1. Garcia v Bisaya of the contract of lease in 1968.
of the contract of lease in 1968. Even if we were to assume for the sake of argument that the instant
Plaintiff filed a complaint against defendants alleging that the defendants executed in favor of the
plaintiffs a deed of sale and that the said land was erroneously designated by the parties was an
unregistered land when in fact the land is registered. Plaintiff prayed for judgement ordering defendants
to make the aforesaid correction in the deed of sale. Defendants denied the execution of the deed and
pleaded prescription as a defense. Plaintiffs alleged that has no knowledge of the error and only
discovered it recently.
WON the prescription period has prescribed?
The object sought is the correction of an alleged mistake in a deed of sale covering a piece of land. The
action being upon a written contract, it should prescribe in ten years counted from the day it could have
been instituted. Obviously, appellant could not have instituted his action to correct an error in a deed
until that error was discovered. There being nothing in the pleadings to show that the error was
discovered more than ten years before the present action was filed on May 20, 1952, while, on the other
hand, there is allegation that the error was discovered "only recently", we think the action should not
have been dismissed as having already prescribed before the factual basis for prescription had been
established and clarified by evidence. However, appellant's complaint states no cause of action, for it
fails to allege that the instrument to the reformed does not express the real agreement or intention of
the parties. Such allegation is essential since the object sought in an action for reformation is to make an
instrument conform to the real agreement or intention of the parties. courts do not reform instruments
merely for the sake of reforming them, but only to enable some party to assert right under them as
reformed. Perhaps appellant's real grievance is that he has been led to enter into the contract of sale
through fraud or misrepresentation on the part of the vendor or in the mistaken belief that, as stated in
the deed, the property he was buying was unregistered land. But if that be the case, article 1359 of the
new Civil Code expressly provides that "the proper remedy is not reformation of the instrument but
annulment of the contract." Appellant's complaint, however, does not ask for the annulment of the
deed; neither does it contain allegations essential to an action for that purpose. DISMISSED.
2. Bentir v Leanda
Respondent corporation entered into a contract of lease of a parcel of land with petitioner Bentir and
Sps. Pormida for a period of 20 years starting from May of 1968.The lease was eventually extended for
another 4 years or until May of 1992. Sometime in 1989, Bentir sold the leased property to Sps.
Pormida.’ Respondent questioned the sale alleging that it had a right of first refusal. Thus, it filed a
complaint seeking the reformation of the expired contract of lease on the ground that its lawyer
inadvertently omitted to incorporate in the contract of lease executed in 1968, the verbal agreement
between the parties that in the event petitioner leases or sells the lot after the expiration of the lease,
the respondent corporation has the right to equal the highest offer. Petitioners allege the inadvertence
was not a ground for reformation and that respondent corp. is guilty of laches for not bringing within the
prescriptive period of 10 years from the execution of the contract, the case for reformation. Trial Court
dismissed the complaint on the ground of prescription. The case was re-raffled after motion for
reconsideration was filed, respondent judge reversed the order of dismissal holding that the action for
reformation has not yet prescribed.
WON the period for reformation has prescribed?
