LEAÑO VS CA(369 s 295)

FACTS: Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to sell

involving a piece of land. In the contract, Leaño bond herself to pay Fernando the sum of P107,750 as the total purchase

price.- P10,775 shall be paid at the signing of the contract;- P96,975 shall be paid within 10 yrs. at a monthly amortization of P1,747.30 to begin from

Dec. 7, 1985 with interest of 18% per annum;- 18% per annum shall be charged if the month of grace period expires w/out the

installments;- should the 90 days elapse from the expiration of the grace period, Respondent was

authorized to declare the contract cancelled & to dispose of the land. Carmelita Leaño made several payments in lump sum. Thereafter she constructed a house

(P800K). Last payment she made was on April 1989. Which the Trial Court rendered decision in an ejectment case filed by Fernando. Leaño filed with the RTC for specific performance with preliminary injunction and assailing

that for being violative of her right to due process being contrary to R.A 6552 regarding protection to buyers of lots on installments. According to Trial Court, transaction was an absolute sale, making Leaño the owner upon actual & constructive delivery thereof. Fernando divested of ownership & cannot recover the same unless rescinded under Art. 1592

ISSUE:1) WON the transaction was an absolute sale or conditional sale? Conditional Sale2) WON was there a proper cancellation of the contract to sell? NO3) WON petitioner was in delay? YES

HELD:1) It was a conditional sale because the intention of the parties was to reserve the ownership of the

land in the seller until the buyer has paid the total purchase price.- Consideration: (a) Contract was subject to condition. (b) What was transferred was the

possession & not ownership. (c) It was covered by Torrens title. Act of Registration was the operative act that could transfer ownership.

2) No proper cancellation as Leaño was not given the cash surrender value. She may still reinstate the contract by updating the account during grace period & before actual cancellation

3) Leaño was in delay because under Art. 1169, provides that Reciprocal Obligation; neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

- Fernando performed his part by allowing Leaño to continue in possession & use of the property. Clearly, when Leaño did not pay the monthly amortization, she was in delay and liable for damages.

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HEIRS OF LUIS BACUS VS C.A. (371 s 295)

FACTS: On June 1, 1984, Bacus leased to PR Duray a parcel of agricultural land. The lease was for 6 yrs ending May 31, 1990. The contract contained an option to buy clause

which had the exclusive & irrevocable right to buy the property within 5 yrs after the effectivity of contract.

Close to the expiration, Bacus died. Duray informed the heir of Bacus that they are willing & ready to purchase the property under option to buy.

However, Petitioner Bacus refuse to sell the property without first receiving the payment of purchase price before the land would be delivered to Duray which the latter filed a complaint.

ISSUE: 1) WON Duray opted to buy the property covered by lease contract with option to buy, were they

already required to deliver the money or consign it in court before petitioner execute the deed of transfer? NO

2) WON did Duray incur in delay when they did not deliver the purchase price or consign it in court on or before the expiration of the contract? NO

HELD: 1) The obligation under option to buy are reciprocal obligation. The performance of one

obligation is conditioned on the simultaneous fulfillment of the other obligation. The payment of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale by the debtor.

- In this case, PR Duray opted to buy the property, their obligation was to advise petitioner of their decision & readiness to pay the price. They were not obliged to make actual payment. Only upon execution of deed of sale were they required to pay.

- Consignation is not proper because the debt is not due and owing.2) Under Art. 1169, provides that reciprocal obligation, neither party incurs in delay if the other

does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only from the moment one of the parties fulfills his obligation, does delay by the other begins.

- In this case, PR already communicated their interest to buy before the contact expires & it was the Petitioner who refused because they want the money first. Thus, as there was no compliance yet with what is incumbent upon the petitioner, PR had not incurred delay when the cashiers check was issued even after the contract expired.

SOLID HOMES INC VS TAN (465 s 137)

FACTS: On April 7,1980, Solid Homes sold to spouses Uy a subdivision lot and thereafter spouses Uy

sold the same lot to spouses Tan. From then on, respondents visited their property a number of times, only to find out the sad state

of development thereat. There was no infrastructure & utility system of water. Worse, squatters occupy their lot & its surrounding areas.

On Dec. 18,1995, respondents demanded on petitioner to provide the needed utility system & clear the area of squatters by the end of Jan 1996.

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Having received no reply from petitioner, Respondent filed with the housing & Land Use Regulatory Board a complaint for specific performance which rendered judgment in favor of respondents.

ISSUE: 1) WON Respondent’s right to bring the instant case against petitioner has already prescribed?

NO2) WON in the event respondents opt to rescind the contract, should petitioner pay them the price

they paid for the lot plus interest or the current market value thereof? CURRENT MARKET VALUE.

HELD:1) Petitioner argued that the 10 yrs prescriptive period should be reckoned from Apr. 7, 1980

when they sold the lot to spouses Uy or at the latest on Feb. 1985. The SC disagree because it is from the time an act is performed or an omission incurred which is violative of plaintiffs right, that signals the accrual of a case of action.

– In this case, it was only on Dec. 18, 1995 when respondent made a written demand upon petitioner to construct which are unquestionably in the nature of an obligation to do.

– Under Art. 1169, party who is under obligation to do something incurs delay only from the time the obligee demands either judicially or extra judicially for the fulfillment of obligation.

– In this case, respondent made their written demand upon petitioner to perform what is incumbent upon it only on Dec.18, 1995, it was only from that date when 10 yrs prescriptive period commenced to run.

2) Equity and justice dictate that the injured party should be paid the market value, otherwise, respondent would enrich themselves at the expense of the lot owners when they sell the same lot at the present market value.

PRUDENTIAL BANK VS CA (Mar 16, 2000)

FACTS: PR Valenzuela opened savings and current account with automatic transfer of funds with

Prudential Bank. On June 1, 1998, she deposited in her savings account with a total deposit of P36,770.41. She issued a check in the amount of P11,500 post dated on June 20 1988 in favor of Legaspi as

Payment for jewelry she purchased. Later, Legaspi endorse the check to Philip Lhuillier who in turn deposited the same to his

account but it was dishonored due to luck of funds. PR Valenzuela upon knowing asked Prudential Bank why her check was dishonored when there

was sufficient fund as reflected in her passbook. However, she was told that no need to review the passbook because the bank ledger was the best proof that she did not have sufficient funds.

Later, it was found out that the check she deposited in her account was credited in her savings account only June 24, 1988. Due to humiliation brought by the Bank’s negligence, Valenzuela filed a suit for damages.

ISSUE:- WON PR Valenzuela is entitled to be awarded moral & exemplary damages & attorney’s fees?

YES

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HELD:- The bank is under the obligation to treat the accounts of its depositor with meticulous care

whether such account consist only of a few hundred pesos or millions of pesos. Responsibility arising from negligence in the performance of every kind of obligation is demandable.

- While petitioner’s negligence in this case may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation. Hence, the offended party is entitled to recover reasonable moral damages. The court also allows the grant of exemplary damages by way of example for Public good. The award of attorney’s fees is also proper when exemplary damages are awarded & since she was compelled to engage the services & incurred expenses to protect her interest.

UNITED AIRLINES VS CA (357 s 99)

FACTS: On Mar. 1, 1989, PR Fontanilla purchased tickets from petitioner United Airlines. The cause of non-boarding of the Fontanillas on United Airlines makes up the bone of

contention of this controversy. Aniceto Fontanilla & his son claim that upon arrival at Los Angeles Airport they proceeded at

united Airlines counter where they were attended by an employee, Linda; when the flight was called, they proceeded to the plane but the stewardess did not allow them to board because they had no assigned seat numbers; they were directed to go back to the check-in-counter, Linda told them in an arrogant manner, such rude statement was made infront of other people causing the Fontanillas to suffer shame, humiliation & embarrassment.

However, according to United Airlines, Fontanilla’s did not initially go to check-in-counter to get their seat assignment that is why they were not allowed to board. Linda denied the derogatory & resisted words attributed to her by the Fontanilla’s.

The incident prompted the Fontanilla’s to file for damages.

ISSUE:1) WON there was a breach of contract in bad faith on the part of the petitioner in not allowing the

Fontanilla’s to board United Airlines? NO2) WON Fontanilla is entitled to damages? NO

HELD:1) Fontanilla’s assertion that they immediately proceeded to the check-in-counter & Linda

punched something is specious & not supported by evidence on record. It was explicitly printed on the boarding pass the words check-in required. Curiously, the said pass did not indicate any seat number. Which it is the very reason why they were denied boarding.

- As to the award of moral & exemplary damages, for the plaintiff to be entitled to an award of damages arising from breach of contract, the carrier must have acted with fraud & bad faith.

2) Existing jurisprudence states that overbooking is amount to bad faith but while there may have been overbooking in this case, private respondents were not able to prove that the overbooking exceeded 10%. Hence, PR Fontanillas are not entitled to damages.

BPI INVESTMENT CORP VS. D.G. CARREON ( 371 s 58)

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FACTS: BPI Investment was engaged in money market operation wherein D.G. Carreon Comm. Corp

was a client & placed P318,981.59 in money market placement with a maturity term of 32 days or up to Dec. 17, 1979.

On Dec. 12, 1979, there appeared in BPI ledger due to D.G. Carreon an amount which is exactly the amount maturity on Dec. 17. However, D.G. Carreon did not make any money placement but to roll over for another 30 days, a sales order slip & confirmation slip were executed dated Dec. 12.

On Dec. 17, BPI credited the amount due to respondent via roll over for a term of 120 days maturity on Apr 15, 1980 & P 23,518.22 was paid out in cash and a sales order slip for straight sale were executed.

According to petitioner, their bookkeeper made an error in posting 12-17 representing a single money market placement, the 1st on Dec. 12 & 2nd on Dec. 17.

An Apr. 21, BPI wrote respondent demanding the return of overpayment of P410,937.09 which spouses Carreon sent a proposed memorandum.

BPI without responding to memorandum, filed a complaint for recovery of sum of money with preliminary attachment.

Trial Court issued an order for preliminary attachment but later lifted & even denied the motion of petitioner.

D.G. Carreon filed a complaint for damages which the C.A. rendered a decision in favor of respondents.

ISSUE:- WON petitioner committed gross negligence in handling money market placement as to merit

the award of damages? NO

HELD:- Petitioner is not guilty of gross negligence “gross negligence implies want or absence of or

failure to exercise slight care or diligence or the entire absence of care. However, petitioner may not be guilty of gross negligence, it failed to prove by clear & convincing evidence that respondents indeed received money in excess of what was due them.

- On the manner of execution of the writ of attachments, BPI did not act in a wanton, fraudulent, reckless or oppressive manner. It was just exercising a legal option. The sheriff of the issuing court did the execution & the attachment. Hence, BPI is not to be blamed for the excessive & wrongful attachment. Hence BPI is not liable for damages.

- However, temperate or moderate damages may be recovered when the court finds that some pecuniary loss has been inferred but its amount cannot, from the nature of the case, be proved with certainty. There is no doubt that damages sustained by respondents were due to petitioner’s fault or negligence.

RADIOWEALTH FINANCE COMPANY VS DEL ROSARIO (335 s 288)

FACTS:

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Spouses Vicente & Maria Del Rosario jointly & severally executed, signed and delivered in favor of Radiowealth Finance Company a promissory note for P138,948.

Thereafter, respondents defaulted on the monthly installments. Despite repeated demands, they failed to pay their obligation.

Petitioner filed a complaint for the collection of sum of money before the RTC. Trial court dismissed the complaint for the evidence presented were merely hearsay. CA reversed & remanded the case for further proceedings.

ISSUE:- WON the installments had already became due and demandable? YES

HELD:- The act of leaving blank space the due date of the first installment did not necessary mean that

the debtors were allowed to pay as & when they could. If this was the intention of the parties, they should have so indicated in the promissory note. However, it did not reflect any such intention.

- While the specific date on which each installment would be due was left blank, the note clearly provided that each installment should be payable each month. Furthermore, it also provided for an acceleration clause and a late payment penalty, both of which showed the intention of the parties that the installment should be paid at a definite date. Had they intended that the debtors could pay as & when they could, there would have been no need for these 2 clauses.

- The installments had already became due & demandable is bolstered by the fact that respondents started paying installments on the promissory note. The obligation of the respondents had matured & they clearly defaulted when their checks bounced. Per the acceleration clause, the whole debt became due one month after the date of the note because the check representing their first installment bounced.

INTERNATIONAL CORPORATE BANK VS GUECO (357 s 516)

FACTS: Respondent Gueco spouses obtained a loan from petitioner International Corporate Bank ( now

Union Bank of Phils.) to purchase a car-Nissan Sentra 1989 model. In consideration, spouses executed promissory note which were payable in monthly installment

& chattel mortgage over the car. The spouses defaulted payment. Dr. Gueco had a meeting & the unpaid installment of P184k

was reduced to P150k. however the car was detained by the bank. When Dr. Gueco delivered the manger’s check of P150k, the car was not released because of his

refusal to sign the Joint Motion to Dismiss. The bank insisted that the JMD is a standard operating procedure to effect a compromise & to

preclude future filing of claims or suits for damages. Gueco spouses filed an action against the bank for fraud, failing to inform them regarding JMD

during the meeting & for not releasing the car if they do not sign the said motion.

ISSUE:- WON bank is guilty of fraud? NO

HELD:

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- Under Art 1170, fraud is the deliberate & intentional evasion of the normal fulfillment of obligation.

- In this case, the SC fails to see how the act of petitioner bank in requiring the respondent to sign the JMD could constitute fraud. The JMD was in fact for the benefit of Dr. Gueco so that the case filed by the bank would be dismissed. The whole point of the parties entering into compromise agreement was in order that Dr. Gueco would pay his outstanding account, return the car & drop the case filed against him. The JMD was but a natural consequence of the compromise agreement & simply stated that Dr. Gueco had fully settled his obligation.

- Moral damages to Gueco spouses cannot be awarded because it can be awarded only when the breach was attended with fraud or bad faith. The lowering of debt to P150k is indicative of the bank’s good faith & sincere desire to settle the case.

PHIL COMSAT VS GLOBE ( 492 s153)

FACTS: On May 7, 1991 Philcomsat & Globe entered into an agreement whereby Philcomsat obliged

itself to establish, operate & provide an IBS standard B earth station for the exclusive use of US defense communications Agency (USDCA). The term was for 60 months or 5 yrs In turn, Globe promised to pay Philcomsat monthly rentals.

At the execution of the agreement, both parties knew that military Bases Agreement was to expire in 1991. Subsequently, Philcomsat installed the earth station & USDCA made use of the same.

The senate passed a resolution expressing its decision not to concur in the ratification of the treaty of friendship. So the RP-US Military bases Agreement terminate it on Dec. 31, 1992.

Globe notified Philcomsat its instruction to discontinue effective Nov. 8, 1992, in view of the withdrawal of US military personnel. Philcomsat sent a reply to pay the stipulated rentals even after Globe shall have discontinued the use of earth station after Nov. 8 1992.

After the US military force left subic, Philcomsat sent a letter demanding payment. However, Globe refused to heed Philcomsat ‘s demand because the termination of the US military bases agreement constitute force majeure and said event exempted it from paying rentals.

ISSUE:- WON the termination of the agreement constitute force majeure which would exempt Globe

from paying rentals? YES

HELD: - In order that Globe may be exempted to pay rentals, the concurrence of the ff elements must be

established:a) The event must be independent of the human will;b) The occurrence must render it impossible for the debtor to fulfill the obligation in a normal

manner;c) The obligor must be free of participation in or aggravation of the injury to the creditor.

- The requisites are present in this case Philcomsat & Globe had no control over the non- renewal of the term of the agreement because the prerogative to ratify the treaty extending the life thereof belonged to the senate.

MONDRAGON LEISURE VS CA

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( 460 s 279)FACTS:

Mondragon entered into a lease agreement with the Clark Dev’t. Corp. for the development of MIMOSA leisure estate.

To help finance the project, Mondragon entered an Omnibus loan with respondent banks (Asia, Fareast & UCPB) to be paid within a 6-yr period from the date of initial advance inclusive of 1 yr & 2 quarters grace period.

Petitioner secure a loan in the amount of P20M and availed the full amount. Petitioner regularly paid the monthly interest until Oct 1998, thereafter failed to make payments.

Consequently, written notice of default, acceleration of payment & demand letters were sent by the lenders.

This commenced the filing of litigation against Mondragon.

ISSUE:1) WON Mondragon is in default? YES 2) WON Asian financial crisis which affects petitioner’s economic stability is among the

fortuitous events contemplated under Art 1174? NO

HELD:1) Clearly, petitioner is in default because it failed to pay the unpaid interest. As consequence of

default, the unpaid amount shall earn default interest.- It is clearly shown also that the demands are made by the lenders to enforce petitioner to pay

the interests and penalty charges thus, the respondent complied with the requirement concerning notice to the petitioner.

2) The default because of fortuitous event as claimed by petitioner is untenable because the Asian Financial crisis of 1997 is not among the fortuitous events contemplated under Art 1174.

- The agreement to loan was made on June 30 1997, thus petitioner should have been aware of the economic stability at that time, yet it still took the risk to expand operations. The closure of Mimosa Regency Casino was not an unforeseeable or unavoidable event because business venture involves risk. Risk are not unforeseeable, they are inherent in the business.

HEIRS OF SANDEJAS VS LINA (351 s 183)

FACTS: Eliadoro Sandejas was the administrator of the estate of his deceased wife. On Nov.19, 1981, Manila City Hall was burned along with the records of Sandejas. Eliodoro filed a motion for reconstitution of records. A motion to intervene was filed by Alex

Lina alleging that Eliodoro bound and obliged himself to sell their entirety the parcel of land. He informed Lina that that he already filed a motion with the court for authority to sell the

above parcels of land to herein buyer but which has been delayed due to the burning of the records.

However, upon the death of Eliodoro a new administrator has been appointed in the person of his son, Sixto.

Now, Lina is claiming the parcels of land and filed a motion to approve the deed of conditional sale between him & the deceased.

However, the administrator filed a motion for dismissal.

ISSUE:

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- WON the heirs are bound to fulfill the obligation to convey the title which was found to be in the nature of contact to sell where the suspensive condition is the court’s approval? NO

HELD:- Hence, the contract was a conditional sale rather than a contract to sell. When contract is

subject to a suspensive condition, its birth or effectivity can take place only if & when the condition happens or is fulfilled. Thus, intestate court’s grant of the Motion for Approval of the sale is petitioner’s obligation to execute the Deed of Sale of the disputed lots. The condition having been satisfied, the contract was perfected. Hence, the parties were bound to fulfill what they had expressly agreed upon. But because the petitioners did not consent to the sale of their ideal shares in the disputed lots, only the share of Eliodoro is subject to sale which was 3/5 of the entire estate.

CENTRAL PHIL UNIV. VS CA ( 246 s 511)

FACTS: In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together with the

following conditions:a) The land should be utilized by CPU exclusively for the establishment & use of medical

college;b) The said college shall not sell transfer or convey to any 3rd party;c) The said land shall be called “Ramon Lopez Campus” and any income from that land

shall be put in the fund to be known as “Ramon Lopez Campus Fund”. However, on May 31, 1989, PR, who are the heirs of Don Ramon filed an action for annulment

of donation, reconveyance & damages against CPU for not complying with the conditions. The heirs also argued that CPU had negotiated with the NHA to exchange the donated property with another land owned by the latter.

Petitioner alleged that the right of private respondents to file the action had prescribed.

ISSUE:1) WON petitioner failed to comply the resolutely conditions annotated at the back of petitioner’s

certificate of title without a fixed period when to comply with such conditions? YES 2) WON there is a need to fix the period for compliance of the condition? NO

HELD:1) Under Art. 1181, on conditional obligations, the acquisition of rights as well the

extinguishment or loss of those already acquired shall depend upon the happening of the event which constitutes the condition. Thus, when a person donates land to another on the condition that the latter would build upon the land a school is such a resolutory one. The donation had to be valid before the fulfillment of the condition. If there was no fulfillment with the condition such as what obtains in the instant case, the donation may be revoked & all rights which the donee may have acquired shall be deemed lost & extinguished.

2) Under Art. 1197, when the obligation does not fix a period but from its nature & circumstance it can be inferred that the period was intended, the court may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith & such period has arrived. However, this general rule cannot be applied in this case considering the different set of circumstances existing more than a reasonable period of 50yrs has already been allowed to petitioner to avail of the opportunity to

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comply but unfortunately, it failed to do so. Hence, there is no need to fix a period when such procedure would be a mere technicality & formality & would serve no purpose than to delay or load to unnecessary and expensive multiplication of suits.

- Under Art. 1191, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission before the court unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the period of compliance there is no more obstacle for the court to decree recession.

DEV’T BANK OF THE PHILS. VS CA ( 262 s 245)

FACTS: PR Carpio, et al, mortgaged their parcel of land to DBP when PR defaulted on their payments,

DBP foreclosed the mortgage on the land & emerged as sole bidder in the auction sale. On April 6, 1984, DBP & PR entered into a deed of conditional sale where DBP agreed to

convey the foreclosed property to PR. On April 6, 1990, upon completing the payment of the full repurchase price DBP, PR demanded

the execution of the deed of conveyance in their favor. However, DBP denied the execution & delivery because it had become illegally impossible in

view of sec. 6 of RA 6657 (CARL) that upon effectivity of this act, any sale lease, management contract / transfer of possession of private / lands executed by the original land owner in violation of this act shall be null & void.

ISSUE: - WON the execution & delivery of conveyance is illegally impossible? NO

HELD: - Under Art 1181, in conditional obligations, the acquisition of rights as well as the

extinguishment or loss of those already acquired depend upon the happening of the event which constitutes the conditions.

- The deed of conditional sale between petitioner & PR was executed on April 6 1984. Since PR had religiously paid the agreed installment on the property until April 6, 1990, PR is entitled for the land.

- The laws RA 6657, was enacted on June 10, 1988 as well as E.O. 407 after the execution of the deed of conditional sale, thus, these laws cannot have retroactive effect or to the time the contract had on April 6 1984.

- Petitioner cannot invoke the last paragraph of sec.6 to set aside its obligations already existing prior to its enactment because the original owner in this case is not DBP but PR. DBP only acquired land through foreclosure proceedings but agreed thereafter to recovery it to private respondents conditionally.

PADILLA VS PAREDES ( Mar. 17 2000)

FACTS: Petitioner Padilla & PR Paredes entered into a contract to sell involving a parcel of land. Of the

P312,840.00 purchase price, petitioner was to pay P50k upon signing of the contract & the balance was to be paid within 10 days from the issuance of a decree of registration for the property.

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Petitioner made several payments even before the court order but still failed to pay the full purchase price.

PR demanded payment or otherwise the contract shall be rescinded. Through petitioner paid additional P100k, it was still insufficient shortly, after PR offered to sell

½ of the property to petitioner for all the payments the latter made instead of rescinding the contract. If petitioner will not agree, PR would automatically rescind the contract.

Petitioner did not accept the offer. Instead, he offered to pay the balance in full for the entire property. PR refused the offer. Thus, petitioner instituted an action for specific performance alleging that he had already substantially complied the contract.

ISSUE:- WON PR Paredes are entitled to rescission under Art 1191? NO

HELD:- PR may validity cancel the contract, however, the reason for this is not that PR have the power

to rescind the contract but because their obligation thereunder did not arise.- Art 1191 or rescission is inapplicable because the article speaks of obligation already existing

which may be rescinded in case one of the obligors fails to comply with what is incumbent upon him. There can be no rescission of obligation that is non-existent concerning that the suspensive condition has not yet happened.

- In this case, it is an obligation with suspensive condition. Because of the failure of the petitioner to pay purchase price, the obligation of PR to convey title to petitioner & receive the full purchase price. PR is ordered to return to petitioner of the amount received from him on the principle that no one may unjustly enrich himself at the expense of another.

VELARDE VS CA ( July 11, 2001)

FACTS: PR David Reymundo is the absolute & registered owner of a parcel of land together with the

house & improvements thereon. George Reymundo is David’s father who negotiated with petitioner Velarde for the sale of said

property. A deed of sale with assumption of mortgage was executed by defendant Reymundo as vendor &

plaintiff Velarde. On the same day, they executed an undertaking. Pending BPI’s approval, plaintiff paid BPI the monthly interest for 3 months. On Dec 15, 1986, plaintiff were advised that the application for assumption of mortgage with

BPI was not approved. This prompted plaintiffs not to make any further payment.

ISSUE:1) WON there is breach of contract? YES2) WON Rescission of the contract is valid? YES3) WON there should be mutual restitution? YES

HELD:1) Yes, both parties agreed that Velarde should pay the purchase price balance of P1.8 million in

case the request to assume mortgage would be disapproved. Thus, petitioner should have paid the balance in full. PR had already performed their obligation through the execution of deed of

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sale which effectively transferred ownership through constructive delivery. Petitioner, on the other hand, did not perform their corrective obligation of paying the contract price agreed upon

2) Under Art. 1191, it stated that when the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and in the absence of any just cause for the court to determine the period of compliance the rescission.

- In this case, PR validly exercised their right to rescind the contract because of the failure of petitioners to comply with their obligation to pay the balance purchase price. It cannot be said that the breach committed by the petitioners was merely slight or causal as would preclude the right to rescind due to imposition of the petitioners of new conditions for her to pay the purchase price.

3) Under Art. 1191, mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. The breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the terms & conditions of the mortgage contract. Therefore, the automatic rescission & forfeiture of payment clauses stipulated in the contract does not apply. Thus, the payment of petitioner should be returned to her, let no one unjust enrich himself at the expense of another.

RIVERA VS DEL ROSARIO ( 419 s 626)

FACTS: Respondent Fidela del Rosario (deceased) barrowed money from Mariano Rivera in the amount

P250,000. To secure the loan, they agreed to execute a deed of real estate mortgage & the agreement to sell the land.

Mariano went to his counsel & drafted 3 documents: the Deed of Real Estate Mortgage, a Kasunduan (agreement to sell) and a Deed of Absolute Sale.

Although Fidela intended to sign only the Kasunduan & the real estate mortgage, she inadvertently affixed her signature on all 3 documents.

The purchase price was in the amount of P2,141,622.50 and to be paid in 3 installments. However, Rivera failed to complete the payment in the 2nd installment.

Respondents filed a complaint asking for the rescission of Kasunduan for failure of Rivera’s to comply with its condition’s. They also sought the annulment of the deed of absolute sale on the ground of fraud & the reconveyance of the entire property.

ISSUE:- WON the contract entered into between the parties may be rescinded based on Art 1191? NO

HELD:- The Kasunduan reveals that it is a contract to sell in which the payment of the purchase price is

a positive suspensive condition. The failure of which is not a breach, causal or serious but a situation that prevents the obligation of the vendor to convey title from acquiring and obligatory force.

- It must be stressed that the breach contemplated in Art. 1191, is the obligor’s failure to comply with and obligation already existing, not a failure of condition to render binding that obligation. Hence, the agreement of the parties may be set aside, but not because of breach of contract to pay completely the 2nd installment rather their failure to do so prevented the obligation of respondents to convey title from acquiring and obligatory force.

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MISTICA VS NAGUIAT ( 418 s 73)

FACTS: Eulalio Mistica is the owner of a parcel of land in which a portion thereof was leased to

respondent. Mistica entered into a contract to sell with respondent over a portion of lot containing an area of 200 sq. mtrs.

The agreement was reduced to writing in a document entitled “Kasulatan sa Pagbibilihan” - P 20k – as the total purchase;- P 2k – upon signing;- P 18k – to be paid within 10yrs;- In case non payment, vendee shall pay an interest of 12% per annum.

Pursuant to said agreement, respondent gave a downpayment of P2K & made another partial payment of P1K & thereafter failed to make any payments.

Eulalio Mistica died sometime in Oct. 1986. Petitioner Vda de Mistica filed a complaint for rescission alleging that the failure and refusal to

pay the balance of the purchase price constitute a violation of the contract.

ISSUE:1) WON the Kasulatan was a contract to sell? NO2) WON petitioner is entitled to rescind the contract? NO

HELD:1) The kasulatan was clearly a contract of sale. A deed of sale is considered absolute in nature

when there is neither a stipulation in the deed that title to the property sold is reserved to the seller until the full payment of the price, nor a stipulation giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

2) In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission. Under Art. 1191, the right to rescind and obligation is predicated on the violation of the reciprocity between parties brought about by a breach of faith by one of them. Rescission, however, is allowed only where the breach is substantial & fundamental to the fulfillment of the obligation.

- In this case, the failure of respondents to pay the balance of the purchase price within 10yrs from the execution of the deed did not amount to a substantial breach. In Kasulatan, it was stipulated that payment could be made even after 10yrs from the execution of contract provided that the vendee paid 12% interest. No demand made by Mistica. There was an offer to pay during the wake.

PRYCE PROP CORP VS PAGCOR (458 s 164)

FACTS: Pryce executed a contract of lease with PAGCOR’s casino operation involving the ballroom of

the hotel for a period of 3 yrs. Starting Dec 1,1992 until Nov 30,1995. On Nov. 13,1992 executed an addendum to the contract of lease for additional 1,000 sq.m. On Dec 18,1992, just before the actual opening of casino operation, public rally was staged by

some local officials, residents & religious leader which PAGCOR was constrained to suspend casino operation.

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On July 15 1993, PAGCOR resumed casino operation but were later on indefinitely suspended due to the demonstrations. Per verbal advice from the office of the President, PAGCOR decided to stop prior to Sept 1993.

PPC appraised PAGCOR of its outstanding accounts for the quarter Sept. 1, to Nov. 30, 1993. However PAGCOR sent PPC a letter stating that it was not amenable to the payment of the full rentals citing as reasons unforeseen legal & other circumstances which presented it from complying with its obligation.

PAGCOR formally demanded from PPC the payment of its claim for reimbursement on rental deposits & improvement expenses.

On Nov. 25, 1993, PPC terminated its contract of lease due to PAGCOR’S continuing breach of contract.

ISSUE:- WON Pryce is entitled to future rentals or lease payments for the unexpired period of the

contract? YES

HELD:- Under Art. 1159, obligations arising from contracts have the force of law between the

contracting parties and should be complied with in good faith. The law allows to enter into stipulations, terms & conditions for as long as these are not contrary to law, moral, good customs, public order or public policy.

- Under Art. 20, of the parties contract of lease provides that 1) PPC has the right to terminate & cancel the contract in the event of a default or breach by the lessee and 2) to make PAGCOR fully liable for rentals for the remaining term of the lease, despite the exercise of such right to terminate. Thus, the parties have voluntarily bound themselves to require strict compliance with the provisions. The court has no alternative but to enforce the contractual stipulations in the manner they have been agreed upon.

