she found employment as a masseuse in the King's Cross nightclub.
Alfred followed Ederlina to the Philippines where they cohabited together in
a common-law relationship. During the period of their common-law
relationship, Alfred acquired in the Philippines real and personal properties
valued more or less at P724,000.00. Since Alfred knew that as an alien he
was disqualified from owning lands in the Philippines, he agreed that only
Ederlina's name would appear in the deeds of sale as the buyer of the real
properties, as well as in the title covering the same. Alfred and Ederlina's
relationship deteriorated. Alfred wrote Ederlina's father complaining that
Ederlina had taken all his life savings and because of this, he was virtually
penniless. He further accused the Catito family of acquiring for themselves
the properties he had purchased with his own money. He demanded the
return of all the amounts that Ederlina and her family had "stolen" and turn
over all the properties acquired by him and Ederlina during their coverture.
Alfred filed a complaint against Ederlina with the Regional Trial Court, Davao
City, for specific performance, declaration of ownership of real and personal
properties, sum of money, and damages. The trial court rendered judgment
in favor of Ederlina. Alfred appealed the decision to the Court of Appeals
which affirmed in toto the decision of the RTC. Hence, the present petition
Issue WN petitioner has a cause of action against respondent for recovery
of the purchases
Ruling: No. Even if, as claimed by the petitioner, the sales in question were
entered into by him as the real vendee, the said transactions are in violation
of the Constitution; hence, are null and void ab initio. A contract that violates
the Constitution and the law, is null and void and vests no rights and creates
no obligations. It produces no legal effect at all. The petitioner, being a party
to an illegal contract, cannot come into a court of law and ask to have his
illegal objective carried out. One who loses his money or property by
knowingly engaging in a contract or transaction which involves his own
moral turpitude may not maintain an action for his losses
Further, the petitioner cannot find solace in Article 1416 of the New Civil
Code which reads:
Art. 1416. When the agreement is not illegal per se but is merely prohibited,
and the prohibition by the law is designed for the protection of the plaintiff,
he may, if public policy is thereby enhanced, recover what he has paid or
delivered.
The provision applies only to those contracts which are merely prohibited, in
order to benefit private interests. It does not apply to contracts void ab initio.
The sales of three parcels of land in favor of the petitioner who is a foreigner
is illegal per se. The transactions are void ab initio because they were
entered into in violation of the Constitution. Thus, to allow the petitioner to
recover the properties or the money used in the purchase of the parcels of
land would be subversive of public policy.
 the said loss and demanded payment of the insurance proceeds.
Gonzalo v. Tarnate Jr (Perez)

Facts: Alpha, however, denied the demand of Castor claiming that they are not
liable since the culprit who stole the vehicle is employed with Castor. Under
Issue: the Exceptions to Section III of the Policy, the Company shall not be liable
for (4) any malicious damage caused by the insured, any member of his
Held/Ratio: Yes/No family or by “A PERSON IN THE INSURED’S SERVICE”.

CONTRACTS OF ADHESION
Castor filed a Complaint for Sum of Money with Damages against Alpha
before the Regional Trial Court of Quezon City. The trial court rendered its
Piltel v. Tecson (Reyes, C) decision in favor of Castor which decision is affirmed in toto by the Court of
Appeals. Hence, this Petition for Review on Certiorari.
Facts:

Issue:
Issue: Whether or not respondent Castor is entitled to the insurance
Held/Ratio: Yes/No policy for the loss of her car by her driver.

Alpha Insurance v. Arsenia Sonia Castor
Facts:
Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for her Toyota
Revo DLX DSL with Alpha Insurance and Surety Co (Alpha). The contract
of insurance obligates the petitioner to pay the respondent the amount of
P630,000 in case of loss or damage to said vehicle during the period
covered.
Held/Ratio:
Yes. It is a basic rule in the interpretation of contracts that the terms of a
contract are to be construed according to the sense and meaning of the
terms which the parties thereto have used. In the case of property insurance
policies, the evident intention of the contracting parties, i.e., the insurer and
the assured, determine the import of the various terms and provisions
embodied in the policy. However, when the terms of the insurance policy are
ambiguous, equivocal or uncertain, such that the parties themselves
disagree about the meaning of particular provisions, the policy will be
construed by the courts liberally in favor of the assured and strictly against
the insurer.

