130719604 ObliCon Digests IIaw

G.R. No. 105567 November 25, 1993 GSIS v. CA AND SPS. RAUL AND ESPERANZA LEUTERIO Facts: GSIS increased the purchase price stipulated in the Deed of Conditional Sale with the Sps., involving one of its house and lots in its village after the final construction costs. Because the Deed did not subject the price to change, where the marginal notation of such effect was only inserted, the agreement was only to pay the original price, which obligation the Sps had already complied with and which necessitates the execution of a Final Deed of Sale. > Deed of Conditional Sale (1965) between GSIS and Sps. Raul and Esperanza Leuterio where the former would sell a house and lot to the latter ~ by virtue of a lottery for lots and housing units of GSIS’ Village on December 18, 1963 where Sps. Leuterios won > Certificate of Acknowledgement to purchase were issued to the Sps. (December 27, 1963) > CONDITIONS: Sps. to pay P19,740 within 15y, in 180 equal monthly installments (P168.53); Par. 11: “Upon full payment by the Vendee of the purchase price…the Vendor agrees to execute in favor of the Vendee a final Deed of Sale > Deed of Conditional Sale notarized after 3y > Completion of the Village ~ Board of Trustees increased the purchase price (allegedly due to the final costs of the construction) in accordance with (1) the marginal notation “subject to adjustment pending approval of the Board of Trustees” on the face of the Deed; (2) the recommendation of an ad hoc committee created by President Marcos to investigate the price increase which it found to be justified ~ pursuant to the petition of a group of vendees > SUIT for Specific Performance with Damages (May 20, 1984), after the Sps’ completion of payment of the original purchase price (plus taxes) and GSIS’ failure to execute a final deed of sale > CONTENTION OF THE SPS: Marginal notation was not there when they signed it > CONTENTION OF GSIS: Sps. was bound by the Ad hoc committee’s recommendation of the price increase > RTC Held in favour of Sps: Marginal notation was inserted without the Sps.’ knowledge or consent (such fact was not questioned during appeal to CA) > CA Upheld by virtue of estoppels > FINAL DEED OF SALE SHOULD BE EXECUTED IN FAVOUR OF THE SPOUSES > Parties only agreed on the purchase price of P19,740 ~ the agreement was not made subject to any posterior event or condition > (A) Marginal Notation was not included in the contract when signed: Judicial admission by GSIS in (1) its Answer to the Complaint that it was only an honest mistake (made by the clerk who typed it) and in (2) its Petition for Review on Certiorari that it was only inserted > (B) Also, Recommendation by the ad hoc committee was set aside by President Marcos (May 30, 1970) and GSIS’ reconsideration was denied (December 18, 1990) > HENCE, the obligation mutually agreed upon was the payment of

P19,740 > Art. 1473: GSIS cannot unilaterally adjust the price without the Sps’ knowledge and consent > Obligation was thus completed by the Sps. upon full payment > Failure of GSIS to foresee the construction costs is due to their own fault > It cannot excuse itself from performing > BAD BUSINESS JUDGMENT IS NOT AN EXCUSES G.R. No. 148599 March 14, 2005 PROFESSIONAL ACADEMIC PLANS, INC., FRANCISCO COLAYCO and BENJAMIN DINO v. DINNAH L. CRISOSTOMO Facts: Sales associate Crisostomo negotiated with AFPSLAI and received commission for the initial MOA contracted, involving educational plans. When the MOA was amended, PAPI stopped her commission, alledging the termination of the first MOA and hence, Crisostomo’s lack of right to said commissions. However, the second MOA was only a modification of the first since the abandonment of contracts must be mutual between the contracting parties. Crisostomo and the new president of AFPSLAI did not intend to rescind the contract and hence, the former remains entitled to her commission. > Memorandum of Agreement (November 9, 1988) between PAPI and AFPSLAI > District Manager of PAPI for MM, Dinnah L. Crisostomo, and VP for Sales, Guillermo Macariola, agreed to sell and AFPSLAI agreed to purchase educational plans from PAPI ~ Originally offered by Noel Rueda (PAPI’s sales consultant) but finalized by Crisostomo as his supervisor when he was terminated > Commission for the contract was given to Crisostomo by the Executive Committee when Macariola declined (disqualified because she was an employee) in favor of Crisostomo (she receives no salary but is entitled to franchise commission worth 10% of remittances for every contract negotiated by her for PAPI) > Crisostomo received the commission from December 1988 to April 1989 > Commission was later reduced (to 5%, 4%, 3.75%, 2%) upon the instance of Benjamin Dino, Ass. VP for Marketing, allegedly to support operational expenses > Crisostomo was issued a Memorandum (February 7, 1991) by Dino and Cruz (VP for Finance and Admin) reducing the commission to 2% > Amendment of the MOA with AFPSLAI between the new AFPSLAI President and PAPI (April 1992) after the former wrote a letter and suspended the first MOA > Crisostomo no longer received her commission after the amendment > Crisostomo was issued a Memorandum (June 1, 1992), terminating her franchise commission on the transactions with AFPSLAI ~ WHY: (1) Amendment of the contract due to the sales associates’ misrepresentations; (2) Amendment was largely due to management’s efforts; (3) Crisostomo failed to complete 100 new plans as stipulated in the first MOA 1

> Insistence and Demand by Crisostomo for continued payment of her 2% commission ~ Proposed to resign for P5M or to resign but continue receiving the commission as royalty until the contract with AFPSLAI exists > PAPI denied her proposal, preventively suspended her and subsequently terminating her services > SUIT for sum of monet and damages (January 21, 1993) amounting to P183,867.34 as commission of AFPSLAI’s payment worth P9,193,367.20 as of October 2, 1992 > CONTENTIONS OF PAPI: (1) Crisostomo failed to complete 100 new paid plans; (2) Crisostomo’s right to commission was subject to the existene of a contrace and the Amended MOA with AFPSLAI was a new contract with the old one rescinded; (3) Crisostomo was not entitled to commission but was given only because those entitled were disqualified (as terminated and as an employee) > RTC Held in favor of Crisostomo > CA Upheld since (1) no cancellation of the first MOA that was only modified; (2) the requirement of 100 new paid plans was amended by the Memorandum which reduced the commission to 2% > FIRST MOA NOT CANCELLED BUT ONLY MODIFIED BY THE SECOND > Letter of new AFPSLAI President only signified the suspension of the acceptance of new applications under the first MOA, until such time that a new agreement mutually beneficial to both parties was entered into ~ Only inconsistent provisions were rescinded or modified > Abandonment must be (1) Actually intended; (2) Mutually assented to by both contracting parties ~ Art. 1308 > Non-participation of Crisostomo in the negotiations is immaterial because the commission was granted as an incentive to the one who initiated and successfully negotiated the contract given that the agent remains connected with PAPI and that the commission was non-transferable > Crisostomo was still with PAPI and hence entitled to the commission even under the second MOA > No moral damages for absence of bad faith in the breach of contract > No exemplary damages due to absence of finding of moral, temperate or compensatory damages G.R. No. 11318 October 26, 1918 MANILA RAILROAD CO. v. LA COMPANIA TRASATLANTICA and THE ATLANTIC, GULF & PACIFIC CO. Facts: Atlantic, in negligently lifting the boiler of Company from the steamship of Compania, thereby damaging such boiler, is liable only to Compania and not to Company because the contract exists only between Atlantic and Compania. There was no contract with Company and hence, the latter cannot reinforce performance nor claim damages for damages arising from such breach of duty.

> Steamship of Compania arrived with Company’s two locomotive boilers but the former was not able to discharge the boilers because they were too heavy for its equipment > Compania thus hired Atlantic for the purpose > One boiler was severely damaged due to ineffective lifting that dropped the boiler twice (caused by improper adjustment of the sling due to Leyden’s gross negligence, the foreman in charge) ~ Had to be sent back to England for repair and shipped bank > Company spent P22,343.39 for the damage, repair and loss of use of the boiler > Company sued Compania and latter insisted that Atlantic be made its codefendant > RTC ruled in favor of Company against Atlantic but absolved Compania > Contract between Compania and Company > Former to transport safely the boiler from England to Manila, including its discharge from the ship > Compania is liable for negligence, failing to exercise due diligence in delivering safely the boiler to the port of Manila > No ruling yet that the failure to comply with a contractual obligation can be excused by showing that such delinquency was due to the negligence of one to whom the contracting party had committed the performance of the contract > Obligation of Atlantic to Compania > Atlantic agreed to render its service when Compania assumed all risk (of damages) incident to the discharge of the boilers ~ that while Atlantic would use all due care in getting the boilers out, no responsibility was assumed for damage done either to ship or cargo (testimony of Atlantic’s VP as the practice being customary to Atlantic) ~ BUT diligence is an implied obligation arising from law > Exemption from liability excludes those caused by negligence and referred to disasters which might result from some inherent hidden defect in the lifting apparatus or other unforeseen occurrence not directly attributable to negligence of Atlantic in the lifting operations > (1) Liability from negligence is demandable in all kinds of obligations (Art. 1103) > Contracts against liability for damages are not favored by the law (Crew v. Bradstreet Company) > (2) Exempted negligence, if so allowed, must have been not gross and such conditions must have been expressly declared; (3) Absolute exemption is inequitable and unfair; (4) Promise to exercise due care has a legal effect as much as the exemption promised > Art. 1903 which absolves liability by proving due care applies only to those acquired outside a contract > No Obligation of Atlantic to Company > Contract was between Atlantic and Compania > No contract between Atlantic and Company > No right was conferred to Company for damages > No double responsibility of Atlantic to Compania (contract) and to Company (culpa aquiliana) because the liability arises only from its obligation to Compania which was authorized to contract 2

with Atlantic when Company impliedly assented to the employment of Atlantic (when it was informed about the need to hire a contractor to carry the boiler) >> Culpa Aquiliana, those not growing out of preexisting duties of the parties to one another >> Culpa Contractual, those growing out of relations already formed to give rise to duties G.R. No. 118248 April 5, 2000 DKC HOLDINGS CORPORATION v. CA, VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA, DISTRIC III Facts: Son of land owner Encarnacion is bound to recognize the contract of lease between his mother and DKC over his mother’s land even after the death of her mother and even after he had inherited the same as sole heir. Property right is transmissible and thus, under Art. 1311, obligations arising from it binds heirs. > Contract of Lease with Option to Buy (March 16, 1988) between Encarnacion Bartolome and DKC over the former’s parcel of land as a potential warehouse for the latter’s textile plant beside it > Conditions: DKC to (a) either lease the land for 6y, renewable for another 6y, or to lease with purchase the land ~ option to be exercised in 2y from the signing of the contract; (b) pay P3k/m for the reservation of its option > Death of Encarnacion (January 1990) > Payment of the P3k/m by DKC to Victor Bartolome, Encarnacion’s son > Victor refused to accept > Letter by DKC to Victor (March 14, 1990) notifying him of its intention to lease the land and tendering payment of P15k for the first 6y > Victor refused to accept and to surrender possession of the property > DKC deposited its payment to a bank account it had opened in China Banking Corporation under the name of Victor > DKC paid the Register to have the Title annotated but the Register refused to do so after > Suit (April 23, 1990) by DKC against Victor and Register for Specific Performance and Damages > Contention of Victor: The contract expired with Encarnacion and he is not bound by it as he was not a party to it > Victor is bound by the contract > Art. 1311 ~ heirs are bound by contracts entered into by their predecessors-in-interest ~ Exception is when the right and obligation is NOT TRANSMISSIBLE by (1) its nature, (2) stipulation, (3) provision of law > No stipulation or law and the nature of the obligation is transmissible (property right and not personal right as defined below) > He who contracts does so for himself and his heirs > Principle: heirs cannot escape the

legal consequence of a transaction entered into by their predecessor-in-interest because they have inherited the property subject to the liability affecting their common ancestor (Carillo v. Salak de Paz) > Heirs only succeeds what rights the predecessor had ~ what is valid and binding against the latter is the same against the former > DKC properly exercised its option to lease by paying the fees and informing Victor of its exercise >> Intransmissible Contracts > Those which are purely personal, either by provision of law (partnerships and agency) or by the very nature of the obligations arising therefrom (those requiring special personal qualifications of the obligor; acts require the special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity or other personal qualification) > It may be stated that contracts for the payment of money debts are not transmitted to the heirs of a party but constitute a charge against his estate > Terminates on the death of the party required to render such service because it cannot be performed by the promissor’s personal representative

G.R. No. 9188 December 4, 1914 GUTIERREZ HERMANOS v. ENGRACIO ORENSE Facts: Orense’s nephew sold his uncle’s land to Gutierrez without his written consent, thereby nullifying the contract, but due to Orense’s verbal declaration in Court, which was proven as fact during the estafa case against Duran, the defect was cured as allowed by Art. 1259. > Deed of Sale (February 14, 1907) between Jose Duran (nephew of Engracio Orense and manager of his business) and Gutierrez Hermanos where Duran, allegedly with Orense’s knowledge and consent, sold the latter’s property as the absolute owner to Gutierrez with the right to repurchase for the same price of P1,500 after 4y > Contract of Lease where Gutierrez leased the property to Orense and Duran until February 14, 1911 ~ O,D continued to occupy the land > Gutierrez demanded a deed of conveyance of the property to perfect its title but Orense refused > Non-possession of the property and loss by Gutierrez of its value (P3k) and non-payment of Orense and Duran of the rentals after Feb. 14, 1911 > Previous Complaint by Gutierrez against Duran for estafa (allegedly misrepresenting himself as the owner) but latter was acquitted due to Orense’s testimony that he had consented to the sale > Complaint (March 5, 1913) by Gutierrez for declaration of his ownership, the execution of the deed of 3

conveyance, and the payment of rentals or damages > Contention of Orense: that the sale was executed without his knowledge and consent, express or implied ~ that he did not authorize Duran verbally or thru a special power of attorney and that he knew of the sale long after it was made

the mortgage were in fact his salaries; (2) his acquittal in a criminal case that used the chattel mortgage as evidence of his liability was a bar to the present civil case

> Orense knew and consented to the sale: Ratification of the sale by means of Orense’s verbal declaration (March 14, 1912) that he gave consent during the estafa case against Duran ~ proven as fact during the trial and made the basis of Duran’s acquittal > Constitute an express grant of a power of agency to Duran to sell the property Despite lack of written authority > Consent is valid even if SUBSEQUENT to the sale > Art. 1259: No one can contract in the name of another without being authorized by him or without having his legal representation according to law. A contract executed in the name of another by one who has neither his authorization nor legal representation shall be void, unless it should be ratified by the person in whose name it was executed before being revoked by the other contracting party. > Thought the sale was initially void, Orense’s subsequent consent cured the defect

> Chattel Mortgage does not violate the law, morals or public policy

> Testimony of Orense that verbally declared his consent to the sale was the basis of Duran’s acquittal and hence, Orense could not deny it thereafter because it would be unjust to Gutierrez who would thereby be a victim of estafa

> No res judicata where acquittal in criminal case bars the present civil case > No identity of subject matter and no dependence of the civil to the criminal

G.R. No. 47806 April 14, 1941 LEONCIO GABRIEL v. MONTE DE PIEDAD Y CAJA DE AHORROS and CA Facts: Chattel mortgage executed by Leoncio in favour of Monte de Piedad was valid for not being contrary to public policy, the law and morals, absent proof. > Chattel Mortgage (December 13, 1932) where Leoncio Gabriel, appraiser of jewels in the pawnshop of Monte de Piedad, promised to pay P14,679,07 (the value of the deficiencies due to erroneous appraisal of the pawned jewels), payable by P300/m > Alleged failure to pay > Termination of Leoncio allegedly without cause and notice > SUIT by Monte de Piedad against Leoncio for payment of the debt where the mortgage was insufficient > Contention of Leoncio: (1) the chattel mortgage was void because (a) it is contrary to law, morals and public policy; (b) he was made to sign it against his will and through misrepresentation where E. Marco (Director-General) signed in behalf of Monte de Piedad without the latter’s authority, (c) the subject matter and considerations of the mortgage do not exist, and (d) the payments already made allegedly for

> Chattel Mortgage does not lack consideration > It was executed voluntarily to guarantee the deficiencies resulting from his erroneous appraisals of the jewels (CA Held) > Thus, a preexisting admitted liability is a good consideration for a promise > EXCEPTIONS: if the inadequacy of the consideration is so gross as to amount to fraud, oppression or undue influence, or when statutes require the consideration to be adequate > Compliance with the Act 1508, Chattel Mortgage Law, Section 5 > Marco signed as Director-Manager with confirmation from the administration > Law on chattel mortgage contracts only need substantial compliance and not literal

>> Public Policy > A contract which is neither prohibited by law nor condemned by judicial decision, nor contrary to public morals, contravenes no public policy > Violative of public policy if the contract has for its consideration a tendency to injure the public, or if it is against the public good, or if it contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of personal liability or of private property >> Consideration > right, interest, benefit, or advantage conferred upon the promisor, to which he is otherwise not lawfully entitled, or any detriment, prejudice, loss, or disadvantage suffered or undertaken by the promise other than to such as he is at the time of consent bound to suffer G.R. No. 61594 September 28, 1990 PAKISTAN INTERNATIONAL AIRLINES CORPORATION v. HON. BLAS F. OPLE (as Minister of Labor), HON. VICENTE LEOGARDO, JR. (as Deputy Minister), ETHELYNNE B. FARRALES and MARIA MOONYEEN MAMASIG Facts: PIA illegally dismissed Farrales and Mamasig because their termination was without clearance from MOLE. Despite the contractual agreement that 4

reserved the right of termination to PIA, labor is a matter of public policy and interests and hence, the Labor Code applies. The Labor Code prohibits the limitation of employment for the purpose of circumventing security of tenure and requires MOLE clearance for termination. Hence, the termination was illegal because the provision in the contract is facultative, dependent solely upon the will of PIA and thus preventing security of tenure of F,M, and because the termination was made without clearance, thus presumed to be without cause. > Two Contracts of Employment (signed December 2, 1978, effective January 9, 1979) between PIA, a foreign corporation with license in the Ph, and Ethelynne Farrales and Maria Mamasig as flight stewardesses for a 3y period > Conditions: Right of PIA to terminate employment given a 1m notice in writing or payment of 1m’s worth of salary; Applicability of Pakistan laws and sole jurisdiction of the Courts of Karachi in any matter arising from the agreement > Employment of Farrales and Mamasig until Notices of Termination (dated August 1, 1980, effective September 1, 1990) was served to them on August 2, 1980, 1y4m prior to the expiration of their contracts > JOINT SUIT by Farrales and Mamasig against PIA in Ministry of Labor and Employment for illegal dismissal and nonpayment of benefits and bonuses > Contention of PIA: that F,M were habitual absentees, that they bring in sizeable quantities of personal effects from abroad, that customs officials warned Manila International Airport to advise F,M to stop the habit > MOLE, thru the Regional Director, ruled in favor of F,M (January 22, 1981), ordering their reinstatement because (1) their dismissal was (conclusively presumed to be) without just cause because it was without MOLE’s clearance (as required by Sec. 278, (Labor Code concerning regular employees), and hence, illegal; (2) the 3y period of employment violated the Labor Code (Art. 280-281) on regular and casual employment where F,M have become regular employees for having rendered continued services for more than 1y > Contention of PIA: (1) MOLE has no jurisdiction; (2) No due process due to no oral hearing; (3) order of reinstatement is a violation of their rights in the employment contracts > SC HELD: Illegal Dismissal > Ph Laws apply despite agreement that Pakistan laws should govern BECAUSE Labor is a matter of public policy > Party Autonomy is not absolute > Contract is the law between the parties but Art. 1306 requires that they not be contrary to law, morals, good customs, public order or public policy > Laws relating to public policy are thus deemed written into the contract > Laws on labor and employment cannot thus be excluded from contracts especially where (1) the contracts were executed and performed in the Ph; (2) F,M are Ph citizens and are based in the Ph; (3) PIA is a resident of the Ph; (4) No proof of the relevant Pakistani laws and hence, they are presumed to be the same as the Ph’

> Par. 5&6 of the Contract, providing for the 3y period and right of PIA to termination, is void for circumventing the security of tenure of the employees > Condition is facultative ~ authority to shorten the term is solely dependent upon the will of PIA at any time and for any cause satisfactory to itself > Although a contract providing for employment with a fixed period is not necessarily unlawful, it must have no intent to circumvent the law(ie where the employee insists upon a period; where the nature of the engagement is such that a definite date of termination is a sine qua non ~ Otherwise, the law would restrict without reasonable distinctions the right of an employee to freely stipulate with his employer the duration of his engagement) > Evil sought to be avoided: agreements entered into precisely to circumvent security of tenure > Must have been mutually and voluntarily made by the parties > MOLE with jurisdiction > Regional Director given authority under Labor Code to reinstate employees who were illegally dismissed by reason of lack of clearance from MOLE > Due process present > Opportunity to be heard in position papers > PIA did not choose to present evidence G.R. No. L-15127 May 30, 1961 EMETERIO CUI v. ARELLANO UNIVERSITY Facts: Contract of Waiver between Emeterio, law student/scholar, and Arellano University, where the former is granted scholarship but prohibited to transfer schools, is prohibited for being contrary to public policy, embodied in Memorandum No. 38 that deems scholarships as recognitions of merit and not as business schemes, and good morals, where such practice is not generally accepted. > Emeterio Cui was a scholar in the College of Law of the Arellano University until the last semester of his final school year when he left with his uncle, Francisco R. Capistrano who was Dean of the College of Law, to transfer to the College of Law of Abad Santos University where his uncle became Dean and Chancellor > Arellano University subsequently refused to release his transcripts of records which Emeterio needed to apply for the bar exams until he has paid back the value of the scholarship which the latter refunded to him per semester, which amounted to P1,033.87 (Each tuition that Emeterio had paid at the start of the semester was refunded to him at the end of the semester for scholastic merit) > Memorandum No. 38 (August 16, 1949) of the Director of Private Schools prohibited the refund of scholarship when students transfer to other schools > Bureau of Private Schools advised Arellano University to release Emeterio’s 5

records without requiring him to pay the tuition fee > Arellano refused > Emeterio paid under protest in order to take the bar > SUIT by Emeterio for recovery of the amount > Contention of Arellano: Scholarship Contract of Waiver (September 10, 1951) with Emeterio provided that the latter, in consideration of the scholarship grant, waives any right to transfer to another school without having refunded to the University the equivalent of the scholarship cash > Contract provision is Null and Void for violating public policy > Memorandum of the Bureau of Private Schools, considered as a practice of government officials, is a factor in determining a public policy of the state > Director submitted (1) that the policy of the Memorandum was a sound policy where scholarships are awarded to recognize merit and help gifted students in whom society has an established interest or a first lien and not to keep outstanding students in the school to bolster its prestige; (2) that Arellano treated the scholarship as a business scheme designed to increase its business potential; (3) that, thus, Arellano’s contract is contrary to public policy and even good morals > Contrary to Public Policy > if its consideration contravenes the interests of society and in inconsistent with sound policy and good morals and tends to undermine the security of individual rights > Contrary to Good Morals > if against good customs, those generally accepted principles of morality which have received some kind of social and practical confirmation

the dismissal of the case > Non-compliance and refusal of Marcela to sign a written agreement > SUIT by Ignacio > RTC ruled in favor of Marcela due the illegality of the contract’s consideration > Agreement contrary to public policy > Owner of stolen goods cannot stifle the prosecution of the accused charged with theft merely for a pecuniary or other valuable consideration > It is a public interest that criminals be prosecuted and punished > Hence, criminal proceedings should abide by the laws > It is a perversion of justice to allow the offender to purchase immunity from private individuals and escape the penalties prescribed by law > Art. 1255: conditions should not contravene the law, morals or public order > Art. 1275: Contracts with illicit considerations, or those contrary to law and good morals, are without effect G.R. No. L-19638 June 20, 1966 FILIPINAS COMPANIA DE SEGUROS, ET AL v. HON. FRANCISCO Y. MANDANAS (as Insurance Commissioner) and AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET AL Facts: The power of the Ph Rating Bureau to refuse to do business with insurance companies that are not its members is valid because it is not contrary to law or public policy as it reasonably restraints competition merely by fixing rates which it has, in the first place, the license to do.

Facts: Agreement between Ignacio and Marcela, client of Alfred, where Ignacio agreed to have the case for theft (on appeal) against Marcela dismissed for some benefit is void. It is against public policy where the criminal justice system is perverted by the mere purchase of immunity by the accused from a private individual at the prejudice of the public.

> Letters (March 11, 1960, April 11, 1960, April 9, 1961) by Insurance Commissioner Mandanas to the Ph Rating Bureau, requesting the deletion of Art. 22 of the Constitution of the Ph Rating Bureau because it was allegedly unlawful for allowing the Bureau to refuse representation or reinsurance from companies not members in good standing of the Bureau ~ otherwise he would suspend the license issued to the Bureau and its members > SUIT (May 16, 1961) by non-life insurance companies against Hon. Mandanas for Declaratory Relief re: constitutionality of Art. 22 of the Constitution of the Ph Rating Bureau, the former alleging its constitutionality while the former assailing its validity for being an illegal or undue restraint of trade

> Judgment of theft against Marcela Juanez, represented by Alfred Berwin (as procurador judicial of the law office of Atty. John Bordman) and prosecuted by Ignacio Arroyo, for having the canes on the land of Ignacio cut > Verbal Agreement (August 14, 1914, during hearing for appeal) before Roque Samson where Marcela recognized Ignacio’s ownership of the land in which she ordered the canes therein cut and promised not to oppose Ignacio’s application for registration for a Torrens title; Ignacio agreed to dismiss the case > Requests for

> Test of Legality of an Agreement restraining trade: (1) Reasonable Necessity in protecting the parties’ interests; (2) Effect on competition ~ to regulate and promote competition is valid while to suppress and destroy it is unlawful; BUT considering the particular circumstances of the case and the nature of the particular contract, where public interest and welfare are not involved > PURPOSE OF ART. 22 (testimony of Salvador Estrada, Chairman of the Bureau): to promote ethical practices in order to earn the respect of the public,

G.R. No. 10551 March 3, 1917 IGNACIO ARROYO v. ALFRED BERWIN

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and to avoid the unethical practice of underrating of the insurance companies that resulted from intense competition BY coordinating with the various companies in fixing the rates and applying it as a standard to all > NOT ILLEGAL, IMMORAL, UNREASONABLE, or CONTRARY TO PUBLIC POLICY in both objectives and means > FURTHERMORE, Circular No. 54 (February 26, 1954) requires the approval of the Insurance Commissioner before non-life insurance companies can implement its rates > Annual grant of license (April 28, 1954) by the Insurance Commissioner to the Bureau with knowledge of its constitution and with grant of authority to fix rates G.R. No. 126800 November 29, 1999 NATALIA P. BUSTAMANTE v. SPOUSES RODITO F. ROSEL and NORMA A. ROSEL Facts: Stipulation in the loan agreement where lender Sps. Rosel have the right to purchase the collateral property of the borrower Sps. Bustamante is void. Such condition is a pactum commissorium because it is an automatic appropriation of the mortgaged thing in case of non-payment which the law prohibits in order to protect the interests of the borrowers from lenders who seek to unjustly appropriate their properties. > Loan Agreement with Option to Buy (March 8, 1987) between Norma Rosel and Sps. Natalia and late Ismael Bustamante where former lent P100k and the latter offered part of their land as collateral with right to purchase (for P200k, inclusive of the debt) in case of failure to pay ~ debt payable in 2y (starting March 1, 1987 and due March 1, 1989) > Exercise of Option to Purchase by Sps. Rosel when the loan was about to mature > Sps. Bustamante refused, requested an extension of time for the payment, and offered to sell instead another house another lot > Sps. Rosel refused because the offered lot were not owned by Sps. Bustamante (since the latter are only developers entitled to subdivision shares) and it was full of squatters > Tender of Payment by Bustamante (March 1, 1989) ~ Rejected by Sps. Rosel who demanded a deed of absolute sale of the collateral > SUIT for Specific Performance with Consignation (February 28, 1990) by Sps. Rosel and Demand Letter (March 4, 1990) to sell the collateral > Petition for Consignation (March 5, 1990) and Deposit (August 10, 1990) by Sps. Bustamante, worth P153k > Consignation of Sps. Rosel, worth P47,500 (Purchase price of P200k – P100k loan+P52,500 interests) > SC Previously ruled in favor of Sps. Rosel because the contract is the law between parties > Contention of Sps. Bustamante: that the purpose of

collateral as guarantee was similar to that of an equitable mortgage under Art. 1602 > Sale of the collateral as an obligation with a suspensive condition ~ happening of an event that is the failure of payment > Event did not happen ~ Sps. Bustamante tendered payment but Sps. Rosel refused so the former consigned it with the court > Sps. Rosel thus do not have the right to demand the fulfillment of the obligation > Contracts as Law between Parties > EXCEPTIONS (Art. 1306) > Stipulation of automatic right to purchase in case of failure to pay is a pactum commissorium prohibited by law > Why is it a pactum commissorium: Intention of the party, Sps. Rosel to appropriate the collateral in the event of non-payment of the loan > Why prohibited: Under Art. 2088 ~ Intention: Protection of persons in need of money in entering contracts ~ intention to alleviate themselves of their financial burden ~ Purchase price of P200k for a 70sq.m. property in Congressional Ave, QC is unjust *Automatic ~ happening of event, no need to do anything else >> PACTUM COMMISSORIUM (Art. 2088) > Elements: (1) there should be a creditor-debtor relationship between the parties; (2) there should be property mortgaged by way of security for the payment of the principal obligation; (3) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period proscribe G.R. No. L-36821 June 22, 1978 JOSE P. DIZON v. ALFREDO G. GABORRO (Substituted by PACITA DE GUZMAN GABORRO as Judicial Administratrix of his Estate) and the DEVELOPMENT BANK OF THE PHILIPPINES Facts: The two contracts between Dizon and Gaborro are innominate because both parties agreed to give and to do certain rights and obligations partaking the nature of antichresis. > Two mortgages by Jose Dizon over his property to the DBP in order to secure a loan (P38k) and to the Ph National Bank to secure his debt to PNB (P93,831.91) > Extrajudicial Foreclosure of mortgage by DBP after default in payment (sold at P31,459.21 on May 26, 1959 with issuance of a Certificate of Sale) > Deed of Sale (November 12, 1959) by Dizon in favor of DBP > Two instruments (October 6, 1959) between Jose Dizon and Alfredo Gaborro over the former’s foreclosed land: (1) Deed of Sale with Assumption of Mortgage, 7

where the former agreed to sell his land for P131,831.91 and latter agreed to purchase the same and to assume Dizon’s debt to DBP and PNB; (2) Option to Purchase Real Estate where Dizon was granted the right to repurchase the properties from Gaborro (from January 1965 to December 31, 1970) for the same amount plus 8% annual interest > Gaborro possessed the land > Letter (October 7, 1959) by Gaborro to DBP, informing the latter of his assumption of mortgage ~ Approved by the Board of Governors, DBP (October 21, 1959) ~ Conditional Sale of the Properties (July 11, 1960) between DBP and Gaborro, over the land for P36,090.95 ~ Assignment of Right of Redemption (January 7, 1960) by Dizon, as owner and mortgagor, to Gaborro of his right to redeem the land within 1y from the foreclosure > Payment and improvements by Gaborro > Letter-Offer to Reimburse (July 5, 1961) by Dizon, thru counsel, to Gaborro but without tender of payment ~ Gaborro refused > Contention of Dizon: agreement was not an absolute sale but merely an equitable mortgage by way of security for the reimbursement or refund by Dizon to Gaborro of any payments made by the latter for the mortgages ~ only a grant of possession and enjoyment of the property > Contention of DBP: Dizon’s right is limited to redemption because was no longer the owner of the land > DBP’s Inchoate Right in the Property > Mortgage was foreclosed extrajudicially and hence, debtor has 12m to redeem it (Act 3135, Sec. 6) during which he has the right of possession and enjoyment of the property and its fruits > the only rights that Dizon could have transferred to Gaborro: redemption, possession and enjoyment > Deed of Sale is invalid for lack of consideration (property because Dizon no longer has the full right and capacity to dispose of it as owner money, and money) > Gaborro thus has no more than these same rights to grant to Dizon under the Option to Repurchase > No transfer of full title and ownership between Dizon and Gaborro because DCB was already the owner > True intention of the parties: Gaborro to assume the debt of Dizon to DBP and PNB and Dizon to give Gaborro the possession and enjoyment of his properties until he had reimbursed Gaborro of the amounts the latter had paid > to pay the debts to the banks, to make the land productive, and to return the land to the original owner > Mutual Mistake by both Dizon and Gaborro in wording their deeds as one of absolute sale > Cause for reformation > Grant of Reconveyance of Property to Dizon upon his payment to Gaborro of the principal obligation which the latter had paid to the banks within 1y from the decision’s finality

>> Innominate Contracts (Art. 1307) > agreement to give and to do certain rights and obligations respecting the land and mortgage debts of Dizon but partaking the nature of antichresis G.R. No. L-40424 June 30, 1980 R. MARINO CORPUS v. COURT OF APPEALS and JUAN T. DAVID Facts: Atty. David is entitled to attorney’s fees despite the absence of an express contract providing for the same due to the principle of innominate contracts where he does and his client Corpus gives. > Dismissal of R. Marino Corpus (March 1958 after suspension on March 18, 1958, pending investigation) by Governor of Central Bank, Miguel Cuaderno, Sr., despite the investigating committee’s finding that there was no merit, because he had lost confidence in him, by virtue of the Monetary Board’s resolution of July 20, 1959 > SUIT (August 18, 1959) by Corpus thru Atty. Alvarez for certiorari, mandamus and quo warranto with preliminary mandatory injuction and damages against Cuaderno and Mario Marcos who was appointed to his position ~ Dismissed (June 14, 1960) due to Corpus’ failure to exhaust, available administrative remedies > (Contention of David) Prior to the expiration of the period for appeal, Meeting between Atty. Juan T. David and Corpus’s father where the latter requested the former to handle the case of his son due to Atty. Alvarez’s disenchantment and desire to give it up ~ Atty. David accepted the request but only as a collaborating atty. with Atty. Alvarez > (Contention of Corpus that David approached him and offered his services) > Joint efforts of Atty. Alvarez and Atty. David > SC ruled in favor of Corpus (March 30, 1962) ~ dismissal reversed and case remanded > Letter (April 18, 1962) from Corpus to David where the former enclosed a check worth P2k “for legal services”, thanked David and stated that “I could give more but as you know we were banking on a SC decision reinstating me and reimburse my back wage…Looking forward to a continuation of the case in the lower court” > Reply-Letter (April 25, 1962) by David to Corpus where the former declined the check, explaining that his professional fee was not his primary motive but their friendship (“very intimate relations”) which you and I have enjoyed” > Remand of the Case ~ Ruled (June 24, 1963) illegal dismissal, Corpus’ reinstatement, and payment of his back salaries and allowances and award of P5k as attorney's fees ~ David appealed ~ SC affirmed (March 31, 1965) > Demand (April 19, 1965) by David’s law office for collection of 50% of the amount recovered by Corpus ~ Corpus refused due to his outstanding obligations and expectation to net only around P10k > Letter (April 19,1965) by David to the Governor of Central Bank, that the payment to Corpus be made out in two: one in favor of Corpus and the other representing the professional fees equivalent to 50% of the 8

said back salaries being claimed ~ ACTION by David (July 20, 1965) for certiorari to obtain a favorable decision from the Governor > RTC ruled in favor of David (September 4, 1967) for payment of P30k as attorney’s fees ~ CA Affirmed, finding that Corpus accepted David’s services with the understanding of both that the latter was to be compensated in money > Contention of Corpus: that David is not entitled to attorney's fees because there was no contract to that effect > Contention of David: that the absence of a formal contract for the payment of the attorney's fees will not negate the payment because the contract may be express or implied, and there was an implied understanding between them that Corpus will pay David’s attorney's fees when a final decision shall have been rendered in favor of Corpus reinstating him to his former position and paying his back salaries > Attorney’s fees to David is JUSTIFIED: (1) Implied Agreement; (2) Innominate Contract > Implied Agreement between Corpus and David for payment of attorney’s fees > Admitted and recognized by Corpus in: (1) payment of P2k in check with the “wish I could give more but as you know we were banking on a SC decision reinstating me and reimbursing my back salaries” and with the anticipation of the case’s continuation, constituting a promise to pay more upon his reinstatement and payment of his back salaries; (2) request for help by Corpus’ father and acceptance of David as collaborate lawyer where it would have been unethical for him to even offer his services when Corpus had a competent counsel in the person of Atty. Alvarez; (3) reply of Corpus to David’s demand of payment (May 7, 1965) which disagreed as to the amount of attorney's fees demanded but without a categorical denial of David’s right to attorney's fees; (4) payment of P2500 (½ of the awarded P5k as attorney’s fees); (5) admission in Corpus motion for recon in CA that David was entitled to compensation for legal services > Absence of express contract explained by their close relationship which signifies mutual trust and confidence between them > Innominate Contract where David rendered service and hence becomes entitled to compensation by Corpus who had benefited from such rendered service > Right to Reasonable Amount, determined by the extent of his services, given that there is not contract for contingent fee (which depends on an express contract and hence, an attorney is not entitled to a percentage of the amount recovered by his client in the absence of an express contract to that effect) > David was collaborating counsel of principal counsel Alvarez, for 4y, entered at the crucial stage (after dismissal of the case by RTC), advanced legal propositions (while Alvarez laid down the basic theory and foundation of the case), joint efforts of Atty. Alvarez and Atty. David: in filing the motion for reconsideration (both signed), arguing the case before the SC, Baguio (David),

arguing the remanded case before the lower court (both) > Alvarez was paid P20k, David demands P75k but since Corpus received only P150,158.50 as back salaries and emoluments after deducting taxes, the reasonable amount for David’s fees is P20k >> Innominate Contract of facio ut des > I do and you give > based on the principle that “no one shall unjustly enrich himself at the expense of another” > Art. 1307 that such contracts shall be regulated by (1) the stipulations of the parties, by (2) the general provisions or principles of obligations and contracts, by (3) the rules governing the most analogous nominate contracts, and by (4) the customs of the people > Perez vs. Pomar: consideration of a tacit and mutual consent as to the rendition of the services, giving rise to the obligation upon the person benefited by the services to make compensation since the bilateral obligation to render service, on the one hand, and on the other to pay for the service rendered, is thereby incurred G.R. No. L-27696 September 30, 1977 MIGUEL FLORENTINO, ROSARIO ENCARNACION de FLORENTINO, MANUEL ARCE, JOSE FLORENTINO, VICTORINO FLORENTINO, ANTONIO FLORENTINO, REMEDION ENCARNACION and SEVERINA ENCARNACION [or A] v. SALVADOR ENCARNACION, SR., SALVADOR ENCARNACION, JR., and ANGEL ENCARNACION [or B] Facts: Stipulation in Deed of Extrajudicial Partition, favoring the Church, cannot be revoked by the appellees because as a stipulation pour autrui which confers benefit to a third person, the acceptance of the beneficiary, the Church, need not follow any form or be done in a fixed period as long as it had been done before revocation. The Church had already impliedly accepted it by its unquestioned enjoyment long before the revocation of appelees. Hence, given that the stipulation has not been revoked on time, the contract is binding on all parties. > Application for Registration of a parcel of agricultural land (May 22, 1964) A and B as the common and pro-indiviso owners in fee simple of the land, acquired by virtue of the Deed of Extrajudicial Partition of the estate of their predecessor-in-interest, aunt Dona Encarnacion Florentino ~ that they knew of no mortgage, lien, or encumbrance or third persons interested > Hearing set by and published, No opposition (Director of Lands withdrew opposition), Order of default against the world, Evidence presented > Registration of property to A and B ~ CFI Denied the request of Miguel Florentino (A) to consider as an encumbrance the arrangement (stipulated in the Deed of Extrajudicial Partition), 9

that the fruits of the land is for payment of the expenses for religious functions specified, due to its non-registration in the Register of Deeds, the absence of acceptance by the donee Church (considering the arrangement as a donation, pure and simple), the non-grant of Angel and Salvador Encarnacion, Jr. (B) when they did not sign the Deed ~ such payment was ordered deducted from the undivided shares of A only, excluding B who denied it > CFI Modified its answer: that as a donation, usufruct or ellemosynary gift, the arrangement can be revoked as what B have done given that there had been no proof of acceptance by the Church; also, A is not a real party in interest and the Church should have been the right party to demand the arrangement > Arrangement cannot be revoked unilaterally at the option of co-owners B > Why: stipulation is a stipulation pour autrui ~ Intention of A and B: to confer a direct and material benefit upon the Church > Hence, Requirement of acceptance has no required form or specified time limit! ~ as long as done before revocation > Implied Acceptance by Church before revocation: enjoyment without question of the arrangement since time immemorial (17y from the time of Dona Encarnacion’s ownership of the land) > HENCE, stipulation is binding on all parties of the Deed, which is a contract, the law among the parties > Art. 1309 (1257): force of law of contracts and mutuality among parties > B, even if non-signatories, are bound for having purchased the shares of the original heirs and for not objecting to the stipulation > Church need not be the plaintiff > Stipulation is already binding among all parties given that the Church has already accepted it ~ thus, the stipulation is valid >> Stipulation pour autrui > stipulation in favor of a third person conferring a clear and deliberate favor upon him ~ merely part of a contract entered into by the parties, neither of whom acted as agent of the third person, and such third person may demand its fulfillment provided that he communicates his acceptance to the obligor before it is revoked > Requisites: (1) that the stipulation in favor of a third person should be a part, not the whole, of the contract; (2) that the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; (3) neither of the contracting parties bears the legal representation or authorization of the third party; (4 - JJ) Acceptance by the third party > Validity: purpose and intent of the stipulating parties is to benefit the third person (not mere incidental benefit), regardless of the nature of the obligation in which it is stipulated (ie donation, contract)

property > Beneficiary may demand performance of the obligation without having formally accepted the benefit in a public document, upon mere acquiescence in the formation of the trust and acceptance under Art. 1257 G.R. No. L-23276 November 29, 1968 MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., INC. v. FIELDMEN’S INSURANCE CO., INC. Facts: As sole heirs of their son, the parents of Carlito Coquia can demand the fulfillment of the insurance policy even if they are not parties to it because the contract is a contract pour autrui. The beneficiary is a third person for whose favor the contract was made and can demand its fulfillment. > Common Carrier Insurance Policy (December 1, 1961) of Manila Yellow Taxicab, Inc., issued by Fieldmen’s Insurance Company, Inc. covering a 1y period and indemnifying the latter for any sum held against it in case of death or bodily injury of a passenger, driver, conductor or inspector > Vehicular Accident (February 10, 1962) by a taxicab wherein the driver, Carlito Coquia, died > Claim for P5k by Yellow but Fieldmen offered only P2k which the former refused > SUIT by the parents of Carlito (Melecio and Maria) against Yellow, which was ordered to pay P4k > Contention of Yellow: Parents have no cause of action because they are not parties to insurance contract, hence they cannot demand its enforcement, and Fieldmen has not complied with the insurance policy > Parents are parties by virtue of Art. 1311 or the principle of contracts pour autrui > third parties for whose benefit the contract was made may demand its enforcement ~ need not be parties > Benefit to Driver: Section II, 3 where the Insurance Company “will indemnify any authorized Driver who is driving the Motor Vehicle” and 8 where “indemnity payable directly to the heirs of claimants” and 7 “In the event of death of any person entitled to indemnity” > Driver Carlito also paid 50% of the premiums, which were deducted from his commissions > Right of Yellow and Fieldmen to arbitration, pursuant to Section 17 of the policy where there is dispute in the amount of liability, cannot be invoked at present for failure to invoke it previously ~ constitutes a waiver of its right G.R. No. L-22404 May 31, 1971 PASTOR B. CONSTANTINO v. HERMINIA ESPIRITU

>> Cristobal v. Gomez: A trust constituted between two contracting parties for the benefit of a third person is not subject to the rules governing donation of real 10

Facts: The benefit in favor of the son of Pastor and Herminia, as the purpose of the Deed of Absolute Sale between the parents, is a cause of action for the father’s case against the mother, seeking to restraint the latter from alienating the subject properties. Even if their son was not a party to the Deed of Absolute Sale, the latter was constituted for his benefit and as a third person, he may demand its fulfillment as co-plaintiff. (*Even if he was not co-plaintiff, the father could have demanded the fulfillment with the acceptance of the son of the benefit by being co-plaintiff and absent revocation by mother.) > Deed of Absolute Sale (October 30, 1953) between Pastor Constantino and Herminia Espiritu where former sold his house and lots to the latter for P8k ~ understanding the Herminia would hold it in trust for their unborn, illegit son, Pastor Jr. > Mortgage and Sale of the house and lots by Herminia to Republic Savings Bank to secure the payment of her loans (amounting P5k) > SUIT for Preliminary Injunction by Pastor against Herminia ~ to restraint Herminia from alienating the properties and to compel her to execute a Deed of Absolute Sale in favor of Pastor Jr. (5y/o already) > Contention of Herminia: No cause of action where Pastor Jr. was not included as party-plaintiff > Contention of Pastor: the properties were held in trust > Complaint Dismissed but a new Amended Complaint was submitted by Pastor which includes Pastor Jr. > Deed of Absolute Sale is a Contract pour autrui between Pastor and Herminia > (Action is for specific performance) > Third person for whose benefit the contract was entered into, their son, may also demand its fulfillment > Inclusion of Pastor Jr. in amended complaint as co-plaintiff served as acceptance of the benefit, before revocation > Thus, the contract has become binding on all of the three > Third party need not be identified > What applies to Third Party is merely the benefit but not the other stipulations G.R. No. 79518 January 13, 1989 REBECCA YOUNG, assisted by her husband ANTONIO GO v. CA, PH CREDIT CORP., PHIL. HOLDING, INC., FRANCISCO VILLAROMAN, FONG YOOK LU, ELLEN YEE FONG, and THE REGISTER OF DEEDS OF MANILA Facts: The Compromise Agreement between Rebecca’s dad and Ph Holding conferring to Antonio the right of first refusal to purchase is not pour autrui in favor of Rebecca. The intention of the parties was not to include her where her involvement was subject to her being impleaded in the civil action and to her affixing her signature in the agreement, both of which were unsatisfied. Hence,

Rebecca does not have such right since she is not a third party beneficiary nor a party to the agreement. > Order of Demolition obtained by Ph. Holding, Inc. over its building ~ occupied by Antonio Young, his daughter Rebecca Young, and Sps. Foong Yook Lu and Ellen Yee Fong, among others > Action for Annulment of the Demolition Order by Antonio Young ~ Compromise Agreement (submitted September 24, 1981) where Antonio and Rebecca would voluntarily vacate their tenanted units in 60d but would have the right of first refusal should Ph Holding decide to sell the property > Sale of the property (September 17, 1981) by way of dacion by Ph Holding to Ph Credit Corporation ~ Latter subdivided the property (November 9, 1982) into two parcels and sold it to Blessed Land Development Corporation (Antonio Young, President; December 8, 1982) and to Sps. Fong Yook Lu and Ellen Yee Fong (September 16, 1983) > SUIT for Annulment of Sale (to Sps. Fong) and Specific Performance by Rebecca Young, among others > Contention of Rebecca: Right of first refusal to purchase the property sold to Sps. Fong > RTC Dismissed: (1) Rebecca not a party to the Compromise Agreement; (2) Even if agreement pour autrui, lack of notice to the obligor of her acceptance of her right of first refusal; (3) Lack of evidence of exercise of right of first refusal > Rebecca has no right of first refusal > (1) Compromise agreement not pour autrui > WHY: Intention of Antonio and Holding: not to include Rebecca in the beneficient provisions of the agreement > though impleaded in the compromise agreement (“Antonio Young and Holding agree to implead in this action as necessary party-plaintiff, Rebecca Young…whose written conformity appears hereunder”), it was subject to her being impleaded in the civil case and to her written conformity which was unsatisfied ~ not impleaded by either Antonio or Holding and no signature; (2) Rebecca not a party to the compromise agreement and hence, not entitled to enforce it which is granted and binding only to the parties G.R. No. L-79734 December 8, 1988 MARMONT RESORT HOTEL ENTERPRISES v. FEDERICO GUIANG, AURORA GUIANG, and CA Facts: Marmont Hotel is a third person beneficiary of the Sale between Maris and Sps. Guiang because the sole purpose of the sale is to provide a water supply system for Marmont. Hence, Marmont has possessory rights and thus cannot have been prevented from accessing the water supply facility.

11

> MOA (May 2, 1975) between Marmont (hotel and resort business) and Maris Trading where latter is to install the water system of the Marmont Resort Hotel for P40k > Maris installed a water supply facility (well and water pump) on the property owned by Sps. Guiang > MOA between Maris and Aurora, witness by Federico Guiang where latter would be paid P1500 for the portion of the property wherein the well and pump were installed and would transfer all rights to Maris > Inadequacy of water supply to meet demand of Marmont Hotel, Advise of another contractor to install a submersible pump in the well (to increase pressure and improve water flow), Permission to inspect and modify water pump from Marmont not granted by Sps. Guiang (*Maris apparently not informed) > SUIT (May 13, 1980) by Marmont against Sps. Guiang for damages resulting from latter’s refusal to allow inspection of the water facility site > Contention of Sps. Guiang: No knowledge of MOA 1 and Invalidity of MOA 2 because the property sold was conjugal and sold by Aurora Guiang without the consent of her husband, and was still part of the public domain pending Federico’s Miscellaneous Sales Application > RTC Dismissed where sale of land by Aurora was valid but no evidence that Maris transferred its rights to Marmont > Marmont has possessory right over the water supply facility > MOA 2 which conferred possessory rights of the property from Sps. Guiang to Maris has a stipulation pour autrui where Marmont was to benefit by way of having a water system facility, which was installed by Maris in the property of Sps. Guiang with the latter’s knowledge and consent > Purpose of Maris in acquiring the property: to supply the water requirements of Marmont ~ water facility intended solely for Marmont ~ interest not incidental > BUT alleged stipulation is merely a recital/statement but not terms of agreement > No deliberate conferment of right to a beneficiary > Even if MOA 2 is read as having no stipulation pour autrui, Sps. Guaing are still liable for damages > Refusal of access to Marmont forced the latter to locate alternative sources of water > MOA 2, or sale by Aurora, is valid because Federico was then present and even gave consent by signing as a witness > Sale valid even if covering public land because Sps. had possessory and other rights which they could have validly appropriated > Two MOAs admissible in evidence due to the Sps. and Marmont’s stipulation of facts that judicially admitted the existing of the MOAs >> Stipulation pour autrui > a stipulation in favor of a third person conferring a clear and deliberate favor upon him > found in a contract entered into by parties neither of whom acted a agent of the beneficiary

G.R. No. 119850 June 20, 1996 MANDARIN VILLA, INC. v. CA and CLODUALDO DE JESUS Facts: Atty. Clodualdo has a right to demand the fulfillment of the Agreement between Mandarin and Bankard where the former is to accept the credit cards issued by the latter because said agreement has a stipulation pour autrui that confers the right to card holders. > SUIT for Damages by Atty. Clodualdo de Jesus against Mandarin Villa, Inc. because the latter’s Seafoods Village refused his unexpired credit card ~ when Atty. Clodualdo hosted dinner for his friends (October 19, 1989), he offered to pay his bill with his Ph Commercial Credit Card, was told that said card was expired (Card expiration said September 1990 but restaurant’s verification computer said ‘Card Expired’), was humiliated and embarrassed in front of his guests (aggravated when one guest commented that “baka kailanganga maghugas na kami ng pinggan”), and was made to pay by his BPI Express Credit Card which was accepted and honored > Damages Granted against Mandarin and BANKARD (PCCCI) > Contention of Mandarin: that it was not obligated to accept the credit card because it is not a legal tender and payment by means of credit card is a novation of the existing obligation to pay for which Mandarin, as creditor, must first give consent > Atty. Clodualdo can pay by means of his PCCI credit card arising from the right to fulfill the Agreement between Mandarin and PCCI (dated June 23, 1989) where the former is to honor validly issued PCCI credit cards in payment of purchased goods given that the card has not expired or among those cancelled or suspended > Stipulation is pour autrui, conferring a favor upon Atty. Clodualdo as holder of PCCI card ~ Right is valid and binding because his offer to pay by means of his PCCI card is an acceptance of the stipulation, made prior to revocation > Benefit conferred to Clodualdo is the ability to pay thru his Bankard card > Logo that “Bankard is accepted here” is binding upon Mandarin for having it posted inside its restaurant > STIPULATION POUR AUTRUI, in addition to the Agreement (JJ) > Mandarin is Negligent > Point of Sales Guidelines (of the verification machine) that if “CARD EXPIRED” flashes, Mandarin should have checked the expiry date on the card and should have honored it if it was not expired > Date of dinner was October 19, 1989 while Expiration embossed on Card was September 1990 12

> But is it an enforceable obligation? Just a guideline, not part of contract with Bankard > Can Mandarin sue Clodualdo if latter had no money in the bank that resulted to the dishonor of his card? NO, Mandarin not a beneficiary/third person in contract between Clodualdo and Bankard > Atty. Clodualdo not negligent in not bringing sufficient cash > Common Practice in restaurants to honor credit cards as means of payment > Humiliation not due to comment of one guest but because Mandarin dishonored his credit card G.R. No. 13505 February 4, 1919 GEO W. DAYWALT v. LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET AL Facts: Church not liable for damages as a stranger when Teodorica for a long time refused to surrender the title of her property to Daywalt, as agreed by the Deed of Sale, resulting to losses he had incurred in failing to pursue a mining enterprise. Strangers cannot be liable for than the person they had benefitted. Church has no liability because Teodorica herself is not liable where: (1) the right of Daywalt to recover such damages from Teodorica had been exhausted by his previous action against her and thus, cannot be recovered in an independent action; (2) damage, as a special damage, had not been contemplated by the parties; (3) damage was too remote to breach of contract. > Three Documents Teodorica Endencia and Geo W. Daywalt: (A) Contract of Conveyance (1902) between Teodorica Endencia and Geo W. Daywalt covering the former’s land which was to be conveyed upon the perfection of Torrens title to Teodorica by the Court of Land Registration > Grant of Right to Property as Owner (August 1906) to Teodorica but without issuance of Torrens title > (B) Deed of Conveyance (August 16, 1906) where Teodorica would convey her property for P4k ~ Did not take effect due to non-issuance of Torrens title > (C) Contract (October 3, 1908) where Teodorica was to deliver the Torrens title to the Hongkong and Shanghai Bank in Manila upon its receipt ~ superseded the old contract > Issuance of the Torrens title (1909) but property was larger than expected (1,248 hectares where contract contemplated 452 hectares) ~ Reluctance of Teodorica to convey the entire land > Contract of Sale (1911) between Daywalt and S.B. Wakefield > Surrender by Teodorica of the Title to Fr. Isidoro Sanz (and then to procurador Fr. Juan Labarga in Manila) of the La Corporacion de los Padres Recoletos whom she trusts and who knew about her contracts ~ that she was misinformed about the area of her property and did not intend to sell so large an amount and that the latter proposed to pay Teodorica

P424/y for use and occupation of her property, which was adjacent to theirs, for the pasturing of their cattle > Church surrendered the Title by virtue of the SC Decision pursuant to Suit by Daywalt for enforcement of contract (C) ~ Granted, contract in full force and effect while decree attained finality in 1914 > SUIT by Daywalt against the Church for having unlawfully interfered and induced Teodorica to refrain from the performance of her contract and to withhold the delivery of the Title ~ Damage in failure of the sugar growing and milling enterprise with Wakefield due to dispossession of title > Liability of Teodorica from Damages consequent to breach of contract > Present BUT cannot be claimed due to res judicata of the action for specific performance (1909) which was granted in favor of Daywalt > HENCE, if damages are not sought in the action to enforce performance, they cannot be recovered in an independent action ~ WHY: Indemnification from breach of contract is a right inseparably annexed to every action for the fulfillment of the obligation > Right of Daywalt had already been exhausted thus ~ res judicata > Liability of Teodorica from Wrongful detention of real property as vendor > Value dependent on the interest: the value of the use and occupation of the land from the time it was withheld > YET, such damage, as a special damage, was not within contemplation of the parties when the contract was made and was too remote to be the subject of recovery > Liability of the Church > Liability of Strangers > No more than what could be recovered from the party in whose behalf he intermeddles > (1) Teodorica has no liability, Church has no liability > MOREOVER, (2) Church NOT liable to damages to vendee > Mere advise is not an actionable interference with such contract of sale > They merely sympathized and believed in good faith that the contract could not be enforced and that Teodorica would be wronged if it should be carried into effect > No improper motive, no desire to secure to themselves the property > Reconciliation of Liability of Strangers and Exclusivity of Parties to a Contract > A stranger to a contract may, by an unjustifiable interference in the performance thereof, render himself liable for the damages consequent upon non-performance > Principle that any person who entices a servant from his employment is liable in damages to the master ~ Basis: Master’s juridical right in the service rendered by his employee > Presumption of Malice in interference ~ that the wrongful-doer, having knowledge of the existence of the contract relation, in bad faith sets about to break it up or to prevent its performance by 13

force, intimidation, coercion, or threats, or by false or defamatory statements, or by nuisance or riot >> Damages recoverable in case of breach of contract: (1) Ordinary Damages > found in all breaches of contract where there are no special circumstances to distinguish the case specially from other contracts > Damages recoverable are those that naturally and generally would result from such a breach ~ immediate and inevitable damages; > (2) Special Damages > found in case where some external condition, apart from the actual terms to the contract exists or intervenes, as it were, to give a turn to affairs and to increase damage in a way that the promisor, without actual notice of that external condition, could not reasonably be expected to foresee > Necessity that the particular condition which made the damage a possible and likely consequence of the breach was known to the defendant at the time the contract was made ~ condition should be made the subject of contract > Pursuing business interest will harm others but no contract interference because constructive destruction is inherent in a market > Malice is required in contract interference > When does it become contract interference: Malice ~ What constitutes Malice: G.R. No. 120554 September 21, 1999 SO PING BUN v. CA, TEK HUA ENTERPRISING CORP. and MANUEL C. TIONG Facts: Trendsetter interfered with the fulfillment of Tek Hua of its lease contract with DCCSI when it obtained a lease for its own, covering the warehouse of the property, because it deprived Tek Hua of its property right. But since such act was justified by Trendsetter’s motive to benefit itself, damages cannot be granted to Tek Hua but the lease contract of Trendsetter had been nullified. > Lease Agreements (1963) between Tek Hua Trading Co. (thru managing partner, So Pek Giok) and Dee C. Chuan & Sons, Inc. where the latter leased its property for 1y, renewable for a monthly basis ~ Expired, Non-renewal but Continued Possession of Tek Hua > Dissolution of Tek Hua Trading (1976), Formation of Tek Hua Enterprising > Death of So Pek Giok (1986) and Occupation of his grandson, So Ping Bun (Trendsetter Marketing), of the warehouse in the property which Tek Hua was leasing from DCCSI > Notice of Rent Increase (August 1, 1989) by DCCSI, (first effective September 1, 1989 then January 1, 1990, then December 1, 1990, from 25% to 20% then to 30%) ~ New Lease Contracts for signing, the failure of which would be deemed as

termination of the lease > Failure of Tek Hua to respond ~ Lease contract rescinded > Letter (March 1, 1991) by Manuel Tiong, President of Tek Hua, to So Ping Bun, demanding the possession of the warehouse in 14d because he would need it for his textile business ~ So Pin Bum refused, requested a contract of lease with DCCSI (March 4, 1992), and claimed that he had been paying rents ~ Lease Contract granted > SUIT for Nullification of Lease Contract by Tek Hua and Tiong against So Ping Bun > Liability of So Pin Bum (Trendsetter Marketing) > In asking DCCSI for a contract of lease, it deprived Tek Hua of its property right by virtue of its lease > BUT his act was not motivated by malice but only the intention to benefit himself > YET detrimenting Tek Hua is not without consequences ~ Injunction and Nullification of Lease granted but without Damages

>> Damage > the loss, hurt, or harm which results from injury; the recompense or compensation awarded for the damage suffered > Liability for an action for damage for a nontrespassory invasion of another’s interest in the private use and enjoyment of asset if OR an unlawful interference by one person of the enjoyment by the other of his private property: (a) the other has property rights and privileges with respect to the use or enjoyment interfered with, (b) the invasion is substantial, (c) the defendant’s conduct is a legal cause of the invasion, and (d) the invasion is either intentional and unreasonable or unintentional and actionable under general negligence rules > Elements of Tortuous Interference: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of contract; and (3) interference of the third person is without legal justification or excuse >> Legal Justification: sole purpose of the defendant is to benefit himself, ie the furtherance of his own financial or economic interest or any substantial interest > financial or profit motivation will not necessarily make a person an officious interferer liable for damages as long as there is no malice or bad faith involved > HENCE, where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is a malicious intermeddler G.R. No. 119107 March 18, 2005 JOSE V. LAGON v. CA and MENANDRO V. LAPUZ Facts: In purchasing the property of Bai from her heirs, Lagon did not interfere the contract of lease of Lapuz with the late Bai because Lagaon did not know of the existence of the valid contract and had no malice in purchasing said property. 14