- The court distinguished termination from rescission: Termination - refers to an end in time or existence. With respect to a lease contract, it means an ending, usually before the end of the anticipated term of such lease or contract. Parties are not restored to their original situation and only after the contract has been cancelled will they be released from their obligation. Rescission – unmaking of a contract or its undoing from the beginning & not merely its termination.

- In this case the actions of petitioner shows that it never intended to rescind the contract from the beginning because it sought to collect the accrued rentals, as it actually demanded the enforcement of lease contract prior to termination

CANNU VS GALANG (459 s 80 )

FACTS: Respondent spouses Galang agreed to sell their house and lot subject to mortgage with the

(NHMFC) Nat’l Home Mortgage Finance Corp. Petitioner Leticia Cannu agreed to buy the property for P120k & to assume the mortgage

obligations with the NHMFC. A deed of sale & assumption of mortgage was executed & petitioners immediately took possession & occupied the house & lot.

However petitioner failed to pay the P45k remaining balance and stopped complying with the mortgage obligation.

Despite request of Galang to pay the outstanding balance or in the alternative to vacate the property in question, petitioner refused to do so.

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8 yrs had already elapsed and petitioners have not yet complied with the obligation.

ISSUE:1) WON the breach of obligation is substantial? YES 2) WON respondent waived their right of rescission? NO3) WON rescission is subsidiary? NO

HELD:1) Rescission or more accurately resolution of a party to an obligation under Art. 1191, is

predicated on a breach of faith by the other party that violates the reciprocity between them.- In this case, the reciprocity between the parties was violated when petitioner failed to fully pay

the balance of P45k to respondent spouses and failure to update their amortizations with the NHMFC. The remaining balance of P45k is substantial. Their failure to fulfill their obligation gave respondent Galang the right to rescission.

2) The fact that respondent spouses accepted payments in installment does not constitute waiver on their part to exercise their right to rescind the deed of sale & assumption of mortgage. Respondent merely accepted the installment payment as accommodation to petitioners since they kept on promising to pay. It was only after petitioner stopped paying that respondents moved to exercise their right to rescission.

3) Art. 1383, is not applicable. The case is not predicated on injury to economic interest but on the breach of faith by the defendant that violates the reciprocity of the parties which is under Art. 1191. The rescission is not subsidiary but primary because it is not one on the instance mentioned in Art 1381.

LAPERAL VS SOLID HOMES ( 460 s 375 )

FACTS: Oliverio Laperal, President of Filipinas Golf Sales & Dev’t Corp. (FGSDC) entered into an

agreement Dev’t Mg’t with the respondent Solid Homes Inc. a registered subd. developer, involving several parcels of land owned by Laperal & FGSDC.

Solid homes requested Laperal to produce the duplicate titles of the land in order to process the respondents application with the Human Settlements Regulatory Comm. for a license to sell subdivision lots as required by PD 957. However, Laperal refused to do so.

The agreement was cancelled by the parties & 2 contracts identically denominated the revised agreements were entered into by the respondent & petitioner. Unlike the 1st agreement both the revised agreement omitted the obligation of Laperal & FGCCI to make available to Solid Homes the owners duplicate copies of titles covering the parcel of land.

It appears that even as the revised agreement already provided for the non-surrender of the owner’s duplicate copies, respondent persisted that it be delivered because they were necessary but petitioner refused to give them.

Respondent sent a letter explaining that it was unable to meet the deadline for the payment of P1M because there was delay in the processing of the license to sell due to petitioner’s refusal. In the absence of such license it would not be able to comply with the rest of its undertakings within the allotted periods.

Petitioners sent a letter of rescission of the revised agreement with a demand to vacate subject properties because of failure to pay P1M to each of them and failure to complete the development of Phase 1-A & obtain from HSRC license to sell.

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ISSUE:- WON the right to rescind under Art. 1191, carry with it the obligation for restitution? YES

HELD:- Mutual restitution is required in cases involving rescission under Art.1191, to bring back the

parties to their original situation prior to the inception of the contract. Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void at its inception & to put an end to it as though it never was. It is not merely to parties from further obligations to each other, but to abrogate it from the beginning & restore the parties to their relative position as if no contract has been made.

FIDELDIA VS SONGCUAN (465 s 218 )

FACTS: Spouses Songcuan filed a complaint for specific performance against petitioner Petra. Spouses sought to compel Petra to execute a deed of absolute sale over the property subject of

the parties conditional contract of sale. Trial court rendered a decision in favor of the spouses that Petra is ordered to execute the

document and the C.A affirmed its ruling but modified the moral damages & hospital expenses. Then Petra demanded payment of P350k from the spouses less P44,440 representing the

damages adjudged. And Petra also stated that upon payment of the amount, she would then execute the deed of absolute sale & deliver the titles to the spouses.

Spouses replied & stated that they were ready to pay the balance. However, Petra could not comply with her obligation because she had already donated the properties to Leticia without court authority.

ISSUE:- WON the remedy of rescission is proper? NO

HELD:- Under Art 1191, the power to rescind obligation is implied in reciprocal ones, in case one of the

obligor should not comply with what is incumbent upon him. The injured party may choose between the fulfillment & 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.

- In this case, petitioner can choose either specific performance or rescission only if the spouses refuse to comply with what is incumbent upon them, that is to pay the balance purchase price. However, since the spouses were never in default, petitioner could not invoke Art. 1191. And since Petra had transferred ownership of the properties to Leticia through donation. Petra was the party who could not comply with what was incumbent upon her because after the donation only Leticia could transfer the properties. Petra was the obligor in default and the spouse the injured party. Although Petra had already donated the properties, Leticia is bound by the outcome of the specific performance case by virtue of the notice of lis pendens.

PLATINUM PLANS VS CUCUECO ( 488 s 156 )

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FACTS: Plaintiff Cucueco alleged in his complaint, being lease & present occupant of the condominium

unit verbally offered to buy the same from defendant Platinum Plans, free from any lien or encumbrances in 2 installments of P2M.

This was made into a formal offer in writing, the salient conditions:1) Plaintiff will issue a check for P100k as earnest money;2) Plaintiff will also issue post dated check for P1.9M encashable on Sept 30 1993;3) That in the case the defendants still had an outstanding loan with the bank of less than

P2M as of Dec.31 1993, plaintiff shall assume the said loan and pay the difference from the remaining P2M.

Plaintiff claims that the checks he issued were accepted & encashed by defendant. However, he was surprised to receive a letter from defendant that the due date for the 2nd installment was changed to Sept 23,1993.

The refusal of the defendant to return the said initial payment prompted the plaintiff to file a case for specific performance & damages for the unjust refusal to comply with the obligation

ISSUE:- WON the parties entered a contract to sell or contract of sale? CONTRACT TO SELL

HELD:- As distinguished by the SC, a contract to sell may not be considered as a contract of sale

because the first essential element of consent to transfer of ownership is lacking in the former. Since the prospective seller in a contract to sell reserves the transfer of title to the prospective buyer, the seller does not yet unequivocally agree or consent to a transfer ownership. On the happening of an event, that is the full payment of the purchase price, the obligation then arises to execute a contract of sale that alone will transfer such ownership.

- In this case, there was no perfected contract as they had not agreed on how and when the balance was to be paid. The reservation of the title in the name of petitioner indicates the intention of the parties to enter into contract to sell. Where the seller promises to execute a deed of absolute sale upon completion of payment of the purchase price by the buyer, the agreement is a contract to sell. However, the contract to sell would be rendered ineffective & without force & effect by the non-fulfillment of respondents obligation to pay which is the suspensive condition to the obligation of petitioner to sell & deliver the title to the property. The parties stand as if the conditional obligation had never existed. There can be no rescission of an obligation that is still non-existent, the suspensive condition not having as yet occurred.

INDUSTRIAL MANAGEMENT VS NLRC ( 331 s 640 )

FACTS: PR Enrique Sulit, et al, filed a complaint against Filipinas Carbon Mining Corp, Gerardo Sicat,

Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin & petitioner INIMACO for payment of separation pay and unpaid wages.

The decision was in favor of PRs and a writ of execution was issued but it was returned unsatisfied.

Labor arbiter issued an Alias writ of execution. Petitioner filed a “motion to quash Alias writ of execution alleging that it altered and changed

the tenor of the decision by changing the liability of therein respondents from joint to solidary, by the insertion of the words AND/OR between the petitioners.

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ISSUE:- WON petitioner’s liability is solidary or not? JOINT

HELD:- Petitioner INIMACO’s liability is not solidary but merely joint. Solidary or joint and several

obligation is one in which each debtor is liable for the entire obligation & each creditor is entitled to demand the whole obligation. Joint obligation, each obligor answers only for a part of the whole liability and to each obligee belongs only a part of the correlative rights.

- There is a solidary liability only:1) when the obligation expressly so states;2) when the law so provides or;3) when the nature of the obligation so requires.

- In the dispositive portion of the labor Arbiter, the word “solidary” does not appear. Nor can it be inferred there from that the liability of the 6 respondents in the case is solidary thus their liability should merely be joint.

PH CREDIT CORP VS CA ( 370 s 55 )

FACTS: PH credit Corp. filed a case against pacific Lloyd Corp, Carlos Farrales, Thomas Van Sebille &

Federico Lim for a sum of money. The trial court rendered judgment in favor of petitioner and has become final and executory. A writ of execution was issued wherein the personal & real properties of defendant Carlos

Farrales were sold at public auction wherein PH credit was the highest bidder. On July 27,1990, a motion for the issuance of a writ of possession was filed and on Oct. 12,

1990 the same was granted. The writ of execution itself was issued on Oct. 26 1990 Said order and writ of possession are now the subject of this petition

ISSUE:- WON the liability of PR Farrales is solidary? NO

HELD:- Solidary obligatioin – is one in which each of the debtors is liable for the entire obligation and

each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. Joint obligation – is one in which each debtors is liable only for a proportionate part of the debt, and the creditor is entitled to demand only a proportionate part of the credit from each debtor. The well-settled rule is that solidary obligations cannot be inferred lightly. They must be positively and clearly expressed. A liability is solidary only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires as explain under Art. 1207.

- In this case, the dispositive portion of the Jan 31, 1984 decision of the trial court, the word “solidary” neither appears nor can it be inferred therefrom. The fallo merely stated that the following respondents were liable which under the circumstances, the liability is joint.

- Under Art. 1208, if from the law, or the nature or the wording of article refers, the contrary does not appear, the credit and debt shall be presumed to be divided into as many equal share as there are creditors & debtors.

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MARIVELES SHIPYARD CORP VS CA ( 415 s 573 )

FACTS: Petitioner Mariveles engaged the services of Longest Force to render security services at the

petitioner’s premises. However, on Apr. 1995, it terminated its contract with Longest Force because the services were

unsatisfactory & inadequate. PRs (security guard) filed a case for illegal dismissal against Longest Force and petitioner.

Longest force admitted that it employed PR and admitted its liability as to non-payment of wage differential but passed on the liability to petitioner alleging that the service fee was way below PNPSOSIA & PADPAO rate.

Petitioner denied any liability stressing that no ER-EE relationship existed between it & the security guards. It would be injustice to make it liable for monetary claims which is already paid.

ISSUE - WON petitioner’s liability is joint & several with that of Longest Force? YES

HELD:- Petitioner’s liability is joint & several with that of Longest Force pursuant to Art. 106,107&109

of the labor code.- Art 106- in the event that the contractor or subcontractor fails to pay the wages of his

employees, the employer shall be jointly & severally liable with his contractor or subcontractor.

- Art 107 – as indirect employer, it shall apply to any person, partnership, association or corporation.

- Art 109 – solidary liability, every employer shall be held responsible with his contractor or subcontractor.

- In this case, following Art. 106, when the agency as contractor failed to pay the guards, the corporation as principal becomes jointly & severally liable for the guards wages. Pursuant to Art. 107, when petitioner contracted with Longest Force as the agency that hired PR to work as guard, petitioner became an indirect employer of PR. However, the solidary liability of petitioner with the Longest Force does not preclude the application of the civil code, the right of reimbursement from his co-debtors by the one who paid.

PRYCE CORP VS PAGCOR (458 s 164)

FACTS: Pryce executed a contract of lease with Pagcor casino operation involving the ballroom of the

hotel for a period of 3yrs starting Dec. 1992 until Nov. 30, 1995. On Dec. 18, 1992, just hours before the actual opening of Casino operation public rally was

staged by some local officials, residents & religious leaders which Pagcor was constrained to suspend casino operations.

On July 15, 1993 Pagcor resumed casino operation but were later on indefinitely suspended due to the demonstrations. And as per verbal advice from the Office of the President, Pagcor decided to stop its operation prior to Sept. 1993.

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Now, Pryce was asking for the payment of the full rentals of the remaining term plus damages and penalties.

ISSUES:1) WON the penal clause attached in the obligation substituted the indemnity for damages and the

payment of interest? NO2) WON can the courts reduce the penal clause? YES

HELD:1) In obligations with penal clause, the general rule is that the penalty serves as a substitute for the

indemnity for damages and the payment of interest in case of non-compliance; that is, if there is no stipulation to the contrary, in which case proof of actual damages is not necessary for the penalty to be demanded. There are exceptions to the rule, as enumerated in par. 1 of Art 1226:

a. when there is stipulation to the contrary;b. when the obligor issued for refusal to pay the agreed penalty;c. when the obligor is guilty of fraud.

- In the present case, the 1st exception applies bec. The stipulation provided that aside from the payment of the rentals, the lessee shall also be liable for any and all damages, actual or consequential, resulting from such default and termination of the contract. Pagcor must be held bound to its obligation the liability for the future rentals plus damages due to stipulation of parties in the penal clause.

- Penal clause – is an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special prestation in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.

2) The courts can reduce the penalty if such penalty is iniquitous or unconscionable to the sound discretion of the courts. To be considered in fixing the amount of penalty are factors such as but not limited to:

a. Type, extent & purpose of the penaltyb. Nature of obligationc. Mode of breach & its consequences d. The supervening realities e. The standing & relationship of the parties

- In this case, Pagcor’s breach was occasioned by events that although not fortuitous in law were infact real & pressing. Because of the interruptions and stoppages, Pagcor suffered tremendous loss of expected revenues, not to mention the fact that it had fully operated under the contract only for a limited time.

LIGUTAN VS CA ( 376 s 560 )

FACTS: Petitioner’s Tolomeo Ligutan & Leonidas Dela llana obtained a loan from Security Bank in the

amount of P120k. petitioners executed a promissory note binding themselves jointly and severally with an interest of 15.189% per annum and to pay a penalty of 5% every month on the outstanding principal and interest in case of default.

The obligation matured on Sept.1981, and the bank granted an extension until dec.1981 Despite several demands from the bank, petitioner failed to settle the obligation until the bank

filed a complaint in RTC to recover the due amount.

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The C.A modified the decision of the trial court & order the petitioners to pay the sum of P114,416 with interest rate of 15.189% per annum and 3% per month penalty charge and 10% of the total amount of indebtedness as atty’s fees.

Petitioners filed an omnibus MFR & to add with newly discovered evidence alleging that while the case was pending, petitioner ligutan executed a real estate mortgage in favor of the bank to secure the indebtedness. Contending that it had the effect of novating the contract.

They also contented that the interest & penalties & atty’s fees are manifestly exorbitant, iniquitous & unconscionable.

ISSUES:1) WON the court can reduce the penal clause, interest & atty’s fees stipulated by the parties

manifested to be exorbitant, iniquitous & unconscionable? YES2) WON the interest rate of 15.189% per annum is excessive? NO3) WON there was novation? NO

HELD:1) The court can reduce the penal clause. A penal clause is an accessory undertaking to assume

greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation & to provide in effect for what could be the liquidated damages resulting from such breach. Although the court may not be at liberty to ignore the freedom of the parties to agree on such terms & conditions as they see fit that contravene neither law, morals, good customs, public order or public policy, a stipulated penalty may be reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.

- To determine whether a penalty is reasonable or iniquitous depends on such factors but not necessarily confined to:

1) the type, extent & purpose of the penalty 2) nature of obligation 3) mode of breach4) supervening vealities5) standing & relationship of the parties.

- The C.A. had already reduced the penal clause from 5% to 3% notwithstanding their repeated acts of breach.

2) The 15.189% interest rate was not excessive. The interest prescribed in the financing arrangement is a fundamental part of the banking business and the core of a bank’s existence.

- The 10% atty’s fees has been agreed to by the parties and intended to answer not only for litigation expenses but for collection efforts is deemed reasonable.

3) The fact that petitioners executed a real estate mortgage does not imply novation since there was no incompatibility with the old and new obligation. An obligation to pay a sum of money is not extensively novated by a new instrument which merely changes the terms of payment or adding compatible covenants or where the old contract is merely supplemented by a new one.

STRONGHOLD INSURANCE COMPANY VS. REPUBLIC ASAHI GLASS CORP. ( 492 s 179)

FACTS: Republic Asahi entered into a contract with Jose D. Santos (JDS) for the construction of

roadways & drainage system in Republic Asahi’s compound where respondent was to pay JDS P5,300,000 which was supposed to be completed within 240 days.

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In order to guarantee the performance of its undertakings, JDS shall post a performance bond of 795,000 which JDS executed jointly & severally with Stronghold. Respondent paid JDS the amount by way of downpayment.

Because of the slow pace of the construction, respondents’ engineers called the attention of JDS but said reminders went unheeded by JDS. Dissatisfied with the progress, respondent extrajudically rescinded the contract and informing JDS of such rescission.

Respondent alleged that as a result of JDS failure to comply with the contract which resulted in contract’s rescission , it had to hire another contractor to finish the project for which it incurred additional expense of P3256,874. Respondent sent 2 demand letters to Stronghold filing its claim under the bond but both letters went unheeded. Respondent then filed a complaint against JDS & Stronghold. However, JDS died & JDS construction was no longer at its address.

Stronghold filed its answer alleging that respondents’ money claim against petitioner & JDS have been extinguished by the death of JDS & petitioner is released from its liability under the performance bond because there was no liquidation, no ascertainment of corresponding liabilities. Furthermore, Stronghold was not informed by respondent of the death of Santos and the unilateral rescission of its contract, thus depriving Stronghold of its right to protect its interest & finally, respondent deviated from the terms & conditions of the contracts without the written consent of Stronghold.

The lower court dismissed the complaint of respondent but the motion for reconsideration was given due course against Stronghold.

The C.A ruled that Stronghold obligation under the surety agreement was not extinguished by the death of JDS which respondent could still go after Stronghold for the bond.

ISSUE:- WON petitioner’s liability under the performance bond was automatically extinguished by the

death of Santos, the principal? NO

HELD:- As a general rule, the death of either the creditor or the debtor does not extinguish the

obligation. Obligations are transmissible to the heirs, except when the transmission is prevented by the law, stipulations of the parties or the nature of the obligation. Only obligations that are personal or are identified with the person themselves are extinguished by death.

- In the present case, whatever monetary liabilities or obligations Santos had under his contract with respondent were not intransmissible by their nature, by stipulation, or by law. Hence, his death did not result in the extinguishment of those obligations or liabilities, which merely passed on to his estate. Death is not a defense that he or his estate can set up to wipe out the obligation under the performance bond. Consequently, Stronghold as surety cannot use Santos death to escape its monetary obligation. The liability of Stronghold is contractual in nature because it executed a performance bond.

- The surety’s obligation is not an original and direct one for the performance of his own act but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promise of the principal is said to be direct, primary & absolute. In other words, he is directly & equally bound with the principal.

PALANCA VS. CA ( 238 s 593 )

FACTS:

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On Jan 22, 1977, petitioner Palanca, as vendor, and Jose Sanicas, as vendee, entered in a contract to sell, on installment of a parcel of land. Under the terms of the contract, PR Sanicas agreed to pay petitioner the amount of P 9,581.00 as down payment & the balance of P88,659.00 in 120 monthly installments with 14% interest per annum.

PR Sanicas further agreed under paragraph 11, of the contract that in the event of monetary fluctuation, the unpaid balance account of the herein vendee, shall be increased proportionately on the basis of the present value of P 6.72 to $ 1.00 US dollar.

Following demands from petitioner for the updating of the account, PR tendered the amount of P44,955.87 in cash upon petitioner. Petitioner, however, refused to receive the amount tendered asserting the PR actual liability was P 155,630.00 relying on the escalator clause in paragraph 11 of the contract, prompting PR to make a judicial consignment of the amount P44,955.87.

The trial court ruled that in as much as there was no extraordinary inflation or deflation Par.11 of the contract should not be taken into account.

However, the C.A modified the judgment & ruled that amount payable by PR was P 70,688.17 but concurred that Par.11 cannot come into effect absent an actual extraordinary inflation or deflation.

ISSUE:- WON petitioner is entitled to a proportionate increase in payment on the balance of the

purchase price for a piece of real property bought on installment? NO

HELD:- The SC did not grant the petition not on the grounds relied upon by the courts that there should

be an extraordinary inflation before a stipulation for an upward adjustment can be enforced. While they may contain an escalator clause providing that in the occurrence of certain events, the contract price shall be increased to a fixed percentage of the base price, still the autonomy of the parties to provide such escalator clauses may be limited by law.

- The petition should be dismissed on the ground that the stipulation of the parties is violation of R.A.529 as amended, entitled “An Act to Assure Uniform Value to Philippine coin & currency” otherwise known as the Cuenco law. Which the law prohibits 2 things in all domestic contracts:

1. giving the obligee the right to require payment in a specified currency other than Phil. currency;

2. giving the obligee the right to require payment “in amount of money of the Phils. measured thereby”.

- When the parties stipulated that in the event of monetary fluctuation, the obligee was given the right to demand payment of the balance of the purchase price “ in an amount of money of the Phils. measured” by a foreign coin or currency.

- The contract in question is a sale of a parcel of land in the Phils. payable in Phil. pesos. While the balance of the purchase price is payable in Phil. currency measured by foreign currency, no foreign currency was directly involved in the transaction. The obligation should therefore be paid in the same amount of the Phil.currency as stipulated in the contract without any adjustment based on the prevailing exchange rate of US dollar to the Phil. Peso.

- The transaction does not involve a loan in foreign currency stipulated to be payable in Phil. currency but measured by a foreign currency, in which case the rate of exchange prevailing at the stipulated date of payment shall prevail. However, RA.529 was amended by RA 8183 which allows the party to stipulate.

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TRANSPACIFIC INDUSTRIAL SUPPLIES INC. VS CA ( 235 s 494 )

FACTS: Petitioner was granted financial accommodation amounting to P 1.3 M by respondent

Associated Bank. The loans were secured by 4 promissory notes, a real estate mortgage covering 3 parcels of land & a chattel mortgage over petitioner’s stock & inventories.

To secure the re-structured loan of P1,213,400.00, 3 new promissory notes were executed by Trans-pacific. The mortgage parcels of land were substituted by another mortgage covering 2 other parcels of land & chattel mortgage on petitioner’s stock inventory.

The release parcels of land were then sold & the proceeds were turned over to the bank & applied to petitioner’s restructured loan.

Subsequently, respondent bank returned the duplicate original copies of the 3 promissory notes to trans-pacific with the word “Paid” stamped thereon. Despite the return of the notes, the bank demanded from petitioner the accrued interest of one of the promissory notes. According to the bank the notes were erroneously released.

Initially, Trans-pacific expressed the willingness to pay but later it had a change of heart & initiated an action before the RTC for specific performance & damages.

ISSUE:- WON respondent has indeed paid in full its obligation to respondent bank? NO

HELD:- Under Art. 1271, provides that “The delivery of a private document evidencing a credit made

voluntarily by the creditor to the debtor implies the renunciation of the action which the former had against the latter”.

- Art. 1271, is not conclusive but merely prima-facie if there be no evidence to the contrary, the presumption stands. Conversely, the presumption loses its legal efficacy in the face of proof or evidence to the contrary.

- The SC found sufficient justification to overthrow the presumption of payment generated by the delivery of the documents evidencing petitioner’s indebtedness.

- Art. 1271, raises a presumption, not of payment but of the renunciation of the credit, were more convincing evidence would be required than what normally would be called for to prove payment. The rationale for allowing the presumption of renunciation in the delivery of a private instrument is that, unlike that a public instrument, there could be just on copy of the evidence of credit. Where several originals are made out of a private document, the intendment of the law would thus be to refer to the delivery only of the original original rather than to the original duplicate f which the debtor would normally retain a copy it would thus be absurd if Art. 1271, were to be applied differently.

- Petitioner could have easily adduce the receipts corresponding to the amounts paid inclusive of the interest to prove that it has fully discharged its obligation but it did not.

- The trial court totally relied on a disputable presumption that the interest has been fully liquidated by respondents act of delivering the instrument and ignore the testimony of Mr. Mesina anent the outstanding balance pertaining to interest. Petitioner has not fully liquidated its financial obligation to the associated bank by its confirmation & self-defeating posture in its letter addressed to respondent bank.

CULABA VS CA ( 427 s 721 )

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FACTS: The spouses Francisco & Demetra Culaba were owners & proprietors of the Culaba Store &

were engaged in the sale & distribution of SMC’s beer products SMC sold beer products on credit to the Culaba spouses in the amount of P28,650.00.

Thereafter, the Culaba spouses made a partial payment of P3,740.00 leaving an unpaid balance of P24,910.00.

As they failed to pay despite repeated demands, SMC filed an action for collection before the RTC.

The spouses denied any liability claiming that they had already paid full on four separate occasions (evidence of temporary charge sales liquidation receipts).

Francisco testified that he made the foregoing payments to an SMC supervisor who came in an SMC van. He was then showed of list of customer’s accountabilities which included his account. The defendant in good faith, then paid to the said supervisor & he was in turn issued genuine SMC liquidation receipts (dated Apr 19-30,1983).

SMC in its part submitted a publisher’s affidavit to prove that the entire booklet of receipts was reported lost & that it caused the publication of notice of loss on July 9, 1983.

ISSUES:- WON the payment of petitioner’s obligation was properly made to extinguish the obligation?

NO

HELD:- No, the court found out that:

a. The receipts given were included in the respondents lost booklet which was duly advertised in the newspaper.

b. There was something amiss in the way the receipts were issued as one receipt bearing a higher serial number was issued ahead of another bearing a lower serial number.

c. The supervisor’s name was invariably left blank in the four receipts & that petitioners cannot remember the name of the supposed impostor who received the payment.

- Payment is a mode of extinguishing an obligation under Art. 1240, provides that payment shall be made to the person in whose favor the obligation has been constituted or his successor in-interest or any person authorized to received it.

- In this case, the payments were purportedly made to a supervisor of the private respondent who was clad in SMC uniform & drove an SMC van. He appeared to be authorized to accept payments as he showed a list of customer’s accountability & even issued SMC liquidation receipts. Unfortunately, Francisco Culaba did not ascertain the identity & authority of said identification to prove the latter. Petitioner relied solely on the man’s representation, thus, the payments made were not to discharged their obligation to the private respondent.

- The most prudent thing that petitioners should have done was to ascertain the identity & authority of the person who collected their payments. Failing this, the petitioners cannot claim that they acted in good faith when they made such payment. Their claim therefore is negated by their negligence & they are bound by its consequences.

PNB VS CA ( 256 s 44 )

FACTS:

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Expropriation proceedings were instituted by the gov’t against private respondent Loreto Tan and other property owner. Tan filed motion requesting issuance of an order for the release to him of the expropriation price of P32,480.00.

Trial court required PNB to release the amount to Tan. Juan Tagamolila, Asst Branch Mgr, issued managers check & delivered the same to Sonia

Gonzaga without Tan’s knowledge, consent or authority. Sonia then deposited it in her account with Far East Bank & later on withdrew it.

Tan subsequently demanded payment but PNB refused on the ground that it already paid & delivered the amount to Sonia on the strength of a special power of attorney (SPA) allegedly executed in her favor by Tan.

Tan filed a motion with the court to require PNB to pay the same to him. The trial court rendered judgment ordering PNB & Tagamolila to pay PR Tan which was also

affirmed by the CA.

ISSUE:- WON there was a valid payment? NO

HELD:- No payment had ever been made to private respondent as the check was delivered to him.

When the court ordered petitioner to pay private respondent, it had the obligation to deliver the same to him. Under Art. 1233, a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered. The burden of proof of such payments lies with the debtor.

- In the instant case, whether the SPA nor the check issued by petitioner was ever presented in court. Further, the testimonies of petitioners own witnesses regarding the check were conflicting. Tagamolila testified that the check was issued to the order of Sonia as atty-in-fact of Loreto Tan, while Elvira Tibon, asst. cashier stated that the check was issued to the order of Loreto Tan. Considering that the contents of the SPA are also in issue here, the best evidence rule applies. Hence, only the original document is the best evidence of the fact as to whether or not private respondent indeed authorized Sonia Gonzaga to receive the check from petitioner. In the absence of such payment, petitioners arguments regarding due payment must fail.

PABUGAIS VS SAHIJWANI ( 423 s 596 )

FACTS: Pursuant to an agreement & undertaking, Teddy Pabugais in consideration of the amount of

P15,487,500 agreed to sell to respondent Sahijwani a parcel of land. Respondent paid petitioner the amount of P600,000 as reservation fee & the balance shall be paid within 60 days simultaneous with the delivery of the necessary documents by petitioner.

They further agreed that failure on the part of respondent to pay the balance shall forfeit the reservation fee and failure of petitioner to deliver the necessary documents obliges him to return the reservation fee with 18% interest per annum.

Petitioner failed to deliver the necessary documents and in compliance with the agreement, he returned the P672,000, the 18% is included thru managers check but respondents counsel refused to accept the same. Petitioner thereby informed respondent that he consigned such payment in court.

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Respondent’s counsel admitted that his office received petitioner’s letter but claimed that no check appended thereto. He averred that there was no valid tender of payment & the computation of the amount tendered was insufficient.

The trial court rendered a decision declaring the consignation invalid for failure to prove the petitioner tendered payment & that mangers check was not legal tender.

Petitioner then appealed the decision to the CA and consigned the amount with the trial court as partial payment for the fee of his new attorney.

Thereafter, petitioner filed a motion to withdraw the amount consigned but the CA denied such withdrawal because the consignation was declared valid.

ISSUE: 1) WON there was a valid consignation? YES2) WON the petitioner can withdraw the amount consigned as a matter of right? NO

HELD:1) Consignation is the act of depositing the thing due with the court whenever the creditor cannot

accept or refuse to accept such payment and it generally requires prior tender of payment.- In order that consignation may be effective, the debtor must show that:

a. There was a debt due;b. Consignation had been made because the creditor refused to accept the tender of payment;c. Precious notice of consignation had been given to the person interested;d. The amount due was placed at the disposal of the court;e. Subsequent notice of consignation had been made to the person interested failure in any of

these requirements is enough ground to invalidate consignation.- The important requisites of consignation is the existence of a valid tender of payment.- In this case, respondent’s counsel testified that the reasons why his client did not accept it bec.

