| Oblicon 4th exam 1

EQUATORIAL REALTY DEVELOPMENT VS. MAYFAIR
Carmelo owned a parcel of land, together with two 2-storey
buildings constructed thereon. He entered into two contract of
lease with Mayfair for a portion of the second floor and the
second floor and mezzanine as a motion picture theater for
twenty years.
Both contracts of lease provides hat if the LESSOR should
desire to sell the leased premises, the LESSEE shall be given
30-days exclusive option to purchase the same.In the event,
however, that the leased premises is sold to someone other
than the LESSEE, the LESSOR must stipulate in the Deed of
Sale that the purchaser shall recognize this lease and be
bound by all the terms and conditions thereof.
Mr. Henry Yang, President of Mayfair was then informed
through a telephone conversation that Carmelo wanted to sell
the entire property. Mr. Pascal told Mr. Yang that a certain
Jose Araneta was offering to buy the whole property for US
Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter
was willing to buy the property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his
decision. On August 23, 1974, Mayfair replied through a letter
stating the stipulations of their two contracts. Carmelo did not
reply. On September 18, 1974, Mayfair sent another letter to
Carmelo stating that he wants to buy "the entire building and
other improvements if the price is reasonable.
Four years later, Carmelo sold the subject property, which
included the leased premises to Equatorial for P11,300,000.00.
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.
We shall now determine the consequential rights, obligations
and liabilities of Carmelo, Mayfair and Equatorial.
First and foremost is that the petitioners acted in bad faith to
render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. Carmelo did recognize
this right of Mayfair. There was an exchange of letters evidencing
the offer and counter-offers made by both parties. While it initially
recognized Mayfair's right of first refusal, Carmelo violated such
right when he abandoned the negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the entire
property to Equatorial.
Since Equatorial is a buyer in bad faith, this renders the sale
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.

Under Article 1380 to 1381(3) of the Civil Code, a contract

Mayfair instituted the action for specific performance and
otherwise valid may nonetheless be subsequently rescinded by
annulment of the sale of the leased premises to Equatorial.
reason of injury to third persons, like creditors. According to
Carmelo alleged (a) that it had informed Mayfair of its desire to
Tolentino, rescission is a remedy granted by law to the
sell the entire C.M. Recto Avenue property and offered the
contracting parties and even to third persons, to secure
same to Mayfair, but the latter answered that it was interested
reparation for damages caused to them by a contract, even if
only in buying the areas under lease, which was impossible
this should be valid, by means of the restoration of things to
since the property was not a condominium; and (b) that the
their condition at the moment prior to the celebration of said
option to purchase invoked by Mayfair is null and void for lack
contract. Rescission implies a contract which, even if initially
of consideration. Equatorial alleged that the option is void for
valid, produces a lesion or pecuniary damage to someone that
lack of consideration and is unenforceable by reason of its
justifies its invalidation for reasons of equity.
impossibility of performance because the leased premises
could not be sold separately from the other portions of the land
and building. A purchaser in good faith and for value is one who buys
the property of another without notice that some other
person has a right to or interest in such property and pays
Held: Both contracts of lease in question provide that if the
a full and fair price for the same at the time of such
LESSOR should desire to sell the leased premises, the LESSEE
purchase or before he has notice of the claim or interest of
shall be given 30-days exclusive option to purchase the same.
some other person in the property. However, Equitable had
notice of the lease of the property.
Such contractual stipulation provides for a right of first refusal in
favor of Mayfair. It is not an option clause or an option contract. It
The petitioner insists that it was not aware of the right of first
is a contract of a right of first refusal. The rule so early established
priority granted by the Contract of Lease. Assuming this to be
in this jurisdiction is that the deed of option or the option clause in
true, if he failed to inquire about the terms of the Lease
a contract, in order to be valid and enforceable, must, among other
Contract, it had only itself to blame. Having known that the
things, indicate the definite price at which the person granting the
property it was buying was under lease, as a prudent person
option, is willing to sell. There is nothing in the contracts which
he should have required the Vendor to show all the stipualtions
would bring them into the ambit of the usual offer or option
of the contract of lease.
requiring an independent consideration.

Equatorial admitted that its lawyers had studied the contract of

An option is a contract granting a privilege to buy or sell within
lease prior to the sale. Equatorial's knowledge of the
an agreed time and at a determined price. It is a separate and
stipulations therein should have cautioned it to look further into
distinct contract from that which the parties may enter into
the agreement to determine if it involved stipulations that would
upon the consummation of the option. It must be supported by
prejudice its own interests.
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. Since Mayfair has a right of first refusal, it can exercise the
right only if the fraudulent sale is first set aside or rescinded.
The sale of the subject real property by Carmelo to Equatorial
To rule that a contractual stipulation such as that found in
should now be rescinded considering that Mayfair, which had
paragraph 8 of the contracts is governed by Article 1324 on
substantial interest over the subject property, was prejudiced
withdrawal of the offer or Article 1479 on promise to buy and sell
by the sale of the subject property to Equatorial without
would render in effectual or "inutile" the provisions on right of first
Carmelo conferring to Mayfair every opportunity to negotiate
refusal so commonly inserted in leases of real estate nowadays.
The Court of Appeals is correct in stating that Paragraph 8 was within the 30-day stipulated period. 27
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 Since Carmelo sold the property for P11,300,000.00 to Equatorial,
the first option to buy the property at the the price at which Mayfair could have purchased the

property is, therefore, fixed. It can neither be more nor less.
There is no dispute over it. The damages which Mayfair
suffered are in terms of actual injury and lost opportunities. The
fairest solution would be to allow Mayfair to exercise its right of
first refusal at the price which it was entitled to accept or reject
which is P11,300,000.00.
OSENCOR DEVELOPMENT VS. PATERNO INQUING
Plaintiffs are the lessees since 1971 of a two-story residential
apartment owned by spouses Tiangco. The lease was not
covered by any contract. The lessees were renting the
premises then for P150.00 a month and were allegedly verbally
granted by the lessors the pre-emptive right to purchase the
property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the
management of the property was adjudicated to their heirs who
were represented by Eufrocina de Leon. The lessees were
allegedly promised the same pre-emptive right by the heirs of
Tiangcos since the latter had knowledge that this right was
extended to the former by the late spouses Tiangcos.
Thereafter, they received a letter from Eufrocina de Leon
offering to sell to them the property they were leasing for
P2,000,000.00.
The lessees offered to buy the property from de Leon for
P1,000,000.00. De Leon told them that she will be submitting
the offer to the other heirs. Since then, no answer was given by
de Leon as to their offer. However, in November 1990,
Rosencor came to the leased premises introducing himself as
its new owner. Thereafter, the lessees received a letter from de
Leon advising them that the have already sold the property to
Rosencor.
The lessees discovered that they were deceived by de Leon
since the sale between her and Rene Joaquin/Rosencor took
place in September 4, 1990 while de Leon made the offer to
them only in October 1990 or after the sale with Rosencor had
been consummated. The lessees also noted that the property
was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of
P726,000.00 plus an additional P274,000.00 to complete their
P1,000.000.00 earlier offer. When their offer was refused, they
filed the present action.
Held: At the onset, we note that both the Court of Appeals and
the Regional Trial Court relied on Article 1403 of the New Civil
Code, more specifically the provisions on the statute of frauds,
in coming out with their respective decisions.
Both the appellate court and the trial court failed to discuss,
however, the threshold issue of whether or not a right of first
refusal is indeed covered by the provisions of the New Civil
Code on the statute of frauds.
The term statute of frauds is descriptive of statutes which
require certain classes of contracts to be in writing. This statute
does not deprive the parties of the right to contract with respect
to the matters therein involved, but merely regulates the
formalities of the contract necessary to render it enforceable.
Thus, they are included in the provisions of the New Civil Code
regarding unenforceable contracts.
The purpose of the statute is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the
unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged. Moreover, the
statute of frauds refers to specific kinds of transactions and
cannot apply to any other transaction that is not enumerated
therein. The application of such statute presupposes the
existence of a perfected contract.
We have previously held that not all agreements affecting land
must be put into writing to attain enforceability. Thus, we have
held that the setting up of boundaries, the oral partition of
real property, and an agreement creating a right of way are
| Oblicon 4th exam 2
not covered by the provisions of the statute of frauds. The
reason simply is that these agreements are not among
those enumerated in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as
unenforceable under the statute of frauds. Furthermore, the
application of Article 1403, par. 2(e) of the New Civil Code
presupposes the existence of a perfected, albeit unwritten,
contract of sale. A right of first refusal, such as the one
involved in the instant case, is not by any means a perfected
contract of sale of real property. At best, it is a contractual
grant, not of the sale of the real property involved, but of the
right of first refusal over the property sought to be sold.
It is thus evident that the statute of frauds does not
contemplate cases involving a right of first refusal. As such, a
right of first refusal need not be written to be enforceable and
may be proven by oral evidence.
The prevailing doctrine is that a contract of sale entered into in
violation of a right of first refusal of another person, while valid,
is rescissible. However, under Article 1381 of the New Civil
Code, paragraph 3, a contract validly agreed upon may be
rescinded if it is undertaken in fraud of creditors when the latter
cannot in any manner collect the claim due them. Moreover,
under Article 1385, rescission shall not take place when the
things which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
The right of first refusal involved in the instant case was an oral
one given to respondents by the deceased spouses Tiangco
and subsequently recognized by their heirs. As such, in order
to hold that petitioners were in bad faith, there must be clear
and convincing proof that petitioners were made aware of the
said right of first refusal either by the respondents or by the
heirs of the spouses Tiangco.
Good faith is always presumed unless contrary evidence is
adduced. A purchaser in good faith is one who buys the property
of another without notice that some other person has a right or
interest in such a property and pays a full and fair price at the time
of the purchase or before he has notice of the claim or interest of
some other person in the property.[32] In this regard, the rule on
constructive notice would be inapplicable as it is undisputed
that the right of first refusal was an oral one and that the same
was never reduced to writing, much less registered with the
Registry of Deeds. In fact, even the lease contract by which
respondents derive their right to possess the property involved was
an oral one.
The evidence fails to show that petitioners acted in bad faith in
entering into the deed of sale over the disputed property with
the heirs of the spouses Tiangco.
Respondents point to the letter dated June 1, 1990 as
indicative of petitioners knowledge of the said right. In this
letter, a certain Atty. Aguila demanded that respondent vacate
the structure. We fail to see how the letter could give rise to
bad faith on the part of the petitioner. No mention is made of
the right of first refusal granted to respondents.
Neither was there any showing that after receipt of the letter,
respondents notified Rosencor or Atty. Aguila of their right of
first refusal over the property. Respondents did not try to
communicate with Atty. Aguila and inform her about their
preferential right over the disputed property.
Respondents likewise point to the letter dated October 9, 1990
of Eufrocina de Leon, where she recognized the right of first
refusal of respondents, as indicative of the bad faith of
petitioners. We do not agree. Eufrocina de Leon wrote the
letter on her own behalf and not on behalf of petitioners and,
as such, it only shows that Eufrocina de Leon was aware of the
existence of the oral right of first refusal. It does not show that
petitioners were likewise aware of the existence of the said
right. Moreover, the letter was made a month after the
execution of the Deed of Absolute Sale on September 4, 1990
between petitioner Rosencor and the heirs of the spouses
Tiangco. There is no showing that prior to the date of the
execution of the said Deed, petitioners were put on notice of
the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on
respondents evidence, it would only be on the part of Eufrocina
de Leon as she was aware of the right of first refusal of

respondents yet she still sold the disputed property to
Rosencor. However, there is no showing that prior to the
execution of the Deed of Absolute Sale, petitioners were made
aware or put on notice of the existence of the oral right of first
refusal. Thus, absent clear and convincing evidence to the
contrary, petitioner Rosencor will be presumed to have acted in
good faith in entering into the Deed of Absolute Sale over the
disputed property.
This does not mean however that respondents are left without
any remedy for the unjustified violation of their right of first
refusal. Their remedy however is not an action for the
rescission of the Deed of Absolute Sale but an action for
damages against the heirs of the spouses Tiangco for the
unjustified disregard of their right of first refusal.
KHE HONG CHENG VS. CA
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of
Butuan Shipping Lines. The Philippine Agricultural Trading
Corporation shipped on board the vessel M/V PRINCE ERIC,
owned by petitioner Khe Hong Cheng, 3,400 bags of copra for
delivery to Dipolog City. The said shipment of copra was
covered by a marine insurance policy issued by American
Home Insurance Company (respondent Philam's assured).
M/V PRINCE ERIC, however, sank resulting in the total loss of
the shipment. Because of the loss, the insurer, American
Home, paid the amount of P354,000.00 (the value of the
copra) to the consignee.
Having been subrogated into the rights of the consignee,
American Home instituted a case to recover the money paid to
the consignee, based on breach of contract of carriage. While
the case was still pending, Khe Hong Cheng executed deeds
of donations of parcels of land in favor of his children.
The trial court rendered judgment against petitioner Khe Hong
Cheng four years after the donations were made and the TCTs
were registered in the donees names. When the sheriff,
accompanied by counsel of respondent Philam, went to Butuan
City to enforce the alias writ of execution, they discovered that
petitioner Khe Hong Cheng no longer had any property and
that he had conveyed the subject properties to his children.
Thus, Philam filed a complaint for the rescission of the deeds
of donation executed by Khe Hong Cheng in favor of his
children as the deeds are in fraud of his creditors.
Petitioners alleged that the action had already prescribed. The
registration of the deeds of donation on December 27, 1989
constituted constructive notice and since the complaint was filed
only on February 25, 1997, or more than four (4) years after said
registration, the action was already barred by prescription.
Issue: When did the four year prescriptive period as provided
for in Article 1389 commence to run?
Held: Article 1389 simply provides that, the action to claim
rescission must be commenced within four years. Since this
provision of law is silent as to when the prescriptive period
would commence, the general rule, from the moment the
cause of action accrues, therefore, applies.
Art. 1150. The time for prescription for all kinds of actions,
when there is no special provision which ordains otherwise,
shall be counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal
possibility of bringing the action which determines the starting point
for the computation of the prescriptive period for the action.
Art. 1383. An action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other
legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion
pauliana must be of last resort, availed of only after all other
legal remedies have been exhausted and have been proven
futile. For an accion pauliana to accrue, the following requisites
must concur:
1) That the plaintiff asking for rescission has a credit prior
to the alienation, although demandable later; 2) That the
| Oblicon 4th exam 3
debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; 3) That the creditor has
no other legal remedy to satisfy his claim, but would benefit
by rescission of the conveyance to the third person;
4) That the act being impugned is fraudulent; 5) That the
third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud.
Petitioners, however, maintain that the cause of action of
Philam against them for the rescission of the deeds of donation
accrued as early as December 27, 1989, when Khe Hong
Cheng registered the subject conveyances with the Register of
Deeds. Respondent Philam allegedly had constructive
knowledge of the execution of said deeds.
An accion pauliana presupposes the following: 1) A judgment;
2) the issuance by the trial court of a writ of execution for the
satisfaction of the judgment, and 3) the failure of the sheriff to
enforce and satisfy the judgment of the court. It requires that
the creditor has exhausted the property of the debtor. The date
of the decision of the trial court is immaterial. What is important
is that the credit of the plaintiff antedates that of the fraudulent
alienation by the debtor of his property. After all, the decision of
the trial court against the debtor will retroact to the time when
the debtor became indebted to the creditor.
The following successive measures must be taken by a
creditor before he may bring an action for rescission of an
allegedly fraudulent sale: (1) exhaust the properties of the
debtor through levying by attachment and execution upon all
the property of the debtor, except such as are exempt from
execution; (2) exercise all the rights and actions of the debtor,
save those personal to him (accion subrogatoria); and (3) seek
rescission of the contracts executed by the debtor in fraud of
their rights (accion pauliana).
Even if Philam was aware that Khe Hong Cheng had executed
the deeds of donation in favor of his children, the complaint
against Butuan Shipping was still pending before the trial court.
Philam had no inkling, at the time, that the trial court's
judgment would be in its favor and further, that such judgment
would not be satisfied due to the deeds of donation executed
by Khe Hong Cheng during the pendency of the case.
Philam only learned about the unlawful conveyances when its
counsel accompanied the sheriff to Butuan City to attach the
properties of petitioner Khe Hong Cheng. It was only then that
respondent Philam's action for rescission of the deeds of
donation accrued because then it could be said that
respondent Philam had exhausted all legal means to satisfy
the trial court's judgment in its favor. Since respondent Philam
filed its complaint for accion pauliana against petitioners on
February 25, 1997, barely a month from its discovery that
petitioner Khe Hong Cheng had no other property to satisfy the
judgment award against him, its action for rescission of the
subject deeds clearly had not yet prescribed.
UNION BANK VS ONG
Spouses Ong, own the majority capital stock of Baliwag Mahogany
Corporation (BMC). On October 10, 1990, the spouses executed a
Continuing Surety Agreement in favor of Union Bank to secure a
P40,000,000.00-credit line facility made available to BMC. The
agreement expressly stipulated a solidary liability undertaking.
About a year after the execution of the surety agreement, the
spouses Ong, for P12,500,000.00, sold their lot located in
Greenhills together with the house and other improvements, to
their co-respondent, Jackson Lee.. At about this time, BMC had
already availed itself of the credit facilities, and had in fact
executed a total of twenty-two (22) promissory notes in favor of
Union Bank.
On November 22, 1991, BMC filed a Petition for Rehabilitation
and for Declaration of Suspension of Payments with SEC). It
also filed an action for rescission of the sale between the
spouses Ong and Jackson Lee for purportedly being in fraud of
creditors. Union Bank assailed the validity of the sale, alleging
that the spouses Ong and Lee entered into the transaction to
fraudulently remove the property from the reach of Union Bank
and other creditors. The fraudulent design, according to Union
Bank, is evidenced by: (1) insufficiency of consideration, the

purchase price of P12,500,000.00 being below the fair market
value of the subject property at that time; (2) lack of financial
capacity on the part of Lee to buy the property at that time since
his gross income for the year 1990, per the credit investigation
conducted by the bank, amounted to only P346,571.73; and (3)
Lee did not assert absolute ownership over the property as he
allowed the spouses Ong to retain possession thereof under a
purported Contract of Lease dated October 29, 1991.
RTC applied article 1381 and noted that the evidence
"present[s] a holistic combination of circumstances distinctly
characterized by badges of fraud," rendered judgment for
Union Bank. It appears that spouses Ong, as owners of 70% of
BMC's stocks, knew of the company’s insolvency. Thus,
according to the RTC, the spouses Ong disposed of the
subject property leaving the bank without recourse to recover
BMC's indebtedness. CA reversed the decision.
Issue: WON sale is in fraud of creditors and thus is rescissible
Held: No. Contracts in fraud of creditors are those executed
with the intention to prejudice the rights of creditors. They
should not be confused with those entered into without such
mal-intent, even if, as a direct consequence thereof, the
creditor may suffer some damage. In determining whether or not
a certain conveying contract is fraudulent, what comes to mind first
is the question of whether the conveyance was a bona fide
transaction or a trick and contrivance to defeat creditors. To
creditors seeking contract rescission on the ground of
fraudulent conveyance rest the onus of proving by competent
evidence the existence of such fraudulent intent
on the part of the debtor, albeit they may fall back on the
disputable presumptions, if proper, established under Article
1387 of the Code.8
In the present case, spouses Ong, had sufficiently established
the validity and legitimacy of the sale in question. The
conveying deed, a duly notarized document, carries with it the
presumption of validity and regularity. Too, the sale was duly
recorded and annotated on the title of the property owners, the
spouses Ong. As the transferee of said property, respondent
Lee caused the transfer of title to his name. Lee paid the
stipulated contract price to the spouses Ong.
In a bid to attach a badge of fraud on the transaction, petitioner
raises the issue of inadequate consideration, alleging in this regard
that only P12,500,000.00 was paid for property having, during the
period material, a fair market value of P14,500,000.00. However,
the existence of fraud or the intent to defraud creditors
cannot be presumed from the fact that the price paid for a
piece of real estate is perceived to be slightly lower, if that
really be the case, than its market value. It is expected of the
contracting parties, each having an interest to protect, to negotiate
on the price and other conditions before closing a sale of a
valuable piece of land. Thus, a scenario where the price actually
stipulated may, as a matter of fact, be lower than the original
asking price of the vendor or the fair market value of the property
is not out of the ordinary, let alone indicative of fraudulent
intention. That the spouses Ong acquiesced to the price of
P12,500,000.00, which may be lower than the market value of the
house and lot at the time of alienation, is certainly not an unusual
business phenomenon.
Moreover, the disparity between the price and what the
petitioner regarded as the real value of the property is not as
gross to support a conclusion of fraud. It may be stressed that,
when the validity of sales contract is in issue, two veritable
presumptions are relevant: first, that there was sufficient
consideration of the contract ; and, second, that it was the
result of a fair and regular private transaction. These
presumptions infer prima facie the transaction's validity and the
one who alleges fraud has the burden of overcoming.
Petitioner failed to discharge this burden.
The rescissory action to set aside contracts in fraud of creditors is
accion pauliana, essentially a subsidiary remedy accorded under
Article 1383 which the party suffering damage can avail of only
when he has no other legal means to obtain reparation for the
same. It behooved the petitioner to show that it had
| Oblicon 4th exam 4
exhausted all the properties of the spouses Ong. It does not
appear in this case that the petitioner sought other properties of
the spouses other than the subject Greenhills property. Absent
proof, therefore, that the spouses Ong had no other property
except their Greenhills home, the sale thereof to respondent Lee
cannot simplistically be considered as one in fraud of creditors.
Neither was evidence adduced to show that the sale in
question peremptorily deprived the petitioner of means to
collect its claim against the Ongs. Where a creditor fails to
show that he has no other legal recourse to obtain satisfaction
for his claim, then he is not entitled to the rescission asked.
For a contract to be rescinded for being in fraud of creditors,
both contracting parties must be shown to have acted
maliciously so as to prejudice the creditors who were
prevented from collecting their claims. There is no evidence
tending to prove that the spouses Ong and Lee were conniving
cheats. Any insinuation that the two colluded to gyp petitioner
bank is to read in a relationship something which, from all
indications, appears to be purely business.
Rescission is generally unavailing should a third person, acting
in good faith, is in lawful possession of the property. Lee was in
lawful possession of the subject property as the transfer to him
was by virtue of a presumptively valid onerous contract of sale.
His possession is evidenced by a certificate of title issued him
by the Registry of Deeds. On the other hand, the bona fides of
his acquisition can be deduced from his conduct and outward
acts previous to the sale. Lee undertook what amounts to due
diligence on the possible defects in the title of the Ongs before
proceeding with the sale. As it were, Lee decided to buy the
property only after being satisfied of the absence of such
defects.
Time and again, the Court has held that one dealing with a
registered parcel of land need not go beyond the certificate of
title as he is charged with notice only of burdens which are
noted on the face of the register or on the certificate of title.
The Continuing Surety Agreement, it ought to be particularly
pointed out, was never recorded nor annotated on the title of
spouses Ong. There is no evidence extant in the records to
show that Lee had knowledge, prior to the subject sale, of the
surety agreement adverted to.
Petitioner has made much of respondent Lee not taking immediate
possession of the property after the sale, stating that such failure is
an indication of his participation in the fraudulent scheme to
prejudice petitioner bank. We are not persuaded.
Lee, it is true, allowed the respondent spouses to continue
occupying the premises even after the sale. This development,
however, is not without basis or practical reason. The spouses'
continuous possession of the property was by virtue of a one-
year lease they executed with respondent Lee six days after
the sale. Lee, after the sale, exercised acts of dominion over
the said property and asserted his rights as the new owner. So,
when the respondent spouses continued to occupy the
property after its sale, they did so as mere tenants. While the
failure of the vendee to take exclusive possession of the
property is generally recognized as a badge of fraud, the same
cannot be said here in the light of the existence of what
appears to be a genuine lessor-lessee relationship between
the spouses Ong and Lee.
Petitioner’s assertion regarding respondent Lee’s lack of
financial capacity to acquire the property in question since his
income in 1990 was only P346,571.73 is clearly untenable. It is
incorrect to measure one’s purchasing capacity with one’s
income at a given period. Where he sourced the needed cash
is of no moment.
The cited case of China Banking cannot plausibly provide
petitioner with a winning card. In that case, the Court, applying
Article 1381 (3) of the Civil Code, rescinded an Assignment of
Rights to Redeem owing to the failure of the assignee to
overthrow the presumption that the said
conveyance/assignment is fraudulent. Indeed, when the deed
of assignment was executed in China Banking, the assignor
 | Oblicon 4th exam 5

therein already faced at that time an adverse judgment. In the
same case, moreover, the Court took stock of other signs of
fraud which tainted the transaction therein and which are not
present in the instant case. We refer, firstly, to the element of
kinship, the assignor, being the father of the assignee.
Secondly, Paulino admitted knowing his father to be insolvent.
There lies the glaring difference with the instant case.
Here, the existence of fraud cannot be presumed, or, at the
very least, what were perceived to be badges of fraud have
been proven to be otherwise. And, unlike Alfonso Roxas Chua
in China Banking, a judgment has not been rendered against
respondent spouses Ong or that a writ of attachment has been
issued against them at the time of the disputed sale.
supposedly because the dispositive portion of the decision
failed to specify details that were needed for its
implementation. Since this incident did not affect the finality of
the RTC decision, the prescriptive period remained to be
reckoned from January 28, 1993, the date of such finality.
The next question that needs to be resolved is the applicable
period of prescription. The DBP claims that it should be four
years as provided under Article 1389 that the action to claim
rescission must be commenced within four years. The Quirong
heirs, on the other hand, claim that it should be 10 years as
provided under Article 1144 which states that actions upon a
written contract must be brought within 10 years from the date
the right of action accrues.
The prescriptive period for rescission is four years.

