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Carantes v CA 76 SCRA 514

Facts: Mateo Carantes was the original owner of a


certain parcel of land. When he died, he was survived
by his wife and six children. Subsequently, the parcel of
land was subjected for expropriation, and was later on
indeed expropriated. A deed denominated as
Assignment of Right of Inheritance was executed by
four of Mateos children assigning Maximo Carantes
their rights to inheritance over the lot. Maximo then
sold the remaining lots to the government and also
registered on Mar. 16, 1940 the deed of Assignment of
Right to Inheritance. The still remaining lot was issued
in the name of Maximo. A complaint was filed against
Maximo alleging that the deed be annulled on the
ground of fraud. The trial court rendered a decision
stating that plaintiffs right of action has prescribed.
The CA reversed the decision.
Issue: WON plaintiffs right of action has prescribed.
Held: The present action, being one to annul the
contract on the ground of fraud, its prescriptive period
is four years from the time of the discovery of the
fraud.
The weight of authorities is to effect that the
registration of an instrument in the Office of the
Register of Deeds constitutes constructive notice to the
whole world, and therefore, discovery of the fraud is
deemed to have taken place at the time of the
registration. In this case the deed of assignment was
registered on Mar. 16, 1940. The four year period
within which the private respondents could have filed
the present action consequently commenced on Mar.
16, 1940; and since they filed it only on Sept. 4, 1958,
it follows that the same is barred by the statute of
limitations.
DBP v Judge Adil
Facts: This case arose from the action taken by DBP
against the respondent spouses for the reason of the
latters failure to pay for the 2,000 peso debt they
acquired from the bank. The amount was secured by a
promissory note executed jointly by the spouses. In the
said note, the spouses agreed to pay thr amount in 10
equal annual amortizations. After the lapse of the 10
year period, Patricio Confessor, executed another
promissory note stating that he will pay the
outstanding amount of the loan, and in case of failure
to pay, he agreed to have his mortgage foreclosed.
The spouses indeed failed to honor their 2nd
promissory note, DBP then filed a complaint against the
spouses. The court ruled in favor of DBP, and ordered
the spouses to pay the latter. Shortly, the spouses
appealed the decision, and 2 years later, in 1978, the
spouses acquired a favorable decision. DBP filed a
motion for reconsideration now including the judge

who rendered the decision, with the grounds that the


judge refused to recognize the law that the right to
prescription may be renounced or waived.
Issue: Whether or not the right to prescription may
be renounced or waived.
Held: Yes. Art. 1112. Persons with capacity to alienate
property may renounce prescription already obtained,
but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced
when the renunciation results from acts which imply
the abandonment of the right acquired. There is no
doubt that prescription has set in as to the first
promissory note of February 10, 1940. However, when
respondent Confesor executed the second promissory
note on April 11, 1961 whereby he promised to pay the
amount covered by the previous promissory note on or
before June 15, 1961, and upon failure to do so, agreed
to the foreclosure of the mortgage, said respondent
thereby effectively and expressly renounced and
waived his right to the prescription of the action
covering the first promissory note. The court cited the
case of Villaroel v Estrada stating: ... when a debt is
already barred by prescription, it cannot be enforced
by the creditor. But a new contract recognizing and
assuming the prescribed debt would be valid and
enforceable ... This is not a mere case of
acknowledgment of a debt that has prescribed but a
new promise to pay the debt. The consideration of the
new promissory note is the pre-existing obligation
under the first promissory note. The statutory
limitation bars the remedy but does not discharge the
debt.

BAGNAS vs. CA
Facts: Hilario Mateum died single, without any
ascendants or descendants. He was survived only by
collateral relatives, with petitioners, his first cousins,
the nearest in degree. Mateum left no will, no debts,
and an estate of twenty nine parcels of land, ten of
which are involved in his appeal. Private respondents
are collateral relatives of Mateum as well, although
more remote in degree than petitioners. They
registered with the Registry of Deeds two deeds of sale
allegedly executed by Mateum in their favor covering
the ten parcels of land. Each had the reconsideration
of the sale at "halagang ISANG PISO (P1.00) at mga
naipaglingkod, ipinaglilingkod sa aking kapakanan ..."
Both of these deeds were dated one year before
Mateum's death. Due to the deeds of sale, respondents
were able to secure in their title three of the ten
parcels of land. The properties in question were in fact
assessed for more than P10,000.00. Petitioners sought
the annulment of the deeds of sale. They claimed that
such were fictitious, fraudulent or falsified, or,
alternatively, as donations void for want of acceptance
embodied in a public instrument. They prayed for the

recovery of ownership and possession, by virtue of


being intestate heirs of Mateum.
Issue: Whether the sales are void or voidable.