The check was not attached to the said letter & the amount tendered was insufficient to cover the obligation. It is obvious that the reason for respondent’s non-acceptance was the insufficiency thereof & not because it was in the form of manager’s check. Manager’s check is not legal tender but the tender of payment in the form of manager’s check is valid if accepted & no prompt objection is made. As stated in the agreement & undertaking only the P600,000 with interest at 18% per annum was agreed upon by the parties and which was tendered but refused by respondent & thereafter consigned with the court, was enough to satisfy the obligation.

2) No, the amount consigned with the trial court can no longer be withdrawn by petitioner bec. respondent’s prayer in his answer that the amount consigned be awarded to him is equivalent to acceptance of the consignation which has the effect of extinguishing petitioner’s obligation. Withdrawal of the money consigned would enrich petitioner & unjustly prejudice respondent.

TORCUATOR VS. BERNABE ( 459 s 439 )

FACTS : The Salvador’s owned a parcel of land located at Forbes Makati.

Ayala Corp., the developer had the condition that it cannot resell such lot by buyer unless a residential has been constructed.

However, Salvador sold such land to the Bernabes and the latter sold again such land to the petitioner Torcuator.

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Confronted by the Ayala Alabang restrictions, the parties terminated the cause of sale between Salvador & Bernabe, and Salvador executed a deed of sale directed to petitioner and a special power of attorney in order that the petitioner can build a house on the land.

However, the deed of sale was never consummated nor was payment on the said sale ever effected.

Subsequently, the Bernabes sold the land to his brother in law, Angeles. The document, however, was not notarized. As a result, the Torcuators commenced the instant case against Bernabes and Salvador for specific performance or rescission with damages.

ISSUE- WON there was a valid tender of payment? NO

HELD:- The agreement entered into by the parties was a contract to sell. The positive suspensive

conditions were the payment of the purchase price & construction of the house. Upon payment & construction the ownership shall be delivered in favor of the petitioner. However, there was no any indication that petitioners ever attempted to tender payment or consign the purchase price as required by law. Petitioner should have consigned the amount due in court instead of merely sending respondents a letter expressing interest to push thru with the transaction. Mere sending of a letter lay the vendee expressing the intention to pay without the accompanying payment is not considered a valid tender of payment. Consignation of the amount due in court is essential in order to extinguish the obligation and the title be conveyed.

- Due to the failure of petitioner to tender payment, respondents are not compelled to deliver the property and execute the deed of sale.

- The agreement between the parties cannot be considered void for being contrary to good customs & morals. It should be emphasized that the restriction imposed by Ayala Corp was on the resale of the property without the residential house having constructed. The condition does not require that the original lot buyer should himself construct the house but only the original buyer shall not resell the vacant lot. The agreement of the parties was merely a contract to sell. Thus, no violation of the condition inferred from the transaction as no transfer of ownership was made. Therefore, petitioner’s claim that possession of SPA can count as evidence that they took actual & physical possession of the property can by no means be interpreted as delivery or conveyance of ownership.

LLOBRERA VS FERNANDEZ ( 488 s 509 )

FACTS: Josefina Fernandez as one of the registered co-owners of the land, served a written demand

letter upon petitioners Llobrera to vacate the premises within 15 days from notice. However, petitioner refused to vacate which prompted respondent to file a formal complaint against them before the barangay captain but it did not reach any settlement.

Respondent then filed a verified complaint for ejectment & damages before the MTCC. By way of defense, petitioners alleged that they had been occupying the property beginning the year 1945 onwards with the permission of Gualberto de Venecia , one of the co-owners of said land, on the condition that they will pay their monthly rental of P 20.00 each.

However, sometime June 1996, the representative of de Venecia refused to accept their rentals, prompting them to consign it to Banco San Juan which bank deposit they continued to maintain with their monthly rental payments.

The MTCC, RTC & the CA rendered judgment in favor of the respondent.

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ISSUE: - WON there was a valid consignation? NO

HELD: - The alleged consignation of the P20 monthly rental to a bank account in respondents name is

not valid simply because of the absence of any contractual basis for their claim to rightful possession of the subject property. Consignation based on Art 1256, indispensably requires a creditor-debtor relationship between the parties, in the absence of which the legal effects cannot be availed of.

- In the present case, the possession of the property by the petitioners being by mere tolerance as they failed to establish through competent evidence the existence of any contractual relations between them and the respondent which the latter has no obligation to receive any payment from them. Since respondent is not a creditor, respondent cannot be compelled to receive such payment even through consignation. The bank deposit intended as consignation has no legal effect insofar as the respondent is concerned.

BPI ( FORMER FEBTC ) VS CA ( 490 s 168 )

FACTS: Far East Bank & Trust Company granted 8 loans to Noah’s Arc Merchandising owned by Mr

Looyuko, all loans were evidenced by identical promissory notes all signed by Looyuko, Jimmy T. Go & Wilson Go. Likewise, all loans were secured by a real estate mortgage.

Petitioner claiming that Noah’s Arc defaulted its obligation, extrajudicially foreclosed the mortgage and auction sale was set.

Private respondent filed a complaint for damages with prayer for the issuance of TRO seeking to enjoin the auction sale. He claimed that demand was not made upon him and only 4 of the eight promissory notes secured by mortgage had become due. But the reading of the promissory notes discloses that as a co-signer, private respondent waived demand under the acceleration clause. He further argued that by withholding the lease payments Far East bank owed Noah’s Arc for the space, Far East bank was applying said amounts to the outstanding obligation of Noah’s Arc, which Far East bank has waived default, novated the contract of loan and therefore estopped from foreclosing on the mortgage property.

ISSUE:1) WON the withholding of lease payments & applying them to the outstanding obligation is a

valid legal compensation? YES2) WON there was novation? NO

HELD:1) Compensation is a mode of extinguishing to the concurrent amount the obligations of persons

who in their own right & as principals are reciprocally debtors & creditors of each other.- Under Art. 1278, provides that “ Compensation shall take place when 2 persons in their own

right, are creditors & debtors of each other”. And under Art 1279 provides that “in order that compensation may be proper, it is necessary:

a. That each one of the obligor’s be bound principally, and that he be at the same time a principal creditor of the other;

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b. That both debts consist in the sum of money, or if the things due are consumable, they be of the same kind and also of the same quality if the latter has been stated;

c. That the 2 debts be due;d. That they be liquidated & demandable;e. That over neither of them there be any retention or controversy, commenced by 3 rd

persons and communicated in due time to the debtor.- It is clear that (a) FEBTC & Noah’s Ark are both principal debtors & creditors of each other (b)

their debts consist of sum of money (c) the 8 promissory notes are all due and the lease payments become due each month. (d) Noah’s ark debt is liquidated & demandable every month as they fall due. Lastly, (e) there is no retention or controversy commenced by 3 rd

persons over either of the debts.2) The court has declared that a contract cannot be novated in the absence of a new contract

executed between the parties. The legal compensation which was acknowledged by Far East bank cannot be considered a new contract between the parties. Hence, the loan agreement as embodied in the promissory notes and the real estate mortgage, consists. Since the compensation between the parties occurred by operation of law, Far East bank did not waive Noah’s Ark’s default. Absence of novation or waiver of default, FEBTC is therefore not estopped from proceeding with the foreclosure.

BANCO FILIPINO SAVING & MORTGAGE BANK VS DIAZ ( 493 s 248 )

FACTS: Spouse Diaz secured a loan from petitioner bank in the amount of P400,000 with 16% interest

per annum. The loan was restructured in the amount of P3,163,000 payable within a period of 20 yrs at an interest of 22% per annum. The obligation was to be paid in equal monthly amortization & secured by a real estate mortgage & additional collateral, the rentals on the mortgage properties.

Despite repeated demands made on them, the respondents defaulted. Before petitioner bank could institute the foreclosure proceedings, respondent filed with the

RTC a complaint but it denied such application, which the CA also affirmed said order. Thereafter, respondent filed another complaint for consignation & declaration of cancellation of obligation with prayer for issuance of a preliminary injunction & TRO.

Based on the ex-parte evidence, the respondents had a remaining balance of P1,034,600, which the respondent tendered the amount to petitioner bank. However, petitioner bank refused to accept it because the amount due is P 10,160,649. The respondent then consign it with the RTC, a manager’s check as full payment of their loan obligation.

The RTC ruled that the consignation is valid bec. petitioner bank could not charge any interest during the time it was closed by the central bank.

The C.A, however, declared that it failed to effect a valid consignation bec. it did not include all interest due. Its decision because final & executory.

Thereafter, respondent filed a motion to withdraw deposit alleging that their obligation was settled with the payment of P25 M by Gaisano brothers.

Petitioner bank opposed & asserted that the deposit be released to it as part of the full payment & maintained that it accepted the said consignation & respondent could no longer withdraw the said amount.

ISSUE:- WON respondent Diaz may still withdraw the amount deposited with the RTC? YES

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HELD:- Under Art. 1260, the debtor may withdraw as a matter of right, the thing or amount deposited

on consignation in the following instances:a) before the creditor has accepted the consignation or b) before a judicial declaration that the consignation has been properly made.

- In this case, there was no judicial declaration that the consignation had been properly made. On the contrary, the C.A declared that there was no valid consignation. What remains to be determined is whether petitioner bank had already accepted the respondent from exercising their rights to withdraw the same. Petitioner bank’s allegation has failed to establish by convincing evidence that it had made such acceptance of the deposit in question prior to the respondents filing of their motion to withdraw the amount deposited.

- Before the consignation has been accepted by the creditor or judicially declared as properly made, the debtor is still the owner of the thing or amount deposited, and therefore, the other parties liable for the obligation have no right to oppose debtor’s withdrawal. However, creditor may prevent the withdrawal by accepting the consignation even with reservation. Thus, when the amount consigned does not cover the entire obligation, the creditor may accept it, reserving his right to the balance. But in this case, petitioner bank did not do so.

TRINIDAD VS ACAPULCO ( 493 s 179 )

FACTS: Respondent Acapulco filed a complaint seeking the nullification of a sale she made in favor of

petitioner Trinidad. She alleged that Cañete requested her to sell a Mercedes Benz for P 580k and if respondent herself will buy the car, Cañete was willing to sell it for P500k.

Petitioner barrowed the car from respondent and instead of returning, petitioner told respondent to buy the car from Cañete for P 500k & that petitioner would pay respondent after petitioner returns from Davao.

Following petitioners instruction, respondent requested Cañete to execute a deed of sale for which respondent issued 3 checks in favor of Cañete. Respondent thereafter executed a deed of sale in favor of petitioner even though petitioner did not pay her any consideration.

When petitioner returned from Davao, he refused to pay respondent, saying that the amount would just be deducted from respondent’s obligation. Due to petitioner’s failure to pay, respondents check bounced, which Cañete filed criminal charges against respondent.

However, petitioner claimed that it is not true that he borrowed the car and that any demand was made to return it. He also did not give any instruction to respondent because as early as Sept. 28, 1990, Cañete has already sold the car to respondent and the amount of P500k was fully paid by way of Dation in Payment to partially extinguish respondents obligation with petitioner and the contract entered into was a true sale of motor vehicle and the mode of payment was the of Dation in Payment upon at the true of the sale.

The trial court rendered its decision finding that no dacion en pago, as common consent was not proven.

Petitioner filed a supplemental motion & for the first time raise the issue of legal compensation. The C.A affirmed the decision of the trial court and finding the issue of legal compensation was

filed too late.

ISSUE:

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- WON legal compensation should be appreciated? YES

HELD:- Under Art. 1290, when all the requisites mentioned in Art. 1279, are present, compensation

takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors & debtors are not aware of the compensation.

- In this case, it was proven that (1)petitioner owed respondent the amount of P500k & (2) respondent owed petitioner P566k; (3) that both debts are due, liquidated & demandable and that neither of the debts or obligation are subject of a controversy commenced by a third person.

- Compensation seeks to avoid as its aim is to prevent unnecessary suits & payments through the mental extinction of concurring debts by operation of law.

- The claim of respondent that there could be no legal compensation in this case as one of the obligation consist of a car to petitioner on Mar. 4, 1991 for P 500k while she filed her complaint for nullification of sale only on May 6, 1991.

- As legal compensation takes place ipso jure, and retroacts to the date when its requisites are fulfilled, legal compensation has already taken place at the time of the sale. At such time, petitioner owed respondent the sum of P500k which is the price of the vehicle.

VILLEGAS VS CA ( Aug. 18, 2006 )

FACTS: Reyes, et al, were the owners of the property which they inherited from their father. Villegas & Sanchez, petitioner-lessees were the lessees of the property and owned the building

and improvements thereon. The administrative committee of the respondent heirs informed petitioner-lessees that the heirs

decided to sell the property. Petitioner-lessees submitted their bid of P4M but the admin. committee requested to increase

the bid of P5M, which the petitioner accepted the same. However, some of the co-owners were no longer agreeable to the selling but other co-owners

representing the 75% share were still interested in selling and made an offer to the petitioners. On Nov. 1988, respondent –heirs sold their 75% share to Lita Sy and informed the petitioner of

the sale. On Feb 1989, the other heirs sold the remaining 25% portion to Villegas brothers. On May 1990, spouses Sy filed a complaint for specific performance against the heirs of

Villegas, which the RTC rendered a decision ordering the heirs of Villegas to accept the redemption price as to the 25% portion.

ISSUE: - WON there was a valid offer to redeem the 25% undivided in the property? NO

HELD:- There was no valid and effective offer to redeem the 25% undivided interest in the property.

Although Lita Sy invoked her right to redeem in an answer filed with the RTC, she failed to consign in court the redemption price.

- Well settled is the rule that a formal offer to redeem must be accompanied by a valid tender of the redemption price and that the filing of a judicial action, plus the consignation of the redemption price within the period of redemption, is equivalent to a formal offer to redeem.

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- In this case, Lita Sy failed to consign the redemption price in court and never tendered the redemption price to the Villegas brothers. It was only a letter reiterating the demand to resell the 25% interest in the property. Considering that there was no tender of the redemption price, nor was there consignation of the redemption price, there was no valid exercise of the right of redemption.

FEBTC VS DIAZ REALTY INC. ( 363 s 659 )

FACTS: Diaz realty got a loan from the former Pacific Banking Corp. in the amount of P720k. On Jul 1985, the central bank closed the PaBC. Sometime in Dec. 1986, FEBTC purchased the credit of Diaz in favor of PaBC but it was not

until Mar. 1988, that Diaz was informed about it. Antonio Diaz was informed that his loan amounted to P1,447,142. He tendered payment to

FEBTC the amount of P 1,450,000 thru an interbank check in order to prevent the imposition of additional interest, penalties and surcharges on its loan.

FEBTC did not accept it as payment, instead Diaz was asked to deposit the amount. When there was no news from FEBTC whether or not it would accept his tender of payment, he

filed a case in RTC. The check given in payment was converted into cash and the money was kept in the possession

of the bank for several months.

ISSUES:1) WON there was a valid tender of payment using the check as a payment to extinguish

obligation? YES2) WON there was a need of consignation to extinguish obligation? NO

HELD:1) Yes, jurisprudence holds that a check does not constitute a legal tender and that the creditor

may validity refuse it. It must be emphasized that this dictum does not prevent the creditor from accepting a check as payment. Thus, the creditor has the option and discretion of refusing or accepting it.

- In the present case, petitioner bank did not refuse respondent’s check. On the contrary it accepted the check which it insisted as deposit.

- Tender of payment- is the definitive act of offering the creditor what is due him together with the demand that the creditor accept the same. More important, there must be fusion of intent, ability and capability to make good such offer, which must be absolute and must cover the amount.

- When petitioner refused to release the mortgage, respondent instituted a complaint to compel the bank to acknowledge the tender of payment, accept payment & cancel the mortgage. These acts demonstrate respondent’s intent, ability and capability to fully settle and extinguish the obligation.

2) Petitioner pointed that tender of payment extinguishes obligation only after proper consignation which respondent did not do. The SC answered that for consignation to be necessary, the creditor must have refuse without just cause to accept the debtors payment. However, petitioner accepted such payment. By accepting the tendered check and converting it into money, petitioner is presented to nave accepted it as payment.

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SEGOVIA VS DOMATOL ( 364 s 159 )

FACTS: Segovia and Dumatol entered into 3 but identical contracts to sell involving 3 condominium

units. Out of the total contract price of P6,050,000.00. Dumatol only paid P4.4M for the 3 units.

Since respondent was already in default, Segovia officially notified the cancellation of contract to sell for unit 904.

However, a meeting was held between the 2 parties whereby it was approved that petitioner would withdraw the action for rescission subject to the condition that respondent would pay the total balance of P2.8m & liquidated damages amounting to P700k.

Dumatol disputed the computation and informed that the balance plus interest should only be P1,977,200.

Since the obligation was not materialized, Segovia gave another notice of cancellation. This time Dumatol consigned with the HLURB the amount what he believed to be the remaining balance.

ISSUES:1) WON there was a valid consignation which justified the suspension of 3% penalty interest

provided under the contract? NO2) WON the 3% penalty interest is iniquitous & unconscionable? YES

HELD:1) Consignation to be valid, it must comply with the following requisites:

a. There was a debt due;b. tender of payment and refusal to accept without reason;c. precious notice of consignation to the person interested;d. after the deposit has been made, a subsequent notice of consignation to the person

interested.- In this case, consignation was made only to forestall an action for rescission which petitioner

might take. Respondent never made any prior tender of payment to petitioner. Thus, consignation was not proper.

2) The 3% penalty interest is patently iniquities & unconscionable as to warrant the exercise by this court of its judicial discretion under Art. 1229. 3% penalty interest would translate to a yearly penalty interest of 36%. The payments respondent made would be virtually wiped out if the 3% were imposed on the account balance. Dumatol would stand to lose the 3 condominium units notwithstanding the fact that it has substantially complied with its contractual obligation.

FRANCIA VS IAC ( 162 s 753 )

FACTS: Egnacio Francia is the registered owner of a residential lot and two storey house. 125 sq.m

portion of Francia’s property was appropriated by the Rep. of the Phils. for the sum P4,116.00. Since 1963 to 1977, Francia failed to pay his real taxes. Thus, on Dec. 5. 1977, his property

was sold at public auction by the City Treasurer in order to satisfy the tax delinquency of P2,400. Ho Fernandez was the highest bidder for the property.

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Francia is now seeking for the cancellation of auction sale because his tax delinquency of P2,400 has been extinguished by legal compensation. He claims that the gov’t owed him P4,116.00 when a portion of his land was expropriated. Hence, his tax obligation has been set off by operation of law.

ISSUE:- WON there was legal compensation? NO.

HELD:- There is no legal basis for the contention. By legal compensation, obligation of persons, who in

their own right are reciprocally debtors & creditors of each other, are extinguished ( Art. 1278).- The instances of the case do not satisfy the requirements provided in Art. 1279. It has been

ruled that there can be no offsetting of taxes against the claims that the taxpayer may have against the gov’t. A person cannot refuse to pay a tax on the ground that the gov’t owes him an amount equal to or greater than the tax collected. The reason on which the general rule is based is that taxes are not in the nature of contracts between the party but grow out of duty to, and are the positive acts of the gov’t to the making and enforcing of which, the personal consent of the individual is not required. Aside from that, the tax was due to the city office and the expropriation was effected by the Nat’l gov’t.

- Francia knew that the payment of the expropriation has long been deposited to the PNB prior to the auction sale of his remaining property. He had been informed regarding the auction sale but he pocketed the notice without reading it.

BPI VS CA ( 255 s 571 )

FACTS: Edvin Reyes opened a savings account at petitioner Bank of the Phil. Islands. It is a joint

account with his wife and he also opened another with a joint account with his grand mother. He regularly deposited in this account the US treasury warrants payable to the order of Fernandez, his grand mother, as her monthly pension.

Emeteria Fernandez died without the knowledge of the US treasury Dep’t. She was still sent US treasury warrant which respondent deposited the check

2 months after, respondent closed the savings account of her grandmother and transferred the funds to the joint account with his wife.

The US treasury warrant was dishonored as it was discovered that Fernandez died 3 days prior to its issuance. The US Dept. of treasury requested petitioner bank for a refund.

Respondent received a telegram from the bank and when he called up he was informed that the treasury check was subject for claim. He verbally authorized the bank to debit from his account the amount stated in the dishonored US treasury warrant.

Surprisingly, respondent demanded restitution of the debited amount. According to him, he did not authorized the bank to withdraw such amount.

ISSUE : - WON legal compensation is proper? YES

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HELD:- YES, compensation takes place when two persons in their own right are debtor and creditors of

each other. Art. 1290, provides that “when all the requisites of Art. 1279, are present, compensation takes effect by operation of law and extinguishes both debts even if the parties interested are not aware of or without their consent.

- Art. 1279, states that in order that compensation may be proper, it is necessary:1) That each debts of obligors be bound principally and that he be at the same time a

principal creditor of the other;2) that both debts consist in a sum of money, or if the things due are consumable, they be

of the same kind, and also of the same quality if the latter has been stated;3) that the 2 debts be due;4) that they be liquidated & demandable;5) that over neither of them there be any retention or controversy, commenced by 3rd

person & communicated in due time to the debtor.- The elements of legal compensation are all present in this case:

1) Petitioner bank stands as the debtor of Edvin Reyes, the depositor. At the same time, bank is the creditor of the respondent with respect to dishonored VS treasury warrant.

2) The debts involved consist of a sum of money.3) They are due, liquidated & demandable.4) They are not claimed by a 3rd person.

PNB VS CA ( 259 s 174 )

FACTS: Petitioner bank appropriated the amounts of $ 2,627.11 and P 34,340.38 from remittances of

PR Ramon Lapez principal abroad. The 1st remittance was made by the Nat’l Commercial Bank of Jeddah for Lapez to be credited

to his account at Citibank and the 2nd from Libya, to be deposited at Lapez’s account with petitioner bank.

Lapez made a written demand upon petitioner bank for the remittances. There were 2 instances in the past, one in Nov. 1980 & the other in Jan. 1981 when the Lapez’s

account was doubly credited which amounted to P87,380.44. Petitioner bank made a demand for refund of the double credits erroneously made on Lapez’s

account and so deduction of P 34,340.38 was made by petitioner bank with the knowledge & consent of the Lapez. Thus, petitioner set-off against the 2 remittances, the double credits it erroneously made.

ISSUE:- WON petitioner bank was legally justified in making the compensation or set-off? NO

HELD:

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- The SC affirmed the decision of the RTC. RTC ruled that: in this case, of the $2,627.11, requisites Nos. 2 to 5 are present. The question however is whether both of the obligors bound principally and are debtor and creditor of the other at the same time.

a. With respect to the respondents being a depositor of the bank, they are creditor and debtor respectively.

b. As to relationship created by the telexed fund transfer from abroad, contract bet. foreign bank & local bank, asking the latter to pay to a beneficiary is a stipulation pour autrui ( is a stipulation is favor of a 3rd person)

- Thus between petitioner bank and respondent, there is created an implied trust (when the property is conveyed to a person in reliance upon his intention to hold it for the person whose benefit is contemplated)

c. By principle of solutio indebiti (receive something having no right to demand it, must return what unduly received) created a relationship of obligor and obligee or of debtor & creditor under a quasi-contract.

- However, with respect to the $2,627.11 from Jeddah, the parties are not both principally bound, neither are they at the same time principal creditor of the other.

- Therefore, the parties obligations are not subject to compensation under Art. 1279, because they are trustee-beneficiary as to the fund transfer of $ 2,627.11. The petitioner bank was an implied trustee, who was obliged to deliver to Citibank the amount for the benefit of the respondent. With respect to the double payment they are debtor & creditor with each other, the amount of P34,340 may be the subject of compensation because all the requisites of Art. 1279, are present.

EGV REALTY VS CA ( 310 s 657 )

FACTS: Petitioner E.G.V. Realty Dev’t Corp. is the owner developer of a 7 storey condominium

building known as Cristina Condominium. Cristina condominium Corp. holds title to all common areas & is in charge of managing maintaining & administering the condominium common areas and providing for the buildings security.

Respondent Unisphere is the owner / occupant of unit 301 of said condominium. 2 robbery incidents happened at respondent Unisphere unit which amounted to the total amount

of P12,295 and it was reported to CCC. Respondent Unisphere demanded compensation and reimbursement from petitioner CCC for the losses incurred as a result of the robbery. However, petitioner denied any liability and stating that the goods lost belonged to Amtrade, a 3rd party. Because of the denial, respondent withheld its monthly dues and later on received a demand letter of past dues from petitioner CCC.

Petitioner E.G.V executed a Deed of Absolute Sale over unit 301 in favor of the respondent. Thereafter, Cert. of Title was issued bearing an annotation for the unpaid dues in the amount of P13,142.67

Petitioner E.G.V & CCC jointly filed a petition for the collection of the unpaid monthly dues. Respondent answered that it could not be deemed in default because its tardiness to pay was occasioned by petitioner’s failure to provide security for the building premises. It asserted that the total value lost be awarded to it by way of damages.

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The C.A reversed the SEC order and decided that the unpaid monthly dues should be offset by the losses suffered by respondent Unisphere.

ISSUE:- WON set-off or compensation has taken place in the instant case? NO

HELD:- Under Art. 1278, compensation takes place only when 2 persons or entities in their own right

are creditors & debtors of each other.- A distinction must be made between a debt and a mere claim. Debt – is an amount actually

ascertained. It is a claim which has been passed upon by the courts or quasi – judicial bodies to which it can in law be submitted & has been declared to be debt. Claim – is a debt in embryo. It is mere evidence of a debt & must pass thru the process prescribed by law before it develops into what is properly called a debt. Absent of any such categorical admission by an obligor or final adjudication, no compensation or off-set can take place. Unless admitted by a debtor himself, the conclusion that he is in truth indebted to another cannot be definitely and finally pronounced, no matter how convinced he may be from the examination of the pertinent records of the validity of that conclusion the indebtedness must be one that is admitted by the alleged debtor or pronounced by final judgment of a competent court or in this case by the commission.

- While respondent Unisphere does not deny its liability for the unpaid dues, petitioner do not admit any responsibility for the loss suffered by the former. At best, that respondent has against petitioner is just a claim, not a debt. Such being the case, it is not enforceable in court. It is only the debts that are enforceable in court.

- Respondent’s claim for its loss has not been passed upon by any legal authority so as to elevate it to the level of a debt. It has not been sufficiently established that compensation or offset is proper as there is lack of evidence to show that petitioners & respondent are mutually creditors and debtors of each other.

METROPOLITAN BANK & TRUST COMPANY VS. TONDA ( 338 s 254 )

FACTS: Spouses Tonda’s, applied for and were granted commercial letters of credit by petitioner

Metrobank for a period of 8 months in connection with the importation of raw textile materials to be used in the manufacturing of garments. The Tonda’s acting their capacity as officers of HTAC & in their persons capacities, executed trust receipts to secure the release of the raw materials to HTAC. The imported fabrics with principal value of P2.8 M were withdrawn by HTAC under the 11 trust receipts executed.

Due to their failure to settle their obligations under the trust receipts upon maturity, Metrobank sent letters and making its final demand upon Tondas on or before Aug, 10,1992. Their obligation amount to P4.8 M & despite repeated demands. Tondas failed to comply their obligations stated in trust receipts agreement - failure to account the goods / proceeds of the sale.

Metrobank through counsel filed a complaint for violation of Trust Receipts Law but it was dismissed because failure of the complainants to establish the essential elements of estafa.

ISSUE:- WON the subject trust receipts obligation have been extinguished by legal compensation? NO

HELD

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- Compensation is not proper when one of the debts consists in civil liability arising from a penal offense/ the reason for this being that if one of the debts consists in civil liability arising from a penal offense, compensation would be improper and inadvisable because the satisfaction of such obligation is imperative. Further, the handwritten note by the Metrobank offer acknowledging receipt of the checks amounting to P 2.8M made no relation to the Tondas trust receipt obligation.

PNB MADECOR VS UY (363 s 138 )

FACTS:

Guillermo UY (GU Enterprises) assigned to respondent Gerardo UY his receivables due from Pantrance North Express Inc (PNEI) amounting to P4,660,558.

Gerardo UY filed with the RTC a collection suit with an application for the issuance of a writ of preliminary attachment against PNEI.

UY sought to collect from PNEI the amount of P8,397,440. He alleged that PNEI was guilty of fraud in contracting the obligation sued upon him, hence, his prayer for a writ of preliminary attachment.

A writ of preliminary attachment was issued commanding the sheriff to attach the properties of the PNEI, personal or real and/or of any person representing the defendant in such amount as to cover Geraro Uy’s demand.

Sheriff issued a notice of garnishment addressed to the Philippine National Bank (PNB) attaching the properties of PNEI in the possession of the bank. PNB MADECOR was given a similar notice.

