Civil Law Review Case Digests
Ruben Balane 
Title 2. C​ONTRACTS
Chapter 1. General Provisions (Art. 1305-1317)
Art. 1305
Batchelder v. CB
Capitol Medical Center v. CA
Art. 1306
1. Republic v. PLDT
G.R. No. L-18841 | January 27, 1969 | Reyes
Plaintiff: REPUBLIC OF THE PHILIPPINES
Defendant: PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
Summary: ​The Bureau of Telecommunications entered into an agreement with PLDT
for the rental of the latter’s trunk lines. The agreement prohibited the public use of the
service. Since then however, the Bureau has extended its service to the general public
using PLDT’s trunk lines. PLDT thereafter severed the connections. The Republic now
seeks to compel PLDT to enter into an interconnection agreement with it. SC ruled that
PLDT may not be forced to enter into an agreement. ​Parties can not be coerced to
enter into a contract where no agreement is had between them as to the principal
terms and conditions of the contract. Freedom to stipulate such terms and
conditions is of the essence of our contractual system. ​However, PLDT may be
required to permit interconnection subject to the payment of just compensation. This, the
Republic can do, in the exercise of the power of eminent domain.
Facts:
● Sometime in 1933, PLDT, and RCA Communications, Inc., entered into an
agreement whereby telephone messages, coming from the United States and
received by RCA's domestic station, could automatically be transferred to the
lines of PLDT; and vice-versa, for calls collected by the PLDT for transmission
from the Philippines to the United States.
o The tolls were divided on a 50-50 basis.
o The arrangement was later extended to radio-telephone messages to
and from European and Asiatic countries.
o Their contract contained a stipulation that either party could terminate
it on a 24-month notice to the other. ​On 2 February 1956, PLDT gave
notice to RCA to terminate their contract on 2 February 1958.
● Soon after its creation in 1947, the Bureau of Telecommunications set up its
own Government Telephone System by utilizing its own appropriation and
equipment and by renting trunk lines of the PLDT to enable government offices
to call private parties.
o Its application for the use of these trunk lines was in the usual form of
applications for telephone service, containing a statement, above the
signature of the applicant, that the latter will abide by the rules and
regulations of the PLDT which are on file with the Public Service
Commission.
o One of the many rules prohibits the public use of the service furnished
the telephone subscriber for his private use.
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Atty.
​
● The Bureau has extended its services to the general public since 1948, using
the same trunk lines owned by, and rented from, the PLDT, and prescribing its
(the Bureau's) own schedule of rates. ​Through these trunk lines, a Government
Telephone System (GTS) subscriber could make a call to a PLDT subscriber in
the same way that the latter could make a call to the former.
● On 5 March 1958, the Director of Telecommunications, entered into an
agreement with RCA Communications, Inc., for a joint overseas telephone
service whereby the Bureau would convey radio-telephone overseas calls
received by RCA's station to and from local residents.
● On 7 April 1958, the PLDT, complained to the Bureau of Telecommunications
that said bureau was violating the conditions of their agreement, for the Bureau
had used the trunk lines not only for the use of government offices but even to
serve private persons or the general public, in competition with the business of
the PLDT; and gave notice that if said violations were not stopped by midnight
of 12 April 1958, the PLDT would sever the telephone connections. (​Remember
that there was previously an agreement between PLDT and RCA that was
terminated. So it seems like PLDT is acting like a jealous girlfriend telling the
Bureau: hey hey you you why you sleeping with my ex-bestfriend (RCA)? But
that’s just my analysis though.)​
​
o When the PLDT received no reply, it disconnected the trunk lines
being rented by the Bureau at midnight on 12 April 1958. ​The result
was the isolation of the Philippines, on telephone services, from the
rest of the world, except the United States.
● The Bureau of Telecommunications had proposed to the PLDT on 8 January
1958 that both enter into an interconnecting agreement with the government
paying on a call basis. ​The PLDT replied that it was willing to enter into an
agreement on overseas telephone service to Europe and Asian countries
provided that the Bureau would submit to the jurisdiction and regulations of the
Public Service Commission and in consideration of 33.33% of the gross
revenues. The proposals were not accepted by either party.
● On 12 April 1958, plaintiff Republic commenced suit against PLDT in the CFI of
Manila praying in its complaint for judgment commanding the PLDT to execute
a contract with plaintiff, through the Bureau, for the use of the facilities of
defendant's telephone system throughout the Philippines.
Issue: ​Whether or not PLDT can be compelled to enter into an interconnecting contract
with the Republic.
Held: ​No. But the Republic may require PLDT to permit interconnection subject to the
payment of just compensation.
Ratio:
● We agree with the court below that ​parties can not be coerced to enter into a
contract where no agreement is had between them as to the principal
terms and conditions of the contract. Freedom to stipulate such terms
and conditions is of the essence of our contractual system​.
● But the court ​a quo has apparently overlooked that while the Republic may not
compel the PLDT to celebrate a contract with it, the Republic may, in the
exercise of the sovereign power of eminent domain, require the telephone
company to permit interconnection of the government telephone system and
Civil Law Review Case Digests
that of the PLDT, as the needs of the government service may require, subject
to the payment of just compensation to be determined by the court.
● Nominally, of course, the power of eminent domain results in the taking or
appropriation of title to, and possession of, the expropriated property; but no
cogent reason appears why the said power may not be availed of to impose
only a burden upon the owner of condemned property, without loss of title and
possession. It is unquestionable that real property may, through expropriation,
be subjected to an easement of right of way.
● The use of the PLDT's lines and services to allow inter-service connection
between both telephone systems is not much different. In either case private
property is subjected to a burden for public use and benefit. If, under section 6,
Article XIII, of the Constitution, the State may, in the interest of national welfare,
transfer utilities to public ownership upon payment of just compensation, there
is no reason why the State may not require a public utility to render services in
the general interest, provided just compensation is paid therefor. Ultimately, the
beneficiary of the interconnecting service would be the users of both telephone
systems, so that the condemnation would be for public use
2. Cui v. Arellano University
2 SCRA 205 | May 30, 1961 | Justice Concepcion
Plaintiff-Appellant: ​EMETERIO CUI
Defendant-Appellee: ​ARELLANO UNIVERSITY
SUMMARY​: Emetrio Cui took his preparatory law course at Arellano University. He then
enrolled in its College of Law from first year (SY1948-1949) until first semester of his 4​th
year. During these years, he was awarded scholarship grants of the said university
amounting to a total of P1,033.87. He then transferred and took his last semester as a
law student at Abad Santos University. To secure permission to take the bar, he
needed his transcript of records from Arellano University. The defendant refused to
issue the TOR until he had paid back the P1,033.87 scholarship grant which Emetrio
refunded as he could not take the bar without Arellano’s issuance of his TOR. The
Director of Private Schools issued Memorandum No. 38 addressing all heads of private
schools, colleges and universities. Part of the memorandum states that “the amount in
tuition and other fees corresponding to these scholarships should not be subsequently
charged to the recipient students when they decide to quit school or to transfer to
another institution. Scholarships should not be offered merely to attract and keep
students in a school”.
ISSUE: Whether or not Emetrio Cui should refund the P1,033.97 payment for the
scholarship grant provided by Arellano?
HELD: NO. The memorandum of the Director of Private Schools is not a law where the
provision set therein was advisory and not mandatory in nature. Moreover, the
stipulation in question, asking previous students to pay back the scholarship grant if they
transfer before graduation, is contrary to public policy, sound policy and good morals or
tends clearly to undermine the security of individual rights and hence, null and void.
FACTS​:
● Cui, before the school year 1948-1949 took up preparatory law course in the
Arellano University. After, Cui enrolled in the College of Law of Arellano from
the school year 1948-1949.
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Atty. Ruben Balane 
o Cui finished his law studies in the university up to and including the
first semester of the fourth year. During all the school years in which
Cui was studying law, Francisco R. Capistrano, brother of the mother
of Cui, was the dean of the College of Law and legal counsel of the
university.
o Cui enrolled for the last semester of his law studies in the university
but failed to pay his tuition fees because his uncle Dean Capistrano
having severed his connection with Arellano and having accepted the
deanship of the College of Law of Abad Santos University, Cui left
Arellano and enrolled for the last semester of his fourth year law in the
college of law of the Abad Santos University graduating from the
college of law of the latter university.
o Cui, during all the time he was studying law in Arellano was
awarded scholarship grants, for scholastic merit, so that his
tuition fees were returned to him after the ends of semester and
when his scholarship grants were awarded to him.
● The whole amount of tuition fees paid by Cui and refunded to him by Arellano
from the first semester up to and including the first semester of his last year in
the college of law or the fourth year, is in total P1,033.87. After graduating in
law from Abad Santos University he applied to take the bar.
o To secure permission to take the bar he needed the transcripts of his
records in Arellano University. Cui petitioned the latter to issue to him
the needed transcripts. Arellano refused until after he had paid back
the P1,033 87 refunded to him as above stated. As he could not take
the bar examination without those transcripts, Cui paid the said sum
under protest. This is the sum which plaintiff seeks to recover from
defendant in this case.
● Before Arellano awarded to Cui the scholarship grants as above1
stated, he was
made to sign the following contract covenant and agreement
● It is admitted that the Director of Private Schools issued Memorandum No. 38,
on the subject of "Scholarship," 2addressed to "All heads of private schools,
colleges and universities," reading
● Cui asked the Bureau of Private Schools to pass upon the issue on his right to
secure the transcript of his record in defendant University, without being
required to refund the sum of P1,033.87; that the Bureau of Private Schools
1
"In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to
another school without having refunded to the University (defendant) the equivalent of my scholarship cash.
(Sgd.) Emeterio Cui".
2
1. School catalogs and prospectuses submitted to this, Bureau show that some schools offer full or partial
scholarships to deserving students — for excellence in scholarship or for leadership in extra-curricular activities.
Such inducements to poor but gifted students should be encouraged. But to stipulate the condition that such
scholarships are good only if the students concerned continue in the same school nullifies the principle of merit in
the award of these scholarships.
2. ​When students are given full or partial scholarships, it is understood that such scholarships are
merited and earned. The amount in tuition and other fees corresponding to these scholarships should not
be subsequently charged to the recipient students when they decide to quit school or to transfer to
another institution. Scholarships should not be offered merely to attract and keep students in a school.
3. Several complaints have actually been received from students who have enjoyed scholarships, full or partial, to
the effect that they could not transfer to other schools since their credentials would not be released unless they
would pay the fees corresponding to the period of the scholarships. Where the Bureau believes that the right of
the student to transfer is being denied on this ground, it reserves the right to authorize such transfer.
Civil Law Review Case Digests
upheld the position taken by the Cui and so advised Arellano; and that, this
notwithstanding, the latter refused to issue said transcript of records, unless
said refund were made, and even recommended to said Bureau that it issue a
written order directing the defendant to release said transcript of record, "so
that the case may be presented to the court for judicial action."
● RTC – ruled in favor of Arellano
ISSUE​: WON the provision of the contract whereby Cui waived his right to transfer to
another school without refunding to the latter the equivalent of his scholarships in cash,
is valid or not. NOT VALID.
HELD​: WHEREFORE, the decision appealed from is hereby reversed and another one
shall be entered sentencing the defendant to pay to the plaintiff the sum of P1,033.87,
with interest thereon at the legal rate from September 1, 1954, date of the institution of
this case, as well as the costs, and dismissing defendant's counterclaim. It is so ordered.
RATIO​:
● The nature of the issue before us, and its far reaching effects, transcend
personal equations and demand a determination of the case from a high
impersonal plane. Neither do we deem it essential to pass upon the validity of
said Memorandum No. 38, for, regardless of the same, ​we are of the opinion
that the stipulation in question is contrary to public policy and, hence,
null and void. The aforesaid memorandum merely incorporates a sound
principle of public policy​.
● There is one more point that merits refutation and that is whether or not the
contract entered into between Cui and Arellano University on September 10,
1951 was void as against public policy.
o Zeigel vs. Illinois Trust and Savings Bank:​ 'In determining a public
policy of the state, courts are limited to a consideration of the
Constitution, the judicial decisions, the statutes, and ​the practice of
government officers.​' It might take more than a government bureau or
office to lay down or establish a public policy, as alleged in your
communication, but courts consider the practices of government
officials as one of the four factors in determining a public policy of the
state.
● If Arellano University understood clearly the real essence of scholarships and
the motives which prompted this office to issue Memorandum No. 38, it should
have not entered into a contract of waiver with Cui on September 10, 1951,
which is a direct violation of our Memorandum and an open challenge to the
authority of the Director of Private Schools because the contract was repugnant
to sound morality and civic honesty.
o Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67
we read: ​'In order to declare a contract void as against public
policy, a court must find that the contract as to consideration or
the thing to be done, contravenes some established interest of
society, or is ​inconsistent with sound policy and good morals or
tends clearly to undermine the security of individual rights.
o The policy enunciated in Memorandum No. 38, s. 1949 is sound
policy. ​Scholarship are awarded in recognition of merit not to
keep outstanding students in school to bolster its prestige.​ In the
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Atty. Ruben Balane 
understanding of that university scholarships award is a business
scheme ​designed to increase the business potential of an education
institution​. ​Thus conceived it is not only inconsistent with sound
policy but also good morals.
o But what is ​morals​? Manresa has this definition. ​It is good customs;
those generally accepted principles of morality which have
received some kind of social and practical confirmation.
● The practice of awarding scholarships to attract students and keep them in
school is not good customs nor has it received some kind of social and practical
confirmation except in some private institutions as in Arellano University. UP
which implements Section 5 of Article XIV of the Constitution with reference to
the giving of free scholarships to gifted children, does not require scholars to
reimburse the corresponding value of the scholarships if they transfer to other
schools. So also with the leading colleges and universities of the United States
after which our educational practices or policies are patterned. ​In these
institutions scholarships are granted ​not to attract and to keep brilliant
students in school for their propaganda mine but to reward merit or help
gifted students in whom society has an established interest​ or a first lien.
3. Saura v. Sindico
107 SCRA 336 | Mar. 23, 1960 | JBL Reyes
Plaintiff-Appellant: ​Ramon Saura
Defendant-Appellee: ​Estela Sindico
Summary​: Two candidates contesting for nomination as the official candidate of the
Nacionalista party for the congressional elections entered into a contract. In said
contract, they agree that each will respect the result of the convention and no one will
run as an independent candidate after losing in the convention. Saura was elected and
proclaimed as the official congressional candidate of the Nacionalista party.
Nonetheless, Sindico filed her certificate of candidacy. ​I: ​W/N the contract is void – ​YES​.
R: ​Among those that may not be the subject matter (object) of contracts are certain
rights of individuals, which the law and public policy have deemed wise to exclude from
the commerce of man. Among them are the political rights conferred upon citizens,
including, but not limited to, once's right to vote, the right to present one's candidacy to
the people and to be voted to public office, provided, however, that all the qualifications
prescribed by law obtain. Such rights may not, therefore, be bargained away curtailed
with impunity, for they are conferred not for individual or private benefit or advantage but
for the public good and interest.
Facts​:
● Saura and Sindico were contesting for nomination as the official candidate of
the Nacionalista Party in the 4​th district of Pangasinan in the congressional
elections of Nov. 12, 1957. On Aug. 23, 1957, the parties entered into a written
agreement bearing the same date, containing among other matters stated
therein, a pledge that —
o Each aspirant shall respect the result of the aforesaid convention, i.e.,
no one of us shall either run as a rebel or independent candidate after
losing in said convention.
● In the provincial convention held by the Nacionalista Party, Saura was elected
Civil Law Review Case Digests
and proclaimed the Party's official congressional candidate for the aforesaid
district. Nonetheless, Sindico, in disregard of the covenant, filed her certificate
of candidacy for the same office with the COMELEC, and she openly and
actively campaigned for her election. Saura commenced this suit for the
recovery of damages.
o The lower court dismissed the complaint on the basis that the
agreement sued upon is null and void, in that (1) the subject matter of
the contract, being a public office, is not within the commerce of man;
and (2) the "pledge" was in curtailment of the free exercise of elective
franchise and therefore against public policy.
Issue​: ​W/N the contract is void – ​YES​.
Ratio​:
● Among those that may not be the subject matter (object) of contracts are
certain rights of individuals, which the law and public policy have deemed wise
to exclude from the commerce of man. Among them are the political rights
conferred upon citizens, including, but not limited to, once's right to vote, the
right to present one's candidacy to the people and to be voted to public office,
provided, however, that all the qualifications prescribed by law obtain. Such
rights may not, therefore, be bargained away curtailed with impunity, for they
are conferred not for individual or private benefit or advantage but for the public
good and interest.
● Constitutional and statutory provision fix the qualifications of persons who may
be eligible for certain elective public offices. Said requirements may neither be
enlarged nor reduced by mere agreements between private parties. A voter
possessing all the qualifications required to fill an office may, by himself or
through a political party or group, present his candidacy without further
limitations than those provided by law.
● We cannot entertain Saura’s action, which would result in limiting the choice of
the electors to only those persons selected by a small group.
Held: ​Wherefore, the order of dismissal appealed from is hereby affirmed.
Leal v. IAC
Pakistan International Airlines v. Ople
Non v. Dames
De Luna v. Abrigo
Llorin v. CA
Palanca v. CA
Ermitaño v. CA
4. Regino v. Pangasinan Colleges
G.R. No. 156109| November 18, 2004| Panganiban
Petitioner​: KHRISTINE REA M. REGINO, Assisted and Represented by ARMANDO
REGINO
Respondents​: PANGASINAN COLLEGES OF SCIENCE AND TECHNOLOGY,
RACHELLE A. GAMUROT and ELISSA BALADAD
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Atty. Ruben Balane 
Summary: ​Regino is ​a first year computer science student at PCST. PCST held a fund
raising campaign dubbed the “Rave Party and Dance Revolution,” the proceeds of which
were to go to the construction of the school’s tennis and volleyball courts. Each student
was required to pay for two tickets at the price of ​P​100 each. Financially strapped and
prohibited by her religion from attending dance parties and celebrations, Regino refused
to pay for the tickets. On her final examinations in logic and statistics, her teachers,
Gamurot and Baladad, allegedly disallowed her from taking the tests, failing to pay for
her tickets. Regino filed for a complaint for damages. Our issue in this case is whether
schools have a contractual obligation to afford its students a ​fair opportunity to complete
the course they seek to pursue. YES School-student relationship is contractual in nature.
It is also reciprocal. The school undertakes to provide students with education sufficient
to enable them to pursue higher education or a profession. On the other hand, the
students agree to abide by the academic requirements of the school and to observe its
rules and regulations. The Court held that, barring any violation of the rules on the part
of the students, an institution of higher learning has a contractual obligation to afford its
students a ​fair opportunity to complete the course they seek to pursue. In the present
case, PCST imposed the assailed revenue-raising measure belatedly, in the middle of
the semester. It exacted the dance party fee as a condition for the students’ taking the
final examinations, and ultimately for its recognition of their ability to finish a course. The
fee, however, was not part of the school-student contract entered into at the start of the
school year. Hence, it could not be unilaterally imposed to the prejudice of the enrollees.
Facts
● Khristine Rea M. Regino was a first year computer science student at
Pangasinan Colleges of Science and Technology (PCST).
● Reared in a poor family, Regino went to college mainly through the financial
support of her relatives. During the second semester of school year 2001-2002,
she enrolled in logic and statistics subjects under Rachelle A. Gamurot and
Elissa Baladad.
● PCST held a fund raising campaign dubbed the “Rave Party and Dance
Revolution,” the proceeds of which were to go to the construction of the
school’s tennis and volleyball courts. Each student was required to pay for two
tickets at the price of ​P​100 each. The project was allegedly implemented by
recompensing students who purchased tickets with additional points in their test
scores; those who refused to pay were denied the opportunity to take the final
examinations.
● Financially strapped and prohibited by her religion from attending dance parties
and celebrations, Regino refused to pay for the tickets.
● On her final examinations in logic and statistics, her teachers, Gamurot and
Baladad, allegedly disallowed her from taking the tests. Gamurot made her sit
out her logic class while her classmates were taking their examinations. The
next day, Baladad, after announcing to the entire class that she was not
permitting petitioner and another student to take their statistics examinations for
failing to pay for their tickets, allegedly ejected them from the classroom.
● Regino, as a pauper litigant, a Complaint for damages against PCST, Gamurot
and Baladad.
Issue: Whether schools have a contractual obligation to afford its students a ​fair
opportunity​ to complete the course they seek to pursue. ​YES
Held: WHEREFORE​, the Petition is hereby GRANTED, and the assailed Orders
Civil Law Review Case Digests
REVERSED. The trial court is DIRECTED to reinstate the Complaint and, with all
deliberate speed, to continue the proceedings in Civil Case No. U-7541. No costs.
Ratio:
RELEVANT PART: Reciprocity of the​ ​School-Student Contract
● In ​Alcuaz v. PSBA​, the Court characterized the relationship between the school
and the student as a contract, in which “a student, once admitted by the school
is considered enrolled for one semester.”
● Two years later, in ​Non v. Dames II, the Court modified the “termination of
contract theory” in ​Alcuaz by holding that the contractual relationship between
the school and the student is not only semestral in duration, but ​for the entire
period the latter are expected to complete it​.” Except for the variance in the
period during which the contractual relationship is considered to subsist, both
Alcuaz and Non were unanimous in characterizing the school-student
relationship as contractual in nature.
● The school-student relationship is also reciprocal. Thus, it has consequences
appurtenant to and inherent in all contracts of such kind -- it gives rise to
bilateral or reciprocal rights and obligations. The school undertakes to provide
students with education sufficient to enable them to pursue higher education or
a profession. On the other hand, the students agree to abide by the academic
requirements of the school and to observe its rules and regulations.
● The terms of the school-student contract are defined at the moment of its
inception -- upon enrolment of the student. Standards of academic
performance and the code of behavior and discipline are usually set forth in
manuals distributed to new students at the start of every school year. Further,
schools inform prospective enrollees the amount of fees and the terms of
payment.
● In practice, students are normally required to make a down payment upon
enrollment, with the balance to be paid before every preliminary, midterm and
final examination. Their failure to pay their financial obligation is regarded as a
valid ground for the school to deny them the opportunity to take these
examinations.
● The foregoing practice does not merely ensure compliance with financial
obligations; it also underlines the importance of major examinations. Failure to
take a major examination is usually fatal to the students’ promotion to the next
grade or to graduation. Examination results form a significant basis for their
final grades. These tests are usually a primary and an indispensable requisite
to their elevation to the next educational level and, ultimately, to their
completion of a course.
● Thus, students expect that upon their payment of tuition fees, satisfaction of the
set academic standards, completion of academic requirements and observance
of school rules and regulations, the school would reward them by recognizing
their “completion” of the course enrolled in.
● The obligation on the part of the school has been established in ​Magtibay v.
Garcia,​ ​Licup v. University of San Carlos and ​Ateneo de Manila University v.
Garcia,​ in which the Court held that, barring any violation of the rules on the
part of the students, an institution of higher learning has a ​contractual
obligation to afford its students a ​fair opportunity to complete the course
they seek to pursue.
● We recognize the need of a school to fund its facilities and to meet
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Atty. Ruben Balane 
astronomical operating costs; this is a reality in running it. ​Crystal v. Cebu
International School upheld the imposition by respondent school of a “land
purchase deposit” in the amount of ​P​50,000 per student to be used for the
“purchase of a piece of land and for the construction of new buildings and other
facilities which the school would transfer [to] and occupy after the expiration of
its lease contract over its present site.” The amount was refundable after the
student graduated or left the school. After noting that the imposition of the fee
was made only after prior consultation and approval by the parents of the
students, the Court held that the school committed no actionable wrong in
refusing to admit the children of the petitioners therein for their failure to pay the
“land purchase deposit” and the 2.5 percent monthly surcharge thereon.
● In the present case, PCST imposed the assailed revenue-raising measure
belatedly, in the middle of the semester. It exacted the dance party fee as a
condition for the students’ taking the final examinations, and ultimately for its
recognition of their ability to finish a course. ​The fee, however, was not part
of the school-student contract entered into at the start of the school year.
Hence, it could not be unilaterally imposed to the prejudice of the
enrollees.
● Such contract is by no means an ordinary one. In ​Non,​ we stressed that the
school-student contract “is imbued with public interest, considering the high
priority given by the Constitution to education and the grant to the State of
supervisory and regulatory powers over all educational institutions.” Sections 5
(1) and (3) of Article XIV of the 1987 Constitution provide:
o “The State shall protect and promote the right of all citizens to quality
education at all levels and shall take appropriate steps to make such
declaration accessible to all.
o “Every student has a right to select a profession or course of study,
subject to fair, reasonable and equitable admission and academic
requirements.”
● The same state policy resonates in Section 9(2) of BP 232, otherwise known as
the Education Act of 1982:
o “Section 9. ​Rights of Students in School.​ – In addition to other rights,
and subject to the limitations prescribed by law and regulations,
students and pupils in all schools shall enjoy the following rights:
▪ (2) The right to freely choose their field of study subject to
existing curricula and to continue their course therein up to
graduation, except in cases of academic deficiency, or
violation of disciplinary regulations.”
5. Duncan v. Glaxo​, 438 SCRA 343 (2004)
Petitioner: ​Duncan Association of Detailman – PTGWO and Perdro A. Tecson
Respondent: ​Glaxo Wellcome Philippines, Inc.
Summary: ​Tecson was hired by Glaxo as a medical representative. Before such
employment, he signed a contract stating that he should report any relationship with his
co-employees or employees of competing companies and should management
determine that there exists a conflict of interest, he would be deemed resigned. He
entered into a relationship with Bettsy, an employee of Astra Pharmaceuticals and
Civil Law Review Case Digests
eventually married her. He was repeatedly reminded by his superiors of the existing
conflict of interest but he did nothing. He was then transferred by the company to
another location. He claimed constructive dismissal. Glaxo claims that ​Tecson can no
longer question the assailed company policy because when he signed his contract of
employment, he was aware that such policy was stipulated therein.
The Court held that ​t​he assailed company policy which forms part of respondent’s
Employee Code of Conduct and its contracts with its employees, such as that signed by
Tecson, was made known to him prior to his employment. Tecson, therefore, was aware
of that restriction when he signed his employment contract and when he entered into a
relationship with Bettsy. Since Tecson knowingly and voluntarily entered into a contract
of employment with Glaxo, the stipulations therein gave the force of law between them
and thus, should be complied with in good faith.
Facts:
● Pedro Tecson was hired by Glaxo Wellcome Philippines, Inc. as a medical
representative.
o He signed a contract of employment which stipulates, among others, that he
agrees to study and abide by existing company rules; to disclose to
management any existing or future relationship by consanguinity with
co-employees or employees of competing drug companies and should
management find that such relationship pose a possible conflict of interest, to
resign from the company.
o The Employee Code of Conduct of Glaxo similarly provides this and that
management and the employee will explore the possibility of a “transfer to
another department in a non-counterchecking position” or preparation for
employment outside the company after 6 month.
● Tecson entered into a romantic relationship with Bettsy, an employee of Astra
Pharmaceuticals, a competitor of Glaxo. She was Astra’s Branch Coordinator in
Albay and supervised the district managers and medical representatives of her
company and prepared marketing strategies for Astra in that area.
● Tecson received several reminders from his District Manager regarding the conflict
of interest but love prevailed and Tecson married Bettsy.
● Tecson’s superiors reminded him that he and Bettsy should decide which one of
them would resign from their jobs, although they told him that they wanted to retain
him as much as possible because he was performing his job well.
o He requested for time and explained that Astra was planning to merge with
Zeneca, another drug company; and Bettsy was planning to avail of the
redundancy package to be offered by Astra. Then he applied for a transfer in
Glaxo’s milk division but this was denied in view of Glaxo’s
“least-movement-possible” policy.
● Glaxo transferred Tecson from the Camarines Sur-Camarines Norte sales area to
the Butuan City-Surigao City-Agusan del Sur sales area. He defied the transfer
order and continued acting as medical representative in the Camarines
Sur-Camarines Norte sales area.
● NCMB Ruling: Glaxo’s policy on relationships between its employees and person
employed with competing companies is valid.
Issue:
● WoN the CA erred in ruling that Glaxo’s policy against its employees marrying
employees from competitor companies is valid, and in not holding that said policy
violates the equal protection clause of the Constitution ​– CA DID NOT ERR
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Atty. Ruben Balane 
Held: ​WHEREFORE, the Petition is DENIED for lack of merit. Costs against petitioners.
Ratio:
Validity of the Policy (NOTE: t​ his is where Article 1306 comes in, freedom to stipulate
by the parties of terms in the contract).
Respondent’s Contention: Glaxo claims Tecson can no longer question the assailed
company policy because when he signed his contract of employment, he was aware that
such policy was stipulated therein. In said contract, he also agreed to resign from
respondent if the management finds that his relationship with an employee of a
competitor company would be detrimental to the interests of Glaxo.
SC’s Findings​:
● Glaxo’s policy prohibiting an employee from having a relationship with an employee
of a competitor company is a valid exercise of management prerogative.
● Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing
strategies and other confidential programs and information from competitors,
especially so that it and Astra are rival companies in the highly competitive
pharmaceutical industry.
● The prohibition against personal or marital relationships with employees of
competitor companies upon Glaxo’s employees is reasonable under the
circumstances because relationships of that nature might compromise the interests
of the company. In laying down the assailed company policy, Glaxo only aims to
protect its interests against the possibility that a competitor company will gain
access to its secrets and procedures.
● The Constitution recognizes the right of enterprises to adopt and enforce such a
policy to protect its right to reasonable returns on investments and to expansion and
growth. While our laws endeavor to give life to the constitutional policy on social
justice and the protection of labor, it does not mean that every labor dispute will be
decided in favor of the workers. The law also recognizes that management has
rights which are also entitled to respect and enforcement in the interest of fair play.
● Commands of the equal protection clause are addressed only to the state or those
acting under color of authority. It erects (LOL) no shied against merely private
conduct, however discriminatory or wrongful. The only exception occurs when the
state in any of its manifestations or action has been found to have become entwined
or involved in the wrongful private conduct. This exception is not present in this
case.
● Significantly, the company actually enforced the policy after repeated requests to
the employee to comply with the policy. The application of the policy was made in
an impartial and even-handed manner, with due regard for the lot of the employee.
● Also, Glaxo does not impose an absolute prohibition against relationships between
its employees and those of competitor companies. Its employees are free to
cultivate relationships with and marry persons of their own choosing. What the
company merely seeks to avoid is a conflict of interest between the employee and
the company that may arise out of such relationships.
● IMPT​. The assailed company policy which forms part of respondent’s Employee
Code of Conduct and its contracts with its employees, such as that signed by
Tecson, was made known to him prior to his employment. Tecson, therefore, was
aware of that restriction when he signed his employment contract and when he
entered into a relationship with Bettsy. Since Tecson knowingly and voluntarily
entered into a contract of employment with Glaxo, the stipulations therein gave the
Civil Law Review Case Digests
force of law between them and thus, should be complied with in good faith
(estoppel).
6. Star Paper v. Simbol
487 SCRA 228 (2006) | April 12, 2006
Petitioner​: STAR PAPER CORPORATION, JOSEPHINE ONGSITCO & SEBASTIAN
CHUA,
Respondent​: RONALDO D. SIMBOL, WILFREDA N. COMIA & LORNA E. ESTRELLA
Summary: ​Simbol and Comia were compelled to resign after marrying their co-
employees, pursuant Star’s policy against employees getting married. This is in pursuant
to the company policy promulgated in 1995 wherein new applicants will not be hired if
he/she has a relative up to the 3​rd degree of relationship if one is already employed by
the company. Also, if two employees decided to get married, one of them must resign.
Held​: ​the policy is invalid because Star was unable to show a reasonable business
necessity, and how such policy relates to their qualifications. For oblicon (I think) this
pertains to the prerogative of the company to make stipulations in their employment
contract. However, the same must policies will be valid if it is a bonafide occupational
qualification (BFOQ). To justify a BFOQ, the ​employer must prove: (1) that the
employment qualification is reasonably related to the essential operation of the job
involved; and, (2) that there is a factual basis for believing that all or substantially all
persons meeting the qualification would be unable to properly perform the duties of the
job. In this case, there was no ​compelling business necessity for which no alternative
exists other than the discriminatory practice. The policy is premised on the mere fear
that employees married to each other will be less efficient​. If SC upholds the rule
without valid justification, the employer can create policies based on an unproven
presumption of a perceived danger at the expense of an employee’s right to
security of tenure
Facts​:
● Petitioner is a corporation engaged in trading principally of paper products. Ongsitco
is its Manager of the Personnel and Administration Department while Chua is its
Managing Director. The evidence for the petitioners show that respondents were all
regular employees of the company.
1. Simbol: an employee, married Alma Dayrit, ​also an employee (Employee for 5
years when married).
● Prior thereto, Ongsitco advised them that should they get married​, one of them
should resign pursuant to a company policy promulgated in 1995​, ​viz.​:
o New applicants will not be allowed to be hired if in case he/she has [a] relative,
up to [the] 3rd degree of relationship, already employed by the company. ​In
case of two of our employees decided to get married, one of them should
resign to preserve the policy stated above.
● Simbol resigned on June 20, 1998 pursuant to the policy, but allege that they did not
resign voluntarily but were compelled to resign in view of an illegal company policy
2. Comia married Howard Comia, a co-employee (Comia had been employed for
almost 3 years).
● Ongsitco likewise reminded them of company policy. Comia resigned on June 30,
2000.
3. Estrella an employee had ​SEX ​with Zuñiga, a married co-worker, then Estrella got
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Atty. Ruben Balane 
pregnant.
● Estrella alleges Zuñiga misrepresented himself as a married but separated man.
After she discovered that he was not, she broke- up with him to avoid dismissal due
to the company policy.
o She met an accident and was advised to recuperate 21 days. When she
returned to work she was denied entry and handed a memo stating that she
was being ​dismissed for immoral conduct. She refused to sign it because
she had not been given a chance to explain. The management asked her to
write an explanation, but she was nonetheless fired.
● The Respondents each signed a ​Release and Confirmation Agreement, ​stating that
they have no money and property accountabilities in the company and that they
release the latter of any claim or demand of whatever nature. Respondents later
filed a complaint for unfair labor practice, constructive dismissal, separation pay and
attorney’s fees. Labor Arbiter upheld management prerogative. NLRC affirmed. CA
reversed.
Issue: ​Whether the policy violates the rights of the employee under the Constitution and
the Labor Code or is a valid exercise of management prerogative.
Held​: Invalid.
(Note: No mention of Article 1306)
1. Petitioners argument: its policy "may appear to be contrary to Art. 136 of the
Labor Code" but it assumes a new meaning if read together with the 1st paragraph
of the rule. The rule does not require the woman employee to resign. The employee
spouses have the right to choose who between them should resign.
2. SC​: The Labor Code is the most comprehensive piece of legislation protecting
labor. The case at bar involves ​Article 136 ​of the Labor Code
● It is true that the policy of petitioners prohibiting close relatives from working in the
same company takes the nature of an anti-nepotism employment policy to prevent
the hiring of unqualified persons based on their status as a relative, rather than
upon their ability.
● There are 2 types of employment policies involving spouses: policies banning only
spouses from working in the same company ​(no-spouse employment policies)​,
and those banning all immediate family members ​(anti-nepotism employment
policies)​.
● US law: In our jurisdiction there is no express prohibition on marital
discrimination.
● The courts ​narrowly interpreting marital status to refer only to a person's status as
married, single, divorced, or widowed, and not the "identity, occupation, and place
of employment of one's spouse." ​These courts have upheld the questioned policies
and ruled that they did not violate the marital status discrimination provision of their
respective state statutes.
● The courts that have ​broadly construed the term rule that it encompassed ​the
identity, occupation and employment of one's spouse​. They strike down the
no-spouse employment policies because it violates the marital status provision and
it arbitrarily discriminates against all spouses of present employees ​without regard
to the actual effect on the individual's qualifications or work performance.
o These courts also find that the absence of such a ​bona fide occupational
qualification ​(BOFQ) invalidates such policies. Thus, unless the employer can
prove that the reasonable demands of the business require a distinction based
Civil Law Review Case Digests
on marital status and there is no better available or acceptable policy which
would better accomplish the business purpose, an employer may not
discriminate against an employee based on the identity of the employee’s
spouse. ​This is known as the ​BFOQ exception, ​which ​is interpreted strictly and
narrowly by these state courts. There must be a ​compelling business
necessity​ for which no alternative exists other than the discriminatory practice.
● To justify a BFOQ, the ​employer must prove: (1) that the employment qualification
is reasonably related to the essential operation of the job involved; and, (2) that
there is a factual basis for believing that all or substantially all persons meeting the
qualification would be unable to properly perform the duties of the job.
3. Back to Ph law: ​The concept of a BFOQ is not foreign in our jurisdiction. We
employ the standard of ​reasonableness ​which is parallel to the BFOQ requirement.
● In ​Duncan Association v. Glaxo​, we considered the prohibition against personal or
marital relationships with employees of competitor companies ​reasonable because
those relationships might compromise the interests of Glaxo. We recognized that
Glaxo only aims to protect its interests against the possibility that a competitor
company will gain access to its secrets and procedures.
● In ​PTT v. NLRC the company policy was not ​reasonable​. We held that the
company policy violates Art. 136, but established a permissible exception, ​viz.​:
o The requirement that a woman employee must remain unmarried could be
justified as a BFOQ, where the particular requirements of the job would justify
the same, ​but not on the ground of a general principle, such as the desirability
of spreading work in the workplace​. A requirement of that nature would be valid
provided it reflects an inherent quality ​reasonably necessary for satisfactory
job performance.
● Duncan and ​PT&T instruct us that the requirement of reasonableness must be
clearly established. ​The employer has the burden to prove the existence of a
reasonable business necessity​.
4. Back to this case: ​Petitioners’ contention is ​lame. ​Respondents were hired after
they were found fit for the job, but asked to resign when they married a
co-employee.
● Petitioners failed to show how the marriage of Simbol, a Sheeting Machine
Operator, to Alma Dayrit, an employee of the Repacking Section, and Wilfreda
Comia, a Production Helper in the Selecting Dept, to Howard Comia, a helper in the
cutter-machine ​could be detrimental to its business operations.
● The policy is premised on the mere fear that employees married to each other will
be less efficient​. If we uphold the rule without valid justification, the employer
can create policies based on an unproven presumption of a perceived danger
at the expense of an employee’s right to security of tenure.
5. Petitioner’s other arguments: ​They are free to marry persons other than
co-employees. Hence, it is not the marital status of the employee, ​per se​, that is
being discriminated. It is only intended to carry out its
no-employment-for-relatives-within-the-third-degree-policy, which is within the ambit
of the prerogatives of management.
● SC: ​The questioned policy may not facially violate Art. 136 but it creates a
disproportionate effect and under the ​disparate impact theory, the only way it
could pass judicial scrutiny is a showing that it is ​reasonable despite the
discriminatory, albeit disproportionate, effect.
6. Lastly, ​the absence of a statute expressly prohibiting marital discrimination in
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Atty. Ruben Balane 
our jurisdiction cannot benefit the petitioners.
The protection given to labor in our jurisdiction is vast and extensive that we cannot
prudently draw inferences from the legislature’s silence that married persons are not
protected under our Constitution.
7. Acol v. PCCCI
G.R. No. 135149 | July 25, 2006 | CORONA
Petitioner​: MANUEL C. ACOL, substituted by MANUEL RAYMOND ACOL
Respondent​: PHILIPPINE COMMERCIAL CREDIT CARD INCORPORATED
SUMMARY: ​Manuel Acol he lost his Bankard and on the following morning he called
PCCCI to report the loss. He again called on another day to reiterate his report of the
lost card and asked if there were additional requirements to report the loss. He was told
to write a letter notifying the company of the loss, which he did. Unfortunately, somebody
was able to use the card on April 19 and 20. These charges appeared on Manuel’s April
30 billing statement. Manuel informed PCCCI he would not pay for the purchases made
after the day he notified PCCCI of the loss. An investigation confirmed that it was not
Manuel who used his Bankard on April 19 and 20, 1987. Nevertheless, he was still
required to pay. PCCCI cited provision no. 1 which states that “holder's responsibility for
all charges made through the use of the card shall continue until the expiration or its
return to the Card Issuer or until a reasonable time after receipt by the Card Issuer of
written notice of loss of the Card and its actual inclusion in the Cancellation Bulletin.” SC
ruled that the provision was not valid. A stipulation providing that the effectivity of the
credit card cancellation rests on an act entirely beyond the control of the cardholder is
void for being contrary to public policy. Article 1306 of the Civil Code prohibits
contracting parties from establishing stipulations contrary to public policy.
FACTS:
● On August 20, 1982, Acol Manuel Acol applied and was issued a Bankard
credit card and extension by PCCI which he regularly used.
● Late in the evening of April 18, 1987, Acol discovered the loss of his credit card.
After exhausting all efforts to find it, the first hour of the following day, April 19,
1987, a Sunday, he called up PCCI's office and reported the loss. The
representative he spoke to told him that his card would be immediately included
in the circular of lost cards.
● Again, on April 20, 1987, Acol called up PCCI to reiterate his report on the loss
of his card. He inquired if there were other requirements he needed to comply
with in connection with the loss. PCCI's representative advised him to put into
writing the notice of loss and to submit it, together with the extension cards of
his wife and daughter. Acol promptly wrote a letter dated April 20, 1987
confirming the loss and sent it to PCCI which received it on April 22, 1987.
● On April 21, 1987, a day before receiving the written notice, PCCI issued a
special cancellation bulletin informing its accredited establishments of the loss
of the cards of the enumerated holders, including Acol's.
● Unfortunately, it turned out that somebody used Acol's card on April 19 and 20,
1987 to buy commodities worth P76,067.28 which was billed to Acol’s account.
Civil Law Review Case Digests
● Acol informed PCCI he would not pay for the purchases made after April 19,
1987, the day he notified PCCI of the loss. Immediately after receiving his
statement of account for the period ending April 30, 1987, Acol confirmed his
exceptions to the billing in writing.
● At first, PCCI agreed to reverse the disputed billings, pending the result of an
investigation of Acol's account. After the investigation and review, the PCCI
confirmed that it was not the Acol who used his Bankard on April 19 and 20,
1987.
● Nonetheless, PCCI reversed its earlier position to delete the disputed billings
and insisted on collecting within 15 days from notice. It alleged that it was the
most "practicable procedure and policy of the company." It cited provision no. 1
of the "Terms and Conditions Governing The Issuance and Use of the Bankard"
found at the back of the application form:
xxx Holder's responsibility for all charges made through the use of the card shall
continue until the expiration or its return to the Card Issuer or until a reasonable
time after receipt by the Card Issuer of written notice of loss of the Card and its
actual inclusion in the Cancellation Bulletin. xxx
● Acol wrote PCCI to deny liability. PCCI filed suit against Acol for the collection
of P76,067.28, plus interest and penalty charges. RTC dismissed case. CA
reversed.
ISSUE: ​Whether or not the contested provision in the contract (provision no. 1 of the
Terms and Conditions) was valid and binding on the Acol, given that the contract was
one of adhesion. – NO
RATIO:
● The facts of this case are virtually identical with those of ​Ermitaño v. Court of
Appeals. Facts were the same but the assailed provision the stipulation devised
by respondent-BECC required two conditions before the cardholder could be
relieved of responsibility from unauthorized charges: (1) the receipt by the card
issuer of a written notice from the cardholder regarding the loss and (2) the
notification to the issuer's accredited establishments regarding such loss.
● In such case, SC struck down this stipulation as contrary to public policy and
granted the Ermitaños' petition:
Prompt notice by the cardholder to the credit card company of the loss or theft of
his card should be enough to relieve the former of any liability
occasioned by the unauthorized use of his lost or stolen card. The
questioned stipulation in this case, which still requires the cardholder to wait
until the credit card company has notified all its member-establishments, puts
the cardholder at the mercy of the credit card company which may delay
indefinitely the notification of its members to minimize if not to eliminate the
possibility of incurring any loss from unauthorized purchases. Or, as in this
case, the credit card company may for some reason fail to promptly notify its
members through absolutely no fault of the cardholder. To require the
cardholder to still pay for the unauthorized purchases ​after he has given
prompt notice of the loss or theft of his card to the credit card company
would simply be unfair and unjust. The Court cannot give its assent to
such a stipulation which could clearly run against public policy.
● In this case, the stipulation in question is just as repugnant to public policy as
that in ​Ermitaño​. As Acol points out, the effectivity of the cancellation of the lost
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Atty. Ruben Balane 
card rests on an act entirely beyond the control of the cardholder. Worse, the
phrase "after a reasonable time" gives the issuer the opportunity to actually
profit from unauthorized charges despite receipt of immediate written notice
from the cardholder.
● Under such a stipulation, Acol could have theoretically done everything in his
power to give PCCI the required written notice. But if PCCI took a "reasonable"
time (which could be indefinite) to include the card in its cancellation bulletin, it
could still hold the cardholder liable for whatever unauthorized charges were
incurred within that span of time. This would have been truly iniquitous,
considering the amount PCCI wanted to hold Acol liable for.
● Article 1306 of the Civil Code prohibits contracting parties from establishing
stipulations contrary to public policy. The assailed provision was just such a
stipulation. It is without any hesitation therefore that we strike it down.
HELD: WHEREFORE​, the petition is hereby ​GRANTED​. The assailed decision of the
Court of Appeals in CA-G.R. CV No. 39590 is reversed. The decision of the Regional
Trial Court of Manila on September 30, 1991 in Civil Case No. 88-44115 is
REINSTATED and the complaint filed by Philippine Commercial Credit Card
Incorporated against Acol is dismissed.
8. Aznar v. Citibank
G.R. No. 164273 | March 28, 2007 | J. Austria-Martinez
Petitioner: ​Emmanuel B. Aznar
Respondent: ​Citibank
Doctrine: ​Art. 1306 of CC The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
I only included the parts pertaining to contracts.
Summary:
Aznar, a known businessman in a Cebu, is a holder of a Preferred Mastercard credit
card issued by Citibank. He made a total advanced deposit with Citibank with the
intention of increasing his credit limit. During his Asian Tour with his wife and
grandchildren, his Citibank credit card was not honored in some establishments in
Malaysia, Singapore and Indonesia. And so for mental anguish, serious anxiety,
wounded feelings, besmirched reputation and social humiliation, he filed a complaint for
damages against Citibank. In its defense, Citibank invoked par. 7 & 15 of the terms and
conditions governing the issuance of its Mastercard. (see below)
The SC held that such stipulations are invalid. Par. 7 is vague and as a contract of
adhesion, any ambiguity in its provisions must be construed against the party who
prepared the contract, Citibank. On the other had Par. 15 is unconscionable as it
precludes payment of a larger amount even though damage may be clearly proven. But
notwithstanding their invalidity, the Court cannot grant damages to Aznar as he failed to
show by preponderance of evidence that Citibank breached any obligation that would
make it answerable for his emotional suffering.
Civil Law Review Case Digests
FACTS:
● Aznar, a Cebu businessman, is a holder of a Mastercard issued by Citibank with a
credit limit of P150,000. As he and his wife planned to take their grandchildren on
an Asian tour, he made an advance deposit of P485,000 with Citibank with the
intention of increasing his credit limit to P635,000. With the use of his Mastercard,
he then purchased plane tickets to Kuala Lumpur and left for the said destination.
● When he presented his Mastercard in some establishments in Malaysia, Singapore
and Indonesia, the same was not honored. And when he tried to use the same in
Ingtan Agency in Indonesia to purchase plane tickets to Bali, it was again
dishonored forcing him to buy the tickets in cash. He further claims that his
humiliation caused by the denial of his card was aggravated when Ingtan Agency
spoke of swindlers trying to use blacklisted cards
● Upon return to the Philippines, he filed a complaint for damages against Citibank for
mental anguish, serious anxiety, wounded feelings, besmirched reputation and
social humiliation due to the wrongful blacklisting of his card.
● Citibank denied the allegation that it blacklisted Aznar’s card.
● Trial Court:​ Dismissed.
o But on MR, the case was re-raffled to a new judge, and the MR was granted.
● CA:​ Reversed and ruled for Citibank. MR dismissed.
ISSUE: ​WON Aznar has established his claim against Citibank. –​ NO.
RATIO: 3 and RTC found such rate unconscionable and thus reduced it to 2% per month or 24%
● Citibank, in its attempt to evade liability, invokes paragraphs 7 and 15 of the terms
and conditions governing the issuance of its Mastercard.
o As to Par. 7 While it is true that Citibank may have no control of all the
actions of its merchant affiliates, and should not be held liable, it is incorrect,
however, to give it blanket freedom from liability if its card is dishonored by any
merchant affiliate for any reason. Such phrase renders the statement vague
and as the said terms and conditions constitute a contract of adhesion, any
ambiguity in its provisions must be construed against the party who prepared
the contract, in this case Citibank.
o As to Par. 15 ​Such stipulation cannot be considered as valid for being
unconscionable as it precludes payment of a larger amount even though
damage may be clearly proven. This Court is not precluded from ruling out
blind adherence to the terms of a contract if the attendant facts and
circumstances show that they should be ignored for being obviously too
one-sided. ​[eto lang feeling ko yung pwedeng pumasok sa doctrine]
● The invalidity of the terms and conditions being invoked by Citibank,
notwithstanding, the Court still CANNOT award damages in favor of Aznar. The
underlying basis for the award of tort damages is the premise that an individual was
injured in contemplation of law; thus there must first be a breach before damages
may be awarded and the breach of such duty should be the proximate cause of the
injury.
3
7. MERCHANT AFFILIATES. [Citibank is] not responsible if the Card is not honored by any merchant affiliate ​for
any reason​.​ ​Furthermore, [the cardholder] will not hold [Citibank] responsible for any defective product or service
purchased through the Card.
…
15. LIMITATION OF LIABILITY. In any action arising from this agreement or any incident thereto which [the
cardholder] or any other party may file against [Citibank], [Citibank’s] liability ​shall not exceed​ One Thousand
Pesos [​P​1,000.00] or the actual damages proven, whichever is ​lesser​.
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Atty. Ruben Balane 
● While the Court commiserates with Aznar for whatever undue embarrassment he
suffered when his credit card was dishonored by Ingtan Agency, especially when
the agency’s personnel insinuated that he could be a swindler trying to use
blacklisted cards, the Court cannot grant his present petition as he failed to show by
preponderance of evidence that Citibank breached any obligation that would make it
answerable for said suffering.
o Aznar failed to prove with a preponderance of evidence that Citibank blacklisted
his Mastercard or placed the same on the "hot list." In fact in his testimony he
admitted that he had no personal knowledge that his Mastercard was
blacklisted by Citibank and only presumed such fact from the dishonor of his
card.
9. Macalinao v. BPI
600 SCRA 67 (2009) | Velasco, Jr.
Petitioner​: Ileana DR Macalinao
Respondent​: Bank of the Phil. Islands
Summary: ​BPI filed a complaint for a sum of money against Macalinao for the latter’s
failure to pay its credit card purchases. In its Complaint, BPI originally imposed the
interest and penalty charges at the rate of 9.25% per month or 111% per annum. MeTC
per annum. On appeal, CA modified the rate of interest and penalty charge and
increased them to 3% per month or 36% per annum ​based on the Terms and
Conditions Governing the Issuance and Use of the BPI Credit Card​.
Issue: What interest rate / penalty charges rate must apply — 2% as ruled by the court
or 3% per Terms and Conditions Governing the Issuance and Use of the BPI Credit
Card? ​2% per month or 24% p.a.
SC: ​Jurisprudence has considered the interest rate ​of 3% per month as excessive and
unconscionable. As such, it is void and it is as if there was no express contract thereon.
Hence, courts may reduce the interest rate as reason and equity demand. The same is
true with respect to the ​penalty charge​. Article 1229 of the Civil Code allows the judge
to equitably reduce the penalty if it is iniquitous or unconscionable, considering the
circumstances of each case.
Facts:
● Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard,
one of the credit card facilities of respondent BPI. Macalinao made some
purchases through such said credit card and defaulted in paying for said
purchases. So she received a letter (Jan 5, 2004) from BPI, demanding
payment of P141,518.34.
● IMPT: ​Under the Terms and Conditions of the BPI Credit and BPI Mastercard,
the charges or balance thereof remaining unpaid after the payment due date
indicated on the monthly Statement of Accounts shall bear interest at the rate of
3% per month and an additional penalty fee equivalent to another 3% per
month.
● For Macalinao’s failure to settle her obligations, BPI filed with the MeTC of
Makati City a complaint for a sum of money against her and her husband,
Danilo SJ. Macalinao, praying for the payment of P154,608.78 plus ​3.25%
Civil Law Review Case Digests
finance charges and late payment charges equivalent to ​6% of the amount
due from Feb. 29, 2004 ​(9.25% total) and an amount equivalent to 25% of the
total amount due as attorney’s fees, and of the cost of suit.
● MeTC ruled in favor of BPI and ordered Macalinao to pay P141,518.34 plus
interest and penalty charges of ​2% per month​. RTC affirmed.
● CA modified the RTC Decision, ordering Macalinao to pay BPI P126,760.70
plus interest and penalty charges of ​3% per month from Jan 5, 2004 until fully
paid; P10,000.00 as and by way of attorney’s fees; and cost of suit. The CA
held among others that MeTC erred in modifying the amount of interest rate
from 3% monthly to only 2% considering that Macalinao freely availed herself of
the credit card facility offered by BPI to the general public. Contracts of
adhesion are not invalid per se and are not entirely prohibited.
Issue:
1. What interest rate / penalty charges rate must apply — 2% as ruled by the court
or 3% per Terms and Conditions Governing the Issuance and Use of the BPI
Credit Card? 2%
2. WON CA should have dismissed/remanded the case for failure of BPI to prove
the correct amount of Macalinao’s obligation — No
Held: ​The petition is ​PARTLY GRANTED​. CA Decision is hereby ​MODIFIED with
respect to the total amount due, interest rate, and penalty charge. Accordingly,
Macalinao is ordered to pay BPI the following: (1) P112,309.52 plus interest and penalty
charges of 2% per month from Jan 5, 2004 until fully paid; ​(2) 10,000 as and by way of
attorney’s fees; and​ ​(3) cost of suit.
1. The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum
Should Be Reduced to 2% Per Month or 24% Per Annum
● In the Terms and Conditions of the BPI Credit Card, there was a stipulation on
the 3% interest rate. Nevertheless, it should be noted that this is not the first
time that this Court has considered the interest rate of 36% per annum as
excessive and unconscionable.
o Chua vs. Timan:​ We need not unsettle the principle we had affirmed in
a plethora of cases that stipulated interest rates of 3% per month and
higher are excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the law.
● Since the stipulation on the interest rate is void, ​it is as if there was no
express contract thereon. Hence, courts may reduce the interest rate as reason
and equity demand.
● The same is true with respect to the ​penalty charge​. Notably, under the Terms
and Conditions of the BPI Credit Card, BPI shall impose an additional penalty
charge of 3% per month. Pertinently, Article 1229 of the Civil Code states, “The
judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable. In exercising this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of each case since
what may be iniquitous and unconscionable in one may be totally just and
equitable in another.
● In the instant case, the records would reveal that Macalinao made partial
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Atty. Ruben Balane 
payments to BPI, as indicated in her Billing Statements. Further, ​the stipulated
penalty charge of 3% per month or 36% per annum, in addition to regular
interests, is ​indeed iniquitous and unconscionable​.
● Thus, under the circumstances, ​it is equitable to reduce the interest rate
pegged by the CA at 1.5% monthly to 1% monthly ​and penalty charge fixed by
the CA at 1.5% monthly to 1% monthly or a total of ​2% per month or 24% per
annum in line with the prevailing jurisprudence and in accordance with Art.
1229 of the Civil Code.
2. There Is No Basis for the Dismissal/Remand of the Caseå
● Based on the records, despite the service of summons and complaint upon
Macalinao, she failed to file her Answer. Thus, BPI moved that judgment be
summarily rendered on the basis of its evidence. This is in consonance with § 6
of the Revised Rule on Summary Procedure.
● BPI should not be made to suffer for Macalinao’s failure to file an answer and
concomitantly, to allow the latter to submit additional evidence by dismissing or
remanding the case for further reception of evidence. Significantly, Macalinao
herself admitted the existence of her obligation to BPI, albeit with reservation as
to the principal amount. Thus, a dismissal of the case would cause great
injustice to BPI, while a remand of the case would unduly prolong the
proceedings.
10. Castro v. Tan
G.R. No. 168940 November 24, 2009 | DEL CASTILLO, ​J.
Petitioner: ​SPS. ISAGANI CASTRO and DIOSDADA CASTRO,
Respondents: ​ANGELINA DE LEON TAN, SPS. CONCEPCION T. CLEMENTE and
ALEXANDER C. CLEMENTE, SPS. ELIZABETH T. CARPIO and ALVIN CARPIO, SPS.
MARIE ROSE T. SOLIMAN and ARVIN SOLIMAN and JULIUS AMIEL TAN
Emergency​: Tan mortgaged their Bulacan property for a P30k loan with the Castros as
embodied in a “kasulatan”. The interest stipulated was 5% monthly interest rate, or 60%
per annum, compounded monthly. After maturity of the loan, Tan offered to pay the 30k
with a portion of the interest but the Castros demanded P359k. Failing to pay the said
amount, the Castros foreclosed the property. SC – despite the suspension of the Usury
Law, interest rates may still be declared illegal whenever they are found to be
unconscionable. The Castros stress that it is a settled principle that the law will not
relieve a party from the effects of an unwise, foolish or disastrous contract, entered into
with all the required formalities and with full awareness of what he was doing. However,
in Abe v. Foster Wheeler Corporation, we held that the freedom of contract is not
absolute. The same is understood to be subject to reasonable legislative regulation
aimed at the promotion of public health, morals, safety and welfare. One such legislative
regulation is found in Article 1306 of the Civil Code which allows the contracting parties
to "establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order or
public policy."
Facts​:
1. Respondent Angelina de Leon Tan, and her husband Ruben Tan were the
Civil Law Review Case Digests
former registered owners of a 240-square meter residential lot, situated at
Barrio​ Canalate, Malolos, Bulacan.
2. On February 17, 1994, they entered into an agreement with petitioners spouses
Isagani and Diosdada Castro denominated as Kasulatan ng Sanglaan ng Lupa
at Bahay (Kasulatan) to secure a loan of ​P​30,000.00 they obtained from the
latter.
3. Under the ​Kasulatan,​ the spouses Tan undertook to pay the mortgage debt
within six months or until August 17, 1994, with an interest rate of 5% per
month, compounded monthly.
4. When her husband died on September 2, 1994, respondent Tan failed to pay
the same upon maturity.
5. Thereafter, she offered to pay petitioner Castros the principal amount of
P​30,000.00 plus a portion of the interest but petitioners refused and instead
demanded payment of the total accumulated sum of ​P​359,000.00.
6. On February 5, 1999, petitioners caused the extrajudicial foreclosure. The
period of redemption expired.
7. On September 26, 2000, respondent Tan, joined by respondents Sps.
Concepcion T. Clemente and Alexander C. Clemente, Sps. Elizabeth T. Carpio
and Alvin Carpio, Sps. Marie Rose T. Soliman and Arvin Soliman and Julius
Amiel Tan filed a Complaint for Nullification of Mortgage.
a. They alleged, ​inter ​alia​, that the interest rate imposed on the principal
amount of ​P​30,000.00 is unconscionable.
8. RTC – ruled in favor of Tan, stating that it cannot declare the mortgage and
foreclosure null and void but the x x x Kasulatan ng Sanglaan ng Lupa x x x Is
partially rescinded to only 12% interest per annum and additional one percent a
month penalty charges – as liquidated damages beginning February 17, 1994
up to June 21, 2000 per Delivery of Possession x x x and/or for the defendants
to accept the offer of ​P​200,000.00 by the plaintiffs to redeem or reacquire the
property in litis.
9. CA – affirmed RTC but stated that respondent Tan may still redeem the
property notwithstanding the expiration of the redemption.
Issue​: w/n The Court of Appeals correctly found that the 5% monthly interest,
compounded monthly, is unconscionable and should be equitably reduced to the legal
rate of 12% per annum. ​YES
1. While we agree with petitioners that parties to a loan agreement have wide
latitude to stipulate on any interest rate in view of the Central Bank Circular No.
905 s. 1982 which suspended the Usury Law ceiling on interest effective
January 1, 1983, it is also worth stressing that interest rates whenever
unconscionable may still be declared illegal.
2. There is certainly nothing in said circular which grants lenders carte blanche
authority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets.
3. In several cases, we have ruled that stipulations authorizing iniquitous or
unconscionable interests are contrary to morals, if not against the law. In this
case, the 5% monthly interest rate, or 60% per annum, compounded monthly. It
is therefore void ab initio for being violative of Article 1306​20​ of the Civil Code.
4. Petitioner Castros stress that it is a settled principle that the law will not relieve
a party from the effects of an unwise, foolish or disastrous contract, entered into
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Atty. Ruben Balane 
with all the required formalities and with full awareness of what he was doing.
5. In Abe v. Foster Wheeler Corporation, we held that the freedom of contract is
not absolute. The same is understood to be subject to reasonable legislative
regulation aimed at the promotion of public health, morals, safety and welfare.
One such legislative regulation is found in Article 1306 of the Civil Code which
allows the contracting parties to "establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy."
6. The debt is to be considered without the stipulation of the iniquitous and
unconscionable interest rate. Accordingly, the legal interest of 12% per annum
must be imposed in lieu of the excessive interest stipulated in the agreement, in
line with our ruling in ​Ruiz v. Court of Appeals.
7. However​, ​The additional 1% per month penalty awarded as liquidated damages
does not have any legal basis.
a. Article 2226 of the Civil Code provides that "[L]iquidated damages are
those agreed upon by the parties to a contract, to be paid in case of
breach thereof." In the instant case, a cursory reading of the
Kasulatan would show that it is devoid of any stipulation with respect
to liquidated damages.
8. Lastly, the foreclosure proceedings held on March 3, 1999 cannot be given
effect.
a. It is undisputed that sometime after the maturity of the loan,
respondent Tan attempted to pay the mortgage debt of ​P​30,000.00 as
principal and some interest. Said offer was refused by petitioners
because they demanded payment of the total accumulated amount of
P​359,000.00.
b. From these, it is evident that despite considerable effort on her part,
respondent Tan failed to redeem the mortgaged property because she
was unable to raise the total amount of ​P​359,000.00, an amount
grossly inflated by the excessive interest imposed. Thus, it is only
proper that respondents be given the opportunity to repay the real
amount of their indebtedness.
c. In the case of Heirs of Zoilo Espiritu v. Landrito,​36 which is on all fours
with the instant case, we held that: since the Spouses Landrito, the
debtors in this case, were not given an opportunity to settle their debt,
at the correct amount and without the iniquitous interest imposed, ​no
foreclosure proceedings may be instituted​.
WHEREFORE​, the instant petition is ​DENIED​. The assailed Decision of the Court of
Appeals dated October 29, 2004 as well as the Resolution dated July 18, 2005 are
AFFIRMED with the ​MODIFICATION that the award of 1% liquidated damages per
month be ​DELETED and that petitioners are ​ORDERED to reconvey the subject
property to respondents conditioned upon the payment of the loan together with the rate
of interest fixed herein
11. Tiu v. Platinum Plans
Civil Law Review Case Digests
G.R. No. 163512 | February 28, 2007
Petitioner: DAISY B. TIU
Respondent: PLATINUM PLANS PHIL., INC.,
QUISUMBING,​ ​J.:
Summary​: Platinum Plans is a domestic corporation engaged in the pre-need industry.
One of its employees was Daisy Tiu. In 1993, she was appointed as senior AVP and
territorial operations head in charge of its HongKong and Asean operations. They
executed a contract for 5 years. In 1995, Tiu stopped reporting for work, and after a
couple of months, she suddenly entered into another pre-need company as its VP for
sales. Platinum sold Tiu for damages for violation of the “non-involvement” clause in her
employment contract which states that during her employment with Platinum and for the
next 2 years thereafter, she cannot engage herself with the work of another pre-need
company. Tiu argues it was void since it was contrary to public policy. SC agrees with
Platinum. A non-involvement clause is not necessarily void for restraining trade so long
as the limitations as to time, trade, and place are reasonable. The non-involvement
clause here was reasonable as it only prohibited Tiu for only 2 years and only for the
same business (pre-need company). This was only to protect the company since Tiu’s
position with them allowed her to be privy to highly-confidential and sensitive marketing
strategies. Hence, Tiu must pay Platinum.
Facts:
● Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged
in the pre-need industry. From 1987 to 1989, petitioner Daisy B. Tiu was its
Division Marketing Director.
● On January 1, 1993, respondent re-hired petitioner as Senior Assistant
Vice-President and Territorial Operations Head in charge of its Hongkong and
Asean operations. The parties executed a contract of employment valid for five
 years.​4
● In 1995, petitioner stopped reporting for work. In the same year, she became
the Vice-President for Sales of Professional Pension Plans, Inc., a corporation
engaged also in the pre-need industry.
● Consequently, respondent sued petitioner for damages before the RTC of
Pasig City, Branch 261. Respondent alleged, among others, that petitioner’s
employment with Professional Pension Plans, Inc. violated the4 non-involvement
clause (in a competing company for 2 years after termination) in her contract of
employment
● Petitioner countered that the non-involvement clause was unenforceable for
being against public order or public policy
o First, the restraint imposed was much greater than what was
necessary to afford respondent a fair and reasonable protection.
Petitioner contended that the transfer to a rival company was an
accepted practice in the pre-need industry. Since the products sold by
4
8. NON INVOLVEMENT PROVISION – The EMPLOYEE further undertakes that during his/her engagement with
EMPLOYER and in case of separation from the Company, whether voluntary or for cause, he/she shall not, for the
next TWO (2) years thereafter, engage in or be involved with any corporation, association or entity, whether
directly or indirectly, engaged in the same business or belonging to the same pre-need industry as the
EMPLOYER. Any breach of the foregoing provision shall render the EMPLOYEE liable to the EMPLOYER in the
 amount of One Hundred Thousand Pesos (P100,000.00) for and as liquidated damages.​5
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Atty. Ruben Balane 
the companies were more or less the same, there was nothing
peculiar or unique to protect.
o Second, respondent did not invest in petitioner’s training or
improvement. At the time petitioner was recruited, she already
possessed the knowledge and expertise required in the pre-need
industry and respondent benefited tremendously from it. Third, a strict
application of the non-involvement clause would amount to a
deprivation of petitioner’s right to engage in the only work she knew.
● RTC upheld the non-involvement clause. It ruled that a contract in restraint of
trade is valid provided that there is a limitation upon either time or place. In the
case of the pre-need industry, the trial court found the two-year restriction to be
valid and reasonable.
● On appeal, the Court of Appeals affirmed the trial court’s ruling. It reasoned that
petitioner entered into the contract on her own will and volition. Thus, she
bound herself to fulfill not only what was expressly stipulated in the contract, but
also all its consequences that were not against good faith, usage, and law.
ISSUE​: Won the non-involvement clause is valid?
RATIO​:
Petitioner’s contention: The non-involvement clause is offensive to public policy since
the restraint imposed is much greater than what is necessary to afford respondent a fair
and reasonable protection
Respondent’s contention: It contends that the inclusion of the two-year non-involvement
clause in petitioner’s contract of employment was reasonable and needed since her job
gave her access to the company’s confidential marketing strategies. Respondent adds
that the non-involvement clause merely enjoined her from engaging in pre-need
business akin to respondent’s within two years from petitioner’s separation from
respondent. She had not been prohibited from marketing other service plans.
● A non-involvement clause is not necessarily void for being in restraint of trade
as long as there are reasonable limitations as to time, trade, and place.
● In this case, the non-involvement clause has a time limit: two years from the
time petitioner’s employment with respondent ends. It is also limited as to trade,
since it only prohibits petitioner from engaging in any pre-need business akin to
respondent’s.​1awphi1.net
● More significantly, since petitioner was the Senior Assistant Vice-President and
Territorial Operations Head in charge of respondent’s Hongkong and Asean
operations, she had been privy to confidential and highly sensitive marketing
strategies of respondent’s business. To allow her to engage in a rival business
soon after she leaves would make respondent’s trade secrets vulnerable
especially in a highly competitive marketing environment.
● In sum, we find the non-involvement clause not contrary to public welfare and
not greater than is necessary to afford a fair and reasonable protection to
 