The right of reformation is necessarily an invasion or limitation of the parol evidence rule since, when a
writing is reformed, the result is that an oral agreement is by court decree made legally effective. A suit
for reformation of an instrument may be barred by lapse of time. The prescriptive period for actions
based upon a written contract and for reformation of an instrument is 10 years. In the case at bar,
respondent corporation had 10 years from 1968, the time when the contract of lease was executed, to
file an action for reformation. Sadly, it did so only on May 15, 1992 or 24 years after the cause of action
accrued, hence, its cause of action has become stale, hence, time-barred. Regarding the extended period
of lease, if the extended period of lease was expressly agreed upon by the parties, then the term should
be exactly what the parties stipulated, not more, not less. Second, even if the supposed 4-year extended
lease be considered as an implied new lease under Art. 1670, "the other terms of the original contract"
contemplated in said provision are only those terms which are germane to the lessee’s right of continued
enjoyment of the property leased. The prescriptive period of 10 years applies by operation of law, not by
the will of the parties. Therefore, the right of action for reformation accrued from the date of execution
action for reformation is not time-barred, respondent corporation’s action will still not prosper. Since the
purpose of an action for declaratory relief is to secure an authoritative statement of the rights and
obligations of the parties for their guidance in the enforcement thereof, or compliance therewith, and
not to settle issues arising from an alleged breach thereof, it may be entertained only before the breach
or violation of the law or contract to which it refers. Here, respondent corporation brought the present
action for reformation after an alleged breach or violation of the contract was already committed by
petitioner Bentir. Consequently, the remedy of reformation no longer lies. DISMISSED
3. Atilano v Atilano
In 1916, Eulogio I owned lot No. 535 which he divided into give (5) parts. Namely as lots Nos. 535-A, 535-
B, 535-C, 535-D, and 535-E. Lot. No.535-E was sold to Eulogio II while 535-B to 535-D were sold to other
persons. Upon the death of Eulogio I, the remaining portion of land which is presumably lot no. 535-A,
was passed down to defendant Ladislao. When Eulogio II died, his wife Luisa and his children sought the
land to be subdivided. It was then discovered that the land they were occupying was lot No. 535-A and
not lot No. 535-E which was covered in the transfer certificate of title. And that the land occupied by
Ladislao was lot No. 535-E. Lot No. 535-E has an area of 2,612 square meters area while lot No. 535-A
covered 1,808 square-meter. Heirs of Eulogio II filed a complaint demanding the return of lot No. 535-E
while surrendering their possession of lot No. 535-A. Defendants refused to accept the exchange and
contended that the reference to lot No. 535-E in the deed of sale of May 18, 1920 was an involuntary
error and that the intention of the parties in the contract of sale was lot No. 535- A. And that it was
evident since Eulogio Atilano even purchased a portion from an adjoining lot which increases the area of
his property.
WON the heirs of Eulogio II are entitled to the real 535-E as stated in the deed of sale?
When one sells or buys real property, one sells or buys the property as he sees it and not by the mere lot
number assigned to it in the certificate of title. The two brothers continued in possession of the
respective portions for the rest of their lives, obviously ignorant of the initial mistake in the designation
of the lot subject of the 1920 sale until 1959, when the mistake was discovered for the first time. 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 a 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 minds of the parties to a contract, their true intention is not expressed in the
instrument purporting to embody the agreement by reason of mistake, fraud, inequitable conduct or
accident. In this case, the deed of sale
executed in 1920 need no longer be 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 deed of conveyance. The plaintiffs are ordered to execute a new deed of conveyance in
favor of defendants and defendant to execute the same in favor of the plaintiffs.
4. Sarming v Dy
The parties herein were the successors-in-interest of the original parties involved in the case. Jose,
Venancio, and Silveria were heirs to two parcels of land, Lots No. 5734 and 4163. Lot No. 5734 was
subdivided into three equal parts distributed among the three siblings, while Lot No. 4163, which was
registered solely in the name of Silveria Flores, was actually subdivided between Silveria and Jose. The
grandchildren of Jose who were then the owners of one half portion of Lot 4163 sold their share to
Alejandra Delfino with the knowledge and permission of Silveria. Silveria mistakenly delivered the
Original Certificate of Title of Lot No. 5734, instead of Lot No. 4163. The Deed of Sale referred to Lot No.
