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CIVILLAWREVIEWDIGESTSBalane

Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

ARTICLE 1308
SAMPAGUITA BUILDERS v PNB
Minidigest:SampaguitaloanedmoneyfromPNB.PNBunilaterallyincreasedratesofinterest intheloanw/oinformingSampaguita.PNBclaimedtheywereauthorizedtodoitasthere wasaclauseintheagreementthattheymaydoso.Besides,Usurylawwasnolongerinforce =SCsaidNO!PNBcannotdoso;itwillviolatemutualityofcontractsunder1308.Besides,SC mayintervenewhenamountofinterestisunconscionable. Facts: SampaguitasecuredaloanfromPNBinanaggregateamountof8Mpesos,mortgagingthe propertiesofSampaguitaspresidentandchairmanoftheboard.Sampaguitaalsoexecuted severalpromissorynotesdueondifferentdates(paymentdates).Thefirstpromissorynote had19.5%interestrate.The2ndand3rdhad21.5%.auniformclausethereinpermittedPNB to increase the rate within the limits allowed by law at any time depending on whatever policyitmayadoptinthefuturexxx,withoutevengivingpriornoticetopetitioners.There wasalsoaclauseinthepromissorynotethatstatedthatifthesameisnotpaid2yearsafter releasethenitshallbeconvertedtoamediumtermloanandtheinterestrateforsuchloan wouldapply. Later on, Sampaguita defaulted on its payments and failed to comply with obligations on promissorynotes.Sampaguitathusrequestedfora90dayextensiontopaytheloan.Again theydefaulted,sotheyaskedforloanrestructuring.Itpartlypaidtheloanandpromisedto pay the balance later on. AGAIN they failed to pay so PNB extrajudicially foreclosed the mortgaged properties. It was sold for 10M. PNB claimed that Sampaguita owed it 12M so theyfiledacaseincourtaskingsampaguitatopayfordeficiency. RTCfoundthatSampaguitawasautomaticallyentitledtothedebtreliefpackageofPNBand ruled that the latter had no cause of action against the former. CA reversed, saying Sampaguitawasnotentitled,thusorderedthemtopaythedeficiencyAppeal=WenttoSC. Sampaguita claims the loan was bloated so they dont reallyowe PNB anymore, but it just overchargedthem! Issues/Ruling: W/N the loan accounts are bloated: YES. There is no deficiency; there is actually an overpaymentofmorethan3MbasedonthecomputationoftheSC. WhetherPNBcouldunilaterallyincreaseinterestrates:NO Ratio: SampaguitasaccessorydutytopayinterestdidnotgivePNBunrestrainedfreedomtocharge anyrateotherthanthatwhichwasagreedupon.Nointerestshallbedue,unlessexpressly stipulatedinwriting.Itwouldbethezenithoffarcicalitytospecifyandagreeuponratesthat couldbesubsequentlyupgradedatwhimbyonlyonepartytotheagreement.

Theunilateraldeterminationandimpositionofincreasedratesisviolativeoftheprinciple ofmutualityofcontractsordainedinArticle1308oftheCivilCode.Onesidedimpositions donothavetheforceoflawbetweentheparties,becausesuchimpositionsarenotbasedon thepartiesessentialequality. Althoughescalationclausesarevalidinmaintainingfiscalstabilityandretainingthevalueof money on longterm contracts, giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from petitioners the right to assenttoanimportantmodificationintheiragreementandwouldalsonegatetheelement ofmutualityintheircontracts.Theclausecitedearliermadethefulfillmentofthecontracts dependent exclusively upon the uncontrolled will of respondent and was therefore void. Besides,theproformapromissorynoteshavethecharacterofacontractdadhsion,where thepartiesdonotbargainonequalfooting,theweakerpartys[thedebtors]participation beingreducedtothealternativetotakeitorleaveit. Circularthatliftedtheceilingofinterestratesofusurylawdidnotauthorizeeitherpartyto unilaterallyraisetheinterestratewithouttheothersconsent. theinterestrangingfrom26percentto35percentinthestatementsofaccountmustbe equitablyreducedforbeinginiquitous,unconscionableandexorbitant.Ratesfoundtobe iniquitousorunconscionablearevoid,asifittherewerenoexpresscontractthereon.Above all,itisundoubtedlyagainstpublicpolicytochargeexcessivelyfortheuseofmoney. ItcannotbearguedthatassenttotheincreasescanbeimpliedeitherfromtheJune18,1991 requestofpetitionersforloanrestructuringorfromtheirlackofresponsetothestatements ofaccountsentbyrespondent.Suchrequestdoesnotindicateanyagreementtoaninterest increase;therecanbenoimpliedwaiverofarightwhenthereisnoclear,unequivocaland decisiveactshowingsuchpurpose.Besides,thestatementswerenotlettersofinformation senttosecuretheirconformity;andevenifweweretopresumetheseasanoffer,therewas noacceptance.Noonereceivingaproposaltomodifyaloancontract,especiallyinteresta vitalcomponentisobligedtoanswertheproposal. Besides,PNBdidnotcomplywithitsownstipulationthatshouldtheloannotbepaid2years afterreleaseofmoneythenitshallbeconvertedtoamediumtermloan. *Courtapplied12%interestrateinsteadforbeingaforbearanceofmoney (thereweresomepiecesofevidencepresentedbyPNBincourtthatsampaguitaobjectedto. Lower courts overruled the objections but SC said the objections were correct and the

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

evidenceshouldnothavebeenadmitted.i.e.contractwasntsignedbytheparties,apartof thecontractwasntproperlyannexed/noreferencewasmadeinthemaincontract.) Inadditiontotheprecedingdiscussion,itisthenuselesstolaborthepointthattheincrease inratesviolatestheimpairmentclauseoftheConstitution,becausethesolepurposeofthis provisionistosafeguardtheintegrityofvalidcontractualagreementsagainstunwarranted interferencebytheStateintheformoflaws.Privateindividualsintrusionsoninterestrates isgovernedbystatutoryenactmentsliketheCivilCode Whetherpetitionerisboundtoacceptpaymentbymeansofcreditcard RULING:YES MandarinVillaSeafoodVillageisaffiliatedwithBANKARD.MandarinandBANKARDentered intoagreementwhichstatesthat The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding holders in the purchase of goods and/or services supplied by it providedthatthecardexpirationdatehasnotelapsedandthecardnumberdoesnot appear on the latest cancellation bulletin of lost, suspended and canceled PCCCI credit cards and, no signs of tampering, alterations or irregularities appear on the faceofthecreditcard. While De Jesus may not be a party to the said agreement, the abovequoted stipulation conferred a favor upon DE Jesus, a holder of credit card validly issued by BANKARD. This stipulationisastipulationpourauturiandunderArticle1311oftheCivilCode,DeJesusmay demand its fulfillment provided he communicated his acceptance to Mandarin before its revocations.INthecaseatbar,DeJesusoffertopaybymeansofhisBANKARDcreditcard constitutes not only as an acceptance of the said stipulation but also an explicit communicationofhisacceptancetotheobligor. In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that "Bankard is accepted here.This representation is conclusive upon the petitioner which it cannot deny or disprove as against De Jesus, the party relying thereon. Mandarin,therefore,cannotdisclaimitsobligationtoacceptDeJesus'BANKARDcreditcard withoutviolatingtheequitableprincipleofestoppel. 1.

ARTICLE 1311
MANDARIN VILLA v CA
FACTS: In the evening of October 19, 1989, private respondent De Jesus, a practicing lawyer and businessman, hosted a dinner for his friends at Mandarin Villa Seafoods Village Greenhills, Mandaluyong City. After the dinner, the waiter handed to him the bill in the amount of P2658.50. De Jesus offered to pay the bill through his credit card issued by Philippine CommercialCreditCardInc.(BANKARD).Thiscardwasacceptedbythewaiter.Tenminutes later,thewaiterreturnedandaudiblyinformedDeJesusthathiscardhadexpired.DeJesus argued that his card had yet to expire on September 1990, as embossed on its face. The waiterwasunmovedthusDeJesusandtwoofhisguestsapproachedtherestaurantscashier whoagainpassedthecreditcardovertheverificationcomputer.Thesameinformationwas produced(CardExpired).DeJesusandhistwoguestsreturnedtotheirtableandoneofthe guests (Professor Lirag) uttered Cloddy (Clodualdo De Jesus) may problema ba? Baka kailangang maghugas na kami ng pinggan? De Jesus left the restaurant and got his BPI Express Credit Card from his card and offered it to pay their bill. This was accepted and honoredbythecashierafterverification. Subsequently,DeJesusfiledasuitfordamagesforhishumiliationandembarrassment. TCruledinDeJesusfavorandawardedmoralandexemplarydamagesandattorneysfees andlitigationexpenses. Mandarin andBankard appealed to CA and CAheld that Mandarin is solely responsible for damagesinfavorofDeJesus. ISSUE:

UY v CA
Facts: W.UyandR. Roxasareagentswithpowertosell8parcelsof landbytheownersthereof. Under such power, they offered to sell the lands, located in Benguet to National HousingAuthority(NHA)tobeutilizedanddevelopedasahousingproject. OnValentinesdayof1989,theNHABoardpassedaResolutionapprovingtheacquisitionof said lands, with an areaof 31.8231 hectares, at the cost of P23.867 million, pursuant to