HEIRS OF QUIRONG VS DBP But it is not that simple. The remedy of rescission is not
confined to the rescissible contracts enumerated under Article
1381. Article 1191 of the Civil Code gives the injured party in
When the late Emilio Dalope died, he left a 589-square meter reciprocal obligations, such as what contracts are about, the
untitled lot to his wife, Felisa Dalope and their nine children, option to choose between fulfillment and rescission. Arturo M.
one of whom was Rosa Dalope-Funcion. To enable Rosa and Tolentino, a well-known authority in civil law, is quick to note,
her husband Antonio Funcion (the Funcions) get a loan from however, that the equivalent of Article 1191 in the old code
Development Bank of the Philippines (DBP), Felisa sold the actually uses the term resolution rather than the present
whole lot to the Funcions. With the deed of sale in their favor rescission.[18] The calibrated meanings of these terms are
and the tax declaration transferred in their names, the
distinct.
Funcions mortgaged the lot with the DBP.
Rescission is a subsidiary action based on injury to the
When the Funcions failed to pay their loan, the DBP foreclosed the
plaintiffs economic interests as described in Articles 1380 and
mortgage on the lot and consolidated ownership in its name. Four
1381. Resolution, the action referred to in Article 1191, on the
years later the DBP conditionally sold the lot to Sofia Quirong for
other hand, is based on the defendants breach of faith, a
P78,000.00. In their contract of sale, Sofia Quirong waived any
violation of the reciprocity between the parties. As an action
warranty against eviction. The contract provided that the DBP did
based on the binding force of a written contract, therefore,
not guarantee possession of the property and that it would not be
rescission (resolution) under Article 1191 prescribes in 10
liable for any lien or encumbrance on the same. Quirong gave a
years. Ten years is the period of prescription of actions based
down payment of P14,000.00.
on a written contract under Article 1144.
Two months after that sale and her eight children (collectively,
The distinction makes sense. Article 1191 gives the injured
the Dalopes) filed an action for partition and declaration of
party an option to choose between, first, fulfillment of the
nullity of documents with damages against the DBP and the
contract and, second, its rescission. An action to enforce a
Funcions. Notwithstanding the suit, the DBP executed a deed
written contract (fulfillment) is definitely an action upon a
of absolute sale of the subject lot in Sofia Quirongs favor. The
written contract, which prescribes in 10 years (Article 1144). It
deed of sale carried substantially the same waiver of warranty
will not be logical to make the remedy of fulfillment prescribe in
against eviction and of any adverse lien or encumbrance.
10 years while the alternative remedy of rescission (or
resolution) is made to prescribe after only four years as
RTC declared the DBPs sale to Sofia Quirong valid only with provided in Article 1389 when the injury from which the two
respect to the shares of Felisa and Rosa Funcion in the kinds of actions derive is the same.
property. It declared Felisas sale to the Funcions, the latters
mortgage to the DBP, and the latters sale to Sofia Quirong void
Here, the Quirong heirs alleged in their complaint that they
insofar as they prejudiced the shares of the eight other children
were entitled to the rescission of the contract of sale of the lot
of Emilio and Felisa who were each entitled to a tenth share in
between the DBP and Sofia Quirong because the decision in
the subject lot.
Civil Case D-7159 deprived her heirs of nearly the whole of
that lot. But what was the status of that contract at the time of
Thereafter Quirong heirs filed the present action against DBP
the filing of the action for rescission? Apparently, that contract
for rescission of the contract of sale between Sofia Quirong.
of sale had already been fully performed when Sofia Quirong
They alleged that they were entitled to the rescission of the
paid the full price for the lot and when, in exchange, the DBP
sale because the decision stripped them of nearly the whole of
executed the deed of absolute sale in her favor. There was a
the lot that Sofia Quirong, their predecessor, bought from the
turnover of control of the property from DBP to Sofia Quirong
DBP. The DBP filed a motion to dismiss the action on ground
since she assumed under their contract, the ejectment of
of prescription and res judicata.
squatters and/or occupants on the lot, at her own expense. [19]
The CA held that the Quirong heirs action for rescission of the sale
The cause of action of the Quirong heirs stems from their
between DBP and their predecessor, Sofia Quirong, is barred by
having been ousted by final judgment from the ownership of
prescription reckoned from the date of finality of the December 16,
the lot that the DBP sold in violation of the warranty against
1992 RTC Decision and applying the prescriptive period of four
eviction that comes with every sale of property or thing. With
years set by Article 1389 of the Civil Code.
the loss of 80% of the subject lot to the Dalopes by reason of
the judgment of the RTC, the Quirong heirs had the right to file
an action for rescission against the DBP.
Held: CA did not state in its decision the date when the RTC
decision became final and executory, which decision resulted in
And that action for rescission, which is based on a subsequent
the Quirong heirs loss of 80% of the lot that the DBP sold to Sofia
economic loss suffered by the buyer, was precisely the action
Quirong. Petitioner heirs claim that the prescriptive period should
that the Quirong heirs took against the DBP .Consequently, it
be reckoned from January 17, 1995, the date this Courts resolution
prescribed as Article 1389 provides in four years from the time
in G.R. 116575 became final and executory.
the action accrued. Since it accrued on January 28, 1993 when
the decision became final and executory and ousted the heirs
But the incident before this Court in G.R. 116575 did not deal with
from a substantial portion of the lot, the latter had only until
the merit of the RTC decision. That decision became final and
January 28, 1997 within which to file their action for rescission.
executory on January 28, 1993 when the DBP failed to appeal
Given that they filed their action on June 10, 1998, they did so
from it within the time set for such appeal. The incident before this
beyond the four-year period.
Court in G.R. 116575 involved the issuance of the writ of execution
in that case. The DBP contested such issuance

With the conclusion that the Court has reached respecting the
first issue presented in this case, it would serve no useful
purpose for it to further consider the issue of whether or not the
heirs of Quirong would have been entitled to the rescission of
the DBPs sale of the subject lot to Sofia Quirong as a
consequence of her heirs having been evicted from it. As the
Court has ruled above, their action was barred by prescription.
ADA VS BAYLON
This case involves the estate of spouses Baylon. They were
survived by their legitimate children, Rita Baylon, Victoria Baylon
(Victoria), Dolores Baylon (Dolores), Panfila Gomez (Panfila),
Ramon Baylon (Ramon) and herein petitioner Lilia B. Ada (Lilia).
On July 3, 1996, the petitioners filed with the RTC a Complaint
for partition against Rita. They alleged therein that Spouses
Baylon, during their lifetime, owned 43 parcels of land. After
the death of Spouses Baylon, they claimed that Rita took
possession of the said parcels of land and appropriated for
herself the income from the same. Using the income produced
by the said parcels of land, Rita allegedly purchased two
parcels of land. The petitioners averred that Rita refused to
effect a partition of the said parcels of land.
Florante, Rita and Panfila asserted that they and the
petitioners co-owned 22 out of the 43 parcels of land
mentioned in the latter’s complaint, whereas Rita actually
owned 10 parcels of land out of the 43 parcels which the
petitioners sought to partition. Further, they claimed that Lot
No. 4709 and half of Lot No. 4706 were acquired by Rita using
her own money. They denied that Rita appropriated solely for
herself the income of the estate of Spouses Baylon, and
expressed no objection to the partition of the estate of Spouses
Baylon, but only with respect to the co-owned parcels of land.
During the pendency of the case, Rita, through a Deed of
Donation conveyed Lot No. 4709 and half of Lot No. 4706 to
Florante. On July 16, 2000, Rita died. Thereafter, learning of
the said donation inter vivos in favor of Florante, the petitioners
filed a Supplemental Pleading praying that the said donation in
favor of the respondent be rescinded in accordance with Article
1381(4) of the Civil Code.
The RTC held that the death of Rita during the pendency of the
case, having died intestate and without any issue, had rendered
the issue of ownership insofar as parcels of land which she claims
as her own moot since the parties below are the heirs to her
estate. The CA held that before the petitioners may file an action
for rescission, they must first obtain a favorable judicial ruling that
Lot No. 4709 and half of Lot No. 4706 actually belonged to the
estate of Spouses Baylon and not to Rita.
Issue: WON the donation inter vivos may only be rescinded if
there is already a judicial determination that the lots belonged
to the estate of Spouses Baylon
Held: Rescission is a remedy granted by law to the contracting
parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if it should be
valid, by means of the restoration of things to their condition at
the moment prior to the celebration of said contract. It is a
remedy to make ineffective a contract, validly entered into and
therefore obligatory under normal conditions, by reason of
external causes resulting in a pecuniary prejudice to one of the
contracting parties or their creditors.
Contracts which are rescissible are valid contracts having all
the essential requisites of a contract, but by reason of injury or
damage caused to either of the parties therein or to third
persons are considered defective and, thus, may be rescinded.
The kinds of rescissible contracts, according to the reason for
their susceptibility to rescission, are the following: first, those
which are rescissible because of lesion or prejudice;43 second,
those which are rescissible on account of fraud or bad faith;
and third, those which, by special provisions of law, are
susceptible to rescission.
Contracts which are rescissible due to fraud or bad faith
include those which involve things under litigation, if they have
been entered into by the defendant without the knowledge and
| Oblicon 4th exam 6
approval of the litigants or of competent judicial authority. The
rescission of a contract under Article 1381(4) requires the
concurrence of the following: first, the defendant, during the
pendency of the case, enters into a contract which refers to
the thing subject of litigation; and second, the said contract
was entered into without the knowledge and approval of the
litigants or of a competent judicial authority.
Any disposition of the thing subject of litigation or any act which
tends to render inutile the court’s impending disposition in such
case, sans the knowledge and approval of the litigants or of the
court, is unmistakably and irrefutably indicative of bad faith. It
should be stressed, though, that the defendant in such a case is
not absolutely proscribed from entering into a contract which refer
to things under litigation. If, for instance, a defendant enters into a
contract which conveys the thing under litigation during the
pendency of the case, the conveyance would be valid, there being
no definite disposition yet coming from the court with respect to the
thing subject of litigation. After all, notwithstanding that the subject
thereof is a thing under litigation, such conveyance is but merely
an exercise of ownership.
The absence of such knowledge or approval would not
precipitate the invalidity of an otherwise valid contract.
Nevertheless, such contract, though considered valid, may be
rescinded at the instance of the other litigants pursuant to
Article 1381(4) of the Civil Code. RTC aptly ordered the
rescission of the donation inter vivos of Lot No. 4709 and half
of Lot No. 4706 in favor of Florante.
It is undisputed that, at the time they were gratuitously
conveyed by Rita, Lot No. 4709 and half of Lot No. 4706 are
among the properties that were the subject of the partition case
then pending with the RTC. Rita, then one of the defendants in
the partition case with the RTC, did not inform nor sought the
approval from the petitioners or of the RTC with regard to the
donation inter vivos of the said parcels of land to Florante.
Although the gratuitous conveyance of the said parcels of land
in favor of Florante was valid, the donation inter vivos of the
same being merely an exercise of ownership, Rita’s failure to
inform and seek the approval of the petitioners or the RTC
regarding the conveyance gave the petitioners the right to have
the said donation rescinded pursuant to Article 1381(4) of the
Civil Code.
The primordial purpose of Article 1381(4) is to secure the
possible effectivity of the impending judgment by a court with
respect to the thing subject of litigation. A definitive judicial
determination with respect to the thing subject of litigation is
not a condition sine qua non before the rescissory action may
be instituted.
Rita died intestate during the pendency of the proceedings with
the RTC without any issue, leaving the parties in the
proceedings before the RTC as her surviving heirs. Thus, the
RTC insinuated, a definitive determination as to the ownership
of the said parcels of land is unnecessary since the said
parcels of land would ultimately be adjudicated to the parties,
We do not agree. A definitive adjudication as to the ownership
is essential in this case as it affects the authority of the RTC to
direct the partition of the said parcels of land. RTC cannot
properly direct the partition of the lots until and unless it
determines that the said parcels of land indeed form part of the
estate of Spouses Baylon. It should be stressed that the
partition proceedings before the RTC only covers the
properties co-owned by the parties therein in their respective
capacity as the surviving heirs of Spouses Baylon.
Hence, the authority of the RTC to issue an order of partition in
the proceedings before it only affects those properties which
actually belonged to the estate of Spouses Baylon. In this
regard, if the lots are indeed exclusively owned by Rita, the
said parcels of land may not be partitioned simultaneously with
the other properties subject of the partition case before the
RTC. In such case, although the parties in the case before the
RTC are still co-owners of the said parcels of land, the RTC
would not have the authority to direct the partition of the said
parcels of land as the proceedings before it is only concerned
with the estate of Spouses Baylon.

ANCHOR SAVINGS VS FURIGAY
ASB filed a verified complaint for sum of money and damages
against Ciudad Transport Services, Inc. (CTS), its president,
respondent Henry H. Furigay; his wife, respondent Gelinda C.
Furigay; and a "John Doe." RTC ruled in favor of plaintiff Anchor
Savings Bank ordering defendants to pay Php8,695,202.59 as
PRINCIPAL OBLIGATION as of 12 April 1999.
While Civil Case No. 99-865 was pending, respondent spouses
donated their registered properties to their minor children. As a
result, titles were issued in their names. Claiming that the
donation of these properties was made in fraud of creditors,
ASB filed a Complaint for Rescission of Deed of Donation
against the respondent spouses and their children. CA found
that the action of ASB had not yet prescribed, but was
premature as ASB failed to allege in its complaint that it had
resorted to all legal remedies to obtain satisfaction of its claim.
Issue: WON CA was correct in dismissing ASB’s complaint on
the ground that the action against was premature
Held: rescission is subsidiary in nature; it cannot be instituted
except when the party suffering damage has no other legal
means to obtain reparation for the same.
A creditor would have a cause of action to bring an action for
rescission, if it is alleged that the following successive
measures have already been taken: (1) exhaust the properties
of the debtor through levying by attachment and execution
upon all the property of the debtor, except such as are exempt
by law from execution; (2) exercise all the rights and actions of
the debtor, save those personal to him (accion subrogatoria);
and (3) seek rescission of the contracts executed by the debtor
in fraud of their rights (accion pauliana).
With respect to an accion pauliana, it is required that the
ultimate facts constituting the following requisites must all be
alleged in the complaint, viz.:
1) That the plaintiff asking for rescission, has credit prior to the
alienation, although demandable later; 2) That the debtor has
made a subsequent contract conveying a patrimonial benefit to
a third person; 3) That the creditor has no other legal remedy
to satisfy his claim, but would benefit by rescission of the
conveyance to the third person; 4) That act being impugned is
fraudulent; and 5) That the third person who received the
property conveyed, if by onerous title, has been an accomplice
in the fraud.
ASB failed to allege the facts constituting its cause of action and
the prerequisites that must be complied before the same may be
instituted. ASB, without exhausting the properties of CTS, Henry
H. Furigay and Genilda C. Furigay or their transmissible rights and
actions, simply undertook the third measure and filed an action for
annulment of the donation. This cannot be done.
SAMONTE VS CA
Lot 216 was covered by a title issued in the name of Apolonia
Abao and Irenea Tolero in equal undivided shares. After Apolonia
Abao died during the Japanese occupation and Irenea Tolero died
in 1945, the heirs of Abao and Tolero inherited and became
owners of Lot 216. They questioned the series of cancellation of
the certificate of title starting from OCT No. RO-238 (555) and the
Deed of Extra-judicial Settlement and Confirmation of Sale
executed by Ignacio Atupan on August 7, 1957 adjudicating one-
half (1/2) of the area of Lot 216.
Ignacio Atupan is not a son of Apolonia Abao but he only grew
up while living with Apolonia Abao. That when Lot 216 was
subdivided into two lots, Lot 216-A and Lot 216-A they have
not signed any document agreeing as to the manner how Lot
216 was to be divided, nor have they consented to the partition
of the same.
Samonte claim that he bought portions of the Lot 216 in good faith
as he was made to believe that all the papers in possession of his
vendors were all in order. One of the documents presented by him
is a Deed of Absolute Sale executed in 1939.
| Oblicon 4th exam 7
He has been in open, continuous, adverse and exclusive
possession of the portions of Lot 216 he bought for more than
20 years and have declared the land for taxation purposes and
have paid the real estate taxes.
Defendant Jadols claim that they became owners of one-half
(1/2) portion of Lot 216 by purchase from Ignacio Atupan and
Apolonia Abao as shown by a document notarized by Jacobo
Bello and signed by Irenea Tolero as a witness. They were in
possession since they bought the land. The land is covered by
Tax Declaration No. 1630 and Tax Declaration No. 1676 in
their name.
After due trial, the trial court rendered separate decisions, both
in favor of the plaintiffs therein.
Held: Ignacio Atupan caused the fraudulent cancellation of the
original title. Atupan, on the basis of his Affidavit of Extra-
judicial Settlement and Confirmation Sale, adjudicated unto
himself one-half of Lot 216 by misrepresenting himself as the
sole heir of Apolonia Abao. Atupan, in said affidavit, likewise
confirmed the two deeds of sale allegedly executed by him and
Abao, covering the latters one-half lot in favor of Nicolas Jadol.
Atupans affidavit was tainted with fraud because he falsely
claimed therein that he was the sole heir of Abao when in fact,
he merely lived and grew up with her. Jadol and his wife,
Beatriz, knew about this fact. Despite this knowledge, however,
the Jadol spouses still presented the affidavit of Atupan before
the Register of Deeds of the Province of Agusan when they
caused the cancellation of the original title and issuance of a
new one in their names covering that portion owned by Abao.
However, the documents evidencing the alleged transactions
were not presented in the Register of Deeds. Jadol spouses
only sought the registration of these transactions in 1957,
eighteen years after they supposedly took place or twelve
years after Abao died.
Nonetheless, petitioner contends that respondents action in the
court a quo had already prescribed. Generally, an action for
reconveyance of real property based on fraud may be barred by
the statute of limitations which requires that the action must be
commenced within four (4) years from the discovery of fraud, and
in case of registered land, such discovery is deemed to have taken
place from the date of the registration of title.[8]
As it had been indubitably established that fraud attended the
registration of a portion of the subject property, it can be said
that the Jadol spouses were trustees thereof on behalf of the
surviving heirs of Abao. An action based on implied or
constructive trust prescribes in ten (10) years from the time of
its creation or upon the alleged fraudulent registration of the
property.
Petitioner, as successor-in-interest of the Jadol spouses, now
argues that the respondents action for reconveyance, filed only in
1975, had long prescribed considering that the Jadol spouses
caused the registration of a portion of the subject lot in their names
way back in August 8, 1957. It is petitioners contention that since
eighteen years had already lapsed from the issuance of TCT No.
RT-476 until the time when respondents filed the action in the
court a quo in 1975, the same was time-barred.
Petitioners defense of prescription is untenable. The general
rule that the discovery of fraud is deemed to have taken place
upon the registration of real property because it is considered a
constructive notice to all persons does not apply in this case.
It is true that registration under the Torrens system is
constructive notice of title, but it has likewise been our holding
that the Torrens title does not furnish a shield for fraud. It is
therefore no argument to say that the act of registration is
equivalent to notice of repudiation, assuming there was one,
notwithstanding the long-standing rule that registration
operates as a universal notice of title.
In this case, the CA reckoned the prescriptive period from the
time respondents had actually discovered the fraudulent act of
Atupan which was, as borne out by the records, only during the
trial of Civil Case No. 1672.

On the issue of whether petitioner is a buyer in bad faith as he
claims, the Court likewise holds in the negative. It was
established during the trial by the court a quo that he knew that
respondents were the only surviving heirs of Irenea Tolero.
Despite this knowledge, petitioner still bought a portion of the
subject lot from the Jadol spouses when the same was still
registered under OCT No. R0-238(555) in the name of Abao
and Tolero.
Thus, petitioner cannot pretend to be a purchaser in good faith.
It is axiomatic that one who buys from a person who is not a
registered owner is not a purchaser in good faith.
Moreover, with respect to the other portion which petitioner
bought from Jacobo Tagorda, the trial court held that he was,
as in the first case, a buyer in bad faith. The general rule is that
a person dealing with registered land has a right to rely on the
Torrens certificate of title and to dispense with the need of
making further inquiries. This rule, however, admits of
exceptions: when the party has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to
make such inquiry or when the purchaser has knowledge of a
defect or the lack of title in his vendor or of sufficient facts to
induce a reasonably prudent man to inquire into the status of
the title of the property in litigation.[16] One who falls within the
exception can neither be denominated an innocent purchaser
for value nor a purchaser in good faith; and hence does not
merit the protection of the law.[17]
While it may be true that the second portion was purchased by
Samonte from Tagorda in whose name the same was then
registered under TCT No. RT-555, Samonte was previously
charged with the fact that Jadol lacked the capacity to transmit
title over any part of the subject property including that portion
which the latter sold to Tagorda. Thus, Samonte was clearly in
bad faith when he sought the registration of the deed of sale.
Petitioner cannot now claim that he already acquired valid title
to the property. The inscription in the registry, to be effective,
must be made in good faith. The defense of indefeasibility of a
Torrens Title does not extend to a transferee who takes the
certificate of title with notice of a flaw. A holder in bad faith of a
certificate of title is not entitled to the protection of the law, for
the law cannot be used as a shield for frauds.
MENDZONA VS OZAMIZ
Petitioner spouses Mendezona, petitioner spouses Luis
J. Mendezona and Maricar L. Mendezona, and
petitioner Teresita Adad Vda. de Mendezon own a parcel of
land each in the Banilad Estate, Lahug, Cebu City with almost
similar areas of 3,462 square meters, 3,466 square meters
and 3,468 square meters.
The petitioners ultimately traced their titles of ownership over
their respective properties from a notarized Deed of Absolute
Sale[7] dated April 28, 1989 executed in their favor by Carmen
Ozamiz for One Million Forty Thousand Pesos.
The respondents instituted a petition for guardianship alleging
that Carmen Ozamiz, then 86 years old, had become
disoriented and could not recognize most of her friends; that
she could no longer take care of herself nor manage her
properties by reason of her failing health, weak mind and
absent-mindedness. Mario Mendezona and Luis Mendezona,
herein petitioners who are nephews of Carmen Ozamiz, and
Pilar Mendezona, a sister of Carmen Ozamiz, filed an
opposition to the guardianship petition.
In the course of the guardianship proceeding, the petitioners
and the oppositors thereto agreed that Carmen Ozamiz
needed a guardian over her person and her properties, and
thus respondent Paz O. Montalvan was designated as
guardian over the person of Carmen Ozamiz while petitioner
Mario J. Mendezona, respondents Roberto J. Montalvan and
Julio H. Ozamiz were designated as joint guardians over the
properties of the said ward.
As guardians, respondents Roberto J. Montalvan and Julio H.
Ozamiz filed on with the guardianship court their inventories and
Accounts, listing therein Carmen Ozamizs properties, cash, shares
of stock, vehicles and fixed assets, including a 10,396
| Oblicon 4th exam 8
square meter property known as the Lahug property. Said
Lahug property is the same property covered by the Deed of
Absolute Sale executed by Carmen Ozamiz in favor of the
petitioners. Respondents Roberto J. Montalvan and Julio H.
Ozamiz caused the inscription on the titles of petitioners a
notice of lis pendens,[11] regarding Special Proceeding No.
1250, thus giving rise to the suit for quieting of title filed by
herein petitioners.
Respondents opposed the petitioners claim of ownership of the
Lahug property and alleged that the titles issued in the
petitioners names are defective and illegal, and the ownership
of the said property was acquired in bad faith and without value
inasmuch as the consideration for the sale is grossly
inadequate and unconscionable. At the time of the sale
Carmen Ozamiz was already ailing and not in full possession
of her mental faculties; and that her properties having been
placed in administration, she was in effect incapacitated to
contract with petitioners.
Atty. Asuncion Bernades, the notary public who notarized the
said document, testified that on the day of execution of the said
contract that Carmen Ozamiz was of sound mind and that she
voluntarily and knowingly executed the said deed of sale.
Hekd:
Simulation is defined as the declaration of a fictitious will,
deliberately made by agreement of the parties, in order to produce,
for the purposes of deception, the appearances of a juridical act
which does not exist or is different from what that which was really
executed. The requisites of simulation 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.
None of these were clearly shown to exist in the case at bar.
Contrary to the erroneous conclusions of the appellate court, a
simulated contract cannot be inferred from the mere non-
production of the checks. It was not the burden of the
petitioners to prove so. It is significant to note that the Deed of
Absolute Sale is a notarized document duly acknowledged
before a notary public. As such, it has in its favor the
presumption of regularity, and it carries the evidentiary weight
conferred upon it with respect to its due execution. It is
admissible in evidence without further proof of its authenticity
and is entitled to full faith and credit upon its face.
Payment is not merely presumed from the fact that the
notarized Deed of Absolute Sale dated April 28, 1989 has gone
through the regular procedure as evidenced by the transfer
certificates of title issued in petitioner’s names by the Register
of Deeds. In other words, whosoever alleges the fraud or
invalidity of a notarized document has the burden of proving
the same by evidence that is clear, convincing, and more than
merely preponderant. [Therefore, with this well-recognized
statutory presumption, the burden fell upon the respondents to
prove their allegations attacking the validity and due execution
of the said Deed of Absolute Sale. Respondents failed to
discharge that burden; hence, the presumption in favor of the
said deed stands. But more importantly, that notarized deed
shows on its face that the consideration of One Million Forty
Thousand Pesos (P1,040,000.00) was acknowledged to have
been received by Carmen Ozamiz.
Simulation cannot be inferred from the alleged absence of
payment based on the testimonies of Concepcion Agac-ac,
assistant of Carmen Ozamiz, and Nelfa Perdido, part-time
bookkeeper of Carmen Ozamiz. The testimonies of these two
(2) witnesses are unreliable and inconsistent.
Furthermore, the appellate court erred in ruling that at the time
of the execution of the Deed of Absolute Sale on April 28, 1989
the mental faculties of Carmen Ozamiz were already seriously
impaired. It placed too much reliance upon the testimonies of
the respondent’s witnesses. However, after a thorough scrutiny
of the transcripts of the testimonies of the witnesses, we find
that the respondents core witnesses all made sweeping
statements which failed to show the true state of mind of
Carmen Ozamiz at the time of the execution of the disputed
document. The testimonies of the respondent’s witnesses on
the mental capacity of Carmen Ozamiz are far from being clear
and convincing, to say the least.