PNB MADECOR claimed that:a. PNEI has not been paying its rentals from Oct 1990 to Mar 24, 1994 when PNEI

vacated the property. Thus, PNB MADECOR’s receivables against PNEI amounted to 8,784,227.48 representing accumulated rentals plus interest

b. MADECOR on the other hand has payables to PNEI in the amount of P7,384,000 evidenced by a promissory note

c. Thus, MADECOR is a creditor of PNEI with respect to the P8,784,227 and at the same time its debtor with respect to the P7,384. MADECOR and PNEI are therefore creditors and debtors of each other

d. By force of law on compensation, both obligations of MADECOR and PNEI are already extinguished as to the concurrent amount (P7,384,000) so that PNEI is still obligated to pay MADECOR the amount of P900,227

UY filed a motion controverting MADECOR’s claim on compensation. Even if compensation were possible, PNEI would still have sufficient funds in the hands of MADECOR to fully satisfy his claim. UY contends that MADECOR has only considered the principal amount and excluded the 18% per annum interest from the date of the notice of demand, thus the outstanding balance should be P75.8 M. UY, also prayed for an order directing that levy be made upon all the goods, credits, deposits and other personal properties of PNEI under the control of MADECOR to the extent of his demand

RTC rendered judgment against PNEI and issued a writ of execution CA – affirmed the decision of RTC- There could not be any compensation between PNEI’s receivables from MADECOR and the

latter’s obligation to the former because MADECOR’s supposed debt to PNEI is the subject of attachment proceedings initiated by UY. This is a controversy that would prevent legal

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compensation from taking place as set forth in Art 1279 of the CC. it was not clear whether, at the time compensation was supposed to have taken place, the rentals being claimed by MADECOR was indeed still unpaid (no evidence except statement of account)

- It also questioned MADECOR’s inaction in claiming the unpaid rentals from PNEI when the latter started defaulting in its payment as early as 1994, this indicates that the debt was either already settled or not yet demandable and liquidated

ISSUE:- WON there was compensation between PNEI’s receivables from MADECOR and the latter’s

obligation to the former? NO

HELD:- Compensation is a mode of extinguishing to the concurrent amount the obligations of persons

who in their own right and as principals are reciprocally debtors and creditors of each other.- LEGAL COMPENSATION takes place by operation of law when all the requisites are present

as opposed to CONVENTIONAL COMPENSATION w/c takes place when the parties agree to compensate their mutual obligations even in the absence of some requisitesLEGAL COMPENSATION requires the concurrence of the ff conditions:1. that each one of the obligors be bound principally and that he be at the same time a

principal creditor of the other2. that both debts consist in a sum of money or if the things due are consumable, they be of the

same kind and also of the same quality if the latter has been stated3. that the 2 debts are due4. that they be liquidated and demandable5. that over neither of them there be any retention or controversy, commenced by 3 rd persons

and communicated in due time to the debtor- MADECOR insists that legal compensation had taken place such that no amount of money

belonging to PNEI remains in its hands, and consequently there is nothing that could be garnished by respondent. However, LEGAL COMPENSATION could not have occurred because of the absence of 1 requisite in the case: that both debts must be due and demandable. MADECOR’s obligation to PNEI appears to be payable on demand as inferred from the letter sent PNEI. It merely informed MADECOR of the conveyance of a certain portion of its obligation to PNEI per a dation en pago arrangement between PNEI and PNB and the unpaid balance of obligation after deducting the amount conveyed to PNB. Since the MADECOR’s obligation to PNEI is payable on demand, and there being no demand made, it follows that the obligation is not yet due. Therefore this obligation may not be subject to compensation for lack of requisite under the law. Without compensation having taken place, MADECOR remains obligated to PNEI to the extent stated in the promissory note. This obligation may undoubtedly be garnished in favor of UY to satisfy PNEI’s judgment debt.

- As to UY’s claim that legal compensation could not have taken place due to the existence of a controversy involving one of the mutual obligations, this is no longer controlling. The said controversy was not seasonably communicated to MADECOR as required under Art 1279 of the CC.

- CONTROVERSY, meaning the action instituted by UY against PNEI must have been communicated to MADECOR in due time or before legal compensation takes place (LC operates when all the requisites concur) to prevent compensation from taking place. A controversy that is communicated to the parties (1995) after that time may no longer undo the compensation that had taken place by force of law (1994).

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- As regards UY’s averment that there was yet no compensable debt when PNEI sent MADECOR a demand letter in 1984 since PNEI was not yet indebted to MADECOR at that time. The law does not require that the parties obligations be incurred at the same time. What the law requires only is that the obligations be due and demandable at the same time.

BAUTISTA VS PILAR DEV’T CORP. ( 312 s 611 )

FACTS: 1978 petitioner spouses Bautista purchased a house and lot in Pilar Village. To partially finance

the purchase, they obtained from Apex Mortgage and Loan Corp. in the amount of P100,180.00. They executed a promissory note obligating themselves jointly & severally to pay the principal with interest of 12% of the amount due. Also, petitioner authorized Apex to increase the rate of interest and/or service charge without notice to them in the event that a law or Central Bank regulation should be enacted increasing the rate and service charge on the loan. The promissory note was secured by a second mortgage on the house & lot purchased.

Petitioner failed to pay several installments. On Sept 1982, they executed another promissory note in favor of Apex. The note was in the

amount of P142,326.43 at the increase rate of 21% per annum with no provision for the service charge but with penalty charge of 1 ½% for late payment. Petitioner also authorized Apex to increase or decrease the interest rate same with the 1st promissory note.

Petitioner again failed to pay the installments. Apex assigned the 2nd promissory note to respondent Pilar Dev’t Corp. without notice to

petitioners. Respondent Corp. instituted a civil case against petitioner, sought to collect from petitioner the amount of P140,515.11 representing the unpaid balance including interest rate of 21% & 36% per annum in accordance with CB circular # 905.

Petitioner contented that the 21% and the escalation clauses are null and void in the absence of a re-escalation clause in the same note.

The trial court rendered judgment ordering petitioner to pay respondent the sum of P140,515.11 with interest rate of 12% per annum plus service charge.

The C.A reversed the trial court by applying the interest rate of 21% per annum & adding atty’s fees.

However, upon motion of petitioner, the C.A reduced the principal from P142,326.42 to P140,515.11

Petitioner claim that the interest rate of 12% per annum should be adjudged in as much as the 2 promissory notes constitutes one transaction. That the 1st note defined the terms and conditions of the loan while the 2nd note is merely an existence from the former. Hence, the 2nd note is governed by the stipulation in the 1st note.

ISSUE:- WON there was novation? YES

HELD:- The 2 promissory notes are identically entitled “Promissory Note with Authority to Assign

Credit”. They also contain the same provision & the same blanks for the amount of the loan. However, on the upper right portion of the 2nd note appears a typewritten entry that cancels the 1st note. Each page of the 1st note, the word “Cancelled” is boldly stamped twice with the date & a signature written in a space inside the letters. The 1st promissory note was cancelled by the express terms of the 2nd promissory note. To cancel is to strike out, to revoke, rescind or

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abandon, to terminate. In fine, the 1st note was revoked & terminated. Simply put, it was novated.

- The extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first is a novation. Novation is made either by changing the object or principal conditions, referred to as an objective or real novation, or by substituting the person of the debtor or subrogating a 3rd person to the rights of the creditor, which is known as subjective or personal novation. In both objective & subjective novation, a dual purpose is achieved, an obligation is extinguished & a new one in created in lien thereof. Novation may either be express, when the new obligation declares in unequivocal terms that the old obligation is extinguished is on every point incompatible with the old one. Express novation takes place when the containing parties expressly disclose that their object in making the new contract remains in force and the new contact is merely added to it and each gives rise to an obligation still in force.

- Novation has 4 essential requisites:a) The existence of a previous valid obligation;b) The agreement of all parties to the new contract;c) The extinguishment of the old contract;d) The validity of the new one.

- In the instant case, all 4 requisites have been complied with. The 1st note was valid & subsisting contract when petitioner and Apex executed the 2nd note. The 2nd note absorbed the unpaid principal & interest of P 142,326.43 in the 1st note which amount the principal debt therein, payable at a higher interest rate of 21% per annum. Thus, the terms of the 2nd note provided for a higher principal, a higher interest rate, and a higher monthly amortization, all to be paid within a shorter period of 196 months or 16.33 yrs.

ESPINA VS CA/ RENE DIAZ ( 334 s 186 )

FACTS: Mario Espina is the registered owner of a condominium unit. He sold the condominium unit to

Rene Diaz, the lessee of the unit, in the amount of P 1.5M. P100k to be paid upon execution of the provisional Deed of Sale and the balance to be paid on installment thru PCI bank postdated check.

On Jan 22 1992, Diaz informed Espina that his checking account with PCI Bank has been closed & a new one with same bank was opened for practical purposes. The letter further stated that the postdated check issued will be replaced with new ones.

On Jan 25,1992, Diaz wife paid Espina P200k, acknowledged by him as partial payment for the condo unit.

On July 26,1992 Espina sent Diaz a “Notice of Cancellation” of the Provisional Deed of Sale. However, despite the notice of cancellation, Espina accepted payment from respondent and

encashed on Oct. 28, 1992 in the amount of P100k. On Feb 24, 1993, Petitioner filed a complaint for unlawful detainer against petitioner.

ISSUE:- WON the Provisional Deed of Sale novated the existing lease contract? NO

HELD:

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- Novation must be clearly proved since its existence is not presumed. It must be proven as a fact either by express stipulation or by implication derived from an irreconcilable incompatibility between the old and the new obligations.

- In this case, after the initial down payment, respondent’s checks on 6 installments all bounced & were dishonored for the reason that the bank account was closed. Consequently, petitioner terminated the provisional Deed of Sale by a notarial notice of cancellation. Nonetheless, respondent continued to occupy the unit as lessee but failed to pay the rentals due.

- Now respondent contends that petitioner’s subsequent acceptance of such payment effectively withdraw the cancellation of the provisional sale. The SC did not agree. Unless the application of payment is expressly indicated, the payment shall be applied to the obligation most onerous to the debtor.

- In this case, the unpaid rentals constituted the more onerous obligation. As the payment did not fully settle the unpaid rentals, petitioner’s cause of action for ejectment survives.

IDOLOR VS CA ( 351 s 399 )

FACTS: March 21, 1994, to secure a loan of P520k, Idolor executed a Deed of Real Estate Mortgage of

a parcel of land in favor of De Guzman with a right of foreclosure upon failure to redeem the mortgage on Sept. 20 1994.

On Sept. 1996, wife of De Guzman filed a complaint for non-performance which resulted to in a “ Kasunduang Pag-aayos”. In the agreement, the amount due was P1,233,288.23 inclusive of interest, payable within 90 days and in case of non-payment in Dec. 21, 1996, petitioner should execute a deed of sale with right to repurchase within one year without interest.

Petitioner failed to comply with her undertaking resulting into the extrajudicial foreclosure of the property and it was sold in public auction where the highest bidder was de Guzman.

Petitioner filed a complaint for injunction due to the irregularity and lack of notice in the foreclosure proceedings. Petitioner also contends that the “Kasunduang Pag-aayos” novated the original contract between the parties.

ISSUE: - WON there was a novation? NO

HELD:- Novation is the extinguishment of an obligation by the substituting or change of the obligation

by a subsequent one which terminates it, either by changing its objects or principal conditions, or by substituting a new debtor in the place of the old one, or by subrogating a third person to the rights of the creditor. Novation is never presumed. The parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one. Accordingly, it was held that no novation of a contract had occurred when the new agreement entered into between the parties was intended to give life to the old one.

- The will to novate did not appear by express agreement of the parties nor the old and the new contracts were incompatible in all points. In fact, petitioner expressly recognized in the Kasunduan the existence and the validity of the old obligation where she acknowledged her long overdue account since Sept.1994. A compromise agreement clarifying the total sum owned by a buyer with the view that he would find it easier to comply with his obligations under the contract to sell does not novate said Contract to sell. It is not proper to consider an obligation novated by unimportant modifications which do not alter its essence.

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MOLINO VS SECURITY DINERS INT’L (363 s 358 )

FACTS: Danilo Alto applied for a regular local card with SDIC which entitles the cardholder to

purchase goods and pay services from member establishments in the amount to not exceeding P10K. he got as his surety his own sister-in-law Jeanette Molino Alto, petitioner.

Petitioner signed the surety undertaking which stated that she binds herself jointly & severally with Danilo to pay SDIC. And that any change or novation in the agreement or any extension of time granted by SDIC to pay such obligations, charges and fees, shall not release her from the surety undertaking.

Danilo upgrated his regular card into the Diamond one which entitles him an unlimited amount. As a requirement of SDIC, Danilo secured Jeanette’s approval.

Danilo had incurred credit in the aggregate amount of P166,408.31 but he defaulted in the payment of this obligation.

Respondent demanded payment from Danilo and Jeanette but they did not pay which prompted respondent to file an action to collect said indebtedness.

During the pre-trial conference respondent move to have the complaint against Danilo without prejudice to a subsequent re-filling. Petitioner was left as the lone defendant, sued in her capacity as surety of Danilo.

Petitioner posits that she did not expressly give her consent to be bound as surety under the upgraded card, and further, because the principal debtor, Danilo, was not held liable, having been dropped as a defendant, she could not be said to have incurred liability as surety.

ISSUE:- WON there was novation by upgrading the original agreement as to extinguish the surety

undertaking? NO

HELD:- Novation, as a mode of extinguishing obligations, may be done in two ways: by explicit

declaration, or by material incompatibility.- There is no doubt that the upgrading was a novation of the original agreement covering the first

credit card issued to Danilo, basically since it was committed with the intent of canceling and replacing the said card. However, the novation did not serve to release petitioner from her surety obligations because in the surety undertaking she expressly waived discharge in case of change or novation in the agreement governing the use of the first credit card.

GARCIA VS LLAMAS ( 417 s 292 )

FACTS: This case started out as a complaint for sum of money and damages by Llamas against

petitioner Garcia and de Jesus. The complaint alleged that Garcia and de Jesus barrowed a sum of P400K to Llamas and

executed a promissory note wherein they bound themselves jointly and severally to pay the loan.

The loan had been long overdue and despite repeated demands, petitioner and de Jesus failed and refused to pay it. As a result respondent filed a complaint.

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Petitioner Garcia averred that he assumed no liability arising from the note inasmuch as the loan had been paid by de Jesus by means of a check and respondent’s acceptance thereof novated or superseded the note. And that upon payment by De Jesus, there was a substitution of debtor.

Respondent asserted that the loan remained unpaid for the reason that the check issued had bounced.

ISSUES:1) WON the promissory note was novated upon the issuance and the acceptance of the check? NO2) WON the obligation was novated by the substitution of debtor? NO

HELD:1) The check could not have extinguished the obligation, because it bounced upon encashment.

By law, the delivery of a check produces the effect of payment only when it is encashed. Novation may be express or implied. It is express when the new obligation declares unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every point. The test of incompatibility is whether the two obligations can stand together, each one with its own independent existence.

- In this case, the parties did not unequivocally declare that the old obligation had been extinguished by the issuance and the acceptance of the check, or the note. There is no incompatibility between the promissory note and the check since the check had been issued precisely to answer for the obligation. The note evidences the loan obligation and the check answer for it. Verily, the two can stand together. Neither payment of interest constitutes novation as to change the terms & conditions of the obligation. Such payment was already provided for in the promissory note and, like the check, was totally in accord with the terms thereof.

2) In order to change the person of the debtor, the old must be expressly released from the obligation, and the third person or new debtor must assume the former’s place in the relation. Novation which arises from a purported change in the person of the debtor must be clear and express.

- In this case, petitioner has not shown that he has expressly released from the obligation, that a third person was substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solidary undertaking of de Jesus. More important, de Jesus was not a third person to the obligation. From the beginning, he was joint and solidary obligor of the loan. Thus, he can be released from it only upon its extinguishment. Respondent’s acceptance of the check did not change the person of the debtor, because a joint and solidary obligor is required to pay the entirety of the obligation.

CALIFORNIA VS SIHI ( 418 s 299 )

FACTS: Delta Motors Corp. applied for financial assistance from respondent SIHI, a domestic engaged

in business of quasi banking. Delta eventually became indebted to SIHI to the amount of P24,010,269.32 Meanwhile, CBLI purchased on installments basis 35 units of buses and 2 units of engines from

Delta. To secure the payment, CBLI and its president, Mr. Llamas, executed 16 promissory notes in favor of Delta. In addition, chattel mortgages were executed over the 35 buses.

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When CBLI defaulted on all payments due it entered into a restructuring agreement with Delta. It provided for a new schedule of payments, extending the period to pay and stipulating daily remittances intended of previously agreed monthly remittances. In case of default, Delta would have authority to take over the management & operations of CBLI.

On Dec. 1981, Delta executed a continuing Deed of Assignment of Receivables in favor of SIHI as security for the payment of its obligation. In view of Delta’s failure to pay, the loan agreements were restructured under a memorandum of Agreement.

CBLI continued having trouble wresting its obligation to Delta. This prompted Delta to file a writ of preliminary mandatory injunction to enforce the management takeover clause & a writ of preliminary attachment over the buses it sold to CBLI. The trial court granted Delta.

Pursuant to the Memorandum of Agreement, Delta executed a Deed of Sale assigning to SIHI 5 of the 16 promissory notes from CBLI. It had a total value of P16,152,819.80.

SIHI subsequently sent a demand letter to CBLI requiring CBLI to remit the payments due on the 5 promissory notes. CBLI replied that Delta had taken over its management & operations.

Delta’s obligation to SIHI was reduced to P20,061,898.97 because Delta offered its available bus units as payment in kind.

Thereafter, Delta & CBLI entered into a compromise agreement. CBLI agreed that Delta would exercise its right to extrajudicially foreclose on the chattel mortgages over the 35 bus units. Following this, CBLI refused to pay SIHI, contending that the compromise agreement was in full settlement of all its obligation to Delta including the promissory notes.

SIHI filed a complaint to collect payments on 5 promissory notes & a writ of preliminary attachment against the properties of CBLI.

The trial court granted SIHI and was able to take possession of 32 buses buses belonging to CBLI. SIHI moved to sell 16 buses of CBLI which had been attached by the sheriff. CBLI opposed SIHI’s motion.

The trial court held that the restructuring agreement between Delta & CBLI novated the 5 promissory notes, and cannot be enforced by SIHI against CBLI.

The C.A. reversed trial court’s decision and made CBLI liable for the 5 promissory notes to SIHI.

ISSUE:- WON the restructuring agreement between petitioner CBLI & Delta novated the 5 promissory

notes assigned by Delta to respondent SIHI? NO

HELD:- Novation has been defined as the extinguishment of an obligation by the substitution or change

of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debt, or subrogating a 3 rd person in the rights of the creditor. For novation to take place, for essential requisites have to be met, namely

1) a previous valid obligation;2) an agreement of all parties concerned to a new contract;3) the extinguishment of the old obligation;4) the birth of a valid new obligation.

- The extinguishment of the old obligation by the new one is necessary element of novation which may be effected either expressly or impliedly. Express , when novation has been explicitly stated & declared in unequivocal terms. Implied, when the old & the new obligations are incompatible on every point.

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- In this case, the restructuring agreement between Delta & CBLI shows that the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Its terms yields no incompatibility between the agreement & the notes. The restructuring agreement merely provided for new schedule of payments and additional security giving Delta authority to take over the management & operation of CBLI in case CBLI fails to pay installments equivalent to 60 days.

- Where parties to the new obligation expressly recognize the continuing existence & validity of the old one, there can be no novation. An agreement subsequently executed between a seller & a buyer that provided for a different schedule and manner of payment, to restructure the mode of payment by the buyer so that it could settle its outstanding obligation in spite of its delinquency in payment, is not tantamount to novation. In fine the restructuring agreement can stand together with the promissory notes.

PHIL. SAVINGS BANK VS MAÑALAC ( 457 s 203 )

FACTS: Respondent spouses Mañalac obtained a P1.3M loan from PSbank covered by promissory note.

As security for the loan, respondent executed a Real Estate Mortgage in favor of the bank over 8 parcels of land.

In view of Mañalac’s inability to pay, their loan obligation was restructured to P1,550,000 covered with another promissory note and secured by the same 8 real properties.

Respondent and spouses Galicia entered into a Deed of Sale with Assumption of Mortgage, with the prior consent of PSbank, involving 3 parcels of land of the secured mortgage of respondent to PSbank. Thereafter, the 3 parcels of land purchased by Galicia together with another property were in turn mortgaged by them to secure a P2.6M loan which they obtained from PSbank.

On March 1979, respondent paid PSbank which correspondents to the value of the 3 parcels of land covered in the name of spouses Galicia. Accordingly, PSbank executed a partial release of the aforesaid properties.

Spouses Galicia obtained a 2nd loan from PSbank secured by 5 parcels of land including the 3 properties.

Since respondent defaulted again in the payment of their loan, extrajudicial foreclosure was made by PSbank on their 5 remaining mortgage properties.

Mañalac gave PSbank a chashier’s check of P1.2m for the partial release of the 4 mortgage properties. 3 of which is in the name of Galicia and to partially secure Mañalac’s outstanding loan.

1) The bank applied the P1M of the P1.2M to the loan of Galicia and the remaining was applied relative to the account of Mañalac

2) The bank sold 2 foreclosed properties to Villanueva and Jalbuena which prompted respondent Mañalac to institute an action for damages.

3) The trial court rendered judgment annulling the Certificate of Sale executed by PSbank in favor of Villanueva and Jalbuena.

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4) The C.A. affirmed the decision with modification that PSbank is directed to indemnify respondent and contented that there was novation when PSbank applied the P1M to the loan account of Galicia and the remaining to Mañalacs account.

ISSUE:- WON there was novation so as to release the subject properties? NO

HELD:- In order for novation to take place, the concurrence of the following requisites is indispensable:

1) There must be a previous valid obligation;2) There must be an agreement of the parties concerned to a new contract;3) There must be the extinguishment of the old contract; and4) There must be a valid new contract.

- In this case, the elements of novation are patently lacking. Manalac tendered a check for P1.2m to Psbank for the release of 4 parcels of land under the loan account of Galicia and under the loan account of Mañalac. However, while the bank applied the tendered amount to the accounts, it nevertheless refused to release the subject properties. Instead, it issued a receipt with a notation that the acceptance of the check is not a commitment on the part of the bank to release the 4 subject properties.

- From the foregoing, it is obvious that there has no agreement to form a new contract by novating the mortgage contracts of the Manalacs and the Galicias. In accepting the check, the bank only acceded to Manalacs instruction on whose loan accounts the proceeds shall be applied but rejected the other condition on the 4 parcels of land. Clearly, there is no mutual consent to replace the old mortgage contract with a new obligation. The conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to reduce a clear & unequivocal intent by the parties to novate the old agreement. Thus, without the consent of PSbank as the mortgage contract between the Galicias and the bank, cannot demand mush less impose upon the bank the release of the subject properties.

- In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the former’s place in the relation. Novation is never presumed. Consequently that which arises from a purported change in the person of debtor must be clear and express. It is thus incumbent on Mañalac to show clearly and unequivocally that novation has indeed taken place.

- In this case, Mañalac has not shown by competent evidence that they were expressly taking the place of Galicia as debtor, or that the latter were being released from their solidary obligation. Nor was it shown that the obligation of Galicia was being extinguished and replaced by a new one.

VILLAMARIA VS CA ( 487 s 571 )

FACTS: Petitioner Villamaria Jr. was the owner of Villamaria motors, engaged in assembling passenger

jeepneys. Petitioner stopped assembling and retained only 9 jeepneys, 4 of which he operated by

employing drivers on a boundary basis. One of those was respondent Bustamante. Respondent remitted P450 a day to petitioner as boundary and the excess earnings as

compensation for driving the vehicle.

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Petitioner verbally agreed to sell the jeepney to respondent under the “Boundary Hulog” scheme, where respondent would remit to petitioner P550 a day for a period of 4 years. Respondent would then become the owner of the vehicle and continue to drive the same under petitioner’s franchise. It was also agreed the respondent would make a downpayment of P10k.

Petitioner executed a contract entitled “Kasuduan ng Bilihan ng Sasakyan sa Pamamagitan ng Boundary Hulog”.

The parties agreed that if respondent failed to pay for 3 days, petitioner would hold on to the vehicle until respondent paid his arrears, including a penalty of P50 a day. In case respondent failed to remit the daily boundary hulog for a period of 1 week, their kasunduan would cease to have legal effect and respondent would have to return the vehicle to petitioner.

On 1999, respondent & other drivers who also had the same arrangements with petitioner failed to pay their respective boundary Hulog. This prompted petitioner to serve a “Paalala”, reminding them of the Kasunduan that it would be strictly enforced & urged them to comply with their obligation to avoid litigation.

On July 2000, petitioner took back the jeepney and barred respondent from driving the vehicle. Respondent filed a complaint for Illegal Dismissal against petitioner, alleging that he was

employed by petitioner. Petitioner argued that the Kasunduan executed transformed the employer-employee

relationship into that of vendor-vendee. Hence, there is no legal basis to hold them liable for illegal dismissal.

ISSUE:- WON the kasunduan as vendor-vendee novated their employer-employee relationship? NO

HELD:- Under the kasunduan, respondent was required to remit P550 daily to petitioner, an amount

which represented the boundary of petitioner as well as respondent’s partial payment of the purchase price the jeepney. Respondent was entitled to keep the excess of his daily earnings as his daily wage. Thus, the daily remittances also have a dual purpose: that of petitioner’s boundary and respondent’s partial payment for the vehicle. This dual purpose was expressly stated in the kasunduan.

- The well settled rule is that an obligation is not novated by an instrument that expressly recognizes the old one, changes only the terms of payment and adds other obligations not incompatible with the old provisions or where the new contract merely supplements the previous one. The 2 obligations of the respondent to remit to petitioner the boundary-hulog and stand together. The juridical relationship of ER-EE relationship between petitioner & respondent was not negated by the foregoing stipulation in the kasunduan, considering that petitioner retained control of respondent’s conduct as driver of the vehicle.

LICAROS VS. GATMAITAN ( Aug. 9, 2001 )

FACTS: The Anglo-Asean Bank and trust limited is a private bank registered and organized to do

business which consist primarily in receiving fund placements by way of deposit from institutions and individual investors.

Abelardo Licaros decided to make a fund placement with said bank. As it turned out, it encountered tremendous and unexplained difficulty in retrieving not only the interests or profits but even the investment he had put in the bank.

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Licaros decided to seek the counsel of Antonio Gatmaitan, a reputable banker and investment manager. Gatmaitan voluntary offered to assume the payment of Anglo-Asean’s indebtedness to Licaros subject to certain terms and conditions.

Thereafter, Gatmaitan presented to the bank the memorandum of agreement earlier executed by him and Licaros for the purpose of collecting the money of P550k. However, the bank did not act on Gatmaitan’s monetary claims.

Evidently, because of the inability to collect from Anglo-Asean, Gatmaitan did not bother anymore to make his promise to pay Licaros the amount stated in the promissory note.

Licaros felt that he has the right to collect the basis of the note regardless of the outcome of Gatmaitan’s recovery efforts.

He addressed successive demand letters to Gatmaitan demanding payment. However, Gatmaitan did not cede to these demands. Hence, this petition.

ISSUE:- WON the memorandum of agreement between petitioner and respondent is one of assignment

of credit or one of conventional subrogation? CONVENTIONAL SUBROGATION

HELD:- To distinguish assignment of credit from subrogation: Assignment of credit has been defined

as the process of transforming the right of the assignor to the assignee who would then have the right to proceed against the debtor. The assignment may be done gratuitously or onerously, in which case, the assignment has an effect similar to that of a sale. Subrogation is that transfer of all the rights of the creditor to a 3rd person who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. Conventional subrogation is that which takes place by agreement of parties.

- The distinction between conventional subrogation and assignment of credit:1) In the former, the debtor’s consent is necessary, while in the latter, it is not required.2) In the former, it extinguishes the obligation and given rise to a new one, while in the

latter, it refers to the same right which passes from one person to another.3) In the former, it may cure the nullity of an old obligation such as new obligation will be

perfectly valid, while in the latter, the nullity of an obligation is extinguished.- What the law requires in the assignment of credit is not the consent of the debtor but merely to

notice him as the assignment takes effect only from the time he has knowledge thereof. A creditor may validity assign his credits without the debtor’s knowledge. On the other hand, conventional subrogation requires the agreement among the three parties concerned, the original creditor, debtor and the new creditor. Thus, Art. 1301, explicity state that “conventional subrogation of a third person requires the consent of the original parties and the 3rd person.”

- In this case, the Memorandum of Agreement was in the nature of conventional subrogation. In their stipulation, it stated: “Whereas, the parties herein have come to an agreement on the nature, form and extent of their mutual prestations which they now record herein with express conformity of the 3rd person.” The 3rd person is the Anglo-Asean bank. Here it bears stressing that the subject Memorandum of Agreement expressly required the consent of the bank. Absence of the approval of the bank prevents the agreement from becoming effective.

- Aside from the whereas clause, the SC noted that on the signature page, right under the place reserved for the signatures of petitioner and respondent, there is typewritten, the words “WITH OUR CONFORME”. This provision contemplate the signed conformity of the bank which leads to conclude that both parties intended that Anglo-Asean Bank should signify its consent.

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Absent of consent from the bank did not perfect the contract. Gatmaitan does not have subsisting commitment with Licaros to pay the promissory note.

ALLIED BANKING CORP. VS C.A ( 284 s 357 )

FACTS:

Spouses Tanqueco owned a 512 sq. m. lot. On June 30 1978, they leased the property to petitioner Allied for a monthly rental of P1k for the 1st 3 years.

The lease contract specifically states in its Provision no. 1 that “the term of this lease shall be 14 years commencing from April 1, 1978 and may be renewed for a like term at the option of the lessee.”

Allied introduced an improvement as branch office. As stipulated, the ownership of the building would be transferred to the lessor upon the expiration of the original term of the lease.

Sometime in Feb. 1988, spouses Tanqueco executed a deed of donation over the subject property in favor of their 4 children, who accepted the donation in the same public document.

On Feb. 1991, the Tanquecos notified petitioner that they were no longer interested in renewing the lease. Allied replied that it was exercising its option to renew their lease under the same terms with additional proposals.

When the lease contract expired in 1992 private respondent demanded that Allied vacate the premises but the latter asserted its sole option to renew the lease and enclosed a cashier’s check of P68,400.00 for advance rental payments for 6 months. However, private respondents returned the check which prompted Allied to consign the amount in court.

An action for ejectment was commenced before the Metropolitan Trial Court and declared that the lease contract was void for being violative of Art. 1308 of the Civil code.

The RTC & C.A. affirmed the decision. While the case was pending in the C.A., Allied vacated the leased premises by reason of the

controversy. Allied insisted that the lease contract was mutually agreed upon hence valid and binding on

both parties and the option to renew the contract was part of their agreement.

ISSUE: - WON a stipulation in a contract of lease to the effect that the contract “ may be renewed for a

like term at the option of the lessee” is void for being potestative or violative of the principle of mutuality of contracts under Art. 1308? NO

HELD:- Art 1308 expresses the principle of mutuality of contracts. It provides that “the contract must

bind both the contracting parties; its validity or compliance cannot be left to the will of one of them. This binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law between the contracting parties and there must be mutuality between them based essentially on their equality. The ultimate purpose is to render void contract containing a condition which makes its fulfillment dependent solely upon the uncontrolled will of one of the contracting parties.

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- In this case, an express agreement which gives the lessee the sole option to renew the lease is valid & binding on the parties.

- It is purely executory contract and at most confers a right to obtain a renewal if there is compliance with the condition on which the right is made to depend. The right of renewal constitutes a part of the lessee’s interest in the land and forms a substantial and integral part of the agreement.

- The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor may hold him liable for the rent therefore. The lessee cannot thereafter escape liability even if he should subsequently decide to abandon the premises.

- Mutuality obtains in such a contract and equality exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment.