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

whichthepartiesexecutedaseriesofDeedsofAbsoluteSalecoveringthesubjectlands.Of the8parcelsofland,however,only5werepaidforbytheNHA.1 On1991,theNHAissuedanewResolutioncancellingthesaleoverthe3parcelsofland. TheNHA,throughResolution2394,subsequentlyofferedtheamountofP1.225million tothelandownersasdaosperjuicios. Aggrieved at the loss of a sale, March 1992, Uy and Roxas filed before the RTC QuezonCityaComplaintforDamagesagainstNHAanditsGeneralManagerRobertBalao. After trial, the RTC rendered a decision declaring thecancellation of the contract to be 2 justified.TothegleeofUyandRoxas,thetrialcourtstillawardeddamagestoplaintiffs . Uponappealbypetitioners,theCourtofAppealsreversedthedecisionofthetrialcourtand entered a new one dismissing the complaint. It held that since there was sufficient justifiablebasisincancellingthesale,itsawnoreasonfortheawardofdamages.3 Issue: w/ntheawardofdamageswereproper. Held: TheSupremeCourtdeniedthepetitionandaffirmedtheCA. Action must be prosecuted in the name of a party whose right is sought to be enforced. ThePetitionersarenottherealparties. The SC held that cases construing the real partyininterestp rovision can be more easily understood if it is borne in mind that the true meaning of real partyininterest may be summarizedasfollows:Anactionshallbeprosecutedinthenameofthepartywho,bythe substantivelaw,hastherightsoughttobeenforced.Inthiscase,Uyetalarenottheproperparties toadvancethecase.4 Neitherhastherebeenanyallegation,muchlessproof,thatpetitionersaretheheirsoftheir principals. Arepetitionersassigneestotherightsunderthecontractsofsale?InMcMickingvs.Banco EspaolFilipino, the SC held that the rule requiring every action to be prosecuted in the 7 nameoftherealpartyininterest. Actionssubmitted by anattorneyinfact in hisname andnotinthe nameofhisprincipal mustbedismissed Wheretheactionisbroughtbyanattorneyinfactofalandownerinhisname,(asin 5 ourpresentaction)andnotinthenameofhisprincipal,theactionwasproperlydismissed PertinentCivilLawProvision:Article1311 Theprimaryquestion:dopetitioners,undersubstantivelaw,possesstherighttheyseekto enforce?TheSCrespondedinthenegative.. TheapplicablesubstantivelawinthiscaseisArticle1311oftheCivilCode6 The SC found that the Petitioners are not parties to the contract of sale between their principalsandNHA.Theyaremereagentsoftheownersofthelandsubjectofthesale.As agents,theyonlyrendersomeserviceordosomethinginrepresentationoronbehalfoftheir principals.Therenderingofsuchservicedidnotmakethempartiestothecontractsofsale executedinbehalfofthelatter.Sinceacontractmaybeviolatedonlybythepartiesthereto asagainsteachother,therealpartiesininterest,eitherasplaintiffordefendant,inanaction uponthatcontractmust,generally,eitherbepartiestosaidcontract.


interest,aninterestintheissueandtobeaffectedbythedecree,asdistinguishedfrommereinterestinthequestion involved,oramereincidentalinterest. 5 CitingFerrervs.Villamor,60SCRA406[1974];Marcelovs.deLeon,105Phil.1175 becausetheruleisthateveryactionmustbeprosecutedinthenameoftherealpartiesininterest

AreportNHAreceivedfromtheDENRconfirmedthattheremaining areaislocatedatannotoriouslandslideareaandtherefore,notsuitablefordevelopmentintoa housingproject. InthesumofP1.255million,thesameamountinitiallyofferedbyNHAtopetitionersasdamages. TheCourtofAppealsfoundnotedthatpetitionersweremereattorneysinfactand,therefore,notthereal partiesininterestintheactionbeforethetrialcourt.ThisisasideREMissue. 4 Section2,Rule3oftheRulesofCourtrequiresthateveryactionmustbeprosecutedanddefendedinthenameof therealpartyininterest.Therealpartyininterestisthepartywhostandstobebenefitedorinjuredbythe judgmentorthepartyentitledtotheavailsofthesuit.Interest,withinthemeaningoftherule,meansmaterial


2 3

6 Contractstakeeffectonlybetweentheparties,theirassigns,andheirs,exceptincasewheretherightsandobligations arisingfromthecontractarenottransmissiblebytheirnature,orbystipulation,orbyprovisionoflaw.xxx. Ifacontractshouldcontainsomestipulationinfavorofathirdperson,hemaydemanditsfulfillmentprovidedhe communicatedhisacceptancetotheobligorbeforeitsrevocation.Amereincidentalbenefitorinterestofapersonis notsufficient.Thecontractingpartiesmusthaveclearlyanddeliberatelyconferredafavoruponathirdperson.

7 xxxrecognizestheassignmentsofrightsofactionandalsorecognizesthatwhenonehasarightofactionassignedto himheisthentherealpartyininterestandmaymaintainanactionuponsuchclaimorright.Thepurposeof[thisrule] istorequiretheplaintifftobetherealpartyininterest,or,inotherwords,hemustbethepersontowhomthe proceedsoftheactionshallbelong,andtopreventactionsbypersonswhohavenointerestintheresultofthesame. xxx

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

The SC thought otherwise. Petitioners have not shown that they are assignees of their principals to the subject contracts. While they alleged that they made advances and that theysufferedlossofcommissions,theyhavenotestablishedanyagreementgrantingthem the right to receive payment and out of the proceeds to reimburse for advances and commissionsbeforeturningthebalanceovertotheprincipal. Finally,itdoesnotappearthatpetitionersarebeneficiariesofastipulationpourautruiunder thesecondparagraphofArticle1311oftheCivilCode.Indeed,thereisnostipulationinany of the Deeds of Absolute Sale clearly and deliberately conferring a favor to any third person. That petitioners did not obtain their commissions or recoup their advances because of the nonperformance of the contract did not entitle them to file the action below against respondentNHA. Ifacontractshouldcontainsomestipulationinfavorofathirdperson,hemaydemandits fulfillmentprovidedhecommunicatedhisacceptancetotheobligorbeforeitsrevocation.A mereincidentalbenefitorinterestofapersonisnotsufficient.Thecontractingpartiesmust 8 haveclearlyanddeliberatelyconferredafavoruponathirdperson.


8 Agentsrenderingserviceinbehalfofpartiesdonotrenderthempartiestothecontractofsale PetitionersarenotpartiestothecontractofsalebetweentheirprincipalsandNHA.Theyaremereagentsofthe ownersofthelandsubjectofthesale.Asagents,theyonlyrendersomeserviceordosomethinginrepresentationor onbehalfoftheirprincipals.Therenderingofsuchservicedidnotmakethempartiestothecontractsofsaleexecuted inbehalfofthelatter.Sinceacontractmaybeviolatedonlybythepartiestheretoasagainsteachother,thereal partiesininterest,eitherasplaintiffordefendant,inanactionuponthat

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

ARTICLE 1324
SANCHES v RIGOS(Bayona)
FACTS: In an instrument entitled "Option to Purchase," executed on April 3, 1961, defendant appellant Severina Rigos "agreed, promised and committed ... to sell" to plaintiffappellee NicolasSanchezforthesumofP1,510.00withintwo(2)yearsfromsaiddate,aparcelofland situatedinthebarriosofAbarandSibot,SanJose,NuevaEcija.Itwasagreedthatsaidoption shallbedeemed"terminatedandelapsed,"ifSanchezshallfailtoexercisehisrighttobuy theproperty"withinthestipulatedperiod.OnMarch12,1963,Sanchezdepositedthesum of Pl,510.00 with the CFI of Nueva Ecija and filed an action for specific performance and damages against Rigos for the latters refusal to accept several tenders of payment that Sanchezmadetopurchasethesubjectland. DefendantRigoscontendedthatthecontractbetweenthemwasonlyaunilateralpromise tosell,andthesamebeingunsupportedbyanyvaluableconsideration,byforceoftheNew Civil Code, is null and void." Plaintiff Sanchez, on the other hand, alleged in his compliant that,byvirtueoftheoptionunderconsideration,"defendantagreedandcommittedtosell" and"theplaintiffagreedandcommittedtobuy"thelanddescribedintheoption.Thelower courtrenderedjudgmentinfavorofSanchezandorderedRigostoacceptthesumSanchez judiciallyconsigned,andtoexecuteinhisfavortherequisitedeedofconveyance.TheCourt ofAppealscertifiedthecaseatbartotheSupremeCourtforitinvolvesaquestionpurelyof law. ISSUE:Wasthereacontracttobuyandsellbetweenthepartiesoronlyaunilateralpromise tosell? HELD: TheSupremeCourtaffirmedthelowercourtsdecision.Theinstrumentexecutedin1961is nota"contracttobuyandsell,"butmerelygrantedplaintiffan"option"tobuy,asindicated byitsowntitle"OptiontoPurchase."TheoptiondidnotimposeuponplaintiffSanchezthe obligationtopurchasedefendantRigos'property.Rigos"agreed,promisedandcommitted" herself to sell the land to Sanchez for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land. The lower court

relied upon Article 1354 of the Civil Code when it presumed the existence of said consideration,butthesaidArticleonlyappliestocontractsingeneral. However,itisnotArticle1354buttheArticle1479ofthesameCodewhichiscontrollingin thecaseatbarbecausethelatters2ndparagraphrefersto"sales"inparticular,and,more specifically,to"anacceptedunilateralpromisetobuyortosell."Sincetheremaybenovalid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes,however,ofthenatureofanoffertosellwhich,ifaccepted,resultsinaperfected contractofsale.Uponmaturedeliberation,theCourtreiteratesthedoctrinelaiddowninthe Atkins case and deemed abandoned or modified the view adhered to in the Southwestern Companycase

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

Issue:

