OBLICON Digest May 09

Adamson University
College of Law
Obligations and Contracts
c. VicesofConsent
i. Rule: ConsentmustbeIntelligent,Free,Spontaneous,Real (1330)
Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable.
 Mistake and violence – spontaneity and intelligence
Effect of Defects of will – Contract is voidable (Art 1330)
Consent must be:
1. Intelligent
2. Free
3. Spontaneous
4. Real
ii. MistakeorError- a wrong or false notion about such matter, a belief in the existence of
some circumstance, fact or event which does not exist
Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions which have principally moved one
or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such
identity or qualifications have been the principal cause of the contract.
 A simple mistake of fact shall give rise to its correction.
• MistakeofFact
- Astosubstanceoftheobject
- Astoprincipalconditions
- Astoidentityorqualificationsoftheparties
- Astoquantity,asdistinguishedfromsimplemistakeofaccount
Kinds of Mistake:
a. Mistake of Fact
o Generally, not a ground for the annulment of contracts
o Ground of mistake based on error is limited to cases in which it may be reasonably
said that without such error, the consent would not have been given
o Effect of mistake is determined by whether the parties would still have entered into
the contract despite knowledge of true fact (influence upon party)
As to substance of object - Invalidates consent if it refers to the

substance of the thing. But, mistake in the
lot number for instance, the remedy is only
the reformation of the contract
As to principal conditions (essential or - Invalidates consent
substantial in character)
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As to the identity or qualifications of one of - For identity/error as to a person –

the parties generally not, except when the
qualification is the principal cause of
the contract, especially in gratuitous
contracts
- For qualifications – invalidates
consent
- Solvency of the party – not a cause
of nullity
As to quantity, as distinguished from a - Error of account is a mistake in
simple mistake of account computation – make the proper
correction
- Error as to quantity – may vitiate
contract if the primary consideration
is the quantity, e.g the parcel of land
was only 10 ha and not 30 ha
Mistakes that do not affect the validity of the contract:

o Error with respect to accidental qualities of the object of the contract
o Error with the value of the thing
o Error which refers not to conditions of the thing, but to accessory matters in the
contract, foreign to the determination of the objects
Asiainv.Jalandoni,45Phil296
FACTS:
The parties agreed upon a sale the land in question, the seller attested that the land
contained more or less 25,000 hectares with crop estimated at 2000 picul. The price
was 55,000 Jalandoni paid 30,000, the unpaid balance to be paid within a year with
interest. After the sale, the buyer Jalandoni still unsure on the accuracy of the land had
a surveyor measure the land and found that the land contained only a little more than 18
hectares and about 800 piculs. Appellant Jalandoni sued for the remaining balance. CFI
declared the contract rescinded and ordered the parties to return what they have
received to each other. Appellant asiain appealed.
ISSUE:
Whether or not there was mistake of fact in the contract which would entitle rescission
RULING:
Yes. The Supreme Court held that there was mistake of fact as disclosed not alone by
the terms of the contract but by the attendant circumstances, which it is proper to
consider in order to throw light upon the intention of the parties, is, as it is sometimes
expressed, the efficient cause of the concoction. The mistake with reference to the
subject-matter of the contract is such that, at the option of the purchaser, it is
rescindable. Without such mistake the agreement would not have been made and since
this is true, the agreement is inoperative and void. It is not exactly a case of over
reaching on the plaintiff's part, or of misinterpretation and deception, or of fraud, but it
more nearly akin to a bilateral mistake for which relief should be granted. Specific
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performance of the contract can therefore not allowed at the instance of the vendor. The
SC agreed with the lower court’s decision and the ultimate result is to put the parties
back in exactly their respective positions before they became involved in the
negotiations and before accomplishment of the agreement as this decision conforms to
the facts, the law, and the principles of equity.
HeirsofWilliamSevillav.Sevilla,402SCRA501
FACTS:
Filomena Almirol de Sevilla died intestate leaving 8 children. Filomena’s sister Felisa
who co-owned the lands died on 1988, but previously on 1985 Felisa donated her ½
share of lot 653 to her nephew Leopoldo Sevilla and his wife. On August 8, 1986, Felisa
executed another document denominated as "Donation Inter Vivos" ceding to Leopoldo
Sevilla her 1/2 undivided share in Lot No. 653, which was accepted by Leopoldo in the
same document.
