Final Compilation- Complete Contracts

CASES FOR CONTRACTS

BPI vs Boston Bank...............................................................................................................128

Ace-Agro Development vs CA..............................................................................................132

Cui vs Arellano......................................................................................................................135

Talisay-Silay Inc. vs Talisay-Silay Milling............................................................................137

Batchelder vs CB...................................................................................................................140

Asuncion vs CA.....................................................................................................................142

Republic vs PLDT..................................................................................................................143

Saura vs Sandico....................................................................................................................145

Corpus vs CA.........................................................................................................................146

Velasco vs CA........................................................................................................................150

Florentino vs Encarnacion.....................................................................................................152

Bonifacio Bros. Inc., et al. vs. Enrique Mora, et al................................................................154

Daywalt vs La Corporacion de Pp. Agustinos.......................................................................156

Sanchez vs Rigos...................................................................................................................158

Hill vs Veloso.........................................................................................................................162

Mapalo vs Mapalo..................................................................................................................164

Sps. Santos vs CA..................................................................................................................167

Santos vs Heirs of Villanueva................................................................................................169

MMDA vs Jancom.................................................................................................................172

Dumez vs NLRC....................................................................................................................174

Somoso vs CA........................................................................................................................175

yuvienco vs Dacuycuy...........................................................................................................177

Hernaez vs Delos Angeles.....................................................................................................179

Alano vs Barbara....................................................................................................................180

Atilano vs Atilano..................................................................................................................182

Investor Finance Corp. vs CA................................................................................................184

Borromeo vs CA....................................................................................................................186

O b l i g a t i o n s & C o n t r a c t s [ C a s e D i g e s t s ] S U L A W 2 0 1 5

Lim Yhi Luya vs CA..............................................................................................................189

Rivera Filipino vs CA............................................................................................................190

Equatorial vs. Mayfair...........................................................................................................194

Guzman, Bocaling vs. Bonnevie............................................................................................196

Sps. Theis vs CA....................................................................................................................199

Rural Bank of Caloocan vs Desiderio....................................................................................200

BY: K. MoletaMWSS vs CA..................................................................................................202

Coronel vs Constantino..........................................................................................................207

Regal Films vs Concepcion...................................................................................................210

National Power Corp. vs. National Merchandising Corp., et al............................................212

Jovan Land, vs CA.................................................................................................................214

Cenido vs Apacionado...........................................................................................................216

Villanueva vs CIA..................................................................................................................218

Liguez vs CA.........................................................................................................................220

Rellosa vs Gaw Ghee Hun.....................................................................................................223

Phil. Banking Corp. vs Lui Sheh...........................................................................................225

Francisco vs Herrera..............................................................................................................227

Kalalo vs Luz.........................................................................................................................229

Dela Cruz vs Paraz.................................................................................................................232

Miguel vs Catalino.................................................................................................................234

Nyco Sales Corp. Vs Ba Finance Corp..................................................................................236

O b l i g a t i o n s & C o n t r a c t s [ C a s e D i g e s t s ] S U L A W 2 0 1 5 5

Contracts – Compromise Agreement

BPI VS BOSTON BANKG.R. No. 94676 Sept. 30, 1992

Facts:

Southern Industrial Projects (SIP) ventured into steel processing in 1959. Because of the its success, it ventured to expand and integrate further its steel operations and organized another company named Visayan Integrated Steel Corporation or VISCO. To finance its operations, SIP and VISCO mortgaged their machineries, plant and equipment to the defendant banks. Somehow VISCO and SIP defaulted in the payment of their loans to the banks and credit was eventually cut-off. VISCO and SIP floundered and eventually had to close up. The defendant banks banded themselves creditor’s consortium to ensure that bank credits are preserved. The consortium of banks took over management of VISCO through a board of trustees.

However, in the implementation of the Memorandum of Agreement, controversy arose between plaintiff and consortium on the discounting of the promissory notes mentioned in paragraph 6 of the said agreement. Section 6 states:

6. The BOARD shall cause its members banks to discount the notes issued by the reorganized VISCO to RAMOS up to the extent of one-third (1/3) of the total verified claim under terms and conditions acceptable to the parties concerned.’

This controversy was solved with the execution of the Compromise Agreement In the said agreement they stipulated that VISCO will issue 5 promissory notes with the sum of Php 500,000.00. The first three would be discounted 30 days after maturity of each note and the subsequent notes would each be discounted upon signing with a Japanese group. Plaintiff was able to comply with the agreement. However, the last two promissory notes were not discounted but was instead the Consortium foreclosed VISCO’s mortgage.

Plaintiff filed a complaint, which was later amended, against the Consortium banks for recovery of the amount of P1,495,292.70 as the remaining balance of plaintiff’s advances made to VISCO, plus compensatory, moral, nominal and exemplary damages, including attorney’s fees. Judgment is hereby rendered in favor of the plaintiff and against the consortium defendant banks, ordering the latter to pay the former, jointly and severally. The CA affirmed the lower court decision.


Issues:

1. WON respondent court of appeals erroneously held that petitioners through their board of trustees, agreed to issue to private respondents promissory notes valued at p500,000.00 to be discounted on due dates;

2. WON the three (3) basic documents relied upon by the private respondent to support his claim against the petitioners -- voting trust agreement (exhibit “a”) memorandum of agreement (exhibit “1”, interbank) and compromise agreement (exhibit “b”) never provided for the assumption by petitioners of the obligation of VISCO to the private respondent to pay the latter p1,157,071.97.

3. WON respondent court of appeals erroneously interpreted a “commitment to discount promissory note” as assumption of liability.

4. WON the findings of the trial court -- sanctioned by the respondent court of appeals -- that there was constructive fulfillment of the resolutory condition does not cure the fatal infirmity of the decision sought to be reviewed herein.

5. WON the trial court and respondent court of appeals departed from the ordinary course of judicial proceeding when they failed to uphold the defense of petitioners that the cause of action of private respondent, if any has prescribed.

Ruling:

1. At first blush, it would appear that VISCO is directly responsible to private respondent for the amounts specified in the promissory notes, judging from a mere reading thereof. However, a close scrutiny of the other documents from which these “notes” were derived would indicate that the Board of Trustees of the consortium, referred to in the compromise agreement as the board of the reorganized VISCO , is supposed to absorb all the obligations of VISCO to private respondent. Certainly, paragraphs 3 and 4 of the Compromise Agreement attest to petitioners’ liability because it would be absurd to suppose that the reorganized VISCO is controlled by some corporate entity other than the banks represented by the Board of Trustees of the consortium. Withal, it is clear from the “WHEREAS” clause that indeed, the Board of Trustees took the cudgels for VISCO vis-a-vis the moribund company’s liability to private respondent albeit it was made to appear that it was VISCO which was indebted under the promissory notes.

2. Surely, private respondent cannot be expected to get his cash advances from VISCO considering its insolvent condition. Moreover, if We are to pursue the theory of petitioners, they will be unjustly enriching themselves at the expense of private respondent (Article 2142, Civil Code) who was anticipating restitution of his cash


advances in exchange for relinquishing control over the assets of the company in favor of the Board of Trustees, especially so when private respondent could no longer backtrack and obliterate his signature on the covenant due to the caveat under paragraph 2(b) thereof.

3. In addition, petitioners acknowledged that the three promissory notes were discounted as agreed upon (p. 9, Brief for Interbank; p. 90, Rollo in G.R. No. 94461). This admission in judicio is enough to enjoin petitioners from reneging on the payment of the remaining accountabilities in favor of private respondent (Article 1431, New Civil Code; Section 4, Rule 129; Section 2(a), Rule 131, Revised Rules on Evidence; Laurel v. Civil Service Commission, 203 SCRA 195; 203; 204; Magellan Manufacturing Marketing Corporation v. Court of Appeals , 201 SCRA 102; 110) because it is a self-negating representation against petitioners’ assertion that it should not continue to pay on the pretext that VISCO must answer therefore or that its tie-up with the Japanese Group did not push through. The scenario herein is akin to the factual milieu in Ramos vs. Central Bank (41 SCRA 565; 587-588; cited in Central Bank vs. Court of Appeals, 106 SCRA 143; 155) where the Central Bank committed itself to the continued operation and rehabilitation of the Overseas Bank of Manila, and later on reneged on that promise. This Court therein ruled:

“Even in the absence of contract, the record plainly shows that the CB made express representations to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to the profit of the CB (which thus acquired additional security for its own advances), the CB may not now renege on its representations and liquidate the OBM, to the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel (19 Am. Jur., pages 657-658; 28 Am. Jur. 2d, 656-657; Ed. Note, 115 ALR, 157).”

4. On the question of whether there was constructive fulfillment of the condition under paragraph 2(a) of the compromise agreement, petitioners demur to the findings of the appellate court and the trial court on this score, contending that the signing of the joint venture for rehabilitation of VISCO between the Board and the Japanese Group was to be done in 1970 or anterior to the date of foreclosure in 1980. Hence, petitioners entertain the notion that a paradigm in anachronism was seriously committed below, and that the posterior foreclosure has no legal bearing to the expected execution in 1970 of an agreement for a tie-up between the Board and the Japanese Group. Yet, we are not prepared to absorb a last ditch effort in this regard


since, according to respondent court, petitioners nonchalantly did not bother to establish on record the alleged refusal of the Japanese Group to Participate in VISCO’s rehabilitation, as no testimonial evidence was adduced in this connection by all of the petitioners herein (p. 10, Decision; p. 61, Rollo in G.R. No. 94461). Thus, petitioners should not now be allowed to rectify a crucial lapse by building blocks for defense against private respondent’s assertive stance, which should have been conceptualized earlier prior to rendition of the adverse judgment in the court of origin. Withal, petitioners’ belated, nay, cold assertion for exculpation, is not the requisite quantum of evidence that will merit serious consideration of this Court. Furthermore, it may be recalled that what the Board of Trustees had in mind then was to rehabilitate VISCO from its financial quagmire, but instead of discharging its noble task, it foreclosed on the assets of VISCO which were then sold in 1985 to the National Steel Corporation. These incidents, over which petitioners are mute, are well within the ambit of Article 1186 of the New Civil Code that: “The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.”

5. Petitioners continue to advance the proposition that private respondent’s cause of action has prescribed. But petitioners must concede that private respondent’s cause of action arose only when that which should not have been done was performed or that which should have been done was not accomplished (Bruner vs. Martin, 76 Kan. 862, 93 Pac. 165). This principle draws a striking parallelism to the situation that obtained in the case at bar where petitioners, instead of pursuing the envisioned rehabilitation of VISCO, foreclosed on the corporate assets of VISCO and then sold these valuable assets to National Steel Corporation. Under these circumstances, We fully subscribe to the idea expressed below that prescription, as a mode of extinguishing an obligation, must be reckoned only from the moment petitioners repudiated the bilateral agreement when it sold the assets in 1985. Obviously, the action initiated by private respondent in 1987, or two years after the sale, is not time-barred.

By: N.K. Herrera


Contracts – Force Majeure

ACE-AGRO DEVELOPMENT VS CAG.R. No 119729

Jan. 21, 1907

Facts:

Petitioner Ace-Agro Development Corporation and private respondent Cosmos Bottling Corporation entered into service contracts wherein petitioner Ace-Agro obligated itself of cleaning soft drink bottles and repairing wooden shells for Cosmos within the company premises in San Fernando, Pampanga. Fire broke out in private respondent’s plant, destroying the area where petitioner did its work. As a result, petitioner’s work was stopped. Petitioner asked private respondent to allow it to resume its service. As it received no reply from private respondent, petitioner informed its employees of the termination of their employment. This led the employees to file a complaint for illegal dismissal before the Labor Arbiter against petitioner and private respondent. Petitioner sent another letter to private respondent, reiterating its request for reconsideration. In response private respondent granted petitioner priority to resume its work under the terms of their agreement (but outside its premises), and the petitioner refused the same on the ground that working outside the respondent’s plant would mean added transportation costs that would offset any profit it would earn. Thereafter, respondent sent a letter to petitioner, stating that petitioner can now resume work in accordance with their existing agreement. But again, petitioner refused this offer to resume work for the reason that it had something to do with the settlement of the NLRC case filed against it by its employees. But In his cross-examination, it was found out that its real reason for refusing to resume work with the appellant was because it wanted an extension of the period or duration of the contract beyond December 31, 1991, to cover the period within which it was unable to work.

The RTC found private respondent guilty of breach of contract and ordered it to pay damages to petitioner. Private respondent appealed to the Court of Appeals, which on December 29, 1994, reversed the trial court’s decision and dismissed petitioner’s complaint. The appellate court found that it was petitioner which had refused to resume work, after failing to secure an extension of its contract. Petitioner now seeks a review of the Court of Appeals’ decision.

Issue:

1. Can the happening of an unforeseen event extinguish the obligation of a contract?


2. Does the suspension of work due to force majeure merit an automatic extension of the period of the agreement between the parties?

3. Is petitioner justified in refusing to resume performance of the obligation?

3. Is private respondent guilty of breach of contract?

Ruling:

1. NO. The court says that there was no cause for terminating the contract but at most a “temporary suspension of work.” The court thus rejects private respondent’s claim that, as a result of the fire, the obligation of contract must be deemed to have been extinguished. Nonetheless, the Court of Appeals found that private respondent had reconsidered its decision to terminate the contract and tried to accommodate the request of petitioner.

2. NO, the suspension of work due to force majeure did not merit an automatic extension of the period of the agreement between them. According to Tolentino:

The stipulation that in the event of a fortuitous event or force majeure the contract shall be deemed suspended during the said period does not mean that the happening of any of those events stops the running of the period the contract has been agreed upon to run. It only relieves the parties from the fulfillment of their respective obligations during that time.

3. NO. The Court of Appeals was right that petitioner had no basis for refusing private respondent’s offer unless petitioner was allowed to carry out its work in the company premises. That petitioner would incur additional cost for transportation was not a good reason for its refusal. Petitioner has not shown that when it was notified of the private respondent’s offer, the latter’s premises had so far been restored so as to permit petitioner to resume work there. In fact, even when petitioner was finally allowed to resume work within the plant, it was not in the former work place but in a new one, which shows that private respondent’s reason for not granting petitioner’s request was not just a pretext.

Nor was petitioner justified in refusing to resume work on November 7 when it was again notified by petitioner to work. Although it cited the pending labor case as reason for turning down private respondent’s offer, it would appear that the real reason for petitioner’s refusal was the fact that the term of the contract was expiring in two months and its request for an extension was not granted. But, as the appellate court correctly ruled, the suspension of work under the contract was brought about by force majeure. Therefore, the period during which work was suspended did not justify an extension of the term of the contract. For the fact is that the contract was subject to a


resolutory period which relieved the parties of their respective obligations but did not stop the running of the period of their contract.

4. NO. Petitioner may not be to blame for the failure to resume work after the fire, but neither is private respondent. Since the question is whether private respondent is guilty of breach of contract, the fact that private respondent is blameless can only lead to the conclusion that the appealed decision is correct. By:

By: T.A. Real

General Provis ions - Arts. 1305–1317

CUI VS ARELLANO

2 SCRA 205

Facts:

Plaintiff enrolled in the College of Law of Arellano University from the school year 1948-1949. Plaintiff finished his law studies in the defendant university up to and including the first semester of the fourth year. Plaintiff enrolled for the last semester of his law studies in the defendant university but failed to pay his tuition fees because his uncle Dean Francisco R. Capistrano having severed his connection with defendant and having accepted the deanship and chancellorship of the College of Law of Abad Santos University, plaintiff left the defendant's law college and enrolled for the last semester of his fourth year law in the college of law of the Abad Santos University graduating from the college of law of the latter university. Plaintiff, during all the time he was studying law in Arellano University was awarded scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him after the ends of semester and when his scholarship grants were awarded to him. The whole amount of tuition fees paid by plaintiff to defendant and refunded to him by the latter from the first semester up to and including the first semester of his last year in the college of law or the fourth year, is in total P1,033.87. After graduating in law from Abad Santos University he applied to take the bar examination. To secure permission to take the bar he needed the transcripts of his records in Arellano University. Cui petitioned the latter to issue to him the needed transcripts. The defendant refused until after he had paid back the P1,033 87 which defendant refunded to him as above stated. As he could not take the bar examination without those transcripts, plaintiff paid to defendant the said sum under protest. This is the sum which plaintiff seeks to recover from defendant in this case.

Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to sign the following contract covenant and agreement:

"In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to another school without having refunded to the University (defendant) the equivalent of my scholarship cash.

(Sgd.) Emeterio Cui".

Issue:

Whether or not the contract covenant and agreement signed by petitioner is valid or not?



Ruling:

The stipulation of the waiver contract is contrary to public policy hence it was null and void.

The policy enunciated in Memorandum No. 38, s. 1949 is sound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in school to bolster its prestige. In the understanding of that university scholarships award is a business scheme designed to increase the business potential of an education institution. Thus conceived it is not only inconsistent with sound policy but also good morals.

But what is morals? Manresa has this definition. It is good customs; those generally accepted principles of morality which have received some kind of social and practical confirmation. The practice of awarding scholarships to attract students and keep them in school is not good customs nor has it received some kind of social and practical confirmation except in some private institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the leading colleges and universities of the United States after which our educational practices or policies are patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school for their propaganda mine but to reward merit or help gifted students in whom society has an established interest or a first lien.

By: H.P. Descallar



TALISAY-SILAY INC. VS TALISAY-SILAY MILLINGG.R. L-1993

Feb. 19, 1979

Facts:

On 15 February 1966, Talisay-Silay Milling Co., Inc. ("TSMC") and Talisay- Silay Industrial Cooperative Association, Inc. ("TSICA") instituted an action for damages against defendants Asociacion de Agricultores de Talisay-Silay, Inc. ("AATSI"), et. al.- On 4 March 1972, the then Court of First Instance of Rizal rendered its decision condemning the defendants jointly and severally to pay plaintiff Talisay Silay Industrial Cooperative Association the amount of P6,609,714.32 and to plaintiff Talisay-Silay Milling Co., Inc. the sum of P8,802,612.89 with legal rate of interest from the filing of the complaint until fully paid.- The Court of Appeal rendered a decision affirming with modification the decision of the court a quo by reducing the amount of damages due plaintiffs-appellees TSMC and TSICA from approximately P15.4million to only P1 million.

Issue:

WON the reduction of damages was proper

Ruling:

In reducing the amount of damages awarded by the court a quo to petitioners TSMC and TSICA from roughlyP15.4 million to only P1 million, the Court of Appeals, citing Malayan Insurance Co.. Inc. v. Manila Port Service reasoned that the reduction was dictated by the failure or TSMC and TSICA to comply with Section 5, Rule 10 of the Rule of Court, i.e., TSMC and TSICA's failure to amend their complaint to conform to the evidence presented during trial which showed that TSMC and TSICA suffered damages amounting to more than P1million by virtue of the illegal transfer of export sugar quota from TSMC to FFMCI. We are unable to agree with the Court of Appeals on this point.- A court may rule and render judgment on the basis of the evidence before it even though the relevant pleading had not been previously amended, so long as no surprise or prejudice is thereby caused to the adverse party. Put a little differently, so long as the basic requirements of fair play had been met, as where litigants were given full opportunity to support their respective contentions and to object to or refute each other's evidence, the court may validly treat the pleadings as if they had been amended to conform to the evidence and proceed to adjudicate on the basis of all the evidence before it.- The record of the instant case shows that TSMC and TSICA formally offered as evidence documents which set out in detail the estimated unrealized income



suffered by TSMC and TSICA during four (4) consecutive crop years, i.e., (CYs) 1964-1965, 1965-1966, 1966-1967 and 1967-1968, the failure of realization being attributed to the transfer by AATSI, et al. of their sugar quota to FFMCI. These documents, along with the corroborative testimony of one Ricardo Yapjoco, a Certified Public Accountant and Internal Auditor of TSMC, were the basis of the trial court's award of P8,802,612.89 to TSMC and of P6,609,714.32 to TSICA. It is noteworthy that the joint record on appeal reveals that AATSI, et al. objected to the Offer of Evidence of TSMC and TSICA not on the basis that such evidence fell outside the scope of the issues as defined in the pleadings as they then stood, but rather on the basis that such evidence was "incompetent" and speculative in character, i.e., as "being mere estimates prepared by witness Yapjoco" and constituting merely his "opinion." It should also be noted that the testimony of Mr. Yapjoco was subjected to extensive cross-examination by counsel for AATSI, et al. The trial court did not expressly overrule AATSI, et al.'s objection to the Offer of Evidence of TSMC and TSICA; it is nevertheless clear that the trial court did not accord much weight to that objection.- The point that may be here underscored is that AATSI, et al., having been given the opportunity and having in fact been able to register their objections to the evidence formally offered by TSMC and TSICA were not in any way prejudiced by the discrepancy between the allegations in the complaint filed and the propositions which the evidence submitted by TSMC and TSICA tended to establish. We conclude that the Court of Appeals erred when it failed to treat the amended and supplemental complaint of TSMC and TSICA as if such complaint had in fact been amended to conform to the evidence, and when it limited the damages due to TSMC and TSICA to the amount prayed for in their original complaint.