Held: If the sales were only voidable, then since


Mateum had no forced hiers whose legitimes may have
been impaired, and the petitioners being collateral
relatives who are not bound pricipally or subsidiarilly to
the terms of said deeds, then petitioners would have
no actionable right to question the transfers. On the
other hand if they deeds were void ab initio because
they are without consideration, then the transaction
was inexistent and void from the beginning. The
property would never leave the patrimony of the
transferor, and upon the death of the latter without a
will the property would pass to the transferor's heirs
intestate. It is apparent that there is a gross and
enormous disproportion between the stipulated price of
P1.00 plus unspecified services and the estimated value
of P10,000.00. The assessment is in fact for tax
purposes which are well-known to be notoriously low
indicators of actual value.
This clearly demonstrates that they state a false and
fictitious consideration, and no lawful cause having
been shown, both deeds are not merely voidable, but
void ab initio. Respondents cannot rely on their
contention that the true causa is the liberality of
Mateum and that they are actually donations. The law
prescribes that donations of immovables must be made
and accepted in a public instrument, and there has
been no such claim. The transfers being void, it then
follows that the properties remained part of Mateum's
estate, recoverable by his intestate heirs, the
petitioners therein. The respondents only have
themselves to blame for lack of proof that might have
said the transfers from invalidity. They could have
presented proof of the character and value of the
services, past, present, and future, as indicated in the
very terms of the said transfers. The onus of showing
the existence of a valid and licit consideration for the
conveyances rested on the respondents. The burden
was shifted to the private respondents when the
petitioners presented the deeds which they claimed
showed that defect on their face and it became the
duty of said respondents to offer evidence of existent
lawful consideration.
WESTERN MINDANAO LUMBER CO., INC vs. NATIVIDAD
M. MEDALLE and ANTONIO MEDALLE
The Plaintiff is engaged in logging operations in Curuan
Zamboanga City and in connection with the said logging
operation it obtained on September 8, 1955 a right-ofway through the said Lot 2136, of the Cadastral Survey
of Zamboanga from Mr. Luciano Hernandez, then the
registered owner, a copy of the agreement being
enclosed as Annex A'; The former owners of the logging

concession operated by the Plaintiff constructed and


maintained the said road through Lot 2136, but the
Plaintiff improved the said road, paying to the
registered owner for all the improvements damaged by
the improvement of the road;
Long before the execution of the right-of-way
agreement on September 8, 1955, since then and up to
the present time the said road has been maintained
and used not only by the predecessor of the Plaintiff
and the Plaintiff, but also by the public:
The said Lot 2136 was purchased by the defendants in
1958 and the said road then existed and was in public
use and the defendants did not oppose but instead
allowed the continued use and maintenance of the road
by the Plaintiff and the public; The said road is
indispensable to the business operations of the
Plaintiff, because it is the only access from their
concession to the highway; That defendants have now
sent to the Plaintiff a notice (Annex'B') of their
intention to close the road; andThe Plaintiff has the
right to the continued use of said road, the closing of
which will cause injustice and irreparable damages to
the Plaintiff and the Plaintiff is willing to post a bond
for the issuance of a writ of preliminary injunction to
stop the defendants from closing the road.
ISSUE: WON the agreement is unenforceable under the
provisions of the Statute of Frauds and special law
HELD: The appeal is meritorious. The Statute of Frauds refers
to specific kinds of transactions and cannot apply to any that
is not enumerated therein. 12 The transactions or agreements
covered by said statute are the following: (a) An agreement
that by its terms is not to be performed within a year from
the making thereof;(b) A special promise to answer for the
debt, default, or miscarriage of another;(c) An agreement
made in consideration of marriage, other than a mutual
promise to marry;(d) An agreement for the sale of goods,
chattels or things in action, at a price not less than five
hundred pesos unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some of them,
of such things in action, or pay at the time somepart of the
purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time
of the sale, of the amount and kind of property sold, terms of
sale price, names of purchasers and person on whose account
the sale is made, it is sufficient memorandum;(e) An
agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;(f) A
representation as to the credit of a third person. 13
Obviously, an agreement creating an easement of right-ofway is not one of those contracts covered by the statue of
frauds since it is not a sale of property or of an interest

therein. The trial court therefore, erred in dismissing the


case upon the defendants' claim that the road fight-of-way
agreement in question is unenforceable under the statute of
frauds. Besides, the complaint, as amended, may be viewed
not only as a claim for the recognition of the existence of an
easement of right-of-way on defendants' estate, but also a
demand for the establishment of an easement of right-ofway, if none exist, pursuant to Art. 649 of the Civil Code, in
view of the plaintiffs offer to pay reasonable compensation
for the use of the land.