The petitioners, heirs of William Sevilla now assails the deed of donation among others
and they allege that the Deed of Donation is tainted with fraud because Felisa Almirol,
who was then 81 years of age, was seriously ill and of unsound mind at the time of the
execution. The lower court deemed the donation to be valid. Petitioners appealed.
ISSUE:
Whether or not there was lack of valid consent to the assailed donation by reason of
fraud or undue influence
RULING:
No. The Supreme Court held that there is fraud when, through the insidious words or
machinations of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. There is undue influence
when a person takes improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. Ei incum bit probatio qui dicit,
non qui negat. He who asserts, not he who denies, must prove. The SC have
consistently applied the ancient rule that if the plaintiff, upon whom rests the burden of
proving his cause of action, fails to show in a satisfactory manner facts on which he
bases his claim, the defendant is under no obligation to prove his exception or defense.
In this case, the self-serving testimony of the petitioners are vague on what acts of
Leopoldo Sevilla constituted fraud and undue influence and on how these acts vitiated
the consent of Felisa Almirol. Fraud and undue influence that vitiated a party's consent
must be established by full, clear and convincing evidence, otherwise, the latter's
presumed consent to the contract prevails. Neither does the fact that the donation
preceded the partition constitute fraud. It is not necessary that partition should first be
had because what was donated to Leopoldo was the 1/2 undivided share of Felisa in
Lot No. 653.Moreover, petitioners failed to show proof why Felisa should be held
incapable of exercising sufficient judgment in ceding her share to respondent
Leopoldo. As testified by the notary public who notarized the Deed of Donation, Felisa
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confirmed to him her intention to donate her share in Lot No. 653 to Leopoldo. He
stressed that though the donor was old, she was of sound mind and could talk sensibly.
Significantly, there is nothing in the record that discloses even an attempt by petitioners
to rebut said declaration of the notary public.
Clearly, therefore, the courts below did not err in sustaining the validity of the deed of
donation.
Andresv.ManufacturersHanoverandTrust,177SCRA618
FACTS:
Andres, using the business name “Irene’s Wearing Apparel” was engaged in the
manufacture of ladies garments, children’s wear, men’s apparel and linens for local and
foreign buyers. Among its foreign buyers was Facts of the United States. Sometime in
August 1980, Facts instructed the First National State Bank (FNSB) of New Jersey to
transfer $10,000 to Irene’s Wearing Apparel via Philippine National Bank (PNB) Sta.
Cruz, Manila branch. FNSB instructed Manufacturers Hanover and Trust Corporation
(Mantrust) to effect the transfer by charging the amount to the account of FNSB with
private respondent. After Mantrust effected the transfer, the payment was not effected
immediately because the payee designated in the telex was only “Wearing Apparel.”
Private respondent sent PNB another telex stating that the payment was to be made to
“Irene’s Wearing Apparel.”FNSB was informed about the delay and unaware that
petitioner has already received the remittance instructed PCIB to pay 10,000 again to
petitioner. FNSB discovered that private respondent had made a duplication of
remittance. Private respondent asked petitioner to return the second remittance of
$10,000 but the latter refused to do so contending that the doctrine of solution indebiti
does not apply because there was negligence on the part of the respondents and that
they were not unjustly enriched since Facets still has a balance of $49,324.
ISSUE:
Whether or not the second payment was made by mistake
RULING:
YES. The Supreme Court has held that the doctrine of solution indebiti under Art 2154
is applicable in this case. For this article to apply the following requisites must concur:
"(1) that he who paid was not under obligation to do so; and, (2) that payment was
made by reason of an essential mistake of fact". It is undisputed that private respondent
delivered the second $10,000.00 remittance. However, petitioner contends that the
doctrine of solution indebiti, does not apply because its requisites are absent.
Petitioner also invokes the equitable principle that when one of two innocent persons
must suffer by the wrongful act of a third person, the loss must be borne by the one
whose negligence was the proximate cause of the loss. The Supreme Court held that
since Article 2154 of the Civil Code which embodies the doctrine of solution
indebiti applies in the case at bar, the court must reject the common law principle that if
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one of two persons must suffer by the wrongful act of a third persons, the loss must be
borne by one whose negligence was the proximate cause of the loss.