- The questioned provision states that the lease “may be renewed for a like term at the option of the lessee”. The lessor is bound by the option he has conceded to the lessee. The lessee likewise becomes bound only when he exercises his option and the lessor cannot thereafter be excused from performing his part of the agreement. The only term on which there has been a clear agreement is the period of the new contract, 14 years, which is evident from the clause, the phrase “for a like term” referring to period. It is silent as to what the specific terms & conditions of the renewed lease shall be.

- The settled rule is that in case of uncertainty as to the meaning of a provision granting extension to a contract of lease, the tenant is the one favored and not the landlord.

- Fortunately for respondent lessor, Allied vacated the premises on Feb. 20, 1993 indicating its abandonment of whatever rights it had under the renewal clause.

INTEGRATED PACKAGING CORP. VS. C.A.( 333s 171 )

FACTS:

Petitioner and private respondent FIL-ANCHOR PAPER CO. INC. executed on May 5, 1978 an order agreement whereby private respondent bound itself to deliver to petitioner 3,450 reams of printing papers worth P1,040,060.00. In accordance with the standard operating practice of the parties, the materials were to be paid within a 30 to 90 days from delivery.

On June 7 1978, petitioner entered into a contract with Phil. Appliance Corporation to print 3 volumes of “Philacor Cultural Books” a total cost of P3M.

On July 30 1979, private respondent had delivered to petitioner 1,097 reams of printing paper out of the total 3,450 reams stated in the agreement.

From June 1980 and until July 1981, private respondent again delivered printing paper amounting to P 766, 101.70. However, petitioner encountered difficulties paying, which prompted private respondent to make partial payments totaling P97,200.00 which was applied to its back accounts.

Meanwhile, petitioner entered into an additional printing contract with Philacor. Unfortunately, petitioner failed to fully comply with its contract. Thus, Philacor demanded compensation for the delay and damage it suffered.

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Private respondent filed a collection suit against petitioner for the sum of P766,101.70. Petitioner denied and alleged that private respondent was able to deliver and alleged that private respondent was able to deliver only 1,097 reams which was short of 2,875, hence, petitioner suffered actual damages and failed to realize expected profits.

ISSUE:- WON private respondent is liable for petitioner’s breach of contract with Philacor? NO

HELD:- Private respondent is not a party to said agreements. It is also not a contract pour autrui.

Aforesaid contracts could not affect 3rd persons like private respondent because of the basic civil law principle of relatively of contracts which provides that contract can only bind the parties who entered into it and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof.

- The order agreement entered into by petitioner and private respondent has no direct bearing on the contracts of petitioner with philacor because the paper specified in the order agreement between petitioner & private respondent are markedly different from the paper involved in the contracts of petitioner with Philacor.

- Furthermore, the demand made by Philacor upon petitioner for the latter to comply with its printing contract is dated Feb. 15 1984, which is clearly made long after private respondent had filed its complaint on Aug. 14 1981. This demand relates to contracts with Philacor dated April 12,1983 & May 13 1983, which were entered into by Petitioner after private respondent filed the instant case.

- Private respondent cannot be held liable for the breach, it follows that there is no basis for the damages.

BALUYOT VS C.A ( 311 s 29 )

FACTS: Petitioner Timoteo Baluyot, et al, are residents of Barangay Cruz-na-ligas and members of

Cruz-na-ligas Homesite Association, Inc. Petitioner filed a complaint for specific performance and damages against private respondent University of the Phils. and later on amended to include Quezon City gov’t as defendant.

Petitioner alleged that they and their ascendants possessed the Riceland since time immemorial which consist of 42 hectares; that the Bureau of Lands issued an Endorsement confirming the rights of the bonifide residents to the parcel of land. Pursuant to the said Endorsement, the U.P Board of Regents approved the donation of about 9.2 hectares and after several negotiations it was increased to 15.8 hectares. However, the execution of the legal instrument to formalize it failed because of the unreasonable demand of the residents.

That U.P. manifested in writing its consent to the intended donation directly to the plaintiff Association for the benefit of the residents but however the UP backed-out from the arrangement to donate and instead negotiate the donation thru the defendant Quezon City gov’t.

In order to lift the injunction filed by petitioner, defendant UP made an assurance in their motion for reconsideration that the donation to the defendant Quezon City gov’t will be for the benefit of the residents of Cruz-na Ligas. The lifting of the injunction and the dismissal of the case was granted by the court.

On Aug. 5, 1986, defendant UP executed the Deed of Donation in favor of Quezon City Gov’t for the benefit of the qualified residents under the terms and conditions that after the lapse of 3

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years the land will be transferred to the qualified residents by way of donation the individual lots occupied by each of them.

In compliance with the terms and conditions, the Quezon City immediately prepared the groundworks, however, defendant UP failed to deliver the certificate of title, which the Quezon City gov’t was unable to comply with their obligations.

Upon expiration of the period of 18 months, for alleged non-compliance, the U.P president Mr. Abueva unilaterally, capriciously, whimsically and unlawfully issued an Admin. Order #21 declaring the deed of donation revoked and be reverted to defendant UP.

ISSUE:- WON petitioners have a cause of action against UP? YES

HELD:- While petitioners were not parties to the deed of donation, they anchor their right to seek its

enforcement upon their allegation that they are intended beneficiaries of the donation to the Quezon City Gov’t.

- Under Art. 1311 provides that “If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.

- The following requisites must be present in order to have a stipulation pour autrui:1) There must be a stipulation in favor of a third person;2) The stipulation must be a part, not the whole of the contract;3) The contracting parties must have clearly and deliberately conferred a favor upon a third

person, not a mere incidental benefit or interest;4) The third person must have communicated his acceptance to the obligor before its

revocation;5) Neither of the contracting parties bears the legal representation or authorization of the third

party.- The allegation’s are sufficient to bring petitioners’ action on stipulation pour autrui:

1) That the deed of donation contains a stipulation that the Quezon City gov’t as donee, is required to transfer to qualified residents of Cruz-na-Ligas, by way of donation, the lots occupied by them.

2) That this stipulation is part of conditions and obligations imposed by UP, as donor, upon the Quezon City gov’t as donee.

3) That the intent of the parties was to confer a favor upon petitioners by transferring to the latter the lots occupied by them.

4) That conferences were held between the parties to convince UP to surrender the certificates of title to the City gov’t implying that the donation had been accepted by petitioners by demanding fulfillment thereof and that private respondents were aware of such acceptance

5) That neither of private respondents acted in representation of the other, each of the private respondents had its own obligations, in view of conferring a favor upon petitioners.

- Petitioners have a cause of action against UP.

JOSEFA VS ZHANDONG TRADING CORPORATION ( 417 s 269 )

FACTS:

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Zhandong filed a complaint for sum of money against petitioner Vicente Josefa, Antonio Tan and Evelyn Chua ( Tan’s mother).

The complaint alleges that Zhandong is engaged in the importation and sale of hard boards/ staple boards and other merchandise. Its president, Eleanor Chy, met Tan, who referred petitioner Josefa, as a client, to chy.

Respondent sold and delivered to said petitioner a total of 313 crates of boards, valued at P4,558,100.00 payable within 60 days. However, petitioner, instead of paying respondent, remitted his payments to Tan. In turn, Tan delivered various checks to respondent, which accepted them upon Tan’s declaration that they came from petitioner. A number of checks bounced. When respondent confronted Tan, the latter issued his own checks and those of his mother.

Later, without any valid reason, Tan stopped payment by checks, and those issued by his mother bounced which prompted respondent to send petitioner and Tan a demand letter but they ignored it. Consequently, respondent filed an instant complaint.

Josefa denied the allegation and averred that he did not directly deal with respondent but with Tan and paid all his obligations to him. He is not privy to the agreement between Tan and respondent’s demand letter because he had paid Tan in full.

The trial court rendered judgment in favor of Zhandong, in holding that petitioner purchased the hardboards from respondent thru the sales Invoices that clearly indicated that the seller is Zhandong and the buyer is Josefa.

The C.A. affirmed the courts’ decision.

ISSUE: - WON petitioner is privy to the contract of Tan & respondent and be liable for Tan’s failure to

pay respondent? NO

HELD:- Evidence presented shows that Tan negotiated the sale of the hardboards with petitioner Josefa.

Eleanor Chy testified that it was Tan who discussed with petitioner the details of the sale, cost of the hardboards, delivery and terms of payment. She admitted that no direct dealing with petitioner and that it was Tan who ordered the hardboards from her. It was likewise proved that petitioner paid Tan for all hardboards delivered to him and admitted such payment as full satisfaction of petitioner’s obligation. Petitioner testified that Tan represented himself to be the owner of the merchandise since Tan had been his supplier in the past. Some of the delivery receipts do not bear the name of respondent because the 51 crates of hardboards bear the name of “E.D. Hizon Customs Brokerage”.

- Moreover, the delivery receipts do not indicated the price of the hardboards and the terms of payment. As such, they merely signify that the goods were to be delivered to petitioner. Indeed, they do not ipso facto prove the existence of a perfected contract of sale between petitioner & respondent. It does not establish that respondent is the seller of the hardboards purchased by petitioner. Since petitioner had fully paid Tan for all the hardboards, respondent Zhandong has no right to demand payment from him. Petitioner cannot be made responsible for Tan’s failure to pay respondent.

- Contracts take effect only between the parties, their successors in interest, heirs and assigns. When there is no privity of contract, there is likewise no obligation or liability to speak about and thus no cause of action arises. Clearly, petitioner, not being privy to the transaction between respondent & Tan, should not be made to answer for latters default.

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JARDINE DAVIES., INC. VS C.A.( 333 s 648 )

FACTS: The controversy started in 1992 at the height of the power crisis. To remedy further losses due

to the series of power failures, petitioner Pure Foods Corp. decided to install two 1500kw generators in its food processing plant in Marikina City.

A bidding for the supply and installation of the generators was held. Out of the 8 prospective bidders, only 3 bidders, namely, respondent Far East Mills Supply Corp., Monark and Advance Power submitted bid proposals.

Purefoods confirmed the award of the contract to FEMSCO in a letter dated Dec 12 1992. Immediately, FEMSCO submitted the required performance bond in the amount of

P1,841,187.90 and contractor’s all-risk insurance policy in the amount of P6,137,293.00 which Purefoods acknowledge it.

FEMSCO started the project by purchasing the necessary materials. Purefoods on the other hand returned FEMSCO’s Bidder’s bond in the amount of P1M as requested.

Later, however, Purefoods Senior Vice Pres. Dimayuga unilaterally cancelled the award as significant factors were uncovered.

FEMSCO protested and sought a meeting with Purefoods. However, before the matter could be resolved, Purefoods already awarded the project with Jardine Nell, a division of Jardine Davies, Inc. which was not one of the bidders.

FEMSCO sued both Purefoods for reneging on its contract, and Jardine for its unwarranted interference and inducement.

Purefoods contented that the letter to FEMSCO was not an acceptance of the latter’s bid proposal and award of the project but more of a qualified acceptance constituting a counter-offer. Since Purefoods never received FEMSCO’s conforme, it is within reason to revoke its qualified acceptance or counter-offer. Hence, no contract was perfected.

Jardine asserted that the record are bereft of any showing that it had prior knowledge of the supposed contract between Purefoods and FEMSCO.

ISSUE:1) WON there existed a perfected contract between Purefoods and FEMSCO? YES2) WON Jardine induced or connived with Purefoods to violate the latter’s contract with

FEMSCO? NO

HELD:- A contract is defined as “a juridical convention manifested in legal form, by virtue of which

one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do or not to do”.

- Under Art. 1318, there can be no contract unless the following requisites concur:a) Consent of the contracting partiesb) Object certain which is the subject matter of the contract.c) Cause of the obligation which is established

- Under Art.1315, contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment, the parties are bound not only to the

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fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.

- To produce a contract, the acceptance must not quality the terms of the offer. However, the acceptance may be express or implied. For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.

1) Under Art 1326 provides that “advertisements for bidders are simply invitation to make proposals. According, the terms and conditions of the bidding disseminated by petitioner Purefoods constitutes the “advertisement” to bid on the project. The bid proposals submitted by the respondent FEMSCO is the offer, and the reply of petitioner Purefoods, the acceptance or rejection of the respective offers.

- The Dec 12 1992 letter of Purefoods to FEMSCO constituted acceptance of FEMSCO’s offer, wherein “the basic terms & conditions” were imposed on the performance of the obligation rather than on the perfection of the contract. The acknowledgement of Purefoods of FEMSCO’s performance bond and contractor’s all-risk insurance and its return to FEMSCO’s bidders bond was concrete manifestation of its knowledge that FEMSCO indeed consented to the conditional counter-offer. The contract is perfected. FEMSCO’s conforme would only be a mere surplusage.

- By the unilateral cancellation of the contract, Purefoods has acted with bad faith and this was further aggravated by the subsequent inking of a contract between Purefoods & Jardine.

2) – There is no showing the petitioner Jardine induced Purefoods. The similarity in design submitted by Jardine & FEMSCO, and the tender of a lower quotation by petitioner Jardine are insufficient to show that indeed induced Purefoods to violate its contract with respondent FEMSCO.

SOLER VS C.A. ( 358 s 557 )

FACTS: Petitioner Jasmin Soler is a fine Arts graduate of UST and a well known licensed professional

interior designer. Her friend Rosario Pardo asked her to talk to Nida Lopez, Combank’s manager, who planned to renovate the branch offices.

During her meeting, Soler was hesitant to accept the job because of her many out of town commitments and the fact that Lopez was asking the designs be submitted, which was a short notice.

Lopez insisted and Soler acceded to the request and Lopez assured her she would be compensated for her services.

Soler’s professional fee was P10k to which Lopez acceded. Soler hired and paid engineers, architecs and draftsmen to help her make the blueprint for the intended renovation. She also contracted for suppliers for the materials that she will be using. The lay-out and the design were submitted to lopez who told petitioner that she liked the designs. Subsequently, petitioner repeatedly demanded payment for her services but Lopez just ignored the demands.

When they saw each other at the Cultural center, Lopez said that Soler was not entitled to it because her designs did not conform to the bank’s policy of having a standard design, and there was no agreement between her and the bank.

Petitioner referred the matter to her lawyer and demand again for payment but was ignored. Another letter was sent demanding the return of the blueprint copies submitted by Soler which Lopez refused to return. This prompted Soler to file a complaint against Combank and Lopez for collection of professional fees & damages.

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Combank stated that there was no contract between Combank and petitoner and that Lopez merely invited Soler to participate in a bid for the renovation, and that any proposal was still subject to the approval of the Combank’s head office.

The RTC rendered a decision in favor of Soler while the C.A. reversed the decision and ruled that there was no contract as the bank never gave its consent.

ISSUE: 1) WON there was a perfected contract between petitoner Soler and respondents Combank and

Nida Lopez? YES2) WON Nida Lopez had authority to bind the bank in the transaction? YES

HELD:1) Under Art 1305, a contract is a meeting of the minds between two persons whereby one binds

himself to give something or to render some service.- Under Art 1318, there is no contract unless the following requisites concur:

1) consent of the contracting parties;2) object certain which is the subject matter of the contract; and 3) cause of the obligation which is established.

- A contract undergoes 3 stages: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; andc)Consummation or death, which is the fulfillment or performance of the terms agreed

upon in the contract.- In this case, there was a perfected oral contract. The first stage, when Lopez and petitioner met

and discussed the details of the work. The second stage, when thay agreed to the payment of the P10k as professional fee of petitioner and that she should give the designs before the board meeting of the bank. The third stage, when finally petitoner gave the designs to lopez, the contract was consummated

2) The discussion between Soler and Lopez was to the effect that she had authority to engage the services of Soler, by giving specifications for the blueprints, Lopez was aware that petitioner hired the services of people to help her, and Lopez even insisted that the designs be rushed in time for presentation to the bank.

OUANO VS C.A

( 211 s 740 )FACTS:

Ouano is the registered owner and operator of MV Don Julian Ouano which vessel was leased to Rafols under the charter party for P60k a month. It was also agreed that the charter should operate the vessel for his own benefit and should not sublet or sub-charter it without the knowledge of the petitioner.

Rafols contracted with MADE manager Chua under a fixture Note to transport 13,000 bags of cement from Iligan to general Santos City consigned to Supreme Merchant Construction Supply, Inc. ( SMCSI) for a freightage of P46,150 payable by MADE to rafols – upon loading ( P23,075) and upon completion of loading and receipt by the consignee (SMCSI). The fixture note did not have written consent from Ouano.

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Petitioner wrote a letter to MADE requesting or demanding payment, or whatsoever due to Mr. Rafols be withheld until the latter make good in his commitment to petitioner. However, MADE paid Rafols for the first installment of freightage. The cargo was delivered to SMCSI without any attempt on the part of Rafol or Ouano to hold or keep in deposit either the whole or part of the cargo to answer the freightage, neither there was a demand made for a bond to secure payment of the unpaid freight.

Petitioner filed a complaint against MADE, SMCSI and Rafols Seeking the payment of the unpaid freight charges.

The RTC rendered a decision in favor of petitioner & made the 3 parties jointly and severally liable.

The C.A reversed the decision, relieving MADE and SMCSI from liability but not Rafols.

ISSUE:1) WON there was subleasing? NO2) WON MADE and SMCSI shall also be held liable? NO3) WON MADE is guilty of inducing Rafols to violate the original charter party? NO

HELD:1) Rafols did not sublease the vessel when he contracted with MADE. The possession, operation

and management of the vessel was not transferred to MADE but remained to Rafols as charterer. Rafols, as lessee was the one who bound himself to transport, the cargo of cement for a fixed price.

2) A contract can only bind the parties who had entered into it or their successors who assumed their personalities or judicial positions, and such contract can neither favor nor prejudice a third person.

- The charter contract was entered into only by and between petitioner and Rafols, they cannot be held liable for the alleged violation of Rafols.

- The obligation of contract is limited to the parties making them, and only those who are parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one who, under its terms, is a stranger to the contract and any event in order to bind a third person contractually, an expression of assent by such person in necessary.

3) MADE is not guilty of inducing Rafols:a. there is no evidence that MADE had knowledge of the prohibition imposed to sublease or

sub-charter the vessel;b. at the time the fixture note was entered into, a written authorization signed by the wife of

petitioner in his behalf, authorizing Rafols to execute contracts, negotiate for cargoes and receive freight payments;

c. the decision to use the MV Don Julio Ouano in transporting the cargo of MADE was solely that of Rafols;

d. Petitioner is deemed to have ratified the subcharter contract entered into by MADE and Rafols when he demanded the payment of the 2nd freight installment as provided in the agreement.

SOLIVA VS VILLALBA( 417 s 277 )

FACTS:

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Petitioner Soliva filed a complaint for recovery of ownership, possession and damages against respondent Valenta Villalba alleging that she is the owner of a parcel of agricultural land in misamis Oriental.

That on Jan. 14, 1966, the late Capt. Villalba asked Soliva’s permission to occupy her house, and promised to buy the house and lot upon receipt of his money from Manila and gave her P600.00 for the occupation of the house.

That Capt. Villalba died in 1978 without having paid the consideration and that after the death of Capt. Villalba, his widow, respondent Valenta refused to vacate despite demands, destroyed the house and built a new one.

The trial court rendered judgment restoring to petitioner her right of ownership and possession of the property.

Respondent Valenta file a petition for relief judgment alleging that she has a meritorious defense as her late husband had already paid the amount of P2,250 out of the purchase price of P3,500 for the house and lot.

The trial court denied the petition, however, the C.A. reversed the decision finding that Valenta’s failure was due to excusable negligence and order trial proceedings to continue.

The RTC ruled to recover the subject lot to Respondent Valenta. The C. A. affirmed the decision and held that laches had already set in, that the complaint was

filed 16 yrs. After the cause of action accrued.

ISSUE:- WON the oral contract of sale between the parties was invalid because respondent had failed to

pay in full the purchase price? NO

HELD:- Under Art.1318, there is no contract unless the following requisites concur:

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.

- With respect to real property, Art.1318 specifically requires that a contract of sale thereof be in a public document. However, otherwise unenforceable oral contract of sale of realty under Art.1403 may be ratified by the failure to object to the presentation of oral evidence to prove it or by the acceptance of benefits granted by it.

- All the essential elements of a valid contract are present in this case. While the contract might have been unenforceable under Art.1403, the admission by petitioner that she had accepted payments under the oral contract of sale took the case out of the scope of the Statute of Frauds. The ratification of the contract rendered it valid and enforceable.

- The non-payment of the full consideration did not invaldate the contract. Under settled doctrine, nonpayment is a resolutory condition that extinguishes the transaction existing for a time and discharges the obligation created. The remedy of the unpaid seller is to sue for collection or in case of a substantial breach, to rescind the contract.

- In this case, petitioner did not exercise her right either to seek specific performance or rescind the oral contract of sale until May 1982, when she filed her complaint for recovery. Laches had already set in.

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ASUNCION VS CA( 238 s 602 )

FACTS: On July 29 1987, a second Amended Complaint for specific performance was file by Ang Yu

Asuncion, et al., against Bobby & Rose Cu Unjieng and Jose Tan alleging that:- plaintiff are tenants or lessee of residential and commercial spaces owned by defendants; they

occupied since 1935 and religiously paying the rental and complying the lease contract; defendants informed plaintiffs that they are offering to sell the premises and are going to give them priority to acquire the same; during the negotiations, Bobby offered a price of P6M while plaintiffs made a counter offer of P5M; plaintiff asked defendants to put the offer in writing to which dependant acceded; plaintiff asked defendant to specify the terms and condition of the of the offer to sell; when plaintiffs did not receive any reply, they sent another letter; since defendants failed to specify the terms and conditions and because defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them.

The trial court rendered a decision dismissing the complaint because defendant’s offer to sell was never accepted by the plaintiffs but subject to condition that if the defendants decide to offer at P11M or lower, then the plaintiffs has at the option to purchase or of first refusal, otherwise, defendants need not offer the property if the purchase price is higher that P11M.

The C.A affirmed the decision but with modification that to grant to plaintiff the right of first refusal in excess of P11 million pesos.

The SC denied the appeal for the insufficiency in form and substance on May 6, 1991. On Nov. 15, 1990, while the case was pending with the C.A, executed a Deed of Sale

transferring the property in question to Buen Realty and Dev’t Corp. in consideration of the sum of P15M, and in lien thereof, TCT was issued in the name of Buen Realty.

Buen Realty as the new owner demanded lessees to vacate. The lessees file a motion for excution the decision as modified by the C.A. The trial court ordered to execute the Deed of Sale in favor of the lessees Ang Yu Asuncion, et

al. On appeal, the C.A set aside and declared without force and effect the questioned order.

ISSUE:- WON Buen Realty and development Corp. can be held bound by the writ of execution by

virtue of the notice of lis pendens, at the time of the latter’s purchase property from the Cu Unjiengs, and thereby honor the right of first refusal in favor of Asuncion, et al? NO

HELD: In the law on sales, the so-called “right of first refusal” is an innovative juridical relation, but it

cannot be deemed a perfected contract of sale under Article 1458 of the Curl Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under Art.1479 (2), aforequoted, or possibly an offer under Article 1319 of the same code.

An option or offer would require, among other things, a clear certainty on both the object and the cause or consideration of the enerisioned contract. In a right of first refusal while the object might be made determinate, the exercise only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are

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yet to be later frimed up. Prior thereto, it can at best described as merely belonging to a class of preparatory juridical relations.

The breach of right of first refusal decreed a final judgment does not entitle the aggrieved party to a writ of execution of the judgment but to an action for damages. Petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, so the remedy is an action for damages, not a writ of execution because there is nothing to execute.

LIMSON VS C.A.( 357 s 209 )

FACTS: Petitioner Limson filed a complaint alleging that in July 1978, Spouses de Vera, through their

agent Marcosa Sanchez, offered to sell to petitioner a parcel of land. Petitioner agreed to buy the property and gave P20k as earnest money. Respondent spouses

signed a receipt and gave petitoner a 10-day option period to purchase the property and informed them that the property was mortgage to Ramoses, and asked Limson to pay the balance of the purchase price to enable to settle their obligation with Ramoses.

On Aug. 5, 1978, Petitioner agreed to meet respondent spouses and the Ramoses to consummate the transaction but due to failure of respondent spouses and the Ramose to appear, no transaction was formalized.

On Aug. 11,1978, petitioner claimed that she was willing to pay the balance but the transaction again did not materialized as respondent spouse failed to pay the back taxes. Subsequently, petitioner gave 3 checks (P36,170.00) for the settlement of the back taxes and for payment of the quitclaims of the 3 tenants. The amount was considered part of the purchase price with a receipt signed by respondent spouses.

On Sept. 5 1978, petitioner was surprised to learn that the property was the subject of a negotiation for the sale to Sunvar Realty Dev’t Corp. represented by Cuenca. As a consequence, petitoner filed an affidavit of Adverse Claim with the Registry of Deeds and informed Cuenca of her contract to purchase the property.

On Sept. 15 1978, the Deed of Sale was executed between respondent spouses and Sunvar, and a TCT was issued in favor of Sunvar with the adverse claim annotated therein.

ISSUE:- WON there was perfected contract to sell between petitioner and respondent spouses? NO

HELD:- The agreement between the parties was a contract of option and not a contract to sell.- An option, is a continuing offer or contract by which the owner stipulates with another that the

latter shall have the right to buy the property at a fixed price within a time certain, or under certain terms and conditions or which gives to the owner the right to sell or demand a sale. It is also called an “unaccepted offer”. It is not itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. An option imposes no binding obligation on the person holding the option, aside from the consideration for the offer.

- On the other hand, a contract, like a contract to sell, involves the meeting of minds between two persons whereby one binds himself with respect to the other, to give something or to render some service. Contracts, in general, are reflected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute.

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- In this case, the receipt readily shows that the parties entered into was a contract of option, which respondent spouses agreed with petitioner the right to buy the former’s property at a fixed price within 10-days, and did not sell their property; they did not also agree to sell it; but they sold something, and the agreement imposed no binding obligation on petitioner, aside from the consideration for the offer.

- The consideration of P20k paid by petitioner to respondent spouses was not earnest money but option money.

- Earnest money and option money are not the same but distinguished thus: a) Earnest money is part of the purchase price, while option money is the money given as

a distinct consideration for an option contract;b) Earnest money is given only where there is already a sale, while option money applies

to a sale not yet perfected;c) When earnest money is given, the buyer is bound to pay the balance, while when the

would –be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option.

- In this case, there is nothing in the receipt which indicates that the P20k was part of the purchase price. Moreover, it was not shown that there was a perfected sale between the parties where earnest money was given. Finally, the receipt did not reveal that petitioner was bound to pay the balance of the purchase price. In fact, respondent spouses could even forfeit the money given if the terms of the option were not met. The option period having expired and acceptance was not made by petitioner, the purchase of subject property by Sunvar was perfectly valid and entered into in good faith.

TAYAG VS LACSON

( 426 s 282 )FACTS:

The Lacsons were owners of 3 parcels of land in Pampanga. The properties, which were tenanted agricultural lands, were administered by Renato Espinosa

for the owner. A group of original farmers individually executed in favor of Tayag separate Deeds of

Assignment in which they assigned their respective rights as tenants in consideration of P50 per sq.m.

The amount was made payable when the legal impediments to the sale no longer existed. Petitioner Tayag was also granted the exclusive right to buy the property if and when respondents and the tenants agreed to sell the property.

Petitioner gave varied sums of money to the tenants as partial payment. Petitioner called a meeting to work out the terms of their separate agreement but the tenants

gave notice of their collective decision to sell all their rights and interests to Lacson. Petitioner filed a complaint

ISSUE:1) WON respondent Lacson can be enjoined from selling or encumbering their property because

of the Deed of Assignment? NO2) WON the action of petitioner has legal basis? NO3) WON the deeds of assignment executed by petitioner Tayag and the tenants are perfected

option contracts? NO4) WON respondent Lacson induced the tenants to breach their contracts with petitioner Tayag?

NO

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HELD:1) Under Art.1306, the respondent may enter into contracts covering their property with another

under the terms and conditions as they may deem beneficial provided that they are not contrary to law, morals, good conduct, public order or public policy.

- Respondents cannot be enjoined from selling or encumbering their property simply because of the Deeds of Assignment which granted petitioner the exclusive right to buy the property. Respondents were not parties to the said deeds and no evidence that they had agreed, expressly or impliedly, to the said deeds Indeed, they assailed the validity of the deeds as contrary to P.D. No. 27 and R.A No. 6657. Petitioner even admitted that he did not know any of the respondents, nor the death of Angelica Vda. De Lacson

2) Under the Deeds of Assignment, the obligation of Petitioner Tayag to pay to each of the Tenants the balance of the purchase price was conditioned on the occurrence of the following events:

a) respondents agree to sell their property to petitioner;b) legal impediments to the sale of the landholding to the petitioner no longer existed;c) petitioner decided to buy the property, but when he testified, petitioner admitted that the

legal impediments referred to in the deeds were:1)respondents refusal to sell the property 2)the lack of approval of Dep’t of Agrarian Reform

- In this case, there is no showing that the respondents had agreed to sell their property and that legal impediments no longer existed. The Deeds of Assignment had yet to submit to DAR, to act on whether to approve or disapprove the same.

3) An option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. It imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract.

- In this case, the tenants, under the deeds of assignment, granted to the petitioner not only an option but the exclusive right to buy the landholding. But the grantors were merely the tenants and not the registered owners of the property. Not being the registered owners, the tenants could not legally grant to the petitioner the option, much less the “exclusive right” to buy the property.

4) Under Art.1314, Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. For the said law to apply, the pleader is burdened to prove the following: a) the existence of a valid contract; b) knowledge by the third person of the existence of the contract; c) interference by the third person in the contractual relation without legal justification.

- Where there was no malice in the interference of a contract and the impulse behind one’s conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferes. Where the alleged interferer is financially interested and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler. One who is not a party to contract and who interferes thereon is not necessarily an officious or malicious intermeddler.

- In this case, the only evidence adduced by the petitioners the letter from the tenants informing him that they had decided to sell their rights and interests over the landholding to the respondents. The tenants did not allege therein that the respondents induced them to breach their contracts with the petitioner. Petitioner himself admitted the inducement was based merely on what he heard.

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DELA CRUZ VS DELA CRUZ( 419 s 648 )

FACTS: Pacencia dela Cruz was the owner of a parcel of Land in Talipapa market and was the one who

collected the daily stall rentals from the vendors. She had six children. On Sept. 25, 1980, Paciencia allegedly executed a deed of sale in consideration of P21k in

favor of her son, Fortunato, which was later transferred the property in his name. Fortunate mortgaged the property 3 times to Erlinda de Guzman but unfortunately he was

unable to pay these loans. On Jan. 11, 1989, Fortunato executed a “Kasulatan ng Bilihang Patuluyan” in favor of Clark

and Divina Guitierrez, children of Claudio and Adoracion, to whom he earlier offered to sell the property.