ANG YU v CA
Facts: AngYu(buyers)aretenants/lesseesoftheresidentialandcommercialpropertiesownedby Co Unjieng (vendors). On several occasions, defendants informed plaintiffs that they are offeringtosellthepremisesandaregivingthemprioritytoacquirethesame.Respondents offeredtosellthepropertyforP6M,andplaintiffscounterofferedtobuyforP5M.Plaintiffs askedtherespondentstoputtheofferinwriting,inwhichtherespondentsacceded.Upon receiptoftheoffer,plaintiffsaskedtherespondentstospecifythetermsandconditionsof theoffertosell.Sincenoresponsewasmadebytherespondents,plaintiffswerecompelled tofileacomplaintagainstrespondentscompellingthemtoselltheproperty. The lower court decided in favor or the respondents reasoning that since parties did not agreeuponthetermsandconditionsoftheproposedsale,hencetherewasnotcontractof sale at all. Further, it ruled that if the respondents decide to sell the proper for P11M or lower, then plaintiffs have the right of first refusal. Aggrieved by the decision, plaintiffs appealedtoCA. TheCourtofAppealsaffirmedthedecisionofthelowercourtwithmodification:thatthere was no meeting of the minds between the parties concerning the sale of the property. Absentsuchrequirement,theclaimforspecificperformancewillnotlie.Appellantsdemand for actual, moral and exemplary damages will likewise fail as there exists no justifiable groundforitsaward.CAhowevergrantedtheplaintiffstherightoffirstrefusalevenifthe offerpriceexceedsP11M. Plaintiffs appealed to the Supreme court but was denied for being insufficient in form and substance. While plaintiff asked the SC for reconsideration, respondents transferred the propertiesinquestiontorespondentBuenRealtyandDevelopmentCorporationforP15M. BuenRealtyafterthepropertiescameintoitspossessionandafterthetitleshadbeenissued underitsname,plaintiffswereaskedtovacatethepremises.Plaintiffsbroughtthematterto thetrialcourttoenforcethedecisionrenderedbytheCAthatplaintiffshastherightoffirst refusal. The lower court ordered respondents to sell the property to plaintiffs for P15M. RespondentsappealedtoCA. The CA reversed the judgmentof the lower court declaring that it has no force andeffect. Hencethisappealforcertiorari.

WON petitioners can demand specific performance to compel the respondents to sell to themtheproperty Held: No.Whatthepetitionershavebeengrantedisjustamererightoffirstrefusal.Inthelawon sales,thesocalledrightoffirstrefusalisaninnovativejuridicalrelation.Needlesstopoint out,itcannotbedeemedaperfectedcontractofsaleunderArticle1458oftheCivilCode. Neithercantherightoffirstrefusal,understoodinitsnormalconcept,bebroughtwithinthe purview of an option under the second paragraph of Article 1479, or possibly of an offer under Article 1319 of the same Code. An option or an offer would require, among other things,aclearcertaintyonboththeobjectandthecauseorconsiderationoftheenvisioned contract.Inarightoffirstrefusal,whiletheobjectmightbemadedeterminate,theexercise oftheright,however,wouldbedependentnotonlyonthegrantorseventualintentionto enterintoabindingjuridicalrelationwithanotherbutalsoonterms,includingtheprice,that obviouslyareyettobelaterfirmedup.Priorthereto,itcanatbestbesodescribedasmerely belonging to a class of preparatory juridical relations governed not by contracts (since the essentialelementstoestablishthevinculumjuriswouldstillbeindefiniteandinconclusive) but by, among other laws of general application, the pertinent scattered provisions of the CivilCodeonhumanconduct.

Evenonthepremisethatsuchrightoffirstrefusalhasbeendecreedunderafinaljudgment, likehere,itsbreachcannotjustifycorrespondinglyanissuanceofawritofexecutionundera judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal would be inconsequentialfor,suchasalreadyintimatedabove,anunjustifieddisregardthereof,given,

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

for instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recoveryfordamages. The final judgment in Civil Case No. 8741058, it must be stressed, has merely accorded a right of first refusal in favor of petitioners. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute,butanactionfordamagesinaproperforumforthepurpose. Furthermore, whether private respondent Buen Realty Development Corporation, the allegedpurchaseroftheproperty,hasactedingoodfaithorbadfaithandwhetherornotit should,inanycase,beconsideredboundtorespecttheregistrationofthelispendensinCivil Case No. 8741058 are matters that must be independently addressed in appropriate proceedings.BuenRealty,nothavingbeenimpleadedinCivilCaseNo.8741058,cannotbe heldsubjecttothewritofexecutionissuedbyrespondentJudge,letaloneoustedfromthe ownershipandpossessionoftheproperty,withoutfirstbeingdulyaffordeditsdayincourt. RTCRuledinfavorofCarmelostating,amongotherthings,thatparagraph8ofthecontract is an option clause (under Art1324) which is not supported by a separate consideration. Under Art 1352, Contracts without cause or with unlawful cause, produce no effect whatever.Thecauseisunlawfulifitiscontrarytolaw,morals,goodcustom,publicorderor publicpolicy.Thereforecontractswithoutconsiderationproducenoeffect. CAReversedtheCAsayingthatparagraph8isnotanoptioncontract/clauseunder1324 but a right of first refusal under 1479, which does not need a separate distinct consideration. ISSUE:W/Nparagraph8isanoptioncontract/clausewhichneedsaseparateconsideration. NO,itsarightoffirstrefusal. RATIO:Article1324speaksofan"offer"madebyanofferorwhichtheoffereemayormay not accept within a certain period. Under this article, the offer may be withdrawn by the offeror before the expiration of the period and while the offeree has not yetaccepted the offer. However, the offer cannot be withdrawn by the offeror within the period if a consideration has been promised or given by the offeree in exchange for the privilege of beinggiventhatperiodwithinwhichtoaccepttheoffer.Theconsiderationisdistinctfrom thepricewhichispartoftheoffer.Thecontractthatarisesisknownasoption.Inthecaseof Beaumont the SC, defined an option as follows: "A contract by virtue of which A, in considerationofthepaymentofacertainsumtoB,acquirestheprivilegeofbuyingfromor sellingtoB,certainsecuritiesorpropertieswithinalimitedtimeataspecifiedprice." Article1479,secondparagraph,ontheotherhand,contemplatesofan"acceptedunilateral promisetobuyortoselladeterminatethingforapricewithin(which)isbindinguponthe promisee if the promise is supported by a consideration distinct from the price." That "unilateralpromisetobuyortoselladeterminatethingforapricecertain"iscalledanoffer. An"offer",inlaws,isaproposaltoenterintoacontract.. Basedontheforegoingdiscussion,itisevidentthattheprovisiongrantingMayfair"30days exclusiveoptiontopurchase"theleasedpremisesisNOTANOPTION.Althoughtheprovision iscertainastotheobject(thesaleoftheleasedpremises)thepriceforwhichtheobjectisto besoldisnotstatedintheprovision.Otherwisestated,thequestionedstipulationisnotby itself,an"option"orthe"offertosell"becausetheclausedoesnotspecifythepriceforthe subjectproperty. Although the provision giving Mayfair "30days exclusive option to purchase" cannot be legallycategorizedasanoption,itis,nevertheless,avalidandbindingstipulation.Whatthe trial court failed to appreciate was the intention of the parties behind the questioned proviso.

EQUATORIAL v MAYFAIR (Capocyan)


FACTS: Carmelo (Petitioner) owned a 2storey bldg in Recto, Manila. In 1967 and 1969, he enteredinto2separateCONTRACTSOFLEASEwithMayfairfortheleaseof2portionsofthe thebldgwhichthelatterusedasamotionpicturetheaterknownasMAXIMandMIRAMAR THEATER.Bothleasecontractscontainedanidenticallywordedparagraph8whichreads: If the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30days exclusiveoptiontopurchasethesame. Intheevent,however,thattheleasedpremisesissoldtosomeoneotherthantheLESSEE,the LESSORisboundandobligated,asitherebybindsandobligatesitself,tostipulateintheDeed ofSalehereofthatthepurchasershallrecognizethisleaseandbeboundbyallthetermsand conditionsthereof. In1974CarmeloinformedMayfairthattheywantedtoselltheentireproperty(andthata certainJOSEARANETAwasofferingtobuythewholepropertyfor1.2MUSD.Theyalsoasked MayfairiftheywantedtobuythepropertyforP67M. Mayfairrepliedstatingpar8oftheircontractandcommunicatinghiswillingnesstopurchase theentireproperty.Carmelodidnotreply. In1978,CarmelosoldthepropertytoEquitorialorP11.3M.ThispromptedMayfairtofilea caseforspecificperformanceandannulmentofthesale.

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

The provision in question is not of the proforma type customarily found in a contract of lease. Even appellees have recognized that the stipulation was incorporated in the two Contracts of Lease at the initiative and behest of Mayfair. Evidently, the stipulation was intendedtobenefitandprotectMayfairinitsrightsaslesseeincaseCarmeloshoulddecide, during the term of the lease, to sell the leased property. This intention of the parties is achieved in two ways in accordance with the stipulation. The first is by givingMayfair "30 daysexclusiveoptiontopurchase"theleasedproperty.Thesecondis,incaseMayfairwould optnottopurchasetheleasedproperty,"thatthepurchaser(thenewowneroftheleased property)shallrecognizetheleaseandbeboundbyallthetermsandconditionsthereof." Inotherwords,paragraph8ofthetwoContractsoflease,particularlythestipulationgiving Mayfair"30daysexclusiveoptiontopurchasethe(leasedpremises),"wasmeanttoprovide Mayfair the opportunity to purchase and acquire the leased property in the event that Carmelo should decide to dispose of the property. In order to realize this intention, the implicitobligationofCarmeloonceithaddecidedtoselltheleasedproperty,wasnotonlyto notifyMayfairofsuchdecisiontoselltheproperty,but,moreimportantly,tomakeanoffer toselltheleasedpremisestoMayfair,givingthelatterafairandreasonableopportunityto accept or reject the offer, before offering to sell or selling the leased property to third parties.TherightvestedinMayfairisanalogoustotherightoffirstrefusal,whichmeansthat CarmeloshouldhaveofferedthesaleoftheleasedpremisestoMayfairbeforeofferingitto other parties, or, if Carmelo should receive any offer from third parties to purchase the leasedpremises,thenCarmelomustfirstgiveMayfairtheopportunitytomatchthatoffer. Besidestherulingthatparagraph8vestsinMayfairtherightoffirstrefusalastowhichthe requirementofdistinctconsiderationindispensableinanoptioncontract,hasnoapplication, respondent appellate court also addressed the claim of Carmelo and Equatorial that assuming arguendo that the option is valid and effective, it is impossible of performance because it covered only the leased premises and not the entire Claro M. Recto property, whileCarmelo'soffertosellpertainedtotheentirepropertyinquestion. *Art.1324.Whentheoffererhasallowedtheoffereeacertainperiodtoaccept,theoffermay be withdrawn at any time before acceptance by communicating such withdrawal, except whentheoptionisfoundeduponaconsideration,assomethingpaidorpromised. **Art.1479.Apromisetobuyandselladeterminatethingforapricecertainisreciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is bindinguponthepromissorifthepromiseissupportedbya considerationdistinctfromthe price.