respondent.​ 13
● In any event, Article 1306 of the Civil Code provides that parties to a contract
may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.
Civil Law Review Case Digests
●  Article 1159​14​ of the same Code also provides that obligations arising from
contracts have the force of law between the contracting parties and should be
complied with in good faith.
o Courts cannot stipulate for the parties nor amend their agreement
where the same does not contravene law, morals, good customs,
public order or public policy, for to do so would be to alter the real
intent of the parties, and would run contrary to the function of the
 courts to give force and effect thereto.​15​
o Not being contrary to public policy, the non-involvement clause, which
petitioner and respondent freely agreed upon, has the force of law
 between them, and thus, should be complied with in good faith.​16
● Thus, as held by the trial court and the Court of Appeals, petitioner is bound to
pay respondent ​P​100,000 as liquidated damages. While we have equitably
 reduced liquidated damages in certain cases,​17​ we cannot do so in this case,
since it appears that even from the start, petitioner had not shown the least
intention to fulfill the non-involvement clause in good faith.
Heirs of Manuel Uy v. Meer Castillo
Advocates v. BSP
12. Spouses Mallari v. Prudential Bank
G.R. No. 197861, June 5 2013 | Peralta
Petitioners​: Spouses Florentino T. Mallari and Aurea V. Mallari
Respondents​: Prudential Bank (now BPI)
Emergency Recit: ​Sps. Mallari obtained 2 loans from Prudential Bank. For the first loan,
the interest rate was 21% per annum while the penalty charge was 12% per annum. For
the second loan, the interest rate was 23% per annum while the penalty charge was also
12% per annum. Issue now is whether or not the interest and penalty rates are
unconscionable. Court ruled no. 23% and 12% are not unconscionable under
jurisprudence. Spouses Mallari cannot back out on their obligation under the contract.
Facts:
● On December 11, 1984, Florentino obtained from Prudential Bank-Tarlac a loan
in the amount of 300k as evidenced by Promissory Note 84-055.
o The loan was subject to an interest rate of ​21% per annum and, in
case of default, a penalty and collection charges of ​12% p.a. of the
total amount due
● On December 22, 1989, spouses Florentino and Aurea obtained again from
respondent bank another loan of P1.7 million as evidenced by Promissory Note
606-89.
o They stipulated that the loan will bear ​23% interest per annum and
penalty and collection charges of ​12% per annum​.
​ less than 2% per month, which are much lower than those interest rates agreed
o Petitioners executed a Deed of Real Estate Mortgage in favor of
respondent bank covering petitioners' property in Tarlac under TCT
No. T-215175 to answer for the said loan.
● Petitioners failed to settle their loan obligations with respondent bank, thus, the
latter sent a demand letter to the former for them to pay their obligations, which
when computed up to January 31, 1992, amounted to P571,218.54 for PN No.
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Atty. Ruben Balane 
BD 84-055 and P2,991,294.82 for PN No. BDS 606-89.
● On February 25, 1992, respondent bank filed with the RTC of Tarlac, a petition
for the extrajudicial foreclosure of petitioners' mortgaged property for the
satisfaction of the latter's obligation of P1,700,000.00 secured by such
mortgage.
● On April 20, 1992, Sps. Mallari filed a complaint for annulment of mortgage
claiming inter alia that they realized that there were onerous terms and
conditions imposed by respondent bank when it tried to unilaterally increase the
charges and interest over and above those stipulated.
● Respondent bank filed its Answer with counterclaim arguing that the interest
rates were clearly provided in the promissory notes, which were used in
computing for interest charges. Respondent bank also claimed that petitioners
were fully apprised of the bank's terms and conditions.
● Trial thereafter ensued. Petitioner Florentino was presented as the lone witness
for the plaintiffs. Subsequently, respondent bank filed a Demurrer to Evidence.
​
● RTC issued its Order​ granting respondent's demurrer to evidence. CA affirmed.
Issue/Held: ​Whether the 23% p.a. interest rate and the 12% p.a. penalty charge on
petitioners' P1,700,000.00 loan to which they agreed upon is excessive or
unconscionable under the circumstances. ​NO.
Petitioners contend that the interest rate of 23% p.a. imposed by respondent bank is
​
excessive or unconscionable, invoking the ruling in ​Medel v. Court of Appeals, Toring v.
​
Spouses Ganzon-Olan,​ ​ and ​Chua v. Timan.
​
● In ​Medel v. Court of Appeals, we found the stipulated interest rate of ​66% p​ .a.
or a 5.5% per month on a P500,000.00 loan excessive, unconscionable and
exorbitant, hence, contrary to morals if not against the law and declared such
stipulation void.
​
● In ​Toring v. Spouses Ganzon-Olan,​ the stipulated interest rates involved were
3% and 3.81% per month on a P10 million loan, which we find under the
circumstances excessive and reduced the same to 1% per month.
​
● While in ​Chua v. Timan,​ where the stipulated interest rates were 7% and 5% a
month, which are equivalent to 84% and 60% p.a., respectively, we had
reduced the same to 1% per month or 12% p.a. We said that we need not
unsettle the principle we had affirmed in a plethora of cases that stipulated
interest rates of 3% per month and higher are excessive, unconscionable and
exorbitant, hence, the stipulation was void for being contrary to morals.
Interest rate of 23% per annum or less than 2% per month is not unconscionable.
● In this case, the interest rate agreed upon by the parties was only ​23% p.a., ​or
upon by the parties in the above-mentioned cases. Thus, there is no similarity
of factual milieu for the application of those cases.
● We do not consider the interest rate of 23% p.a. agreed upon by petitioners and
respondent bank to be unconscionable.
● Jurisprudence establish that the 24% p.a. stipulated interest rate was not
Civil Law Review Case Digests
considered unconscionable (​Villanueva v CA; Spouses Bacolor v Banco
Filipino; Garcia v CA)​ . Thus, the 23% p.a. interest rate imposed on petitioners'
loan in this case can by no means be considered excessive or unconscionable.
Penalty charge of 12% per annum is not unconscionable.
● Ruiz v. CA​: The 1% surcharge on the principal loan for every month of default
is valid.
● Here, petitioners defaulted in the payment of their loan obligation with
respondent bank and their contract provided for the payment of 12% p.a.
penalty charge, and since there was no showing that petitioners' failure to
perform their obligation was due to ​force majeure ​or to respondent bank's acts,
petitioners cannot now back out on their obligation to pay the penalty charge. A
contract is the law between the parties and they are bound by the stipulations
therein.
WHEREFORE​, the petition for review is DENIED​.
Art. 1307
Corpus v. CA
Art. 1308
Lao Lim v. CA
PNB v. CA
Florendo v. CA
13. Sampaguita Builders v. PNB
435 SCRA 565 | July 30, 2004 ​| ​Panganiban, J.
Petitioner: ​New Sampaguita Builders Construction, Inc. (NSBCI) and Spouses Eduardo
R. Dee and Arcelita M. Dee
Respondent: ​Philippine National Bank
Summary: ​NSBCI obtained a loan from PNB to mobilize its various construction project.
The loan was secured by a mortgage on the real estate properties of the Spouses Dee
(Eduardo was the President and Chairman). NSBCI executed various PNs and later on
failed to comply with its obligations under them. Dee wrote to PNB requiesting for a
90-day extension for the payment and restructuring of the loan, which the PNB
accepted. Dee tendered PDCs but 2 of them bounced so PNB sent a demand letter
again. This time, no answer so the properties were foreclosed. There is a deficiency
balance, however, so now PNB filed this instant case for collection. Main issue here is
whether the loans were bloated. SC said yes because the PNs contained a clause
authorizing PNB to increase the interest rates unilaterally. SC said that the courts have
the authority to strike down or to modify provisions in promissory notes that grant the
lenders unrestrained power to increase interest rates, penalties and other
charges at the latter’s sole discretion and without giving prior notice to and securing
the consent of the borrowers. This unilateral authority is anathema to the mutuality of
contracts and enables lenders to take undue advantage of borrowers. Although the
Usury Law has been effectively repealed, courts may still reduce iniquitous or
unconscionable rates charged for the use of money. Furthermore, excessive interests,
penalties and other charges not revealed in disclosure statements issued by banks,
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Atty. Ruben Balane 
even if stipulated in the promissory notes, cannot be given effect under the Truth in
Lending Act.
Facts:
1. New Sampaguita Builders Construction, Inc. (NSBCI) applied for a commercial
loan with the Philippine National Bank (PNB) for P8M using or mortgaging the
real estate properties of its President and Chairman Eduardo Dee as collateral.
Spouses Dee acted a sureties and co-obligors. This loan was to mobilize its
various construction projects.
2. The loan was secured by a mortgage on 10 parcels of residential land in
Pangasinan. The loan was further secured by the joint and several signatures
of Eduardo Dee and Arcelita Marquez Dee, who signed as
accommodation-mortgagors. NSBCI executed the following documents: a)
promissory note in the amount of ​P​5M with due date on October 27, 1989; b)
promissory note in the amount of ​P​2.7M with due date on December 30, 1989;
and c) promissory note in the amount of ​P​300K with maturity date on January
4, 1990.
3. Later on, NSBCI failed to comply with its obligations under the promissory
notes. Eduardo Dee on behalf of NSBCI sent a letter to the Branch Manager of
the PNB Dagupan Branch requesting for a 90-day extension for the payment of
interests and restructuring of its loan for another term. Subsequently, NSBCI
tendered payment to PNB of 3 checks aggregating ​P​1M.
4. PNB wrote Dee, informing him that NSBCI’s proposal was acceptable, provided
the total payment should be ​P​4,128,968.29 that would cover the amount
of ​P​1,019,231.33 as principal, ​P​3,056,058.03 as interests and penalties,
and​P​53,678.93 for insurance, with the issuance of post-dated checks to be
dated not later than November 29, 1991.
5. Eduardo Dee later tendered 4 PDCs aggregating ​P​1,111,306.67 but 2 checks
were dishonored due to a “stop payment” order from the Spouses.
PNB filed with the Provincial Sheriff of Pangasinan a Petition for Sale. The
Provincial Deputy Sheriff of Lingayen, Pangasinan foreclosed the real estate
mortgage and sold at public auction the mortgaged properties with PNB being
declared the highest bidder.
6. Spouses failed to redeem their properties within the one-year redemption
period. PNB informed NSBCI that the proceeds of the sale were not sufficient to
cover its total claim amounting to P12.5M and thus demanded the deficiency of
P2.1M plus interest and other charges. Spouses refused to pay and so PNB
filed this action for collection.
7. Finding that the PNB debt relief package automatically granted to NSBCI the
benefits under the program, the TC ruled in favor of NSBCI.
8. Reversing the TC, the CA held that NSBCI did not avail itself of PNB’s debt
relief package (DRP) or take steps to comply with the conditions for qualifying
under the program. The CA also ruled that entitlement to the program was not
a matter of right, because such entitlement was still subject to the approval of
higher bank authorities, based on their assessment of the borrower’s
repayment capability and satisfaction of other requirements. The increases in
the interest rates on NSBCI’s loan were also held to be authorized by law and
the Monetary Board and -- like the increases in penalty rates -- voluntarily and
Civil Law Review Case Digests
freely agreed upon by the parties in the Credit Agreements they
executed. Thus, these increases were binding upon petitioners.
Main Issue for Balane: ​W/N the loan accounts are bloated?
Increases in Interest Baseless
1. Promissory Notes.​ In each drawdown, the PNs specified the interest rate to
be charged: 19.5% in the first, and 21.5% in the second and again in the
third. However, a uniform clause therein permitted PNB to increase the rate
“within the limits allowed by law at any time depending on whatever policy it
may adopt in the future,” without even giving prior notice to NSCBI. NSCBI’s
accessory duty to pay interest did not give PNB unrestrained freedom to charge
any rate other than that which was agreed upon.
2. The “unilateral determination and imposition” of increased rates is “violative of
the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.”
One-sided impositions do not have the force of law between the parties,
because such impositions are not based on the parties’ essential equality.
3. Although escalation clauses are valid in maintaining fiscal stability and retaining
the value of money on long-term contracts, giving PNB an unbridled right to
adjust the interest independently and upwardly would completely take away
from NSCBI the “right to assent to an important modification in their agreement”
and would also negate the element of mutuality in their contracts. The clause
cited earlier made the fulfillment of the contracts “dependent exclusively upon
the uncontrolled will” of respondent and was therefore void. Besides, the pro
forma promissory notes have the character of a ​contract d’adhésion​, “where the
parties do not bargain on equal footing, the weaker party’s [the debtor’s]
participation being reduced to the alternative ‘to take it or leave it.’”
4. Although such increases are not usurious, since the “Usury Law is now legally
inexistent” -- the interest ranging from 26% to 35% in the statements of
account -- “must be equitably reduced for being iniquitous, unconscionable and
exorbitant.” Rates found to be iniquitous or unconscionable are void, as if it
there were no express contract thereon.
5. It cannot be argued that assent to the increases can be implied either from the
June 18, 1991 request of NSCBI for loan restructuring or from their lack of
response to the statements of account sent by PNB. Such request does not
indicate any agreement to an interest increase; there can be no implied waiver
of a right when there is no clear, unequivocal and decisive act showing such
purpose. Besides, the statements were not letters of information sent to secure
their conformity; and even if we were to presume these as an offer, there was
no acceptance.
6. Next, the 3 disclosure statements, as well as the 2 credit agreements
considered by this Court, did not provide for any increase in the specified
interest rates. Thus, none would now be permitted.
Penalty, or Increases​ ​Thereof, Unjustified
1. No penalty charges or increases thereof appear either in the Disclosure
Statements or in any of the clauses in the second and the third Credit
Agreements earlier discussed. While a standard penalty charge of 6% per
annum has been imposed on the amounts stated in all three PNs still remaining
unpaid or unrenewed when they fell due, there is no stipulation therein that
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Atty. Ruben Balane 
would justify any increase in that charges. The effect, therefore, when the
borrower is not clearly informed of the Disclosure Statements -- prior to the
consummation of the availment or drawdown -- is that the lender will have no
right to collect upon such charge or increases thereof, even if stipulated in the
Notes.
2. In the statements of account, the penalty rate has again been unilaterally
increased by PNB to 36% without petitioners’ consent. As a result of its move,
such liquidated damages intended as a penalty shall be equitably reduced by
the Court to zilch for being iniquitous or unconscionable.
Minor Issue: ​W/N the EJ foreclosure and claim for deficiency are valid?
Extrajudicial Foreclosure Valid, But​ ​Deficiency Claims Excessive
1. The excessive interest rates in the Statements of Account sent to petitioners
are reduced to 19.5 percent and 21.5 percent, as stipulated in the Promissory
Notes; upon loan conversion, these rates are further reduced to the legal rate of
12 percent. Payments made by petitioners are pro-rated, the charges on
penalty and insurance eliminated, and the resulting total unpaid principal and
interest of ​P​6,582,077.70 as of the date of public auction is then subjected to 1
percent attorney’s fees. The total outstanding obligation is compared to the bid
price. On the basis of these rates and the comparison made, the deficiency
claim receivable amounting to​P​2,172,476.43 in fact vanishes. Instead, there is
an overpayment by more than ​P​3 million
Held: ​WHEREFORE, this Petition is hereby ​PARTLY GRANTED​. The Decision of the
Court of Appeals is ​AFFIRMED,​ with the ​MODIFICATION​ that PNB is ​ORDERED t​ o
refund the sum of ​P​3,686,101.52 representing the overcollection computed above, plus
interest thereon at the legal rate of six percent (6%) per annum from the filing of the
Complaint until the finality of this Decision. After this Decision becomes final and
executory, the applicable rate shall be twelve percent (12%) per annumuntil its
satisfaction. No costs.
Art. 1311
Velasco v. CA
Kauffman v. PNB
Bonifacio Bros v. Mora
Florentino v. Encarnacion
Bank of America v. IAC
Marimperio v. CA
Capital Insurance v. Central Azucarera
Barfel v. CA
14. Mandarin Villa v. CA
257 SCRA 538 | June 20, 1996
Petitioner: ​Mandarin Villa, Inc​.
Respondent: ​CA and Clodualdo De Jesus
ER: ​De Jesus went to a restaurant and offered to pay with his credit card. It was rejected
for being expired. ​Held: ​An "Agreement" between Mandarin Villa and BANKARD
Civil Law Review Case Digests
provides: "The MERCHANT shall honor validly issued PCCCI credit cards…provided
that the card expiration date has not elapsed…” While De Jesus may not be a party to
the said agreement, the stipulation conferred a favor upon him, a holder of credit card
validly issued by BANKARD. This stipulation is a stipulation ​pour autri​ a
​ nd under Art.
1311 De Jesus may demand its fulfillment provided he communicated his acceptance to
the Mandarin Villa before its revocation. De Jesus’ offer to pay by means of his
BANKARD credit card constitutes not only an acceptance of the said stipulation but also
an explicit communication of his acceptance to the obligor. Also, Mandarin posted a logo
inside the restaurant stating that "Bankard is accepted here."
Facts:
● On Oct 19, 1989, Clodualdo de Jesus, a practicing lawyer and businessman, hosted
a dinner for his friends at the petitioner's restaurant the Mandarin Villa Seafoods
Village, Greenhills. After dinner the waiter handed to him the bill for P2,658.50.
● De Jesus offered to pay the bill through his credit card issued by Philippine
Commercial Credit Card (BANKARD). This card was accepted by the waiter who
immediately proceeded to the restaurant's cashier for card verification. 10 minutes
later the waiter returned and audibly informed De Jesus that his credit card had
expired. De Jesus remonstrated that said credit card had yet to expire on
September 1990, as embossed on its face. De Jesus and 2 of his guests
approached the restaurant's cashier who again passed the credit card over the
verification computer. The same information was produced, ​i.e., C ​ ARD EXPIRED.
● Prof. Lirag, another guest said: ​"Clody, may problema ba? Baka kailangang
maghugas na kami ng pinggan?
● De Jesus left the restaurant and got his BPI Express Credit Card from his car and
offered it to pay their bill. This was accepted and honored by the cashier after
verification.
● Lower Court ordered Mandarin Villa and BANKARD to pay jointly and severally De
Jesus: 250K moral damages, 100k exemplary and 50k atty. fees
● CA modified: MANDARIN solely responsible for damages; Reduced moral damages
to P25K, exemplary to 10K. Removed atty’s fees
Issue 1: ​W/n Mandarin Villa is bound to accept payment by means of credit card. ​Yes.
Issue 2: ​W/n Mandarin Villa is negligent. ​No.
Issue 3: ​w/n such negligence is the proximate cause of the private respondent's
damage. ​No.
Mandarin bound to accept. The agreement between Mandarin and Bankard had a
stipulation pour autrui
● Mandarin argument​: it cannot be faulted for its cashier's refusal to accept De
Jesus’ BANKARD credit card, the same not being a legal tender. De Jesus’ offer to
pay by means of credit card partook of the nature of a proposal to novate an
existing obligation for which Mandarin, as creditor, must first give its consent
otherwise there will be no binding contract between them.
● SC​: Mandarin Villa Seafood Village is affiliated with BANKARD. An
"Agreement" between Mandarin Villa and BANKARD provides: "The MERCHANT
shall honor validly issued PCCCI credit cards presented by their corresponding
holders in the purchase of goods and/or services supplied by it provided that the
card expiration date has not elapsed and the card number does not appear on the
latest cancellation bulletin of lost, suspended and cancelled PCCCI credit cards
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Atty. Ruben Balane 
and, no signs of tampering, alterations or irregularities appear on the face of the
credit card."
● While De Jesus may not be a party to the said agreement, ​the stipulation
conferred a favor upon him, a holder of credit card validly issued by
BANKARD​. ​This stipulation is a stipulation ​pour autri a ​ nd under Art. 1311 De
Jesus may demand its fulfillment provided he communicated his acceptance to the
Mandarin Villa before its revocation.
● De Jesus’ offer to pay by means of his BANKARD credit card constitutes not only an
acceptance of the said stipulation but also an explicit communication of his
acceptance to the obligor.
● Mandarin Villa posted a logo inside Mandarin Villa Seafood Village stating that
"Bankard is accepted here." This representation is conclusive upon the Mandarin
Villa which it cannot deny or disprove as against De Jesus, the party relying
thereon. Madarin Villa cannot disclaim its obligation to accept De Jesus’ BANKARD
credit card without violating the equitable principle of estoppel.
Mandarin did not use the reasonable care and caution which an ordinary prudent person
would have used in the same situation and as such petitioner is guilty of negligence.
● Mandarin’s arguments​: good faith in checking, not just once but twice, the validity
of the credit card prior to its dishonor. Since the verification machine flashed
information that the credit card has expired, it could not be expected to honor the
same much less be adjudged negligent for dishonoring it. It followed the guidelines
issued by BANKARD in dishonoring the credit card.
● SC​: The test for determining the existence of negligence: Did the defendant in
doing the alleged negligent act use the reasonable care and caution which an
ordinary prudent person would have used in the same situation? A cursory reading
of the Point of Sale (POS) Guidelines (which outlined the steps that Mandarin Villa
should take) reveals that whenever the words CARD EXPIRED flashes on the
screen of the verification machine, Mandarin Villa should check the credit card's
expiry date embossed on the card itself. If unexpired, Mandarin should honor the
card provided it is not invalid, cancelled or otherwise suspended. But if expired,
Mandarin Villa should not honor the card.
● De Jesus’ BANKARD credit card has an embossed expiry date of September 1990.
Clearly, it has not yet expired on October 19, 1989, when the same was wrongfully
dishonored.
The the fact of dishonor of his valid credit card was the proximate cause.
● Mandarin’s argument​: De Jesus’ own negligence in not bringing with him sufficient
cash was the proximate cause of his damage. The remark of Prof. Lirag is a
supervening event and at the same time the proximate cause of De Jesus’ injury.
● SC: ​While it is true that De Jesus did not have sufficient cash, this fact alone does
not constitute negligence on his part. Neither can it be claimed that the same was
the proximate cause of his damage. We take judicial notice of the current practice
among major establishments to accept payment by means of credit cards in lieu of
cash. Thus, Mandarin Villa accepted De Jesus’ BPI Express Credit Card after
verifying its validity, a fact which all the more refutes Mandarin’s imputation of
negligence on the De Jesus.
● The remark of Prof. Lirag was not a supervening event and not the proximate cause
of De Jesus’ injury. De Jesus’ humiliation and embarrassment was brought about
not by such a remark of Prof. Lirag but by the fact of dishonor of his valid BANKARD
Civil Law Review Case Digests
credit card. If at all, the remark of Prof. Lirag served only to aggravate the
embarrassment then felt by De Jesus, albeit silently within himself.
Summa Insurance v. CA
15. Baluyot v. CA
G.R. No. 122947 July 22, 1999
Petitioners​: TIMOTEO BALUYOT, JAIME BENITO, BENIGNO EUGENIO, ROLANDO
GONZALES, FORTUNATO FULGENCIO and CRUZ-NA-LIGAS HOMESITE
ASSOCIATION, INC.
Respondents:​: THE HONORABLE COURT OF APPEALS, THE QUEZON CITY
GOVERNMENT and UNIVERSITY OF THE PHILIPPINES
Summary: ​Baluyot, et. al and the Association have been in open, peaceful, adverse
and continuous possession in the concept of an owner since memory can no longer
recall of that parcel of riceland known [as] Sitio Libis, Barrio Cruz-na-Ligas, Quezon City
(now Diliman, Quezon City). Upon advise of counsel and close study of the said offer of
defendant UP to Donate 15.8379 hectares, plaintiff Association proposed to accept and
the defendant UP manifested in writing consent to the intended donation directly to the
plaintiff Association. Defendant UP backed-out from the arrangement to Donate directly
to the plaintiff Association for the benefit of the qualified residents and high-handedly
resumed to negotiate the donation thru the defendant Quezon City Government.
Defendant UP executed that Deed of Donation, in favor of the defendant Quezon City
Government for the benefit of the qualified residents of Cruz-na-Ligas. Defendant UP
had continuously and unlawfully refused, despite requests and several conferences
made, to comply with their reciprocal duty, to deliver the certificate of title to enable the
Donee, the defendant Quezon City Government, to register the ownership so that the
defendant Quezon City Government can legally and fully comply with their obligations
under the said deed of donation. For alleged non-compliance of the defendant Quezon
City Government with terms and conditions, defendant UP thru its President, Mr. Jose
Abueva, unilaterally, capriciously, whimsically and unlawfully issued that Administrative
Order No. 21 declaring the deed of donation revoked and the Donated property be
reverted to defendant UP. W/N the complaint states a cause of action? YES. While,
admittedly, petitioners were not parties to the deed of donation, they anchor their right to
seek its enforcement upon their allegation that they are intended beneficiaries of the
donation to the Quezon City government. Under Ari. 1311 of the Civil Code, the following
requisites must be present in order to have a stipulation​ pour autrui:​ (1) there must be a
stipulation in favor of a third person; (2) the stipulation must be a part, not the whole of
the contract; (3) the contracting parties must have clearly and deliberately conferred a
favor upon a third person, not a mere incidental benefit or interest; (4) the third person
must have communicated his acceptance to the obliger before its revocation; and (5)
neither of the contracting parties bears the legal representation or authorization of the
third party. Respondent UP has an obligation to transfer the subject parcel of land to the
city government so that the latter can in turn comply with its obligations to make
improvements on the land and thereafter transfer the same to Baluyot, et al. For the
purpose of determining the sufficiency of petitioners' cause of action, these allegations of
the amended complaint must be deemed to be hypothetically true. So assuming the truth
of the allegations, we hold that petitioners have a cause of action against UP.
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Atty. Ruben Balane 
FACTS:
● Petitioners Timoteo Baluyot, Jaime Benito, Benigno Eugenio, Rolando Gonzales, and
Fortunato Fulgencio are residents of Barangay Cruz-na-Ligas, Diliman, Quezon City.
The Cruz-na-Ligas Homesite Association, Inc. is a non-stock corporation of which
petitioners and other residents of Barangay Cruz-na-Ligas are members.
● Petitioners filed a complaint for specific performance and damages against, private
respondent University of the Philippines before the Regional Trial Court of Quezon
City. As amended, the complaint alleges:
o Baluyot, et. al and their ascendants have been in open, peaceful, adverse and
continuous possession in the concept of an owner since memory can no longer
recall of that parcel of riceland known [as] Sitio Libis, Barrio Cruz-na-Ligas, Quezon
City (now Diliman, Quezon City), while the members of the Association and their
ascendants have possessed since time immemorial openly, adversely, continuously
and also in the concept of an owner, the rest of the area embraced by and within the
Barrio Cruz-na-Ligas, Diliman, Quezon City;
o Upon advise of counsel and close study of the said offer of defendant UP to Donate
15.8379 hectares, plaintiff Association proposed to accept and the defendant UP
manifested in writing consent to the intended donation directly to the plaintiff
Association for the benefit of the bonafide residents of Barrio Cruz-na-Ligas and
plaintiffs' Association have agreed to comply with the terms and conditions of the
donation;
o Defendant UP backed-out from the arrangement to Donate directly to the plaintiff
Association for the benefit of the qualified residents and high-handedly resumed to
negotiate the donation thru the defendant Quezon City Government under the terms
disadvantageous or contrary to the rights of the bonafide residents of the Barrio as
shown in the Draft of Deed of Donation;
o Plaintiff Association filed a Petition for a writ of preliminary injunction to restrain
defendant UP from donating the area to the defendant Quezon City Government;
o Plaintiff Association agreed to the lifting of the Order granting the injunction after
defendant UP made an assurance in their said Motion for Reconsideration that the
donation to the defendant Quezon City Government will be for the benefit of the
residents of Cruz-Na-Ligas.
o Defendant UP executed that Deed of Donation, in favor of the defendant Quezon
City Government for the benefit of the qualified residents of Cruz-na-Ligas;
however, neither the plaintiffs herein nor plaintiff Association officers had
participated in any capacity in the act of execution of the said deed of donation;
o Under the said deed of donation, the 15.8379 hectares were ceded, transferred and
conveyed and the defendant Quezon City Government accepted the Donation
under the terms and conditions, pertinent portions of which are quoted as follows:
▪ The DONEE shall, within eighteen (18) months from the signing hereof, undertake
at its expense the following:
▪ a. Cause the removal of structures built on the boundaries of the Donated lot;
▪ b. Relocate inside the Donated lot all families who are presently outside of the
Donated lot;
▪ c. Relocate all families who cannot be relocated within the boundaries of the
Donated lot to a site outside of the University of the Philippines campus in
Diliman, Quezon City;
▪ d. Construct a fence on the boundaries adjoining Kruz-na-Ligas and the
University.
Civil Law Review Case Digests
o Defendant Quezon City Government immediately prepared the groundworks in
compliance with the afore-quoted terms and conditions; however, defendant UP
under the officer-in-charge then and even under the incumbent President, Mr. Jose
Abueva, had failed to deliver the certificate of title covering the property to be
Donated to enable the defendant Quezon City Government to register the said
Deed of Donation so that corresponding certificate of title be issued under its name;
o Defendant UP had continuously and unlawfully refused, despite requests and
several conferences made, to comply with their reciprocal duty, to deliver the
certificate of title to enable the Donee, the defendant Quezon City Government, to
register the ownership so that the defendant Quezon City Government can legally
and fully comply with their obligations under the said deed of donation;
o Upon expiration of the period of eighteen (18) [months], for alleged non-compliance
of the defendant Quezon City Government with terms and conditions quoted in par.
16 hereof, defendant UP thru its President, Mr. Jose Abueva, unilaterally,
capriciously, whimsically and unlawfully issued that Administrative Order No. 21
declaring the deed of donation revoked and the Donated property be reverted to
defendant UP;
● Petitioners argue that their complaint alleges facts constituting a cause of action
which must be fully explored during trial. They question the validity of the revocation
of the donation and seek the enforcement of the donation through specific
performance.
● On the other hand, respondents contend that by seeking specific performance of the
deed of donation as their primary cause of action, petitioners cannot at the same time
claim ownership over the property subject of the donation by virtue of laches or
acquisitive prescription. Petitioners cannot base their case on inconsistent causes of
action.
ISSUE: ​W/N the complaint states a cause of action? YES.
RATIO:
● A cause of action exists if the following elements are present, namely: (1) a right in
favor of the plaintiff by whatever means and under whatever law it arises or is created;
(2) an obligation on the part of the defendant to respect or not to violate such right;
and (3) an act or omission on the part of such defendant in violation of the right of the
plaintiff or constituting a breach of the obligations of the defendant to the plaintiff for
which the latter may maintain an action for recovery of damages.
● We find all the elements of a cause of action contained in the amended complaint of
petitioners. While, admittedly, petitioners were not parties to the deed of donation,
they anchor their right to seek its enforcement upon their allegation that they are
intended beneficiaries of the donation to the Quezon City government. Art. 1311,
second paragraph, of the Civil Code provides:
If a contract should contain some stipulation in favor of a third person, he may demand
its fulfillment provided he communicated his acceptance to the obliger before its
revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person.
● Under this provision of the Civil Code, the following requisites must be present in order
to have a stipulation​ pour autrui:​
(1) there must be a stipulation in favor of a third person;
(2) the stipulation must be a part, not the whole of the contract;
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Atty. Ruben Balane 
(3) the contracting parties must have clearly and deliberately conferred a favor upon a
third person, not a mere incidental benefit or interest;
(4) the third person must have communicated his acceptance to the obliger before its
revocation; and
(5) neither of the contracting parties bears the legal representation or authorization of
the third party.
● The allegations in the following paragraphs of the amended complaint are sufficient to
bring petitioners' action within the purview of the second paragraph of Art. 1311 on
stipulations​ pour autrui​:
1. Paragraph 17, that the deed of donation contains a stipulation that the Quezon City
government, as donee, is required to transfer to qualified residents of Cruz-na-Ligas,
by way of donations, the lots occupied by them;
2. The same paragraph, that this stipulation is part of conditions and obligations
imposed by UP, as donor, upon the Quezon City government, as donee;
3. Paragraphs 15 and 16, that the intent of the parties to the deed of donation was to
confer a favor upon petitioners by transferring to the latter the lots occupied by them;
4. Paragraph 19, that conferences were held between the parties to convince UP to
surrender the certificates of title to the city government, implying that the donation had
been accepted by petitioners by demanding fulfillment thereof​ ​and that private
respondents were aware of such acceptance; and
5. All the allegations considered together from which it can be fairly inferred that
neither of private respondents acted in representation of the other; each of the private
respondents had its own obligations, in view of conferring a favor upon petitioners.
● The amended complaint further alleges that respondent UP has an obligation to
transfer the subject parcel of land to the city government so that the latter can in turn
comply with its obligations to make improvements on the land and thereafter transfer
the same to petitioners but that, in breach of this obligation, UP failed to deliver the
title to the land to the city government and then revoked the deed of donation after the
latter failed to fulfill its obligations within the time allowed in the contract.
● For the purpose of determining the sufficiency of petitioners' cause of action, these
allegations of the amended complaint must be deemed to be hypothetically true. So
assuming the truth of the allegations, we hold that petitioners have a cause of action
against UP.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is
REMANDED to the Regional Trial Court of Quezon City, Branch 89, for trial on the
merits.
16. Uy v. CA
G.R. No. 120465 | September 9, 1999 (9/9/99) | Justice Kapunan
Petitioners​: William Uy & Rodel Roxas
Respondents​: CA, Hon. Robert Balao, and National Housing Authority
Summary: ​Uy and Roxas were agents authorized to sell eight parcels of land by their
owners. They sold the lands located in Benguet to NHA, and Deeds of Absolute Sale
were concluded. However, only five were paid for by the NHA, since a study showed that
the other three lots were prone to landslides and were not suitable for housing. The NHA
thus cancelled the sale over the three parcels, and offered the landowners the amount of
Civil Law Review Case Digests
PhP 1.225M as daños perjucios. Petitioners filed a suit for damages against the NHA.
RTC said the cancellation was justified, and the amount given by NHA is enough. CA
deleted the amount of damages since the cancellation was justified and petitioners are
not real parties-in-interest. I: W/N CA erred in dismissing the complaint. NO! Based on
Art. 1311, as petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation
pour autrui under the contracts of sale, they do not, under substantive law, possess the
right they seek to enforce. Thus, they are not the real parties-in-interest in this case. As
such, any decision rendered would be pointless since the same would not bind the ​real
parties-in-interest. In any event, the cancellation of the contract is justified, as there was
no more cause on the part of NHA. Note that this is not a case of rescission under Art.
1191 since there was no breach involved.
Facts:
● William Uy and Rodel Roxas are agents authorized to sell eight parcels of land
by the owners thereof. By virtue of such authority, petitioners offered to sell the
lands, located in Tuba, Tadiangan, Benguet to respondent National Housing
Authority (NHA) to be utilized and developed as a housing project.
● On Feb. 14, 1989, the NHA Board passed Resolution No. 1632 approving the
acquisition of said lands, with an area of 31.8231 hectares, at the cost of
P​23.867 million, pursuant to which the parties executed a series of Deeds of
Absolute Sale covering the subject lands. Of the eight parcels of land,
however, only five were paid for by the NHA because of the report it received
from the Land Geosciences Bureau of the Department of Environment and
Natural Resources that the remaining area is located at an active landslide area
and therefore, not suitable for development into a housing project.
● On 22 Nov 1991, the NHA issued Resolution No. 2352 cancelling the sale over
the three parcels of land. The NHA, through Resolution No. 2394, then offered
the amount of ​P​1.225 million to the landowners as ​daños perjuicios.​
● Uy and Roxas filed before the RTC of Quezon City a Complaint for Damages
against NHA and its General Manager Robert Balao.
● RTC Declared the cancellation of the contract to be justified. Sustained the
amount of damages given by NHA to petitioners.
● CA Reversed the RTC. Since there was “sufficient justifiable basis” in
cancelling the sale, “it saw no reason” for the award of damages. Petitioners
were mere attorneys-in-fact and not the real parties-in-interest in the action.
The lot owners should be the named parties. MR denied. Hence this petition.
Issue: ​W/N the CA erred in dismissing the complaint because the petitioners failed to
join as indispensable parties the selling lot owners. ​NO!!!
Held: ​WHEREFORE, the instant petition is hereby DENIED.
Ratio:
● Petitioners’ Claim they filed the complaint not in behalf of their principals but
in their own name as agents directly damaged by the termination of the
contract. The damages prayed for were intended not for the benefit of their
principals but to indemnify petitioners for the losses they themselves allegedly
incurred as a result of such termination. These damages consist mainly of
“unearned income” and advances. They purportedly brought the action for
damages in their own name and ​in their own behalf​.
● SC NO! The Rules of Court requires that every action must be prosecuted
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and defended in the name of the real party-in-interest. The real
party-in-interest is the party who stands to be benefited or injured by the
judgment or the party entitled to the avails of the suit. “Interest,” within the
meaning of the rule, means material interest, an interest in the issue and to be
affected by the decree, as distinguished from mere interest in the question
involved, or a mere incidental interest. The true meaning of real party-in-interest
may be summarized as follows: An action shall be prosecuted in the name of
the party who, by the substantive law, has the right sought to be enforced.
Under substantive law, petitioners have no right.
● The applicable substantive law here is Art. 1311 of the Civil Code (see codal)
● Are petitioners parties, assignees, or heirs??? NO
● Petitioners are not ​parties to the contract of sale between their principals and
NHA. They are mere ​agents of the owners of the land subject of the sale. As
agents, they only render some service or do something ​in representation or ​on
behalf of their principals. The rendering of such service did not make them
parties to the contracts of sale executed in behalf of the latter. Since a contract
may be violated only by the parties thereto as against each other, the real
parties-in-interest, either as plaintiff or defendant, in an action upon that
contract must, generally, either be parties to said contract.
● Neither has there been any allegation, much less proof, that petitioners are the
heirs​ of their principals.
● The rule requiring every action to be prosecuted in the name of the real
party-in-interest recognizes the assignments of rights of action and also
recognizes that when one has a right of action assigned to him he is then the
real party in interest and may maintain an action upon such claim or right. Thus,
an agent, in his own behalf, may bring an action founded on a contract made
for his principal, as an ​assignee​ of such contract.
● Petitioners, however, have not shown that they are assignees of their principals
to the subject contracts. While they alleged that they made advances and that
they suffered loss of commissions, they have not established any agreement
granting them “the right to receive payment and out of the proceeds to
reimburse [themselves] for advances and commissions before turning the
balance over to the principal[s].”
● Finally, it does not appear that petitioners are ​beneficiaries of a stipulation
pour autrui under par. 2 of Art. 1311. There is no stipulation in the Deeds of
Absolute Sale “clearly and deliberately” conferring a favor to any third person.
● That petitioners did not obtain their commissions or recoup their advances
because of the non-performance of the contract did not entitle them to file the
action below against respondent NHA.
● The fact that an agent who makes a contract for his principal will gain or suffer
loss by the performance or nonperformance of the contract by the principal or
by the other party thereto does not entitle him to maintain an action on his own
behalf against the other party for its breach. An agent entitled to receive a
commission from his principal upon the performance of a contract which he has
made on his principal’s account does not, from this fact alone, have any claim
against the other party for breach of the contract, either in an action on the
contract or otherwise. An agent who is not a promisee cannot maintain an
action at law against a purchaser merely because he is entitled to have his
compensation or advances paid out of the purchase price before payment to
the principal.
Civil Law Review Case Digests
● As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation
pour autrui under the contracts of sale, they do not, under substantive law,
possess the right they seek to enforce. Therefore, they are not the real
parties-in-interest in this case. As such, any decision rendered would be
pointless since the same would not bind the ​real​ parties-in-interest.
But SC still ruled on the merits…
● Nevertheless, to forestall further litigation on the substantive aspects of this
case, we shall proceed to rule on the merits.
● Petitioners submit that NHA had no legal basis to “rescind” the sale of the
subject three parcels of land. In any event, they argue that they are still entitled
to an award of damages.
● SC Petitioners confuse the cancellation of the contract by the NHA as a
rescission of the contract under Art. 1191. The right of rescission or, more
accurately, resolution, of a party to an obligation under Article 1191 is
predicated on a breach of faith by the other party that violates the reciprocity
between them. The power to rescind, therefore, is given to the injured party.
● In this case, the NHA did not rescind the contract. Indeed, it did not have the
right to do so for the other parties to the contract, the vendors, did not commit
any breach, much less a substantial breach, of their obligation. Their obligation
was merely to deliver the parcels of land to the NHA, an obligation that they
fulfilled. The NHA did not suffer any injury by such performance.
● The cancellation, therefore, was not a rescission under Art. 1191. Rather, it
was based on the negation of the cause arising from the realization that the
lands, which were the object of the sale, were not suitable for housing.
● Cause is the essential reason which moves the contracting parties to enter into
it. In other words, the cause is the immediate, direct and proximate reason
which justifies the creation of an obligation through the will of the contracting
parties.
● For example, in a contract of sale of a piece of land, such as in this case, the
cause of the vendor (petitioner’s principals) in entering into the contract is to
obtain the price. For the vendee, NHA, it is the acquisition of the land. The
motive of the NHA, on the other hand, is to use said lands for housing. This is
apparent from the portion of the Deeds of Absolute Sale​.
● Ordinarily, a party’s motives for entering into the contract do not affect the
contract. However, ​when the motive predetermines the cause, the motive
may be regarded as the cause​.
● In this case, it is clear, and petitioners do not dispute, that NHA would not have
entered into the contract were the lands not suitable for housing. In other
words, the quality of the land was an implied condition for the NHA to enter into
the contract. On the part of the NHA, therefore, the motive was the cause for
its being a party to the sale.
● Were the lands indeed unsuitable for the housing as NHA claimed? YES. We
deem the findings contained in the report of the Land Geosciences Bureau
dated 15 July 1991 sufficient basis for the cancellation of the sale.
● Accordingly, we hold that the NHA was justified in cancelling the contract. The
realization of the mistake as regards the quality of the land resulted in the
negation of the motive/cause thus rendering the contract inexistent, under Art.
1318.
● Therefore, assuming that petitioners are parties, assignees or beneficiaries to
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the contract of sale, they would not be entitled to any award of damages.
Spouses Mamaril v. BSP
17. Constantino v. Heirs of Constantino
October 2, 2013 | Perez
Petitioners: ​OSCAR CONSTANTINO, MAXIMA CONSTANTINO and CASIMIRA
MATURINGAN
Respondents: ​HEIRS OF PEDRO CONSTANTINO, JR., represented by ASUNCION
LAQUINDANUM
Summary​: Respondents inherited parcels of land from their predecessors land which
was contained in a document called “Pagmamana sa Labas ng Hukuman”. Petitioners
filed this case to annul such document and to get a portion of that land. Issue: w/n in pari
delicto 5doctrine applies? NOPE! (walang issue sa 1311 there was just a brief discussion)
HELD: The petition at bench does not speak of an illegal cause of contract constituting a
criminal offense under Article 1411. Neither can it be said that Article 1412 finds
application although such provision which is part of Title II, Book IV of the Civil Code
speaks of contracts in general, as well as contracts which are null and void ab initio
pursuant to Article 1409 of the Civil Code – such as the subject contracts, which as
claimed, are violative of the mandatory provision of the law on legitimes. Article 1412 of
the Civil Code that breathes life to the doctrine speaks of the rights and obligations of the
parties to the contract with an illegal cause or object which does not constitute a criminal
offense. It applies to contracts which are void for illegality of subject matter and not to
contracts rendered void for being simulated,​ ​or those in which the parties do not really
intend to be bound thereby. Specifically, in pari delicto situations involve the parties in
one contract who are both at fault, such that neither can recover nor have any action
against each other.
For 1311 discussion… see subsection below since that is all that was said about privity
of contracts.
FACTS​:
● This involves a controversy over a parcel of land claimed to be part of an estate
which needed to be proportionally subdivided among heirs.
● Pedro Constantino, Sr., (Pedro Sr.) ancestors of the petitioners and
respondents, owned several parcels of land, one of which is an unregistered
parcel of land. Pedro, Sr., upon his death, was survived by his 6 children.
● Laquindanum (Asuncion) and Josefina Cailipan (Josefina), great grandchildren
of Pedro Sr., in representation of Pedro, Jr. filed a complaint against petitioners
5
Article 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act
constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and
both shall be prosecuted.
xxx xxx
Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:xxx xxx
1. When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other’s undertaking;xxx xxxx
Civil Law Review Case Digests
for the nullification of a document denominated as "Pagmamana sa Labas ng
Hukuman".
o In the said complaint, respondents alleged that sometime in October
1998, petitioners asserted their claim of ownership over the whole
parcel of land (240 sq m) owned by the late Pedro Sr., to the exclusion
of respondents who are occupying a portion thereof. Upon verification,
respondents learned that a Tax Declaration in the name of petitioner
Oscar Constantino and his cousin Maxima Constantino was unlawfully
issued, which in effect canceled Tax Declaration in the name of their
ancestor Pedro Sr. The issuance of the new tax declaration was
allegedly due to the execution of a simulated, fabricated and fictitious
document denominated as "Pagmamana sa Labas ng Hukuman,"
wherein the petitioners misrepresented themselves as the sole and
only heirs of Pedro Sr. It was further alleged that subsequently, the
subject land was divided equally between petitioners Oscar and
Maxima resulting in the issuance of Tax Declarations in the name of
Oscar, with an area of 120sq m and the other half in the name of
Maxima. The share of Maxima was eventually conveyed to her sister,
petitioner Casimira.
● The petitioners averred in their Answer With Counterclaim that Pedro Sr., upon
his death, left several parcels of land. The petitioners claimed that the
document "Pagmamana sa Labas ng Hukuman" was perfectly valid and legal,
as it was a product of mutual and voluntary agreement between and among the
descendants of Pedro Sr.
● Further, petitioners alleged that the respondents have no cause of action
against them considering that the respondents’ lawful share over the estate of
Pedro Sr., had already been transferred to them as evidenced by the Deed of
Extrajudicial Settlement with Waiver executed by Angelo Constantino, Maria
Constantino (mother of respondent Asuncion), Arcadio Constantino and
Mercedes Constantino, all heirs of Pedro Jr.
o In essence, petitioners position was that the Deed of Extrajudicial
Settlement with Waiver was acquiesced in by the other heirs of Pedro
Sr., including the petitioners, on the understanding that the respondent
heirs of Pedro Jr. would no longer share and participate in the
settlement and partition of the remaining lot covered by the
"Pagmamana sa Labas ng Hukuman."
● RTC – in favor of respondents. Although, plaintiffs-heirs of Pedro Constantino,
Jr., including Asuncion Laquindanum and Josefina Cailipan, are not parties or
signatories to the "Extrajudicial Settlement with Waiver" dated December 5,
1968, they are successors-in-interest of Pedro Constantino, Jr. They are
considered "privies" to said deed, and are bound by said extrajudicial
settlement. In other words, they are "PRIVIES IN ESTATE".
● Consequently, plaintiffs are now estopped from claiming otherwise.
● CA - CA ruled in favor of the respondents.
ISSUE​: W/N the CA failed to appreciate the existence of misrepresentation in both
documents, thereby ignoring the propriety of the application of the in pari delicto
doctrine. ​YES​.
HELD​: WHEREFORE, the 31 May 2007 Decision of the Court of Appeals in CA-G.R. CV
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No. 81329 is hereby REVERSED. The Pagmamana sa Lahas ng Hukuman and
Extrajudicial Settlement with Waiver are hereby declared void without prejudice to the
partition of the estate of Pedro Constantino Sr. with the full participation of all the latter's
heirs.
RATIO​:
1214 ISSUE:
● Latin for "in equal fault," in pari delicto connotes that two or more people are at
fault or are guilty of a crime. Neither courts of law nor equity will interpose to
grant relief to the parties, when an illegal agreement has been made, and both
parties stand in pari delicto. Under the pari delicto doctrine, the parties to a
controversy are equally culpable or guilty, they shall have no action against
each other, and it shall leave the parties where it finds them. This doctrine finds
expression in the maxims "ex dolo malo nonoritur actio" and "in pari delicto
potior est conditio defendentis."
o When circumstances are presented for the application of such
doctrine, courts will take a hands off stance in interpreting the contract
for or against any of the parties.
● As a doctrine in civil law, the rule on pari6delicto is principally governed by
Articles 1411 and 1412 of the Civil Code
● The petition at bench does not speak of an illegal cause of contract
constituting a criminal offense under Article 1411. Neither can it be said
that Article 1412 finds application although such provision which is part
of Title II, Book IV of the Civil Code speaks of contracts in general, as well
as contracts which are null and void ab initio pursuant to Article 1409 of
the Civil Code – such as the subject contracts, which as claimed, are
violative of the mandatory provision of the law on legitimes.
● We do not dispute that herein parties, through the Deeds they separately
executed deprived each other of rightful shares in the two lots subject of the
separate contracts – that is, if the two (2) parcels of land subject matter thereof,
form part of the estate of the late Pedro Sr.
● It is asserted by the petitioners that their execution in 1992 of the contract
denominated as "Pagmamana sa Labas ng Hukuman" which excluded other
heirs of Pedro Sr., was with an underlying agreement with the other heirs
including Maria Constantino, daughter of Pedro Jr. and grandmother of
respondents. The agreement was for the other heirs to recognize the 192
square meters lot subject matter of the "Extrajudicial Settlement with Waiver"
executed in 1968 as the share of the heirs of Pedro Sr. in the estate of Pedro
Sr., Petitioners respected such agreement, as in fact, Maria Laquindanum and
that of her heirs, herein respondents, were not disturbed in their possession or
ownership over the said parcel of land; thus, the heirs of Pedro Jr. were said to
6
Article 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act
constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and
both shall be prosecuted.
xxx xxx
Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:xxx xxx
1. When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other’s undertaking;xxx xxxx
Civil Law Review Case Digests
have acquiesced to the "Pagmamana sa Labas ng Hukuman" and the
underlying agreement and therefore they have no recourse or reason to
question it taking cue from the doctrine of in paridelicto. This was the basis of
the trial court’s findings that respondents are now estopped from claiming
otherwise.​27
● We find that the trial court erroneously applied the doctrine.
o This is not to say, however, that the CA was correct in upholding the
validity of the contract denominated as "Pagmamana sa Labas ng
Hukuman." The CA decision being based on pari delicto, is also
incorrect.
● We find occasion to stress that Article 1412 of the Civil Code that breathes life
to the doctrine speaks of the rights and obligations of the parties to the contract
with an illegal cause or object which does not constitute a criminal offense. ​It
applies to contracts which are void for illegality of subject matter and not
to contracts rendered void for being simulated,​ ​or those in which the
parties do not really intend to be bound thereby. Specifically, in pari
delicto situations involve the parties in one contract who are both at fault,
such that neither can recover nor have any action against each other​.
● In this case, there are two Deeds of extrajudicial assignments unto the
signatories of the portions of the estate of an ancestor common to them and
another set of signatories likewise assigning unto themselves portions of the
same estate. The separate Deeds came into being out of an identical intention
of the signatories in both to exclude their co-heirs of their rightful share in the
entire estate of Pedro Sr. It was, in reality, an assignment of specific portions of
the estate of Pedro Sr., without resorting to a lawful partition of estate as both
sets of heirs intended to exclude the other heirs.
● Clearly, the principle of in pari delicto cannot be applied. The inapplicability is
dictated not only by the fact that two deeds, not one contract, are involved, but
because of the more important reason that such an application would result in
the validation of both deeds instead of their nullification as necessitated by their
illegality.
● Corollarily, given the character and nature of the deeds as being void and in
existent, it has, as a consequence, of no force and effect from the beginning, as
if it had never been entered into and which cannot be validated either by time or
ratification.
1311 issue
● We agree with the trial court that respondents are "privies" to Maria
Laquindanum. By the term "privies" is meant those between whom an action is
deemed binding although they are not literally parties to the said action.
o Correa v. Pascual, had occasion to explain that "privity in estate
denotes the privity between assignor and assignee, donor and donee,
grantor and grantee, joint tenant for life and remainderman or
reversioner and their respective assignees, vendor by deed of
warranty and a remote vendee or assignee. A privy in estate is one, it
has been said, who derives his title to the property in question by
purchase; one who takes by conveyance." In fine, respondents, as
successors-in-interest, derive their right from and are in the same
position as their predecessor in whose shoes they now stand.
● As such, he stands exactly in the shoes of his predecessor in interest,
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the original defendant, and is bound by the proceedings had in the
case before the property was transferred to him. He is a proper, but
not an indispensable, party as he would, in any event, have been
bound by the judgment against his predecessor.​34
● Thus, any condition attached to the property or any agreement precipitating the
execution of the Deed of Extrajudicial Settlement with Waiver which was
binding upon Maria Laquindanum is applicable to respondents who merely
succeeded Maria.
The rest of the case discussed evidence. Basically, both documents were declared void
for being contrary to law as it circumvented the law on legitimes.
Art. 1312
Bel Air v. Dionisio
Art. 1314
Daywalt v. Corp. de PP. Agustinos
18. Inocencio v. Hospicio
G.R. No. 201787, September 25, 2013
Petitioner: ​Analita Inocencio, substituting for Ramon Inocencio (deceased)
Respondent: ​Hospicio de San Jose
Summary​: A contract of lease was entered into by HDSJ and German. German
constructed 2 buildings, which he subleased, and designated his son, Ramon, as the
administrator. After German died, Ramon continued to collect rentals from the
sublesses. HDSJ notified Ramon that it was terminating the lease contract. The
sublessees were given notices to vacate. HDSJ also posted a Patalastas stating that it is
willing to work out an amicable arrangement with the sublessees, although the latter are
not considered as legal occupants or tenants of the property. Because of this, some of
the sublessees refused to pay rentals to Ramon. ​I: ​W/N HDSJ is guilty of tortious
interference. – ​NO. ​R: ​Tortious interference has the following elements: (1) existence of
a valid contract; (2) knowledge on the part of the third person of the existence of the
contract; and (3) interference of the third person without legal justification or excuse. The
facts of the instant case show that there were valid sublease contracts which were
known to HDSJ. However, we find that the third element is lacking in this case. There is
no tortious interference if the intrusion was impelled by purely economic motives. The
evidence shows that HDSJ entered into agreements with Ramon’s former sublessees for
purely economic reasons (payment of rentals). HDSJ had a right to collect the rentals
from the sublessees upon termination of the lease contract. It does not appear that
HDSJ was motivated by spite or ill will towards the Inocencios.
Facts​:
● On 1 Mar 1946, Hospicio de San Jose (HDSJ) leased a parcel of land located
in Pasay City to German Inocencio (German). The lease contract was effective
for a period of 1 year, and was renewed for 1-year periods several times. The
last written contract was executed on 31 May 1951. Sec. 6 of the lease contract
provides: This contract is nontransferable unless prior consent of the lessor is
Civil Law Review Case Digests
obtained in writing.
● In 1946, German constructed 2 buildings on the parcel of land which he
subleased. He also designated his son Ramon Inocencio (Ramon)to administer
the said property.
● On 21 Sept. 1990, German received a letter from HDSJ informing him that the
increased rentals shall take effect in Nov. instead of Aug., "to give him ample
time to make the necessary rental adjustments with his sublessees."
● German passed away in 1997. Evidence on record shows that Ramon did not
notify HDSJ of German’s death. After German’s passing, Ramon collected the
rentals from the sublessees, and paid the rentals to HDSJ, and the taxes on the
property. On 1 Mar. 2001, HDSJ’s property administrator notified Ramon that
HDSJ is terminating the lease contract effective 31 Mar. 2001:
o We acknowledge the fact that HDSJ has been accepting the payment
of your rentals since the demise of Mr. German Inocencio. Hence, an
implied contract of lease between the two of you exists. However,
since there is no stipulation as to the period of the contract and you
are paying a monthly rental to our client, the period for the lease is on
a month-to-month basis (Art. 1687). Thus as of this date, your contract
should expire on Mar. 31, 2001.
● Ramon then sent a letter to HDSJ, suggesting that the lease contract be
renegotiated for the welfare of the sublessees occupying the parcel of land.
HDSJ notified Ramon that the lease contract shall not be renewed because
Ramon has "continually subleased the subject premises to about 20 families (in
addition to a commercial establishment) x x x without the knowledge and
consent of the lessor, [HDSJ]." Thereafter, HDSJ refused to accept Ramon’s
tender of payment of rentals.
● HDSJ sent a letter to Ramon: (1) reiterating its stand that the lease contract
was terminated effective 31 Mar. ;(2) demanding payment of ​P​756,449.26 as
unrealized fruits; and (3) giving him 30 days to vacate the property.
o The sublessees were given written notices to vacate within 30 days.
HDSJ also posted a Patalastas stating that it is willing to work out an
amicable arrangement with the sublessees, although the latter are not
considered as legal occupants or tenants of the property. ​Because of
this, some of the sublessees refused to pay rentals to Ramon.
● HDSJ also entered into lease contracts with Chetandas, Negare, Estefa and
Chavez. ​(not sure if they are the sublessees or new lessees)
Issue​: ​W/N there was tortious interference on the part of HDSJ – ​NO​.
Ratio​:
Art. 1314
● HDSJ did not commit tortious interference. Article1314 of the Civil Code states:
o Any third person who induces another to violate his contract shall be
liable for damages to the other contracting party.
● Tortious interference has the following elements: (1) existence of a valid
contract; (2) knowledge on the part of the third person of the existence of the
contract; and (3) interference of the third person without legal justification or
excuse.
● The facts of the instant case show that there were valid sublease contracts
which were known to HDSJ. However, we find that the third element is lacking
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in this case.
● In ​So Ping Bun v. CA​, we held that there was no tortious interference if the
intrusion was impelled by purely economic motives:
o Authorities debate on whether interference may be justified where the
defendant acts for the sole purpose of furthering his own financial or
economic interest. One view is that, as a general rule, justification for
interfering with the business relations of another exists where the
actor’s motive is to benefit himself. Such justification does not exist
where his sole motive is to cause harm to the other. Added to this,
some authorities believe that it is not necessary that the interferer’s
interest outweighs that of the party whose rights are invaded, and that
an individual acts under an economic interest that is substantial, not
merely de minimis, such that wrongful and malicious motives are
negatived, for he acts in self- protection. Moreover, justification for
protecting one’s financial position should not be made to depend on a
comparison of his economic interest in the subject matter with that of
others. It is sufficient if the impetus of his conduct lies in a proper
business interest rather than in wrongful motives.​43
● The evidence shows that HDSJ entered into agreements with Ramon’s former
sublessees for purely economic reasons (payment of rentals). HDSJ had a right
to collect the rentals from the sublessees upon termination of the lease
contract. It does not appear that HDSJ was motivated by spite or ill will towards
the Inocencios.
● The Inocencios claim ownership over the buildings since these are separate
and distinct from the land on which they are erected. Thus, as owners of the
buildings, they have a right to lease the buildings to third persons, even after
termination of the lease contract with HDSJ. To bolster their claim of ownership,
the Inocencios presented the following evidence: (1) the building permit; (2) the
receipt for the payment of the permit fee;​45 (3) the Tax Declarations; and (4) the
proof of payment of insurance.
● The Inocencios also claimed that: as the Inocencios owned the Subject
Buildings, it is respectfully submitted, and it should be clear that when they
entered into lease contracts with tenants for the lease of portions of the said
buildings, these contracts were independent contracts of lease over their own
building and not sub-leases of the parcel of land which they leased from
Respondent. xxx
o We do not agree. The lease of a building includes the lease of the lot
and consequently, the rentals of the building include the rentals of the
lot. As correctly pointed out by HDSJ: x x x When the Inocencios
leased the buildings to third parties, they also "leased" to the third
parties the plot of land on which the buildings stood — either by
implied transfer of the lease covering the plot of the land, or by
sublease. Either way, x x x the Inocencios themselves must have a
valid lease contract with [HDSJ] over the land. However, when the
lease contract x x x with HDSJ ended on 31March 2001, Ramon lost
his status as lessee of the land, and therefore, had no authority to
transfer the lease or sublease the land. x x x.​51
Civil Law Review Case Digests Atty. Ruben Balane 
 