A contract of insurance is a contract of adhesion. So, when the terms of the

On April 16, 2007, respondent instructed her driver, Jose Joel Salazar
Lanuza to bring the vehicle to nearby auto-shop for a tune up. However,
Lanuza no longer returned the motor vehicle and despite diligent efforts to
locate the same, said efforts proved futile. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of
insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from non-compliance with his
obligation.
Theft perpetrated by the driver of the insured is not an exception to the
coverage from the insurance policy, since Section III thereof did not qualify
as to who would commit the theft.

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under
the insurance policy under paragraph 4 of “Exceptions to Section III,” since
the same refers only to “malicious damage,” or more specifically, “injury” to
the motor vehicle caused by a person under the insured’s service.
Paragraph 4 clearly does not contemplate “loss of property,” as what
happened in the instant case.
Ejercito v. Oriental Assurance Corp (Santos)
Facts:
Issue:
Held/Ratio: Yes/No
NORTON RESOURCES AND DEVELOPMENT CORPORATION v ALL
ASIA BANK CORPORATION | G.R. No. 162523 | November 25, 2009 |
NACHURA, J
Facts: Norton is a domestic corporation engaged in the business of
construction and development of housing subdivisions based in Davao City.
All Asia Bank Corp. is a domestic bank Corporation operating in Davao City.
One day, Norton entered in a Loan Agreement with All Asia Bank for the
amount of P3.8M for the construction of 160 housing units, the Home
Financing Corp, as guarantor. To speed up the processing of all documents
necessary for the release of the funds, petitioner allegedly offered
respondent a service/commitment fee of 320k for the construction of the
housing units or at 2k per unit. The offer having been accepted, both parties
executed a MOA on the same date.
Petitioner was not able to complete the construction and failed to pay its
loan obligation. HFC paid only 2.9M but withhold the 250k.
Petitioner filed a Complaint for Sum of Money, Damages and Attorney’s
Fees against respondent with the RTC. Petitioner alleged that the
P320,000.00 commitment/service fee mentioned in the MOA was to be paid
on a per-unit basis at P2,000.00 per unit. Inasmuch as only 35 housing units
were constructed, petitioner posited that it was only liable to pay P70,000.00
and not the whole amount of P320,000.00, which was deducted in advance
from the proceeds of the loan.
As such, petitioner demanded the return of P250,000.00, representing the
commitment fee for the 125 housing units left unconstructed and unduly
collected by respondent. Respondent denied that the P320,000.00
commitment/service fee provided in the MOA was broken down into
P2,000.00 per housing unit for 160 units.
RTC rendered a Decision in favor of petitioner. It held that the amount of
P320,000.00, as commitment/service fee provided in the MOA, was based
on the 160 proposed housing units at P2,000.00 per unit. Since petitioner
was able toconstruct only 35 units, there was overpayment to respondent in
the amount of P250,000.00
The CA reversed the ruling of the RTC. The CA held that from the literal
import of the MOA, nothing was mentioned about the arrangement that the
payment of the commitment/service fee of P320,000.00 was on a per unit
basis valued at P2,000.00 per housing unit and dependent upon the actual
construction or completion of said units. The CA opined that the MOA duly
contained all the terms agreed upon by the parties .Hence , this instant
petition.
Issue: Whether or not the Memorandum of Agreement reflects the true
intention of the parties
Held/Ratio: Yes. Section 9, Rule 130 of the Revised Rules of Court clearly
provides:
SEC. 9. Evidence of written agreements. — When the terms of an
agreement have been reduced to writing, it is considered as containing all
the terms agreed upon and there can be, between the parties and their
successors in interest, no evidence of such terms other than the contents of
the written agreement.
However, a party may present evidence to modify, explain or add to the