Carolina Lagura, a househelper of Carmen Ozamiz, testified
that when Carmen Ozamiz was confronted by Paz
O. Montalvan in January 1989 with the sale of
the Lahug property, Carmen Ozamiz denied the same. She
testified that Carmen Ozamiz understood the question
then. [28] However, this declaration is inconsistent with her
(Carolinas) statement that since 1988 Carmen Ozamiz could
not fully understand the things around her, that she was
physically fit but mentally could not carry a conversation or
recognize persons who visited her.
The revelation of Dr. Faith Go did not also shed light on the
mental capacity of Carmen Ozamiz on the relevant day - April
28, 1989 when the Deed of Absolute Sale was executed and
notarized. At best, she merely revealed that Carmen Ozamiz
was suffering from certain infirmities in her body and at times,
she was forgetful, but there was no categorical statement that
Carmen Ozamiz succumbed to what the respondents suggest
as her alleged second childhood as early as 1987. The
petitioners rebuttal witness, Dr. William Buot, a doctor of
neurology, testified that no conclusion of mental incapacity at
the time the said deed was executed can be inferred from Dr.
Faith Gos clinical notes nor can such fact be deduced from the
mere prescription of a medication for episodic memory loss.
It has been held that a person is not incapacitated to contract
merely because of advanced years or by reason of physical
infirmities. Only when such age or infirmities impair her mental
faculties to such extent as to prevent her from properly,
intelligently, and fairly protecting her property rights, is she
considered incapacitated.[30] The respondents utterly failed to
show adequate proof that at the time of the sale on April 28,
1989 Carmen Ozamiz had allegedly lost control of her mental
faculties.
It is unfair for the [respondents] to claim soundness of mind of
Carmen Ozamiz when it benefits them and otherwise when it
disadvantages them. A person is presumed to be of sound
mind at any particular time and the condition is presumed to
continue to exist, in the absence of proof to the contrary.
Competency and freedom from undue influence, shown to
have existed in the other acts done or contracts executed, are
presumed to continue until the contrary is shown.
FAMANILA VS CA
In 1989, respondent NFD International Manning Agents, Inc.
hired the services of petitioner Roberto G. Famanila as
Messman 4 for Hansa Riga, a vessel registered and owned
by its principal and co-respondent, Barbership Management
Limited.
On June 21, 1990, while petitioner was assisting in the loading
operations, the latter complained of a headache. Petitioner
experienced dizziness and he subsequently collapsed. Upon
examination, it was determined that he had a sudden attack of
left cerebral hemorrhage from a ruptured cerebral aneurysm.
Petitioner underwent a brain operation and he was confined at
the Emmanuel Hospital. On July 19, 1990, he underwent a
second brain operation.
Owing to petitioner’s physical and mental condition, he was
repatriated to the Philippines. On August 21, 1990, he was
examined at the American Hospital in Intramuros, Manila where
the examining physician declared that he "cannot go back to sea
duty and has been observed for 120 days, he is being declared
permanently, totally disabled." Thereafter, authorized
representatives of the respondents convinced him to settle his
claim amicably by accepting the amount of US$13,200. 7
Petitioner accepted the offer as evidenced by his signature in
the Receipt and Release dated February 28, 1991. His wife,
Gloria Famanila and one Richard Famanila, acted as
witnesses in the signing of the release.
On June 11, 1997, petitioner filed a complaint 9 with the NLRC
praying for an award of disability benefits, share in the insurance
proceeds, moral damages and attorney’s fees. Petitioner claims
that he did not sign the Receipt and Release voluntarily or freely
because he was permanently disabled and in financial
| Oblicon 4th exam 9
constraints. These factors allegedly vitiated his consent which
makes the Receipt and Release void and unenforceable.
Held: A vitiated consent does not make a contract void and
unenforceable. A vitiated consent only gives rise to a voidable
agreement. Under the Civil Code, the vices of consent are
mistake, violence, intimidation, undue influence or fraud. If
consent is given through any of the aforementioned vices of
consent, the contract is voidable. A voidable contract is binding
unless annulled by a proper action in court.
Petitioner contends that his permanent and total disability
vitiated his consent to the Receipt and Release thereby
rendering it void and unenforceable. However, disability is not
among the factors that may vitiate consent. Besides, save for
petitioner’s self-serving allegations, there is no proof on
record that his consent was vitiated on account of his
disability. In the absence of such proof of vitiated consent, the
validity of the Receipt and Release must be upheld.
In the case at bar, there is nothing in the records to show that
petitioner’s consent was vitiated when he signed the
agreement. Granting that petitioner has not fully recovered
his health at the time he signed the subject document, the
same cannot still lead to the conclusion that he did not
voluntar[il]y accept the agreement, for his wife and another
relative witnessed his signing.
If the agreement was voluntarily entered into and represents
a reasonable settlement, it is binding on the parties and may
not later be disowned simply because of change of mind. If it
is shown that the person making the waiver did so voluntarily,
with full understanding of what he was doing, and the
consideration for the quitclaim is credible and reasonable, the
transaction must be recognized as a valid and binding
undertaking, 22 as in this case.
To be valid and effective, waivers must be couched in clear
and unequivocal terms, leaving no doubt as to the intention of
those giving up a right or a benefit that legally pertains to them.
23 We have reviewed the terms and conditions contained in
the Receipt and Release and we find the same to be clear and
unambiguous. The signing was even witnessed by petitioner’s
wife, Gloria T. Famanila and one Richard T. Famanila.
CATALAN VS BASA
FELICIANO CATALAN (Feliciano) was discharged from active
military service. The Board of Medical Officers of the
Department of Veteran Affairs found that he was unfit to render
military service due to his schizophrenic reaction, catatonic
type, which incapacitates him because of flattening of mood
and affect, preoccupation with worries, withdrawal, and sparce
(sic) and pointless speech.[1]
On September 28, 1949, Feliciano married Corazon Cerezo.
On June 16, 1951, Felicano allegedly donated to his sister
MERCEDES CATALAN(Mercedes) one-half of a parcel of land
in Pangsinan.
On December 11, 1953, Peoples Bank and Trust Company (now
BPI) filed Special Proceedings before the Court of First Instance of
Pangasinan to declare Feliciano incompetent which was granted
and the bank was appointed as Felicianos guardian
On November 22, 1978, Feliciano and Corazon Cerezo donated
Lots 1 and 3 of their property to their son Eulogio Catalan. Lot 2
was subsequently donated to their other children.
On April 1, 1997, BPI, acting as Felicianos guardian, filed a case
for Declaration of Nullity of Documents, Recovery of Possession
and Ownership, as well as damages against the herein
respondents. BPI alleged that the Deed of Absolute Donation to
Mercedes was void ab initio, as Feliciano never donated the
property to Mercedes. In addition, BPI averred that even if
Feliciano had truly intended to give the property to her, the
donation would still be void, as he was not of sound mind and was
therefore incapable of giving valid consent. Thus, it claimed that if
the Deed of Absolute Donation was void ab initio, the

subsequent Deed of Absolute Sale to Delia and Jesus Basa
should likewise be nullified, for Mercedes Catalan had no right
to sell the property to anyone. BPI raised doubts about the
authenticity of the deed of sale, saying that its registration long
after the death of Mercedes Catalan indicated fraud.
Petitioners aver that the presumption of Felicianos competence
to donate property to Mercedes had been rebutted because
they presented the Certificate of Disability for the Discharge of
Feliciano Catalan issued on October 20, 1948 by the Board of
Medical Officers of the Department of Veteran Affairs. Second,
they proved that Feliciano was judged an incompetent by the
Court of First Instance of Pangasinan, and put under the
guardianship of BPI.
Based on these two pieces of evidence, petitioners conclude that
Feliciano had been suffering from a mental condition since 1948
which incapacitated him from entering into any contract thereafter,
until his death on August 14, 1997. Petitioners contend that
Felicianos marriage to Corazon Cerezo on September 28, 1948
does not prove that he was not insane at the time he made the
questioned donation. They further argue that the donations
Feliciano executed in favor of his successors also cannot prove his
competency because these donations were approved and
confirmed in the guardianship proceedings.
Held: A donation is an act of liberality whereby a person
disposes gratuitously a thing or right in favor of another, who
accepts it. Like any other contract, an agreement of the parties
is essential. Consent in contracts presupposes the following
requisites: (1) it should be intelligent or with an exact notion of
the matter to which it refers; (2) it should be free; and (3) it
should be spontaneous. The parties' intention must be clear
and the attendance of a vice of consent, like any contract,
renders the donation voidable.
In order for donation of property to be valid, what is crucial is
the donors capacity to give consent at the time of the donation.
Certainly, there lies no doubt in the fact that insanity impinges
on consent freely given. However, the burden of proving such
incapacity rests upon the person who alleges it; if no sufficient
proof to this effect is presented, capacity will be presumed.
A thorough perusal of the records of the case at bar indubitably
shows that the evidence presented by the petitioners was
insufficient to overcome the presumption that Feliciano was
competent when he donated the property in question to
Mercedes. Petitioners make much ado of the fact that, as early
as 1948, Feliciano had been found to be suffering from
schizophrenia by the Board of Medical Officers of the
Department of Veteran Affairs. By itself, however, the
allegation cannot prove the incompetence of Feliciano.
A study of the nature of schizophrenia will show that Feliciano
could still be presumed capable of attending to his property
rights. Schizophrenia improves (remission or residual stage)
and worsens (relapses) in cycles. Sometimes, sufferers may
appear relatively normal, while other patients in remission may
appear strange.
A person suffering from schizophrenia does not necessarily
lose his competence to intelligently dispose his property. By
merely alleging the existence of schizophrenia, petitioners
failed to show substantial proof that at the date of the donation,
June 16, 1951, Feliciano Catalan had lost total control of his
mental faculties. Sufficient proof of his infirmity to give consent
to contracts was only established when the Court of First
Instance of Pangasinan declared him an incompetent on
December 22, 1953.
It is interesting to note that the petitioners questioned
Felicianos capacity at the time he donated the property, yet did
not see fit to question his mental competence when he entered
into a contract of marriage with Corazon Cerezo or when he
executed deeds of donation of his other properties in their
favor. The presumption that Feliciano remained competent to
execute contracts, despite his illness, is bolstered by the
existence of these other contracts. Competency and freedom
from undue influence, shown to have existed in the other acts
done or contracts executed, are presumed to continue until the
contrary is shown.[32]
| Oblicon 4th exam 10
Needless to state, since the donation was valid, Mercedes had
the right to sell the property to whomever she chose. Not a
shred of evidence has been presented to prove the claim that
Mercedes sale of the property to her children was tainted with
fraud or falsehood. It is of little bearing that the Deed of Sale
was registered only after the death of Mercedes. What is
material is that the sale of the property to Delia and Jesus
Basa was legal and binding at the time of its execution. Thus,
the property in question belongs to Delia and Jesus Basa.
Finally, we note that the petitioners raised the issue of
prescription and laches for the first time on appeal before this
Court. It is sufficient for this Court to note that even if the
present appeal had prospered, the Deed of Donation was still a
voidable, not a void, contract. As such, it remained binding as it
was not annulled in a proper action in court within four years.
AYSON VS PARAGAS
The controversy commenced with the filing of an ejectment
complaint by herein petitioner Amado Z. Ayson, represented by
his father Zareno, against respondent-spouses Felix and
Maxima Paragas alleging that: (1) petitioner is the registered
owner of the property being occupied by the respondent-
spouses (2) respondent-spouses are occupying the said land
through his tolerance without rent; (3) on April 8, 1992,
respondent-spouses executed an Affidavit[5] which declared
that they agree to vacate the land within three (3) months and
that in consideration of vacating the said parcel of land the
amount of Twenty Thousand Pesos shall be paid to them; (4)
despite the execution of the Affidavit, respondent-spouses
refused to vacate the land as agreed upon; and (5) despite
demands, respondent-spouses still refused to vacate, thus
constraining him to file the complaint.
Meanwhile, on October 11, 1993, during the pendency of the
appeal with the RTC, respondent-spouses filed against petitioner a
complaint for declaration of nullity of deed of sale. The complaint
alleged, inter alia, that respondent Maxima is a co-owner of a
parcel of land. Sometime prior to April 13, 1955, respondent Felix,
then an employee of the defunct Dagupan Colleges failed to
account for the amount of P3,000.00. It was agreed that
respondent Felix would pay the said amount by installment to the
Dagupan Colleges. Pursuant to that agreement, Blas F. Rayos and
Amado Ll. Ayson, then both occupying high positions in the said
institution, required respondent-spouses to sign, without explaining
to them, a Deed of Absolute Sale on April 13, 1955 over
respondent Maximas real property under threat that respondent
Felix would be incarcerated for misappropriation if they refused to
do so.
The complaint further alleged that later, respondent-spouses,
true to their promise to reimburse the defalcated amount, took
pains to pay their obligation in installments regularly deducted
from the salaries and that notwithstanding the full payment of
the obligation, Amado Ll. Ayson and Blas F. Rayos did nothing
to cancel the purported Deed of Absolute Sale; and that they
were shocked when they received a copy of the complaint for
ejectment filed by petitioner.
Petitioner argues that the action instituted before the RTC has
already prescribed. According to him, the complaint alleged that
the Deed of Absolute Sale was executed through fraud, making
the said contract merely voidable, and the action to annul voidable
contracts based on fraud prescribed in four (4) years from the
discovery of fraud. He insists that the registration of the Deed of
Absolute Sale occurred on May 4, 1955, which operated as
constructive notice of the fraud to the whole world, including
respondent-spouses. Thus, petitioner concludes that the action
had long prescribed when they filed the same on October 11,
1993, since its cause had accrued 38 years ago.
Issue: WON the action has prescribed
Held: The Deed of Absolute Sale is, in reality, an equitable
mortgage or a contract of loan secured by a mortgage. The Civil
Code enumerates the cases in which a contract, purporting to be a
sale, is considered only as a contract of loan secured by a
mortgage: (1) When the price of the sale with right to repurchase is
unusually inadequate; (2) When the vendor

remains in possession as lessee or otherwise; (3) When upon
or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is
executed; (4) When the purchaser retains for himself
a part of the purchase price; (5) When the vendor binds
himself to pay the taxes on the thing sold; (6) In any other case
where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a
debt or the performance of any other obligation. In any of the
foregoing
It is established that the possession of the subject property
remained with respondent-spouses despite the execution of
the Deed of Absolute Sale on April 13, 1955. Moreover, the
evidence presented by respondent-spouses indubitably reveals
that they signed the contract under threat of prosecution, with
the view to secure the payment of the P3,000.00 defalcated by
respondent Felix. Amado Ll. Ayson and Blas F. Rayos
obviously exerted undue influence on Felix taking advantage of
the latters lack of education and understanding of the legal
effects of his signing the deed.
Respondent-spouses have clearly proven that they have
already paid the aforesaid amount. That the obligation was
paid in installments through salary deduction over a period of
10 years from the signing of the Deed of Absolute Sale is of no
moment.
An equitable mortgage is a voidable contract. As such, it may be
annulled within four years from the time the cause of action
accrues. This case, however, not only involves a contract resulting
from fraud, but covers a transaction ridden with threat, intimidation,
and continuing undue influence which started when petitioners
adoptive father Amado Ll. Ayson and Blas F. Rayos, Felixs
superiors at Dagupan Colleges, practically bullied respondent-
spouses into signing the Deed of Absolute Sale under threat of
incarceration. Thus, the four-year period should start from the time
the defect in the consent ceases.
While at first glance, it would seem that the defect in the
consent of respondent-spouses ceased either from the
payment of the obligation through salary deduction or from the
death of Amado Ll. Ayson and Blas F. Rayos, it is apparent
that such defect of consent never ceased up to the time of the
signing of the Affidavit on April 8, 1992 when Zareno, acting on
behalf of petitioner, caused respondent Felix to be brought to
him, and taking advantage of the latter being unlettered, unduly
influenced Felix into executing the said Affidavit for a fee of
P10,000.00. The complaint praying for the nullity of the Deed
of Absolute Sale was filed on October 11, 1993, well within the
four-year prescriptive period.
KINGS PROPERTIES VS GALIDO
In 1996, the heirs of Domingo Eniceo, namely Rufina Eniceo
and Maria Eniceo, were awarded with Homestead Patent
consisting of four parcels of land located in Antipolo. The
issuance of the homestead patent was subject to the following
conditions: that except in favor of the Government the land
hereby acquired shall be inalienable and shall not be subject to
incumbrance for a period of five (5) years next following the
date of this patent; that it shall not be alienated, transferred or
conveyed after five (5) years and before twenty-five (25) years
next following the issuance of title, without the approval of the
Secretary of Agriculture and Natural Resources.
On 10 September 1973, a deed of sale covering the Antipolo
property was executed between Rufina Eniceo and Maria
Eniceo as vendors and respondent as vendee for P250,000.
The title was delivered to them.
Petitioner alleges that when Maria Eniceo died in June 1975,
Rufina Eniceo and the heirs of Maria Eniceo who continued to
occupy the Antipolo property as owners, thought that the
owners duplicate copy of OCT No. 535 was lost.
Thus, the Eniceo heirs registered with the Registry of Deeds a
Notice of Loss of the owners copy and filed a petition for the
issuance of a new owners duplicate copy which RTC granted
as the original title contained no annotation in favor of any
person, corporation or entity. They then sold the subject
property to Kings Prperties
| Oblicon 4th exam 11
On 17 August 1995, the Secretary of the Department of
Environment and Natural Resources (DENR Secretary)
approved the deed of sale between the Eniceo heirs and
respondent.[21]On 16 January 1996, respondent filed a civil
complaint with the trial court against the Eniceo heirs and
petitioner.
Held: The contract between the Eniceo heirs and respondent
executed on 10 September 1973 was a perfected contract of
sale. A contract is perfected once there is consent of the
contracting parties on the object certain and on the cause of
the obligation.[39]In the present case, the object of the sale is
the Antipolo property and the price certain is P250,000.
The contract of sale has also been consummated because the
vendors and vendee have performed their respective
obligations under the contract. The execution of the notarized
deed of sale and the delivery of the owners duplicate copy of
OCT No. 535 to respondent is tantamount to a constructive
delivery of the object of the sale.
Petitioner alleges that the deed of sale is a forgery. The Eniceo
heirs also claimed in their answer that the deed of sale is fake
and spurious. However, as correctly held by the CA, forgery
can never be presumed. The party alleging forgery is
mandated to prove it with clear and convincing evidence.
Whoever alleges forgery has the burden of proving it. In this
case, petitioner and the Eniceo heirs failed to discharge this
burden.
Petitioner invokes the belated approval by the DENR
Secretary, made within 25 years from the issuance of the
homestead, to nullify the sale of the Antipolo property. The sale
of the Antipolo property cannot be annulled on the ground that
the DENR Secretary gave his approval after 21 years from the
date the deed of sale in favor of respondent was executed. The
approval may be secured later, producing the effect of ratifying
and adopting the transaction as if the sale had been previously
authorized.
Petitioner contends that the deed of sale in favor of respondent
is an equitable mortgage because the Eniceo heirs remained in
possession of the Antipolo property despite the execution of
the deed of sale. The essential requisites of an equitable
mortgage are: 1. The parties entered into a contract
denominated as a contract of sale; and 2. Their intention was
to secure existing debt by way of a mortgage.
Petitioner claims that an equitable mortgage can be presumed
because the Eniceo heirs remained in possession of the
Antipolo property. Apart from the fact that the Eniceo heirs
remained in possession of the Antipolo property, petitioner has
failed to substantiate its claim that the contract of sale was
intended to secure an existing debt by way of mortgage. In
fact, mere tolerated possession is not enough to prove that the
transaction was an equitable mortgage.
Furthermore, petitioner has not shown any proof that the
Eniceo heirs were indebted to respondent. On the contrary, the
deed of sale executed in favor of respondent was drafted
clearly to convey that the Eniceo heirs sold and transferred the
Antipolo property to respondent. The deed of sale even
inserted a provision about defrayment of registration expenses
to effect the transfer of title to respondent.
In any event, as pointed out by respondent in his
Memorandum, this defense of equitable mortgage is available
only to petitioners predecessors-in-interest who should have
demanded, but did not, for the reformation of the deed of
sale. A perusal of the records shows that the Eniceo heirs
never presented the defense of equitable mortgage before
the trial court.
Petitioner maintains that the subsequent sale must be upheld
because petitioner is a buyer in good faith, having exercised
due diligence by inspecting the property and the title sometime
in February 1995.
A buyer in good faith is defined as one who buys the property
of another without notice that some other person has a right to
or interest in such property and pays a full and fair price for the
same at the time of such purchase or before he has notice of
the claim or interest of some other person in the property.