SpousesTheisv.CourtofAppeals,268SCRA167
FACTS:
Private respondent Calsons Development Corporation is the owner of 3 adjacent
parcels of land situated along Ligaya Drive, Barangay Francisco, Tagaytay City.
Adjacent to parcel no. 3 is a vacant lot denominated as parcel no. 4.In 1985, private
respondent constructed a two-storey house on parcel no. 3.In a survey conducted in
1985, parcel no. 3 was erroneously indicated to be covered by the TCT of parcel no. 1,
while the parcel no. 1 and parcel no. 2 were mistakenly surveyed to be located on
parcel no. 4 instead. Unaware of the mistake private respondent sold said parcel no. 4
to petitioners.In 1990, petitioners discovered that parcel no. 4 was owned by another
person. They also discovered that the lots actually sold to them were parcel nos. 2 and
3. To remedy the mistake, private respondent offered parcel nos. 1 and 2 as these two
were precisely the lots which private respondent owned and intended to sell. Petitioners
rejected the good faith offer. Private respondent 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
andreconveyance of the properties.
ISSUE:
W/n petitioners are allowed to acquire parcel no. 3
RULING:
Art. 1331 of the New Civil Code provides for the situations whereby mistake may
invalidate consent. It states, “In order that mistake may invalidate consent, it should
refer to the substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into the contract."
Private respondent obviously committed an honest mistake in selling parcel no. 4. As
noted by the CA, it is quite impossible for said private respondent to sell the lot in
question as the same is not owned by it. The good faith of the private respondent is
evident in the fact that when the mistake was discovered, it immediately offered two
other vacant lots to the petitioners or to reimburse them with twice the amount paid.
That petitioners refused either option left the private respondent with no other choice but
to file an action for the annulment of the deed of sale on the ground of mistake.
To allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment.
Considering that petitioners intended at the outset to purchase 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.
• MistakeorErrorofLaw
- GeneralRule: Ignoranceofthelawexcusesno one(3)
- Exception:MutualErrorofLaw(1334)
Error of Law
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o Mistake as to the existence of a legal provision or as to its interpretation or
application
GENERAL RULE: Ignoratia legis non neminem excusat

Ignorance of the law excuses no one from compliance therewith (Art 3,NCC)
EXCEPTION: Mutual error of law (Art 1334)
Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of
the parties is frustrated, may vitiate consent.
Requisites for mutual error of law:

a. Error must be as to the legal effect of an agreement – includes rights and obligations of
the parties, not as stipulated in the contract but as provided by law
b. Must be mutual
c. Real purpose of the parties is frustrated
• Mistakewhenonepartyisunabletoread(1332)
- The obligation to show that the terms of the contract had been fully explained to the
party who is unable to read or understand the language of the contract, when fraud or
mistake is alleged, devolves on the party seeking to enforce it.
Dumasugv.Modelo,34Phil252
FACTS:
Counsel of plaintifffiled a complaint in CFI of Cebu, in which he alleged that defendant
persuaded plaintiff to sign a document by falsely and maliciously making her believe
that it contained an engagement on plaintiff's part to pay defendant a certain sum of
money as expenses occasioned the latter by reason of a lawsuit in which plaintiff was
one of the parties and was protected and aided by defendant; that this document,
plaintiff, who does not know how to write, signed by affixing her mark, believing in good
faith that defendant had told her the truth and that said document referred to the
expenses incurred by defendant; but that three months after the execution of said
document, defendant took possession of a carabao belonging to plaintiff and also of two
parcels of land, likewise belonging to her in Cebu, and notified plaintiff that she had
conveyed to him by absolute sale said parcels of land and the plow carabao; that in
spite of plaintiff's opposition and protests, defendant took possession of said property
and, up to the date of the complaint, continued to hold possession and enjoyed the
products of the lands and of the labor of the carabao; and that, by reason of such acts,
defendant had caused loss and damage to plaintiff. Said counsel therefore prayed the
court to render judgment by declaring null and void and of no value whatever the
alleged contract of purchase and sale of the carabao and the two parcels of land
described in the complaint, and order defendant to restore to plaintiff said work animal
and lands.