Emeterio Cui vs. Arellano University


FACTS: Before the school year 1948-1949 Emeterio Cui
took up preparatory law course in the Arellano University.
After Finishing his preparatory law course plaintiff
enrolled in the College of Law of the defendant from
school year 1948-1949. Plaintiff finished his law studies in
the defendant university up to and including the first
semester of the fourt year. During all the school years in
which plaintiff was studying law in defendant law college,
Francisco R. Capistrano, brother of mother of plaintiff,
was the dean of college of law and legal counsel of the
defendant university. Plaintiff enrolled for last semester
of his law studies in the defendant university but failed to
pay 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 the Abad Santos University
graduating from the college of law of the latter university.
Plaintiff, during all the time he has studying law in
Defendant University was awarded scholarship grants, for
scholastic merit, so that his semestral tuition fees were
retured to him after the end of semester and when his
scholarship grants were awarded to him. The whole
amount of tuition fees paid by the 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
college of law or the fourth year, is in total P1,003.87.
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 transcript of his records in
defendant Arellano University. Plaintiff petitioned the
latter to issue to him the needed transcripts. The
defendant refused until after he paid back the P1,003.87
which defendant refunded him. As he could not take the
bar examination without those transcripts, plaintiff paid
to defendant the said sum under protest.
ISSUE: Whether the provision of the contract between
plaintiff and defendant, whereby the former waived his
right to transfer to another school without refunding to

the latter the equivalent of his scholarship in cash, is valid


or not.
HELD: Memorandum No. 38 issued by the Director of
Private Schools provides that When students are given
full or partial scholarship, it is understood that such
scholarship are merited and earned. The amount in tuition
and other fees corresponding to These scholarship should
not be subsequently charged to recipient students when
they decide to quit school or to transfer to another
institution. Scholarship should not be offered merely to
attract and keep students in a school. Memorandum No.
38 merely incorporates a sound principle of public policy.
The defendant uses the scholarship as 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. The
practice of awarding scholarship to attract students and
keep them in school is not Good custom nor has it
received some kind of social and practical confirmation
except in some private institution as in Arellano
University.

FILIPINAS vs. MANDANAS

Facts: The power of the Ph Rating Bureau to refuse to


do business with insurance companies that are not its
members is valid because it is not contrary to law or
public policy as it reasonably restraints competition
merely by fixing rates which it has, in the first place,
the license to do.

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

> Test of Legality of an Agreement restraining trade: (1)


Reasonable Necessity in protecting the parties
interests; (2) Effect on competition ~ to regulate and
promote competition is valid while to suppress and
destroy it is unlawful; BUT considering the particular
circumstances of the case and the nature of the
particular contract, where public interest and welfare
are not involved > PURPOSE OF ART. 22 (testimony of
Salvador Estrada, Chairman of the Bureau): to promote
ethical practices in order to earn the respect of the
public, and to avoid the unethical practice of
underrating of the insurance companies that resulted
from intense competition BY coordinating with the
various companies in fixing the rates and applying it as
a standard to all > NOT ILLEGAL, IMMORAL,
UNREASONABLE, or CONTRARY TO PUBLIC POLICY in
both objectives and means

> FURTHERMORE, Circular No. 54 (February 26, 1954)


requires the approval of the Insurance Commissioner
before non-life insurance companies can implement its
rates > Annual grant of license (April 28, 1954) by the
Insurance Commissioner to the Bureau with knowledge
of its constitution and with grant of authority to fix
rates

FACTS OF THE CASE:


On 1986, 1987, and 1990 the Solangons executed 3 real
estate mortgages in which they mortgaged a parcel of
land situated in Sta. Maria, Bulacan, in favor of the
Salazar to secure payment of a loan of P60, 000.00
payable within a period of four (4) months, with
interest thereon at the rate of 6% per month, to secure
payment of a loan of P136, 512.00, payable within a
period of one (1) year, with interest thereon at the
legal rate, and to secure payment of a loan in the
amount of P230, 000.00 payable within a period of four
(4) months, with interest thereon at the legal rate.
This action was initiated by the Solangons to prevent
the foreclosure of the mortgaged property. They
alleged that they obtained only one loan form the
defendant-appellee, and that was for the amount of
P60, 000.00, the payment of which was secured by the
first of the above-mentioned mortgages. The
subsequent mortgages were merely continuations of
the first one, which is null and void because it provided
for unconscionable rate of interest. They have already
paid the defendant-appellee P78, 000.00 and tendered
P47, 000.00 more, but the latter has initiated
foreclosure proceedings for their alleged failure to pay
the loan P230, 000.00 plus interest.