A review of the damages actually awarded to TSMC and TSICA by the trial court on the one hand and the Court of Appeals on the other, reveals the need for a more careful and thorough examination of the matter. As earlier noted, the Court of Appeals' award of P1million based simply on the amount set out in the original complaint of TSMC and TSICA must be discarded. Upon the other hand, the award by the trial court of damages to TSMC and TSICA was arrived at merely by totaling up the unrealized income sustained by TSMC and TSICA over the relevant four (4) crop year period:- "Because on the refusal of the defendants planters to return to TSMC, plaintiff TSMC [and TSICA] suffered an unrealized profit; of P1,934,847.73 in 1964-65 while for1965-66 crop year, in the amount of P3,033,301.16, for1966-67 in the amount of P4,656,643.20, and for 1967-1968, in the amount of P4,805,472.12.- The plaintiff TSMC failed to realize P3,015,077.77 and plaintiff TASICA failed to realize P6,609,714.32 or a total of P9,624,792.09. In 1967-68 after the lease to TASICA has expired, TSMC failed to realize a net income of P4,805,514.12."- We believe, in other words, that the figures and computations utilized by the trial court in its award on damages need further examination and refinement. For instance, the award of damages rendered by the trial court took into account the loss of



income suffered by TSMC and TSICA when AATSI, et al. transferred two (2)of sugar quota: the "domestic quota" and the "export quota." The consent of the sugar central was not required for the validity of a transfer of the domestic sugar quota. Accordingly, the transfer by AATSI, et al. of their domestic sugar quota must be regarded as valid and the loss of income attributable to the transfer of such domestic sugar quota from TSMC and TSICA to FFMCI must be deducted from the aggregate amount of damages due to TSMC and TSICA. A second example: Exhibits "P-1" and "W-1" embody figures relating to "molasses." Molasses are a by-product of milled sugar, whether that sugar be covered by a "domestic quota" or by an "export quota." The amount of income lost traceable to molasses that would have been extracted from domestic sugar must be deducted from the aggregate damages due to TSMC and TSICA.

Disposition

Decision and Resolution of the Court of Appeals MODIFIED insofar as the award of actual damages due Talisay-Silay Milling Co., Inc. and Talisay-Silay Industrial Cooperative Association, Inc. are concerned. Subject to the rulings referred to herein, this case is REMANDED to the Court of Appeals for the determination, with all deliberate dispatch, of the amount of damages due Talisay-Silay Milling Co., Inc. and Talisay-Silay Industrial Cooperative Association, Inc.

By: M. Tejano



BATCHELDER VS CBG.R. No. -25071March 29, 1972

Facts:

This is a suit filed by plaintiff George W. Batchelder, doing business under the name and style of Batchelder Equipment, to compel defendant Central Bank of the Philippines, now appellant, to resell to him $170,210.60 at the preferred rate of exchange of two Philippine pesos for one American dollar, more specifically P2.00375, or, in the alternative, to pay to him the difference between the peso cost of such amount at the market rate prevailing on the date of the satisfaction of the judgment in his favor and the peso cost of $170,210.60 at said preferred rate.

Central Bank denied certain facts and was quite insistent on the absence of any such right on the part of plaintiff to re-acquire from it the sum of $170,210.60 at the preferred rate of exchange. It follows that it was not liable either to plaintiff for the difference between its peso cost at the rate prevailing on the date of the satisfaction of whatever judgment there may be in plaintiff's favor and the peso cost of $170,210.60 at said preferred rate.

Issue:

Whether or not there was a contract in law giving rise to an obligation which must be fulfilled by Central Bank.

Ruling:

The holding of the lower court, that there was a contract and the terms of which had to be respected by defendant Central Bank, is reversed by the Supreme Court. The law does not go that far. The governing principle of law applicable to actuation of administrative agencies, like the Central Bank, precludes a finding that under the circumstances disclosed by the case, there was a contract in law giving rise to an obligation which must be fulfilled by such governmental body.

What was done by the Central Bank was merely to issue in pursuance of its rule-making power the resolutions relied upon by plaintiff, which for him should be impressed with a contractual character. There is no question that the Central Bank as a public corporation could enter into contracts. It is so provided for among the corporate powers



vested in it. The establishment of the Central Bank was intended to attain basic objectives in the field of currency and finance. Its duty is to maintain monetary stability in the Philippines.

It would be then to set at naught fundamental concepts in administrative law that accord due recognition to the vesting of quasi-legislative and quasi-judicial power in administrative law for the purpose of attaining statutory objectives. For if such be the case then, by the judiciary failing to exercise due care in its oversight of an administrative agency, substituting its own discretion for what usually is the more expert appraisal of such an instrumentality, there may even be a frustration if not a nullification of the objective of the law.

Central Bank in its motion to dismiss before the lower court was quite explicit as to why under the circumstances, no right could be recognized as possessed by him. Had there been greater care therefore on the part of the plaintiff to show why in his opinion he could assert a right in accordance not with a contract binding on the Central Bank, because there is none, but by virtue of compliance with rules and regulations of an administrative tribunal, then perhaps a different outcome would have been justified.

Hence, for a regulatory permit to be impressed with contractual character, the administrative agency in issuing the permit must have assumed such obligation on itself.

Other Doctrines:

A CONTRACT is the accord of two or more persons with previously diverging interests for the purpose of creating, modifying or extinguishing a juridical relation between them.

The CONSENT is composed of a double operation. (1) The parties must commence by agreeing as to the contents the "convention" that is to say, by making sufficiently precise the object and the essential conditions, and discussing the particular clauses which they desire to introduce to modify or to complete the ordinary effects. (2) This first operation having been terminated, the parties are in accord on the projected contract: there is between them the uniformity of opinions, which is one sense of the word "consent", but the contract is not included, it still exists in a projected state. There remains to give its obligatory force by an act of will, expressing the individual adherence of each one of the parties to the act thus prepared. When all the necessary consents are obtained, and manifested in legal form, the contract is formed, the lien of law is tied. It is therefore the union of these adherences which constitute the contract and which gives birth to the obligations which are derived from it. It is an act of volition, while the preliminary operation of discussion of the project is a work of the mind and reasoning.

By: P.E. Benigay



ASUNCION VS CAG.R. No. 109125

Dec. 2, 1994

Facts:

Plaintiff is the tenant of the residential and commercial land owned by the defendant. When the defendant decided to sale the property, the plaintiff was given the priority to acquire the same. Thus, the plaintiff asks the defendant to put such offer into an agreement which the latter agreed. The plaintiff then asks the defendant to have the terms and conditions of the conditions of the offer to sell but the defendant failed to do so. Upon knowing that the defendant will about to sell the property to other person, the plaintiff is compelled to file a complaint against the defendant. Later, despite the pending case, the defendant execute a Deed of Sale in favor of Buen Realty and Development who bought the property in the amount P15,000,000.00.

Issue:

Is the right of first refusal entitled the plaintiff to compel the defendant to sell the property to them?

Ruling:

dAs provided in Article 1157 contract is one of the sources of obligation whereby there should be the meeting of the minds between two person, wherein one binds himself, with respect to the other, to give something or to render some service as provided for in Article 1305 and only after the contract is perfect that it can be considered as binding. As found out by the trial court both did not agreed upon the terms and conditions and thus there was no meeting of the minds. The right of first refusal it is not considered to be as a perfected contract as provided for in Article 1458 and neither can it be considered as provided for in the second paragraph of Article 1479, or possibly of an offer under Article 1319. “In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up.”

By: J. Ege



REPUBLIC VS PLDTG.R. No. L-18841January 27, 1969

Facts:

The defendant is a public service corporation holding a legislative franchise to install, operate and maintain a telephone system and the electrical transmission of messages throughout the Philippines and the telephone systems of other countries. Defendant and the RCA Communications, Inc., which is not a party to the present case but has contractual relations with the parties, entered into an agreement whereby telephone messages, coming from the United States and received by RCA's domestic station, could automatically transferred to the lines of PLDT and vice-versa.

The Bureau of Telecommunications set up its own Government Telephone System (GTS) by utilizing its own appropriation and equipment and by renting trunk lines of the defendant to enable government offices to call private parties and has later extended its services to the general public. The bureau entered into an agreement with RCA Communications Inc., for a joint overseas calls received by RCA’s station to and from local residents.

Defendant complained to the bureau that it was violating the conditions, for it had used the rented trunk lines not only for the use of government offices but even to serve private persons or the general public, in competition with the business of the defendant. Defendant gave a notice that it would disconnect the trunk lines if said violations were not stopped. When the defendant received no reply, it disconnected the trunk lines being rented by the bureau.

The bureau proposed to the defendant that both enter into an interconnecting agreement. The defendant replied that it is willing to enter into an agreement subject to certain conditions. The proposals were not accepted by either party.

The plaintiff Republic commenced suit against the defendant, praying for judgment commanding the defendant to execute a contract with the plaintiff, through the bureau, and for a writ of preliminary injunction to restrain the severance of the existing telephone connections and/or restore those severed.

Issues:

Whether or not PLDT can be commanded to execute a contract with the bureau.

Whether or not interconnection between PLDT and the Government Telephone System can be a valid object for expropriation.



Ruling:

We agree with the court below that parties cannot be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions of the contract. Freedom to stipulate such terms and conditions is of the essence of our contractual system, and by express provision of the statute, a contract may be annulled if tainted by violence, intimidation, or undue influence (Articles 1306, 1336, 1337, Civil Code of the Philippines). The Republic may, in the exercise of the sovereign power of eminent domain, require the telephone company to permit interconnection of the government telephone system and that of the PLDT, as the needs of the government service may require, subject to the payment of just compensation to be determined by the court.

By: J. Cedrome



SAURA VS SANDICO

Facts:

Saura and Sindico were contesting for nomination as the official candidate of the Nacionalista Party in the 4th district of Pangasinan in the congressional elections in 1957. They entered into a written agreement, containing a pledge that “each aspirant shall respect the result of the aforesaid convention” and that no on shall either run as a rebel or independent candidate after losing the same. Thereafter, Saura was elected and proclaimed the Party’s official candidate, yet Sindico, in disregard of the covenant, filed her certificate of candidacy for the same office with the COMELEC. Saura then filed this suit for collection of damages, but the lower court dismissed the complaint, saying the agreement is null and void. The lower court contended that the subject matter of the contract, being a public office, is not within the commerce of man, and the “pledge” was in curtailment of the free exercise of elective franchise, therefore against public policy.

Issue:

Is the contract between Saura and Sindico null and void?

Ruling:

Yes. Among those that may not be the object or subject matter of contracts are personal political rights, such as one’s right to vote, or right to present one’s candidacy to the people and be voted to public office. Law and public policy dictates that these rights are excluded from the commerce of man. They are conferred not for individual or private benefit or advantage, but for public good and interest, and therefore, should not be bargained away or surrendered for consideration by the citizen.

The Constitution and other laws fix the qualifications of person who may be eligible for certain elective public offices, and these requirements may not be supplemented by mere agreements between private parties. A voter who possesses all the qualifications required of an office may, by himself or through a political party, present his candidacy without other limitations except those provided by law. The courts have previously condemned certain agreements in consideration of the withdrawal of candidates for office.

By: K. Moleta



CORPUS VS CAG.R. No. L-40424

June 30, 1980

Facts:

Corpus contends that respondent David is not entitled to attorney’s fees because there was no contract to that effect. On the other hand, David contends that the absence of a formal contract for the payment of the attorney’s fees will not negate the payment thereof because the contract may be express or implied, and there was an implied understanding between the Corpus and David that the former will pay the latter attorney’s fees when a final decision shall have been rendered in favor of the petitioner reinstating him to -his former position in the Central Bank and paying his back salaries.

The following is what Corpus wrote David:

Dear Juaning

Will you please accept the attached check in the amount of TWO THOUSAND P2,000.00) PESOS for legal services in the handling of L-17860 recently decided by the Court? I wish I could give more but as you know we were banking on a SC decision reinstating me and reimburse my backstage I had been wanting to offer some token of my appreciation of your legal fight for and in my behalf, and it was only last week that I received something on account of a pending claim.

Looking forward to a continuation of the case in the lower court, I remain

Sincerely yours, Illegible

x x x x x x x x x

In a reply letter dated April 25, 1962, the plaintiff returned the check, explaining said act as follows:

April 25, 1962

My dear Marino:

Yesterday, I received your letter of April 18th with its enclosure. I wished thank you for your kind thoughts, however, please don’t take offense if I have to return the check. I will explain.

When I decided to render professional services in your case, I was motivated by the value to me of the very intimate relations which you and I have enjoyed during the past many years. It was nor primarily, for a professional fee.

Although we were not fortunate to have obtained a decision in your case which should have put an end to it. I feel that we have reason to be jubilant over the outcome,



because, the final favorable outcome of the case seems certain irrespective of the length of time required to terminate the same.

Your appreciation of the efforts I have invested in your case is enough compensation therefor, however, when you shall have obtained a decision which would have finally resolved the case in your favor, remembering me then will make me happy. In the meantime, you will make me happier by just keeping the check.

Sincerely yours,

Issues:

1. WON private respondent Atty. Juan T. David is entitled to attorney’s fees.

Ruling:

There was an implied agreement for the payment of attorney’s fees.

While there was express agreement between petitioner Corpus and respondent David as regards attorney’s fees, the facts of the case support the position of respondent David that there was at least an implied agreement for the payment of attorney’s fees.

Petitioner’s act of giving the check for P2,000.00 through his aforestated April 18, 1962 letter to respondent David indicates petitioner’s commitment to pay the former attorney’s fees, which is stressed by expressing that “I wish I could give more but as you know we were banking on a SC decision reinstating me and reimbursing my back salaries.” This last sentiment constitutes a promise to pay more upon his reinstatement and payment of his back salaries.

Moreover, respondent David’s letter-reply of April 25, 1962 confirms the promise of petitioner Corpus to pay attorney’s fees upon his reinstatement and payment of back salaries. Said reply states that respondent David decided to be his counsel in the case because of the value to him of their intimate relationship over the years and “not, primarily, for a professional fee.” It is patent then that respondent David agreed to render professional services to petitioner Corpus secondarily for a professional fee. This is stressed by the last paragraph of said reply which states that “however, when you shall have obtained a decision which would have finally resolved the case in your favor, remembering me then will make me happy. In the meantime, you will make me happier by just keeping the check”

x x x

absence of an express contract for attorney's fees between parties is no argument against the payment of attorney's fees, considering their close relationship which signifies mutual trust and confidence between them.



It may be advanced that respondent David may be faulted for not reducing the agreement for attorney's fees with petitioner Corpus in writing. However, this should be viewed from their special relationship. It appears that both have been friends for several years and were co-members of the Civil Liberties Union. In addition, respondent David and petitioner's father, the late Rafael Corpus, were also close friends. Thus, the absence of an express contract for attorney's fees between respondent David and petitioner Corpus is no argument against the payment of attorney's fees, considering their close relationship which signifies mutual trust and confidence between them.

innominate contract of facio ut des justifies payment of attorney’s fees

Moreover, the payment of attorney's fees to respondent David may also be justified by virtue of the innominate contract of facio ut des (I do and you give which is based on the principle that â€œno one shall unjustly enrich himself at the expense of another innominate contracts have been elevated to a codal provision in the New Civil Code by providing under Article 1307 that such contracts shall be regulated by the stipulations of the parties, by the general provisions or principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the customs of the people. The rationale of this article was stated in the 1903 case of Perez vs. Pomar (2 Phil. 982).

Rationale of Article 1307 NCC

The rationale of this article was stated in the 1903 case of Perez vs. Pomar (2 Phil. 982). In that case, the Court sustained the claim of plaintiff Perez for payment of services rendered against defendant Pomar despite the absence of an express contract to that effect, thus:

It does not appear that any written contract was entered into between the parties for the employment of the plaintiff as interpreter, or that any other innominate contract was entered into but whether the plaintiffs services were solicited or whether they were offered to the defendant for his assistance, inasmuch as these services were accepted and made use of by the latter, we must consider that there was a tacit and mutual consent as to the rendition of the services. This gives rise to the obligation upon the person benefited by the services to make compensation therefor, since the bilateral obligation to render service as interpreter, on the one hand, and on the other to pay for the service rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code).

x x x

As it does not appear that he did this gratuitously, the duty is imposed upon the defendant, he having accepted the benefit of the service, to pay a just compensation therefor, by virtue of the innominate contract of facio ut des implicitly established.

x x x



… because it is a well-known principle of law that no one should permitted to enrich himself to the damage of another.

x x x

WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976]) citing the case of Perez v. Pomar, supra thus:

Where one has rendered services to another, and these services are accepted by the latter, in the absence of proof that the service was rendered gratuitously, it is but just that he should pay a reasonable remuneration therefor because â€˜it is a well-known principle of law, that no one should be permitted to enrich himself to the damage of another (emphasis supplied).

By: I.M. Maxino



VELASCO VS CA

Facts:

This is a suit for specific performance filed by Lorenzo Velasco against the Magdalena Estate, Inc. on the allegation that on November 29, 1962 the plaintiff and the defendant had entered into a contract of sale by virtue of which the defendant offered to sell the plaintiff and the plaintiff in turn agreed to buy a parcel of land with an area of 2,059 square meters for the total purchase price of P100,000.00.

It is alleged by the plaintiff that the agreement was that the plaintiff was to give a down payment of P10,000.00 to be followed by P20,000.00 and the balance of P70,000.00 would be paid in installments, the equal monthly amortization of which was to be determined as soon as the P30,000.00 down payment had been completed. It is further alleged that the plaintiff paid down payment of P10,000.00 on November 29, 1962 and that when on January 8, 1964 he tendered to the defendant the payment of the additional P20,000.00 to complete the P30,000.00 the defendant refused to accept and that eventually it likewise refused to execute a formal deed of sale obviously agreed upon. The plaintiff demands P25,000.00 exemplary damages, P2,000.00 actual damages and P7,000.00 attorney's fees.

The defendant, in its Answer, denies that it has had any direct dealings, much less, contractual relations with the plaintiff regarding the property in question, and contends that the alleged contract is entirely unenforceable under the Statute of Frauds.

It is the position of the defendant (1) that the sale was never consummated and (2) that the contract is unenforceable under the Statute of Frauds.

Issue:

Whether the talks between the Magdalena Estate, Inc. and Lorenzo Velasco either directly or thru his sister-in-law Socorro Velasco ever ripened into a consummated sale.

Ruling:

The court a quo agreed with the respondent's (defendant therein) contention that no contract of sale was perfected because the minds of the parties did not meet "in regard to the manner of payment."

It is not difficult to glean from the afore quoted averments that the petitioners themselves admit that they and the respondent still had to meet and agree on how and when the down-payment and the installment payments were to be paid. Such being the situation, it



cannot, therefore, be said that a definite and firm sales agreement between the parties had been perfected over the lot in question. Indeed, the Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000 as part of the down-payment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under article 1482 of the new Civil Code, as the petitioners themselves admit that some essential matter — the terms of payment — still had to be mutually covenanted.

ACCORDINGLY, the instant petition is hereby denied. No pronouncement as to costs.

NOTE: Sir Maxino said that the Supreme Court made an error of its decision in this case. The manner of payment of the purchase price is NEVER an essential element of contract. If there was no time stipulated, then it should be reasonable time. If there was no stipulation as to how it will be paid it will be in cash.

By: L. Tam



FLORENTINO VS ENCARNACION

Facts:

On May 22, 1964, the petitioners-appellants and the petitioners-appellees filed with CFI an application for the registration under Act 496 of a parcel of agricultural land located at Cabugao, Ilocos Sur. The application alleged among other things that the applicants are the common and pro-indiviso owners in fee simple of the said land with the improvements existing thereon; that to the best of the knowledge and belief, there is no mortgage, hen or encumbrance of any kind whatsoever affecting said land, nor any other person having any estate or interest thereon, legal or equitable, remainder, reservation at in expectancy; that said applicants had acquired the aforesaid land thru and by inheritance from their predecessors in interest, their aunt, Doña Encarnacion Florentino, and Angel Encarnacion acquired their respective shares of the land thru purchase from the original heirs, Jesus, Caridad, Lourdes and Dolores, all surnamed Singson, on one hand and from Asuncion Florentino on the other.

Exhibit O-1 embodied in the deed of extrajudicial partition (Exhibit O), which states that with respect to the land situated in Barrio Lubong, Dacquel, Cabugao, Ilocos Sur, the fruits thereof shall serve to defray the religious expenses, was the source of contention in this case (Spanish text). Florentino wanted to include Exhibit O-1 on the title but the Encarnacions opposed and subsequently withdrawn their application on their shares, which was opposed by the former.

According to the CFI, the self-imposed arrangement in favor of the Church is a simple donation, but is void since the donee has not accepted the donation and Salvador Encarnacion, Jr. and Angel Encarnacion had not made any oral or written grant at all so the court allowed the religious expenses to be made and entered on the undivided shares, interests and participations of all the applicants in this case, except that of Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel Encarnacion.

The Motion for Reconsideration and of New Trial was denied for lack of merit, but the court modified in highlighting that the donee Church has not showed its clear acceptance of the donation, and is the real party of this case, not the petitioner’s appellants.

Issue:

WON the lower own erred in concluding that the stipulation embodied in Exhibit O on religious expenses is just an arrangement stipulation, or grant revocable at the unilateral option of the co-owners.

Ruling:



YES, the court erred in concluding that the stipulation is just an arrangement stipulation. It cannot be revoked unilaterally.

The contract must bind both parties, based on the principles (1) that obligation arising from contracts have the force of law between the contracting parties; and (2) that there must be mutuality between the parties band on their essential equality, to which is repugnant to have one party bound by the contract leaving the other free therefrom.

The stipulation (Exhibit O-1) is part of an extrajudicial partition (Exh. O) duly agreed and signed by the parties, hence the same must bind the contracting parties thereto and its validity or compliance cannot be left to the will of one of them.

The said stipulation is a stipulation pour autrui. A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, and which stipulation is merely a part of a contract entered into by the parties, neither of whom acted as agent of the third person, and such third person may demand its fulfillment provided that he communicates his acceptance to the obligor before it is revoked.

Requisites: (1) that the stipulation in favor of a third person should be a part, not the whole, of the contract, (2) that the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and (3) neither of the contracting parties bears the legal representation or authorization of third party.

Therefore for a valid stipulation pour autrui, it must be the purpose and intent of the stipulating parties to benefit the third person, and it is not sufficient that the third person may be incidentally benefited by the stipulation. The intention of the parties may be disclosed by their contract. It matters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third person. That no such obligation exists may in some degree assist in determining whether the parties intended to benefit a third person.

The evidence on record shows that the true intent of the parties is to confer a direct and material benefit upon the Church. While a stipulation in favor of a third person has no binding effect in itself before its acceptance by the party favored, the law does not provide when the third person must make his acceptance. As a rule, there is no time limit; such third person has all the time until the stipulation is revoked. Here, We find that the Church accepted (implicitly) the stipulation in its favor before it is sought to be revoked by some of the co-owners.