terms of the written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and
agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors
in interest after the execution of the written agreement.
The "parol evidence rule" forbids any addition to or contradiction of the terms
of a written instrument by testimony or other evidence purporting to show
that, at or before the execution of the parties' written agreement, other or
different terms were agreed upon by the parties, varying the purport of the
written contract. When an agreement has been reduced to writing, the
parties cannot be permitted to adduce evidence to prove alleged practices
which, to all purposes, would alter the terms of the written agreement.
Whatever is not found in the writing is understood to have been waived and
abandoned. None of the above-cited exceptions finds application in this
case, more particularly the alleged failure of the MOA to express the true
intent and agreement of the parties concerning the commitment/service fee
of P320,000.00.
Finally, as correctly observed by respondent, petitioner's claim that the MOA
is a contract of adhesion was never raised by petitioner before the lower
courts. Settled is the rule that points of law, theories, issues, and arguments
not adequately brought to the attention of the trial court need not be, and
ordinarily will not be, considered by a reviewing court. They cannot be raised
for the first time on appeal. To allow this would be offensive to the basic
rules of fair play, justice and due process.
A contract of adhesion is defined as one in which one of the parties
imposes a ready-made form of contract, which the other party may accept
or reject, but which the latter cannot modify. One party prepares the
stipulation in the contract, while the other party merely affixes his signature
or his "adhesion" thereto, giving no room for negotiation and depriving the
latter of the opportunity to bargain on equal footing. It must be borne in mind,
however, that contracts of adhesion are not invalid per se. Contracts of
adhesion, where one party imposes a ready-made form of contract on the
other, are not entirely prohibited. The one who adheres to the contract is, in
reality, free to reject it entirely; if he adheres, he gives his consent.
WHEREFORE, the instant Petition is DENIED.
Benguet Corp v. Cesar Cabildo | G.R. No. 151402 | Nachura J.
Facts: Petitioners are all officers and employees of petitioner Benguet
Corporation, a mining company with three (3) mining sites: Balatoc,
Antamok and Acupan. On the other hand, respondents are the former
employees of the company.
After bidding and negotiation with petitioners Reyes and Fider, the
recommending approval and approving authority, respectively, of Benguet
Corporation, Cabildo finally got the approval of the scope of work (the
painting of Benguet Corporations Mill Buildings and Bunkhouses located at
Balatoc mining site) which included necessary repairs. It was agreed that
Benguet Corporation would provide the needed materials for the project.
Cabildo submitted his first work accomplishment covering carpentry work
and installation of the scaffolding for which he received a partial payment.
Cabildo and Benguet Corporation, represented by petitioner Belmonte,
formally signed the Contract of Work for the painting of the Mill Buildings
and Bunkhouses at the Balatoc mining site including the necessary repair
works thereon. Cabildo recruited and hired laborers 33 painters and
carpenters including petitioner Velasco as his general foreman. Velasco left
Cabildo as the latter's general foreman and went on his own as contractor,
offering his services for painting jobs.
On June 6, 1983, Velasco entered into a Contract of Work with Benguet
Corp. represented by Godofredo Fider, to paint the Breakham bridge at
Antamok Mine, Barangay, Loakan, Itogon Benguet. Velasco entered into
another Contract of Work with Benguet Corporation, represented by
Godofredo Fider, to scrape, clean and paint the structural steel members at
the Mill crushing plant at Balatoc Mill, Barangay Virac, Itogon, Benguet and
install the necessary scaffoldings. Cabildo complained and protested but
Reyes said the Contract of Work of Cabildo covers only the painting of