5734 as the land sold. Upon discovery of the error, Alejandra paid the necessary fees so that the title to
Lot No. 4163 could be released to Silveria, who promised to turn over the same for the reformation of
the deed of sale. However, despite repeated demands Silveria failed to deliver the title, which prompted
Alejandra to file a complaint against Silveria for reformation of the deed of sale with damages. In her
answer, Silveria denied that error was made and claimed that the buyers illegally occupied Lot No. 4163
and prayed that she be declared the sole owner of the lot and placed in possession thereof. The case
lasted for several years in the trial court due to substitution of parties. In 1992, the trial court finally
decided in favor of the respondents, successors-in-interest of Alejandra, thereby ordering the
reformation of the deed of sale and correction of the corresponding documents affected. Petitioners
appealed the decision to the Court of Appeals, which affirmed the ruling of the trial court.
a*WON there is a cause of action for reformation of instrument against Silveria and the petitioners?
b*WON reformation of the subject deed is proper by reason of mistake in designating the correct lot
number?
a* a close perusal of the deed would show that Silveria was a party to the contract. She is not only the
seller of the coconut trees but she was also one of the heirs entitled to the estate. Her name did not
appear as one of the sellers of one-half lot to Alejandra Delfino because she never sold her share. It is
also established that it was Silveria herself who delivered the subject lot to Delfino. Through her actions,
Silveria had made the parties to the deed believe that the lot intended to be the object of the contract
was the same lot described in the deed. Thus, by mistake or accident, neither she nor her successors-in-
interest could deny involvement in the transaction. Also, the existence of a cause of action is not
determined by one's involvement in a contract. The rule is that only the allegations in the complaint may
properly be considered in ascertaining the existence of a cause of action. Lack of cause of action must
appear on the face of the complaint and its existence may be determined only by the allegations of the
complaint.
b* Reformation is that remedy in equity by means of which a written instrument is made or construed so
as to express or conform to the real intention of the parties. An action for reformation of instrument
under this provision of law may prosper only upon the concurrence of the following requisites: (1) there
must have been a meeting of the minds of the parties to the contract; (2) the instrument does not
express the true intention of the parties; and (3) the failure of the instrument to express the true
intention of the parties is due to mistake, fraud, inequitable conduct or accident. All of these requisites
are present but there was a mistake as to the designation of the lot sold. While intentions involve a state
of mind which may sometimes be difficult to decipher, subsequent and contemporaneous acts of the
parties as well as the evidentiary facts as proved and admitted can be reflective of one's intention. The
totality of the evidence clearly indicates that what was intended to be sold to Delfino was Lot 4163 and
not Lot 5734. The designation of the lot in the deed of sale was a mistake in the preparation of the
document. Thus, we concur in the conclusion reached by the courts a quo that reformation of the
instrument is proper.
5. Borromeo v CA
Before 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. Villamor 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, Villamor borrowed from Borromeo a large sum of money for which he mortgaged his land
and house in Cebu City to pay some pressing obligation with Mr. Miller. Mr. Miller filed a civil action
against the Villamor and attached his properties including those mortgaged to Borromeo, in as much as
the deed of mortgage in favor of Borromeo could not be registered because not properly drawn up.
Borromeo then pressed the Villamor for settlement of his obligation, but Villamor instead offered to
execute a document promising to pay his indebtedness even after the lapse of ten years. Liquidation was
made and Villamor was found to be indebted to Borromeo in the sum of P7,220.00, for which Villamor
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 stipulate that Villamor '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, Borromeo limited himself
to verbally requesting Villamor to settle his indebtedness from time to time. Borromeo did not file any
complaint against the Villamor within ten years from the execution of the document as there was no
property registered in Villamor's name, who furthermore assured him that he could collect even after
the lapse of ten years. After the last war, Borromeo made various oral demands, but Villamor failed to
settle his account. CFI: Villamor ordered to pay Borromeo (represented by his heirs) 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. CA: reversed CFI ruling
WON the CA erred in reversing the ruling of the CFI in finding the lack of validity of the stipulation
amounting to a waiver in line with the principle "that a person cannot renounce future prescription"?
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” (Art. 1370). The terms, clauses and
conditions contrary to law, morals and public order (in this case the contested stipulation) should be
separated from the valid and legal contract when such separation can be made because they are
independent of the valid contract which expresses the will of the contracting parties. 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. CA should have interpreted the stipulation based on the context of the
friendship between the two parties. 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.