> Contract of Lease (1964) between Bai Tonina Sepi and Menandro Lapuz where the former leased her property to the latter who would construct commercial buildings thereon and who would lease it to new tenants, the rentals of which would serve as payment of Lapuz to Sepi > Renewal of the Contract (1974) due to the non-completion of the commercial buildings > Death of Bai, Payment by Lapuz of rent to the administrator of her estate > Sale (June 23, 1982) where Jose Lagon bought two parcels of land from the Estate (thru an intestate court) > Administrator thus advised Lapuz to stop collecting rents and Lapuz then discovered that Lagon became the new owner and had been collecting the rents > SUIT for torts and damages by Menandro Lapuz who had induced the heirs of Bai to sell the property to him and had violated his leasehold rights > RTC ruled in favor of Lapuz where Contract of Lease was authentic > Contention of Lagon: (1) denied interfering with Lapuz’s leasehold rights because, based on his personal investigation, there were no lease claims or encumbrances when he purchased the lots, that he knew of no lease contract ~ went to Atty. Fajardo who had notarized the lease between Bai and Lapuz and was shown that the copies of lease renewal were not signed; (2) denied inducing the heirs who were in dire need of money to pay Bai’s obligations > There was no interference > Absence of the 2nd and 3rd Elements > 2nd Element of Knowledge of Contract ~ Personally investigated the property and found no suspicious circumstance that would have made a cautious man probe deeper > 1st Element of a valid contract is present ~ notarized lease contract that has the value of a prima facie evidence and which was declared valid by the trial court > 3rd Element is not present because (A) there was no bad faith on the part of Lagon ~ allegation of inducing the heirs was not supported by evidence and disproved by the records that show the voluntariness of the heirs’ acts; (B) no ill motive ~ only motive was to advance his financial interests, absent proof to the contrary > Case is damage without injury > Hence, Suit for damages cannot prosper and petition is granted > Interference with Contractual Relations (Art. 1314) > When a third party induces another to violate his contract ~ liable for damages to the other contracting party > WHY: It violates the property rights of a party in a contract to reap the benefits that should result therefrom > Elements of Tortuous Interference: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of contract ~ need not be actual knowledge but mere awareness of the facts which, if followed by a reasonable inquiry, will lead to a complete disclosure of the contractual relations and rights of the parties in the contract; and (3) interference of the third person is without legal justification

or excuse ~ defendant must have acted with malice, or must have been driven by purely impious reasons to injure the plaintiff ~ financial or profit motivation will not necessarily make a person an officious interferer liable for damages as long as there is no malice or bad faith involved > Induction > where a person causes another to choose one course of conduct by persuasion or intimidation > Damnum Absque Injuria > Damage without Injury where Injury is the legal invasion of a legal right and Damage is the hurt, loss or harm which results from the injury G.R. No. 20732 September 26, 1924 C. W. ROSENSTOCK, as administrator or the estate of H. W. Elser v. EDWIN BURKE and THE COOPER COMPANY Facts: Elser cannot be compelled to purchase the yacht of Burke because his letter to him did not constitute an offer of purchase but a mere invitation to his offer of purchase. The words used did not manifest his resolution to purchase, which was testified by Elser himself and his stenographer. > Written Offer of Purchase (February 12, 1922) by H.W. Elser of the yacht being sold by Edwin Burke (which was mortgaged to Asia Banking Corporation for a debt due prior to the negotiations with Elser) for the purpose of organizing a yacht club and selling the same to it thru him afterwards ~ Offer to pay P120k valid for 30d from date of letter > Without acceptance of the offer by Burke, Elser paid for the repairs to the yacht (P6972.21 to Cooper Company) pursuant to his suggestion that he would invite businessmen to a voyage to sell it to them and to Burke’s lack of funds > Voyage (March 6, 1922 to March 23, 1922) > Application (March 31, 1922) by Elser to Bank for a loan of P20k which he would use to replace the engine but stated that he could not purchase the yacht for more than P70k ~ Bank refused ~ Request that Burke communicate with the Bank > Agreement (April 3, 1922) that Elser is in position and willing to entertain the purchase of the yacht for P80k according to terms that were accepted by Burke > Disapproval of the Loan Application of Elser worth P20k from the Bank for the yacht’s engine ~ Return of the yacht to Burke > Demand (April 8, 1922) by Burke for the performance of the sale because he had already accepted, with the consent of Asia Banking Corporation > SUIT by Elser for Recovery of P6139.28, the value of the repairs made on the yacht paid by him > Contention of Burke: that the agreement about the repairs was that Elser was to pay for them for his own account in exchange of the gratuitous use of the yacht by him > Cross-Complaint by Burke to reinforce the sale which offer was accepted by him on April 3, 1922 15

> Agreement of April 3, 1922 was NOT a contract of sale BUT mere invitation to an offer > (1) No resolution of Elser to purchase the yacht ~ “I am in position and am willing to entertain the purchase of it under the following terms” ~ to “entertain” an act is not a resolution to perform it > a man in his transactions in good faith uses the best means of expressing his mind that his intelligence and culture permit so as to convey and exteriorize his will faithfully and unequivocally ~ Elser is a prominent merchant > Resolution to Purchase must be of easy and unequivocal meaning, ie. I want to purchase / I offer to purchase / I am in position to purchase > HENCE, agreement is not a definite offer but only a position to deliberate > Testified by Elser, his stenographer and another employee that while the letter was being dictated by Elser, Burke interrupted and requested a definite offer to which Elser replied that he was not in position to make such; (2) No intention to offer purchase ~ intention was to sell the yacht to another but thru him in order to gain from the transaction; (3) Resolution to Purchase of Elser was dependent upon the grant of loan which he would use to replace the engine of the yacht ~ not granted to him > Payment of Repairs by Elser ~ in exchange for the use of the yacht > What’s the relationship between Offer-Acceptance and the essential elements of contracts? (Consent, Object, Cause) ~ External manifestation of the elements

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G.R. No. 125761 April 30, 2003 SALVADOR P. MALBAROSA v. HON. COURT OF APPEALS and S.E.A. DEVELOPMENT CORP. Facts: Letter-Offer by SEADC, offering a car and shares to Malbarosa for his incentive, was not deemed accepted because Malbarosa did not conform to it by signing his name and the date when they met and he did not return it before SEADC has already withdrew it. > Resignation (January 8, 1990) by Salvador P. Malbarosa from S.E.A. Development Corporation group of companies (effective February 28, 1990, as President and General Manager of Philtectic Corporation, SEADC member) and Request for his 1989 Incentive Compensation > Meeting (March 16, 1990) between SEADC President, Louis Da Costa, and Malbarosa where the former presented SEADC’s Letter-Offer (dated March 14, 1990, signed by Senen Valero, Vice-Chairman of the Board of Directors) which offered P251,057.67 for his 1989 incentive compensation payable thru the company car (Mitsubishi Gallant worth P220k) and thru the membership share of Tradestar International, Inc. in the Architectural Center, Inc. (worth P60k) allegedly due to SEADC’s bankruptcy ~ Required conformity thru Malbarosa’s signing of his name and the date on the space provided ~ Not accepted/denied by Malbarosa but received only for review because he expected to receive P395k as “ventured” by Da Costa during their previous meeting (February 5, 1990) > Withdrawal by Philtectic of SEADC’s Offer (April 4, 1990) and Demand to Return the Car within 24h which Malbarosa received on the same day ~ Pursuant to: (a) Nonresponse by Malbarosa for 2w; (b) Decision of SEADC to withdraw the offer; (c) Resolution (April 3, 1996) by SEADC where the Board authorized Philtectic and/or Valero to demand the return of the car and to take such action against him, including the institution of an action in court for the recovery of the car > Response of Malbarosa (April 7, 1990) refusing to comply because he had already accepted the March 14, 1990 Letter-Offer ~ attached a photocopy of the Letter-Offer to prove that he had already signed it on March 28, 1990 > SUIT by SEADC for Recovery of personal property with replevin > CONTENTION of Malbarosa: (1) Implied Acceptance when he retained possession of the car after it was offered on March 16, 1990; (2) Acceptance when he signed the LetterOffer on March 28; (3) Notification of SEADC when he called Da Costa’s office on March 29, 1990 ~ Receptionist communicated to Da Costa that Malbarosa accepted the offer and the former merely nodded > No perfected contract > No acceptance of the Letter-Offer: (1) Receipt by Malbarosa of the original for review purposes amounted merely to a counteroffer because he accepted only for review; (2) Failure by Malbarosa to effectively notify SEADC of his acceptance of said Letter-Offer before the latter

withdrew ~ Signed on March 28 but Sent only on April 7, 3d after the Withdrawal of the Offer on April 4; (3) No proof that SEADC had granted him a period within which to accept its offer ~ SEADC deemed its offer as not accepted in light of Malbarosa's ambivalence and indecision on March 16, 1990 ~ no time frame fixed for Malbarosa to accept or reject its offer ~ Hence, offer must have been accepted immediately > Authority of Philtectic to withdraw the offer > authority to demand for and recover the subject car and to institute action for the recovery of the car necessarily included the authority to withdraw the offer ~ Withdrawal made with the instruction of Valero >> Article 1318: Essential requisites of a contract ~ (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established >> Article 1319: Consent by a party is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract > Acceptance of the Offer is a Consent without which, there would be no contract > Acceptance is Implied or Express but cannot be Qualified ~ Otherwise, it is a Counter-Offer >> Acceptance: (1) Express or Implied (2) Absolute, Unconditional and Without variance of any sort from the offer (3) Made known to the Offeror, otherwise there would be no meeting of minds (4) Made before the Offeror withdraws/revokes the Offer, otherwise acceptance after knowledge of the revocation or withdrawal of the offer is inefficacious (5) Made exclusively according to the manner prescribed for acceptance by the Offeror, otherwise the acceptance is considered as a counter-offer which the offeror may accept or reject (6) Made immediately before the Offeror withdraws offer if it is made inter praesentes or if the Offeror has not fixed a period for the offeree to accept the offer and the offer is made to a person present G.R. No. 124242

January 21, 2005

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SAN LORENZO DEVELOPMENT CORPORATION v. COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU Facts: Contract between Pacita Lu and Babasanta was only a contract to sell which does not transfer ownership upon perfection or consent because it is the payment that gives rise to the obligation of transferring title. Assuming that it was a contract of sale, its perfection is also not the consummation of transfer of ownership which takes place only upon the delivery of the thing sold which did not take place in the case. > Verbal Sale (August 20, 1986) between Pacita Zavalla and Pablo Babasanta over the former’s 2 parcels of land (cp) ~ latter previously loaned Pacita P50k but Pacita agreed to sell her land for P15/sq.m. where P50k loan as downpayment for which she issued a Memorandum Receipt > Subsequent Payment by Babasanta, amounting to P200k but Balance still of P260k > Demand (May 1989) by Babasanta for the Execution of a Final Deed of Dale in his favor so that he could effect full payment of the purchase price and cancellation of the 2nd sale that he had heard about > Refusal of Pacita: (1) that she agreed to sell the property but Babasanta rescinded the sale when Pacita refused his request to lower the purchase price to P12/sq.m. when the balance of the purchase price became due; (2) that she had returned the P50k; (3) that Babasanta novated the contract to sell when he opted to pursue the original loan transaction in that the spouses would be indebted to him worth P200k; (4) Deed of Absolute Sale with Mortgage (May 3, 1989) between Sps. Lu and San Lorenzo Development Corporation pursuant to the latter’s Option to Buy (February 11, 1989) previously executed by the former when it agreed to purchase the property for P1,264,640 and had paid P632,320 (after advancing P200k because Pacita needed money to pay her indebtedness to Babasanta) ~ Titles bore no adverse claims and/or notice of lis pendens > SUIT (June 2, 1989) by Babasanta for Specific Performance ~ execution of a final deed of sale in his favor > Sps. Lu settled with CA Decision upholding the Sale to Babasanta due to financial constraints > CONTENTION of Babasanta against SLDC: Purchaser in Bad Faith for registering its sale after knowledge of the lis pendens and hence, since it was a double sale, the registration made in bad faith does not confer any right as if there is no registration at all, and the buyer who has taken possession first of the property in good faith shall be preferred > Babasanta has no right of ownership: > Contract to Sell Only > Receipt signed by Pacita merely states that she accepted the P50k from Babasanta as partial payment > No stipulation that the seller reserves the ownership of the property until full payment of the price BUT

such intention is manifested in Pacita’s subsequent acts: (1) Letter of Babasanta that he repeatedly requested for the execution of the final deed of sale in his favor so that he could effect full payment ~ Recognition that ownership of the property would not be transferred to him until full payment; (2) Non-execution of Deed of Sale that they could have easily done if the sellers intended to transfer title > As Contract to Sell, ownership transfers by Payment of the Purchase Price which obligation Babasanta did not do ~ Babasanta should have made the proper tender of payment and consignation of the price in court as required by law ~ Mere sending of a letter by the vendee expressing the intention to pay without the accompanying payment is not considered a valid tender of payment > HENCE, obligation on the part of Pacita to convey title never acquired obligatory force > EVEN IF it is a Contract of Sale, No Ownership Still > Perfected Contract of Sale only CONFERS title but ownership is transferred by the DELIVERY of the thing sold > Babasanta did not acquire ownership > No legal delivery because receipt was not a public instrument nor constructive delivery because he did not possess the property at any time > Dangerous ruling by SC that contract of sale cannot be consummated due to lack of delivery > Ownership of SLDC: (1) Purchaser in good faith ~ titles bore no adverse claim, encumbrance, or lien at the time it was sold to it ~ Sale consummated on May 3, 1989 but lis pendens annotated only on June 2, 1989 > EVEN IF registration was only on June 30, 1990, SLDC’s lack of knowledge of Babasanta’s claim during the sale and its possession of property is not affected by the subsequent annotation of the lis pendens ~ Hence, it had every reason to rely on the correctness of the certificate of title and it was not obliged to go beyond the certificate to determine the condition of the property; (2) Actual Possession of the Property ~ after the execution of the sale in its favor it immediately took possession of the property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of ownership; (3) Not a double sale but in either case, First criterion of the Law on Double Sale is priority of entry in the registry of property; there being no priority of such entry, the Second is priority of possession; and, in the absence of the two priorities, the third priority is of the date of title, with good faith as the common critical element ~ SLDC acquired possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the property at any time, SLDC’s right is definitely superior to that of Babasanta’s

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>> Contract to sell > TITLE is reserved in the vendor and is not to pass until the FULL PAYMENT of the price ~ Retained by the vendor until the full payment of the price, a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective >> Contract of sale > TITLE passes to the vendee upon the DELIVERY of the thing sold ~ Lost and cannot be recovered by the vendor until and unless the contract is resolved or rescinded >> Sale > A consensual contract perfected by mere consent > Essential Elements for PERFECTION: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established > PERFECTION IS NOT CONSUMMATION of the acquisition and transfer of ownership because sale is only a title and not a mode >> Contracts, in general, are perfected by mere consent ~ manifested by the meeting of the offer and the acceptance upon the thing which are to constitute the contract > Offer must be certain and the Acceptance absolute > Contracts shall be obligatory provided all the essential requisites for their validity are present >> only constitute titles or rights to the transfer or acquisition of ownership ~ Delivery or Tradition is the mode of accomplishing the same > Sale by itself does not transfer or affect ownership but only creates the obligation to transfer ownership >> Mode is the legal means by which dominion or ownership is created, transferred or destroyed ~ ie Delivery or Tradition (Article 1497 to 1501) > (1) Actual Delivery consists in placing the thing sold in the control and possession of the vendee; (2) Legal or Constructive Delivery thru (a) the execution of a public instrument evidencing the sale, (b) symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept, (c) traditio longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale, (d) traditio brevi manu if the buyer already had possession of the object even before the sale, (e) traditio constitutum possessorium, where the seller remains in possession of the property in a different capacity >> Title is only the legal basis by which to affect dominion or ownership ~ ie Contracts >> Double Sale > Rules of preference between the two purchasers of the same property > Principle of primus tempore, potior jure (first in time, stronger in

right) > Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. >> Purchaser in good faith > one who buys 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 >> Notice of lis pendens only serves as a warning to a prospective purchaser or incumbrancer that the particular property is in litigation; and that he should keep his hands off the same, unless he intends to gamble on the results of the litigation

G.R. No. 147465 January 30, 2002 METROPOLITAN MANILA DEVELOPMENT AUTHORITY v. JANCOM ENVIRONMENTAL CORPORATION and JANCOM INTERNATIONAL DEVELOPMENT PROJECTS PTY. LIMITED OF AUSTRALIA Facts: Contract with JANCOM and MMDA and Republic regarding a solid waste management project in San Mateo was valid and remains to be despite the lack of the President’s signature and changes in policy because there was already a meeting of minds. The President’s signature only makes the contract effective and the policies did not actually annul the contract because they are not incompatible. > Waste Management or Build-Operate-Transfer Contract (December 19, 1997) between the Metropolitan Manila Development Authority with the Presidential Task Force on Solid Waste Management (thru DENR Secretary Victor Ramos, CORD-NCR Chairman Dionisio dela Serna), Republic of the Philippines (thru the Secretary of National Resources and the Executive Committee) and JANCOM Environmental Corporation to oversee the build-operate-transfer implementation of solid waste management projects ~ JANCOM was one of the bidders recommended by the Pre-qualification, Bids and Awards Committee (PBAC), approved by EXECOM approved , and then declared as a winning bidder (February 12, 1997) after the bidding conferences for the San Mateo 19

landfill project ~ Letter (February 27, 1997) where MMDA Chairman Prospero I. Oreta informed JANCOM’s Chief Executive Officer Jay Alparslan that the EXECOM had approved the PBAC recommendation to award to JANCOM the San Mateo Waste-to-Energy Project on the basis of the final Evaluation Report declaring JANCOM as the sole complying (winning) bidder for the San Mateo Waste Disposal site, subject to negotiation and mutual approval of the terms and conditions of the contract of award > Submission of the Contract (March 5, 1998) to the President ~ Ramos’ term ended but he endorsed it to Estrada who appointed the Chairman of the Presidential Committee on Flagship Programs and Project to be the EXECOM chairman, adopted the Clean Air Act of 1999 and ordered the closure of the San Mateo landfill > Resolution by Greater Manila Solid Waste Management Committee not to pursue the BOT contract with JANCOM ~ Letter of Notice (November 4, 1999) to JANCOM due to changes in policy and economic environment > (Pending appeal by JANCOM to Estrada) Publication (February 22, 2000) by MMDA of its invitation to prequalify and to submit proposals for solid waste management projects for Metro Manila > SUIT by JANCOM certiorari to declare i) the resolution disregarding the BOT Contract and ii) the acts of MMDA calling for bids as illegal, unconstitutional, and void; and for prohibition to enjoin the GMSWNC and MMDA from implementing the resolution and disregarding the Award to and the BOT contract with JANCOM > CONTENTION OF MMDA: No valid contract because: a) the contract does not bear the signature of the President; b) the conditions precedent specified in the contract were not complied with; and c) there was no valid notice of award as required by the BOT Law

Not responsibility of JANCOM but the Government’s duty ~ [BOT Law required that i) prior to the notice of award, an Investment Coordinating Committee clearance must first be obtained; and ii) the notice of award indicate the time within which the awardee shall submit the prescribed performance security, proof of commitment of equity contributions and indications of financing resources] >

> Valid and binding contract between the Republic of the Philippines and JANCOM: (1) Consent and meeting of minds when the parties signed the contract, concurring in the offer (JANCOM’s bid proposal) and acceptance with respect to the object (waste management project) and the cause (BOT scheme) where the effect of an unqualified acceptance of the offer or proposal of the bidder is to perfect a contract; (2) Lack of President’s Signature only suspended the effectivity of the contract but not its validity ~ (i) DENR Secretary had the authority to sign in behalf of the Republic pursuant to Section 1 of Executive Order No. 380 that Secretaries of all Departments can enter into publicly bidded contracts regardless of amount; (ii) Contract stipulated that the President’s signature is necessary only for its effectivity; (3) Failure to comply with several conditions precedent also contemplates an effective contract where the conditions where to be undertaken within 2 months from execution of this Contract as an effective document; (4) Defect in Notice of Award was cured by the subsequent execution of the contract entered into and signed by authorized representatives of the parties ~ in negotiating on the terms and conditions and signing said contract, the government had led JANCOM to believe that the notice of award given to them satisfied all the requirement of the law ~ Form is

>> Contracts (Art. 1305) > A meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service > Three distinct stages: (a) Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties; (b) Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract ~ by mere consent (Art. 1315) manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract (Art.1319); (c) Consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof

> Revocation of the Valid Contract requires the consent of both parties, not just MMDA > Because the contract has the force of law, parties are bound to the fulfillment of what has been expressly stipulated and to all the consequences which, according to their nature, may be in keeping with good faith, usage, and law > Defects as causes for annulment must be conclusively proven since the validity and the fulfillment of contracts cannot be left to the will of one of the contracting parties > Reasons cited by MMDA for not pushing through were: 1) the passage of the Clean Air Act, which allegedly bans incineration but not absolutely and only those which emit poisonous and toxic fumes; 2) the closure of the San Mateo landfill site yet the contract stipulates that in case the site is not delivered, the Republic would provide within a reasonable period of time, a suitable alternative acceptable to JANCOM; and 3) the costly tipping fee are not, by itself, enough to abrogate the entire agreement because neither the law nor the courts will extricate a party from an unwise or undesirable contract, or stipulation for that matter, he or she entered into with full awareness of its consequences

G.R. No. L-25494 June 14, 1972 NICOLAS SANCHEZ v. SEVERINA RIGOS > Option to Purchase (April 3, 1961) between Nicolas Sanchez and Severina Rigos where the latter promised to sell her land to the former for P1,510 within 20

2y from said date, with the understanding that said option shall be deemed terminated and elapsed if Sanchez shall fail to exercise it > Several tenders of payment by Sanchez but rejected by Mrs. Rigos ~ Consignation (March 12, 1963) by Sanchez to CFI > SUIT by Sanchez for specific performance and damages > CONTENTION of Rigos: that the contract was void because it is a unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void (ART. 1479 that an accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price) > CONTENTION of Sanchez: that Rigos agreed and committed to sell and Sanchez agreed and committed to buy the land ~ promises as "reciprocally demandable" (Art. 1479) JJ: INCONSISTENCY BETWEEN 1324 and 1479: (a) former allows the withdrawal of the offer by offeror while the latter makes it immediately binding (b) contract is valid in the former and it’s merely the withdrawal that is restricted but the contract is not valid in the latter if it is without a consideration ~ subject is the Restriction of ability to withdraw the offer, on the one hand, and the existence of contract itself *What if: 1479 whose validity and binding force depends upon a consideration is consistent with the exception of 1324 where the contract cannot be withdrawn if it has a consideration *But Sir: What’s the legal effect of 1479? Invalidity if without consideration? ~ 1479 Due to binding nature of the contract, there is no option to speak of that can be withdrawn pursuant to 1324 ~ Exception of 1324 speaks only of the option to withdraw and not validity / legal effects of contract without consideration ~ Does 1479 add another requirement of consideration for validity of a contract? ~ Is 1479 a special situation where it nullifies 1324 itself > Contract of Option to Sell ~ Not enforceable until payment ~ No contract > Option is a mere agreement in advance ~ it’ll always be independent consideration > Consideration must exist independently of each contract entered into; does not pass from one contract to another ~ consideration in option and sale is necessarily different > Contract is VALID > Option did not impose upon Sanchez the obligation to purchase but merely granted an "option" to buy > Unilateral promise may be binding upon the promisor but Article 1479 requires the concurrence of a condition, namely, that the promise be supported by a consideration distinct

from the price ~ nothing in the contract to indicate that her agreement, promise and undertaking is supported by a consideration distinct from the price ~ no valid contract without a cause or consideration unless the former establishes the existence of said distinct consideration > Promisee cannot compel the promisor to comply with the promise ~ not bound by his promise and may, accordingly, withdraw it upon notice of its withdrawal

>>> What is the mistake that can vitiate consent? that had the party known the mistake, he would not have contracted? G.R. No. L-20435 October 23, 1923 LUIS ASIAIN v. BENJAMIN JALANDONI Facts: Asiain sold his 25-hectare property, “more or less” to Jalandoni, including the sugar canes therein. But because the actual property and produce that were delivered to Jalandoni were less than stated (from 25 to 18 hectares, and 2000 to 800 piculs of sugar), the agreement is rescinded due to gross mistake. Although the sale is a sale in gross where the size of the property was variable, such variability was not meant to be gross that it would have been beyond the contemplation of the parties. Hence, due to their mutual mistake regarding such qualities of land and sugar, the contract is rescinded. > Agreement of Sale between landowner Luis Asiain and Benjamin Jalandoni over the former’s parcel of land and the sugar cane therein, expressed in four agreements: (1) Verbal Agreement (May 1920) that Asiain was willing to sell a portion of his hacienda, between 25 and 30 hectares, and the crop of sugar cane there planted, producing 2k piculs of sugar, for the sum of P55k; (2) Letter (May 26, 1920) by Asiain to Jalandoni that he is willing to sell the parcel of land, assuring the latter there are 2,000 piculs therein, otherwise he would pay in sugar all such amount as will be necessary to complete the 2,000 but in case of excesses, it shall pertain to him; (3) Memorandum-Agreement between Asiain and Jalandoni (July 1920) where Asiain (a) sold his land, “containing 25 hectares more or less,” with its corresponding crop, estimated at 2,000 piculs for a total value of P55k (payable by P30k dp and P25k in 1y); (b) is obligated to take care of all the plantation until the planting is finished; and (c) is to vacate the property after the planting 21

of cane is completely finished; while Jalandoni is to answer for all the rights and obligations of the land; (4) Agreement due to Jalandoni’s doubt that the amount of the land and of the crop was overestimated where Asiain promised to sell to the former his land and the former to pay P55k, both with a reserved right to forfeit the expenses already advanced on account of the sale by the other who should decide to withdraw > Payment by Jalandoni of P30k with balance of P25k, which was not paid due to Discrepancy between the Contemplated and Actual Size of Property and Amount of Sugar Cane Output ~ Sugar cane produced only 800 piculs and property only contained an area of 18 hectares, as derived from the certificate of title and survey of the land > SUIT by Asiain to compel Jalandoni to fulfil the contract (to pay the balance) > Relief prayed for by Jalandoni: to annul the contract and to return what each had received > CFI HELD: Agreement Null and Void ~ Refund of P30k to Jalandoni and Return of Property to Asiain > Sale is Sale in Gross (size is “more or less”) but with Gross Mistake as to Quality of Land Sold and Standing Crop (size is not just “more or less” but a lot less) which produces the effect of rescission given that the Consent was given by reason of error > Sale was a Sale in Gross (Number 3) and not a Contract of Hazard > Description of “more or less” in Agreement is that they did not contemplate or intend to risk more than the usual rates of excess or deficit in similar cases, or than such as might reasonably be calculated on as within the range of ordinary contingency> Vendee does not thereby ipso facto take all risk of quantity in the tract ~ covers only inconsiderable or small differences > Gross Mistake and a Mutual Mistake as to the quantity of the land sold and as to the amount of the standing crop > HENCE, both parties acted obviously under a mistake in regard to the subject-matter of the sale that is so material that if the truth had been known to the parties, the sale would not have been made > RELIEF: that equity will rescind a contract for the sale of land for mutual mistake as to the quantity of land which the boundaries given in the contract contained, where the deficiency is material > SC UPHELD CFI where Agreement rescinded and parties put back in exactly their respective positions before they became involved in the negotiations (refund of payment and payment for rent) > Entitled to Rescission? > Unilateral Mistake is sufficient ~ Vitiates consent of the party ~ Contract requires both consent > Must not always be mutual > To claim mistake, is it necessary to communicate hesitation to other party?

>> Sales in gross: (A) Cannot be modified even if fraudulent: (1) Sales strictly and essentially by the tract, without reference in the negotiation or in the consideration to any designated or estimated quantity of acres; (2) sales of the like kind, in which, though a supposed quantity by estimation is mentioned or referred to in the contract, the reference was made only for the purpose of description, and under such circumstances or in such a manner as to show that the parties intended to risk the contingency of quantity, whatever it might be, or how much so ever it might exceed or fall short of that which was mentioned in the contract; (B) Equitable Relief if there is an unreasonable surplus or deficit: (3) sales in which it is evident, from extraneous circumstances of locality, value, price, time, and the conduct and conversations of the parties, that they did not contemplate or intend to risk more than the usual rates of excess or deficit in similar cases, or than such as might reasonably be calculated on as within the range of ordinary contingency; (4) sales which, though technically deemed and denominated sales in gross, are in fact sales by the acre, and so understood by the parties ~ EFFECTS (Commentators’ Opinion): Vendor shall be obliged to deliver all that is included within such boundaries, even should it exceed the area specified in the contract, OTHERWISE, “should he not be able to do so,” he shall suffer a reduction of the price in proportion to what is lacking of the area, unless the contract be annulled by reason of the vendee's refusal to accept anything other than that which was stipulated > WHY: Vendor sold everything within the boundaries and this is all the purchaser has paid, or must pay, for whether much or little it is found > Obligation of Vendor: to deliver all the land included within the boundaries assigned to the property, although the area may be found to be much greater or far less than what was expressed > ERRONEOUS TO HOLD AS AN ABSOLUTE RULE for it would do injustice to have the vendor suffer the loss of the value of the excess of his land and of the value of the price which would be reduced if the land is smaller ~ must take into account the conduct of the parties, the value, extent, and locality of the land, the date of the contract, the price, and other nameless circumstances > EXCEPTIONS: Gross Mistake as if the area of the land sold is grossly deficient from that expressed in the sale ~ Slight excess or deficiency is immaterial > RELIEF ON THE GROUND OF GROSS MISTAKE: Vendee can opt (i) to have the price reduced proportionately; or (ii) to ask for the rescission of the contract > GRANTED WHERE (1) the sale is of a specific quantity which is usually denominated a sale by the acre; (2) the sale is usually called a sale in gross > FAVOURABLE TO VENDEE, giving the excess to the purchaser without compensation to the vendor and allows the purchaser either to secure a deduction from the price in case a deficiency or to annul the contract 22

>> Contract of Hazard where the sale is a sale in gross and not by acreage or quantity as a basis for the price WHERE mistake on the part of the vendor as to quantity of thing sold constitutes no ground for relief >> Art. 1471 applies to: (1) Sale of Real Estate for a lump sum (and not at the rate of specified price of each unit or measure) > No relief (increase/decrease of the price) even if the area be found to be more or less than that stated in the contract (2) Sale of Two or More Estates are sold for a single price (3) Sale of Real Estate where the boundaries and area estate are stated >> Non-Application of Arts. 1469 and 1470 ~ sale being made at a certain price for each unit of measure or number G.R. No. 150179 April 30, 2003 HEIRS OF WILLIAM SEVILLA, NAMELY: WILFREDO SEVILLA, WILSON SEVILLA, WILMA SEVILLA, WILLINGTON SEVILLA, AND WILLIAM SEVILLA, JR., HEIRS OF MARIA SEVILLA, NAMELY: AMADOR SEVILLA, JENO CORTES, VICTOR CORTES, MARICEL CORTES, ALELEI* CORTES AND ANJEI** CORTES v. LEOPOLDO SEVILLA, PETER SEVILLA, AND LUZVILLA SEVILLA Facts: Felisa donated her share of her sister’s estate to her nephew, Leopoldo. Despite her old age and alleged sickness at the time of the execution of the Deed of Donation, the donation remains valid because of the lack of evidence to rebut the presumption of valid consent. There was no proof of specific acts that Leopold had employed to vitiate the consent of his aunt. Also, the condition of Felisa was also not proven to show her susceptibility to fraud. > Three Instruments Executed by Felisa Almirol: (1) Last Will and Testament (November 25, 1985) where she left to her nephew, Leopoldo, her ½ undivided share to the parcel of land, which she co-owned with her sisters (Honorata already died on 1982 and hence, only Felisa ad Filomena share it); (2) Donation Inter Vivos (August 8, 1986) where she ceded to Leopoldo the same ½ undivided share that was accepted by Leopoldo in the same document; (3) Deed of Extrajudicial Partition (September 3, 1986) of Honorata’s estate where she adjudicated the former’s 1/3 share in favour of herself and the heirs of Filomena who had already died as well (December 10, 1973) ~ New TCTs issued in favour of Felisa and Filomena’s heirs but were without signatures of the Register of Deeds pending submission by Peter Sevilla, son of Filomena, of a Special Power of Attorney authorizing him to represent the other heirs of Filomena

> SUIT (June 21, 1990) for Annulment of the Deed of Donation and the Deed of Extrajudicial Partition by Filomena’s heirs > CONTENTION of Heirs: that the Deed of Donation was void for being tainted with fraud because Felisa was already 81y and seriously ill and of unsound mind at the time of its execution; that the Deed of Extrajudicial Partition was void because it was executed without their knowledge and consent > CONTENTION of Leopoldo: that the Deed of Donation was valid because Felisa was of sound mind at the time of its execution and that she freely and voluntarily ceded her undivided share in favour of Leopoldo > RTC Held (December 16, 1994): Donation Valid due to absence of proof of fraud but Partition Void due to lack of legal requisites of SPA > VALID DONATION (SC Upheld RTC) > Consent of Filomena: presumption of valid consent absent full, clear and convincing evidence of fraud or undue influence > Must be established by specific acts that vitiated a party's consent ~ allegation only that she lived with Leopoldo, that she was already 82, that she was seriously ill and of unsound mind BUT without specifying what acts of Leopoldo constituted fraud and undue influence and on how these acts vitiated the consent of Felisa and why Felisa should be held incapable of exercising sufficient judgment > Legal Capacity of Filemona: already the owner of 1/2 undivided portion of the Lot when she and Filomena inherited the 1/3 share of their sister Honorata after the latter's death ~ unnecessary that partition of Honorata’s estate should first be had because what was donated to Leopoldo was the 1/2 undivided share of Felisa > Deed of Extrajudicial Partition VOID AB INITIO > Felisa had no legal capacity to execute the deed dividing the share of her deceased sister Honorata between her and the heirs of Filomena ~ WHY: she was no longer the owner of the 1/2 undivided portion of the Lot, having previously donated the same to Leopoldo ~ she was neither the owner nor the authorized representative of Leopoldo >> Donation > an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it > Agreement of the parties is essential ~ OTHERWISE, attendance of a vice of consent renders the donation voidable > CAPACITY TO DONATE (Art. 737): the donor's capacity shall be determined as of the time of the making of the donation >> Donation inter vivos > immediately operative and final and results in an effective transfer of title over the property from the donor to the donee > Perfected from the moment the donor knows of the acceptance by the done ~ donee becomes the absolute owner of the property donated 23

>> Fraud > When through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to >> Undue influence > When a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice ~ the circumstances of confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress, are considered > Where is the mistake here: Mistake of Felisa in thinking that she can donate the property to Leopolodo because she still does not own the undivided share to the parcel of land

> What is the mistake that can vitiate consent? that had the party known the mistake, he would not have contracted? > INCONSISTENT ruling that Deed was Void Ab Initio because mistake can only make a contract voidable G.R. No. 82670 September 15, 1989 DOMETILA M. ANDRES (under "IRENE'S WEARING APPAREL") v. MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS Facts: Hanover mistakenly remitted the payment of FACETS to Dometila twice because the first one was delayed in receipt and record due to an incorrect stipulation of name. The first remittance was already received when the second was made. Hence, there was a recredit against FACETS which it demanded from Hanover. Hanover demanded refund from Dometila who refused allegedly due to the negligence of Hanover and FACETS’ outstanding debt. Hanover had the right to recover pursuant to Art. 2154 because it was not negligent but merely made a mistake in remitting twice due to the same reference invoice number of the account of FSNB.

> Double Remittance in favour of Irene's Wearing Apparel from Facets Funwear, Inc. when the latter, an American company, paid the former twice for its manufactured ladies/childrens/mens wear ~ (1) from First National State Bank of New Jersey, thru Manufacturers Hanover and Trust Corporation, to Philippine National Bank, and then to Dometila’s account in Pilipinas Bank (August 1980), worth $10k ~ payment was not effected immediately because the payee designated in the telex send by Hanover to PNB was only “Wearing Apparel” ~ Received only on August 28, 1980, day after Hanover clarified it to be madse to “Irene's Wearing Apparel”; (2) from FNB thru Hanover to Philippine Commercial and Industrial Bank (September 8, 1980), worth 10k, upon instruction by FACETS as the latter’s response to the delay in payment ~ Received on September 11, 1980 > Demand by FNSB from Hanover for a recredit of its account due to the double remittance > Refund by Hanover > Demand by Hanover from FACETS for a refund of the double remittance > Refusal by FACETS to pay > SUIT (May 12, 1982) by Hanover > CONTENTION of Dometila: that FACETS still had a balance of $49,324 and hence, the $10k remittance was payment of the preexisting debt > Right to Recover > Doctrine of solutio indebiti > Art. 2154 ~ If something received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises > Requisites: (1) that he who paid was not under obligation to do so; (2) that payment was made by reason of an essential mistake of fact > From Art. 1895 ~ If a thing is received when there was no right to claim it and which, through an error, has been unduly delivered, an obligation to restore it arises > Double Remittance not due to Negligence > that when one of two innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss > BUT Second remittance a mistake than negligence due to the fact that both remittances have the same reference invoice number in FNSB > Second Remittance as Payment of Pre-Existing Debt is UNTENABLE > no contractual relation between Dometila and Hanover > Dometila has no right to apply the second $10k remittance delivered by mistake by Hanover to the outstanding account of FACETS G.R. No. 126013 February 12, 1997 SPOUSES HEINZRICH THEIS AND BETTY THEIS v. HONORABLE COURT OF APPEALS, HONORABLE ELEUTERIO GUERRERO, ACTING PRESIDING JUDGE, BRANCH XVIII, REGIONAL TRIAL 24

COURT, TAGAYTAY CITY, CALSONS DEVELOPMENT CORPORATION

for Sps. Theis to insist on the house and lot when they intended to purchase a vacant lot in the first place

Facts: Sale of Parcel 4 (in title) to Sps. Theis by Calsons is void because the said title mistakenly conveyed the real properties of Calsons (Parcels 1&2) as Parcel 4 which he did not own. Hence, Calsons could not have sold such lot because he did not own them. Also, Sps. Theis cannot insist on keeping the mistaken survey of Parcel 1 which is Parcel 3 in reality because the latter has a house constructed theron which value exceeds the purchase price. Hence, due to the erroneous survey of the lots that was translated to the title, the consent of Calsons was vitiated when it sold Parcel 4/1&2 because of the lack of his full and correct knowledge about the thing of the sale.

>> Error > Includes (a) Ignorance, which is the absence of knowledge with respect to a thing; (b) Mistake, which is a wrong conception about said thing, or a belief in the existence of some circumstance, fact, or event, which in reality does not exist > There is a lack of full and correct knowledge about the thing of the obligation

> Erroneous Survey (1985) of the Parcels (1-3) of Lands of Calsons Development Corporation where Parcel 1 and 2 were surveyed to be located on Parcel 4 while the building constructed by Calsons on Parcel 3 (1985) was indicated to be on Parcel 1 > Deed of Sale (October 26, 1987) between Calsons and Sps. Theis where the former sold the latter Parcel 4, unaware of the mistake by which he appeared to be the owner of Parcel 4, instead of Parcels 1&2, in the erroneous survey > Registration of the Sale and TCTs (October 28, 1987) > No actual possession of the property since Sps. Theis went to Germany until they returned and discovered (1990) that Parcel 4 was owned by another person and what was sold to them was actually Parcels 2&3 > Calsons offered Parcels 1&2 (which were what he owned and intended to sell ) or refund of the purchase price, twice the value > Denied by Sps. Theis who insisted on taking Parcels 2&3 > SUIT by Calsons for Annulment of Deed of Sale and Reconveyance

Facts: Due to a previous debt arising from a lawsuit, Andrea signed a document wherein she acknowledged her P101 debt to Felix Modelo who had lent him the amount. Even though Andrea did not know how to write, she signed the document believing Felix in good faith. The document turned out to be a Deed of Sale of her land and carabao. Because her consent was given by mistake, on the premise that the document was an acknowledgement of debt than a sale, it is void and hence, the Deed of Sale which she actually signed was also void. > When you enter a contract, it’s your responsibility to know what you’re getting yourself into > Why make the responsibility to the other party > HENCE, doesn’t make sense ~ you should take the risk or have a friend explain it

> Contract VOID on the ground of Mistake > Art. 1390 that the following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: 2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence, or fraud > Consent of Calsons vitiated by honest mistake when he sold Parcel 4 based on the erroneous survey that conveyed Parcels1&2 as Parcel 4 ~ Lack of full and correct knowledge about the thing of the contract of sale > Quite impossible for Calsons to sell the lot at it was not owned by it > Good faith manifested in immediate offer, (a) to sell the two other vacant lots or, (b) to reimburse them with twice the amount paid, after discovery of error

> Deed of Sale (November 3, 1911) between Andrea Dumasug and Felix Modelo where the former allegedly sold her 2-parcel land and carabao to the latter for P333.49 which she received > Possession (February 1912) by Felix of her land and carabao > SUIT (June 17, 1912) by Andrea for Annulment of the Deed of Sale > CONTENTION of Andrea: (a) that she doesn’t know how to write; (b) that Felix had sent for her and had persuaded her to sign the document (placed a cross between her Christian name and surname) by falsely and maliciously making her believe that it was a mere acknowledgement that she owed him the sum of P101 for the work he had performed in her behalf in the two actions she had brought to recover her land (recovery of land against Rosales Albarracin and Gaudencio Saniel who had filed an annulment of the judgment in Andrea’s favour in Cebu; Felix was not her counsel but was asked for advise by Andrea and he merely told her to bring the matter to the authorities and helped engage the services of Atty. Andres Jayme to be her counsel) ~ did not object because

> Cannot allow retention of Parcel 3 where a 2-storey house has been constructed thereon > Unjust enrichment ~ Sps. Theis only paid P486k while house was constructed prior to the sale for the amount of P1.5M > Unreasonable

G.R. No. L-10462 March 16, 1916 ANDREA DUMASUG v. FELIX MODELO

*Yahoo gives out your IP address :p hahaha **TERM INSURANCE :p haha

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she believed in good faith that he had told her the truth and discovered the truth only when Felix took possession of the same ~ No witnesses to the signing but she was afterwards taken to the notary who did not ask her any question; (c) that Felix offered to buy her carabao for P120 but she refused because it was her only means of livelihood > CONTENTION of Felix: that Andrea sold the land and carabao to him, which sale was executed and signed by Andrea in the presence of witnesses, Mariano Abear and Apolina Minosa and notarized even by Anselmo S. Legaspi after the latter had explained to her that it was a conveyance by absolute sale of the lands and carabao > Deed of Sale is NULL AND VOID > No Consent ~ obtained by means of fraud and deceit on the part of Felix > contents were not duly and faithfully explained to Andrea > Made to believe that the Deed of Sale was an instrument wherein she recognizes her debt > Andrea thus signed by mistake, which error invalidates the contract because it goes to the very substance of the thing which was the subject matter of said contract > Document which she signed with her own free will and which she authenticated with her mark is not the Deed of Sale > That the debt arose from the expenses of suit which Andrea defrayed > UNTENABLE > (1) Andrea could not have defrayed Judge Minosa's expenses in Cebu, allowing him to board in restaurants, to amuse himself in the cinematographs and to remain four days in that city each time that he went there — all at her expense — when the proceedings in the case had not gone beyond the filing of a demurrer and was dismissed before the complaint was answered and the trial was held where no witnesses were examined and Andrea, the principal defendant, went to Cebu only twice, staying there one day each time ~ It would have been better for her to let go of the usurped property that maintain the suit because the latter would have cost more ~ REAL DEBT was P101 than P333.49 since the most that she could have spent on, attorney’s fees, was only P80-90; (2) Felix was neither an attorney nor a procurador judicial, and the record does not show that he acted as an attorney, procurador judicial, or friend of Andrea in the case G.R. No. 107132 October 8, 1999 MAXIMA HEMEDES v. THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY AND CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES and R & B INSURANCE CORPORATION G.R. No. 108472

October 8, 1999

R & B INSURANCE CORPORATION v. THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY AND CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES and MAXIMA HEMEDES Facts: The Deed of Conveyance executed by Justa Kausapin in favor of her step-daughter Maxima Hemedes (pursuant to her late husband’s request) was made in English where she alleged that she cannot read or write. She thus challenged its validity because it was not explained to her by Maxima as required by Art. 1332. However, she cannot invoke the provision because she also alleged that she did not know of such Deed and did not give any consent at all. Art. 1332 only applies when consent was given to a contract but was only vitiated due to mistake or fraud. Hence, by claiming that she did not execute the Deed at all, Justa cannot invoke Art. 1332. > Five Transfer of Ownership of an unregistered parcel of land (1) March 22, 1947: Owner Jose Hemedes to 3rd wife, Justa Kausapin by virtue of a Donation Inter Vivos With Resolutory Conditions ~ Jose conveyed ownership of the property to Justa with the Resolutory Condition that she revert the ownership of the same to Jose’s children and/or heirs if she dies or remarries, to be done expressly in a public document or automatically absent such express designation (2) September 27, 1960: Justa to Maxima Hemedes, child of Jose, by virtue of a Deed of Conveyance of Unregistered Real Property by Reversion ~ Justa conveyed ownership of the property to Maxima but reserved usufructuary rights where she would continue to possess and enjoy the property during her lifetime or widowhood (where occurrence of either of the latter would automatically revert ownership to Maxima) > Maxima registered the property and acquired a TCT on June 8, 1962, with the annotation that “Justa Kausapin shall have the usufructuary rights over the parcel of land herein described during her lifetime or widowhood” (3) May 3, 1968: Maxima to R & B Insurance, by virtue of an extrajudicial foreclosure of mortgage over the property ~ Maxima mortgaged it to R&B (June 2, 1964) to secure the latter’s loan of P6k but failed to pay (due August 2, 1964) and failed to redeem the property after the foreclosure ~ Issuance of a new TCT in favor of R&B but with the annotation of usufruct (4) May 27, 1971: Justa to Enrique D. Hemedes, son of Jose, by virtue of a Kasunduan ~ Justa conveyed ownership of the property to Enrique and affirmed the same thru an Affidavit (April 10, 1981) wherein she denied conveyance to Maxima ~ Enrique obtained two declarations of real property (1972 and 1974), 26

paid its realty taxes, and was named owner of the property in the cadastral survey and in the records of the Ministry of Agrarian Reform (5a) February 28, 1979: Enrique to Dominium Realty and Construction Corporation by virtue of a Deed of Sale (5b) May 14, 1981: Dominium to its sister corporation, Asia Brewery, Inc., by virtue of a Lease >Asia Brewery constructed two warehouses made of steel and asbestos costing about P10M each > Prompted (i) R&B to write AB (March 16, 1981), claiming ownership and its right to appropriate the constructions; (ii) Maxima to write AB (May 8, 1981), claiming ownership and its right to appropriate the constructions; (iii) Maxima to write R&B (May 8, 1981), denying mortgage > SUIT (August 27, 1981) by Dominium and Enrique for Annulment of TCT of R&B and Conveyance of Property to Dominium as the absolute owner of the subject property > CONTENTIONS of Dominum and Enrique: (1) that Justa Kausapin never transferred the land to Maxima as repudiated in her April 10, 1981 Affidavit ; (2) that Maxima failed to explain the Deed of Conveyance, that was in English, to Justa who did not know how to read and write English ~ required by Art. 1332; (3) that Enrique had no knowledge of the registration proceedings initiated by Maxima > SC HELD: R&B AS OWNER (from Maxima who owned and mortgaged it) > Maxima, not Enrique, was the Owner of the Property > VALIDTY OF THE DEED OF RECONVEYANCE IN HER FAVOR > > WHY NOT Spurious/Sham: (1) Art. 1332 NOT APPLICABLE ~ Justa’s Claim of Non-existence of the Deed of Conveyance ~ Claim of Complete Absence of Consent ~ Art. 1332 contemplates a situation where a contract is entered into and consent of a party was given but vitiated due to mistake/fraud > Nonetheless, Justa never questioned the validity of Jose’s Donation which was also in English (2) Failure to Disprove the authenticity of Justa’s thumbmark in the Deed of Conveyance ~ refused to have Justa’s thumbmark and the one in the Deed checked and compared ~ Legal presumption that evidence willfully suppressed would be adverse if produced where the failure to refute the due execution of the Deed by making a comparison with Justa's thumbmark necessarily leads one to conclude that she did in fact affix her thumbmark upon the Deed (3) Repudiation by Justa cannot prosper > Failed to prove invalidity of the Deed of Conveyance which is a public instrument with prima facie authenticity > A party to a contract cannot just evade compliance with his contractual obligations by the simple expedient of denying the execution of such contract > Any claim

of defect must be conclusively proven and must be so clear, strong and convincing as to exclude all reasonable controversy as to the falsity of the certificate > Validity is otherwise upheld because the fulfillment of contracts cannot be left to the will of one of the contracting parties (4) Mere denial of Justa is not enough ~ Justa is a biased witness ~ already 80y with worsening physical infirmities ~ completely dependent upon Enrique for financial support (as testified by Justa and Enrique) who could have easily influenced her to execute the Kasunduan in his favor > HENCE, Enrique and Dominium did not acquire any rights over the subject property since ownership had already been vested to Maxima > Object of Justa’s donation to Enrique and of Enrique’s sale to Dominium did not exist at the time of the transfer, having already been transferred to his sister > Enrique had no more than usufructuary rights where mere tax certificates cannot prove ownership and cannot defeat a certificate of title, which is an absolute and indefeasible evidence of ownership of the property in favor of the person whose name appears therein > R&B IS NOW THE OWNER OF THE PROPERTY > (1) Validity of the Mortgage ~ Mortgage of property with usufructuary rights is valid since the presence of an encumbrance on the certificate of title is not reason for the purchaser or a prospective mortgagee to look beyond the face of the certificate of title WHERE the owner of a parcel of land may still sell the same even though such land is subject to a usufruct > Usufruct only restricts the title over the property > HENCE, mortgage was valid and only subject to Justa’s usufructuary rights (2) EVEN IF R&B had investigated beyond the title, there would have been no controversy since the Mortgage was on 1964 while the Kasunduan in Enrique’s favor was on 1971 and the Affidavit repudiating Maxima’s claim was only on 1981 > Asia Brewery cannot be compelled to deconstruct its warehouses > a necessary party that was not joined in the action > HENCE any judgment rendered in this case shall be without prejudice to its rights >> Non-Applicability of Art. 1332 > PURPOSE: the protection of a party to a contract who is at a disadvantage due to his illiteracy, ignorance, mental weakness or other handicap ~ contemplates a situation wherein a contract has been entered into, but the consent of one of the parties is vitiated by mistake or fraud committed by the other contracting party >> Mistake may invalidate consent ~ should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract 27

>> Fraud may vitiate consent ~ when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to >> Usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance > RIGHTS: right to personally enjoy the thing in usufruct, and all the natural, industrial and civil fruits of the property, to lease it to another, or alienate his right of usufruct, even by a gratuitous title > BUT all the contracts he may enter into as such usufructuary shall terminate upon the expiration of the usufruct > Only jus utendi and jus fruendi over the property >> RIGHT OF THE OWNER TO ALIENATE DESPITE USUFRUCT: jus disponendi or the power to alienate, encumber, transform, and even destroy the same > owner of property the usufruct of which is held by another, may alienate it, although he cannot alter the property's form or substance, or do anything which may be prejudicial to the usufructuary >> An innocent purchaser for value > 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 of another person > Every person dealing with registered land may safely rely on the correctness of the certificate of title issued and the law will in no way oblige him to go behind the certificate to determine the condition of the property >> witness is said to be biased ~ when his relation to the cause or to the parties is such that he has an incentive to exaggerate or give false color to his statements, or to suppress or to pervert the truth, or to state what is false

G.R. No. 111924 January 27, 1997 ADORACION LUSTAN v. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK Facts: The Deed of Sale executed by Lustan and Parangan where the former sold her property to the latter is merely an Equitable Mortgage because the real intention of the parties was just to secure the loans given by Parangan to Lustan with the latter’s property. This real intent is manifested by the lack of Lustan’s understanding of the Sale because she was illiterate and was not informed of the Deed’s content. Hence, despite the language of the contract, its true intention,

which is the mere security of loan by property, which reason Lustan signed the contract, shall prevail. > Special Power of Attorney (July 29, 1970 and February 18, 1972) executed by Adoracion Lustan in favour of Nicolas Parangan where the latter, as lessee of Lustan’s property (since February 25, 1969), was to secure loans from Philippine National Bank with the lot as collateral in order to help her with her child’s educational expenses (in addition to the loans he had been giving her) > Loans acquired by Parangan by virtue of the 2nd SPA: (a) P24k (December 15, 1975) with Lustan’s knowledge; WITHOUT Lustan’s knowledge and USED for Parangan’s own benefit, (b) P38k (September 6, 1976); (c) P38,500 (July 2, 1979); (d) P25k (June 2, 1980) > Deed of Pacto de Retro Sale (April 16, 1973) and Deed of Definite Sale (May 4, 1979) which Lustan, who was illiterate, was made to sign upon Parangan's representation that the same merely evidences the loans extended by him unto the former ~ BUT actual stipulation is that Lustan is to absolutely convey the property to Parangan for P75k > Demand by Lustan for the Return of her TCT > Refusal of Parangan, asserting his rights over the property which allegedly had become his by virtue of the Deed of Definite Sale > SUIT by Parangan for the cancellation of liens, quieting of title, recovery of possession and damages > Deed of Definite Sale is REALLY AN EQUITABLE MORTGAGE > Intention Prevails over Language > Agreement intended was one of a loan secured by Lustan’s property ~ to consolidate the Lustan's indebtedness to Parangan in a single instrument and to secure the same with the subject property > WHY Equitable Mortgage: Art. 1602 (6) 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 > INFERRED CIRCUMSTANCES: (i) Lustan, an illiterate, had no knowledge that the contract she signed was not a Consolidation of Debts BUT a Deed of Sale ~ NOT informed or explained of the contract and its content as required under Art. 1332 > BURDEN TO PROVE EXPLANATION: (a) when one of the contracting parties is unable to read, or (b) if the contract is in a language not understood by him, and (c) mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former ~ Burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to the former in a language understood by him (ii) FAILURE OF PARANGAN TO PROVE EXPLANATION TO LUSTAN: (1) testimony of the witness to the notarization, Celso Pamplona, that the contract was not read nor explained to Lustan and he himself was informed by Parangan that he will witness a document consolidating Lustan’s debts; (2) 28

testimony of notary, Judge Lebaquin, that he did not know of Lustan’s illiteracy ~ had he known that Lustan is illiterate, his assistance would not have been necessary; HENCE Lustan failed to intelligibly formulate in her mind the consequences of her conduct and the nature of the rights she was ceding in favor of Parangan ~ Merely relied upon Parangan’s assurance that the contract only evidences her indebtedness to the latter > CONSENT BY MISTAKE ~ NO INTENTION TO SELL > Three Mortgages for Parangan’s Benefit and Without Knowledge of Lustan STILL VALID AND ENFORCEABLE AGAINST LUSTAN’S PROPERTY > By virtue of the SPAs: Parangan’s acts are deemed to have been performed within the scope of the agent's authority > SPAs are a continuing one and absent a valid revocation in a public instrument and duly furnished to the mortgagee, the same continues to have force and effect as against third persons who had no knowledge of such lack of authority > No proof that PNB was aware of Lustan’s lack of knowledge and express authority >> INTENTION OF A CONTRACT OVER ITS LANGUAGE > A contract is perfected by mere consent while a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price > MEETING OF MINDS IS THE INTENT of the parties in entering into the contract respecting the subject matter and the consideration thereof > IF WORDS ARE CONTRARY TO THE EVIDENT INTENTION, the latter prevails ~ EVEN IF a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent of the parties >> Art. 1602 where The contract shall be presumed to be an equitable mortgage in any of the following cases: 1) When the price of a sale with right to repurchase is unusually inadequate; 2) When the vendor remains in possession as lessor 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 vendor binds himself to pay the taxes on the thing sold; 5) When the purchaser retains for himself a part of the purchase price; 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. >> Art. 1604 where The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. >> Presumption of an equitable mortgage > Requisites: (1) that the parties entered into a contract denominated as a contract of sale; (2) that their intention

was to secure an existing debt by way of mortgage ~ Deed of Sales are presumed to be an equitable mortgage should ANY of the conditions in Art. 1602 be present G.R. No. 132415 January 30, 2002 MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and LEOPOLDO BALGUMA, JR. v. BRAULIO KATIPUNAN, JR. Facts: A Deed of Absolute was executed by Braulio in favor of the brothers Balguma. But the document is void because Braulio is not capacitated to give consent, with a very low IQ who was not informed of the contents and the nature of the English document, and moreover, his consent was vitiated by the undue influence of his brother, Sencio and Atty. Balguma > Deed of Absolute Sale (December 29, 1985) between Braulio Katipunan, Jr. (lot and apartment owner), with his brother, Miguel Katipunan, and brothers Edgardo Balguma and Leopoldo Balguma, Jr., represented by their father Atty. Leopoldo Balguma, Sr. where Braulio sold his lot and apartment for P187k > New TCT in favor of Balguma brothers, Collection of Rentals by Atty. Balguma since January, 1986 > SUIT (March 10, 1987) by Braulio for annulment of the Deed of Absolute Sale > CONTENTIONS of Braulio: (1) that his brother Miguel, Atty. Balguma and Inocencio Valdez convinced him to work abroad and through insidious words and machinations, they made him sign a document purportedly a contract of employment, which document turned out to be a Deed of Absolute Sale; (2) that he did not receive the consideration stated in the contract; (3) that he only reached 3rd grade > CONTENTIONS of Petitioners: (1) that Braulio was aware of the contents of the Deed of Absolute Sale; (2) that he received the consideration involved; (3) that he knew that the Balguma brothers have been collecting the rentals since December 1985 but has never objected or confronted them; (4) that he filed the complaint because his sister, Agueda Savellano, urged him to do so (where his motions to dismiss his complaint had been granted on the same ground for which Atty. Balguma paid P2500; but motioned for reconsideration since he did not sign the motions to dismiss voluntarily due to his poor comprehension and the lack of assistance of counsel ~ sister Agueda was thus appointed as his guardian ad litem) > Deed of Absolute Sale is VOID > 29

(I) INCAPACITY TO GIVE A RATIONAL CONSENT ~ (a) medical report of Dr. Annette Revilla (Resident Psychiatrist, PGH) that he has a very low IQ and a mind of a six-year old ~ unrebutted by petitioners; (b) fact that he only reached 3rd grade; (c) difficulty of the trial court in communicating with him where it had to clarify certain matters because Braulio was either confused, forgetful or could not comprehend; (II) VITIATED CONSENT ~ intimidation and undue influence exerted upon him by his brother Miguel and Inocencio Valdez and Atty. Balguma: (1) It was his brother Miguel who negotiated with Atty. Balguma; (2) Braulio was not informed of the nature and contents of the document he signed ~ written in English and embellished in legal jargon; (3) Braulio was forced to sign the document by the shoving of his brother Miguel and Sencio and the threat that if he does sign, something will happen; > HENCE, deprivation of reasonable freedom of choice and impossibility of understanding the contract > His ignorance and weakness made him most vulnerable to the deceitful cajoling and intimidation of petitioners > No Mutual Restitution > Principle of mutual restitution (Art. 1399) when the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution, except when he has been benefited by the things or price received by him > Only Miguel profited from the entire transaction ~ that it was Miguel who wanted to go abroad and needed money, giving loose change only to Braulio that are grossly disproportionate to the value of his property ~ Atty. Balguma admitted that it was Miguel who received the money from him > Restitution only to Braulio ~ possession and fruits (rentals from lessees) of the property

>> Contract of sale ~ Perfected from the meeting of minds upon the thing which is the object of the contract and upon the price > Intent of the parties in entering into the contract respecting the subject matter and the consideration thereof > Elements of a Contract of Sale: (a) consent, (b) object, and (c) price in money or its equivalent > Consent may be vitiated by the presence of ANY: (1) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud (Art. 1330)

>> Contracts with incapable consent or vitiated (by mistake, fraud, or intimidation) IS NOT void ab initio BUT ONLY voidable and is binding upon the parties unless annulled by proper Court action > Effect of Annulment ~ to restore the parties to the status quo ante insofar as legally and equitably possible > EXCEPTION: when the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution, except when he has been benefited by the things or price received by him