In the realm of double sales, the registration of an adverse
claim places any subsequent buyer of the registered land in
bad faith because such annotation was made in the title of the
property before the Register of Deeds and he could have
discovered that the subject property was already sold.
Petitioner does not dispute that respondent registered his
adverse claim with the Registry of Deeds on 14 March 1995.
The registration of the adverse claim constituted, by operation
of law, notice to the whole world.[62]From that date onwards,
subsequent buyers were deemed to have constructive notice
of respondents adverse claim.
Petitioner purchased the antipolo property only on 20 march
1995 and 5 april 1995 as shown by the dates in the deeds of
sale. Consequently, the adverse claim registered prior to the
second sale charged petitioner with constructive notice of the
defect in the title of eniceo heirs. Therefore, petitioner cannot
be deemed as a purchaser in good faith when they bought and
registered the antipolo property.
In double sales, the first buyer always has priority rights over
subsequent buyers of the same property. Being the first buyer,
he is necessarily in good faith compared to subsequent buyers.
The good faith of the first buyer remains all throughout despite
his subsequent acquisition of knowledge of the subsequent
sale. On the other hand, the subsequent buyer, who may have
entered into a contract of sale in good faith, would become a
buyer in bad faith by his subsequent acquisition of actual or
constructive knowledge of the first sale.
Petitioner contends that respondent is guilty of laches because
he slept on his rights by failing to register the sale of the
antipolo property at the earliest possible time. Petitioner claims
that despite respondents knowledge of the subsequent sale in
1991, respondent still failed to have the deed of sale registered
with the registry of deeds.
The essence of laches is the failure or neglect, for an
unreasonable and unexplained length of time, to do that which,
through due diligence, could have been done earlier, thus
giving rise to a presumption that the party entitled to assert it
had either abandoned or declined to assert it.
Respondent discovered in 1991 that a new owners copy of
OCT No. 535 was issued to the Eniceo heirs. Respondent filed
a criminal case against the Eniceo heirs for false testimony.
When respondent learned that the Eniceo heirs were planning
to sell the Antipolo property, respondent caused the annotation
of an adverse claim. On 16 January 1996, when respondent
learned that OCT No. 535 was cancelled and new TCTs were
issued, respondent filed a civil complaint with the trial court
against the Eniceo heirs and petitioner. Respondents actions
negate petitioners argument that respondent is guilty of laches.
REGAL FILMS VS CONCEPCION
In 1991, respondent "Gabby" Concepcion, a television artist
and movie actor, through his manager Lolita Solis, entered into
a contract with petitioner Regal Films, Inc., for services to be
rendered by respondent in petitioners motion pictures.
Petitioner, in turn, undertook to give two parcels of land to
respondent, one located in Marikina and the other in Cavite, on
top of the talent fees it had agreed to pay.
In 1993, the parties renewed the contract, incorporating the
same undertaking on the part of petitioner to give respondent
the two parcels of land mentioned in the first agreement.
Despite the appearance of respondent in several films
produced by petitioner, the latter failed to comply with its
promise to convey to respondent the two aforementioned lots.
On 30 May 1994, respondent and his manager filed for
rescission of contract with damages owing to the Regal Film’s
failure to honor the agreement.
Instead of filing an answer to the complaint, petitioner moved
for its dismissal on the allegation that the parties had settled
their differences amicably. Petitioner averred that both parties
had executed an agreement, dated 17 June 1994, which was
to so operate as an addendum to the 1991 and 1993 contracts
between them. The agreement was signed by a representative
| Oblicon 4th exam 12
of petitioner and by Solis purportedly acting for and in behalf of
respondent Concepcion.
On 30 September 1994, Solis filed a motion to dismiss the
complaint reiterating that she, acting for herself and for
respondent Concepcion, had already settled the case amicably
with petitioner. Concepcion opposed the motion to dismiss
contending that the addendum, containing provisions grossly
disadvantageous to him, was executed without his knowledge
and consent. Respondent stated that Solis had since ceased to
be his manager and had no authority to sign the addendum for
him.
On 03 July 1995, respondent filed a manifestation with the trial
court to the effect that he was now willing to honor the
addendum to the 1991 and 1993 contracts and to have it
considered as a compromise agreement as to warrant a
judgment in accordance therewith.
On 24 October 1995, the trial court issued an order rendering
judgment on compromise based on the subject addendum
which respondent had previously challenged but later agreed
to honor pursuant to his manifestation of 03 July 1995.
CA ruled that "In the instant case, there was an Addendum to
the contract signed by Lolita and Regal Films' representative to
which addendum Concepcion through his Manifestation
expressed his conformity. There was, therefore, consent of all
the parties.
Issue: WON THE COURT OF APPEALS ERRED IN
RENDERING JUDGMENT ON A COMPROMISE WHEN THE
PARTIES DID NOT AGREE TO SUCH A COMPROMISE
Held: Yes. A compromise is an agreement between two or
more persons who, for preventing or putting an end to a
lawsuit, adjust their respective positions by mutual consent in
the way they feel they can live with. It is, in essence, a
contract. Law and jurisprudence recite three minimum
elements for any valid contract - (a) consent; (b) object certain
which is the subject matter of the contract; and (c) cause of the
obligation which is established. C
In this instance, the addendum was flatly rejected by
respondent on the theses (a) that he did not give his consent
thereto nor authorized anyone to enter into the agreement, and
(b) that it contained provisions grossly disadvantageous to him.
The outright rejection of the addendum made known to the
other ended the offer. When respondent later filed his
Manifestation, stating that he was, after all, willing to honor the
addendum, there was nothing to still accept.
Verily, consent could be given not only by the party himself but
by anyone duly authorized and acting for and in his behalf. But
by respondent's own admission, the addendum was entered
into without his knowledge and consent. A contract entered
into in the name of another by one who ostensibly might have
but who, in reality, had no real authority or legal representation,
or who, having such authority, acted beyond his powers, would
be unenforceable. The addendum, let us then assume,
resulted in an unenforceable contract, might it not then be
susceptible to ratification by the person on whose behalf it
was executed? The answer would obviously be in the
affirmative; however, that ratification should be made
before its revocation by the other contracting party. The
adamant refusal of respondent to accept the terms of
the addendum constrained petitioner, during the preliminary
conference held on 23 June 1995, to instead express its
willingness to release respondent from his contracts prayed for
in his complaint and to thereby forego the rejected addendum.
Respondent's subsequent attempt to ratify
the addendum came much too late for, by then,
the addendum had already been deemed revoked by
petitioner.
VALENCIA VS LOCQUIAO
On May 22, 1944, Herminigildo and Raymunda Locquiao executed
a deed of donation propter nuptias which was written in the Ilocano
dialect, denominated as Inventario Ti Sagu in favor of their son,
respondent Benito Locquiao and his prospective bride, respondent
Tomasa Mara. By the terms of the

deed, the donees were gifted with four parcels of land,
including the land in question, as well as a male cow and one-
third (1/3) portion of the conjugal house of the donor parents, in
consideration of the impending marriage of the donees.
The donees took their marriage vows on June 4, 1944 and the
fact of their marriage was inscribed at the back of O.C.T. No.
18383.[
Herminigildo and Raymunda died leaving as heirs their six (6)
children, namely: respondent Benito, Marciano, Lucio,
Emeteria, Anastacia, and petitioner Romana, all surnamed
Locquiao. With the permission of respondents Benito and
Tomasa, petitioner Romana Valencia took possession and
cultivated the subject land. When Romanas husband got sick
sometime in 1977, her daughter petitioner Constancia took
over, and since then, has been in possession of the land.
Meanwhile, respondents Benito and Tomasa registered the
Inventario Ti Sagut with the Office of the Register of Deeds of
Pangasinan and a title was issued in their name.
On March 18, 1973, the heirs of the Locquiao spouses, including
respondent Benito and petitioner Romana, executed a Deed of
Partition with Recognition of Rights,[16] wherein they distributed
among only three (3) of them, the twelve (12) parcels of land left
by their common progenitors, excluding the land in question and
other lots disposed of by the Locquiao spouses earlier. Contained
in the deed is a statement that respondent Benito and Marciano
Locquiao, along with the heirs of Lucio Locquiao, have already
received our shares in the estates of our parents, by virtue of
previous donations and conveyances, and that for that reason the
heirs of Lucio Locquaio were not made parties to the deed. All the
living children of the Locquaio spouses at the time, including
petitioner Romana, confirmed the previous dispositions and
waived their rights to whomsoever the properties covered by the
deed of partition were adjudicated.[17]
Benito filed a complaint seeking the ejectment of petitioner
Constancia from the subject property which was granted.
Petitioners Romana and Constancia countered with
a the situation that led to the complaint and for which the
Complaint for the annulment of Transfer Certificate of
Title No. 84897 against respondents Benito and
Tomasa alleging that the issuance of the transfer certificate of
title was fraudulent; that the Inventario Ti Sagut is spurious;
that the notary public who notarized the document had no
authority to do so, and; that the donation did not observe the
form required by law as there was no written acceptance on
the document itself or in a separate public instrument.
Issue: WON the donation propter nuptias is authentic
Held: To buttress their claim that the document was falsified,
the petitioners rely mainly on the Certification of the Records
Management and Archives Office that there was no notarial
record of the document available.
The certification is not sufficient to prove the alleged
inexistence or spuriousness of the challenged document. The
failure of the notary public to furnish a copy of the deed to
the appropriate office is a ground for disciplining him, but
certainly not for invalidating the document or for setting
aside the transaction therein involved.[34]
The questioned deeds, being public documents as they were
duly notarized, are admissible in evidence without further proof
of their due execution and are conclusive as to the truthfulness
of their contents, in the absence of clear and convincing
evidence to the contrary.
Unlike ordinary donations, donations propter nuptias or donations
by reason of marriage are those made before its celebration, in
consideration of the same and in favor of one or both of the future
spouses. The distinction is crucial because the two classes of
donations are not governed by exactly the same rules, especially
as regards the formal essential requisites.
Under the Old Civil Code, donations propter nuptias must be
made in a public instrument in which the property donated
must be specifically described. However, Article 1330 of the
same Code provides that acceptance is not necessary to the
validity of such gifts. In other words, the celebration of the
marriage between the beneficiary couple, in tandem with
| Oblicon 4th exam 13
compliance with the prescribed form, was enough to effectuate
the donation propter nuptias under the Old Civil Code.
Under the New Civil Code, the rules are different. Article 127
thereof provides that the form of donations propter nuptias are
regulated by the Statute of Frauds. Article 1403, paragraph 2,
which contains the Statute of Frauds requires that the contracts
mentioned thereunder need be in writing only to be enforceable.
However, as provided in Article 129, express acceptance is
not necessary for the validity of these donations. Thus,
implied acceptance is sufficient.
The pivotal question, therefore, is which formal requirements
should be applied with respect to the donation propter nuptias at
hand. Those under the Old Civil Code or the New Civil Code?
It is settled that only laws existing at the time of the execution
of a contract are applicable thereto and not later statutes,
unless the latter are specifically intended to have retroactive
effect. Consequently, it is the Old Civil Code which applies in
this case since the donation propter nuptias was executed in
1944 and the New Civil Code took effect only on August 30,
1950. As a consequence, applying Article 1330 of the Old Civil
Code in the determination of the validity of the questioned
donation, it does not matter whether or not the donees had
accepted the donation. The validity of the donation is
unaffected in either case.
Even if the provisions of the New Civil Code were to be
applied, the case of the petitioners would collapse just the
same. As earlier shown, even implied acceptance of a
donation propter nuptias suffices under the New Civil Code.
With the genuineness of the donation propter nuptias and
compliance with the applicable mandatory form requirements
fully established, petitioners hypothesis that their action is
imprescriptible cannot take off.
In any event, independent of prescription, petitioners action is
dismissible on the ground of laches. The elements of laches
are present in this case, (1) conduct on the part of the
defendant, or one under whom he claims, giving rise to
complainant seeks a remedy; (2) delay in asserting the
complainants rights, having had knowledge or notice of
defendants conduct and having been afforded an
opportunity to institute a suit; (3) lack of knowledge or
notice on the part of the defendant that the complainant
would assert the right on which he bases his suit, and (4)
injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held barred.
Of the facts which support the finding of laches, stress should be
made of the following: (a) Romana unquestionably gained actual
knowledge of the donation propter nuptias when the deed of
partition was executed in 1973 and the information must have
surfaced again when the compromise agreement was forged in
1976, and; (b) as petitioner Romana was a party-signatory to the
two documents, she definitely had the opportunity to question the
donation propter nuptias on both occasions, and she should have
done so if she were of the mindset, given the fact that she was still
in possession of the land in dispute at the time. But she did not
make any move. She tarried for eleven more years from the
execution of the deed of partition until she, together with
Constancia, filed the annulment case in 1985.
LITONJUA VS FERNANDEZ
Sometime in September 1995, Mrs. Lourdes Alimario and Agapito
Fisico who worked as brokers, offered to sell to the petitioners,
Antonio K. Litonjua and Aurelio K. Litonjua, Jr., parcels of land; the
owners of the properties were represented by Mary Mediatrix
Fernandez and Gregorio T. Eleosida, respectively. The brokers
told Litonjua that they were authorized by respondent Fernandez
to offer the property for sale.
In the afternoon of November 27, 1995, the Litonjua met with
respondent Fernandez and the two brokers in which they agreed
that the Litonjua would buy the property for P5,098,500, to meet on
December 8, 1995 to finalize the sale and that Fernandez would
present a special power of attorney executed by the owners of the
property, authorizing her to sell the property for

and in their behalf, and to execute a deed of absolute sale
thereon.
However, only Agapito Fisico attended the meeting. He informed
Litonjua that respondent Fernandez was encountering some
problems with the tenants and was trying to work out a settlement
with them. After a few weeks of waiting Litonjua wrote respondent
Fernandez on January 5, 1995, demanding that their transaction
be finalized by January 30, 1996.[8]
When Litonjua received no response from respondent
Fernandez, the Litonjua sent her another Letter dated February
1, 1996, asking that the Deed of Absolute Sale covering the
property be executed in accordance with their verbal
agreement dated November 27, 1995.
Fernandez claimed that while the petitioners offered to buy the
property during the meeting of November 27, 1995, she did not
accept the offer; thus, no verbal contract to sell was ever
perfected. She specifically alleged that the said contract to sell
was unenforceable for failure to comply with the statute of
frauds. She also maintained that even assuming arguendo that
she had, indeed, made a commitment or promise to sell the
property to the petitioners, the same was not binding upon her
in the absence of any consideration distinct and separate from
the price.
Petitioners assert that there was a perfected contract of sale
between the petitioners as buyers and the respondents-owners,
through respondent Fernandez, as sellers. The petitioners contend
that the perfection of the said contract is evidenced by the January
16, 1996 Letter of respondent Fernandez.
Issue: WON the letter of Fernandez is a note or memorandum
under Article 1403(2)(e)
Held: The letter dated January 16, 1996 can hardly be said to
constitute the note or memorandum evidencing the agreement
of the parties to enter into a contract of sale as it is very clear
that Fernandez as seller did not accept the condition that she
will be the one to pay the registration fees and miscellaneous
expenses and therein also categorically denied she had
already committed to execute the deed of sale as claimed by
the plaintiffs-appellees. The letter, in fact, stated the reasons
why the sale could no longer push through because of the
problem with tenants.
When Fernandez used the words changed our mind, she was
clearly referring to the decision to sell the property at all and
not in selling the property to petitioners. This conclusion is
buttressed by the last paragraph of the subject letter stating
that we are no longer selling the property until all problems are
fully settled.
The statute of frauds merely regulates the formalities of the
contract necessary to render it enforceable. The statute is
satisfied or by making and executing a note or memorandum of
the contract which is sufficient to state the requirements of the
statute. The application of such statute presupposes the
existence of a perfected contract. However, for a note or
memorandum to satisfy the statute, it must be complete in itself
and cannot rest partly in writing and partly in parol. The note
or memorandum must contain the names of the parties,
the terms and conditions of the contract and a description
of the property sufficient to render it capable of
identification.[33] Such note or memorandum must contain
the essential elements of the contract expressed with
certainty that may be ascertained from the note or
memorandum itself, or some other writing to which it refers or
within which it is connected, without resorting to parol
evidence.[34] To be binding on the persons to be charged,
such note or memorandum must be signed by the said party or
by his agent duly authorized in writing.[35]
The exchange of written correspondence between the parties
may constitute sufficient writing to evidence the agreement for
purposes of complying with the statute of frauds.
However, in this case, there was no perfected contract of sale.
There is no documentary evidence on record that the
respondents-owners specifically authorized respondent
Fernandez to sell their properties to another, including the
petitioners. A special power of attorney is necessary to enter
into any contract by which the ownership of an immovable is
| Oblicon 4th exam 14
transmitted or acquired either gratuitously or for a valuable
consideration.
Any sale of real property by one purporting to be the agent of
the registered owner without any authority therefor in writing
from the said owner is null and void. The declarations of the
agent alone are generally insufficient to establish the fact or
extent of her authority.
In this case, the only evidence adduced by the petitioners to
prove that respondent Fernandez was authorized by the
respondents-owners is the testimony of Antonio Litonjua that
respondent Fernandez openly represented herself to be the
representative of the respondents-owners.
The petitioners cannot feign ignorance of respondent
Fernandez lack of authority to sell the properties for the
respondents-owners because they are noted businessmen
who ought to be very familiar with the intricacies of business
transactions, such as the sale of real property.
Fernandez specifically denied that she was authorized by the
respondents-owners to sell the properties, both in her answer
to the complaint and when she testified. The Letter dated
January 16, 1996 relied upon by the petitioners was signed by
respondent Fernandez alone, without any authority from the
respondents-owners. There is no evidence on record that the
respondents-owners ratified all the actuations of respondent
Fernandez in connection with her dealings with the petitioners.
Contrary to the petitioners contention, the letter of January 16,
1996[46] is not a note or memorandum within the context of
Article 1403(2) because it does not contain the following: (a) all
the essential terms and conditions of the sale of the properties;
(b) an accurate description of the property subject of the sale; and,
(c) the names of the respondents-owners of the properties.
GOZUN VS MERCADO
In the local elections of 1995, MERCADO vied for the
gubernatorial post in Pampanga. Upon MERCADO’s request,
GOZUN, owner of JMG Publishing House submitted to
MERCADO draft samples and price quotation of campaign
materials. MERCADO’s wife had told him that MERCADO
already approved his price quotation and that he could start
printing the campaign materials, hence, he did print campaign
materials.
Given the urgency and limited time to do the job order, GOZUN
availed of the services and facilities of Metro Angeles Printing
and of St. Joseph Printing Press, owned by his daughter
Jennifer Gozun and mother Epifania Macalino Gozun,
respectively. He then delivered the campaign materials to
MERCADO’s headquarters. Meanwhile, MERCADO’s sister-in-
law, Lilian Soriano obtained from GOZUN "cash advance" of
P253,000 allegedly for the allowances of poll watchers who
were attending a seminar and for other related expenses. Lilian
acknowledged on GOZUN’s 1995 diary9 receipt of the amount.
GOZUN later sent MERCADO a Statement of Accountin the
total amount of P2,177,906 itemized as follows: P640,310 for
JMG Publishing House; P837,696 for Metro Angeles Printing;
P446,900 for St. Joseph Printing Press; and P253,000, the
"cash advance" obtained by Lilian.
On August 11, 1995, MERCADO ‘s wife partially paid
P1,000,000 to petitioner who issued a receipt 12 therefor.
Despite repeated demands and MERCADO ‘s promise to pay,
he failed to settle the balance of his account. As they were
compadres, he waited for more than three (3) years for
MERCADO to honor his promise but to no avail, compelling
him to endorse the matter to his counsel who sent respondent
a demand letter which was unheeded. Thus he filed a
complaint to collect the remaining amount of P1,177,906.
MERCADO denied having transacted with petitioner or entering
into any contract for the printing of campaign materials. He alleged
that the various campaign materials delivered to him were
represented as donations from his family, friends and political
supporters. He added that all contracts involving his personal
expenses were coursed through and signed by him to ensure
compliance with pertinent election laws.

On GOZUN’s claim that Lilian, on MERCADO‘s behalf, had
obtained from him a cash advance of P253,000, MERCADO
denied having given her authority to do so and having received
the same.
When confronted with the official receipt issued to his wife
acknowledging her payment to JMG Publishing House of the
amount of P1,000,000, MERCADO claimed that it was his first
time to see the receipt, albeit he belatedly came to know from
his wife and Cabalu that the P1,000,000 represented
"compensation who helped a lot in the campaign as a gesture
of goodwill."
Acknowledging that GOZUN is engaged in the printing
business, MERCADO explained that he sometimes discussed
with him strategies relating to his candidacy, he having actively
volunteered to help in his campaign; that his wife was not
authorized to enter into a contract with GOZUN regarding
campaign materials as she knew her limitations; that he no
longer questioned the P1,000,000 his wife gave GOZUN as he
thought that it was just proper to compensate him for a job well
done; and that he came to know about his claim against him
only after receiving a copy of the complaint, which surprised
him because he knew fully well that the campaign materials
were donations.
Upon questioning by the trial court, MERCADO could not,
however, confirm if it was his understanding that the campaign
materials delivered by GOZUN were donations from third
parties.
Finally, MERCADO, disclaiming knowledge of the Comelec
rule that if a campaign material is donated, it must be so stated
on its face, acknowledged that nothing of that sort was written
on all the materials made by GOZUN.
Issue: WON the cash advance made by Lillian binds Mercado
Held: By the contract of agency 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.
Contracts entered into in the name of another person by one
who has been given no authority or legal representation or
who has acted beyond his powers are classified as
unauthorized contracts and are declared unenforceable,
unless they are ratified.
Generally, the agency may be oral, unless the law requires a
specific form. However, a special power of attorney is
necessary for an agent to, as in this case, borrow money,
unless it be urgent and indispensable for the preservation of
the things which are under administration. Since nothing in this
case involves the preservation of things under administration, a
determination of whether Soriano had the special authority to
borrow money on behalf of respondent is in order.
The requirement of a special power of attorney refers to the
nature of the authorization and not to its form. It is met if there
is a clear mandate from the principal specifically authorizing
the performance of the act. Such a mandate may be either
oral or written. The one thing vital being that it shall be
express. Inot in writing, the same be duly established by
evidence other than the self-serving assertion of counsel
himself that such authority was verbally given him."
Petitioner’s testimony failed to categorically state, however,
whether the loan was made on behalf of respondent or of his
wife. While petitioner claims that Lilian was authorized by
respondent, the statement of account states that the amount
was received by one Lilian R. Soriano but without specifying
for what reason the said amount was delivered and in what
capacity did Lilian R. Soriano received the money.
It bears noting that Lilian signed in the receipt in her name
alone, without indicating therein that she was acting for and in
behalf of respondent. She thus bound herself in her personal
capacity and not as an agent of respondent or anyone for that
matter.
| Oblicon 4th exam 15
It is a general rule in the law of agency that, in order to bind the
principal by a mortgage on real property executed by an agent, it
must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not
enough merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the principal.
On the amount due him and the other two printing presses,
petitioner explains that he was the one who personally and
directly contracted with respondent and he merely sub-
contracted the two printing establishments in order to deliver
on time the campaign materials ordered by respondent. Thus,
Mercado has the obligation to pay the total cost of printing his
campaign materials delivered by petitioner in the total
of P 1,924,906, less the partial payment of P 1,000,000,
or P 924,906.
CABALES VS CA
Rufino Cabales died and left a parcel of land to his surviving wife
Saturnina and children which includes petitioner Rito. On July 26,
1971, brothers and co-owners Bonifacio, Albino and Alberto sold
the subject property to Dr. Cayetano Corrompido for P2,000.00,
with right to repurchase within eight years. In 1972, Alberto died
leaving his wife and son, petitioner Nelson. On December 18,
1975, within the eight-year redemption period, Bonifacio and
Albino tendered their payment of P666.66 each to Dr. Corrompido
while Saturnina paid for the share of her deceased son, Alberto,
including his vale of P300.00.
Saturnina and her four children sold the subject parcel of land
to respondents-spouses Jesus and Anunciacion Feliano for
P8,000.00. The Deed of Sale provided in its last paragraph that
the amount of (P2,286.00) belonging to the Heirs of Alberto
Cabales and to Rito Cabales who are still minors upon the
execution of this instrument are held in trust by the VENDEE
and to be paid and delivered only to them upon reaching the
age of 21.
On July 24, 1986, 24-year old petitioner Rito Cabales
acknowledged receipt of the sum of P1,143.00 from
respondent Jesus Feliano, representing the formers share in
the proceeds of the sale of subject property.
Saturnina and her four (4) children executed an affidavit to the
effect that petitioner Nelson would only receive the amount of
P176.34 from respondents-spouses when he reaches the age
of 21 considering that Saturnina paid Dr. Corrompido P966.66
for the obligation of petitioner Nelson’s late father Alberto, i.e.,
P666.66 for his share in the redemption of the sale with pacto
de retro as well as his vale of P300.00.
In 1988, Saturnina died. Petitioner Nelson, then residing in
Manila, went back to his fathers hometown in Southern Leyte
and signified his intention to redeem the subject land.
On January 12, 1995, contending that they could not have sold
their respective shares in subject property when they were
minors, petitioners filed a complaint for redemption of the
subject land plus damages.
In their answer, respondents-spouses maintained that
petitioners were estopped from claiming any right over subject
property considering that (1) petitioner Rito had already
received the amount corresponding to his share of the
proceeds of the sale of subject property, and (2) that petitioner
Nelson failed to consign to the court the total amount of the
redemption price necessary for legal redemption.
Issue: WON the sale was unenforceable
Held: The first sale with pacto de retro to Dr. Corrompido by
Bonifacio, Albino and Alberto was valid but only as to their pro-
indiviso shares to the land. When Alberto died prior to
repurchasing his share, his rights and obligations were transferred
to and assumed by his heirs, petitioner Nelson. But the records
show that it was Saturnina, Albertos mother, and not his heirs, who
repurchased for him. As correctly ruled by the Court of Appeals,
Saturnina was not subrogated to Albertos or his heirs rights to the
property when she repurchased the share.