BIBLE BAPTIST CHURCH v CA


Facts: Petitioner Baptist Church entered into a contract of lease with private respondent spouses Villanueva,thelatterbeingtheregisteredownersoftheproperty.Thepertinentstipulations intheleasecontractwere: xxx 8.ThattheLESSEEhastheoptiontobuytheleasedpremisesduringtheFifteen(15)yearsof thelease.IftheLESSEEdecidestopurchasethepremisesthetermswillbe:A)AsellingPrice ofOneMillionEightHundredThousandPesos(P1.8million),PhilippineCurrency.B)Adown paymentagreeduponbybothparties.C)Thebalanceofthesellingpricemaybepaidatthe rateofOneHundredTwentyThousandPesos(P120,000.00),PhilippineCurrency,peryear. xxx Theforegoingstipulationsoftheleasecontractarethesubjectofthepresentcontroversy. Petitioner Baptist Church paid an initial P84,000 rental payment. This was disputed by petitionersastheconsiderationfortheoptiontobuytheproperty. Issue:Whetherornottheoptiontobuywasfoundeduponaconsideration Ruling:NO. UnderArticle1479oftheCivilCode,itisprovided: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is bindinguponthepromissorifthepromiseissupportedbyaconsiderationdistinctfromthe price. ThesecondparagraphofArticle1479providesforthedefinitionandconsequentrightsand obligations under an option contract. For an option contract to be valid and enforceable againstthepromissor,theremustbeaseparateanddistinctconsiderationthatsupportsit.

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

First,petitionerscannotinsistthattheP84,000theypaidinordertoreleasetheVillanuevas' property from the mortgage should be deemed the separate consideration to support the contract of option. It must be pointed out that said amount was in fact apportioned into monthlyrentalsspreadoveraperiodofoneyear,atP7,000permonth.Thus,fortheentire periodofJune1985toMay1986,petitionerBaptistChurch'smonthlyrenthadalreadybeen paidfor,suchthatitonlyagaincommencedpayingtherentalsinJune1986.Thisisshownby thetestimonyofpetitionerPastorBelmontewherehestatesthattheP84,000wasadvance rentalequivalenttomonthlyrentofP7,000foroneyear,suchthatfortheentireyearfrom 1985 to 1986 the Baptist Church did not pay monthly rent. Theconsiderationcontemplatedtosupportanoptioncontractneednotbemonetary.Actual cash need not be exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous contract for which the considerationmustbesomethingofvalue,althoughitskindmayvary. An option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the considerationisnotmonetary,thesemustbethingsorundertakingsofvalue,inviewofthe onerousnatureofthecontractofoption.Furthermore,whenaconsiderationforanoption contractisnotmonetary,saidconsiderationmustbeclearlyspecifiedassuchintheoption contractorclause. lesseeshavefinallyacceptedtheaskingpriceofP5,000,000.00,butwithoutpaymentoftaxes andothercosts. However at this time, only 75% share thereof, were still interested in selling their shares. They also rejected the offer of petitionerlessees, as they wanted the purchase price to be netsales.Eventually,respondentheirssoldtheir75%undividedinterestinthepropertyfor P3,825,000 to Lita Sy. The other heirs sold the remaining 25% portion of the property to Villegas. Petitionerlessees filed an action against respondentheirs and Spouses Sy which the RTC dismissed.ThiswasaffirmedbytheCA.Duringthisperiod,theSpousesSyfiledacomplaint for Specific Performance against the heirs of Villegas, which the RTC granted. This was affirmedbytheCA. Issue: 1. Whether thecontract of sale between respondentheirs and Lita Sy violated the right of firstrefusalofpetitionerlessees(relevantissue) 2.WhetherLitaSy,ascoowneroftheproperty,validlyandseasonablyexercisedherrightto redeemthe25%undividedinterestintheproperty,whichundividedinteresttheotherco ownershadsoldtoAtanacioM.VillegasandAgripinoM.Villegas Ruling: 1.NO.Arightoffirstrefusalisacontractualgrant,notofthesaleofaproperty,butofthe firstprioritytobuythepropertyintheeventtheownersellsthesame.Theexerciseofthe right of first refusal is dependent not only on the owners eventual intention to sell the propertybutalsoonthefinaldecisionoftheownerasregardsthetermsofthesaleincluding theprice. Whenaleasecontainsarightoffirstrefusal,thelessorhasthelegaldutytothelesseenotto selltheleasedpropertytoanyoneatanypriceuntilafterthelessorhasmadeanoffertosell the property to the lessee and the lessee has failed to accept it. Only after the lessee has failedtoexercisehisrightoffirstprioritycouldthelessorsellthepropertytootherbuyers underthesametermsandconditionsofferedtothelessee,orundertermsandconditions morefavorabletothelessor.

VILLEGAS v CA
Facts: TheReyesFamilyweretheownersofthesubjectproperty,whichtheyinheritedtheproperty fromtheirfather,Dr.LorenzoC.Reyes.VillegasandSanchezwerethelesseesoftheproperty since 1959. Petitionerlessees owned the building and improvements constructed on the property. The Administrative Committee of the heirs of Dr. Lorenzo C. Reyes informed petitioner lessees that the heirs have decided to sell the property. After replying, the Administrative CommitteeinformedpetitionerlesseesoftheirreceiptofnoticeoftheP4,000,000bidprice. TheAdministrativeCommitteewrotethattheyrequestedpetitionerlesseestoincreasetheir bidforthepropertybutthelatterfailedtomakeanotheroffersotheheirshavedecidedto sell to another buyer who offered a higher price. Nevertheless, the Administrative Committee indicated in the letter that they would wait for a reply. Petitionerlessees were willing to make a nominal increase to their bid price of P4,000,000 but the Administrative CommitteesentalettertopetitionerlesseesrepliedthattheyhaveanofferofP5Million.A conferencewasheld,butthepartiesdidnotcomeintoanagreement.Eventually,petitioner

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

TherecordsshowthattheheirsofDr.LorenzoC.Reyesdidrecognizetherightoffirstrefusal of petitionerlessees over the property. This is clear from the letter dated 19 May 1988 informing petitionerlessees that the property they were leasing is for sale. There was an exchangeoflettersbetweentheAdministrativeCommitteeandpetitionerlesseesevidencing theofferandcounterofferofbothparties. Whereatimeisstatedinanofferforitsacceptance,theofferisterminatedattheexpiration ofthetimegivenforitsacceptance.Theoffermayalsobeterminatedwhenthepersonto whomtheofferismadeeitherrejectstheofferoutrightormakesacounterofferofhisown. TheofferofP5,000,000alreadylapsedwhenpetitionerlesseesfailedtoacceptitwithinthe period granted.The offer wassuperseded by the new offer of respondentheirs during the conference.However,itappearsfromtherecordsthatnosettlementwasreachedbetween the parties during their conference. Even petitionerlessees witness Miranda testified that petitionerlessees did not indicate their offer for the property in their letter but instead requestedforaconferencewithalltheheirsofDr.LorenzoC.Reyes. Petitionerlesseesadmitthattherewasanongoingnegotiationforthesaleoftheproperty. Precisely,theP5,000,000priceforthepropertyindicatedbytheAdministrativeCommitteein the letter was superseded by the subsequent offer of respondentheirs during the conference. Thus, the letter of petitionerlessees is merely another counteroffer for the propertyintheircontinuingnegotiationfortheproperty.Whenpetitionerlesseesoptednot torespondtothisoffer,respondentheirshadtherighttosellthepropertytootherbuyers. Petitionerlesseesalreadyexercisedtheirrightoffirstrefusalwhentheyrefusedtorespond to the latest offer of respondentheirs, which amounted to a rejection of the offer. Upon petitionerlesseesfailuretorespondtothislatestofferofrespondentheirs,thelattercould validly sell the property to other buyers under the same terms and conditions offered to petitionerlessees. 2. NO. The records reveal that Lita Sy received the complaint for Annulment of Deed of Sale/Title, Specific Performance, and Consignation of Rentals with Damages filed by petitionerlessees.Onthesamedate,LitaSyalsoreceivedtogetherwiththecomplaintthe DeedofSaleofthe25%portionoftheproperty. Lita Sy and the other defendants in that case filed their answer. In their answer, Lita Sy invokedherrighttoredeemtheproperty. Theruledhowever,thattherewasnovalidandeffectiveoffertoredeemthe25%undivided interest in the property. Although Lita Sy invoked her right to redeem the property in the answerfiledwiththeRTCBranch2,shefailedtoconsignincourttheredemptionprice.Well settledistherulethataformaloffertoredeemmustbeaccompaniedbyavalidtenderof the redemption price and that the filing of a judicial action, plus the consignation of the redemptionpricewithintheperiodofredemption,isequivalenttoaformaloffertoredeem. Only by such means can the buyer become certain that the offer to redeem is one made seriouslyandingoodfaith.Abuyercannotbeexpectedtoentertainanofferofredemption without attendant evidence that the redemptioner can, and is willing to, accomplish the repurchase immediately. While consignation of the tendered price is not always necessary because legal redemption is not made to discharge a preexisting debt, a valid tender is indispensable, for the reasons already stated. Of course, consignation of the price would removeallcontroversyastothepetitioner'sabilitytopayatthepropertime. In this case, Lita Sy failed to consign in court the redemption price when she invoked her righttoredeemthe25%portionofthepropertyintheanswerfiledwiththeRTCBranch2. TheevidencedoesnotshowthatLitaSyevertenderedtheredemptionpricetotheVillegas brothers. Considering that there was no tender of the redemption price, nor was there consignationoftheredemptionprice,weholdthattherewasnovalidexerciseoftherightof redemption.