G.R. No. 125485 September 13, 2004 RESTITUTA LEONARDO, assisted by JOSE T. RAMOS v. COURT OF APPEALS, and TEODORO SEBASTIAN, VICENTE SEBASTIAN, CORAZON SEBASTIAN, assisted by ANDRES MARCELO; PEDAD SEBASTIAN, HEIRS OF EDUVIGIS SEBASTIAN, namely: EDUARDO S. TENORLAS, ABELARDO J. TENORLAS, ADELA S. and SOLEDAD S. TENORLAS, represented by EDUARDO S. TENORLAS, and HEIRS OF DOMINADOR, namely: NAPOLEON SEBASTIAN, RUPERTO SEBASTIAN, ADORACION SEBASTIAN, PRISCILLA SEBASTIAN, LITA SEBASTIAN, TITA SEBASTIAN and GLORIA SEBASTIAN, represented by NAPOLEON SEBASTIAN; EVELYN SEBASTIAN; AURORA SEBASTIAN; and JULIETA SEBASTIAN Facts: An Extrajudicial Settlement of Tomasina’s estate was signed by her only legitimate daughter, Restituta where her share was less than ½ in favour of her step-siblings. The Deed was annulled because Restituta signed it without understanding it where it was written in English when she can only understand the Pangasinan dialect and where no proof was given that Judge Austria explained it in Pangasinan or that he explained it with all parties present. Because of such illiteracy, the consent of Restituta was vitiated by her lack of intelligence and freedom. > Extrajudicial Settlement of the estate of Jose Sebastian and Tomasina Paul (June 24, 1988) ~ Restituta was the only legitimate child of Tomasina with her husband Balbino Leonardo while the Sebastians (Corazon, Teodoro, Victor, Piedad, Eduvigis and Dominador) were the illegitimate children of Tomasina with Jose Sebastian after she separated in fact from Balbino > SUIT for Nullity of Extrajudicial Settlement of the Estate of Tomasina Paul and Jose Sebastian > CONTENTION of Restituta: that Corazon and her niece Julieta Sebastian, and a certain Bitang came to her house and persuaded her to sign the deed despite the latter’s insistence to wait for her husband, Jose Ramos, who could translate the English document to Pangasinan dialect and explain it to her; that Corazon assured her that she would get her ½ share as a legitimate daughter of Tomasina; 30

they did not wait of Jose, as requested, but left after she signed it without leaving a copy; that she received a copy only when she hired a lawyer > HENCE, Deed was void because her consent was vitiated and because Tomasina and Jose were never married and can thus have no cp but only co-ownership > CONTENTION of Sebastians: that they all appeared before Judge Juan Austria on July 27, 1988 to acknowledge the execution of the extrajudicial partition; that Judge Austria read and explained the contents of the document which all of them, including Restituta, voluntarily signed > RTC Held: (1) that the element of duress or fraud that vitiates consent was not established; (2) that the proper action was the reformation of the instrument, not the declaration of nullity of the extrajudicial settlement of estate > Deed IS VOID > Vitiated Consent > (1) Deed was not explained in a language known to her ~ did not know English, only Pangasinan; finished only 3rd grade; (2) No proof that Judge Austria explain the Deed in Pangasinan dialect, known to Restituta; (3) Uncertainty of Judge Austria regarding the presence of all parties during the notarization > HENCE, not in a position to give her free, voluntary and spontaneous consent DUE TO THE misrepresentation, deception and undue pressure of her half-sister Corazon ~ Presumption of Mistake not rebutted > EFFECT: Annulment on the ground of Mistake ~ involves a substantial mistake regarding her alleged share in the estate clearly prejudicial to the substantive interests of Restituta in her mother’s estate > Although Action filed is Declaration of Nullity, what is sought by the allegation and evidence is the Annulment > not the caption of the pleading but the allegations that determine the nature of the action >> Consent > Essence: the agreement of the parties on the terms of the contract ~ acceptance by one of the offer made by the other ~ concurrence of the minds of the parties on the object and the cause which constitutes the contract > must extend to all points that the parties deem material or there is no consent at all > Requisites of Validity: (a) it should be intelligent, or with an exact notion of the matter to which it refers ~ can be vitiated by error; (b) it should be free ~ vitiated by violence, intimidation or undue influence; (c) it should be spontaneous ~ vitiated by fraud > EFFECTS OF MISTAKE: invalidity of the consent if it refers to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract >> Contracts where consent is given by mistake or because of violence, intimidation, undue influence or fraud > VOIDABLE > WHY: defects of the will ~ impairs the freedom, intelligence, spontaneity and voluntariness of the

party in giving consent to the agreement ~ consideration of the age, physical infirmity, intelligence, relationship and the conduct of the parties at the time of making the contract and subsequent thereto, irrespective of whether the contract is in a public or private writing >> VOIDABLE: An action for annulment of contract IF consent is vitiated by lack of legal capacity of one of the contracting parties, or by mistake, violence, intimidation, undue influence or fraud > contemplates a contract which is voidable, that is, valid until annulled ~ binding on all the contracting parties until annulled > four-year prescriptive period >> An action for declaration of nullity of contract > void contract or one where all of the requisites prescribed by law for contracts are present but the cause, object or purpose is contrary to law, morals, good customs, public order or public policy, prohibited by law or declared by law to be void > produces no legal and binding effect even if it is not set aside by direct legal action; cannot be ratified; imprescriptible >> Art. 1332 > History: necessitated by the fact that there continues to be a fair number of people in this country without the benefit of a good education or documents have been written in English or Spanish > Purpose: to protect a party to a contract disadvantaged by illiteracy, ignorance, mental weakness or some other handicap > Applicability: contemplates a situation wherein a contract is entered into but the consent of one of the contracting parties is vitiated by mistake or fraud committed by the other >> Presumption of Mistake > in case one of the parties to a contract is unable to read and fraud is alleged ~ tantamount to mistake or fraud of consent > rebutted only if the person enforcing the contract shows that the terms thereof have been fully explained to the former >> Proven Defect in Consent > one who alleges any defect or the lack of a valid consent to a contract must establish the same by full, clear and convincing evidence, not merely by preponderance of evidence > must show that his personal circumstances warrant the application of Art. 1332. G.R. No. L-5496 February 19, 1910 MERCEDES MARTINEZ Y FERNANDEZ, ET AL. V. THE HONGKONG & SHANGHAI BANKING CORPORATION, ET AL. Facts: Mercedes entered into a Contract of Reparation whereby she ceded her claim over P45k worth of notes and over ½ share to their Malate property in 31

favour of Aldecoa and Bank for the dismissal and withdrawal of the latter’s civil and criminal suits against her husband. The contract is valid because it was not obtained thru force or intimidation where she had the aid of her counsel (who were also her in-laws) who represented her during all the negotiations and where she acted according to reason when she chose the Win-Win situation of losing her property but not her husband because in either judicial or extrajudicial way, Aldecoa and Bank would have acquired the properties in question. Latter two merely allowed the Sps. to choose the manner by which their action would be pursued and the Sps. chose the amicable settlement to save the husband from imprisonment. > Suits against Alejandro S. Macleod, managing partner of Aldecoa & Co. (1) Civil Action (April 1907) by Hongkong & Shanghai Banking Corporation, creditor of Aldecoa against Alejandro, his wife Mercedes Martinez, Aldecoa and Viuda e Hijos de Escaño ~ that P45k notes granted in favour of Aldecoa as security for latter’s debt had been wrongfully transferred by Alejandro to his wife Mercedes ~ HENCE, prejudice to Bank, having a creditor's lien in the nature of a pledge over certain properties of the debtor (2) Civil Action (May 1907) by Aldecoa against Alejandro for Recovery of certain shares of stock worth P161k ~ that Alejandro mismanaged the firm’s affairs during his management (3) Criminal Action (July 17, 1907) by Aldecoa against Alejandro for falsification of a commercial document ~ Warrant of Arrest (4) Criminal Complaint (August 9, 1907) by Prosecuting Atty. against Alejandro for Embezzlement ~ Issuance of Warrants of Extradition > Previous Escape by Alejandro (July 13, 1907) to Macao ~ No extradition agreement between US and Portuguese where latter denied former’s request > Contract of Settlement (August 14, 1907) executed by Mercedes (represented by William Macleod, attorney-in-fact) and entered into with Aldecoa and Bank ~ Product of negotiations, commenced by the former, mediated by Mr. Cohn as requested by both parties, where latter two insisted upon the conveyance of all the property of Alejandro and also of ½ share of the Malate property claimed by Mercedes but offered to dismiss the civil suits and withdraw the criminal charges ~ Wife, with assistance from family and counsels, stoutly objected to the conveyance required of her, claiming the property to be her separate and exclusive property and not liable for the debts of her husband > Possession of the Properties, Dismissal of Civil Cases and Withdrawal of Criminal Charges by Aldecoa and Bank > Return of Alejandro to Manila > SUIT for Annulment of Contract (December 3, 1907) by Mercedes

> CONTENTION of Mercedes > Signed under Duress > that Mr. Kingcome, her son-in-law and a businessman, and William Macleod, attorney-in-fact, nephew and close friend of the Sps., got the impression from Mr. Stephen, Bank manager, during the negotiations they respectively attended, that unless their differences were amicably settled, additional and mortifying misfortunes wound fall upon Mr. Macleod's family ~ Alejandro was one of the prominent members of society > SC HELD: CONTRACT VALID > CONSENT FREELY GIVEN > REQUISITES OF DURESS > Influence must have been exercised over the party that she was deprived of her free will and choice > She must have acted from fear and not from judgment (a) that there was no time within which to deliberate the matter as it should have been deliberated (b) that there was no time or opportunity to take the advice of friends or of disinterested persons (c) that there was no time or opportunity to take advice of counsel (d) that threats were made to secure the performance of the acts complained of, made directly to the complaining party by the person directly interested or by someone in his behalf ~ There was no time during the course of the negotiations that there were any direct personal relations or communications between the parties ~ All offers, proposition, or treats, if any, made by Aldecoa and Bank were made through the personality, mind, and judgment of Mercedes’ own attorneys or relatives, all of them being persons who had her welfare and the welfare of her family deeply at heart and who were acting for her and her husband and not for the former (e) that there was no consideration for the performance of the act complained of except immunity from the prosecution threatened ~ The negotiations also settled Mercedes’ own controversies ~ Suit by Bank against her, Aldecoa and Escaño (April 1907) where she was able to settle the Bank’s claim (of P45k worth of notes fraudulently taken from the assets of Aldecoa and transferred into the name and possession of Mercedes) by releasing her rights to the Escaño notes under the settlement (f) that the property transferred or incumbered by the act complained of was the separate property of the person performing the act in which the person for whom the act was performed claimed no interest whatever (g) that there was no dispute as to the title of the property transferred or incumbered, no claim made to it by anybody, no suits pending to recover it or any portion of it, and no pretension that it could be taken for the debts of the husband or of any other person 32

> Mercedes ceded the Escaño notes and ½ interest in the Malate property ~ Both claims were substantially in litigation and the legality of both was seriously questioned and strongly doubted even by her own attorneys who advised her that the rights claimed by her in the property transferred are fictitious, unreal, and defeasible, having no foundation in law ALSO, ~ Mercedes did not challenge the contract’s validity when, after its execution, she required the fulfillment of every one of its provisions which are favorable to herself ~ partition of the Malate property, payment of P2k, dismissal of the pending action against her on account of the Escaño notes ~ Aldecoa and Bank could not have benefitted from the settlement as much as it could have by pursuing the suits ~ Dropped the charges after securing exactly the same property in the settlement proposed ~ Immaterial to them whether they obtain those properties through the courts or by means of a settlement ~ Left Macleod and his wife to choose for themselves, upon their own judgment and upon the advice of their attorneys and relatives, the course to be by them pursued ~ That the Sps. chose the settlement (where Mr. Fisher, their atty, was even made to withhold an important information from Aldecoa for fear that such information would deter them at the last moment from giving their assent to the arrangement) > HENCE, she entered the contract acting accordingly to the dictates of good business judgment rather that from duress and undue influence ~ to lose her property and save her husband OR to lose her property and her husband > Contracts of Reparation are Not duress: ~ that Mercedes loathed to relinquish certain rights which she claimed to have in certain property and that she persisted for a considerable time in her refusal to relinquish such claimed rights and now regrets having performed at their demand instead of compelling a resort to judicial proceedings ~ WHY: Made by free choice, although these may be evidence of duress or facts from which duress may be inferred, they are not duress of themselves ~ OTHERWISE, If such a contract were null and void, then would be null and void every contract of reparation > Relevant Provisions: ART. 1265. Consent given under error, violence, intimidation, or deceit shall be null. ART. 1267. There is violence when, inorder to obtain the consent, irresistible force is used. There is intimidation when one of the contracting parties gives his consent on account of a reasonable and well-grounded fear of suffering an imminent and

serious injury to his person or property, or to the person or property of his spouse, descendants, or ascendants. In determining whether or not there is intimidation the age, sex, and status of the person intimidated must be considered. Fear of displeasing the persons to whom obedience and respect are due shall not annul the contract. ART. 1268. Violence or intimidation shall annul the obligation, even though such violence or intimidation shall have been used by a third person who did not take part in the contract. >> RATIONALE: Contracts Void due to Fraud, Duress or Undue Influence > Because there was No Consent at all > Party never really gave consent thereto > BUT if a competent person has once assented to a contract freely and fairly, he is bound by it >> Real duress > Not undue influence: Solicitation, importunity, argument, persuasion, appeals to the affection >> Motive > Reluctance is not sufficient > VALID CONTRACT: Consenting against one’s wishes and desires or even against his better judgment, or without hope of advantage or profit >> Contract of Reparation > VALID even if Inherently entered into with extreme reluctance and only by the compelling force of the punishment threatened and against the strong desires of the party making the reparation ~ situation where in one necessarily makes reparation or else, take the consequences, civil or criminal, of his unlawful acts >> Contract for the purpose of gain > Made with pleasure and its terms complied with gladly >> Contracts by Wife, conveying exclusive property, for the sole consideration of obtaining her husband immunity from criminal prosecution ~ Suspicious G.R. No. 90423 September 6, 1991 FRANCIS LEE v. COURT OF APPEALS, PEOPLE OF THE PHILIPPINES AND PELAGIA PANLINO DE CHIN Facts: After the discovery that the check deposited and withdrawn from her uncle’s account was spurious, due to the forged signature of his uncle, Maria was confronted by the Bank’s manager and was made to sign a withdrawal slip against her own account to pay for the amount and an affidavit admitting her swindling. Intimidation or force could not have been present during the confrontation despite the gender and pregnancy of Maria because she was highly educated and was accompanied by her sister and was able to move about freely where the shouting of Francis was insufficient or constant as to compel her to sign the documents. 33

> Withdrawals made by Maria Pelagia Paulino de Chin, employee of Pacific Banking Corporation, from her uncle, Honorio Carpio’s account after he has allegedly left abroad: (a) Deposit of a Midland National Bank Cashier's check payable to Carpio, worth $5,200/ P92,557.44 to Carpio’s savings account thru Lamberto R. Cruz (Bank’s Foreign Department’s PRO Manager) ~ account totalling P92,607.44 (b) Withdrawal of P12,607 thru a withdrawal slip purportedly signed by Carpio but without a passbook (c) Withdrawal (June 13, 1984) of P80,000.44 thru a withdrawal slip allegedly signed by Carpio but without a passbook (d) Closing of the savings account ~ redeposited P50k to her own savings account and received in cash the remaining balance of P30,000.44 (e) Withdrawals (June 15, 18, 1984) of P2k and P18k, respectively, from her savings account > Confrontation June 20, 1984 between Francis Lee, Branch Manager of Pacific Banking Corporation, and Maria because the check she deposited was spurious where Carpio’s signature was forged ~ Francisco demanded the return of all the money equivalent of the subject cashier check and Maria was made to sign a ready-made withdrawal slip against her RCBC Time Deposit account to pay for the same, and an Affidavit where she admitted that she had swindled the bank and had return the money equivalent of the spurious check > SUIT and Conviction against Francis for Grave Coercion > CONTENTIONS of Maria: Use of force against her in signing the withdrawal slip and Affidavit: (a) Francis shouted at her with piercing looks and threatened to sue her (b) She is a woman who was 5m pregnant (c) The withdrawal slip and Affidavit she was made to sign were already prepared (latter by the bank's lawyer) > MTC applied RPC Article 286: ART. 286. Grave coercions. — The penalty of arresto mayor and a fine not exceeding 500 pesos shall be imposed upon any person who, without authority of law, shall, by means of violence, prevent another from doing something not prohibited by law, or compel him to do something against his will, whether it be right or wrong. If the coercion be committed for the purpose of compelling another to perform any religious act or to prevent him from so doing, the penalty next higher in degree shall be imposed. > SC applied Article 1335 because case is not about violence but intimidation: Art. 1335. There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or

ascendants, to give his consent. To determine the degree of the intimidation, the age, sex and condition of the person shall be borne in mind. A threat to enforce once's claim through competent authority, if the claim is just or legal, does not vitiate consent. > No Intimidation > Voluntary Consent despite Reluctance and Protestations (a) She is highly educated and very familiar with banking procedures ~ graduate with a degree of Business Administration in Banking and Finance from NCBA, with a Masters degree, with job experience with the Insular Bank of Asia and America as a bank teller (b) She admittedly actively participated in the deposit and withdrawal of the proceeds of the controversial check ~ She was even willing to return P48k which she took since it was only up to this amount where her involvement lies ~ Only when she realized that she would have the enormous task of reimbursing the bank the balance of the proceeds of the forged check allegedly taken by Carpio, she refused to cooperate any further (c) Threat to sue is not unlawful (d) She was able to move freely, unguarded, from the office of Francis at the ground floor to the office of Cruz at the mezzanine floor where her sister found her ~ Presence of many bank clients and bank security guards that Francis could not have manifested overt acts to prevent her from leaving, as admitted by Maria herself > She and her sister actually left the bank unescorted to eat their snack and that they went home instead despite Francis’ demand for their return (e) Alleged detention at the Bank was not due to Francis’ threat but due to Maria’s desire to prove her innocence ~ she could have just left the Bank but chose not to “Because I cannot just leave him that way,” insisting that the responsibility of one person be my responsibility (f) Encashment of the RCBC Time Deposit Certificate was suggested by her sister and not by Francis and was accepted by Cruz (PRO) and not by Francis (g) Her sister failed to corroborate her claim that she was denied the opportunity to read the Affidavit > Francis NOT NEGLIGENT in allowing the check’s deposit and withdrawal ~ He was on leave when it was made > Bank NOT NEGLIGENT in allowing the withdrawal of the check without the presentation of the passbook ~ Exception of the rule is when the depositor is a regular customer in depositing or withdrawing money in the bank >> Reluctant Consent is NOT Absence of Consent > There is consent even if it was given reluctantly, against his good sense and judgment, with hesitation BECAUSE it is still voluntarily and independently 34

> There is no consent where he acts against his will under a pressure he cannot resist as when his sense, judgment, and his will rebel and he refuses absolutely to act as requested BUT is nevertheless overcome by force or intimidation to such an extent that he becomes a mere automaton and acts mechanically only > BECAUSE of the Disappearance of the personality of the actor ~ ceases to exist as an independent entity with faculties and judgment, and in his place is substituted another — the one exercising the force or making use of the intimidation > HENCE, there is only one party to the contract >> FORCE that has compelled conduct against the will of the actor must be present, immediate and continuous and threaten grave danger to his person during all of the time the act is being committed > JJ: Threat to sue not simply legal or just but enforceability ~ not just claim but the ability to enforce the claim G.R. No. L-9421 July 24, 1915 L.L. HILL v. MAXIMINA CH. VELOSO, ET AL. Facts: A promissory note was executed by Maximina and Franco in favour of Michael & Co. for a sale of goods delivered to the company of Maximina. However, Maximina refused to honour the debt because she alleged that she signed it on the premise that, according to Franco, it was for a debt she owed Damasa, widow of her brother and not to Michael & Co. to whom she owed nothing. The note remains valid, however, because the defense of fraud that Franco allegedly employed against her cannot prosper where fraud must have been employed by the other contracting party inducing the other. Franco is not the other contracting party and in fact, constitutes one single contracting party with Maximina. Absent proof that Michael & Co. threatened to sue Maximina and/or that Levering, guardian of Damasa’s children, required her to issue the note in Michael & Co’s favor, fraud is not present. > Promissory Note (December 30, 1910), worth P6,319.33, by Maximina Veloso (with consent of husband Manuel M. Tio Cuana) and Domingo Franco in favour of Michael & Co., S. en C. (for payment of goods sold and delivered to Maximina’s La Cooperativa Filipina) ~ to pay, jointly and severally, P500/m with interest/m > Indorsed (January 12, 1911) or made payable to L.L. Hill by Michael & Co. > Payment of P2k > SUIT (July 5, 1911) by Hill against Maximina and husband Manuel for Recovery of remaining P4,319.33, with 1.5% interest from July 1, 1911 until payment, plus P473.18 interest from December 30 to June 30, 1911 ~ Franco had already died (May 1911)

> CONTENTIONS of Maximina: Promissory Note was allegedly obtained by means of fraud, where she was made to sign it on the premise that it was for a debt of P8k she owed to Damasa Ricablanca, her sister-in-law, mother and former guardian of the children of her brother Potenciano Chiong Veloso, but was actually made out to Michael & Co. to which they owe nothing (a) that son-in-law Franco had her sign a blank document pursuant to the demand of Martin M. Levering, new guardian of the children, that she should pay Levering, in his capacity of guardian of said minors, the sum of P8k which the Sps. had kept in trust for the children of Damasa; (b) that because Franco was a member of their family, they were willing to execute the document BUT the paper that he had them sign was filled out with a totally different obligation from that which they had been made to believe would be set forth therein; (c) that only after Franco’s death did they discover that he never delivered the document to Levering; (d) that they had not received any kind of goods from Michael & Co. and had never intended to execute any promissory note in its favour > No Fraud > Signature is Valid > Note is Binding and Effective > NO FRAUD (1) No proof of mistake in signing the document ~ (a) admitted that she signed the note for her actual debt to Damasa but it was in blank; (b) contradicted herself when she admitted her debt to the children in the Suit by Hill but denied the same in the Suit by Levering (November 1, 1911) wherein Levering sought recovery of P8k but she contended that she owed Damasa herself and not her children (2) No proof of fraud or deceit allegedly employed by Franco (3) But even if such deceit or error was present, it could not have annulled the consent BECAUSE it must have been caused by one of the contracting parties against the other who is induced ~ Franco is not the other active contracting party who could have induced the passive party of Maximina ~ Both Maximina and Franco were the passive subjects and are but one single contracting party ~ Deceit was by a third person (4) Deceit by a third person (Franco against Maximina) does not in general annul consent ~ Must have been in connivance with, or at least with the knowledge, without protest, of the favored contracting party ~ BECAUSE there is no reason for making one of the parties suffer for the consequences of the act of a third person in whom the other contracting party may have reposed an imprudent confidence > Right of Action is against the third person by the contracting party prejudiced, by Maximina against Franco (5) No proof that Michael & Co. threatened to bring suit against Franco unless Maximina signed the promissory note 35

(6) No proof that Levering required Maximina or Franco to issue the promissory note (7) No doctrine that no right can be acquired by a person who obtains a promissory note by indorsement ~ Cited cases dealt with promissory notes issued for a sum of money but lost at a prohibited game (8) Debt to Michael & Co. is not yet due and demandable at the time of indorsement ~ Payment of the first amount of P500 of the principal had not yet arrived *hence, credit can be indorsed (9) Maximina benefited from Michael & Co. because it La Cooperativa Filipina (whose license was issued in the name of Maximina) received the goods delivered ~ Franco had no share/interest in the Company ~ No proof that the sale was to Franco only (10) No reason for Franco to sign the promissory note in favour of the minors he did not owe anything to (11) No reason why husband Manuel did not have to sign the instrument except merely to authorize his wife > HENCE, Sps. must pay principal remainder of P4,319.33, with 1.5% interest from July 1, 1911 until payment BUT NOT P473.18 interest on the principal because receipt from the creditor for the principal that contains no stipulation regarding interest extinguishes the obligation of the debtor with regard thereto > KINDS OF FRAUD Performance of obligation ~ Claim for damages Vitiate consent No contract at all Notebook: WOODHOUSE v. HALILI GERALDEZ v. CA

G.R. No. 90270 July 24, 1992 ARMANDO V. SIERRA v. HON. COURT OF APPEALS, EPIFANIA EBARLE, SOL AND ELE EBARLE Facts: Ebarles issued two promissory notes in favour of Sierra for a loan granted by the latter for the former’s cattle business. While Ebarles contend that the amounts therein were false, where they owe only P20k and not P85k and P54550k, and they signed it merely on the assurance that it was just for formality where they can just ignore the suit against them and be declared in

default, the notes are binding. There is no duress, fear or undue influence employed for them to sign it. They are educated persons with business experience. Absent proof to of vitiated consent, the notes remain valid and effective. > Notarized Promissory Notes (September 8, 1984) executed by EPIFANIA EBARLE and daughters SOL EBARLE and ELE EBARLE in favour of Armando V. Sierra ~ Worth P85k and P54,550 each, former signed in the morning, latter in the afternoon > Note for P85k due on October 8, 1984, for value received worth P85k, paid at Sierra’s residence, includes expenses for collection and 12% interest/y in case of default > SUIT (November 2, 1984) for Recovery of Sum of Money by Sierra pursuant to Note of P85k > CONTENTION of Ebarles: Note was executed under duress, fear and undue influence (a) that Epifania’s debt was only P20k which Sierra loaned for the former’s logging and cattle business ~ to fatten the cattles and impress the Land Bank with whom they applied for a loan but which was denied (b) that they hesitated to sign the documents but did it anyway upon Sierra’s assurance that the documents were a mere formality that he had to show his business partner, who was demanding its immediate payment (c) that they were told by Sierra to simply ignore the complaint if one should be filed against them for recovery so that they would be declared in default and then a new agreement would be concluded for the correct amount of the loan and with easier terms of payment (d) that they have not received the amount (beyond P20k) and it was unlikely that Sierra would keep such large amounts of cash in his house > No duress, fear or undue influence (a) Ebarles were educated persons accustomed to business affairs and legal transactions ~ own and operate a hacienda; Epifania is an English professor for 25y at Silliman Univ; Sol holds a degree in commerce; Ele holds a degree in agriculture > HENCE, they fully understood the import and consequences of what they were doing (b) Note was written in plain English and consisted of only two short paragraphs ~ No fine print or Whereas clauses ~ Merely a simple promise to pay, for value received, the amount indicated, not later than October 8, 1984, at his residence and to assume all litigation expenses, with 12% interest, in case of default (c) Questionable that all three signed the Notes which amount was seven times beyond (P139,550) what they owed (P20k), on the same day, without reservation ~ Reaction should have been an irate refusal and demand for the correction of the notes ~ Alleged uneasiness or reluctance is belied by the fact 36

that not one of them voiced his or her apprehensions and made efforts to be dissuade the others from signing (d) Sol Ebarle admitted that no harassment or threat in any form was employed by Sierra upon any of them (e) Existence of two promissory notes signed on the same day is not spurious because it indicates the acknowledgement of two loans (P85k and P54550), as opposed to one (P20k) which could have been made in only one note (f) Notarization of the notes without Ebarles’ presence is immaterial because notarization is not necessary for the validity of the notes (g) No evidence of the P20k loan ~ Sierra, as a businessman having no special relationship with the Ebarles, would have required a written acknowledgment of that loan (h) Source of the money (WON it came from Sierra’s house – wherein he operates his own vineyard as well as his father's hacienda, besides dealing in the sale of cars and real estate – or from the bank) is Immaterial to the Validity of the Notes signed, expressly and categorically acknowledged that they received the specific amounts indicated therein >> Undue influence ~ any means employed upon a party which, under the circumstances, he could not well resist, and which controlled his volition and induced him to give his consent to the contract, which otherwise he would not have entered into ~ it must destroy the free agency of a party and interfere with the exercise of that independent discretion which is necessary for determining the advantage or disadvantage of a proposed contract ~ inherent is moral coercion, effected through threats, expressed or implied, or through harassing tactics >> Fraud ~ misrepresentation must be serious; sufficient to impress, or to lead an ordinarily prudent person into error; established by full, clear, and convincing evidence, and not merely by a preponderance thereof; >> Notarial Document as Prima Facie Evidence of Facts therein ~ A notarial document, guaranteed by public attestation in accordance with the law, must be sustained in full force and effect so long as he who impugns it does not present strong, complete, and conclusive proof of its falsity or nullity on accounts of some flaw or defect provided against by law >> Promissory note > a genuine document, acknowledging a loan duly received and promising to pay the same on the date indicated, in accordance with the conditions therein set forth ~ a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender ~ A person who signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he affixes thereto as a token of his good faith

>> Presumption of Validity of a Written Agreement ~ when the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and, therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing ~ Challenged only where there is a mistake or imperfection of the writing, or failure to express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings ~ BUT evidence must be clear and convincing and of such sufficient credibility as to overturn the written agreement G.R. No. L-20659 November 3, 1923 MARIANO S. TUASON v. CRISANTO MARQUEZ Facts: Tuason purchased a plant from Crisanto after the latter’s franchise to operate it had already expired, without communicating the same to the former. This non-disclosure, however, is insufficient to rescind the sale because the franchise was not the determining cause of the purchase and its status could have been easily verified by either party thru the Public Utility Commissioner. > Grant of Franchise (1913 or 1914) for 35y to Lucena Electric Company whose rights passed to Crisanto Marquez (at a sheriff's sale September 10, 1919), owner of an electric light plant > Cancellation of the Franchise (March 29, 1921) by the Public Utility Commissioner after Crisanto communicated (February 28, 1921) his intention to give it up > Contract of Sale (March 5, 1921) between Crisanto and Mariano S. Tuason over the former’s electric light plant despite the cancellation of the franchise ~ Purchase price of P14,400 (1st instalment of P2,400 already paid; balance of P12k within 1y) > Possession by Tuason and Management by the Consolidated Electric Company (March 20, 1921 - July 19, 1922) pursuant to a special license which was to continue until they obtained a new franchise which they acquired but which stipulated conditions amounting to a renovation of the entire plant > Sale (July 19, 1922) under execution by reason of a judgment in the case of Levy Hermanos vs. The Philippine Electric Light Company ~ Sold to Gregorio Marquez, brother of Crisanto, for P5,501.57 > SUIT by Tuason against Crisanto for a rescission of the contract and payment of P37,400 > RTC Upheld validity of Contract and demanded payment of P12k still due from the purchase price

37

> CONTENTION of Tuason: Concealment of the fact that the franchise had already been lost by Crisanto when he sold the plant to him > VALID CONTRACT: Innocent non-disclosure of a fact (cancellation of franchise) does not effect the formation of the contract or operate to discharge the parties from their agreement (1) Franchise was not the determining cause of the purchase ~ contract merely renewed a previous inventory of the property when it mentioned the property of the electric light company; (2) Franchise was then in force (by virtue of a special license) and either party could easily have ascertained its status by applying at the office of the Public Utility Commissioner (3) No proof of fraud on the part of Crisanto (4) Tuason is estopped by laches ~ Operated the plant for 16m without question and even made the first payment without protest ~ Suit only after the venture had proved disastrous >> Estoppel by laches > Inexcusable delay in asserting a right and acquiescene in existing conditions are a bar to legal action G.R. No. 110672 September 14, 1999 RURAL BANK OF STA. MARIA, PANGASINAN v. THE HONORABLE COURT OF APPEALS, ROSARIO R. RAYANDAYAN, CARMEN R. ARCEÑO G.R. No. 111201 September 14, 1999 ROSARIO R. RAYANDAYAN and CARMEN R. ARCEÑO v. COURT OF APPEALS, HALSEMA INC. and RURAL BANK OF STA. MARIA, PANGASINAN, INC. Facts: Because Manuel has become delinquent on his debts, he sold his property, which was then mortgaged to Bank, to Rosario and Carmen with Assumption of Mortgage. It was not until later when Rosario and Carmen communicated the Assumption to Bank who agreed to honor the Assumption allegedly due to the financial capacity of Rosario and Carmen. But because Rosario and Carmen did not disclose the Second Agreement they entered into with Manuel which stipulated the higher purchase price for the property, the Bank denied the validity of its MOA with Rosario and Carmen. However, there was no fraud when the real purchase price was concealed because (1) the purchase price was not the determining cause for the Bank to enter into the MOA but to effect the payment of Manuel’s debt; (2) the non-disclosure could not have prejudiced the security of the Bank because the property was kept as a

security in case of default in the assignment of mortgage; (3) Rosario and Carmen were not duty-bound to disclose such fact; and (4) Bank had other means of determining the financial capacity of Rosario and Carmen. > Extrajudicial Settlement with Simultaneous Sale of Inheritance (September 28, 1978) among the children of Behis where the siblings sold the subject parcel of land to their brother Manuel Behis but only to facilitate transactions over the land (pursuant to Confirmation of Rights of Co-Ownership over real Property on September 26, 1983 where they clarified that all siblings are still co-owners) > Real Estate Mortgage (October 23, 1978) between Manuel together with his wife Cristina, and the Rural Bank of Sta. Maria, Pangasinan over the subject parcel of land as security for the six promissory notes and trust receipts worth P156,750 granted in his favour under the Supervised Credit Program of the Bank ~ Annotated in the title (February 13, 1979) > Delinquency of Manuel > Deed of Absolute Sale with Assumption of Mortgage and Another Agreement (January 9, 1985) between Manuel and Rosario R. Rayandayan and Carmen R. Arceño where Manuel sold the subject property for P250k in the 1st document BUT the real consideration of P2.4M was accepted by Rosario and Carmen by indebting themselves to pay the same in the 2nd agreement ~ Not registered to the Register of Deeds, not annotated in the Title, not communicated to the Bank; no request for new TCTs ~ Payment made by Rosario and Carmen amounting to P10k + P50k + P145,800 + P21,353.75 ~ Non-completion of full payment due to Manuel’s death (June 21, 1985) > Memorandum of Agreement (August 1, 1985) between Bank and Rosario and Carmen AFTER Bank initiated foreclosure proceedings due to the continued delinquency of Manuel in the Bank (accumulating from P156,750 to P316,368.13 according to a Statement of Account on May 30, 1985) and AFTER Rosario and Carmen presented to it the Deed of Absolute Sale with Assumption of Mortgage (but not the Other Agreement) > Bank accepted Rosario and Carmen’s offer to redeem the real property for the amount of P343,782.22, which was Manuel’s total debt, and promised to release the mortgage of Manuel, execute a new mortgage with Rosario and Carmen and transfer the title to them ~ MOA not annotated to the TCT > Accumulated Payment of P106k by Rosario and Carmen > Demand (January 7, 1986) by Rosario and Carment for the release of the mortgage, transfer of title, and execution of a new mortgage for the balance of P20k, as agreed upon ~ Not Granted due to: > Letters (September 5, 1985, October 28, 1985, February 15, 1986) by Cristina to Bank alleging that the Real Estate Mortgage was without her genuine signature (forged) and Redemption of the Property was without her authorization ~ That Rosario and Carmen settle the matter with Cristina > Assignment of Mortgage (July 28, 1986) by Bank from Manuel (October 23, 1978 Mortgage and not the Assignment on January 9, 1985 by Rosario and 38

Carmen) to Teodoro Verzosa (Halsema, Inc.) where latter is to pay P520,765.45, the total indebtedness of Manuel ~ after the Bank considered the MOA with Rosario and Carmen to have been cancelled due to (a) concealment of the real consideration of P2.4M and hence, Bank’s consent was fraudulently obtained because it conceal the real capacity and financial standing of Rosario and Carmen, where the Bank would not have consented to the latter’s assumption of Manuel’s P343k debt when they still had the burden of paying a purchase price of P2.4M; (b) their non-update about and their failure to settle the objections of Cristina; (c) failure to comply with the payment schedule of the MOA ~ Bank refunded P143k to Rosario and Carmen > Foreclosure and Auction Sale by Halsema (September 2, 1986) > Registration and Annotation of Adverse Claims (September 3, 1986) by Rosario and Carmen after they told Halsema that the land foreclosed was also sold to them but could not do anything anymore > SUIT (September 5, 1986) by Rosario and Carmen against the Bank for fulfilment of MOA, Annulment of the Assignment of Mortgage and Damages (in favour of Halsema), Annotation of a Notice of lis pendens at the back of the title > NO FRAUD > MOA b/w Rosario and Carment and Bank is VALID (a) Consideration for the purchase of the land was NOT the determining cause for Bank to enter the MOA BUT it was To Effect the Payment of the Indebtedness of Manuel ~ Received the payments made even if late and Initial excuse for the nullity of the MOA was the forged signature and lack of consent of Cristin; (b) Non-disclosure of the purchase price could not have induced the Bank into giving its consent to the MOA Or could have made the Bank not give consent had it known the purchase price ~ Purchase price did not affect the security of the Bank because the property remained as security, in the MOA, for the payment of the indebtedness in case of default of payment ~ Bank even admits that no damages has been suffered by it; (c) Rosario and Carmen were not duty-bound to disclose the consideration for the sale, did not thus act in bad faith; (d) Bank had other means to verify the financial capacity of Rosario and Carmen >> Fraud > To vitiate a contract, must be those insidious words or machinations resorted to by one of the contracting parties to induce the other to enter into a contract which without them he would not have agreed to > must be the determining cause of the contract or must have caused the consent to be given >> Silence or Concealment, by itself, does not constitute fraud UNLESS required by law or according to good faith, or the usages of commerce >> ELEMENTS: (a) It was employed by a contracting party upon the other; (b) It

induced the other party to enter into the contract; (c) It was serious; and; (d) It resulted in damages and injury to the party seeking annulment >> Deceit > by means of concealing or omitting to state material facts, with intent to deceive, by reason of which omission or concealment the other party was induced to give a consent which he would not otherwise have given >> Presumption of Ordinary Care, Fairness and Regularity Taken by a person for his concerns and private transactions > Whosoever alleges fraud or mistake in any transaction must substantiate his allegation

G.R. No. L-29449 December 29, 1928 LEODEGARIO AZARRAGA v. MARIA GAY Facts: Leodegario sold two parcels of land to Maria. Maria subsequently refused to fulfil the sale, or at least, to complete payment of the agreed purchase price, because the 2nd land sold was actually smaller than that stipulated in the contract. But because she had opportunity to check the actual quality of the land and Leodegario did not prevent her from investigating it, she cannot claim that she had been defrauded. > Contract of Sale (January 17, 1921) between Leodegario Azarraga and Maria Gay where former sold two parcels of land (102 and 98 hectares each) to latter for the lump sum of P47k, payable in instalments > Payment of P25k according to schedule but failure to pay P10k and P12k despite issuance of the Torrens title of the 2nd parcel as agreed upon > SUIT by Leodegario for payment of P22k > CONTENTION of Maria: Admitted the sale but alleged that Leodegario defrauded/induced/deceived her when he represented in the Contract that the 2nd parcel was 98 hectares but it was just actually 60 hectares according to the Title ~ HENCE, she is entitled to a reduction in the price worth P38k; that she also paid other sums amounting to P4k and she never refused payment but it was Leodegario who refused to receive it > CONTENTION of Leodegario: that the contract of sale in question was made only for the lump sum of P47k and not at the rate of so much per hectare > NO FRAUD > Maria had the opportunity to know the facts before the execution of the sale (a) Maria went over to the property and made her own calculations as to the area of the 2 parcels (b) Leodegario delivered to her the documents covering the land he was trying to sell ~ On September 30, 1920, the Deed by which he acquired the land from the original owner in which it appears that the area of the second parcel is about 70 hectares 39

(c) Maria did not complain of the difference in the area of said second parcel until 1926: (i) On June 1924, Copy of the plans of the two parcels, wherein appear their respective areas; (ii) From 1921-1925, Letters by Maria to Leodegario where she acknowledges her debt but confining herself to petitioning for extensions of time for payment (d) Maria had her attorney draw the Deed of Sale, based on the Deed of Leodegario which he gave to her ~ Despite mistake in hectares, Leodegario signed it because he did not pay any attention to the area of the second parcel anymore with the belief that the area of the land stipulated had been taken from his Deed (e) No evidence that Leodegario misrepresented the size of the property BUT EVEN IF HE DID, Maria accepted such representations at her own risk and she is the only one responsible for the consequences of her inexcusable credulousness (f) No evidence that Leodegario prevented her from investigating the property > No right to claim the shortage in area of the second property > WHY: No legal basis > ART. 1471 DOES NOT APPLY: In case of the sale of real estate for a lump sum and not at the rate of a specified price for each unit of measure, there shall be no increase or decrease of the price even if the area be found to be more or less than that stated in the contract. The same rule shall apply when two or more estates are sold for a single price; but, if in addition to a statement of the boundaries, which is indispensable in every conveyance of real estate, the area of the estate should be designated in the contract, the vendor shall be obliged to deliver all that is included with such boundaries, even should it exceed the area specified in the contract; and, should he not be able to do so, he shall suffer a reduction of the price in proportion to what is lacking of the area, unless the contract be annulled by reason of the vendee's refusal to accept anything other than that which was stipulated. ~ 2nd parcel, in its entirety, had already been delivered to Maria >> Songco v. Sellner: Exceedingly risky to accept seller's statements or dealer's talk at its face value > assertions concerning the property which is the subject of a contract of sale, or in regard to its qualities and characteristics, are the usual and ordinary means used by sellers to obtain a high price ~ He who relies upon such an affirmation made by a person whose interest might so readily prompt him to exaggerate the value of his property does so at his peril, and must take the consequences of his own imprudence > HENCE, Misrepresentation by a vendor of real property with reference to its area are not actionable, where a correct description of the property was given in the deed and recorded chain of

title, which the purchaser's agent undertook to investigate and report upon, and the vendor made on effort to prevent a full investigation ~ One who contracts for the purchase of real estate in reliance on the representations and statements of the vendor as to its character and value, but after he has visited and examined it for himself, and has had the means and opportunity of verifying such statements, cannot avoid the contract on the ground that they were false or exaggerated >> Sale of Determinate Objects: Sale is for a lump sum with its consideration an object sold independently of its number or measure, the thing as determined by the stipulated boundaries > The price is determined in relation to the determinate object, and not the number of units it contains ~ greater or lesser area cannot influence the increase or decrease of the price agreed upon > Sale is either of a single realty or when it is two or more so long as they are sold for a single price constituting a lump sum and not for a specified amount per unit of measure or number > HENCE, no increase or decrease in price, no matter whether the area be more or less than that given in the contract AS LONG AS everything included within the boundaries is delivered ~ WHY: there is, strictly speaking, no excess of area with respect to the area appearing in the deed because it was not taken into account in entering into the contract inasmuch as the parties made neither the amount of the price, nor the efficacy of the contract to depend on the number of its units > WHAT THE LAW MEANS BY INABILITY TO DELIVER: When the property contains a part, a building, a valley, various pieces of land, a glen, etc., which are not his BECAUSE THEN he cannot deliver a determinate object ~ Remedy of Annulment or Price Reduction applies

G.R. No. L-65922 December 3, 1991 LAURETA TRINIDAD v. INTERMEDIATE APPELLATE COURT and VICENTE J. FRANCISCO Facts: Laureta purchased Vicente’s house and lot in Commonwealth. Due to repeated flooding, she refused to continue to pay the purchase price and sought the annulment of the sale. She alleged to have been fraudulently induced by Vicente who assured her that no flooding can ever happen again because the house had been fixed. However, such assurance does not constitute fraud because Laureta had the opportunity to inspect the property, which she did, before she purchased it. Her acceptance of Vicente’s assurances was a risk assumed by her in taking it in face value. But the forfeiture of her payment in favor of Vicente is not warranted because Laureta did not default in payment but merely refused to pay upon the belief of her right. Hence, it is only just and equitable to let her retain the property upon completion of the purchase price. 40

> Contract of Conditional Sale (August 8, 1969) between Vicente J. Francisco and Laureta Trinidad where the latter offered to buy the former’s house and lot in Commonwealth Village and the former agreed to sell it for P70k ~ AFTER Initial agreement on 1969; Inspection by Laureta of the property; Examination of the Vicinity Map indicating the drainage canals; Partial Payment and Possession of the property by Laureta (March 29, 1969) > Refusal of Laureta to continue payment DUE TO flooding of the property up to 5ft. high (July 18, 21, 30, 1972) despite Vicente’s assurance that he had fixed everything and the house would never be flooded again > Letter (October 11, 1972) to the City Engineer's office which inspected the premises and found that the cause of the flooding was the location of the premises in a low and narrowed portion of a creek > SUIT (January 10, 1973) by Laureta for annulment of the Contract and Refund of her payment > CONTENTION of Laureta: She was induced by Vicente to enter into the contract because of his misrepresentations that the property would not be flooded > CONTENTION of Vicente: (i) that Laureta thoroughly inspected the property before she bought it; (ii) that floods were common in the area; (iii) that floods were fortuitous events that cannot be imputed to him; COUNTERCLAIM of rescission of the contract and forfeiture of her payment pursuant to Contract Stipulation that “should the SECOND PARTY fail to make any of the payments, [the contract] shall be considered automatically rescinded and cancelled without the necessity of notice to the SECOND PARTY, or of any judicial declaration to that effect, and any and all sums paid by the SECOND PARTY shall be considered rents and liquidated damages for the breach of this contract, and the SECOND PARTY shall forthwith vacate the foresaid property peacefully” > Death of Vicente pending appeal > Not an illegal transaction vitiated by fraud but merely a bad bargain > NO FRAUD ON THE PART OF VICENTE: (1) It was Laureta who approached Vicente who never advertised the property nor offered it for sale; (2) Laureta had full opportunity to inspect the premises; (3) She inspected the property not with the untrained eye of the ordinary prospective buyer but with the experience and even expertise of the licensed real estate broker that she was; (4) She herself negligently minimized the presence of the drainage canals; (5) She was forewarned of the possibility of flooding by the depression of the lot and presence of the drainage lot; (6) No evidence of her claim that two buyers had previously vacated the property because it was subject to flooding; (7) She continued to pay without objection until 1971 despite her claim that there had been flooding since 1969; > But, people also pay despite dissatisfaction because they don’t know the law and fear that they might breach contract and lose their right and hence, pay anyway

(8) She still made annexes and decorations of permanent nature upon the premises notwithstanding the floods > RISKS ASSUMED BY LAURETA > In purchasing the property upon the assurances of Vicente, she is deemed to have accepted them at her own risk and must therefore be responsible for the consequences of her careless credulousness > SC HELD: Laureta retains the property but must pay the remainder of the purchase price, P52,500 of P70k > Not Annulment of Contract but Fulfillment for purposes of Justice and Equity: Laureta not in default as to warrant the annulment and forfeiture of her payment where she was not simply unable to pay but refused to do so upon the conviction that she was justified in doing so in view of the defects she found in the property ~ Merely standing up to what she considered her right ~ She was the one who sued Vicente and first argued that the seller was not entitled to the additional installments because of his violation of the contract > BUT Court cannot always extricate a person from bad bargains, unwise investments, one-sided contracts, or foolish acts ~ Only if he has been defeated or overcome illegally, or where there has been a violation of law > Relevant Provisions ~ Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. ~ Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. ~ Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. >> Songco v. Sellner: Exceedingly risky to accept seller's statements or dealer's talk at its face value > assertions concerning the property which is the subject of a contract of sale, or in regard to its qualities and characteristics, are the usual and ordinary means used by sellers to obtain a high price ~ He who relies upon such an affirmation made by a person whose interest might so readily prompt him to exaggerate the value of his property does so at his peril, and must take the consequences of his own imprudence > HENCE, Misrepresentation by a vendor of real property with reference to its area are not actionable, where a correct description of the property was given in the deed and recorded chain of title, which the purchaser's agent undertook to investigate and report upon, and the vendor made on effort to prevent a full investigation ~ One who contracts for the purchase of real estate in reliance on the representations and statements of the vendor as to its character and value, but after he has visited and examined it 41

for himself, and has had the means and opportunity of verifying such statements, cannot avoid the contract on the ground that they were false or exaggerated >> Presumption of Ordinary Care, Fairness and Regularity Taken by a person for his concerns and private transactions > Whosoever alleges fraud or mistake in any transaction must substantiate his allegation G.R. No. L-11513 December 4, 1917 LAMBERTO SONGCO v. GEORGE C. SELLNER Facts: Sellner bought the sugar canes of Songco in order to mix his own canes to the latter’s to have it processed at the central which refused his canes. Songco estimated his sugarcanes to produce 3k piculs but was only able to harvest 2,107 piculs. Sellner thus refused to pay the purchase price due to this alleged misrepresentation. However, the misrepresentation of Songco is not sufficient for fraud because fraud must have been related to a material interest of the buyer and not to mere matters of opinion. > Sale (December 1915) between George C. Sellner and Lamberto Songco where the former bought the latter’s sugarcane, intending to have it milled at the sugar central, together with his own sugarcanes which the central refused to process ~ Consideration of P12k for the estimated 3k piculs of sugar on Songco’s 96.5 hectare farm > Refusal by Sellner to issue the third and last promissory note (last of 3 installments of P4k) > SUIT by Songco for Payment of P4k > CONTENTION of Sellner: Sale / Promissory notes were obtained by means of certain false and fraudulent representations regarding the quantity of uncut cane standing in the fields of Songco ~ that Songco estimated his canes to produce 3,000 piculs of the sugar but only produced 2,017 piculs ~ that despite Sellner’s request to guarantee the quantity which the latter claimed to be in fields, he would not do so > NO FRAUD > EVEN IF Songco exaggerated about his produce where he knew what these same fields had been producing over a long period of years and that the harvest of this year should fall far below the amount stated BECAUSE misinterpretation upon a mere matter of opinion is not an actionable deceit, nor is it a sufficient ground for avoiding a contract as fraudulent > NOT EVERY FALSE REPRESENTATION relating to the subject matter of a contract will render it void ~ Fraud must relate to matters of fact substantially affecting the buyer's interest, not as to matters of opinion, judgment, probability, or expectation

> NOT FRAUD: (1) Seller's statements, or dealer's talk; assertions by the seller concerning the property which is the subject of a contract of sale, or in regard to its qualities and characteristics ~ usual and ordinary means used by sellers to obtain a high price ~ HENCE exceedingly risky to accept it at its face value > A man who relies upon such an affirmation made by a person whose interest might so readily prompt him to exaggerate the value of his property does so at his peril, and must take the consequences of his own imprudence; (2) When the purchaser undertakes to make an investigation of his own, and the seller does nothing to prevent this investigation from being as full as he chooses to make it, the purchaser cannot afterwards allege that the seller made misrepresentations > ONLY WHEN one party to a contract, having special or expert knowledge, takes advantage of the ignorance of another to impose upon him, the false representation may afford ground for relief, though otherwise the injured party would be bound > No action for damages > Songco sued Sellner for disposing his property in fraud of his creditors > Claim refuted by showing that Sellner is a man of large resources and had not attempted to convey away his property as alleged G.R. No. 11872 December 1, 1917 DOMINGO MERCADO and JOSEFA MERCADO v. JOSE ESPIRITU, administrator of the estate of the deceased Luis Espiritu Facts: When Luis Espiritu died, his four children inherited his 84-hectare property, divided accordingly: Victoria and Ines with around 20-hectares each; Luis and Margarita with 24 hectares each. On May 25, 1984, Margarita sold part of her 24-hectare property to her brother Luis for P2k. On May 14, 1901, Wenceslao (husband of Margarita who had died already), as administrator of his children’s property which they inherited from their mother, sold the remaining property to Luis for P375. He also borrowed money from Luis to meet the expenses of the maintenance of his children. All in all, Luis gave him P600. On May 17, 1910, Domingo (allegedly 19) and Josefa (18), children of Margarita, claimed to be of legal age before a notary and sold to their uncle Luis the property which their mother and father had previously sold Luis for an additional amount of :400, which sale was now absolute and in perpetuity. However, on April 9, 1913, Domingo and Josefa sought the recovery of the property and annulment of the sale, alleging that it was executed by means of fraud and that they were still minors at the time of its execution. Issue/s: WON Contract of Sale by minors is valid 42

Held: NO in general, EXCEPT if there were no deceit or fraud on the part of the other party in the execution of the contract Apart from the issue of the real minority of Domingo and Josefa during the execution of the contract because their age were not proven, minors who enter into a sale of real estate, pretending to be of legal age when in fact they are not, cannot excuse themselves from the fulfilment of the obligations contracted by claiming their minority. The contract is and remains valid and its annulment cannot be sought by the deceitful minors who had wilfully and voluntarily but fraudulently acted on their own behalf. G.R. No. L-12471 April 13, 1959 ROSARIO L. DE BRAGANZA, ET AL. v. FERNANDO F. DE VILLA ABRILLE Facts: On October 30, 1944, Rosario de Braganza wrote a promise, signed by her sons Rodolfo (16) and Guillermo (18) to Fernando de Villa Abrille that they would pay him P10k plus interests in consideration of a loan granted by Abrille worth P70k. When they failed to pay, Abrille sued them but the sons contended that they were just minors at the time of the promise’s making. Issue/s: WON Non-statement of age constitutes fraud on the part of the minor Held: No Non-appraisal of their age in the promissory note did not constitute a fraudulent act of pretending to be of legal age when in fact they were not. The fraud/misrepresentation must be actual and active. Mere silence or failure of the minor to disclose his age is not sufficient to be the basis of an actual deceit. However, since the minors benefited from the loan, they are liable to return such amount.

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G.R. No. L-23002 July 31, 1967 CONCEPCION FELIX VDA. DE RODRIGUEZ v. GERONIMO RODRIGUEZ., ET AL. Facts: Concepcion conveyed her fishponds to her daughter, who conveyed the same back to her mother and her new husband, Domingo, thereby making it their conjugal property. When her husband died, Concepcion divided the fishponds with Domingo’s children and grandchildren but had a usufruct and leased their share of the property. She eventually refused to pay them the balance of the earnings of the fishponds, claiming that the conveyances are void for being obtained thru force and for being simulated and for lacking consideration. However, the claim of simulation is untenable because Concepcion and her daughter really intended the fishponds to become cp by circumventing the prohibition on donations between spouses. Hence, there could not have been a simulation when the parties intended the contract to be operative and effective. Although the circumvention of the law is a ground for nullity of the conveyances, she still cannot recover the fishponds because she is a guilty party. Violence cannot also be appreciated due to lack of evidence and prescription, where she waited 28y to file a complaint after the conveyances had been made. The Deeds also have a consideration, and hence, are valid.

> Deeds of Transfer of Ownership of Two Fishponds, Property of Concepcion Felix Vda. de Rodriguez (1) Thru a Deed of Sale (January 24, 1934), from Concepcion Felix to her daughter Concepcion Calderon, for P2500 ~ Notarized and Registered (2) Thru a Deed of Conveyance (January 27, 1934), from Calderon back to her mother Concepcion with 2nd husband Domingo Rodriguez ~ Notarized, Registered, Issued new TCTs in Sps’ names ~ Fishponds became Conjugal Property > Extrajudicial Settlement (March 16, 1953) of the Intestate Estate of Domingo (who died March 6, 1953) ~ Fishponds listed and agreed as CP and divided among Concepcion, on one hand, and Domingo’s children/grandchildren, on the other hand > SPA (March 23, 1953) by Domingo’s children/grandchildren in favour of Concepcion as atty-in-fact to manage their shares in the fishponds ~ terminated by virtue of > Deed of Partition (July 2, 1954), segregating the latter’s respective shares in the fishponds > Grant of Usufruct (October 12, 1954) to Concepcion over their respective shares in the fishponds > Contract of Lease (December 15, 1961) over their shares in favor of Concepcion for 5y > Failure to Deliver the Balance of the Earnings of their Fishponds, worth P3k, by Concepcion > Demand-Letter (May 16, 1962) by Children/Grandchildren to Concepcion > SUIT (May 28, 1962) by Concepcion for declaration of nullity of Deeds of Sale and Conveyance and recovery of property > CONTENTIONS of Concepcion: Deeds of transfer are inexistent/void because (1) fictitious and simulated; (2) without consideration; (3) obtained thru duress

> No violence or intimidation (a) Biased testimony of daughter Calderon which was contradicted by Bartolome Gualberto who had lived with the Rodriguez spouses; (b) Improbability of Rodriguez threatening his stepdaughter in front of the Notary Public who ratified her signature; (c) Death of Rodriguez when the suit was brought ~ No more opportunity to defend himself; (d) Prescription for rescission since consent vitiated by duress must be brought within 4y ~ Lapse of 28y from Deed of Conveyance to Suit > Not simulated or fictitious (a) Intention to really convey the property, to have it legally effected and operative, from paraphernal to conjugal ~ Done thru Sale and then Conveyance in order to evade the prohibition of donations between Sps ~ Concepcion could not intend to keep the ownership of the fishponds and at the same time vest half of them in her husband (b) Circumvention of the legal prohibition against donations would have invalidated the conveyances for having an illegal causa/prestation/subject matter > BUT due to guilt of both parties, there can be no recovery by either one (pursuant to 1305 and 1306) > No lack of consideration (a) Price of P2500 for the Sale to Calderon recited in the Deed itself ~ Buyer Calderon became obligated to pay a definite price of money ~ Even if not paid, sale is still existent (b) Price of P3k in the Lease to Concepcion; (c) Assuming it lacked consideration, legal effect is only voidable that can be ratified ~ Concepcion’s ratification or confirmation in her execution (with the other heirs) of the extrajudicial settlement of estate Simulation >> Simulation ~ the fact that the apparent contract is not really desired or intended to produce legal effects or in way alter the juridical situation of the parties ~ Party does not really intend to divest himself of his title and control of the property and hence, the deed of transfer is but a sham >> Simulated transactions versus Transactions in fraudem legis Consideration >> Cause ~ prestation or promise of a thing or service by the other in onerous contracts (Article 1274, Old CC) ~ Subject matter of the contract > In contract of sale, buyer’s obligation to pay a definite price in money constitutes the actual causa or consideration for the object sold > Consideration (causa) need not pass 44

from one (party) to the other at the time the contract is entered into ~ ie, payment need not be made right there and then

Letter, withdrawn Petition for the surrender of the title, and Notice of Adverse Claim on the property

G.R. No. 114950 December 19, 1995 RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR., APOLINARIO, RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA LOURDES, all surnamed SUNTAY v. THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY

> CONTRACT OF SALE WAS A SIMULATION > Mere accommodation agreement ~ Executed without any consideration > Void and Not susceptible of Ratification ~ No legal effects (1) 2 Deeds were executed closely one after the other, both involving the transfer and re-transfer of the same property at exactly the same price > Agreement for repurchase just three months later is consistent with Simulation (2) Federico and Rafael had an existing close relationship as uncle and nephew > Complete and mutual trust and business and professional interdependence between them where Rafael signed the Counter-Deed even without prior payment by Federico of the alleged purchase price of P20k and Federico blindly singed and executed the Deed of Sale > Practice in the typical Filipino family where the patriarch, with the capital and business standing, takes into his fold the young, upcoming, inexperienced but brilliant and brashly ambitious son, nephew or godchild who, in turn, becomes to his father, uncle, or godparent, the jack of all trades, trouble shooter and most trusted liaison officer cum adviser > He wittingly serves his patron without the security of a formal contract and without clarifying the matter of compensation > Fraud is generally accompanied by trust (3) The value and location of the property purportedly sold was grossly inadequate for the consideration of a measly P20k > Alleged dacion en pago for Rafael’s atty’s fees was raised onlyin 1976 when he testified on direct examination > Even testified that no accounting was undertaken between uncleclient and nephew-lawyer in order to arrive at the definite amount of the alleged unpaid attorney's fees; (4) Federico remained in physical possession, enjoyment and use of the property through the years and up to the present > Rafael did not even include the property in his statement of assets and liabilities nor paid the taxes nor collected any rents from Federico > Federico retained exclusive possession of the property, contrary to the principle of ownership; (5) No estoppel because the Demand-Letter, withdrawn Petition for the surrender of the title, and Notice of Adverse Claim on the property did not claim that Federico sold the property > Only alleged that Rafael resold to Federico the said property; (6) Delay of Federico in asserting his title (7y) was not questionable > There was no pressing reason for Federico to have a title in his name issued > only when Federico needed the title in order to obtain a collaterized loan that Federico began to attend to the task of obtaining a title in his name > ALSO, his title was not in the hands of a stranger or mere acquaintance but in the possession of his nephew who, being his lawyer, had served him faithfully for many years

Facts: There was a contract of Sale between Federico and Rafael whereby former allegedly sold his property to latter so that latter can obtain a loan agreement for former’s expansion of his rice mill. Title was transferred to Rafael although no payment had been made or demanded and Federico kept possession of the property without any claim of possession by Rafael. Although a Deed of Counter Sale was executed in favour of Federico over the property, Rafael denied its validity for not being notarized and claimed the validity of the Sale as genuine. Both Deeds were declared a simulation, however, because the intention to retain ownership with Federico was obvious in his continued possession of the property and in Rafael’s lack of claim of ownership. > Absolute Deed of Sale (May 19, 1962) between Federico Suntay (wealthy landowner) and his lawyer/nephew Rafael Suntay where former allegedly sold a parcel of land and all its improvements to the latter for P20k ~ Federico: that it was for the purpose of obtaining a loan from the National Rice and Corn Corporation as a miller-contractor, in the name of Rafael, because his own application was declined due to his existing unpaid loans ~ Notarized > Issuance of a New TCT in Rafael’s name > Continued Possession by Federico of the property > Counter Deed of Sale by Rafael, selling back the property to Federico also for P20k ~ Not notarized where the page number indicated does not refer to the same document in the notarial register > Letter Request (August 14, 1969) by Federico for the delivery of the TCT so that he could have the Counter Deed of Sale in his favor registered and use the property as collateral in securing a bank loan to finance the expansion of the rice mill and warehouse facilities > Rafael Denied > Suit by Federico for the surrender by Rafael of the TCT ~ Withdrawn due to Rafael’s claim that the Counter Sale was a counterfeit due to discrepancy in the notarization > SUIT (July 8, 1970) by Federico for reconveyance and damages > CONTENTIONS of Federico: Simulated contract of sale ~ (i) that he remained in possession of the property; (ii) that Rafael never exercised a single act of ownership; (iii) that Rafael never paid and he never demanded the payment P20k; (iv) that he paid all taxes > CONTENTION of Rafael: (i) Genuine sale of the property as dacion en pago in satisfaction of Federico’s unpaid atty’s fees; (ii) Estoppel against Federico in claiming the simulation of the Sale due to his judicial admissions of the sale in his Demand-

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> Even if Deed was notarized and hence prima facie evidence of its contents, the stated circumstanced rebutted the presumption > Intention of the parties still and always is the primary consideration in determining the true nature of a contract ~ It may always be shown that the transaction was understood by the parties not to have jural effect ~ not the intention nor the function of the notary public to validate and make binding an instrument never, in the first place, intended to have any binding legal effect upon the parties G.R. No. L-32437 August 31, 1982 SALANDANG PANGADIL et al. V. THE COURT OF FIRST INSTANCE OF COTABATO, BRANCH I, et al. Facts: The children of Pangadil executed a Document in favour of Kagui allegedly to formalize their father’s obligation to his in the form of a mortgage. The Document, however, is a Sale but it was not an absolute simulation that would have rendered it void. If any, the simulation consisted only in the assumption that it was a mortgage. The siblings recognize their obligation and bind themselves to the contract but only to the extent that they believed it to be a mortgage. Hence, it was not a contract wherein the parties do not intend to be bound at all which would thereby make it absolutely simulated and, therefore, void. Moreover, the siblings cannot claim that they did not know of the true nature of the contract because in two documents, private handwritten and petition for guardianship, they recognized and sought to formalize the verbal sale made by their father in favour of Kagui. Moreover, the annulment of a fraudulent contract had already prescribed (4y) when they sought its annulment only after 21y. > Sale (December 1941) between Pangadil Maslamama and Tandingan Kagui over the former’s parcel of land for P750 ~ (i) Oral Sale by Pangadil himself; (ii) Private Handwritten Document (August 3, 1944) signed by the chidren of Pangadil confirming the sale made by their father in favor of Kagui, witnessed by Datu Ugalingan Piang, a former congressman of Cotabato; (iii) Deed of Absolute Sale (February 10, 1947) by daughter Salandang Pangadil, applying (December 20, 1946) and acting as the guardian of her minor siblings in order to execute the necessary document to formalize the verbal sale executed by their father Pangadil ~ Deed approved by Court (May 19, 1947) > SUIT by Panagadil for Annulment of the Deed of Sale (January 7, 1969) > CONTENTION of Pangadil: that transaction was merely a mortgage and not a sale > CONTENTION of Kagui: that transaction was a sale and the action to annul the

sale was barred by the statute of limitations because it was filed more than 27y after its approval > Deed of Sale is VALID > Not Fictitious > Allegation that Kagui misled the siblings into affixing their thumbmarks to the Deed on the misrepresentation that it was merely to ratify an oral contract of mortgage entered into by their father in his favour is belied by the fact that the nature of the transaction as a sale was brought to their attention twice: (i) Handwritten Document confirming the sale made by their father in favour of Kagui; (ii) Petition for appointment of guardianship to enable her to formalize the same sale orally done by her father during his lifetime > NEVERTHELESS, misrepresentation of the sale as a mortgage is Not an absolute simulation of contract > Siblings recognized their obligation but merely contended that they thought it was to ratify a contract of oral mortgage, instead of an oral sale of land > Not a contract wherein the parties do not intend to be bound at all which would thereby make it absolutely simulated and, therefore, void > Not Contrary to Public Policy > Allegation that it deprived the minor brothers and sisters of Pangadil of their shares in the inheritance from their father cannot prosper BECAUSE the conveyance of the land had been effected by their father during his lifetime > Fraudulent Contracts ONLY VOIDABLE > Prescribes in 4y (Art. 1391) > Not void ab initio which is imprescriptible ~ does not fall upon the list in Art. 1409 > Sale made December 1941 but annulment filed only after 27y on January 7, 1969 ~ Inaction for such a considerable period of time reflects on the credibility of their pretense that they merely intended to confirm an oral mortgage, instead of a sale of the land in question >> Simulation of a contract > Either absolute or relative > absolute simulation when the parties do not intend to be bound at all ~ legal effect: void > relative if the parties merely conceal their true agreement ~ legal effect: binding upon the parties unless it prejudices a third person and is intended for a purpose contrary to law, morals, good customs, public order or public policy