ISSUE:
W/n contract is valid
RULING:
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The consent said to have been given by plaintiffin said document is null and void, as it
was given by mistake. This error invalidates the contract, because it goes to the very
substance of the thing which was the subject matter of said contract, for, had the maker
thereof truly understood the contents of said document, she would neither have
accepted nor authenticated it by her mark.The consent given by plaintiff being null and
void, the document is consequently also null, void, and of no value or effect.
Hemedesv.CourtofAppeals,316SCRA347
FACTS:
Jose Hemedes executed a document entitled “Donation Inter Vivos With Resolutory
Conditions” conveying ownership of a parcel of landin favor of his third wife,
JustaKauapin, subject to the resolutory condition that upon the latter’s death or
remarriage, the title to the property donated shall revert to any of the children, or heirs,
of the DONOR expressly designated by the DONEE.Pursuant to said condition,
JustaKausapin executed a “Deed of Conveyance of Unregistered Real Property by
Reversion” conveying to Maxima Hemedes the subject property. Maxima Hemedes and
her husband Raul Rodriguez constituted a real estate mortgage over the subject
property in favor of R & B Insurance to serve as security for a loan which they
obtained.R & B Insurance extrajudicially foreclosed the mortgage since Maxima
Hemedes failed to pay the loan even. The land was sold at a public auction with R & B
Insurance as the highest bidder. A new title was subsequently issued in favor the R&B.
Despite the earlier conveyance of the subject land in favor of Maxima Hemedes,
JustaKausapin executed a “Kasunduan” whereby she transferred the same land to her
stepson Enrique D. Hemedes, pursuant to the resolutory condition in the deed of
donation executed in her favor by her late husband Jose Hemedes.Enriquesthen sold
the property to Dominium Realty and Construction Corporation. Dominium leased the
property to its sister corporation Asia Brewery, Inc. (Asia Brewery) who made
constructions therein. Upon learning of Asia Brewery’s constructions, R & B Insurance
sent it a letter informing the former of its ownership of the property. Maxima Hemedes
also wrote a letter addressed to Asia Brewery asserting that she is the rightful owner of
the subject property and denying the execution of any real estate mortgage in favor of
R&B.
Dominium and Enrique filed a complaint with the CFI for the annulment of TCT issued in
favor of R & B Insurance and/or the reconveyance to Dominium of the subject property
alleging that Dominion was the absolute owner of the land.
ISSUE:
W/n donation in favor of Enrique is valid
RULING:
CA was in error when it sustained the trial court's decision to nullify the "Deed of
Conveyance of Unregistered Real Property by Reversion" for failure of Maxima
Hemedes to comply with article 1332 of the Civil Code. Clearly, Article 1332 assumes
that the consent of the contracting party imputing the mistake or fraud was given,
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although vitiated, and does not cover a situation where there is a complete absence of
consent.
Justa Kausapin disclaims any knowledge of the "Deed of Conveyance of Unregistered

Real Property by Reversion" in favor of Maxima Hemedes. In fact, she asserts that it
was only during the hearing conducted on December 7, 1981 before the trial court that
she first caught a glimpse of the deed of conveyance and thus, she could not have
possibly affixed her thumbmark thereto. It is private respondents' own allegations which
render Article 1332 inapplicable for it is useless to determine whether or not
JustaKausapin was induced to execute said deed of conveyance by means of fraud
employed by Maxima Hemedes, who allegedly took advantage of the fact that the
former could not understand English, when JustaKausapin denies even having seen the
document before the present case was initiated in 1981.
In upholding the deed of conveyance in favor of Maxima Hemedes, Enrique D.

Hemedes and his transferee, Dominium, did not acquire any rights over the subject
property. JustaKausapin sought to transfer to her stepson exactly what she had earlier
transferred to Maxima Hemedes — the ownership of the subject property pursuant to
the first condition stipulated in the deed of donation executed by her husband. Thus, the
donation in favor of Enrique D. Hemedes is null and void for the purported object thereof
did not exist at the time of the transfer, having already been transferred to his sister.
Similarly, the sale of the subject property by Enrique D. Hemedes to Dominium is also a
nullity for the latter cannot acquire more rights than its predecessor-in-interest and is
definitely not an innocent purchaser for value since Enrique D. Hemedes did not present
any certificate of title upon which it relied.