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Civil Law Review Case Digests
Chapter 2. Essential Requisites of Contracts
Art. 1318
Ong Yiu v. CA
Section 1. ​Consent (​ Arts. 1319-1346)
Art. 1319
Velasco v. CA
Weldon v. CA
Maria Cristina v. CA
Art. 1324
19. Sanchez v. Rigos
G.R. No. L-25494 | June 14, 1972 | Concepcion
Plaintiff-appellee​: NICOLAS SANCHEZ
Defendant-appellant​: SEVERINA RIGOS
Summary: ​On April 3, 1961, Nicolas Sanchez and Severina Rigos executed an
instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and
committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the
barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, within two
(2) years from said date with the understanding that said option shall be deemed
"terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property"
within the stipulated period. Our issue in this case is whether the offer can be withdrawn
in this case? YES ​Relying upon Article 1324 of our Civil Code, the lower court presumed
the existence of said consideration, and this would seem to be the main factor that
influenced its decision in plaintiff's favor. It should be noted, however, that: Article 1324
applies to contracts in general, whereas the second paragraph of Article 1479 refers to
"sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or
to sell." In other words, Article 1479 is controlling in the case at bar. In order that said
unilateral promise may be "binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be "supported by a consideration
distinct from the price." Accordingly, the promisee can not compel the promisor to
comply with the promise, unless the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of proving such
consideration. Plaintiff herein has ​not even alleged the existence thereof in his
complaint.
Facts:
● On April 3, 1961, Nicolas Sanchez and Severina Rigos executed an instrument
entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and
committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated
in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva
Ecija, within two (2) years from said date with the understanding that said
option shall be deemed "terminated and elapsed," if "Sanchez shall fail to
exercise his right to buy the property" within the stipulated period.
● Inasmuch as several tenders of payment of the sum of Pl,510.00, made by
Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963,
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Atty. Ruben Balane 
the former deposited said amount with the CFI of Nueva Ecija and commenced
against the latter the present action, for specific performance and damages.
Issue: ​Whether the offer can be withdrawn in this case?​ YES
Held: WHEREFORE, the decision appealed from is hereby affirmed, with costs against
defendant-appellant Severina Rigos. It is so ordered.
Ratio:
● This case admittedly hinges on the proper application of Article 1479 of our
Civil Code, which provides: A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable. An accepted unilateral promise to buy
or to sell a determinate thing for a price certain is binding upon the promissor if
the promise is supported by a consideration distinct from the price.
● The option did not impose upon plaintiff the ​obligation to purchase defendant's
property. Annex A is ​not a "contract to buy and sell." It merely granted plaintiff
an "option" to buy. And both parties so understood it, as indicated by the
caption, "Option to Purchase," given by them to said instrument. Under the
provisions thereof, the defendant "agreed, promised and committed" herself to
sell the land therein described to the plaintiff for P1,510.00, but there is nothing
in the contract to indicate that her aforementioned agreement, promise and
undertaking is supported by a consideration "distinct from the price" stipulated
for the ​sale of the land​.
● Relying upon Article 1324 of our Civil Code, the lower court presumed the
existence of said consideration, and this would seem to be the main factor that
influenced its decision in plaintiff's favor. It should be noted, however, that:
Article 1324 applies to contracts in general, whereas the second paragraph of
Article 1479 refers to "sales" in particular, and, more specifically, to "an
accepted unilateral promise to buy or to sell." In other words, Article 1479 is
controlling in the case at bar.
● In order that said unilateral promise may be "binding upon the promisor, Article
1479 requires the concurrence of a condition, namely, that the promise be
"supported by a consideration distinct from the price." Accordingly, the
promisee can not compel the promisor to comply with the promise, unless the
former establishes the existence of said distinct consideration. In other words,
the promisee has the burden of proving such consideration. Plaintiff herein has
not even alleged​ the existence thereof in his complaint.
● Squarely in point is ​Southwestern Sugar & Molasses Co. v. Atlantic Gulf &
Pacific Co.​, ​from which We quote: The main contention of appellant is that the
option granted to appellee to sell to it barge No. 10 for the sum of P30,000
under the terms stated above has no legal effect because it is not supported by
any consideration and in support thereof it invokes article 1479 of the new Civil
Code.
● Sanchez contends that, even granting that the "offer of option" is not supported
by any consideration, that option became binding on appellant when the
appellee gave notice to it of its acceptance, and that having accepted it within
the period of option, the offer can no longer be withdrawn and in any event
such withdrawal is ineffective. In support this contention, Sanchez invokes
Article 1324 of the Civil Code which provides: When the offerer has allowed the
offeree a certain period to accept, the offer may be withdrawn any time before
acceptance by communicating such withdrawal, except when the option is
Civil Law Review Case Digests
founded upon consideration as something paid or promised."
● There is no question that under article 1479 of the new Civil Code "an option to
sell," or "a promise to buy or to sell," as used in said article, to be valid must be
"supported by a consideration distinct from the price." This is clearly inferred
from the context of said article that a unilateral promise to buy or to sell, ​even if
accepted,​ is only binding if supported by consideration. In other words, "an
accepted unilateral promise can only have a binding effect if supported by a
consideration which means that the option can still be withdrawn, ​even if
accepted,​ if the same is not supported by any consideration. It is not disputed
that the option is without consideration. ​It can therefore be withdrawn
notwithstanding the acceptance of it by appellee.​
● It is true that under article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offerer gives to the offeree a
certain period to accept, "the offer may be withdrawn at any time before
acceptance" except when the option is founded upon consideration, but this
general rule must be interpreted as ​modified by the provision of article 1479
above referred to, which applies to "a promise to buy and sell" ​specifically​. As
already stated, this rule requires that a promise to sell to be valid must be
supported by a consideration distinct from the price.
● We are not oblivious of the existence of American authorities which hold that an
offer, once accepted, cannot be withdrawn, regardless of whether it is
supported or not by a consideration (12 Am. Jur. 528). These authorities, we
note, uphold the ​general rule applicable to offer and acceptance as contained in
our new Civil Code. But we are prevented from applying them in view of the
specific provision embodied in article 1479. While under the "offer of option" in
question appellant has assumed a clear obligation to sell its barge to appellee
and the option has been exercised in accordance with its terms, and there
appears to be no valid or justifiable reason for appellant to withdraw its offer,
this Court cannot adopt a different attitude because the law on the matter is
clear. Our imperative duty is to apply it unless modified by Congress.​
● However, this Court itself, in the case of ​Atkins, Kroll and Co., Inc. v. Cua Hian
Tek​, ​decided later that ​Southwestern Sugar & Molasses Co. v. Atlantic Gulf &
Pacific Co.​, ​saw no distinction between Articles 1324 and 1479 of the Civil
Code and applied the former where a unilateral promise to sell similar to the
one sued upon here was involved, treating such promise as an option which,
although not binding as a contract in itself for lack of a separate consideration,
nevertheless generated a bilateral contract of purchase and sale upon
acceptance. Speaking through Associate Justice, later Chief Justice, Cesar
Bengzon, this Court said:
o Furthermore, an option is ​unilateral​: a promise to sell at the price fixed
whenever the offeree should decide to exercise his option within the
specified time. After accepting the promise and ​before he exercises
his option​, the holder of the option is not bound to buy. He is free
either to buy or not to buy later. In this case, however, upon accepting
herein petitioner's offer a bilateral promise to sell and to buy ensued,
and the respondent ​ipso facto assumed the obligation of a purchaser.
He did not just get the right subsequently to buy or not to buy. It was
not a mere option then; it was a bilateral contract of sale.
● Lastly, even supposing that Exh. A granted an option which is not binding for
lack of consideration, the authorities hold that: "If the option is given without a
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Atty. Ruben Balane 
consideration, it is a mere offer of a contract of sale, which is not binding until
accepted. If, however, acceptance is made before a withdrawal, it constitutes a
binding contract of sale, even though the option was not supported by a
sufficient consideration.
● "It can be taken for granted, as contended by the defendant, that the option
contract was not valid for lack of consideration. But it was, at least, an offer to
sell, which was accepted by letter, and of the acceptance the offerer had
knowledge before said offer was withdrawn. The concurrence of both acts —
the offer and the acceptance — could at all events have generated a contract, if
none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs.
Serra, 44 Phil. 331.)
● In other words, since there may be no valid contract without a cause or
consideration, the promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale​.
● This view has the advantage of avoiding a conflict between Articles 1324 — on
the general principles on contracts — and 1479 — on sales — of the Civil
Code, in line with the cardinal rule of statutory construction that, in construing
different provisions of one and the same law or code, such interpretation should
be favored as will reconcile or harmonize said provisions and avoid a conflict
between the same. Indeed, the presumption is that, in the process of drafting
the Code, its author has maintained a consistent philosophy or position.
Moreover, the decision in ​Southwestern Sugar & Molasses Co. v. Atlantic Gulf
& Pacific Co.,​ holding that Art. 1324 is ​modified by Art. 1479 of the Civil Code,
in effect, considers the latter as an ​exception to the former, and exceptions are
not favored, unless the intention to the contrary is clear, and it is not so, insofar
as said two (2) articles are concerned. What is more, the reference, in both the
second paragraph of Art. 1479 and Art. 1324, to an option or promise
supported by or founded upon a consideration, strongly suggests that the two
(2) provisions intended to enforce or implement the same principle.
● Upon mature deliberation, the Court is of the considered opinion that it should,
as it hereby reiterates the doctrine laid down in the ​Atkins, Kroll & Co. case,
and that, insofar as inconsistent therewith, the view adhered to in the
Southwestern Sugar & Molasses Co. case should be deemed abandoned or
modified.
Natino v. IAC
Serra v. CA
20. Ang Yu v. CA
G.R. No. 109125 December 2, 1994
Petitioner: ​ANG YU ASUNCION, ARTHUR GO AND KEH TIONG
Respondent: ​THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION
Summary: ​In the 1​st case, Ang Yu Asuncion and Keh Tiong, et al. are tenants or lessees
of residential and commercial spaces owned by Bobby Cu Unjieng, Rose Cu Unjieng
and Jose Tan in Ongpin Street, Binondo, Manila. The owners decided to sell the
Civil Law Review Case Digests
property and gave Ang Yu priority to buy it. However, despite negotiations, the parties
did not reach a final agreement. Ang Yu sued the owners then to compel them to sell the
property. The court held that the offer to sell was never accepted by the plaintiffs for the
reason that the parties did not agree upon the terms and conditions of the proposed
sale, hence, there was no contract of sale at all. Also, the court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million or below,
plaintiffs will have the right of first refusal. Later on, the owners sold the property to Buen
Realty for 15M. Ang Yu then filed a motion for execution to compel the owners to sell
them the property (2​nd​ case).
The Court said that Motion for Execution is without merit because the judgment of the
court only gave Ang Yu et al the right of first refusal (but it did not decree a contract of
sale). It held that the option to buy, given to the buyer is ​not​ the contract of sale itself.
The optionee has the right, but not the obligation, to buy. Once the option is exercised
timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell
and to buy ensues and both parties are then reciprocally bound to comply with their
respective undertakings.​ ​At any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn;
the withdrawal is effective immediately after its manifestation, such as by its mailing and
not necessarily when the offeree learns of the withdrawal. If the period is not itself
founded upon or supported by a consideration, the offeror is still free and has the right to
withdraw the offer before its acceptance, or, if an acceptance has been made, before the
offeror's coming to know of such fact, by communicating that withdrawal to the offeree
Facts:
● 1​st Case: ​Ang Yu Asuncion and Keh Tiong, et al. are tenants or lessees of
residential and commercial spaces owned by Bobby Cu Unjieng, Rose Cu Unjieng
and Jose Tan in Ongpin Street, Binondo, Manila.
o They have occupied said spaces since 1935 and have been religiously paying
the rental and complying with all the conditions of the lease contract.
o On several occasions before October 9, 1986, defendants informed plaintiffs
that they are offering to sell the premises and are giving them priority to
acquire the same.
o During the negotiations, Bobby Cu Unjieng offered a price of P6-million while
Ang Yu, et al. made a counter offer of P5-million. Ang Yu, et al. thereafter
asked the owners to put their offer in writing to which request the owners
acceded. Ang Yu et al, wrote them on October 24, 1986 asking that they
specify the terms and conditions of the offer to sell. But when the owners did
not reply, plaintiffs were compelled to file the complaint to compel the owners
to sell the property to them.
● RTC RULING: Defendants' offer to sell was never accepted by the plaintiffs for the
reason that the parties did not agree upon the terms and conditions of the proposed
sale, hence, there was ​no contract of sale at all​. Nonetheless, the lower court ruled
that should the defendants subsequently offer their property for sale at a price of
P11-million or below, plaintiffs will have the right of first refusal.
● CA RULING​: Affirmed with modification the lower court's judgment.
o In resume, there was no meeting of the minds between the parties concerning
the sale of the property. Absent such requirement, the claim for specific
performance will not lie.
● SC Ruling: ​Denied the appeal.
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nd st
● 2​ Case: While the 1​ case was pending consideration by this Court, the Cu
Unjieng spouses executed a Deed of Sale transferring the property in question to
herein petitioner ​Buen Realty and Development Corporation, for 15M.
o Buen Realty as the new owner of the subject property wrote a letter to the
lessees demanding that the latter vacate the premises.
o The lessees wrote a reply to Buen Realty stating that it brought the property
subject to the notice of​ lis pendens,​ in the name of the Cu Unjiengs. The
lessees filed a Motion for Execution.
● RTC Ruling: The decision in the 1​st case had now become final and executory.
Defendants are hereby ordered to execute the necessary Deed of Sale of the
property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go
for the consideration of P15 Million pesos in recognition of plaintiffs' right of first
refusal and that a new Transfer Certificate of Title be issued in favor of the buyer. All
previous transactions involving the same property notwithstanding the issuance of
another title to Buen Realty Corporation, is hereby set aside as having been
executed in bad faith.
● CA Ruling: Set aside and declared without force and effect the above questioned
orders of the court ​a quo​.
Issue: ​WON there was a contract of sale between Cu Unjieng et al and Ang Yu et al.
NO
Held​: WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
questioned Orders, dated 30 August 1991 and 27 September 1991, of the court ​a quo​.
Costs against petitioners.
Ratio:
OBLICON Concepts
● An ​obligation is a juridical necessity to give, to do or not to do (​Art. 1156, Civil
Code​). The obligation is constituted upon the concurrence of the essential elements
thereof, ​viz:​
o (a) The ​vinculum juris o ​ r​ juridical tie ​which is the efficient cause established by
the various sources of obligations (law, contracts, quasi-contracts, delicts and
quasi-delicts);
o (b) the ​object w ​ hich is the prestation or conduct; required to be observed (to
give, to do or not to do); and
o (c) the ​subject-persons ​who, viewed from the demandability of the obligation,
are the active (obligee) and the passive (obligor) subjects.
● STAGES OF CONTRACTS: Among the ​sources of an obligation is a ​contract (Art.
1157, Civil Code), which is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some service
(Art. 1305, Civil Code). A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its consummation.
o Negotiation c​ overs the period​ from t​ he time the prospective contracting
parties indicate interest in the contract ​to​ the time the contract is concluded
(perfected).
o The​ ​perfection ​of the contract takes place upon the concurrence of the
essential elements thereof.
▪ A contract which is ​consensual a ​ s to perfection is so established upon a
mere meeting of minds, i.e., the concurrence of offer and acceptance, on
the object and on the cause thereof.
Civil Law Review Case Digests
▪ A contract which requires, in addition to the above, the delivery of the
object of the agreement, as in a pledge or ​commodatum,​ is commonly
referred to as a ​real c​ ontract.
▪ In a ​solemn c​ ontract, compliance with certain formalities prescribed by
law, such as in a donation of real property, is essential in order to make
the act valid, the prescribed form being thereby an essential element
thereof.
o The stage of ​consummation b ​ egins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.
● Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation.
o In sales, the contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a thing or
right to another, called the buyer, over which the latter agrees.
● CONDITIONAL SALE: When the sale is ​not absolute b ​ ut ​conditional,​ such as in a
"Contract to Sell" where invariably the ownership of the thing sold is retained until
the fulfillment of a positive suspensive condition (normally, the full payment of the
purchase price), ​the breach of the condition will prevent the obligation to
convey title from acquiring an obligatory force.
o Dignos vs. Court of Appeals: ​Although denominated a "Deed of Conditional
Sale," a sale is still absolute where the contract is devoid of any​ proviso ​that
title is reserved or the right to unilaterally rescind is stipulated, e.g., until or
unless the price is paid. Ownership will then be transferred to the buyer upon
actual or constructive delivery (e.g., by the execution of a public document) of
the property sold. Where the condition is imposed upon the perfection of the
contract itself, the failure of the condition would prevent such perfection.​ ​If the
condition is imposed on the obligation of a party which is not fulfilled, the other
party may either waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code).​
●
UNCONDITIONAL SALE: ​An ​unconditional ​mutual promise ​to buy and sell, as
long as the object is made determinate and the price is fixed, can be obligatory on
the parties, and compliance therewith may accordingly be exacted.​
o An ​accepted unilateral promise w ​ hich ​specifies ​the ​thing to be sold and the
price to be p ​ aid, ​when coupled with a valuable consideration
distinct​ and​ separate from the price​, is what may properly be termed a
perfected contract of ​option.​ This contract is legally binding, and in sales, it
conforms with the second paragraph of Article 1479
● HOWEVER: the option to buy is ​not​ the contract of sale itself.
o The optionee has the right, but not the obligation, to buy​. Once the option
is exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.​ 8
● A negotiation is formally initiated by an offer. An imperfect promise ​(policitacion)​ is
merely an offer. Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments.
o Thus, at any time prior to the perfection of the contract, either negotiating party
may stop the negotiation​. The offer, at this stage, may be withdrawn; the
withdrawal is effective immediately after its manifestation, such as by its
mailing and not necessarily when the offeree learns of the withdrawal.
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Atty. Ruben Balane 
● IMPT (ART 1324): ​Where a period is given to the offeree within which to accept the
offer, the following rules generally govern:
o (1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw the
offer before its acceptance, or, if an acceptance has been made, before
the offeror's coming to know of such fact, by communicating that
withdrawal to the offeree (Art. 1324). ​(N ​ ote: This is all the court said about
Art. 1324. I guess it only means that since there was no was no acceptance of
the sale, so Cu Unjieng, et al were not bound to see the property to Ang Yu et
al.)
▪ The right to withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under Article 19
of the Civil Code
o (2) If the period has a ​separate consideration, a contract of "option" is
deemed​ perfected​, and it would be a breach of that contract to withdraw the
offer during the agreed period.
▪ The option, however, is an independent contract by itself, and it is to be
distinguished from the projected main agreement (subject matter of the
option) which is obviously yet to be concluded.
▪ If, in fact, the optioner-offeror ​withdraws the offer before its
acceptance (​ exercise of the option) by the optionee-offeree, the latter
may not sue for ​specific performance ​on the proposed contract ("object"
of the option) since it has failed to reach its own stage of perfection.
▪ The optioner-offeror, however, renders himself liable for damages for
breach of the option. In these cases, care should be taken of the real
nature of the​consideration ​given, for if, in fact, it has been intended to be
part of the consideration for the main contract with a right of withdrawal
on the part of the optionee, the main contract could be deemed
perfected; a similar instance would be an "earnest money" in a contract
of sale that can evidence its perfection (​Art. 1482, Civil Code​).
RIGHT OF FIRST REFUSAL
● RIGHT OF FIRST REFUSAL: It cannot be deemed a perfected contract of sale
under Article 1458 of the Civil Code.
o Even on the premise that such right of first refusal has been decreed under a
final judgment, like here, ​its breach cannot justify correspondingly an
issuance of a writ of execution under a judgment that merely recognizes
its existence, nor would it sanction an action for specific performance
without thereby negating the indispensable element of consensuality in
the perfection of contracts.​
o The final judgment in the 1​st has merely accorded a "right of first refusal" in
favor of petitioners. The consequence of such a declaration entails no more
than what has heretofore been said. The proper remedy is not a writ of
execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.
AS TO BUEN REALTY
Civil Law Review Case Digests
st
● Buen Realty, not having been impleaded in the 1​ case, cannot be held subject to
the writ of execution issued by respondent Judge, let alone ousted from the
ownership and possession of the property, without first being duly afforded its day in
court.
21. Equatorial v. Mayfair​, 264 SCRA 483
264 SCRA 483 | November 21, 1996 | Hermosisima
Petitioners: Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc.
Respondents: Mayfair Theater, Inc.
Summary: ​Carmelo owned a parcel of land, together with two 2-storey buildings
constructed thereon located at Claro M Recto Avenue, Manila. He entered into two
contract of leases with Mayfair. Both leases contained a clause giving Mayfair a right of
first refusal to purchase the subject properties. Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises housing the "Maxim" and
"Miramar" theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum
of P11,300,000.00. This was NOT offered first to Mayfair. ​Mayfair instituted the action ​a
quo​ for specific performance and annulment of the sale of the leased premises to
Equatorial. Our issue in this case is ​W/N the said clause is an option contract or ​right of
first refusal ​and W/N the sale of the building to Equatorial is valid ​NO. ​The rule so early
established in this jurisdiction is that ​the deed of option or the option clause in a contract,
in order to be valid and enforceable, must, among other things, indicate the definite price
at which the person granting the option, is willing to sell. The Court of Appeals correctly
ruled that the said paragraph 8 grants the right of first refusal to Mayfair and is not an
option contract. ​It is evident that the provision granting Mayfair "30-days exclusive option
to purchase" the leased premises is NOT AN OPTION in the context of Arts. 1324 and
1479, second paragraph. Although the provision is certain as to the object (the sale of
the leased premises) the price for which the object is to be sold is not stated in the
provision. Otherwise stated, the questioned stipulation is not by itself, an "option" or the
"offer to sell" because the clause does not specify the price for the subject property.
Facts:
● Carmelo owned a parcel of land, together with two 2-storey buildings
constructed thereon located at Claro M Recto Avenue, Manila.
● On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the
latter's lease of a portion of Carmelo's property.
o This is for use by Mayfair as a motion picture theater and for a term of
twenty (20) years. Mayfair thereafter constructed on the leased
property a movie house known as "​Maxim Theatre​."
● Two years later, on March 31, 1969, Mayfair entered into a second contract of
lease with Carmelo for the lease of another portion of Carmelo's property.
o This is for similar use as a movie theater and for a similar term of
twenty (20) years. Mayfair put up another movie house known as
"​Miramar Theatre​" on this leased property.
● Both leases contained a clause giving Mayfair a right of first refusal to purchase
the subject properties​.
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Atty. Ruben Balane 
o That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
o In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease and be bound by
all the terms and conditions thereof.
● On July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building,
which included the leased premises housing the "Maxim" and "Miramar"
theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of
P11,300,000.00. ​This was NOT offered first to Mayfair​.
● Mayfair instituted the action ​a quo​ for specific performance and annulment of
the sale of the leased premises to Equatorial.
● In its Answer, Carmelo alleged as special and affirmative defense
o (a) that it had informed Mayfair of its desire to sell the entire C.M.
Recto Avenue property and offered the same to Mayfair, but the latter
answered that it was interested only in buying the areas under lease,
which was impossible since the property was not a condominium; and
o (b) that the option to purchase invoked by Mayfair is null and void for
lack of consideration.
● Equatorial, in its Answer, pleaded as special and affirmative defense that the
option is void for lack of consideration (​sic)​ and is unenforceable by reason of
its impossibility of performance because the leased premises could not be sold
separately from the other portions of the land and building. It counterclaimed for
cancellation of the contracts of lease, and for increase of rentals in view of
alleged supervening extraordinary devaluation of the currency. Equatorial
likewise cross-claimed against co-defendant Carmelo for indemnification in
respect of Mayfair's claims.
Issue:
● W/N the said clause is an option contract or right of first refusal. ​Right of First
Refusal
● W/N the sale of the building to Equatorial is valid. ​NO
Held: ​WHEREFORE, the petition for review of the decision of the Court of Appeals,
dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of
Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo &
Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo & Bauermann is
ordered to return to petitioner Equatorial Realty Development the purchase price. The
latter is directed to execute the deeds and documents necessary to return ownership to
Carmelo and Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow
Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
Ratio:
First Issue
● We agree with the respondent Court of Appeals that the aforecited contractual
stipulation provides for a right of first refusal in favor of Mayfair. ​It is not an
option clause or an option contract.​ It is a contract of a right of first refusal.
● Articles 1324 versus 1479:
o Article 1324 speaks of an "offer" made by an offeror which the offeree
may or may not accept within a certain period. Under this article, the
Civil Law Review Case Digests
offer may be withdrawn by the offeror before the expiration of the
period and while the offeree has not yet accepted the offer. However,
the offer cannot be withdrawn by the offeror within the period if a
consideration has been promised or given by the offeree in exchange
for the privilege of being given that period within which to accept the
offer. The consideration is distinct from the price which is part of the
offer. ​The contract that arises is known as option.
o Article 1479, second paragraph, on the other hand, contemplates of
an "accepted unilateral promise to buy or to sell a determinate thing
for a price within (which) is binding upon the promisee if the promise is
supported by a consideration distinct from the price." That "unilateral
promise to buy or to sell a determinate thing for a price certain" is
called an offer. An "offer", in laws, is a proposal to enter into a
contract. To constitute a legal offer, the proposal must be certain as to
the object, the price and other essential terms of the contract.
● It is evident that the provision granting Mayfair "30-days exclusive option to
purchase" the leased premises is NOT AN OPTION in the context of Arts. 1324
and 1479, second paragraph. Although the provision is certain as to the object
(the sale of the leased premises) the price for which the object is to be sold is
not stated in the provision. Otherwise stated, the questioned stipulation is not
by itself, an "option" or the "offer to sell" because the clause does not specify
the price for the subject property.
On Option Contracts
● Option Contract ​one necessarily involving the choice granted to another for
a distinct and separate consideration as to whether or not to purchase a
determinate thing at a predetermined fixed price. (Beaumont v. Prieto)
o The rule so early established in this jurisdiction is that ​the deed
of option or the option clause in a contract, in order to be valid
and enforceable, must, among other things, indicate the definite
price at which the person granting the option, is willing to sell.
● The selling price of the object thereof is always predetermined and specified in
the option clause in the contract or in the separate deed of option. We
elucidated, thus, in the very recent case of ​Ang Yu Asuncion vs.​ ​CA ​that: In
sales, the contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a thing or
right to another, called the buyer, over which the latter agrees. When the sale is
not absolute but conditional, such as in a "Contract to Sell" where invariably the
ownership of the thing sold in retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the purchase price), the
breach of the condition will prevent the obligation to convey title from acquiring
an obligatory force.
● Observe, however, that the option is not the contract of sale itself. The optionee
has the right, but not the obligation, to buy. Once the option is exercised timely,
i​.​e.​ , the offer is accepted before a breach of the option, a bilateral promise to
sell and to buy ensues and both parties are then reciprocally bound to comply
with their respective undertakings.
● An accepted unilateral promise which specifies the thing to be sold and the
price to be paid, when coupled with a valuable consideration distinct and
separate from the price, is what may properly be termed a perfected contract of
option.
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Atty. Ruben Balane 
● The Court of Appeals correctly ruled that the said paragraph 8 grants the
right of first refusal to Mayfair and is not an option contract. It also
correctly reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the instant case.
● An option is a contract granting a privilege to buy or sell within an agreed time
and at a determined price. It is a separate and distinct contract from that which
the parties may enter into upon the consummation of the option. It must be
supported by consideration.​
● In the instant case, the right of first refusal is an integral part of the contracts of
lease. The consideration is built into the reciprocal obligations of the parties. ​It
was incorporated into the contracts of lease for the benefit of Mayfair which
wanted to be assured that it shall be given the first crack or the first option to
buy the property at the price which Carmelo is willing to accept.
● It is not also correct to say that there is no consideration in an agreement of
right of first refusal. The stipulation is part and parcel of the entire contract of
lease. The consideration for the lease includes the consideration for the right of
first refusal. Thus, Mayfair is in effect stating that it consents to lease the
premises and to pay the price agreed upon provided the lessor also consents
that, should it sell the leased property, then, Mayfair shall be given the right to
match the offered purchase price and to buy the property at that price.
Second Issue
● Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the
property in question rescissible. Equatorial was aware of the lease contracts
because its lawyers had, prior to the sale, studied the said contracts.
● As such, Equatorial cannot tenably claim to be a purchaser in good faith, and,
therefore, rescission lies.
o Contract of Sale was not voidable but rescissible. Under Article 1380
to 1381(3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors
o Rescission is a remedy granted by law to the contracting parties and
even to third persons, to secure reparation for damages caused to
them by a contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior to the
celebration of said contract.
● Carmelo acted in bad faith when it sold the entire property to Equatorial without
informing Mayfair, a clear violation of Mayfair's rights.
o There is something to execute and that is for Carmelo to comply with
its obligation to the property under the right of the first refusal
according to the terms at which they should have been offered then to
Mayfair, at the price when that offer should have been made.
● Accordingly, even as it recognizes the right of first refusal, this Court should
also order that Mayfair be authorized to exercise its right of first refusal under
the contract to include the entirety of the indivisible property. ​The boundaries of
the property sold should be the boundaries of the offer under the right of first
refusal​.
Civil Law Review Case Digests
22. Bible Baptist Church v. CA
G.R. No. 126454 | November 26, 2004 | AZCUNA
Petitioner​: BIBLE BAPTIST CHURCH and PASTOR REUBEN BELMONTE
Respondents​: COURT OF APPEALS and MR. & MRS. ELMER TITO MEDINA
VILLANUEVA
SUMMARY: ​Bible Baptist Church entered into a contract of lease with spouses
Villanueva. Bible Baptist seeks to buy the leased premises from the spouses Villanueva,
under the option given to them. Petitioners claim that they (Baptist Church) agreed to
advance the large amount needed for the rescue of the property but, in exchange, it
asked the Villanuevas to grant it a long term lease and an option to buy the property for
P1.8 million. However, the spouses Villanueva did not agree saying that there is no
separate consideration. In this hand, Bible Baptist argue that there is a consideration —
the consideration supporting the option was their agreement to pay off the Villanuevas
P84,000 loan with the bank, thereby freeing the subject property from the mortgage
encumbrance. Spouses Villanueva argue that the amount of P84,000 has been fully
exhausted and utilized by their occupation of the premises and there is no separate
consideration to speak of which could support the option. SC ruled that there was no
separate consideration that would render the option contract valid and binding. An option
contract, to be valid and binding, needs to be supported by a separate consideration.
The consideration need not be monetary but could consist of other things or
undertakings. However, if the consideration is not monetary, these must be things or
undertakings of value, in view of the onerous nature of the contract of option.
Furthermore, when a consideration for an option contract is not monetary, said
consideration must be clearly specified as such in the option contract or clause.
FACTS:
● Bible Baptist Church entered into a contract of lease with Mr. & Mrs. Elmer Tito
Medina Villanueva. The latter are the registered owners of a property located at
No. 2436 (formerly 2424) Leon Guinto St., Malate, Manila. The pertinent
stipulations in the lease contract were:
4. That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the sum of
Eighty Four Thousand Pesos (P84,000.00) Philippine Currency. Said sum
is to be paid directly to the Rural Bank, Valenzuela, Bulacan for the
purpose of redemption of said property which is mortgaged by the
LESSOR.
5. That the title will remain in the safe keeping of the Bible Baptist Church, Malate, Metro
Manila until the expiration of the lease agreement or the leased premises
be purchased by the LESSEE, whichever comes first. In the event that
the said title will be lost or destroyed while in the possession of the
LESSEE, the LESSEE agrees to pay all costs involved for the re-issuance
of the title.
6. That the leased premises may be renovated by the LESSEE, to the satisfaction of the
LESSEE to be fit and usable as a Church.
8. That the LESSEE has the option to buy the leased premises during the Fifteen (15)
years of the lease. If the LESSEE decides to purchase the premises the
terms will be: A) A selling Price of One Million Eight Hundred Thousand
Pesos (P1.8 million), Philippine Currency. B) A down payment agreed
upon by both parties. C) The balance of the selling price may be paid at
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Atty. Ruben Balane 
the rate of One Hundred Twenty Thousand Pesos (P120,000.00),
Philippine Currency, per year.
ISSUES:
1) Whether or not the option to buy given to the Baptist Church is founded upon a
consideration – NO
2) Whether or not by the terms of the lease agreement, a price certain for the purchase
of the land had been fixed;
RATIO:
● The stipulation in the lease contract which purportedly gives the lessee an
option to buy the leased premises at any time within the duration of the lease, is
found in paragraph 8 of the lease contract.
● The second paragraph of Article 1479 provides for the definition and
consequent rights and obligations under an option contract. For an option
contract to be valid and enforceable against the promissor, there must be a
separate and distinct consideration that supports it.
● In this case, Baptist Church seeks to buy the leased premises from the spouses
Villanueva, under the option given to them. Petitioners claim that they (Baptist
Church) "agreed to advance the large amount needed for the rescue of the
property but, in exchange, it asked the Villanuevas to grant it a long term lease
and an option to buy the property for P1.8 million." ​They argue that the
consideration supporting the option was their agreement to pay off the
Villanueva's P84,000 loan with the bank, thereby freeing the subject property
from the mortgage encumbrance. They state further that the Baptist Church
would not have agreed to advance such a large amount as it did to rescue the
property from bank foreclosure had it not been given an enforceable option to
buy that went with the lease agreement.
● In the petition, the Baptist Church states that "[t]rue, the Baptist Church did not
pay a separate and specific sum of money to cover the option alone. But the
P84,000 it paid the Villanuevas in advance should be deemed consideration for
the one contract they entered into – the lease with option to buy." ​They rely on
the case of ​Teodoro v. Court of Appeals​ ​to support their stand.
● SC finds no merit in the contentions.
● First​, petitioners cannot insist that the P84,000 they paid in order to release the
Villanuevas' property from the mortgage should be deemed the separate
consideration to support the contract of option. It must be pointed out that said
amount was in fact apportioned into monthly rentals spread over a period of
one year, at P7,000 per month. Thus, for the entire period of June 1985 to May
1986, petitioner Baptist Church's monthly rent had already been paid for, such
that it only again commenced paying the rentals in June 1986. This is shown by
the testimony of petitioner Pastor Belmonte where he states that the P84,000
was advance rental equivalent to monthly rent of P7,000 for one year, such that
for the entire year from 1985 to 1986 the Baptist Church did not pay monthly
rent.
● This Court agrees with respondents that the amount of P84,000 has been fully
exhausted and utilized by their occupation of the premises and there is no
separate consideration to speak of which could support the option.
● Second​, petitioners' reliance on the case of Teodoro v. Court of Appeals is
misplaced. Consequently, unlike this case, Teodoro paid over and above the
Civil Law Review Case Digests