By: L. Cuevas



BONIFACIO BROS. INC., ET AL. VS. ENRIQUE MORA, ET AL.G.R. No. L-20853

May 29, 1967

Facts:

Defendant Enrique Mora mortgaged his Oldsmobile sedan to the H.S. Reyes Inc. (HSR), where the latter was made as the beneficiary of the insurance applied by the former. During the effectivity of the insurance, the car met an accident. The insurance company assigned to Bayne Adjustment Co. (BAC) the investigation and appraisal of the damage. Meanwhile, Mora authorized the Bonifacio Bros. Inc. (BBI) and Ayala Auto Parts Co. (AAP), herein appellants, to furnish the labor and materials, which the latter billed the cost through the BAC. Thereafter, the insurance company issued a check for the said amount payable to Mora or HSR; BBI being in charge to dispose and deliver said check to the proper party. However, the car was already returned to Mora without any payment to BBI and AAP.

With this, and on the theory that the insurance proceeds should be paid directly to BBI and AAP as payment for the repairs and materials, BBI and AAP filed a complaint to recover the insurance proceeds. They rely upon paragraph 4 of the insurance contract which provides that “the insured may authorize the repair of the motor vehicle… which the company may be liable…” However, the municipal court declared that HSR has better right to the insurance proceeds, as affirmed by the Court of First Instance.

Issue:

Whether there is privity of contract between the BBI and AAP on the one hand and the insurance company on the other.

Ruling:

There is NONE. The appellants are not mentioned in the contract as parties thereto nor is there any clause or provision thereof from which we can infer that there is an obligation on the part of the insurance company to pay the cost of repairs directly to them.

It is fundamental that contracts take effect only between the parties thereto, except in some specific instances provided by law where the contract contains some stipulation in favor of third person – known as stipulation pour autrui. Wherein a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person.



To know a third person’s enforceable interest in a contract, it must be determined whether the contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed purpose of conferring a favor upon such third person. The fairest test to determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.

In the instant case, the contract does not contain any words or clause to disclose intent to give any benefit to any repairmen or materialmen in case of repair of the car in question. On the other hand, the “loss payable” clause of the insurance policy indicates that such loss is payable only to HSR.

By: G. Bellingan



DAYWALT VS LA CORPORACION DE PP. AGUSTINOS

Facts:

Teodorica Endencia obligated herself to sell a parcel of land to the plaintiff. It was agreed that the final deed of sale will be executed when the land was registered in Endencia’s name. Subsequently, the Torrens Title for the land was issued in her favor but in the course of the proceedings for registration it was found that the land involved in the sale contained a greater area than what Endencia originally thought and she became reluctant to consummate the sale of the land to the plaintiff. This reluctance was due to the advice of the defendant which exercised a great moral influence over her. However, in advising Endencia that she was not bound by her contract with the plaintiff, the defendant was not actuated with improper motives but did so in good faith believing that, under the circumstances, Endencia was not really bound by her contract with the plaintiff. In view of Endencia’s refusal to make the conveyance, the plaintiff instituted a complaint for specific performance against her and, upon appeal, the Supreme Court held that she was bound by the contract and she was ordered to make the conveyance of the land in question to the plaintiff. The plaintiff then instituted an action against the defendant to recover the following damages: (a) The amount of Pesos 24,000.00 for the use and occupation of the land in question by reason of the pasturing of cattle therein during the period that the land was not conveyed by Endencia to the plaintiff; (b) The amount of Pesos 500,000.00 for plaintiff’s failure to sell the land in question to a sugar growing and milling enterprise, the successful launching of which depended on the ability of Daywalt to get possession of the land and the Torrens Title. The lower court held that the defendant was liable to the plaintiff for the use and occupation of the land in question and condemned the defendant to pay the plaintiff Pesos 2,497.00 as damages. The Supreme Court affirmed this adjudication of the lower court. With respect to the claim of Pesos 500,000.00 damages, the Supreme Court.

Held:

“The most that can be said with reference to the conduct of Teodorica Endencia is that she refused to carry out a contract for the sale of certain land and resisted to the last an action for specific performance in court. The result was that the plaintiff was prevented during a period of several years from exerting that control over the property which he was entitled to exert and was meanwhile unable to dispose of the property advantageously. “The extent of the liability for the breach of a contract must be determined in the light of the situation in existence at the time the contract is made; and the damages ordinarily recoverable in all events limited to such as might be reasonably foreseen in the light of the facts then known to



the contracting parties. Where the purchaser desires to protect himself, in the contingency of the failure of the vendor promptly to give possession, from the possibility of incurring other damages than such as are incident to the normal value of the use and occupation, he should cause to be inserted in the contract a clause providing for stipulated amount to be paid upon failure of the vendor to give possession; and no case has been called to our attention where, in the absence of such a stipulation, damages have been held to be recoverable by the purchase in excess of the normal value of use and occupation.

The damages recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary, natural, and in a sense, necessary damage; and (2) special damages. “Ordinary damages is found in all breaches of contract where there are no special circumstances to distinguish the case especially from other contracts. The consideration paid for an unperformed promise is an instance of this sort of damage. In all such cases the damages recoverable are such as naturally and generally would result from such a breach, “according to the usual course of things”. In cases involving only ordinary damage, it is conclusively presumed from the immediateness and inevitableness of the damage, and the recovery of such damage follows as a necessary legal consequence of the breach. Ordinary damage is assumed as a matter of law to be within the contemplation of the parties. “Special damage, on the other hand, is such as follows less directly from the breach than ordinary damage. It is only found in cases where some external condition, apart from the actual terms of the contract exists or intervenes, as it were, to give a turn to affairs and to increase damage in a way that the promisor, without actual notice of the external condition, could not reasonably be expected to foresee.

Plaintiff’s right chiefly as against Teodorica Endencia; and what has been said suffices in our opinion to demonstrate that the damages laid under the second cause of action in the complaint could not be recovered from her, first, because the damages in question are special damages which were not within contemplation of the parties when the contract was made, and secondly, because said damages are too remote to be subject of recovery. This conclusion is also necessarily fatal to the right of the plaintiff to recover such damages from the defendant corporation for, as already suggested, by advising Teodorica Endencia not to perform the contract, said corporation could in no event render itself more extensively liable than the principal in the contract. “Our conclusion is that the judgment of the trial court should be affirmed, and it is so ordered, with costs against the appellant.”

By: B. Magcanta



SANCHEZ VS RIGOS

45 SCRA 368

Facts:

On 3 April 1961, Nicolas Sanchez and Severina Rigos executed an instrument, entitled “Option to Purchase,” whereby Mrs. Rigos “agreed, promised and committed . . . to sell” to Sanchez, for the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in TCT NT-12528 of said province, within two (2) years from said date with the understanding that said option shall be deemed “terminated and elapsed,” if “Sanchez shall fail to exercise his right to buy the property” within the stipulated period. Inasmuch as several tenders of payment of the sum of P1,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on 12 March 1963, the former deposited said amount with the CFI Nueva Ecija and commenced against the latter the present action, for specific performance and damages. On 11 February 1964, after the filing of defendant’s answer, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on 28 February 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney’s fees, and the costs. Hence, the appeal by Mrs. Rigos to the Court of Appeals, which case was the certified by the latter court to the Supreme Court upon the ground that it involves a question purely of law.

Held: The SC affirmed the decision appealed from, with costs against Severina Rigos.

1. Option to purchase not a contract to buy and sell The option did not impose upon Sanchez the obligation to purchase Rigos’ property. The contract denominated as “Option to Purchase” is not a “contract to buy and sell,” it merely granted Sanchez an “option” to buy, and both parties so understood it, as indicated by the caption given by them to said instrument. Under the provisions thereof, Rigos “agreed, promised and committed” herself to sell the land therein described to Sanchez for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration “distinct from the price” stipulated for the sale of the land.

2. Article 1354 applicable to contracts in general, Article 1479 refers to sales in particular



Relying upon Article 1354 of the Civil Code, which provides that “when the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised,” the lower court presumed the existence of a consideration distinct from the price. It must be noted however that Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to “sales” in particular, and, more specifically, to “an accepted unilateral promise to buy or to sell.” In other words, Article 1479 is controlling in the present case. Article 1479 provides that “A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price.”

3. Article 1479 imposes condition for a unilateral promise to be binding; Burden of proofIn order that a unilateral promise may be “binding” upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be “supported by a consideration distinct from the price.” Accordingly, the promisee cannot compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. In the present case, Sanchez has not even alleged the existence thereof in his complaint.

4. Implied admission of the truth of the other party’s averment if party joins in the petition for a judgment based on the pleadings without introducing evidenceIn the case of Bauermann v. Casas (14 March 1908), it was held that “one who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those allegations taken together with such of his own as are admitted in the pleading. (La Yebana Company vs. Sevilla, 9 Phil. 210).” This view was reiterated in Evangelista V. De la Rosa and Mercy’s Incorporated v. Herminia Verde. In the present case, Rigos explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, Sanchez has impliedly admitted the truth of said averment in Rigos’ answer.



5. Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. case The Court in the Southwestern Sugar case held that “under article 1479 of the new Civil Code ‘an option to sell,’ or ‘a promise to buy or to sell,’ as used in said article, to be valid must be ’supported by a consideration distinct from the price.’ This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration. In other words, ‘an accepted unilateral promise’ can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee. The Court held that the general rule regarding offer and acceptance under Article 1324 must be interpreted as modified by the provision of article 1479, which applies to ‘a promise to buy and sell’ specifically. In short, the rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price.

6. Atkins, Kroll and Co. v. Cua Hian Tek In the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., the Court saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance.

7. Option is unilateral Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In the present case, however, upon accepting Rigos’ offer a bilateral promise to sell and to buy ensued, and Sanchez ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was bilateral contract of sale.

8. Option without consideration is a mere offer of a contract of sale, which is not binding until accepted If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. . . . (77 Corpus Juris Secundum p. 652. See



also 27 Ruling Case Law 339 and cases cited.) It can be taken for granted that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by latter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts — the offer and the acceptance — could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code; Zayco vs. Serra, 44 Phil. 331.) In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

9. Proper construction of conflicting provisions of the same law; Harmonize to implement the same principle rather than to create exceptions In line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & pacific Co., holding that Art. 1324 (on the general principles on contracts) is modified by Art. 1479 (on sales) of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said 2 articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the 2 provisions intended to enforce or implement the same principle.

10. Atkins, Kroll & Co. case modifies or abandons Southwestern Sugar case insofar as to inconsistencies Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar all inconsistent therewith, the view adhered to in the South western Sugar & Molasses Co. case should be deemed abandoned or modified.

By: M. Villarmea



HILL VS VELOSO

31 Phil 161

Facts:

On December 30, 1910, defendants Veloso and Domingo Franco jointly and severally executed a promissory note in the amount of P6,319.33 on behalf of Michael & Co. for goods to be received by the La Cooperativa Filipina company. Goods are proven to have been delivered to La Cooperativa Filipina Company and it was alleged that four months or the equivalent of P2000 (P500/month) are already paid in the said debt to Michael & Co. later on, the promissory note was endorsed to plaintiff Hill and it was the later who brought and action to collect the remaining balance of P4, 319.33 plus the interest and the attorney’s fees thereof.

Veloso alleged that she was deceived by Franco into signing the blank sheet of paper by saying that it was for the promissory note to be executed by Veloso for P8,000 pesos for the benefit of the minor children of one Ricablanca.

The new guardian is one levering, to whom Veloso thought the obligation was due as guardian of the estate of the minor children. However, upon Francos’s death, Veloso alleged that the deceased Franco used his signature to execute the contract with Michael and Co., now endorsed to Hill. Therefore, she also alleges that she has no transaction with Michael and Co. nor with the plaintiff, and never received any kinds of good from the said company.

During the pendency of the case above which was initiated by Hill, Leveling commenced proceedings for the recovery of P8,000.

Veloso answered that her debt was to Ricablanca in her own right, and not in her capacity as guardian of her minor children.

Issue:

Whether or not the promissory note is binding on the defendants.

Ruling:

The Promissory is not binding on the defendants because of the reason that there is no other signed document than the promissory note presented either the intention, on its being signed, of securing the payment of the goods sold to the La Cooperativa. And the facts constituting the consideration for the contract contained in the promissory note are fully



proven. With regard to the P8,000, what is logical is that Veloso would have refused to execute her obligation to Levering in the first instance ( i.e. when she signed the blank sheet of paper thinking it was for the P8,000) as she did reject it in 1912 saying she did not consider herself in debt to the minors, but to their mother.

Since the obligation was joint, it is immaterial to know whether La Cooperativa exclusively belonged to Veloso or to the deceased Franco. The deceit alleged could not annul the consent of the contracting parties to the promissory note, nor exempt Veloso from the obligation incurred. There is deceit when by words or insidious machinations on the part of one of the contracting parties, the other is induced to execute a contract which without them he would not have made.

Actually, Franco is not one of the contracting parties with regard to Veloso as the other. They are both but one single contracting party in a relation with or against Michael & Co. Franco could be as a third person inducing deceit. But, there is no reason for making one of the parties suffer for the consequences of the act of a third person in whom the other contracting party may have reposed an imprudent confidence.

With regards with the goods mentioned, it was proven that the goods, the consideration for the debt, were received by La Cooperativa. It was also proven that the goods came from the Michael & Co and it was likewise proven that La Cooperativa belonged to the defendant.

The Judgement appealed from is reversed against defendant Veloso ordering the payment of the remaining balance of P4,319 plus the one and one-half interest thereof.

By: C. Estera



MAPALO VS MAPALOG.R. No. L-21489 and L-21628

May 9,1968

Facts:

The spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners, with Torrens title certificate O.C.T. No. 46503, of a 1,635-square-meter residential land in Manaoag, Pangasinan. Said spouses-owners, out of love and affection for Maximo Mapalo — a brother of Miguel who was about to get married — decided to donate the eastern half of the land to him. O.C.T. No. 46503 was delivered. As a result, however, they were deceived into signing, on October 15, 1936, a deed of absolute sale over the entire land in his favor. Their signatures thereto were procured by fraud, that is, they were made to believe by Maximo Mapalo and by the attorney who acted as notary public who "translated" the document, that the same was a deed of donation in Maximo's favor covering one-half (the eastern half) of their land.

Although the document of sale stated a consideration of Five Hundred (P500.00) Pesos, the aforesaid spouses did not receive anything of value for the land. Not known to them, meanwhile, Maximo Mapalo, on March 15, 1938, registered the deed of sale in his favor and obtained in his name Transfer Certificate of Title No. 12829 over the entire land. Thirteen years later on October 20, 1951, he sold for P2,500.00 said entire land in favor of Evaristo, Petronila Pacifico and Miguel all surnamed Narciso. The sale to the Narcisos was in turn registered on November 5, 1951 and Transfer Certificate of Title No. 11350 was issued for the whole land in their names.

The Narcisos took possession only of the eastern portion of the land in 1951, after the sale in their favor was made. On February 7, 1952 they filed suit in the Court of First Instance of Pangasinan (Civil Case No. 1191) to be declared owners of the entire land, for possession of its western portion; for damages; and for rentals. It was brought against the Mapalo spouses as well as against Floro Guieb and Rosalia Mapalo Guieb who had a house on the western part of the land with the consent of the spouses Mapalo and Quiba.

The Mapalo spouses filed their answer with a counterclaim on March 17, 1965, seeking cancellation of the Transfer Certificate of Title of the Narcisos as to the western half of the land, on the grounds that their (Mapalo spouses) signatures to the deed of sale of 1936 was procured by fraud and that the Narcisos were buyers in bad faith. They asked for reconveyance to them of the western portion of the land and issuance of a Transfer Certificate of Title in their names as to said portion.



The Court of First Instance of Pangasinan rendered judgment ordering the Register of Deeds of Pangasinan to issue in lieu of Transfer Certificate of Title No. 11350 two new titles upon completion of the subdivision plan, one in favor of the spouses Miguel Mapalo and Candida Quiba covering the western half portion and another for the Narcisos covering the eastern half portion of the said land, upon payment of the legal fees; meanwhile the right of the spouses Mapalo and Quiba is hereby ordered to be annotated on the back of Transfer Certificate of Title No. 11350.

The Narcisos appealed to the Court of Appeals. In its decision on May 28, 1963, the Court of Appeals reversed the judgment of the Court of First Instance, solely on the ground that the consent of the Mapalo spouses to the deed of sale of 1936 having been obtained by fraud, the same was voidable, not void ab initio, and, therefore, the action to annul the same, within four years from notice of the fraud, had long prescribed. It reckoned said notice of the fraud from the date of registration of the sale on March 15, 1938. The Court of First Instance and the Court of Appeals are therefore unanimous that the spouses Mapalo and Quiba were definitely the victims of fraud. It was only on prescription that they lost in the Court of Appeals.

From said decision of the Court of Appeals, the Mapalo spouses appealed to this Court. And here appellants press the contention that the document dated October 15, 1936, purporting to sell the entire land in favor of Maximo Mapalo, is void, not merely voidable, as to the western portion of the land for being absolutely simulated or fictitious.

Issue:

Whether the document dated October 15, 1936, purporting to sell the entire land in favor of Maximo Mapalo, is void, not merely voidable, as to the western portion of the land for being absolutely simulated or fictitious. Whether there was an onerous conveyance of ownership, that is, a sale, by virtue of said deed of October 15, 1936, with respect to said western portion. Specifically, was there a cause or consideration to support the existence of a contrary of sale?

Ruling:

Starting with fundamentals, under the Civil Code, either the old or the new, for a contract to exist at all, three essential requisites must concur: (1) consent, (2) object, and (3) cause or consideration. The Court of Appeals is right in that the element of consent is present as to the deed of sale of October 15, 1936. For consent was admittedly given, albeit obtained by fraud. Accordingly, said consent, although defective, did exist. In such case, the defect in



the consent would provide a ground for annulment of a voidable contract, not a reason for nullity ab initio.

The parties are agreed that the second element of object is likewise present in the deed of October 15, 1936, namely, the parcel of land subject matter of the same.

Not so, however, as to the third element of cause or consideration. And on this point the decision of the Court of Appeals is silent. As regards the eastern portion of the land, the Mapalo spouses are not claiming the same, it being their stand that they have donated and freely given said half of their land to Maximo Mapalo. The rule under the Civil Code, again be it the old or the new, is that contracts without a cause or consideration produce no effect whatsoever.

In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921, is squarely applicable herein. In that case we ruled that 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 has in fact never been paid by the purchaser to the vendor. Needless to add, the inexistence of a contract is permanent and incurable and cannot be the subject of prescription.

Under the existing classification, such contract would be "inexisting" and "the action or defense for declaration" of such inexistence "does not prescribe". (Art. 1410, New Civil Code). While it is true that this is a new provision of the New Civil Code, it is nevertheless a principle recognized since Tipton vs. Velasco, 6 Phil. 67 that "mere lapse of time cannot give efficacy to contracts that are null and void".

In view of defendants' bad faith under the circumstances we deem it just and equitable to award, in plaintiffs' favor, attorneys' fees on appeal, in the amount of P1,000.00 as prayed for in the counterclaim.

Wherefore, the decision of the Court of Appeals is hereby reversed and set aside, and another one is hereby rendered affirming in toto the judgment of the Court of First Instance a quo, with attorney's fees on appeal in favor of appellants in the amount of P1,000.00, plus the costs, both against the private appellees.

By: C. Subrian



SPS. SANTOS VS CA G.R. No. 120820

August 1, 2000

Facts:

Spouses Santos owned the house and lot in Better Living Subdivision, Paranaque, Metro Manila. The land together with the house, was mortgaged with the Rural Bank of Salinas, Inc., to secure a loan of P150K. The bank sent Rosalinda Santos a letter demanding payment of P16K in unpaid interest and other charges. Since the Santos couple had no funds, Rosalinda offered to sell the house and lot to Carmen Caseda. After inspecting the real property, Carmen and her husband agreed. Carmen and Rosalinda signed a document, involving the sale of the house – P350K as full amount, P54K as downpayment. Among other condition set is that Caseda will pay the balance of the mortgage in the bank, real estate taxes and the electric and water bills.

The Casedas complied with the bank mortgage and the bills. The Santoses, seeing that the Casedas lacked the means to pay the remaining installments and/or amortization of the loan, repossessed the property. The Santoses then collected the rentals from the tenants. Carmen approached petitioners and offered to pay the balance of the purchase price for the house and lot. The parties, however, could not agree, and the deal could not push through because the Santoses wanted a higher price. Carmen is now praying that the Santoses execute the final deed of conveyance over the property.

Issue:

WON there was a perfected contract of sale? NO

Ruling:

A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. Article 1458 expressly obliges the vendor to transfer ownership of the thing sold as an essential element of a contract of sale. This is because the transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale. There was no transfer of ownership simultaneously with the delivery of the property purportedly sold. The records clearly show that, notwithstanding the fact that the Casedas first took then lost possession of the disputed house and lot, the title to the property has remained always in the name of Rosalinda Santos. Although the parties had agreed that the Casedas would assume the mortgage, all amortization payments made by Carmen Caseda to the bank were in the name of Rosalinda Santos. The foregoing circumstances categorically and clearly show that no valid transfer of ownership



was made by the Santoses to the Casedas. Absent this essential element, their agreement cannot be deemed a contract of sale. It was a contract to sell. Ownership is reserved by the vendor and is not to pass until full payment of the purchase price. This we find fully applicable and understandable in this case, given that the property involved is a titled realty under mortgage to a bank and would require notarial and other formalities of law before transfer thereof could be validly effected.

The CA cannot order rescission. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. When the petitioners in the instant case repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full, they were merely enforcing the contract and not rescinding it.