ISSUES OF THE CASE:


Is a loan obligation that is secured by a real estate
mortgage with an interest of 72% p.a. or 6% a month
unconscionable?

- Yes, although the C.B. Circular No 905 lifted the


ceiling on interest rates there is nothing in the said
circular that grants lenders carte blanche authority to
raise interest rates to levels which will either enslave
their borrowers or lead to hemorrhaging of their assets.
- In the case of Medel vs. C.A. the S.C. has held that
5.5% per month was reduced for being iniquitous,
unconscionable and exorbitant hence it is contrary to
morals (contra bonos mores)
- In this case the Solangons are in a worse situation
than the Medel case (6% per month interest rate) the
said interest rate should be reduced equitably.
SOLANGON vs. SALAZAR

WHEREFORE, the appealed decision of the Court of


Appeals is AFFIRMED subject to the MODIFICATION that
the interest rate of 72% per annum is ordered reduced
to 12 % per annum.

Obligations and Contracts Terms:

Legal Interest- the legal rate of interest for the loan or


forbearance of any money, goods or credits, where such
loan or renewal or forbearance is secured in whole or
in part by a mortgage upon real estate the title to
which is duly registered, in the absence of express
contract as to such rate of interest, shall be 12% per
annum, unless it is unconscionable or contrary to laws,
morals, public policy.

Francisco Realty and Development Corp. vs. CA


Facts: A. Francisco Realty granted a loan of P7.5 M to
spouses Javillonar, in consideration of which, the latter
executed a promissory note, a real estate mortgage
over a certain property, and a deed of sale of said
mortgaged property in favor of A. Francisco.
Upon maturity, Javillonar spouses failed to pay, and as
a consequence, A. Francisco registered the sale of the
mortgaged property, for which a new TCT was issued.
A. Francisco demanded possession of the mortgaged
realty. Spouses refused to vacate. Hence, A. Francisco
filed a case for possession before the RTC.
The spouses admitted that they owed money in favor of
A. Francisco but they also alleged that it was not their
intention to sell the realty as the deed of sale executed
by them was merely an additional security for the
payment of their loan. RTC adjudged in favor of A.
Francisco. On appeal, CA reversed RTC decision and
dismissed the complaint against the spouses holding
that the deed of sale was void, being in the nature of a
pactum commissorium prohibited by law. Hence, this
petition with the SC.
Issue: Whether or not the deed of sale executed by
the spouses was void, being in the nature of pactum
commissorium.
Held: Yes. Art. 2088 of the Civil Code provides that
the creditor cannot appropriate the things given by way
of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is void. What is envisioned

by this article is a provision in the deed of mortgage


providing for the automatic conveyance of the
mortgaged property in case of the failure of the debtor
to pay the loan. A pactum commissorium is a forfeiture
clause in a deed of mortgage. The proscribed
stipulation of automatic conveyance must be found in
the mortgage deed itself.
In the case at bar, the stipulations in the promissory
note provide that, upon failure of spouses to pay
interest, ownership of the property would be
automatically transferred to A. Francisco and the deed
of sale in its favor would be registered. These
stipulations are in substance a pactum commissorium.
They embody the two elements of pactum
commissorium, to wit:
(1) that there should be a pledge or mortgage wherein
a property is pledged or mortgaged by way of security
for the payment of the principal obligation;
(2) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or
mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
Florentino vs. Encarnacion (contracts; stipulation
pour autrui)
Held: The stipulation embodied on religious expenses is
not revocable at the unilateral option of the co-owners
and neither is it binding to both parties
The stipulation in part of an extrajudicial partition duly
agreed and signed by the parties, hence the sanie must
bind the contracting parties thereto and its validity or
compliance cannot be left to the will of one of them
(Art. 1308, N.C.C.). Under Art 1311 of the New Civil
Code, this stipulation takes effect between the parties,
their assign and heirs. The article provides:
Art. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in cases where
the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or
by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
If a contract should contain a stipulation in favor of a
third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before
its revocation. A mere incidental benefit or interest of
a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a
third person.
In the case at bar, the determining point is whether the
co-owners intended to benefit the Church when in their
extrajudicial partition of several parcels of land
inherited by them from Doa Encarnacion Florendo
they agreed that with respect to the land, the fruits

thereof shall serve to defray the religious expenses.