amount due for her own occupation of a portion of the property. Hence, in
Teodoro, this Court was able to find that a separate consideration supported
the option contract and thus, its enforcement may be demanded. Petitioners,
therefore, cannot rely on Teodoro, for the case even supports the respondents'
stand that a consideration that is separate and distinct from the purchase price
is required to support an option contract.
● Petitioners further insist that a consideration need not be a separate sum of
money. They posit that their act of advancing the money to "rescue" the
property from mortgage and impending foreclosure, should be enough
consideration to support the option.
● In ​Villamor v. Court of Appeals​, ​this Court defined consideration as "the why of
the contracts, the essential reason which moves the contracting parties to enter
into the contract."​15 This definition illustrates that the consideration
contemplated to support an option contract need not be monetary. Actual cash
need not be exchanged for the option. However, by the very nature of an option
contract, as defined in Article 1479, the same is an onerous contract for which
the consideration must be something of value, although its kind may vary.
● Specifically, in Villamor v. Court of Appeals, half of a parcel of land was sold to
the spouses Villamor for P70 per square meter, an amount much higher than
the reasonable prevailing price. Thereafter, a deed of option was executed
whereby the sellers undertook to sell the other half to the same spouses. It was
stated in the deed that the only reason the spouses bought the first half of the
parcel of land at a much higher price, was the undertaking of the sellers to sell
the second half of the land, also at the same price. This Court held that the
cause or consideration for the option, on the part of the spouses-buyers, was
the undertaking of the sellers to sell the other half of the property. On the part of
the sellers, the consideration supporting the option was the much higher
amount at which the buyers agreed to buy the property. It was explicit from the
deed therein that for the parties, this was the consideration for their entering
into the contract.
● Villamor​ is distinct from the present case because,
o First, this Court cannot find that petitioner Baptist Church parted with
anything of value, aside from the amount of P84,000 which was in fact
eventually utilized as rental payments.
o Second, there is no document that contains an agreement between
the parties that petitioner Baptist Church's supposed rescue of the
mortgaged property was the consideration which the parties
contemplated in support of the option clause in the contract. As
previously stated, the amount advanced had been fully utilized as
rental payments over a period of one year. While the Villanuevas may
have them to thank for extending the payment at a time of need, this is
not the separate consideration contemplated by law.
● To summarize the rules, an option contract needs to be supported by a
separate consideration. The consideration need not be monetary but could
consist of other things or undertakings. However, if the consideration is not
monetary, these must be things or undertakings of value, in view of the onerous
nature of the contract of option. Furthermore, when a consideration for an
option contract is not monetary, said consideration must be clearly specified as
such in the option contract or clause.
● In the present case both RTC & CA agree that the option was not founded upon
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Atty. Ruben Balane 
a separate and distinct consideration and that, hence, respondents Villanuevas
cannot be compelled to sell their property to petitioner Baptist Church.
o RTC: all payments made under the contract of lease were for rentals.
No money [was] ever exchanged for and in consideration of the
option." Hence, the Regional Trial Court found the action of the Baptist
Church to be "premature and without basis to compel the defendant to
sell the leased premises.
o CA: option to buy the leased premises was not binding upon the
Villanuevas for non-compliance with Article 1479. It found that said
option was not supported by a consideration as "no money was ever
really exchanged for and in consideration of the option." In the instant
case, "the price for the object is not yet certain."
HELD: ​WHEREFORE, the Decision and Resolution of the Court of Appeals subject of
the petition are hereby AFFIRMED.
23. Villegas v. CA
499 SCRA 276 | August 18, 2006 | J. Carpio
G.R. No. 111495
Petitioners: Agripino Villegas, Atanacio Villegas (Deceased), Substituted By His Wife
Soledad Ocampo Villegas, Rosa N. Sanchez, And Corazon Sanchez
Respondents: Court Of Appeals, Vicente M. Reyes, Julita R. Maylad, Lorenzo M.
Reyes, Lydia R. Feliciano Represented By Attorney-In-Fact Victoria F. Harpst, Ruperta
A. Reyes, Estrellita Crisostomo, Yolanda R. Chiu, Virgilio A. Reyes, Carlito A. Reyes,
Pacita R. Bautista, And Spouses Lita Sy And Sy Bon Su
G.R. No. 122404
Petitioners: The Heirs Of Atanacio Villegas As Represented By Soledad De Ocampo
Agripino Villegas, And Ofelia R. Tungol
Respondents:​ Court Of Appeals, Spouses Lita Sy And Sy Bon Su
Summary:
This involves 2 consolidated cases involving a parcel of land in Quiapo, Manila owned
by the heirs of Dr. Lorenzo Reyes which was being leased by the petitioner-lessees (the
2 Villegas and the 2 Sanchez). The Administrative Committee of the heirs informed
petitioner-lessees of the heirs’ decision to sell the property and given them the
opportunity to exercise their right of pre-emption. However, after many offers &
counter-offers and a failed conference meeting (see below for details) to establish the
price, the parties failed to reach an agreement. And so the “respondent-heirs”, owner of
the 75% undivided property, decided to sell their shares to Lita Sy. As a consequence of
which, petitioner-lessees filed an action against respondent-heirs and Spouses Sy for
Annulment of the Sale/Title, Specific Performance, and Consignation of Rentals with
Damages. They contend that there was already a perfected contract of sale when they
accepted the P5 Million offer for the property in their letter dated Oct. 18, 1988 and that
the sale between respondent-heirs and Lita Sy should be annulled since it violated their
right of first refusal.
Civil Law Review Case Digests
The SC held that the respondent-heirs were correct that there was no perfected contract
of sale because there was no meeting of minds. Where a time is stated in an offer for its
acceptance, the offer is terminated at the expiration of the time given for its acceptance.
The offer may also be terminated when the person to whom the offer is made either
rejects the offer outright or makes a counter-offer of his own. In this case,
petitioner-lessees already exercised their right of first refusal when they refused to
respond to the latest offer of respondent-heirs (the letter dated Nov. 3, 1988 wherein
only the 75% undivided interest of the property was for sale at P3,825,000). Upon
petitioner-lessees’ failure to respond to this latest offer of respondent-heirs, the latter
could validly sell the property to other buyers under the same terms and conditions
offered.
FACTS: ​[Sorry guys but the facts are long]
● “Respondent-heirs” (the Reyeses) together with the “other heirs” were the owners of
land located in Quiapo, Manila which they inherited from their father Dr. Lorenzo C.
Reyes.
● On the other hand, the “petitioner-lessees” (the 2 Villegas and the 2 Sanchez) were
the lessees of the property since 1959, and owned the building and improvements
constructed on the property.
● Letter (dated May 19, 1988): ​The Administrative Committee of the heirs informed
petitioner-lessees that the heirs have decided to sell the property. It was stated in
the letter:
“we are giving you the opportunity to exercise your rights of pre-emption, made in writing
within thirty (30) days upon receipt of this letter. If however, we do not hear from you
after the lapse of the said period, we shall take it to mean that you are not interested
to purchase the subject lot, which thereby give us the liberty to offer it to other
interested parties.”
● Reply (June 14, 1988): ​Petitioner-lessees replied requesting for an extension of 30
days to submit their bid for the property.
● Reply (July 1988): ​After the bid was submitted, the Administrative Committee
informed them of their receipt of notice of the P4,000,000 bid price. They then wrote
that they requested petitioner-lessees to increase their bid for the property but the
latter failed to make another offer so the heirs have decided to sell to another buyer
who offered a higher price. Nevertheless, the Administrative Committee indicated in
the letter that they would wait for a reply within 15 days and that should the period
lapse without any reply from petitioner-lessees, it would mean that
petitioner-lessees were no longer interested in buying the property.
● Reply (Aug. 2, 1988): ​Petitioner-lessees sent a reply requesting the Administrative
Committee to state in writing their asking price for the property.
● Reply (Aug. 3, 1988): ​The Administrative Committee sent a letter stating that (1)
the improvements on the property would revert back to the lessor-owner after 15
years, thus even before their father have died, he already owned the improvements
ans paid realty taxes for it, and that (2) they have an offer of P5 Million which was
submitted to them last month. If petitioners-lessees could offer the same amount,
then they will accommodate them. The offer must be received on or before Aug. 11,
1998.
● Reply (Aug. 11, 1988): ​Petitioner-lessees insisted that they own the improvements
on the property and that they were willing to reimburse the realty tax paid on the
improvements by the late Dr. Lorenzo C. Reyes. They then requested for a meeting
with all the heirs to negotiate the sale of the property, and informed the
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Atty. Ruben Balane 
Administrative Committee that their final bid price will be submitted during the
meeting.
● HOWEVER, during the conference, the parties failed to agree on the price and
terms for the sale of the property.
● Letter (Oct. 18, 1988): ​Petitioner-lessees wrote another letter to the Administrative
Committee stating therein their acceptance of the P5 Million asking price.
● Reply (Aug. 11, 1988): The Admin Committee informed that some of the co-owners
of the property (25%) do not anymore agree to sell their share of the property; but
the remaining 75% share are still interested in selling their shares. It is, therefore,
very clear from the foregoing that the offer to sell the entire property was no longer
effective.
● As to the co-owners of the 75% They sent a letter (dated Nov. 3, 1988) to the
petitioner-lessees offering to sell their shares for P3,825,000, net to them – in other
words, all applicable taxes - capital gains tax, documentary stamp tax, municipal
transfer tax and registration expenses - should be borne by the petitioner-lessees.
And that failure to hear within one week from their receipt of the letter, they shall be
free to offer it to other buyers.
o (Nov. 28, 1988) Respondent-heirs sold their 75% undivided interest in the
property for P3,825,000 to Lita Sy.
● As to the co-owners of the 25% Sold the remaining 25% portion of the property
on Feb. 1, 1989 to the petitioner-lessees.
● Petitioner-lessees then filed an action against respondent-heirs and Spouses Sy for
Annulment of Deed of Sale/Title, Specific Performance, and Consignation of
Rentals with Damages.
o Petitioner-lessees’ contention: There was already a perfected contract of sale
when they accepted the P5 Million offer for the property in their letter dated Oct.
18, 1988. The contract of sale between respondent-heirs and Lita Sy should be
annulled since it violated their right of first refusal.
o Respondent-heirs’ contention: The P5Million offer in their letter dated Aug. 3,
1988 already lapsed because petitioner-lessees did not accept the offer within
the period granted. Instead, petitioner-lessees opted for a conference during
which the parties failed to agree on the price. There was therefore no perfected
contract of sale because there was no meeting of minds.
● Trial Court:​ Dismissed.
● CA:​ Affirmed
ISSUE: ​WON the contract of sale between respondent-heirs and Lita Sy violated the
right of first refusal of petitioner-lessees. –​ NO.
RATIO:
● A right of first refusal is a contractual grant, not of the sale of a property, but of the
first priority to buy the property in the event the owner sells the same. When a lease
contains a right of first refusal, the lessor has the legal duty to the lessee not to sell
the leased property to anyone at any price until after the lessor has made an offer to
sell the property to the lessee and the lessee has failed to accept it. Only after the
lessee has failed to exercise his right of first priority could the lessor sell the
property to other buyers under the same terms and conditions offered to the lessee,
or under terms and conditions more favorable to the lessor.
● The heirs of Dr. Lorenzo C. Reyes recognized the right of first refusal of
petitioner-lessees over the property. There was an exchange of letters between the
Civil Law Review Case Digests
Administrative Committee and petitioner-lessees evidencing the offer and
counter-offer of both parties. However, there was no meeting of the minds between
the parties.
o The offer of P5Million in the letter dated Aug. 3, 1988 already lapsed when
petitioner-lessees failed to accept it within the period granted. The offer was
superseded by the new offer of respondent-heirs during the conference.
However, no settlement was reached between the parties during their
conference.
o Where a time is stated in an offer for its acceptance, the offer is
terminated at the expiration of the time given for its acceptance. The offer
may also be terminated when the person to whom the offer is made either
rejects the offer outright or makes a counter-offer of his own.
● Petitioner-lessees already exercised their right of first refusal when they refused to
respond to the latest offer of respondent-heirs (the letter dated Nov. 3, 1988 wherein
only the 75% undivided interest of the property was for sale at P3,825,000), which
amounted to a rejection of the offer. Upon petitioner-lessees’ failure to respond to
this latest offer of respondent-heirs, the latter could validly sell the property to other
buyers under the same terms and conditions offered to petitioner-lessees. Thus,
when respondent-heirs sold the property to Lita Sy, respondent-heirs did not violate
the right of first refusal of petitioner-lessees. The latter were given more than ample
opportunity to purchase the property.
24. Eulogio v. Spouses Angeles
576 SCRA 561 (2009) | Chico-Nazario
Petitioner: Enrico S. Eulogio
Respondents: Spouses Clemente and Luz Apeles
Summary: ​A house and lot in Timog Avenue, QC was being leased out to Arturo by
Spouses Apeles. Upon Arturo’s death, Enrico (Arturo’s son) succeeded as lessor.
Allegedly, Enrico and Luz (authorized by SPA) entered into a Contact of Lease with
Option to Purchase, affording Enrico, before the expiration of the three-year lease
period, the option to purchase the subject property for a price not exceeding P1.5M.
When Enrico wanted to exercise such right, the Spouses Apeles refused. Enrico filed a
complaint for specific performance and damages. Spouses Apeles contended that Luz’s
signature in said contract was forged and they did not intend to sell such property.
Issue: WON the Contract of Lease with Option to Purchase may be enforced against
Spouses Apeles — No.
SC said an option is a contract by which the owner of the property agrees with another
person that the latter shall have the right to buy the former’s property at a fixed price
within a certain time. It is not a sale of property but a sale of the right to purchase. Under
the 2​nd ¶ thereof, an option contract to be valid and enforceable against the promissor,
there must be a ​separate and distinct consideration that supports it. In this case, no
consideration was given by Enrico to the spouses Apeles for the option contract. The
absence of monetary or any material consideration keeps this Court from enforcing the
rights of the parties under said option contract.
Facts:
● The subject property is a house and lot situated at No. 87 Timog Avenue, QC,
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Atty. Ruben Balane 
with an 360.60 sqm, covered by TCT No. 253990 in the names of Spouses
Apeles.
● In 1979, the spouses Apeles leased the property to Arturo Eulogio (Enrico’s
father). Upon Arturo’s death, his son Enrico succeeded as lessor. He used the
property as his residence and place of business (buying and selling imported
cars).
● On 6 Jan 1987, the spouses Apeles and Enrico allegedly entered into a
Contract of Lease with Option to Purchase involving the subject
property. According to the said lease contract, Luz Apeles was authorized to
enter into the same as the attorney-in-fact of her husband, Clemente, pursuant
to a Special Power of Attorney. The contract purportedly afforded Enrico,
before the expiration of the three-year lease period, the option to purchase the
subject property for a price not exceeding P1.5M.
● Before the expiration of the three-year lease period provided in the lease
contract, Enrico exercised his option to purchase the subject property by
communicating verbally and in writing to Luz his willingness to pay the agreed
purchase price, but the spouses Apeles supposedly ignored Enrico’s
manifestation. This prompted Enrico to seek recourse from the ​barangay for the
enforcement of his right to purchase the subject property, but despite several
notices, the spouses Apeles failed to appear before the ​barangay.​
● In a letter, the spouses Apeles demanded that he pay his rental arrears from
Jan 1991 to Dec 1996 and that he vacate the subject property since it would be
needed by the spouses Apeles themselves.
● Without heeding the demand of the spouses Apeles, Enrico instituted a
Complaint for Specific Performance with Damages against the spouses
Apeles before the RTC. Enrico’s cause of action is founded on ¶ 5 of the
Contract of Lease with Option to Purchase vesting him with the right to acquire
ownership of the subject property after paying the agreed amount of
consideration.
● During trial, Enrico said he and Luz entered into the Contract. Spouses Apeles
denied such contract and posited that Luz’s signature thereon was a
forgery. To buttress their contention, they offered as evidence Luz’s Philippine
Passport, which showed that on 26 January 1987, the date when Luz allegedly
signed the said Contract, she was in the USA. They also presented several
official documents bearing her genuine signatures. They also maintained they
did not intend to sell the subject property.
● Enrico, in rebuttal, retracted his prior declaration that Luz signed the said
Contract on 26 Jan 1987. Instead, Enrico averred that Luz signed the Contract
after arriving in the Philippines on 30 May 1987. Enrico further related that after
Luz signed the lease contract, she took it with her for notarization.
● RTC rendered a decision in favor of Enrico. No expert witness was presented
so RTC relied on its own examination of the signature. Finding no forgery, the
RTC bound the parties to the lease contract.
● On appeal, ​CA overturned RTC’s judgment and chose not to accord the
disputed contract full faith and credence.
Issue: ​WON the contract of lease w/ option to repurchase may be enforced against
Spouses Apeles — No.
Held: ​CA decision affirmed.
Civil Law Review Case Digests
Ratio:
● In ruling out forgery, the RTC heavily relied on the testimony proffered by
Enrico during the trial, ignoring blatant contradictions that destroy his credibility
and the veracity of his claims. The inconsistencies in Enrico’s version of events
have seriously impaired the probative value of his testimony and cast serious
doubt on his credibility.
● While it is true that a notarized document carries the evidentiary weight
conferred upon it with respect to its due execution, and has in its favor the
presumption of regularity, this presumption, however, is not absolute. It may be
rebutted by clear and convincing evidence to the contrary. Enrico himself
admitted that Luz took the document and had it notarized without his
presence. Such fact alone overcomes the presumption of regularity since a
notary public is enjoined not to notarize a document unless the persons who
signed the same are the very same persons who executed and personally
appeared before him to attest to the contents and truth of what are stated
therein.
● Although there is no direct evidence to prove forgery, preponderance of
evidence inarguably favors the spouses Apeles.
Assuming arguendo that we agree with Enrico that Luz voluntarily entered into the
Contract and personally affixed her signature to the said document, the provision
on the option to purchase the subject property incorporated in said Contract still
remains unenforceable. There was ​no separate consideration for the option to
purchase.
● There is no dispute that what Enrico sought to enforce was his purported right
to acquire ownership of the subject property in the exercise of his option to
purchase the same under the Contract of Lease with Option to Purchase. He
ultimately wants to compel the spouses Apeles to already execute the Deed of
Sale.
● An ​option ​is a contract by which the owner of the property agrees with another
person that the latter shall have the right to buy the former’s property at a fixed
price within a certain time.
● An option is not of itself a purchase, but merely secures the privilege to buy. It
is not a sale of property but a ​sale of the right to purchase​. The owner does
not sell his land or agree to sell it; but ​he does sell something, ​i.e., the right
or privilege to buy at the election or option of the other party​. Its
distinguishing characteristic is that it imposes no binding obligation on the
person holding the option, aside from the consideration for the offer.
● It is also sometimes called an “​unaccepted offer​” and is sanctioned by Article
1479 of the Civil Code. Under the 2​nd ¶ thereof, an option contract to be valid
and enforceable against the promissor, there must be ​a separate and distinct
consideration​ that supports it.
● Southwestern Sugar & Molasses Company v. Atlantic Gulf and Pacific Co.:​ An
“accepted unilateral promise” can only have a binding effect if supported by a
consideration, which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration.
● Without consideration that is separate and distinct from the purchase price, an
option contract cannot be enforced; that holds true even if the unilateral
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Atty. Ruben Balane 
promise is already accepted by the optionee.
● The ​consideration is “the why of the contracts, the essential reason which
moves the contracting parties to enter into the contract.” It need not be
monetary. Actual cash need not be exchanged for the option. However, the
same is an onerous contract for which the consideration must be something of
value, although its kind may vary.
● We have painstakingly examined the Contract of Lease with Option to
Purchase, as well as the pleadings and testimonies, for any direct evidence or
evidence ​aliunde to prove the existence of consideration for the option contract,
but ​we have found none​. The only consideration agreed upon by the parties in
the said Contract is the supposed purchase price for the subject property (P1.5
Million), which could not be deemed to be the same consideration for the option
contract since the law and jurisprudence explicitly dictate that for the option
contract to be valid, it must be supported by a consideration ​separate and
distinct​ from the price​.
● Bible Baptist Church v. CA:​ An option contract needs to be supported by a
separate consideration. The consideration need not be monetary but could
consist of other things or undertakings. However, if the consideration is not
monetary, these must be things or undertakings of value, in view of the onerous
nature of the option contract. Furthermore, when a consideration for an option
contract is not monetary, said consideration must be ​clearly specified as such
in the option contract or clause.
● In the present case, ​no consideration was given by Enrico to the spouses
Apeles for the option contract. The absence of monetary or any material
consideration keeps this Court from enforcing the rights of the parties under
said option contract.
25. Vazquez v. Ayala
G.R. No. 149734 | November 19, 2004 | TINGA, J.:
Petitioners: DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ
Respondent: AYALA CORPORATION
Emergency​: NOTE, this is a long case with other issues. But due to the change in
deadline, I just focused on the issue connected to the assigned article. This was also the
issue that came out in the syllabus on ESCRA so I think were safe omitting the other
issues.
On April 23, 1981, the Vasquez spouses) entered into a Memorandum of Agreement
(MOA) with regarding the development of Ayala Alabang. Aside from a portion of the
land being reserved for the spouses, 4 lots were agreed to be offered for sale to the
spouses at the prevailing price at the time of the purchase. The pertinent portion of the
moa provided “5.15. The BUYER agrees to give the SELLERS a first option to purchase
four developed lots next to the "Retained Area" at the prevailing market price at the time
of the purchase." The spouses now are seeking to buy the lots at the 1984 prices while
Ayala had offered to sell them at the 1990 price (when the village was finally developed).
The issue connected to the pricing is w/n the agreement is an option contract or a right
of first refusal. SC – ​ROFR. ​In a right of first refusal, while the object might be made
determinate, the exercise of the right would be dependent not only on the grantor's
Civil Law Review Case Digests
eventual intention to enter into a binding juridical relation with another but also on terms,
including the price, that are yet to be firmed up. Applied to the instant case, paragraph
5.15 is obviously a mere right of first refusal and not an option contract. Although the
paragraph has a definite object, i.e., the sale of subject lots, the period within which they
will be offered for sale to petitioners and, necessarily, the price for which the subject lots
will be sold are not specified. Therefore, Ayala was free to set the price based on 1990.
Moreover, since spouses refused to purchase the properties at the price given by Ayala,
they necessarily lost their ROFR.
Facts​:
1. On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez
(hereafter, Vasquez spouses) entered into a Memorandum of Agreement
(MOA) with Ayala Corporation (hereafter, AYALA) with AYALA buying from the
Vazquez spouses, all of the latter's shares of stock in Conduit Development,
Inc.
2. The main asset of Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit under a development
plan where the land was divided into Villages 1, 2 and 3 of the "Don Vicente
Village."
3. Under the MOA, Ayala was to develop the entire property, less what was
defined as the "Retained Area" consisting of 18,736 square meters. This
"Retained Area" was to be retained by the Vazquez spouses. The area to be
developed by Ayala was called the "Remaining Area".
4. In this "Remaining Area" were 4 lots adjacent to the "Retained Area" and Ayala
agreed to offer these lots for sale to the Vazquez spouses at the prevailing
price at the time of purchase.
5. The relevant provisions of the MOA on this point are: ”5.15. The BUYER agrees
to give the SELLERS a first option to purchase four developed lots next to the
"Retained Area" at the prevailing market price at the time of the purchase."
6. Taking the position that Ayala was obligated to sell the 4 lots adjacent to the
"Retained Area" within 3 years from the date of the MOA, the Vasquez spouses
sent several "reminder" letters of the approaching so-called deadline. However,
no demand after April 23, 1984, was ever made by the Vasquez spouses for
Ayala to sell the 4 lots.
7. By early 1990 Ayala finished the development of the vicinity of the 4 lots to be
offered for sale. The four lots were then offered to be sold to the Vasquez
spouses at the prevailing price in 1990.
8. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices,
thereby leading to the suit for specific performance.
9. RTC - Ruled in favor of Spouses. The option to purchase the 4 lots is valid
because it was supported by consideration as the option is incorporated in the
MOA where the parties had prestations to each other.
10. CA – reversed. Paragraph 5.15 is not an option contract but a right of first
refusal there being no separate consideration therefor. Since petitioner spouses
refused Ayala Corporation's offer to sell the subject lots at the reduced 1990
price of P5,000.00 per square meter, they have effectively waived their right to
buy the same.
Issue​: w/n the contract stipulation is a right of first refusal or an option contract? ​ROFR
only. ​Petition denied.
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Atty. Ruben Balane 
1. The Court has clearly distinguished between an option contract and a right of
first refusal. An option is a preparatory contract in which one party grants to
another, for a fixed period and at a determined price, the privilege to buy or sell,
or to decide whether or not to enter into a principal contract. It binds the party
who has given the option not to enter into the principal contract with any other
person during the period designated, and within that period, to enter into such
contract with the one to whom the option was granted, if the latter should
decide to use the option. It is a separate and distinct contract from that which
the parties may enter into upon the consummation of the option. It must be
supported by consideration.
2. In a right of first refusal, on the other hand, while the object might be made
determinate, the exercise of the right would be dependent not only on the
grantor's eventual intention to enter into a binding juridical relation with another
but also on terms, including the price, that are yet to be firmed up.
3. Applied to the instant case, paragraph 5.15 is obviously a mere right of first
refusal and not an option contract.
4. Although the paragraph has a definite object, i.e., the sale of subject lots, the
period within which they will be offered for sale to petitioners and, necessarily,
the price for which the subject lots will be sold are not specified.
5. The phrase "at the prevailing market price at the time of the purchase"
connotes that there is no definite period within which Ayala Corporation is
bound to reserve the subject lots for petitioners to exercise their privilege to
purchase. Neither is there a fixed or determinable price at which the subject lots
will be offered for sale.
6. The price is considered certain if it may be determined with reference to
another thing certain or if the determination thereof is left to the judgment of a
specified person or persons.
7. Further, paragraph 5.15 was inserted into the MOA to give petitioners the first
crack to buy the subject lots at the price which Ayala Corporation would be
willing to accept when it offers the subject lots for sale. It is not supported by an
independent consideration. As such it is not governed by Articles 1324 and
1479 of the Civil Code, viz:
a. Art. 1324. When the offeror has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded
upon a consideration, as something paid or promised.
b. Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
8. An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
9. In this case, Ayala Corporation offered the subject lots for sale to petitioners at
the price of P6,500.00/square meter, the prevailing market price for the
property when the offer was made on June 18, 1990. Insisting on paying for the
lots at the prevailing market price in 1984 of P460.00/square meter, petitioners
rejected the offer. Ayala Corporation reduced the price to P5,000.00/square
meter but again, petitioners rejected the offer and instead made a counter-offer
in the amount of P2,000.00/square meter.​49 Ayala Corporation rejected
petitioners' counter-offer. With this rejection, petitioners lost their right to
Civil Law Review Case Digests
purchase the subject lots.
10. It cannot, therefore, be said that Ayala Corporation breached petitioners' right
of first refusal and should be compelled by an action for specific performance to
sell the subject lots to petitioners at the prevailing market price in 1984.
Art. 1326
C & C Commercial Corp. v. Menor
Art. 1332
Tang v. CA
Cayabyab v. CA
Art. 1335
De Leon v. CA
Art. 1338
Abando v. Lozada
Alcasid v. CA
Samson v. CA
Art. 1345
Umali v. CA
26. Payongayong v. CA
430 SCRA 210 [2004]/ G.R. No. 144576 ​| ​May 28, 2004 | Carpio-Morales
Petitioners: ​Spouses Isabelo and Erlinda Payongayong
Respondents: ​Honorable Court of Appeals and Spouses Clementa and Rosalia
Salvador
Summary: ​Mendoza is the original owner of a parcel of land located in Caloocan. He
mortgaged the property to the Meralco Employees Savings and Loan Association
(MESALA) to secure a loan; this was duly annotated. After this, Mendoza executed a
Deed of Sale with Assumption of Mortgage over the parcel of land together with all the
improvements thereon in favor of petitioners Spouses Payongayong. The sale was
never annotated. Later on, Mendoza mortgaged the same property to MESALA to
secure another loan.; this was annotated on the title. Lastly, Mendoza executed another
Deed of Sale over the same property in favor of respondents spouses Salvador. Getting
wind of the second sale to respondent Spouses Salvador, petitioners Spouses
Payongayong filed a complaint for annulment of deed of absolute sale and transfer of
title with recovery of possession over the said land. ​RTC ruled in favor of respondents
Salvador spouses; ​CA affirmed this, MR denied. ​ISSUE: ​W/N the sale to respondent
Spouses Salvador was fictitious. ​NO! Simulation occurs when an apparent contract
is a declaration of a fictitious will, deliberately made by agreement of the parties,
in order to produce, for the purpose of deception, the appearance of a juridical act
which does not exist or is different from that which was really executed. Its
requisites are: ​a) an outward declaration of will different from the will of the parties; ​b)
the false appearance must have been intended by mutual agreement; and ​c) the
purpose is to deceive third persons. ​The basic characteristic then of a simulated
contract is that it is not really desired or intended to produce legal effects or does
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Atty. Ruben Balane 
not in any way alter the juridical situation of the parties. The cancellation of
Mendoza’s certificate of title over the property and the procurement of one in its
stead in the name of respondents, which acts were directed towards the
fulfillment of the purpose of the contract, unmistakably show the parties’ intention
to give effect to their agreement. The claim of simulation does not thus lie.
FACTS​:
● Eduardo Mendoza was the registered owner of a 200 square meter parcel of
land situated in Barrio San Bartolome, Caloocan, covered by a TCT title.
● Mendoza mortgaged the parcel of land to the Meralco Employees Savings and
Loan Association (MESALA) to secure a loan in the amount of P81,700.00.
The mortagage was duly annotated.
● Mendoza executed a Deed of Sale with Assumption of Mortgage over the
parcel of land together with all the improvements thereon in favor of petitioners
Spouses Payongayong ​in consideration of P50,000.00. It is stated in the deed
that petitioners-spouses bound themselves to assume payment of the balance
of the mortgage indebtedness of Mendoza to MESALA.
● Later, Mendoza, without the knowledge of petitioners Payongayong, mortgaged
the same property to MESALA to secure a loan in the amount of P758,000.00.
This was also duly annotated on Mendoza’s title.
● Again, later on Mendoza executed a Deed of Absolute Sale over still the same
property in favor of respondents Spouses Salvador in consideration of
P50,000.00. The sale was duly annotated.
● On even date, MESALA issued a Cancellation of Mortgage acknowledging that
for sufficient and valuable consideration which it received from Mendoza, it was
cancelling and releasing the real estate mortgage over the property. The
cancellation was annotated.
● Respondents Spouses Salvador caused the cancellation of Mendoza’s title and
the issuance of TCT in their name.
● Getting wind of the sale of the property to respondents, petitioners Spouses
Payongayong filed a complaint for annulment of deed of absolute sale and
transfer certificate of title with recovery of possession and damages against
Mendoza, his wife Sally Mendoza, and respondents before the Quezon City
RTC.
● Payongayong spouses alleged: spouses Mendoza maliciously sold to
respondents Salvador spouses the property which was priorly sold to them and
that respondents acted in bad faith in acquiring it, the latter having had
knowledge of the existence of the Deed of Absolute Sale with Assumption of
Mortgage between them (petitioners) and Mendoza.
● RTC: ruled in favor of respondent Salvador spouses. ​CA: affirmed the case.
MR denied.
ISSUE​:
● W/N the (2​ND​) sale (to respondents Spouses Salvador) was simulated
(connected to W/N respondents are purchasers in GF). NO.
RATIO​:
Contention: Petitioners claim, however, that the sale between Mendoza and respondents
was simulated.
Civil Law Review Case Digests
● It is a well-established principle that a person dealing with registered land may
safely rely on the correctness of the certificate of title issued therefor and the
law will in no way oblige him to go behind the certificate to determine the
condition of the property.
● That petitioners Spouses Payongayong did not cause the cancellation of the
certificate of title of Mendoza and procure one in their names (in the Deed of
Sale with assumption of mortgage) is not disputed. Nor that they had their
claims annotated on the same title. Thus, at the time of the sale of the property
to respondents Spouses Salvador on November 28, 1991, only the mortgages
in favor of MESALA appeared on the annotations of encumbrances on
Mendoza’s title.
● Also, respondents did not only rely upon Mendoza’s title. Rosalia Salvador
personally inspected the property and verified with the Registry of Deeds of
Quezon City if Mendoza was indeed the registered owner.
● Petitioners claim, however, that the sale between Mendoza and respondents
was simulated.
● 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. (n)
● Simulation occurs when an apparent contract is a declaration of a
fictitious will, deliberately made by agreement of the parties, in order to
produce, for the purpose of deception, the appearance of a juridical act
which does not exist or is different from that which was really executed.
o Its requisites are: ​a) an outward declaration of will different from the
will of the parties; ​b) the false appearance must have been intended
by mutual agreement; and ​c)​ the purpose is to deceive third persons.
● The basic characteristic then of a simulated contract is that it is not really
desired or intended to produce legal effects or does not in any way alter
the juridical situation of the parties.
● The cancellation of Mendoza’s certificate of title over the property and the
procurement of one in its stead in the name of respondents, which acts
were directed towards the fulfillment of the purpose of the contract,
unmistakably show the parties’ intention to give effect to their agreement.
The claim of simulation does not thus lie.
● That petitioners and respondents were forced to litigate due to the deceitful acts
of the spouses Mendoza, this Court is not unmindful. It cannot be denied,
however, that petitioners’ failure to register the sale in their favor made it
possible for the Mendozas to sell the same property to respondents.
● Under the circumstances, this Court cannot come to petitioners’ succor at the
expense of respondents-innocent purchasers in good faith. Petitioners are not
without remedy, however. They may bring an action for damages against the
spouses Mendoza.
27. Heirs of Ureta v. Heirs of Ureta​,
GR 165748 | Sept 14 2011 | Mendoza
Petitioners​: Heirs of Policronio M. Ureta, Sr. et al
Respondents​: Heirs of Liberato M. Ureta et al
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Atty. Ruben Balane 
Emergency Recit: ​Francisco suggested to his father, Alfonso, that in order to reduce
inheritance taxes, Alfonso should make it appear that he had sold some of his lands to
his children. Accordingly, Alfonso executed 4 Deeds of Sale covering several parcels of
land in favor of 3 of his children and his common law wife. Since the sales were made
only for taxation purposes and no monetary consideration was given, Alfonso continued
to own, possess and enjoy the lands and their produce. Policronio, Alfonso’s eldest, was
given under a Deed of Sale 6 parcels of land but he and his heirs only took possession of
a portion of parcel 5.
When Alfonso died, a Deed of Extrajudicial Partition was entered into by Alfonso’s heirs.
Policronio’s heirs now allege that the 6 parcels of land conveyed to Policronio under the
Deed of Sale should be excluded in the partition.
Issue now is whether or not the deed of sale was valid so that the 6 parcels of land
conveyed to Policronio would properly be excluded from the partition.
Court ruled that the deed was void for being absolutely simulated. It is clear that the
Deeds of Sale were only executed for taxation purposes. There is clearly no intent on the
part of Alfonso to divest himself of ownership over the properties.
Facts:​
● In his lifetime, Alfonso Ureta begot 14 children, including Policronio. The
children of Policronio ​(Heirs of Policronio)​, are opposed to the rest of Alfonso’s
children and their descendants​(Heirs of Alfonso)​.
● Alfonso was financially well-off during his lifetime. He owned several fishpens, a
fishpond, a sari-sari store, a passenger jeep, and was engaged in the buying
and selling of copra. Policronio, the eldest, was the only child of Alfonso who
failed to finish schooling and instead worked on his father’s lands.
● Sometime in October 1969, Alfonso and four of his children, namely, Policronio,
Liberato, Prudencia, and Francisco, met at the house of Liberato. Francisco,
who was then a municipal judge, suggested that in order to reduce the
inheritance taxes, their father should make it appear that he had 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.
● When Alfonso died on October 11, 1972, Liberato acted as the administrator of
his father’s estate. He was later succeeded by his sister Prudencia, and then by
her daughter, Carmencita Perlas. Except for a portion of parcel 5, the rest of the
parcels transferred to Policronio were tenanted by the Fernandez Family. These
tenants never turned over the produce of the lands to Policronio or any of his
heirs, but to Alfonso and, later, to the administrators of his estate.
● Policronio died on November 22, 1974. Except for the said portion of parcel 5,
neither Policronio nor his heirs ever took possession of the subject lands.
● 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,
Civil Law Review Case Digests Atty. Ruben Balane 
 