By: M. Dijino



SANTOS VS HEIRS OF VILLANUEVA G.R. No. 143325

October 24, 2000

Facts:

Macario A. Mariano and Irene Peña-Mariano were spouses who, during their lifetime, were owners in fee simple of six (6) parcels of land covered by five (5) land titles, to wit: Lot 15-A (TCT No. 1962) Lot 15-B (TCT No. 1963), Lot 15-C (TCT No. 1964), Lots 545 and 2348 (TCT No. 259) and Lot No. 612 (TCT No. 219). The had two judicially adopted children namely Jose P. Mariano and Erlinda Mariano-Villanueva.

When Macario died on 02 December 1972, his share were passed on to his heirs, namely, Irene Macario (Irene), Jose Mariano (Jose) and Erlinda Mariano-Villanueva (Erlinda), who executed an "Indenture of Extra-Judicial Settlement of Estate" (Exh. "B") appointing Irene "to be their lawful representative and agent with special and/or general powers to act in their behalf and to represent them in any act or transaction of whatsoever nature involving the estate, involving but not limited to acts of management, administration, dominion and ownership. But the settlement excludes Lot 612 which was exclusively transferred in the name of Irene (TCT No. 7257).

On 09 December 1974, Irene married Rolando Relucio (Rolando), and four months after their marriage Irene executed a Deed of Absolute Sale (Exh. "G") covering the aforementioned six (6) parcels of land to Raul Santos (Raul), Rolando's first cousin. On the other hand , Lot 612 which was solely owned by Irene was also sold to Amado Sanao.

Irene died on 26 June 1988 leaving as her only compulsory heirs judicially adopted children Jose and Erlinda. Rolando also died on 30 January 1990.

It was only after Irene's death that Jose and Erlinda discovered the disposition of the six (6) parcels of land in favor of Raul. They caused the expert examination of the Deed of Sale dated 15 April 1975 by the National Bureau of Investigation (NBI). Per its Questioned Documents Report, the NBI made the following findings:

1. The questioned typewritten entries were not prepared from one and the same typewriter and

2. Three pages of the Deed of Absolute Sale were not the original pages of the document in question.

Supreme Court held "(T)he records of this cases are bereft of proof that the Deed of Absolute Sale (Exh. A) of Irene Mariano's properties is a falsified document. And that her signature in Exhibit A is forged."



The Deed of Sale dated 15 April 1975 gave rise to another court litigation, this time a suit for annulment of sale with damages, docketed as Civil Case No. 88-1506 filed on 18 July 1988 by Jose and Erlinda against Rolando, Raul and the Register of Deeds of Naga City.

When Jose( Irene’s heir) died on 02 December 1989 he was substituted by the herein plaintiffs-appellants. Likewise, when Rolando died on 30 January 1990, he was substituted by his legal wife and children.

A Joint Judgment on a case filed by Jose and Erlinda dated 22 July 1994 was ultimately rendered after a protracted trial in favor of the defendants, herein appellees Rolando Relucio, Raul Santos and the Register of Deeds of Naga City, citing the ruling of the Supreme Court in Mariano vs. Peñas, (supra) the court a quo upheld the validity of the Deeds of Absolute Sale executed by Irene in favor of Raul.

During the pendency of this appeal, plaintiffs-appellants filed a Motion for New Trial on the ground of newly-discovered evidence which was granted by this Court in its resolution dated 31 March 1998.

During the new trial hearing on 08 May 1998, plaintiffs-appellants presented three (3) witnesses and several documentary evidence. Judgment was rendered by the Court of Appeals declaring the Deeds of Absolute Sale dated 15 April 1975 and 10 March 1982 null and void.

Petitioner then filed a Motion for Reconsideration dated December 27, 1999, but was denied while the Supplemental Motion to Restore Possession and Administration to Plaintiffs-Appellants is granted.

Issues

The ultimate bone of contention in the instant controversy is whether or not the supposed contracts of sale of various pieces of real property entered into between Irene Peña-Mariano, as vendor and the respective vendees were bona fide contracts, legal, and binding upon respondents Jose P. Mariano and Erlinda Mariano-Villanueva, who were registered co-owners of those real properties.

Firstly, petitioner argues that apparently "the Court of Appeals seriously erred on a question of law when it failed to consider and in fact ignored and ruled against the Supreme Court en banc decision sustaining the regularity and validity of "Exhibit G" which is the same document inquired into and made subject of the Supreme Court ruling in Mariano vs. Peñas (supra) in effect setting it aside, and instead erroneously construed the first deed of sale ("Exhibit G") and the second deed of sale ("Exhibit H") as simulated and therefore null and void"



Secondly, petitioner claims that " the Court of Appeals seriously erred on a question of law when it granted the motion for new trial filed by respondents heirs of Jose P. Mariano and Erlinda Mariano-Villanueva alleging newly discovered evidence which allegedly could alter the result when in truth said documents cannot be so construed and are not under the rules, newly discovered evidence. He had the opportunity to assail the ruling of the Court of Appeals when it allowed the reception of newly discovered evidence on appeal, but he did not. Instead, petitioner participated in the hearing, to give effect to lawful and valid claims and not to frustrate them" (Mobil Oil Philippines vs. Court of Appeals, 225 SCRA 486 [1993]).

Lastly, petitioner claims that "the Court of Appeals seriously erred on a question of law when despite its decision not being final, said Court with grave abuse of discretion tantamount to lack or excess of jurisdiction granted the respondents-appellees' 'motion to restore possession and administration to plaintiffs-appellants' and 'supplemental motion to restore possession and administration to plaintiffs-appellants' of subject properties as appearing in its resolution dated May 19, 2000".

Ruling

The flawed argument fails to mislead this Court. It is basic and elementary in this jurisdiction that what determines the validity of a contract is contained in (Article 1318, Civil Code). "The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts" (Article 1475, Civil Code). Even with a duly executed written document (which apparently is the net result in Mariano vs. Peñas, supra) purporting to be a contract of sale, the Court cannot rule that the subject contracts of sale are valid, when the evidence presented in the courts below show that there had been no meeting of the minds between the supposed seller and corresponding buyers of the parcels of land in this case. The case is replete with evidence tending to show that there was really no intention to sell the subject properties,

In view of our disposition of the first two assigned errors, we find it moot and academic to discuss this third issue. It would be useless, if not illogical to reverse the ruling of the Court of Appeals on this matter by restoring possession and administration to petitioner, only to revert the same to respondents upon finality of this resolution. It would be best to leave these matters in their present status quo.

By: M. Doronila-Porcina



MMDA VS JANCOMG.R. No. 147465

Jan. 30, 2002

Facts:

In 1994, then President Fidel V. Ramos created the Executive Committee (EXECOM) to oversee the BOT implementation of solid waste management projects. The EXECOM was to oversee and develop waste-to-energy projects for the waste disposal sites in San Mateo, Rizal and Carmona, Cavite under the build-operate-transfer (BOT) scheme. The Pre-qualification, Bids and Awards Committee (PBAC) recommended the pre-qualification of three proponents, namely: i) JANCOM; ii) First Philippine International W-E Managers; and iii) PACTECH, and the EXECOM approved the recommendation of the PBAC. Consequently, JANCOM and First Philippines were declared the winning bidders, respectively, for the San Mateo and the Carmona projects. Then MMDA Chairman Oreta informed JANCOM that the EXECOM had approved the PBAC recommendation to award to JANCOM the San Mateo Waste-to-Energy Project as the winning bidder for the San Mateo Waste Disposal site, subject to negotiation and mutual approval of the terms and conditions of the contract of award. The BOT Contract for the waste-to-energy project was signed between JANCOM and the Philippine Government. The BOT contract was submitted to President Ramos for approval but this was too close to the end of his term which expired without him signing the contract. President Ramos, however, endorsed the contract to incoming President Joseph E. Estrada.

With the change of administration, the composition of the EXECOM also changed. Too, the Clean Air Act of 1999, was passed by Congress. And due to the clamor of residents of Rizal province, President Estrada also ordered the closure of the San Mateo landfill. Due to these circumstances, the Greater Manila Solid Waste Management Committee adopted a resolution not to pursue the BOT contract with JANCOM. JANCOM appealed to President Joseph Estrada the position taken by the EXECOM not to pursue the BOT Contract. Despite the pendency of the appeal, MMDA, caused the publication in a newspaper of an invitation to pre-qualify and to submit proposals for solid waste management projects for Metro Manila. JANCOM thus filed with the Regional Trial Court of Pasig a petition for certiorari to declare i) the resolution of the Greater Metropolitan Manila Solid Waste Management Committee disregarding the BOT Contract and ii) the acts of MMDA calling for bids and authorizing a new contract for Metro Manila waste management, as illegal, unconstitutional, and void. The trial court rendered a decision in favor of JANCOM.

Petitioner MMDA contends that there is no valid and binding contract between the Republic of the Philippines and respondents because: a) the BOT contract does not bear the signature of the President of the Philippines; b) the conditions precedent specified in the contract were not complied with; and that c) there was no valid notice of award.



Ruling:

Under Article 1305 of the Civil Code, “[a] contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.” A contract undergoes three distinct stages — preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. Article 1315 of the Civil Code, provides that a contract is perfected by mere consent. Consent, on the other hand, is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. In the case at bar, the signing and execution of the contract by the parties clearly show that, as between the parties, there was a concurrence of offer and acceptance with respect to the material details of the contract, thereby giving rise to the perfection of the contract.

There being a perfected contract, MMDA cannot revoke or renounce the same without the consent of the other. From the moment of perfection, the parties are bound not only to the 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 (Article 1315, Civil Code). The contract has the force of law between the parties and they are expected to abide in good faith by their respective contractual commitments, not weasel out of them. Just as nobody can be forced to enter into a contract, in the same manner, once a contract is entered into, no party can renounce it unilaterally or without the consent of the other. Nonetheless, it has to be repeated that although the contract is a perfected one, it is still ineffective or implementable until and unless it is approved by the President.

By: J.V. Magno



DUMEZ VS NLRCG.R. No. 82340

Aug. 12, 1991

Facts:

Petitioner is a French company which hires Filipino workers through a ECCOI, a company existing in the Philippines. Dumez needed 4 Senior Draftsmen who were willing to work for $600/month at Saudi Arabia. Private respondent Jose was among the draftsmen that were hired by ECCOI in behalf of Dumez. The employment agreement of Jose showed that his monthly base salary would be $680. This discrepancy was discovered when Dumez began preparing the papers related to respondent’s first month salary. The discrepancy was reported to ECCOI who in turn claimed that it was a mere typographical error. Meanwhile, Jose in-sisted on being paid $680 per month as stated in his employment agreement. Dumez eventu-ally dismissed Jose on the grounds of “surplus employee, excess of manpower and retrench-ment.” A case was filed by Jose before the POEA and then before the NLRC who ordered Dumez to pay the respondent’s salary for the unexpired portion of 1 year.

Issue:

WON there existed a valid contract between Dumez and Jose?

Ruling:

NO. The amount of monthly salary base was a prime consideration of the parties in signing the employment contract. Mutual mistake, however, prevented the proposed contract from arising.

The mutual mistake here should be distinguished from a mistake which vitiates con-sent in a voidable contract.

The element of consent was not present at all in this case. There was no concurrence of the offer and acceptance upon the subject matter and the cause which are to constitute the contract.

In a situation wherein one or both parties consider that certain matters or specifics, in addition to the subject matter and the causa should be stipulated and agreed upon, the area of agreement must extend to all points that the parties deem material or there is no contract.

By: M.. Dungog



SOMOSO VS CAG.R. No. 78050

October 23, 1989

Facts:

Documents of sale with reservation of title duly signed by spouses Caesar and Anita Somoso (herein petitioners) purchased two different units of things (VHS and Cinema Vision) from the Conpinco Marketing Company (private respondent herein. Before any delivery was made, a provisional receipt was given to spouses’ down payments, it was made known and acknowledged by Mrs. Somoso upon delivery August 13, 1979. There were additional payments that succeeded then came to a halt.

As per request dated August 27, 1979 for demonstration purposes only, there was a separate delivery of another appliance on October 24, 1979 and eventually pulled out the next day. On this mark and after several months of the purchase of the VHS, Mr. Somoso wrote and demanded that these be pulled out and as he claimed that, "not the unit requested for demonstration" and the return of deposit made (P15,000). He also warned the company of a consignment to the court if his demands are not met within 10 days from the company’s receipt of his letter. The response of the company was a collection letter and hence this case was filed by the spouses.

It was also evident in this case that the petitioner’s counsel, Atty. Francisco withdrew his services to the spouses Somoso and that the failure of their counsel to inform them of the decision of the lower court in favor of the company “constitutes an accident, mistake or excusable negligence which has prevented the petitioners from taking an appeal as provided for in Rule 38 of the Rules of Court.”

Issue:

1. Whether or not respondent Court of Appeals is correct in affirming the order of the lower court dismissing the petitioners' petition for relief from judgment?

2. Whether or not there was a perfected contract of sale?

Ruling:

As exhibited in the case of Rizal Commercial Banking Corporation vs. Lood (110 SCRA 205) that, when a party has sufficient alternative on hand and not prevent by fraud, accident, mistake or excusable negligence in taking actions or appeal, then he cannot benefit from such Rule



Rule 38, Section 2 of the Rules of Court to warrant the filing of the petition for relief is not parallel with the case at bar. As what have been said in the comment of Chief Justice Moran that, the act of their counsel was not tantamount to an excusable negligence in line with Rule 38 herein. The contention of the petitioners that there was no perfected contract of sale as there was absence of meeting of minds upon the thing which is the object of the contract and upon the price of the said thing were clearly false as they were the documents of sale with title reservations. Both signed in agreement of the purchases as well as those documents were duly notarized which were the terms of sale were entered on August 13, 1979.

By: A. Conception



YUVIENCO VS DACUYCUYG.R. No L-55048

May 27, 1981

Facts:

In essence, the theory of petitioners is that while it is true that they did express willingness to sell to private respondents the subject property (land and building) for P6,500,000.00 provided the latter made known their own decision to buy it not later than July 31, 1978, the respondents' reply that they were agreeable was not absolute, so much so that when ultimately petitioners' representative went to Cebu City with a prepared and duly signed contract for the purpose of perfecting and consummating the transaction, respondents and said representative found variance between the terms of payment stipulated in the prepared document and what respondents had in mind, hence the bank draft which respondents were delivering to the representative was returned and the document remained unsigned by respondents.

The respondents, in their complaint, contended “That on August 1, 1978 Pedro Gamboa arrived Tacloban City bringing with him the prepared contract to purchase and to sell referred to in his telegram dated July 27, 1978 for the purpose of closing the transactions referred to in paragraphs 8 and 9 hereof, however, to the complete surprise of plaintiffs, the defendant without giving notice to plaintiffs, changed the mode of payment with respect to the balance of P4,500,000.00 by imposing upon plaintiffs to pay same amount within thirty (30) days from execution of the contract instead of the former term of ninety (90) days.”

Issues:

1. Whether or not the complaint sufficiently states a cause of action?

2. Whether or not the claim alleged therein is unenforceable under the Statute of Frauds?

Ruling:

1. The court held that although there was no perfected contract of sale in the light of the letter of Atty. Gamboa of July 12, 1978 and the letter-reply thereto of Yao; it being doubtful whether or not, under Article 1319 of the Civil Code, the said letter may be deemed as an offer to sell that is "certain", and more, the Yao telegram is far from being an "absolute" acceptance under said article, still there appears to be a cause of action alleged in Paragraphs 8 to 12 of the respondents' complaint, considering it is alleged therein that subsequent to the telegram of Yao, it was agreed that the petitioners would sell the



property to respondents for P6.5 M, by paving P2 M down and the balance in 90 days and which agreement was allegedly violated when in the deeds prepared by Atty. Gamboa and taken to Tacloban, only 30 days were given to respondents.

2.Further, the court ruled that in any sale of real property on installments, the Statute of Frauds read together with the perfection requirements of Article 1475 of the Civil Code must be understood and applied in the sense that the idea of payment on installments must be in the requisite of a note or memorandum therein contemplated.

By: M.C. Ybio


Forms of Contracts - Arts. 1356–1358

HERNAEZ VS DELOS ANGELES27 SCRA 1276

Facts:

Herein petitioner, Marlene Dauden-Hernaez is a motion picture actress. She filed a complaint against herein private respondents, Hollywood Far East Productions, Inc., and its President and General Manager, Ramon Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her services as leading actress in two motion pictures produced by the company, and to recover damages. Upon motion of defendants, the respondent court (Judge Walfrido de los Angeles presiding) ordered the complaint dismissed, mainly because the "claim of plaintiff was not evidenced by any written document, either public or private", and the complaint "was defective on its face" for violating Articles 1356 and 1358 of the Civil Code of the Philippines, as well as for containing defective allege, petitions. The defense contended that “xxx-the contract sued upon was not alleged to be in writing; that by Article 1358, the writing was absolute and indispensable, because the amount involved exceeds five hundred pesos-xxx”

Issue:

Is a contract for personal services involving more than P500.00 invalid or unenforceable under the last paragraph of Article 1358 of the Civil Code of the Philippines?

Ruling:

The contract sued upon by petitioner herein (compensation for services) does not come under either exception. It is true that it appears included in Article 1358, last clause, providing that "all other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence of writing.

It thus becomes inevitable to conclude that both the court a quo as well as the private respondents herein were grossly mistaken in holding that because petitioner Dauden's contract for services was not in writing the same could not be sued upon, or that her complaint should be dismissed for failure to state a cause of action because it did not plead any written agreement.

By: D. Picardal



ALANO VS BARBARAG.R. No. L-4274March 23, 1908

Facts:

On the 27th of May, 1907, Juana Cantos, assisted by her husband, Jose Alano, filed an amended complaint alleging that her legitimate father had contracted a debt of P1,030 in favor of Fulgencio Babasa and Maria Cantos, the parents of the defendant Jose Babasa, and that in order to guarantee said debt he had pledged a parcel of land upon condition that the creditors should enjoy the usufruct of said land from the date of the contract, July 18, 1883, and for such purpose they took possession of the property during seven years, after which time the debtor would be entitled to redeem it at any time by paying his debt; and on account of the death of the said creditors, the plaintiff's husband, in her name, spoke personally and through other persons to the defendant, Babasa, who now holds and enjoys the usufruct of the land, seeking to redeem the same, and although the defendant in the beginning engaged to permit its redemption, later on he offered to definitely purchase the land at an increase of P1,370 in the price, but as the plaintiff did not agree to this, he then absolutely declined to permit the redemption to which she was entitled, and she therefore asked that judgment be entered in her favor ordering that the defendant, in compliance with what had been agreed to, permit the land in question to be redeemed for said amount, or by some other means under the law, and directing that the land be returned to her without payment for the reason that the defendant had enjoyed its fruits during so many years of possession of the property, and that he be sentenced to pay the costs.

In answer to the above the defendant made a general and specific denial of each and all the facts stated in the complaint, and as a special defense alleged that the land described had been sold with right of repurchase by the parents of the plaintiff Juana Cantos, to Fulgencio Babasa, father of the defendant, on the 18th of July, 1883, for the sum of 1,000 pesos, of which 300 pesos were furnished by the defendant himself, and that the period stipulated for the repurchase was seven years from said date; that the parents of the plaintiff, who lived many years after the expiration of the said period of seven years granted for said repurchase, had not exercised their right; and in view thereof he asked that the complaint be dismissed with the costs against the plaintiffs.

Issues:

Whether or not the right to repurchase has prescribed.



Ruling:

The stipulated contract, owing to its form and the terms in which the document has been prepared, is in no way a contract of loan with mortgage, but a real contract of sale with right to repurchase treated of in article 1507 et seq. of the Civil Code. It is valid, perfect, and efficient, because the three requisites prescribed by article 1261 of the Civil Code are present therein, and is binding notwithstanding the fact that it had been drawn up as a private document, in accordance with the provisions of article 1278 of said code, inasmuch as the legalization of a contract by means of a public writing and its entry in the register are not essential solemnities or requisites for its validity and efficacy as between the contracting parties, but conditions of form which the law imposes, and that a publicly executed and recorded agreement may be respected by the latter.

Moreover, it was agreed by the contracting parties, that from the date of the contract, July 18, 1883, the sellers of the land would deliver it to the purchaser in order that he might work the same as if it were his own property for seven years beginning from said date. It was likewise stipulated that the expiration of the said seven years the sellers would be entitled to redeem it for the said sum of 1,000 pesos, but that so long as it was not repurchased by return of the sale price, the property would continue to be at the disposal of the purchaser. So that the redemption or repurchase could not be effected until after the lapse of the seven years agreed to, although no period was fixed within which the repurchase, which the plaintiffs might have demanded since the 19th of July, 1890, was to take place.

Furthermore, it is known that since the time when the Civil Code went into effect no sale with right of repurchase can be made for an indefinite period inasmuch as article 1508 (now 1606) of the same fixes the period at four years if no term has been agreed to, and in case of agreement said term can exceed ten years, and said article is applicable even to contracts entered into prior to the Civil Code, by the reason that property should not be subject indefinitely or for long time to resolutory conditions such a redemption, and prescription during its running does not create a vested right but only a hope of the realization or the effecting of the same; therefore, in answer to the exigencies of the public good and the interests of society, the provisions of the said article were enacted by the legislator, employing therein a restricting and limiting system as security for the ever to be respected right of ownership.

By: E.J. Solon


Reformat ion of Instruments - Arts. 1359–1369

ATILANO VS ATILANOG.R. No. L-22487

28 SCRA 231 May 21, 1969

Facts:

In 1916, Eulogio Atilano I acquired lot No. 535. In 1920 he had the land subdivided into five parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E, respectively. On May 18 of the same year, after the subdivision had been effected, Eulogio Atilano I, for the sum of P150.00, executed a deed of sale covering lot No. 535-E in favor of his brother Eulogio Atilano II, who thereupon obtained transfer certificate of title No. 3129 in his name. Three other portions, namely lots Nos. 535-B, 535-C and 535-D, were likewise sold to other persons, the original owner, Eulogio Atilano I, retaining for himself only the remaining portion of the land, presumably covered by the title to lot No. 535-A. Upon his death the title to this lot passed to Ladislao Atilano, defendant in this case, in whose name the corresponding certificate (No. T-5056) was issued.