exterior of the Mill Buildings in Balatoc and not the interior although the same
was not expressly stated in the Contract. This caused the souring of
relationship of Cabildo and petitioners because at that time Cabildo had
already painted the top roof and 3 sidings both interior and exterior of Mill
Building 702. Though Cabildo was paid for the June 16 to 30, 1983 work
accomplishment, he still appealed his preclusion from continuing the
Contract of Work and the overlapping contracting jobs continuously given to
Velasco, to no avail. He then filed a complaint for damages against the
petitioners and Velasco before the RTC, claiming breach by Benguet
Corporation of their Contract of Work. RTC rendered a decision in favor of
Cabildo and found the petitioners, as well as Velasco, defendant before the
RTC, jointly and severally liable to Cabildo. CA affirmed with modification
the RTC's ruling. Petitioners appealed.
Issue: W/N there was breach of contract by Benguet Corp.
Held/Ratio: Yes. The Contract of Work with Cabildo did not distinguish
between the exterior and interior painting of the Mill Buildings. It simply
stated that Cabildo shall paint the Mill Buildings at Balatoc Mill and all the
Bunkhouses at Balatoc, Itogon, Benguet. There is nothing in the contract
which will serve as a basis for the petitioners' insistence that Cabildo's scope
of work was merely confined to the painting of the exterior part of the Mill
Buildings.
To bolster their position, the petitioners contend that there is an apparent
conflict between the wording of the contract and the actual intention of the
parties on the specific object of the painting job. The petitioners argue that
Cabildo knew of Benguet Corporation's practice to have only the exterior of
buildings painted and was, therefore, aware that the Contract of Work
referred only to the exterior painting of the Mill Buildings, excluding the
interior portion thereof. Thus, the petitioners submit that when there is a
conflict as regards the interpretation of a contract, the obvious intention of
the parties must prevail.
Apart from the petitioners' self- serving assertion, nothing in the record
points to the parties' intention different from that reflected in the Contract of
Work. To the contrary, the records reveal an unequivocal intention to have
both the exterior and interior of the Mill Buildings painted.
Article 1370 of the Civil Code sets forth the first rule in the interpretation of
contracts. The article provides that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control. If the words appear to be contrary
to the evident intention of the parties, the latter shall prevail over the former.
The rule is that where the language of a contract is plain and unambiguous,
its meaning should be determined without reference to extrinsic facts or aids.
The intention of the parties must be gathered from that language, and from
that language alone. Stated differently, where the language of a written
contract is clear and unambiguous, the contract must be taken to mean that
which, on its face, it purports to mean, unless some good reason can be
assigned to show that the words should be understood in a different sense.
Courts cannot make for the parties better or more equitable agreements
than they themselves have been satisfied to make, or rewrite contracts
because they operate harshly or inequitably as to one of the parties, or alter
them for the benefit of one party and to the detriment of the other, or by
construction, relieve one of the parties from the terms which he voluntarily
consented to, or impose upon him those which he did not. Petition
dismissed.
ECE Realty v. Rachel Mandap (Young)
Facts:
Issue:
Held/Ration: Yes/No
ESTOPPEL
Howard Co Chieng v. Sta Lucia Realty (Agpawa)
Facts:
Issue:
Held/Ratio: Yes/No
Jose B. Go, et al v. Bangko Sentral (Calaro) Callejo, Sr., J.

Facts: Facts:

Issue: Issue:

Held/Ratio: Yes/No Held/Ratio: Yes/No

PBCom v. CA (Calimosa)

Facts:

Issue:

Held/Ratio: Yes/No

PNB v. IAC (Delim)

Facts:

Issue:

Held/Ratio: Yes/No

Kalalo v. Luz (Garcia)

Facts:

Issue:

Held/Ratio: Yes/No

PHILIPPINE REALTY HOLDINGS CORPORATION, vs. FIREMATIC

PHILIPPINES, INC.
G.R. No. 156251. April 27, 2007.