EULOGIO v SPOUSES APELES(Kim Claudio)


Facts: In1979,Sps.ApelesleasedtheirhouseandlotinQCtoArturoEulogio,Enricosfather.Upon his fathers death, Enrico succeeded as lessee. He used the property as his residence and placeofbusiness.Hewasengagedinbuyingandsellingimportedcars.On1987,Sps.Apeles andEulogioallegedlyenteredintoacontractofleasewithanoptiontopurchaseinvolving the said property. According to the contract, Atty. Luz Apeles was authorized to enter in behalfofherhusbandClemente.ThecontractgaveEnricobeforetheexpirationofthethree yearleaseperiodtheoptiontopurchasethepropertyforapricenotexceedingP1.5million. Beforetheexpiration,Enricoexercisedhisoptiontopurchasebycommunicatingverballyand inwritingtoLuzbutthespousesignoredhismanifestation.ThispromptedEnricotoseekthe help of the barangay to enforce his right to purchase the subject property, but despite several notices, the spouses failed to appear before the barangay for settlement proceedings.Hence,itissuedtoEnricoaCertificatetoFileAction. Enrico filed a case with the RTC claiming his right based onparagraph 5 of the Contract of Lease with Option to Purchase vesting him the right to acquire ownership of the subject

10

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

propertyafterpayingtheagreedamountofconsideration.Hetestifiedforhimselfasthesole witness. On the other hand, the spouses denied that Luz signed the contract claiming that the signature of Luz therein is a forgery. They presented some specimens of her signature to showthedifference.TheyalsoestablishedbydocumentaryevidencethatLuzwasoutofthe countryatthetimeoftheexecutionofthecontract.Inrebuttal,EnricosaidthatLuzsigned the contract upon returning to the Philippines and that she took it with her and upon returningittohim,itwasalreadynotarized.TheRTCruledinfavorofEnrico. The spouses appealed to the CA which granted their appeal. Enrico filed an MR but was denied.Hence,thiscase. Issue: W/Ntheoptiontopurchasewasenforceable.NO W/NtheCAerredindisturbingthefactualfindingsoftheRTCasregardsthecontract.NO Held: TheContractwithanOptiontoPurchaseremainsunenforceable.Anoptionisacontractby whichtheownerofthepropertyagreeswithanotherpersonthatthelattershallhavethe right to buy the formers property at a fixed price within a certain time. It is a condition offeredorcontractbywhichtheownerstipulateswithanotherthatthelattershallhave the right to buy the property at a fixed price within a certain time, or under, or in compliancewithcertaintermsandconditions;orwhichgivestotheowneroftheproperty therighttosellordemandasale. Anoptionisnotofitselfapurchase,butmerelysecurestheprivilegetobuy.Itisnotasaleof propertybutasaleoftherighttopurchase.Itissimplyacontractbywhichtheownerofthe property agrees with another person that he shall have the right to buy his property at a fixedpricewithinacertaintime.Hedoesnotsellhisland;hedoesnotthenagreetosellit; buthedoessellsomething,i.e.,therightorprivilegetobuyattheelectionoroptionofthe other party. Its distinguishing characteristic is that it imposes no binding obligation on the personholdingtheoption,asidefromtheconsiderationfortheoffer. Itisalsosometimescalledan"unacceptedoffer"andissanctionedbyArticle1479ofthe CivilCode: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is bindinguponthepromissorifthepromiseissupportedbyaconsiderationdistinctfromthe price. ThesecondparagraphofArticle1479providesforthedefinitionandconsequentrightsand obligations under an option contract. For an option contract to be valid and enforceable againstthepromissor,theremustbeaseparateanddistinctconsiderationthatsupportsit. Inthiscase,therewasnone. Astotheotherissue,EnricosinsistenceontheinfallibilityofthefindingsoftheRTCseriously impairs the discretion of the appellate tribunal to make independent determination of the meritsofthecaseappealedbeforeit.Certainly,theCourtofAppealscannotswallowhook, line,andsinkerthefactualconclusionsofthetrialcourtwithoutcripplingtheveryofficeof review.Althoughwehaveindeedheldthatthefactualfindingsofthetrialcourtsaretobe accorded great weight and respect, they are not absolutely conclusive upon the appellate court. However, it must be noted that in an appeal via Rule 41 to the CA, the parties may raisebothquestionsoffactandlaw.

11

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

ARTICLE 1345
PAYONGAYONG v CA
Facts: EduardoMendozawastheregisteredownerofatwohundredsquaremeterparcelofland situated in Barrio San Bartolome, Caloocan. Mendoza mortgaged the parcel of land to the MeralcoEmployeesSavingsandLoanAssociation(MESALA)tosecurealoanintheamountof P81,700.00.MendozathenexecutedaDeedofSalewithAssumptionofMortgageoverthe parcel of land together with all the improvements thereon (hereinafter referred to as the property)infavorofthePayongayongspousesinconsiderationofP50,000.00.Itisstatedin thedeedthatthePayongayongsboundthemselvestoassumepaymentofthebalanceofthe mortgage indebtedness of Mendoza to MESALA. Mendoza, without the knowledge of the spouses, mortgaged the same property to MESALA to secure a loan in the amount of P758,000.00, and was duly annotated in Mendozas title. Thereafter, Mendoza executed a Deed of Absolute Sale over still the same property in favor of the private respondents Salvador spouses, in consideration of P50,000.00. The sale was again duly annotated in Mendozastitle.MESALA,onitspart,issuedaCancellationofMortgageacknowledgingthat forsufficientandvaluableconsiderationwhichitreceivedfrom Mendoza,itwascancelling andreleasingtherealestatemortgageoverthepropertywhichwasannotatedonMendozas title.TheSalvadorspousesthencausedthecancellationofMendozastitleandwasissueda transfercertificateoftitleintheirownname. Upon knowledge of the propertys sale to the Salvador spouses, the Payongayongs filed a complaint for annulment of deed of absolute sale and transfer certificate of title with recovery of possession and damages before the RTC of Quezon City. The Payongayongs complaintallegedthatthespousesMendozamaliciouslysoldtotheSalvadorstheproperty whichwaspriorlysoldtothemandthattheSalvadorsactedinbadfaithinacquiringit,the latterhavinghadknowledgeoftheexistenceoftheDeedofAbsoluteSalewithAssumption of Mortgage between them (Payongayongs) and Mendoza. The RTC ruled in favor of the SalvadorsandCAaffirmedthesame. Issue: Whether or not the deed of sale executed by Eduardo Mendoza in favor of the Salvador spouseswassimulatedandthereforenullandvoid? Ruling:

No.TheSalvadorsdidnotonlyrelyuponMendozastitle.Rosaliapersonallyinspectedthe propertyandverifiedwiththeRegistryofDeedsofQuezonCityifMendozawasindeedthe registered owner. Given this factual backdrop, the Salavadors did indeed purchase the propertyingoodfaithandaccordinglyacquiredvalidandindefeasibletitlethereto. ThelawisthusintheSalvadorsfavor.Article1544oftheCivilCodesoprovides: Art.1544.Ifthesamethingshouldhavebeensoldtodifferentvendees,theownership shallbetransferredtothepersonwhomayhavefirsttakenpossessionthereofingood faith,ifitshouldbemovableproperty. Shoulditbeimmovableproperty,theownershipshallbelongtothepersonacquiringitwho ingoodfaithfirstrecordeditintheRegistryofProperty.Shouldtherebenoinscription,the ownershipshallpertaintothepersonwhoingoodfaithwasfirstinthepossession;and,in the absence thereof, to the person who presents the oldest title, provided there is good faith. Therebeingdoublesaleofanimmovableproperty,astheabovequotedprovisioninstructs, ownershipshallbetransferred(1)tothepersonacquiringitwhoingoodfaithfirstrecorded itintheRegistryofProperty;(2)indefaultthereof,tothepersonwhoingoodfaithwasfirst in possession; and (3) in default thereof, to the person who presents the oldest title, providedthereisgoodfaith. Simulationoccurswhenanapparentcontractisadeclarationofafictitiouswill,deliberately made by agreement of the parties, in order to produce, for the purpose of deception, the appearanceofajuridicalactwhichdoesnotexistorisdifferentfromthatwhichwasreally executed. Its requisites are: a) an outward declaration of will different from the will of the parties;b)thefalseappearancemusthavebeenintendedbymutualagreement;andc)the purposeistodeceivethirdpersons. Thebasiccharacteristicthenofasimulatedcontractisthatitisnotreallydesiredorintended toproducelegaleffectsordoesnotinanywayalterthejuridicalsituationoftheparties. ThecancellationofMendozascertificateoftitleoverthepropertyandtheprocurementof oneinitssteadinthenameofrespondents,whichactsweredirectedtowardsthefulfillment of the purpose of the contract, unmistakably show the parties intention to give effect to theiragreement.Theclaimofsimulationdoesnotthuslie.