A co-owner who redeemed the property in its entirety did not
make her the owner of all of it. The property remained in a
condition of co-ownership as the redemption did not provide for
a mode of terminating a co-ownership. But the one who
redeemed had the right to be reimbursed for the redemption
price and until reimbursed, holds a lien upon the subject
property for the amount due.
Necessarily, when Saturnina redeemed for Albertos heirs who
had then acquired his pro-indivisoshare in subject property, it
did not vest in her ownership over the pro-indiviso share she
redeemed. But only the right to be reimbursed for the
redemption price. Thus petitioner Nelson, retained ownership
over their pro-indiviso share.
Upon redemption from Dr. Corrompido, the subject property
was resold to respondents-spouses by the co-owners.
Petitioners Rito and Nelson were then minors and as indicated
in the Deed of Sale, their shares in the proceeds were held in
trust by respondents-spouses to be paid and delivered to them
upon reaching the age of majority.
As to petitioner Rito, the contract of sale was unenforceable.
Articles 320 and 326 of the New Civil Code[6] state that the
father, or, in his absence, the mother, is considered legal
administrator of the property pertaining to the child under his or
her parental authority without need of giving a bond in case the
amount of the property of the child does not exceed two
thousand pesos. Corollary to this, Rule 93, Section 7 of the
Revised Rules of Court of 1964, applicable to this case,
automatically designates the parent as legal guardian of the
child without need of any judicial appointment in case the
latters property does not exceed two thousand pesos.
Saturnina was clearly petitioner Ritos legal guardian without
necessity of court appointment considering that the amount of
his property or one-seventh of subject property was P1,143.00,
which is less than two thousand pesos. However, Rule 96,
Sec. 1 provides that the legal guardian only has the plenary
power of administration of the minors property. It does not
include the power of alienation which needs judicial authority.
Thus, when Saturnina, as legal guardian of petitioner Rito, sold
the latters pro-indiviso share in subject land, she did not have
the legal authority to do so. Thus, the contract of sale as to the
pro-indiviso share of petitioner Rito unenforceable pursuant to
Article 1403 (1).
However, when he acknowledged receipt of the proceeds of the
sale on July 24, 1986, petitioner Rito effectively ratified it. This act
of ratification rendered the sale valid and binding as to him.
With respect to petitioner Nelson, on the other hand, the
contract of sale was void. He was a minor at the time of the
sale. Saturnina or any and all the other co-owners were not his
legal guardians with judicial authority to alienate or encumber
his property. It was his mother who was his legal guardian and,
if duly authorized by the courts, could validly sell his undivided
share to the property. She did not. Necessarily, when
Saturnina and the others sold the subject property in its
entirety to respondents-spouses, they only sold and transferred
title to their pro-indiviso shares and not that part which
pertained to petitioner Nelson and his mother. Consequently,
petitioner Nelson and his mother retained ownership over their
undivided share of subject property.
But may petitioners redeem the subject land from respondents-
spouses? Clearly, legal redemption may only be exercised by
the co-owner or co-owners who did not part with his or their
pro-indiviso share in the property held in common. As
demonstrated, the sale as to the undivided share of petitioner
Rito became valid and binding upon his ratification on July 24,
1986. As a result, he lost his right to redeem subject property.
However, as likewise established, the sale as to the undivided
share of petitioner Nelson and his mother was not valid such
that they were not divested of their ownership thereto.
Necessarily, they may redeem the subject property from
respondents-spouses. But they must do so within thirty days
from notice in writing of the sale by their co-owners vendors.
In the instant case, the right of redemption was invoked not days
but years after the sale was made in 1978. We are not unmindful
| Oblicon 4th exam 16
of the fact that petitioner Nelson was a minor when the sale
was perfected. Nevertheless, the records show that in 1988,
petitioner Nelson, then of majority age, was informed of the
sale of subject property but he only filed the complaint for legal
redemption and damages on January 12, 1995, certainly more
than thirty days from learning about the sale.
In the face of the established facts, petitioner Nelson cannot
feign ignorance of the sale of subject property in 1978. The
thirty-day redemption period commenced in 1993, after
petitioner Nelson sought the barangay conciliation process to
redeem his property. By January 12, 1995, when petitioner
Nelson filed a complaint for legal redemption and damages, it
is clear that the thirty-day period had already expired.
Petitioner Nelson can no longer redeem subject property. But
he and his mother remain co-owners thereof with respondents-
spouses. Accordingly, title to subject property must include
them.
PEALBER VS RAMOS
petitioner alleged in her Complaint that she was the owner of a
parcel of land situated in Ugac (TCT) No. T-43373 registered
in petitioners name. A residential house and a warehouse were
constructed on the said parcel of land which petitioner also
claimed to own. She averred that in 1986, she discovered that
TCT No. T-43373 was cancelled on 13 May 1983 and TCT No.
T-58043 was issued in its stead in the name of respondent
spouses Ramos; the basis for the cancellation of her title was a
Deed of Donation of a Registered Land, Residential House and
Camarin,[6] which petitioner purportedly executed in favor of
respondent spouses Ramos on 27 April 1983. She insisted that
her signature on the said Deed of Donation was a forgery as
she did not donate any property to respondent spouses
Ramos. When she confronted the respondent spouses Ramos
about the false donation, the latter pleaded that they would just
pay for the Ugac properties in the amount of P1 Million in
which she agreed to.
Subsequently, around 10 January 1987,[7] she found out that
the respondent spouses Ramos were selling the Ugac
properties to respondent Bartex, Inc. Thus she sent her son,
Johnson to caution respondent Bartex, Inc. that respondent
spouses Ramos were not the lawful owners of the said
properties. Johnson was allegedly able to convey petitioners
caveat to a representative of respondent Bartex, Inc.
As a precaution, petitioner executed an Affidavit of Adverse
Claim over the Ugac Properties on 19 January 1987 and
caused the same to be annotated on TCT No. T-58043 on the
same day. Despite her warnings, respondent spouses Ramos
still executed in favor of respondent Bartex, Inc. a Deed of
Absolute Sale over the Ugac properties on 12 January 1987 for
a total price of P150,000.00. As a result, a new title in the
name of respondent Bartex, Inc. was issued.
She contended that the Deed of Absolute Sale executed by
respondent spouses Ramos in favor of respondent Bartex, Inc.
did not convey any valid title, not only because respondent
Bartex, Inc. was a buyer in bad faith, but also because
respondent spouses Ramos did not own the Ugac properties.
Thus, she prayed for the declaration of nullity of the Deed of
Donation of a Registered Land and the Deed of Absolute Sale.
Secondly, petitioner claimed that prior to 1984, she operated a
hardware store in a building she owned along Bonifacio St.
However, the commercial lot (Bonifacio property) upon which
the building stood is owned by and registered in the name of
Maria Mendoza from whom petitioner rented the same.
On 22 March 1982, petitioner allowed respondent spouses
Ramos to manage the hardware store. Thereafter, in 1984,
Mendoza put the Bonifacio property up for sale. As petitioner
did not have available cash to buy the property, she allegedly
entered into a verbal agreement with respondent spouses
Ramos that the lot would be bought spouses Ramos for and in
behalf of petitioner and the consideration of P80,000.00 for
said lot would be paid by spouses Ramos from the
accumulated earnings of the store; Since spouses Ramos
have the better credit standing, they would be made to appear

in the Deed of Sale as the vendees so that the title to be
issued in their names could be used by [them] to secure a loan
with which to build a bigger building and expand the business
of petitioner
On 20 September 1984, spouses Ramos returned the
management of the hardware store to petitioner. On the bases
of receipts and disbursements, petitioner asserted that the
Bonifacio property was fully paid out of the funds of the store
and if spouses Ramos had given any amount for the purchase
price of the said property, they had already sufficiently
reimbursed themselves from the funds of the store.
Consequently, petitioner demanded from respondent spouses
Ramos the reconveyance of the title to the Bonifacio property
to her but the latter unjustifiably refused.
Petitioner insisted that respondent spouses Ramos were, in
reality, mere trustees of the Bonifacio property, thus, they were
under a moral and legal obligation to reconvey title over the
said property to her.
As regards the first cause of action, spouses Ramos alleged
that petitionermortgaged the Ugac properties to the
Development Bank of the Philippines for the amount of
P150,000.00. As it was about to be foreclosed, petitioner
asked Spouses Ramos to pay for the debt. In return, petitioner
promised to transfer full ownership of the Ugac properties to
them by way of a Deed of Donation.
As to the second cause of action involving the Bonifacio
property, respondent spouses Ramos contended that they
were given not only the management, but also the full
ownership of the hardware store by the petitioner, on the
condition that the stocks and merchandise of the store will be
inventoried, and out of the proceeds of the sales thereof,
respondent spouses Ramos shall pay petitioners outstanding
obligations and liabilities.
Bartex, Inc. alleged that when the representative of the
corporation inquired about the Ugac properties for sale,
respondent spouses Ramos presented their owners duplicate
copy of TCT No. T-58043, together with the tax declarations
covering the parcel of land and the buildings thereon.
Respondent Bartex, Inc. even verified the title and tax
declarations covering the Ugac properties with the Register of
Deeds and the Office of the Municipal Assessor as to any
cloud, encumbrance or lien on the properties, but none were
found. Respondent spouses Ramos were then actually
occupying the Ugac properties and they only vacated the same
after the consummation of the sale to respondent Bartex, Inc.
Thus it was an innocent purchaser in good faith.
Issue: WON the existence of a trust agreement between the
parties was clearly established and if it was valid
Held: No. In its technical legal sense, a trust is defined as the
right, enforceable solely in equity, to the beneficial enjoyment
of property, the legal title to which is vested in another, but the
word trust is frequently employed to indicate duties, relations,
and responsibilities which are not strictly technical trusts. A
person who establishes a trust is called the trustor; one in
whom confidence is reposed is known as the trustee; and the
person for whose benefit the trust has been created is referred
to as the beneficiary.
Trusts are either express or implied. Express trusts are created by
the intention of the trustor or of the parties. Implied trusts come
into being by operation of law. Express trusts are those which are
created by the direct and positive acts of the parties, by some
writing or deed, or will, or by words either expressly or impliedly
evincing an intention to create a trust. No particular words are
required for the creation of an express trust, it being sufficient that
a trust is clearly intended. However, in accordance with Article
1443 of the Civil Code, when an express trust concerns an
immovable property or any interest therein, the same may not
be proved by parol or oral evidence.
The alleged verbal trust agreement between petitioner and
spouses Ramos is in the nature of an express trust as petitioner
explicitly agreed therein to allow the spouses Ramos to acquire
title to the Bonifacio property in their names, but to hold the same
property for petitioners benefit. Given that the alleged trust
| Oblicon 4th exam 17
concerns an immovable property, however, spouses Ramos
counter that the same is unenforceable since the agreement
was made verbally and no parol evidence may be admitted to
prove the existence of an express trust concerning an
immovable property or any interest therein.
However, spouses were deemed to have waived their
objection to the parol evidence as they failed to timely object
when petitioner testified on the said verbal agreement. The
requirement in Article 1443 that the express trust
concerning an immovable or an interest therein be in
writing is merely for purposes of proof, not for the validity
of the trust agreement. Therefore, the said article is in the
nature of a statute of frauds. The term statute of frauds is
descriptive of statutes which require certain classes of
contracts to be in writing. The effect of non-compliance is
simply that no action can be proved unless the requirement is
complied with. Oral evidence of the contract will be excluded
upon timely objection. But if the parties to the action, during the
trial, make no objection to the admissibility of the oral evidence
to support the contract covered by the statute, and thereby
permit such contract to be proved orally, it will be just as
binding upon the parties as if it had been reduced to writing.
Spouses Ramos did failed to object the admissibility of
petitioner’s testimonies when they were offered to prove the
alleged verbal trust agreement between them and petitioner.
Consequently, these testimonies were rendered admissible in
evidence. Nevertheless, admissibility of evidence still
depends on judicial evaluation. Thus, despite the
admissibility of the said testimonies, the Court holds that the
same carried little weight in proving the alleged verbal trust
agreement between petitioner and respondent spouses.
Petitioners allegations as to the existence of an express trust
agreement with respondent spouses Ramos, supported only by
her own and her son Johnsons testimonies, do not hold water.
A resulting difference of P116,946.15 in the beginning inventory of
the stocks of the hardware store (before management was
transferred to respondent spouses Ramos) and the second
inventory thereof (after management was returned to petitioner),
by itself, is not conclusive proof that the said amount was used to
pay the purchase price of the Bonifacio property. The resulting
difference in the two inventories might have been caused by other
factors. The fact that respondent spouses Ramos never denied the
P116,946.15 difference, or that they failed to present proof that
they indeed used the said amount to pay the other obligations and
liabilities of petitioner is not sufficient to discharge petitioners
burden to prove the existence of the alleged express trust
agreement.
Petitioner has the burden of proving her cause of action in the
instant case and she may not rely on the weakness of the
defense of respondent spouses Ramos.
BUCTON VS RURAL BANK OF EL SALVADOR
Buction alleged that she is the owner of a parcel of land.
Concepcion borrowed the title on the pretext that she was
going to show it to an interested buyer. But she used the title
as a security to obtain a loan from Rural Bank worth P30,000
using a SPA allegedly executed by petitioner in favor of
Concepcion. Concepcion failed to pay the loan and petitioner’s
house and lot were foreclosed and sold in an auction sale in
favor of respondent bank.
During the trial, petitioner testified that a representative of
respondent bank went to her house to inform her that the loan
secured by her house and lot was long overdue. Since she did
not mortgage any of her properties, she decided to go to
respondent bank on to inquire about the matter and only then
did she learn that her house and lot was mortgaged by virtue of
a forged SPA and that ever since she got married, she no
longer used her maiden name, Nicanora Gabar, in signing
documents. She also denied appearing before the notary
public, who notarized the SPA. She also testified that the
property referred to in the SPA, TCT No. 3838, is a vacant lot
and that the house, which was mortgaged and foreclosed, is
covered by a different title, TCT No. 3839.

To support her claim of forgery, petitioner presented Emma
Nagac who testified that when she was at Concepcion’s
boutique, she was asked to sign as a witness to the SPA but
when she signed the SPA, the signatures of petitioner and her
husband had already been affixed and that Lugod instructed
her not to tell petitioner about the SPA.
Respondent bank, on the other hand, relies on the
presumption of regularity of the notarized SPA. It insists that it
was not negligent as it inspected the property before it
approved the loan, unlike petitioner who was negligent in
entrusting her title to Concepcion.
Issue: WON concepcion had the authority to mortgage the
property
Held: In order to bind the principal by a deed executed by
an agent, the deed must upon its face purport to be made,
signed and sealed in the name of the principal. In other
words, the mere fact that the agent was authorized to
mortgage the property is not sufficient to bind the principal,
unless the deed was executed and signed by the agent for and
on behalf of his principal.
In this case, the authorized agent failed to indicate in the
mortgage that she was acting for and on behalf of her
principal. The Real Estate Mortgage, explicitly shows on its
face, that it was signed by Concepcion in her own name and in
her own personal capacity. In fact, there is nothing in the
document to show that she was acting or signing as an agent
of petitioner.
In light of the foregoing, there is no need to delve on the issues
of forgery of the SPA and the nullity of the foreclosure sale. For
even if the SPA was valid, the Real Estate Mortgage would still
not bind petitioner as it was signed by Concepcion in her
personal capacity and not as an agent of petitioner. Simply put,
the Real Estate Mortgage is void and unenforceable against
petitioner.
At this point, we find it significant to mention that respondent bank
has no one to blame but itself. The Real Estate Mortgage failed to
indicate that Concepcion was signing it for and on behalf of
petitioner. We need not belabor that the words "as attorney-in-
fact of," "as agent of," or "for and on behalf of," are vital in
order for the principal to be bound by the acts of his agent.
Without these words, any mortgage, although signed by the agent,
cannot bind the principal as it is considered to have been signed
by the agent in his personal capacity.
UNIVERSITY OF MINDANAO VS BANGKO SENTRAL NG
PILIPINAS
University of Mindanao is an educational institution. In 1982, its
Board of Trustees was chaired by Guillermo B. Torres. His
wife, Dolores P. Torres, sat as Assistant Treasurer.
Before 1982, Guillermo and Dolores incorporated and operated
two (2) thrift banks: (1) First Iligan Savings & Loan Association,
Inc. (FISLAI); and (2) Davao Savings and Loan Association,
Inc. (DSLAI). Guillermo both thrift banks. He acted as FISLAI's
President, while his wife, Dolores acted as DSLAI's President
and FISLAI's Treasurer.
Upon Guillermo’s request, Bangko Sentral ng Pilipinas issued
a P1.9 million standby emergency credit to FISLAI evidenced
by three (3) promissory notes signed by Guillermo and were
co-signed by either his wife, or FISLAI's Special Assistant to
the President, Edmundo.
On May 25, 1982, University of Mindanao's Vice President for
Finance, Saturnino Petalcorin, executed a two deed of real
estate mortgage over University of Mindanao's property in
Cagayan de Oro and in Iligan Ciry in favor of Bangko Sentral
ng Pilipinas which served as security for FISLAI's loan. It was
allegedly executed on University of Mindanao's behalf. The
mortgages were duly annotated on the title of the properties
| Oblicon 4th exam 18
As proof of his authority to execute a real estate mortgage for
University of Mindanao, Saturnino showed a Secretary's
Certificate signed by University of Mindanao's Corporate
Secretary, Aurora de Leon. The Certificate stated that UM is
authorizing the Saturnino R. Petalcorin to sign, execute and
deliver the covering mortgage document to serve as security
for the credit facility of FISLAI.
This was supported by an excerpt from the minutes of the
alleged meeting of University of Mindanao's Board of Trustees
certified by Aurora as a true copy.
Thereafter, FISLAI, DSLAI, and Land Bank entered into a
Memorandum of Agreement to rehabilitate the thrift banks, which
had been suffering from their depositors' heavy withdrawals. This
caused merger of FISLAI and DSLAI, with DSLAI as the surviving
corporation. DSLAI later became known as Mindanao Savings and
Loan Association, Inc. (MSLAI). Guillermo B. Torres died on March
2, 1989. MSLAI failed to recover from its losses and was liquidated
on May 24, 1991.
On June 18, 1999, BSP sent a letter to University of Mindanao,
informing it that the bank would foreclose its properties if
MSLAI's total outstanding obligation of P12,534,907.73
remained unpaid.
However, University of Mindanao, through its Vice President
for Accounting, Gloria E. Detoya, denied that University of
Mindanao's properties were mortgaged. Thus, University of
Mindanao filed two Complaints for nullification of mortgage.
One Complaint was filed before the Regional Trial Court of
Cagayan de Oro City, and the other Complaint was filed before
the Regional Trial Court of Iligan City.
University of Mindanao alleged in its Complaints that it did not
obtain any loan from Bangko Sentral ng Pilipinas and did not
receive any loan proceeds from the bank. It also alleged that
Aurora de Leon's certification was anomalous. It never
authorized Saturnino Petalcorin to execute real estate
mortgage contracts involving its properties to secure FISLAI's
debts. As an educational institution, it cannot mortgage its
properties to secure another person's debts.
Aurora de Leon testified that University of Mindanao's Board of
Trustees did not issue a board resolution that would support the
Secretary's Certificate she issued and she signed the Certificate
only upon Guillermo’s orders.
Saturnino Petalcorin testified that he had no authority to
execute a mortgage contract on University of Mindanao's
behalf and he did so only because of Guillermo’s request.
RTC of Cagayan de Oro and RTC of Iligan City ruled that
Saturnino Petalcorin was not authorized to execute mortgage
contracts for University of Mindanao as there was no board
resolution authorizing such. Hence, the mortgage of University
of Mindanao's Cagayan de Oro City property was
unenforceable. However, CA revered their decision and held
that Bangko Sentral ng Pilipinas merely relied in good faith on
the Secretary's Certificate which was notarized. University of
Mindanao is estopped from denying Saturnino Petalcorin's
authority.
Held:
On Prescription
The prescriptive period for actions on mortgages is ten years
from the day they may be brought. Actions on mortgages may
be brought not upon the execution of the mortgage contract but
upon default in payment of the obligation secured by the
mortgage.
The mortgage contracts in this case were executed by Saturnino
Petalcorin in 1982. The maturity dates of FISLAI's loans were
repeatedly extended until the loans became due and demandable
only in 1990. Respondent informed petitioner of its

decision to foreclose its properties and demanded payment in
1999.
The running of the prescriptive period of respondent's action on
the mortgages did not start when it executed the mortgage
contracts with Saturnino Petalcorin in 1982.
The prescriptive period for filing an action may run either (1)
from 1990 when the loan became due, if the obligation was
covered by the exceptions under Article 1169 of the Civil Code;
(2) or from 1999 when respondent demanded payment, if the
obligation was not covered by the exceptions under Article
1169 of the Civil Code.
In either case, respondent's Complaint with cause of action
based on the mortgage contract was filed well within the
prescriptive period.
Given the termination of all traces of FISLAI's existence,
demand may have been rendered unnecessary under Article
1169(3)71 of the Civil Code. Granting that this is the
case.respondent would have had ten (10) years from due date
in 1990 or until 2000 to institute an action on the mortgage
contract.
However, under Article 1155 of the Civil Code, prescription of
actions may be interrupted by (1) the filing of a court action; (2)
a written extrajudicial demand; and (3) the written
acknowledgment of the debt by the debtor.
Therefore, the running of the prescriptive period was
interrupted when respondent sent its demand letter to
petitioner on June 18, 1999.
Scope of corporate’s powers
A corporation may exercise its powers only within those
definitions. Corporate acts that are outside those express
definitions under the law or articles of incorporation or those
"committed outside the object for which a corporation is
created" are ultra vires.
The only exception to this, rule is when acts are necessary and
incidental to carry out a corporation's purposes, and to the
exercise of powers conferred by the Corporation Code and
under a corporation's articles of incorporation.
Petitioner does not have the power to mortgage its properties
in order to secure loans of other persons. As an educational
institution, it is limited to developing human capital thrpugh
formal instruction. It is not a corporation engaged in the
business of securing loans of others.
Securing FISLAI's loans by mortgaging petitioner's properties
does not appear to have even the remotest connection to the
operations of petitioner as an educational institution. It is not
necessary to maintain petitioner's business of providing
instruction to individuals.
Respondent argues that petitioner's act of mortgaging its
properties to guarantee FISLAI's loans was consistent with
petitioner's business interests, since petitioner was presumably
a FISLAI shareholder whose officers and shareholders
interlock with FISLAI.
Respondent is incorrect. The separate personality of
corporations means that obligations incurred by corporations
are not obligations of their officers and shareholders and vice
versa. Corporate interests are separate from the personal
interests of the natural persons that comprise corporation as it
is vested with attributes of their own as if they were natural
persons.
The exception, piercing the corporate veil also does not apply.
Corporate veil is pierced when the separate personality of the
corporation is being used to perpetrate fraud, illegalities, and
injustices. There is no evidence to support this.
| Oblicon 4th exam 19
No board resolution
Being a juridical person, petitioner cannot conduct its business,
make decisions, or act in any manner without action from its
Board of Trustees. The Board of Trustees must act as a body
in order to exercise corporate powers. Individual trustees are
not clothed with corporate powers just by being a trustee.
Hence, the individual trustee cannot bind the corporation by
himself or herself.
The corporation may, however, delegate through a board
resolution its corporate powers or functions to a representative,
subject to limitations under the law and the corporation's
articles of incorporation.
Contracts entered into in another's name without authority or
valid legal representation are generally unenforceable pursuant
to Article 1317 in relation to Article 1403.
ART. 1317. A contract entered into in the name of another by
one who has no authority or legal representation, or who has
acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf
it has been executed, before it is revoked by the other
contracting party.
ART. 1403. The following contracts are unenforceable, unless
they are ratified:
1) Those entered into in the name of another person by one
who has been given no authority or legal representation, or
who has acted beyond his powers
In the case at bar, Secretary's Certificate and the board
resolution were either non-existent or fictitious as supported by
the testimonies of Aurora de Leon and Saturnino Petalcorin as
they only did such acts upon Guillermo’s request.
On Ratification
No act by petitioner can be interpreted as anything close to
ratification. It was not shown that it issued a resolution ratifying
the execution of the mortgage contracts. It was not shown that
it received proceeds of the loans secured by the mortgage
contracts. Ratification must be knowingly and voluntarily done.
Petitioner's lack of knowledge about the mortgage executed in
its name precludes an interpretation that there was any
ratification on its part.
Respondent further argues that petitioner is presumed to have
knowledge of its transactions with respondent because its
officers participated in obtaining the loan.
While the general rule is that knowledge of an officer is considered
knowledge of the corporation however, even though the Guillermo
and Dolores Torres were officers of both the thrift banks and UM,
their knowledge of the mortgage contracts cannot be considered
as knowledge of the corporation.
The rule that knowledge of an officer is considered knowledge
of the corporation applies only when the officer is acting within
the authority given to him or her by the corporation.
In the case at bar their knowledge was not obtained as UM’s
representatives. It was not shown that they were acting for and
within the authority given by UM when they acquired
knowledge of the loan transactions and the mortgages. The
knowledge was obtained as representatives of the thrift banks.
Saturnino’s apparent authority
Respondent argues that Satnrnino Petalcorin was clothed with
the authority to transact on behalf of petitioner, based on the
board resolution dated March 30, 1982 and Aurora de Leon's
notarized Secretary's Certificate.