Then, on July 16, 1959, when the land purchased by Eulogio Atilano II was resurveyed so that it could properly be subdivided; it was then discovered that the land they were actually occupying on the strength of the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E, as referred to in the deed, while the land which remained in the possession of the vendor, Eulogio Atilano I, and which passed to his successor, defendant Ladislao Atilano, was lot No. 535-E and not lot No. 535-A. On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also deceased, filed the present action in the Court of First Instance of Zamboanga, alleging, inter alia, that they had offered to surrender to the defendants the possession of lot No. 535-A and demanded in return the possession of lot No. 535-E, but that the defendants had refused to accept the exchange. The plaintiffs' insistence is quite understandable, since lot No. 535-E has a wider area than lot No. 535-A

The trial court rendered judgment for the plaintiffs on the sole ground that since the property was registered under the Land Registration Act the defendants could not acquire it through prescription. There can be, of course, no dispute as to the correctness of this legal proposition.

Issue:

Whether or not there can be reformation of the contract.



Ruling:

The real issue here is not adverse possession, but the real intention of the parties to that sale. From all the facts and circumstances we are convinced that the object thereof, as intended and understood by the parties, was that specific portion where the vendee was then already residing, where he reconstructed his house at the end of the war, and where his heirs, the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and that its designation as lot No. 535-E in the deed of sale was simple mistake in the drafting of the document. The mistake did not vitiate the consent of the parties, or affect the validity and binding effect of the contract between them. The new Civil Code provides a remedy for such a situation by means of reformation of the instrument. This remedy is available when, there having been a meeting of the funds 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 on accident (Art. 1359, et seq.) In this case, the deed of sale executed in 1920 need no longer reformed. The parties have retained possession of their respective properties conformably to the real intention of the parties to that sale, and all they should do is to execute mutual deeds of conveyance.

By: M. Teves-Solon



INVESTOR FINANCE CORP. VS CA

193 SCRA 547

Facts :

“Plaintiff (appellee herein) brought this action to recover a sum of money and dam-ages against the defendant R.C. Gonzales Co., Inc. (defendant company) (herein referred to as Appellant Company) and spouses Ramon and Carmen Gonzales (herein referred to as Ap-pellant-Spouses) in their capacity as guarantors of the obligations contracted by the defendant company. The complaint includes a prayer for the issuance of the writ of preliminary attach-ment on the ground that defendants have removed or disposed or are so planning to remove or dispose of their properties with intent to defraud the plaintiff. As a second cause of action, plaintiff alleged that defendants likewise availed of the purchase-lease-back financing facil-ity. Under this scheme, plaintiff purchased various items of construction equipment and leased the same back to the defendant company for a period of two years commencing on 20 September 1979 and ending on 20 September 1981, pursuant to the Lease Agreement. Defen-dants Ramon and Carmen Gonzales likewise executed a Continuing Guaranty of Lease Obli-gations dated 5 September 1978. he third, fourth, and fifth causes of action pleaded by the plaintiff in its complaint merely seek the enforcement of the stipulation regarding damages and attorney's fees in all the loan agreements with the defendants.

Issue:

Whether or not the defendant is solidarily liable and liable without extending to ex-haust company's resources?

Ruling:

From the import of the Continuing Guaranty alone, it is beyond doubt that appellant Spouses Gonzales assumed liability and bound themselves to be jointly and severally liable to the obligation of the appellant Company. While it is true that the said contract refers to ap-pellant Spouses as “guarantor” and agreed to “guarantee” to the obligation of the appellant Company (as the Borrower), this Court believes that the usage of the said terms do not limit or convert the same to a simple contract of guaranty. In fact, the Court has ruled in favor of suretyship, though a contract was denominated as a “Continuing Guaranty” [5], as in this case. On the contrary, the contract executed by the Spouses unequivocally disclosed their true intention, and that is to be solidarily liable for the obligations incurred by the appellant Company. Being solidarily liable with the principal debtor, appellant Spouses became a surety under Article 2047[6] of the Civil Code, and not mere guarantors as appellant Spouses



insist. Indeed, the very terms of a contract govern the obligations of the parties or the extent of the obligor's liability. In addition, appellants Spouses' claim that appellees cannot proceed against them without exhausting first the property of the appellant Company, deserves scant consideration. Appellants Spouses should be reminded that the benefit of excussion under the Civil Code shall not take place in the following instances, to wit: (a) if the guarantor has ex-pressly renounced it; (b) if he has bound himself solidarily with the debtor.[7] At the risk of being repetitive, appellant Spouses, as previously mentioned, bound themselves to be solidar-ily liable with the appellant Company when they expressly waived and renounced the benefit of excussion and therefore, the same cannot be applied in their favor.

By: A. Siglos



BORROMEO VS CA

47 SCRA 65

Facts;

Before the year 1933, defendant [Jose A. Villamor] was a distributor of lumber belonging to Mr. Miller who was the agent of the Insular Lumber Company in Cebu City. Defendant being a friend and former classmate of plaintiff [Canuto O. Borromeo] used to borrow from the latter certain amounts from time to time. On one occasion with some pressing obligation to settle with Mr. Miller, defendant borrowed from plaintiff a large sum of money for which he mortgaged his land and house in Cebu City. Mr. Miller filed civil action against the defendant and attached his properties including those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered because not properly drawn up. Plaintiff then pressed the defendant for settlement of his obligation, but defendant instead offered to execute a document promising to pay his indebtedness even after the lapse of ten years. Liquidation was made and defendant was found to be indebted to plaintiff in the sum of P7,220.00, for which defendant signed a promissory note therefor on November 29, 1933 with interest at the rate of 12% per annum, agreeing to pay 'as soon as I have money'. The note further stipulates that defendant 'hereby relinquish, renounce, or otherwise waive my rights to the prescriptions established by our Code of Civil Procedure for the collection or recovery of the above sum of P7,220.00. ... at any time even after the lapse of ten years from the date of this instrument. After the execution of the document, plaintiff limited himself to verbally requesting defendant to settle his indebtedness from time to time. Plaintiff did not file any complaint against the defendant within ten years from the execution of the document as there was no property registered in defendant's name, who furthermore assured him that he could collect even after the lapse of ten years. After the last war, plaintiff made various oral demands, but defendants failed to settle his account, hence the present complaint for collection. Court of First Instance of Cebu did sentence the original defendant, the deceased Jose A. Villamor, to pay Canuto O. Borromeo, now represented by petitioners, the sum of P7,220.00 within ninety days from the date of the receipt of such decision with interest at the rate of 12% per annum from the expiration of such ninety-day period. Court of Appeals reversed CFI ruling.

Issue:

WON the CA erred in reversing the ruling of CFI in finding the lack of validity of the stipulation amounting to waiver in line with the principle “that a person cannot renounce future prescription.”



Held:

YES, between two possible interpretations, that which saves rather than destroys is to be preferred. It is a fundamental principle in the interpretation of contracts that while ordinarily the literal sense of the words employed is to be followed, such is not the case where they “appear to be contrary to the evident intention of the contracting parties.” which “intention shall prevail.” Another fundamental rule in the interpretation of contracts specifically referred to in Kasilag vs. Rodriguez, clauses and condition contrary to law, morals and public order should be separated from valid and legal contract when such separation can be made because they are independent of the valid contract which expresses the will of the contracting parties.

There is nothing implausible in the view that such language renouncing the debtor's right to the prescription established by the Code of Civil Procedure should be given the meaning, as noted in the preceding sentence of the decision of respondent Court, that the debtor could be trusted to pay even after the termination of the ten-year prescriptive period. For as was also made clear therein, there had been since then verbal requests on the part of the creditor made to the debtor for the settlement of such a loan. Nor was the Court of Appeals unaware that such indeed was within the contemplation of the parties as shown by this sentence in its decision: "Plaintiff did not file any complaint against the defendant within ten years from the execution of the document as there was no property registered in defendant's name who furthermore assured him that he could collect even after the lapse of ten years."

Manresa, commenting on article 1255 of the Civil Code and stating the rule of separation just mentioned, gives his views as follows: 'On the supposition that the various pacts, clauses, or conditions are valid, no difficulty is presented; but should they be void, the question is as to what extent they may produce the nullity of the principal obligation. ... The same view prevails in the Anglo-American law as condensed in the following words: 'Where an agreement founded on a legal consideration contains several promises, or a promise to do several things, and a part only of the things to be done are illegal, the promises which can be separated, or the promise, so far as it can be separated, from the illegality, may be valid. The rule is that a lawful promise made for a lawful consideration is not invalid merely because an unlawful promise was made at the same time and for the same consideration, and this rule applies, although the invalidity is due to violation of a statutory provision, unless the statute expressly or by necessary implication declares the entire contract void.

The first ten years after November 29, 1933 should not be counted in determining when the action of creditor, now represented by petitioners, could be filed. From the joint record on appeal, it is undoubted that the complaint was filed on January 7, 1953. If the first



ten-year period was to be excluded, the creditor had until November 29, 1953 to start judicial proceedings. After deducting the first ten-year period which expired on November 29, 1943, there was the additional period of still another ten years. 29 Nor could there be any legal objection to the complaint by the creditor Borromeo of January 7, 1953 embodying not merely the fixing of the period within which the debtor Villamor was to pay but likewise the collection of the amount that until then was not paid.

WHEREFORE, the decision of respondent Court of Appeals of March 7, 1964 is reversed, thus giving full force and effect to the decision of the lower court of November 15, 1956. With costs against private respondents.

By: M. Bridges



LIM YHI LUYA VS CAG.R. No. L-40258

Sept. 11, 1980

Facts: On November 12, 1970, Lim Yhi Luya (petitioner) received from Manager Abalos

(respondent) a telegram, in a manner of invitation: “Please come tomorrow morning without fail.” Thus, on November 13, 1970 Luya attended to it and came to an agreement with the latter’s offer to sell sugar. The CONTRACT OF SALE OF SUGAR stated the seller (Hind Sugar Company), buyer (Lim Yhi Luya), quantity of sugar agreed to purchase: 4,085 piculs of sugar, at a price: P35.00/picul, and the terms: cash upon signing of this contract, as well are the signatures and names of buyer and seller.

Issue: Whether or not the plaintiff-appellee has paid the sum of P142,975.00 which is the

purchase price of the 4,085 piculs of sugar covered by the contract of sale?

Ruling: The veracity of the stipulation in the contract which is in the terms agreed upon by the

two contracting parties is translucent in its implication that the intention of both parties will be interpreted in the manner calculated for, and must be in command in this case. Thus, it is clear that the stipulation is that payment was completed on the occasion of or at the time of the signing of the contract and not subsequently done. Therefore the trial court succumbed to the light of Article 1373 of the New Civil Code. As in the case of La Fuerza, Inc. vs. Court of Appeals (23 SCRA 1217) as also pursuant to Article 1497 of the New Civil Code, “The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee. Therefore, when the thing subject of the sale is placed in the control and possession of the vendee, delivery is complete.” In so affirming with the lower court’s ruling, the trial court upheld that, "It would be redundant to discuss what are the forms of receipts, but anything evidencing or admitting payment in compliance with an obligation is a receipt” and as in the terms of the contract herein. In line with Article 1636, the contract was already beyond the established meeting of the minds as the parties continued to perform and consummate the same. Section 7, Rule 130, Rev. Rules of Court also accentuated further that, all such terms of an agreement are encapsulated when it has been reduced to writing. Oral testimony cannot prevail over a written one.

In addition, allowing Manuel Chua Lim (son of herein petitioner, Lim Yhi Luya) to witness the transaction done on November 13, 1970 was also not objected by the respondent’s officials, thus the appealed judgment by Luya was then and there tenable.

By: A. Conception



RIVERA FILIPINO VS CAG.R. No. 117355

April 5, 2002

Facts:

Civil Case No. Q – 89n- 3371 is a suit instituted by Riviera Filipina Inc., on August 31, 1989 to compel the defendants therein Juan L. Reyes now deceased, Philippine Cypress Construction and Development Corporation (Cypress), Cornhill Trading Corporation (Cornhill) and Urban Development Bank to transfer the title covering a 1018 square meter parcel of land located along EDSA, Quezon City for alleged violation of Riviera’s right of first refusal. It appears that on November 23, 1982, respondent Juan L. Reyes executed a contract of Lease with Riviera. The ten year renewable lease of Riviera, which started on August 1, 1982, involved a 1018 square meter parcel of land located along EDSA, Quezon City in the name of Juan L. Reyes. The alleged property was mortgaged to Prudential Bank as executed by Juan L. Reyes, with the fear that Reyes cannot possibly raise the money, decided to sell the same. Because Riviera refused to buy the parcel of land at the price offered by Reyes, Riviera offered a lower price in which Reyes refused the same. The case at hand speaks of the contention by Riviera that his right of first refusal was violated by the respondents, on the basis that on the contract stipulated by the parties particularly on paragraph 11 of the lease contract expressly provided that the “LESSEE shall have the right of first refusal should the LESSOR decide to sell the property during the term of the lease.”

Issue:

WON Respondents violated Riviera’s right of first refusal.

Held:

The concept and interpretation of the right of first refusal and the consequences of a breach thereof evolved in Philippine juristic sphere only within the last decade. It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie where the Court held that a lease with a proviso granting the lessee the right of first priority “all things and conditions being equal” meant that there should be identity of the terms and conditions to be offered to the lessee and all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale executed in favor of a third party who cannot be deemed a purchaser in good faith, and which is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of Frauds but rescissible under Articles 1380 to 1381 (3) of the New Civil Code.



Thus, the prevailing doctrine is that a right of first refusal means identity of terms and conditions to be offered to the lessee and all other prospective buyers and a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible.

Analysis and construction should not be limited to the words used in the contract, as they may not accurately reflect the parties’ true intent. The court must read a contract as the average person would read it and should not give it a strained or forced construction.

Reyes was under no obligation to disclose the same. Pursuant to Article 1339 of the New Civil Code, silence or concealment, by itself, does not constitute fraud, unless there is a special duty to disclose certain facts, or unless according to good faith and the usages of commerce the communication should be made. We apply the general rule in the case at bar since Riviera failed to convincingly show that either of the exceptions are relevant to the case at bar.

WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of Appeals dated June 6, 1994 in CA-G.R. CV No. 26513 is AFFIRMED. No pronouncement as to costs.

By: M. Tejano


Defect ive Contracts – Voidable Contracts – Arts. 1390 - 1402

UFC VS CA

33 SCRA 1

Facts:

This is a petition for certiorari by the UFC against the CA decision of February 13, 1968 declaring the BILL OF ASSIGNMENT rescinded, ordering UFC to return to Magdalo Francisco his Mafran sauce trademark and to pay his monthly salary of P300.00 from Dec. 1, 1960 until the return to him of said trademark and formula.

On May 31, 1960, Magdalo Francisco entered into contract with UFC stipulating among other things that he be the Chief Chemist and Second Vice-President of UFC and shall have absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the chemicals used in the preparation of said Mafran sauce and that said positions are permanent in nature.

In line with the terms and conditions of the Bill of Assignment, Magdalo Francisco was appointed Chief Chemist with a salary of P300.00 a month. Magdalo Francisco kept the formula of the Mafran sauce secret to himself. Thereafter, however, due to the alleged scarcity and high prices of raw materials, on November 28, 1960, Secretary-Treasurer Ciriaco L. de Guzman of UFC issued a Memorandum duly approved by the President and General Manager Tirso T. Reyes that only Supervisor Ricardo Francisco should be retained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should bestopped for the time being until the corporation should resume its operation. On December 3, 1960, President and General Manager Tirso T. Reyes, issued a memorandum to Victoriano Francisco ordering him to report to the factory and produce "Mafran Sauce" at the rate of not less than 100 cases a day so as to cope with the orders of the corporation's various distributors and dealers, and with instructions to take only the necessary daily employees without employing permanent employees. Again, on December 6, 1961, another memorandum was issued by the same President and General Manager instructing theAssistant Chief Chemist Ricardo Francisco, to recall all daily employees who are connected in the production of Mafran Sauce and also some additional daily employees for the production of Porky Pops. On December 29, 1960, another memorandum was issued by the President and General Manager instructing Ricardo Francisco, as Chief Chemist, and Porfirio Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky Pops in full swing starting January 2, 1961 with further instructions to hire daily laborers in order to cope with the full blast operation. Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the amount of P300.00 a month only until his services were terminated on November 30, 1960. On January 9 and 16, 1961, UFC, acting thru its President and General Manager, authorized Porfirio Zarraga and Paula de Bacula to look for a buyer of the corporation including its trademarks, formula and assets at a price of not less than P300,000.00. Due to these



successive memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, he filed the present action on February 14, 1961. Then in a letter dated March 20, 1961, UFC requested said plaintiff to report for duty, but the latter declined the request because the present action was already filed in court.

Issue:

Was petitioner’s contention that Magdalo Francisco is not entitled to rescission valid?

Ruling:

No. Petitioner’s contention that Magdalo Francisco’s petition for rescission should be denied because under Article 1383 of the Civil Code of the Philippines rescission cannot be demanded except when the party suffering damage has no other legal means to obtain reparation, was of no merit because “it is predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the Civil Code and a rescission by reason of lesion or economic prejudice, under Article 1381, et seq.” This was a case of reciprocal obligation. Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder was subordinated to anything other than the culpable breach of his obligations by the defendant. Hence, the reparation of damages for the breach was purely secondary. Simply put, unlike Art. 1383, Art. 1191 allows both the rescission and the payment for damages. Rescission is not given to the party as a last resort, hence, it is not subsidiary in nature.

By: G.M. Cabusao



EQUATORIAL VS. MAYFAIRG.R. No. 106063

November 21, 1996

FACTS:

Carmelo entered into a contract with respondent for the latter to lease A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters and THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 150 square meters.

The contract is set for the next 20 years.

2 years later, the parties entered into yet another contract involving; A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters and THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 150 square meters.

Stipulated in the contract was; That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale hereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof.

Sometime in 1974, Carmelo through Mr. Pascal by a telephone call told the respondent that it is contemplating to sell the said property and that a certain Jose Araneta is willing to buy the same for US$1,200,000. It also asked the respondent if it’s willing to the property for six to seven million pesos. Respondent through Mr. Yang told the petitioner that it would respond once a decision was made.

Respondent in its reply mentioned a stipulated part of the contract as to when Carmelo would decide to sell the property. Carmelo did not reply.

Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00.



Mayfair instituted the action a quo for specific performance and annulment of the sale of the leased premises to Equatorial.

Carmelo’s defense; as special and affirmative defense (a) that it had informed Mayfair of its desire to sell the entire C.M. Recto Avenue property and offered the same to Mayfair, but the latter answered that it was interested only in buying the areas under lease, which was impossible since the property was not a condominium; and (b) that the option to purchase invoked by Mayfair is null and void for lack of consideration.

Equitorial’s allegation; that the option is void for lack of consideration (sic) and is unenforceable by reason of its impossibility of performance because the leased premises could not be sold separately from the other portions of the land and building. It counterclaimed for cancellation of the contracts of lease, and for increase of rentals in view of alleged supervening extraordinary devaluation of the currency. Equatorial likewise cross-claimed against co-defendant Carmelo for indemnification in respect of Mayfair's claims.

Trial Court rendered decision in favor of Carmelo and Equitorial.

ISSUE :

Whether or not the OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO.

RULING :

We agree with the respondent Court of Appeals that the afore cited contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal.

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:

A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from, or selling to B, certain securities or properties within a limited time at a specified price.

The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in order to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell.

By: M.C. Cui



GUZMAN, BOCALING VS. BONNEVIEG.R. No. 86150March 2, 1992

Facts :

A parcel of land with two buildings belonging to the Intestate Estate of Jose L. Reynoso, was leased to Raoul S. Bonnevie and Christopher Bonnevie, by the administratrix, Africa Valdez de Reynoso. Paragraph 20 of the Contract of Lease states that, “In case the LESSOR desire or decides to sell the lease property, the LESSEES shall be given a first priority to purchase the same, all things and considerations being equal.”

According to Reynoso, she notified Bonnevie by registered mail on November 3, 1976 that she was selling the leased premises for P600.000.00, less a mortgage loan of P100,000.00, and was giving them 30 days from receipt of the letter within which to exercise their right of first priority; and if they don’t, she would expect them to vacate the property not later than March, 1977.On January 20, 1977, she sent another letter advising them that in view of their failure to exercise their right of first priority, she had already sold the property. Upon receipt of this letter, Bonnevie wrote Reynoso informing her that neither of them had received her first letter.

On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling& Co., for immediate payment of P137,500.00 on the purchase price, the balance of P262,500.00 to be paid only when the premises were vacated.

On April 12, 1977, Reynoso demanded Bonnevie to vacate the premises. Upon refusal, Reynoso filed a complaint for ejectment, submitting themselves into a Compromise Agreement, which provided inter alia that the defendant vacate the premises not later than October 31, 1979. When private respondents failed to comply, Reynoso filed a motion for execution of the judgment by compromise.

On November 12, 1979, Bonnevie filed a motion to set aside the decision of the City Court as well as the Compromise Agreement on the sole ground that Reynoso had not delivered to him the "records of payments and receipts of all rentals by or for the account of defendant ..." The motion was denied and the case was elevated to the then Court of First Instance which remanded it to the City Court of Manila.

On April 29, 1980, Bonnevie filed an action for annulment of the sale between Reynoso and herein petitioner Guzman, Bocaling & Co.; and, cancellation of the transfer certificate of title in the name of the latter. They also asked that Reynoso be required to sell the property to them under the same terms and conditions agreed upon in the Contract of Sale in favor of the petitioner. The City Court decided the ejectment case, ordering defendants and all persons holding under them to vacate the premises & deliver possession thereof to the



plaintiff, and to pay to the latter rental, reasonable compensation for the continued unlawful use and occupation of said premises, attorney's fees& costs of suit.