6. Kasilag v Rodriguez
Respondents, Rafaela Rodriguez, et. Al., children and heirs of the deceased Emiliana Ambrosio,
commenced a civil case to recover from the petitioner the possession of the land and its improvements
granted by way of homestead to Emiliana Ambrosio. The parties entered into a contract of mortgage of
the improvements on the acquired as homestead to secure the payment of the indebtedness for P1,000
plus interest. In clause V, the parties stipulated that Emiliana was to pay within 4 ½ years, the debt with
interest thereon, in which event the mortgage would not have any of the effect. In clause VI, the parties
agreed that the tax on the land and its improvements, during the existence of the mortgage, should be
paid by owner of the land. In clause VII, it was covenanted that within 30 days from the date of the
contract, the owner of the land would file a motion in the CFI of Bataan asking the certificate of title No.
325 be cancelled and that in lieu thereof another be issued under the provisions of RA 496. In clause VIII,
the parties agreed that should Emiliana fail to redeem the mortgage within the stipulated period of 4 ½
years, she would execute an Absolute Deed of Sale of the land in favour of the mortgagee, the petitioner,
for the same amount of the loan including unpaid interest. In clause IX, it was stipulated that in case the
motion to be presented under clause VII should be disapproved by the CFI-Bataan, the Contract of Sale
would automatically become void and the mortgage would subsist in all its force. One year after the
execution of the mortgage deed, it came to pass that Emiliana was unable to pay the stipulated interest
as well as the tax on the land and its improvements. For this reason, she and the petitioner entered into
another verbal contract whereby she conveyed to the latter the possession of the land on condition that
the latter would not collect the interest on the loan, would attend to the payment of the land tax, would
benefit by the fruits of the land, and would introduce improvements thereon. The CA held that
petitioner acted in bad faith in taking possession of the land because he knew that the contract he made
with Emiliana was an Absolute Sale, and further, that the latter could not sell the land because it is
prohibited by Sec. 116 of Act 2874 xxx A person is deemed a possessor in bad faith when he knows that
there is a flaw in his title or in the manner of its acquisition, by which it is invalidated xxx. CA held that
the possession by the petitioner and his receipts of the fruits of the land, considered as integral elements
of the contract of antichresis, are illegal and void agreements because such contract is a lien and as such
prohibited by Sec. 116 of Act No. 2874, as amended.
WON the petitioner should be deemed a possessor in good faith because he was unaware of the flaw in
his title or in the manner of the acquisition by which it is invalidated?
The cardinal rule in the interpretation of contracts is to the effect that the intention of the contracting
parties should always prevail because their will has the force of law between them. Article 1281 of the
Civil Code consecrates this rule and provides, that if the terms of a contract are clear and leave no doubt
as to the intention of the contracting parties, the literal sense of its stipulations shall be followed; and if
the words appear to be contrary to the evident intention of the contracting parties, the intention shall
prevail. The parties entered into a contract of mortgage of the improvements on the land acquired as
homestead, to secure the payment of the indebtedness for P1,000 and the stipulated interest thereon.
Another fundamental rule in the interpretation of contracts is to the effect that the terms, clauses and
conditions contrary to law, morals and public order should be separated from the valid and legal contract
when such separation can be made because they are independent of the valid contract which expresses
the will of the contracting parties. the parties agreed that should Emiliana Ambrosio fail to redeem the
mortgage within the stipulated period of four and a half years the stipulation was later on verbally
modified converting it into a contract of antichresis. The contract of antichresis, being a real
encumbrance burdening the land, is illegal and void but the clauses regarding the contract of antichresis,
being independent of and separable from the contract of mortgage, can be eliminated, thereby leaving
the latter in being because it is legal and valid.