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G.R. No. 89561 September 13, 1990 BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA and SANTIAGO M. RIVERA v. COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING CO., INC. Facts: Foreclosure of Castillo property by ICP due to alleged failure of Slobec to honor contract is void because said contract of surety has already expired. > Extrajudicial Partition of 4 Parcels of Land of Felipe Castillo by his heirs > New TCTs in the name of his wife Mauricia Meer Vda. de Castillo and their children > MOA between Santiago Rivera (P, Slobec Realty Corporation) and aunt Mauricia Castillo and children where Castillos would convert the property into a subdivision and Rivera who would pay them P70k + P400k in order to raise the funds needed to pay the Castillo’s loan and prevent the foreclosure of their other property > Sale of a Tractor by Bormaheco, Inc. to Slobec (dated November 25, 1970 but actually executed December 11, 1970) ~ Surety is Insurance Corporation of the Philippines; Guaranty of Surety are Rivera and Castillos by way of Chattel-Real Estate Mortgage (October 24, 1970) of the Castillo property in favour of ICP > Properties Foreclosed and Sold (September 28, 1973) by ICP to Philippine Machinery Parts Manufacturing Co., Inc. (April 10, 1975) due to violation of the terms and conditions of the Counter-Guaranty Agreement by Slobec > Letter-Demand (August 9, 1975) by Modesto N. Cervantes (former VP, now P, PM Parts) to Castillos for them to vacate the property > Letter (August 26, l976) by Mauricia to Modesto, refusing to comply with demands > SUIT (September 29, 1976) by Buenaflor M. Castillo, administratrix of the Castillo estate, and Rivera for annulment of title against PM Parts, ICP and Bormaheco ~ that all transactions, from the Agreement of Counter-Guaranty with Real Estate Mortgage, Certificate of Sale, and the Deeds of Authority to Sell, Sale and the Affidavit of Consolidation of Ownership, as well as the Deed of Sale are void for being entered into in fraud and without the consent and approval of the CFI QC before whom the administration proceedings has been pending > RTC Held: null and void for being fictitious, spurious and without consideration > Void Sales due to Void Foreclosure > No fraud or simulation in Transactions between Rivera (Slobec) and Cervantes (Bormaheco) (i) Acts of Rivera in receiving and making use of the tractor and the simultaneous issuance of a surety bond in favor of Bormaheco, concomitant with the execution of the Agreement of Counter-Guaranty with Chattel/Real

Estate Mortgage, conduce to the conclusion that he and Castillos had every intention to be bound by these contracts ~ strong indication that the parties actually intended, or at least expected, to exact fulfillment of their respective obligations from one another (ii) That Rivera never made any advance payment, in the alleged amount of P50,000.00, to Bormaheco is a breach of contract that can be availed of only by the innocent party (iii) Bormaheco, and not Rivera, paid the premium for the surety bond issued by ICP only because Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and agreed that part of the proceeds shall be used to pay the premium for the bond ~ Payment to Bormaheco as agent of ICP > No Fraud (i) No proof of induction thru insidious words and machinations by Bormaheco and PM Parts without which Rivera and Castillo would not have executed such contract (ii) Foreclosure proceeding and subsequent sale not done by under veil of corporate entity because it’s really the corporation of PM Parts which desire to enforce an alleged right against Castillos and Rivera > Invalidity of Foreclosure: (i) Failure of Bormaheco to demand payment from ICP where contract requires that ICP be informed in writing within 30d from expiration of bond > ICP released from liability; (ii) Expiration of Surety at the time Slobec allegedly defaulted in payment > ICP’s surety expired on January 22, 1972 while Slobec's installment payment was to end on July 23, 1972 ~ from January 23, 1972 up to July 23, 1972, the liability of Slobec became an unsecured obligation > HENCE, default of Slobec during this period cannot be a valid basis for the exercise of the right to foreclose by ICP since its surety contract had already been terminated >> Absolute Simulation > when the parties do not intend to be bound at all by the contract > fact that the apparent contract is not really desired or intended to either produce legal effects or in any way alter the juridical situation of the parties > Legal Effect: contract null and void >> Doctrine of piercing the veil of corporate entity when valid grounds therefore exist ~ corporation will be considered as a mere association of persons and the members or stockholders of the corporation will be considered as the corporation > liability will attach directly to the officers and stockholders > APPLIES WHEN the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to 47

confuse the legitimate issues or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation >> Bond, as contractual in nature, is ordinarily restricted to the obligation expressly assumed therein ~ except where required by the provisions of the contract, a demand or notice of default is not required to fix the surety's liability

G.R. No. 158380 May 16, 2005 MARIQUITA MACAPAGAL v. CATALINA O. REMORIN, CORAZON CALUZA-BAMRUNGCHEEP, and LAURELIA CALUZAVALENCIANO Facts: Corazon sold her property to mortgagor Laurelia. Although the contract did not accurately reflect the actual purchase price of the property, it remains valid because it is only a relative simulation which does not affect the validity of the contract but does require its reformation. > Sale (July 1986) of the Property of Corazon Caluza-Bamrungcheep (which was inherited from her father) by her step-mother Purificacion Arce-Caluza to Catalina Remorin ~ Corazon left for Thailand (after marriage to a Thai), Purificacion was entrusted with the administration of the property, Purificacion obtained Titles in her name by claiming to be the sole heir of her deceased husband and to have lost her TCTs > Catalina mortgaged the property to L & R Lending Corporation for P200k and then to Laurelia Caluza-Valenciano for P295k to pay off the former mortgage > Civil Suit (December 29, 1986) by Corazon for reconveyance and damages against Purificacion and Catalina upon discovery of the sale of her property and Criminal Suit by Corazon against Purificacion and Catalina for falsification and perjury > Deed of Transfer (May 4, 1987) executed by Catalina, signed by Purificacion as witness, admitting the wrong they did in illegally transferring the lots in their names and acknowledging Corazon to be the rightful owner ~ presented to the Register of Deeds which caused the cancellation of TCT in favor of Catalina and issuance of TCT in favor of Corazon but with annotation of Laurelia’s mortgage > MOA (September 9, 1988) among Corazon, Catalina and Laurelia where Corazon would sell her property and from its proceeds, Catalina would pay her mortgage obligation to Laurelia ~ Approved (September 16, 1988) ~ (revision of the March 21, 1988 MOA that ceded ownership to Purificacion upon satisfaction of mortgage to Laurelia due to Purificacion’s death on July 28, 1988) > Sale (May

24, 1989) of Property by Corazon to Laurelia ~ Issuance of TCT in Laurelia’s name (July 21, 1989) > Sale (August 24, 1989) of Property by Catalina to Mariquita Macapagal > SUIT (November 28, 1989) by Laurelia against Macapagal for ejectment > SUIT by Macapagal for nullification of the Sale to Laurelia > CONTENTION of Macapagal: that the contract of sale between Corazon and Laurelia was invalid because it did not reflect the true purchase price; that Catalina was authorized to sell the property as provided in the MOA that Catalina shall pay off her mortgage obligation and incidental expenses from the proceeds of the sale > Sale of Property by Corazon to Laurelia is VALID even if it did not accurately reflect the true consideration, the actual purchase price of the property > Not cause for declaration of its nullity ~ only a relative simulation of the contract which remains valid and enforceable ~ valid but subject to reformation > Catalina NOT AUTHORIZED to sell the property > Not Authorized under the MOA ~ MOA not a Waiver by Corazon, as owner of the property, of right to enjoy and dispose her property ~ Parties did not intend the MOA to be the document itself considering that they agreed to execute such other documents or papers as are necessary to implement the agreement ~ Necessity of a special power of attorney for an agent to enter into any contract by which the ownership of an immovable property is transmitted > Macapagal cannot enforce the MOA > stranger/third party > not identified outright as the buyer for whom he has been conferred a favor > Macapagal not a buyer in good faith ~ did not buy the disputed lot from its registered owner > Laurelia as the rightful owner > Double sales of real property, ownership passes to the vendee who, in good faith, first recorded it in the Registry of Property > Laurelia registered the sale and was issued a TCT in her name on July 21, 1989, even before the sale to Macapagal

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G.R. No. L-14070 March 29, 1961 MARIA GERVACIO BLAS, MANUEL GERVACIO BLAS, LEONCIO GERVACIO BLAS and LODA GERVACIO BLAS v. ROSALINA SANTOS, in her capacity as Special Administratrix of the Estate of the deceased MAXIMA SANTOS VDA. DE BLAS, MARTA GERVACIO BLAS and DR. JOSE CHIVI Facts: The 2nd marriage of Simeon Blas to Maxima Blas included the conjugal property of Simeon with 1st wife Marta because the CP had not yet been liquidated upon Marta’s death and before Simeon’s remarriage. Simeon thus executed his Will wherein he identified the ½ share of Maxima in their cp and a Document, read and signed by Maxima too, wherein Maxima made a promise to convey ½ of her share in the cp to the heirs of Simeon. Such Agreement is valid as a compromise to avoid litigation because the consideration is not future inheritance but well-defined and existing properties, identified as ½ of Maxima’s share in the cp in Simeon’s will, in the inventory of his estate, and in the project of partition submitted by Maxima. Hence, because said properties were already existing at the time of the execution of the contract, they are not future inheritance which involves properties that she would inherit because those were already her own share. > Marriage of Simeon Blas and Marta Cruz (before 1898) ~ 3 children > Death of Marta (1898) but without liquidation of CP with Simeon > 2nd Marriage of Simeon to Maxima Santos Vda. de Blas (June 28, 1898) ~ CP with Marta became part of CP with Maxima due to lack of liquidation > Two Documents by Simeon (December 26, 1936), read and signed by Maxima: (1) Last Will and Testament wherein he identified his CP with Maxima as “consisting of lands, fishponds and other kinds of properties, the total assessed value of which reached the amount P678,880” and ½ of which belonging to Maxima; (2) COMPROMISE AGREEMENT between Simeon, Maxima, on the one hand, and the heirs of Simeon and Marta, on the other WHERE (i) Simeon’s ½ share in the CP with Maxima would go to his heirs with Marta; (ii) ½ of Maxima’s share in the CP would go to Simeon’s heirs ~ PURPOSE OF DOCUMENTS: because the properties that Simeon had acquired during his first marriage with Marta Cruz had not been liquidated and were not separated from those acquired during the second marriage where all those properties were included all in the assets of the second marriage, and that is the reason why this document was prepared (as testified by son-in-laws / witnesses of Simeon in executing the documents) ~ HENCE, Maxima is to convey in her testament, upon her death, one-half of the conjugal properties she would receive as her share in the conjugal properties

> Death of Simeon (January 9, 1937) > Death of Maxima (October 5,1956) ~ Last Will and Testament of her Estate, covering 1045.7863 hectares of properties, conferred only 80 hectares to Marta Gervacio plus an existing obligation on said fishponds to pay to the Rehabilitation Finance Corporation; only 150 sq.m. to Angelina Blas; only P300 to Leony Blas > NOT ½ > SUIT (December 27, 1956) by heirs of Simeon for declaration of ownership of properties that were identified as theirs in the Document > CONTENTION of Estate of Maxima: (1) Documents void for lacking consideration, involving future inheritance ~ no right created in favor of heirs of Marta; (2) Prescription because no action to recover were instituted in the proceedings for the settlement of the estate of Simeon > CONTENTION of Heirs of Simeon: (1) Right arises from the document which constitutes a Trust Agreement and a Contract in the nature of a compromise to avoid litigation WHERE she would hold ½ of her said share in the conjugal assets in trust for the heirs and legatees of her husband in his will, with the obligation of conveying the same to such of his heirs or legatees as she may choose in her last will and testament; (2) Did not institute action to recover in the settlement of Simeon’s estate exactly because of the promise of Maxima to convey the same in her will > Document is a Valid Compromise Agreement >> Compromise Agreement, a contract by which each of the parties in interest, by promising, avoids the provocation of a suitor terminates one which has already the provocation been instituted > No Future Inheritance involved > Consideration is well-defined and existing properties, namely ½ of Maxima’s share in CP which: (a) had already been identified in Simeon’s Will, in the Inventory of Simeon’s estate (June 2, 1937) submitted by Maxima herself where all his property were identified as CP, and in project of partition submitted by said Maxima (March 14, 1939); (b) were already existing at the time of the execution of the Document > Obligation is to transmit ½ of her share in the conjugal properties acquired with her husband NOT a promise to convey any properties that she would inherit > Not yet Prescribed > Action to Enforce the Promise of Maxima to convey in her testament, upon her death, ½ of the CP she would receive as her share did not arise until and after her death > Maxima’s Death on October 5,1956, Action on December 27, 1956

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> SC HELD: (i) to convey and deliver ½ of the properties adjudicated o Maxima Santos as her share in the conjugal properties to the heirs and the legatees of her husband Simeon Blas; (ii) to remand to let the heirs file their respective adversary pleadings to determine the participation of each and every one of them in said properties >> future inheritance (Article 1271) > any property or right not in existence or capable of determination at the time of the contract, that a person may in the future acquire by succession >> Compromise Agreement (Article 1809, OCC): Compromise is a contract by which each of the parties in interest, by giving, promising, or retaining something avoids the provocation of a suitor terminates one which has already the provocation been instituted. (Emphasis supplied.) > Why not future inheritance > Inchoate right but is it not that at the time of sale, you can sell what you don’t own? Because it might prejudice other heirs? > Why does the law prohibit certain things from being object of the contract ~ ie health, organs > G.R. No. 141882 March 11, 2005 J.L.T. AGRO, INC. (thru manager JULIAN L. TEVES) v. ANTONIO BALANSAG and HILARIA CADAYDAY Facts: The Compromise Agreement between Julian and children Josefa and Emilio where certain properties were assigned to Josefa and Emilio and the rest to his 2nd wife and their children, is valid even though it concerns future legitime because it is a partition inter vivos (before death) of Julian’s estate which is valid in law as long as it is not prejudicial to compulsory heirs. His 2nd wife and their children had not been prejudiced because they were assigned the remainder of Julian’s properties. Concerning Lot No. 63 that had been adjudicated to 2nd wife and kids but subsequently assigned to Agro, the right of the former to the properties did not arise until the death of Julian as the legal effect of a partition inter vivos. Hence, they cannot contend that the assignment was void due to their alleged ownership being operative upon the Compromise Agreement, because prior to Julian’s death they only had an inchoate interest but not ownership. However, the ownership of Lot No. 63 did not validly confer to Agro due to spurious acquisition of title based on an alleged loss of owner’s duplicate as presented to the Deed of Register and not on the assignment. HENCE, 2nd wife and kids acquired title upon the death of Julian and without any valid transfer of ownership of property prior to his death upon which their right of ownership arose.

> Two Marriages by Don Julian L. Teves, first with Antonia Baena and then with Milagros Donio Teves after Antonia’s death > Suit between Julian and daughter Josefa (1st marr) for Partition and Damages of the cp of Julian with wife/mother Antonia > Decision by CFI (January 31, 1964), incorporating the COMPROMISE AGREEMENT between them which divided the properties of Julian: (i) siblings Josefa and Emilio and Julian as co-owners of Hacienda Medalla Milagrosa, an electric plant, a movie property, the commercial areas, and Julian’s house but to remain undivided during the lifetime of Julian; (ii) Julian as owner of remainder of the properties; (iii) BUT UPON JULIAN’S DEATH (Paragraph 13): (a) the properties adjudicated to Josefa and Emilio would constitute their inheritance from their mother’s estate and from Julian’s estate as well; (b) the properties remaining with Julian (including Lot. No. 53) shall exclusively be adjudicated to Milagros and their 4 minor children > Death of Julian (April 14, 1974) > Different Ownership of Lot No. 63 (1) By J.L.T. Agro, Inc., owned by Julian: (i) Deed of Assignment of Assets with Assumption of Liabilities (November 16, 1972) by Julian, Josefa and Emilio in favor of Agro; (ii) Supplemental to the Deed of Assignment of Assets with the Assumption of Liabilities (July 31, 1973), transferring ownership over Lot No. 63, among others, in favor of Agro; (iii) Reconstitution of TCT, Issuance of New TCT (November 12, 1979) by Court Order to reconstitute the owner’s duplicate of the TCT and to replace it with a new one pursuant to petition for the reconstitution of the owner’s duplicate (2) By Milagros and kids: (i) Possession after the Compromise Agreement; (ii) Deed of Extrajudicial Partition of (Julian’s) Real Estate (March 18, 1980); (iii) Lease Agreement with Sps. Antonio Balansag and Hilaria Cadayday (1974); (iv) Deed of Absolute Sale of Real Estate (November 9, 1983) with Sps. Antonio Balansag and Hilaria Cadayday; (v) Failure to Register the Deed due to Agro’s ownership of the property > SUIT by Sps. Balansag-Cadayday as vendees for Declaration of Nullity of Agro’s TCT > CONTENTION of Agro/RTC: (1) Adjudication in the Compromise Agreement did not become automatically operative upon the approval of the Compromise Agreement because future legitime cannot be determined, adjudicated and reserved prior to the death of Don Julian; (2) Lot No. 63 could not have transferred to Milagros and kids by the Deed of Extrajudicial Partition (March 18, 1980) because prior to it, it had already been assigned to Agro (July 31, 1973) and hence, could not have been part of his estate > CONTENTION of Sps/CA: (1) Compromise Agreement, incorporated in the CFI Decision had already transferred the properties of Julian to his heirs who 50

acquired full ownership and possession of the properties and hence, Don Julian himself could no longer dispose of the same; (2) New TCT issued in favor of Agro is spurious and of dubious origin because the spaces for the Book No. and Page No. of the TCT, referring to the exact location where the said title was registered or transferred, were not filled up > Ownership is with Sps., not Agro > NOT BECAUSE the Compromise Agreement involved Future Inheritance > It was a Valid Compromise Agreement AS a Partition inter vivos WHERE future legitime had been validly adjudicated already prior to Julian’s death BECAUSE it was a not prejudicial to compulsory heirs WHERE Julian did not totally omit them by assigning other properties which they could inherit upon his death (everything but those assigned to Josefa and Emilio and but Lot No. 63) > LEGAL EFFECT of Partition inter vivos is transfer of ownership ONLY AFTER DEATH > Reservation of ownership to Julian, as well as the right to dispose of it > No right conferred to Milagros and Children; only an inchoate/prospective/non-existent interest > BUT BECAUSE of an Invalid Transfer to Agro ~ Invalid Deed of Assignment > HENCE, Property not assigned and thereby transferring to Milagros and kids upon Julian’s death (1) Erring Register of Deeds: Agro acquired the new TCT by a petition for reconstitution of the owner’s deed allegedly because it lost the owner’s duplicate > Agro thus presented to the Register of Deed the Court Order issuing a new TCT and not the Supplemental Deed, thereby misrepresenting that the new TCT was because of an alleged loss of the owner’s duplicate > Agro did not present at all the Supplemental Deed > HENCE, Register of Deeds exceeded its authority in issuing not just a reconstituted owner’s copy of the original certificate of title but a new transfer certificate of title in place of the original certificate of title; (2) No Consideration > Art. 1318 requires a cause for a valid contract and Art. 1352 declares that contracts without cause, or with unlawful cause produce no effect whatsoever > (i) P84k in the dispositive portion does not represent the consideration for the assignment made by Julian but is a mere statement of the fair market value of all the 19 properties enumerated in the instrument that were transferred to Agro; (ii) Mortgage in favor of Rehabilitation Finance Corporation not a consideration there being no showing that Agro itself paid off the mortgate obligation; (3) Not a donation > Art. 749 requires acceptance for validity of donations > Absence of acceptance by the done Agro in the same deed or even in a separate document

>> Future Inheritance > any property or right not in existence or capable of determination at the time of the contract > Cannot be an object of a contract (Art. 1347) ~ Requisites of a Contract upon future inheritance: (1) That the succession has not yet been opened; (2) That the object of the contract forms part of the inheritance; (3) That the promissor has, with respect to the object, an expectancy of a right which is purely hereditary in nature >> GENERAL RULE: Contracts may have for its object all things, even future ones, which are not outside the commerce of man > EXCEPTION: Future Inheritance (Art. 1347) > EXCEPTION TO THE EXCEPTION: A partition inter vivos (Article 1080), authorizing a testator to partition inter vivos his property, and distribute them among his heirs >> Partition inter vivos (Art. 1080): Should a person make a partition of his estate by an act inter vivos, or by will, such partition shall be respected, insofar as it does not prejudice the legitime of the compulsory heirs > LEGAL EFFECT: Partition will be effective only after death ~ An instrument of a special character that does not operate as a conveyance of title until his death > Different from OCC Art. 1056 in permitting any person (not a testator, as under the old law) to partition his estate by act inter vivos ~ WHY: to do away with the requisite that testator must first make a will with all the formalities provided by law in order to partition his estate inter vivos >> Prejudice to Compulsory Heirs > Absolute Non-mention in the Will (Art. 854), that a preterition or omission of one, some, or all of the compulsory heirs in the direct line, whether living at the time of the execution of the will or born after the death of the testator, shall annul the institution of heir; but the devises and legacies shall be valid insofar as they are not inofficious > Preterition as the total omission of compulsory heir in the will, in the direct line from inheritance, either by not naming him at all or, while mentioning him, by not instituting him as heir without disinheriting him expressly, by not assigning to him some part of the properties, by not giving him anything in the hereditary property G.R. No. L-11240 December 18, 1957 CONCHITA LIGUEZ v. THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL. Facts: In order to live with minor Conchita and have sexual relations with her, married man Salvador donated a parcel of land to her. Even if the donation was premised upon an illicit causa (sex with a minor as a married man), manifested in his motive to cohabit with her which is considered cause because it predetermined the contract, the donation remains partly valid because Conchita was not a guilty party since she did not participate much in the formation of the 51

donation and/or because even if both Salvador and Conchita were guilty, they cannot invoke the donation’s illegality to null the same. Absent proof of illegality against a donation valid on its face because it was ratified by the Justice of Peace, the donation remains valid. However, inasmuch as the interest of wife Maria and their children in the conjugal property are concerned, the donation may be invalidated according to the prejudice against them which would still be determined by the lower court by remand. > Deed of Donation (May 18, 1943) by married man Salvador P. Lopez in favour of 16 y/o Conchita Liguez covering a parcel of land > They thereafter lived together until the Death of Salvador (July 1, 1943) > Adjudication of the Same Property to Salvador’s wife Maria Ngo and their children (1949) > Possession by Maria and children > SUIT for Recovery by Conchita > CONTENTIONS of Maria and Children: Donation is null and void: (1) Has an illicit causa or consideration > that the donation, although ratified by the Justice of the Peace of Davao “for the consideration of Salvador’s love and affection for Conchita and for the good and valuable services rendered by her to him,” was actually made in order for Salvador, a married man, to live with minor (16 y/o) Conchita and have sexual relations with her, such donation being required by Conchita’s parents; (2) Involves conjugal property co-owned by Salvador with wife Maria; > CONTENTIONS of Conchita: Donation was a contract of pure beneficence, the consideration of which is the liberality of the donor ~ Desire of Salvador to have sex with her is his mere motive, different from the causa > HENCE, Liberality per se is not illegal since it is neither against law or morals or public policy > Donation was an Onerous Contract with an Illicit Causa > Not Pure Beneficence > Salvador not moved exclusively by the desire to benefit appellant Conchita Liguez, but also to secure her cohabiting with him, so that he could gratify his sexual impulses > With Illicit Causa > Motive of Lopez to cohabit and have sex with Conchita also served as the Causa because it predetermined the purpose of the contract > Lopez would not have conveyed the property in question had he known that Conchita would refuse to cohabit with him > Cohabitation was an implied condition to the donation > Unlawful/Illicit because cohabitation by a married man with another is unlawful ~ Necessarily tainted the donation itself > BUT DONATION STILL VALID (Partly) > (a) Valid on its face > Accepted by Conchita, Signed and Ratified by Justice > Perfect and Binding UNLESS Declared null > Illegality is not presumed, but must be duly and adequately proved; (b) Art. 1412 (2): Donation valid because Conchita was not at fault > Conchita was only a minor (16) when the donation was made while Salvador

was already advanced in years > No proof that she was fully aware of the terms of the bargain entered into by and Lopez and her parents who insisted on the donation before allowing her to live with Lopez > illegality is not presumed, but must be duly and adequately proved; (c) Even if both parties to an illegal contract are guilty, they are barred from pleading the illegality of the bargain either as a cause of action or as a defense where they “will not be aided by the law but will both be left where it finds them” > Since the defense of illegality cannot be invoked by Salvador himself, if living, his heirs can have no better rights than Lopez himself > BUT DONATION VALID NOT IN ITS ENTIRETY > Donation of Conjugal Property > (a) But Prejudicial to the interest of Wife Maria ONLY IF the value of her share in the property donated cannot be paid out of the husband’s share of the community profits > REMAND; (b) But Prejudicial to Heirs ONLY IF inofficious or in excess of the portion of free disposal > REMAND >> Pure beneficence (Art. 1274) > contracts designed solely and exclusively to procure the welfare of the beneficiary, without any intent of producing any satisfaction for the donor > idea of self-interest is totally absent on the part of the transferor > liberality of the donor is deemed causa >> Remuneratory Contracts > consideration is the service or benefit for which the remuneration is given >> Motive is Causa in Exceptional Cases > General Rule: Motive is inoperative and immaterial in determining the validity of the contract > Exception: When contracts are conditioned upon the attainment of the motives of either party ~ Motive may be regarded as causa when it predetermines the purpose of the contract >> ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2) When only one of the contracting parties is at fault, he cannot recover, what he has given by reason of the contract, or ask for fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. G.R. No. L-33360

April 25, 1977 52

MAXIMINO CARANTES (Substituted by Engracia Mabanta Carantes) v. COURT OF APPEALS, BILAD CARANTES, LAURO CARANTES, EDUARDO CARANTES and MICHAEL TUMPAO Facts: The siblings of Maximino executed a Deed of Assignment in his favour covering their rights to Lot No. 44 for P1 and the acknowledgement that their father/owner had considered Maximino as the owner of the property. The Deed is valid because it has a consideration as previously stated and the action for its annulment, which was based on fraud, has already prescribed (4y). > Settlement of the Estate of Mateo Carantes (1933) where his son Maximino (one of six children) was appointed as judicial administrator > Partition involved Lot No. 44, which was subdivided into Lots A, B, C, D, and E where A had previously been expropriated by the Government (for the construction of the Loakan Airport), while B and C were subsequently sold to the Government as well by Maximo thru a Formal Deed of Sale by virtue of an Assignment of Right to Inheritance (October 23, 1939) where 4 of his siblings assigned their rights to inheritance in Lot No. 44 to Maximino for a consideration of P1.00 and the declaration that they acknowledge Mateo’s representation that Maximino is the exclusive, continuous, peaceful and notorious possession of the property as its rightful and exclusive owner (“By agreement of all the direct heirs and heirs by representation of the deceased Mateo Carantes as expressed and conveyed verbally, by him during his lifetime, rightly and exclusively belong to the particular heir, Maximino Carantes, now and in the past in the exclusive, continuous, peaceful and notorious possession of the same for more than ten years.”) ~ Deed registered (March 16, 1940) and New TCTs for B to E issued in Maximino’s name > Meanwhile, D was mortgaged (1948) by Maximino, as his exclusive property with the Philippine National Bank; and E remained registered in his name > SUIT (September 4, 1958) for Declaration of Nullity of Deed of Assignment and Partition of Lots D and E into 6, by Maximino’s siblings (the same who executed the Deed of Assignment ~ Bilad, Sianang, Lauro and Crispino but the latter by his heirs) > CONTENTIONS of Siblings: (i) Fraud, that they were made to believe by Maximino that the Deed was only an authorization of the latter to convey portions of Lot No. 44 to the Government in their behalf to minimize expenses and facilitate the transaction ~ That they discovered the assignment only on February 18, 1958; (ii) CA Held: Deed is void ab initio and inexistent on the grounds that real consent was wanting and the consideration of P1.00 is so shocking > CONTENTIONS of Maximino: (i) On-its-face Agreement > No other agreement than what appears in the Deed of Assignment > Deed was an acknowledgment of the fact of designation of the property as specifically pertaining or belonging by right of inheritance to the Maximino Carantes ~

assignors knew fully well that the deed of assignment contained what, on its face, it represented> There was never any agreement between the assignors and the assignee authorizing the latter to merely represent his co-heirs in negotiations with the Government ~ Any agreement other than the Deed of Assignment is barred by the statute of frauds and is null and void because not in writing, much less, in a public instrument; (ii) Prescription ~ that siblings’ cause was based on a written contract and hence prescription in 10y ~ Registration on February 21, 1947 as Constructive Notice but Petition only on September 4, 1958; and (iii) No cause of action because ownership over the property became vested in Maximino by acquisitive prescription of 10y from its registration in his name on February, 21, 1947; (iv) Siblings’ Action was for Reformation and not Declaration of Nullity > BUT not raised in his Answer in the Trial Court and only raised on Appeal ~ Cannot prosper > VALID DEED (1) There is consideration > P1 and acknowledgement by the siblings that the decedent Mateo Carantes had, during his lifetime, expressed to the signatories to the contract that the property subject-matter thereof rightly and exclusively belonged to Maximino > VALUABLE CONSIDERATION (2) Action is to Annul the Deed on the ground of fraud and thus prescribes in 4y from discovery of fraud > When discovered: Registration of the Deed (March 16, 1940) in the Register of Deeds ~ Constitutes constructive notice to the whole world > Prescription on March 16, 1940 ~ Suit filed on September 4, 1958; (3) Deed not a trust created in favor of siblings > Clear and Open Repudiation by Maximino of such trust ~ Anathema to concept of a continuing and subsisting trust: (i) Formal deed of sale with Government; (ii) Mortgage of Lot D with PNB as his exclusive property; (iii) Tax Declarations, Payment and Receipts in the name of Maximino > EVEN IF DEED IS TRUST, an action for reconveyance based on implied or constructive trust is prescriptible in 10y from Registration of Deed (March 16, 1940) ~ Prescribes March 16, 1950 > When is there inadequacy of cause but adequacy of consideration? HOW G.R. No. 126376 November 20, 2003 SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN, SPOUSES JUANITO EDRA and NORA JOAQUIN, SPOUSES RUFINO VALDOZ and EMMA JOAQUIN, and NATIVIDAD JOAQUIN v. COURT OF APPEALS, SPOUSES LEONARDO JOAQUIN and FELICIANA LANDRITO, SPOUSES FIDEL JOAQUIN and CONCHITA BERNARDO, SPOUSES TOMAS JOAQUIN and SOLEDAD ALCORAN, SPOUSES ARTEMIO JOAQUIN and SOCORRO ANGELES, SPOUSES ALEXANDER MENDOZA and CLARITA JOAQUIN, SPOUSES TELESFORO CARREON and FELICITAS JOAQUIN, SPOUSES 53

DANILO VALDOZ and FE JOAQUIN, and SPOUSES GAVINO JOAQUIN and LEA ASIS Facts: The parents sold certain lots to some of their children. The other children assailed its validity for lack/inadequacy of the consideration and sought the deeds’ nullity in order that the properties revert back to their parents and thus increase their estate and subsequence inheritance. However, the Deeds show a consideration in the form of prices which were valid and not grossly inadequate because there is no requirement that the price be the same as the value of the property. Also, absent proof of fraud, inadequacy of price does not invalidate the contract. Also, payment of the price was shown to have been made but nevertheless, it does not affect the validity of contracts. Lastly, the children had no cause of action because their interest was merely inchoate while their parents are still alive. > Six Deeds of Sale of Real Property by Sps. Leonardo Joaquin and Feliciana Landrito in favor of 8 of their children ~ (Lot to Felicitas for P6k on July 11, 1978; Lot to Clarita for P12k on June 7, 1979; Lot to Fidel and Conchita for P54,300 on May 12, 1988; Lot to Artemio and Socorro for P54,300 on May 12, 1988; Lot to Tomas for P20k on September 9, 1988; Lot to Gavino for P25k on October 7, 1988) > Issuance of New TCTs in the children’s favor > SUIT by Other Children for Declaration of Nullity of the Deeds and of the New TCTs > CONTENTIONS of Children: Deeds are absolute simulation due to: (i) Lack of actual valid consideration (ii) Consideration was inadequate where the properties were three-fold times more valuable than the measly sums appearing therein; (iii) Deeds of sale do not reflect and express the true intent of the parties; (iv) Deeds was a conspiracy designed to unjustly deprive the rest of the compulsory heirs of their legitime ~ Purpose of Suit: to have the Deeds of Sale declared void so that ownership of the lots would eventually revert to their respondent parents and once parents die, the siblings will then co-own their parents’ estate > VALID DEEDS (1) Consideration is plainly stated in the Deeds of Sale > No proof that it was absolutely simulated > Vendee/Siblings had financial capacity to buy the lots; (2) Consideration is not grossly inadequate > (a) No requirement that the price be equal to the exact value of the subject matter of sale; (b) No proof of fraud, mistake, or undue influence (Art. 1355) or defect in consent (Art. 1470) to invalidate the Deeds; (3) Actual Payment does not affect a contract’s validity > Testimony of Emma that their father told her that he would transfer a lot to her through a deed of sale without need for her payment of the purchase price > BUT Contract of Sale becomes perfected and binding upon the meeting of minds as to the price > Non-

payment only gives the right to demand the fulfillment or cancellation of the obligation under an existing valid contract; it does not result to nullity > ALSO, Vendee/Siblings actually paid the price anyway (4) No cause of action > Children had no legal right to the properties sold ~ No substantial interest but a mere expectancy or inchoate, future, contingent, subordinate, or consequential interest that vests only upon their parents’ death > Parents are still alive and can validly sell the properties > Sale did not even prejudice their share in the estate because cash of equivalent value replaced the lots taken from the estate >> Contract Void if Consideration Inadequate BUT ONLY IF there is fraud, mistake, or undue influence (Art. 1355) or defect in consent (Art. 1470) G.R. No. L-27010 April 30, 1969 MARLENE DAUDEN-HERNAEZ v. HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Quezon City, HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON VALENZUELA Facts: Hernaez had an agreement with Hollywood to act for their movies for a price. When Hollywood failed to pay, Hernaez filed a suit for breach of contract but the same was dismissed by the CFI for having no cause of action because the agreement was invalid and unenforceable because it was not in writing. Hence, the agreement of Hernaez is valid and enforceable because it does not fall in the exception to the general rule that contracts do not require to be written, and Art. 1358 does not make invalid a contract involving more than P500 not in writing. Because the general rule applies as to the form of the Agreement where Art. 1358 does not in any way invalidate the same, Art. 1357applies which provides that the parties can enforce the observation of the contract once perfected. > SUIT for Breach of Contract and Damages by Actress Marlene DaudenHernaez against Hollywood Far East Productions, Inc. and President/General Manager Ramon Valenzuela for failure to pay the balance of P14,700 due for her services as leading actress in two motion pictures produced by the company > CFI Dismissed: No cause of action since the agreement was invalid and unenforceable ~ not in any written document, either public or private ~ defective on its face for violating Art. 1359 (that it exceeds P500 and must be in a public document) and 1358 (that it does not follow form prescribed in Art. 1359) > Valid Contract Even if Not in Writing: (1) Exception to the General Rule that contracts do not require to be in writing is not applicable to the agreement of Hernaez > GENERAL RULE that contracts 54

are valid and binding from their perfection (by mere consent, Art. 1315; upon a proper subject matter and consideration, Art. 1318) regardless of form whether they be oral or written (Art. 1356) > EXCEPTIONS (Art. 1356): (a) solemn contracts > Contracts for which the law itself requires that they be in some particular form (writing) in order to make them valid and enforceable ~ ie donation, contracts to pay interest on loans; (b) Contracts that the law requires to be proved by some writing (memorandum) of its terms > CONTRACT of Hernaez does not come under either exception which require writing; (2) Art. 1358 does not provide that the absence of written form in its case will make the agreement invalid or unenforceable; (3) Art. 1357 provides that contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence of writing

G.R. No. 128338 March 28, 2005 TINING RESUENA, ALEJANDRA GARAY, LORNA RESUENA, ELEUTERIO RESUENA, EUTIQUIA ROSARIO and UNISIMA RESUENA v. HON. COURT OF APPEALS, 11th DIVISION and JUANITO BORROMEO, SR. Facts: Borromeo co-owned some properties with Sps. Bascon and the heirs of Nicolas Maneja. The shares of the latter co-owners were occupied by Resuenas, Garay and Rosario upon their tolerance. When Borromeo sought to expand his resort and filed a suit for ejectment, the occupants refused to vacate, claiming that Borromeo had no right to possess the shares of his co-owners which were allowed to be used by them. However, the occupants failed to prove their own right to occupy the property as mere benefactors of the co-owners’ tolerance. Art. 1358 requires that a creation of right be in writing and they had produced none. Moreover, Borromeo had the authority and right to file an ejectment as coowner, pursuant to Art. 487 because he co-owns the entire property and not just part of it until the partition of said property which was not done yet nor was proven in the case. Hence, he acted on behalf of all owners and not just by himself. > Properties Co-owned by Juanito Borromeo, Sr.: Lot No. 2587 with Sps. Inocencio Bascon and Basilisa Maneja (former 6/8 and latter 1/8); Lot No. 2592 with heirs of Nicolas Maneja > Conversion by Borromeo of his share into the Borromeo Beach Resort > Demand and Suit for Ejectment (February 16, 1994) by Borromeo against the occupants of his co-owners’ share for the expansion of the resort > CONTENTIONS of occupants (Resuenas and Garay, occupants of upper portion of Lot No. 2587 and Rosario, occupant of a portion of Lot No. 2592): No Right to Possess by Borromeo: (i) properties were not yet partitioned

and the occupied portions had not been assigned to him as his determinate share ~ In fact, he had agreed with Basilia Maneja that the latter would occupy the upper portion of the property; (ii) Occupants were permitted by co-owners to occupy property wherein they even built their houses > Co-Owner’s Right of Possession > Art. 487 that any one of the co-owners to bring an action in ejectment > WHY: a co-owner is the owner and possessor of the whole, and that the suit for ejectment is deemed to be instituted for the benefit of all co-owners > LEGAL EFFECT: Categorical and an unqualified authorization of a co-owner to bring an action to exercise and protect the rights of all > Right of Possession and Ejectment by Borromeo as Co-Owner against Resuenas and Garay: (a) No proof of their right/authority to occupancy ~ Persons who occupy the land of another at the latter’s tolerance or permission, without any contract between them, are necessarily bound by an implied promise that they will vacate the same upon demand ~ Tolerance in itself does not bear any legal fruit, and it can easily be supplanted by a sudden change of heart on the part of the owner > Art. 1358 that acts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property must appear in a public instrument; (b) Authority of Borromeo pursuant to Art. 487 to institute the ejectment suit for the benefit of all co-owners of the property absent proof that occupants are authorized to occupy the same; (c) Testimony of Borromeo that he had agreed with Basilia Maneja on the portions which they would occupy hardly establishes a definitive partition, or moreover, any right of petitioners to dwell in any portion of Lot No. 2587 ~ the common ownership over Lot No. 2587 remained inchoate and undivided > Right of Possession and Ejectment by Borromeo as Co-Owner against Rosario from Lot No. 2592: No proof of her right/authority to occupancy > Why writing under Art. 1358 is required here and not in Hernaez: No allegation or proof of any act conferring any right to occupants because Tolerance is not a conferment of right WHILE in Hernaez, there was an alleged agreement to pay her an amount that is beyond P500 > What is a statute of fraud: must be in writing otherwise unenforceable contract; wholly executory ~ neither party has performed the obligation but just agree G. R. No. L-8060

September 28, 1955 55

PAULINO GARCIA v. MARIA BISAYA, ET AL.

Facts: Garcia bought a property from Bisaya that was designated as unregistered property in the Deed of Sale. Upon discovery that the land was registered to a Sandoval who was not a vendor, Garcia sought the reformation of the contract to represent the property as registered. However, reformation is not the proper remedy because there was no allegation that the agreement did not express the real intention of the parties (which was the sale) nor was it alleged what the real intention was. Moreover, no right would be made available for Garcia to enforce upon the reformation of the contract because the registered owner was not a vendor of the sale which would then become ineffective if such reformation was made. But since the petition did not ask for annulment, the same cannot be given Garcia.

> Deed of Sale (November 12, 1938) between Paulino Garcia and Maria Bisaya where the latter sold to the former a parcel of land which was erroneously designated as unregistered land > Garcia’s Recent Discovery that the land sold to him was registered to a Torcuata Sandoval, not a vendor > SUIT for Reformation (May 20, 1952) by Garcia ~ to correct the designation of the property in the Deed of Sale as one of Registered from Unregistered > RTC Dismissed: Action Prescribed ~ reformation of an instrument on account of fraud prescribes in 4y (Carantes)

> DISMISSED (1) No cause of action > Action is for Reformation of Contract YET (i) no allegation that the instrument to the reformed does not express the real agreement or intention of the parties, moreover, (ii) no allegation of what the real agreement or intention was ~ ESSENTIAL since the object sought in an action for reformation is to make an instrument conform to the real agreement or intention of the parties; (iii) no right to be asserted by Garcia under the reformed contract ~ alleged registered owner was not a vendor ~ would thus make the sale ineffective for buying property not belonging to vendor; But won’t fraudulent contracts favor damages to Garcia? (iv) action should have been for annulment since he had been led to enter into the contract of sale through fraud or

misrepresentation on the part of the vendor or in the mistaken belief that, as stated in the deed, the property he was buying was unregistered land ~ BUT Not prayed for or sought; > But aren’t the facts alleged determinative of the remedy sought? Hence, SC could have annulled it instead? BECAUSE ALLEGATIONS did not talk about fraud (2) BUT Not yet Prescribed > Action upon a written contract prescribes in 10y from the day it could have been instituted Discovery of mistake only recently

>> Action for Reformation > OBJECT: to make an instrument conform to the real agreement or intention of the parties IN ORDER THAT the party is able to assert right under the contract as reformed > NOT TO make a new agreement, but to establish and perpetuate the true existing one

G.R. No. 128991 April 12, 2000 YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO PORMIDA v. HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge of RTC, Tacloban City, Branch 8, and LEYTE GULF TRADERS, INC. Facts: Leyte Gulf Traders leased the property of Bentir with the verbal agreement that Leyte will have the right of first refusal should Bentir decide to lease or sell the property after the expiration of the lease. When the contract expired but verbally extended, Bentir subsequently sold the property to sps. Pormida without offering the right of first refusal to Leyte. Leyte challenged the sale and sought the reformation of the contract of lease in order to include the right of first refusal which was allegedly omitted in the contract. However, the action for reformation has already expired (within 10y) when Leyte filed for reformation only in 1992 when the contract of lease was entered into since 1968. The extension of the contract was not the starting point because such implied new leases only incorporates rights germane to the enjoyment of the property leased and not any right of first refusal. Moreover, the action was brought after Bentir had allegedly violated the contract when the action for reformation is declaratory relief that can be sought only before any violation can arise. 56

> Contract of Lease (May 5, 1968) of the Property of Yolanda Rosello-Bentir to Leyte Gulf Traders, Inc. for 20y > Upon expiration, Contract of Lease was extended for another 4y, until May 31, 1992 > BUT Sale of the Same Property (May 5, 1989) by Bentir to Sps. Samuel and Charito Pormida, without offer of first refusal to Leyte > SUIT (May 15, 1992) by Leyte for reformation of instrument, specific performance, annulment of conditional sale > CONTENTION of Leyte: Right of first refusal that was verbally agreed upon but inadvertently omitted in the Lease Contract by its lawyer ~ Agreement that in the event Bentir leases or sells the lot after the expiration of the lease, Leyte has the right to equal the highest offer > REFORMATION NOT GRANTED: (1) Prescription is 10y for Actions based upon a written contract and for reformation of an instrument (Art. 1144) > Contract of Lease in 1968 but Suit was on May 15, 1992 > COUNTED FROM execution of contract of lease AND NOT from the date of the alleged 4y extension of the lease contract > WHY NOT: Extended pd not an implied new lease because: (i) Art. 1670 on implied new lease (tacita reconduccion) applies only where at the end of the contract, the lessee continues to enjoy the thing leased with the acquiescence of the lessor; (ii) Even if implied new lease, the “other terms of the original contract” contemplated in said provision are only those terms which are germane to the lessee's right of continued enjoyment of the property leased; (2) Action for declaratory relief must have been sought prior to the breach of contract > an action for the reformation of an instrument is instituted as a special civil action for declaratory relief (Section 1, Rule 64, New Rules of Court) > purpose is to secure an authoritative statement of the rights and obligations of the parties for their guidance in the enforcement thereof, or compliance therewith, and not to settle issues arising from an alleged breach thereof > Bentir’s alleged violation of contract had already been committed >> Reformation > principle of equity where, in order to express the true intention of the contracting parties, an instrument already executed is allowed by law to be reformed when some error or mistake has been committed > rationale that it would be unjust and unequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the parties ~ that equity treats as done that which ought to be done > Right vs Rule on Evidence where it is necessarily an invasion or limitation of the parol evidence rule since, when a writing is reformed, the result is that an oral agreement is by court decree made legally effective ~ HENCE, must be decided sparingly and with great caution and zealous care > Action for the reformation of an instrument is instituted as a special civil action for declaratory relief (Section 1, Rule 64, New Rules of Court) > purpose is to secure an authoritative statement of the rights and obligations of the parties

for their guidance in the enforcement thereof, or compliance therewith, and not to settle issues arising from an alleged breach thereof >> Prescription is intended to suppress stale and fraudulent claims arising from transactions which facts had become so obscure from the lapse of time or defective memory G.R. No. 158901 March 9, 2004 PROCESO QUIROS and LEONARDA VILLEGAS v. MARCELO ARJONA, TERESITA BALARBAR, JOSEPHINE ARJONA, and CONCHITA ARJONA Facts: In order to avoid litigation where Proceso and Leonarda sought to recover their share in their grandma’s inheritance, their uncle Marcelo agreed to convey to them a parcel of land which tenant Jose Banda agreed to surrender. The amicable settlements, however, could not be executed by the Court because the property in the settlement was not duly defined. However, such defect did not render the settlements void but merely subject to reformation. The settlements were valid contracts, having a consent, cause and object. The object was merely undefined but the same can be corrected by reformation and not necessarily thru a new contract especially where Marcelo did not deny their right to the inheritance. > Suit for Recovery of ownership and possession of a parcel of land (December 19, 1996) by Proceso Quiros and Leonarda Villegas against their uncle Marcelo Arjona covering their lawful share of the inheritance from their late grandmother Rosa Arjona Quiros > TWO AMICABLE SETTLEMENTS (January 5, 1997): (1) Agreement with Marcelo that he was to convey “land consisting of more or less 1 hectare” which he inherited from Rosa to Proceso and Leonarda; (2) Agreement with tenant Jose Banda that he was willing to voluntarily surrender to Proceso and Leonarda the land of the Arjona family (in Sitio Torrod, Brgy. Labney, San Jacinto, Pangasinan) that was entrusted to him > Petition for Writ of Execution/Enforcement of the Compromise Agreement > DENIED because subject property cannot be determined with certainty > CONTENTIONS of Proceso and Leonarda: (1) Compromise Agreement is final and executory even without final judgement given that it is not repudiated in 10d; (2) Marcelo accompanied them to the actual site of the properties at Sitio Torod, Labney, San Jacinto, Pangasinan and pointed to them the 1 hectare property referred to in the said agreement ~ Denied by Marcelo since he was physically incapacitated and without a vehicle to take him there > REFORMATION OF 1st AGREEMENT ALLOWED: 57

(a) Exception of finality of compromise agreements: When facts may have transpired after the finality of judgment which would render the agreement’s execution unjust > Fact was the uncertainty of the object of the 1st agreement WHEN during the ocular inspection of the MTC, it found that the land referred to in the 2nd Agreement was different from the land being occupied by Proceso and Leonarda > Could not thus issue execution due to failure to determine with certainty what parcel of land Marcelo intended to convey; (b) Defect in Agreement can be subject of REFORMATION and NOT Nullity because the agreements, as amicable setllements, were valid contracts > (i) Meeting of minds in obligation by Marcelo to convey 1 hectare of land and in acceptance of P,L; (ii) Cause is the delivery of P,L’s share in the inheritance; (iii) Object is a 1-hectare parcel of land representing P,L’s inheritance from their deceased grandmother > HENCE, not void because there was an object but subject to reformation because the failure to describe the subject property need not be corrected in a new contract; (c) Admission by both parties of P,L’s right to the inheritance; (d) Unjust enrichment of Marcelo if held otherwise

BERNARDO, and MAXIMO LACANDALO, ISABEL ATILANO and GREGORIO ATILANO v. LADISLAO ATILANO and GREGORIO M. ATILANO

>> Finality of Compromise Agreements > Section 416 of the Local Government Code that an amicable settlement shall have the force and effect of a final judgment upon the expiration of 10d from the date thereof, unless repudiated or nullified by the proper court > Party-litigants can enter into an agreement in the barangay level to reduce the deterioration of the quality of justice due to indiscriminate filing of court cases > EXCEPTIONS (Santos v. Judge Isidro): imperatives of substantial justice, or facts that may have transpired after the finality of judgment which would render its execution unjust ~ Suspension of execution

> Sales of Property (1920), Lot 535 of, Eulogio Atilano I to 5 vendees ~ Had the property subdivided, sold Lot 535-E to his brother Eulogio Atilano II (May 18, 1920), B, C, D to others, and retained A > I and II constructed their houses on their respective properties and I even expanded his property by purchasing the adjacent property > Resurvey of Lot 535-“E” (July 16, 1959) by II and his children to end the co-ownership that operated upon the death of II’s wife as heirs of her estate > Discovery that the land designated as E in the Deed of Sale was actually Lot A and the one designated as Lot A was actually Lot E > Demand (January 25, 1960) by Heirs of II against Heirs of I to surrender actual Lot E and exchange it for actual Lot A because the real Lot E was 2,612 sq.m. and real Lot A was only 1,808 sq.m. > CONTENTIONS of Heirs of I: Reference in Deed of Sale to Lot E was involuntary error and the intention of the parties to that sale was to convey the lot correctly identified as lot No. 535-A

>> Reformation is a remedy in equity > a written instrument is made or construed so as to express or conform to the real intention of the parties where some error or mistake has been committed > not making a new contract for the parties, but establishing and perpetuating the real contract between the parties which, under the technical rules of law, could not be enforced but for such reformation > Requisites: (1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does not express the true intention of the parties; and (3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident

G.R. No. L-22487 May 21, 1969 ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by their respective husbands, HILARIO ROMANO, FELIPE

Facts: Brothers Atilano entered into a deed of sale where I sold Lot A to his brother, but Lot A was mistakenly indicated as Lot E in the contract. Nevertheless, the brothers possessed their respective properties until the vendee brother discovered that what was indicated in the Deed of Sale was Lot E and the indicated Lot A, which was retained by his brother, was actually Lot E. Because the actual Lot E was bigger than Lot A, which was what they received, the heirs of II demanded the exchange of property. However, because it was evidently the intention of the brothers to sell Lot A on which vendee brother even possessed and constructed his house thereon, while I possessed and constructed his house on Lot E, the contract is valid. The mistake in the contract need not be reformed because the intention of the parties was to sell Lot A but was merely designated as Lot E. Hence, the parties just need to execute mutual deeds of conveyance.