Policronio’s eldest son, representing the Heirs of Policronio, signed the Deed of Policronio never exercised any rights pertaining to an owner over the subject
Extra-Judicial Partition in behalf of his co-heirs. lands.
● After their father’s death, the Heirs of Policronio found tax declarations in his ● The most protuberant index of simulation of contract is the complete absence of
name covering the six parcels of land. On June 15, 1995, they obtained a copy an attempt in any manner on the part of the ostensible buyer to assert rights of
of the Deed of Sale executed on October 25, 1969 by Alfonso in favor of ownership over the subject properties. Policronio’s failure to take exclusive
Policronio. possession of the subject properties or, in the alternative, to collect rentals, is
● Not long after, on July 30, 1995, the Heirs of Policronio allegedly learned about contrary to the principle of ownership. Such failure is a clear badge of
the Deed of Extra-Judicial Partition involving Alfonso’s estate when it was simulation that renders the whole transaction void.​
published in the July 19, 1995 issue of the Aklan Reporter. ● It is further telling that Policronio never disclosed the existence of the Deed of
● Believing that the six parcels of land belonged to their late father, and as such, Sale to his children. This, coupled with Policronio’s failure to exercise any rights
excluded from the Deed of Extra-Judicial Partition, the Heirs of Policronio pertaining to an owner of the subject lands, leads to the conclusion that he was
sought to amicably settle the matter with the Heirs of Alfonso. Earnest efforts aware that the transfer was only made for taxation purposes and never
proving futile, the Heirs of Policronio filed a Complaint for Declaration of intended to bind the parties thereto.
Ownership, Recovery of Possession, Annulment of Documents, Partition, and ● Since the Deed of Sale is void, the subject properties were properly included in
Damages against the Heirs of Alfonso before the RTC on November 17, 1995. the Deed of Extra-Judicial Partition of the estate of Alfonso.
● RTC dismissed the complaint. CA affirmed.
WHEREFORE​, the petition in G.R. No. 165748 is DENIED.
Issue/Held:​ Whether the Deed of Sale is valid. ​NO.
Art. 1346
The deed of sale was absolutely simulated. Carino v. CA
● Lacking in an absolutely simulated contract is consent which is essential to a Javier v. CA
valid and enforceable contract. Thus, where a person, in order to place his Formaran v. Ong
property beyond the reach of his creditors, simulates a transfer of it to another,
he does not really intend to divest himself of his title and control of the property; Section 2. ​Object of Contracts (​ Arts. 1347-1349)
hence, the deed of transfer is but a sham. Similarly, in this case, Alfonso
simulated a transfer to Policronio purely for taxation purposes, without intending Section 3. ​Cause of Contracts (​ Arts. 1350-1355)
to transfer ownership over the subject lands.
● The true intention of the parties in this case was sufficiently proven by the Heirs Art. 1350
of Alfonso. The Heirs of Alfonso established by a preponderance of Villamor v. CA
evidence that the Deed of Sale was one of the four (4) absolutely simulated Art. 1351
Deeds of Sale which involved no actual monetary consideration, executed by Olegario v. CA
Alfonso in favor of his children, Policronio, Liberato, and Prudencia, and his
second wife, Valeriana, for taxation purposes. Art. 1352
● As found by the CA, Alfonso continued to exercise all the rights of an owner Lagunzad v. Gonzales
even after the execution of the Deeds of Sale. It was undisputed that Alfonso
remained in possession of the subject lands and enjoyed their produce until his Art. 1354
death. No credence can be given to the contention of the Heirs of Policrionio 28. Law v. Olympic Sawmill
that their father did not take possession of the subject lands or enjoyed the 129 SCRA 439 | May 28, 1984 ​| ​Melencio-Herrera, J.
fruits thereof in deference to a Filipino family practice. Had this been true,
Policronio should have taken possession of the subject lands after his father Petitioner: ​Liam Law
died. On the contrary, it was admitted that neither Policronio nor his heirs ever Respondent: ​Olympic Sawmill Co. and Elino Lee Chi
took possession of the subject lands from the time they were sold to him, and
even after the death of both Alfonso and Policronio. Summary: ​Law loaned P10K to defendants. Defendants were not able to pay and asked
● It was also admitted by the Heirs of Policronio that the tenants of the subject for extension. Law granted but added P6K for attorney’s fees, legal interest, and other
lands never turned over the produce of the properties to Policronio or his heirs costs. Defendants still unable to pay so collection case. Defendants said P6K is
but only to Alfonso and the administrators of his estate. Neither was there a usurious. Court said P6K was liquidated damages so allowed unless proven illegal,
demand for their delivery to Policronio or his heirs. Neither did Policronio ever which defendants did not do.
pay real estate taxes on the properties, the only payment on record being those
made by his heirs in 1996 and 1997 ten years after his death. In sum, Facts:
1. In 1957, Liam Law loaned P10K, without interest, to Olympic Sawmill Co. (a
 