It is a well-settled principle that where innocent third persons rely upon the correctness
of a certificate of title and acquire rights over the property, the court cannot just
disregard such rights. Being an innocent mortgagee for value, R & B Insurance validly
acquired ownership over the property.
Lustanv.CourtofAppeals,266SCRA663
FACTS:
Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known
as Lot 8069 of the Cadastral Survey of Calinog, Iloilo. She leased the property to
Nicolas Parangan for a term of ten (10) years and an annual rent of P1,000.00.
Thereafter, Lustan executed two Special Powers of Attorney petitioner executed a
Special Power of Attorney in favor of Parangan to secure an agricultural loan from
private respondent Philippine National Bank (PNB) with the aforesaid lot as collateral.
These encumbrances were duly annotated on the certificate of title.
Lustan, thereafter, signed a Deed of Pacto de Retro Sale 2 in favor of Parangan which
was superseded by the Deed of Definite Sale which petitioner signed upon Parangan's
representation that the same merely evidences the loans extended by him unto the
former. For fear that her property might be prejudiced by the continued borrowing of
Parangan, petitioner demanded the return of her certificate of title. Instead of complying
with the request, Parangan asserted his rights over the property which allegedly had
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become his by virtue of the aforementioned Deed of Definite Sale. Under said
document, petitioner conveyed the subject property and all the improvements thereon
unto Parangan absolutely for and in consideration of the sum P75,000.00.
Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of
possession and damages against Parangan and PNB in the Regional Trial Court of
Iloilo City. The RTC ruled in favor of Lustan. Upon appeal to the Court of Appeals (CA),
respondent court reversed the trial court's decision.
On appeal before the Supreme Court, Lustan insisted, among others, that the
respondents erred in concluding that the former signed the Deed of Sale with the
knowledge as to the contents thereof. In deciding the case, the Supreme Court pointed
two main issues, among of which is whether or not the Deed of Definite Sale is in reality
an equitable mortgage.
ISSUE:
Whether or not the Deed of Definite Sale, where petitioner purportedly ceded all her
rights to the subject lot in favor of Parangan, embodied the true intention of the parties
therefor?
HELD:
No, the Deed of Definite Sale did not embody the true intention of the parties.
The Supreme Court ruled that the Deed of Definite Sale is in reality an equitable
mortgage as it was shown beyond doubt that the intention of the parties was one of a
loan secured by petitioner's land. Since a 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, such meeting of minds speaks of the intent of the parties in entering into the
contract respecting the subject matter and the consideration thereof. If the words of the
contract appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former.
In the case at bench, the evidence is sufficient to warrant a finding that petitioner and
Parangan merely intended to consolidate the former's indebtedness to the latter in a
single instrument and to secure the same with the subject property. Even when a
document appears on its face to be a sale, the owner of the property may prove that the
contract is really a loan with mortgage by raising as an issue the fact that the document
does not express the true intent of the parties.
The Court further ruled that the contract of sale is presumed to be an equitable
mortgage in any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the performance of
any other obligation (Art. 1602 (6), in relation to Art. 1604). The present case clearly
falls under this category since it can be inferred from the circumstances surrounding the
transaction that the Petitioner had no knowledge that the contract she signed is a deed
of sale. The contents of the same were not read nor explained to her so that she may
intelligibly formulate in her mind the consequences of her conduct and the nature of the
rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition
constrained her to merely rely on Parangan's assurance that the contract only
evidences her indebtedness to the latter. When one of the contracting parties is unable
to read, or if the contract is in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the terms thereof have been
fully explained to the former.
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Consequently, the foregoing squares with the sixth instance ( Art. 1602 (6) ) when a
presumption of equitable mortgage prevails. The contract of definite sale, where
petitioner purportedly ceded all her rights to the subject lot in favor of Parangan, did not
embody the true intention of the parties. The evidence speaks clearly of the nature of
the agreement — it was one executed to secure some loans.
Katipunanv.Katipunan,375SCRA199
FACTS:
Respondent Braulio Katipunan Jr., who reached only grade three, with the assistance of
his brother, Miguel Katipunan, signed a deed of sale written in English covering his five-
door apartment and lot in favor of petitioners Edgardo and Leopoldo Baguma, Jr. for a
consideration of P187,000.00.