> NO REFORMATION: (1) Real intention of I and II in Deed of Sale was to sell Lot A > II had already possessed Lot A prior to the subdivision and sale and had constructed his residence therein; I had also constructed his house on Lot E after the subdivision and even expanded the property by purchasing the adjoining property > I and II continued in possession of the respective portions the rest of their lives, obviously ignorant of the initial mistake in the designation of the lot subject > When one sells or buys real property, one sells or buys the property as he sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title; 58

(2) Designation of Lot A as lot No. 535-E in the deed of sale was simple mistake in the drafting of the document > mistake did not vitiate the consent of the parties, or affect the validity and binding effect of the contract between them; (3) Not reformation BECAUSE (i) PRESCRIPTION ~ Contract on 1920 but suit only on 1960 ~ lapse of 10y; (ii) real intention was indicated, which is to sell Lot A but mistakenly inputed as E > REMEDY: mere conveyances of properties > parties have retained possession of their respective properties conformably to the real intention of the parties to that sale, and all they should do is to execute mutual deeds of conveyance Under what circumstances can you Reform? Interpret? > When to INTERPRET ~ NOT when only one party challenges the contract > When to REFORM ~ When there is error or mistake in the making of the contract (Quiros)! NOT when both parties challenge the contract G.R. No. L-33360 April 25, 1977 MAXIMINO CARANTES (Substituted by Engracia Mabanta Carantes) v. COURT OF APPEALS, BILAD CARANTES, LAURO CARANTES, EDUARDO CARANTES and MICHAEL TUMPAO Facts: The siblings of Maximino executed a Deed of Assignment in his favour covering their rights to Lot No. 44 for P1 and the acknowledgement that their father/owner had considered Maximino as the owner of the property. The Deed is valid because it has a consideration as previously stated and the action for its annulment, which was based on fraud, has already prescribed (4y). > Settlement of the Estate of Mateo Carantes (1933) where his son Maximino (one of six children) was appointed as judicial administrator > Partition involved Lot No. 44, which was subdivided into Lots A, B, C, D, and E where A had previously been expropriated by the Government (for the construction of the Loakan Airport), while B and C were subsequently sold to the Government as well by Maximo thru a Formal Deed of Sale by virtue of an Assignment of Right to Inheritance (October 23, 1939) where 4 of his siblings assigned their rights to inheritance in Lot No. 44 to Maximino for a consideration of P1.00 and the declaration that they acknowledge Mateo’s representation that Maximino is the exclusive, continuous, peaceful and notorious possession of the property as its rightful and exclusive owner (“By agreement of all the direct heirs and heirs by representation of the deceased Mateo Carantes as expressed and conveyed verbally, by him during his lifetime, rightly and exclusively belong to the particular heir, Maximino Carantes, now and in the past in the exclusive, continuous, peaceful and notorious possession of the same for more than ten years.”) ~ Deed registered (March 16, 1940) and New TCTs for B to E issued in Maximino’s name > Meanwhile, D was mortgaged (1948) by Maximino, as his

exclusive property with the Philippine National Bank; and E remained registered in his name > SUIT (September 4, 1958) for Declaration of Nullity of Deed of Assignment and Partition of Lots D and E into 6, by Maximino’s siblings (the same who executed the Deed of Assignment ~ Bilad, Sianang, Lauro and Crispino but the latter by his heirs) > CONTENTIONS of Siblings: (i) Fraud, that they were made to believe by Maximino that the Deed was only an authorization of the latter to convey portions of Lot No. 44 to the Government in their behalf to minimize expenses and facilitate the transaction ~ That they discovered the assignment only on February 18, 1958; (ii) CA Held: Deed is void ab initio and inexistent on the grounds that real consent was wanting and the consideration of P1.00 is so shocking > CONTENTIONS of Maximino: (i) On-its-face Agreement > No other agreement than what appears in the Deed of Assignment > Deed was an acknowledgment of the fact of designation of the property as specifically pertaining or belonging by right of inheritance to the Maximino Carantes ~ assignors knew fully well that the deed of assignment contained what, on its face, it represented> There was never any agreement between the assignors and the assignee authorizing the latter to merely represent his co-heirs in negotiations with the Government ~ Any agreement other than the Deed of Assignment is barred by the statute of frauds and is null and void because not in writing, much less, in a public instrument; (ii) Prescription ~ that siblings’ cause was based on a written contract and hence prescription in 10y ~ Registration on February 21, 1947 as Constructive Notice but Petition only on September 4, 1958; and (iii) No cause of action because ownership over the property became vested in Maximino by acquisitive prescription of 10y from its registration in his name on February, 21, 1947; (iv) Siblings’ Action was for Reformation and not Declaration of Nullity > BUT not raised in his Answer in the Trial Court and only raised on Appeal ~ Cannot prosper > VALID DEED (1) There is consideration > P1 and acknowledgement by the siblings that the decedent Mateo Carantes had, during his lifetime, expressed to the signatories to the contract that the property subject-matter thereof rightly and exclusively belonged to Maximino > VALUABLE CONSIDERATION (2) Action is to Annul the Deed on the ground of fraud and thus prescribes in 4y from discovery of fraud > When discovered: Registration of the Deed (March 16, 1940) in the Register of Deeds ~ Constitutes constructive notice to the whole world > Prescription on March 16, 1940 ~ Suit filed on September 4, 1958; (3) Deed not a trust created in favor of siblings > Clear and Open Repudiation by Maximino of such trust ~ Anathema to concept of a continuing and subsisting trust: (i) Formal deed of sale with Government; (ii) Mortgage of Lot D with PNB as his exclusive property; (iii) Tax Declarations, Payment and Receipts in 59

the name of Maximino > EVEN IF DEED IS TRUST, an action for reconveyance based on implied or constructive trust is prescriptible in 10y from Registration of Deed (March 16, 1940) ~ Prescribes March 16, 1950 G.R. No. 133643 June 6, 2002 RITA SARMING, RUFINO SARMING, MANUEL SARMING, LEONORA VDA. DE LOY, ERLINDA DARMING, NICANDRA SARMING, MANSUETA SARMING, ARTURO CORSAME, FELY CORSAME, FEDERICO CORSAME, ISABELITA CORSAME, NORMA CORSAME, CESAR CORSAME, RUDY CORSAME, ROBERTA CORSAME, ARTEMIO CORSAME, ELPIDIO CORSAME, ENRIQUITA CORSAME, and GUADALUPE CORSAME TAN v. CRESENCIO DY, LUDIVINA DY-CHAN, TRINIDAD FLORES, LUISA FLORES, SATURNINA ORGANISTA, REMEDIOS ORGANISTA, OFELIA ORGANISTA, LYDIA ORGANISTA, ZOSIMO ORGANISTA, DOMISIANO FLORES, FLORITA FLORES, EDUARDO FLORES, BENIGNA FLORES, ANGELINA FLORES, MARCIAL FLORES, and MARIO FLORES Facts: Although Lot 4163 was registered only in Silveria’s name, she shared the same with her brother who sold his ½ share to Delfino. However, the title that Silveria surrendered to Delfino was of another’s property. Hence, the title to Lot 4163 remained in Silveria’s name. Nevertheless, Delfino immediately occupied ½ of Lot 4163 and improved it. When she expanded her property, she then discovered that her title was to Lot 5743 instead. Hence, she sought the reformation of the deed of sale which was granted because it was proven that the real intention was to really sell Lot 4163 and the designation in the deed of the subject property as 5743 was erroneous. > Properties of Silveria Flores: (1) 1/3 of Lot 5734, covered by OCT 4918-A, inherited from her father Valentina Unto Flores and shared with her brothers Jose and Venancio (2) ½ of Lot 4163, covered by OCT 3129-A, inherited from her father and shared with Jose but the title remains in Silveria’s name > Settlement of Estate and Sale (January 19, 1956) between heirs of Jose and Alejandra Delfino over the former’s ½ share of Lot 4163 ~ Silveria declined the offer of sale by the heirs and did not object to sale to Delfino where in the Conference among Delfino, Venancio and Silveria, Silveria declared that she owned half of the lot while the other half belonged to the vendors and that she was selling her three coconut trees found in the half portion offered to Alejandra > Delivery of Title by Silveria BUT NOT of Lot 4163 but of Lot 5734; Cancellation of OCT 4918-A (Lot 5734) in favor of Delfino and Silveria with half share each > Possession and Improvements by Delfino on ½ of Lot 4163 >

Discovery of Erroneous Designation of Lot 4163 as covered by OCT 4918-A in Deed of Sale by Delfina purchase of the adjoining portion of the lot she had been occupying > Silveria promised to turn over the Title of Lot 4163 to Delfino who had paid the necessary fees but Silveria failed to despite repeated demands > SUIT (‘2y later’) for reformation of the deed of sale > CONTENTIONS of Silveria: (i) that she was the sole owner of Lot 4163 as shown by OCT No. 3129-A and consequently, heirs of Jose had no right to sell the lot; (ii) contract of sale clearly stated that the property being sold was Lot 5734; (iii) Delfino illegally took possession of one-half of Lot 4163 > REFORMATION OF CONTRACT (1) Valid contract because: (i) meeting of minds upon sale of Lot 4163; (ii) cause is for delivery of property; (iii) object was Lot 4163 but mistakenly designated as the one covered by OCT 4918-A which actually covers Lot 5743; (2) Real intention of heirs of Jose and Delfino was to sell that portion "Y" of Lot 4163 > Immediately occupied by Delfino, since 1956 to the present, without objection from Silveria who’s son, Michael Corsame, even developed the area of Delfino; Silveria also recognizes the right of Jose’s heirs to ½ of the property and hence cannot claim that she is sole owner; (3) Designation as Lot 5734 in the document of sale was a simple mistake in the drafting of the document > DID NOT vitiate the consent of the parties or affect the validity and the binding effect of the contract between them >> Requisites of Reformation: (1) there must have been a meeting of the minds of the parties to the contact; (2) the instrument does not express the true intention of the parties; and (3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident

G.R. No. L-22962 September 28, 1972 PILAR N. BORROMEO, MARIA B. PUTONG, FEDERICO V. BORROMEO, JOSE BORROMEO, CONSUELO B. MORALES and CANUTO V. BORROMEO, JR. v. COURT OF APPEALS and JOSE A. VILLAMOR, (Deceased) Substituted by FELISA VILLAMOR, ROSARIO V. LIAO LAMCO, MANUEL VILLAMOR, AMPARO V. COTTON, MIGUEL VILLAMOR and CARMENCITA VILLAMOR Facts: In promising to pay his friend even beyond 10y and waiving his right to prescription of action, Villamor did not intend to renounce his right but merely to be considerate to his creditor in allowing him to collect for a long time because they are good friends. 60

> Jose A. Villamor, as distributor of the lumber of Mr. Miller (agent of Insular Lumber Company), often borrowed money from friend Canuto A. Borromeo > 1933, he borrowed a large sum and mortgaged his land and house in favor of Borromeo to pay off his debts to Miller who had filed a civil suit against him and even attached his property, including the mortgaged house and lot because the mortgage was not registered for not being properly drawn up > Borromeo thus demanded payment of his loans but Villamor instead issued a promissory note (November 29, 1933) worth the total of P7220 with annual interest of 12% payable as soon as he has money and effective even beyond 10y where he waived his rights to prescriptions for the collection/recovery of the money ~ “hereby relinquish, renounce, or otherwise waive my rights to the prescriptions established by our Code of Civil Procedure for the collection or recovery of the above sum of P7,220.00. ... at any time even after the lapse of ten years from the date of this instrument.” > Suit for collection (January 7, 1953) by Borromeo due to Villamor’s failure to pay despite repeated oral demands and kindness not to sue because no property was registered to Villamor’s name anyway > RTC Granted but CA Reversed since the waiver of prescription was void due to lack of legal basis and the principle that a person cannot renounce future prescription > NOT A RENUNCIATION BUT INTENDED AS SUSPENSION: (1) 10y waiver was intended only as waiver to act within the 10y period > Debtor Villamor was only being excessively considerate to his creditor and creditor Borromeo was more than willing to give him the utmost latitude as to when his scantly resources will allow him to pay ~ Due to their friendship that the debtor could be trusted to pay even after the termination of the 10y prescriptive period; (2) Prescription of 10y begins after November 29, 1943 to November 29, 1953 and Suit was filed on January 7, 1953; (3) Even if the waiver clause was invalid, the clause did not invalidate the whole contract > Kasilag v. Rodriguez that the terms, clauses and conditions contrary to law, morals and public order should be separated from the valid and legal contract when such separation can be made because they are independent of the valid contract which expresses the will of the contracting parties > When is it appropriate to interpret > Ambiguity ~ Language is capable of more than one reasonable interpretation > Guide ~ Intention of the parties G.R. No. 46623 December 7, 1939 MARCIAL KASILAG v. RAFAELA RODRIGUEZ, URBANO ROQUE, SEVERO MAPILISAN and IGNACIO DEL ROSARIO

Facts: The contract of loan and mortgage between Kasilag and Emiliana were not of sale because their intention was merely to secure the loan with the mortgage with the condition that failure to pay the mortgage would give rise to the obligation to execute a deed of sale. > Contracts between Emiliana Ambrosio and Marcial Kasilag (1) Contract of Loan worth P1k, Creditor Marcial, Debtor Emiliana; (2) Contract of Mortgage (May 16, 1932) to secure the loan, over the improvements of Emiliana’s property (acquired as homestead, June 11, 1931), consisting of mango, bamboo, tamarind and bonga fruit-bearing trees; CONDITIONS FOR EMILIANA: (i) Payment of all taxes on the land and improvements; (ii) Payment of P1k with annual 12% by November 16, 1936 to end the mortgage; (iii) Otherwise, Continuation of Mortgage subject to foreclosure and Execution of Deed of Absolute Sale of Property upon failure to redeem property for the same amount of P1k + interests > Emiliana’s Failure to pay (1933) > Verbal Contract where Emiliana conveyed to Marcial the possession of the land on condition that the latter would not collect the interest on the loan, would attend to the payment of the land tax, would benefit by the fruits of the land, and would introduce improvements thereon > SUIT by Heirs of Emiliana for possession of the land > INVALID POSSESSION BY MARCIAL OF THE PROPERTY (1) Contract was not of sale but of Loan and Mortgage > Intention of the contracting parties is to enter into the principal contract of loan in the amount of P1k with annual interest at 12%, and into the accessory contract of mortgage of the improvements on the land > Intention should always prevail over letter because their will has the force of law between them; and although there was a verbal agreement to possess the property… (2) Verbal agreement for possession of property was a Contract of Antichresis that is invalid where pacts made by the parties independently of the mortgage but alters the same converts the latter into a contract of antichresis (Art. 1881) that is void because it is a real encumbrance burdening the land > NEVERTHELESS, LOAN/MORTGAGE VALID because terms, clauses and conditions contrary to law, morals and public order should be separated from the valid and legal contract and when such separation can be made because they are independent of the valid contract which expresses the will of the contracting parties; (3) Marcial possessor of property in good faith > excusable ignorance of the law since he is not conversant with the laws because he is not a lawyer ~ consented to receive the fruits but did not know, as clearly as a jurist does, that the possession and enjoyment of the fruits are attributes of the contract of antichresis and that the latter, as a lien, was prohibited by section 116, Act No. 2874 61

G.R. No. 93625 November 8, 1993 VICENTE J. SANTI v. HON. COURT OF APPEALS, HEIRS OF AUGUSTO A. REYES, JR., represented by ALEXANDER REYES Facts: The new lease contract entered into by Esperanza with new lessee Santi did not provide for the automatic extension of the lease. The change of language from the first lease to sps. Francisco, providing that the lease “shall be automatically extended,” to Santi’s, providing “extendable,” manifests the intention of Esperanza to reserve the option to think about whether or not extending it. > Contract of lease (April 1, 1962) between Esperanza Jose and Augusto A. Reyes, Jr. over the former’s property which sps. Eugenio Vitan and Beatriz Francisco had leased and constructed a cinema thereon but subsequently sold to Augusto ~ Effective 20y for P180/m and extendable for another 20y but rent increase to P220/m > Sale and Transfer of Esperanza’s rights over the land to Vicente J. Santi with new TCT issued February 23, 1982 > Expiration of Lease > Demand by Santi for peaceful turn-over of possession to representative of Reyes, who had died > Refusal of Reyes’ rep because of extension of lease, Tender of Payment of rents to Clerk of Court > SUIT by Santi for ejectment > CONTENTION of Santi: “extendable” as capable of being extended and requires a subsequent agreement > CONTENTION of Reyes: automatic extension based on contract of lease with sps. Francisco that stipulates that 20y pd shall be automatically extended for another 20y but with increase of rent > NO AUTOMATIC EXTENSION: Clause “automatically extended” in Sps. Francisco’s contract did not appear and was not used in the subsequent lease contract with Reyes > intention was not to automatically extend the lease contract but to give Esperanza the time to ponder and think whether to extend the lease > OTHERWISE, parties could have easily provided for a straight 40y contract instead of 20y > IMPLIED LEASE in Continued possession of Reyes even after the expiration of lease ~ created an implied lease during that period > HENCE, payment of P220/m for such period and not P1k/m as determined by RTC > Art. 1670: If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but

for the time established in Articles 1682 and 1687. The other terms of the original contract shall be revived. > Art. 1687: If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month. > Automatically extended in first contract; Extendable only in the second > Guide in choosing one interpretation over the other ~ Contemporaneous and subsequent acts of the parties G.R. No. 109680 July 14, 1995 DIEGO RAPANUT v. THE COURT OF APPEALS and SUSAN FLUNKER Facts: The monthly payment of P500 by Rapanut applies to the principal debt and not to the interest. > Deed of Conditional Sale with Mortgage (November 29, 1985) where Susan Flunker sold her land to Diego Rapanut for P42,840 payable in installments but with annual interest of 10% on the remaining balance until the full amount is paid > Supplemental Agreement (April 1986), decreasing price to P37,485 “payable in monthly installments of P500 with an annual interest of 10% on the remaining balance until the full amount is paid” and with added condition that failure to pay any monthly installments when due for 3m shall be sufficient cause for rescission > Payment by Rapanut of total P24,500 (P500/m from January 1986 to January 1990) > Rescission of Deed (Notice on February 13, 1990, SUIT on March 14, 1990) due to failure to pay annual interest on the balance > CONTENTION of Susan: 10% interest should be paid every year and hence, payments made by Rapanut applies not to purchase price but to unpaid accrued annual interest pursuant to Art. 1253 that if the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered ~ Two kinds of payment, for principal and for interest and payments made is for interest because they had not been paid yet and thus cannot apply to principal > CONTENTION of Rapanut: Payment of P500/m already includes principal and interest > INTENT OF THE PARTIES IS TO APPLY P500/m TO PRINCIPAL 62

(1) Deed of Conditional Sale categorically provided for date of monthly payment (not later than the 5th/m) while Supplemental Agreement provided for monthly payment of P500 with an interest of 10% per annum on the remaining balance until the full amount is paid > INTERPRETATION: at the end of each year, all the installment payments made shall be deducted from the principal obligation and 10% interest on the balance is then added to whatever remains of the principal > INTENTION is to pay the monthly installments at predetermined dates, until the full amount, consisting of the purchase price and the interests on the balance, is paid ~ P500 for principal and ANNUAL INTEREST is added to balance of debt and not to be paid separately (2) EVEN IF APPLIED TO INTEREST, Silence of Susan on 10% interest for all 4y that Rapanut had been paying her P500/m ~ Non-exercise of right to rescind after Rapanut had allegedly failed to pay the monthly installments (because payment had been credited to interest) ~ Waiver of right and estoppels in not rescinding and in accepting subsequent installments; (3) Susan’s duty to inform the debtor of the amount of interest that falls due and that he is applying the installment payments to coc ver said interest (Art. 1253)

PCC and thus, cargo was held up in Bangkok > Negotiations where PCC would deliver a Class “G” cement, cost free ~ Delivered but did not conform to the specifications of ONG > Arbitrator (appointed by ONG’s Commission as provided in Clause 16) ruled on the matter of non-delivery of cement and nonconformity of replacement in favor of ONG (July 23, 1988) and ordered the refund and payment of expenses incurred, totaling $899,603.77+ interest ~ Ratified by Indian Court (February 7, 1990) after denying objections sent by PCC due to its failure to pay the filing fees allegedly because the letter (May 18, 1989) demanding payment of fees did not specify the amount needed > Refusal of PCC to pay > SUIT by ONG for enforcement of the foreign judgment > CONTENTION of PCC: Arbitrator had no jurisdiction since the dispute over the non-delivery of cement cargo should have been settled thru litigation and not arbitration under Clause 16

G.R. No. 114323 July 23, 1998 OIL AND NATURAL GAS COMMISSION v. COURT OF APPEALS and PACIFIC CEMENT COMPANY, INC.

CLAUSE 16: Except where otherwise provided in the supply order/contract all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions or otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof shall be referred to the sole arbitration of the persons appointed by Member of the Commission at the time of dispute. It will be no objection to any such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to deal with the matter to which the supply or contract relates and that in the course of his duties as Commission's employee he had expressed views on all or any of the matter in dispute or difference.

Facts: The agreement between ONG and PCC provided that disputes arising from the contract are to be submitted to the arbitrator, under Clause 16. When PCC failed to deliver the cement to ONG in India and when the replacement cement delivered by PCC did not conform to the specifications of ONG, the issue was submitted to the arbitrator who ruled in favor of ONG and which decision was ratified by the Court, which did not accept the objections of PCC for its failure to pay the filing fees despite demand. PCC challenged the jurisdiction of the arbitrator and the validity of the foreign judgments but both of which were valid. The arbitrator acquired jurisdiction over the dispute because the issue thus submitted was not the non-delivery of the cement which it cannot decide (because Clause 16 limits jurisdiction to technical aspects of the contract only) but the non-conformity of the replacement cement to the negotiated agreement which was well within its jurisdiction because it relates to the technical aspect of the contract. Judgment of Court of India was also valid. > Contract (February 26, 1983) between Pacific Cement Company, Inc. and Oil and Natural Gas Commission (foreign corp., India) where PCC would supply ONG 4300 metric tons of oil well cement, for $477,300 payable thru an irrevocable, divisible, and confirmed letter of credit in PCC’s favor ~ Paid but not delivered to Bombay and Calcutta because ship owner had a dispute with

> ARBITRATOR HAS NO JURISDICTION FOR NON-DELIVERY OF 4300 TONS CEMENT BUT WITH JURISDICTION IN FAILURE OF THE REPLACEMENT CEMENT TO CONFORM TO THE SPECS OF THE CONTRACT

The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Member of the Commission shall appoint another person to act as arbitrator in accordance with the terms of the contract/supply order. Such person shall be entitled to proceed with reference from the stage at which it was left by his predecessor. Subject as aforesaid the provisions of the Arbitration Act, 1940, or any Statutory modification or re-enactment there of and the rules made there under and for the time being in force shall apply to the arbitration proceedings under this clause. 63

The arbitrator may with the consent of parties enlarge the time, from time to time, to make and publish the award. The venue for arbitration shall be at Dehra dun. (1) Jurisdiction only for: (a) all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered; or (b) any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions; or (c) otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof. > ONG misquoted CLAUSE 16 by inserting a comma between “supply order/contact” and “design” when there is actually none > “the same” in (c) third clause refers to ‘supply order/order contract’ as referred to in the preceding words ~ limited only to the design, drawing, instructions, specifications or quality of the materials of the supply order/contract > “Except where otherwise provided in the supply order/contract” provides that the jurisdiction of arbitrator is not all-encompassing > SO, intention of the parties was that any claim, right or thing whatsoever that maybe arbitrated must arise out of purely technical aspects or relate to the design, drawing, specification, or instruction of the supply order/contract > OTHERWISE, CLAUSE 15 and “Except” would be useless > HENCE, non-delivery of cement does not arise out of failure to execute the supply order/contract design, drawing, instructions, specifications or quality of the materials BUT UNDER CLAUSE 15 (2) Dispute of non-delivery should have been brought to trial court according to CLAUSE 15: All questions, disputes and differences, arising under out of or in connection with this supply order, shall be subject to the exclusive jurisdiction of the court, within the local limits of whose jurisdiction and the place from which this supply order is situated. > JURISDICTION OF ARBITRATOR IN FAILURE OF THE REPLACEMENT CEMENT TO CONFORM TO THE SPECS OF THE CONTRACT > relates to the technical aspect of the contract > VALID ARBITRATION BECAUSE it was only after the non-conformity was the matter brought before the arbitrator ~ arbitration not just non-delivery of the cargo at

the first instance but also the failure of the replacement cargo to conform to the specifications of the contract ~ clearly within the coverage of Clause 16 >> Doctrine of noscitur a sociis > where a particular word or phrase is ambiguous in itself or is equally susceptible of various meanings, its correct construction may be made clear and specific by considering the company of the words in which it is found or with which it is associated ~ its obscurity or doubt may be reviewed by reference to associated words > WHY: provisions of a contract should not be read in isolation from the rest of the instrument but, on the contrary, interpreted in the light of the other related provisions BECAUSE it was enacted as an integrated measure and not as a hodge-podge of conflicting provisions > HENCE, apparently inconsistent provisions should be reconciled whenever possible as parts of a coordinated and harmonious whole > What if there’s a total waiver of court action? G.R. No. 136423 August 20, 2002 SPOUSES EFREN N. RIGOR and ZOSIMA D. RIGOR, for themselves and as owners of CHIARA CONSTRUCTION v. CONSOLIDATED ORIX LEASING and FINANCE CORPORATION Facts: To secure the loan by COLFC, sps. Rigor issued a promissory note and a mortgage in its favor. When they defaulted, COLFC initiated foreclosure proceedings on the mortgage in Dagupan City. Sps. Rigor contended that Dagupan is an improper venue for the litigation because the Note exclusively makes Makati City as the venue. However, COLFC argued that the venue in the Note had been modified by the Mortgage which allows the parties to file in Dagupan City. As an accessory obligation of the principal contract of loan, the mortgage should be construed together with the principal contract of the Note which it depends for existence. Hence, in order to reconcile the contrasting provisions, the Mortgage is deemed to have modified the Note especially considering that COLFC opened a branch office in Dagupan and thus had the venue changed in the Mortgage but forgetting the Note. Also, Dagupan is the more convenient venue for the parties which is the primary consideration in the rules of venue. > Loan worth P1,630,320, granted by Consolidated Orix Leasing and Finance Corporation, in favor of sps. Efren and Zosima Rigor, was secured by: (a) Promissory Note (July 31, 1996); (b) Deed of Chattel Mortgage over two dump trucks > Failure to Pay several installments despite demand > SUIT for Replevin (January 5, 1998) by COLFC to foreclose the chattel mortgage in RTC Dagupan, following the stipulation of venue according to Deed of Chattel Mortgage which modified the venue stipulation in Promissory Note > Motion to 64

Dismiss by sps. Rigor ~ CONTENTION: Improper Venue ~ (i) should have been filed in Makati City as provided in the promissory note ~ note was the principal contract being sued upon and not the Deed of Chattel Mortgage; (ii) note’s terms was exclusive and restrictive, with “shall only;” (iii) Art. 1374 applies only to conflicting provisions in one and the same contract and not to those found in two distinct and entirely separate contracts such as in the instant case Promissory Note: “It expressly (sic) agreed that all legal actions arising out of this note or in connection with the chattels subject hereof shall only be brought in or submitted to the proper court in Makati City, Philippines.” Deed of Chattel Mortgage: “VENUE. The payment herein mentioned whether covered by notes or not, are payable at the office address of the MORTGAGEE or its assignee and in case of litigation arising out of the transaction that gave rise to this contract, complete jurisdiction is given the proper court of the city of Makati or any proper court within the province of Rizal, or any court in the city, or province where the holder/mortgagee has a branch office, waiving for this purpose any proper venue.” > PROPER VENUE IN DAGUPAN CITY (1) Promissory Note to be construed with Deed of Chattel Mortgage > Mortgage was an accessory contract to the principal loan obligation in the Note ~ MEANING, Mortgage cannot exist as an independent contract since its consideration is the same as that of the principal contract (Note) ~ Note indispensable to Mortgage > HENCE, accessory contract must be read in its entirety and together with the principal contract between the parties (National Power Corporation vs. Court of Appeals) according to "complementary contracts construed together" doctrine (Velasquez vs. Court of Appeals); (2) Older Note was modified by subsequent Mortgage > Although “shall only” be in Makati in Note is mandatory and restrictive, the stipulation has been modified by the subsequent Mortgage to provide alternative venues ~ WHY: COLFC subsequently opened a branch office in Dagupan City and thus made corrections in the Mortgage regarding the venue but failed to correct the Note > Absent contest by sps. Rigor on the validity of the Mortgage was a ratification of the authenticity and due execution of the Mortgage; (3) Rules on Venue are intended for the convenience of the plaintiff and his witnesses and to promote the ends of justice > Dagupan City is the more convenient than Makati ~ COLFC has a branch in Dagupan and sps. Rigor lives in nearby Tarlac ~ Insistence on Makati is only a dilatory tactic to evade or at the very least, prolong the payment of a just obligation ~ 4y already

(4) Other causes of action in Dagupan: Loan and Mortgage were negotiated and concluded by the parties in Dagupan City, mortgaged vehicles were seized in Dagupan City >> General Rule on Venue > all personal actions may be commenced and tried where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal defendants resides, at the election of the plaintiff > May be changed or transferred by written agreement of the parties > WRONG DECISION! Promissory Note should have stood on its own and not construed together with Mortgae G.R. No. 119255 April 9, 2003 TOMAS K. CHUA v. COURT OF APPEALS and ENCARNACION VALDES-CHOY Facts: Choy agreed to sell her house and lot to Chua but only upon payment of the purchase price. The intention to retain ownership until full payment is evident in the reserved right to forfeit the earnest money paid in case of default which necessarily means that she still has the right of ownership of property and the right to resell the same. This option she validly invoked because the documents that were to be in proper order for her to rescind were already willing. Customarily, documents of ownership are TCT, deed of absolute sale, tax declaration and realty tax receipt. It does not include the capital tax gains as required by Chua because the same cannot be paid by the seller without the deed of sale which she was unwilling to deliver until payment. Also, the condition of issuance of title before payment is not customary in sales because what is normally done is to deposit the payment in escrow pending the issuance. > Payments and Documents: (1) Agreement (June 30, 1989) between Tomas K. Chua and Encarnacion Valdes-Choy to sell the latter’s house and lot for P10.8M, payable in cash ~ Evidenced by RECEIPT for P100k check paid as earnest money, to be foreited in case of failure to pay the balance by July 15, 1989 “provided that all papers are in proper order” (2) Deeds of Absolute Sale (July 13, 1989) covering the house and lot, for P8M and its furnishings, fixtures and movable properties for P2.8M (3) Payment of P485k manager’s check, in favor of BIR, given to Choy as advance so that she can pay the capital gains tax, evidenced by a RECEIPT showing the balance as P10,215,000 > Non-Payment of balance by Chua (July 14, 1989) ~ Merely showed a manager’s check of P10,215,000 BUT demanded the issuance of a TCT in his name before he would pay > Rescission of Contract by Choy because the TCT 65

was not part of the agreement, tearing up the Deeds of Sale > Stop Payment Order by Chua on the P485k manager’s check ~ honored nonetheless because he subsequently verbally advised the bank that he was lifting the stop-payment order due to his "special arrangement" with the bank > (July 15, 1989) Suggestion by Choy for Chua to deposit in escrow the P10,215,000 balance where she would still cause the issuance of a new TCT in the name of Chua even without receiving the balance of the purchase price > SUIT (July 17, 1989) by Chua for specific performance > CHOY’S RIGHT TO FORFEIT THE EARNEST MONEY (a) Contract to Sell > Ownership is retained by Choy until full payment of the purchase price ~ seller the right to rescind unilaterally the contract the moment the buyer fails to pay within a fixed period > Evidenced by (i) Receipt that the earnest money shall be forfeited in case the buyer fails to pay the balance of the purchase price on or before 15 July 1989 ~ Meaning that Choy can sell the Property to other interested parties; (ii) Deeds of Sale was issued later only because she was under the impression that Chua was about to pay the balance of the purchase price; (iii) Possession of the certificate of title and all other documents relative to the sale; (b) Stipulation that forfeiture can apply “provided that all papers are in proper order” was satisfied > Choy’s failure to show that the capital gains tax had been paid after he had advanced the money for its payment is irrelevant > Papers in proper order CUSTOMARILY refer to (1) owner's duplicate copy of the Torrens title; (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax receipt ~ All of which Choy was willing to deliver > CANNOT INCLUDE capital tax gains because the assessment of such requires the Deeds of Sale themselves and it requires that the seller himself pay it ~ Already executed by Choy but not willing to release until payment which Chua refused to do because of non-payment of capital gains tax > and hence, she cannot comply with capital tax payment > HENCE, Chua had no reason to not pay; (c) New condition by Chua to have TCT first before payment is not considered part of the “omissions of stipulations which are ordinarily established” as requistes for ownership by usage or custom > customary is to deposit in escrow the balance of the purchase price pending the issuance of a new certificate of title in the name of the buyer G.R. No. 133107 March 25, 1999 RIZAL COMMERCIAL BANKING CORPORATION v. COURT OF APPEALS and FELIPE LUSTRE Facts: Lustre purchased a car from Toyota and in order to secure the payment, he executed a chattel mortgage over the purchased Corola in favour of Toyota.

The contract of mortgage provided for an acceleration clause in case of failure to pay. Hence, when Lustre issued an unsigned check, RCBC (assignee of Toyota’s rights) invoked the acceleration clause and demanded payment of the entire balance. The RTC and CA construed the clause against RCBC because the contract was a contract of adhesion and must be construed against the author. However, Art. 1377 need not apply because the contract was clear and without ambiguity. Thus applying the terms, the unsigned check was not delay in payment because the same must be with malice. Moreover, the same check was accepted by RCBC without objection and even debited the amount against Lustre’s account. It was only 1y later when it recredited it. RCBC also accepted subsequent checks and it was only thereafter that it refused to accept the last two payments. > Promissory Note and Contract of Chattel Mortgage (March 10, 1993) by Atty. Felipe Lustre in favour of Toyota Shaw, Inc. for purchase of Corolla ~ Corolla mortgaged and contract provided for an acceleration clause (par. 11) stating that should the mortgagor default in the payment of any installment, the whole amount remaining unpaid shall become due > Payment by Lustre of 24 Postdated Checks, worth P14,976 each ~ debited against his account by Rizal Commercial Banking Corporation who was assigned all the rights and interests of Toyota in the chattel mortgage (March 14, 1991) > Debit even of Unsigned Check (for August 10, 1991) ~ Later recalled and re-credited to Lustre’s account and Last two checks (for February 10, 1993 and March 10, 1993) were no longer presented for payment (pursuant Bank's procedure that once a client's account was forwarded to its account representative, all remaining checks outstanding as of the date the account was forwarded were no longer presented for patent > Demand by RCBC (January 21, 1993) for payment of the balance of the debt ~ invoking par. 11, interpreting unsigned check as failure to pay > SUIT by RCBC for replevin and damages > Art. 1377 NOT APPLICABLE, as applied by RTC and CA > Chattel Mortgage was a Contract of Adhesion but its terms were not ambigious > Hence, literal meaning applies > Par. 11. In case the MORTGAGOR fails to pay any of the installments, or to pay the interest that may be due as provided in the said promissory note, the whole amount remaining unpaid therein shall immediately become due and payable and the mortgage on the property (ies) herein-above described may be foreclosed by the MORTGAGEE, or the MORTGAGEE may take any other legal action to enforce collection of the obligation hereby secured, and in either case the MORTGAGOR further agrees to pay the MORTGAGEE an additional sum of 25% of the principal due and unpaid, as liquidated damages, which said sum shall become part thereof. The MORTGAGOR hereby waives reimbursement of the amount heretofore paid by him/it to the MORTGAGEE. > BUT NO DELAY IN PAYMENT in unsigned 66

check, which was alleged to not been encashed and hence not paid > Delay in the performance of the obligation MUST BE either malicious or negligent: (i) no proof that Lustre acted with malice or negligence in failing to sign the check; (ii) Toyota salesperson’s testimony that Lustre signed the check and the down payments were deemed completed and hence the car was released; (iii) nonobjection by RCBC of the unsigned check where it actually (a) debited the value of the unsigned check from Lustre’s account and recredited it only 1y later to him and (b) encashed checks subsequently dated, then abruptly refused to encash the last two >> Art. 1377: The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. >> Contracts of adhesion ~ VOID only when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it ~ VALID when one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent > Ambiguities in a contract of adhesion are to be construed against the party that prepared the same ONLY IF the stipulations in such contract are obscure or ambiguous BUT NOT IF the terms thereof are clear and leave no doubt upon the intention of the contracting parties ~ literal meaning shall control G.R. Nos. 85962-63 August 3, 1992 ROSARIO GACOS, ARNULFO PRIETO, and RENITA PRIETO v. COURT OF APPEALS, SOLOMON BRIONES, LEONOR BRIONES and TEODULFO MENDONES Facts: Petrona sold a portion of her inherited property to Marcial but the Contract of Sale indicated a larger measurement. Marcial subsequently measure the correct size and declared the same in his Tax Declaration. However, when he sold the same property to Rosario, the Contract indicated a bigger but different size. Hence, when the heirs of Petrona sold her remaining property to Mendones and partitioned the estate of Petrona which adjudicated to them the property inherited by their mother, minus the portion sold to Marcial. The Contract of Sale with Marcial was construed to transfer the least rights because the property sold was indicated by boundaries and the size stipulated turned out erroneous. > Two Faiths of the Property of Petrona Gacos ORIGIN: > From father Eladio Gacos > Adjudicated his 6,854 sq.m. property to his 3 daughters ~ Immediate Possession by Petrona Gacos of her 1/3 share (2,242 sq.m.) > Agreement of Partition of Real Property (May 14, 1950) among Lucia and heirs of 2 sisters, formally confirming what was apportioned to them by

their father as their respective shares in the 6,854 sqm. Land ~ Petrona, 2,242 square meters; Lucia, 2,148 square meters; and Fortunata, 2,194 square meters BUT PRIOR TO CONFIRMATION OF SIZE... (1) Contract of Sale (March 13, 1948) by Patrona in favour of son-in-law Marcial Olaybal, of a portion of her inherited property (866 sq.m. from 2,242 sq.m.) BUT alleged to be an entire 2,720 sq.m. in the Contract BUT measured and declared by Marcial as 866 sq.m in his Tax Declaration (a) Deed of Absolute Sale (December 30, 1950) by Marcial in favour of Encarnacion Gacos, covering the parcel of land he bought from Petrona but indicated 2,025 sq.m. instead of 866 sq.m. that he declared in the Tax Declaration ~ Possession by Rosario Gacos, sister of Encarnacio who was named as vendee and owner in Tax Declaration > Ratification of Ownership of Realty (April 4, 1967) by Rosario, consolidating her 4 properties (including purchased property from Marcial) into 1 parcel of land (b) Sale (October 24, 1973) by Rosario of her land to nephew Arnulfo Prieto ~ Possession and Ownership in Tax Declaration > Lease (March 14, 1975) by Arnulfo to sister Vivencia Prieto for 15y (2) Sale (February 22, 1949) between Lucia and Teodolfo Mendones of 84 sq.m. of Petrona’s share ~ PURSUANT TO Instruction by Petrona to sister Lucia, administrator of her remaining property, to sell the 84 sq.m. of her property (in the east) for her funeral expenses and novena (a) Deed of Extra-judicial Settlement (August 1, 1975) by heirs of Petrona, adjudicating onto themselves the 2,242 sq.m. share of their mother’s inheritance AFTER aunt Lucia informed them that a portion of the land had been sold to Gacos and that a ricemill had been constructed on the land > SUIT (September 1, 1975) by heirs of Petrona against Gacos for recovery of 1,352 sq.m., alleged to be the remnant of the 2,242 sq.m. because only 866 sq.m. was sold to Marcial Olaybal > CONTENTION of Gacos: Sale was entire share of 2,780 sq.m. and hence, no remnant of 1,352 to speak of > SUIT (June 1, 1976) by sps. Arnulfo Prieto and Renita Chua Prieto against Teodolfo Mendones and Visitacion Borrega and sps. Jesus and Merced Gabitos for recovery of the 84 sq.m. property of Petrona which was fraudulently sold to Mendones by Petrona’s sister Lucia

> PROPERTY SOLD TO MARCIAL ONLY 866 sq.m. NOT ENTIRE 2,242 sq.m. SHARE OF PETRONA 67

(1) Contract of Sale (March 18, 1948) between Petrona and Marcial indicated 2,720 sq.m with bounderies as “that the subject property is bounded on the North and West by the land of the late Eladio Gacos and other heirs abovementioned, together with the widow of the late Severo Gacos, Mrs. Angela Vda. de Gacos, on the East by National Road Irosin-Juban-Bulan, and on the South, irrigation canal, and beyond the heirs abovementioned.” ~ Cannot be construed as a lump sale because the given boundaries do not coincide with the boundaries declared in (i) the Tax Declaration of Marcial (866 sq.m.) and in the sketch plan and filed sheet attached thereto, as testified by Marcial himself and as pointed out by him when he encircled the property in the sketch plan made by the Geodetic Engineer; (ii) the Partition of Eladio’s property as Petrona’s share (2,242 sq.m.); (iii) the Deed of Absolute Sale by Marcial to Rosario (2,025 sq.m.) where the property indicated was bounded on the west by the “Heirs of Petrona Gacos” (2) Construction of a Fence by Marcial to separate the property he bought from that of Petrona’s; (3) Possession by Petrona, her 4 minor children and sister Lucia on the remaining property; (4) Instruction by Petrona to Lucia to sell her remaining property (5) 27y possession by Prietos did not give a prescriptive right because the possession must be under a claim of title or must have been adverse > Rosario Gacos knew and recognized the sale on February 22, 1949 by Lucia to Teodolfo Mendones of the eastern portion of the hereditary estate of Petrona ~ Mendones is mentioned as the boundary owner on the south; (6) Non-objection of the construction by sps. Gabito of a residential house on the 84 sq.m. purchased property >> Possession as prescriptive right must be possession under claim of title (en concepto de dueno) or it must be adverse > mere tolerance of the owner are clearly not "en concepto de dueno," and such possessory acts, no matter how long so continued, do not start the running of the period of prescription

68

G.R. No. L-29155 May 13, 1970 UNIVERSAL FOOD CORPORATION v. THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO N. FRANCISCO Facts: The inventor and registered owner of Mafran Sauce, Magdalo assigned his trademark and use to UFC provided that he is appointed as Chief Chemist in a permanent character who has absolute control over the laboratory. When UFC stopped its operations and resumed, it did not recall Magdalo back and even considered his last 2mo. salary as his separation pay. UFC thus breached the contract when it terminated Magdalo without just cause, in violation of the Bill of Assignment. The breach was also substantial because it dealt with the reasons without which Magdalo would not have agreed to contract with them, that is the preservation of the secrecy of the formula and his monopoly. Hence, as the injured party, Magdalo has the option to rescind which is granted because he has no more alternative where he had already been terminated. > Bill of Assignment (May 11, 1960) between Magdalo V. Francisco, Sr. and Universal Food Corporation where former assigned, transferred, and conveyed all his property rights and interest over his registered invention, Mafran trademark and formula, to the latter ~ PROVIDED that (i) Magdalo receive 2% from annual sales as royalty; (ii) Magdalo be appointed as 2nd VP and Chief Chemist in a permanent character; (iii) Magdalo have absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the Chemicals and other mixtures used in the preparation; (iv) Magdalo automatically reacquires such rights upon dissolution of UFC > Memoranda by UFC: (i) Stopping the operations ~ including salary of Magdalo; (ii) Recalling Victoriano Francisco to produce Mafran; (iii) Retaining and Assigning Asst. Chief Chemist Ricardo Francisco to Chief and to produce the sauce and hire all necessary employees > SUIT (February 14, 1961) by Magdalo for Rescission of Bill of Assignment and declaration that UFC has no right to the use of the Mafran trademark and formula > UFC has NO TITLE to the formula > Intention of Assignment was of the USE and not TRADEMARK (1) Royalty as compensation for the use of a patented invention; (2) Preservation of secrecy and monopoly contrary to intention to part with the formula > Only allowed the use and prohibited anyone from availing of the invention; (3) Automatic reversion to Magdalo of the trademark and formula upon dissolution of UFC > Would not have been necessary if the intention was to transfer the trademark and formula to UFC; (4) Admission by UFC of par. 3 of the Complaint that alleged that the assignment was only for the use of the formula

3. — ... and due to these privileges, the plaintiff in return assigned to said corporation his interest and rights over the said trademark and formula so that the defendant corporation could use the formula in the preparation and manufacture of the mafran sauce, and the trade name for the marketing of said project, as appearing in said contract .... 3. — Defendant admits the allegations contained in paragraph 3 of plaintiff's complaint. (5) Continued possession by Magdalo of the formula (6) Conveyance should be interpreted to effect "the least transmission of right," > RIGHT OF MAGDALO TO RESCIND based on Art. 1191> Breach of Faith in a mutual relationship and not Economic injury as contemplated in Art. 1384: (1) Breach of Contract by UFC: Termination of Magdalo without lawful/just cause > (i) Fact that Magdalo was not hired back after the cease of operations ~ Only hired 1mo after the suit was filed; (ii) Testimony of General Manager that the salary paid to Magdalo until he was terminated was considered as his separation pay > Violation of paragraph 5-(a) and (b) of the Bill of Assignment (2) Breach was substantial: Magdalo would not have agreed to enter the contract were it not for such measures (permanent capacity as Chief Chemist who has absolute control of the laboratory) in order to preserve effectively the secrecy of the formula, prevent its proliferation, enjoy its monopoly (3) Option to Rescind is with Injured Party and No alternative but to file the present action ~ He had been fired already >> ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 of the Mortgage Law. >> ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. >> ART. 1384. Rescission shall be only to the extent necessary to cover the damages caused. 69

>> Rescission > general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. 12 The question of whether a breach of a contract is substantial depends upon the attendant circumstances > LEGAL EFFECT (Art. 1385): to return the things which were the object of the contract >> Rescission (1) Article 1191 > Rescission based on the breach of stipulation > Predicated on breach of faith by the defendant, that violates the reciprocity between the parties; injured party only; period; principal action > Principal action retaliatory in character (2) Article 1659 as an alternative remedy, insofar as the rights and obligations of the lessor and the lessee in contracts of lease are concerned (3) Article 1380 > Rescission based on economic prejudice > Subordinate to the economic prejudice; third parties; no period; subsidiary action, exhaust all remedies first; >> royalty means the compensation paid for the use of a patented invention ~ when used in connection with a license under a patent, means the compensation paid by the licensee to the licensor for the use of the licensor's patented invention (Hazeltine Corporation vs. Zenith Radio Corporation) G.R. No. 157480 May 6, 2005 PRYCE CORPORATION (formerly PRYCE PROPERTIES CORPORATION) v. PHILIPPINE AMUSEMENT AND GAMING CORPORATION Facts: Pryce leased its hotel ballroom to PAGCOR for the operation of a casino in Cagayan de Oro City. Despite the validity of the casino and the declaration of unconstitutionality of the city ordinances prohibiting casinos, the casino in Pryce Plaza Hotel failed and ceased due to the incessant public rallies. Nevertheless, Pryce demanded the collection of rentals for the unexpired period. It was rejected by PAGCOR and hence, Pryce exercised its right under the penal clause and terminated the contract and demanded the payment of rentals that was provided as penalty. The action sought by Pryce, hence, was not of rescission but of termination because a rescission is a declaration of a contract’s nullity while termination is a fulfillment of the obligations. By seeking to collect rentals, Pryce is enforcing its right under the contract which needs to be valid thus and termination was the proper remedy which the court gave.

> Contract of Lease (November 11, 1992) between Pryce Properties Corporation and Philippine Amusement and Gaming Corporation where former is to lease the ballroom of the Pryce Plaza Hotel for a casino (plus 1k sq.m of the hotel grounds for casino personnel) for 3y (December 1, 1992-November 30, 1995) > Sangguniang Panlungsod of Cagayan de Oro City’s Policy Against Casinos that resulted to the casino’s closure: (A) LAWS (1) Resolution No. 2295 (November 19, 1990) prohibiting the establishment of a gambling casino; (2) Resolution No. 2673 (October 19, 1992) banning casinos in Cagayan De Oro City; (3) Ordinance No. 3353 (December 7, 1992) prohibiting the issuance of business permits and canceling existing business permits to any establishment for using, or allowing to be used, its premises or any portion thereof for the operation of a casino ~ Subsequently declared as unconstitutional; (4) Ordinance No. 3375-93 (January 4, 1993) prohibiting the operation of casinos and providing for penalty ~ Subsequently declared as unconstitutional; (B) RALLIES (1) Afternoon of the casino opening (December 18, 1992) by local officials, residents and religious leaders, with barricades to prevent entrance and exit to casino of personnel; (2) After PAGCOR resumed its casino operations upon declaration of unconstitutionality of the ordinances (July 15, 1993); (3) Incessant rallies > Cease of Casino Operations by PAGCOR > Demand Letters (September 1,3,15, 1993) for payment of rental by Pryce, covering September 1 – November 30, 1993 > Response of PAGCOR (September 20, 1993) that (i) it’s not amenable to the payment of the full rentals due to the unforeseen legal and other circumstances which prevented it from complying with its obligations; (ii) it’s preterminating the contract; (iii) it’s demanding the refund of its rental deposits > SUIT (November 15, 1993) by Pryce for sum of money > Letter by Pryce (November 25, 1993): TERMINATION of the Contract by Pryce; Collection Rental Payment as penalty pursuant to contract > CONTENTION of PAGCOR: No rent to collect for the unexpired period because of termination of contract > CONTRACT PENAL CLAUSE: That in case of breach or default, Pryce can terminate the contract and collect rentals for the remaining term of the lease, despite the exercise of such right to terminate > Article XX. BREACH OR DEFAULT > a) The LESSEE agrees that all the terms, conditions and/or covenants herein contained shall be deemed essential conditions of this contract, and in the event of default or breach of any of such terms, conditions and/or covenants, or should the LESSEE become bankrupt, or insolvent, or 70

compounds with his creditors, the LESSOR shall have the right to terminate and cancel this contract by giving them fifteen (15 days) prior notice delivered at the leased premises or posted on the main door thereof. Upon such termination or cancellation, the LESSOR may forthwith lock the premises and exclude the LESSEE therefrom, forcefully or otherwise, without incurring any civil or criminal liability. During the fifteen (15) days notice, the LESSEE may prevent the termination of lease by curing the events or causes of termination or cancellation of the lease…..c) Moreover, the LESSEE shall be fully liable to the LESSOR for the rentals corresponding to the remaining term of the lease as well as for any and all damages, actual or consequential resulting from such default and termination of this contract. > TERMINATION, Not Rescission was the prayer of Pryce (1) An action praying for the payment of rental arrearages is for the partial enforcement of a lease contract which is not rescission, but termination or cancellation > Intention was not to rescind but to terminate and collect > (i) Demand Letters seeking to collect the rentals; (ii) No evidence of intention to rescind; (iii) Exercise of right to terminate from the penal clause; (2) Reduction of rentals due because it was iniquitous > From P7,037,835.40 to P687,289.50 > WHY: PAGCOR (i) first conducted a series of negotiations and consultations before entering into the Contract ~ problems were told to be surmountable; (ii) suffered tremendous loss of expected revenues; >> Rescission (1) Article 1191 > Rescission based on the breach of stipulation > Predicated on breach of faith by the defendant, that violates the reciprocity between the parties > Principal action retaliatory in character (2) Article 1659 as an alternative remedy, insofar as the rights and obligations of the lessor and the lessee in contracts of lease are concerned (3) Article 1380 > Rescission based on exonomic prejudice > Subordinate to the economic prejudice >> Rescission v. Termination > Rescission > Nature: to declare a contract null and void ab initio; abrogate it from the beginning > Effect: mutual restitution; to restore the parties to relative positions which they would have occupied had no contract ever been made > By both or by either of the parties > Termination > Nature: to end in time or existence; a close, cessation or conclusion > Effect > to enforce the contract’s terms prior to the declaration of its cancellation > By both, by either exercising one of its remedies as a consequence of the default of the other

G.R. No. 139523 May 26, 2005 SPS. FELIPE AND LETICIA CANNU v. SPS. GIL AND FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE CORPORATION Facts: The Galangs sold their house and lot to Cannus. But because the property was then mortgaged to Fortune (NHMFC), the deed of sale was accompanied by an assumption of mortgage. The Cannus failed to pay the balance of the purchase price and of the mortgage, thereby forcing the Galangs to pay the mortgage themselves. The suit was filed by Cannus to prevent the NHMFC to surrender the title of the property to the Galangs, claiming that they are the owners pursuant to the sale. However, Galangs have the right to rescind the contract and have done so validly. The failure of the Cannus to pay their obligations in 18m, where the Galangs have already fulfilled their part of the deal by delivering the property to them, was a substantial breach. Though the contract did not allow for an automatic rescission, the counterclaim of Galangs included a rescission and hence, the rescission was judicially declared by the SC. > House and Lot of sps. Gil and Fernandina Galang which they mortgaged to Fortune Savings & Loan Association, which loaned them the purchase money (Fortunes’s rights as creditor was purchased by National Home Mortgage Finance Corporation) > Deed of Sale with Assumption of Mortgage Obligation (August 20, 1990) between sps. Galang and sps. Felipe and Leticia Cannu over the former’s house and lot, for P120k (not P250k as stated in Deed) + balance of the mortgage obligations with NHMFC > Immediate Possession and Payments by Sps. Cannu to sps. Galang thru Galangs’ Atty-in-fact, Adelina R. Timbang (July 1990, March, April, November 1991), leaving a balance of P45k, and to NHMFC (July 1990, March 1991, Feb 1992, March, April 1993), leaving a balance of P233,957.64 > Several Requests by Atty-in-fact to pay the balance or to vacate the property > Refusal of sps. Cannu > Denial of the sps. Cannu’s application for assumption of mortgage to NHMFC > Payment (May 21, 1993) by sps. Galang of the P233,957.64 balance of the full payment of mortgage ~ Title of the property held in abeyance by NHMFC because of sps. Cannu’s contention that the subject property had already been sold to them > SUIT by sps. Cannu for Specific Performance, that they be declared the owners of the property ~ that sps. Galangs cannot rescind without proof that latter were ready, willing and able to comply with their own obligation to restore to them the total payments they made; that sps. Galangs do not have the unilateral right to rescind and should have first asked the Court 71

> RIGHT TO RESCIND by sps. Galang under Art. 1191 because of Breach of Faith in a mutual relationship (1) Breach by sps. Cannu > Non-payment of the balance of the purchase price and of the monthly amortizations with the NHMFC (2) Breach by sps. Cannu was substantial > (a) Failure to pay for 18m before sps. Galang (thru atty-in-fact) themselves paid for the balance of the mortgage; (b) Failure to religiously pay the amortization WHERE they only paid 30m’s worth of debt in the span of 3y AND WHERE their application for assumption of the mortgage obligation was not appoved because of their non-submission of requirements > sps. Cannu’s clear intention to renege on and blatant noncompliance of their obligation > Alleged Manager’s Check is not tender of payment for it was not consigned; (3) Right to rescind not waived by Galangs in accepting payments of Cannu > atty-in-fact merely accepted the installment payments as an accommodation since they kept on promising they would pay; (4) Exercise of option to rescind > Sps. Galang (thru atty-in-fact) constantly followed-up the payment of the balance, presented the option to vacate the property, and paid the balance themselves after a considerable time whereby Cannus failed to pay ~ Payment by them was the act of rescission; (5) Compliance of sps. Galang to their obligation > Delivery of the property which the sps. Cannu’s even possessed; (6) Although sps. Galang should have asked for judicial intervention to obtain a judicial declaration of rescission, their Counterclaim seeks for the rescission of the Deed of Sale with Assumption of Mortgage >> Rescission or Resolution > Art. 1191 > Breach of faith > not be permitted for a slight or casual breach of the contract as to defeat the object of the parties in making the agreement > can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation, and the other is not >> Rescission (1) Article 1191 > Rescission based on the breach of stipulation > Predicated on breach of faith by the defendant, that violates the reciprocity between the parties > Principal action retaliatory in character (2) Article 1659 as an alternative remedy, insofar as the rights and obligations of the lessor and the lessee in contracts of lease are concerned (3) Article 1380 > Rescission based on exonomic prejudice > Subordinate to the economic prejudice > Wrong to apply 1191? G.R. No. 129107

September 26, 2001

ALFONSO L. IRINGAN v. HON. COURT OF APPEALS and ANTONIO PALAO, represented by his Attorney-in-Fact, FELISA P. DELOS SANTOS Facts: Failure to pay instalment for sale of real property rescissible only by judicial decree > March 22, 1985: Deed of Sale over an undivided portion of lot > From Antonio Palao to Alfonso Iringan for P295k > Payable in: 10k upon execution of Deed of Sale, 140k by April 30, 1985, P145k by December 31, 1985 > Failure to pay in full 2nd instalment ~ only P40k out of P140k > July 18, 1985: Notice of rescission thru Letter by Palao > August 20, 1985: Response that he was not opposing the revocation but asked for the reimbursement of P50k and attorney’s fee and geodetic engineer’s fee and interest > Palao refused > Iringan proposed the reimbursement of P50k or the sale of an equivalent portion of the land > Palao responded that Iringan’s obligation reached P61,600 (rentals from October 1985 up to March 1989) > July 1, 1991: Complaint for Judicial Confirmation of Rescission of Contract and Damages > September 25, 1992: RTC affirmed rescission > Remedy of Palao > RESCISSION BY JUDICIAL DECLARATION > Letter of July 18, 1985 not enough but Complaint for Judicial Confirmation of Rescission of Contract suffices > Sale of real property > governed by Art. 1592 > rescission only judicially or by a notarial act > necessary before a valid rescission can take place, whether or not automatic rescission has been stipulated > Art. 1191 NOT APPLICABLE > not for sale of REAL/IMMOVABLE PROPERTY > BUT EVEN IF IT APPLIES > NECESSITY FOR JUDICIAL DECREE > petitioner not entitled to automatic rescission > right must be invoked judicially > obligation is not ipso facto erased by the failure of the other party to comply with what is incumbent upon him > right cannot be exercised solely on a party's own judgment that the other committed a breach of the obligation > operative act which produces the resolution of the contract is the decree of the court and not the mere act of the vendor *Prescription in Art. 1144: action upon a written contract should be brought within ten years from the time the right of action accrues > Why not 1389 because it doesn’t fall in 1381 > Why use 1381 over 1191 WHY IS IT A BAD CASE: Rescission only by judicial decree ~ denies injured party immediate remedy > Contrary to UP v. De los Angeles where extrajudicial rescission is valid but provisional 72

How to harmonize with UP v. De los Angeles > automatic rescission has been stipulated; otherwise, only via judicial decree > My Answer to Example of Sir: Minor’s Guardian sold 70% of bus company’s buses for 40% less than the market value > What is the remedy? 2 Remedies for rescission! 1381 by Minor, 1191 by Guardian in case the buyer does not pay the purchase price because, for the first case, there is economic prejudice, and for the second, there is breach of faith G.R. No. 144934 January 15, 2004 ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S. RIVERA v. FIDELA DEL ROSARIO (deceased and substituted by her corespondents), and her children, OSCAR, ROSITA, VIOLETA, ENRIQUE JR., CARLOS, JUANITO and ELOISA, all surnamed DEL ROSARIO Facts: Fidela mortgaged her children’s property to Mariano in order to secure the loan he granted to her. As part of the Agrement, the children of Mariano would purchase the property and a Deed of Absolute Sale would be executed upon the payment of the 2nd installment and the deposit of a check for the 3rd installment to Fidela. Mariano failed to pay the full amount of the 2nd and 3rd installments but caused the execution of the Deed of Sale which Fidela had inadvertently signed together with the Agreement and Mortgage. Mariano was thus able to acquire title to land upon registering the Deed of Sale which prompted Fidela to file a suit for rescission of the Agreement and annulment of the Deed of Sale. However, as a contract to sell, the Deed is ineffective and hence cannot be subject to rescission. The contract did not acquire obligatory force when the condition by which Fidela’s obligation to sell is dependent on did not arise, ie payment of the 2nd installment. Hence, the contract is ineffective and without force. So, Art. 1191 cannot apply because it contemplates a failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. > Deed of Real Estate Mortgage, Kasunduan (Agreement to Sell), and Deed of Absolute Sale (March 10, 1987) between Fidela Del Rosario and Mariano Rivera where former, under Special of Atty of her children, mortgaged the parcel of land of the Del Rosario children in favor of Mariano to secure the payment of the P250k loan he granted to her ~ Kasunduan provided that the children of Mariano would purchase property (for P2,141,622.50) and that a Deed of Absolute Sale would be executed only after the second installment (P750k) is paid and a postdated check for the last installment (P1,141,622.50) is deposited with Fidela ~ BUT Mariano already made the Deed of Absolute Sale

(where purchase price is only P601,160 and another lot was included) which Fidela had inadvertently signed with the Agreemend and Mortgage > Surrender of Title by Fidela to Mariano as guarantee for compliance of Kasunduan > Failure of Mariano to pay the 2nd and 3rd installment ~ giving only a check of P200k (October 30, 1987) to Fidela and P67,800 to Fidela’s son who is unauthorized to receive) > Refusal of Mariano to surrender the title ~ the affidavit of loss by Del Rosario was offset when Mariano subsequently registered the Deed of Absolute Sale (October 13, 1992) > SUIT (February 18, 1993) by Del Rosario for rescission of Kasunduan and Annulment of Deed of Absolute Sale due to fraud, that Fidela never intended to enter into a Deed of Sale at the time of its execution and that she signed the said deed on the mistaken belief that she was merely signing copies of the Kasunduan (already 72y and confused as the documents were stacked one on top of the other at the time of signing) > CONTENTION of Mariano: failure to prove that there was no other legal means available to obtain reparation other than to file a case for rescission; prescription > NO RESCISSION > Contract is INEFFECTIVE, NO OBLIGATORY FORCE > HENCE, 1385 does not apply (1) As a contract to sell, it never became obligatory because of Mariano’s failure to pay the entire purchase price ~ did not complete the 2nd installment and the 3rd > Contract to sell imposes reciprocal obligations where Del Rosario is to sell BUT ONLY UPON the 2nd installment of Mariano and Postdated check for the 3rd installment > Contract is ineffective > HENCE, not breach as contemplated in Art. 1191 because there is no obligation; case not falling under 1381; (2) No prescription yet > annulment of void contracts shall be brought within four years, beginning from the time the fraud or mistake is discovered > Fraud was discovered in 1992 and the complaint filed in 1993; (3) In relation to 1385, there can be no restoration of what is received because Mariano did not receive anything legally ~ no effective transfer of ownership > BUT what about the payment received by Del Rosario? >> Article 1385 that rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest >> RESOLUTION or Rescission of reciprocal obligations (Art. 1191) > principal action that is based on breach of a party > obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation >> Rescission of contracts (Art. 1383) > Rescission based on exonomic prejudice > Subordinate to the economic prejudice 73

>>> BOTH contracts are validly entered into as well as subsisting, and both require mutual restitution when proper G.R. No. 133879 November 21, 2001 EQUATORIAL REALTY DEVELOPMENT, INC. v. MAYFAIR THEATER, INC. Facts: Carmelo leased his properties to Mayfair for 20y and with right of first refusal to sale. But during the lease period, Carmelo sold the properties to Equatorial without first offer to Mayfair. Mayfair thus had the Deed of Sale annulled. Equatorial subsequently filed a suit for collection of the rent during the period when the leases had expired and before the Deed of Sale to Equatorial had been rescinded and to Mayfair issued by the Court. However, Equatorial has no right of ownership because its Deed of Sale was not consummated by the failure to deliver the property. Hence, it has no right of ownership and no right to collect the rentals. Its constructive title by virtue of the Deed of Sale was effectively destroyed by Mayfair when it filed the suit for annulment. > Contracts of Lease between Carmelo & Bauermann, Inc. and Mayfair Theater Inc. over the former’s parcel of land and 2-storey buildings ~ (i) On June 1, 1967, for 20y, covering portion of the second floor and mezzanine of a twostorey building for the Maxim Theater, with right of first refusal to purchase the subject properties; (ii) On March 31, 1969, for 20y, covering another portion of the second floor and two store spaces on the ground floor and the mezzanine for the Miramar Theater, with right of first refusal to purchase the subject properties > Deed of Absolute Sale (July 30, 1978, within 20y lease) by Carmelo to Equatorial Realty Development, Inc. for P11.3M, without first offer to Mayfair > Suit by Mayfair for annulment of the Deed of Absolute Sale ~ Granted with Deed Rescinded; Final and Executory (March 17, 1997) > Mayfair consigned P11.3M and RTC issued a Deed of Sale in favor of Mayfair and Registry canceled Equatorial's titles and issued new TCTs in the name of Mayfair > SUIT (September 18, 1997) by Equatorial for the collection of a sum of money against Mayfair as payment of rentals or reasonable compensation for Mayfair’s use of the premises after its lease contracts had expired ~ that Mayfair’s contracts of leases had expired (June 1, 1987; March 31, 1989) and as owner of the premises for the period before the sale to Mayfair, Equatorial should be able to collect rentals > That Art. 1385 provides that rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest > Equatorial has NO RIGHT to collect ~ Not Owners > No valid transfer of ownership

(i) Deed of Sale between Carmelo and Equatorial was not consummated due to the failure to deliver the property > Ownership is transferred only when the object of the sale is delivered or placed in the control and possession of the vendee > Equatorial never took actual control and possession of the property sold ~ Payment of rentals by Mayfair to it was only to avoid ejectment and maintain physical possession of the premises while awaiting the outcome of the annulment case > No right of ownership conferred to Equatorial > The rentals that fell due from the time of the perfection of the sale to Equatorial until its rescission by final judgment should belong to the owner of the property during that period, who is Carmelo; (ii) Constructive title of Equatorial by virtue of the Deed of Sale was rebutted by Mayfair when it opposed the transfer of the property in filing the annulment suit; (iii) (RTC but held Wrong) Deed of Sale was rescinded and the effect of rescission is to make the contract void from the beginning, as if it never happened; (iv) Even if the Deed is valid until rescinded, Rescission was timely sought by Mayfair before the Deed was consummated > GENERAL PROPOSITION that a rescissible contract is valid until rescinded is overcome by the SPECIFIC PROVISION that ownership is acquired, not by mere agreement, but by tradition or delivery in deciding specific cases (Justice Holmes) > Sale to Equatorial may have been valid from inception, but it was judicially rescinded before it could be consummated because the sale was not consummated by a legally effective delivery of the property sold; (v) Equatorial is a buyer in bad faith, rendering the Deed rescissible > Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts > Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies >> Rescssion > to rescind is to declare a contract void in its inception and to put an end as though it never were; to abrogate it from the beginning > EFFECT: not merely to terminate it and release parties from further obligations to each other but to restore parties to relative positions which they would have occupied had no contract ever been made >> Ownership > a real right which the buyer acquires only upon delivery of the thing to him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee > TRANSFER OF RIGHT not merely by contract, but also by tradition or delivery >> Delivery a composite act by which one party parts with the title to and the possession of the property, and the other acquires the right to and the possession of the sam; absolute giving up of the control and custody of the property on the 74

part of the vendor, and the assumption of the same by the vendee; transfer of possession or when the thing sold "is placed in the control and possession of the vendee > Either actual or constructive > Execution of a public instrument of sale is only a constructive or symbolic delivery that becomes valid only when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee

Watercraft Corporation in which they were also stockholders > Suit Granted (July 19, 1977) in favour of Union and adverse claim on the vessels was annotated for payment > Purchase (September 7, 1978) of the Vessels from Valenzuela by Far East Chemco Leasing Corporation, then from Far East by Peninsula Tourist Shipping Corporation (May 27, 1980) > SUIT (February 21, 1984) by Union against Far East for return of the vessels

>> Rent > a civil fruit that belongs to the owner of the property producing it by right of accession

> Action for Recovery NOT VALID (1) Rescission is not prayed for ~ Union alleged that the Sale to Far East is null and void ab initio and hence, no need to rescind > BUT an order for the return of the vessels or to pay for its value cannot be granted without the sale first being rescinded; (2) Action did not implead Peninsula despite knowledge of Union that Far East had already sold the vessels to Peninsula when it filed the Suit > Peninsula cannot be bound by an adverse decision in a case where it was not given a chance to defend itself; (3) No poof that the judgment debtor, Philippine Tugs, has not paid or has no other properties to answer for its liabilities > Far East cannot be made to pay ~ only sought after because the vessels were sold to it

> Dissent of Vitug > Rescissible not void ab initio > 1381 void from the beginning and hence Mutual restitution; 1191 only voidable and hence no restitution G.R. No. 100319 August 8, 1996 THE UNION INSURANCE SOCIETY OF CANTON v. THE COURT OF APPEALS and FAR EAST CHEMCO LEASING AND FINANCING CORPORATIONS Facts: UISC obtained a judgment for collection of money against Philippine Tugs after the former paid for the damages incurred by the latter’s shipment of Litton Mills’ cotton. But during the pendency of the case, Tugs was able to transfer its vessels to VWC. When their action was granted, adverse claims were annotated on the said vessels but the same vessels were subsequently sold to Far East Chemco then to PTSC. UISC thus sued Far East Chemco for the recovery of the vessels. However, Far East Chemco cannot be made to return for or pay the value equivalent of the vessels before its Sale with VWC is rescinded, which action was not prayed for by UISC. Moreover, UISC did not show that Tugs had not paid its debt or has no more property with which to pay its debt. UISC also did not implead Peninsula, the current owner of the vessels, despite knowledge that the vessels had already been sold to it when it filed the action. > Contract of Carriage (September 5, 1975) between Litton Mills, Inc. and Philippine Tugs, Inc. where the latter is to carry the former’s 2,045 bales of compressed cotton from the Manila South Harbor to Magallanes Drive ~ Shipment insured by Union Insurance Society of Canton, Ltd. > Delivery only of 2,036 bales, 521 of which were totally damaged by seawater and stains; other 9 went missing >Demand by Litton against Tugs for P1,849,044.23, total value of loss ~ Tugs refused, Insurer Union paid, Union demanded reimbursement from Tugs which denied the responsibility > Suit (March 11, 1976) by Union against Tugs for collection of sum of money > During pendency (September 30, 1976), Stockholders of Tugs transferred some of its vessels to Valenzuela

G.R. No. 144934 January 15, 2004 ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S. RIVERA v. FIDELA DEL ROSARIO (deceased and substituted by her corespondents), and her children, OSCAR, ROSITA, VIOLETA, ENRIQUE JR., CARLOS, JUANITO and ELOISA, all surnamed DEL ROSARIO Facts: Fidela mortgaged her children’s property to Mariano in order to secure the loan he granted to her. As part of the Agrement, the children of Mariano would purchase the property and a Deed of Absolute Sale would be executed upon the payment of the 2nd installment and the deposit of a check for the 3rd installment to Fidela. Mariano failed to pay the full amount of the 2nd and 3rd installments but caused the execution of the Deed of Sale which Fidela had inadvertently signed together with the Agreement and Mortgage. Mariano was thus able to acquire title to land upon registering the Deed of Sale which prompted Fidela to file a suit for rescission of the Agreement and annulment of the Deed of Sale. However, as a contract to sell, the Deed is ineffective and hence cannot be subject to rescission. The contract did not acquire obligatory force when the condition by which Fidela’s obligation to sell is dependent on did not arise, ie payment of the 2nd installment. Hence, the contract is ineffective and without force. So, Art. 1191 cannot apply because it contemplates a failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. 75

> Deed of Real Estate Mortgage, Kasunduan (Agreement to Sell), and Deed of Absolute Sale (March 10, 1987) between Fidela Del Rosario and Mariano Rivera where former, under Special of Atty of her children, mortgaged the parcel of land of the Del Rosario children in favor of Mariano to secure the payment of the P250k loan he granted to her ~ Kasunduan provided that the children of Mariano would purchase property (for P2,141,622.50) and that a Deed of Absolute Sale would be executed only after the second installment (P750k) is paid and a postdated check for the last installment (P1,141,622.50) is deposited with Fidela ~ BUT Mariano already made the Deed of Absolute Sale (where purchase price is only P601,160 and another lot was included) which Fidela had inadvertently signed with the Agreemend and Mortgage > Surrender of Title by Fidela to Mariano as guarantee for compliance of Kasunduan > Failure of Mariano to pay the 2nd and 3rd installment ~ giving only a check of P200k (October 30, 1987) to Fidela and P67,800 to Fidela’s son who is unauthorized to receive) > Refusal of Mariano to surrender the title ~ the affidavit of loss by Del Rosario was offset when Mariano subsequently registered the Deed of Absolute Sale (October 13, 1992) > SUIT (February 18, 1993) by Del Rosario for rescission of Kasunduan and Annulment of Deed of Absolute Sale due to fraud, that Fidela never intended to enter into a Deed of Sale at the time of its execution and that she signed the said deed on the mistaken belief that she was merely signing copies of the Kasunduan (already 72y and confused as the documents were stacked one on top of the other at the time of signing) > CONTENTION of Mariano: failure to prove that there was no other legal means available to obtain reparation other than to file a case for rescission; prescription > NO RESCISSION > Contract is INEFFECTIVE, NO OBLIGATORY FORCE > HENCE, 1385 does not apply (1) As a contract to sell, it never became obligatory because of Mariano’s failure to pay the entire purchase price ~ did not complete the 2nd installment and the 3rd > Contract to sell imposes reciprocal obligations where Del Rosario is to sell BUT ONLY UPON the 2nd installment of Mariano and Postdated check for the 3rd installment > Contract is ineffective > HENCE, not breach as contemplated in Art. 1191 because there is no obligation; case not falling under 1381; (2) No prescription yet > annulment of void contracts shall be brought within four years, beginning from the time the fraud or mistake is discovered > Fraud was discovered in 1992 and the complaint filed in 1993; (3) In relation to 1385, there can be no restoration of what is received because Mariano did not receive anything legally ~ no effective transfer of ownership > BUT what about the payment received by Del Rosario?