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Civil Law Review Case Digests Atty. Ruben Balane 
 

partnership) and Elino Lee Chi (managing partiner). The loan became due on Lim v. CA
January 31, 1960, but was not paid on that date, with the debtors asking for an
extension of 3 months. Art. 1372
2. On March 17, 1960, the parties executed another loan document. Payment of Republic v. Castellvi
the P10K was extended to April 30, 1960, but the obligation was increased by
P6K (for attorney’s fees, legal interest, and other costs). Art. 1377
3. Olympic and Lee Chi again failed to pay and, on September 23, 1960, plaintiff Eastern Shipping v. Margarine-Verkaufs-Union
instituted this collection case. Defendants admitted the P10K principal
obligation, but claimed that the additional P6K constituted usurious interest.
4. TC rendered decision ordering defendants to pay Law P10K plus P6K by way Chapter 6. Rescissible Contracts (Art. 1380-1389)
of liquidated damages with legal interest on both amounts from April 30, 1960.
Art. 1380-1381
Issue: ​W/N TC erred in ordering defendants to pay the amount to Law? ​NO Guzman, Bocaling & Co. v. Bonnevie
Siguan v. Lim
Held: ​WHEREFORE, the appealed judgment is hereby affirmed, without pronouncement
as to costs. Art. 1387
Cabaliw v. Sadorra
Ratio:
1. Under Article 1354 of the Civil Code, in regards to the agreement of the parties
relative to the P6K obligation, "it is presumed that it exists and is lawful, unless Chapter 7. Voidable Contracts (Art. 1390-1402)
the debtor proves the contrary". No evidentiary hearing having been held, it has
to be concluded that defendants had not proven that the P6K obligation was Art. 1397
illegal. Houses International v. IAC
2. We view the P6K obligation as liquidated damages suffered by Law, Malabanan v. Gaw Ching
representing loss of interest income, attorney's fees and incidentals.
On the usury (you may skip). If the entity sued shall not file its answer under oath
denying the allegation of usury, the defendant shall be deemed to have admitted the Chapter 8. Unenforceable Contracts (Art. 1403-1408)
usury. The provision does not apply to a case, as in the present, where it is the
defendant, not the plaintiff, who is alleging usury. Moreover, for sometime now, usury Art. 1403
has been legally non-existent. Interest can now be charged as lender and borrower may 29. Ortega v. Leonardo
agree upon 103 SCRA 870 | May 28, 1958