Thereafter, a new certificate of title was issued in the name of Clark and Divina, and took possession of the property, had it repaired, and collected the rentals.

On Jan. 20, 1989, Paciencia instituted an action for reconvenance of property alleging that the sale was null and void and fraudulently made as Fortunato had neither right or authority from her to sell the property, as he only held it in trust for her.

ISSUE:- WON the deed of Sale as entirely and completely written in English, a language neither known

nor understood by Paciencia must be declared void? NO

HELD:- As a rule, when the terms of contract are clear and unambiguous as to the intention of the

contracting parties, the literal meaning of its stipulation shall control. It is only when the words appear to contravene the evident intention of the parties that the latter shall prevail over the former. The real nature of a contract may be determined from the express terms of the agreement and from the contemporaneous and subsequent acts of the parties thereto.

- Under Art. 1332, to apply, it must first be convincingly established that the illiterate or disadvantage party could not read or understand the language in which the contract was written or that the contract was left unexplained to said party.

- In this case, petitioner harp on the fact that the assailed deed was in english and that it was not explained to Paciencia. Petitioners failed to prove their allegation that Paciencia could not speak, read, or understand english. Moreover, Paciencia’s bare testimony on this point is uncorroborated. Petitioner failed to discharge this burden. The Deed of Sale was duly acknowledge before the notary public, As a notarized document, it has in favor the presumption of regulatory and it carries the evidentiary weight conferred upon it without respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.

MARTINEZ VS C.A( 358 s 38 )

FACTS:

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Private respondent Godofredo dela Paz and his sister Manuela entered into an oral contract with petitioner Fr. Dante Martinez, for the sale of the lot for the sum of P15k.

When the lot was offered for sale, petitioner dealt with Dela Paz family and assured by them the lot belonged to Manuela as it was subsequently registered in her name.

It was agreed that the downpayment would be P3k and the balance would be payable on installment.

After giving P3k, petitioner started the construction of the house with the written consent of the owner. Petitioner completed the payment as evidenced in two documents executed by respondent. However, respondent never delivered the Deed of Sale as promised.

Respondent sold 3 lots in a deed of absolute sale with right to repurchase on Oct. 28, 1981 to spouses Veneracion for the sum of P150k. One of the lots sold was the lot previously sold to the petitioner.

Veneracion never took actual possession of any of the lots during the period of redemption, but all titles to the lots were given to him.

Before the expiration of the one year period, Dela Paz informed Veneracion that he was selling the 3 lots to another person for P200k. but instead, Veneracion offered to purchase the same two lots from Dela Paz for P180k. the offer included the lot purchased by petitioner.

The offer was accepted by respondent Dela Paz and executed a Deed of Absolute Sale over the two lots.

Veneracion told respondent De la Paz of the building created by the petitioner and he was assured by respondent to talk with the petitioner.

Based on the assurance, Veneracion registered the lot in dispute. When petitioner discovered the matter after receiving a letter from Veneracion, he demanded

from respondent the execution of the deed of sale and informed Veneracion that he was the owner of the property.

The trial court rendered a decision in favor of petitioner Martinez. The RTC rendered judgment in favor of Veneracion finding him as true owner because of prior

registration in Registry of Deeds. The C.A. affirmed RTC’s decision.

ISSUE:1) WON Veneracion are buyers in good faith? NO2) WON the nature of the first contract is contract of sale or equitable mortgage? EQUITABLE

MORTGAGE3) WON the contract of sale of real property must be executed in a public document? NO

HELD:1) Veneracion already knew that there was construction being made on the property they

purchased. 2) The first contract of sale between De la Paz and Veneracion shows that it was an equitable

mortgage. The requisites for considering a contract of sale with a right of repurchase as an equitable mortgage are:

1) that the parties entered into a contract denominated as a contract of sale; and 2) that their intention was to secure an existing debt by way of mortgage.- The following cases that gives rise to the presumption that a contract of sale with right to

repurchase is an equitable mortgage:1) When the price of sale with a right to repurchase is unusually inadequate;2) When the vendor remains in possession of lessee or otherwise;

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3) When, upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new perion is executed;

4) When the purchaser retains for himself a part of the purchase price;5) When the vendor binds himself to pay the taxes on the thing sold;6) The transaction shall secure the payment of a debt or the performance of any other

obligation.- In this case, respondent De la Paz intended to be an equitable mortgage on the following

circumstances:1) Veneracion never took actual possession of the 3 lots;2) De la Paz remained in possession of the Melencio lot where they resided;3) Veneracion never made any effort to take possession of the properties;4) When the period of redemption had expired and Veneracion were informed that the lots

were offered to another person, Veneracion never objected, thus offered to purchase the 2 lots.

3) Under Art 1357 & 1358, in relation to Art 1403, requires that the sale of real property must be in writing for it to be enforceable. In need not be notarized. If the sale has not been put in writing, either of the contracting parties can compel the other to observe such requirement.

- In this case, this is what petitioner did when he repeated by demanded that a Deed of Absolute Sale be executed in his favor by private respondent De la Paz. There is nothing in the provisions which require that a contract of sale of realty must be executed in a public document.

BUENAVENTURA VS C.A( 416 s 263 )

FACTS: Plaintiffs consolation, Nora, Emma and Natividad all surnamed Joaquin sought to be declared

null and void ab initio certain deed of sale of real property executed by the defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children and the corresponding certificate of title in their names.

Plaintiffs aver: First, there was no actual valid consideration; Second, assuming that there was consideration in the sum reflected in the questioned deeds, the properties are more than three-fold times more valuable than the sums appearing therein; Third, the deed of sale do not reflect and express the true intention of the parties; Fourth, the sale of the properties in litis was the result of deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs of their legitime.

Defendants, on the other hand aver: First, that plaintiffs do not have a cause of action; Second, that the sales were with sufficient consideration and made by defendants parents voluntarily, in good faith, and with full knowledge of the consequences of their deeds of sale; Third, that the certificates of title were issued with sufficient factual and legal basis.

The trial court ruled in favor of defendants and dismissed the complaint. The C.A. affirmed the decision of the trial court.

ISSUE:1) WON the deed of sale are void for lack of consideration? NO2) WON the deed of sale are void for gross inadequacy of price? NO

HELD:

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1) A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a contract of sale becomes binding and valid contract upon the meeting of the minds as to price. If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the breach of the manner of payment. If the real price is not stated in the contract, then the contract of sale is valid but subject to reformation. If there is no meeting of the minds of the parties as to the price, because the price stipulated in the contract is simulated, then the contract is void. Art. 1471 states that if the price in the contract of sale is simulated, the sale is void.

- It is not the act of payment of the price that determines the validity of a contract of sale. Payment of price has nothing to do with the perfection of the contract, instead it goes into the performance of the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevent the existence of a valid contract.

- In this case, petitioners failed to prove the absolute simulation of price as it is magnified by their lack of knowledge of the respondent siblings financial capacity to buy the questioned lots. The deed of Sale which petitioner presented as evidence plainly showed the cost of each lot sold. Not only did respondent’s minds meet as to purchase price, but the real price was also stated in the complaint, respondent siblings have also fully paid the price to their respondent father.

2) Under Art. 1355, states that “Except in cases specified by law, lesion or inadequacy of price does not affect a contract of sale except as may indicate a defect in the consent or that the parties really intended the donation or some other act or contract.

- In this case, petitioner failed to prove any of the instances mentioned in Art.1355 & 1470 which would invalidate, or even affect, the deeds of Sale. Indeed, there is no requirement that the price be equal to the exact value of the subject matter of sale. All the respondents believed that they received the commutative value of what they gave.

PADERES VS C.A.( 463 s 504 )

FACTS: On Sept. 14,1982, Manila Int’l Construction Corp. (MICC) executed a real estate mortgage

over 21 registered parcels of land including the improvements thereon in favor of Banco Filipino Savings and Mortgage Bank in order to secure a loan of P 1,885,000.00. the mortgage was registered with the Registry of Deeds.

On Aug. 1983, MICC sold the lot together with the house to the spouses Paderes and on Jan. 1984, MICC sold the house to the spouses Bergado. Neither sale was registered, however.

On Jan, 1985, MICC failed to settle its obligation which prompted Banco Filipino to file a petition for the extrajudicial foreclosure of MICC’s mortgage, and was declared the highest bidder.

No redemption of the foreclosed mortgage having been made within the reglementary period. Carlota Valenzuela, the then liquidator of Banco Filipino filed an exparte petition for the issuance of a writ of possession of the foreclosed properties, and after the hearing, the petition was granted.

Instead of vacating, petitioners filed a separate petitions assailing the validity of the writ of possession.

ISSUE:

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1) WON Petitioner’s right as purchaser in good faith, are superior to that of Banco Filipino? NO2) WON the agreement between petitioners and the bank had been reached? NO

HELD:1) Under Art 1312, in contracts creating a real rights, third person who come into possession of

the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws.

- In this case, the purchases took place after MICC’s mortgage to Banco Filipino had been registered in accordance with Art. 2125 of the Civil Code and the provisions of P.D. 1529. A real right or lien in favor of Banco Filipino had already been established, subsisting over the properties until the discharge of the principal obligation, whoever the possessor of the land might be.

- As transferees of mortgagor MICC, petitioner merely stepped into its shoes and are necessarily bound to acknowledge and respect the mortgage it had earlier executed in favor of Banco Filipino.

2)- Under Art 1318, there is no contract unless the following requisites concur: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.

- Consent is further defined in Art. 1319, consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.

- In this case, it reveals the absence of both a definite offer and an absolute acceptance of any definite offer by any of the parties. The letters signed by petitioners counsel made it clear that any proposal by the bank would be subject to further action on the part of petitioner. The letter signed by the Dacasin, Asst. VP of Banco Filipino, merely invited petitioners for further negotiations and does not contain a recognition of petitioners claimed right of redemption or a definite offer to sell the properties back to them. It is clear from No. 1 of the same letter, that petitioner did not accept Banco Filipino’s valuation of the properties at P7,500.00 per sq.m and intended to have the amount renegotiated. Moreover, petitioner’s letter of Nov. 8, 1996 does not contain the concurrence of Ms. Dacasin or any authorized agent. Where the alleged contract document was signed by only one party and the record shows that the other party did not execute or sign the same, there is no perfected contract.

GOLANGCO VS PHIL COMMERCIAL INT’L BANK( 485 s 293 )

FACTS:

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Petitioner William Golangco Construction Corp. (WGCC) and PCIB entered into a contract for the construction of the extension of PCIB tower II. The project included the application of a granitite wash-out finish on the exterior walls of the building.

PCIB with its consultant TCGI Engineers accepted the turn over of the completed work by WGCC. To answer for any defect arising within a period of one year, WGCC submitted a guarantee bond issued by Malayan Insurance Company.

The controversy arose when portions of the granitite wash-out finish of the exterior of the building began peeling off and falling from the walls in 1993.

WGCC made minor repairs after PCIB requested it. In 1994, PCIB entered into another contract with Brains and Brawn Construction and Dev’t

Corp. to re-do the entire granitite wash-out finish after WGCC manifested that it was “not in a position to do the new finishing work”, through it was willing to share part of the cost.

PCIB incurred expenses amounting to P11,665,000 for the repair work. PCIB filed a request for arbitration with the Construction Industry Arbitration Commission

(CIAC) for the reimbursement of its expenses for the repairs made by another contractor. The CIAC declared WGCC liable for the construction defects. WGCC filed a petition for review but the C.A. dismissed it for lack of merit.

ISSUE:- WON petitioner WGCC is liable for defects in the granitite wash-out finish that occurred after

the lapse of the one year defects liability period provided in Art.XI of the construction contract? NO

HELD:- Under Art.1306, Autonomy of contracts, states that “ the contracting parties may establish such

stipulation, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. Obligations arising from contracts have the force of law between the parties and should be complied with in good faith.

- In this case, the provision in the construction contract providing for a defects liability period was not shown as contrary to law. The provision limiting liability for defects and fixing guaranty periods was not only fair and equitable, it was also necessary. Without such limitation, the contractor would be expected to make a perpetual guarantee on all materials and workmanship.

- The adoption of a one-year guarantee, as done by WGCC and PCIB , is established usage in the Phils. for private and gov’t construction contracts. The contract did not specify different period for defects in the granitite wash-out finish. Hence, any defect therein should have been brought to WGCC’s attention within the one-year defects liability period in the contract.

- The conclusion that the alleged defects were hidden is untenable because:a) PCIB’s team of experts supervised WGCC’s workmanship;b) WGCC regularly submitted progress report and photographs;c) PCIB had access to the site and exercised supervision over WGCC’s work;d) PCIB issued “punch lists” for WGCC’s compliance before the issuance of PCIB’s final

certificate of acceptance;e) PCIB supplied the materials for the granitite wash-out finish;f) Finally, PCIB’s team of experts gave their concurrence to the turnover of the project.

- Under the circumstances, there were no hidden defects for which could be held liable. The contract should not be interpreted to favor the one who caused the confusion, if any. The contract was prepared by TCGI for PCIB.

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QUIROS VS ARJONA( Mar. 9, 2004 )

FACTS: Petitioners Proceso Quiros and Leonarda Villegas filed a complaint for recovery of ownership

and possession of a parcel of land located at Labney, Pangasinan. Petitioner sought to recover from their uncle Marcelo Arjona, their lawful share of the

inheritance from their late grandmother. An amicable settlement was reached between the parties. By reason thereof, respondent Arjona

executed a document denominated as “PAKNAAN” wherein Arjona was willing to give 1 hectare to the petitioners. On the same date, another “PAKNAAN” was executed by Jose Banda, that he would voluntarily surrender the land he cultivated if ever the petitioners would get the land.

Petitioners filed a complaint with the Municipal Circuit Trial Court for the issuance of a writ of execution of the compromise agreement but it was denied because the subject property cannot be determined with certainty.

ISSUE:- WON PAKNAAN is one for mollification because they failed to include a sufficient

description of the property to convey? NO

HELD:- This error is not one for mollification of the instrument but only for reformation.- Under Art 1359 provides that, when, there having been a meeting of the minds of the parties to

a contract, their true intention is not expressed in the instrument purporting to embody the agreement by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract.

- Reformation is a remedy in equity whereby 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. In granting reformation, the remedy in equity is 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.

- In order that an action for reformation may prosper, the following requisites must concur:a) there must have been a meeting of the minds of the parties to the contract;b) the instrument does not express the true intention of the parties; c) the failure of the instrument to express the true intention of the parties is due to mistake,

fraud, inequitable conduct or accident.- In this case, both parties acknowledge that petitioners are entitled to their inheritance, hence,

the remedy is nullification, which invalidates the PAKNAAN, would prejudice petitioners and deprive them of their just share of the inheritance. Respondent cannot, as an afterthought, be allowed to renege on his legal obligation to transfer the property to its rightful heirs. A refusal to reform the PAKNAAN would have the effect of penalizing one party for negligent conduct, and at the same time permitting the other party to escape the consequences of his negligence and profit thereby. No person shall be unjustly enriched at the expense of another.

BENTIR VS LEANDA

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( Apr. 12, 2000 )FACTS:

On May 15 1992, respondent Leyte Gulf Traders Inc., as respondent corporation, filed a complaint for reformation of instrument, specific performance, annulment of conditional sale and damages against petitioners Bentir and spouses Pormida.

Respondent corporation alleged that it entered into a contract of lease of a parcel of land with petitioner Bentir for a period of 20 yrs starting May 5, 1968, and the lease was extended for another 4 yrs. Or until May 31, 1992.

On May 5, 1989, petitioner Bentir sold the leased premises to spouses Pormida. Respondent Corporation questioned the sale alleging that it had a right of first refusal. It filed a

civil case seeking the reformation of the expired contract of lease on the ground that its lawyer inadvertently omitted to incorporate in the contract of lease executed in 1968, the verbal agreement that in the event petitioner Bentir leases or sell the lot after the expiration, respondent corporation has the right to equal the highest offer.

Petitioner filed their answer alleging that the inadvertence of the lawyer is not a ground for reformation within the prescriptive period of 10 years from its execution.

ISSUE:- WON the action for reformation of instrument has prescribed? YES

HELD:- The remedy of reformation of an instrument is grounded on the principle of equity where, in

order to express the true intention of the parties, an instrument already executed is allowed by law to be reformed. The remedy, being an extraordinary one, must be subject to limitations, among which is laches. The prescriptive period for actions based upon a written contract and for reformation of an instrument is 10 years under Art 1144.

- In this case, respondent corporation had 10 yrs. from 1968, the time when the contract of lease was executed, to file an action for reformation. Sadly it did so only on May 15, 1992 or 24 yrs after the cause of action accrued, hence, its cause of action has become stale, hence, time-barred.

- The 10 yrs prescriptive period should not be reckoned from the 4 yr extension of the lease contract after it expired in 1988 because it was not an implied new lease that “the other term of the original contract” were deemed revived in the implied new lease as contemplated under Art 1670.

- Art 1670 would not apply because if the extended period of lease was expressly agreed upon then the term should be exactly what the parties stipulated, not more, not less. Second, even if the suppose 4 year extended lease be considered as an implied new lease under Art 1670, “the other terms of the original contract” are only those terms which are agreement of the property leased. The prescriptive period of 10-years provided for in Art.1144 applies by operation of law, not by the will of the parties

- Assuming that the action is not time-barred, the action will still not proper. An action for reformation is instituted as a special civil action for declaratory relief to secure an authoritative statement of the rights an obligation of the parties for their guidance in enforcement thereof and it may be entertained only before the breach or violation of the law or the contract to which it refers.

- In this case, respondent corporation brought the present action for reformation after an alleged breach or violation of the contract was already committed by petitioner Bentir. The remedy of reformation no longer lies.

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AGAS VS SABICO( 457 s 263 )

FACTS: Respondent Caridad Sabico and spouses Paulo filed an application to acquire a parcel of land

before the People’s Homesite and Housing Corp (PHHC). Respondent Sabico was widowed and worked as a laundry woman of the petitioner spouses

Agas. Sabico borrowed P141.00 from petitioners Agas on Oct. 1 1963. The PHHC granted the application and awarded the lot to respondent Sabico and spouses

Paulo. However, they were required to make a downpayment of P420.00 for the lot upon the execution of a conditional contarct of sell, and the balance thereof payable in installments.

Since respondent Sabico had no means to pay the required downpayment, she went to petitioner Agas to borrow money.

Petitioner Agas agreed to lend P250.00 to Sabico but required her to sign an unnotarized “Agreement/kasunduan” in which she obliged herself to sell to petitioner the undivided one-half portion of the subject property for P2,500.00. the following principal terms and conditions in the agreement were:

a) petitioner would remit to respondent the total amount of P250 upon the execution of the deed;

b) respondent would return the amount she received from petitioner to the PHHC;c) respondent would continue to reside in the property for a period of 10 years;d) Respondent would execute an absolute contract of sale in favor of petitioner within the

30 days from the issuance of ownership to respondent. Respondent had not finished first grade, could write only her name and did not know how to

read nor understand the english language. Nevertheless, she signed the agreement. On May 14, 1964, the PHHC executed a conditional contract to sell in favor of the respondent

and spouses Paulo with the agreement that not to sell, assign, encumber, mortgage lease or sublease the property without written consent of the PHHC.

Respondent had a total indebtedness of P5k with petitioner Agas. In Aug. 1964, a contract was executed by and between the respondent and the petitioners which

was duly notarized. On Aug. 5, 1975, PHHC executed a Deed of Sale in favor of the respondent & spouses Paulo

after full payment of the purchase price. On Nov. 14,1975, TCT was issued in their favor and there was an annotation prohibiting them

from selling the property within one year from the issuance of the title. Almost a month after the issuance of TCT, respondent delivered her owner’s duplicate copy to

petitioner Agas. On Oct. 3, 1978, respondent executed an Absolute Deed of Sale in favor of petitioner Agas

over her one-half undivided share for the price of P 20k. the contract was notarized. However, the deed was not filed with the Office of the Registry of Deeds.

Petitioner Agas notified the respondent of his desire to contract a two-unit apartment and required respondent to pay a rental of P25.00 to be applied to the payment of realty taxes.

Thereafter, petitioner informed the respondent of the construction with a request to move her house to the eastern rear portion and to affix her signature on the said letter, but respondent refused to do so. However, the construction proceeded.

Respondent instituted an action against petitioner for Declaration of Nullity of Deeds and Title with damages, alleging that petitioner were able to inveigle her into signing several documents

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which caused the transfer of ownership in favor of petitioner and that petitioner took advantage of her credulity and illiteracy and employed under moral pressure and influences her.

ISSUE:- WON the deed of sale had been fully explained to the respondent? NO

HELD:- Under Art 1332 which provides that “when one of the parties is unable to read, or if the

contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.

- In this case, the nature, consequences and legal effects of the deeds were not explained to the respondent. As testified to by Notary Public Respicio, she merely asked the respondent if the latter knew the contents of the deed of absolute sale, and the respondent purportedly replied in the affirmative. The notary public never even bothered to explain to the respondent the nature and the rights and obligations of the parties under the deed.

- Moreover, the deed of absolute sale executed was an equitable mortgage. The following facts indicated:

1) Respondent was the laundry woman of the petitioners;2) Respondent was in need of money to pay for the property which she had to borrow

money from petitioners;3) Respondent remained in possession of the property despite the execution of the said

deeds;4) Respondent paid the realty taxes and continued to do so even after she had executed a

deed of sale in favor of petitioners;5) Petitioner did not immediately file the deed of sale with the Office of the Register of

Deeds until after the lapse of 8 years;6) Respondent filed a complaint against petitioners in the RTC soon after the petitioners

registered the deed of absolute sale.

VALERIO VS REFRESCA( 485 s 495 )

FACTS: As early as 1963, spouse Refresca started cultivating the 6.5 hectares land tenants. In 1968, Narciso Valerio acquired ownership over the land. The tenancy relation between

Valerios and Refrescas were established. Spouses Valerio entered into a leasehold contract with tenant Refresca to continue tilling the

6.5 hectare land in exchange for fixed rentals. On Feb 10, 1975, spouses Valerio executed a Deed of Sale whereby he sold his 6.5 hectare

landholding to his heirs and likewise conveyed 511 sq.m in favor of Refresca in recognition of his long service and cultivation of the subject land.

On Feb 15, 1975, Narciso Valerio died. On Dec. 1982, the parties to the Deed of Sale, as co-owners, subdivided the 6.5 hectare land

and executed a Deed of Agreement of Subdivision. The same 511 sq.m of land was granted to Refresca.

Nieves Valerio, widow of Narciso, entered into another leasehold agreement with Refrescas over the 6.5 hectare land for a period of 1984-1985.

On Mar 4 1987, Nieves Valerio died. After tenant Alejandro Refrescas demise in 1994, his widow Vicenta Refresca succeeded him by operation of law in tilling the land.

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Thereafter, petitioners demanded that the respondents vacate the land. They alleged that the 511 sq.m land was given to the Refrescas on the condition that they will surrender their tenancy rights but respondent Refresca failed to do so.

In 1995, the DAR issued a resolution recognizing their right of respondent Vicenta Refresca but despite the ruling, petitioners sent a demand letter to respondents to vacate the land, but respondents refused

Petitioners filed a complaint for annulment of documents of transfer and title of Alejandro. The RTC ruled in favor of petitioners The C.A. reversed the decision and ruled that the Deed of Sale was not absolutely but relatively

simulated.

ISSUE:1) WON the Deed of Sale was an absolute or relative simulation? RELATIVE SIMULATION2) WON there was cause or consideration? YES

HELD:1) Under Art 1345 which provides that “simulation of a contract may be absolute or relative. The

former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.

- In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridicial situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract. However, if the parties state a false cause in the contract to conceal their real agreement, the contract is relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract, is present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties & their successors in interest.

- In this case, the records reveal that the clear intent of Narciso Valerio in executing the 1975 Deed of Sale was to transfer ownership of the apportioned areas of his 6.5 hectare land to petitioners as his heirs and to his tenant Alejandro. Although no monetary consideration was received by Narciso from any of the vendees, it cannot be said that the contract was not supported by a cause or consideration or that Narciso never intended to transfer ownership thereof. Under Art 1370 & 1371, the circumstances reveal that neither spouses Valerio during their lifetime, exerted effort to evict respondents when the latter failed to surrender their tenancy rights and that spouse Refrescaa and petitioners possession of land shows that Narciso divested himself to his title and control over the property.

- The most striking badges of absolute simulation is the complete absence of any attempt on the part of a vendee to assert his right of dominion over the property. In the case at bar, the petitioners and respondents were not amiss in claiming their right over their respective lots.

2) The cause of the contract is the generosity of Narciso who intended to divest himself of ownership over the land No such condition to surrender the tenancy rights as the respondents were allowed to continue cultivating the entire land. The tenancy right of respondent Vicenta Refresca was in fact recognized by the DAR. Petitioners themselves admitted that Narciso did not transfer ownership to them out of the liberality of Narciso as the petitioner nor Alejandro paid monetary consideration. The true intent of the parties although they tried to conceal it with the execution of a deed of sale, when the contract is in reality one of donation interiors.

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SIGUAN VS LIM ( 318 s 725 )

FACTS: On Aug. 1990, Lim issued 2 checks to Siguan but it was dishonored for the reason “account

closed”. Criminal case was filed by Siguan against Lim for violation of BP 22. The RTC convicted him

on Dec. 1992, but the case was still pending in the Supreme Court for review. It also appears that Lim was convicted of estafa on July 1990, filed by Victoria Suarez but was

acquitted when she appealed and was only liable for damages. On July 1991, a Deed of donation was registered in favor of Lim’s children that was executed

on Aug. 1989, and a new TCT were issued. Siguan filed an accion pauliana against Lim and her children to rescind the Deed of donation

and to declare null and void the new TCT because the transfer was made in bad faith to defraud creditors and left no sufficient property to pay her obligations.

ISSUE:- WON the deed of donation was made in fraud of Siguan and therefore, rescissible? NO

HELD:- Under Art. 1381 enumerates the contracts which are rescissible, and among them are “those

contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them”.

- The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the following requisites must be present: a. the plaintiff asking for rescission has a credit prior to the alienation; b. the debtor has made a subsequent contract conveying a patrimonial benefit to a third

person; c. the creditor has no other legal remedy to satisfy his claim; d. the act being impugned is fraudulent; e. the third person who received the property conveyed, if it is by onerous title, has been an

accomplice in fraud.- The general rule is that rescission requires the existence of creditors at the time of the alleged

fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement setting aside the contract.

- In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while the deed of donation was purportedly executed on 10 August 1989.

- The fact that the questioned Deed was registered only on 2 July 1991 is not enough to overcome the presumption as to the truthfulness of the statement of the date in the questioned deed, which is 10 August 1989. Petitioner's claim against LIM was constituted only in August 1990, or a year after the questioned alienation. Thus, the first two requisites for the rescission of contracts are absent.

- Article 1383 of the same Code provides that the action for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. In this case, Petitioner neither alleged nor proved that she did so. Thus 3rd requisite is absent.

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- The 4th requisite for an accion pauliana to prosper is not present either. Article 1387, provides: "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.

- For this presumption of fraud to apply, it 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.

- In this case, Siguan's alleged credit existed only a year after the deed of donation was executed. She cannot, therefore, be said to have been prejudiced or defrauded by such alienation. Besides, the evidence disclose that as of 10 August 1989, when the deed of donation was executed, LIM had the following properties. It was not, therefore, sufficiently established that the properties left behind by LIM were not sufficient to cover her debts existing before the donation was made. Siguan failed to discharge the burden of proving any of the badges of fraud. Since the four requirements for the rescission of a gratuitous contract are not present in this case, Siguan's action must fail.

- Under Article 1384 provides that rescission shall only be to the extent necessary to cover the damages caused. Under this Article, only the creditor who brought the action for rescission can benefit from the rescission; those who are strangers to the action cannot benefit from its effects. Thus, Siguan cannot invoke the credit of Suarez to justify rescission of the subject deed of donation.

ADORABLE VS C.A. ( 319 s 200 )

FACTS; On Aug. 29 1985, PR Saturnino Bareng, the owner of 2 parcels of land, and his son Fransisco

obtained a loan from Adorable, the lessee, amounting to P26K, in consideration of which they promised to transfer the possession and enjoyment of the fruits.

On Aug. 3, 1986, the lot was sold by Saturnino to his son Francisco. In turn, Francisco sold the 3,000 sq.m. lot to Jose Ramos including the portion lot being rented by the Adorables. However, the deed of sale evidencing the conveyance were not registered in the office of the Registry of Deeds.

Francisco failed to pay his indebtedness to Adorable. Adorable upon learning of the sale, filed a complaint for annulment or rescission of the sale on

the ground that the sale was fraudulently prepared and executed.

ISSUES:1) WON Adorable may rescind the contract of sale? NO2) WON the sale was undertaken in fraud of creditors when the latter cannot collect the claims

due them? NO

HELD:1) Adorable’s right against Francisco Bareng is only personal right to receive payment for the

loan; it is not a real right over the lot subject of deed of sale.- The following measures must be taken by a creditor before he may bring an action for

rescission of an alleged fraudulent sale are:a. Exhaust the properties of the debtor through levying by attachment and execution upon all

the property of the debtor, except such as are exempt by law from execution;b. Exercise all the rights and actions of the debtor, save those personal to him;

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c. Seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana).

- In this case, Adorable simply undertook the 3rd measure without availing of the 1st and 2nd

remedies, and an action for annulment of the sale. This cannot be done.2) Under Art. 1381 provides that “the following contracts are rescissible, those undertaken in

fraud of creditors when the latter cannot in any other manner collect the claims due them. And under 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.

- In this case, the Adirables had not even commenced an action against Bareng for the collection of the alleged indebtedness nor tried to exhaust the property of Bareng. The Adorables failed to show and prove that Bareng had no other property, either at the time of the sale or at the time the action was filed, out of which they could have collected.

TANONGON VS SAMSON (382 s 130 )

FACTS: Cayco Marine Service is engaged in business of hauling oil. It is owned and operated by

Iluminada Cayco Olizon. Respondent Samson and other 3 employees filed a complaint against Cayco and Olizon for

illegal dismissal. The NLRC decided in favor of the respondents and became final and executory on April 29,

1997. On June 24, 1997, a writ of execution was issued directing the NLRC sheriff to collect from

Cayco Olizon the amount of P 1,192,422.55. On Aug. 8 1997, after the notice of levy/sale on execution of personal property was issued,

Cayco and Olizon’s motor tanker was to be sold at public auction on Aug. 19, 1997. However, on Aug. 15, 1997, Tanongon filed a 3rd party claim the she acquired the motor tanker from Olizon n July 29,1997.