Apparent authority binds corporate representatives in
instances when the corporation, through its silence or other
acts of recognition, allowed others to believe that persons,
through their usual exercise of corporate powers, were
conferred with authority to deal on the corporation's behalf.
Saturnino Petalcorin's authority to transact on behalf of
petitioner cannot be presumed based on a Secretary's
Certificate and excerpt from the minutes of the alleged board
meeting that were found to have been simulated. These
documents cannot be considered as the corporate acts that
held out Saturnino Petalcorin as petitioner's authorized
representative for mortgage transactions. They were not
supported by an actual board meeting.
There can be no apparent authority and the corporation cannot
be estopped when there is no evidence pointing to similar acts
and other circumstances that can be interpreted as the
corporation holding out a representative as having authority to
contract on its behalf.
Secretary’s Certificate was notarized
Respondent argues that it may rely on the Secretary's
Certificate issued by Aurora de Leon because it was notarized.
The Secretary's Certificate was void whether or not it was
notarized.
Notarization creates a presumption of regularity and
authenticity on the document but this may be rebutted by
"strong, complete and conclusive proof" to the contrary.
Since the notarized Secretary's Certificate was found to have
been issued without a supporting board resolution, it produced
no effect. It is not binding upon petitioner. It should not have
been relied on by respondent especially given its status as a
bank.
BSP’s negligence
Banks are required to exercise the highest degree of diligence
in their transactions.
For its failure to exercise the degree of diligence required of
banks, respondent cannot claim good faith in the execution of
the mortgage contracts with Saturnino Petalcorin.
Respondent's witness, Daciano Paguio, Jr., testified that there
was no board resolution authorizing Saturnino Petalcorin to act
on behalf of petitioner. Respondent did not inquire further as to
Saturnino Petalcorin's authority.
Annotations on the titles
According to respondent, the annotations of respondent's
mortgage interests on the certificates of titles operated as
constructive notice to petitioner of the existence of such
interests.
Annotations of adverse claims on certificates of title to
properties operate as constructive notice only to third parties—
not to the court or the registered owner. They are merely
claims of interest. It does not say anything about the validity of
the claim or convert a defective claim or document into a valid
one. These claims may be proved or disproved during trial.
NATIVIDAD VS NATIVIDAD
Leandro and Juliana alleged that sometime in 1974, Sergio
Natividad, husband of respondent Juana and father of
respondent Jean, obtained a loan from the Development Bank
of the Philippines. As security for the loan, Sergio mortgaged
two parcels of land, one of which is co-owned and registered in
his name and that of his siblings Leandro, Domingo and
Adoracion. Sergio's siblings executed a Special Power of
Attorney authorizing him to mortgage the said property.
| Oblicon 4th exam 20
The other mortgaged parcel of land was registered in the name
of Sergio and Juana. Sergio died without being able to pay his
obligations with DBP. Since the loan was nearing its maturity
Leandro paid Sergio's loan obligations. Considering that
respondents were unable to reimburse Leandro for the
advances he made in Sergio's favor, respondents agreed that
Sergio's share in the lot which he co-owned with his siblings
and the other parcel of land in the name of Sergio and Juana,
shall be assigned in favor of Leandro and Juliana. Domingo
was tasked to facilitate the transfer of ownership but he died
without being able to cause such transfer. Despite demands
respondents failed honor their undertaking.
Petitioners relied heavily on the Extrajudicial Settlement Among
Heirs, which was executed by respondents to prove that there was
indeed such an agreement and that such a Settlement is evidence
of the partial execution of the said agreement.
Issue:
Held: there is nothing in the said document which would
indicate that respondents agreed to the effect that the subject
properties shall be transferred in the name of Leandro as
reimbursement for his payment of Sergio's loan obligations
with the DBP. On the contrary, the second to the last
paragraph of the said Settlement clearly shows that herein
respondents, as heirs of Sergio, have divided the subject
properties exclusively among themselves.
There is no competent evidence to prove the verbal agreement
being claimed by respondents. In relation to petitioners'
contention that the subject verbal agreement actually existed,
they-reiterate their contention that the conveyance of the
subject properties in their favor is not covered by the Statute of
Frauds because they claim that respondents' execution of the
Extrajudicial Settlement Among Heirs constitutes partial
execution of their alleged agreement.
The Court does not agree. There is no partial execution of any
contract, whatsoever, because petitioners failed to prove, in
the first place, that there was a verbal agreement that was
entered into.
Even granting that such an agreement existed, the assignment
of the shares of Sergio in the subject properties in petitioners'
favor as payment of Sergio's obligation cannot be enforced if
there is no written contract to such effect. Under the Statute of
Frauds, an agreement to convey real properties shall be
unenforceable by action in the absence of a written note or
memorandum thereof and subscribed by the party charged or
by his agent. Respondents' acknowledgment of Sergio's
loan obligations with DBP as embodied in the Extrajudicial
Settlement Among Heirs, as well as the cash voucher
which allegedly represents payment for taxes and transfer
of title in petitioners' name do not serve as written notes
or memoranda of the alleged verbal agreement.
The foregoing, notwithstanding, since respondents had already
acknowledged that Sergio had, in fact, incurred loan obligations
with the DBP, they are liable to reimburse the amount paid by
Leandro for the payment of the said obligation even if such
payment was made without their knowledge or consent.
Article 1236 provides whoever pays for another may demand
from the debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor.
Neither can respondents evade liability by arguing that they
were not parties to the contract between Sergio and the DBP.
As earlier stated, the fact remains that, in the Extrajudicial
Settlement Among Heirs, respondents clearly acknowledged
Sergio's loan obligations with the DBP. Being Sergio's heirs,
they succeed not only to the rights of Sergio but also to his
obligations.

VOID CONTRACTS
MODINA VS CA
The parcels of land in question are those under the name of
Ramon Chiang. He theorized that subject properties were sold
to him by his wife, Merlinda Plana Chiang and were
subsequently sold by CHIANG to the petitioner Serafin Modina
as shown by the Deeds of Sale, dated August 3, 1979 and
August 24, 1979.
MODINA brought a Complaint for Recovery of Possession with
Damages against the private respondents, Ernesto Hontarciego
Upon learning the institution of the said case, MERLINDA
presented a Complaint-in-intervention, seeking the declaration
of nullity of the Deed of Sale between her husband and
MODINA on the ground that the titles of the parcels of land in
dispute were never legally transferred to her husband.
Fraudulent acts were allegedly employed by him to obtain a
Torrens Title in his favor. However, she confirmed the validity
of the lease contracts with the other private respondents.
MERLINDA also admitted that the said parcels of land were
those ordered sold by Branch 2 of Court of First Instance of
Iloilo in Special Proceeding No. 2469 in Intestate Estate of
Nelson Plana where she was appointed as the administratix,
being the widow of the deceased, her first husband. An
Authority to Sell was issued by the said Probate Court for the
sale of the same properties.
Trial Court found that subject Deed of Sale was a nullity for
lack of any consideration. This finding duly supported by
evidence was affirmed by the Court of Appeals.
Petitioner theorizes that the sale in question is null and void for
being violative of Article 1490 prohibiting sales between
spouses and thus they are in pari delicto.
Issue: WON void because they parties are in pari delicto
Held: The principle of in pari delicto non oritur action 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.
Under Article 1409, enumerating void contracts, a contract without
consideration is one such void contract. One of the characteristics
of a void or inexistent contract is that it produces no effect. So
also, inexistent contracts can be invoked by any person whenever
juridical effects founded thereon are asserted against him. A
transferor can recover the object of such contract by accion
reivindicatoria and any possessor may refuse to deliver it to the
transferee, who cannot enforce the transfer.
Thus, petitioners insistence that MERLINDA cannot attack
subject contract of sale as she was a guilty party thereto is
equally unavailing.
But the pivot of inquiry here is whether MERLINDA is barred by
the principle of in pari delicto from questioning subject Deed of
Sale.
It bears emphasizing that as the contracts under controversy are
inexistent contracts within legal contemplation, Articles 1411 and
1412 are inapplicable. In pari delicto doctrine applies only to
contracts with illegal consideration or subject matter, whether the
attendant facts constitute an offense or misdemeanor or whether
the consideration involved is merely rendered illegal.
Records show that in the complaint-in-intervention of MERLINDA,
she did not aver the same as a ground to nullify subject Deed of
Sale. In fact, she denied the existence of the Deed of Sale in favor
of her husband. In the said Complaint, her allegations referred to
the want of consideration of such Deed of Sale. She did not put up
the defense under Article 1490, to nullify
| Oblicon 4th exam 21
her sale to her husband CHIANG because such a defense would
be inconsistent with her claim that the same sale was inexistent.
Since one of the characteristics of a void or inexistent contract
is that it does not produce any effect, MERLINDA can recover
the property from petitioner who never acquired title thereover.
As to the second issue, petitioner stresses that his title should
have been respected since he is a purchaser in good faith and
for value.
As a general rule, in a sale under the Torrens system, a void
title cannot give rise to a valid title. The exception is when the
sale of a person with a void title is to a third person who
purchased it for value and in good faith.
A purchaser in good faith is one who buys the property of
another without notice that some other person has a right to or
interest in such property and pays a full and fair price at the
time of the purchase or before he has notice of the claim or
interest of some other person in the property.
In the case under scrutiny, petitioner cannot claim that he was
a purchaser in good faith. There are circumstances which are
indicia of bad faith on his part, to wit: (1) He asked his nephew,
Placido Matta, to investigate the origin of the property and the
latter learned that the same formed part of the properties of
MERLINDAs first husband; (2) that the said sale was between
the spouses; (3) that when the property was inspected,
MODINA met all the lessees who informed that subject lands
belong to MERLINDA and they had no knowledge that the
same lots were sold to the husband.
DOMINGO VS CA
Paulina Rigonan owned three (3) parcels of land. She allegedly
sold them to private respondents, the spouses Felipe and
Concepcion Rigonan, who claim to be her relatives. In 1966,
herein petitioners Eugenio Domingo, Crispin Mangabat and
Samuel Capalungan, who claim to be her closest surviving
relatives, allegedly took possession of the properties by means of
stealth, force and intimidation, and refused to vacate the same.
Consequently, herein respondent Felipe Rigonan filed a complaint
for reinvindicacion against petitioners alleging that they were the
owners of the three parcels of land through the deed of sale
executed by Paulina Rigonan on January 28, 1965; that since
then, they had been in continuous possession of the subject
properties and had introduced permanent improvements thereon;
and that Domingo entered the properties illegally, and they refused
to leave them when asked to do so.
Domingo argued that the alleged deed of absolute sale was void
for being spurious as well as lacking consideration. They said that
Paulina Rigonan did not sell her properties to anyone. As her
nearest surviving kin within the fifth degree of consanguinity, they
inherited the three lots and the permanent improvements thereon
when Paulina died in 1966. They said they had been in possession
of the contested properties for more than 10 years.
Atty. Tagatag testified that he personally prepared the deed, he
saw Paulina Rigonan affix her thumbprint on it and he signed it
both as witness and notary public. He further testified that he
also notarized Paulinas last will and testament. The will
mentioned the same lots sold to private respondents. When
asked why the subject lots were still included in the last will
and testament, he could not explain. Atty. Tagatag also
mentioned that he registered the original deed of absolute sale
with the Register of Deeds.
Felipe Rigonan claimed that he was Paulinas close relative. Their
fathers were first cousins. However, he could not recall the name
of Paulinas grandfather. His claim was disputed by defendants,
who lived with Paulina as their close kin. He admitted the
discrepancies between the Register of Deeds copy of the deed
and the copy in his possession. But attributed them to the
representative from the Office of the Register of Deeds

Jose Flores testified that he knew Domingo who had lived on
the land with Paulina Rigonan since he could remember and
continued to live there even after Paulinas death. He said he
did not receive any notice nor any offer to sell the lots from
Paulina, contrary to what was indicated in the deed of sale that
the vendor had notified all the adjacent owners of the sale.
Ruben Blanco, the acting Registrar of Deeds, testified that only
the carbon copy, also called a duplicate original, of the deed of
sale was filed in his office, but he could not explain why this
was so.
Zosima Domingo testified that they lived with Paulina and her
husband, Jose Guerson, since 1956. They took care of her,
spent for her daily needs and medical expenses, especially
when she was hospitalized prior to her death. She stated that
Paulina was never badly in need of money during her lifetime.
Issue: WON the sale is void
Held: irregularities abound regarding the execution and
registration of the alleged deed of sale. On record, Atty.
Tagatag testified that he himself registered the original deed
with the Register of Deeds yet, the original was nowhere to be
found and none could be presented at the trial. The carbon
copy on file shows intercalations and discrepancies when
compared to purported copies in existence. In addition, the
alleged other copies of the document bore different dates of
entry and different entry numbers.
Furthermore, the alleged vendor was never asked to vacate
the premises she had purportedly sold. Felipe testified that he
had agreed to let Paulina stay in the house until her death. In
Alcos v. IAC, the buyers immediate possession and
occupation of the property was deemed corroborative of
the truthfulness and authenticity of the deed of sale. The
alleged vendors continued possession of the property in this
case throws an inverse implication, a serious doubt on the due
execution of the deed of sale. Noteworthy, the same parcels of
land involved in the alleged sale were still included in the will
subsequently executed by Paulina and notarized by the same
notary public, Atty. Tagatag. These circumstances, taken
together, militate against unguarded acceptance of the due
execution and genuineness of the alleged deed of sale.
We have to take into account the element of consideration for
the sale. The price allegedly paid by private respondents for
nine parcels, including the three parcels in dispute, a house
and a warehouse, was for P850 only. Consideration is the why
of a contract, the essential reason which moves the contracting
parties to enter into the contract. On record, there is unrebutted
testimony that Paulina as landowner was financially well off.
She loaned money to several people.
At the time of the execution of the alleged contract, Paulina
Rigonan was already of advanced age and senile. She died
barely over a year when the deed was allegedly executed on
January 28, 1965. The general rule is that a person is not
incompetent to contract merely because of advanced
years or by reason of physical infirmities. However, when
such age or infirmities have impaired the mental faculties
so as to prevent the person from properly, intelligently,
and firmly protecting her property rights then she is
undeniably incapacitated.
The unrebutted testimony of Zosima Domingo shows that at
the time of the alleged execution of the deed, Paulina was
already incapacitated physically and mentally. She narrated
that Paulina played with her waste and urinated in bed. Given
these circumstances, there is in our view sufficient reason to
seriously doubt that she consented to the sale of and the price
for her parcels of land. Moreover, there is no receipt to show
that said price was paid to and received by her.
Undisputably, the P850.00 consideration for the nine parcels of
land is grossly and shockingly inadequate, and the sale is null
and void ab initio.
| Oblicon 4th exam 22
RAMIREZ VS RAMIREZ
Petitioner filed a complaint against respondent Ma. Cecilia
Ramirez for annulment of: 1) a Deed of Donation; 2) Waiver of
Possessory Rights; and 3) Transfer Certificates of Title.
Petitioner claimed that respondent caused the execution of the
Deed of Donation and Waiver of Possessory Rights to acquire
ownership over the land and improvements and used the title
to issue another title in her name. Furthermore, petitioner
alleged that with the Waiver of Possessory Rights, respondent
was able to cause the Office of the City Assessor to transfer to
her name the tax declarations on the improvements in the land.
The Deed of Donation and Waiver of Possessory Rights were
allegedly executed by petitioner and his wife, Dolores Ramirez,
on January 29, 1993 and October 24, 1995, respectively.
However, the death certificate presented showed that Dolores
died on April 5, 1991 and, consequently, could not have
executed the assailed documents. Petitioner repudiated the
other signatures appearing on the two documents that were
purportedly his and insisted that he did not intend to transfer
the properties to respondent.
In her Answer, respondent alleged that her father, petitioner,
would not have filed the case were it not for the fact that he
remarried despite his age of 84 years. She further claimed that
it was her father’s idea to cause the preparation of the Deed of
Donation and Waiver of Possessory Rights to save on
expenses for publication and inheritance taxes.
RTC ruled that the signature of Dolores on the Deed of Donation
was a forgery while her signature on the Waiver of Possessory
Rights was genuine. It also found petitioner’s signatures on both
documents to be genuine. It then held petitioner and respondent in
pari delicto, as participants to the forgery. CA affirmed.
Issue: WON they are in pari delicto
Held: Yes.
The rule on pari delicto under the general provisions of contracts is
applicable to the present case. The Court agrees with the CA and
RTC that petitioner and respondent are in pari delicto.
Nevertheless, both courts erred on the applicable law. Article 1412
of the Civil Code, which they applied, refers to a situation where
the cause of the contract is unlawful or forbidden but does not
constitute a violation of the criminal laws.
On the other hand, where the act involved constitutes a
criminal offense, the applicable provision is Article 1411.
Petitioner alleged that the signatures of Dolores on the Deed of
Donation and on the Waiver of Possessory Rights are a
forgery. Respondent does not deny this allegation. Forging a
persons signature corresponds to the felony of falsification
under Section 4, Title IV of the Revised Penal Code. Hence,
the act of forging Dolores signature constitutes a criminal
offense under the terms of Article 1411.
It must be shown that the nullity of the contract proceeds from an
illegal cause or object, and the act of executing said contract
constitutes a criminal offense. The second requirement has
already been discussed and is found to be present.
On the first element, petitioner claims that the object or cause
of the Deed of Donation and of the Waiver of Possessory
Rights is the transferred real properties and that there is
nothing illegal about them. He maintains that the illegality
instead stems from the act of forgery which pertains to
consent, which is not material to the application of Article 1411.
The argument is untenable.
Object and cause are two separate elements of a donation
and the illegality of either element gives rise to the application
of the doctrine of pari delicto. Object is the subject matter of
the donation, while cause is the essential reason which
moves the parties to enter into the transaction. Petitioner
wrongly asserts that the donated real properties are both the
object and cause of the donation. In fact, the donated properties
pertain only to the object. Therefore,

while he is correct in stating that the object of the donation is
legal, his argument misses the point insofar as the cause is
concerned. The cause which moved the parties to execute the
Deed of Donation and the Waiver of Possessory Rights, the
motive behind the forgery, is the desire to evade the payment
of publication expenses and inheritance taxes, which became
due upon the death of Dolores. Undeniably, the Deed of
Donation and the Waiver of Possessory Rights were executed
for an illegal cause, thus completing all the requisites for the
application of Article 1411.
BAUTISTA VS BAUTISTA
Teodora Rosario was the owner of a 211.80-square meter
parcel of land. She died intestate on January 19, 1970, leaving
behind her spouse Isidro Bautista and five children, namely:
Teofilo, Alegria, Angelica, Pacita and Gil.
On April 21, 1981, Isidro and four of his five children Pacita, Gil,
Alegria, and Angelica executed a Deed of Extra-Judicial Partition
of the property in which Isidro waived his share in favor of his said
four children. Teofilo was excluded from the partition.
Alegria and Angelica sold the same to their sibling Pacita and
her common-law husband Pedro Tandoc. Pacita then sold the
said property to Pedro’s nephew Cesar.
On January 24, 1994, herein petitioner Teofilo filed a
Complaint for annulment of documents, partition, recovery of
ownership, possession and damages.
In his complaint, petitioner claimed that his co-heirs defrauded
him of his rightful share of the property and that the deed of
sale executed by Pacita in favor of Cesar was fictitious as it
was impossible for her to have executed the same in Manila,
she being already seriously ill at the time.
Respondents argued that it was Pacita who caused the
execution of the Deed of Extra-Judicial Partition and because
they trusted Pacita, they signed the document without
scrutinizing it; and that they learned about the contents of the
partition only upon Teofilos filing of the Complaint.
Pedro and Cesar Tamondong claimed that a few weeks after
the partition, Pacita approached Angelica and Alegria to
borrow their share in the property on her representation that it
would be used as security for a business loan; and that
agreeing to accommodate Pacita, Angelica and Alegria signed
a document which Pacita prepared which turned out to be the
deed of absolute sale in Pacitas favor.
Held: The extra-judicial partition executed by Teofilos co-heirs
was invalid. Under the rule, no extra-judicial settlement
shall be binding upon any person who has not
participated therein or had no notice thereof. As the
partition was a total nullity and did not affect the excluded
heirs, it was not correct for the trial court to hold that their right
to challenge the partition had prescribed.
The deed of extra-judicial partition in the case at bar being
invalid, the action to have it annulled does not prescribe.
Consequently, the subsequent transfer by Angelica and Alegria
f of the property to Pacita and her husband Pedro, as well as
the transfer of of the property to Cesar Tamondong is invalid,
hence, conferring no rights upon the transferees under the
principle of nemo dat quod non habet.
HULST VS PR BUILDERS
Jacobus Bernhard Hulst (petitioner) and his spouse Ida, Dutch
nationals, entered into a Contract to Sell with PR Builders, Inc.,
for the purchase of a residential unit in respondent's
townhouse project in Barangay Niyugan, Laurel, Batangas.
| Oblicon 4th exam 23
When respondent failed to comply with its verbal promise to
complete the project by June 1995, the spouses Hulst filed
before the Housing and Land Use Regulatory Board (HLURB)
a complaint for rescission of contract which was granted.
Issue: WON it may be rescinded
Held: Yes.
Aliens, whether individuals or corporations, have been
disqualified from acquiring public lands; hence, they have also
been disqualified from acquiring private lands
Since petitioner and his wife, being Dutch nationals, are proscribed
under the Constitution from acquiring and owning real property, it
is unequivocal that the Contract to Sell entered into by petitioner
together with his wife and respondent is void. Under Article 1409
(1) and (7) of the Civil Code, all contracts whose cause, object or
purpose is contrary to law or public policy and those expressly
prohibited or declared void by law are inexistent and void from the
beginning. Article 1410 of the same Code provides that the action
or defense for the declaration of the inexistence of a contract does
not prescribe. A void contract is equivalent to nothing; it produces
no civil effect. It does not create, modify or extinguish a juridical
relation.
Generally, parties to a void agreement cannot expect the aid of
the law; the courts leave them as they are, because they are
deemed in pari delicto or "in equal fault." In pari delicto is "a
universal doctrine which holds that no action arises, in
equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money
agreed to be paid, or damages for its violation; and where
the parties are in pari delicto, no affirmative relief of any
kind will be given to one against the other."
This rule, however, is subject to exceptions that permit the return
of that which may have been given under a void contract to: (a) the
innocent party (Arts. 1411-1412, Civil Code); (b) the debtor who
pays usurious interest (Art. 1413, Civil Code); (c) the party
repudiating the void contract before the illegal purpose is
accomplished or before damage is caused to a third person and if
public interest is subserved by allowing recovery (Art. 1414, Civil
Code); (d) the incapacitated party if the interest of justice so
demands (Art. 1415, Civil Code); (e) the party for whose protection
the prohibition by law is intended if the agreement is not illegal per
se but merely prohibited and if public policy would be enhanced by
permitting recovery (Art. 1416, Civil Code); and
(f) the party for whose benefit the law has been intended such
as in price ceiling laws (Art. 1417, Civil Code) and labor laws
(Arts. 1418-1419, Civil Code).
It is significant to note that the agreement executed by the
parties in this case is a Contract to Sell and not a contract of
sale.
In a contract of sale, the title passes to the buyer upon the
delivery of the thing sold. In a contract to sell, the prospective
seller agrees to transfer ownership of the property to the buyer
upon the happening of an event, which normally is the full
payment of the purchase price. But even upon the fulfillment of
the suspensive condition, ownership does not automatically
transfer to the buyer. The prospective seller still has to convey
title to the prospective buyer by executing a contract of
absolute sale.
Since the contract involved here is a Contract to Sell,
ownership has not yet transferred to the petitioner when he
filed the suit for rescission. While the intent to circumvent the
constitutional proscription on aliens owning real property was
evident by virtue of the execution of the Contract to Sell, such
violation of the law did not materialize because petitioner
caused the rescission of the contract before the execution of
the final deed transferring ownership.
Thus, exception (c) finds application in this case. Under Article
1414, one who repudiates the agreement and demands his

