Ernest Berg v. Magdalena Estaate, Inc.

(92 PHIL. 110) October 17, 1952

PETITIONER: Ernest Berg
RESPONDENT: Magdalena Estate
PONENTE: Bautista Angelo, J.

FACTS:
Ever since September 22, 1943 plaintiff, Berg and defendants under Magdalena Estate, Inc. were co-owners of the
Property, Crystal Arcade. One third of it belonged to the plaintiff-petitioner and two thirds, to the defendant-
respondent. These parties executed a deed of sale that should either of them sell his share, the other party will have
an irrevocable option to purchase it at the seller’s at the seller’s price. The two, eventually had a disagreement on
what really happened with regard to the deal.

On January. 1946, the petitioner offered his share for Php 200,000 and was accepted by the defendant, including the
stipulation that Berg was giving the defendant a period of time which, including the extensions granted, would
expire on May 31, 1947.

The defendant claimed that, in spite of the acceptance of the offer, plaintiff refused to accept the payment of the
price and that because of this, they suffered damages in the amount of Php 100,000 and asked for specific
performance. The plaintiff argued that this transaction, referred to by the defendant, is not supported by any note or
memorandum subscribed by the parties and that this transaction falls under the statue of frauds and cannot be the
basis of the defendant’s special defense.

In an application to sell or dispose their properties, both parties filed for separate applications regarding the subject
property. In the defendant’s application, it desired a license in order “to use a portion of the P400,000 requested as a
loan from the National City Bank of New York, Manila, or from any other bank in Manila, together with funds to be
collected from old and new sales of his real estate properties, for the purchase of the one-third (1/3) of the Crystal
Arcade property in the Escolta, Manila, belonging to Mr. Ernest Berg.

The lower court found that there was no agreement reached between the parties regarding the purchase and sale of
the property in question, it granted the case in favor of the petitioner.

ISSUE:
Whether the term of payment stipulated in the defendant’s application for license to sell/purchase, “until they have
obtained Php 400,000 from the National City Bank of New York, or after it has obtained funds from other sources”,
is in line with the Civil Code.

APPLICABLE LAW:
Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that
day comes.
Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be
regulated by the rules of the preceding Section. (1125a)

HELD:
Yes. The term of payment stipulated in the defendant’s application for license to sell/purchase, “until they have
obtained P400,000 from the National City Bank of New York, or after it has obtained funds from other sources”,is
in line with the Civil Code (Art. 1125).

A day certain is understood to be that which must necessarily arrive, even though it is unknown when. In order that
an obligation may be with a term, it is, therefore, necessary that it should arrive, sooner or later; otherwise, if its
arrival is uncertain, the obligation is conditional. To constitute a term, the period must end on a day certain.
In considering this article as to which the defendant relies for the enforcement of its right to buy the property, it
would seem that it is not a term, but a condition. Considering the first alternative, that is, until defendant shall have
obtained a loan from the National City Bank of New York – it is clear that the granting of such loans is not definite
and cannot be held to come within the terms “day certain” provided for in the Civil code, for it may or it may not
happen.

The loan did not materialize. And if we consider that the period given was until such time as defendant could raise
money from other sources, we also find it to be indefinite and contingent and so it is also a condition and not a term
within the meaning of the law.
Both parties did not put the terms in their agreement clearly in writing. The lower courts’ judgment is affirmed.
 Florante Vitug (Petitioner) v Evangeline Abuda (Respondent)
GR No. 201264, January 11, 2016
Ponente: Leonen, J.

Nature of Action: An action for the nullification and cancellation of mortgage.