Chapter 3. Form of Contracts (Art. 1356-1358) Petitioner: ​Marta C. Ortega

Art. 1356 Respondent: ​Daniel Leonardo

Lao Sok v. Sabaysabay
Odejas v. Guico ER: ​Ortega and Leonardo claimed the same land. Leonardo asked Ortega to desist from
Deloso v. Sandiganbayan pressing her claim and promised that if and when he succeeded in getting title to Lot I3 ,
he would sell to her a portion, provided she paid for the surveying and subdivision of the
Art. 1358 Lot and provided that after he acquired title, she could continue holding the lot as tenant
PNB v. IAC by paying a monthly rental until said portion shall have been segregated and the
Tapec v. CA purchase price fully paid. Oretega did all this and even made improvements to the lot;
however, Leonardo failed to comply and rejected Ortega’s tender of money. ​Held: ​As
there was partial performance, the principle excluding parol contracts for the sale of
Chapter 4. Reformation of Instruments (Art. 1359-1369) realty, does not apply. Here, the complaint described several circumstance indicating
partial performance: relinquishment of rights, continued possession, building of
improvements, tender of payment plus the surveying of the lot at Ortega’s expense and
Chapter 5. Interpretation of Contracts (Art. 1370-1379) the payment of rentals.

Art. 1370-1379 Facts:

 