The decision was appealed to the then Court of First Instance of Manila and consolidated with another case. On the first, the court ordered the Bonnevies and all persons holding under them to vacate the premises and deliver possessions thereof to the plaintiff; and, pay the latter the sum (when possession of the premises was turned over to the Sheriff) after deducting whatever payments were made and accepted by Reynoso during said period.

As to the other case, the Court declared the deed of sale with mortgage null and void; cancelling the Certificate of Title; ordering the defendant Reynoso to execute in favor of Bonnevie, a deed of sale with mortgage over the property leased by him under the same terms and conditions should there be any other occupants or tenants in the premises; ordering the defendants to pay temperate damages, rent(from the time the property was sold up to the execution of a deed of sale),exemplary damages, attorney’s fees, &the cost of suit.

Both Reynoso and the petitioner company filed with the Court of Appeals a petition for review of this decision. The appeal was eventually resolved against them. Upon denial of their motion for reconsideration, petitioner went to the Supreme Court, where the petition was DENIED, with costs against the petitioner; the challenged decision is AFFIRMED in toto.

ISSUES:(1) Whether the Contract of Sale was not voidable but rescissible(2) Whether the petitioner is a buyer in bad or good faith

HELD:

(1) Even if the letter had indeed been sent to and received by the private respondent and they did not exercise their right of first priority, Reynoso would still be guilty of violating Paragraph 20 of the Contract of Lease which specifically stated that the private respondents could exercise the right of first priority, "all things and conditions being equal." The Court reads this mean that there should be identity of the terms and conditions to be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the right of first priority. Only if the Bonnevies failed to exercise their right of first priority could Reynoso lawfully sell the subject property to others, and at that only under the same terms and conditions offered to the Bonnevies.

The respondent court correctly held that the Contract of Sale was not voidable, but rescissible. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had



substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferment right created by the contract. Recission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity.

(2) It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith.

The petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than presumed notice by registration.

A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. Good faith connotes an honest intention to abstain from taking unconscientiously advantage of another.

By: N.R. Uy



SPS. THEIS VS CAG.R. No. 126013

February 12, 1997

Facts:

The dispute in the case at bar are adjacent parcels of land (parcel nos.1, 2 and 3). All three parcels of land are situated in Tagaytay City. Adjacent to parcel no.3 is a vacant lot denominated as parcel no. 4. These lots which was subjected to a contract of sale was owned by Calsons Development Corporation. in 1985 private respondent have both lot no. 3 and constructed therein a two storey house. On 1990 private respondent discovered that the parcel of they acquired was owned by another. This being a mistake on the survey and thus resulted in wrong classification. The vendor being aware of the mistake remedied the vendee by, offering parcel nos. 1 and 2 as these two were precisely the two vacant lots which vendor owned and intended to sell. vendee rejected the good faith offer. vendor made another offer, this time the return of an amount double the price paid by petitioners. Petitioners still refused. Private respondent was then compelled to file an action for annulment of deed of sale and reconveyance of the properties subject thereof in the RTC which ruled on their favor and on appeal, the CA affirmed the same.

Issue:

Whether or not petitioners should be allowed to take parcel no. 3? Does mistake in good faith can be a grounds for annulment of contract?

Ruling:

The law itself explicitly recognizes that consent of the parties is one of the essential elements to the validity of the contract and where consent is given through mistake; the va-lidity of the contractual relations between the parties is legally impaired. The decision of the Supreme Court emphasize a mistake in good faith this was shown by the atonement of the vendor by substituting the lot with lots 1 and 2 which was the supposed lot for sale, the sec-ond was payment in double which the vendee unjustly denied. Thus honest mistake essential in the effectivity of the contract. To allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment. Considering that petitioners intended at the outset to pur-chase a vacant lot, their refusal to accept the offer of the private respondent to give them two (2) other vacant lots in exchange, as well as their insistence on parcel no. 3, which is a house and lot, is manifestly unreasonable.

By: S.K. Saycon



RURAL BANK OF CALOOCAN VS DESIDERIOG.R. No. L-32116

April 21, 1981

Facts:

In 1959, respondent Castro applied for an industrial loan of P3,000 with Rural Bank of Caloocan. It was later approved, and she was made to sign a promissory note corresponding to her loan. Thereafter, the Valencia spouses, who were with Castro, obtained from the same bank another loan for P3,000, and had Castro affix her signature as co-maker. These two loans were secured by mortgage on Castro’s house and lot. In 1961, the sheriff of Manila sent her a notice of sheriff’s sale, announcing that her property would be sold at public auction to satisfy the obligations on the two loans.

Castro alleged that it was only when she received the letter that she learned that the mortgage contract which was an encumbrance on her property was for P6,000 and not for P3,000. She filed a suit, claiming that through mistake on her part or fraud on the part of the Valencias, she was induced to sign as co-maker of a promissory note and to constitute a mortgage to secure the same. She prayed for the annulment of the promissory note and mortgage insofar as it exceeds P3,000; for the discharge of her obligation with the bank by reason of a deposit of P3,383 with the court in full payment of her personal loan plus interest; and for the annulment of the foreclosure sale of her property in favor of Reyes.

The CA affirmed in toto the decision of the CFI Manila, declaring the contract of mortgage null and void in so far as the amount exceeds P3,000, and annulling the extrajudicial foreclosure sale of the mortgaged property. The CA ordered that her deposit of P3,383 to the court be applied to the payment of the loan, that defendant Bank return to Reyes the purchase price the latter paid for the mortgaged property, and that the Valencia spouses pay the bank their loan plus interest.

Issues:

1. Can the promissory note and mortgage contract be invalidated on the ground of fraud?

2. Is Castro’s negligence and acquiescence what made the fraud possible?

3. Was Castro’s consignation of P3,383 in court valid?



Ruling:

1. The CA declared that Castro’s consent to the promissory note and the mortgage con-tract was obtained by fraud, perpetrated on her by the Valencias, who abused her con-fidence, taking advantage of her old age and ignorance. Records show that the find-ings of fraud were well supported by evidence. Petitioner argued that since the Valen-cias were solely declared responsible for the fraud against Castro, in light of the res inter alios acta rule, a finding of fraud cannot be taken to operate prejudicially against the bank.

Article 1342 of the NCC states that, “Misrepresentations by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual.”

The Court cannot declare the promissory note valid between the bank and Castro and the mortgage contract binding on Castro beyond the amount of P3,000 for while the contracts may not be invalidated insofar as they affect the bank and Castro on the ground of fraud because the bank was not a participant thereto, such may however be invalidated on the ground of substantial mistake mutually committed by them as a consequence of the fraud and misrepresentation inflicted by the Valencias. The Valencias also misrepresented to the bank Castro’s personal qualifications in order to secure its consent to the loan. As a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the Valencias both Castro and the bank committed mistake in given their consents to the contracts. Substantioal mistake vitiated their consents given. If Castro had been aware of what she signed and the bank of the true qualifications of the applicant, they would not have given their consent to the contract.

2. Petitioners’ argument utterly disregards the findings of the CA. Desiderio claimed that he had subjected Castro to several interviews, and yet in her application, her age was placed at 61 instead of 70; she was described as a drug manufacturer when she was not; she had an income of P20,000 when she didn’t. It is evident that the bank was as much guilty as Castro was of negligence in giving its consent to the contracts. The bank relied on the representations made by the Valencias when it should have di-rectly obtained the data from Castro herself, who was the acknowledged owner of the property offered as collateral.

Moreover, considering Castro’s circumstances – her lack of education, ignorance and old age – she cannot be considered utterly neglectful for having been defrauded. The bank, considering that it is engaged in a business affected with public interest, should have ascertained Castro's awareness of what she was signing or made



her understand what obligations she was assuming, considering that she was giving accommodation to, without any consideration from the Valencia spouses.

When the Valencias borrowed from the bank a personal loan of P3,000, the Valencias acted for their own behalf. Considering however that for the loan in which the Valencias appeared as principal borrowers, it was the property of Castro that was being mortgaged to secure said loan, the bank should have exercised due care and prudence by making proper inquiry if Castro's consent to the mortgage was without any taint or defect. The possibility of her not knowing that she signed the promissory note as co-maker with the Valencias and that her property was mortgaged to secure the two loans instead of her own personal loan only, in view of her ignorance, lack of education and old age should have placed the bank on prudent inquiry to protect its interest and that of the public it serves.

3. It is contended that the consignation was made without prior offer or tender of pay-ment to the bank, and therefore, is not valid. In holding that there is a substantial compliance with the provision of Article 1256 of the NCC, the CA considered that the Bank was holding Castro liable for P6,000 plus 12% interest per annum, while the amount consigned was only P3,000 plus 12% interest; that at the time of consigna-tion, the bank had long foreclosed the mortgage extra-judicially and the sale of the mortgage property had already been scheduled for non-payment of the obligation, and that despite the fact that the bank already knew of the deposit made by Castro because the receipt of the deposit was attached to the record of the case, said bank had not made any claim of such deposit, and that therefore, Castro was right in thinking that it was futile and useless for her to make previous offer and tender of payment directly to the bank only in the aforesaid amount of P3,000 plus 12% interest. Under the forego-ing circumstances, the consignation made by Castro was valid, if not under the strict provision of the law, under the more liberal considerations of equity.

BY: K. MOLETA



MWSS VS CAG.R. No. 126000October 7, 1998

Facts:

Sometime in 1965, petitioner MWSS leased around one hundred twenty eight (128) hectares of its land to respondent CHGCCI for twenty five (25) years and renewable for another fifteen (15) years or until the year 2005, with the stipulation allowing the latter to exercise a right of first refusal should the subject property be made open for sale. The terms and conditions of respondent CHGCCI's purchase thereof shall nonetheless be subject to presidential approval. Upon being informed that petitioner MWSS and respondent CHGCCI had already agreed in principle on the purchase of the subject property, President Marcos expressed his approval of the sale as shown in his marginal note on the letter sent by respondents Jose Roxas and Pablo Roman, Jr. dated December 20, 1982. The Board of Trustees of petitioner MWSS thereafter passed Resolution 36-83, approving the sale of the subject property in favor of respondent SILHOUETTE, as assignee of respondent CHGCCI. Subsequently, respondent SILHOUETTE, under a deed of sale dated July 26, 1984, sold to respondent AYALA about sixty-seven (67) hectares of the subject property at P110.00 per square meter.

Almost a decade later, petitioner MWSS on March 26, 1993 filed an action against all herein named respondents before the Regional Trial Court of Quezon City seeking for the declaration of nullity of the MWSS-SILHOUETTE sales agreement and all subsequent conveyances involving the subject property, and for the recovery thereof with damages.

Respondent AYALA filed its answer pleading the affirmative defenses of (1) prescription, (2) laches, (3) waiver/estoppel/ratification, (4) no cause of action, (5) non-joinder of indispensable parties, and (6) non-jurisdiction of the court for non-specification of amount of damages sought.

Issue:

Whether or not respondent court based their rulings unfavorable to petitioner MWSS; i.e., prescription, laches, estoppel/ratification and non-joinder of indispensable parties.

Ruling: As noted by both lower courts, petitioner MWSS admits that it consented to the sale of the property, with the qualification that such consent was allegedly unduly influenced by then President Marcos. Taking such allegation to be hypothetically true, such would have resulted in only voidable contracts because all three elements of a contract, still obtained



nonetheless. The alleged vitiation of MWSS’ consent did not make the sale null and void ab initio. Thus, “a contract where consent is given through mistake, violence, intimidation, undue influence or fraud, is voidable.” Hence, it is valid until it is set aside and its validity may be assailed only in an action for that purpose. They can be confirmed or ratified.

As the contract were voidable at the most, the fourth-year prescriptive period under Article 1391 of the New Civil Code will apply. This article provides that the prescriptive period shall begin in the cases of intimidation, violence or undue influence, from the time the defect of the consent ceases", and "in case of mistake or fraud, from the time of the discovery of the same time".

If petitioner MWSS' consent was vitiated by fraud, then the prescriptive period commenced upon discovery. Discovery commenced from the date of the execution of the sale documents as petitioner was party thereto. At the least, discovery is deemed to have taken place on the date of registration of the deeds with the register of Deeds as registration is constructive notice to the world. 5 Given these two principles on discovery, the prescriptive period commenced in 1983 as petitioner MWSS actually knew of the sale or, in 1984 when the agreements were registered and titles thereafter were issued to respondent SILHOUTTE. At the latest, the action would have prescribed by 1988, or about five years before the complaint was instituted.

Verily, the principle on prescription of actions is designed to cover situations such as the case at bar, where there have been a series of transfers to innocent purchasers for value. To set aside these transactions only to accommodate a party who has slept on his rights is anathema to good order.

Even assuming, for argument's sake, that the allegations in the complaint establish the absolute nullity of the assailed contracts and hence imprescriptible, the complaint can still be dismissed on the ground of laches which is different from prescription.

There is no denying that petitioner MWSS' action against herein respondents for the recovery of the subject property now converted into a prime residential subdivision would ultimately affect the proprietary rights of the many lot owners to whom the land has already been parceled out. They should have been included in the suit as parties-defendants, for "it is well established that owners of property over which reconveyance is asserted are indispensable parties without whom no relief is available and without whom the court can render no valid judgment." 14 Being indispensable parties, the absence of these lot-owners in the suit renders all subsequent actions of the trial court null and void for want of authority to act, not only as to the absent parties but even as to those present. 15 Thus, when indispensable parties are not before the court, the action should be dismissed.

By: G.M. Cabusao



SPS. GUIANG VS CA.G.R. No. 125172

June 26, 1998

Facts:

Gilda Corpuz, therein respondent, left for Manila sometime in June 1989. She was trying to look for work abroad, in [the] Middle East, with which without luck, was not able to go abroad. She stayed for some time in Manila however, coming back to Koronadal, South Cotabato, . . . on March 11, 1990.

During her absence on March 1, 1990, Judie Corpuz, the husband, sold the one-half portion of Lot 9, Block 8, (LRC) Psd-165409, which the spouses owned to defendant Luzviminda Guiang, therein petitioner thru a document known as "Deed of Transfer of Rights" (Exh. "A") the remaining one-half portion of their lot and the house standing thereon for a total consideration of P30,000.00 of which P5,000.00 was to be paid in June, 1990. Transferor Judie Corpuz's children Junie and Harriet signed the document as witness.

Sometimes on March 11, 1990, plaintiff returned home. She found her children staying with other households. Only Junie was staying in their house. Harriet and Joji were with Mr. Panes. Her husband was nowhere to be found. She was informed by her children that their father had a wife already.

On May 28, 1990, Private Respondent Gilda Corpuz filed an Amended Complainant against her husband Judie Corpuz and Petitioner-Spouses Antonio and Luzviminda Guiang. The said Complaint sought the declaration of a certain deed of sale, which involved the conjugal property of private respondent and her husband, null and void.

Issues:

1. Was the contract of sale (Deed of Transfer of Rights) void or voidable?

2. Was the amicable settlement entered into by Mrs. Gilda Corpuz and spouses Guiang with the Brgy. Captain on March 16, 1990 docketed as case No. 38 made the contract voidable?

Ruling:

1. Private respondent's(Gilda Corpuz) consent to the contract of sale of their conjugal property was totally inexistent or absent. This being the case, said contract properly falls within the ambit of Article 124 of the Family Code, which was correctly applied by the lower court:



Art. 124. The administration and enjoyment of the conjugal partnership properly shall belong to both spouses jointly. In case of disagreement, the husband's decision shall prevail, subject recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void . However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (165a) (Emphasis supplied)

2. By the specific provision of the law in Art. 1390 of the Civil Code stipulates that the Deed to Transfer of Rights cannot be ratified, even by an "amicable settlement". The participation by some barangay authorities in the "amicable settlement" cannot otherwise validate an invalid act. Moreover, it cannot be denied that the "amicable settlement entered into by plaintiff Gilda Corpuz and defendant spouses Guiang is a contract. By express provision of law, such a contract is also void. Thus, the legal provision, to wit:

Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent. (Civil Code of the Philippines).

In summation therefore, both the Deed of transfer of Rights (Exh. "A") and the "amicable settlement" (Exh. "3") are null and void.

In summation, a void contract cannot be ratified.

By: M. Doronila-Porcina


Defect ive Contracts – Unenforceable Contracts – Arts. 1403 - 1408

CORONEL VS CONSTANTINOG.R. No. 121069

February 7, 2003

FACTS:

The subject property consists of two parcels of land The property is originally owned by Honoria Aguinaldo. One-half (1/2) of it was inherited by Emilia Meking Vda. de Coronel together with her sons Benjamin, Catalino and Ceferino, all surnamed Coronel. The other half was inherited by Florentino Constantino and Aurea Buensuceso.

Constantino and Buensuceso filed a complaint for declaration of ownership RTC against respondents Plaintiffs allege that Jess C. Santos and Priscilla Bernardo purchased the property belonging to respondent by virtue of a deed of sale signed by Emilia; Santos and Bernardo in turn sold the same to Constantino and Buensuceso by virtue of a compromise agreement. they are the owners of the subject property and defendants have illegally started to introduce construction on the premises in question; and pray that "defendants respect, acknowledge and confirm the right of ownership of the plaintiffs to the share, interest and participation of the one-third (1/3) portion of the above described property”

ISSUES:

Whether or not the contract of sale executed by a parent-co-owner, in her own behalf, is unenforceable with respect to the shares of her co-heirs-children. Whether or not the minor children can ratify unauthorized actions of their parents.

RULING:

Further, the deed of sale is not a competent proof that petitioner Benjamin had sold his own share of the subject property. It cannot be disputed that Benjamin did not sign the document and therefore, it is unenforceable against him. Emilia executed the instrument in her own behalf and not in representation of her three children.

Article 493 of the Civil Code states:

"Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which



may be allotted to him in the division upon the termination of the co-ownership."

Consequently, the sale of the subject property made by Emilia in favor of Santos and Bernardo is limited to the portion which may be allotted to her upon the termination of her co-ownership over the subject property with her children.

As to the first, second and fourth issues – it has been established that at the time of execution of the "Kasulatan ng Bilihang Patuluyan" on April 23, 19819, the subject property was co-owned, pro-indiviso, by petitioner Emilia together with her petitioner son Benjamin, and her two other sons, Catalino and Ceferino. No proof was presented to show that the co-ownership that existed among the heirs of Ceferino and Catalino and herein petitioners has ever been terminated. Applying Articles 1317 and 1403 of the Civil Code, the Court of Appeals ruled that through their inaction and silence, the three sons of Emilia are considered to have ratified the aforesaid sale of the subject property by their mother.

Articles 1317 and 1403 (1) of the Civil Code provide:

"Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

"A contract entered into in the name of another by one who has no authority or legal representation or who has acted "beyond his powers shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.

"Art. 1403. The following contracts are unenforceable, unless they are ratified:

"(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers.

We do not agree with the appellate court. The three sons of Emilia did not ratify the sale. In Maglucot-Aw vs. Maglucot 10 we held that:

"Ratification means that one under no disability voluntarily adopts and gives sanction to some unauthorized act or defective proceeding, which without his sanction would not be binding on him. It is this voluntary choice, knowingly made, which amounts to a ratification of what was theretofore unauthorized, and becomes the authorized act of the party so making the ratification.

No evidence was presented to show that the three brothers were aware of the sale made by their mother. Unaware of such sale, Catalino, Ceferino and Benjamin could not be considered as having voluntarily remained silent and knowingly chose not to file an action


http://www.lawphil.net/judjuris/juri2003/feb2003/gr_121069_2003.html#fnt10

http://www.lawphil.net/judjuris/juri2000/mar2000/gr_132518_2000.html

http://www.lawphil.net/judjuris/juri2003/feb2003/gr_121069_2003.html#fnt9


for the annulment of the sale. Their alleged silence and inaction may not be interpreted as an act of ratification on their part. To repeat, the sale is valid insofar as the share of petitioner Emilia Meking Vda. de Coronel is concerned. The due execution of the "Kasulatan ng Bilihang Patuluyan" was duly established when petitioners, through their counsel, admitted during the pre-trial conference that the said document was signed by Emilia. While petitioners claim that Emilia erroneously signed it under the impression that it was a contract of mortgage and not of sale, no competent evidence was presented to prove such allegation.

By: E.J. Solon



REGAL FILMS VS CONCEPCION

G.R. No 139532August 9, 2001

Facts

Respondent gabby Concepcion entered into a contract with regal films for services to be rendered by him and in turn he would get two parcels of land from petitioner on top of the “talent fees.” two years later, both parties renewed the contract, incorporating the same undertaking on the part of petitioner to give respondent on the part of petitioner to give respondent the two parcels of land mentioned in the first agreement. Petitioner failed to comply with its obligations to give the two parcels of land to the respondent. a year later, respondent filed an action against regal films claiming that he is entitled to rescind the contract with damages. Petitioner moved to dismiss the case averring that they had settled amicably in an addendum in the 2 previous contracts. Respondent was represented by Lolit Solis acting on his behalf. Two month later Solis filed a motion to dismiss the case, however this was opposed by Concepcion and was executed without his consent and stated that Solis ceased to be his manager. The following year, respondent filed a manifestation stating that he is willing to honor the addendum. The trail court rendered a judgment on compromise based on the subject addendum. Petitioner filed a motion for reconsideration then elevated it to the ca claiming that the trial court erred in treating the addendum as being a compromise agreement and in depriving it of its right to procedural due process. The CA ruled in favor of conception. Dissatisfied with the ca’s decision, petitioner appealed to the SC.

Issues:

WON . claiming that the CA erred in affirming the trial court's action in rendering judgment on a compromise based on the addendum when petitioner regal films submitted this document to the trial court merely to serve as basis for its motion to dismiss;

WON the court of appeals erred in rendering judgment on a compromise when the parties did not agree to such a compromise;

WON the court of appeals erred in holding that the minds of the parties had met to elevate the previously rejected addendum to the level of a judgment on a compromise.