FACTS:
Abuda loaned P250,000.00 to Vitug and his wife, Narcisa Vitug. As security for the loan, Vitug mortgaged
to Abuda his property. The property was then subject of a conditional Contract to Sell between the National Housing
Authority and Vitug. That, upon consummation and completion of the sale by the NHA of said property, the title-
award thereof, shall be received by the Mortgagee by virtue of a Special Power of Attorney, executed by Mortgagor
in her favor. The parties executed a "restructured" mortgage contract on the property to secure the amount of
P600,000.00 representing the original P250,000.00 loan, additional loans, and subsequent credit
accommodations given by Abuda to Vitug with an interest of five (5) percent per month. By then, the property was
covered by Transfer Certificate of Title under Vitug's name. Spouses Vitug failed to pay their loans despite Abuda's
demands.
Abuda filed a Complaint for Foreclosure of Property before the Regional Trial Court of Manila.
On December 19, 2008, the Regional Trial Court promulgated a Decision in favor of Abuda. On appeal, the RTC ruled
in favor of Abuda and ordered Vitug to pay the principal sum with interest and upon default of the defendant to fully
pay the aforesaid sums, the subject mortgaged property shall be sold at public auction to pay off the mortgage debt.
The judgement was affirmed with the modification as to the payment of interest. Petitioner argues that not all the
requisites of a valid mortgage are present. He contends that a mortgagor must have free disposal of the mortgaged
property. That the existence of a restriction clause in his title means that he does not have free disposal of his property.

ISSUE:
Whether the restriction clause in petitioner's title rendered invalid the real estate mortgage he and respondent
Evangeline Abuda executed.

RULING:
No. Petitioner may dispose or encumber his property. The restrictions are mere burden or limitations on
petitioner’s jus disponendi.

All the elements of a valid mortgage contract were present. For a mortgage contract to be valid, the absolute
owner of a property must have free disposal of the property. That property must be used to secure the fulfillment of
an obligation. Article 2085 of the Civil Code provides:
Art. 2085. The following requisites are essential to contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and
in the absence thereof, that they be legally authorized for the purpose.

Petitioner's undisputed title to and ownership of the property is sufficient to give him free disposal of it. As
owner of the property, he has the right to enjoy all attributes of ownership including jus disponendi or the right
to encumber, alienate, or dispose his property "without other limitations than those established by law." Petitioner's
claim that he lacks free disposal of the property stems from the existence of the restrictions imposed on his title by the
National Housing Authority. These restrictions do not divest petitioner of his ownership rights. They are mere burdens
or limitations on petitioner's jus disponendi. Thus, petitioner may dispose or encumber his property. However, the
disposition or encumbrance of his property is subject to the limitations and to the rights that may accrue to the National
Housing Authority. When annotated to the title, these restrictions serve as notice to the whole world that the National
Housing Authority has claims over the property, which it may enforce against others. Contracts entered into in
violation of restrictions on a property owner's rights do not always have the effect of making them void ab initio.
Contracts that contain provisions in favor of one party may be void ab initio or voidable. Contracts that lack
consideration, those that are against public order or public policy, and those that are attended by illegality or
immorality are void ab initio.

Contracts that only subject a property owner's property rights to conditions or limitations but otherwise
contain all the elements of a valid contract are merely voidable by the person in whose favor the conditions or
limitations are made. The mortgage contract entered into by petitioner and respondent contains all the elements of a
valid contract of mortgage. The trial court and the Court of Appeals found no irregularity in its execution. There was
no showing that it was attended by fraud, illegality, immorality, force or intimidation, and lack of consideration. At
most, therefore, the restrictions made the contract entered into by the parties voidable by the person in whose favor
they were made—in this case, by the National Housing Authority. Petitioner has no actionable right or cause of action
based on those restrictions.
 Strong and Strong vs. Repide
41 Phil. 947; 3 May 1909
PONENTE: Justice Peckham

FACTS:
Among the lands comprising the friar lands are the Dominican lands, the only valuable asset owned by the
corporation Philippine Sugar Estates Development Company Limited (Philippine Sugar Estates). Francisco Gutierrez
Repide (Repide), defendant, was the majority stockholder and one of the five directors of Philippine Sugar Estates.
He was likewise elected by the board as the agent and administrator general of such company.
The factual backdrop being during US occupation, the US Government wanted to secure title over the friar lands. To
accomplish this objective, Governor for the Philippines entered into negotiations for the purchase of the Dominican
lands, during which Repide represented Philippine Sugar Estates. The first offer of the Governor was to purchase the
subject lands in the amount of $6,043,219.47. As the majority stockholder of Philippine Sugar Estates and without
prior consultation with the other stockholders, Repide rejected the offer. For the second offer, the purchase price was
increased to $7,535,000.