The labor arbiter dismissed the 3rd party claim for lack of merit. The NLRC, however, reversed its decision on the ground that the sheriff cannot execute

judgment because the property was not in Cayco and Olizon’s name, and that judicial rescission is required. Thus, NLRC lifted the writ of execution and restrained its sale.

ISSUE:- WON Tanongon was a buyer in good faith? NO

HELD:- There is sufficient basis that petitioner was a buyer in bad faith because the sale of the tanker

was made only on July 29, 1997, after the writ of execution was issued by the labor arbiter on June 24, 1997, and it was bought by Tanongon 10 days before it was levied upon on Aug. 8, 1997.

- Under Art. 1387 provides that “alienations by onerous title are presumed to be fraudulent when done by persons against whom some judgment has been rendered or some writ of attachment issued in any instance. It is more coincidental that the purchase price for the tanker was P1,100,00.00, while Olizon’s judgment debt amounted to P 1,192,422.55.

- Tanongon should have inquired whether Olizon had other unsettled obligations and encumbrances that could burden the subject property. Any person engaged in business would

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be wary of buying from a company that is closing shop, because it may be dissipating its assets to defraud its creditors.

- On the issue of the tanker’s ownership, the Maritime Industry Authority Admin stated in its letter that the registration of the disputed vessel under petitioner’s name had not been effected, and that the Cert. of Ownership and Vessel Registry covering the motor tanker had not been released. The reason was Marina’s receipt of the Entry of Judgment issued by the Supreme court on Aug. 29, 1997, and the notice of levy/sale on Execution of Personal Property covering the subject vessel. Thus, the ownership remained with Cayco and Olizon, and the NLRC sheriff could proceed with the levy and the sale on execution.

CHINA BANKING CORP. VS C.A. ( 327 s 378 )

FACTS: Alfonso and his wife Kiang Chua were the owners of a residential land. On Feb. 2 1984, a notice of levy affecting the property was issued in connection with

Metrobank vs Pacific Multi Commercial Corp. and Alfonso Chua case that was inscribed and annotated at the back of the TCT.

Subsequently, Kiang Chua filed a complaint questioning the levy as the land thereof was conjugal property.

So the parties entered into a compromise agreement to the effect the levy was valid only to the ½ undivided portion of the conjugal share of Alfonso.

On June 19, 1985, China Bank filed an action for collection of sum of money against Pacific And Alfonso, and the trial court decided in favor of China Bank on Nov. 7, 1985.

On Dec. 1987, a Cert. of Sale was executed covering the ½ undivided portion to Metrobank. On Nov. 21, 1988, Alfonso executed a public document denominated as “Assignment of Rights

to Redeem”, of the ½ portion to his son Paulino, which the latter redeemed it on the very same day and was inscribed on Mar. 14, 1989.

On Feb. 4, 1991, another notice of levy was issued and thereafter a Cert. of Sale was issued in favor of China Bank against the rights and interests of Alfonso.

This was challenged by Paulino that he has a prior and better right over the title because he redeemed the property 2 yrs before China Bank acquired its right.

ISSUE:- WON the right of redemption made by Alfonso in favor of Paulino was done to defraud

creditors and may be rescinded? YES

HELD:- Under Art. 1381, contracts which are undertaken in fraud of creditors when the latter cannot in

any way collect the claims due them, are rescissible.- Under 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.

- After Alfonso’s conjugal share was foreclosed by Metrobank, the only property that he had was his right to redeem the same, it forming part of his patrimony. The judgment of the trial court in favor of China Bank against Alfonso was rendered on 1985, there is a presumption that the 1988 sale, the right of redemption, is fraudulent under Art. 1387. this presumption is strengthened by the fact that the conveyance has virtually left Alfonso’s other creditors with no other property to attach.

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- Under the third paragraph of the same article, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. The Supreme Court considered the following instances as 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 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 circumstances7) The failure of the vendee to take exclusive possession of all the property.

- Alfonso’s intent to defraud his other creditors, specifically, China Bank, becomes even more apparent when C.A. dismissed the appeal of Pacific Multi-Agro and Alfonso Roxas Chua, he assigned his right to redeem ½ of the conjugal property to his son.

- The mere fact that the conveyance was founded on valuable consideration does not necessarily negate the presumption of fraud under Article 1387 of the Civil Code. There has to be a valuable consideration and the transaction must have been made bona fide.

- In the case at bar, the presumption that the conveyance is fraudulent has not been overcome. At the time a judgment was rendered in favor of China Bank against Alfonso and the corporation, Paulino was still living with his parents in the subject property. Paulino himself admitted that he knew his father was heavily indebted and could not afford to pay his debts. The transfer was undoubtedly made between father and son at a time when the father was insolvent and had no other property to pay off his creditors. Hence, it is of no consequence whether or not Paulino had given valuable consideration for the conveyance.

- Right of redemption is part of the property under civil law which comprehends every species of title, inchoate or complete, legal or equitable.

ROSENCOR DEV’T CORP. VS INQUING ( 354 s 119 )

FACTS: Inquing, et al, are the lessees since 1971 of a 2-story residential apartment owned by spouses

Tiangco. The lease was not covered by any contract. The lessees were verbally granted by the lessors the pre-emptive right to purchase the property if ever they decided to sell the same.

Upon the death of the spouses Tiangco, the management of the property was adjudicated to their heirs who were represented by Enfrocino de Leon which the latter had knowledge of the promise of pre-emptive right to purchase.

On June 1990, the lessees received a letter from Atty. Aguila demanding that they vacate the premises so that demolition could be undertaken but the lessees refused to leave. On that same month, de Leon refused to accept the lessees’ rental payment claiming that they run out of receipts and a new collector has been assigned.

Thereafter, the lessees received a letter from de Leon offering to sell to them the property they were leasing for P 2M. The lessees offered to buy for the amount of P 1M but no answer was given by de Leon. However, in Nov. 1990, Rene Joaquin introduced himself as the new owner, the vice-pres of Rosencor.

On Jan. 1991, the lessees received a letter from de Leon advising them that the property has already been sold to Rosencor.

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The lessees discovered that the sale between de Leon and Rosencor took place in Sept. 4, 1990, while de Leon made the offer to them only in Oct. 1990, and it was sold for P 726,000.00.

The lessees offered to reimburse de Leon the selling price of P 726,000.00 plus additional P 274,00.00 to complete their P 1M earlier offer. However, their offer was refused which prompted them to file an action for rescission of the Deed of Sale.

ISSUES:1) WON right of first refusal is indeed covered by the provisions on the statute of frauds? NO2) WON respondent have satisfactorily proven their right of first refusal? YES3) WON a contract of sale in violation of a third party’s right of first refusal may be rescinded in

order that such third party can exercise said right? NO bec. Rosencor is in good faith

HELD:1) A right of first refusal is not among those listed as unenforceable under the statute of frauds.

The application of Art. 1403 presupposes the existence of a perfected, albeit unwritten, contract of sale. Right of first refusal is not by means a perfected contract of sale of real property. At best, it is a contractual grant over the property sought to be sold. It need not be written to be enforceable and may be proven by oral evidence.

2) The lessees uniformly testified that they were promised of the right of first refusal and de Leon’s letter to offer the property for sale to the respondents. Moreover, Rosencor did not present evidence contradicting the existence of the right of first refusal before the trial court. As such, there being no evidence to the contrary, the right of first refusal was substantially proven by the respondents.

3) Under Art. 1381 par (3), a contract validly agreed upon may be rescinded if it is “undertaken in fraud of creditors when the latter cannot in any manner collect the claim due them”. And under Art. 1385, rescission shall not take place “when the things which are the object of the contract are legally in possession of third person who did not act in bad faith”.

- In this case, the right of first refusal was an oral one. As such, in order to hold that Rosencor were in bad faith, there must be clear and convincing proof that Rosencor were made aware of the said right of first refusal either by the respondents or by the heirs of the spouses Tiangco. Good faith is always presumed unless contrary evidence is adduced. The rule on constructive notice would be inapplicable as it is undisputed that the right of first refusal was an oral one and that the same was never reduced to writing, much less registered with the Registry of Deeds. Respondents failed to present any evidence that prior to the sale of the property, Rosencor were aware or had notice of the oral right of first refusal. The letter that was given to the lessees did not mention of the right of first refusal, nor the name of Rosencor did appear. Moreover the letter was made a month after the execution of the deed of absolute sale. There is no showing that petitioners were put on notice of the existence of the right of first refusal. Thus, the C.A. erred in ordering the rescission of the deed of absolute sale.

- Respondents remedy however is not an action for the rescission but an action for damages against the heirs of the spouses Tiangco for the unjustified disregard of their right of first refusal. If Rosencor was in bad faith then it can be rescinded.

CHENG VS C.A. ( 355 s 701 )

FACTS:

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Petitioner Khe Hong Cheng is the owner of Butuan Shipping Lines, the vessel M/V Prince Eric. The Phil. Agri Trading Corp. shipped 3,400 bags of copra at Masbate for delivery to Dipolog.

However, M/V Prince Eric sank between Negros Island and Mindanao. Because of the loss, American Home Insurance Company as the insurer (respondents Philam’s assured) paid Phil. Agri Trading Corp. the amount of P354,000.00 (the value of the copra).

American Home instituted a civil case to recover the money paid based on breach of contract of carriage against Khe Hong Cheng.

On Dec. 20, 1989, while the case was pending, Cheng executed deeds of donations in favor of his children and a new TCT was issued in their favor.

The trial court rendered judgment against Cheng in civil case on Dec. 29, 1993, four years after the donation was made. The decision became final and executory and a writ of execution was issued on Sept. 14, 1995 but it was not served.

On Oct. 1996, an alias writ of execution was granted but when the sheriff, accompanied by Philam, went to Butuan City they discovered that Cheng no longer had any property.

On Feb. 25, 1997, respondent Philam filed a complaint for the rescission of the donation and nullification of title. Cheng moved for its dismissal on the ground that the action had already prescribed because the registration of the deeds of donation on Dec. 27, 1989, constituted constructive notice and the complaint was filed more than 4 years after said registration.

The trial court held that Philam’s complaint had not yet prescribed. It began to run only from Dec. 29, 1993, the date of the decision of the trial court.

The C.A. ruled that the 4 year period began to run only in Jan. 1997, the time when Philam learned that the judgment cannot be satisfied.

ISSUE:- WON the 4 year prescriptive period had prescribed? NO- When will the 4 year prescriptive period commence to run? It is the legal possibility of bringing

the action which determines the starting point for the computation of the prescriptive period for the action.

HELD:- Under Art. 1389, “the action to claim rescission must be commenced within 4 years”. Since the

provision of law is silent as to when the prescriptive period would commence, the general rule is from the moment the cause of action accrues. The Supreme Court enunciated the principle that it is the legal possibility of bringing the action which determines the starting point for the computation of the prescriptive period for the action.

- Under Art. 1383, an action to rescind or an accion pauliana must be of last resort, availed of only after all the legal remedies have been exhausted and have proven futile. An accion pauliana accrues only when the creditor discovers that he has no other legal remedy for the satisfaction of his claim against the debtor. For as long as the creditor still has remedy at law, the creditor will not have any cause of action for rescission. An accion pauliana thus presupposes the ff:

1) A judgment;2) The issuance by the trial court of a writ of execution for the satisfaction of the judgment;3) The failure of the sheriff to enforce and satisfy the judgment of the court.

- It requires that the creditor has exhausted the property of the debtor. The date of the decision of the trial court is immaterial. What is important is that the creditor of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court against the debtor will retroact to the time when the debtor became indebted to the creditor. Had Philam filed his complaint on Dec. 27, 1989, the date of execution of the deeds of donation,

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such complaint would be dismissed for being premature because Philam had not yet exhaust all the legal remedies and would not have been able to prove that Cheng had no more property to satisfy the trial court’s judgment.

- Respondent Philam only learned about the unlawful conveyance made by Cheng in Jan. 1997 and found that Cheng no longer had any properties. It is only then that Philam’s action for rescission accrued because then it could be said that Philam had exhausted all legal remedies. Since Philam filed its complaint for accion pauliana on Feb. 25, 1997, barely a month from its discovery that Cheng had no other property, its action clearly had not yet prescribed.

EQUATORIAL REALTY DEVELOPMENT VS. MAYFAIR THEATER, INC.Mother Case (264 s 483)

FACTS: Carmelo and Bauermann, Inc. (Carmelo) owned a parcel of land with 2-storey buildings

thereon. Carmelo entered into a contract of lease on June 1, 1967 with Mayfair Theater, Inc. (Mayfair) for a period of 20 years. The lease covered a portion of the second floor used as a movie house known as “Maxim Theater”.

Two years later, Mayfair entered into a second contract of lease on March 31, 1969 with Carmelo, also for a period of 20 years, for the lease of another portion of the latter’s property to be used as another movie house known as “Miramar Theater”.

Both the first and the second contract of lease contained a provision granting Mayfair a right of first refusal to purchase the subject properties.

However, on July 30, 1978 –within the 20-year-lease-term- the subject properties were sold by Carmelo to Equatorial for P11,300,000 without first being offered to Mayfair.

Mayfair filed a complaint before the RTC for the annulment of the Deed of Sale between Carmelo and Equatorial.

RTC ruled that the Deed of Absolute Sale is valid, rendered in favor of Carmelo and Equatorial. CA, however, completely set aside and reversed such decision.

Mayfair filed a petition for review before the SC, to which the SC held that the said Deed of Absolute Sale is hereby rescinded, ordered Carmelo to return to Equatorial the purchase price of P11,300,000, directed Equatorial to execute the deeds and documents necessary to return ownership to Carmelo of the disputed lots, and ordered Carmelo to allow Mayfair to buy the said lots also for P11,300,000. Such decision became final and executory.

Daughter Case (370 s 56)

Equatorial questioned the legality of the above ruling. CA alleged that Carmelo is obliged to return the entire purchase price to Equatorial. On the other hand, Mayfair may not deduct from the purchase price the amount of the withholding tax.

Equatorial filed an action for the collection of sum of money against Mayfair. CA alleged that the lease contact covering the premises occupied by Maxim Theater expired on May 31, 1987 and the premises occupied by Miramar Theater lapsed on March 31, 1989. Representing itself as the owner of the subject premises by reason of the contract of sale on July 30, 1978, it claimed rentals arising from Mayfair’s occupation thereof.

RTC dismissed the complaint. The lower court debunked the claim of Equatorial for unpaid back rentals, holding that the rescission of the Deed of Absolute sale in the mother case did not confer on Equatorial any vested or residual proprietary rights, even an expectancy. It held that the critical issue was whether Equatorial was the owner of the subject property and thus enjoy

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the fruits or rentals therefrom and declared that the rescinded Deed of Absolute Sale as “void at its inception as though it did not happen”.

ISSUES:- WON the rescission of the Deed of Absolute Sale confers Equatorial any vested right nor any

residual proprietary rights even in expectancy? NOHELD:

- It does not mean that despite the judgment rescinding the sale, the right to the fruits still belonged to and remained enforceable by Equatorial. ARTICLE 1385 o the Civil Code provides that “rescission creates the obligation to return the things which were the object of the contact, together with their fruits, and the price with interest,

- The fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted to mean either actual deliver or ipso facto recognition of Equatorial’s title. They were made merely to avoid imminent eviction. Thus, Equatorial never acquired ownership, not because the sale was void, as erroneously claimed by the trial court, but because the sale was not consummated by a legally effective delivery of the property sold.

- There was no valid delivery because it is clear that Equatorial never took actual control and possession of the property sold. By a contract of sale, one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent. Ownership of the thing sold is 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 possession is transferred from the vendor to the vendee. The right is transferred not by contract alone, but by tradition or delivery.

- The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery. Such presumption is destroyed when the instrument itself expresses or implies that deliver was not intended, or when by other means it is shown that such delivery was not effected because a third person was actually in possession of the thing. In the latter case, the sale cannot be considered consummated.

- FURTHERMORE, assuming for the sake of argument that there was delivery, Equatorial is not entitled to any benefits from the rescinded Deed of Absolute Sale because of its BAD FAITH. The contract of sale between Equatorial and Carmelo was characterized by bad faith because it was entered into in violation of the rights of and to the prejudice of Mayfair. Equatorial admitted that its lawyers had studied the contact of lease prior to the sale. Equatorial’s knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests. Thus, Equatorial was and still is entitled solely to the return of the purchase price it paid to Carmelo, no more, no less. Neither of them is entitled to any consideration of equity, as both took unconscientious advantage of Mayfair.

REYES VS. LIM ( 408 s 560 )

FACTS: David Reyes filed a complaint for annulment of contract against Jose Lim, Chuy Cheng Keng,

and Harrison Lumber, Inc. alleging that Reyes as seller and Lim as buyer entered into a contract to sell over a parcel of land. Said land was occupied by Harrison as a lessee with a monthly rental of P35,000.

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They have agreed to the total purchase price which is P28,000,000.00. Such amount is payable by installment (P10M - downpayment, P18M - balance). The balance is to be paid on March 8, 1995 only upon 2 conditions: a) complete vacation of the tenants or occupants and b) execution of deed of absolute sale, otherwise, the vendee shall withhold the payment of balance of P18M and the vendor agrees to pay a 4% penalty per month until the complete vacation of the premises.

Reyes informed Keng and Harrison Lumber to vacate the property before March 8, 1995 and if they failed so, he would hold them liable for the penalty of P400,000 a month.

Allegedly, Lim connived with Harrison Lumber not to vacate the property until the P400,000 monthly penalty would have equaled the unpaid purchase price of P18,000,000. Lim, however, denied.

According to Keng and Harrison, Reyes approved their request to extend the period to vacate to give them ample time to find a new location for their business.

Lim claimed he was ready and willing to pay the balance of the purchase price on or before March 8, 1995, and requested a meeting for that matter, but Reyes kept postponing their meeting.

On March 9, 1995, Reyes offered to return the P10M downpayment because he was having problems in removing the lessee from the property but Lim rejected.

Lim later on found that Reyes already sold the property to LINE ONE on March 1, 1995 for P16,782,840.00.

Both Reyes and Lim are now seeking rescission of the Contract to Sell. RTC: The trial court granted Lim’s request to order Reyes to deposit P10M downpayment with

the RTC citing Article 1385 of the Civil Code. “An action for rescission could prosper only if the party (Reyes) demanding rescission can return whatever he may be obliged to restore should the court grant the rescission.”

CA: Orders of the RTC for having been issued with grave abuse of discretion.

ISSUE:- WON Reyes, who asked for rescission of the contract, can validly refuse to deposit the

downpayment of P10M with the RTC? NO

HELD: - Reyes cannot refuse to deposit the downpayment of P10M with the RTC in order to PREVENT

UNJUST ENRICHMENT and to ENSURE RESTITUTION.- TO PREVENT UNJUST ENRICHMENT

- The principle of unjust enrichment is embodied in Article 22 of the Civil Code. There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.

- Reyes cannot claim ownership of the P10M downpayment because Reyes had already sold the property to LINE ONE for which Lim made the downpayment. To subscribe to his contention that “prior to a judgment annulling the contract to sell, he has the right to use, possess and enjoy the P10M as its owner unless the court orders its preliminary attachment” would unjustly enrich him at the expense of Lim. It is unreasonable and unjust for Reyes to object to the deposit of P10M downpayment. The application of equity always involves a balancing of the equities in a particular case, a matter addressed to the sound discretion of the court. Here, the court finds the equities weigh heavily in favor of Lim, who paid the P10M downpayment in good faith only to discover later that Reyes had subsequently sold the property to another buyer.

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- In this case, it was just, equitable and proper for the trial court to order the deposit of P10M downpayment to prevent unjust enrichment by Reyes at the expense of Lim.

- TO ENSURE RESTITUTION - The Contract to sell can no longer be enforced because Reyes himself subsequently sold

the property to LINE ONE.- Under Article 1385 of the Civil Code, rescission creates the obligation to return the

things that are the object of the contract. Rescission is possible only when the person demanding rescission can return whatever he may be obliged to restore. A court of equity will not rescind a contract unless there is restitution, that is, the parties are restored to the status quo ante.

- Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to deposit the P10M downpayment in court. Such deposit will ensure restitution of the P10M to its rightful owner. Lim, on the other hand, has nothing to refund, as he has not received anything under the Contract to Sell.

UNION BANK VS ONG( 491 s 581 )

FACTS: Herein respondents, the spouses Alfredo Ong and Susana Ong, own the majority capital stock

of Baliwag Mahogany Corporation (BMC). On October 10, 1990, the spouses executed a Continuing Surety Agreement in favor of Union Bank to secure a P40,000,000.00-credit line facility made available to BMC. The agreement expressly stipulated a solidary liability undertaking.

On October 22, 1991, or about a year after the execution of the surety agreement, the spouses Ong, for P12,500,000.00, sold their lot located in Greenhills, Metro Manila, together with the house and other improvements standing thereon, to their co-respondent, Jackson Lee.

On November 22, 1991, BMC filed a Petition for Rehabilitation and for Declaration of Suspension of Payments with the Securities and Exchange Commission (SEC). To protect its interest, Union Bank lost no time in filing an action for rescission of the sale between the spouses Ong and Jackson Lee for purportedly being in fraud of creditors.

Union Bank assailed the validity of the sale, alleging that the spouses Ong and Lee entered into the transaction in question for the lone purpose of fraudulently removing the property from the reach of Union Bank and other creditors. The fraudulent design, according to Union Bank, is evidenced by the following circumstances: (1) insufficiency of consideration, the purchase price of P12,500,000.00 being below the fair market value of the subject property at that time; (2) lack of financial capacity on the part of Lee to buy the property at that time since his gross income for the year 1990, per the credit investigation conducted by the bank, amounted to only P346,571.73; and (3) Lee did not assert absolute ownership over the property as he allowed the spouses Ong to retain possession thereof under a purported Contract of Lease

The trial court rendered judgment in favor of Union Bank. Foremost of the circumstances adverted to relate to the execution of the sale against the backdrop of the spouses Ong, as owners of 70% of BMC's stocks, knowing of the company’s insolvency. This knowledge was the reason why, according to the court, the spouses Ong disposed of the subject property leaving the bank without recourse to recover BMC's indebtedness.

ISSUE:- WON the sale was made to defraud Union Bank? NO

HELD:

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- Contracts in fraud of creditors are those executed with the intention to prejudice the rights of creditors. In determining whether or not a certain conveying contract is fraudulent, what comes to mind first is the question of whether the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors.

- In the present case, respondent spouses Ong had sufficiently established the validity and legitimacy of the sale in question. The conveying deed, a duly notarized document, carries with it the presumption of validity and regularity

- Petitioner raises the issue of inadequate consideration, alleging in this regard that only P12,500,000.00 was paid for property having, during the period material, a fair market value of P14,500,000.00. The spouses Ong acquiesced to the price of P12,500,000.00, which may be lower than the market value of the house and lot at the time of alienation, is certainly not an unusual business phenomenon. The disparity between the price appearing in the conveying deed and what the petitioner regarded as the real value of the property is not as gross to support a conclusion of fraud. What is more, one Oliver Morales, a licensed real estate appraiser and broker declared that there exists no gross disparity between the market value of the subject property and the price mentioned in the deed as consideration.

- It is true that respondent spouses, as surety for BMC, bound themselves to answer for the latter’s debt. Nonetheless, for purposes of recovering what the eventually insolvent BMC owed the bank, it behooved the petitioner to show that it had exhausted all the properties of the spouses Ong. It does not appear in this case that the petitioner sought other properties of the spouses other than the subject Greenhills property. Absent proof, therefore, that the spouses Ong had no other property except their Greenhills home, the sale thereof to respondent Lee cannot be considered as one in fraud of creditors.

- For a contract to be rescinded for being in fraud of creditors, both contracting parties must be shown to have acted maliciously so as to prejudice the creditors who were prevented from collecting their claims.

- Petitioner has made much of respondent Lee not taking immediate possession of the property after the sale, stating that such failure is an indication of his participation in the fraudulent scheme to prejudice petitioner bank. SC is not persuaded. The spouses' continuous possession of the property was by virtue of a one-year lease they executed with respondent Lee six days after the sale. While the failure of the vendee to take exclusive possession of the property is generally recognized as a badge of fraud, the same cannot be said here in the light of the existence of what appears to be a genuine lessor-lessee relationship between the spouses Ong and Lee.

- Petitioner’s assertion regarding respondent Lee’s lack of financial capacity to acquire the property in question since his income in 1990 was only P346,571.73 is clearly untenable. Assuming for argument that petitioner got its figure right, it is clearly incorrect to measure one’s purchasing capacity with one’s income at a given period. But the more important consideration in this regard is the uncontroverted fact that respondent Lee paid the purchase price of said property.

REGAL FILMS INC VS. CONCEPCION ( 362 s 504 )

FACTS: In 1991 respondent Gabby Concepcion, through his manager Lolit Solis entered into a contract

with petitioner Regal Films, for services to be rendered by respondent in petitioner’s motion pictures. Petitioner undertook to give 2 parcels of land and talent fees it had agreed to pay.

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In 1993, the parties renewed the contract incorporating the same undertaking on the part of Regal to give Gabby 2 parcels of land mentioned in the same agreement. Despite his appearance in several films produced by Regal, the latter failed to comply w/ its promise to convey to Gabby 2 aforementioned lots.

May 30, 1994, Gabby and his manager Lolit filed an action for rescission w/ RTC. Respondent contended that he was entitled to rescind the contract +damages, and to be released from further commitment to work exclusively for Regal owing to the latter’s failure to honor the agreement.

Regal moved for complainant’s dismissal on the alleged ground that the parties had settled their differences amicably, that both parties had executed an agreement on June 17, 1994 which was to operate as an addendum to their 1991 and 1993 contracts between them. The agreement was signed by Gabby’s manager Lolit, purportedly acting for and in behalf of Gabby.

Sept. 30, 1994, Solis filed a motion to dismiss the complaint reiterating that she, acting for herself and Gabby had already settled the case amicably with Regal.

Oct. 17, 1994, Gabby himself opposed the motion to dismiss contending that the addendum contained provisions grossly disadvantageous to him and that it was executed w/o his consent; that Lolit had since ceased to become his manager and had no authority to sign the addendum for him.

June 23, 1995, during the preliminary conference between the parties, Regal intimated to Gabby and his counsel its willingness to allow Gabby to be released from his 1991 and 1993 contracts w/ Regal rather than to further pursue the addendum w/c Gabby had challenged.

July 3, 1995, Gabby filed a manifestation w/ the trial Court to the effect that he was now willing to honor the addendum to his previous contracts and to have it considered as a compromise agreement as to warrant a judgment in accordance therewith- manifestation elicited a comment from Regal and Lolit to the effect that the relationship between the parties had by then become strained, following the Manila Filmfest scam, involving the respondent, but Regal was willing to release from his contract.

ISSUE: - WON the contract is enforceable? NO

HELD:- Consent could be given not only by the party himself but by anyone duly authorized and acting

for and in his behalf. But by respondent's own admission, the addendum was entered into without his knowledge and consent.

- A contract entered into in the name of another by one who ostensibly might have but who, in reality, had no real authority or legal representation, or who, having such authority, acted beyond his powers, would be unenforceable. The addendum would never been susceptible of ratification by the person on whose behalf it was executed.

- Ratification should be made before its revocation by the other contracting party. The adamant refusal of respondent to accept the terms of the addendum constrained petitioner, during the preliminary conference held on 23 June 1995, to instead express its willingness to release respondent from his contracts prayed for in his complaint and to thereby forego the rejected addendum. Respondent's subsequent attempt to ratify the addendum came much too late for, by then, the addendum had already been deemed revoked by petitioner.

LITONJUA VS FERNANDEZ ( 427 s 478 )

FACTS

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Petitioners Litonjua though the offer of brokers and respondent agreed that the petitioners would buy 2 parcels of land and would meet on an agreed date to finalize the sale. However, only one of the brokers attended the meeting informing the petitioners that respondent Fernandez was encountering some problems with the tenants and was trying to work out a settlement with them.

After a few weeks of waiting, the Petitioners wrote Fernandez demanding that their transaction be finalized. With no response, petitioners sent another letter asking that the Deed of Absolute Sale covering the property to be executed in accordance with the verbal agreement and demanded turnover of the properties otherwise would resort to legal means.

Fernandez wrote a letter to petitioners dated January 16, 1996 in response to the first letter:“…my cousin and I have thereby changed our mind and that the sale will no longer push through. I specifically instructed her to inform you through your broker that we will not be attending the meeting…In view thereof I regret to formally inform you now that we are no longer selling the property until all problems are fully settled. We have not demanded and received from you any earnest money hence no obligations exist.”

Petitioners filed a complaint for specific performance with damages against Fernandez and the registered owners of the property.

Petitioners argue that the letter is a sufficient note or memorandum of the perfected contract thus removing it from the statute of Frauds.

ISSUES:1) WON there was a perfected contract of sale between the parties? NO2) WON the contract falls under the coverage of statue of frauds? NO

HELD:1) The tenor of the letter reveals a consistent denial that there was any such commitment on the

part of the defendant to sell the subject lands to plaintiffs. When the defendant used the words “changed our mind” she was clearly referring to the decision to sell the property at all and not in selling the property to plaintiffs as defendant had not yet made the final decision to sell the property. This conclusion is buttressed by the statement in the letter, “we are no longer selling the property until all problems are fully settled.

2) Contrary to the petitioner’s contention, the letter is not a note or memorandum within the context of Article 1403 (2) because it does not contain the following:

a. all the essential terms and conditions of the sale of the properties;b. an accurate description of the property subject of the sale;c. the names of the owners of the properties.Furthermore, the letter made reference to only one property.

- The term “statute of frauds” is descriptive of statutes which require certain classes of contracts to be in writing. The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations, depending for their existence on the unassisted memory of witnesses by requiring certain enumerated contracts to be in writing signed by the party to be charged. The statue is satisfied or as it is often stated, a contract or bargain is taken within the statue by making and executing a note or memorandum of the contract which is sufficient to state the requirements of the statue. The application of such statute presupposes the existence of a perfected contract. Such note or memorandum must contain the essential elements of the contract expressed with certainty that may be ascertained from the note or memorandum itself or some other writing to which it refers or within which it is connected without resorting to parol evidence. To be binding on the persons charged, such note or memorandum must be signed by the said party or by his agent duly authorized in writing. The exchanged of written correspondence between the

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parties may constitute sufficient writing to evidence the agreement for purposes of complying with the statutes of frauds.