Ruling:

A compromise is an agreement between two or more persons who, for preventing or putting an end to a lawsuit, adjust their respective positions by mutual consent in the way



they feel they can live with. Reciprocal concessions are the very heart and life of every compromise agreement, where each party approximates and concedes in the hope of gaining balanced by the danger of losing. It is, in essence, a contract. Law and jurisprudence recite three minimum elements for any valid contract – (a) consent; (b) object certain which is the subject matter of the contract; and (c) cause of the obligation which is established. Consent is manifested by the meeting of the offer and cause which are to constitute the agreement. The offer, however, must be certain and the acceptance seasonable and absolute; if qualified, the acceptance would merely constitute a counter-offer.

In this instance, the addendum was flatly rejected by respondent on the theses (a) that he did not give his consent thereto nor authorized anyone to enter into the agreement, and (b) that it contained provisions grossly disadvantageous to him. The outright rejection of the addendum made known to the other ended the offer. When respondent later filed his Manifestation, stating that he was, after all, willing to honor the addendum, there was nothing to still accept.

Verily, consent could be given not only by the part himself but by anyone duly authorized and acting for and in his behalf. But by respondent's own admission, the addendum was entered into without his knowledge and consent. A contract entered into in the name of another by one who ostensibly might have but who, in reality, had no real authority or legal representation, or who, having such authority, acted beyond his powers, would be unenforceable. The addendum, let us then assume, resulted in an unenforceable contract, might it not then be susceptible to ratification by the person on whose behalf it was executed? The answer would obviously be in the affirmative; however, that ratification should be made before its revocation by the other contracting party. The adamant refusal of respondent to accept the terms of the addendum constrained petitioner, during the preliminary conference held on 23 June 1995, to instead express its willingness to release respondent from his contracts prayed for in his complaint and to thereby forego the rejected addendum. Respondent's subsequent attempt to ratify the addendum came much too late for, by then, the addendum had already been deemed revoked by petitioner.

By: N.K. Herrera



NATIONAL POWER CORP. VS. NATIONAL MERCHANDISING CORP., ET AL. G.R. No. L-33819 and L-33897

117 SCRA 789October 23, 1982

Facts:

This case is about the recovery of liquidated damages form a seller’s agent that allegedly exceeds its authority in negotiating the sale.

The National Power Corp. (NPC) and National Merchandising Corp. (Namerco), representative of the International Commodities Corp., executed a contract for the purchase by the NPC from the New York firm of four thousand long tons of crude sulfur. An insurance bond was executed by the Domestic Insurance Co. (DIC) in favor of the NPC to guarantee the seller’s obligations. As stipulated in the contract, that failure of the seller to deliver the sulfur would subject the latter and its surety to the payment of liquidated damages.

Namerco was unable to deliver because the New York supplier was not able to deliver the sulfur due to the inability to secure shipping space. This caused NPC’s fertilizer plant to shutdown leading the latter to file a suit against the New York firm, Namerco and the DIC for the recovery of the stipulated liquidation.

The defendant contend that the trial court erred in holding as enforceable the stipulation for liquidated damages despite its findings that the contract was executed by the agent in excess of its authority and is, therefore, allegedly unenforceable.

Issue:

Is Art. 1403 of the civil code – contract entered into by an agent beyond his authority is unenforceable – applies where the contract is being enforced as to damages against the agent itself for doing what it did without authority?

Ruling:

The rule in Art. 1403 does not apply where the contract is being enforced as to damages against the agent itself for doing what it did without authority. Defendants’ contention in untenable because art. 1403 refers to the unenforceability of the contract against the principal. In the instant case, the contract containing the stipulation for liquidated damages is not being enforced against its principal but against the agent and its surety.

It is being enforced against the agent because art. 1897 implies that the agent who acts in excess of his authority is personally liable to the party with whom he contracted. And that rule is complemented by article 1898 of the Civil Code which provides that “if the agent



contracts in the name of the principal, exceeding the scope of his authority and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal.

Namercom, as agent, exceeded the limits of its authority in contracting with the NPC in the name of its principal. The NPC was unaware of the limitations on the powers granted by the New York firm to Namerco.

By: G. Bellingan



JOVAN LAND, VS CAG.R. No. 125531

February 12, 1997

Facts:

Jovan Land, Inc. is a corporation engaged in the real estate business; and respondent Quesada is owner of the Q Building at the corner of Mayhaligue Street and Rizal Avenue, Sta. Cruz, Manila.

Quesada was selling May haligue property; Land made a written offer. The first offer was rejected; the second offer was for the same price but inclusive of an undertaking to pay the documentary stamp tax, transfer tax, registration fees and notarial charges. A check for P1 M was enclosed therein as earnest money. It was again rejected. The third offer was for P12 M with a similar check for P1 M as earnest money. Annotated on the third letter-offer was the phrase received original, 9-4-89â€ beside which appears the signature of Quesada .�Petitioner insists there has already existed a valid, perfected agreement to sell the property. Land filed a complaint for specific performance and collection of sum of money with damages. The trial court held that the business encounters between parties had not passed the negotiation stage.

Issue:

1. Was there already a perfected contract between Land and Quesada?

2. Was there an implied acceptance of the offer by Land to Quesada?

3. Was the contract of sale enforceable?

Held:

1. No. In the case of Ang Yu Asuncion v. Court of Appeals, we held that:

xxx [A] contract (Art. 1157, Civil Code), x x x is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service xxx. A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded xxx. The perfection of the contract takes place upon the concurrence of the essential elements thereof.



Moreover, it is a fundamental principle that before contract of sale can be valid, the following elements must be present, viz: (a) consent or meeting of the minds; (b) determinate subject matter; © price certain in money or its equivalent. Until the contract of sale is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.

In the case at bench, petitioner, anchors its main argument on the annotation on its third letter-offer of the phrase Received original, 9-4-89, beside which appears the signature of Conrado Quesada.

x x x x x x x

The court cannot believe that this notation marked as Exhibit D-2 would signify the acceptance of the offer. Neither does it signify, as Sy had testified that the check was duly received on said date .If this were true Sy, who appears to be an intelligent businessman could have easily asked Conrado Quesada to indicate on Exhibit D the alleged fact of acceptance of said check. And better still, Sy could have asked Quesada the acceptance in writing separate of the written offer if indeed there was an agreement as to the price of the proposed sale of the property in question.

Clearly then, a punctilious examination of the receipt reveals that the same can neither be regarded as a contract of sale nor a promise to sell.

2. No. Such an annotation by Conrado Quesada amounts to neither a written nor an im-plied acceptance of the offer of Joseph Sy. It is merely a memorandum of the receipt by the former of the latter's offer. The requisites of a valid contract of sale are lacking in said receipt and therefore the sale is neither valid nor enforceable.

3. No.

By: I.M. Maxino



CENIDO VS APACIONADOG.R. No. 132474

Nov. 19, 1999

Facts:

Respondent spouses Amadeo Apacionado and Herminia Sta. Ana filed with the Regional Trial Court, Branch 70, Rizal a complaint against petitioner Renato Cenido for, "Declaration of Ownership, Nullity, with Damages." 3 The spouses alleged that they are the owners of a parcel of unregistered land, 123 square meters in area and located at Rizal Street, Barrio Layunan, Binangonan, Rizal from their purchase from the previous owner, the deceased Bonifacio Aparato. Respondent spouses' claim of ownership over the subject property is anchored on a one-page typewritten document entitled "Pagpapatunay," executed by Bonifacio Aparato.

Petitioner claim ownership claiming that he is the illegitimate son of Bonifacio Aparato, the deceased owner of the subject property; as Aparato's sole surviving heir, he became the owner of the property as evidenced by the cancellation of Tax Declaration No. 02-0274 in Bonifacio's name and the issuance of Tax Declaration No. 02-0368 in his name; and the instrument attesting to the alleged sale of the house and lot by Bonifacio Aparato to the spouses is not a public document, among others.

The trial court rendered judgment. The court upheld petitioner Cenido's ownership over the property by virtue of the recognition made by Bonifacio's then surviving brother, Gavino, in the compromise judgment of the MTC. Concomitantly, the court also did not sustain the deed of sale between Bonifacio and the spouses because it was neither notarized nor signed by Bonifacio and was intrinsically defective.

The appellate court found the appeal meritorious and reversed the decision of the trial court. It held that the recognition of Cenido's filiation by Gavino, Bonifacio's brother, did not comply with the requirements of the Civil Code and the Family Code; that the deed between Bonifacio and respondent spouses was a valid contract of sale over the property; and Cenido's failure to object to the presentation of the deed before the trial court was a waiver of the defense of the Statute of Frauds.

Issue:

The unsigned, unnotarized and highly doubtful private document designated as "Pagpapatunay" which is solely relied upon by the respondents in support of their case is not sufficient to vest ownership of and transfer the title, rights and interest over the subject property to the respondents.



Ruling:

The "Pagpapatunay" is indisputably a private document. And this fact does not detract from its validity. Generally, contracts are obligatory, in whatever form such contracts may have been entered into, provided all the essential requisites for their validity are present. When, however, the law requires that a contract be in some form for it to be valid or enforceable, that requirement must be complied with. When the required form is for enforceability, non-compliance therewith will not permit, upon the objection of a party, the contract, although otherwise valid, to be proved or enforced by action.

According to Article 1403(2) the sale of real property should be in writing and subscribed by the party charged for it to be enforceable. The "Pagpapatunay" is in writing and subscribed by Bonifacio Aparato, the vendor; hence, it is enforceable under the Statute of Frauds. Not having been subscribed and sworn to before a notary public, however, the "Pagpapatunay" is not a public document, and therefore does not comply with Article 1358, paragraph 1 of the Civil Code.

Article 1358 does not require the accomplishment of the acts or contracts in a public instrument in order to validate the act or contract but only to insure its efficacy, so that after the existence of said contract has been admitted, the party bound may be compelled to execute the proper document. The private conveyance of the house and lot is therefore valid between Bonifacio Aparato and respondent spouses. The question of whether the "Pagpapatunay" is sufficient to transfer and convey title to the land for purposes of original registration or the issuance of a real estate tax declaration in respondent spouses' names, as prayed for by respondent spouses, is another matter altogether. For greater efficacy of the contract, convenience of the parties and to bind third persons, respondent spouses have the right to compel the vendor or his heirs to execute the necessary document to properly convey the property.

By: L. Cuevas



VILLANUEVA VS CIAG.R. No. 107624

January 28, 1997

Facts: This is a petition assailing the decision of the CA dismissing the appeal of the petitioners. CA rendered that there was no contract of sale.

In 1985, Gamaliel Villanueva (tenant) of a unit in the 3-door apartment building owned by defendants-spouses (now private respondents) Jose Dela Cruz and Leonila dela Cruz located at Project 8, Quezon City.

About February of 1986, Dela Cruz offered said parcel of land with the 3-door apartment building for sale and plaintiffs, son and mother, showed interest in the property.

Because said property was in arrears (overdue) in the payment of the realty taxes, dela Cruz approached Irene Villanueva and asked for a certain amount to pay for the taxes so that the property would be cleared of any encumbrance.

Irene Villanueva gave P10, 000.00 on two occasions. It was agreed by them that said P10, 000.00 would form part of the sale price of P550, 000.00.

Dela Cruz went to plaintiff Irene Villanueva bringing with him Mr. Ben Sabio, a tenant of one of the units in the 3-door apartment building and requested Villanueva to allow said Sabio to purchase one-half (1/2) of the property where the unit occupied by him pertained to which the plaintiffs consented, so that they would just purchase the other half portion and would be paying only P265, 000.00, they having already — given an amount of P10, 000.00 used for paying the realty taxes in arrears.

Accordingly the property was subdivided and two (2) separate titles were secured by defendants Dela Cruz. Mr. Ben Sabio immediately made payments by installments.

March 1987 Dela Cruz executed in favor of their co-defendants, the spouses Guido Pili and Felicitas Pili, a Deed of Assignment of the other one-half portion of the parcel of land wherein plaintiff Gamaliel Villanueva’s apartment unit is situated, purportedly as full payment and satisfaction of indebtedness obtained from defendants Pili. The Transfer Certificate of Title No. 356040 was issued in the name of defendants Pili on the same day.

The plaintiffs came to know of such assignment and transfer and issuance of a new certificate of title in favor of defendants Pili.

Plaintiff Gamaliel Villanueva complained to the barangay captain of Bahay Turo, Quezon City, on the ground that there was already an agreement between defendants Dela



Cruz and themselves that said portion of the parcel of land owned by defendants Dela Cruz would be sold to him. As there was no settlement arrived at, the plaintiffs elevated their complaint to this Court through the instant action.

RTC rendered its decision in favor of Dela Cruz. CA affirmed.

Issue:

WON there was a perfected sale between Villanueva and Dela Cruz.

Held: “The price of the leased land not having been fixed, the essential elements which give life to the contract were lacking. It follows that the lessee cannot compel the lessor to sell the leased land to him. The price must be certain, it must be real, not fictitious. A contract of sale is not void for uncertainty when the price, though not directly stated in terms of pesos and centavos, can be made certain by reference to existing invoices identified in the agreement. In this respect, the contract of sale is perfected. The price must be certain, otherwise there is no true consent between the parties. There can be no sale without a price.

In the instant case, however, what is dramatically clear from the evidence is that there was no meeting of mind as to the price, expressly or impliedly, directly or indirectly.

Sale is a consensual contract. He who alleges it must show its existence by competent proof. Here, the very essential element of price has not been proven.

Lastly, petitioners’ claim that they are ready to pay private respondents is immaterial and irrelevant as the latter cannot be forced to accept such payment, there being no perfected contract of sale in the first place.

By: M.C. Cui


Defect ive Contracts – Void or Inexistent Contracts – Arts. 1409 - 1422

LIGUEZ VS CA102 Phil

Facts:

The case began upon complaint filed by petitioner-appellant against the widow and heirs of the late Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in barrio Bogac-Linot, of the municipality of Mati, Province of Davao. Plaintiff averred to be its legal owner, pursuant to a deed of donation of said land, executed in her favor by the late owner, Salvador P. Lopez, on 18 May 1943. The defense interposed was that the donation was null and void for having an illicit causa or consideration, which was the plaintiff's entering into marital relations with Salvador P. Lopez, a married man; and that the property had been adjudicated to the appellees as heirs of Lopez by the court of First Instance, since 1949.

The Court of Appeals rejected the appellant's claim on the basis of the well- known rule "in pari delicto non oritur actio" as embodied in Article 1306 of 1889 (reproduced in Article 1412 of the new Civil Code):

ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover, what he has given by reason of the contract, or ask for fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.

The Court of Appeals affirmed the decision of the Court of First Instance of Davao dismissing the complaint for recovery of land. Conchita Liguez has resorted to the Supreme Court, praying that the decision of the CA be reversed on points of law.

Issues:

Whether or not the donation was null and void?

What are the effects of the guilt of the parties in an illegal contract?



Ruling:

The contract in this case is void but the Court of Appeals erred in applying to the present case the pari delicto rule. First, because it can not be said that both parties here had equal guilt when we consider that as against the deceased Salvador P. Lopez, who was a man advanced in years and mature experience, the appellant was a mere minor, 16 years of age, when the donation was made; that there is no finding made by the Court of Appeals that she was fully aware of the terms of the bargain entered into by and Lopez and her parents; that, her acceptance in the deed of donation (which was authorized by Article 626 of the Old Civil Code) did not necessarily imply knowledge of conditions and terms not set forth therein; and that the substance of the testimony of the instrumental witnesses is that it was the appellant's parents who insisted on the donation before allowing her to live with Lopez. These facts are more suggestive of seduction than of immoral bargaining on the part of appellant. It must not be forgotten that illegality is not presumed, but must be duly and adequately proved.

In the second place, the rule that parties to an illegal contract, if equally guilty, will not be aided by the law but will both be left where it finds them, has been interpreted by this Court as barring the party from pleading the illegality of the bargain either as a cause of action or as a defense. Memo auditor propriam turpitudinem allegans.

the Court of Appeals correctly held that Lopez could not donate the entirety of the property in litigation, to the prejudice of his wife Maria Ngo, because said property was conjugal in character and the right of the husband to donate community property is strictly limited by law (Civil Code of 1889, Arts. 1409, 1415, 1413; Baello vs. Villanueva, 54 Phil. 213).

ART. 1409. The conjugal partnership shall also be chargeable with anything which may have been given or promised by the husband alone to the children born of the marriage in order to obtain employment for them or give then, a profession or by both spouses by common consent, should they not have stipulated that such expenditures should be borne in whole or in part by the separate property of one of them.".

ART. 1415. The husband may dispose of the property of the conjugal partnership for the purposes mentioned in Article 1409.)

ART. 1413. In addition to his powers as manager the husband may for a valuable consideration alienate and encumber the property of the conjugal partnership without the consent of the wife.

The text of the articles makes it plain that the donation made by the husband in contravention of law is not void in its entirety, but only in so far as it prejudices the interest of the wife. In this regard, as Manresa points out , the law asks no distinction between gratuitous transfers and conveyances for a consideration.



To determine the prejudice to the widow, it must be shown that the value of her share in the property donated can not be paid out of the husband's share of the community profits. The requisite data, however, are not available to us and necessitate a remand of the records to the court of origin that settled the estate of the late Salvador P. Lopez.

The decisions appealed from are reversed and set aside, and the appellant Conchita Liguez declared entitled to so much of the donated property as may be found, upon proper liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal partnership with Salvador P. Lopez or the legitimes of the forced heirs of the latter. The records are ordered remanded to the court of origin for further proceedings in accordance with this opinion. Costs against appellees. So ordered

By: H.P. Descallar



RELLOSA VS GAW GHEE HUN93 Phil. 827

Facts:

Dionisio Rellosa sold to Gaw Chee Hun a parcel of land, together with the house erected thereon, situated in Manila for the sum of P25,000. The vendor remained in possession of the property under a contract of lease entered into on the same date between the same parties. Alleging that the sale was executed subject to the condition that the vendee, being a Chinese citizen, would obtain the approval of the Japanese Military Administration in accordance with Seirei No. 6 issued by the Japanese authorities, and said approval has not been obtained, and that, even if said requirement were met, the sale would at all events be void under Art. XIII, Sec. 5, of our Constitution, the vendor instituted the present action in the Court of First Instance of Manila seeking the annulment of the sale as well as the lease covering the land and the house above mentioned, and praying that, once the sale and the lease are declared null and void, the vendee be ordered to return to vendor the duplicate of the title covering the property, and be restrained from in any way dispossessing the latter of the property.

The court declared both the sale and the lease valid and binding and dismissed the complaint. The court likewise ordered plaintiff to turn over the property to defendant and to pay a rental of P50 a month until the property has been actually delivered. This decision was affirmed by the Court of Appeals, hence, the present petition for review.

Issues:

1. WON the sale in question cannot have any validity under the Japanese military direc-tive in view of the failure of respondent to obtain the requisite approval.

2. Can petitioner have the sale declared null and void and recover the property consider-ing the effect of the law governing rescission of contracts?

Ruling:

1. We do not believe it necessary to consider now the question relative to the validity of Seirei No. 6 of the Japanese Military Administration for the simple reason that in our opinion, the law that should govern, the particular transaction is not the above direc-tive but the Constitution adopted by the then Republic of the Philippines, which pro-vides that “no private agricultural land shall be transferred or assigned except to indi-



viduals, corporations or associations qualified to acquire or hold lands of the public domain in the Philippines.”

2. NO. As ruled in the case of Trinidad Gonzaga de Cabauatan, et. al. versus Uy Hoo, et. al., 88 Phil 103, “We can, therefore, say that even if the plaintiffs can still invoke the Constitution, or the doctrine in the Krivenko Case, to set aside the sale in question, they are now prevented from doing so if their purpose is to recover that they have vol-untarily parted with, because of their guilty knowledge that what they were doing was in violation of the Constitution. They cannot escape this conclusion because they are presumed to know the law. As this Court well said: ‘A party to an illegal contract can-not come into a court of law and ask to have his illegal objects carried out. The law will not aid either party to an illegal agreement; it leaves the parties where it finds them.’ This is the doctrine of In Pari Delicto, which is stated in the United States ju-risdiction thus: “The proposition is universal that no action arises in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation.”

This doctrine is subject to one important limitation, namely, “whenever public policy is considered as advanced by allowing either party to sue for relief against the transaction”. The cases in which this limitation may apply only “include the class of contracts which are intrinsically contrary to public policy. The contract in question does not come under this exception because it is intrinsically contrary to public policy, nor one where the illegality itself consists in its opposition to public policy. It is illegal not because it is against public policy but because it is against the Constitution. Nor may it be contended that to apply the doctrine of pari delicto would be tantamount to contravening the fundamental policy embodied in the constitutional prohibition that it would not allow an alien to remain in the illegal possession of the land, because in this case, the remedy is lodged elsewhere. At present, there are two ways by which his situation may be remedied, to wit, (1) action for reversion, and (2) escheat to the State.

An escheat is nothing more or less than the reversion of property to the state, which takes place when the title fails. Reversion would seem to a consequence of the annulment and cancellation of the original grant or title, and this is so for in the event of such annulment or cancellation no one else could legitimately claim the property except its original owner or grantor--- the state.

By: T.A. Real



PHIL. BANKING CORP. VS LUI SHEH21 SCRA 52

Facts:

Justina Santos and sister Lorenzo were the owners in common of a piece of land in Manila. In it are two residential houses including the Hen Wah Restaurant. The sisters lived in one of the houses, while Wong Heng, a Chinese, lived with his family in the restaurant. Wong had been a long-time lessee of a portion of the property.

Wong Heng entered into a contract of lease with Justina Santos providing among others that Wong Heng can withdraw at any time from the agreement. She later on executed another contract giving Wong the option to buy the leased premises.

Then an action was filed alleging that the contracts were obtained by Wong through fraud, misrepresentation, inequitable conduct, undue influence and abuse of confidence and trust of and by taking advantage of the helplessness of the plaintiff and were made to circumvent the constitutional provision prohibiting aliens from acquiring lands in the Philippines. In his answer, Wong insisted that the various contracts were freely and voluntarily entered into by the parties.

Issue:

Whether or not the contract entered into by Justina Santos and Wong Heng was valid.