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Civil Law Review Case Digests
● Long before and until her house had been completely destroyed during the
liberation of the City of Manila, Ortega occupied Lot 1, located at San Andres St.,
Malate. After liberation she re-occupied it.
● When the administration and disposition of the said Lot I were assigned by the Gov’t
to the Rural Progress Administration Ortega asserted her right as occupant for
purposes of purchase.
● Leonardo also asserted a similar right, alleging occupancy of a portion of the land
subsequent to Ortega’s. Leonardo asked Ortega to desist from pressing her claim
and definitely promised that if and when he succeeded in getting title to Lot I3 , he
would sell to her a portion thereof with an area of 55.60 sq.meters at the rate of P25
per sq.meter, provided she paid for the surveying and subdivision of the Lot and
provided further that after he acquired title, she could continue holding the lot as
tenant by paying a monthly rental of P10 until said portion shall have been
segregated and the purchase price fully paid. Ortega accepted his offer, and
desisted from further claiming Lot I.
● Leonardo finally acquired title thereto so, Ortega caused the survey and segregation
of the portion which Leonardo had promised to sell, now designated as Lot I-B in an
approved subdivision plan.
● In remodelling her son's house constructed on a lot adjoining Lot I she extended it
over said Lot I-B
● After Leonardo had acquired Lot I Ortega regularly paid him the monthly rental of
P10. After the plans of subdivision and segregation of the lot had been approved by
the Bureau of Lands, Ortega tendered to Leonardo the purchase price which the
latter refused to accept, without cause or reason.
● CFI dismissed: It is admitted by both parties that an oral agreement to sell a piece of
land is not enforceable (Art. 1403). Ortega, however, argues that the contract
although verbal, was partially performed because Ortega desisted from claiming the
portion of lot I in question due to the promise of Leonardo to transfer said portion to
her after the issuance of title to him. Even granting that Ortega really desisted to
claim not on oral promise to sell made by Leonardo, the oral promise to sell cannot
be enforced. ​The desistance to claim is not a part of the contract of sale of the land.
Only in essential part of the executory contract will, if it has already been performed,
make the verbal contract enforceable, payment of price being an essential part of
the contract of sale​.
Issue: W/n the oral contract is unenforceable. ​No, as there was partial performance,
the principle excluding parol contracts for the sale of realty, does not apply.
● If the statement of the CFI means that partial performance of a sale contract occurs
only when part of the purchase price is paid, it surely constitutes a defective
statement of the law. U.S. Jurisprudence in its title "Statute of Frauds" lists other
acts of partial performance, such as ​possession, the making of improvements,
rendition of services, payment of taxes, relinquishment of rights, etc.
● "​Continuance in possession may, in a proper case, be sufficiently referable to the
parol contract of sale to constitute a part performance thereof. There may be
additional acts or peculiar circumstances which sufficiently refer the possession to
the contract. Continued possession under an oral contract of sale, by one already in
possession as a tenant, has been held a sufficient part performance, where
accompanied by other acts which characterize the continued possession and refer it
to the contract of purchase. Especially is this true where the circumstances of the
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Atty. Ruben Balane 
case include the ​making of substantial, permanent, and valuable
improvements​."
● "The making of valuable permanent improvements on the land by the purchaser, in
pursuance of the agreement and with the knowledge of the vendor, has been said to
be the strongest and the most unequivocal act of part performance by which a
verbal contract to sell land is taken out of the statute of frauds, and is ordinarily an
important element in such part performance. Possession by the purchaser under a
parol contract for the purchase of real property, together with his making valuable
and permanent improvements on the property which are referable exclusively to the
contract, in reliance on the contract, in the honest belief that he has a right to make
them, and with the knowledge and consent or acquiescence of the vendor, is
deemed a part performance of the contract. The entry into possession and the
making of the improvements amount to such an alteration in the purchaser's
position as will warrant entering a degree of specific performance."
● "​A tender or offer of payment​, declined by the vendor, has been said to be
equivalent to actual payment, for determining whether there has been a part
performance. This is apparently true where the tender is by a purchaser who has
made improvements. But the doctrine generally accepted, that not even the
payment of the purchase price, without something more, is a sufficient part
performance. And the relinquishment of rights or the compromise thereof has
likewise been held to constitute part performance.
● Here, the complaint described several circumstance indicating partial performance:
relinquishment of rights, continued possession, building of improvements, tender of
payment plus the surveying of the lot at Ortega’s expense and the payment of
rentals.
● We shall not take time to discuss whether one or the other or any two or three of
them constituted sufficient performance to take the matter away from the operation
of the Statute of Frauds. Enough to hold that the combination of all of them
amounted to partial performance. It would be a fraud upon Ortega if the Leonardo
were permitted to oppose performance after he has allowed or induced the former
to perform in reliance upon the agreement.
● Granting that none of the 3 circumstances indicated by Leonardo (relinquishment,
survey, tender) would separately suffice, still the combination of the 3 with the
others already mentioned, amounts to more than enough.
30. Carbonel v. Poncio
G.R. No. L-11231 | May 12, 1958
Plaintiff-appellant​: ROSARIO CARBONNEL
Defendants-appellees​: JOSE PONCIO, RAMON INFANTE, and EMMA INFANTE
CONCEPCION, ​J.​:
SUMMARY: ​Plaintiff Rosario Carbonnel alleges she purchased from defendant Jose
Poncio, at P9.50 a square meter, a parcel of land. ​Carbonnel paid P247.26 on account
of the price and assumed Poncio's obligation with the Republic Savings Bank amounting
to P1,177.48, with the understanding that the balance would be payable upon execution
of the corresponding deed of conveyance. ​Poncio alleged that he had consistently
turned down several offers, made by Carbonnel, to buy the land in question, at P15 a
Civil Law Review Case Digests
square meter, for he believes that it is worth not less than P20 a square meter. Poncio
claims that ​Carbonnel's action is barred by the Statute of Frauds. Whether the Statute
of Frauds is applicable thereto. Case remanded to trial court to determine won there is
partial performance as claimed by Carbonnel. 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 the words of former Chief Justice Moran: "The reason is
simple. 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 denied by him from
the transaction in litigation, and, at the same time, evade the obligations, responsibilities
or liabilities assumed or contracted by him thereby. The true basis of the doctrine of part
performance according to the overwhelming weight of authority, is that it would be a
fraud upon the Carbonnel if the defendant were permitted to escape performance of his
part of the oral agreement after he has permitted the Carbonnel to perform in reliance
upon the agreement. The oral contract is enforced in harmony with the principle that
courts of equity will not allow the statute of frauds to be used as an instrument of fraud.
Without expressing any opinion on the merits of Carbonnel's claim, it is clear, therefore,
that she is entitled, legally as well as from the viewpoint of equity, to an opportunity to
introduce parol evidence in support of the allegations of her second amended complaint.
FACTS:
● Plaintiff Rosario Carbonnel alleges she purchased from defendant Jose Poncio, at
P9.50 a square meter, a parcel of land of about 195 square meters located in San
Juan del Monte, Rizal, known as Lot No. 13-B.
● Carbonnel paid P247.26 on account of the price and assumed Poncio's obligation with
the Republic Savings Bank amounting to P1,177.48, with the understanding that the
balance would be payable upon execution of the corresponding deed of conveyance.
● 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.
● Poncio refuses to execute the corresponding deed of sale, despite repeated demand.
● Poncio has conveyed the same property to defendants Ramon R. Infante and Emma
L. Infante, who knew, of the first sale to Carbonnel.
● Carbonnel prayed that she be declared owner of the land in question, the sale to the
Infantes be annulled, Poncio be required to execute the corresponding deed of
conveyance in Carbonnel's favour, the Register of Deeds of Rizal be directed to issue
the corresponding title in Carbonnel's name, and that defendants be sentenced to pay
damages.
● Defendants moved to dismiss said complaint upon the ground that Carbonnel'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."
● Thereafter, the Infantes filed an answer alleging that they purchased the land in
question in good faith, for value, and without knowledge of the alleged sale to
Carbonnel, and that Carbonnel's claim is unenforceable under the Statute of Frauds.
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Atty. Ruben Balane 
● In his answer, Poncio alleged that he had consistently turned down several offers,
made by Carbonnel, to buy the land in question, at P15 a square meter, for he
believes that it is worth not less than P20 a square meter.
o Poncio was advised by Carbonnel that should she decide to buy the property at P20
a square meter, she would allow him to remain in the property for one year.
o Carbonnel then induced Poncio to sign a document "relying upon the statement of
the Carbonnel that the document was a permit for him to remain in the premises in
the event that defendant decided to sell the property to the Carbonnel at P20 a
square meter."
o Mrs. Infante made an offer and he agreed to sell the land and its improvements to
her for P3,535.
o Poncio has not lost "his mind," to sell his property, worth at least P4,000, for the
paltry sum of P1,177.48, the amount of his obligation to the Republic Savings Bank.
o Carbonnel's action is barred by the Statute of Frauds. Poncio similarly set up a
counterclaim for damages.
● Poncio signed Exhibit A and so did the Carbonnel, and translated freely into English,
Exhibit A, reads as follows:
From this date, January 27, Jose 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
agreement.
● The lower court issued an order dismissing Carbonnel's complaint, without costs,
upon the ground that her cause of action is unenforceable under the Statute of
Frauds. Hence, this appeal by Carbonnel.
ISSUE:
Whether the Statute of Frauds is applicable thereto. Case remanded to trial court for
determination of partial performance.
RATIO:
● We are of the opinion and so hold that the appeal is well taken. 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.
● Subject to a rule to the contrary followed in a few jurisdictions, it is the accepted view
that part performance of a parol contract for the sale of real estate has the effect,
subject to certain conditions concerning the nature and extent of the acts constituting
performance and the right to equitable relief generally, of taking such contract from the
operation of the statute of frauds, so that chancery may decree its specific
performance or grant other equitable relief.
● It is well settled in Great Britain and in this country, with the exception of a few states,
that a sufficient part performance by the purchaser under a parol contract for the sale
of real estate removes the contract from the operation of the statute of frauds.
● In the words of former Chief Justice Moran: "The reason is simple. 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 denied by him from the transaction in litigation, and, at the same
Civil Law Review Case Digests
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 t​ o 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.​
● The true basis of the doctrine of part performance according to the overwhelming
weight of authority, is that it would be a fraud upon the Carbonnel if the defendant
were permitted to escape performance of his part of the oral agreement after he has
permitted the Carbonnel to perform in reliance upon the agreement. The oral contract
is enforced in harmony with the principle that courts of equity will not allow the statute
of frauds to be used as an instrument of fraud.
● In other words, ​the doctrine of part performance was established for the same purpose
for which, the statute of frauds itself was enacted, namely, for the prevention of fraud,​
and arose from the necessity of preventing the statute from becoming an agent of
fraud for it could not have been the intention of the statue to enable any party to
commit a fraud with impunity.
● When the party concerned has pleaded partial performance, such party is entitled to a
reasonable chance to; establish by parol evidence the truth of this allegation, as well
as the contract itself. "The recognition of the exceptional effect of part performance in
taking an oral contract out of the statute of frauds involves the principle that oral
evidence is admissible in such cases to prove both the contract and the part
performance of the contract"
● Upon submission of the case for decision on the merits, the Court should determine
whether said allegation is true, bearing in mind that parol evidence is easier to concoct
and more likely to be colored or inaccurate than documentary evidence. If the
evidence of record fails to prove clearly that there has been partial performance, then
the Court should apply the Statute of Frauds, if the cause of action involved falls within
the purview thereof.
● If the Court is, however, convinced that the obligation in question has been partly
executed and that the allegation of partial performance was not resorted to as a
devise to circumvent the Statute, then the same should not be applied.
● Apart from the foregoing, there are in the case at bar several circumstances indicating
that Carbonnel's claim might not be entirely devoid of factual basis. Thus, for instance,
Poncio admitted in his answer that Carbonnel had offered several times to purchase
his land.
● Again, there is Exhibit A, as document signed by the defendant. It is in the Batanes
dialect, which, according to Carbonnel's uncontradicted evidence, is the one spoken
by, Poncio, he being a native of said region. Exhibit A states that Poncio would stay in
the land ​sold by him to Carbonnel ​for one year, from January 27, 1955, free of charge,
and that, if he cannot find a place where to transfer his house thereon, he may remain
in said lot under such terms as may be agreed upon.
● Without expressing any opinion on the merits of Carbonnel's claim, it is clear,
therefore, that she is entitled, legally as well as from the viewpoint of equity, to an
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opportunity to introduce parol evidence in support of the allegations of her second
amended complaint.
Wherefore, the order appealed from is hereby set aside, and let this case be remanded
to the lower court for further proceedings not inconsistent with this decision, with the
costs of this instance against defendants-appellees. It is so ordered.
31. Babao v. Perez
102 Phil 756| December 28, 1957 | Justice Bautista Angelo
Plaintiff-Appellee​: Bienvenido Babao, etc.
Defendants-Appellants​: Florencio Perez, et. al.
Facts​:
● Santiago Babao married the niece of Celestina Perez.
● In 1924, Santiago and Celestina allegedly had a verbal agreement where
Santiago was bound to improve the land of Celestina by leveling, clearing,
planting fruits and other crops; that he will act as the administrator of the land;
that all expenses for labor and materials will be at his cost, in consideration of
which Celestina in turn bound herself to convey to Santiagp or his wife ½ of the
land, with all the improvements after the death of Celestina.
● But, shortly before Celestina’s death, she sold the land to another part. Thus,
Santi filed this complaint alleging the sale of the land as fraudulent and fictitious
and prays to recover the ½ land or the expenses he incurred in improving the
land.
● In this case, plaintiff Babao is the judicial administrator of Santiago’s estate,
while defendant Perez is the administrator of Celestina’s estate. Plaintiff filed a
case to recover ½ of the parcel of land indicated above.
● Trial court ruled in favor of plaintiff. Defendant Perez appealed.
Issue​: W/N the verbal agreement falls within the Statute of Frauds. ​YES!
Held: ​Wherefore, the decision appealed from is reversed, and the case is dismissed,
with costs against appellee.
Ratio​:
● Contracts which by their terms are not to be performed within one year, may be
taken out of the statute through performance by one party thereto. All that is
required in such case is complete performance within the year by one party,
however many years may have to elapse before the agreement is performed by
the other party.
● But nothing less than full performance by one party will suffice, and it has been
held that, if anything remains to be done after the expiration of the year besides
the mere payment of money, the statute will apply.
● It is not therefore correct to state that Santiago Babao has fully complied with
his part within the year from the alleged contract in question.
● When, in an oral contract which, by its terms, is to be performed within one year
from the execution of the contracting parties has complied within the year with
obligations imposed on him by said contract, the other party cannot avoid the
fulfillment of those incumbent on him under the same contract by invoking the
Civil Law Review Case Digests
statute of frauds because the latter aims to prevent and not to protect fraud.
● Assuming ​arguendo that the agreement in question falls also under paragraph
(a) of article 1403 of the new Civil Code, i.e., it is a contract or agreement for
the sale of real property or of an interest therein, it cannot also be contended
that the provision does not apply to the present case for the reason that there
was part performance on the part of one of the parties. In this connection, it
must be noted that this statute is one based on equity. It is based on equitable
estoppel or estoppel by conduct.
● The parol contract must be sufficiently clear and definite to render the precise
acts which are to be performed thereunder clearly ascertainable. Its terms must
be so clear and complete as to allow no reasonable doubt respecting its
enforcement according to the understanding of the parties.
● Having reached the conclusion that all the parol evidence of appellee was
submitted in violation of the Statute of Frauds, or of the rule which prohibits
testimony against deceased persons, we find unnecessary to discuss the other
issues raised in appellants' brief.
32. Cabague v. Auxilio, ​92 SCRA 294
Plaintiffs-appellants: FELIPE CABAGUE and GERONIMO CABAGUE
Defendants-appellees: MATIAS AUXILIO and SOCORRO AUXILIO
BENGZON, ​J. |Nov. 26, 1952
FACTS​:
● In the justice of the peace court of Basud, Camarines Norte, Felipe Cabague
and his son Geronimo sued the defendant Matias Auxilio and his daughter
Socorro to recover damages resulting from defendants' refusal to carry out the
previously agreed marriage between Socorro and Geronimo.
● The complaint alleged: (​a​) that defendants promised such marriage to plaintiffs,
provided the latter would improve the defendants' house in Basud and spend
for the wedding feast and the needs of the bride; (​b​) that relying upon such
promises plaintiffs made the improvement and spent P700; and (​c)​ that without
cause defendants refused to honor their pledged word.
o The defendants moved to dismiss, arguing that the contract was oral,
unenforceable under the rule of evidence hereinbefore mentioned.
And the court dismissed the case. On appeal to the CFI, the plaintiffs
reproduced their complaint and defendants reiterated their motion to
dismiss. From an order of dismissal this appeal was perfected in due
time and form.
RATIO​:
● It should be observed preliminarily that, under the former rules of procedure,
when the complaint did not state whether the contract sued on was in writing or
not, the statute of frauds could be no ground for demurrer. Under the new
Rules "defendant may now present a motion to dismiss on the ground that the
contract was not in writing, even if such fact is not apparent on the face of the
complaint. The fact may be proved by him." (Moran Rules of Court) There is no
question here that the transaction was not in writing. The only issue is whether
it may be proved in court.
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Atty. Ruben Balane 
● The understanding between the plaintiffs on one side and the defendants on
the other, really involves two kinds of agreement.
o One, the agreement between Felipe Cabague and the defendants in
consideration of the marriage of Socorro and Geronimo. Another, the
agreement between the two lovers, as "a mutual promise to marry".
For breach of that mutual promise to marry, Geronimo may sue
Socorro for damages. This is such action, and evidence of such
mutual promise is admissible.
o However Felipe Cabague's action may not prosper, because it is to
enforce an agreement in consideration of marriage. Evidently as to
Felipe Cabague and Matias Auxilio this action could not be maintained
on the theory of "mutual promise to marry". Neither may it be regarded
as action by Felipe against Socorro "on a mutual promise to marry."
● Consequently, we declare that Geronimo may continue his action against
Socorro for such damages as may have resulted from her failure to carry out
their mutual matrimonial promises.
Wherefore this expediente will be returned to the lower court for further proceedings in
accordance with this opinion. So ordered.
Yuvienco v. Dacuycuy
Clarin v. Rulona
Bisaya Land Transportation v. Sanchez
Hernandez v. CA
Victoria v. CA
Mactan v. CA
City of Cebu v. Heirs of Rubi
33. Yoshizaki v. Joey Training Center
G.R. No. 174978, July 31, 2013
GR. No. 174978 | July 31, 2013 | Brion
Petitioner:​ Sally Yoshizaki
Respondent: ​Joy Training Center of Aurora, Inc.
Summary​: Spouses Johnson, members of the Board of Trustees of Joy Training, sold a
parcel of land and building belonging to the latter to the Spouses Yoshizaki. The acting
chairperson of Joy Training filed an action to cancel the sale claiming that the spouses
Johnson did not have the authority from the board of trustees to sell the properties. ​I​:
W/N the sale was valid – ​NO​. ​R​: There is no contract of agency between Joy Training
and the spouses Johnson to sell the parcel of land with its improvements. The 3 pieces
of evidence presented by Sally Yoshizaki (TCT, Resolution and Certification) fail to
convince the Court that they have the authority to sell the properties. TCT merely states
that Joy Training is represented by the spouses Johnson. The title does not explicitly
confer to the spouses Johnson the authority to sell the parcel of land and the building
thereon. Moreover, the phrase "Rep. by Sps. RICHARD A. JOHNSON and LINDA S.
JOHNSON" only means that the spouses Johnson represented Joy Training in land
registration. The resolution which purportedly grants the spouses Johnson a special
power of attorney is negated by the phrase "land and building owned by spouses
Richard A. and Linda J. Johnson." Further, the certification is a mere general power of
Civil Law Review Case Digests
attorney which comprises all of Joy Training’s business. Necessarily, the absence of a
contract of agency renders the ​contract of sale unenforceable​. Joy Training effectively
did not enter into a valid contract of sale with the spouses Yoshizaki.
Facts​:
● Joy Training is a non-stock, non-profit religious educational institution. It was
the registered owner of a parcel of land and the building thereon (real
properties) located in Aurora.
● Spouses Richard and Linda Johnson sold the real properties, a Wrangler jeep,
and other personal properties in favor of the spouses Sally and Yoshio
Yoshizaki. A Deed of Absolute Sale and a Deed of Sale of Motor Vehicle were
executed in favor of the spouses Yoshizaki. The spouses Johnson were
members of Joy Training’s board of trustees at the time of sale.
● Joy Training, represented by its Acting Chairperson, filed an action for the
Cancellation of Sales and Damages with prayer for the issuance of a TRO
and/or WPI against the spouses Yoshizaki and the spouses Johnson before the
RTC of Baler, Aurora.
o Joy Training alleged that the spouses Johnson sold its properties
without the requisite authority from the board of directors. It assailed
the validity of a board resolution which purportedly granted the
spouses Johnson the authority to sell its real properties. It averred that
only a minority of the board, composed of the spouses Johnson and
Alexander Abadayan, authorized the sale through the resolution. It
highlighted that the Articles of Incorporation provides that the board of
trustees consists of 7 members.
o Spouses Yoshizaki claimed that Joy Training authorized the spouses
Johnson to sell the parcel of land. They asserted that a majority of the
board of trustees approved the resolution. They maintained that the
actual members of the board of trustees consist of 5 members.
o After the presentation of their testimonial evidence, the spouses
Yoshizaki formally offered in evidence photocopies of the resolution
and certification, among others. Joy Training objected to the formal
offer of the photocopied resolution and certification on the ground that
they were not the best evidence of their contents.
Issues​:
1. W/N there was a contract of agency to sell the real properties between Joy
Training and the spouses Johnson. – ​NO​.
2. As a consequence, W/N there was a valid contract of sale of the real properties
between Joy Training and the spouses Yoshizaki. – ​NOT VALID​.
Contract is Unenforceable
Ratio​:
No Contract of Agency
● There is no contract of agency between Joy Training and the spouses Johnson
to sell the parcel of land with its improvements. Article 1868 of the Civil Code
defines a contract of agency as a contract whereby a person "binds himself to
render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter." It may be express, or
implied from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his
behalf without authority.
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Atty. Ruben Balane 
● As a general rule, a contract of agency may be oral. However, it must be written
when the law requires a specific form. Specifically, Article 1874 of the Civil
Code provides that the contract of agency must be written for the validity of the
sale of a piece of land or any interest therein. Otherwise, the sale shall be void.
A related provision, Article 1878 of the Civil Code, states that special powers of
attorney are necessary to convey real rights over immovable properties.
o The special power of attorney mandated by law must be one that
expressly mentions a sale or that includes a sale as a necessary
ingredient of the authorized act.
● In the present case, Sally presents 3 pieces of evidence which allegedly prove
that Joy Training specially authorized the spouses Johnson to sell the real
properties: (1) TCT (2) the resolution, (3) and the certification. These
documents do not convince us of the existence of the contract of agency to sell
the real properties.
o TCT merely states that Joy Training is represented by the spouses
Johnson. The title does not explicitly confer to the spouses Johnson
the authority to sell the parcel of land and the building thereon.
Moreover, the phrase "Rep. by Sps. RICHARD A. JOHNSON and
LINDA S. JOHNSON" only means that the spouses Johnson
represented Joy Training in land registration.
o The lower courts should not have relied on the resolution and the
certification in resolving the case. The spouses Yoshizaki did not
produce the original documents during trial. They also failed to show
that the production of pieces of secondary evidence falls under the
exceptions enumerated in Section 3, Rule 130 of the RoC.
● Nonetheless, if only to erase doubts on the issues surrounding this case, we
declare that even if we consider the photocopied resolution and certification,
this Court will still arrive at the same conclusion.
o The resolution which purportedly grants the spouses Johnson a
special power of attorney is negated by the phrase "land and building
owned by spouses Richard A. and Linda J. Johnson."
o Moreover, the certification is a mere general power of attorney which
comprises all of Joy Training’s business. Article 1877 of the Civil Code
clearly states that "an agency couched in general terms comprises
only acts of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as he
may consider appropriate, or even though the agency should
authorize a general and unlimited management."
● Necessarily, the absence of a contract of agency renders the ​contract of sale
unenforceable​. Joy Training effectively did not enter into a valid contract of
sale with the spouses Yoshizaki. Sally cannot also claim that she was a buyer
in good faith. She misapprehended the rule that persons dealing with a
registered land have the legal right to rely on the face of the title and to
dispense with the need to inquire further, except when the party concerned has
actual knowledge of facts and circumstances that would impel a reasonably
cautious man to make such inquiry. This rule applies when the ownership of a
parcel of land is disputed and not when the fact of agency is contested.
● Persons dealing with an agent must ascertain not only the fact of agency, but
Civil Law Review Case Digests Atty. Ruben Balane 
 

also the nature and extent of the agent’s authority. A third person with whom
the agent wishes to contract on behalf of the principal may require the
presentation of the power of attorney, or the instructions as regards the agency.
The basis for agency is representation and a person dealing with an agent is
put upon inquiry and must discover on his own peril the authority of the agent.
Thus, Sally bought the real properties at her own risk; she bears the risk of
injury occasioned by her transaction with the spouses Johnson.
Art. 1405
Limketkai v. CA
Chapter 9. Void and Inexistent Contracts (Art. 1409-1422)
Art. 1409
Rubias v. Batiller
Javier v. Vda. De Cruz
Menil v. CA
Director of Lands v. Ababa
Tongoy v. CA
Lita Enterprises v. IAC
Arcenal v. IAC
Manotok Realty v. IAC
Portugal v. IAC
Board of Liquidators v. Roxas
Fiestan v. CA
Ouano v. CA
DBP v. CA
34. La’O v. Republic
G.R. No. 160719 | January 23, 2006 | Corona
Petitioner​: EMILIO GONZALES LA’O,
Respondent​: REPUBLIC OF THE PHILIPPINES and THE GOVERNMENT SERVICE
INSURANCE SYSTEM
Summary: ​GSIS and the Republic of the Philippines, through the Office of the
Government Corporate Counsel (OGCC), entered into a “lease-purchase” agreement
(first contract). La’o offered to purchase the property. GSIS and petitioner executed a
“lease-purchase” agreement (second contract). Respondents prayed for the nullification
of the second contract. Our issue in this case is whether the second contract valid as
claimed by petitioner or null and void as decided by the courts below? NULL AND VOID.
The second contract was null and void ​ab initio for being in contravention of Section 3(e)
and (g) of RA 3019, otherwise known as the “Anti-Graft and Corrupt Practices Act”. The
Agreement between [petitioner] and the GSIS had in fact transferred the economic
benefits which the Republic used to enjoy to La’o. It clearly shows that the second
contract caused undue injury to the government, gave petitioner unwarranted benefits
and was grossly disadvantageous to the government. Under Article 1409(7) of the Civil
Code, the contract was null and void from the beginning because it is expressly
prohibited or declared void by law.
Facts:
o GSIS is the registered owner of three parcels of land with an area of around 821
square meters, with a five-storey building and the other improvements thereon. The
property is situated at the corner of Mabini and Arquiza streets in Ermita, Manila.
o GSIS and the Republic of the Philippines, through the Office of the Government
Corporate Counsel (OGCC), entered into a “lease-purchase” agreement (first
contract). GSIS agreed to transfer the property to the OGCC for a consideration of
P​1.5 million, payable in equal yearly amortization-lease rentals of ​P​100,000 for a
period of 15 years.
o La’o offered to purchase the property.
o GSIS and petitioner executed a “lease-purchase” agreement (second contract).
GSIS agreed to sell the same property to petitioner for ​P​2,000,000, with a down
payment of ​P​200,000 and the balance payable within a period of 15 years at 12%
interest per annum, compounded yearly.
o Under the second contract, GSIS obligated itself to construct for the OGCC a
three-storey building on the Manila Bay reclaimed area or to make available another
property acceptable to the OGCC, to be conveyed to the Republic under the same
or mutually acceptable terms and conditions as those of the first contract. In the
meantime, the OGCC was allowed to continue occupying the second to the fifth
floors of the building at an annual rental of ​P​100,000, payable to La’o. Furthermore,
petitioner was entitled to lease out the ground floor and collect the corresponding
rentals.
o It appears that on April 11, 1982, then Pres. Marcos approved the second contract
by scribbling on the right upper hand corner “11 April 1982 – Approved – Ferdinand
E. Marcos.” On April 23, 1982, the GSIS Board of Trustees approved the same.​[14]
o In 1989, after the overthrow of Marcos (in 1986), respondents filed before the RTC
of Manila, Branch 41 a complaint against petitioner alleging that:
o 11. By reason of such insidious machinations engineered by La’o and
upon instructions or orders of then Pres. Marcos, the Republic,
through the OGCC, was forced, intimidated and coerced to execute a
waiver of its rights and interests to the property, and the Board of
Trustees of the GSIS was likewise constrained to approve [the] offer of
[petitioner] and to execute [the second Lease-Purchase Agreement] of
May 10, 1982.
o 12. [The second Lease-Purchase Agreement] is burdensome and
grossly disadvantageous to the Republic, through the OGCC and the
GSIS. Notwithstanding that [the property was] already valued then at
or about Ten Million Pesos (​P​10,000,000.00), ​they were sold to
[petitioner] for only Two Million Pesos (​P​2,000,000.00), and, worse
yet, payable on a fifteen-year installment basis​. Furthermore, the
agreement obligated the GSIS to provide the Republic, through the
OGCC, an office and parking space equivalent to a three-storey office
building at its new building located at the Reclamation site in the
Manila Bay Area or some other acquired properties to house its
offices, on or before June 1989. ​The value of this obligation of the
GSIS to the Republic, at the moment is worth at least Twenty Million
Pesos (​P​20,000,000.00)​.
o 13. Since the terms of [the] second agreement are manifestly and
grossly disadvantageous to the government and to the GSIS and its

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Civil Law Review Case Digests Atty. Ruben Balane 
 

members, the contract is contrary to law, being violative of RA 3019,
and the public officers responsible thereof are liable under Section
3(g) of [RA 3019]. Considering that the cause or consideration of the
second contract is contrary to law, the same is void (Art. 1352, Civil
Code).
● Respondents prayed for the nullification of the second contract and the forfeiture of
all payments made by petitioner to the GSIS in favor of the Republic, through the
OGCC, which payments were to be deemed payments by the Republic to the GSIS
under the first contract.
Issue: ​Was the second contract valid as claimed by petitioner or null and void as
decided by the courts below? ​NULL AND VOID
Held: ​WHEREFORE​, the petition is hereby ​DENIED and the June 27, 2003 decision and
November 10, 2003 resolution of the Court of Appeals in CA-G.R. CV No. 62580
AFFIRMED
Ratio:
o We agree with the conclusion of the CA ​and the RTC that the second contract was
null and void ​ab initio.​
● The second contract was null and void ​ab initio for being in contravention of
Section 3(e) and (g) of RA 3019, otherwise known as the “Anti-Graft and Corrupt
Practices Act”. Both the trial and appellate courts found that the second contract
gave petitioner unwarranted benefits and was grossly disadvantageous to the
government. Under Article 1409(7) of the Civil Code, the contract was null and void
from the beginning ​because it is expressly prohibited or declared void by law.
o We quote the discussion of the CA with approval: The inquiry that must be settled
is – ​Whether or not the subject Agreement had been grossly disadvantageous to
the economic interests of the Republic​ .
o The Agreement between [petitioner] and the GSIS which is the
subject of the instant case had in fact transferred the economic
benefits which the Republic used to enjoy to [petitioner]. At the
end of [15] years, [petitioner] shall become the absolute owner of the
subject property upon full payment of the [15] yearly amortizations. At
bottom, however, is the fact that, at least for the first [five] years of the
[Agreement], [petitioner] shall not be shelling out of his own pocket the
yearly amortization since the same shall be covered by the annual
rental coming from the OGCC and the other tenants thereof. In the
meantime, the Republic, thru the OGCC, shall not only be
appropriating additional funds for its annual rental but worse, it was
stripped of the opportunity to become the absolute owner of the
subject property.
o The Court cannot also ignore the marked differences between the
consideration of TWO MILLION PESOS (​P​2,000,000.00) and the
valuations of the subject property in 1982 as appraised by Mr. Narlito
Mariño to the effect that the fair market value of the subject property
from FIVE MILLION FIVE HUNDRED SEVENTY FIVE THOUSAND
PESOS (​P​5,575,000.00) as the minimum and SEVEN MILLION
EIGHTY THREE THOUSAND THREE HUNDRED PESOS
(​P​7,083,300.00) as the maximum and Cuervo Appraisers, Inc. to the
effect that the fair market value of the subject property is EIGHT
MILLION FIVE THOUSAND FIVE HUNDRED PESOS
(​P​8,005,500.00). While concededly the foregoing property appraisal
was conducted in 1989 and 1996 respectively, the Court is not
unmindful of the fact that the valuations were arrived at by taking into
consideration all the parameters that, by practice, could provide
reasonable statistical indication of the value of the subject property in
1982.
o On this respect, [respondents’] assertion that the subject Agreement is
at the behest of [petitioner] and is grossly disadvantageous to the
Republic had become self-evident since it certainly bewilders the mind
why the GSIS would enter into an Agreement which smacks of
disturbing economic implications, ​i.e. ​the Republic would need to
appropriate additional funds to pay for its rentals and abandon
the chance of becoming the owner of the subject property which
it uses for governmental purposes and the fact that the subject
property was negotiated by the government ​via​ a losing proposition.
o The foregoing clearly shows that the second contract caused undue injury to
the government, gave petitioner unwarranted benefits and was grossly
disadvantageous to the government​.
o The act of entering into the second contract was a corrupt practice and was
therefore unlawful. It was a contract expressly prohibited by RA 3019. As a
result, it was null and void from the beginning under Art. 1409(7) of the Civil
Code.
o As for the forfeiture of the payments made by petitioner, the latter did not raise any
substantial argument against it. He merely stated that “there should be no reason
why the amounts paid by petitioner should be forfeited in favor of the Republic”
since the property was owned by GSIS and the Republic, through the OGCC, was
merely a lessee
o The RTC decision was clear. The amount forfeited was in favor of GSIS as owner
of the property.
Borromeo v. Mina
Recio v. Heirs of Altamirano
Art. 1410
Yanas v. Acaylar
Art. 1411
Barsobia v. Cuenco
Godinez v. Fong
Yap v. Grageda
Pineda v. de la Rama
35. Yu Bun Guan v. Ong
367 SCRA 559
Petitioner: ​YU BUN GUAN
Respondent: ​ELVIRA ONG

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Civil Law Review Case Digests
Summary: ​Ong and Yu Bun Guan are husband and wife. Ong purchased out of her
personal funds, a parcel of land (JP Rizal Property). Before their separation in 1992, she
‘reluctantly agreed’ to the Guan’s ‘importunings’ that she execute a Deed of Sale of the
J.P. Rizal property in his favor, but on the promise that he would construct a commercial
building for the benefit of the children. The consideration for the ‘simulated sale’ was
that, after its execution in which he would represent himself as single, a Deed of
Absolute Sale would be executed in favor of the three (3) children and that he would pay
the Allied Bank, Inc. the loan he obtained. Guan on the other hand claimed Ong could
not have purchased the property because she had no financial capacity to do so; on the
other hand, he was financially capable although he was disqualified to acquire the
property by reason of his nationality. Ong was in pari delicto being privy to the simulated
sale. ​The Court held that the principle of ​in pari delicto ​provides that when two parties
are equally at fault, the law leaves them as they are and denies recovery by either one of
them. However, this principle does not apply with respect to inexistent and void
contracts, as in this case.
Facts:
According to Ong
● Respondent Ong and Yu Bun Guan are husband and wife, having been married
according to Chinese rites on April 30, 1961. They lived together until she and her
children were abandoned by Guan on August 26, 1992, because of the latter’s
‘incurable promiscuity, volcanic temper and other vicious vices’; out of the reunion
were born three (3) children, now living with her Ong.
o She purchased on March 20, 1968, out of her personal funds, a parcel of land
(JP Rizal Property), from Aurora Seneris then subsequently registered on April
17, 1968, in her name.
o Also during their marriage, they purchased, out of their conjugal funds, a
house and lot, in 1983, thereafter, registered in their names
● “Before their separation in 1992, she ‘reluctantly agreed’ to the Guan’s
‘importunings’ that she execute a Deed of Sale of the J.P. Rizal property in his
favor, but on the promise that he would construct a commercial building for the
benefit of the children. He suggested that the J.P. Rizal property should be in his
name alone so that she would not be involved in any obligation. The consideration
for the ‘simulated sale’ was that, after its execution in which he would represent
himself as single, a Deed of Absolute Sale would be executed in favor of the three
(3) children and that he would pay the Allied Bank, Inc. the loan he obtained.
o “Because of the ‘glib assurances’ of Guan, Ong executed a Deed of Absolute
Sale in 1992, but then he did not pay the consideration of ​P​200,000.00,
supposedly the ‘ostensible’ valuable consideration. On the contrary, she paid
for the capital gains tax and all the other assessments even amounting to not
less than ​P​60,000.00, out of her personal funds.
o “Because of the sale, a new title was issued in his name, but to ‘insure’ that he
would comply with his commitment, she did not deliver the owner’s copy of the
title to him.
o “Because of the refusal of Guan to perform his promise, and also because he
insisted on delivering to him the owner’s copy of the title [to] the JP Rizal
property, in addition to threats and physical violence, she decided executing an
Affidavit of Adverse Claim.
● “Guan filed with the RTC, Makati, in 1993 (Case No. M-2905), a ‘Petition for
Replacement’ of an owner’s duplicate title.
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Atty. Ruben Balane 
o “Attached to the Petition was the Affidavit of Loss dated March 26, 1993, in
which he falsely made it appear that the owner’s copy of the title was lost or
misplaced, and that was granted by the court in an Order dated September 17,
1993, following which a new owner’s copy of the title was issued to Guan
o “Upon discovery of the ‘fraudulent steps’ taken by the Guan, Ong immediately
executed an Affidavit of Adverse Claim on November 29, 1993.
o “She precisely asked the court that the sale of the JP Rizal property be
declared as null and void; for the title to be cancelled; payment of actual, moral
and exemplary damages; and attorney’s fees.
According to Guan
● Sometime in 1968 or before he became a Filipino, ‘through naturalization,’ the JP
Rizal property was being offered to him for sale. Because he was not a Filipino, he
utilized Ong as his ‘dummy’ and agreed to have the sale executed in the name of
Ong, although the consideration was his own and from his personal funds.
● “When he finally acquired a Filipino citizenship in 1972, he purchased another
property being referred to as the ‘Juno lot’ out of his own funds. If only to reflect
the true ownership of the JP Rizal property, a Deed of Sale was then executed in
1972. Believing in good faith that his owner’s copy of the title was lost and not
knowing that the same was surreptitiously ‘concealed’ by Onghe filed in 1993 a
petition for replacement of the owner’s copy of the title, in court.
● “Guan added that Ong could not have purchased the property because she had no
financial capacity to do so; on the other hand, he was financially capable although
he was disqualified to acquire the property by reason of his nationality. Ong was in
pari delicto being privy to the simulated sale​.
RTC Ruling: ​JP Rizal property was the paraphernal property of Ong.
● Pari delicto​ rule found in Articles 1411 and 1412 of the Civil Code was not
applicable to the present case, because it would apply only to existing contracts
with an illegal cause or object, not to simulated or fictitious contracts or to those
that were inexistent due to lack of an essential requisite such as cause or
consideration.
CA Ruling: ​Upheld the trial court’s findings that the JP Rizal property had been acquired
by respondent alone, out of her own personal funds.
● The CA debunked the contention of petitioner that he had purchased the property
out of his own funds and merely used respondent as his dummy. It also held that
​ ith him, because the contract was simulated or
the latter was not in ​pari delicto w
fictitious due to the lack of consideration. The contract was deemed void for having
been executed during the couple’s marriage.
Issue: ​WON pari delicto applies in this case ​NO
Held: WHEREFORE​, the Petition is hereby ​DENIED​ and​ t​ he assailed
Decision ​AFFIRMED​. Costs against petitioner.
Ratio:
MAIN ISSUE: (Art. 1411) ​Inapplicability of the i​ n Pari Delicto ​Principle
● The principle of ​in pari delicto ​provides that when two parties are equally at fault,
the law leaves them as they are and denies recovery by either one of
them. ​However, this principle does not apply with respect to inexistent and void
Civil Law Review Case Digests Atty. Ruben Balane 
 

contracts.​ (In the case at bar, the contract involves a fictitious, simulated and
inexistent sale. ​See additional issues). Art. 1413
● Modina v. Court of Appeals: Briones v. Cammayo
o “The principle of ​in pari delicto non oritur actio​ denies all recovery to the guilty
parties ​inter se.​ It applies to cases where the nullity arises from the illegality of
the consideration or the purpose of the contract. When two persons are
equally at fault, the law does not relieve them. The exception to this general
rule is when the principle is invoked with respect to inexistent contracts.”

Additional Issues:
1. ​Nature of the Property
● We find no reason to disturb the findings of the RTC and the CA that the source of
the money used to acquire the property was paraphernal. This issue is factual in
nature.
● According to the CA: “The fact however, is that Yu never refuted Elvira’s testimony
that: (a) the money with which she acquired the JP Rizal property came from: (1)
her income as a cashier in the Hong Kiat Hardware; (2) income from her
paraphernal property – a lot in Guadalupe; (3) her savings from the money which
her parents gave her while she was still a student; and (4) the money which her
sister gave her for helping her run the beauty parlor; (b) her parents were well off –
they had stores, apartments and beauty parlors from which they derived income;
(c) before her marriage she bought lots in different places

2. Fictitious, Simulated and Inexistent Sale

● Rongavilla v. Court of Appeals: A deed of sale, in which the stated consideration
had not in fact been paid, is null and void.
● In the present case, it is clear from the factual findings of both lower courts that the
Deed of Sale was completely simulated and, hence, void and without effect. No
portion of the ​P​200,000 consideration stated in the Deed was ever paid. And, from
the facts of the case, it is clear that neither party had any intention whatsoever to
pay that amount.
o Instead, the Deed of Sale was executed merely to facilitate the transfer of the
property to petitioner pursuant to an agreement between the parties to enable
him to construct a commercial building and to sell the Juno property to their
children. Being merely a subterfuge, that agreement cannot be taken as the
consideration for the sale.
3. Cancellation of TCT
The Deed of Absolute Sale transferring ownership to petitioner was completely
simulated, void and without effect. In fact, there was no legal basis for the issuance of
the certificate itself.

Art. 1412
Liguez v. CA
Philbanking v. Lui She
Avila v. CA
Teja Marketing v. IAC
PNB v. de los Reyes

36. Constantino v. Heirs of Constantino, ​G.R. No. 181508, October 2, 2013 ​–

already assigned (please see above)
 

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