>> Article 1385 that rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest >> RESOLUTION or Rescission of reciprocal obligations (Art. 1191) > principal action that is based on breach of a party > obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation >> Rescission of contracts (Art. 1383) > Rescission based on exonomic prejudice > Subordinate to the economic prejudice >>> BOTH contracts are validly entered into as well as subsisting, and both require mutual restitution when proper G.R. No. 134685 November 19, 1999 MARIA ANTONIA SIGUAN v. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM Facts: One year after a deed of donation was executed by Lim, she incurred debt against Siguan for issuing 2 bouncing checks. The Deed of Donations were registered after the charge was filed and was sought to be rescinded to answer to the debt which was alleged to be fraudulent. 1. August 10, 1989: Deed of Donation covering parcels of land > by Rosa Lim in favor of her children > registered only on July 2, 1991 2. July 31, 1990: Victoria Suarez filed a criminal charge against Lim for estafa > convicted but criminally acquitted by SC but with civil liability of P169k as actual damages 3. August 25&26, 1990: Lim issued 2 checks to Maria Antonia Siguan worth P300,000 and P241,668, respectively, payable to “cash” > Dishonoured because account closed a. Siguan filed a criminal charge against Lim for issuing bouncing checks > (Registration of Deeds of Donation on July 2, 1991) > Lim convicted (December 29, 1992) > action for rescission and nullification of new titles by Siguan > as creditor allegedly defrauded by donations because it left Lim with no sufficient properties to pay her obligations b. Contentions of Lim i. No proof that donations were antedated to defraud Siguan > Deed was notarized > public document > prima facie evidence of the facts therein 76

ii. Siguan cannot invoke the credit of Suarez which was incurred prior to the donation > not a party to this case to support her accion pauliana Issue/s: WON donations were fraudulent WON awards of damages, attorney's fees and expenses of litigation are proper Held: 1.

No fraud Not fraudulent because donations were made before debt was incurred a. accion pauliana > action to rescind contracts in fraud of creditors i. Requisites > (1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable later > existence of creditors at the time of the alleged fraudulent alienation > date of the judgment enforcing it retroacts to date of debt; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud. ii. Without any prior existing debt > neither injury nor fraud b. Lack of first 2 requisites > Deed of Donation executed 1 year prior to the constitution of credit to Siguan (criminal charge) > credit of Suarez cannot be invoked to justify rescission > rescission is allowed only for recovery of creditor’s unsatisfied credit > Art. 1384 provides that rescission shall only be to the extent necessary to cover the damages caused ~ only the creditor who brought the action for rescission can benefit from the rescission, not strangers (Suarez) c. Lack of 3rd requisite > action for rescission is a subsidiary remedy > the exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted to > Siguan had neither alleged nor proved that she did so d. Lack of 4th requisite > Art. 1387: All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not reserve sufficient property to pay all debts contracted before the donation > must be established that the

2.

3.

donor did not leave adequate properties which creditors might have recourse for the collection of their credits existing before the execution of the donation i. Siguan’s credit existed only a year after the donation > could not have been prejudiced or defrauded by such alienation ii. Lim still had parcels of land in Cebu and Leyte > no proof that its actual market value were insufficient to cover her debts existing before the donation was made Fraudulent Acts by Jurisprudence > not exclusive a. The fact that the consideration of the conveyance is fictitious or is inadequate; b. A transfer made by a debtor after suit has begun and while it is pending against him; c. A sale upon credit by an insolvent debtor; d. Evidence of large indebtedness or complete insolvency; e. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially; f. The fact that the transfer is made between father and son, when there are present other of the above circumstances; and g. The failure of the vendee to take exclusive possession of all the property. No legal basis > Awards of damages, attorney's fees and expenses of litigation

G.R. No. L-7003 January 18, 1912 MANUEL ORIA Y GONZALES v. JOSE McMICKING, as sheriff of the city of Manila, GUTIERREZ HERMANOS, MIGUEL GUTIERREZ DE CELIS, DANIEL PEREZ, and LEOPOLDO CRIADO Facts: After Gutierrez sued the Oria Company, the latter sold all its property to a coowner’s son. Upon judgment in favor of Gutierrez, he had the steamship of Company attached despite its sale to the son. The son thus sued for recovery but the same cannot be granted. The sale to the son of the properties were void in so far as the steamship was concerned because it was to bore the badges of fraud but only for the steamship because it was enough to cover the judgment debt. Gutierrez need not file an annulment of the sale first but can just ignore such sale and seize it under execution which he had done. 77

> Suits (August 1909, March 1910) by Gutierrez Hermanos against Oria Hermanos & Co. for the recovery of P147,204.28 and P12,318.57 > Dissolution and Liquidation (April 30, 1910) of Oria Hermanos & Co. and its properties > Contract of Sale (June 1910) between Tomas Oria (managing partner; coowner) and 25y/o son Manuel Orio Gonzales, covering all of the property of Oria Hermanos & Co. for P274k but with prohibition not to sell, alienate, transfer or mortgage, either wholly or in part, the property sold without the written authorization of Tomas > Judgment in favor of Gutierrez (September 17, 1910) ~ Attachment and Sale of Oria Co’s steamship Serantes, which was included in the sale to Gonzales ~ Gonzales notified the sheriff of his ownership but Gutierrez paid a bond for his protection, as required by the Sheriff > SUIT (October 19, 1910) by Gonzales against Gutierrez for injunction to prevent the sale, declaration that he is the owner and restoration of possession > CONTENTION of Gonzalez: Validity of the sale from Oria Hermanos & Co. to him; Sufficiency of Company’s other property to pay the judgment of Gutierrez > CONTENTION of Gutierrez: Sale is fraudulent as against himself as creditor > SALE WAS FRAUDULENT (1) Sale was made while the actions of Gutierrez were already pending against the Company > Claim was for P160k and the Sale involved assets worth P274k; (2) Vendee was the son of Tomas and nephew of the coowners > that Company would not have sold it if vendee was a stranger; (3) No consideration > No proof of payment or delivery of any consideration; (4) Oddity that vendee is able to afford P274k when he was just 25, a student who owned no asset nor had any business at the time of the sale and without gainful occupation > A proceeding so unusual, so devoid of care and caution, and so wholly outside of the well defined lines of ordinary business transactions, as to startle any person interested in the concern; (5) Awareness of vendee Gonzales of the two suits that have already been begun against the Company whose assets he was purchasing; (6) Sale offered no security to the creditors of Company > prohibition against the sale of the properties is not security > leaves the creditors substantially without recourse BECAUSE the property of the company is gone, its income is gone, the business itself is likely to fail, the property is being dissipated, and is depreciating in value; > HENCE, Sale is void in so far as was necessary to permit the collection of its judgment ~ Steamship thus validly attached even without action for annulment of sale >> TEST OF FRAUD

> ELEMENTS OF VALIDITY: It is founded on good consideration AND is made with bona fide intent > Whether the conveyance was a bona fide > Bad faith and lack of valuable consideration must be proven by party seeking rescission; he who alleges must prove > Can you prove either or must prove BOTH? BOTH! AND nga eh  haha > transaction or a trick and contrivance to defeat creditors ~ MUST NOT prejudice the rights of creditors > BADGES OF FRAUD: 1. The fact that the consideration of the conveyance is fictitious or is inadequate. 2. A transfer made by a debtor after suit has been begun and while it is pending against him. 3. A sale upon credit by an insolvent debtor. 4. Evidence of large indebtedness or complete insolvency. 5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially. 6. The fact that the transfer is made between father and son, when there are present other of the above circumstances. 7. The failure of the vendee to take exclusive possession of all the property. > ACTION OF CREDITORS > Can test the validity of the sale without first resorting to a direct action to annul the sale > creditor may attack the sale by ignoring it and seizing under his execution the property, or any necessary portion thereof, which is the subject of the sale G.R. No. 134685 November 19, 1999 MARIA ANTONIA SIGUAN v. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM Facts: One year after a deed of donation was executed by Lim, she incurred debt against Siguan for issuing 2 bouncing checks. The Deed of Donations were registered after the charge was filed and was sought to be rescinded to answer to the debt which was alleged to be fraudulent. 4. August 10, 1989: Deed of Donation covering parcels of land > by Rosa Lim in favor of her children > registered only on July 2, 1991 5. July 31, 1990: Victoria Suarez filed a criminal charge against Lim for estafa > convicted but criminally acquitted by SC but with civil liability of P169k as actual damages 6. August 25&26, 1990: Lim issued 2 checks to Maria Antonia Siguan worth P300,000 and P241,668, respectively, payable to “cash” > Dishonoured because account closed 78

a. Siguan filed a criminal charge against Lim for issuing

b.

bouncing checks > (Registration of Deeds of Donation on July 2, 1991) > Lim convicted (December 29, 1992) > action for rescission and nullification of new titles by Siguan > as creditor allegedly defrauded by donations because it left Lim with no sufficient properties to pay her obligations Contentions of Lim i. No proof that donations were antedated to defraud Siguan > Deed was notarized > public document > prima facie evidence of the facts therein ii. Siguan cannot invoke the credit of Suarez which was incurred prior to the donation > not a party to this case to support her accion pauliana

Issue/s: WON donations were fraudulent WON awards of damages, attorney's fees and expenses of litigation are proper Held: 4.

No fraud Not fraudulent because donations were made before debt was incurred a. accion pauliana > action to rescind contracts in fraud of creditors i. Requisites > (1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable later > existence of creditors at the time of the alleged fraudulent alienation > date of the judgment enforcing it retroacts to date of debt; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud. ii. Without any prior existing debt > neither injury nor fraud b. Lack of first 2 requisites > Deed of Donation executed 1 year prior to the constitution of credit to Siguan (criminal charge) > credit of Suarez cannot be invoked to justify rescission > rescission is allowed only for recovery of creditor’s unsatisfied credit > Art. 1384 provides that rescission shall only be to the extent necessary to cover the damages caused ~

5.

6.

only the creditor who brought the action for rescission can benefit from the rescission, not strangers (Suarez) c. Lack of 3rd requisite > action for rescission is a subsidiary remedy > the exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted to > Siguan had neither alleged nor proved that she did so d. Lack of 4th requisite > Art. 1387: All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not reserve sufficient property to pay all debts contracted before the donation > must be established that the donor did not leave adequate properties which creditors might have recourse for the collection of their credits existing before the execution of the donation i. Siguan’s credit existed only a year after the donation > could not have been prejudiced or defrauded by such alienation ii. Lim still had parcels of land in Cebu and Leyte > no proof that its actual market value were insufficient to cover her debts existing before the donation was made Fraudulent Acts by Jurisprudence > not exclusive a. The fact that the consideration of the conveyance is fictitious or is inadequate; b. A transfer made by a debtor after suit has begun and while it is pending against him; c. A sale upon credit by an insolvent debtor; d. Evidence of large indebtedness or complete insolvency; e. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially; f. The fact that the transfer is made between father and son, when there are present other of the above circumstances; and g. The failure of the vendee to take exclusive possession of all the property. No legal basis > Awards of damages, attorney's fees and expenses of litigation

G.R. No. 114950

December 19, 1995 79

RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR., APOLINARIO, RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA LOURDES, all surnamed SUNTAY v. THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY Facts: There was a contract of Sale between Federico and Rafael whereby former allegedly sold his property to latter so that latter can obtain a loan agreement for former’s expansion of his rice mill. Title was transferred to Rafael although no payment had been made or demanded and Federico kept possession of the property without any claim of possession by Rafael. Although a Deed of Counter Sale was executed in favour of Federico over the property, Rafael denied its validity for not being notarized and claimed the validity of the Sale as genuine. Both Deeds were declared a simulation, however, because the intention to retain ownership with Federico was obvious in his continued possession of the property and in Rafael’s lack of claim of ownership. > Absolute Deed of Sale (May 19, 1962) between Federico Suntay (wealthy landowner) and his lawyer/nephew Rafael Suntay where former allegedly sold a parcel of land and all its improvements to the latter for P20k ~ Federico: that it was for the purpose of obtaining a loan from the National Rice and Corn Corporation as a miller-contractor, in the name of Rafael, because his own application was declined due to his existing unpaid loans ~ Notarized > Issuance of a New TCT in Rafael’s name > Continued Possession by Federico of the property > Counter Deed of Sale by Rafael, selling back the property to Federico also for P20k ~ Not notarized where the page number indicated does not refer to the same document in the notarial register > Letter Request (August 14, 1969) by Federico for the delivery of the TCT so that he could have the Counter Deed of Sale in his favor registered and use the property as collateral in securing a bank loan to finance the expansion of the rice mill and warehouse facilities > Rafael Denied > Suit by Federico for the surrender by Rafael of the TCT ~ Withdrawn due to Rafael’s claim that the Counter Sale was a counterfeit due to discrepancy in the notarization > SUIT (July 8, 1970) by Federico for reconveyance and damages > CONTENTIONS of Federico: Simulated contract of sale ~ (i) that he remained in possession of the property; (ii) that Rafael never exercised a single act of ownership; (iii) that Rafael never paid and he never demanded the payment P20k; (iv) that he paid all taxes > CONTENTION of Rafael: (i) Genuine sale of the property as dacion en pago in satisfaction of Federico’s unpaid atty’s fees; (ii) Estoppel against Federico in claiming the simulation of the Sale due to his judicial admissions of the sale in his DemandLetter, withdrawn Petition for the surrender of the title, and Notice of Adverse Claim on the property

> CONTRACT OF SALE WAS A SIMULATION > Mere accommodation agreement ~ Executed without any consideration > Void and Not susceptible of Ratification ~ No legal effects (1) 2 Deeds were executed closely one after the other, both involving the transfer and re-transfer of the same property at exactly the same price > Agreement for repurchase just three months later is consistent with Simulation (2) Federico and Rafael had an existing close relationship as uncle and nephew > Complete and mutual trust and business and professional interdependence between them where Rafael signed the Counter-Deed even without prior payment by Federico of the alleged purchase price of P20k and Federico blindly singed and executed the Deed of Sale > Practice in the typical Filipino family where the patriarch, with the capital and business standing, takes into his fold the young, upcoming, inexperienced but brilliant and brashly ambitious son, nephew or godchild who, in turn, becomes to his father, uncle, or godparent, the jack of all trades, trouble shooter and most trusted liaison officer cum adviser > He wittingly serves his patron without the security of a formal contract and without clarifying the matter of compensation > Fraud is generally accompanied by trust (3) The value and location of the property purportedly sold was grossly inadequate for the consideration of a measly P20k > Alleged dacion en pago for Rafael’s atty’s fees was raised onlyin 1976 when he testified on direct examination > Even testified that no accounting was undertaken between uncleclient and nephew-lawyer in order to arrive at the definite amount of the alleged unpaid attorney's fees; (4) Federico remained in physical possession, enjoyment and use of the property through the years and up to the present > Rafael did not even include the property in his statement of assets and liabilities nor paid the taxes nor collected any rents from Federico > Federico retained exclusive possession of the property, contrary to the principle of ownership; (5) No estoppel because the Demand-Letter, withdrawn Petition for the surrender of the title, and Notice of Adverse Claim on the property did not claim that Federico sold the property > Only alleged that Rafael resold to Federico the said property; (6) Delay of Federico in asserting his title (7y) was not questionable > There was no pressing reason for Federico to have a title in his name issued > only when Federico needed the title in order to obtain a collaterized loan that Federico began to attend to the task of obtaining a title in his name > ALSO, his title was not in the hands of a stranger or mere acquaintance but in the possession of his nephew who, being his lawyer, had served him faithfully for many years > Even if Deed was notarized and hence prima facie evidence of its contents, the stated circumstanced rebutted the presumption > Intention of the parties still and 80

always is the primary consideration in determining the true nature of a contract ~ It may always be shown that the transaction was understood by the parties not to have jural effect ~ not the intention nor the function of the notary public to validate and make binding an instrument never, in the first place, intended to have any binding legal effect upon the parties G.R. No. 129644 September 7, 2001 CHINA BANKING CORPORATION v. HON. COURT OF APPEALS, PAULINO ROXAS CHUA and KIANG MING CHU CHUA Facts: Alfonso sold his ½ share to the family home to Metrobank pursuant to an adverse decision in favor of Metrobank. Subsequently, Chinabank also sued Alfonso for money. Before judgment was rendered, Alfonso assigned his right of redemption of the property from Metrobank to his son Paulino. Paulino was able to redeem the property. After which, Chinabank levied the same property and bought it in a public auction. Paulino brought the suit against Chinabank. The Deed of Assignment was valid because it was made in good faith (where Paulino did not know of his father’s debt to Chinabank) and for a consideration (where he paid his father P100k for the right of redemption and Metrobank P1,463,375.39 for the redemption). But WON the Deed of Assignment was valid, Chinabank could not have validly levied the property because by the time it made the levy, the property had already transferred to Metrobank whose title would have become complete for failure to redeem it by Chinabank within 12m. > Adverse Decision against Pacific Multi Commercial Corporation and Alfonso Roxas Chua, in favor of Metropolitan Bank and Trust Company ~ Levy on Alfono’s house and lot in North Greenhills which was questioned by wife Kiang Ming Chu Chua because it was the family home, conjugal property (title in the sps’ names) > Compromise Agreement between Metrobank and sps. Chua that the levy shall be valid only to the extent of the ½ share pertaining to Alfonso ~ Execution of a Certificate of Sale in favor of Metrobank, annotated on the title (December 22, 1987) > Suit by and Judgment in favor of China Banking Corporation for sum of money against PMCC and Alfonso for P2.5M (November 7, 1985) > Deed of Assignment of Right to Redeem (November 21, 1988) by Alfonso in favor of his son Paulino Roxas Chua over the former’s right to redeem the ½ undivided portion of the land sold to Metrobank > Redemption by Paulino of the ½ share from Metrobank (January 11, 1989) ~ Annotated to the title (March 14, 1989) > Levy by Chinabank (February 4, 1991) on Alfonso’s share to the house and lot, Sale and Annotation (May 4, 1992) > SUIT by son Paulino against China Bank ~ CONTENTIONS: that it has a prior and better right over Chinabank inasmuch as the assignment to him of the right to redeem and his redemption of Alfonso’s share in the property were inscribed on

the title on an earlier date than the annotation of the notice of levy and certificate of sale in favor of Chinabank > Validity of Redemption by Paulino of Alfonso’s ½ share (1) Valid Deed of Assignment of Right to Redeem from Alfonso to Paulino > (i) Good Faith: Lack of knowledge of Paulino about Alfonso’s debt to Chinabank; (ii) Consideration: Paulino paid Alfonso P100k for the right to redeem and paid Metrobank P1,463,375.39 for the redemption ~ If it is questioned as insufficient, the value was accepted by Metrobank, refers only to ½ share of the property, and value still undetermined subject only to liquidation of the conjugal partnership > But what is the value of a right of redemption? Option = Fair market value minus redemption price; (2) Even if Assignment was void, redemption by Paulino was valid as a compulsory heir of Alfonso ~ that judgment debtor or his successor in interest may redeem real property sold on execution (Rule 39, Section 29 (a) of the 1964 Rules of Court); (3) Expiration of redemption period wherein Chinabank, as a redemptioner, could have redeemed the property from Metrobank > 12m (1964 Rules of Court) > Annotation of Metrobank’s title on December 22, 1987; Levy by Chinabank on February 4, 1991 > No more right to redeem as redemptioner > MEANWHILE, Paulino was able to redeem the property within the 12m, on January 11, 1989; (4) As a family home, ½ of the property could not have been acquired by either Banks as it will create an absurd co-ownership between a bank, on the one hand, and a family, on the other hand, of the latter’s family home >> HENCE, with or without the Deed of Assignment, the Property was no longer Alfonso’s when levied by Chinabank ~ Already Metrobank’s and Paulino’s >> PRESUMPTION OF FRAUD Against Creditors (Art. 1387) (1) that alienations made by a debtor by gratuitous title are presumed fraudulent when the donor did not reserve sufficient property to pay his outstanding debts (2) that alienations by onerous title are presumed fraudulent when made by persons against whom some judgment has been rendered or some writ of attachment has been issued > Presumptions NOT conclusive ~ Can be overthrown by evidence showing that the conveyance was made (a) in good faith and (b) for a sufficient and valuable consideration >> successor-in-interest > a person to whom the judgment debtor has transferred his right of redemption, or one to whom he has conveyed his interests in the property for purposes of redemption, or one who succeeds to his property by 81

operation of law, or a person with a joint interest in the property, or his spouse or heirs G.R. No. 138104 April 11, 2002 MR HOLDINGS, LTD. v. SHERIFF CARLOS P. BAJAR, SHERIFF FERDINAND M. JANDUSAY, SOLIDBANK CORPORATION, AND MARCOPPER MINING CORPORATION Facts: To secure the loan granted by ADB, Marcopper was provided cash flow support by Placer Dome (coowner of Marcopper). When Marcopper defaulted, Placer Dome thus paid its obligations to ADB thru its subsidiary, MR Holdings. Meanwhile, Solidbank was able to obtain a partial judgment in its favor and against Marcopper for money. Despite the partial judgment, Marcopper ceded all its properties to MR Holdings. Nonetheless, Solidbank levied the properties. Hence, MR Holdings sued to prevent the auction as the owner of the properties. The Deed of Assignment by Marcopper in favor of MR Holdings was valid even if it was made after the partial judgment because it was for a valuable consideration of $18,453,450.02 and in good faith where even before the debt to Solidbank, MR Holdings’ subsidiary (Placer Dome) had already agreed to secure Marcopper’s debt to ADB and ADB had already transferred its rights to MR Holdings. Hence, MR Holdings’ right has greater weight than Solidbank as the mortgage creditor for the mortgage properties of MR Holdings which the Marcopper had assigned to MR Holdings as payment of its debt. > Loan Agreements (November 4, 1992) by Asian Development Bank in favor of Marcopper Mining Corporation for $40M (Principal loan worth $15M, Complementary loan worth $25M to finance the latter’s mining project; former funded by ADB itself and latter funded by the Bank of Nova Scotia, participating finance institution of ADB) > Security of Loans: (i) Placer Dome, Inc.(foreign corporation owning 40% of Marcopper) agreed to provide Marcopper with cash flow support for the payment of its obligations to ADB; (ii) Deed of Real Estate and Chattel Mortgage (November 11, 1992) in favor of ADB, covering all of Marcopper’s properties ~ registered (November 12, 1992) > Default of Marcopper; Assumption of Marcopper’s obligation (worth $18,453,450.02) by MR Holding, Ltd., Placer Dome’s subsidiary corporation by virtue of (i) Assignment Agreement (March 20, 1997) where ADB assigned all its rights and interests under the loan agreements to MR Holding, and (ii) Deed of Assignment (December 8, 1997) where Marcopper assigned its properties to MR Holding ~ Change of debtor in relation to ADB and of creditor in relation to Marcopper (MH Holding became the creditor of Marcopper when it paid ADB and hence, Marcopper ceded its properties to it while ADB ceded its right to collect to it) > MEANWHILE, Partial Judgment (May 7, 1997) in favor of

Solidbank Corporation against Marcopper for payment of P52,970,756.89 > Levy on Marcopper’s properties ~ MR Holdings served an Affidavit of ThirdParty Claim to the Sheriff but was denied > SUIT by MR Holding for reivindication of properties > Assignment to MR Holding NOT Fraudulent (1) Good Faith > Even if 2nd Deed of Assignment (Marcopper to MR Holding) was made after the partial judgment (in favor of Solidbank) – latter on May 7 and former on December 8, 1997 – there was no intention on the part of MR Holding to defeat Solidbank’s claim > WHY: (a) Obligation of Placer Dome to provide Marcopper with cash flow support for the payment to ADB of its obligations was established as early as November 4, 1992 ~ HENCE, Placer Dome (thru its subsidiary MR Holding) agreed to pay ADB when Marcopper ceased operations; (b) Highly inconceivable that ADB, a reputable international financial organization, will connive with Marcopper to feign or simulate a contract in 1992 and to pay $18,453,450.12 just to defraud Solidbank for its claim four years thereafter that is worth only P52,970,756.89; (2) Valuable Consideration > Payment by MR Holding of $18,453,450.12 to ADB, $13,886,791.06 of which was remitted in favor of Bank of Nova Scotia, its major stockholder > WHEREFORE, Solidbank cannot assert a better right than ADB, the latter being a preferred creditor where mortgaged properties answer primarily for the mortgaged credit, not for the judgment credit of the mortgagor’s unsecured creditor >> Presumption of Fraud when a debtor alienates property after a judgment has been rendered against the debtor making the alienation > Not conclusive and may be rebutted by satisfactory and convincing evidence that the conveyance is made in good faith and for a sufficient and valuable consideration

G.R. No. L-60174 February 16, 1983 EDUARDO FELIPE, HERMOGENA V. FELIPE AND VICENTE V. FELIPE v. HEIRS OF MAXIMO ALDON, NAMELY: GIMENA ALMOSARA, SOFIA ALDON, SALVADOR ALDON, AND THE HONORABLE COURT OF APPEALS Facts: Gimena sold her and husband’s property without latter’s consent. The sale is voidable for want of consent since neither spouse can alienate cp without 82

the consent of both. Gimena could not seek annulment as she was responsible for the defect; husband had already died and should have sought annulment during marriage. However, the children had the right to recover the property as it prejudiced their rights to the share of their father. And because sps. Felipe were buyers in bad faith, the children were able to annul the sale in due time because the prescription of 30y was still operating. > Purchase (1948 and 1950) by sps. Maximo Aldon and Gimena Almosara of properties during marriage (1936) ~ Conjugal property > Sale of the conjugal land by Ginema to sps. Eduardo Felipe and Hermogena V. Felipe (1951) ~ without Maximo’s consent > SUIT (April 26, 1976) by Gimena and children for recovery of the property > CONTENTIONS of Gimena: that the transaction was only an oral mortgage and that their offer to redeem it was refused > CONTENTIONS of sps. Felipe: that it was a sale, with no right of redemption > Transaction was of SALE but VOIDABLE > Lack of consent by Gemina > Valid Annulment by the children (1) The property was conjugal and hence, cannot be alienated by either spouse without the consent of the other (Arts. 166, 172, former prohibiting husband, latter wife) > Though there are exceptions, the sale does not fall in it; (2) Voidable Contract for Lack of Consent > Gemina could not have sold the property without husband’s consent > Consent must have been given by both spouses > Not (i) rescissible ~ Gimena's consent was tainted; (ii) unenforceable ~ does not fit in Art. 1403; (iii) void or inexistent ~ not in Art. 1409; (3) Annulment can be sought by: (i) the husband who was the victim because he had an interest in the contract BUT only during the marriage > He died already > Marriage terminated and CP dissolved already; (ii) the children > inchoate right to the share of their father became actual upon their father’s death > acquired the right to question the defective contract insofar as it deprived them of their hereditary rights in their father's share (iii) Not Gimena because she was the responsible party for the defect; (4) Prescription has not yet lapsed > (a) Sps. Felipe are buyers in bad faith > knew that they did not acquire ownership because they even attempted to have Gimena sign a Deed of Sale (disguised as consent to construction of an irrigation pump) in December 1970 > (b) Children's cause of action accrued from the death of their father in 1959 and they filed the action in 1976 > Prescription is 30y (Art. 1141) > What is capacity to contract> Civil Code 37 ~ Act with legal effect G.R. No. L-27343

February 28, 1979

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC. v. ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO Facts: Partner Saldejeno left the partnership with Tubungbanua and Garibay but instead of terminating the partnership and liquidating the properties, she allowed her partners to continue the same. The properties were mortgaged to her and when she foreclosed it, the creditors of the partnership sued for the annulment of the mortgage. Even if they were not parties to the contract of mortgage, they can ask for annulment because their rights as creditors were prejudiced when they were not informed of the dissolution of the partnership where even the properties were conveyed to Saldejeno thru mortgage. > Isabela Sawmill (January 30, 1951) was a partnership among Leon Garibay, Margarita G. Saldejeno, and Timoteo Tubungbanua > Partnership acquired a lot of debts from purchasing materials and from delivering short of what the purchaser had paid: (i) P1,288.89 to Oppen, Esteban, Inc. as unpaid balance for purchase of a motor truck, tractors (February 3, 1956); (ii) P933.73 to Agustin E. Tonssay as balance of the value he paid for lumber where delivery fell short of what was paid for (October 6, 1958 to November 8, 1958); (iii) P143 to Manuel G. Singsong as unpaid balance of purchased nipa shingles (May 25, 1988 to January 13, 1959); (iv) P920.56 to Jose L. Espinos as balance of the value he paid for lumber where delivery fell short of what was paid for (October 11, 1958); (v) P1,048.78 to Bacolod Southern Lumber Yard as balance of the value he paid for lumber where delivery fell short of what was paid for (October 11, 1958); (vi) P2,052.10 to Jose Balzunce as unpaid balance for purchase of gasoline, motor fuel, and lubricating oils (September 14, 1958 to November 27, 1958) > MOA and Deed of Assignment of Rights with Chattel Mortgage (May 26, 1958) by Saldejeno over her right in the partnership in favour of her partners ~ BUT non-termination of the partnership (continued by Garibay and Tubungbanua) and non-dissolution of the partnership properties but mortgaged the same in favour of Saldejeno > Judicial Foreclosure of the Mortgaged Properties (trucks, tractors, machinery, office equipment, etc) by Saldejeno against Isabela Sawmill ~ Certificate of Sale in Saldejeno’s favour (October 15, 1969; 1959?) > Deed of Sale (October 20, 1959) of the same properties by Saldejeno to Pan Oriental Lumber Company for P45k > SUIT by Creditors for Annulment of Chattel Mortgage ~ allegedly deprived them of their rights since they did not know about the dissolution of the partnership 83

> Mortgage Annulled > Prejudice against Creditors > HOW: (1) No publication of the foreclosure of mortgage; (2) Saldejeno cannot complain > Responsible party for not insisting on the liquidaiton of the assets of the partnership > even agreed to let Garibay and Tubungbanua continue doing the business of the partnership "Isabela Sawmill" by entering into the MOA > Instead of terminating the Partnership when she ceased to be associated in the carrying on of the business, Partnership was not terminated but continued by Garibay and Tubungbanua in the same name of "Isabela Sawmill” by virtue of MOA ~ no liquidation of the assets; (3) Even if Saldejeno was in good faith, she must suffer because where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences > She entered into a MOA allowing Garibay and Tubungbanua to continue doing the business > OTHERWISE, creditors would not have been misled into thinking that they were still dealing with the partnership Isabela Sawmill; (4) Creditors can assail the Mortgage’s validity even if not a party > Prejudiced their rights as third persons ~ detriment which would positively result to him from the contract in which he has no intervention > Ray Question: Why annulment and not rescission? Annulment v. Rescission > Prejudiced persons (Creditors) not parties to a contract CAN ONLY RESCIND and NOT ANNUL > When would prejudice allow a third person to annul the contract? NONE, Action is rescission (if creditor) and not Annulment *Exception in Malabanan (Ibanez v. HSBC) is theoretical but not practical G.R. No. 158314 June 3, 2004 SAMAHAN NG MAGSASAKA SA SAN JOSEP, represented by DOMINADOR MAGLALANG v. MARIETTA VALISNO, ADELA, AQUILES, LEANDRO, HONORIO, LUMEN, NICOLAS, all surnamed VALISNO; RANDY V. WAGNER, MARIA MARTA B. VALISNO, NOELITO VALISNO, MARY ANN L. VALISNO, PHILIP V. BRANZUELA and BRENDON V. YUJUICO; MA. CRISTINA VALISNO, BENEDICTO V. YUJUICO, GREGORIO V. YUJUICO and LEONORA V. YUJUICO Facts: The mortgaged property of Dr. Valisno was redeemed by his grandchildren who were minors at the time. When the entire estate was subjected to CARP, the children and grandchildren filed for retention of

property. SMSJ assailed the right of the grandchildren to the land as owners because they were just minors. However, the defect in the redemption can only be assailed by the victims, who were the minors themselves, and their lack of action for the annulment of the same rendered the voidable contract valid until annulled. Hence, they had the right as owners absent annulment of their redemption. > Ownership by Dr. Nicolas Valisno Sr. of 57-hectare property > Mortgage of 12-hectares (October 20, 21, 1972) by Dr. Valisno in favor of Renato and Angelito Banting > Subdivision of the Property to 10 (November 8, 1972) ~ Title issued to children of Nicolas, Angelito Banting, and Renato Banting > Foreclosure of the Mortgage, sold to Dr. Valisno’s grandchildren (Maria Cristina F. Valisno, Leonora Valisno Yujuico, Benedicto Valisno Yujuico and Gregorio Valisno Yujuico) thru their parents by redemption from mortgagees (October 25, 1973) ~ Issuance of title to redemptioners (November 26, 1998) > Subjection of 57-hectare to expropriation > Memorandum (June 14, 1995) by Provincial Agrarian Reform Officer that although the property had already been subdivided among the heirs of Dr. Valisno, the excess over the five-hectare retention limit could still be covered (RA 6657) ~ Same rationale by Secretary Garilao who subjected the property to Comprehensive Agrarian Reform Program, subject to the retention rights of the heirs > Consolidated Application for Retention and Award under RA 6657 (September 25, 1997) by Valisno heirs ~ Granted > Oppostion by SMSJ ~ that the grandchildren are not actually tilling nor directly managing the land in question as required by law ~ Grandchildren not entitled to retention rights as landowners due to minority > Valid Redemption by the Minors: Lack of Annulment by the Aggrieved Party (1) Even as the victims or the aggrieved parties who had the only right to annul the redemption, the minors never initiated any action > Why minors are the aggrieved ~ Contract was made for them, not by them; (2) Hence, the properties transferred to the Redemptioner-Grandchildren in 1973 and no longer part of the Valisno estate > Thus, as owners, they are entitled to retention which is granted to all landowners > Limit is 5-hectares, Entire Redeemed property is 12-hectares, Each owner only retains 3-hectares; (3) Even if minors in 1973 when property was redeemed, they were of legal age in 1994 when SMSP initiated the petition for coverage of the subject landholding under the CARL, and in 1997 when all the Valisno heirs filed their Consolidated Application for Retention and Award under RA 6657 >> Art. 1327 that minors are incapable of giving consent to a contract >> Art. 1390 that a contract where one of the parties is incapable of giving consent is voidable or annullable > not void ab initio 84

>> Requirements for an Action for the Annulment: (1) the plaintiff must have an interest in the contract; and (2) the action must be brought by the victim and not the party responsible for the defect > Art. 1397 that the action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily G.R. No. 74938-39

January 17, 1990

ANGELINA J. MALABANAN v. GAW CHING and THE INTERMEDIATE APPELLATE COURT

G.R. No. L-75524-25

January 17, 1990

LEONIDA CHY SENOLOS, LEONARD CHAN and LEONSO CHY CHAN v. INTERMEDIATE APPELLATE COURT and GAW CHING

Facts: Ching was a lessee of the property of Jabit. When Jabit died, his daughter offered the property for sale to Ching thrice but the latter refused. Daughter Angelina thus demanded that he leave the property because she had already sold it to another. Angelina also had the building thereon demolished. Ching sued for the annulment of the sale to Leonida and the injunction of the demolish order. However, as a third party to the contract, Ching cannot seek its annulment. He does not have any right to the property as it was outside the coverage of the law; even if it was the preemptive right cannot apply to him because the building was belonged to the lessor; no contract of lease to even grant him the right of first refusal; even if there was Angelina had thrice offered the land for sale.

> Lease of the Lot and Bldg of Mr. Jabit to Gaw Ching, non-citizen (1951; no contract) ~ 1st flr, Ching’s Victoria Blacksmith Shop; 2nd flr, residence > Death of Mr. Jabit; Continued Lease with daughter Angelina Malabanan (still no contract) > Notices (April 27, 1980, May 13, 1980, October 2, 1980) by Angelina to Ching that she is selling the property for P5k/sq.m. ~ Refusal of Ching (not yet a Filipino citizen until October 7, 1980); Threat by Angelina that she is to sell it to another > Payment by Ching of rentals to Pacific Banking

Corporation, due to Angelina’s refusal to accept it > Letter (November 3, 1980) from Angelina that she had sold the property to Leonida Senolos ~ Demands (November 24, 1980, December 5, 1980) by Angelina for Ching to vacate the property > Refusal of Ching, doubting the veracity of the sale and demanding a copy of the Deed of Sale ~ Eventually given a copy and discovered that the Sale was actually on August 23, 1979 (for P1,176.48/sq.m.) but registered only on December 9, 1980 > Demolition (November 16, 1981) of Building by Angelina’s men > SUIT by Ching against Angelina and Leonia for annulment of Sale and injunction for demolition > CONTENTIONS of Ching: (1) Right of first refusal; (2) Lack of notice of the demolition; (3) Sale was vitiated by fraud, deceit and bad faith because it was offered to him when in fact, it had already been sold to Leonida

> VALID SALE > Cannot be contested and annulled by Ching who was not a party to the contract > Does not come under exception because No right over the property > No legal basis to grant his petition (1) Ching had no legal right of preemption pursuant to Secs, 4, 6, PD 1517, PD 1893 and Letter of Instruction No. 935 which provides a preemptive right on the part of a lessee over leased property > Property of Angelina is located outside the Urban Reform Zones (as defined in PD 1517); (2) [Assuming Property was covered by PD 1517], Ching has no right because the preemptive/redemptive rights of a lessee under P.D. No. 1517 exists only in respect of the urban land under lease on which the tenant or lessee had built his home and in which he had resided for 10y or more > Building was built and belonged to lessor; (3) Preemptive right that Ching could have had could only have been created by contract > No contract of lease between Ching and Jabit/Angelina; (4) [Assuming Ching had Preemptive Right] Angelina thrice offered the property to Ching but the latter had consistently refused to buy it > There was no prejudice and could not have suffered any prejudice by the sale of the same piece of land to Leonida; (5) No fraud where the sale of the property to Leonida preceded the offer to Ching; 85

(6) Any lease agreement by Ching must in any case be held to have lapsed when the leased house was condemned and the order of demolition issued;

MAXIMINO CARANTES (Substituted by Engracia Mabanta Carantes) v. COURT OF APPEALS, BILAD CARANTES, LAURO CARANTES, EDUARDO CARANTES and MICHAEL TUMPAO

(7) HENCE, Ching does not have the right or interest to annul the contract which he is not a party to

>> GENERAL RULE: strangers to a contract cannot sue either or both of the contracting parties to annul and set aside that contract > Arts 1397 that action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily; Art. 1311 that Contracts take effect only between the parties, their assigns and > EXCEPTIONS (Ibanez v. Hongkong and Shanghai Bank): Injury to a third person where nullification is absolutely necessary to protect the her lawful rights ~ the existence of an interest in a particular contract that is the basis of one's right to sue for nullification of that contract and that essential interest in a given contract is, in general, possessed only by one who is a party to the contract

G.R. No. L-18210

December 29, 1966

LAURENTIO ARMENTIA v. ERLINDA PATRIARCA, FLORENCIA SOMECIERA JULIANA ARMENTIA JOSE SOMECIERA and SOFRONIO FLORES in his capacity as The Register of Deeds for the Province of Iloilo READ!!!

G.R. No. L-33360

April 25, 1977

Facts: The siblings of Maximino executed a Deed of Assignment in his favour covering their rights to Lot No. 44 for P1 and the acknowledgement that their father/owner had considered Maximino as the owner of the property. The Deed is valid because it has a consideration as previously stated and the action for its annulment, which was based on fraud, has already prescribed (10y). > Settlement of the Estate of Mateo Carantes (1933) where his son Maximino (one of six children) was appointed as judicial administrator > Partition involved Lot No. 44, which was subdivided into Lots A, B, C, D, and E where A had previously been expropriated by the Government (for the construction of the Loakan Airport), while B and C were subsequently sold to the Government as well by Maximo thru a Formal Deed of Sale by virtue of an Assignment of Right to Inheritance (October 23, 1939) where 4 of his siblings assigned their rights to inheritance in Lot No. 44 to Maximino for a consideration of P1.00 and the declaration that they acknowledge Mateo’s representation that Maximino is the exclusive, continuous, peaceful and notorious possession of the property as its rightful and exclusive owner (“By agreement of all the direct heirs and heirs by representation of the deceased Mateo Carantes as expressed and conveyed verbally, by him during his lifetime, rightly and exclusively belong to the particular heir, Maximino Carantes, now and in the past in the exclusive, continuous, peaceful and notorious possession of the same for more than ten years.”) ~ Deed registered (March 16, 1940) and New TCTs for B to E issued in Maximino’s name > Meanwhile, D was mortgaged (1948) by Maximino, as his exclusive property with the Philippine National Bank; and E remained registered in his name > SUIT (September 4, 1958) for Declaration of Nullity of Deed of Assignment and Partition of Lots D and E into 6, by Maximino’s siblings (the same who executed the Deed of Assignment ~ Bilad, Sianang, Lauro and Crispino but the latter by his heirs) > CONTENTIONS of Siblings: (i) Fraud, that they were made to believe by Maximino that the Deed was only an authorization of the latter to convey portions of Lot No. 44 to the Government in their behalf to minimize expenses and facilitate the transaction ~ That they discovered the assignment only on February 18, 1958; (ii) CA Held: Deed is void ab initio and inexistent on the grounds that real consent was wanting and the consideration of P1.00 is so shocking > CONTENTIONS of Maximino: (i) On-its-face Agreement > No other agreement than what appears in the Deed of Assignment > Deed was an acknowledgment of the fact of designation of the property as specifically 86

pertaining or belonging by right of inheritance to the Maximino Carantes ~ assignors knew fully well that the deed of assignment contained what, on its face, it represented> There was never any agreement between the assignors and the assignee authorizing the latter to merely represent his co-heirs in negotiations with the Government ~ Any agreement other than the Deed of Assignment is barred by the statute of frauds and is null and void because not in writing, much less, in a public instrument; (ii) Prescription ~ that siblings’ cause was based on a written contract and hence prescription in 10y ~ Registration on February 21, 1947 as Constructive Notice but Petition only on September 4, 1958; and (iii) No cause of action because ownership over the property became vested in Maximino by acquisitive prescription of 10y from its registration in his name on February, 21, 1947; (iv) Siblings’ Action was for Reformation and not Declaration of Nullity > BUT not raised in his Answer in the Trial Court and only raised on Appeal ~ Cannot prosper

PELC obtained an annulment of the sale to Henry and hence, is entitled to the amount of its remaining cedars which Henry had purchased, plus the value of its commission. The sale to the Government cannot be annulled for it was consummated before the sale of PELC to Henry. Thus, the parties were ordered to paid the amount due to the other.

> VALID DEED (1) There is consideration > P1 and acknowledgement by the siblings that the decedent Mateo Carantes had, during his lifetime, expressed to the signatories to the contract that the property subject-matter thereof rightly and exclusively belonged to Maximino > VALUABLE CONSIDERATION (2) Action is to Annul the Deed on the ground of fraud and thus prescribes in 4y from discovery of fraud > When discovered: Registration of the Deed (March 16, 1940) in the Register of Deeds ~ Constitutes constructive notice to the whole world > Prescription on March 16, 1940 ~ Suit filed on September 4, 1958; (3) Deed not a trust created in favor of siblings > Clear and Open Repudiation by Maximino of such trust ~ Anathema to concept of a continuing and subsisting trust: (i) Formal deed of sale with Government; (ii) Mortgage of Lot D with PNB as his exclusive property; (iii) Tax Declarations, Payment and Receipts in the name of Maximino > EVEN IF DEED IS TRUST, an action for reconveyance based on implied or constructive trust is prescriptible in 10y from Registration of Deed (March 16, 1940) ~ Prescribes March 16, 1950 > When is there inadequacy of cause but adequacy of consideration? HOW

> ANNULMENT of Sale between PELC and Henry: (1) FRAUD > Concealment from PELC of the negotiations with the Government > Misrepresentation of the condition of the market > Buying the piles at $12 but Selling them at $19; (2) Restoration of the parties’ original position by mutual restitution > Henry entitled to the commission of the August 5 sale to the Government (still under the original agency) but not to the commission of the sale with PELC

G.R. No. 3246 February 9, 1907 CADWALLADER & COMPANY v. SMITH, BELL & COMPANY and HENRY W. PEABODY & COMPANY Facts: PELC delivered its cedar piles to Henry for the latter to sell at $15 each. Because of the misrepresentation of Henry that there was a lack of demand for the pile and thus the amount needed to be decreased, PELC agreed to sell them at $12 each. Henry thus purchased all piles (581) at that rate but without informing PELC that it had already sold 213 to the Government for $19 each.

> Delivery and Subsequent Sale of 581 Cedar Piles by Pacific Export Lumber Company (Portland) to Henry W. Peabody & Company (Manila) ~ Original Rate as Agent was $15/pile BUT Henry, as agent, communicated that there was lack of demand (August 2, 1902) > MEANWHILE, Sale (August 4) by Henry of 213 piles to Government for $19/pile ~ Earned $10,41.66 > Offer by PELC to sell $12/pile (August 5) ~ Accepted (August 6) > Payment by Henry to PELC of $6,972 for the 581 piles at $12 each, which was $3,445.66 less than the amount earned by Henry from sale to Government

> COMPUTATION: (a) To PELC: $1,760.88 (Remaining Piles purchased by Henry minus its commission) + $331.17 (Commission of Henry, disallowed due to annulment) + $359.77 (Interest rewarded by Court)

$2,241.82 (TOTAL AMOUNT DUE to PELC) (b) To Henry: $6,993.80 (Granted counterclaim of Henry) $2,241.82 (Amount due to PELC)

$4,541.98 or P9,083.96 > Payment of $4,541.98 or P9,083.96 by PELC to Henry > Fraud that allows annulment is before/during contract because it would vitiate consent > Incidental Fraud only and hence, only claim for damages (Not rescind) 87

Velarde v. CA

G.R. No. 114051 August 14, 1995 DAVID INES and HORTENCIA CASTRO-INES v. COURT OF APPEALS and DIONISIO GERONIMO Facts: Because Hortencia sold their conjugal property without her husband’s consent, the sale was void due to her fault. The sps. are validly ordered to refund the purchase price with legal interest (computed from date of RTC judgment) as the guilty party. > Deed of Sale (April 15, 1982) of Conjugal Residential House and Lot by Hortencia Castro-Ines in favour of sps. Geronimo ~ Without consent of husband David Ines whose signature therein was forged > RTC: ½ Void, pertaining only to David’s share; Other half under equitable mortgage until refund by Hortencia of P150k purchase price > CA: Null in its entirety ~ Reconveyance by sps. Geronimo of entire property and Refund by Hortencia of P150k + Legal Interest > Appeal by sps. Ines ~ there should not have been any legal interest for sps. Geronimo did not ask for it > VALID imposition of Legal Interest but from Date of Judgment, not Sale > LEGAL BASIS: (a) Art. 1398 grants restoration to each party of the things which have been the subject matter of the contract, with their fruits, and the price with interest; (b) Not based on affirmative relief but on equitable grounds, pursuant to Art. 2210 that Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract ~ It was Ines who contracted a sale over the conjugal property without her husband’s consent, thus causing its nullity > COMPUTATION: From the time of the rendition of the trial court's decision (July 31, 1990) and not the date of the sale (April 15, 1982) > Why Promulgation of Lower Court Decision? Why not finality of SC decision? > Best is Date of Breach (JJ) > No incentive for defendant to delay the case G.R. No. 142310 September 20, 2004 ARRA REALTY CORPORATION and SPOUSES CARLOS ARGUELLES and REMEDIOS DELA RAMA ARGUELLES v. GUARANTEE DEVELOPMENT CORPORATION AND INSURANCE AGENCY and ENGR. ERLINDA PEÑALOZA

Facts: ARRA sold its 2nd flr. to Peñaloza. Nonetheless, it mortgaged the entire lot and building to China Bank to secure payment of its loans. When ARRA thus defaulted, ARRA foreclosed the properties but the same were redeemed by ARRA thru GDCIA which was issued a Deed of Absolute Sale in its favor. Hence, Peñaloza sued for fulfillment of contract or refund what she had already paid; the latter was granted by the Court. The Sale with Peñaloza was valid and binding and hence, she had the right to annul when ARRA mortgaged the property sold. She is granted refund whild GDCIA’s contract was maintained and valid also absent proof of bad faith. > Letter-Contract of Sale (November 18, 1982) between Arra Realty Corporation (owner of lot and 5-storey building) and Engineer Erlinda Peñaloza where latter bought part of the 2nd flr. (552 sq.m.) for P3,105,838 ~ CONDITIONS for Peñaloza is DP P901,738 until January 30, 1983 and Balance in 20 equal quarterly installments of P110,205; CONDITIONS for Arra is Delivery of Property and Title ASAP (as soon as 2nd flr was constructed) > Possession (May 1983) by Peñaloza of the 2nd flr. ~ Put up an Office and a School (St. Michael International Institute of Technology) > Real Estate Mortgage of Lot,Building (May 12, 1983) by Arra in favor of China Banking Corporation as security for a loan ~ Annotated (June 3, 1983) BUT Unknown to Peñaloza > Payment by Peñaloza (February 23, 1983 to May 31, 1984) amounting to P1,175,124.59 ~ Stopped after she learned of the mortgage in July 1984 > Letter by Peñaloza to Chinabank (August 1, 1984) of her sale of 2nd flr. and offered to pay for Arra’s loan up to the equivalent amount of the balance of the purchase price; Rejected; Letter with Deed of Absolute Sale with Assumption of Mortgage (received from Arra as demanded by her Letter on August 31, 1984) > Withholding of Installment Payments by Peñaloza; Transfer of the School (October 3, 1984); Closing of Office but which was Reopened after it was padlocked by Arra when it closed > Affidavit of Adverse Claim (November 26, 1984) by Peñaloza ~ Annotated (November 27, 1984); Cancelled (February 11, 1985) > Extrajudicial Foreclosure by Chinbank upon Failure of Arra to pay its loan; Sale to Chinabank (August 13, 1986) for P13,953,171.07 > Deed of Conditional Sale (April 29, 1987) byArra to Guarantee Development Corporation and Insurance Agency which would redeem the property for P22M ~ Redeemed (May 4, 1987); Deed of Absolute Sale (May 14, 1987); TCT in favor of GDCIA (May 15, 1987) > SUIT (May 28, 1987) by Peñaloza against the Arra, GDCIA, sps. Arguelles > CONTENTIONS of Arra: (a) No contract of sale was perfected between Arra and Peñaloza ~ Failure of Peñaloza to pay the balance of the total purchase price ~ Due January 1983 but DP Completion only March 4, 1983, Payment of only 3 installments, 4th incomplete; (b) Abandonment of property when Peñaloza transferred the school without prior notice; (c) Failure of Peñaloza to pay for the advances extended to her 88

(P302,753.06) and of rentals for her occupancy of the property (P2,177,935); (d) GDCIA was a purchaser of the property in bad faith ~ knowledge of the claims of Peñaloza and the fact that the building was occupied by private individuals; (e) GDCIA’s refusal of Arra’s offer to return the P21M purchase price ~ Rescission by Arra of Deed of Sale with GDCIA > RTC Held: Annulled Sale between Arra and Peñaloza; Peñaloza Entitled to Refund of P1,444,124.59 with 12% annual interest; Valid Sale to GDCIA; No counterclaim for Arra ~ did not petition for any damages but raised only when they moved for the reconsideration of the decision of the CA > November 18, 1982 Letter-Agreement: I would like to review the arrangement arrived at our meeting yesterday afternoon. You shall share one (1) floor of the proposed 5-storey office building to be constructed on a 992 sq. mt. lot owned by ARRA Realty Corporation located at Alvarado St., Legaspi Village, Makati, Metro Mla. The consideration for which you shall own one (1) floor is THREE MILLION ONE HUNDRED FIVE THOUSAND EIGHT HUNDRED THIRTYEIGHT PESOS (P3,105,838.00) on a deferred payment plan. The initial payment of NINE HUNDRED ONE THOUSAND SEVEN HUNDRED THIRTYEIGHT PESOS (P901,738.00) shall be paid within sixty (60) days from November 20, 1982 and the balance payable in 20 equal quarterly payments of ONE HUNDRED TEN THOUSAND TWO HUNDRED FIVE PESOS (P110,205.00). Every payment that you make, ARRA shall credit your account by way of partial payment to your stock subscriptions of ARRA’s capital stock. As soon as our contractor, Pyramid Construction and Engineering Corporation, complete its commitment with us, which is not more than five (5) months, you shall immediately take possession of the floor of your choice. Further, as soon as practicable, the Title corresponding to the floor that you own shall be transferred to your name. However, should you pay in full at the end of the fourth quarter or at any time prior to the 5-year arrangement, the price shall be adjusted accordingly. I believe that this accurately summarizes our understanding. If you have any questions or if I have not properly stated our agreement, please let me know, otherwise, you may signify your conformity by signing the duplicate copy of this letter. > Peñaloza’s Right to Refund (1) Perfected Contract of Sale b/w Peñaloza and Arra > (i) Meeting of Minds despite Lack of Ownership by the seller of the thing sold at the time of the perfection of the contract of sale ~ not an element of its perfection > (ii) Perfection does not transfer ownership BUT Delivery ~ Peñaloza took possession of the 2nd flr, put up her office and operated the St. Michael International Institute of Technology > Thus became the owner (Art. 1477);

(2) Failure by Peñaloza to Pay > Failure to Pay DP on time ~ Vendor cannot recover the thing sold even if the vendee failed to pay in full the initial payment for the property BUT will merely give the vendor the option to rescind the contract of sale judicially or by notarial demand (Art. 1592) > Arra accepted the delayed payments without any objections; (3) Peñaloza may suspend the payment of the price of the property sold (Art. 1590) ~ reasonable grounds to fear such disturbance ~ mortgage of the purchased property; (4) Non-waiver by Peñaloza of her right to enforce the Letter-Agreement > maintained her office > Turned over the possession of the property on October 7, 1986 BUT immediately filed her complaint against Arra; (5) No proof of Bad Faith of Peñaloza and GDIAC; (6) No action for rescission of sale with GDCIAC >> Elements of Abuse of Rights: (a) the existence of a legal right or duty; (b) which is exercised in bad faith; (c) for the sole intent of prejudicing or injuring another > Core: Malice or bad faith > Good faith is presumed and he who alleges bad faith has the duty to prove the same >> Good faith refers to the state of the mind which is manifested by the acts of the individual concerned > Consists of the intention to abstain from taking an unconscionable and unscrupulous advantage of another >> Bad faith connotes bad judgment to simple negligence > Imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of known duty due to some motive or interest or ill-will that partakes of the nature of fraud > Implies an intention to do ulterior and unjustifiable harm

G.R. No. 132415

January 30, 2002

MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and LEOPOLDO BALGUMA, JR. v. BRAULIO KATIPUNAN, JR. Facts: A Deed of Absolute was executed by Braulio in favor of the brothers Balguma. But the document is void because Braulio is not capacitated to give consent, with a very low IQ who was not informed of the contents and the nature of the English document, and moreover, his consent was vitiated by the undue influence of his brother, Sencio and Atty. Balguma

89

> Deed of Absolute Sale (December 29, 1985) between Braulio Katipunan, Jr. (lot and apartment owner), with his brother, Miguel Katipunan, and brothers Edgardo Balguma and Leopoldo Balguma, Jr., represented by their father Atty. Leopoldo Balguma, Sr. where Braulio sold his lot and apartment for P187k > New TCT in favor of Balguma brothers, Collection of Rentals by Atty. Balguma since January, 1986 > SUIT (March 10, 1987) by Braulio for annulment of the Deed of Absolute Sale > CONTENTIONS of Braulio: (1) that his brother Miguel, Atty. Balguma and Inocencio Valdez convinced him to work abroad and through insidious words and machinations, they made him sign a document purportedly a contract of employment, which document turned out to be a Deed of Absolute Sale; (2) that he did not receive the consideration stated in the contract; (3) that he only reached 3rd grade > CONTENTIONS of Petitioners: (1) that Braulio was aware of the contents of the Deed of Absolute Sale; (2) that he received the consideration involved; (3) that he knew that the Balguma brothers have been collecting the rentals since December 1985 but has never objected or confronted them; (4) that he filed the complaint because his sister, Agueda Savellano, urged him to do so (where his motions to dismiss his complaint had been granted on the same ground for which Atty. Balguma paid P2500; but motioned for reconsideration since he did not sign the motions to dismiss voluntarily due to his poor comprehension and the lack of assistance of counsel ~ sister Agueda was thus appointed as his guardian ad litem) > Deed of Absolute Sale is VOID > (I) INCAPACITY TO GIVE A RATIONAL CONSENT ~ (a) medical report of Dr. Annette Revilla (Resident Psychiatrist, PGH) that he has a very low IQ and a mind of a six-year old ~ unrebutted by petitioners; (b) fact that he only reached 3rd grade; (c) difficulty of the trial court in communicating with him where it had to clarify certain matters because Braulio was either confused, forgetful or could not comprehend; (II) VITIATED CONSENT ~ intimidation and undue influence exerted upon him by his brother Miguel and Inocencio Valdez and Atty. Balguma: (1) It was his brother Miguel who negotiated with Atty. Balguma; (2) Braulio was not informed of the nature and contents of the document he signed ~ written in English and embellished in legal jargon; (3) Braulio was forced to sign the document by the shoving of his brother Miguel and Sencio and the threat that if he does sign, something will happen;

> HENCE, deprivation of reasonable freedom of choice and impossibility of understanding the contract > His ignorance and weakness made him most vulnerable to the deceitful cajoling and intimidation of petitioners > No Mutual Restitution > Principle of mutual restitution (Art. 1399) when the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution, except when he has been benefited by the things or price received by him > Only Miguel profited from the entire transaction ~ that it was Miguel who wanted to go abroad and needed money, giving loose change only to Braulio that are grossly disproportionate to the value of his property ~ Atty. Balguma admitted that it was Miguel who received the money from him > Restitution only to Braulio ~ possession and fruits (rentals from lessees) of the property

>> Contract of sale ~ Perfected from the meeting of minds upon the thing which is the object of the contract and upon the price > Intent of the parties in entering into the contract respecting the subject matter and the consideration thereof > Elements of a Contract of Sale: (a) consent, (b) object, and (c) price in money or its equivalent > Consent may be vitiated by the presence of ANY: (1) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud (Art. 1330)

>> Contracts with incapable consent or vitiated (by mistake, fraud, or intimidation) IS NOT void ab initio BUT ONLY voidable and is binding upon the parties unless annulled by proper Court action > Effect of Annulment ~ to restore the parties to the status quo ante insofar as legally and equitably possible > EXCEPTION: when the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution, except when he has been benefited by the things or price received by him

G.R. No. 12605 September 7, 1918 90

UY SOO LIM v. BENITO TAN UNCHUAN, FRANCISCA PASTRANO and BASILIO CEFRANO UY BUNDAN Facts: Uy Soo Lim was the alleged son of Santiago who was born in China from the latter’s paramour (wife in Chinese culture, whom he met when he returned there after his Philippine marriage). When Santiago died, he left most of his estate to his only son at the prejudice of his legal wife and daughters. Hence, the children and the legal wife came to an agreement with Uy Soo Lim whereby the will was not to be executed but the partition would follow the deeds of cession by the children, all in the favor of Francisca, the eldest child. After Uy Soo Lim turned 21y/o, he sought the annulment of his deed of cession, contending his minority at the time of its execution. However, his petition cannot prosper for two reasons. For one, he sought the annulment 10m after he came of age and after he had already spent the purchase price even after he attained the majority age. Therefore, his failure to rescind the contract immediately when he turned 21 and only after he claimed and spent the money had ratified the deed. Second, he is unable to return such price due to lack of money. Hence, no restitution can be made and hence, rescission cannot be granted. > Two Families of Santiago Pastrano Uy Toco (13y/o) (a) August 2, 1882, in the Philippines (Cagayan de Misamis), with wife Candida Vivares > Children: Francisca (married Benito Tan Unchuan) and Concepcion > Santiago had no property at the time of marriage and acquired his large estate during this marriage; (b) 1892, in China (when he returned), with paramour Chan Quieg / Chan Ni Yu ~ Wife in Chinese custom because living maritally with Santiago during his stay in China constitutes all the forms of valid marriage in Chinese customs > Child: Uy Soo Lim ~ Never got to meet him because he returned to the Ph before he was born and was informed only by Chan thru letters; > Death of Santiago (March 6, 1901) ~ Will favoured Uy Soo Lim who had larger share (7/9) than daughters and wife > Respective shares of the children were administered by their guardian Basilio Uy Bundan until October 18, 1910 upon court order because Francisca had already reached majority, Concepcion would reach her majority in a few months, and Uy Soo Lim had married (1910) > Motion by Candida and daughters (May 25, 1991) to partition the estate not according to the will ~ that Uy Soo Lim was not entitled under the law to the amount of the estate assigned him in the will because he was not a son, legitimate or illegitimate, of Santiago ~ If illegitimate, only 1/6 (or 1/3 of Santiago’s ½ share in the community property) > Arrival of Uy Soo Lim in Manila (March 13, 1911) to protect his share in the estate ~ Employed the assistance of Choa Tek Hee, a resident merchant of Manila, and attorneys,

Major Bishop (to represent him in Manila) and Levering (to represent him in Cebu) > AGREEMENT (October/November 1911) b/w Choa Tek Hee (representative of Uy Soo Lim, under an SPA, whom he hired) and Candida, Francisca and Concepcion to let 3 designated Chinese merchants give advise on the dispute (decision not binding) > CHINESE ADVISE: Relinquishment of Uy Soo Lim’s rights in the estate for P82,500 ~ Accepted by the parties > Deeds of Cession (November 18, 29, December 6, 1911, Manila) by Uy Soo Lim (with consent of his mother in a public document dated December 4, 1911), and Chan Quieg, and Candida and Concepcion, respectively relinquishing and selling all their rights to the estate to Francisca ~ Uy Soo Lim received sold his for P82,500 > Deed by Basilio (December 4, 1911), renouncing all his rights to Santiago’s business in Cebu in favor of Francisca because he nor the Santiago’s brother were not a co-owner as declared in latter’s will > Court Order (December 11, 1911) declaring Francisca as the sole owner of the estate of Santiago and ordering its delivery to her > SUIT (August 24, 1914) by Uy Soo Lim for the annulment of the Deed of Cession to Francisca and of the court order > CONTENTIONS of Uy Soo Lim: Minority at the time of the execution of the deed of cession ~ (a) Undue influence and advantage taken by defendants of his youth, passions, and inexperience; (b) Deceit or Misrepresentation of the materials facts concerning the value of the property and interest in questions > VALID DEED OF CESSION > Ratification of Deed by Failure to Repudiate: (1) With full knowledge of his rights in the premises, Uy Soo Lim failed to disaffirm his contract within a reasonable time after reaching majority > Failure by Uy Soo Lim to repudiate the Deed of Cession upon age of majority (21 on October 8, 1913) > Actually RATIFIED IT > Instead of repudiating it promptly upon reaching his majority, he DISPOSED of the greater part of the proceeds after he became of age and after he had full knowledge of the facts > Of the P82,500, P20k was spent before 21y/o; P62,500 upon 21y/o, P7,500 of which was spent before Annulment Case and P55k since filing the case, and the last P7,200 of the the P55k, spent on April 13, 1916 or 2.5y after 21y/o and after he knew all the facts now alleged by him to constitute fraud; (2) Uy Soo Lim made no offer to return to Francisca the purchase price which would be subject to her disposition if Deed of Cession would be annulled ~ Still P62,412.67 of the purchase price was available for refund after 21y/o and P55k when he filed his suit to rescind > He was utterly without funds to reimburse the consideration ~ Testified in Choa Tek Hee case that the money to be obtained was necessary to support oneself; (3) NO DECEIT > Uy Soo Lim, though a minor then, acted deliberately with full knowledge of the facts and after mature deliberation and upon the advice of 91

capable counsel > Understood all the essential facts bearing upon his interest in the estate and intelligently comprehended the nature of the deed of cession, its contents and its effect upon his interests; (i) He was a law student, with more than ordinary intelligence and with a keen appreciation and understanding of all the elements of strength and weakness in his case ~ Was able to avoid a direct answer to inconvenient questions and in professing lack of memory in other points during his testimony; (ii) Had 3 competent advisers to direct him ~ Choa Tek Hee (a person of unusual ability ho had exerted all his ability to procure for Uy Soo Lim the best possible terms) and lawyers Major Bishop (in Manila where Deed was signed) and Mr. Levering (in Cebu where most of the property was situated) who were well and favorably known to the Bench and Bar as attorneys of ability and integrity ~ Would thus not allow their client to sign without understanding what he is signing; (iii) No misrepresentation of rights involved; > EVIDENCE of Recognition of Sale and Payment: (i) Revocation of Choa Tek Hee’s SPA and Instruction to pay him directly (after Choa Tek Hee failed to deliver him P42,500 or the value of the first three promissory notes for P82,500 purchase price) ~ Granted P31,511.93 ~ Also immediately spent; (ii) Suit against Choa Tek Hee for revocation of SPA as he was a minor when it was executed, alleging that his interest in Santiago’s estate was P200k but the same was reduced to a money basis or sold for P83k more or less; (iii) Motion by Uy Soo Lim’s guardian (Chas. E. Tenney) during case against Choa Tek Hee to direct the latter to indorse the upcoming promissory notes to the clerk of court for collection; (4) Contention that he was of age in Chinese customs is set aside by Court to take assumption of minority which is most favorable to appellant; > HENCE, FORFEITURE of Uy Soo Lim’s Right to Rescind on account of his minority > RECAP: Not only should he have refunded all moneys in his possession upon filing his action to rescind, but, by insisting upon receiving and spending such consideration after reaching majority, knowing the rights conferred upon him by law, he must be held to have forfeited any right to bring such action >> Purpose of Minor’s Exemption in Contracts (Hastings vs. Dollarhide) > Protection of the minor from prejudice by acts done or obligations incurred at a time when they are not capable of determining what is for their interest to do > HENCE, law gives them an opportunity, after they have become capable of judging for themselves, to determine whether such acts or obligations are beneficial or prejudicial to them, and whether they will abide by or avoid them > BUT CEASES if the right to affirm or disaffirm extends beyond an adequate opportunity to so determine and to act on the result > LEGAL EFFECT (Englebert vs. Pritchett) > all consideration which remains in the infant's possession upon his reaching majority or at the time of an attempted disaffirmance in case he is still under age must be returned, but that

disaffirmance will not be defeated by inability to return what he has parted with prior to such time > Not to be permitted to regain what he parted with or refuse payment while still possessed of what he received > He must return such portion thereof as remains in his possession when reaching majority > WHEN MADE: Restitution before he can Rescind (Manning vs. Johnson) ~ Important fact is not the time when he received the money, but the time when he disposed of it > OTHERWISE, Affirmance of the contract when infant reaches majority still possessing property (if he disposes of it so that he cannot restore it, or retains it for an unreasonable length of time after attaining his majority) > WHY: to avoid the tendency to squander the money if allowed to rescind first only after conveyance to other party > BUT tendency of courts, in their anxiety to protect the rights of infants in the matter of contracts made by them during non-age, have after they have become adults, to treat them to the same extent as infants still, exempting them from the operation of rules of law, not only of general obligation, but founded on essential justice; >> ART. 1295. Rescission obliges the return of the things which were the objects of the contract, with their fruits and the sum with interest; therefore it can only be carried into effect when the person who may have claimed it can return that which, on his part, he is bound to do. >> ART. 1304. When the nullity arises from the incapacity of one of the contracting parties, the incapacitated person is not obliged to make restitution, except to the extent he has profited by the thing or by the sum he may have received. >> ART. 1308. While one of the contracting parties does not return that which he is obliged to deliver by virtue of the declaration of nullity, the other cannot be compelled to fulfill, on his part, what is incumbent on him. >> Art. 1314. The action for nullity of a contract shall also be extinguished when the thing which is the object thereof should be lost by fraud or fault of the person having the right to bring the action. If the cause of the action should be the incapacity of any of the contracting parties, the loss of the thing shall be no obstacle for the action to prevail, unless it has occurred by fraud or fault on the part of the plaintiff after having acquired capacity.