(Ignorance of the flaw is the keynote of the rule. From the facts found by the CA, we can neither deduce
nor presume that the Petitioner was aware of a flaw in his title or in the manner of its acquisition, aside
from the prohibition contained in Sec. 116. This being the case, the question is whether or not good faith
may be premised upon ignorance of the law. Gross and inexcusable ignorance of the law may not be the
basis of good faith. But excusable ignorance may be such basis. It is a fact that the petitioner is not
conversant with the law because he is not a lawyer. In accepting the mortgage of the improvements he
proceeded on the well-grounded belief that he was not violating the prohibition regarding the alienation
of the land. In taking possession thereof and in consenting to receive its fruits, he did not know, as clearly
as a jurist does, that the possession and enjoyment of the fruits are attributes of the contracts of
antichresis and that the latter, as lien, was prohibited by Sec. 116. Thus, as to petitioner, his ignorance of
the provisions of Sec. 116 is excusable and may be the basis of good faith. The petitioner being in good
faith, the respondents may elect to have the improvements introduced by the petitioner by paying the
latter the value thereof, P3,000.00, or to compel the petitioner to buy and have the land where the
imporvemnts or plants are found, by paying them its market value to be fixed by the court of origin,
upon hearing of the parties.)(For all the foregoing considerations, the appealed decision is reversed, and
we hereby adjudge: (1) that the contract of mortgage of the improvements, set out in Exhibit 1, is valid
and binding (2) that the contract of antichresis agreed upon verbally by the parties is a real incumbrance
which burdens the land and, as such, is null and without effect; (3) that the petitioner is a possessor in
good faith; (4) that the respondents may elect to have the improvements introduced by the petitioner by
paying the latter the value thereof, P3,000, or to compel the petitioner to buy and have the land where
the improvements or plants are found, by paying them its market value to be fixed by the court of origin,
upon hearing the parties; (5) that the respondents have a right to the possession of the land and to enjoy
the mortgaged improvements; and (6) that the respondents may redeem the mortgage of the
improvements by paying to the petitioner within three months the amount of P1,000, without interest,
as that stipulated is set off by the value of the fruits of the mortgaged improvements which the
petitioner received; and in default thereof the petitioner may ask for the public sale of said
improvements for the purpose of applying the proceeds thereof to the payment of his said credit.)
7. Universal Food Corp v CA
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. In 1938, plaintiff Magdalo V. Francisco, Sr. discovered a formula for the manufacture of a food
seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce. It was used
commercially since 1942, and in the same year plaintiff registered his trademark in his name as owner
and inventor with the Bureau of Patents. However, due to lack of sufficient capital to finance the
expansion of the business, in 1960, said plaintiff secured the financial assistance of Tirso T. Reyes who,
after a series of negotiations, formed with others defendant Universal Food Corporation eventually
leading to the execution on May 11, 1960 of the aforequoted "Bill of Assignment". 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 be topped 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 the Assistant 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.
1. Was the Bill of Assignment really one that involves transfer of the formula for Mafran sauce itself?
2. Was petitioner’s contention that Magdalo Francisco is not entitled to rescission valid?
1. No. Certain provisions of the bill would lead one to believe that the formula itself was transferred. To
quote, “the respondent patentee "assign, transfer and convey all its property rights and interest over
said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second Part," and the last
paragraph states that such "assignment, transfer and conveyance is absolute and irrevocable (and) in no
case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and interest over
said MAFRAN trademark and mafran formula." “However, a perceptive analysis of the entire instrument
and the language employed therein would lead one to the conclusion that what was actually ceded and
transferred was only the use of the Mafran sauce formula. This was the precise intention of the parties.”
The SC had the following reasons to back up the above conclusion. First, royalty was paid by UFC to
Magdalo Francisco. Second, the formula of said Mafran sauce was never disclosed to anybody else.