money before the illegal act has taken place is entitled to
recover. Petitioner is therefore entitled to recover what he has
paid. No damages may be recovered on the basis of a void
contract; being nonexistent, the agreement produces no
juridical tie between the parties involved.
QUIMPO VS BELTRAN
Eustaquia was the owner of several parcels of land in Goa,
Camarines Sur. She died intestate in 1948 leaving these
parcels of land to her grandchild and great grandchildren,
namely, Joaquin Quimpo and respondents Consuelo, Ireneo,
Danilo, Marites, Anita and Helen, all surnamed Abad.
In 1966, Joaquin and respondents undertook an oral partition
of parcel III and parcel IV. Half of the properties was given to
Joaquin and the other half to the respondents. However, no
document of partition was executed, because Joaquin refused
to execute a deed. Consuelo and Ireneo occupied their
respective shares in the San Jose property, and installed
several tenants over their share in parcel IV. Joaquin, on the
other hand, became the administrator of the remaining
undivided properties and of the shares of respondents Danilo,
Marites, Anita and Helen, who were still minors at that time.
In 1989, Danilo, Marites, Anita and Helen wanted to take
possession of the portions allotted to them, but Joaquin
prevented them from occupying the same. Joaquin also
refused to heed respondents demand for partition of parcels I
and II, prompting respondents to file a complaint for judicial
partition and/or recovery of possession.
Joaquin asserted absolute ownership over parcels III and IV,
claiming that he purchased these lands from Eustaquia in
1946, evidenced by deeds of sale. He, likewise, claimed
continuous, peaceful and adverse possession of these lots
since 1946, and alleged that Consuelos occupation of the
portion of the San Jose property was by mere tolerance.
RTC ruled in favor of respondents, declaring them as co-
owners of all the properties left by Eustaquia and declared void
the purported deeds of sale executed by Eustaquia for lack of
consideration and consent. The court found that at the time of
the execution of these deeds, Joaquin was not gainfully
employed and had no known source of income, which shows
that the deeds of sale state a false and fictitious consideration.
Likewise, Eustaquia could not have possibly given her consent
to the sale because she was already 91 years old at that time.
Held: The stated consideration for the sale are P5,000.00 and
P6,000.00, respectively, an amount which was so difficult to
raise in the year 1946. Respondents established that at the
time of the purported sale Joaquin Quimpo was not gainfully
employed. He was studying in Manila and Eustaquia was the
one supporting him; that when Eustaquia died two years later,
Joaquin was not able to continue his studies. No evidence was
offered to prove that Joaquin was duly employed and had the
financial capacity to buy the subject properties in 1946.
A deed of sale, in which the stated consideration has not
been, in fact, paid is a false contract; that it is void ab initio. It is
null and void and produces no effect whatsoever where it
appears that the same is without cause or consideration which
should have been the motive thereof, or the purchase price
which appears thereon as paid but which in fact has never
been paid by the purchaser to the vendor.
Likewise, both the trial court and the CA found that Eustaquia
was 91 years old, weak and senile, at the time the deeds of
sale were executed. In other words, she was already mentally
incapacitated by then, and could no longer be expected to give
her consent to the sale.
For forty-three years, Consuelo and Ireneo occupied their
portions of the San Jose property and significantly, Joaquin
never disturbed their possession. They also installed tenants in
parcel IV, and Joaquin did not prevent them from doing so, nor
| Oblicon 4th exam 24
did he assert his ownership over the same. These point to the
fact that there was indeed an oral partition of parcels III and IV.
ALINAS VS ALINAS
Spouses Alinas (petitioners) separated sometime in 1982, with
Rosario moving to Pagadian City and Onesiforo moving to
Manila. They left behind two lots.
Petitioner Onesiforo Alinas (Onesiforo) and respondent Victor
Alinas (Victor) are brothers. Petitioners allege that they entrusted
their properties to Victor and Elena with the agreement that any
income from rentals of the properties should be remitted to the
Social Security System and to the Rural Bank of Oroquieta City
(RBO), as such rentals were believed sufficient to pay off
petitioners' loans with said institutions. Onesiforo alleges that he
left blank papers with his signature on them to facilitate the
administration of said properties.
However they discovered that their two lots were already titled
in the name of respondent spouses.
Onesiforo's signature also appears in an Absolute Deed of Sale,
selling the lots to respondent spouses. The records also show a
notarized document dated March 10, 1989 and captioned
Agreement whereby petitioner Onesiforo acknowledged that his
brother Victor used his own money to redeem Lot 896-B-9-B from
the SSS and, thus, Victor became the owner of said lot. In the
same Agreeement, petitioner Onesiforo waived whatever rights,
claims, and interests he or his heirs, successors and assigns have
or may have over the subject property.
petitioners filed a complaint for recovery of possession and
ownership of their conjugal properties.
Held: Although petitioners were married before the enactment
of the Family Code on August 3, 1988, the sale in question
occurred in 1989. Thus, their property relations are governed
by Chapter IV on Conjugal Partnership of Gains of the Family
Code.
Thus, pursuant to Article 124 of the Family Code and
jurisprudence, the sale of petitioners' conjugal property made
by petitioner Onesiforo alone is void in its entirety. In applying
Article 124 of the Family Code, the absence of the consent of
one renders the entire sale null and void, including the portion
of the conjugal property pertaining to the husband who
contracted the sale.
The respondent spouses were well aware that Lot 896-B-9-B is
a conjugal property of petitioners. They also knew that the
disposition being made by Onesiforo is without the consent of
his wife, as they knew that petitioners had separated, and, the
sale documents do not bear the signature of petitioner Rosario.
A purchaser cannot close his eyes to facts which should put a
reasonable man on his guard and still claim he acted in good
faith. Such being the case, no injustice is being foisted on
respondent spouses as they risked transacting with Onesiforo
alone despite their knowledge that the subject property is a
conjugal property.
However, petitioners should reimburse respondent spouses
the redemption price plus interest at the rate of 6% per annum.
GONZALO VS TARNATE
After (DPWH) had awarded the contract for the improvement of the
Sadsadan-Maba-ay to his company, Gonzalo Construction,1
petitioner Domingo Gonzalo subcontracted to respondent John
Tarnate, Jr, the supply of materials and labor for the project under
the latter s business known as JNT Aggregates. T
Gonzalo a deed of assignment whereby he, as the contractor,
was assigning to Tarnate an amount equivalent to 10% of the
total collection from the DPWH for the project. This 10%

retention fee was the rent for Tarnate’s equipment that had
been utilized in the project. Gonzalo further authorized Tarnate
to use the official receipt of Gonzalo Construction in the
processing of the documents relative to the collection of the
10% retention fee and in encashing the check to be issued by
the DPWH for that purpose.
During the processing of the documents for the retention fee,
however, Tarnate learned that Gonzalo had unilaterally
rescinded the deed of assignment by means of an affidavit of
cancellation of deed of assignment and that the disbursement
voucher for the 10% retention fee had then been issued in the
name of Gonzalo, and the retention fee released to him.
Tarnate demanded the payment of the retention fee from
Gonzalo, but to no avail. Thus, he brought this suit against
Gonzalo to recover the retention fee.
In his answer, Gonzalo admitted the deed of assignment and
the authority given therein to Tarnate, but averred that the
project had not been fully implemented because of its
cancellation by the DPWH, and that he had then revoked the
deed of assignment. He insisted that the assignment could not
stand independently due to its being a mere product of the
subcontract that had been based on his contract with the
DPWH; and that Tarnate, having been fully aware of the
illegality and ineffectuality of the deed of assignment from the
time of its execution, could not go to court with unclean hands
to invoke any right based on the invalid deed of assignment or
on the product of such deed of assignment.
Held: There is no question that every contractor is
prohibited from subcontracting with or assigning to
another person any contract or project that he has with
the DPWH unless the DPWH Secretary has approved the
subcontracting or assignment. This is pursuant to Section 6
of Presidential Decree No. 1594.
Gonzalo, who was the sole contractor of the project in
question, subcontracted the implementation of the project to
Tarnate in violation of the statutory prohibition. The illegality of
the Sub-Contract Agreement necessarily affects the Deed of
Assignment because the rule is that an illegal agreement
cannot give birth to a valid contract.
Under Article 1409 (1) of the Civil Code, a contract whose
cause, object or purpose is contrary to law is a void or
inexistent contract. As such, a void contract cannot produce a
valid one.13 To the same effect is Article 1422 of the Civil
Code, which declares that "a contract, which is the direct result
of a previous illegal contract, is also void and inexistent."
According to Article 1412 (1) of the Civil Code, the guilty
parties to an illegal contract cannot recover from one another
and are not entitled to an affirmative relief because they are in
pari delicto or in equal fault.
Tarnate provided the equipment, labor and materials for the project
in compliance with his obligations under the subcontract and the
deed of assignment; and that it was Gonzalo as the contractor who
received the payment for his contract with the DPWH as well as
the 10% retention fee that should have been paid to Tarnate
pursuant to the deed of assignment. Considering that Gonzalo
refused despite demands to deliver to Tarnate the stipulated 10%
retention fee that would have compensated the latter for the use of
his equipment in the project, Gonzalo would be unjustly
enriched at the expense of Tarnate if the latter was to be
barred from recovering because of the rigid application of the
doctrine of in pari delicto.
Unjust enrichment exists, according to Hulst v. PR Builders,
Inc., "when a person unjustly retains a benefit at the loss of
another, or when a person retains money or property of
another against the fundamental principles of justice, equity
and good conscience."
| Oblicon 4th exam 25
LOPEZ VS DBP
Gregoria Lopez owned a property in Bulacan. She and was
survived by her three sons: Teodoro Lopez, Francisco Lopez,
and Carlos Lopez who all died and nly Teodoro was survived
by children: Gregorio, Enrique, Simplicio, and Severino.
Petitioners in this case are Simplicio and the heirs of Gregorio
and Severino. Petitioners discovered that Enrique executed an
affidavit of self-adjudication declaring himself to be Gregoria
Lopez’s only surviving heir, thereby adjudicating upon himself
the land in Bulacan and sold the property to Marietta Yabut.
Petitioners demanded from Marietta the nullification of Enrique’s
affidavit of self-adjudication and the deed of absolute sale. They
also sought to redeem Enrique’s one-fourth share. Marietta, who
was already in possession of the property, refused.
Marietta then obtained a loan from (DBP) and mortgaged the
property to DBP as security. She failed to pay her loan to DBP
thus the property was foreclosed.
RTC found that the affidavit of self-adjudication and the deed
of absolute sale did not validly transfer to Marietta the title to
the property. Enrique could not transfer three-fourths of the
property since this portion belonged to his co-heirs.
Held: Title or rights to a deceased person’s property are
immediately passed to his or her heirs upon death. Before the
property is partitioned, the heirs are co-owners of the property.
Enrique’s right to the property was limited to his one-fourth
share thus he had no right to sell the undivided portions that
belonged to his siblings or their respective heirs. Any sale by
one heir of the rest of the property will not affect the rights of
the other heirs who did not consent to the sale. Such sale is
void with respect to the shares of the other heirs.
The affidavit of self-adjudication is invalid for the simple reason
that it was false as at the time of its execution, Enrique’s siblings
were still alive. The issuance of the original certificate of title in
favor of Marietta does not cure Enrique’s lack of title or authority to
convey his co-owners’ portions of the property. Issuance of a
certificate of title is not a grant of title over petitioners’ undivided
portions of the property. The physical certificate of title does not
vest in a person ownership or right over a property. It is merely an
evidence of such ownership or right.
Marietta could acquire valid title over the whole property if she
were an innocent purchaser for value. An innocent purchaser
for value purchases a property without any notice of
defect or irregularity as to the right or interest of the seller.
He or she is without notice that another person holds
claim to the property being purchased.
As a rule, an ordinary buyer may rely on the certificate of
title issued in the name of the seller. He or she need not
look “beyond what appears on the face [of the certificate
of title]. However, the ordinary buyer will not be
considered an innocent purchaser for value if there is
anything on the certificate of title that arouses suspicion,
and the buyer failed to inquire or take steps to ensure that
there is no cloud on the title, right, or ownership of the
property being sold.
Marietta cannot claim the protection accorded by law to
innocent purchasers for value because the circumstances do
not make this available to her. There was no certificate of title
to rely on when she purchased the property from Enrique. At
the time of the sale, the property was still unregistered. What
was available was only a tax declaration issued under the
name of “Heirs of Lopez.”
The defense of having purchased the property in good
faith may be availed of only where registered land is
involved and the buyer had relied in good faith on the
clear title of the registered owner. It does not apply when the
land is not yet registered with the Registry of Deeds.

SInce Marietta acquired no valid title or ownership from
Enrique over the undivided portions of the property, no valid
mortgage was executed over the same property in favor of
DBP. Without a valid mortgage, there was also no valid
foreclosure sale and no transfer of ownership of petitioners’
undivided portions to DBP.
DBP acquired no right over the undivided portions since its
predecessor-in-interest was not the owner and held no
authority to convey the property.
The prevailing jurisprudence is that a mortgagee has a right to
rely in good faith on the certificate of title of the mortgagor to
the property given as security and in the absence of any sign
that might arouse suspicion, has no obligation to undertake
further investigation. The exception applies when, at the time
of the mortgage, the mortgagor has already obtained a
certificate of title under his or her name. It does not apply
when, as in this case, the mortgagor had yet to register the
property under her name.
DBP disregarded circumstances that should have aroused
suspicion. At the time of the mortgage with DBP, Marietta only
had a tax declaration under her name to show that she was the
owner of the property. A tax declaration, by itself, neither
proves ownership of property nor grants title. Yet, DBP agreed
to accept the property as security even though Marietta’s claim
was supported only by the tax declaration, and a certificate of
title was yet to be issued under her name
DBP failed to exercise the degree of diligence required of
banks when it accepted the unregistered property as security
for Marietta’s loan despite circumstances that should have
aroused its suspicion.
FILINVEST VS ADIA
The respondents were the registered owners of various parcels
of land which were awarded to them pursuant to the
Comprehensive Land Reform Law.
In 1995, Filinvest Land, Inc. acquired possession of these
properties. Each of the respondents executed a Sinumpaang
Salaysay entitled Pagbibitaw ng Karapatan. Based on these
affidavits, the respondents relinquished all their rights over the
properties for valuable consideration.
In 2010, the respondents filed a complaint for recovery of
possession with damages against Filinvest.
Lina Ferrer-De Guzman testified that stated that the sale with
Filinvest did not push through because the properties were
covered by the CARL. Under its Section 27, the properties
cannot be sold, transferred, or conveyed within a period of ten
(10) years. Thus, instead of a sale, she negotiated a transfer of
possession to Filinvest through the affidavits until such time
that a sale could be made.
Held: An accion publiciana or a case for recovery of
possession determines who between the parties has the better
and legal right to possess the properties, independently of title.
As early as 1990, the transfers of possessory rights over
landholdings awarded under agrarian laws had been declared
void. Any waiver and transfer of rights and interests within the
10-year prohibitory period under RA 6657 is void for violating
agrarian reform whose main purpose is to ensure that the
farmer-beneficiary shall continuously possess, cultivate, and
enjoy the land he tills.
The affidavits, as worded, totally waive or transfer the
respondents' rights and interests over the properties. The CA
correctly observed that the affidavits do not only assign
possessory rights, but perpetually surrender the respondents'
ownership rights. Furthermore, De Guzman admitted that the
affidavits were deliberately designed to circumvent the
proscription under RA6657.
| Oblicon 4th exam 26
Clearly, the transfers of the properties, through the affidavits,
violate Section 27 of the CARL. Under our established rulings,
these affidavits or waivers are void.
Because the transfers made to Filinvest in 1995 are void,
Filinvest cannot claim rightful possession over the properties.
The respondents are the awardees based on the CARL and
should be recognized as the lawful possessors.
Moreover, the pari delicto doctrine does not apply in an
agrarian reform case. To hold otherwise would defeat the spirit
and intent of the agrarian reform to free the tillers from the
bondage of the soil.19 The policy of the law must be upheld.
Article 1416 of the Civil Code provides an exception to the pari
delicto doctrine. Under this article, the plaintiff may recover what
he paid or delivered pursuant to a void contract if the following
requisites are met: (a) the contract is not illegal per se but merely
prohibited; (b) the prohibition is for the plaintiffs protection; and
(c) public policy will be enhanced by his recovery. These
requisites are present in this case.
On the first requisite, the affidavits here are merely prohibited.
A contract is illegal per se if, by universally recognized
standards, it is inherently bad, improper, immoral, or contrary
to good conscience.
Ordinarily, affidavits or contracts of sale are lawful. Only
Section 27 of the CARL made them unlawful.
On the second requisite, the prohibition under Section 27 of
the CARL is meant to protect the farmer-beneficiaries. Section
2 of the CARL explains that the agrarian reform program is
founded on the landless farmers' right to own land. Thus, their
protection must be given utmost importance.
On the third requisite, public policy will be promoted by
allowing the respondents to recover their land. The CARL
distributes agricultural land to landless farmers to improve their
quality of life.23 Returning the land to them will enhance this
public policy of agrarian reform.
Thus, the respondents may recover the subject properties.
TAN JR VS HOSANA
The respondent Jose G. Hosana (Jose) married Milagros C.
Hosana and they bought a house and lot located at Tinago,
Naga City.
Milagros sold to the petitioner Tomas P. Tan, Jr. (the subject
property, as evidenced by a deed of sale executed by Milagros
herself and as attorney-in-fact of Jose, through a SPA
executed by Jose in her favor.
Jose filed a Complaint for Annulment and averred that while he
was working in Japan, Milagros, without his consent and
knowledge, conspired with Tomas to execute the SPA by
forging Jose’s signature making it appear that Jose had
authorized Milagros to sell the subject property to Tomas.
Tomas maintained that he was a buyer in good faith and for
value. Before he paid the full consideration of the sale, Tomas
claimed he sought advice from his lawyer-friend who told him
that the title of the subject lot was authentic and in order.
Furthermore, he alleged that the SPA authorizing Milagros to
sell the property was annotated at the back of the title.
Held: A void or inexistent contract has no force and effect from
the very beginning. This rule applies to contracts that are
declared void by positive provision of law, as in the case of a
sale of conjugal property without the other spouse’s written
consent. A void contract is equivalent to nothing and is
absolutely wanting in civil effects. It cannot be validated either
by ratification or prescription.

When, however, any of the terms of a void contract have been
performed, an action to declare its inexistence is necessary to
allow restitution of what has been given under it. It is basic that
if a void contract has already “been performed, the restoration
of what has been given is in order.”
While the terms and provisions of a void contract cannot be
enforced since it is deemed inexistent, it does not preclude the
admissibility of the contract as evidence to prove matters that
occurred in the course of executing the contract, i.e., what
each party has given in the execution of the contract.
The deed of sale as documentary evidence may be used as a
means to ascertain the truthfulness of the consideration stated
and its actual payment.
While the deed of sale has no force and effect as a contract, it
remains prima facie evidence of the actual consideration paid.
Tomas failed to substantiate his claim that he paid to Milagros
the amount of P700,000.00, instead of the amount of
P200,000.00 stated in the deed of sale. No documentary or
testimonial evidence to prove payment of the higher amount
was presented, apart from Tomas’ sole testimony. Hence, the
consideration stated in the deed of sale remains sufficient
evidence of the actual amount the petitioner paid and the same
amount which should be returned under the principle of unjust
enrichment.
PENA VS DELOS SANTOS
Jesus and Rosita were the judgment awardees of the two-
thirds portion of four adjoining lots. The case was then
remanded to the RTC of Kalibo, Aklan for the execution
proceedings during which a Motion for Substitution with a
Motion for a Writ of Execution was filed by Peña.
Peña averred that he is the transferee of Jesus and Rosita's
adjudged allotments over the subject lots. He claimed that he
bought the same from Atty. Romeo Robiso who in turn,
acquired the properties from Jesus and Rosita through
assignment and sale.
Delos Santos, the plaintiffs in the case, opposed Peña's motion
claiming that the conveyance made by Jesus and Rosita in
favor of Atty. Robiso was null and void for being a prohibited
transaction because the latter was their counsel in the case.
Under their Attorney's Agreement and Undertaking, Atty.
Robiso bound himself to render his legal services and to
advance his own funds for all expenses and costs he may
incur in relation to the case. In consideration thereof, Jesus
and Rosita obliged themselves to give or pay to him as
contingent professional fees, 2,000 sq m of any and all lands
that the courts will award to them in the case.
Held: The basis of Peña's motion for substitution is infirm because
the lots were transferred to his predecessor-in-interest, Atty.
Robiso, through a prohibited sale transaction. Article 1491(5) of
the Civil Code expressly prohibits lawyers from acquiring property
or rights that may be the object of any litigation in which they may
take part by virtue of their profession.
A property is in litigation if there is a contest or litigation over it
in court or when it is subject of a judicial action. Records show
that the judicial action over the subject lots was still in the
appellate proceedings stage when they were conveyed to
Jesus and Rosita's counsel, Atty. Robiso.
Since the property conveyed to Atty. Robiso was still the object
of litigation, the deeds of conveyance are deemed inexistent.
Under Article 1409 of the Code, contracts which are expressly
prohibited or declared void by law are considered inexistent
and void from the beginning. This being so, Atty. Robiso could
not have transferred a valid title in favor of Peña over the lots
awarded to Jesus and Rosita.
| Oblicon 4th exam 27
There is no need to bring a separate action for the
declaration of the subject deeds of conveyance as void. A
void or inexistent contract is one which has no force and effect
from the very beginning. Hence, it is as if it has never been
entered into and cannot be validated either by the passage of
time or by ratification.
The need to bring a separate action for declaration of nullity
applies only if the void contract is no longer fully executory.
Contrary to Peña's stance, the deeds of conveyance made in
favor of Atty. Robiso in 2005 cannot be considered as
executory because at that time the judgment award ceding the
subject lots to Jesus and Rosita was not yet implemented. A
writ of execution was issued only on July 10, 2008. If the void
contract is still fully executory, no party need bring an
action to declare its nullity; but if any party should bring
an action to enforce it, the other party can simply set up
the nullity as a defense.
This is notwithstanding the fact that the sale to Atty. Robiso
was made pursuant to a contingency fee contract. It is true that
contingent fee agreements are recognized in this jurisdiction as
a valid exception to the prohibitions under Article 1491(5) of
the Civil Code. This does not apply in this case since the
payment to Atty. Robiso of his contingency fees was made
during the pendency of litigation.
Peña cannot rely on Article 1437 by claiming that Jesus and Rosita
are already estopped from questioning the validity of their deeds of
conveyance with Atty. Robiso. Estoppel is a principle in equity and
pursuant to Article 1432 it is adopted insofar as it is not in conflict
with the provisions of the Civil Code and other laws. Otherwise
speaking, estoppel cannot supplant and contravene the
provision of law clearly applicable to a case
FULLIDO VS GRILLI
Grilli, an Italian national, met Fullido in Bohol and courted her.
In 1995, Grilli decided to build a residential house where he
and Fullido would stay whenever he would be vacationing in
the country.
Grilli financially assisted Fullido in procuring a lot from her
parents which was registered in her name. On the said
property, they constructed a house, which was funded by Grilli.
Upon completion, they maintained a common-law relationship
and lived there whenever Grilli was on vacation in the
Philippines twice a year.
In 1998, Grilli and Fullido executed a contract of lease, a
memorandum of agreement and a special power of attorney, to
define their respective rights over the house and lot.
The lease contract stipulated, among others, that Grilli as the
lessee, would rent the lot, registered in the name of Fullido, for
a period of fifty years, to be automatically renewed for another
fifty years upon its expiration in the amount of P10,000.00 for
the whole term of the lease contract; and that Fullido as the
lessor, was prohibited from selling, donating, or encumbering
the said lot without the written consent of Grilli.
The MOA stated that Grilli paid for the purchase price of the
house and lot; that ownership of the house and lot was to
reside with him; and that should the common-law relationship
be terminated, Fullido could only sell the house and lot to
whomever Grilli so desired.
Lastly, the SPA allowed Grilli to administer, manage, and
transfer the house and lot on behalf of Fullido.
Initially, their relationship was harmonious, but it turned sour
after 16 years of living together. Grilli filed a complaint for
unlawful detainer.
Held: Article 1409 of the New Civil Code explicitly states that
void contracts also cannot be ratified; neither can the right to
set up the defense of illegality be waived. Accordingly, there is
no need for an action to set aside a void or inexistent contract.