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G.R. No. L-51058 January 27, 1992 ASIA PRODUCTION CO., INC., WANG TA PENG and WINSTON WANG v. HON. ERNANI CRUZ PAÑO, LOLITA LEE LE HUA and ALBERTO DY Facts: Asia Production had an oral agreement with Lee and Dy for the sale of the latter’s building and assignment of latter’s lease of the land on which the building stood. Despite payments by Asia Production, Lee and Dy failed to execute deeds of sale and assignment as promised. Hence, Asia Production left the premises and sued for the refund of the payments thus made. The contention of Dy that the agreement was void because it was oral and the Statute of Frauds require it to be written (since it involved the sale of real property and lease of 1y) is without merit because the Statute cannot apply where the action, for recovery of money, was not for execution or specific performance of the contract and where there had already been partial performance which serve as the contract’s validation already. > Oral Agreement (March 1976) between LOLITA LEE LE HUA and ALBERTO DY, and ASIA PRODUCTION CO., INC., where former were to sell their building to the latter and assign the lease of the lot (wherein the bldg stood; owned by Lucio San Andres) in latter’s favour for P170k ~ Promise by former to execute a Deed of Conveyance and of Assignment within 60d from downpayment > Payment (March 20, 1976) by Asia Production of Downpayment worth P20k and Issuance of 8 postdated checks representing monthly instalments > Construction (May 1976) by Asia Production of a weaving factory > Encashment of Checks (worth P30k) but Failure of Lee and Dy to execute deeds of sale and assignment; Assurance by the San Andres of his unwillingness to consent to deed of assignment (unless increase in rental or purchase of land at high price) > Stop Payment Order by Asia Production of the remaining 6 checks; Vacating of Property (December 29, 1976) and Return of Possession to Lee and Dy; Demand for Refund worth P50k > Refusal of Lee and Dy > SUIT by Asia Production for Collection of a Sum of Money > CONTENTIONS of Dy (Lee in default for failing to respond): Agreement was barred by the Statute of Frauds because it was oral, involving sale of real property and lease of more than 1y ~ Hence, absent written proof, agreement was unenforceable >> Art. 1403, Unenforceable unless they are ratified >> Purpose of the Statute of Frauds > to prevent fraud and perjury in the enforcement of obligations, obligations which depend 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 > Requirement of writing refers only to the manner they are to be proved >> LEGAL EFFECT >

makes ineffective actions for specific performance of the contracts covered by it; does not declare them absolutely void and of no effect but simply "unenforceable" >> APPLIES TO Actions for execution of contracts ~ Wide field for fraud because unless they be in writing there is no palpable evidence of the intention of the contracting parties; NOT TO executed contracts because executed ones (full or partial) is already a BAR to the application of the statute ~ Otherwise, it would enable the defendant to keep the benefits already derived by him from the transaction in litigation, and, at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby > Non-Application of Statute of Frauds: (1) Action is for Recovery of Partial Payments Made, not of Specific Performance to enforce the Sale/Assignment of Lease > Not covered by Statute; (2) EVEN IF COVERED, Partial Execution of the Agreement barred application of Statute of Frauds; (3) Motion to dismiss is theoretically or hypothetically an admission of the truth of the allegations of fact in the complaint G.R. No. L-23213 October 28, 1977 WESTERN MINDANAO LUMBER CO., INC. v. NATIVIDAD M. MEDALLE and ANTONIO MEDALLE Facts: To operate its logging business, WMLC contracted a right of way agreement with Hernandez over the road which lies on the latter’s property. When the property was subsequently bought by Medalle’s, the agreement was initially recognized but thereafter considered it unenforceable under the Statute of Frauds. Medalle’s claimed that the agreement lacked signatures and thus sent notice to WMLC of the closure of the road. However, the agreement for the right of way is not covered by the Statute of Frauds because Art. 1403 is exclusive where such agreement is not a sale of real property or its interest. > Right of Way Agreement (September 8, 1955) between WESTERN MINDANAO LUMBER CO., INC. and Luciano Hernandez whereby the latter allowed former to use the road through his property (connecting hway and concession) for the former’s logging operations > Improvements of the Road by WMLC > Purchase of Hernandez’s Property (1958) by NATIVIDAD M. MEDALLE and ANTONIO MEDALLE ~ New owners did not oppose but instead allowed the continued use and maintenance of the road by WMLC and the public > Notice by Medalles to WMLC of their intention to close the road > SUIT by WMLC for acknowledgment and enforcement of the Road right-ofway Agreement > CONTENTIONS of Medalles: Contract unenforceable under the Statute of Frauds (as a contract of sale?) because 1st page was not signed by 94

both parties and witnesses; 2nd is not dated; Signature of the WMLC does not appear; Agreement not acknowledged before a person authorized to administer oaths > VALID CONTRACT: (1) Statute of Frauds does not apply > Art. 1403 is Exclusive > An agreement creating an easement of right-of-way is not one of those contracts covered because it is not a sale of property or of an interest therein > WHAT IS IT THEN? A contract of pure beneficence since no proof/allegation of compensation? But won’t it be extended at the pleasure of owner?; (2) Amended Complaint was for the recognition of the existence of an easement of right-of-way and a demand for the establishment of an easement of right-ofway, if none exist (Art. 649) ~ Partial enforcement due to permitted use of road granted by Medalles after purchase of lot > Is not an Easement an Interest on real property? > What is the effect if not in writing? > How does Statute discourage Fraud?

G.R. No. 118509 December 1, 1995 LIMKETKAI SONS MILLING, INC. v. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK STORE Facts: BPI had a verbal agreement with Limketkai, selling the property of Ph Remnants Co. as its trustee. When BPI subsequently refused payment of Limketkai, latter sued for specific performance. Contract of Sale, although oral and concerns real property, does not fall under Statutes of Fraud because other documents were presented to prove such contract and because such agreement had been ratified when BPI cross-examined Limketkai on the details of the contract thereby acknowledging its existence. > Verbal Agreement (July 11, 1988) between Limketkai Sons Milling, Inc. (represented by Alfonso Lim and Albino Limketkai) and Bank of the Philippine Islands where latter is to sell the property (of Philippine Remnants Co., Inc. as its trustee, pursuant to authority granted May 14, 1976) to former ~ Lim and Limketkai met with BPI VP Albano and Asst. VP Aromin and agreed to pay P1k/sq.m. in cash but asked if they can pay on terms instead; BPI said it would ask the Trust Committee but clarified that should the term payment be disapproved, then the price shall be paid in cash; Promissory note by Limketkai > Tender of Full Payment (July 18, 1988) by Limketkai upon knowledge that its offer to pay on terms had been frozen ~ Refusal by VP Albano since his authority to sell had been withdrawn; Refusal of BPI VP Bona > SUIT (August 25, 1988) by Limketkai for Specific Performance > SALE (July 14, 1989) of the

Property by BPI to National Book Store > CONTENTIONS of BPI: Sale with Limketkai not perfected but continuing negotiations only ~ No written contract, No authority of AVP Amorin to sell, Counter-Offer by Limketkai when it offered to pay on terms instead > PERFECTED CONTRACT OF SALE (1) Lack of written contract of sale of real property BUT Statute of Frauds does not apply: (a) Exception to Statute of Frauds > existence of a written note or memorandum evidencing the unwritten contract of sale > Complaint, par. 3 pleads that the deal had been closed by Letter and Telegram which was signed by BPI, referring to the property sold, the purchase price of P4/sq.m.; Letter of Kenneth Richard Awad addressed to Roland Aromin, authorizing the sale of the subject property at the price of P1k/sq.m. giving 2% commission to the broker and instructing that the sale be on cash basis; Authority to sell by BPI to Pedro Revilla, Jr., authorizing the latter to sell the property at the initial quoted price of P1k/sq.m.; Letter authority signed by Aromin allowing the buyer, Limketkai, to enter the premises of the property to inspect the same; Letter by Pedro Revilla, Jr., that he had procured a buyer in the name of Limketkai; Letter by Limketkai to BPI confirming their transaction regarding the purchase of the subject property; Tender of Payment by Limketkai thru check for P33,056,000; Letter by Alfonso Zamora to Aromin to resubmit new offers only if there is no transaction closed with Assetrade Co.;

(b) Ratification IF Statute of Frauds applies > Cross-examination by BPI of Limketkai’s witnesses on the contract itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla, and other details of the litigated contract > Elicited evidence proving the evidence of a perfected contract > Waiver of Defense of Statute of Frauds; (2) Authority of AVP Amoric to sell the property > job was to manage and administer real estate property > (i) Evidence: Letter of Instruction (June 14, 1988) from Philippine Remnants Co. regarding the sale of its property ~ Addressed to Aromin; P1k purchase price was changed to P1,100 by Aromin and later brought down again to P1k by Aromin; Permission given to Limketkai to view the lot was signed by Aromin and honored by the BPI guards; Letter (July 9, 1988) from BPI real estate broker Revilla informing BPI that he had a buyer (Limketkai) for the property was addressed to Aromin; Conference (July 11, 1988) when the contract was perfected was with Aromin and VP Albano; Albano and Aromin were the ones who assured Limketkai that term payment was possible; Aromin called up Miguel Bicharra of Philippine Remnants to state that the BPI rejected payment on terms; Aromin to whom Philippine Remnants gave the go signal to proceed with the cash sale > Full authority of Aromin to bind BPI; (ii) Trust

Committee does not approve regular transactions ~ Sale already perfected upon mutual agreement of purchase price of P1k and that “if the proposed payment on terms will not be approved by our Trust Committee, Limketkai should pay in cash ~ Amount was no longer subject to the approval or disapproval of the Committee (3) NBS buyer in bad faith > ignored the notice of lis pendens annotated on the title when it bought the lot > Able to purchase it just because its President is a close friend of BPI Senior VP Barcelon > Even offered P7M to Limketkai just to drop the case and give up the lot 95

>> Phases of a Contract > (a) Preparation, conception or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) Perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; (c) Consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract >> Waiver of Defense of Statute of Frauds: RATIFICATION > Contracts infringing the Statute of Frauds are ratified when the defense fails to object, or asks questions on cross-examination > No timely objection or protest was made to the admission of the testimony of the plaintiff with respect to the contract; Cross-examination put by their counsel to the witnesses in respect to said contract, tacitly waived their right to have it stricken out > How do you know whether writing is sufficient to remove Agreement from Statute of Frauds G.R. No. L-8334 December 28, 1957 BIENVENIDO BABAO, ETC. v. FLORENCIO PEREZ, ETC., ET AL. Facts: An Oral Agreement was allegedly made between Celestina and Santiago where Celestina allowed Santiago to plant and administer her property and promised him ½ of the property upon her death. After the death of both parties, the Estate of Santiago sought the recovery of said ½ after the sale of the property to another. RTC Granted such, ruling that the Statute of Frauds does not apply due to partial performance of the Agreement by Santiago (oral evidence was thus allowed), and that the Agreement was valid. However, the Agreement falls under the Statute of Frauds as an Agreement not to be performed within a year and as a Sale of Real Property because the Doctrine of Partial Performance applies only if the Agreement was fully performed within a YEAR (Santiago performed Agreement in 23y) and only if the Agreement was clear (Agreement vague without specs as to what size was to be planted to coconuts and to crops). Hence, Statute of Frauds apply and the oral evidence presented failed to satisfy it. Hence, Agreement is unenforceable. > Alleged Oral Agreement (1924) b/w Celestina Perez and Santiago Babao (husband of Celestina’s niece, Maria Cleofe Perez) where former allowed latter to improve (by clearing all forest trees, by planting coconut trees and crops, rice, corn, and bamboo trees) and administer her 156-hectare land (during her lifetime) and promised to give him or his wife ½ of her estate, Lupang Parang, and its improvements after her death ~ Where all expenses for labor, and materials would be at his cost > SALE (1945) by Celestina thru Leovigildo Perez by Special Power of Atty of 127 hectares > CONTENTIONS of Babao: (1) That he left his work as administrator of the Llana Estate, with P150/m salary; (2) Cleared, administered, and planted, from 1924-1946, 50 hectares for

coconuts trees; 70 hectares for rice, corn; 50 hectares unimproved; (3) Balance due him was P47k ~ Planting worth P7,400; P150/m salary worth P39,600; > CONTENTIONS of Celestina: (1) No oral agreement ~ Property actually cleared, planted and administered by Celestina’s husband, Esteban de Villa, her overseers and tenants (truco system where persons were allowed to clear the land and plant thereon and from the harvest were compensated according to a graduated scale of division varying from year to year); (2) Santiago did not have anything to do with the land ~ Only in 1930 when Santiago Babao began administering the land after Esteban died, and Until 1935 when she prohibited Santiago from interfering with the administration of the land because of his disgusting behaviour; (3) Compensation for work from 1930-1935 by receiving the proceeds of the harvests; (4) Leovigildo’s SPA was executed in the presence of Santiago who did not object > Death of Celestina (August 24, 1947) > Death of Santiago (January 6, 1948) > SUIT by Estate of Santiago for recovery of ½ of 156-hectare parcel of land and P47k (value of the produce gathered from August 1947), for annulment of sale; Motion to dismiss because the verbal agreement was unenforceable under the Statute of Frauds > RTC In favour of Santiago because the Statute of Frauds cannot be invoked for the reason that performance by one party of his part of the contract takes the case out of the Statute ~ Santiago fully complied with his part of the oral contract between the parties; CA Reversed but Decision Set Aside for lack of jurisdiction > > Agreement falls under Statute of Frauds; Fails to Satisfy Doctrine of Partial Performance to take it out of Statute of Frauds; Failure to Satisfy Statute of Frauds; NO VALID AGREEMENT (1) Agreement is one that is not to be performed within a year > Agreement was allegedly made in 1924 where Santiago was to clear, level and plant coconut trees and crops on 156 hectares of forest land > Obligations could not be accomplished in one year and were in fact, accomplished during the lifetime of Celestina which lasted over a period of 23y > WHY PARTIAL PERFORMANCE IS NOT AN EXEMPTION HERE: Execution of Agreement by more than 1 Year (23y) where the Doctrine of Partial Performance taking an Oral Contract out of the Statute of Frauds only applies if the obligation is not to be performed by BOTH PARTIES and ONE has completely performed it WITHIN 1 YEAR ~ Other party cannot avoid the fulfillment of those incumbent on him under the same contract by invoking the statute of frauds because the latter aims to prevent and not to protect fraud; (2) Agreement is one of sale of real property > WHY PARTIAL PERFORMANCE IS NOT AN EXEMPTION: Vague Agreement where Doctrine only applies if Agreement is certain, definite, clear, unambiguous and unequivocal in its terms and subject matter, and completed in every respect except for the writing required before the Statute may operate > All the essential terms of the contract must be established by competent proof to have been 96

definitely understood and agreed upon by the parties, and shown to be definite, certain, clear, and unambiguous > WHY VAGUE: without specifications on how many hectares was to be planted to coconuts, to rice and corn, and to bananas and bamboo trees ~ Easier and cheaper to plant crops than coconut trees > No sane property owner would enter into such contract as it would cost much more time, money, and labor to convert forest land to rice and corn land than to convert it into a coconut plantation > Celestina’s obligation also impossible because executed only upon her death > Testimony of alleged witness, Carlos Orense that Agreement was for Santiago to clear the land and plant coconuts, for the land will eventually fall in his hands G.R. No. L-5447 March 1, 1910 PAUL REISS, ET AL. v. JOSE M. MEMIJE Facts: Because Lumber owner Reiss refused to further extend credit to Kabalsa, contractor of Memije for the repair of his house, Memije promised to pay for the lumber delivered and used. When Reiss sued for collection, Memije alleged that the contract was unenforceable because it was oral and no written evidence was presented thereof. However, the Statute of Frauds that requires written evidence as to the promise to answer for another’s debt applies only to agreements of surety, guaranty. The debt of Memije to Reiss was of a original debtor and not as a collateral. Hence, written agreement was not required and evidence was sufficient to establish the actual debt for and delivery of the lumber. > Credit is given to a 3rd person ~ Agency of a creditor > Oral Agreement b/w Paul Reiss (owner, Lumber company) and Jose Memije (house owner, active Manila lawyer) for the repair of latter’s house ~ Memije, accompanying contractor Buenaventura Kabalsa, agreed to pay for the lumber needed after Kabalsa was unable to secure credit for the lumber needed, having no money and after Reiss absolutely refused to allow any lumber to leave their yard without payment in advance > Delivery of the lumber for the house repair > SUIT by Reiss for recovery of unpaid balance of the purchase price of lumber > CONTENTIONS of Memije: No guaranty of payment and even if there was, it was not in writing, HENCE proof thereof was not admissible in evidence under Sec. 335 of the Code of Civil Procedure > RTC admitted all the evidence offered by both parties which established the existence of Memije’s promise to pay for the lumber and of a balance due on account of the lumber delivered to Memije’s contractor > Oral Agreement Enforceable even if without Written Agreement or Evidence therof BUT even if Written Evidence is required, weight of all the evidence,

including the evidence, thus admitted, supports Reiss’ allegation and establishes his contention that this lumber was in fact delivered > Oral Agreement not Unenforceable > Statute of Frauds does not apply > Sec. 335, Act No. 190 or Statute of Frauds NOT APPLICABLE because Agreement was of Original Debt, NOT of Surety > As a special promise to answer for another’s debt, default or miscarriage, Requirement of Writing applies only to Agreement of Guarantiship, to a Collateral Promise and NOT IF Promise is Original > Original Debt of Memije because: (i) Charges in Reiss’ Books were made against Kabalsa and Bill was presented to Memije ONLY BECAUSE Reiss’ acting manager mistakenly sent the Bill to Memije while he was in the US and had no opportunity to go over the accounts with their acting manager ~ Acting Mgr had no knowledge whatever as to Reiss’ agreement with Memije; (ii) Credit for the lumber was extended solely and exclusively to Memije, lawyer, where Kabalsa had no commercial credit or standing in the community and Reiss absolutely refused to extent him any credit >> Statute of Frauds applicable only if Collateral and not Original Debt >> Original, Independent Promise if promisor becomes primarily liable for the payment of the debt > Debt is his own and his promise is good without writing >> Collateral Promise if promisor is merely a surety or if any credit is given to a third party alone and not to himself nor to both of them jointly > Promise must be in writing in aid of the third party's liability >> Intention Determined from the language and expressions used by the parties promising and from an examination of the circumstance G.R. No. 107624 January 28, 1997 GAMALIEL C. VILLANUEVA and IRENE C. VILLANUEVA v. COURT OF APPEALS, SPOUSES JOSE and LEONILA DELA CRUZ, and SPOUSES GUIDO and FELICITAS PILE Facts: The owner of the apt offered to sell their land and bldg to Villanueva, a tenant. Because of arrears in realty taxes, Villanueva advanced P10k but it was alleged to be considered as part of the purchase price. Subsequently, ½ of the property was sold to another tenant with the permission of Villanueva to split the purchase. The issue came about when Dela Cruz assigned the remaining ½ of the property to sps. Pile due to loans granted by the latter to the former. Villanueva sought its annulment due to the alleged sale to them but no contract of sale had been perfected. First, there was no meeting of minds as to the purchase price. Dela Cruz quoted P550k on the Deed of Sale that remained unsigned while Villanueva alleged it to be P550k, where the other tenant-buyer paid P275k for ½. However, no proof of the Deed of Sale was presented and 97

Dela Cruz testified that they did not sign the Deed exactly because Villanueva was still haggling on the price. Second, Statute of Frauds does not apply because there was no perfected contract. Hence, even if there was no written agreement, alleged sale is still not perfected due to lack of price and evidence thereof. > Oral Agreement to Sell (February 1986) b/w Jose Dela Cruz and Gamaliel Villanueva where former offered to sell his and wife’s apartment bldg and 403 sq.m. land to latter-tenant-occupant ~ Letter of Authority (February 12, 1986) in favour of Irene Villanueva (mother) to inspect the property BUT CounterOffered when Irene agreed to advance P10k for payment of realty taxes in arrears of property if it were to be considered part of purchase price, alleged to be P550k by Villanueva while Dela Cruz contended it to be P575k > Sale of ½ Property be Dela Cruz to Ben Sabio, another tenant, for P275k after permission from Villanueva > Deed of Assignment over Remaining ½ (March 6, 1987) by Dela Cruz to sps. Guido Pile and Felicitas Pile as full payment of loan granted by latter to former > SUIT (December 18, 1992) by Villanueva for annulment of Deed of Assignment > CONTENTION of Dela Cruz: Statute of Frauds require written evidence of sale of real property > NO PERFECTED CONTRACT OF SALE, STATUTE OF FRAUDS INAPPLICABLE (1) No Perfected Contract of Sale > (i) No agreement yet on the Purchase Price, expressly or impliedly, directly or indirectly ~ EVEN IF Advancement of P10k supposedly to form purchase price and IF Other Tenant Paid P275k BECAUSE NO PROOF of meeting of minds on Price and of Intention to Make P10k Earnest Money > Draft of Deed of Sale was not presented where Sps. Dela Cruz quoted P575k but Villanueva claimed it was reduced to P550k; Testimony of Dela Cruz that Deed was unsigned because still haggling on price; Advancement of P10k not earnest money absent proof that it was intended to form part of the purchase price; (2) Statute of Frauds Not Applicable > Statute of Frauds applies only to executory contracts and not to partially or completely executed ones > No perfected contract b/w Dela Cruz and Villanueva ~ Only a prolonged negotiation to buy and sell where offer was counter-offered > Hence, No basis for the application of the Statute of Frauds which presupposes the existence of a perfected contract and requires only that a note or memorandum be executed in order to compel judicial enforcement thereof

G.R. No. L-25400 January 14, 1927 THE PHILIPPINE NATIONAL BANK v. THE PHILIPPINE VEGETABLE OIL CO., INC. || PHIL. C. WHITAKER as intevenorappellant

Facts: DOUBLE CHECK. VERY UNSURE. PVOC was placed under receivership due to its outstanding debts. Its largest stockholder, Whitaker, executed a guaranty over his personal properties in favour of the creditors. The creditors thereafter assigned their claims to Whitaker in consideration of his security. PNB, PVOC’s largest creditor, knew of such assignment but was not part of it. Instead, it acquired a new mortgage over the properties of PVOC while its Directors were members of PVOC’s Board. When the receivership ended due to PNB’s promise to finance it, PNB foreclosed the mortgage, leaving PVOC inoperable. Whitaker thus intervened due to the alleged promise of PNB to finance PVOC. However, the promise was not proven, orally or by written evidence. The Statute of Frauds does not apply since the Promise was not for both parties where PNB did not bind itself to answer for PVOC’s operations indefinitely but only expressed gratification to Whitaker. The Promise is not proven and PNB cannot be held responsible. > Indebtedness (1920) of Philippine Vegetable Oil Co., Inc. to its creditors worth P30M ~ P17M to Philippine National Bank, its largest creditor, secured principally by 3 chattel mortgages (April 11, 1919 with unknown amount, November 18, 1920, January 10, 1921) respectively worth P3.5M and P4M > Additional Guaranty (January 1, 1921) by Phil. C. Whitaker, PVOC’s Largest Stockholder (5,893 of 28k shares), who pledged private properties, to secure the other creditors of PVOC > Receivership of PVOC (March 11, 1921) > Assignment of Claims against PVOC (June 27, 1921) by creditors to Whitaker in consideration of his Trust Deed over his own property ~ Known and O.K. by PNB on Draft > Appointment of E. W. Wilson and Miguel Cuaderno, PNB Directors in the PVOC Board of Directors where neither one of them has any interest other than that of PNB’s in the PVOC ~ Wilson became President (September 12, 1921) > New Mortgage (February 20, 1922) by PVOC in favour of PNB > Termination of PVOC Receivership (February 28, 1922), after Representation by PNB counsel that latter would furnish it with funds necessary for its continued operations > Mortgage of Feb. 20 Notarized (March 8, 1922) and Registered (March 21, 1922) > Closing of PVOC (August 14, 1922) > SUIT for Foreclosure of Feb. 20, 1922 Mortgage (May 7, 1924) by PNB, for debt worth P15,787,454.54 > VOIDABLE MORTGAGE > Resulting just the same from its Illegal Execution, or Deceit, Undue Influence, Fraud by PNB: (1) Receivership (March 11, 1921), Mortgage (February 20, 1922), Receivership Terminated (February 28, 1922), Mortgage Notarized (March 8, 1922) Registered (March 21, 1922) > PVOC inhibited absolutely from giving a mortgage on its property while its in custodia legis > Receiver was not a party to 98

the mortgage Nor had the Court authorized the receiver to consent to the execution of a new mortgage; (2) EVEN IF Mortgage was perfected subsequent to the lifting of the receivership, Deceit, Undue Influence, Fraud by PNB > Mortgage was made when PNB was a dominating influence in the affairs of PVOC in person (as largest creditor) and by proxy (PNB Membership in Board of Directors of PVOC); (3) BUT Fraud cannot be alleged by Whitaker because PVOC freely acted to execute the mortgage and only a creditor could take advantage of the fraud to intervene to avoid the conveyance > Whitaker was neither a successor in interest nor legatee of the assets of PVOC ~ HENCE Cannot recover from PVOC; (4) Other Security to PNB > 3 Mortgages (April 11, 1919, November 18, 1920 for P3.5M, and January 10, 1921 for P4M); (5) Alleged Promise by PNB to Fund PVOC for its continued operation (premise of termination of receivership) NOT PROVEN > PNB’s General Manager was authorized by the Board of Directors (pursuant to Charter) to advance funds to PVOC worth P500k at most where General Manager is to report and secure the approval of the Board for necessary credits from time to time > General Manager Wilson wrote to Whitaker only to make a gratification of the additional mortgage by Whitaker of his personal property but a friendly warning against it, that it was good business for the PNB to operate PVOC as long as it had the P500k guarantee > Despite Performance by Whitaker, there was No binding promise, tacit or express, made by the PNB to continue indefinitely its backing of the PVOC >> Statute of Frauds applies only to agreements not to be performed ON EITHER SIDE within a year from the making thereof > Agreement was on ONE SIDE because of lack of PNB’s promise to answer indefinitely for debt > of his part PURPOSE to Prevent not Further Fraud G.R. No. L-11231 May 12, 1958 ROSARIO CARBONNEL v. JOSE PONCIO, RAMON INFANTE and EMMA INFANTE Facts: Jose agreed to sell his property to Rosario who paid part of the purchase price already, had assumed the obligations of Jose as part of such price, and promised to pay the balance upon the execution of a Deed of Sale. However, Jose subsequently refused to execute such Deed and instead sold the property to another. When Rosario sued for the annulment of the subsequent sale and presented the testimony of the witness to their Agreement, Jose contended that the Agreement and the testimony were unenforceable and inadmissible under the Statute of Frauds. However, the partial performance by Rosario in paying part of the price by cash and by assumption of obligation, removed the Agreement from the Statute pursuant to the Doctrine of Partial Performance (which protects

performing parties from being defrauded by the non-performing ones). Also, testimony of the Agreement’s witness, together with Jose’s Answer and Brief sufficiently established the existence of such Agreement and the payment made by Rosario. Thus, oral evidence was admissible. > Verbal Agreement of Sale (January 27, 1955) b/w Rosario Carbonnel and Jose Poncio where latter is to sell his property for P1,852.50 (at P9.50/sq.m. x 195sq.m.) > Payment by Rosario of P247.26 and Assumption of Jose’s Debt to Republic Savings Bank worth P1,177.48, with Balance to be Paid after execution of Deed of Sale > Permit from Rosario allowing Jose to remain in the property for free for 1y, afterwhich Jose was to pay > Refusal of Jose to Execute Deed of Sale and Sale of same property to sps. Ramon R. Infante and Emma L. Infante for P3,535 > SUIT by Rosario for Annulment of Sale to Infante, Declaration of Ownership, Execution of Deed of Sale ~ Testimony of Constancio Meonada (February 23, 1956) that he was Rosario’s boarder, he typed The Permit in Batanes dialect, based on data provided by Rosario (allowing Jose to stay in the lot that Rosario bought for 1y without payment), he was townmate of Jose, he signed The Permit that Jose and Rosario also signed > CONTENTIONS of Jose, sps. Infante: Agreement and Testimony unenforceable and inadmissible under Statute of Frauds; Price was P20/sq.m. > Statute of Frauds NOT APPLICABLE > Applicable only to executory contracts not to contracts that are totally or partially performed > Purpose of Statute and Doctrine of Partial Performance: Prevention of Fraud > Hence, WHY EXECUTORY ONLY: there is a wide field for fraud because unless they be in writing there is no palpable evidence of the intention of the contracting parties; > WHY NOT PARTIALLY PERFORMED CONTRACTS: exclusion of parol evidence would promote fraud or bad faith for it would enable the defendant to keep the benefits already denied by him from the transaction in litigation, and, at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby ~ Fraud upon the plaintiff if the defendant were permitted to escape performance of his part of the oral agreement after he has permitted the plaintiff to perform in reliance upon the agreement > Performing party not required to establish such partial performance by documentary proof before he could have the opportunity to introduce oral testimony on the transaction because such oral testimony would usually be unnecessary if there were documents > Rejection of any and all testimonial evidence on partial performance would lead to the very evils that the statute seeks to prevent > Hence, Plead of partial performance entitles the party to a reasonable chance to establish by parol evidence the truth of this allegation, as well as the contract itself > Statute of Frauds applies only if the evidence of record fails to prove clearly that there has been partial performance 99

> Proof of Partial Performance by Rosario: (a) Answer of Jose, admitting that Rosario had offered to purchase his land several times; (b) Uncontradicted Permit signed by Jose, Rosario and and Constancio stating that Joseo would stay in the land sold by him to Rosario for 1y, from January 27, 1955, free of charge, and that, if he cannot find a place where to transfer his house thereon, he may remain in said lot under such terms as may be agreed upon > Contention of Jose that he signed it under the belief that it was a permit for him to remain in the premises in the event that he decided to sell the property to Rosario is contradictory: (i) No reason to get said permit from Rosario if she were not the owner; (ii) Rosario took the trouble to have the Permit written in Jose’ native dialect of Batanes and would have used English if she intended to mislead Jose; (iii) Jose signed it, proving that he is neither illiterate nor so ignorant; (c) Jose’s Brief alleged that the deposit of P247.26 in his bank book (which was claimed to be the payment to the Republic Savings Bank) was only the result of some usurious loan or accommodation where bank book was in the possession of Rosario > HOWEVER, the same cannot be explained by Rosario herself if she is not allowed to testify G.R. No. anuary 24, 1996 FIRST PHILIPPINE INTERNATIONAL BANK and MERCURIO RIVERA v. COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO Facts: Demetria and Janolo offered to purchase the acquired properties of Bank for P3.5M which the Bank counter-offered with P5.5M and which Janolo counter-offered with P4.250. After a subsequent meeting with the Bank’s Sr VP, Janolo wrote their acceptance of the P5.5M purchase price but the Bank thereafter failed to response and advertised the sale of the same property even after DJ’s offer to tender payment. While DJ sued to specific performance pursuant to an alleged perfected contract of sale, Bank contended that no contract was perfected because Rivera had no authority to offer such price and that the contract falls under the Statute of Frauds and thus necessitating written evidence. However, the Contract is Perfected because Rivera did have authority to entertain the offer of sale and under the Doctrine of Apparent Authority, his apparent authority that he holds out to the public is estopped from being denied by Bank who allowed it in relation to persons dealing with them in good faith. Moreover, the various letters between DJ and the Bank constitute sufficient memorandum since it contained the parties’ names, the terms and conditions of the contract, the price and a description of the property as the object of the

contract. Even if the P5.5M offer was a new offer by the Bank, the oral evidence by Demetria, Rivera and Atty. Fajardo (of the corporation who formerly owned the properties) proving that purchase price was P5.5M were not objected to by Bank. > Verbal Agreement of Sale b/w Demetrio Demetria and Jose Janolo and Mercurio Rivera, Head-Manager of the Property Management Department of First Philippine International Bank/Producer Bank of the Philippines where former offered to purchase Bank’s 6 parcels of land ~ Negotiated in Mtg (August 1987) b/w Demetria, Jose and Rivera; Formal Letter of Offer to Purchase (August 30, 1987) by DJ for P3.5M; Letter-Reply Couter-Offer (September 1, 1987) by Bank for P5.5M; Letter Offer (September 17, 1987) by J for P4.250M; Mtg (September 28, 1987) b/w DJ, Luis Co (Sr. VP, Bank); Letter (September 30, 1987) by J accepting offer of Bank to sell at P5.5M > NonResponse by Bank but Advertisement of Sale of same property > Demands by DJ for Response and Fulfillment and Tender of Payment of P5.5M (November 17, 1987) to Bank then to Conservator which they refused > SUIT (May 16, 1988) by DJ for Specific Performance > CONTENTIONS of Bank: Lack of Authority of Rivera to make a Counter-Offer of P5.5 Million; Absence of meeting of the minds as to the price > PERFECTED CONTRACT OF SALE > Statute of Fraud does not apply because Agreement Ratified by Failure to Object to Oral Testimony and by Sufficient Memoranda (1) Perfected Contract of Sale > Price validly determined and offered by Rivera as Head Mgr of Bank’s Property Mgt Dept. who is tasked with entertaining, accepting offer to purchase properties for sale, subject to Past Due Committee’s evaluation and Conservator’s approval ~ P5.5M was the official and definitive price at which Bank was selling the property after Rivera had duly presented DJ’s offer for discussion by the Committee of such matters as original loan of borrower, bid price during foreclosure, total claim of the bank, and market value > Doctrine of apparent Authority where apparent authority of the officer of the bank is borne out by similar circumstances surrounding his dealings with buyers ~ Corporations estopped from denying authority of its officers whom it permits to act and to hold oneself out to the public as one possessing power to do such acts; (2) Non-applicability of Statute of Frauds: (i) Letters as Sufficient Memorandum of P5.5M Offer of Bank ~ Included the names of the parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract; (ii) EVEN IF Counter-offer on September 28, 1987 constitutes a “new” offer which was accepted by Janolo on September 30, 1987, there was Failure to Object to Oral Testimony proving Bank’s (counter-)offer of P5.5M > 100

Testomony of Atty. Fajardo (BYME Investment and Devt Corporation, former owners, mortgagors of property in favour of Bank as collateral for loans extended by latter to former) Demetria and Rivera that the amount offered by Bank was P5.5M > Silence of Bank makes the evidence binding on them

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G.R. No. L-45645 June 28, 1983 FRANCISCO A. TONGOY, for himself and as Judicial Administrator of the Estate of the Late Luis D. Tongoy and Ma. Rosario Araneta Vda. de Tongoy v. THE HONORABLE COURT OF APPEALS, MERCEDES T. SONORA, JUAN T. SONORA, JESUS T. SONORA, TRINIDAD T. SONORA, RICARDO P. TONGOY, CRESENCIANO P. TONGOY, AMADO P. TONGOY, and NORBERTO P. TONGOY Facts: In order to avoid the foreclosure of their mortgage property to PNB, the siblings Tongoy executed deeds of sale in favour of Luis, brother Francisco’s son, thru which he was able to pay off the entire obligations to PNB. After the release of the mortgage, the siblings sought the reconveyance of their shares, alleging that the Deeds of Sale were simulated only to allow Luis to facilitate the transaction with PNB and to administer the property for the support of the family in the meantime. Luis alleged them to be genuine. However, the Deeds of Sale were indeed simulated from the fact that the co-owners did not leave the property and continued to be supported by it, that Luis was in no financial condition to purchase the Hacienda, and that the consideration was meager and unpaid. Hence, no transfer of title was made, expressly or tacitly. But even if there was an implied trust agreement, it hasn’t prescribed yet (10y). BUT Relative Simulation only because of genuine intention to give Luis administrative powers and not lack of intention to be bound by Deeds. > Mortgage of Hacienda Pulo (April 17, 1918; co-owned by siblings Francisco, Jose, Ana, Teresa and Jovita Tongoy) to PNB as security for Loan of P11k ~ Defaulted, Foreclosure Proceedings by PNB (June 18, 1931) > Deeds of Sale by Surviving Siblings and Heirs of Deceased over their rights and interests on Hacienda Pulo in favour of Francisco’s son, Luis Tongoy (March 13, 1934, October 14, 1935, October 23, 1935, November 5, 1935) ~ TCT in Luis’ favour (November 8, 1935) > Deed of Sale of Cuaycong Property (June 22, 1936) by Basilisa Cuaycong if favour of Luis for P4k > Real Estate Mortgage (June 26, 29, 1936) by Luis in favour of PNB over Cuaycong,Pulo properties as security for P4,500 and P21k loan, respectively > Payment of all debts to PNB (April 17, 1956) by Luis worth P34,410 ~ Release of Mortgage by PNB (April 22, 1958), Registered (May 5, 1958) > Demand by Heirs of Siblings for Return of their Shares over the Property (January 26, 1966) > Death of Luis (February 5, 1966) > SUIT for Reconveyance (June 2, 1966) by Siblings/Heirs against Luis, CONTENDING that Deeds of Sale were simulated pursuant to a trust arrangement whereby Luis would return such interests after the mortgage obligations to PNB had been settled > CONTENTIONS of Heirs of Luis: Sales were genuine and for a valuable consideration, and that no trust agreement of whatever nature existed, but if there were, they were barred by prescription, estoppel, and the Statute of frauds

> SIMULATED Deeds of Sale > Luis was only given Administration of the Hacienda, as new lawyer of the family, in order for him to support the family, to facilitate and expedite the transaction with PNB who wanted to deal with only one person for convenience, and then to reconvey the co-owners’ shares after the mortgage indebtedness on Hacienda Pulo has been discharged: (1) Co-owners remained in the property after such sales where the Hacienda could have been leased to third persons to acquire rentals sufficient to liquidate the obligation to PNB; (2) Continued Support, Subsistence, Source of Livelihood of the Family from Hacienda funds: (i) Unlikely that all of the co-owners should have come at the same time to one mind about disposing of their participation in the Hacienda when they counted so much on the Hacienda for their subsistence and selfesteem; (ii) Medical and Legal schooling of others financed by Luis as administrator of common property; (3) Insufficient and Non-Payment of Consideration > P2k for 1/5 share while Jose’s 1/5 share sold only for P100 to pay Debt of P11k which could not have created such necessity to sell at a meager price; (4) Financial Condition of Luis Not Sufficient to purchase Hacienda as young lawyer and bachelor to pay for the purchase price and debt ~ Studies being financed by Jose; (5) Only 2 copies of Deeds of Sale, instead of 5; > No Implied Trust > Simulated Contract is Void and produces No Effect > Transfers of rights were null and void ab initio and thus vested no rights > Assuming Arguendo that there was, Not Yet Prescribed > Prescription of Implied Trust in 10y from Date of Release of Mortgage (May 5, 1958) BECAUSE knowledge by Co-owners of the settlement of the mortgage obligation, the attainment of the purpose for which the trust was constituted >> Simulation > contract is not really desired nor intended to produce legal effects nor in any way alter the juridical situation of the parties >> Void or Inexistent contract > no force and effect from the very beginning, as if it had never been entered into > does not create, modify or extinguish the juridical relation to which it refers > cannot be validated either by time or by ratification or by prescription ~ WHY: Nullity is permanent, even if the cause thereof has ceased to exist, or even when the parties have complied with the contract spontaneously > cannot be invoked by a person whose interests are not directly affected 102

G.R. No. L-15127 May 30, 1961 EMETERIO CUI v. ARELLANO UNIVERSITY Facts: Contract of Waiver between Emeterio, law student/scholar, and Arellano University, where the former is granted scholarship but prohibited to transfer schools, is prohibited for being contrary to public policy, embodied in Memorandum No. 38 that deems scholarships as recognitions of merit and not as business schemes, and good morals, where such practice is not generally accepted. > Emeterio Cui was a scholar in the College of Law of the Arellano University until the last semester of his final school year when he left with his uncle, Francisco R. Capistrano who was Dean of the College of Law, to transfer to the College of Law of Abad Santos University where his uncle became Dean and Chancellor > Arellano University subsequently refused to release his transcripts of records which Emeterio needed to apply for the bar exams until he has paid back the value of the scholarship which the latter refunded to him per semester, which amounted to P1,033.87 (Each tuition that Emeterio had paid at the start of the semester was refunded to him at the end of the semester for scholastic merit) > Memorandum No. 38 (August 16, 1949) of the Director of Private Schools prohibited the refund of scholarship when students transfer to other schools > Bureau of Private Schools advised Arellano University to release Emeterio’s records without requiring him to pay the tuition fee > Arellano refused > Emeterio paid under protest in order to take the bar > SUIT by Emeterio for recovery of the amount > Contention of Arellano: Scholarship Contract of Waiver (September 10, 1951) with Emeterio provided that the latter, in consideration of the scholarship grant, waives any right to transfer to another school without having refunded to the University the equivalent of the scholarship cash > Contract provision is Null and Void for violating public policy > Memorandum of the Bureau of Private Schools, considered as a practice of government officials, is a factor in determining a public policy of the state > Director submitted (1) that the policy of the Memorandum was a sound policy where scholarships are awarded to recognize merit and help gifted students in whom society has an established interest or a first lien and not to keep outstanding students in the school to bolster its prestige; (2) that Arellano treated the scholarship as a business scheme designed to increase its business potential; (3) that, thus, Arellano’s contract is contrary to public policy and even good morals

> Contrary to Public Policy > if its consideration contravenes the interests of society and in inconsistent with sound policy and good morals and tends to undermine the security of individual rights > Contrary to Good Morals > if against good customs, those generally accepted principles of morality which have received some kind of social and practical confirmation G.R. No. 130716 December 9, 1998 FRANCISCO I. CHAVEZ v. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL GUNIGUNDO (in his capacity as chairman of the PCGG). GLORIA A. JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON, and TERESA A. JOPSON, petitionersin-intervention Facts: Two Agreements b/w PCGG and Marcoses provided for the division of the ill-gotten wealth/property of the Marcoses. In exchange for the properties to be recovered by the Gov’t, PCGG granted tax exemption (on the properties kept) to the Marcoses, as well as waived all present and future civil, criminal, administrative claims against Marcoses. The Agreements thus are void for being contrary to the Constitution and law, violating provisions on tax exemptions and uniformity and on judicial prerogative on cases, for being contrary to Civil Code, waiving of future fraud and for being vague. > Two Agreements (December 28, 1993) b/w PCGG Chairman Magtanggol Gunigundo and Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene Marcos-Araneta concerning the division of Marcos property between Heirs and Gov’t: (1) General Agreement: Division and Disclosure of Property in Exchange of Immunity from civil, criminal, tax or administrative cases against Marcoses; (2) Supplemental Agreement: Division of $356M Swiss Deposits in 75-25% Sharing Ratio > SUIT by Francisco I. Chavez (taxpayer,citizen,former gov’t official) to enjoin PCGG from perfecting the agreement with the Marcoses and to publicize all negotiations and agreement, be they ongoing or perfected pursuant to Constitutional right to information and duty of the State to disclose publicly all its transactions involving the national interest > CONTENTIONS of PCGG, Marcos: Action is premature because the Agreements have not become effective and binding > Agreements VOID (1) Contrary to Constitution and Laws > Latter not subject to compromise 103

(a) PCGG has no authority to grant criminal immunity, tax exemption by waiving civil, criminal, tax or administrative cases by Marcoses’ disclosure and partition of property; (i) Pres. Fidel Ramos expressly reserved authority to appove any agreement with Marcoses and denied such authority to PCGG in Memo to PCGG (May 4, 1998); (ii) Sec. 5, EO14 allows PCGG to grant criminal immunity only to witnesses who can provide information necessary for investigation BUT NOT TO Principal Respondents, Defendants, Accused themselves; (iii) Tax exemption only granted by Congress, LGU > But even if Congress passes such law, it would be violative of Equal Protection and Equitability and Uniformity of Tax; (iv) Commissioner of Internal Revenue can compromise taxes only if claim against taxpayer is reasonably doubted or if latter is not in financial position to pay; can cancel tax only if unjustly assessed or unjustified collection; (v) Encroachment on Judicial powers in binding to dismiss cases against Marcoses > once a case has been filed before a court of competent jurisdiction, the matter of its dismissal or pursuance lies within the full discretion and control of the judge; (b) Waiver of Future Claims, Counter-Claims against Marcoses contrary to Civil Code; (c) Terms vague (i) No basis as to the determination of properties to be retained by Marcoses and ceded to Gov’t and of 75-25% sharing ratio of Swiss Deposit; (ii) No definite or determinable period within which the parties shall fulfill their respective prestations; (d) Agreements without authority of Pres. Ramos > Incomplete and unenforceable > THEREFORE, No argument of the contractors will make such illegal and unconstitutional stipulations pass the test of validity > Void agreement will not be rendered operative by the partiesd alleged performance (partial or full) of their respective prestations > WHY: A contract that violates the Constitution and the law is null and void ab intio and vests no rights and creates no obligations ~ It produces no legal effect at all > Marcoses thus have No interest to protect or right to assert in this proceeding > Chavez’s Right to Information on matters of public concern [Sec. 7, Art. III] and State’s Duty to Disclose Transaction involving public interest [Sec. 28, Art. II] > Marcoses Ill-Gotten Wealth as Public Interest:

(1) Restrictions on Public Disclosure only for matters of national security, intelligence information, trade secrets and banking transactions, criminal matters, and other confidential information (2) Disclosure of Matters on Public Concern > Writings coming into the hands of public officers in connection with their official functions must be > WHY: People’s opportunity to determine whether those to whom they have entrusted the affairs of the government are honesty, faithfully and competently performing their functions as public servants accessible to the public, consistent with the policy of transparency of governmental affairs > Including negotiated and consummated contracts (Minutes of ConCom, Ople); (3) Marcoses’ Ill-Gotten Wealth as Public Concern and Interest > EO 1, creating PCGG for recovery of vast government resources allegedly amassed by former President Marcos; EO No. 14, giving additional powers to the PCGG which, taking into account the overriding considerations of national interest and national survival, required it to achieve expeditiously and effectively its vital task of recovering ill-gotten >> Ill-Gotten Wealth > assets and properties purportedly acquired, directly or indirectly, by former President Marcos, his immediate family, relatives and close associates > thru or as a result of (i) their improper or illegal use of government funds or properties; or (ii) their having taken undue advantage of their public office; or (iii) their use of powers, influences or relationships > resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines G.R. No. 125172 June 26, 1998 Spouses ANTONIO and LUZVIMINDA GUIANG v. COURT OF APPEALS and GILDA COPUZ Facts: Gilda Corpuz and Judie Corpuz were married on December 24, 1968 and together bought Lot 9, Block 8 on February 14, 1983 from Manuel Callejo, payable in installments. They sold ½ of Lot 9 to sps. Antonio and Luzviminda Guiang. When Gilda left for Manila on June 1989 to look for work abroad, their daughter Harriet wrote to her upon discovery on January 1990 that her father intended to sell the remaining ½ of Lot 9 and their house thereon to the Guiangs. Gilda responded that she objected to it but Harriet did not inform her father but instead gave the letter to Mrs. Luzviminda Guiang so latter would be the one to tell her father. Unfortunately, Luzviminda did not inform Judie about the Letter and on March 1, 1990, the sale took place. In addition to, Luzviminda paid Mrs. Callejo an additional amount on March 5 to protecet their title to the property. Unfortunately, Gilda arrived from Manila only on March 11, 1990 but thereafter 104

gathered their children (who had been staying in different households) and together stayed at their house. (Their children informed Gilda that Judie already has a new family.) The Guiangs consequently filed a complaint for trespassing that led to an Amicable Settlement b/w Guiangs and Gilda that the latter and her children would voluntarily vacate the property. Nonetheless, Gilga sought the annulment of the settlmenet and remained in the property. Guians sought the Execution of the AS. RTC and CA held that the sale was void due to the lack of Gilda’s consent; Guiangs contended that it was merely voidable and the the AS has already ratified the sale. Issue:

WON Sale w/o Consent is Void WON Am.Set. ratifies Void Sale

YES NO

Held: Because the sale occurred under the FC, FC 124 applies which explicitly states that sale without consent/authority of other spouse is VOID. This is especially apparent in the difference b/w FC 124 and NCC 166 where latter rules that it is merely voidable and that action against it prescribes in 10y. NCC1390 that governs contracts with vitiated consent also does not apply because it deals with contracts where there is consent but merely vitiated WHEREAS the Sale here is one wherein consent was totally lacking. Given that the sale was VOID, the Am.Set. did not serve to validate it or to alter the void character of the sale because under NCC 1422, consequent contract to a void one is also void. And because nowhere in the Am.Sett. was a continuing offer mentioned, (it merely concerned Gilda vacating the property), it cannot be considered as a continuing offer. G.R. No. L-27841 October 20, 1978 MARIA ENCARNACION CASTILLO, ELISEA GALVAN, and PATROCINIO GALVAN v. JOSEFA GALVAN, EMILIO SAMSON, and NATIVIDAD GALVAN Facts: Paulino was the owner of ½ of 2 parcels of land, coowned with her daughters by 1st marriage. When he died, his heirs by his 2nd marriage sought to settle his estate but then discovered that his ½ share had previously been sold to the co-owner-daughters. They sought the declaration of nullity of the sale because it was alleged to have been obtained thru fraud and it lacked consideration. RTC, however, dismissed the complaint because an action based on fraud prescribes in 4y. The RTC erred in dismissing the complaint because the Action for Declaration of Nullity is imprescriptible.