12

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

ARTICLE 1354
LAW v OLYMPIC SAWMILL
Plaintiff loaned P10,000.00, without interest, to defendant. The loan became due but was notpaid,withthedebtorsaskingforanextensionofthreemonths. Thepartiesexecutedanotherloandocument.PaymentoftheP10,000.00wasextendedbut theobligationwasincreasedbyP6,000.00asfollows: That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency shall form part of the principal obligation to answer for attorney's fees, legalinterest,andothercostincidenttheretotobepaiduntothecreditor andhissuccessorsininterestupontheterminationofthisagreement. Defendants again failed to pay and plaintiff instituted this collection case. Defendants admitted the P10,000.00 principal obligation, but claimed that the additional P6,000.00 constitutedusuriousinterest. AnOrderwasissuedbytheTrialCourtallowingbothpartiestosubmitaMotionforSummary Judgment. The Trial Court rendered decision ordering defendants to pay plaintiff "the amountofP10,000.00plusthefurthersumofP6,000.00bywayofliquidateddamages... withlegalrateofinterestonbothamounts.Defendantsappealed. ISSUE:w/ntheamountofP6,000wasillegal? NO. UnderArticle1354oftheCivilCode,inregardstotheagreementofthepartiesrelativeto the P6,000.00 obligation, "it is presumed that it exists and is lawful, unless the debtor provesthecontrary".Noevidentiaryhearinghavingbeenheld,ithastobeconcludedthat defendantshadnotproventhattheP6,000.00obligationwasillegal.ConfirmingtheTrial Court's finding, we view the P6,000.00 obligation as liquidated damages suffered by plaintiff,representinglossofinterestincome,attorney'sfeesandincidentals. Defendants claim that the P6,000.00 constituted usurious interest. They insist the claim of usuryshouldhavebeendeemedadmittedbyplaintiffasitwas"notdeniedspecificallyand underoath"asrequiredbytheUsuryLaw.However,theSCheldthattheruledoesnotapply toacase,asinthepresentcase,wherethedefendant,nottheplaintiff,whoisallegingusury. Itonlyapplieswhereacomplaintisfiledagainstanentitywhichhascommittedusury,forthe recovery of the usurious interest paid. Moreover, usury has been legally nonexistent. Interestcannowbechargedaslenderandborrowermayagreeupon.

13

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

ARTICLE 1403
ORTEGA v LEONARDO
Facts:PlaintiffanddefendantclaimedrightofownershipoveraparceloflandlocatedinSan Andres, Manila before the Rural Progress Administration (government). During the investigation of such conflicting interests, defendant asked plaintiff to desist from pressing herclaimanddefinitelypromisedthatifandwhenhesucceededingettingtitletothelot,he wouldselltoheraportionthereofwithanareaof55.60sqmatP25.00persqm,provided she paid for the surveying and subdivision of the lot and provided further that after he acquired title, she could continue holding the lot as tenant by paying a monthly rental of P10.00untilsaidportionshallhavebeensegregatedandthepurchasepricefullypaid. The plaintiff accepted defendant's offer, and desisted from further claiming the lot. The defendantfinallyacquiredtitlethereto.Theplaintiff,accordingtotheagreement,caused the survey and segregation of the portion which defendant had promised to sell incurring expenses for subdivision. Plaintiff continued paying rentals and introduced improvements overthesaidlot.Aftertheplanofthelotsegregationwasapproved,plaintifftenderedto defendantthepurchasepricewhichthelatterrefusedtoacceptwithoutanycauseorreason. Issue:Whethertheoralagreementtosellthelottoplaintiffisenforceable. Held:YES.asexceptiontothegeneralrulebecauseofpartialperformance. Ratio: Thecontinuanceinpossessionmay,inapropercase,besufficientlyreferabletotheparol contract of sale to constitute a part performance thereof. There may be additional acts or peculiar circumstances which sufficiently refer the possession to the contract. Continued possessionunderanoralcontractofsale,byonealreadyinpossessionasatenant,hasbeen heldasufficientpartperformance,whereaccompaniedbyotheractswhichcharacterizethe continued possession and refer it to the contract of purchase. Especially is this true where the circumstances of the case include the making of substantial, permanent, and valuable improvements."(49AmericanJurisprudence44) "The making of valuable permanent improvements on the land by the purchaser, in pursuanceoftheagreementandwiththeknowledgeofthevendor,hasbeensaidtobethe strongest and the most unequivocal act of part performance by which a verbal contract to selllandistakenoutofthestatuteoffrauds,andisordinarilyanimportantelementinsuch part performance. Possession by the purchaser under a parol contract for the purchase of real property, together with his making valuable and permanent improvements on the property which are referable exclusively to the contract, in reliance on the contract, in the

honest belief that he has a right to make them, and with the knowledge and consent or acquiescence of the vendor, is deemed a part performance of the contract. The entry into possessionandthemakingoftheimprovementsareheldonamounttosuchanalterationin the purchaser's position as will warrant the court's entering a degree of specific performance."(49AmericanJurisprudencep.755,756.) It would appear that the complaint in this case described several circumstance indicating partial performance: relinquishment of rights continued possession, building of improvements,tenderofpaymentplusthesurveyingofthelotatplaintiff'sexpenseandthe paymentofrentals. Hence,astherewaspartialperformance,theprincipleexcludingparolcontractsforthesale ofrealty,doesnotapply.

CARBONEL v PONCIO
FACTS: Carbonnel purchased Poncios land for an initial payment of P247.26 with the balance payable upon execution of the deed of sale and assumed Poncios mortgage with the Republic Savings Bank. In a document written in Batanes dialect, they agreed that Poncio wouldcontinuestayinginsaidlandforoneyear.However,Ponciosoldthesamepropertyto theInfantes.CarbonnelsuedPoncioandtheInfantesfortheannulmentofthesale,forher tobedeclaredowneroftheland,forPonciotoexecutethedeedofsale,fortheRegisterof DeedsofRizaltoissuethecorrespondingtitle,andfordefendantspaydamages. DefendantsfiledanMTDonthegroundthatCarbonnel'sclaimwasunenforceableunderthe StatuteofFrauds.MTDdenied.IntheirAnswer,theInfantesallegedthattheypurchasedthe land in question in good faith, for value, and without knowledge of the alleged sale to Carbonnel,andthatherclaimwasunenforceableundertheStatuteofFrauds.InhisAnswer, Poncio alleged that he had consistently turned down several offers made by Carbonnel at P15/sqm;thatMrs.Infante,likewise,triedtobuytheland;thathewasadvisedbyCarbonnel thatshouldshedecidetobuytheproperty,shewouldallowhimtoremainintheproperty foroneyear;thatCarbonneltheninducedhimsignadocument"relyinguponthestatement ofCarbonnelthatthedocumentwasapermitforhimtoremaininthepremisesintheevent that Poncio decided to sell the property to Carbonnel at P20/sqm"; that Mrs. Infante improved her offer and he agreed to sell to her the land and its improvements; and that Carbonnel'sactionisbarredbytheStatuteofFrauds. Duringtrial,CarbonnelintroducedwitnessMeonada,whosaidthathetypedthedocument signedbythe3ofthemwhichstatedthatPonciowouldbeallowedtostayinthelandbought byCarbonnel.CarbonnelalsotestifiedthatthatdayPonciotoldherthathewantedtosellhis property,thatafterbothagreedonitsprice,hesaidthathislotismortgagedtotheRepublic

14

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

SavingsBank;andthatatnoontime,onthesameday,hecamebackstatingthatbothwould "go to the bank to pay thebalance in arrears."At this juncture, defense counsel moved to strike out the statement of the witness, invoking, in support of the motion, the Statute of Frauds. After an extended discussion, the parties agreed to submit memoranda and the hearingwassuspended. TheCFIdismissedthecomplaintonthegroundthatthecauseofactionwasunenforceable undertheStatuteofFrauds.Theappellatecourtaffirmed.TheSCreversedandremanded. ISSUE:W/NtheStatuteofFraudsisapplicable? RULING:NO. RATIO: ItiswellsettledinthisjurisdictionthattheStatuteofFraudsisapplicableonlytoexecutory contracts, not to contracts that are totally orpartiallyperformed. In the words of former Chief Justice Moran: "The reason is simple. In executory contracts there is a wide field for fraudbecauseunlesstheybeinwritingthereisnopalpableevidenceoftheintentionofthe contractingparties.Thestatutehaspreciselybeenenactedtopreventfraud."However,ifa contract has been totally or partially performed,the exclusion of parol evidence would promotefraudorbadfaith,foritwouldenablethedefendanttokeepthebenefitsalready denied by him from the transaction in litigation, and, at the same time, evade the obligations,responsibilitiesorliabilitiesassumedorcontractedbyhimthereby. For obvious reasons, it is not enough for a party toallegepartial performance in order toholdthat there has been such performance andto render a decisiondeclaring that the StatuteofFraudsisinapplicable.Butneitherissuchpartyrequiredtoestablishsuchpartial performance bydocumentaryproofbeforehe could have theopportunity to introduce oral testimony on the transaction. Indeed, such oral testimony would usually be unnecessary if there were documents proving partial performance. Thus, the rejection of any and all testimonialevidenceonpartialperformance,wouldnullifytherulethattheStatuteofFrauds isinapplicabletocontractswhichhavebeenpartlyexecuted,andleadtotheveryevilsthat thestatuteseekstoprevent. Thetruebasisofthedoctrineofpartperformanceaccordingtotheoverwhelming weightofauthority,isthatitwouldbeafraudupontheplaintiffifthedefendant werepermittedtoescapeperformanceofhispartoftheoralagreementafterhe has permitted the plaintiff to perform in reliance upon the agreement. The oral contract is enforced in harmony with the principle that courts of equity will not allow the statute of frauds to be used as an instrument of fraud. In other words,thedoctrineofpartperformancewasestablishedforthesamepurposefor which,thestatuteoffraudsitselfwasenacted,namely,forthepreventionoffraud, andarosefromthenecessityofpreventingthestatutefrombecominganagentof fraudforitcouldnothavebeentheintentionofthestatuetoenableanypartyto commitafraudwithimpunity. When the party concerned has pleaded partial performance, such party is entitled to a reasonablechanceto;establishbyparolevidencethetruthofthisallegation,aswellasthe contract itself. "The recognition of the exceptional effect of part performance in taking an oral contract out of the statute of frauds involves the principle that oral evidence is admissible in such cases to prove both the contract and the part performance of the contract." Uponsubmissionofthecasefordecisiononthemerits,theCourtshoulddeterminewhether said allegation is true, bearing in mind that parol evidence is easier to concoct and more likelytobecoloredorinaccuratethandocumentaryevidence.Iftheevidenceofrecordfails to prove clearly that there has been partial performance, then the Court should apply the StatuteofFrauds,ifthecauseofactioninvolvedfallswithinthepurviewthereof.IftheCourt is,however,convincedthattheobligationinquestionhasbeenpartlyexecutedandthatthe allegationofpartialperformancewasnotresortedtoasadevisetocircumventtheStatute, thenthesameshouldnotbeapplied. Apart from the foregoing, there are also other circumstances indicating that Carbonnel's claim might not be entirely devoid of factual basis. For instance, Poncio admitted in his Answer that Carbonnel had offered several times to purchase his land. There is also the document signed by Poncio written in Batanes dialect, which, according to Carbonnel's uncontradictedevidence,istheonespokenby,Poncio,hebeinganativeofsaidregion.The document states that Poncio would stay in the landsold by him to Carbonnelfor one year, free of charge, and that, if he cannot find a place where to transfer his house thereon, he mayremaininsaidlotundersuchtermsasmaybeagreedupon.Incidentally,theallegation inPoncio'sanswertotheeffectthathesignedthedocumentunderthebeliefthatit"wasa permitforhimtoremaininthepremisesintheevent"that"hedecidedtoselltheproperty" toCarbonnelatP20asq.m."is,onitsface,somewhatdifficulttobelieve.Indeed,ifhehad notdecidedasyettosellthelandtoCarbonnel,who,hadneverincreasedherofferofP15a squaremeter,therewasnoreasonforPonciotogetsaid,Permitfromher.Upontheother hand,ifCarbonnelintendedtomisleadPoncio,shewouldhavecausedthedocumenttobe drafted,probablyinEnglish,insteadoftakingthetroubleofseeingtoitthatitwaswritten precisely in his native dialect, the Batanes. Moreover, Poncio's signature on the document suggeststhatheisneitherilliteratenorsoignorantastosignadocumentwithoutreadingits contents,apartfromthefactthatMeonadahadreadthedocumenttohimandgivenhima copythereof,beforehesignedthereon,accordingtoMeonada'suncontradictedtestimony. Then,also,defendantssayintheirbrief: The only allegation in Carbonnel's complaint that bears any relation to her claim that there has been partial performance of the supposed contract of sale, is the