While negotiations for the second offer were ongoing and while still holding out for a higher price of the
Dominican lands, Repide took steps to purchase the 800 shares of stock of Philippine Sugar Estates. These shares
were owned by Mrs. Eleanor Strong (Strong) which were then in the possession of her agent, F. Stuart Jones (Jones).
Repide, instead of seeing Jones, employed Kauffman who later on employed Sloan, a broker, to purchase the shares
of Strong. Jones sold the 800 shares of Strong for 16,000 Mexican currency. For this sale transaction a check of one
Rueda Ramos was issued.

Later on, the negotiations for the purchase of the Dominican lands were concluded and a contract of sale was
subsequently executed. This sale transaction increased the value of the shares of stocks originally owned by Strong
from 16,000 Mexican currency to 76,256 US currency. During the negotiations regarding the purchase of the shares
of stock of Strong, not one word of the facts affecting the value of this stock was made known to her nor her agent,
Jones. After the sale of Dominican lands and after the purchase of the 800 shares of Strong, Repide became the owner
of 30,400 out of the 42,030 shares of Philippine Sugar Estates.
Strong filed a complaint for the recovery of her 800 shares. She argued that her agent Jones had no authority
to sell her shares and that Repide fraudulently concealed the facts affecting their value.

ISSUE:
Was there fraud in effecting the purchase of Strong’s shares?

RULING:
Yes. With the factual circumstances of this case, it became the duty of Repide, acting in good faith, to state
the facts before making the purchase of Strong’s shares. That Repide was one of the directors of Philippine Sugar
Estates was but one of the facts upon which liability is asserted. He was not only a director, but he owned three-fourths
of the shares of its stock, and was, at the time of the purchase of the stock, administrator general of the company with
large powers and engaged in the negotiations which finally led to the sale of the company’s lands at a price which
greatly enhanced the value of the stock. He was the negotiator for the sale of the Dominican lands and was acting
substantially as the agent of the shareholders of Philippine Sugar Estates by reason of his ownership of the shares in
the company. Because of such ownership and agency, no one knew as well as he does about the exact condition of the
negotiations. He was the only one who knew of the probability of the sale of the Dominican lands to the government
and of the probable purchase price. Under these circumstances, Repide employed an agent to purchase the stock of
Strong, concealed his own identity and his knowledge of the state of negotiations and their probable result. The
concealment of his identity while procuring the purchase of the stock, by his agent, was in itself strong evidence of
fraud on the part of Repide. By such means, the more easily was he able to avoid questions relative to the negotiations
for the sale of Dominican lands and actual misrepresentations regarding that subject. He kept up the concealment as
long as he could by giving the check of a third person Rueda Ramos, for the purchase money. This move of Repide
was a studied and intentional omission to be characterized as part of the deceitful machinations to obtain the purchase
without giving any information whatever as to the state and probable result of the negotiations and to obtain a lower
price for the shares of Strong. After the purchase of stock, he continued negotiations for the sale of the Dominican
lands as the administrator general and eventually entered into a contract of sale. The whole transaction gives
conclusive evidence of the overwhelming influence Repide had in the negotiations and it is clear that the final
consummation was in his hands at all times.

OBITER DICTUM:
The directors are declared to be mandatories of the society and that they are prohibited from acquiring by
purchase, even at public or judicial auction, the property the administration or sale of which, may have been entrusted
to them, and that this is the extent of the prohibition.