AINZA VS PADUA ( 462 s 614 )

FACTS: In her complain for partition of real property, annulment of titles with damages, Concepcion

Ainza alleged that respondent spouses Eugenia & Antonio Padua owned a 216.4sqm lot with an unfinished residential house in Quezon City.

Sometime in Apr. 1987 Concepcion Ainza bought ½ of an undivided portion of the property from her daughter (Eugenia) and the latter’s husband (Antonio) for P100T

No Deed of Absolute Sale was executed to evidence the transaction, but cash payment was received by the respondents, and ownership was transferred to Concepcion through physical delivery to her attorney in fact and daughter Natividad.

Concepcion authorized Natividad and the latter’s husband Ceferino Tuliao to occupy the premises and make improvements on the unfinished building.

Thereafter, Concepcion alleged that without her consent, Padua caused the subdivision of the property into three portions and registered it in their names under TCTs in violation of the restrictions annotated at the back of the title.

Antonio averred in 1980 that he bought the property and introduced improvements thereon; Between 1989 and 1990 – he and his wife Eugenia allowed Natividad and Ceferino to occupy the premises temporarily; In 1994 – they caused the subdivision of the property and 3 separate titles were issued; After the subdivision of the property, Antonio requested Natividad to vacate the premises but the latter refused and claimed that Concepcion owned the property. Antonio filed an ejectment suit against Natividad.

Concepcion represented by Natividad also filed on May 4, 1999 a civil case for partition of real property and annulment of titles with damages.

Antonio claimed that his wife Eugenia admitted that Concepcion offered to buy 1/3 of the property who gave her small amounts over several years which totaled P100T by 1987 and for which she signed a receipt.

ISSUES:1) WON there was a perfected contract? YES2) WON these verbal contract violate the Statue of Fraud? NO3) WON the absence of Antonio’s consent the disposition made by Eugenia is voidable? YES

HELD:1) Contract of sale is perfected by mere consent. Upon meeting of the minds on the offer and the

acceptance thereof based on the subject matter, price and terms of payment.- Eugenia offered to sell a portion of the property to Concepcion who accepted the offer and

agreed to pay 100,000. The contract of sale was consummated when both parties fully complied with their respective obligations.

2) The Verbal contract of sale between Eugenia and Concepcion did not violate the provisions of the Statute of Frauds that a contract for the sale of real property shall be unenforceable unless the contract or some note or memorandum of the sale in writing and subscribed by the party charged or his agent. When a verbal agreement has been completed, executed or partially consummated its enforceability will not be barred by the Statute of Frauds which applies only to executory agreements. Oral contract of sale between Eugenia & Concepcion was evidenced

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by a receipt signed by Eugenia, Antonio also stated that his wife admitted to him that she sold the property to Concepcion.

3) It is undisputed that the subject property was conjugal and sold by Eugenia in April 1987 or prior to the effectivity of the Family Code on August 3, 1988. Art 254 of the FC repealed Title V, Book 1 of the CC provisions on the property relations between Husband and Wife. However, Art 256 of the FC limited its retroactive effect only to cases where it would not prejudice or impair vested or acquired rights in accordance with the CC or other laws.

- In the case, vested rights of Concepcion will be impaired or prejudiced by the application of the FC, hence the provisions of the CC should be applied. The consent of both Eugenia and Antonio is necessary for the sale of the conjugal property to be valid. Antonio’s consent cannot be presumed. In the absence of his consent, the disposition made by Eugenia is voidable. The contract of sale between Eugenia and Concepcion being an oral contract, the action to annul the same must be commenced within 6 years from the time the right of action accrued. Eugenia sold the property in Apr. 1987, hence, Antonio should have asked the courts to annul the sale on or before Apr. 1993. No action was commenced by Antonio to annul the sale hence his Right to Seek Annulment has prescribed.

- In summary, the sale of the Conjugal property by Eugenia without the consent of her husband is voidable. It is binding unless annulled. Antonio failed to exercise his right to ask for the annulment within the prescribed period hence, he is now barred from questioning the validity of the sale between his wife and Concepcion.

MODINA VS CA( 317 s 696 )

FACTS: The parcels of land in question are those under the name of Ramon Chiang. He theorized that

subject properties were sold to him by his wife, Merlinda as evidence by a Deed of Absolute Sale and were subsequently sold by Chiang to the petitioner, Modina as shown by the Deeds of Sale.

Modina brought a complaint against private respondents for recovery pf Possession with Damages. Upon learning the instition of the said sale, Merlinda presented a complaint seeking the declaration of nullity of the Deed of Sale between husband and Modina on the ground that the titles of the parcels of land were never legally transferred to her husband.

Fraudulent acts were employed by him to obtain a Torren’s title in his favor. The properties were the properties of her first husband which she was appointed as administratix.

ISSUES:1) WON the sale of subject lots should be nullified? YES2) WON Modina was not a purchaser in good faith? YES

HELD:1) the Deed of Sale between Merlinda and Chiang was a nullity for want of consideration (in pari

delicto can only be applied in cases where the nullity arises from the illegality of the consideration or purpose of the contract – when the parties are equally at fault, the law does not relieve them; the principle does not apply when it is invoked with respect to inexistent contracts). Under Art. 1409, a contract without consideration is a void contract, it produces no effect.

- In this case, Merlinda did not aver the same as a ground to nullify subject Deed of Sale. In fact she denied the existence of the Deed of Sale in favor of her husband, in other words, no contract between them. She did not even put up a defense under Art. 1490 to nullify her sale to

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her husband Chiang because such defense would be inconsistent with her claim that the same sale was inexistent.

- Since one of the characteristics of a void contract or inexistent contract is that it does not produce any effect, Merlinda can recover the property from petitioner.

2) Petitioner cannot claim that he was a purchaser in good faith. There are circumstances which are indicia of bad faith on his part, to wit: (1) He asked his nephew, Placido Matta, to investigate the origin of the property and the latter learned that the same formed part of the properties of MERLINDA's first husband; (2) that the said sale was between the spouses; (3) that when the property was inspected, MODINA met all the lessees who informed that subject lands belong to MERLINDA and they had no knowledge that the same lots were sold to the husband.

VALENCIA VS LOCQUIAO ( 412 s 600 )

FACTS: In 1944, Locquiao spouses executed a deed of donation propter nuptias which was written

involving a parcel of land in favor of their son, Benito and future wife, Tomasa. The deed of donation propter nuptias was denominated as Inventario Ti Sagut .

By the terms of the deed, the donees were gifted with 4 parcels of land including the land in question, male cow and 1/3 portion of the conjugal house of donor spouses. The donees took their marriage vows on June 1944.

When the spouses died, they left 6 heirs (children). With the permission of respondents Benito and Tomasa, Romana (Benito’s sister) took possession and cultivate the subject land, and eventually, possession was taken over by Romana’s daughter, Constancia.

Benito and Tomasa registered the donation and the original title was cancelled and in lieu thereof a certificate of title was issued. The heirs executed a Deed of Partition with Recognition of Rights. Later, disagreements arise among heirs concerning the part of land surface but it was settled thru a compromise agreement. But Constancia filed an action for annulment of title against the respondents regarding the donation propter nuptias.

She alleged that the transfer of certificate was fraud and spurious; that the donation did not observe the form required by law as there was no written acceptance on the document.

ISSUES:1) WON the donation propter nuptias is effective? YES2) WON the action is barred by prescription and laches? YES

HELD:1) Under the Old Civil Code, donations propter nuptias must be made in a public instrument in

which the property donated must be specifically described. However, Article 1330 of the same Code provides that “acceptance is not necessary to the validity of such gifts”. In other words, the celebration of the marriage between the beneficiary couple, in tandem with compliance with the prescribed form, was enough to effectuate the donation propter nuptias under the Old Civil Code.

- Under the New Civil Code, the rules are different. Article 127 thereof provides that the form of donations propter nuptias are regulated by the Statute of Frauds. Article 1403, paragraph 2, which contains the Statute of Frauds requires that the contracts mentioned thereunder need be in writing only to be enforceable. However, as provided in Article 129, express acceptance “is not necessary for the validity of these donations.” Thus, implied acceptance is sufficient.

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- It is the Old Civil Code which applies in this case since the donation propter nuptias was executed in 1944 and the New Civil Code took effect only on August 30, 1950. As a consequence, applying Article 1330 of the Old Civil Code in the determination of the validity of the questioned donation, it does not matter whether or not the donees had accepted the donation. The validity of the donation is unaffected in either case.

2) Petitioners’ action for reconveyance is definitely barred by prescription. Petitioners’ right to file an action for the reconveyance of the land accrued in 1944, when the Inventario Ti Sagut was executed. It must be remembered that before the effectivity of the New Civil Code in 1950, the Old Code of Civil Procedure (Act No. 190) governed prescription. Under the Old Code of Civil Procedure, an action for recovery of the title to, or possession of, real property, or an interest therein, can only be brought within ten years after the cause of such action accrues. Thus, petitioners’ action, which was filed on December 23, 1985, or more than forty (40) years from the execution of the deed of donation on May 22, 1944, was clearly time-barred.

- Even following petitioners’ theory that the prescriptive period should commence from the time of discovery of the alleged fraud, the conclusion would still be the same. As early as May 15, 1970, when the deed of donation was registered and the transfer certificate of title was issued, petitioners were considered to have constructive knowledge of the alleged fraud. As it is now settled that the prescriptive period for the reconveyance of property allegedly registered through fraud is ten (10) years, reckoned from the date of the issuance of the certificate of title, the action filed on December 23, 1985 has clearly prescribed.

- In any event, independent of prescription, petitioners’ action is dismissible on the ground of laches. The elements of laches are present in this case, viz:a) conduct on the part of the defendant, or one under whom he claims, giving rise to the

situation that led to the complaint and for which the complainant seeks a remedy;b) delay in asserting the complainant’s rights, having had knowledge or notice of 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, andd) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the

suit is not held barred. - Of the facts which support the finding of laches, stress should be made of the following: (a) the

petitioners Romana unquestionably gained actual knowledge of the donation propter nuptias when the deed of partition was executed in 1973 and the information must have surfaced again when the compromise agreement was forged in 1976, and; (b) as petitioner Romana was a party-signatory to the two documents, she definitely had the opportunity to question the donation propter nuptias on both occasions, and she should have done so if she were of the mindset, given the fact that she was still in possession of the land in dispute at the time. But she did not make any move. She tarried for eleven (11) more years from the execution of the deed of partition until she, together with petitioner Constancia, filed the annulment case in 1985.

DOMALAGAN VS BOLIFER( 33 phil 471 )

FACTS: On Nov. 1909, Domalagan and Bolifer entered into a contract by virtue of the terms of which

Domalagan was to pay P500 upon the marriage of his son Cipriano with the daughter of the defendant, Bonifacia Bolifer. Petitioner completed his obligation in the sum of P500 plus P16 as Hansel or Token of future marriage. Notwithstanding the said agreement, Bonifacia was joined in lawful wedlock to Laureano Sisi. Immediately upon learning of the marriage,

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petitioner demanded the defendant to return the sum of P516 together with the interest and damages. Defendant presented a general denial.

ISSUE:- WON the verbal contract was valid and effective in regard to the delivery of the money by

reason of a prospective marriage? YES

HELD:- Under section 335 of the code of procedure, an agreement made upon the consideration of

marriage other than mutual promise to marry shall be unenforceable unless the same, or some note or memorandum be in writing and subscribe by the party charged, or his agent. However, it does not declare the contract is invalid. The said section simply provides the method by which the contract mentioned therein may be proved. If the parties to an action during the trial of the case make no objection to the admissibility of oral evidence to support contracts like the one in question and permit the contract to be proved, by evidence other than writing, it will be just as binding upon the parties as if it had been reduced to writing.

GUAN VS ONG( 367 s 559 )

FACTS: Petitioner and respondent are husband and wife. They live together until she and her children

abandoned by petitioner on Aug. 26, 1992. She purchased on Mar. 1968, out of her personal funds, a parcel of land, referred to as the Rizal property. Before their separation, she reluctantly agreed to petitioner to exercise a Deed of Sale of the Rizal property in his favor but on the promise that he would construct a commercial building for the benefit of the children, P200K was the ostensible valuable consideration which was not materialized.

Because of the sale, a new title was issued in his name, but to insure that he would comply with his commitment, she did not deliver the owner’s copy of the title to him.

Petitioner failed to perform his promise and because he insisted on delivering to him the owner’s copy of the title, in addition to the threats and physical violence, she decided executing an Affidavit of Adverse claim.

Petitioner filed a Petition for Replacement of owner’s duplicate title, attached to it is the Affidavit of Loss in which he falsely made to appear that the owner’s copy was lost or misplaced. It was granted by the court. Respondent immediately executed an adverse claim and asked the court to declare the sale as null and void.

It was on the version of petitioner that he bought the Rizal property in 1968 but bec. he was not a Filipino citizen at that time, he used Ong as a dummy and agreed to have the sale executed in the name of Ong although the consideration was his personal fund. When he was neutralized, a Deed of Sale was then executed under his name in 1972. Believing in good faith that his owner’s copy of the title was lost or might be concealed by respondent, he filed in 1993 a petition for replacement of the owner’s copy. He alleged that respondent was in pari delicto being privy to the simulated sale.

ISSUES:1) WON the contract was a simulated contract, fictitious and inexistent? YES2) WON respondent is in pari delicto? NO

HELD:

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1) There was no valid sale. The Deed of Sale was absolutely simulated and hence, void and without effect. No portion of the P200K consideration stated in the Deed was ever paid. And from the facts, it is clear that neither party had any intention whatsoever to pay the amount. A contract of purchase and sale is null and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears thereon as paid in fact never been paid by the purchaser to vendor. The Deed of Sale was executed merely to facilitate the transfer of the property to petitioner pursuant to an agreement between the parties to enable him to construct a commercial building and to sell a certain “Juno property” to their children. Being merely a subterfuge cannot be taken as the consideration of the sale.

2) The principle in pari delicto provides that when two parties are equally at fault, the law leaves them as they are and denies recovery by either one of them. However, this principle does not apply with respect to inexistent and void contracts.

SAMONTE VS C.A. ( July 12, 2001 )

FACTS; The parcel of land (Lot No.216) subject of this dispute, issued in the names Apolonia Abao and

her daughter Irenea Tolero. Two cases were separately filed in the RTC, involving the entire lot. Both cases were filed by the surviving heirs of Apolonia Abao and Irenea Tolero. The present case stems only from the latter case.

Plaintiffs in their evidence claim ownership over the entire lot, Lot 216, as one-half (1/2) of the area registered in the name of their mother Irenea Tolero, The other half was registered in the name of their grandmother, Apolonia Abao. After Apolonia Abao died during the Japanese occupation and Irenea Tolero died in 1945, they inherited and became owners of Lot 216. Plaintiffs questioned the series of cancellation of the certificate of title and the Deed of Extra-judicial Settlement and Confirmation of Sale executed by Ignacio Atupan on August 7, 1957 adjudicating one-half (1/2) of the area of Lot 216. Plaintiffs maintain that Ignacio Atupan is not a son of Apolonia Abao but he only grew up while living with Apolonia Abao. That when Lot 216 was subdivided into two (2) lots, the plaintiffs or their predecessors-in-interest have not signed any document agreeing as to the manner how Lot 216 was to be divided, nor have they consented to the partition of the same.

Defendant Samonte in his evidence claim that he bought portions of the Lot 216 in good faith as he was made to believe that all the papers in possession of his vendors were all in order. One of the documents presented by him is a Deed of Absolute Sale executed in 1939. He has been in possession of the portions of Lot 216 he bought for more than 20 years and have declared the land for taxation purposes and have paid the real estate taxes thereon.

Defendant Jadols claim that they became owners of one-half (1/2) portion of Lot 216 by purchase from Ignacio Atupan and Apolonia Abao on September 15, 1939 as shown by a document notarized by Jacobo Bello and signed by Irenea Tolero as a witness. They were in possession since they bought the land.

ISSUES:1) WON the action for annulment has already prescribed since they sought registration 12 or 18

yrs after Abao died? NO2) WON petitioner is a buyer in good faith? NO

HELD:

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1) It is not disputed that Ignacio Atupan caused the fraudulent cancellation. Atupan's affidavit is tainted with fraud because he falsely claimed therein that he was the sole heir of Abao when in fact, he merely lived and grew up with her. Jadol and his wife, Beatriz, knew about this fact. Despite this knowledge, however, the Jadol spouses still presented the affidavit of Atupan before the Register of Deeds when they caused the cancellation of TCT in their names covering that portion owned by Abao.

- Petitioner, as successor-in-interest of the Jadol Spouses, now argues that the respondents' action for reconveyance, filed only in 1975, had long prescribed considering that the Jadol spouses caused the registration of a portion of the subject lot in their names way back in August 8, 1957. Petitioner's defense of prescription is untenable. The general rule that the discovery of fraud is deemed to have taken place upon the registration of real property because it is considered a constructive notice to all persons" does not apply in this case. Accordingly, we hold that the right of the private respondents commenced from the time they actually discovered the petitioner's act of defraudation, which is only during the trial of the Civil case.

- While it may be true that the second portion was purchased by Samonte from Tagorda in whose name the same was then registered, Samonte was previously charged with the fact that Jadol lacked the capacity to transmit title over any part of the subject property including that portion which the latter sold to Tagorda. Thus, Samonte was clearly in bad faith when he sought the registration of the deed of sale of July 10, 1972 which effected the cancellation of TCT and the issuance of TCT in his favor.

- Petitioner cannot now claim that he already acquired valid title to the property. The inscription in the registry, to be effective, must be made in good faith. The defense of indefeasibility of a Torrens Title does not extend to a transferee who takes the certificate of title with notice of a flaw. A holder in bad faith of a certificate of title is not entitled to the protection of the law, for the law cannot be used as a shield for frauds.

DOMINGO VS C.A. ( 367 s 368 )

FACTS: Paulina Rigonan owned 3 parcels of land, including a house and a warehouse on one parcel of

land, and she allegedly sold them to private respondents spouses Felipe and Concepcion Rigonan, who claim to be her relatives.

1966, petitioners Domingo, who claim to be her closest surviving relatives, allegedly took possession of the properties by means of stealth, force and intimidation and refused to vacate the same.

Feb 2, 1976, respondent Rigonan filed a complaint for reinvindicaccion against petitioners in RTC.

July 3, 1977, an amended complaint was filed and included his wife as co-plaintiff. They alleged that they were co-owners of the 3 parcels of land through a deed of sale executed by Paulina Rigonan on Jan. 28, 1965, that since then, they had been in continuous possession on the property and introduced improvements, tat petitioners illegally entered into.

Petitioners alleged that the deed of absolute sale was void for being spurious as well as lacking consideration, and said that Paulina did not sell her properties to anyone.

They said that they were the nearest surviving kin w/n the fifth degree of consanguinity, inherited the said property and improvements and had been in the possession for more that 10 years.

Mar. 23, 1994, RTC decided for petitioners – they were declare the lawful owners of disputed properties+ improvements thereon by intestate succession and a Decree of Registration was

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issued in their favor. The alleged deed of sale was declared null and void and PR’s prayer for a writ of preliminary injunction was denied. PRs were ordered to pay petitioners; P20,000 and other damages and expenses.

PRs appealed to CA. CA reversed RTC decision Aug. 29, 1996, and declared PRs the owners of the properties in dispute, petitioners were ordered to vacate the subject properties and surrender the possession thereof to PRs and their heirs plus costs. Hence, this petition.

ISSUE: - WON the alleged sale was null and void? YES

HELD:- PRs failed to establish the existence and due execution of the deed of sale. The lower court

found that the deed w/c involved a parcel of land inclusive of the 3 parcels in dispute at the price of P850 purportedly executed by Paulina w/ PRs Jan. 28, 1965 was fake, being a carbon copy w/o a typewritten original and w/o an affidavit of explanation. It was tainted w/ attractions, filed in blanks defects, tampering and irregularities w/c render it null and void ab initio, and it was not signed by Paulina – only her alleged thumbprint was there – irregularities in the execution and registration of properties.

- The price allegedly paid by PRs for the properties were questionable consideration is the why of a contract; the essential reason w/c moves the contracting parties to enter into the contract. On record, there is unrebutted testimony that Paulina as landowner was financially well-off – she loaned money to several people. There is no apparent and compelling reason for her to sell the subject parcels of land, house and warehouse at a meager price of P850 only.

- At the time of alleged execution of the contract, Paulina was already of advanced age and senile. She died on octogenarion Mar. 20, 1966, barely over a year when the deed was allegedly executed Jan. 28, 1965, but before copies of the deed was allegedly executed in the registry May 16 and June 10, 1966. The general rule is that a person is not incompetent to contract merely because of advanced years or because of physical infirmities. However, when such age or infirmities have impaired the mental faculties so as to prevent the person from properly, intelligently and firmly protect right then she is indeniably incapacitated. The unrebutted testimony of Zosima Domingo shows that at the time of deeds execution, Paulina was already incapacitated physically and mentally.

- There is sufficient reason to seriously doubt that Paulina consented to the sale was paid to and received by her. Thus, SC is in agreement w/ RTC’s finding and conclusion on the matter.

MENDEZONA VS OZAMIZ ( 376 s 482 )

FACTS: A suit for quieting of title was instituted by petitioner spouses Mendezona as initial plaintiffs,

and in the amended complaint , herein co-petitioner spouses Luis and Maricar Mendezona and Teresita Adad Vda. de Mendezona joined as co-plaintiffs.

In their complaint, the petitioners alleged that they own a parcel of land each in the, Lahug, Cebu City. The petitioners traced their titles of ownership over their properties from a notarized Deed of Absolute Sale dated April 28, 1989 executed in their favor by Carmen Ozamiz for and in consideration of the sum of (P1,040,000.00).

The petitioners initiated the suit to remove a cloud on the titles caused by the inscription thereon of a notice of lis pendens, which came about as a result of an incident in Special

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Proceeding. Special Proceeding No. 1250 is a proceeding for guardianship over the person and properties of Carmen Ozamiz initiated by the respondents Julio H. Ozamiz, et al.

On January 15, 1991, the respondents instituted the petition for guardianship, alleging therein that Carmen Ozamiz, then 86 years old, after an illness in July 1987, had become disoriented and could not recognize most of her friends; that she could no longer take care of herself nor manage her properties by reason of her failing health, weak mind and absent-mindedness.

Mario Mendezona and Luis Mendezona, herein petitioners who are nephews of Carmen Ozamiz, and Pilar Mendezona, a sister of Carmen Ozamiz, filed an opposition to the guardianship petition.

Respondent Paz O. Montalvan was designated as guardian over the person of Carmen Ozamiz while petitioner Mario J. Mendezona, respondents Roberto J. Montalvan and Julio H. Ozamiz were designated as joint guardians over the properties of the said ward.

As guardians, respondents R. Montalvan and J. Ozamiz filed on August 6, 1991 with the court their "Inventories and Accounts", listing therein Carmen Ozamiz’s properties, cash, shares of stock, vehicles and fixed assets, including a property known as the Lahug property.

Said property is the same property covered by the Deed of Absolute Sale dated April 28, 1989 executed by Carmen Ozamiz in favor of the petitioners.

Respondents R. Montalvan and J. Ozamiz caused the inscription on the titles of petitioners a notice of lis pendens, regarding Special Proceeding No. 1250, giving rise to the suit for quieting of title, filed by petitioners.

Respondents opposed the petitioners’ claim of ownership of the Lahug property and alleged that the titles issued in the petitioners names are defective and illegal, and that it was acquired in bad faith and without value inasmuch as the consideration for the sale is grossly inadequate and unconscionable.

Respondents further alleged that at the time of the sale on April 28, 1989 Carmen Ozamiz was already ailing and not in full possession of her mental faculties; and that her properties having been placed in administration, she was in effect incapacitated to contract with petitioners.

ISSUE : - WON the contract is simulated and is void? NO

HELD: - Simulation is defined as "the declaration of a fictitious will, deliberately made by agreement of

the parties, in order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different from what that which was really executed. The requisites of simulation are: (a) an outward declaration of will different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons. None of these were clearly shown to exist in the case at bar.

- A simulated contract cannot be inferred from the mere non-production of the checks. It was not the burden of the petitioners to prove so. It is significant to note that the Deed of Absolute Sale dated April 28, 1989 is a notarized document duly acknowledged before a notary public. As such, it has in its favor the presumption of regularity, and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face. Payment is not merely presumed from the fact that the notarized Deed of Absolute Sale dated April 28, 1989 has gone through the regular procedure as evidenced by the transfer certificates of title issued in petitioners’ names by the Register of Deeds.

- Whoever alleges the fraud or invalidity of a notarized document has the burden of proving the same by evidence that is clear, convincing, and more than merely preponderant. The notarized

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deed shows on its face the consideration of P1,040,00 was acknowledge to received by Carmen. Respondent’s witnesses all made sweeping statements failed to show the true state of mind of Carmen at the time of the execution of the contract.

RAMIREZ VA RAMIREZ ( 485 s 92 )

FACTS; On Oct. 8, 1996, petitioner Potenciano filed a complaint against respondent Ma. Cecilia

Ramirez (his daughter) for annulment of: 1) a Deed of Donation; 2) Waiver of Possessory Rights; and 3) Transfer Certificates of Title.

Petitioner claimed that respondent caused the execution of the Deed of Donation and Waiver of Possessory Rights to acquire ownership over the land and improvements. Using the Deed of Donation, respondent allegedly succeeded in having TCT’s issued in her name.

The Deed of Donation and Waiver of Possessory Rights were allegedly executed by petitioner, Potenciano and his wife, Dolores Ramirez, on January 29, 1993 and October 24, 1995, respectively. However, the death certificate presented showed that Dolores died on April 5, 1991 and, consequently, could not have executed the assailed documents. Potenciano repudiated the other signatures appearing on the two documents that were purportedly his and insisted that he did not intend to transfer the properties to Cecilia. In her Answer, respondent alleged it was her father’s idea to cause the preparation of the Deed of Donation and Waiver of Possessory Rights to save on expenses for publication and inheritance taxes.

After trial, the RTC ruled that the signature of Dolores on the Deed of Donation was a forgery while her signature on the Waiver of Possessory Rights was genuine. It also found petitioner’s signatures on both documents to be genuine. It then held petitioner and respondent in pari delicto, as participants to the forgery, and ruled that they must bear the consequences of their acts without cause of action against each other in accordance with Article 1412 of the Civil Code. The RTC dismissed the complaint.

ISSUE:- WON petitioner and respondent are in pari delicto? YES

HELD:- The Court agrees with the rulings of the CA and the RTC that petitioner and respondent are in

pari delicto. Nevertheless, both courts erred on the applicable law. Article 1412 of the Civil Code, which they applied, refers to a situation where the cause of the contract is unlawful or forbidden but does not constitute a violation of the criminal laws. On the other hand, where the act involved constitutes a criminal offense, the applicable provision is Article 1411.

- Petitioner alleged that the signatures of Dolores on the Deed of Donation and on the Waiver of Possessory Rights are a forgery. Respondent does not deny this allegation. Forging a person’s signature corresponds to the felony of falsification under the Revised Penal Code. Hence, the act of forging Dolores’s signature constitutes a criminal offense under the terms of Article 1411 of the Civil Code. Under this article, it must be shown that the nullity of the contract proceeds from an illegal cause or object, and the act of executing said contract constitutes a criminal offense. On the first element, petitioner claims that the “object or cause” of the Deed of Donation and of the Waiver of Possessory Rights is the transferred real properties and that there is nothing illegal about them. He maintains that the illegality instead stems from the act of forgery which pertains to consent, which is not material to the application of Article 1411. The argument is untenable. Object and cause are two separate elements of a donation and the

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illegality of either element gives rise to the application of the doctrine of pari delicto. Object is the subject matter of the donation, while cause is the essential reason which moves the parties to enter into the transaction. Petitioner wrongly asserts that the donated real properties are both the object and cause of the donation. In fact, the donated properties pertain only to the object. Therefore, while he is correct in stating that the object of the donation is legal, his argument misses the point insofar as the cause is concerned. The cause which moved the parties to execute the Deed of Donation and the Waiver of Possessory Rights, the motive behind the forgery, is the desire to evade the payment of publication expenses and inheritance taxes, which became due upon the death of Dolores. Undeniably, the Deed of Donation and the Waiver of Possessory Rights were executed for an illegal cause, thus completing all the requisites for the application of Article 1411.

REPUBLIC VS C.A. ( 301 s 366 )

FACTS: St. Jude’s Enterprises is the registered owner of a parcel of land. He subdivided said lot number

under subdivision plan sometime in March 1966. As a result, the Register of Deeds cancelled the TCT and issued several Certificates of Titles all in the name of St. Jude’s Enterprises.

Lot 865-B-1 was later found to have expanded and enlarged, as confirmed by the Land Registration Commission, from its original area of 40,523 square meters to 42,044 square meters (an increase of 1,424 square meters).

Subsequently, St. Jude’s Enterprises sold lots and issued certificates of title to Spouses Santos, Spouses Calaguian, Virginia dela Fuente, and Lucy Madaya.

On January 29, 1995, Sol Gen. Estelito Mendoza filed an action seeking for the annulment and cancellation of said certificates of title on the ground that they were issued on the strength of null and void subdivision plan which expanded the original area in the name of St. Jude’s Enterprises.

St. Jude’s argued that since the subdivision plan has already been approved by the Land Registration Commission, the government is now in estoppel to question the approved subdivision plan.

ISSUE:- WON the government is estopped from questioning the approved subdivision plan, which

expanded the areas covered by the transfer certificates of title in question? YES

HELD: - The general rule is that the State cannot be put in estoppel by the mistakes or errors of its

officials or agents. However, like all general rules, this is also subject to exceptions. Estoppels against the public are little favored. They should not be invoked except in rate and unusual circumstances, and may not be invoked where they would operate to defeat the effective operation of a policy adopted to protect the public. They must be applied with circumspection and should be applied only in those special cases where the interests of justice clearly require it. Nevertheless, the government must not be allowed to deal dishonorably or capriciously with its citizens, and must not play an ignoble part or do a shabby thing, and subject to limitations, the doctrine of equitable estoppel may be invoked against public authorities as well as against private individuals.

- In this case, for nearly 20 years (starting from the issuance of St Jude’s titles in 1966 up to the filing of the complaint in 1985), the government failed to correct and recover the alleged

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increase in the land area of St. Jude. Its prolonged inaction strongly militates against its case, as it is tantamount to laches, which means “the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.

- In the interest of justice and equity, neither may the titleholder be made to bear the unfavorable effect of the mistake or negligence of the agents of the State, in the absence of proof of his complicity in a fraud of manifest damage to third persons. Estoppel by laches now bars the government from questioning St. Judes’ titles to the subdivision lots.

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