Thereafter, the respondent sought to annul the deed on ground of vitiated consent. He
averred that the petitioners convinced him to work abroad and that through insidious
words and machinations, they made him sign a document that he thought was a
contract of employment but turned out to be a deed of sale. At the trial, Dr. Annette
Revilla, resident psychiatrist at the PGH, testified as an expert witness and declared
that respondent has a very low IQ, an illiterate, cannot read, slow in comprehension and
with a mental age of that of a six-year old child. Petitioners did not refute the findings of
the expert witness and the statements made by respondent.
The trial court dismissed the complaint, ruling that respondent failed to prove his causes
of action having admittedly signed the deed. On appeal, the decision was reversed. The
appellate court found that the trial court arbitrarily disregarded the testimony of Dr.
Revilla, a skilled witness, and made an unsupported finding contrary to her opinion. It
ruled that the contract of sale was voidable under the provision of Article 1390 of the
Civil Code.
ISSUE:
Whether or not the consent given by the respondent in favor of the petitioners is vitiated
and therefore the contact is voidable?
HELD:
Yes, the consent given by the respondent in favor of the petitioners is vitiated and
therefore the contract is voidable.
Under Article 1330 of the Civil Code, consent may be vitiated by any of the following: (1)
mistake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud. The presence
of any of these vices renders the contract voidable.
The Supreme Court held that the circumstances surrounding the execution of the
contract manifest a vitiated consent on the part of respondent since undue influence
was exerted upon him by his brother Miguel and Inocencio Valdez (petitioners) and Atty.
Balguma. Also, it was his brother Miguel who negotiated with Atty. Balguma. However,
they did not explain to him the nature and contents of the document. Worse, they
deprived him of a reasonable freedom of choice.
Also, it bears stressing that he reached only grade three, hence it was impossible for
him to understand the contents of the contract written in English and embellished in
legal jargon. Even the trial court, in reinstating the case which it earlier dismissed, took
cognizance of the medical finding of Dr. Revilla that that respondent has a very low IQ,
an illiterate, cannot read, slow in comprehension and with a mental age of that of a six-
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year old child. Thus, his lack of education, coupled with his mental affliction, placed him
not only at a hopelessly disadvantageous position vis-a-vis petitioners to enter into a
contract, but virtually rendered him incapable of giving rational consent. His ignorance
and weakness made him most vulnerable to the deceitful cajoling and intimidation of
petitioners.
Thus, since the consent of respondent is vitiated, the contract entered into by him and
the petitioners is voidable.
Leonardov.CourtofAppeals,438SCRA201
FACTS:
Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina
Paul and Balbino Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, as
well as the late Eduvigis and Dominador, all surnamed Sebastian, are the illegitimate
children of Tomasina with Jose Sebastian after she separated from Balbino Leonardo.
Sometime in 1988, private respondent Corazon Sebastian with her niece and a certain
Bitang, persuade Leonardo to sign a deed of extrajudicial partition of the estate of
Tomasina Paul and Jose Sebastian. Prior signing the deed, Restituta allegedly insisted
that they wait for her husband Jose Ramos so he could translate the document which
was written in English, however she proceeded to sign the document even without her
husband and without reading the document, on the assurance of Corazon that she will
get her share as a legitimate daughter. Leonardo also asked private Corazon and her
companions to wait for her husband so he could read the document but when
Leonardo’s husband arrived, private respondent Corazon and her companions had left
without leaving a copy of the document. It was only when Leonardo hired a lawyer that
they were able to secure a copy and read the contents of the deed.
Leonardo claimed, among others, that her consent was vitiated because she was
deceived into signing the extrajudicial settlement. She further denied having appeared
before Judge Juan Austria of the Municipal Trial Court (MTC) of Urbiztondo,
Pangasinan to acknowledge the execution of the extrajudicial partition.
In a decision the RTC of San Carlos City, Pangasinan rendered a decision 7 dismissing
the complaint as well as the counterclaim. The court a quo ruled that the element of
duress or fraud that vitiates consent was not established and that the proper action was
the reformation of the instrument, not the declaration of nullity of the extrajudicial
settlement of estate. On appeal, the Court of Appeals affirmed the judgment of the trial
court in its decision.