Contracts may be declared void even in a summary action for
for unlawful detainer because, precisely, void contracts do not
produce legal effect and cannot be the source of any rights.
The prohibition on the transfer of lands to aliens was adopted
in the present 1987 Constitution, under Sections 2, 3 and 7 of
Article XII thereof. The prohibition, however, is not limited to
the sale of lands to foreigners. It also covers leases of lands
amounting to the transfer of all or substantially all the rights of
dominion. If an alien is given not only a lease of, but
also an option to buy, a piece of land by virtue of
which the Filipino owner cannot sell or otherwise
dispose of his property, this to last for 50 years,
then it becomes clear that the arrangement is a
virtual transfer of ownership whereby the owner
divests himself in stages not only of the right to enjoy the
land but also of the right to dispose of it .
Consequently, Presidential Decree (P.D.) No. 471 was enacted
to regulate the lease of lands to aliens. It provides that the
maximum period allowable for the duration of leases of private
lands to aliens or alien-owned corporations, associations, or
entities not qualified to acquire private lands in the Philippines
shall be twenty-five years, renewable for another period of
twenty-five years upon mutual agreement of both lessor and
lessee.
As can be gleaned from the contract, the lease in favor of Grilli
was for a period of fifty years, automatically extended for
another fifty years upon the expiration of the original period.
Moreover, it strictly prohibited Fullido from selling, donating, or
encumbering her land to anyone without the written consent of
Grilli. The said contracts attempted to guise themselves as a
lease, but a closer scrutiny of the same revealed that they
were intended to transfer the dominion of a land to a foreigner
in violation of Section 7, Article XII of the 1987 Constitution.
The doctrine of in pari delicto shall not be applicable in this
case. An accepted exception arises when its application
contravenes well-established public policy.
In the present case, both Grilli and Fullido were undoubtedly
parties to a void contract. Fullido, however, was not barred
from filing the present petition before the Court because the
matters at hand involved an issue of public policy, specifically
the Constitutional prohibition against land ownership by aliens.
LIM VS QUEENSLAD TOKYO
Queensland is a duly licensed broker engaged in the trading of
commodities futures. Lim decided to invest with a marginal
deposit of US$5,000 in managers check. The marginal deposit
represented the advance capital for his future tradings.
Because respondent Queensland dealt in pesos only, it had to
convert US$5,000 in managers check to pesos, amounting to
P125,000 since the exchange rate at that time was P25 to
US$1.00. To accommodate petitioners request to trade right
away, it advanced the P125,000 from its own funds while
waiting for the managers check to clear.
Lim then started trading wherein he both incurred gains and
losses. When Queensland learned that it would take seventeen
days to clear the managers check, they returned it to Lim as
they wanted a travelers check instead. However, the travelers
check that Lim gave was not signed. Shia then deposited the
check to Citibank and trusted Lim when he said that
Queensland was the one who is supposed to sign the check.
However, Citibank informed them that the travelers check
could not be cleared unless it was duly signed by Lim, the
original purchaser of the travelers check. Thus they returned
the check to Lim for his signature, but the latter, aware of his
P44,465 loss, demanded for a liquidation of his account and
said he would get back what was left of his investment.
Meanwhile, Lim signed only one portion of the travelers check,
leaving the other half blank. He then kept it.
| Oblicon 4th exam 28
Respondent asked Shia to talk to petitioner for a settlement of
his account but petitioner refused to talk with Shia. Shia made
follow-ups for more than a week beginning October 27, 1992.
Because petitioner disregarded this request, respondent was
compelled to engage the services of a lawyer, who sent a
demand letter to petitioner. This letter went unheeded. Thus,
respondent filed a complaint against petitioner for collection of
a sum of money.
Held: The essential elements of estoppel are: (1) conduct of a
party amounting to false representation or concealment of
material facts or at least calculated to convey the impression
that the facts are otherwise than, and inconsistent with, those
which the party subsequently attempts to assert; (2) intent, or
at least expectation, that this conduct shall be acted upon by,
or at least influence, the other party; and (3) knowledge, actual
or constructive, of the real facts.
Petitioner had in fact signed the Customers Agreement
knowing fully well the nature of the contract he was entering
into. The Customers Agreement was duly notarized and as a
public document it is evidence of the fact, which gave rise to its
execution and of the date of the latter. Next, petitioner paid his
investment deposit to respondent in the form of a managers
check in the amount of US$5,000. All these are indicia that
petitioner treated the Customers Agreement as a valid and
binding contract.
Moreover, we agree that, on petitioners part, there was
misrepresentation of facts. He replaced the managers check
with an unendorsed travelers check, instead of cash, while
assuring Shia that respondent Queensland could sign the
indorsee portion thereof. As it turned out, Citibank informed
respondent that only the original purchaser could sign said
check. When the check was returned to petitioner for his
signature, he refused to sign. Then, as petitioner himself
admitted in his Memorandum, he used the travelers check for
his travel expenses.
More significantly, petitioner already availed himself of the
benefits of the Customers Agreement whose validity he now
impugns. As found by the CA, even before petitioners initial
marginal deposit was converted into cash, he already started
trading, thereby making a net profit of P6,845.57. On October
23, he continued availing of said agreement, although this time
he incurred a floating loss of P44,645. While he claimed he
had not authorized respondent to trade on those dates, this
claim is belied by his signature affixed in the order forms.
Clearly, by his own acts, petitioner is estopped from impugning
the validity of the Customers Agreement. For a party to a
contract cannot deny the validity thereof after enjoying its
benefits without outrage to ones sense of justice and fairness.
It appears that petitioners reason to back out of the agreement
is that he began sustaining losses from the trade. However,
this alone is insufficient to nullify the contract or disregard its
legal effects. By its very nature it is already a perfected, if not a
consummated, contract. Courts have no power to relieve
parties from obligations voluntarily assumed, simply because
their contracts turned out to be disastrous or unwise
investments. Notably, in the Customers Agreement, petitioner
has been forewarned of the high risk involved in the foreign
currency investment as stated in the Risk Disclosure
Statement, located in the same box where petitioner signed.
Further, petitioner contends that the Customers Agreement
was rendered nugatory because: (1) the marginal deposit he
gave was in dollars and (2) respondent allowed him to trade
even before the US$5,000 managers check was cleared.
However, petitioner himself was responsible for the issuance of
the US$5,000 managers check. It was he who failed to replace
the managers check with cash. He authorized Shia to start
trading even before the US$5,000 check had cleared. He could
not, in fairness to the other party concerned, now invoke his
own misdeeds to exculpate himself, conformably with the basic
principle in law that he who comes to court must come with
clean hands.

HEMOSILLA VS REMONQUILLO
On August 31, 1931, the Republic of the Philippines acquired
through purchase the San Pedro Tunasan Homesite.
Apolinario Hermosilla, who was occupying a lot in San Pedro
Tunasan Homesite until his death in 1964, caused the
subdivision of the lot into two. He then executed a Deed of
Assignment transferring possession of Lot 19 in favor of his
grandson, herein respondent Jaime Remoquillo. As the Land
Tenure Administration later found that Lot 19 was still available
for disposition to qualified applicants, Jaime, being its actual
occupant, applied for its acquisition before the LTA on May 10,
1963.
On July 8, 1963, Apolinario conveyed Lot 12 to his son
Salvador Hermosilla, Jaimes uncle.
Salvador later filed an application to purchase Lot 12 which
was awarded to him by the defunct Land Authority. On
February 10, 1972, Jaime and his uncle Salvador forged a
Kasunduan ng Paglipat Ng Karapatan sa Isang Lagay na
Lupang Solar (Kasunduan) whereby Jaime transferred
ownership of the 65 square meters in favor of Salvador.
After Apolinario died, his daughter Angela Hermosilla filed a
protest before the Land Authority contending that as an heir of
the deceased, she is also entitled to Lots 12 and 19. NHA
dismissed the protest and awarded Lot 19 to Jaime.
Thus petitioners filed an action for Annulment of Title on the
ground of fraud with damages against Jaime alleging that by virtue
of the Kasunduan executed in 1972, Jaime had conveyed to his
uncle Salvador the questioned property part of Lot 19.
Held: When the Kasunduan was executed in 1972 by Jaime in
favor of Salvador petitioners predecessor-in-interest Lot 19, of
which the questioned property forms part, was still owned by
the Republic. Nemo dat quod non habet. Nobody cannot give
what he does not possess. Jaime could not thus have
transferred anything to Salvador via the Kasunduan.
Claiming exception to the rule, petitioners posit that at the time
the Kasunduan was executed by Jaime in 1972, his application
which was filed in 1963 for the award to him of Lot 19 was still
pending, hence, the Kasunduan transferred to Salvador
Jaimes vested right to purchase the same, in support of which
they cite a law on estoppel, Art. 1434 of the Civil Code, which
provides that [w]hen a person who is not the owner of a thing
sells or alienates and delivers it and later, the seller or grantor
acquires title thereto, such title passes by operation of law to
the buyer or grantee.
Petitioners reliance on Article 1434 of the Civil Code does not
lie. The principles of estoppel apply insofar as they are not in
conflict with the provisions of the Civil Code, the Code of
Commerce, the Rules of Court and special laws.
Land Authority Administrative Order No. 4, proscribes the
conveyance of the privilege or preference to purchase a land
from the San Pedro Tunasan project before it is awarded to a
tenant or bona fide occupant.
Petitioners insistence on any right to the property under the
Kasunduan thus fails. The transfer became one in violation of
law and therefore void ab initio. Hence, appellant acquired no
right over the lot from a contract void ab initio, no rights are
created. Estoppel, as postulated by petitioner, will not apply for
it cannot be predicated on an illegal act. It is generally
considered that as between the parties to a contract, validity
cannot be given to it by estoppel if it is prohibited by law or is
against public policy.
Petitioners go on to postulate that if the Kasunduan is void, it
follows that the 1962 Deed of Assignment executed by
Apolinario in favor of Jaime is likewise void to thus deprive the
latter of any legal basis for his occupation and acquisition of
Lot 19.
Petitioners position fails since Jaime acquired Lot 19 in his own
right, independently of the Deed of Assignment.
In another vein, since the property was previously a public land,
petitioners have no personality to impute fraud or
misrepresentation against the State or violation of the law. If the
title was in fact fraudulently obtained, it is the State which should
file the suit to recover the property through the Office of the
| Oblicon 4th exam 29
Solicitor General. The title originated from a grant by the
government, hence, its cancellation is a matter between the
grantor and the grantee.
ACCESSORIES SPECIALIST VS ALABANZA
On September 27, 2002, private respondent Erlinda, for and in
behalf of her husband Jones filed a complaint against
petitioners Accessories Specialists, Inc. for non-payment of
salaries, separation pay, and 13th month pay.
Erlinda alleged that her husband Jones was the Vice-President,
Manager and Director of ASI and that he was compelled ASI to file
his involuntary resignation on the ground that ASI allegedly
suffered losses due to lack of market and incurred several debts
caused by a slam in the market. At the time of his resignation,
Jones had unpaid salaries for eighteen months equivalent to
P396,000.00 and US$38,880.00. He was likewise not paid his
separation pay commensurate to his 21 years of service in the
amount of P462,000.00 and US$45,360.00 and 13th month pay
amounting to P33,000.00. Jones demanded payment of his money
claims upon resignation but ASI informed him that it would just
settle first the money claims of the rank- and-file employees, and
his claims will be paid thereafter. Knowing the predicament of the
company, Jones patiently waited for his turn to be paid. Several
demands were made by Jones but ASI just kept on assuring him
that he will be paid his monetary claims. Jones died on August 5,
2002 and failed to receive the same.
On the other hand, the petitioners contend that Jones
voluntarily resigned and Erlindas cause of action has already
prescribed and is forever barred on the ground that under
Article 291 of the Labor Code, all money claims arising from an
employer-employee relationship shall be filed within three
years from the time the cause of action accrues. Since the
complaint was filed only on September 27, 2002, or almost five
years from the date of the alleged illegal dismissal of her
husband Jones, Erlindas complaint is now barred.
Held: Based on the findings of facts of the LA, it was ASI which
was responsible for the delay in the institution of the complaint.
When Jones filed his resignation, he immediately asked for the
payment of his money claims. However, the management of
ASI promised him that he would be paid immediately after the
claims of the rank-and-file employees had been paid. Jones
relied on this representation. Unfortunately, the promise was
never fulfilled even until the time of Jones death.
In light of these circumstances, we can apply the principle of
promissory estoppel, which is a recognized exception to the
three-year prescriptive period enunciated in Article 291 of the
Labor Code.
Promissory estoppel may arise from the making of a
promise, even though without consideration, if it was
intended that the promise should be relied upon, as in fact
it was relied upon, and if a refusal to enforce it would
virtually sanction the perpetration of fraud or would result
in other injustice. Promissory estoppel presupposes the
existence of a promise on the part of one against whom
estoppel is claimed. The promise must be plain and
unambiguous and sufficiently specific so that the court can
understand the obligation assumed and enforce the promise
according to its terms.
In order to make out a claim of promissory estoppel, a party
bears the burden of establishing the following elements: (1) a
promise was reasonably expected to induce action or
forbearance; (2) such promise did, in fact, induce such
action or forbearance; and (3) the party suffered detriment
as a result.
All the requisites of promissory estoppel are present in this
case. Jones relied on the promise of ASI that he would be paid
as soon as the claims of all the rank-and-file employees had
been paid. If not for this promise that he had held on to until
the time of his death, we see no reason why he would delay
filing the complaint before the LA. Thus, we find ample
justification not to follow the prescriptive period imposed under
Article 291 of the Labor Code.

ASILO VS BOMBASI
Private Respondent Visitacion’s late mother Marciana and the
Municipality of Nagcarlan entered into a lease contract
whereby the Municipality allowed the use and enjoyment of
property comprising of a lot and a store located in favor of the
respondent’s mother for a period of twenty years extendible for
another 20 years.
The lease contract provided that the late Marciana could build
a firewall on her rented property which must be at least as high
as the store; and in case of modification of the public market,
she or her heir/s would be given preferential rights.
Visitacion took over the store when her mother died sometime
in 1984. From then on up to January 1993, Visitacion secured
the yearly Mayor’s permits. Sometime in 1986, a fire razed the
public market of Nagcarlan. Upon Visitacion’s request for
inspection on 15 May 1986, District Engineer Gorospe found
that the store of Visitacion remained intact and stood strong.
This finding of Engineer Gorospe was contested by the
Municipality of Nagcarlan.
On 1 September 1993, Visitacion received a letter from Mayor
Comendador directing her to demolish her store within five
days from notice. She wrote a reply letter to Mayor
Comendador saying that: (1) the lease contract was still
existing and legally binding; (2) she was willing to vacate the
store as long as same place and area would be given to her in
the new public market; and (3) in case her proposals are not
acceptable to Mayor Comendador, for the latter to just file an
unlawful detainer case against her. Mayor Comendador relying
on the strength of Sangguniang Bayan Resolution Nos. 183
and 156 authorized the demolition of the store with Asilo and
Angeles supervising the work.
Visitacion, together with her husband Cesar Bombasi then filed
a complaint for damages with preliminary injunction.
Held: the Municipality of Nagcarlan, Laguna, as represented by
the then Mayor Comendador, was placed in estoppel after it
granted yearly business permits in favor of the Spouses
Bombasi. Art. 1431 of the New Civil Code provides that,
through estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon.
The representation made by the municipality that the Spouses
Bombasi had the right to continuously operate its store binds
the municipality. It is utterly unjust for the Municipality to
receive the benefits of the store operation and later on claim
the illegality of the business.
PRISMA CONSTRUCTION VS MENCHAVEZ
On December 8, 1993, Pantaleon, the President and Chairman
of the Board of PRISMA, obtained a P1,000,000.00 loan from
the respondent, with a monthly interest of P40,000.00 payable
for six months, or a total obligation of P1,240,000.00 to be paid
within six months.
To secure the payment of the loan, Pantaleon issued a
promissory note and six (6) postdated checks corresponding to
the schedule of payments. Pantaleon signed the promissory
note in his personal capacity] and as duly authorized by the
Board of Directors of PRISMA. The petitioners failed to
completely pay the loan within the stipulated six (6)-month
period.
As of January 4, 1997, the petitioners had already paid a total of
P1,108,772.00. However, the respondent found that the petitioners
still had an outstanding balance of P1,364,151.00 as of January 4,
1997, to which it applied a 4% monthly interest.
Thus, the respondent filed a complaint for sum of money with
the RTC to enforce the unpaid balance, plus 4% monthly
interest. Petitioners admitted the loan of P1,240,000.00, but
denied the stipulation on the 4% monthly interest, arguing that
the interest was not provided in the promissory note. Pantaleon
also denied that he made himself personally liable and that he
made representations that the loan would be repaid within six
(6) months.
| Oblicon 4th exam 30
Held: In the present case, the respondent issued a check for
P1,000,000.00. In turn, Pantaleon, in his personal capacity and
as authorized by the Board, executed the promissory note
quoted above. During the six months period, the loan shall
earn an interest of P40,000.00 per month, for a total obligation
of P1,240,000.00 for the six-month period. We note that this
agreed sum can be computed at 4% interest per month, but no
such rate of interest was stipulated in the promissory note;
rather a fixed sum equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that no
interest shall be due unless it has been expressly stipulated in
writing. Thus, the interest of P40,000.00 per month
corresponds only to the six (6)-month period of the loan, or
from January 8, 1994 to June 8, 1994, as agreed upon by the
parties in the promissory note. Thereafter, the interest on the
loan should be at the legal interest rate of 12% per annum.
The parties agreed to the payment of a specific sum of money
of P40,000.00 per month for six months, not to a 4% rate of
interest payable within a six (6)-month period.
We cannot apply the doctrine of estoppel in the present case
since the facts and circumstances, as established by the
record, negate its application.
Under the promissory note, what the petitioners agreed to was
the payment of a specific sum of P40,000.00 per month for six
months not a 4% rate of interest per month for six months on a
loan whose principal is P1,000,000.00, for the total amount of
P1,240,000.00. Thus, no reason exists to place the petitioners
in estoppel, barring them from raising their present defenses
against a 4% per month interest after the six-month period of
the agreement. The board resolution, on the other hand, simply
authorizes Pantaleon to contract for a loan with a monthly
interest of not more than 4%. This resolution merely embodies
the extent of Pantaleons authority to contract and does not
create any right or obligation except as between Pantaleon and
the board. Again, no cause exists to place the petitioners in
estoppel.
DIZON VS PHILIPPINE VETERANS BANK
Rogelio Dizon and his wife Corazon were the owners of three
parcels of land. They mortgaged these lots to respondent
Philippine Veterans Bank as security for a credit
accommodation which they obtained from PVB. The Spouses
Dizon failed to pay their obligation. As a consequence, PVB
extrajudicially foreclosed the mortgage and was able to acquire
the subject properties at public auction.
PVB filed with a Petition for Issuance of Owner's Duplicate
Copy of Transfer Certificate of Title. Dizon opposed the petition
on the ground that the titles, which he presented to the bank as
evidence that the subject properties were used as security for
the loan were genuine but were later on altered by the bank's
officials and employees with whom he allegedly entered a deal
in order to have his loan approved. Petitioner claims that this
altered and spurious titles were the ones presented by PVB.
Held: Petitioner’s allegations remain unsubstantiated. They are
self-serving statements which are not supported by any
evidence whatsoever. The established fact remains that
petitioner and his wife were the ones who submitted to PVB
the authentic owner's copy of the titles over the subject
properties and that these copies were lost.
The Court cannot follow the logic in petitioner's arguments
considering that, in the first place, he and his wife were the
ones who submitted the titles to PVB. Now that PVB seeks to
obtain a duplicate copy of the titles covering the subject
properties which it legally acquired, petitioner has made a
complete turnaround and now assails the authenticity of these
titles which he and his wife used to obtain their loan.
Nonetheless, petitioner is estopped from doing so.
 | Oblicon 4th exam 31

Settled is the rule that a person, who by his deed or conduct
has induced another to act in a particular manner, is barred
from adopting an inconsistent position, attitude or course of
conduct that thereby causes loss or injury to the latter.
The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is to
forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed
and who reasonably relied thereon.
Article 1431 of the Civil Code states that [t]hrough estoppel an
admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as
against the person relying thereon.
The essential elements of estoppel are: (1) conduct of a party
amounting to false representation or concealment of
material facts or at least calculated to convey the
impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently
attempts to assert; (2) intent, or at least expectation, that
this conduct shall be acted upon by, or at least influence,
the other party; and (3) knowledge, actual or constructive,
of the real facts.
In the present case, petitioner may not renege on his own acts
and representations to the prejudice of respondent bank, which
has relied on them. Since petitioner entered into a binding
contract on his own volition using the titles which he now
assails, he is therefore estopped from questioning the
authenticity of these documents which paved the way for the
consummation of the contract from which he derived benefit.
HOJAS VS AMANAH BANK
Spouses Rubin and Portia Hojas alleged that on April 11, 1980,
they secured a loan from respondent Philippine Amanah Bank in
the amount of P450,000.00 secured by a mortgage. From May 14,
1981 to June 27, 1986, they made various payments amounting to
P486,162.13 but PAB did not properly credit their payments. PAB
listed their total payment as ₱412,211.54 on the
principal, and P138,472.09 as 30% interest, all amounting to
P550,683.63, despite the fact that at that time, petitioners had
already paid the total sum of P486,162.13.
good faith, and justice and its purpose is to forbid one to speak
against his own act, representations or commitments to the injury
of one to whom they were directed and who reasonably relied on
it. Thus, in order for this doctrine to operate, a representation must
have been made to the detriment of another who relied on it. In
other words, estoppel would not lie against one who, in the first
place, did not make any representation.
In this case, a perusal of the letter, on which petitioners based
their position that the redemption period had been extended,
shows otherwise.
The date "December 31, 1988" refers to the last day when
owners of foreclosed properties, like petitioners, could submit
their payment proposals to the bank. The letter was very clear.
It was about the availment of the liberalized payment scheme
of the bank. On the last day for redemption, the letter was also
clear. It was April 21, 1988. It was never extended. The
opportunity given to the petitioners was to avail of the
liberalized payment scheme which program would expire on
December 31, 1988. In response, the petitioners told Iribani
that they would go Manila to explain their case. They did not,
however, return even after the public bidding.
Here, there is no estoppel to speak of. The letter does not
show that the Bank had unqualifiedly represented to the
Hojases that it had extended the redemption period to
December 31, 1988. Thus, the Hojases have no basis in
positing that the public sale conducted on November 4, 1988
was null and void for having been prematurely conducted.
Moreover, petitioners’ allegation that they had signified their
intention to avail of the incentive scheme (which they have
equated to their intention to redeem the property), did not
amount to an exercise of redemption precluding the bank from
making the public sale.
The general rule in redemption is that it is not sufficient that a
person offering to redeem manifests his desire to do so. The
statement of intention must be accompanied by an actual and
simultaneous tender of payment. This constitutes the exercise
of the right to repurchase.

Through the intervention of then Senator Aquilino Pimentel, the

OIC President of PAB, wrote a letter and informed them that
although the one-year redemption period would expire on April
21, 1988, by virtue of the bank’s incentive scheme, the
redemption period was extended until December 31, 1988.
However on November 4, 1988, a public bidding was
conducted; that in the said bidding, the mortgaged properties
were awarded to respondent Ramon Kue.

Petitioners argue that the November 4, 1988 public sale by

PAB was violative of the principle of estoppel because said
bank made it appear that the one-year redemption period was
extended. On the other hand, PAB explains that the purpose of
the "incentive scheme" was to give previous owners the
chance to redeem their properties on easy payment term basis
and that the letter was an invitation for petitioners to submit a
proposal to PAB. It was not meant to extend the one-year
redemption period.

As early as August 11, 1988, PAB wrote petitioners informing

them of the scheduled public bidding. After receipt of the letter,
petitioners went to PAB to signify their willingness to avail of
the said incentive scheme. They, however, failed to submit a
proposal.

Held: Through estoppel, an admission or representation is

rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying on it. This
doctrine is based on the grounds of public policy, fair dealing,