Third, the Bill acknowledged the fact that upon dissolution of said Corporation, the patentee rights and
interests of said trademark shall automatically revert back to Magdalo Francisco. Fourth, paragraph 3 of
the Bill declared only the transfer of the use of the Mafran sauce and not the formula itself which was
admitted by UFC in its answer. Fifth, the facts of the case undeniably show that what was transferred
was only the use. Finally, our Civil Code allows only “the least transmission of right, hence, what better
way is there to show the least transmission of right of the transfer of the use of the transfer of the
formula itself.”
2. 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 ofhis
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.
8. Gonzales v McMicking
In August 1909, Gutierrez Hermanos brought an action against Oria Hermanos & Co. for the recovery of
P147,204.28. In March 1910, the same plaintiff began another action against the same defendant for the
recovery of P12,318.57. On or about the 30th day of April, 1910, the members of the company of Oria
Hermanos & Co., on account of the expiration of the time stated in their agreement of co-partnership,
dissolved their relations and entered into liquidation. On the 1st day of June, 1910, Balbas, as managing
partner in liquidation, acting for himself and on behalf of his other co-owners entered into a contract
with the plaintiff in this case, the said contract was for the purpose of selling and transferring to the
plaintiff in this action all of the property of which the said Oria Hermanos & Co. was owner. Among the
goods transferred by this instrument was the steamship Serantes, which is the subject of this litigation.
The 2nd action(P12,318.57) was affirmed and the sheriff immediately demanded that Balbas make
payment of the judgement, to which he replied that there were no funds with which to pay the same.
Thereupon the sheriff levied upon the said steamer Serantes, three days before the sale, the plaintiff in
this action presented to the sheriff a written statement claiming to be the owner of the said steamship,
and to have the right of possession of the same by reason of the sale to him by Oria Hermanos & Co. The
sheriff thereupon required Gutierrez Hermanos to present a bond for his protection, which having been
done, the sheriff proceeded to the sale of the said steamship. At the sale Gutierrez Hermanos became
the purchaser, said company being the highest bidder, and the sum which it paid being the highest sum
bidden for the same. It is the contention of Gutierrez Hermanos that said sale is fraudulent as against the
creditors of Oria Hermanos & Co., and that the transfer thereby consummated of the steamship in
question was void as to said creditors and as to Gutierrez Hermanos in particular.
WON the sale in question was fraudulent?
In determining whether or not a certain conveyance is fraudulent the question in every case is whether
the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors, or whether it
conserves to the debtor a special right. It is not sufficient that it is founded on good consideration or is
made with bona fide intent: it must have both elements. If defective in either of these particulars,
although good between the parties, it is voidable as to creditors. The rule is universal both at law and in
equity that whatever fraud creates justice will destroy. (Rules in determining fraud: denominated by the
courts badges of fraud: 1. The fact that the consideration of the conveyance is fictitious or is inadequate.
2. A transfer made by a debtor after suit has been begun and while it is pending against him. 3. A sale
upon credit by an insolvent debtor. 4. Evidence of large indebtedness or complete insolvency. 5. The
transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly
embarrassed financially. 6. The fact that the transfer is made between father and son; when there are
present other of the above circumstances. 7. The failure of the vendee to take exclusive possession of all
the property.) The case at bar presents every one of the badges of fraud above enumerated. Tested by
the inquiry, does the sale prejudice the rights of creditors, the result is clear. The sale in the form in
which it was made leaves the creditors substantially without recourse. The property of the company is
gone, its income is gone, the business itself is likely to fail, the property is being dissipated, and is
depreciating in value. As a result, even if the claims of the creditors should live twelve years and the
creditors themselves wait that long, it is more than likely that nothing would be found to satisfy their
claims at the end of the long wait. Since the record shows that there was no property with which the
judgment in question could be paid, the defendants were obliged to resort to and levy upon the steamer
in suit. The court below was correct in finding the sale fraudulent and void as to Gutierrez Hermanos in
so far as was necessary to permit the collection of its judgment. Defendant had the right to make the
levy and test the validity of the sale in that way, without first resorting to a direct action to annul the
sale. The creditor may attack the sale by ignoring it and seizing under his execution the property, or any
necessary portion thereof, which is the subject of the sale.