15

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

notationofthesumofP247.26inthebankbookofPoncio.Itdoesnotprovethe factthatsaidamountwasthepurchasepriceofthepropertyinquestion.Forallwe knew, the sum of P247.26 which Carbonnel claims to have paid to the Republic Savings Bank for the account of the defendant, assuming that the money paid to theRepublicSavingsBankcamefromtheplaintiff,wastheresultofsomeusurious loanoraccommodation,rather thanearnestmoneyorpartpaymentoftheland. Neither is a competent or satisfactory evidence to prove the conveyance on the landinquestionthefactthatthebankbookaccountofPonciohappenstobeinthe possessionoftheCarbonnel. HowshallweknowwhyPoncio'sbankdepositbookisinCarbonnel'spossessionorwhether thereisanyrelationbetweentheP247.26entrythereinandthepartialpaymentofP247.26 allegedlymadebyCarbonneltoPoncioonaccountofthepriceofhisland,ifwedonotallow Carbonneltoexplainitonthewitnessstand?Withoutexpressinganyopiniononthemerits of Carbonnel's claim, it is clear, therefore, that she is entitled, legally as well as from the viewpoint of equity, to an opportunity to introduce parol evidence in support of her allegations. Yes, the statute, formerly incorporated as Section 21 of Rule 123 of our Rules of Court, is now found in Article 1403 of the new Civil Code, which provides, in so far as pertinenttothiscase,asfollows: In the following cases an agreement hereafter made shall be enforceable by action unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged or by his agent, evidence therefore, of the agreement cannot be received without the writing, or secondaryevidenceofitscontents; (a) An agreement that by its terms is not to be performed withinayearfromthemakingthereof. (e) An agreement . . . for the sale of real property or of an interesttherein. Inordertoremovetheoralagreementfromthestatuteoffrauds,theagreement mustbeforlessthanayearasprovidedinArt.1403(a)[atpresentinArt.1403(2)(a)].Inthe caseatbar,itisclearthattheundertakingasallegedintheagreementcannotbedoneina periodofone(1)yearasinfactallegedbySantiagothatittookhim23yearstoperformhis obligation. However, Santiago additionally contends that performance of the contract also remove it from the statute of frauds. In answering such contention, SC said that contracts which by their terms are not to be performed within one year, may be taken out of the statutethroughperformancebyonepartythereto.However,itisrequiredinsuchcasethe completeperformancewithintheyearbyoneparty.Inthiscase,Santiagowasnotableto completelyperformthecontractwithinayearfromitsperfectionbutittookhimmanyyears (23years)beforetheagreementwasperformed.Nothinglessthanfullperformancebyone party will suffice and if anything remains to be done after the expiration of the year besides the mere payment of money, the statute will apply. It is not therefore correct to statethatSantiagoBabaohasfullycompliedwithhispartwithintheyearfromthealleged contractinquestion. The went on and said that assuming that partial performance may suffice, Santiagoscausewillstillnotprosper.Sincethisisasaleofrealproperty,itmustbenoted that this statute is one based on equity. It is based on equitable estoppel or estoppel by conduct.Itoperatesonlyundercertainspecifiedconditionsandwhenadequatereliefoflaw isunavailable(49Am.Jur.,StatuteofFrauds,Section422,p.727).Andoneoftherequisites that need be present is that the agreement relied on must be certain, definite, clear, unambiguousandunequivocalinitstermsbeforethestatutemayoperate.Inthecaseatbar, the alleged agreement was vague for it does not specify how many hectares was to be plantedtococonuts,howmanytoriceandcorn,andwhatportiontobananasandbamboo trees.

BABAO v PEREZ
Facts: Celestina Perez is the owner of a 156hectare parcel of land. When Celestinas niece married Santiago Babao, it was alleged that on 1924, Santiago and Celestina had a verbal agreement where Santiago was bound to do the following: to improve the land(156 hectares) of Celestina by leveling, clearing, planting fruits and other crops; to act as the administrator of the land and all expenses for labor and materials will be at his cost. In return,CelestinaisboundtoconveytoSantiagoorhiswife(Celestinasniece)oftheland, withalltheimprovementsafterthedeathofCelestina.Santiagoallegedthathewasableto clearthelandandplantthecropsinthespanof23years. However,shortlybeforeCelestinasdeath,she(Celestina)soldthelandtoanother partythroughherattorneyinfact(Leovigildo).Thus,Santiagofiledthiscomplaintallegingthe saleofthelandasfraudulentandfictitiousandinviolationoftheoralagreement.Heprays to recover the land or the expenses he incurred in improving the land. Respondents,however,deniedtheclaimandamongothersclaimedthatbyvirtue of the statute of frauds, the oral agreement cannot be given credence. The trial court allowed parole evidence to be introduced to substantiate the agreement. This is now appealedtotheCourttodetermineifparoleevidencecouldbeintroduced. Issue: Whether the verbal agreement falls within the Statute of Frauds despite partial performance. Held:

16

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

Having reached the conclusion that all the parol evidence of appellee was submitted in violation of the Statute of Frauds, or of the rule which prohibits testimony against deceased persons, we find unnecessary to discuss the other issues raised in appellants' brief. Thecaseisdismissed,withcostsagainstappellee. Thereisnoquestionherethatthetransactionwasnotinwriting.Theonlyissueiswhetherit maybeprovedincourt. Wherefore this expediente will be returned to the lower court for further proceedings in accordancewiththisopinion.Soordered. Rationale:

CABAGUE v AUXILIO
Facts: In the justice of the peace court of Basud, Camarines Norte, Felipe Cabague and his son GeronimosuedthedefendantMatiasAuxilioandhisdaughterSocorrotorecoverdamages resulting from defendants' refusal to carry out the previously agreed marriage between SocorroandGeronimo. The complaint alleged, in short: (a) that defendants promised such marriage to plaintiffs, provided the latter would improve the defendants' house in Basud and spend for the weddingfeastandtheneedsofthebride;(b)thatrelyinguponsuchpromisesplaintiffsmade the improvement and spent P700; and (c) that without cause defendants refused to honor theirpledgedword. Thedefendantsmovedtodismiss,arguingthatthecontractwasoral,unenforceableunder theruleofevidencehereinbeforementioned.Andthecourtdismissedthecase.Onappealto the Court of First Instance, the plaintiffs reproduced their complaint and defendants reiterated their motion to dismiss. From an order of dismissal this appeal wasperfected in duetimeandform. It should be observed preliminarily that, under the former rules of procedure, when the complaint did not state whether the contract sued on was inwriting or not, the statute of fraudscouldbenogroundfordemurrer.UnderthenewRules"defendantmaynowpresent amotiontodismissonthegroundthatthecontractwasnotinwriting,evenifsuchfactis notapparentonthefaceofthecomplaint.Thefactmaybeprovedbyhim."(MoranRulesof Court2ded.p.139Vol.I.) Issue: AccordingtotheRulesofCourtparolevidenceisnotadmissibletoproveanagreementmade upontheconsiderationofmarriageotherthanamutualpromisetomarry.Thislitigationcalls forapplicationofthatrule. CourtsRuling:

Theunderstandingbetweentheplaintiffsononesideandthedefendantsontheother,really involves two kinds of agreement. One, the agreement between Felipe Cabague and the defendants in consideration of the marriage of Socorro and Geronimo. Another, the agreement between the two lovers, as "a mutual promise to marry". For breach of that mutualpromisetomarry,GeronimomaysueSocorrofordamages.Thisissuchaction,and evidence of such mutual promise is admissible.However Felipe Cabague's action may not prosper,becauseitistoenforceanagreementinconsiderationofmarriage.Evidentlyasto Felipe Cabague and Matias Auxilio this action could not be maintained on the theory of "mutual promise to marry".Neither may it be regarded as action by Felipe against Socorro "onamutualpromisetomarry." Consequently, we declare that Geronimo may continue his action against Socorro for such damages as may have resulted from her failure to carry out their mutual matrimonial promises. Paras,C.J.,Pablo,Padilla,Montemayor,Jugo,BautistaAngeloandLabrador,JJ.,concur.