The evidence on record shows that the true intent of
the parties is to confer a direct and material benefit
upon the Church. The fruits of the aforesaid land were
used thenceforth to defray the expenses of the Church
in the preparation and celebration of the Holy Week.
We find that the trial court erred in holding that the
stipulation, arrangement or grant is revocable at the
option of the co-owners. 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 at such third
person has after the time until the stipulation is
revoked. Here, We find that the Church accepted the
stipulation in its favor before it is sought to be revoked
by some of the co-owners, namely the petitionersappellants herein. It is not disputed that from the time
of the will of Doa Encarnacion Florentino in 1941, as
had always been the case since time immemorial up to
a year before the filing of their application in May
1964, the Church had been enjoying the benefits of the
stipulation.
The enjoyment of benefits flowing therefrom for
almost seventeen years without question from any
quarters can only be construed as an implied
acceptance by the Church of the stipulation pour autrui
before its revocation.
The acceptance does not have to be in any particular
form, even when the stipulation is for the third person
an act of liberality or generosity on the part of the
promisor or promise.
It need not be made expressly and formally.
Notification of acceptance, other than such as is
involved in the making of demand, is unnecessary.
A trust constituted between two contracting parties for
the benefit of a third person is not subject to the rules
governing donation of real property. The beneficiary of
a trust may demand performance of the obligation
without having formally accepted the benefit of the
this in a public document, upon mere acquiescence in
the formation of the trust and acceptance under the
second paragraph of Art. 1257 of the Civil Code.

The interest at 5.5 % per month, or 66% per annum,


stipulated upon by the parties in the promissory note
is iniquitous or unconscionable, and hence, contrary to
morals (contra bonos mores), if not against the law.
The stipulation is void.
FACTS:
On August 22, 1986, the plaintiffs-appellants executed
a deed or real estate mortgage in which they
mortgaged a parcel of land situated in Sta. Maria,
Bulacan, in favor of the defendant-appellee, to secure
payment of a loan of P60,000.00 payable within a
period of four (4) months, with interest thereon at the
rate of 6% per month. On May 27, 1987, the plaintiffsappellants executed a deed of real estate mortgage in
which they mortgaged the same parcel of land to the
defendant-appellee, to secure payment of a loan of
P136,512.00, payable within a period of one (1) year,
with interest thereon at the legal rate.
On December 29, 1990, the plaintiffs-appellants
executed a deed of real estate mortgage in which they
mortgaged the same parcel of land in favor of
defendant-appellee, to secure payment of a loan in the
amount of P230,000.00 payable within a period of four
(4) months, with interest thereon at the legal rate.
ISSUE: Whether or not the interest rate of 72% per
annum or 6% per month as stipulated by the party is
valid?
HELD:
NO. We agree with petitioners that the stipulated rate
of interest at 5.5% per month on the P500,000.00 loan
is excessive, iniquitous, unconscionable and exorbitant.
However, we can not consider the rate usurious
because this Court has consistently held that Circular
No. 905 of the Central Bank, adopted on December 22,
1982, has expressly removed the interest ceilings
prescribed by the Usury Law and that the Usury Law is
now legally inexistent. CB Circular No. 905 did not
repeal nor in any way amend the Usury Law but simply
suspended the latters effectivity. Indeed, we have held
that a Central Bank Circular can not repeal a law. Only
a law can repeal another law.
While the Usury Law ceiling on interest rates was lifted
by C.B. Circular No. 905, nothing in the said circular
grants lenders carte blanche authority to raise interest
rates to levels which will either enslave their borrowers
or lead to a hemorrhaging of their assets.

SPOUSES DANILO SOLANGON and URSULA SOLANGON,


petitioners, vs. JOSE AVELINO SALAZAR, respondent

Nevertheless, we find the interest at 5.5 % per month,


or 66% per annum, stipulated upon by the parties in the
promissory note iniquitous or unconscionable, and
hence, contrary to morals (contra bonos mores), if
not against the law. The stipulation is void.