ISSUE:
Whether the consent given by petitioner to the extrajudicial settlement of estate was
given by mistake?
HELD:
No, the consent given by petitioner to the extrajudicial settlement of estate was not
given by mistake.
The Court held that the essence of consent is the agreement of the parties on the terms
of the contract, the acceptance by one of the offer made by the other. It is the
concurrence of the minds of the parties on the object and the cause which constitutes
the contract and the area of agreement must extend to all points that the parties deem
material or there is no consent at all. Thus, to be valid, consent must meet the following
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requisites: (a) it should be intelligent, or with an exact notion of the matter to which it
refers; (b) it should be free and (c) it should be spontaneous. Intelligence in consent is
vitiated by error; freedom by violence, intimidation or undue influence; and spontaneity
by fraud. Mistake, in order to invalidate consent "should refer to the substance of the
thing which is the object of the contract, or to those conditions which have principally
moved one or both parties to enter into the contract."
Under Art.1332 of the Civil Code, states that when one of the parties is unable to read,
or if the contract is in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the terms thereof have been
fully explained to the former. Thus, in case one of the parties to a contract is unable to
read and fraud is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former.
Further, under Art. 1332 there is a presumption of mistake or error in case one of the
parties to a contract is unable to read and fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully explained to the former.
Hence, even as the burden of proof shifts to the defendants to rebut the presumption of
mistake, the plaintiff who alleges such mistake (or fraud) must show that his personal
circumstances warrant the application of Art. 1332.
In this case, the presumption of mistake or error on the part of petitioner was not
sufficiently rebutted by private respondents. Private respondents failed to offer any
evidence to prove that the extrajudicial settlement of estate was explained in a language
known to the petitioner, i.e. the Pangasinan dialect. Clearly, petitioner, who only finished
Grade 3, was not in a position to give her free, voluntary and spontaneous consent
without having the document, which was in English, explained to her in the Pangasinan
dialect.
Therefore, in the light of the circumstances presented by the testimonies of the
witnesses for both parties, the consent of petitioner was invalidated by a substantial
mistake or error, rendering the agreement voidable. The extrajudicial partition between
private respondents and petitioner should therefore be annulled and set aside on the
ground of mistake.
• Inexcusablemistake(1333)
- To invalidate consent, the error must be excusable. It must be real error, and not one that
could have been avoided by the party alleging it.
iii. ViolenceorIntimidation(1335)
- Violence refers to physical force or compulsion, while intimidation refers tomoral
force or compulsion.
Requisites of violence:
1. That the physical force employed must be irresistible, or of such a degree that the
victim has no other course, under the circumstances, but to submit; and
2. That such force is the determining cause in giving the consent to the contract
Requisites of intimidation:
1. That the intimidation must be the determining cause of the contract, or must
have caused the consent to be given;
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2. That the threatened act be unjust or unlawful;

3. That the threat be real and serious, there being an evident disproportion between
the evil and the resistance which all men can offer, leading to the choice of the
contract as the lesser evil; and
4. That it produces a reasonable and well-grounded fear from the fact that the
person from whom it comes has the necessary means or ability to inflict the
threatened injury.
*One who uses illegal means to attain a legal objective, by infusing fear, is guilty of
intimidation.
*The final determination of the seriousness of the evil must be left to the sound
judgment of the court.
*If intimidation was only incidental, the contract is not annullable.
Martinezv.HSBC,15Phil.252
FACTS:
Alejandro S. Macleod, the petitioner’s husband was for many years the managing
partner of Aldecoa & Co. He withdrew from the management when the company went
into liquidation. At the time that the company ceased active business the HSBC was a
creditor of that company. In April, 1907, HSBC began a civil action against Alejandro S.
Macleod, his wife and Aldecoa &Co. In the bank's complaint it was alleged that a
certain undertaking in favor of Aldecoa & Co. had been hypothecated to thebank to
secure the indebtedness of Aldecoa & Co., but that this obligation had been wrongfully
transferred by Alejandro S. Macleod into an obligation in favor of his wife. In May,
1907, Aldecoa & Co. began a civil action against Alejandro S. Macleod and others for
the recovery of certain shares of stock and for damages, basing its right to recover
upon alleged criminal misconduct of Mr. Macleod in his management of
thefirm'saffairs.