9. Siguan v Lim
Respondent Rosa was charged by petitioner with two counts of violation of Batas Pambansa Blg. 22 for
issuing checks, in the total amount of P541,668, dishonored by the bank for the reason of "account
closed." The conviction was affirmed by the Court of Appeals and is now pending review with this Court.
Petitioner, thereafter filed action pauliana against respondent Rosa to rescind, the notarized deed of
donation over 4 parcels of land Rosa executed in favor of her three children, the other respondents.
Petitioner claimed that there was fraudulent transfer leaving no sufficient properties to pay her
obligations with her and that the deed of donation was not antedated. During the hearing of the case,
petitioner presented evidence on Rosa's civil liability to one Victoria Suarez in the amount of P169,000.
For her defense, Rosa denied liability and the alleged antedating of the deed. The trial court rendered
judgment in favor of petitioner, ordered the rescission of the contract and declared the titles in the name
of Rosa's children null and void. On appeal, the Court of Appeals reversed the trial court and dismissed
the action pauliana. It ruled that the deed of donation was not fraudulent transfer as respondent debtor
Rosa still owns 4 parcels of land sufficient to cover her debts to petitioner, that the notarized deed of
donation, a public document in the absence of convincing evidence that the notary and the parties
antedated the instrument, is evidence of the fact that gave rise to its execution and of the date thereof.
Petitioner's motion for reconsideration having been denied she resorted to this recourse.
WON the Deed of Donation was made in fraud and therefore rescissible?
Article 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are
"those contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them." by onerous title, has been an accomplice in the fraud. The general rule is that
rescission requires the existence of creditors at the time of the alleged fraudulent alienation, and this
must be proved as one of the bases of the judicial pronouncement setting aside the contract. Without
any prior existing debt, there can neither be injury nor fraud. While it is necessary that the credit of the
plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date of the judgment
enforcing it is immaterial. Notably, the deed is a public document, it has been acknowledged before a
notary public thus it is evidenced of the fact which gave rise to its execution and its date. Under Article
1381 of the Civil Code, contracts entered into in fraud of creditors may be rescinded only when the
creditors cannot in any manner collect the claims due them. Also, Article 1383 provides that the action
for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same. It is, therefore, essential that the
party asking for rescission prove that he has exhausted all other legal means to obtain satisfaction of his
claim. Petitioner neither alleged nor proved that she did so. On this score, her action for the rescission of
the questioned deed is not maintainable even if the fraud charged actually did exist." Also Article 1387
provides: "All contracts by virtue of which the debtor alienates property by gratuitous title are presumed
to have been entered into in fraud of creditors when the donor did not reserve sufficient property to pay
all debts contracted before the donation.” For this presumption of fraud to apply, it must be established
that the donor did not leave adequate properties which creditors might have recourse for the collection
of their credits existing before the execution of the donation. As earlier discussed, petitioner's alleged
credit existed only a year after the deed of donation was executed. She cannot, therefore, be said to
have been prejudiced or defrauded by such alienation. Petitioner failed to discharge the burden of
proving any of the circumstances enumerated above or any other circumstance from which fraud can be
inferred. Accordingly, since the four requirements for the rescission of a gratuitous contract are not
present in this case, petitioner's action must fail. Article 1384 of the Civil Code provides that rescission
shall only be to the extent necessary to cover the damages caused. Under this Article, only the creditor
who brought the action for rescission can benefit from the rescission; those who are strangers to the
action cannot benefit from its effects. And the revocation is only to the extent of the plaintiff creditor's
unsatisfied credit; as to the excess, the alienation is maintained. Thus, petitioner cannot invoke the credit
of Suarez to justify rescission of the subject deed of donation.