> ½ Interest of Paulino Galvan in 2 parcels of land (with family home thereon) shared with daughters Josefa Galvan and Natividad S. Galvan (from first marriage) > Deed of Absolute Sale (1953) over ½ interest of Paulino to Josefa and Natividad for P500 ~ Registered (August 3/4, 1955) > Death of Paulino (February 10, 1961) > Discovery by Plaintiffs (other heirs of Paulino with Maria Encarnacion Castillo) of the Sale of his ½ Interest after initiating proceedings for settlement of his estate in Registry of Deeds > SUIT (August 1, 1961) by Plaintiffs for Declaration of Nullity of Deed of Absolute Sale against Josefa and Natividad > CONTENTIONS of Plaintiffs: Void Sale due to (i) misrepresentation by Josefa and Natividad to Paulino and Maria that the certain document they signed was only for the purpose of enabling latter, as co-owners of the parcels of land, to have their separate tax declarations for the respective portions owned by them so that they can pay their respective real estate taxes separately; (ii) Lack of Intention of Paulino to sell his ½ share because he had no other residential lot to live in and no need to sell property because of sufficient income to sustain it; (iii) Insufficiency of consideration because property was worth P22,500 while purchase price was only P500; (iv) Non-Payment of Alleged Purchase Price > CONTENTIONS of Josefa and Natividad: Valid Sale, known to the Plaintiffs even before the Complaint; Prescription of Action based on Fraud in 4y from Registration (Registered August ¾, 1955, Suit only on August 1, 1961) > RTC Dismissed due to Prescription > Action for Declaration of Nullity has No Prescription > Prayer is to Declare Void and inexistent the Deed of Sale due to fraud and lack of consideration ~ Simulated/Fictituous Sale (Concurring Opinion) > Action is Imprescriptible G.R. No. 153201 January 26, 2005 JOSE MENCHAVEZ, JUAN MENCHAVEZ JR., SIMEON MENCHAVEZ, RODOLFO MENCHAVEZ, CESAR MENCHAVEZ, REYNALDO, MENCHAVEZ, ALMA MENCHAVEZ, ELMA MENCHAVEZ, CHARITO M. MAGA, FE M. POTOT, THELMA M. REROMA, MYRNA M. YBAÑEZ, and SARAH M. VILLABER v. FLORENTINO TEVES JR. Facts: Menchavez and Teves entered into a Contract of Lease where the former leased the fishpond covered by a lease application to latter for 5y. When the fishpond was demolished by virtue of a Court Order in favour of other parties, Teves sued Menchavez for Damages. However, neither party can claim for remedy. The Contract of Lease was void. First, Menchavez cannot alienate the fishpond because it was not theirs. They were still applying for a lease application over the fishpond from the Gov’t at the time of Lease with Teves and even if such application were to be approved, the property cannot be 105

subleased as prohibited by law. Also, the parties are in pare delicto because while Menchavez knew of their lack of ownership, the same was known by Teves. Hence, Teves cannot claim innocence. > Contract of Lease (February 28, 1986) b/w Menchavezs et al and Florentino Teves Jr. where former, alleged to be absolute and lawful co-owners, leased a fishpond to the latter for 5y, P40k/y, with assurance of Teves’ peaceful and adequate enjoyment of the lease > Demolition of the Fishpond (June 2, 1988) by Sheriffs pursuant to Cebu RTC Order (Denying Menchavez’s lease application and Delivery to other parties) > SUIT by Teves for Damages > CONTENTIONS of Teves: Violation of Contract of Lease, specifically the peaceful and adequate enjoyment of the property for the entire duration of the Contract; Withholding of Court Decision involving the fishpond where the Menchavezs were ordered to remove the dikes illegally constructed; Innocent Party because he was induced to enter the Contract thru Serious Misrepresentation of Menchavez’s ownership > Third Party Complaint against agents of Eufracia Colongan and Paulino Pamplona > VOID CONTRACT OF LEASE > In Pari Delicto > No Mutual Recovery (1) VOID as Contrary to Law > Fishpond owned by State, Not Menchaves: Constitution, Art. XII, Secs. 2 where fisheries and natural resources are owned by the state and 3 where agricultural lands are inalienable ~ Can only be leased > EVEN IF Leased to Menchavez, latter cannot sublease the Fishpond: PD 704 that fishponds are to be least for at least 25y and cannot be subleased to another > HENCE, Menchavez had no power to lease it WHERE (i) application for lease not yet approved at the time of Lease to Teves, and (ii) fishpond cannot be subleased anyway; (2) IN PARI DELICTO > (a) Menchavez knew that they could not lease what does not belong to them ~ they were even still applying for a lease of the same property under litigation from the government at the time of the Lease to Teves; (b) Teves was aware that Menchavezs were not the owners but were mere holders or possessors: (i) Knowledge of Menchavez’s lease application for the fishpond from the State; (ii) Negotiation in the presence of his Lawyer who is expected to know that fishponds belong to the State and are inalienable; (iii) Contract, which stated that the area was still covered by a fishpond lease application but which also stated Menchavez as owners of the fishpond, was prepared by Teves and his Lawyer ~ Ambiguity should therefore be resolved against him, being the one who primarily caused it; (iv) Failure to prove that they misled him regarding the ownership of the fishpond ~ He who alleges must prove > Teves THUS leased the fishpond at his own risk

>> Void Contract > equivalent to nothing; produces no civil effect; does not create, modify or extinguish a juridical relation > Parties to a void agreement cannot expect the aid of the law ~ leave them as they are > WHY: They are deemed in pari delicto or in equal fault EXCEPT IF (Art. 1412) one party is not at fault

G.R. No. 145031 January 22, 2004 SPS. RUFINO ANGEL and EMERITA ANGEL v. SIMPLICIO ALEDO and FELIXBERTO MODALES Facts: Sps. Angel employed Modales to construct a bldg. But because he worked in DPWH and thus prohibited from contracting without authority, the Agreements named Modales’ father-in-law as the contractor instead. When the bldg was completed, father-in-law Aledo sued for collection. Sps. Angel contended that he was not a party to the contract because he was merely a dummy and filed a third party complaint against Modales who in turn alleged that he was not part of the contract. All complaints were dismissed because the Construction Agreements were void for being contrary to law and public policy (prohibition against Modales to contract). Since all knew of Modales’ incapacity to contract and thus allowed Aledo to stand in as dummy, they were all in pare delicto and cannot recover anything from each other. > Construction Agreements (November 22, 1984, February 11, 1985) b/w sps. Rufino and Emerita Angel and Simplicio Aledo, father-in-law of Felixberto Modales who the actual contractor of the two-storey residential building BUT was at the time an engineer under the employ of the Department of Public Works and Highways > Construction finished > SUIT (September 27, 1988) by Aledo for collection of P22,850 as balance of the consideration and P6,713.00 as material costs > CONTENTIONS of sps. Angel: No cause of action because Aledo was only a dummy of his son-in-law Modales who was “the actual contractor” with whom they contracted for the construction; there were also defects in the construction; unused construction materials were still in the site > Third Party Complaint (July 1989) by sps. Angel against Modales for failure to comply with his obligation because building had a lot of defects > CONTENTION of Modales: sps. Angel had no cause of action because he was not a party in the contract > Dismissal of Complaints > VOID Construction Agreements > Contrary to Law and Public Policy:

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(1) Employment of Modales as contractor but who was known to be prohibited from contracting without the requisite permission from the proper government authorities; (2) Father-in-law Aledo was knowingly used as Modales’ “mere” dummy, named in the “Construction Agreements” G.R. No. L-11240 December 18, 1957 CONCHITA LIGUEZ v. THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL. Facts: In order to live with minor Conchita and have sexual relations with her, married man Salvador donated a parcel of land to her. Even if the donation was premised upon an illicit causa (sex with a minor as a married man), manifested in his motive to cohabit with her which is considered cause because it predetermined the contract, the donation remains partly valid because Conchita was not a guilty party since she did not participate much in the formation of the donation and/or because even if both Salvador and Conchita were guilty, they cannot invoke the donation’s illegality to null the same. Absent proof of illegality against a donation valid on its face because it was ratified by the Justice of Peace, the donation remains valid. However, inasmuch as the interest of wife Maria and their children in the conjugal property are concerned, the donation may be invalidated according to the prejudice against them which would still be determined by the lower court by remand. > Deed of Donation (May 18, 1943) by married man Salvador P. Lopez in favour of 16 y/o Conchita Liguez covering a parcel of land > They thereafter lived together until the Death of Salvador (July 1, 1943) > Adjudication of the Same Property to Salvador’s wife Maria Ngo and their children (1949) > Possession by Maria and children > SUIT for Recovery by Conchita > CONTENTIONS of Maria and Children: Donation is null and void: (1) Has an illicit causa or consideration > that the donation, although ratified by the Justice of the Peace of Davao “for the consideration of Salvador’s love and affection for Conchita and for the good and valuable services rendered by her to him,” was actually made in order for Salvador, a married man, to live with minor (16 y/o) Conchita and have sexual relations with her, such donation being required by Conchita’s parents; (2) Involves conjugal property co-owned by Salvador with wife Maria; > CONTENTIONS of Conchita: Donation was a contract of pure beneficence, the consideration of which is the liberality of the donor ~ Desire of Salvador to have sex with her is his mere motive, different from the causa > HENCE, Liberality per se is not illegal since it is neither against law or morals or public policy

> Donation was with Illicit Causa > With Illicit Causa > Motive of Lopez to cohabit and have sex with Conchita also served as the Causa because it predetermined the purpose of the contract > Lopez would not have conveyed the property in question had he known that Conchita would refuse to cohabit with him > Cohabitation was an implied condition to the donation > Unlawful/Illicit because cohabitation by a married man with another is unlawful ~ Necessarily tainted the donation itself > BUT DONATION STILL VALID (Partly) > (a) Valid on its face > Accepted by Conchita, Signed and Ratified by Justice > Perfect and Binding UNLESS Declared null > Illegality is not presumed, but must be duly and adequately proved; (b) Art. 1412 (2): Donation valid because Conchita was not at fault > Conchita was only a minor (16) when the donation was made while Salvador was already advanced in years > No proof that she was fully aware of the terms of the bargain entered into by and Lopez and her parents who insisted on the donation before allowing her to live with Lopez > illegality is not presumed, but must be duly and adequately proved; (c) Even if both parties to an illegal contract are guilty, they are barred from pleading the illegality of the bargain either as a cause of action or as a defense where they “will not be aided by the law but will both be left where it finds them” > Since the defense of illegality cannot be invoked by Salvador himself, if living, his heirs can have no better rights than Lopez himself > BUT DONATION VALID NOT IN ITS ENTIRETY > Donation of Conjugal Property > (a) But Prejudicial to the interest of Wife Maria ONLY IF the value of her share in the property donated cannot be paid out of the husband’s share of the community profits > REMAND; (b) But Prejudicial to Heirs ONLY IF inofficious or in excess of the portion of free disposal > REMAND >> Motive is Causa in Exceptional Cases > General Rule: Motive is inoperative and immaterial in determining the validity of the contract > Exception: When contracts are conditioned upon the attainment of the motives of either party ~ Motive may be regarded as causa when it predetermines the purpose of the contract >> ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2) When only one of the contracting parties is at fault, he cannot recover, what he has given by reason of the contract, or ask for fulfillment of what has been promised him. The other, who is not at fault, may 107

demand the return of what he has given without any obligation to comply with his promise. G.R. No. L-1411 September 29, 1953 DIONISIO RELLOSA v. GAW CHEE HUN Facts: Rellosa sold his property to Chinese Gaw Chee Hun who in turn leased it to the former. When the application of Gaw to purchase property as an alien was not approved by the Japanese Military Admin, Rellosa sued for the annulment of the sale and lease and for the recovery of his title. Although the contracts are void for being contrary to the Constitution, neither party can recover from each other because they were both in fault for knowingly selling and buying property without capacity to do so. Hence, the title cannot be reverted to Rellosa but Gaw Chee Hun cannot remain in possession of it as an alien. The State should thus seek for the property’s reversion. > Contracts of Sale and Lease (February 2, 1944) where Dionisio Rellosa sold his parcel of land and house, for P25k, to Gaw Chee Hun, a Chinese citizen, and where Gaw Chee Hun leased the purchased property to the vendor until he obtains the approval of the Japanese Military Administration for the purchase of property by him (No. 6 issued) > Non-Approval of Application of Gaw Chee Hun to Purchase Property > SUIT by Rellosa for the Annulment of Sale and Lease, Return of Title: (1) Application for Purchase as Alien not granted to Gaw Chee Hun; (2) Ownership by Gaw Chee Hun contrary to Art. XIII, Sec. 5, Constitution > CONTENTIONS of Gaw Chee Hun: Valid sale, not contrary to law, morals and public order > VOID Contracts of Sale and Lease > BUT No Recovery of Title to Rellosa ~ In Pari Delicto > Remedy not to Rellosa but to State (to enforce prohibition of alien ownership) is not in Annulment but in Reversion: (1) VOID not accdg to Seirei No. 6 requiring approval of Director General of the Japanese Military Administration before an alien can acquire any private land BUT TO Constitution (September 4, 1943); (2) No Recovery > In Pari Delicto > Both parties knew that what they were doing was in violation of the Constitution; (3) Remedy NOT Annulment for Recovery by either party BUT Reversion or Escheat by the State > ONLY UPON Action by State >> In Pari Delicto > Party to an illegal contract cannot come into a court of law and ask to have his illegal objects carried out ~ Law will not aid either party to an illegal agreement and leaves the parties where it finds them > THUS No action arises, in equity or at law, from an illegal contract either (i) for its specific

performance, or (ii) to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation > EXCEPTION ALLOWING RELIEF: Contracts intrinsically contrary to public policy where illegality itself consists in their opposition to public policy > WHY: Public policy require relief >> Escheat > Reversion or Forfeiture of property to the State, which takes place when the title fails > Commonwealth Act No. 141, Sec 124 provides that any violation on alien ownership results to the Transfer being unlawful and null and void from its execution and shall produce the effect of annulling and cancelling the grant, title, patent, or permit originally issued, recognized or confirmed, actually or presumptively, and cause the reversion of the property and its improvements to the State G.R. No. L-17587 September 12, 1967 PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y CANON FAUSTINO v. LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng, deceased Facts: Due to her gratefulness to Chinese lessee Wong Heng and his family, old maid Justina executed contracts of lease over her entire property in his favour that lasts until 99y and with Option to Sell good for 50y. By doing so, she virtually transferred her ownership rights (right to enjoy and alienate property) to Wong which is in violation of the Constitution. Although both parties are guilty for having entered into such an agreement freely, the rule on in pari delicto does not apply because doing so would violate public policy on reserving real property for Filipinos. Hence, contracts are void but property reverts to Justina’s estate even if she also is guilty because otherwise, Chinese Wong would be in its possession which is contrary to Constitution. > Contracts of Lease b/w 90y/o Justina Santos and Chinese Wong Heng where former (i) leased part of her property to latter-lessee, then (ii) expanded the portion with period of 50y but with right to withdraw (November 15, 1957), then (iii) covered all of her property, then (iv) offered Option to Sell (December 21) upon his grant of Citizenship (application denied due to discovery that he was not a resident of Rizal while adoption by Justina withdrawn because of wrong assumption that such would naturalize him), then (v) extended the lease term to 99y and fixed the Option term to 50y (November 18, 1958) > Wills (August 24,29, 1959) of Justina bade her legatees to respect the contracts she had entered into with Wong > SUIT (November 18, 1959) for Annulment of the Contracts by Justina, alleging Simulation that Wong employed fraud, misrepresentation, inequitable conduct, undue influence and abuse of confidence 108

and trust and took advantage of her old age (90), blindness, crippleness and invalidity to circumvent the constitutional provision prohibiting aliens from acquiring lands in the Philippines and also of the Philippine Naturalization Laws > CONTENTIONS of Wong: Valid contracts made by Justina as gratification of Wong’s care for her, saving she and her sister from a fire in the property during liberation, and his children’s visits to her whose recitation of prayers in Tagalog were her consolation in life > VOID CONTRACTS > Contrary to Constitution (1) Lease Freely and Voluntarily Entered into by Justina > Desire to have Wong enjoy the propertyes as she had no relatives but considered Wong Heng as a son and his children her grandchildren (even at the point of their adoption) ~ Testified by her Atty. Alonzo; (2) Void as Contrary to Constitution > Intention by both parties to circumvent the Constitutional prohibition against the transfer of lands to aliens > Singly, contracts show nothing illegal ~ Lease to an alien for a reasonable period and an Option giving an alien the right to buy real property on condition that he is granted Philippine citizenship are valid > BUT Collectively, they reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits ~ Illicit purpose then becomes the illegal causa rendering the contract void > Wong was given not only a lease but also an option to buy, by virtue of which Justina cannot sell or otherwise dispose of her property for 50 years > Clear that the arrangement is a virtual transfer of ownership, comprising of the right to enjoy the land and right to dispose of it; (3) Despite In Pari Delicto, Land to be returned to Justina’s Estate > Public Policy to Conserve Land for Filipinos would be defeated and continually violated if the General Rule of In Pari Delicto is applied INSTEAD of setting the contracts aside and ordering the restoration of the land to the estate of the deceased Justina > Conflict with Rellosa v. Gaw Chee Hun G.R. No. 143958 July 11, 2003 ALFRED FRITZ FRENZEL v. EDERLINA P. CATITO Facts: Alfred Fritz Frenzel, Australian citizen, went to the Ph in 1974 as a pilot, married (1976) but later separated (1981) from Teresita Santos, Ph citizen. When he returned to Sydney in Feb. 1983, he met Ederlina Catito, Ph citizen, who was a masseuse at King’s Cross nightclub. Although both knew that Ederlina was still married to German Klauss Muller and Alfred to Teresita, they fell in love. Alfred persuaded her to stop working at King’s Cross, to return to the Ph to engage in a wholesome business of her own (where he even financed her trip and business of beauty parlour) and proposed marriage and assured her that she would divorce his wife. Ederlina opted to wait for such divorce which

she promised she would also obtain for herself. Decided to stay in Ph for good and live with Ederlina, Alfredo bought 5 real properties (Ermita, QC, Davao) which were all in the sole name of Ederlina because he knew that he cannot own land as a foreigner. He also opened a joint account in HSBC, HK with Ederlina. Unfortunately, Ederlina’s husband, Klaus, opposed the divorce (after Alfred ignored his letter to stay away from his wife) and moreover demanded ½ of properties owned by Ederlina in Ph before he would agree to the divorce. Klaus also threatened to file a bigamy suit against Ederlina. Alfred thereafter left Ederlina who refused to establish a 70-30 partnership with him (by which he could also own the property) and who insisted on her ownership of the properties. Alfred thus sued for the declaration of ownership and recovery of the real properties, alleging that Ederlina transferred his personal funds to their joint acct without his knowledge/consent and by which purchased all the properties. Ederlina contended that she purchased the properties using her own funds especially where the deeds of sale, receipts, certificates of title were in her name alone, that Alfred has no right over the props and has no cause of action. Issue: WON Alfred can recover properties Held: Evidence proves that Ederlina was the purchaser of the properties but even if Alfred was the real purchaser, he cannot be declared owner and recover the same (even just for the purpose of having the props sold at public auction) because he is a foreigner and is prohibited by Sec. 14, Art. XIV, 1973 Consti to acquire real props. Hence, such sales are void ab initio. He also cannot recover his money because he acted in bad faith, knowing that Ederlina was married and being married himself. Hence, being a party to an illegal contract, he cannot come into a court of law and ask it to have his illegal objective carried out. One who losses his money/prop by knowingly engaging in a contract which involves his own moral turpitude may not maintain an action for his losses. Equity, as a rule, will follow the law and will not permit that to be done indirectly which because of public policy cannot be done directly. G.R. No. 148376 March 31, 2005 LEONARDO ACABAL and RAMON NICOLAS v. VILLANER ACABAL, EDUARDO ACABAL, SOLOMON ACABAL, GRACE ACABAL, MELBA ACABAL, EVELYN ACABAL, ARMIN ACABAL, RAMIL ACABAL, and BYRON ACABAL Facts: Villaner sold his property to nephew Leonardo, and Leonardo then sold it to Ramon. Villaner subsequently sought for both sales’ annulment, alleging that what he signed was a mere contract of lease and not of sale. And hence, the contracts of sale are void for being fictitious. However, Villaner, as the one who alleged the simulation, failed to prove such allegation. He did not present 109

evidence as to how he came to sign the Deed of Sale and had not presented the alleged women witnesses to the lease (contrary to the sps. witnesses of the Sale). Moreover, he cannot contend that such sale was void for being contrary to CARL that only allows 5 hectare property to be retained because the part of the property that is covered by CARL only comprises 3-4 hectares and was thus validly retained and sold by Leonardo and Ramon. But assuming arguendo that such sale was in violation of CARL, he still cannot recover because he was also a guilty party in selling agricultural property where the exception to the rule does not apply because the prohibition is not meant for the benefit of the plaintiff but of the farmers. > Deed of Absolute Sale (April 19, 1990) b/w Villaner Acabal and godsonnephew Leonardo Acabal where former sold the parcel of land he had previously purchased from his parents (July 6, 1971) for P2k to latter for P10k > Deed of Sale (May 19, 1990) by Leonardo in favour of Ramon Nicolas over the same property > SUIT (October 11, 1993) by Villaner for Annulment of Sales (to Leonardo and to Ramon) > CONTENTIONS of Villaner: Simulated and Fictitious because (i) he only intended and signed a Lease Contract in favour of Leonardo, for 3y for P1k; (ii) he did not read the contents but just the title of Lease Contract where the Deeds of Sale may have been included within the pages; (iii) Witnesses to his signing were women employees of Judge Villegas but witnesses to Deeds of Sale were sps. Carmelo (who prepared the Deed) and Lacorte Cadalin; (iv) Non-Payment by Leonardo of any price > CONTENTIONS of Leonardo: Valid Deeds of Sale where he already paid P10k purchase price

(3) Assuming Arguendo that Sale was Contrary to CARL, Villaner has no remedy > In Pari Delicto for Sale of Agricultural Property > Exception not applicable because Prohibition not for Plaintiff but for Farmers > Action of Villaner’s Spouse and Children for Recovery of their Share of the Property > NOT Anuulment BUT Partition >> Principle of pari delicto > 2 premises: (1) Courts should not lend their good offices to mediating disputes among wrongdoers > Not to lend its aid to a man who founds his cause of action upon an immoral or an illegal act; (2) Denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality > EXCEPT IF: (1) Contract is not illegal per se but merely prohibited; (2) Prohibition is for the protection of the plaintiffs; (3) Public policy is enhanced thereby > WHY: Law will not aid either party to an illegal agreement and will leave them where it finds them ~ Not for the sake of the defendant but because they will not lend their aid to such a plaintiff Who can bring the Suit? What is the impact of the in pari delicto? Void Contracts have VALUE ~ If no one challenges it

> VALID Deeds of Sale: (1) Failure by Villaner to Prove Simulation > Burden of clear and convincing proof lies on the party who makes the allegations > Did not present (i) Evidence of Simulation as to how he was made to sign the Deed of Sale; (ii) Testimony of Alleged Women Witnesses; (iii) Fair Market Value of the Property to contend that P10k was inadequate ~ Nonetheless, must have been grossly inadequate and such that a reasonable man would neither directly nor indirectly be likely to consent to it > AS OPPOSED TO Testimony of (i) Carmelo Cadalin that he prepared the Deed, that Villaner read the Deed, that Villaner signed the Deed of Sale; (ii) Notary Atty. Vicente Real who cannot remember Villaner and the notarization of the Deed of Sale ~ Became close only after; (2) Sale Not Contrary to CARL (RA 6657) > Retention Limit is 5 hectares whereas only 3-4 hectares of the Property were agricultural for sugarcane and the rest were limestone (pursuant to ocular inspection of Court-appointed Victor Ragay);

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G.R. No. L-47362 December 19, 1940 JUAN F. VILLARROEL v. BERNARDINO ESTRADA

of his own funds as much as possible > Demand by Fisher for Return of the entire amount paid by him

DIGEST BASED, TEXT IN SPANISH. Facts: The mother of Juan Villaroel contracted a P1k debt with sps. Estrada. When his parents died, Juan executed a document acknowledging the P1k debt plus interest. Sps. Estrada thereafter sued for payment.

Facts: Because the PGCI failed in business, Robb felt morally responsible for the loss of Fisher’s 2nd installment as stockholder of the company. He wrote him that he would try as much as possible to return such installment. Nevertheless, Fisher cannot judicially demand the fulfilment of such promise because it is a mere moral obligation which has no force in law but only in conscience. It did not suffice as consideration to make such promise an onerous contract because it does not fall under the exceptions of law.

> Robb’s Promise Not Actionable: (A) Not an Onerous Contract > Requires Consideration > Robb to give P2k that is a burden as it deprives his property with an amount of money BUT Fisher has not given or promised anything or service to the former which may compel him to make such payment; (B) Mere promise out of feeling of pity is Not Consideration > Purely moral obligation or conscience duty arising wholly from ethical motives or a mere conscientious duty unconnected with any legal obligation, perfect or imperfect, or with the receipt of benefit by the promisor of a material or pecuniary nature is not demandable in law but only in conscience, over which human judges have no jurisdiction > Will not furnish a consideration for an executory promise; (C) Moral obligation as sufficient consideration ONLY IF: (1) Cases in which the moral obligation arose wholly from ethical considerations, unconnected with any legal obligations, perfect or imperfect, and without the receipt of actual pecuniary or material benefit by the promisor prior to the subsequent promise; (2) cases in which the moral obligation arose from a legal liability already performed or still enforceable; (3) cases in which the moral obligation arose out of, or was connected with, a previous request or promise creating originally an enforceable legal liability, which, however, at the time of the subsequent express promise had become discharged or barred by operation of a positive rule of law, so that at that time there was no enforceable legal liability; (4) cases in which the moral obligation arose from, or was connected with, a previous request or promise which, however, never created any enforceable legal liability, because of a rule of law which rendered the original agreement void, or at least unenforceable; and (5) cases in which the moral obligation arose out of, or was connected with, the receipt of actual material or pecuniary benefit by the promisor, without, however, any previous request or promise on his part, express or implied, and therefore, of course, without any original legal liability, perfect or imperfect.

> Interest by A. O. Fisher, manager of dog racing course in Shanghai, to invest in Philippine Greyhound Club, Inc. after encounter with John C. Robb of the PGCI (September 1935) who was there to study the operation of a dog racing course > Subscription by Fisher as Stockholder and Payment of P3k as 1st instalment > Payment by Fisher of 2nd instalment WHILE PGCI was already failing because Board of Directors decided to organize instead The Philippine Racing Club > Letters (March 16, 1936, February 21, 1936) by Robb to Fisher explaining that he felt morally responsible to the stockholders who had paid their second installment and promising to answer for the stockholders’ losses out

>> Consideration as the explanation of the contract; the essential reason for the contract > Motives are particular reasons of a contracting party which do not affect the other party and which do not preclude the existence of a different consideration UNLESSs the efficacy of the consideration had been subordinated to compliance with the motive as conditions > BUT Consideration is not an essential element of a contract > Is the action enforceable? NO (In my opinion) BECAUSE there is no contract (no meeting of minds where they did not agree on the amount because Fisher wanted the 1st and 2nd instalment while Robb only offered 2nd instalment)

Held: Although the document was executed due to a sense of moral obligation on Juan’s part (because he did not have to since the original debt had already prescribed), it resulted in an effective and demandable obligation voluntarily entered into by him. Although there is a rule that only the original debtor can make a new promise to pay a debt beyond the prescriptive period, this is rule is not applicable to the case because the obligation is voluntarily assumed by Juan himself. > Already no debt to speak of due to prescription (death, 7y), Villaroel voluntarily paid > PAYMENT necessary in Natural Obligation! (that Natural Obligation arises only when there was payment because the obligation is to retain what had been given) * Facts + Law = Resolution G.R. No. 46274 November 2, 1939 A.O. FISHER v. JOHN C. ROBB

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> BUT IT COULD HAVE BEEN AN ENFORCEABLE CONTRACT if Fisher agreed to the offer because of meeting of minds, causa (promise to pay) and object > IF there was a previous causa that has prescribed, causa is the new obligation G.R. No. L-27782 July 31, 1970 OCTAVIO A. KALALO v. ALFREDO J. LUZ Facts: Kalalo’s service for IRRI to be paid in Philippine currency because RA 529 prohibits payment in dollars, to be converted at the rate of exchange during execution of judgement for payment. > Agreement (November 17, 1959) > Octavio A. Kalalo (licensed civil engineer; owner of O.A. Kalalo and Associates) with Alfredo J. Luz (licensed architect; owner of A.J. Luz and Associates) > Former to render engineering design services; Latter to pay > Clarification to Letter-Proposal ~ that the schedule of engineering fees in the agreement does not cover D. Foundation soil exploration, testing and evaluation; E. Projects that are principally engineering works such as industrial plants and that O. A. Kalalo and Associates reserve the right to increase fees on projects, which cost less than P100k > Projects accomplished > Itemized Statement of Accounts (December 11, 1961) ~ total of P116,565 minus previous payments worth P57k; balance of P59,565 > Resume of Fees (May 18, 1962) ~ Luz to Kalalo that the balance was P10,861.08 instead of P59,565 > (June 14, 1962) Luz sent a check worth P10,861.08 but Kalalo refused to accept > Complaint (August 10, 1962) by Kalalo ~ services rendered worth $28k and P100,204.46, excluding interests, of which sums only P69,323.21 had been paid > Payment for the (1) balance of $28k (which was not stipulated in the Statement of Accounts) and the balance of P30,881.25; (2) P17k for consequential and moral damages; (3) P55; for moral damages, attorney's fees and expenses of litigation; (4) P25k as actual damages, and also for attorney's fees and expenses of litigation > Contention of Luz: that Kalalo’s services were not in accordance with the agreement; that the claims were not justified by the services actually rendered; that the aggregate amount actually due was only P80,336.29, of which P69,475.21 had already been paid, thus leaving a balance of only P10,861.08; that Kalalo was in estoppel because of certain acts, representations, admissions and/or silence, which led Luz to believe certain facts to exist and to act upon said facts > Submission of the issues to a Commissioner > Report that the amount due was $28k as Kalalo’s fee in the International Research Institute Project which was 20% of the $140 that was paid to Kalalo, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by Luz > Facts not questioned by parties but questioned application of estoppels and legality of the fee due in dollars

> Kalalo Not Estopped from Claiming $28k: (1) Kalalo had no malice in preparing the Statement of Accounts > Writted without consultation of his counsel > Written thru ignorance,mistake; (2) Luz knew what services were actually rendered by Kalalo ~ Had the means of knowing the services and the fees due; (3) Luz did not rely on Statement of Accounts, nor was he misled by its representations ~ Luz consistently denied the accounts stated therein; (4) Luz did not act on the basis of the representations of the Statement of Accounts >> Estoppel > if an act, conduct or misrepresentation of the party sought to be estopped is due to ignorance founded on innocent mistake, estoppel will not arise > Statements which are not estoppels nor judicial admissions have no quality of conclusiveness > Statement of accounts only prima facie evidence > An account stated or settled is a mere admission that the account is correct. It is not an estoppel. The account is still open to impeachment for mistakes or errors. Its effect is to establish, prima facie, the accuracy of the items without other proof; and the party seeking to impeach it is bound to show affirmatively the mistake or error alleged. The force of the admission and the strength of the evidence necessary to overcome it will depend upon the circumstances of the case > if one of the parties carelessly makes a wrong interpretation of the words of his contract, or performs more than the contract requires (as reasonably interpreted independently of his performance), as happened in the instant case, he should be entitled to a restitutionary remedy, instead of being bound to continue to his erroneous interpretation or his erroneous performance and the other party should not be permitted to profit by such mistake unless he can establish an estoppel by proving a material change of position made in good faith >> Essential elements of estoppel > In terms of the Party to be estopped: (1) conduct 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 his conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts > In terms of Party claiming the estoppels: (1) lack of knowledge and of the means of knowledge of the truth as the facts in questions; (2) reliance, in good faith, upon the conduct or statements of the party to be estopped; (3) action or inaction based thereon of such character as To change the position or status of the party claiming the estoppel, to his injury, detriment or prejudice 112

G. R. No. L-41001 September 30, 1976 MANILA LODGE NO. 761, BENEVOLENT AND PROTECTIVE ORDER OF THE ELKS, INC., v. THE HONORABLE COURT OF APPEALS, CITY OF MANILA, and TARLAC DEVELOPMENT CORPORATION No. L-41012 September 30, 1976 TARLAC DEVELOPMENT CORPORATION v. HONORABLE COURT OF APPEALS, CITY OF MANILA, LODGE NO. 761, BENEVOLENT AND PROTECTIVE ORDER OF ELKS, INC. Facts: Manila City reclaimed part of Manila Bay to extend Luneta, as authorized under Act 1360. It subsequently sold part of the southern area to BPOE and then BPOE sold the same to TDC. When Manila City sought for the reannotation of its right to repurchase on the title of TDC, TDC filed the suit for declaration of ownership. Unfortunately, the SC ruled in favour of Manila City that the sale is void because the reclaimed area is public property and not part of the site allowed to be alienated. Hence, the contract lacked subject-matter. And even if TDC was a buyer in good faith, he cannot claim it to estop Manila City from invoking the invalidity of the sale because estoppel does not apply to government agencies for errors made by its agent. Otherwise, allowing a contract prohibited by law to subsist is tantamount to indirectly allowing what directly cannot be allowed. > Reclamation of part Manila Bay, for the Extension of Luneta, by City of Manila ~ Pursuant to Act No. l360 amended by Act No. 1657 (June 26, 1905; May 18, 1907; of the Philippine Commission) which “hereby authorized” Manila City to reclaim land which is to belong to them, and to set aside a tract at the north end for a hotel site and to sell or lease that portion, with the approval of the Governor General, to a responsible person or corporation > Reclaimed 25 hectares, Registered to Manila City > Sale (January 16, 1909) of 5,543.07sq.m. at the southern end of the reclaimed land to Manila Lodge No. 761, Benevolent and Protective Order of Elks of the U.S.A. > Title in Manila City’s name (January 20, 1911) ~ Issuance of Respective Titles to Manila and BPOE (July 13,17 1911) > Sale of 5,543.07sq.m. by BPOE to Tarlac Development Corporation (November 19, 1963) for P4.7M > Reannotation of Right to Purchase by Manila over 5,543.07sq.m. ~ After BPOE had it cancelled on February 15, 1963 before the Sale > SUIT by TDC (April 28, 1971) against Manila and BPOE for Declaration of Ownership of the Property and Right to Recover against BPOE should the Property be Declared Public > RTC (July 14, 1972) Denied, Ruling that Land is Public Park/Plaza, Sale to BPOE and TDC is null and void, TDC buyer in good faith who can recover the BPOE who can recover from Manila the purchase price > CONTENTIONS of BPOE, TDC: (i)

Patrimonial property of the Manila and could therefore be sold,disposed of like any other private property ~ Property is for public use ONLY IF (OCC 344) it has already been so constructed or laid out as such WHERE property sold was neither actually constructed as a street, park or promenade nor laid out as a street, park or promenade, nor used for public purpose nor part of Luneta plan; (ii) Manila estopped from questioning the validity of the sale for having recognized it in various documents (Petition for Reannotation that is premised on validity of sale; Testimony of City Treasurer and Surveyor that property was not a public plaza/park and even had fences; Cadastral Survey and Registration of Property as owned by Elks Club; > Reclaimed Area (Portion Sold) is PUBLIC > Cannot be Alienated > Even if TDC is buyer in Good Faith, No Estoppel against State (1) Reclaimed Area is Public Property > (i) Purpose of Act No. 1360, by which Manila is authorized to reclaim, was to extend Luneta which is a park or plaza and hence reclaimed area must be of the same nature or character as the old Luneta; (ii) Manila Bay is part of public domain; (iii) Sufficient that Property is intended for Public Use where it was to be paid by Manila City; (iv) Could have alienated the Portion Reserved as Hotel Site (where title would revert to City if hotel fails) BUT Portion Sold was not Hotel Site but Other End > HENCE, Manila had no authority/power TO SELL the area and HENCE Sale is VOID for Lack of Subject Matter; (2) Manila City not estopped from questioning the validity of the sale > EVEN IF TDC is Buyer in good faith, BPOE had performed its obligation (payment), and Manila accepted the benefits of the sale > Government is never estopped by mistakes or errors on the part of its agents > Estoppel does not apply to a municipal corporation to validate a contract that is prohibited by law or its against Republic policy > OTHERWISE, tantamount to enabling it to do indirectly what it could not do directly; (3) Voidness of Sale can be used against Anyone who asserts a right arising from it, not only against the first vendee, BPOE, but also against all its suceessors, including the TDC G.R. No. L-23072 November 29, 1968 SIMEON B. MIGUEL, ET AL. v. FLORENDO CATALINO Facts: Bacaquio was a non-Christian who sold his property to Agyapao without the approval/authority of provincial governor. Despite the sale being void, the heirs of Bacaquio cannot recover the property from the son of Agyapao because their action has been barred by laches for allowing Catalinos to possess the property, improve it and pay for its taxes and failing to act for 34y despite their knowledge of its invalidity. 113

> Sale of Land (1928) by Bacaquio (non-Christian resident of Mountain Province, Benguet) to Catalino Agyapao for P300 ~ No formal Deed of Sale > Possession of Property by Catalino and son Florendo Catalino, Payment of Taxes, Improvements > Death of Bacaquio (1943) > Sales of Same Property (i) by daughter Grace Ventura (1st marr) to Florendo for P300 ~ Otherwise, she would cause trouble; (ii) by father Agyapao to Florendo (1961) > SUIT (January 22, 1962) by Children of Bacaquio (Grace Ventura from 1st Wife; Simeon, Emilia and Marcelina Miguel from 3rd Wife) for Recovery of Property > CONTENTION of Children: Possession by Florendo without their knowledge, consent, Gathering of Produce > DEFENSE of Florendo: Adverse Possession for 30y > Void Sale BUT Laches HENCE Property to Florendo (1) Void Sale > As non-Christian inhabitant, Bacaquio needed the written approval and authorization of the provincial governor or his representative to sell his property (pursuant to Section 145b, Administrative Code of Mindanao and Sulu > Bacaquio remained, in law, the owner of the land until his death in 1943, when his title passed on, by the law on succession, to his heirs > Sale of Grace, even if without need of approval absent proof of non-Christianity Not Recognized since Title was still in Bacaquio’s name; (2) Ownership to Florendo > Possession of Property without objection for 34y (under belief of ownership) > Bacaquio and Children, who knew the invalidity of the sale, remained silent and inactive, delaying and without taking any step to reivindicate the lot for more than 34y (1928-1962) > DEFENSE of Laches >> Courts can not look with favor at parties who, by their silence, delay and inaction, knowingly induce another to spend time, effort and expense in cultivating the land, paying taxes and making improvements thereon for 30 long years, only to spring from ambush and claim title when the possessor's efforts and the rise of land values offer an opportunity to make easy profit at his expense; >> Four elements of Laches: (a) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy; (b) delay in asserting the complainant's rights, the complainant having had knowledge or notice, of the defendant's conduct and having been afforded an opportunity to institute a suit; (c) 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 (d) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held to be barred > Difference b/w Laches and Estoppel > there is an Estoppel by Laches

G.R. No. L-31618 August 17, 1983 EFREN R. MENDOZA and INOCENCIA R. DE MENDOZA v. PONCIANO S. REYES and THE COURT OF APPEALS G.R. No. L-31625 August 17, 1983 JULIA R. DE REYES v. PONCIANO S. REYES and COURT OF APPEALS Facts: Sps. Ponciano S. Reyes and Julia de Reyes bought 2 lots from J.M Tuason on installment basis in Feb. 1947. They both obtained a loan from Rehabilitation Finance Corposation to pay for the lands and to put up a house and camarin. Upon payment, they were issued Deeds of Absolute Sale but the vendee named is only Julia and Ponciano’s signature appeared only above “with my marital consent.” TCTs were then issued to ‘Julia Reyes married to Ponciano Reyes.’ Julia then leased and subsequently sold the lots to sps. Mendoza but without the knowledge and consent of Ponciano. TCTs were then issued in their name. Held: Properties were CP because they were acquired by onerous title during the marriag, and hence, CP under NCC 153.1. Also, the funds used to purchase them were CP because under NCC161, all debts and obligs for the benefit of CP are liabilities of CP. Although Julia contends that (i) she bought the lots using her personal funds with an initial payment of of P2k, receipt issued by JM Tuason shows that the first installments of the lots were P69.96 and P102; and that (ii) she had the bldgs constructed thereon from personal funds and loan from PNB, but the mortgage contracts to QC Elementary School and to sps. Mendoza showed that the properties were paid out of loan from RFC. Even when properties were in her name alone, CP is still presumed where it was acquired during marriage for CP’s benefit.

> CONTENTIONS of Julia, sps. Mendoza: Ponciano estopped from denying paraphernal character of property due to Special Defenses he made in a Previous Case (1948, Adverse Decision of Ejectment Suit from Leased Hotel he was then operating) that no conjugal property exists, that they acted independently from one another whenever either one engaged in any business >> Estoppel > whenever a party has, by his declaration, act or omission, intentionally and deliberately led the other to believe a particular thing true and to act, upon such belief he cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it > WHO CAN INVOKE: only between the person making the misrepresentation and the person to whom 114

it was addressed > SINE QUA NON: latter relied upon the misrepresentation and had been influenced and misled thereby > Ponciano NOT Estopped > No Proof that (i) he intentionally and deliberately led sps. Mendoza to believe what was contained in the Pleading and to make them act upon it ~ Sps. Mendoza not even a party in the case, not shown or had happened to see the Pleading, not aware of its existence at the time of Sale; (ii) his representation was addressed to Sps. Mendoza and intended that they would act upon it G.R. No. L-26699 March 16, 1976 BENITA SALAO, assisted by her husband, GREGORIO MARCELO; ALMARIO ALCURIZA, ARTURO ALCURIZA, OSCAR ALCURIZA and ANITA ALCURIZA, the latter two being minors are represented by guardian ad litem, ARTURO ALCURIZA v. JUAN S. SALAO, later substituted by PABLO P. SALAO, Administrator of the Intestate of JUAN S. SALAO; now MERCEDES P. VDA. DE SALAO, ROBERTO P. SALAO, MARIA SALAO VDA. DE SANTOS, LUCIANA P. SALAO, ISABEL SALAO DE SANTOS, and PABLO P. SALAO, as successors-ininterest of the late JUAN S. SALAO, together with PABLO P. SALAO, Administrator Facts: > 4 Children of sps. Manuel Salao (died 1885) and Valentina Ignacio (died May 28, 1914): Patricio (died 1886, leaving son Valentin who in turn left two girls, Benita, Victorina); Alejandra; Juan (leaving son Juan Jr.); Ambrosia > Purchase (1911) by Juan and Ambrosia of Calunuran fishpond (47-hectares) and of Lewa Fishpond (9-hectares) > Sales and Subsequent Redemptions of Calunuran Fishpond by Ambrosia and Juan (December 1, 1911 to Vicente Villongco for P800; June 8, 1914 to Eligio Naval for P3,360 > Extrajudicial Partition of Estate of Valentina (December 29, 1918): Valentin allegedly obtained Calunuran fishpond by verbal agreement; received fishponds and riceland worth P13,501 which exceeded the Distributive share of P8,135.25 of each legal heir ~ Directed to pay his co-heirs P5,365.75 > Deaths of Juan (November 3, 1931) and of Valentin (February 9, 1933) ~ Extrajudicial Partition of his Estate (December 28, 1934), consisting of 2 inherited fishponds > Donation (September 30, 1944) by Ambrosia of ½ share in Calunuran and Lewa Fishpond to nephew Juan Jr. (who was already owner of other ½ upon Juan Sr.’s death) > SUIT (January 9, 1952) by Heirs of Valentin for Reconveyance of Valentin’s 1/3 interest in Calunuran and Lewa Fishponds > CONTENTIONS of Valentin: Calunuran Fishpond for fishpond business among Juan, Ambrosia, Alejandra and Valentin

that was funded by the inheritance from father Manuel Salao ~ Valentin’s share was held in trust by his uncle and aunt > CONTENTIONS of Juan and Ambrosia: Calunuran Fishpond purchased by Juan and Ambrosia alone > NO TRUST > No Evidence of Express or Implied Trust: (1) No Express Trust > Purely parol evidence offered by Valentin heirs ~ oral partition in 1919 of the two fishponds where Calunuran was assigned to Valentin Salao > Cannot be used to prove an Express trust concerning real property; (2) No Implied Trust > (i) No proof of Coownership over the lands supposedly inherited from Manuel (used to purchase fishponds); (ii) No proof of Manuel’s estate allegedly consisting 145 hectares where the mere 17-hectare Estate of Valentina was partitioned in an elaborate Deed woth 22 pages; (iii) No proof of intention of Ambrosia and Juan to create any trust in Valentin’s favour (3) Laches > 40y Period from Registration of Fishponds (1911) before Writtedn demand for Reconveyance (1951) and Action was filed for Reconveyance (1952) ~ Implied Trusts prescribe in 10y >> Trusts (fideicomosis) > right, enforceable solely in equity, to the beneficial enjoyment of property, the legal title to which is vested in another, meaning that the title of the Trustor is transferred to the Trustee > PARTIES: (i) trustor, person who establishes a trust; (ii) trustee, one in whom confidence is reposed as regards property for the benefit of another person; (iii) beneficiary, person for whose benefit the trust has been created > Fiduciary relation between the trustee and the cestui que trust > EITHER: Express, Implied >> Express trusts are created by the intention of the trustor or of the parties ~ BY Fiduciary Relations > FORM: No particular words, it being sufficient that a trust is clearly intended > HOW CREATED: By the direct and positive acts of the parties; By some writing or deed, or will; By words either expressly or impliedly evincing an intention to create a trust > HOW PROVED: Not by Oral Evidence >> Implied trusts come into being by operation of law > FORM: Without being expressed > HOW PROVED: From the nature of the transaction as matters of intent; Superinduced on the transaction by operation of law as matter of equity, independently of the particular intention of the parties > EITHER: Resulting, Constructive > Legal Difference (Not defined in statutes): Constructive in 10y from discovery of fraud, trust established in the interest of justice; Resulting no prescription, wanted to have a trust but which was not established; >> Resulting trust is a trust which is raised or created by the act or construction of law > HOW CREATED: By implication of law > HOW PROVED: Presumed to have been contemplated by the parties, found in the nature of their transaction, but not expressed in the deed or instrument of conveyance 115

>> Constructive trust is a trust raised by construction of law, or arising by operation of law > HOW CREATED: not created by any words, either expressly or impliedly evincing a direct intension to create a trust, BUT By the construction of equity in order to satisfy the demands of justice >> TRUST PROVED BY PAROLE EVIDENCE > ONLY IF testimony supporting is trustworthy, sufficiently strong and fully convincing to prove the right of the alleged beneficiary with as much certainty as if a document proving the trust were shown > WHY: Oral evidence can be easily fabricated > Is the beneficiary always a Third Person? Can the Trustor be the Beneficiary because why would you establish a trust over property that you already own? No, Trustor can be a Beneficiary BUT TITLE TO THE PROPERTY GOES TO THE TRUSTEE > Trust is established even if TRUSTEE DECLINES (implied, by operation of law) v. Agency, SPA > Should the Trust comply with rules on contracts Like Trust in benefit of a spouse Trust with illegal motive (Liguez) *Collation / Claw-back – Return of inofficious donations where an heir gets back what had been spent on other heirs if such donations exceed value of share in inheritance G.R. No. L-20449 January 29, 1968 ESPERANZA FABIAN, BENITA FABIAN and DAMASO PAPA Y FABIAN v. SILBINA FABIAN, FELICIANO LANDRITO, TEODORA FABIAN and FRANCISCO DEL MONTE Facts: The father of Silbina purchased Lot 164 of the Friar Lands Estate but died before he could finish the instalments. Silbina thus made an Affidavit with her niece Teodora, falsely claiming that she was the only heir of Pablo (at the prejudice of her 3 siblings) but enabling her to purchase Lot 164 for her own and Teodora. Since then, they had been in the possession of the property and were issued titles to it. 32y later, Siblina’s siblings sought the reconveyance of the property on the ground of the fraud S,T employed in being able to acquire title. Void as the Sale had been, their action to enforce the constructive trust in their favour (which arose when the Lot was acquired by S,T instead of real heirs due to fraud) is already barred by laches after 32y for non-action by them when they knew well the possession and fraud of S,T. An action based on fraud also

prescribves in 4y upon discovery and the more than 10y adverse possession of S,T of the property had vested ownership in them. > Purchase of Lot 164 of Friar Lands Estate (January 1, 1909) by Pablo Fabian from Ph Gov’t for P112 ~ Issuance of Sale Certificate, Payment of 5 installments, Death (August 2, 1928) > Affidavit (October 5, 1928) by daughter (1/4) Silbina and niece Teodora Fabian that Silbina was the only remaining heir of Pablo ~ Issuance of Sale Certificate (November 14, 1928) in favour of Silbina and Teodora over Lot 164 for P120 > Possession, Cultivation, Production of Property, Payment of Taxes (since 1929) ~ Issuance of TCTs each in Silbina and Teodora’s name after subdivided into 2 > SUIT for Reconveyance (July 18, 1960) by Silbina’s siblings (Esperanza, Benita I Fabian, Damaso Papa) aganist sps. Silbina Fabian and Feliciano Landrito and Teodora Fabian and Francisco del Monte > CONTENTIONS of Siblings: Silbina and Teodora was able to buy Lot 164 by fraudulently misrepresenting in the Affidavit that Silbina was the only daughter and heir of the deceased Pablo Fabian > DEFENSE: Valid purchase by them because Fabian was not yet the owner (did not complete amortizations) or because of acquisitive prescription or because action of siblings already barred by laches > VOID Sale BUT Valid Ownership BY Silbina and Teodora thru Laches, Prescription: (1) Ownership of Pablo DESPITE Incomplete amortizations > Issuance of Sale Certificate and Payment of first 5 installements by Pablo > Friar Lands Act provides the Transfer of ownership to Purchaser upon Payment of 1st instalment and Issuance of Certificate of Sale WHERE Naked title is kept by Gov’t until full payment ONLY TO protect State interest and prevent the purchaser from encumbering or disposing of the lot purchased before the payment in full of the purchase price; BUT Gov’t can no longer alienate property; (2) Null and Void Subsequent Sale by Govt to Silbina and Teodora > Interest of Pablo in Purchase Property upon his Death Transfers to His Heirs; (3) BUT Ownership now validly with Silbina and Teodora: (i) Laches Barred the Action to Enforce Constructive Trust (arising when property is acquired through fraud and resulting in the person obtaining it being considered a trustee of an implied trust for the benefit of the person from whom the property comes) ~ Assignment of Sale Certificate (Affidavit) on October 5, 1928, Actual transfer of Lot 164 on November 14, 1928 BUT ACTION ONLY ON July 8, 1960 (32 big years later) ~ Absent Proof of Concealment of Facts giving rise to the trust WHERE Silbina and Teodora were publicly and continuously under claim of ownership of the Lot, cultivated it, harvested and appropriated the fruits for themselves; (ii) Prescription of Action based on Fraud (4y); (iii) Adverse Possession of Lot by Silbina and Teodora fore more than 10y ~ Act 190 that Ten years actual adverse possession by any person claiming to be the owner for that 116

time of any land or interest in land, uninterruptedly continued for ten years by occupancy, descent, grants, or otherwise, in whatever way such occupancy may have commenced or continued, shall vest in every actual occupant or possessor of such land a full and complete title > Even if Void, Laches is not ratification but a Defense of Estoppel hence the Defense is not ratification by passage of time but Protection from Suit due to Estoppel G.R. No. L-22587 April 28, 1969 RUFINO BUENO, FILOMENA B. GUERRO, LUIS B. GUERRERO, BENJAMIN B. GUERRERO, VIOLETA B. REYES-SAMONTE, FELICIDAD B. REYES-FONACIER, MERCEDES B. REYES, HONESTA B. REYES-SARMIENTO, TEODORA B. REYES-DALUMPINES, MAMERTA B. REYES-MERCADO, ROSARIO B. REYESCONCEPCION, FEDERICO B. REYES and CONCEPCION B. REYES v. MATEO H. REYES, and JUAN H. REYES Facts: The heirs of Jorge Bueno agreed to have Francisco (husband of Jorge’s daughter) to file their answer to the cadastral proceedings in order to obtain their title to a property which belonged to Jorge. Allegedly due to mistake or bad faith, Francisco did file an answer and obtain a title but this was issued in his name and his brothers’ as owners. The Buenos discovered the title only when the brothers filed for possession. Hence, the Buenos sued them for reconveyance. The trust relationship that arose from the entitlement of Francisco of Bueno’s property was however only implied as it resulted by operation of law and not by intention. Hence, the action to enforce such trust is not imprescriptible. Reconveyance prescribes in 10y and for their case, it is counted from the time such constructive trust (which warrants reconveyance) came about and discovered. The case is remanded to determine such date because their allegations contradict and because the proceedings and possession cannot serve as constructive notice because they are in rem and in possession of Buenos themselves. > Agreement b/w Heirs of Jorge Bueno and Francisco H. Reyes (husband of Jorge’s daughter, Eugenia) that latter would file the former’s answer in the cadastral proceedings over the title of Jorge Bueno to Lot No. 2587 and would obtain title in ther favour > Filing of an Answer by Francisco in cadastral proceedings (January 7, 1936) BUT declared the said parcel of land in his and his brothers’ names (Juan, Mateo) allegedly due to bad faith or mistake ~ Issuance of Title in their names > SUIT for Reconveyance (December 12, 1962) by Heirs of Bueno against Reyes > CONTENTIONS: Discovery of Fraud only when Reyes brothers filed for a Writ of Possession; Express Trust which is

Imprescriptible > DEFENSE: Imprescriptibility of Title, Laches, Prescription of Action > Trust was Implied (Constructive) and Action Prescribes in 10y from Cause of Constructive Trust (Bad Faith, Mistale) > Remand! (1) Trust not Express BUT Implied > Trust that Francisco would file an answer in the cadastral proceeding and obtain title to the land in behalf of all the heirs of Jorge IS NOT EXPRESS because of Allegation of Bad Faith and Mistake (where Express is created by intention of parties to be in such trust relationship) > IMPLIED ONLY, arising by operation of law to satisfy the demands of justice and equity and as a protection against unfair dealing or downright fraud > IMPLIED, CONSTRUCTIVE FRAUD because registration of property by one person in his name, whether by mistake or fraud, the real owner being another person, impresses upon the title so acquired the character of a constructive trust for the real owner, which would justify an action for reconveyance; (2) Prescription of Actions for recovery of real property is 10y (Code of Civil Procedure, Sec. 40) ~ Exception is Express not Implied Trust > Counted from Bad Faith or Mistake, which gave rise to the Constructive Trust ~ Discovery of such bad faith or mistake > Remand to Determine! Possession and Cadastral suit not constructive notice because property was in possession of Buenos and proceedings were in rem G.R. No. L-25563 July 28, 1972 MARIANO TAMAYO v. AURELIO CALLEJO and the HON. COURT OF APPEALS Facts: Tamayo sps. sold part of their property to Domantay who sold the same to Callejo. When the Tamayo sons later registered the property in their names, including the portion sold to Domantay-Tamayo, and sold the same to Estacio, Callejo requested his portion to be removed from the title, registered his adverse claim (upon denial of request) and sued for reconveyance. The action of Callejo has not prescribed because it was an express trust. Although the trust arising from the registration of Tamayo brothers of property that is not their own is really implied, the subsequent Public Instrument executed by Mariano became the basis of the express trust. In such document, the brothers acknowledged Tamayo’s rightful ownership of the portion by virtue of the sale made by their parents to him. Hence, the action was imprescriptible until repudiation that happened only when Mariano refused Callejo’s request to exclude his portion from the title. In case of repudiation, the prescription begins from such time and Callejo timely filed the suit only weeks after.

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> Sale of Land (part; February 1, 1912) by sps. Vicente Tamayo and Cirila Velasco-Tamayo to Fernando Domantay > Application for Title (September 29, 1913), Registration of Land in Names of Children Mariano and Marcos ~ After Death of Vicente and Waiver of Cirila of her ½ share in sons’s favour > Issuance of Title in sons’ names (November 15, 1915; but only part because of sons’ acknowledgement that part of the land belonged to the estate of Gregorio Flor Mata) > Sale of Purchased Land (August 22, 1918) by Domantay to Aurelio Callejo ~ Possession > Issuance of Title in Mariano’s name (May 26, 1930) after Marcos’ sold him his share > Sale of Land (part; February 24, 1940) by Mariano to Proceso Estacio, which includes the part sold to Domantay – Callejo ~ Surveyor sent by Estacio was not allowed by Callejo to enter > Callejo’s Request to Mariano to exclude his part from latter’s title (Ignored), Registration of Adverse Claim (June 16, 1952), SUIT (June 25, 1952) for Reconveyance > CONTENTION of Callejo: Land portion is held in trust by the Tamayos and that the action to enforce said trust does not prescribe > DEFENSE: Callejo’s part not included in Mariano’s title > Land Portion of Callejo Held IN TRUST by Tamayos > Implied but became Express Trust ~ Imprescriptible until Repudiation: (1) Implied Trust > Created by Tamayos’ application for registration (September 29, 1913) and the Portion’s inclusion in Tamayos’ Title (November 15, 1915); (2) Express Trust > Public Instrument (June 28, 1918) by Mariano on his and his brother’s behald, that they explicitly acknowledged that his deceased parents, Vicente Tamayo and Cirila Velasco, had sold to Fernando Domantay, for the sum of P200, the parcel of land then held by the latter, and that Fernando Domantay is the absolute owner of said land, free from any lien or encumbrance thereon > Trust clearly intended to be created by the will of the parties > Imprescriptible, continuing and subsisting UNTIL repudiated > Prescription of 10y begins at the time of repudiation ; (3) Action not yet prescribed > Repudiation when Mariano Tamayo rejected Aurelio Callejo's demand (June 1952) and SUIT (June 25, 1952), just weeks after; > Remanded to Determine Division of Property

G.R. No. 140457 January 19, 2005 HEIRS OF MAXIMO SANJORJO, namely, VICENTE SANJORJO, MACARIA SANJORJO, DOMINGO SANJORJO, ALFREDO CASTRO, and SPOUSES SANTOS AND LOLITA INOT v. HEIRS OF MANUEL Y. QUIJANO, namely, ROSA Q. LEDESMA, MILAGROS Q. YULIONGSIU, ALAN P. QUIJANO AND GWENDOLYN P. ENRIQUEZ, and VICENTE Z. GULBE

Facts: When Quijano and Enriquez acquired free patents and titles to Lots 374 and 379, respectively, Heirs of Sanjorjo sought its cancellation before DENR. Their complaint was dismissed though because it was commenced 3y after the issuance of the patents and the law allows review only if based on fraud and commence within 1y. But heirs of Sanjorjo are not left w/o remedy. The law allows the cancellation of titles before courts of justice even if commenced more than 1y as long as the title has not been transferred to purchasers in good faith. Because the property remained with Quijano and Enriquez, heirs coud validly seek reconveyance in court especially when their action has not yet prescribed (10y) based on constructive trust. > Issuances for Free Patents and Purchases, Issuance of Titles of Lots 374 and 379, Cadastre 374-D by Alan P. Quijano (August 29, 1988, September 6, 1988) and Gwendolyn Q. Enriquez (November 11, 1988, February 11, 1989) > Suit for Cancellation of Titles (May 22, 1991) by Heirs of Guillermo Sanjorjo, against Quijano and Enriquez, before DENR Regional Executive Director > DENR Dismissed because Action was filed more than one year from the titles’ issuance and hence only the regular courts of justice have jurisdiction on the matter of cancellation of title > SUIT for Cancellation of Titles and Reconveyance (September 13, 1993) by Heirs of Guillermo Sanjorjo, against Quijano and Enriquez, before CFI > CONTENTIONS: They had inherited Lots 374,379 from predecessor Guillermo who bought it from original owner Ananias Ursal; No res judicata from dismissal of DENR > Action to enforce Constructive Trust based on Fraud is for Conveyance of Property Which has not yet Prescribed: (1) Constructive Trust based on allegation of absolute ownership of Sanjorjo of the lots that were fraudulently deprived by Quijano and Enriquez when they obtained free patents and certificates of title in their names > Art. 1456 that a person acquiring property through fraud becomes by operation of law a trustee of an implied trust for the benefit of the real owner of the property > Alleged fraud created an implied trust > Right to seek reconveyance; (2) No res judicata > (i) DENR proceedings was not a judgement on the merits of the case (lack of 3rd element); (ii) PD 1529 does not bar actions to reopen title registrations if commenced within 1y due to fraud, OR if commenced after 2y from registration BUT IN CFI and ONLY WHEN that no innocent purchaser for value has acquired the property or any interest thereon > Landowner whose property has been wrongfully or erroneously registered in another’s name where property has not passed to an innocent third party for value; (3) Reconveyance still available to Heirs of Sanjorjo > Prescription in 10y >> Elements of res judicata: (1) the previous judgment has become final; (2) the prior judgment was rendered by a court having jurisdiction over the subject 118

matter and the parties; (3) the first judgment was made on the merits; and (4) there was substantial identity of parties, subject matter and causes of action, as between the prior and subsequent actions >> Judgment on the merits > rendered after argument and investigation, and when there is determination which party is right >> Action for reconveyance > seeks to transfer property, wrongfully registered by another, to its rightful and legal owner > PROVE: (1) that the plaintiff was the owner of the land; (2) that the defendant had illegally dispossessed him of the same > BASIS: Implied or constructive trust, which prescribes in ten years from the date of the issuance of the Certificate of Title over the property provided that the property has not been acquired by an innocent purchaser for value ~ OTHERWISE, Remedy if Action for Damages G.R. No. 144773 May 16, 2005 AZNAR BROTHERS REALTY COMPANY v. LAURENCIO AYING, IN HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF EMILIANO AYING, PAULINO AYING, IN HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF SIMEON AYING, AND WENCESLAO SUMALINOG, IN HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF ROBERTA AYING Facts: An Extrajudicial Partition of Real Estate with Deed of Absolute Sale was executed by some heirs of Aying siblings, the registered owner of the property which they got from their mother. Said property was sold to Aznar who years later sent notices to vacate to its occupants but who had been paying its taxes since the sale. Upon such notice, the heirs of siblings sued for the cancellation of the Partition and Sale, alleging it to be fraudulent because not all heirs signed it. They action, however, that is based on constructive trust prescribes in 10y from the time such trust came about. The registration of the document cannot be considered because it was wrongfully done; hence, actual knowledge is the starting point. Some said they knew of the document since 1967 while others only in 1991 when the notices to vacate were sent. Hence, action regarding 1967 heirs has prescribed but not 1991. > Issuance of Title over Lot No. 4399 in favour of 8 children of Crisanta Maloloy-on, due to her death (1930) before Cadastral Decree ~ Lost in war > Extra-Judicial Partition of Real Estate with Deed of Absolute Sale (March 3, 1964) of Lot by Heirs of Children in favour of Aznar Brothers Realty Company, Registered (March 6, 1964 under Act No. 3344) > Payment of Real Property Taxes by Aznar, Reconstitution of OCT (April 12, 1988) > Notices to Vacate

(1991) by Aznar to Lot’s occupants, Ejectment Suit and Order in its favour (February 1, 1994 affirmed March 7, 2000) > SUIT for Cancellation of ExtraJudicial Partition with Absolute Sale and Recovery of Lot (August 19, 1993) by Heirs of Crisanta > CONTENTIONS of Crisanta Heirs: Coowners of Lot as descendants of registered owners (8 children) who had been in actual, peaceful, physical, open, adverse, continuous and uninterrupted possession in concept of owner of subject parcel of land since time immemorial ~ Disturbed only in 1991 upon notice to vacate; Extra-judicial partition of real estate with Deed of absolute sale was a fraud, and null and void ab initio where not all the heirs of 8 children affixed their signature (those who supposedly signed said document had been dead at the time) > DEFENSE of Aznar: Actual possession of subject land as owner by virtue of the extra-judicial partition of real property and deed of absolute sale and Payment of taxes; Prescription against Crisanta heirs where an action to recover property based on an implied trust should be instituted within 4y from discovery of the fraud > Action of Crisanta Heirs for Reconveyance based on Implied Trust Not Impresciptible: (1) Action is NOT for Declaration of Nullity which is imprescriptible > ExtraJudicial Partition of Real Estate with Deed of Absolute Sale NOT PROVEN as forged nor simulated > Valid and binding BUT only as to the heirs who participated in the execution thereof (excluding those of Emiliano, Simeon and Roberta Aying who undisputedly did not participate); (2) Action is for Reconveyance based on IMPLIED TRUST > (i) Implied Trust: Art. 1456 that If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes > Aznar acquired the entire parcel of land with the mistaken belief that all the heirs have executed the subject document; (ii) Reconveyance is remedy; (3) Action for Reconveyance Prescribes in 10y > Implied or constructive trust is an offspring of the law thus favors the true owner > Art. 1144 that actions based upon an obligation created by law on written contracts must be brought within 10y from the time the right of action accrues > COUNTED FROM (i) Actual Notice in 1967 based on testimonies of heirs of Roberta and Emiliano that they knew about the document at that time; (ii) Actual Notice in 1991 based on notices to vacate, as admitted in their amended complaint; NOT FROM Registration because Document not deemed registered because wrongfully registered under Act No. 3344 and not under Act No. 496 (Land Registration Act), despite the fact the land in dispute was already titled under Act No. 496 in the names of the Aying siblings at the time the subject document was executed > HENCE, Action of Other Heirs (whose knowledge began only in 1991) Has not prescribed 119

>> Burden of Proof on Knowledge > Which party to an action or suit will fail if he offers no evidence competent to show the facts averred as the basis for the relief he seeks to obtain > Defendant bears the burden of proof as to all affirmative defenses which he sets up in answer to the plaintiff’s claim ~ Heirs of Crisanta

>> Prescription of Action to Enforce Trust > Trustee cannot acquire by prescription ownership over property entrusted to him > UNLESS Repudiation for express trusts and resulting implied trusts But not for constructive implied trusts which may prescribe without repudiation

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