17

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

ARTICLE 1409
LAO v REPUBLIC (De Castro)
I.FACTS:GSISistheregisteredownerof3parcelsoflandinErmitawithanareaofaround 2 821 m , a 5storey building and improvements. GSIS and the RP, through the Office of the GovernmentCorporateCounsel(OGCC),enteredinto2contracts: 1. A "leasepurchase" agreement on June 22, 1978 where GSIS agreed to transfer the propertytotheOGCCforP1.5million,payableinequalyearlyamortizationleaserentals ofP100,000foraperiodof15years. OnDecember22,1980,petitionerofferedtopurchasetheproperty. OnMay10,1982,GSISandpetitionerexecutedasecond"leasepurchase"agreement. GSIS agreed to sell the same property to petitioner for P2,000,000, with a down payment of P200,000 and the balance payable within a period of 15 years at 12% interestperannum,compoundedyearly. Under this second contract, GSIS obligated itself to construct for the OGCC a 3storey building on the Manila Bay reclaimed area OR to make available another property acceptable to the OGCC, to be conveyed to the RP under the same or mutually acceptabletermsasthoseofthefirstcontract.Inthemeantime,theOGCCwasallowed tocontinueoccupyingthesecondtothefifthfloorsofthebuildingatanannualrentalof P100,000, payable to petitioner. Furthermore, petitioner was entitled to lease out the groundfloorandcollectthecorrespondingrentals. Pres.MarcosandtheBoardofTrusteesofGSISapprovedthecontractbysigningtheir signaturesonthesame. In1989,aftertheoverthrowofMarcos(in1986),respondentsfiledbeforetheRTCofManila acomplaintagainstpetitionerallegingthat: Uponpetitionersbehestandrepresentations,thenPres.Marcosdirectedthetransferofthe propertytopetitioner.Byreasonofinsidiousmachinations,theRP,throughtheOGCC,was forced, intimidated and coerced to execute a waiver of its rights and interests to the property,andtheBOToftheGSISwaslikewiseconstrainedtoapprovetheofferofpetitioner andtoexecutethe2ndLeasePurchaseAgreement. The 2nd LeasePurchase Agreement is burdensome and grossly disadvantageous to the RP. NotwithstandingthatthepropertywasalreadyvaluedthenatoraboutP10,000,000.00,they

weresoldforonlyP2,000,000.00,and,worseyet,payableonafifteenyearinstallmentbasis. Furthermore, the agreement obligated the GSIS to provide an office and parking space equivalent to a 3storey office building at its new building in the Manila Bay Area or some otheracquiredpropertiestohouseitsoffices.ThevalueofthisobligationoftheGSIStothe Republic,atthemomentisworthatleast(P20,000,000.00). Sincethetermsof[the]secondagreementaremanifestlyandgrosslydisadvantageoustothe government the contract is contrary to law, being violative of RA 3019, and the public officersresponsiblethereofareliableunderSection3(g)of[RA3019].Consideringthatthe causeorconsiderationofthesecondcontractiscontrarytolaw,thesameisvoid(Art.1352, nd Civil Code). Also, it was contended that the 2 agreement was not yet approved by the president; yet was taken possession of and leased to 3rd parties with rent and profits obtained. Consideringthe2ndleaseagreementtobevoid,petitionershouldpayfortheofficespacehe hadbeenoccupyingandtoaccountforandtoreturntotheRepublic,thoughtheOGCC,all moneys he unjustly received, including those received from such tenantlessees as rentals, withinterestatthelegalrateuntilfullypaid.Nullificationofthecontractwassought. RTCruledinfavorofrespondentsanddeclaredthe2ndleasepurchaseagreementnulland void. It also ordered the forfeiture in favor of respondents of the purchase price paid by petitionertoGSISaswellastherentalsreceivedbypetitioner.TheCAaffirmed. II.ISSUE:WONthe2ndcontractvalidasclaimedbypetitioner,ornullandvoidasdecidedby theRTCandaffirmedbytheCA III.HELD:YES,Nullandvoid.Decisionaffirmed. IV. RATIO: The second contract was null and void ab initio for being in contravention of Section 3(e) and (g) of RA 3019, otherwise known as the "AntiGraft and Corrupt Practices Act". Both the trial and appellate courts found that the second contract gave petitioner unwarranted benefits and was grossly disadvantageous to the government. Under Article 1409(7)oftheCivilCode,thecontractwasnullandvoidfromthebeginning. TheAgreementbetween[petitioner]andtheGSISwhichisthesubjectoftheinstantcase had in fact transferred the economic benefits which the Republic used to enjoy to [petitioner]. At the end of [15] years, [petitioner] shall become the absolute owner of the subjectpropertyuponfullpaymentofthe[15]yearlyamortizations.Atbottom,however,is the fact that, at least for the first [five] years of the [Agreement], [petitioner] shall not be shellingoutofhisownpockettheyearlyamortizationsincethesameshallbecoveredbythe annual rental coming from the OGCC and the other tenants thereof. In the meantime, the

2.

18

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

Republic,thrutheOGCC,shallnotonlybeappropriatingadditionalfundsforitsannualrental butworse,itwasstrippedoftheopportunitytobecometheabsoluteownerofthesubject property. Add to this the difference between consideration and the market value of the property(approx.58million). On this respect, [respondents] assertion that the subject Agreement is at the behest of [petitioner] and is grossly disadvantageous to the Republic had become selfevident. Some economicimplications:theRepublicwouldneedtoappropriateadditionalfundstopayfor itsrentalsandabandonthechanceofbecomingtheownerofthesubjectpropertywhichit uses for governmental purposes and the fact that the subject property was negotiated by thegovernmentviaalosingproposition.

19

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

RULING: No.Theruleofinparidelictoappliestocaseswherethenullityarisesfromtheillegalityof theconsiderationorthepurposeofthecontract.Inthiscase,thenullityofthedeedarises notbecauseoftheillegalityoftheconsiderationbutbecausethestatedconsiderationhadin fact not been paid and therefore the said deed is fictitious, simulated, inexistent and producesnoeffectwhatsoeverforlackofconsideration. Inthepresentcase,itisclearfromthefactualfindingsofbothlowercourtsthattheDeedof Sale was completely simulated and, hence, void and without effect. No portion of the P200,000considerationstatedintheDeedwaseverpaid.And,fromthefactsofthecase,itis clearthatneitherpartyhadanyintentionwhatsoevertopaythatamount. Instead, the Deed of Sale was executed merely to facilitate the transfer of the property to petitioner pursuant to an agreement between the parties to enable him to construct a commercial building and to sell the Juno property to their children. Being merely a subterfuge,thatagreementcannotbetakenastheconsiderationforthesale. Inparidelictodoesnotapplytoinexistentcontractduetolackofconsiderationorother essential requisites. It applies only to existing contracts with illegal consideration (Yu Bun Guanvs.OngG.R.No.144735October18,2001.) Thus,theDeedofSalebeingsimulatedandcontrarytopublicpolicyiswithouteffect.The SupremeCourtinarelatedcase,heldthattheDeedofSalethatwasexecuted,wasmade merely to facilitate the transfer of the property to petitioner pursuant to an agreement is voidandwithouteffect.Beingmerelyasubterfuge,thatagreementcannotbetakenasa considerationforthesale ItisalsoquiteobviousthattheCourtofAppealsdidnoterrinorderingthecancellationof TCTNo.181033,becausetheDeedofAbsoluteSaletransferringownershiptopetitionerwas completely simulated, void and without effect. In fact, there was no legal basis for the issuanceofthecertificateitself.1wphi1.nt WHEREFORE,thePetitionisherebyDENIEDandtheassailed.DecisionAFFIRMED. ISSUE w/nYuBunwascorrect?

ARTICLE 1411
YU BUN GUAN v ONG
FACTS Yu Bun and Elvira were married on April 30, 1961 according to Chinese rites. On April 17, 1968Elvirapurchasedaparceloflandusingherownseparatepersonalfundssothetitleto thepropertywasissuedandregisteredinhername. Lateron,sometimein1992,aftermorethan30yearsofmarriageandwiththreechildren,Yu BunwasabletoconvinceElvira,throughrepeatedimportunings,toexecuteaDeedofSaleof her property in his favor. Yu Bun promised Elvira that he would construct a commercial building on the property for the benefit of their children. He suggested that the property shouldbeinhisnamealonesothatElvirawouldnotbeinvolvedintheloanwiththebank. The consideration of the transfer of the property in his name consisted of his promise to construct a commercial building for the benefit of their children to whom he will in turn, execute a Deed of Absolute Sale, and to pay the loan he had obtained from the bank. BecauseofYuBunsglibassurances,ElvirasignedaDeedofAbsoluteSaleinhisfavorwith the ostensible consideration of P200,000 which Yu Bun did not actually pay. So a new title was issued in the name of Yu Bun alone. But to insure that Yu Bun would comply with his promise,ElviradidnotdelivertheownerscopyoftheTCTtoYuBun. From then on, marital trouble worsened as Yu Bun would insist on delivering to him the owners copy of the title which Elvira would ask Yu Bun to comply with his promise. The maritalspatwasaggravatedbyYuBunspromiscuity,volcanictemperandotherviciousvices untilhefinallyabandonedElviraandtheirchildren. Yu Bun then fraudulently tried to obtain a new owners title by filing a petition in court allegingthattheoriginaltitlewaslost.WhenElviralearnedaboutthisscheme,shefiledan adverseclaimandaskedtheCourttodeclaretheDeedofSaleshesignednullandvoidand YuBunstitlebecancelled.YuBunhowevercontendedthatElvirashouldnotbegrantedthe reliefshewasprayingforbecauseshewasequallyatfault(inparidelicto)intheexecutionof thesaidDeedofSale.

20

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela

21