Ruling:

The charge of undue influence in this case rests on a mere inference drawn from the fact that Justina Santos could not read (as she was blind) and did not understand the English language in which the contract is written, but that inference has been overcome by her own evidence. Nor is there merit in the claim that her consent to the lease contract, as well as to the rest of the contracts in question, was given out of a mistaken sense of gratitude to Wong.

As it was with the lease contract, so it was with the rest of the contracts — the consent of Justina Santos was given freely and voluntarily.

However, he Supreme Court held that the contracts show nothing that is necessarily illegal, but considered collectively, they reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits. To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship. But if an alien is given not only a lease of, but also an option



to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land but also of the right to dispose of it — rights the sum total of which make up ownership.

For another thing, Article 1416 of the Civil Code provides, as an exception to the rule on pari delicto, that "When the agreement is not illegal per se but is merely prohibited, and the prohibition by law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered."

By: P.E. Benigay



FRANCISCO VS HERRERAG.R. No. 139982

November 21, 2002

Facts :

This is a petition for review on certiorari of the decision[1] of the Court of Appeals, which affirmed in toto the judgment[2] of the Regional Trial Court (RTC) of Antipolo City. The appellate court sustained the trial court’s ruling which: (a) declared null and void the deeds of sale of the properties covered by Tax Declaration Nos. 01-00495 and 01-00497; and (b) directed petitioner to return the subject properties to respondent who, in turn, must refund to petitioner the purchase price of P1,750,000.The facts are as follows: Eligio Herrera, Sr., the father of respondent, was the owner of two parcels of land, one consisting of 500 sq. m. and another consisting of 451 sq. m., covered by Tax Declaration (TD) Nos. 01-00495 and 01-00497, respectively. Both were located at Barangay San Andres, Cainta, Rizal.[3]On January 3, 1991, petitioner bought from said landowner the first parcel, covered by TD No. 01-00495, for the price of P1,000,000, paid in installments from November 30, 1990 to August 10, 1991.On March 12, 1991, petitioner bought the second parcel covered by TD No. 01-00497, for P750,000.Contending that the contract price for the two parcels of land was grossly inadequate, the children of Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera, Jr., and respondent Pastor Herrera, tried to negotiate with petitioner to increase the purchase price. When petitioner refused, herein respondent then filed a complaint for annulment of sale, with the RTC of Antipolo City, docketed as Civil Case No. 92-2267. In his complaint, respondent claimed ownership over the second parcel, which is the lot covered by TD No. 01-00497, allegedly by virtue of a sale in his favor since 1973. He likewise claimed that the first parcel, the lot covered by TD No. 01-00495, was subject to the co-ownership of the surviving heirs of Francisca A. Herrera, the wife of Eligio, Sr., considering that she died intestate on April 2, 1990, before the alleged sale to petitioner. Finally, respondent also alleged that the sale of the two lots was null and void on the ground that at the time of sale, Eligio, Sr. was already incapacitated to give consent to a contract because he was already afflicted with senile dementia, characterized by deteriorating mental and physical condition including loss of memory.

Issue:

Won the court of appeals completely ignored the basic difference between a void and a merely voidable contract thus missing the essential significance of the established fact of ratification by the respondent which extinguished whatever basis respondent may have had in having the contract at bench annulled.



Ruling:

A void or inexistent contract is one which has no force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be validated either by the passage of time or by ratification. There are two types of void contracts: (1) those where one of the essential requisites of a valid contract as provided for by Article 1318[10] of the Civil Code is totally wanting; and (2) those declared to be so under Article 1409[11] of the Civil Code. By contrast, a voidable or annullable contract is one in which the essential requisites for validity under Article 1318 are present, but vitiated by want of capacity, error, violence, intimidation, undue influence, or deceit. Article 1318 of the Civil Code states that no contract exists unless there is a concurrence of consent of the parties, object certain as subject matter, and cause of the obligation established. Article 1327 provides that insane or demented persons cannot give consent to a contract. But, if an insane or demented person does enter into a contract, the legal effect is that the contract is voidable or annullable as specifically provided in Article 1390.[12]In the present case, it was established that the vendor Eligio, Sr. entered into an agreement with petitioner, but that the former’s capacity to consent was vitiated by senile dementia. Hence, we must rule that the assailed contracts are not void or inexistent per se; rather, these are contracts that are valid and binding unless annulled through a proper action filed in court seasonably.

An annullable contract may be rendered perfectly valid by ratification, which can be express or implied. Implied ratification may take the form of accepting and retaining the benefits of a contract.[13] This is what happened in this case. Respondent’s contention that he merely received payments on behalf of his father merely to avoid their misuse and that he did not intend to concur with the contracts is unconvincing. If he was not agreeable with the contracts, he could have prevented petitioner from delivering the payments, or if this was impossible, he could have immediately instituted the action for conveyance and have the payments consigned with the court. None of these happened. As found by the trial court and the Court of Appeals, upon learning of the sale, respondent negotiated for the increase of the purchase price while receiving the installment payments. It was only when respondent failed to convince petitioner to increase the price that the former instituted the complaint for reconveyance of the properties. Clearly, respondent was agreeable to the contracts, only he wanted to get more. Further, there is no showing that respondent returned the payments or made an offer to do so. This bolsters the view that indeed there was ratification. One cannot negotiate for an increase in the price in one breath and in the same breath contend that the contract of sale is void.

By: D.E. Timagos


Estoppel – Arts. 1431 - 1439

KALALO VS LUZG.R. No. L-2778

July 31, 1970

Facts:

In 1959, plaintiff-appellee Kalalo, a civil engineer, entered into an agreement with defendant-appellant Luz, an architect, whereby Kalalo was to render engineering design services to the latter for a percentage of the architect’s fees as follows: Structural engineering 12.5%, Electrical engineering 2.5%. This was supplemented by a clarification proposal, which, among other things, provided that the fees in the agreement do not cover:

D. Foundation soil exploration, testing and evaluation;

E. Projects that are principally engineering works such as industrial plants

...and that O.A. Kalalo and Associates reserve the right to increase fees on projects which cost less than P100,000.

Pursuant to the agreement, appellee rendered services in several projects. Subsequently, Kalalo sent Luz an itemized statement of his account, according to which amounted to P116,565, less previous payments of P57,000, thus leaving a balance due of P59,565. Luz claimed instead that he only owed P10,861.08, and later sent Kalalo a check for that amount, which Kalalo refused to accept. Kalalo filed a complaint against Luz, with four causes of action:

1. For services rendered, there was due him fees of $28,000 and P100,204.46, ex-cluding interests, of which only P69,323.21 was paid, thus leaving unpaid the $28,000 and P30,881.25.

2. He claimed P17,000 as consequential and moral damages.

3. He claimed P55,000 as moral damages, attorney’s fees and expenses of litigation.

4. He claimed P25,000 as actual damages, attorney’s fees and expenses of litigation.

Luz claimed that the aggregate amount actually due was only P80,336.29, of which P69,475.21 had already been paid, leaving a balance of only P10,861.08. He denied liability for any damage in the second, third and fourth causes of action. He also alleged that Kalalo had no cause of action, that Kalalo was in estoppel, that his claim regarding the Menzi project was premature as Luz had not yet been paid for the project, and that Kalalo’s services were not complete or were performed in violation of the agreement and/or otherwise unsatisfactory. He also set up a counterclaim for actual and moral damages for such amount deemed by the court to be fair, and for attorney’s fees of P10,000.



The Commissioner rendered a report, stating that the amount due to appellee was $28,000 as his fee in the International Research Institute Project which was 20% of the $140,000 that was paid to appellant, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by the appellant. The Commissioner also recommended the payment to appellee of the sum of P5,000 as attorney's fees.

RTC decision was in favor of Kalalo, ordering Luz to pay P51,539.91 and $28,000, converted to peso on the current exchange rate at the time of payment of the judgment, to be deducted P69,475.46, which had already been paid, plus interest; and P8,000 for attorney’s fees. Luz’s counterclaim is dismissed.

During pendency of appeal, Kalalo filed a petition for the issuance of a writ of attachment on the ground that Luz is a permanent resident in Canada, which the Court granted. The Provincial Sheriff of Rizal was ordered to attach the estate, real and personal, of Luz to the value of not less than P140,000.

Issue & Ruling (CONTENTION 1):

Luz claims that the letter with attached statement of account that Kalalo sent him already listed the various projects he was to render service, with the precise amount due for each project. Such statement, according to Luz barred Kalalo from making any more claims contrary to what was already stated therein, and the RTC could not award fees more than what was in the statement of accounts. He claims that being a statement of account, it establishes prima facie the accuracy and correctness of the items stated therein.

Court: Court finds merit in Kalalo’s stand. Kalalo admits that the statement of account itemized the services rendered for the various projects, and the total fees charged was P116,565, but that he was not in estoppels because: (1) when he prepared the statement of account, he was laboring under an innocent mistake, as found by the RTC, and (2) because Luz was not ignorant of the services actually rendered by Kalalo and the fees due him under the original agreement. The statement of accounts could not estop Kalalo because Luz did not rely thereon as found by the Commisioner. Under article 1431 of the Civil Code, in order that estoppel may apply, the person to whom representations have been made and who claims the estoppel in his favor must have relied or acted on such representations. An essential element of estoppel is that the person invoking it has been influenced and has relied on the representations or conduct of the person sought to be estopped, and this element is wanting in the instant case. It had been previously rule that estoppels cannot be invoked by one who has not been misled by the false statements contained in a document (Cristobal vs. Gomez).

*Essential elements of estoppel (in relation to the party to be stopped):



1. Conduct amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are inconsistent with those which the party attempts to assert;

2. Intent, or at least expectation that his conduct shall influence the other party;

3. Knowledge, actual or constructive, of the real facts.

The first essential element in relation to the party sought to be estopped is not present in the instant case, as it was found that Kalalo prepared the statement of accounts through ignorance or mistake, and it has been held that if an act, conduct or misrepresentation of the party sought to be estopped is due to ignorance founded on innocent mistake, estoppel will not arise. Also in this case, the Court held that the ignorance of mistake that attended the writing of the statement of accounts was sufficient to overcome the prima facie evidence of correctness and accuracy of the same, as claimed by Luz.

Issue & Ruling (CONTENTION 2):

The RTC ruled that exchange rate to be applied in converting the $28,000 is the exchange rate at the time the judgment shall be paid. There was no provision in the basic contract that stated that Kalalo should be paid in dollars, so Luz couldn’t have committed a breach of his obligation, as ruled by the RTC, to pay in dollars for the IRRI project. Luz claims that the official rate at the time he received his fees for the IRRI project was P2 to $1, and it cannot be said that he made no payment as he already paid Kalalo P57,000, and under Art. 125 of the CC, payment could be said to have been applied to the fees due from the IRRI project, this project being the biggest and this debt being the most onerous.

Court: Under their agreement, Kalalo was entitled to 20% of $140,000, or $28,000, but Kalalo cannot oblige Luz to pay him in dollars, even if Luz himself received his fee for the IRRI project in dollars. This is prohibited by R.A. 529 which says that obligations which give the obligee the right to require payment in any other currency other than Philippine currency is against public policy, and should be converted to Philippine currency measured at the exchange rate at the time the obligation was incurred, but since the prevailing exchange rate at the time the obligation was incurred cannot be applied, the logical conclusion would be to apply the exchange rate during the time of payment. Court ruled that Luz should pay Kalalo the peso equivalent of $28,000 at the free market exchange rate.

By: K. Moleta



DELA CRUZ VS PARAZ69 SCRA 556

Facts:

Sometime in 1962, Pedro San Miguel, the predecessor-in-interest of the herein petitioners, commenced a "Complaint for Partition of Real Estate" before the Court of First Instance of Bulacan against private respondent Pablo San Miguel. The complaint, sought the partition of Lot No. 4543 of the Lolomboy Estate, which is a portion of original Lot No. 3237. Respondent Pablo San Miguel disclaimed co-ownership and asserted exclusive ownership of Lot No. 4543.

The then trial judge, Ricardo C. Puno, ordered the dismissal of the case pursuant to Section 3, Rule 17 of the Revised Rules of Court for "apparent lack of interest in the prosecution of the respective claims of the litigants."

Eleven years thereafter, another complaint for partition, of the Court of First Instance of Bulacan, was instituted by the same Pedro San Miguel against private respondent Pablo San Miguel. This time, the complaint prayed for the partition of Lot No. 4543 and Lot No. 3269. Respondent filed his answer, pleading therein the defense of res judicata. For him, the same subject matter and cause of action had already been litigated upon and resolved in the previous Civil case.

After preliminary hearing, the respondent Judge dismissed the case "insofar as Lot 4543 is concerned" in view of the principle of res judicata. The case was ordered to proceed as regards Lot No. 3269.

After the denial of their motion for reconsideration on lot number 4543, petitioners filed a "Petition for certiorari and/or Mandamus" before the Court of Appeals on February 5, 1975, but the latter court elevated the petition to the supreme court upon discovering that only questions of law are raised.

Issue:

Whether or not the order of the respondent Judge, dated December 10, 1973, dismissing Civil Case No. 4300-M as regards Lot No. 4543, is final and appealable.

Ruling:

The dismissal order of the said trial Judge has the effect and consequences of a dismissal on the merits under Section 3, Rule 17 of the Revised Rules of Court since it was neither without prejudice nor based upon lack of jurisdiction. It is worthy to note that the



deceased Pedro San Miguel interposed no appeal there from. Instead, he attempted to revive the subject matter of that Civil Case No. 2624 (Lot No. 4543) eleven years after, when he commenced Civil Case No. 4300-M, praying for the partition of Lot No. 3629 and Lot No. 4543. This, the deceased Pedro San Miguel could not do so. Litigation on this particular Lot No. 4543 must reach a terminal point. The principle of estoppel by judgment, one of the aspects of the doctrine of res judicata, precludes the re-litigation in another action of a specific question actually litigated and determined in a former one. The second case, Civil Case No. 4300-M, is barred by the prior judgment in the first case, Civil Case No. 2624, insofar as it relates to Lot No. 4543. For there is Identity of parties, subject matter and cause of action between the first case where the judgment was rendered and the second case which is sought to be barred as far as Lot No. 4543 is concerned. Likewise, the judgment in the first case is a final one rendered by a court of competent jurisdiction upon the merits.

It results, therefore, that respondent Judge did not abuse his discretion when he issued the order of December 9, 1974, approving petitioners' corrected record on appeal "insofar only as Lot 3269 is concerned ... because the case with respect to Lot 4543 has long became final."

By: L. Tam



MIGUEL VS CATALINO26 SCRA 234

Facts:

On January 22, 1962, appellants Simeon, Emilia and Marcelina Miguel, and appellant Grace Ventura brought suit in the Court below against Florendo Catalino for the recovery of the land above-described, plaintiffs claiming to be the children and heirs of the original registered owner, and averred that defendant, without their knowledge or consent, had unlawfully taken possession of the land, gathered its produce and unlawfully excluded plaintiffs there from. Defendant answered pleading ownership and adverse possession for 30 years, and counterclaimed for attorney's fees. After trial the Court dismissed the complaint, declared defendant to be the rightful owner, and ordered the Register of Deeds to issue a transfer certificate in lieu of the original. Plaintiffs appealed directly to the Supreme Court, assailing the trial Court's findings of fact and law.

Issue:

Is the sale of the land invalid? Does the principle on laches bar the plaintiffs from recovering the said land?

Ruling:

The 1928 sale is technically invalid; Bacaquio remained, in law, the owner of the land until his death in 1943, when his title passed on, by the law on succession, to his heirs, the plaintiffs-appellants. However, the Supreme Court said that the judgment in favor of defendant-appellee Florendo Catalino must be sustained. For despite the invalidity of his sale to Catalino Agyapao, father of defendant-appellee, the vendor Bacaquio suffered the latter to enter, possess and enjoy the land in question without protest, from 1928 to 1943, when the seller died; and the appellants, in turn, while succeeding the deceased, also remained inactive, without taking any step to revindicate the lot from 1944 to 1962, when the present suit was commenced in court. Even granting appellants' proposition that no prescription lies against their father's recorded title, their passivity and inaction for more than 34 years (1928-1962) justifies the defendant-appellee in setting up the equitable defense of laches in his own behalf.

The four elements of laches are present in the case at bar, namely: (a) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy; (b) delay in asserting the



complainant's rights, the complainant having had knowledge or notice, of the defendant's conduct and having been afforded an opportunity to institute a suit; (c) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (d) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held to be barred. Bacaquio sold the land in 1928 but the sale is void for lack of the governor's approval. The vendor, and also his heirs after him, could have instituted an action to annul the sale from that time, since they knew of the invalidity of the sale, which is a matter of law; they did not have to wait for 34 years to institute suit. The defendant was made to feel secure in the belief that no action would be filed against him by such passivity, and also because he "bought" again the land in 1949 from Grace Ventura who alone tried to question his ownership; so that the defendant will be plainly prejudiced in the event the present action is not held to be barred.

Wherefore, the plaintiffs-appellants are barred from recovery and the Court a quo was justified in ordering that Bacaquio's original certificate be cancelled, and a new transfer certificate in the name of Florendo Catalino be issued in lieu thereof by the Register of Deeds.

By: L. Tam



NYCO SALES CORP. VS BA FINANCE CORP.G.R. No. 71694

August 16, 1991

Facts:

It appears on record that petitioner whose president and general manager is Rufino Yao, is engaged in the business of selling construction materials. Sometime in 1978, the brothers Santiago and Renato Fernandez, both acting in behalf of Sanshell Corporation, approached Rufino Yao for credit accommodation. They requested Nyco, thru Yao, to grant Sanshell discounting privileges which Nyco had with BA Finance. Yao apparently acquiesced, hence on or about November 15, 1978, the Fernandezes went to Yao for the purpose of discounting Sanshell's post-dated check payable to Nyco. Nyco, thru Yao, endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check payable to Nyco which endorsed it in favor of Sanshell. Accompanying the exchange of checks was a Deed of Assignment executed by Nyco in favor of BA Finance with the conformity of Sanshell.

Nyco was represented by Rufino Yao, while Sanshell was represented by the Fernandez brothers. Under the said Deed, the subject of the discounting was the aforecited check. At the back thereof and of every deed of assignment was the Continuing Suretyship Agreement whereby the Fernandezes unconditionally guaranteed to BA Finance the full, faithful and prompt payment and discharge of any and all indebtedness of Nyco. The BPI check, however, was dishonored by the drawee bank upon presentment for payment. BA Finance immediately reported the matter to the Fernandezes who thereupon issued a substitute check dated February 19,1979 for the same amount in favor of BA Finance. It was a Security Bank and Trust Company check bearing the number 183157, which was again dishonored when it was presented for payment. Despite repeated demands, Nyco and the Fernandezes failed to settle the obligation with BA Finance, thus prompting the latter to institute an action in court. Nyco and the Fernandezes, despite having been served with summons and copies of the complaint, failed to file their answer and were consequently declared in default.

Issue and Ruling:

Whether or not NyCo is liable for the BPI check despite a similar finding of liability for the SBTC check rendered by the same lower court.

An assignment of credit is the process of transferring the right of the assignor to the assignee, who would then be allowed to proceed against the debtor. It may be



done either gratuitously or generously, in which case, the assignment has an effect similar to that of a sale.

According to Article 1628 of the Civil Code, the assignor-vendor warrants both the credit itself (its existence and legality) and the person of the debtor (his solvency), if so stipulated, as in the case at bar. Consequently, if there be any breach of the above warranties, the assignor-vendor should be held answerable therefor. There is no question then that the assignor-vendor is indeed liable for the invalidity of whatever he assigned to the assignee-vendee.

Whether or not NyCo is discharged of its liability over the SBTC check when BA Finance failed to give it a notice of dishonor.

Nyco's pretension that it had not been notified of the fact of dishonor is belied not only by the formal demand letter but also by the findings of the trial court that Rufino Yao of Nyco and the Fernandez Brothers of Sanshell had frequent contacts before, during and after the dishonor (Rollo, p. 40). More importantly, it fails to realize that for as long as the credit remains outstanding, it shall continue to be liable to BA Finance as its assignor. The dishonor of an assigned check simply stresses its liability and the failure to give a notice of dishonor will not discharge it from such liability. This is because the cause of action stems from the breach of the warranties embodied in the Deed of Assignment, and not from the dishonoring of the check alone

Whether or not there was novation when BA finance accepted the SBTC check in replacement of the BPI check.

There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. First, novation must be explicitly stated and declared in unequivocal terms as novation is never presumed Secondly, the old and the new obligations must be incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence If they cannot, they are incompatible and the latter obligation novates the first In the instant case, there was no express agreement that BA Finance's acceptance of the SBTC check will discharge Nyco from liability. Neither is there incompatibility because both checks were given precisely to terminate a single obligation arising from Nyco's sale of credit to BA Finance. As novation speaks of two distinct obligations, such is inapplicable to this case.



Whether or not NyCo is estopped from denying the authority of Yao, its president, in extending the credit accommodation to Sanshell.

Finally, Nyco disowns its President's acts claiming that it never authorized Rufino Yao (Nyco's President) to even apply to BA Finance for credit accommodation. It supports its argument with the fact that it did not issue a Board resolution giving Yao such authority. However, the very evidence on record readily belies Nyco's contention. Its corporate By-Laws clearly provide for the powers of its President, which include, inter alia, executing contracts and agreements, borrowing money, signing, indorsing and delivering checks, all in behalf of the corporation. Furthermore, the appellate court correctly adopted the lower court's observation that there was already a previous transaction of discounting of checks involving the same personalities wherein any enabling resolution from Nyco was dispensed with and yet BA Finance was able to collect from Nyco and Sanshell was able to discharge its own undertakings. Such effectively places Nyco under estoppel in pais which arises when one, by his acts, representations or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts (Panay Electric Co., Inc. v. Court of Appeals, G.R. No. 81939, June 29,1989). Nyco remained silent in the course of the transaction and spoke out only later to escape liability. This cannot be countenanced. Nyco is estopped from denying

By: M. Teves-Solon


Final Compilation- Complete Contracts

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