In July, 1907, it becoming apparent that criminal proceedings would be instituted

against him, Macleod went from Manila to the Portuguese. Thereafter, Aldecoa & Co.
filed a complaint against Mr. Macleod, charging him with the falsificationof a commercial
document, and a warrant for his arrest was issued. The Government also
issued aformal request for the extradition of the accused, but to no avail. In the
meantime, the attorneys for the respective parties were engaged in negotiations for
the settlement and compromise of the differences then pending and a clearance of Mr.
Macleod from all claims and demands of his creditors. Aldecoa & Co. and the bank,
as a consideration for such settlement, insisted upon the conveyance not only of all the
property of Mr. Macleod but also of at least a portion of the property claimed by his wife,
the petitioner herein. There appears to have been little resistance to this demand on
the part of the representatives of Mr. Macleod, but his wife, firmly objected to the
conveyance required of her, maintaining that the property which she was asked to
transfer was her separate and exclusive property and not liable for the debts of her
husband. Later, a long list of claims against Mr. Macleod, prepared by Aldecoa & Co.,
was exhibited to the petitionerand its contents explained to her by Mr. Fisher, her
counsel. Some of these claims involved criminal as well as civil liability. Mr. Fisher at
that time favored a settlement in accordance with the terms proposed by Aldecoa & Co.
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The petitioner, however, refused to’accept’such’settlement.
The petitioner, for a long time, has been persistent with her refusal to the conveyance of
the properties for the amicable settlement of suits. Later, her counsel, explained that if
she assented to the requirements of Aldecoa & Co. and the bank, the civil suits
against herself and her husband would be dismissed and the criminal charges against
him withdrawn, while if she refused her husband must either spend the rest of his life in
Macao or be criminally prosecuted on the charges already filed and to be filed. And
finally, the petitioner acceded to the terms proposed by the respondents and execute
thecontract of settlement.
However, on December 3, 1907, the petitioner filed her complaint to set aside the
contract on the ground that her consent thereto was given under duress and undue
influence. Judgment was rendered in favor of respondents. From this judgment,
petitioner appealed to the Supreme Court.
ISSUE:
Whether or not the disputed contract should be annulled on the ground that the consent
was given under duress
RULING:
NO. The petitioner executed the contract in suit of her own free will and choice and not
from duress.
The Supreme Court held that, in order that this contract is annulled it must be shown
that the petitioner never gave her consent to the execution thereof. If a competent
person has once assented to a contract freely and fairly, he is bound.
However, it is necessary to distinguish between real duress and the motive, which is
present when one gives his consent reluctantly. A contract whereby reparation is made
by one party for injuries which he has willfully inflicted upon another is one which from
its inherent nature is entered into reluctantly and against the strong desires of the party
making the reparation. He is confronted with a situation in which he finds the necessity
either of making: reparation or of taking the consequences, civil or criminal, of his
unlawful acts. He makes the contract of reparation with extreme reluctance and only by
the compelling force of the punishment threatened. Nevertheless, such contract is
binding and enforceable.
In this case, the petitioner was reluctant to relinquish certain rights which she claimed
to have in certain property to the end that she might be relieved from litigation then
pending against her and that her husband might escape prosecution for crimes alleged
to have been committed; and that she persisted for a considerable time in her refusal to
relinquish such claimed rights. The fact that she did relinquish them upon such
consideration and under such condition does not of itself constitute duress or
intimidation, nor does it destroy the obligatory effect and force of her consent. In order
to do so something more isneeded. She must have acted from fear and not from
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judgment.
Under the advice of her counsel, the situation was so presented to her that it was
evident that in signing the agreement she had all to gain and nothing to lose, whereas,
in refusing to sign said agreement, she had all to lose and nothing to gain. In the one
case she would lose her property and save her husband. In the other, she would lose
her property and her husband too. The argument thus presented to her by her
attorneys addressed itself to judgment and not to fear. It appealed to reason and not to
passion. It asked her to be moved by common sense and not by love of family.
The questionis notdid shemake a mistake, but did she consent; nor was
she wronglyadvised, but was she coerced; nor was she wise, but was she duressed.
Leev.CourtofAppeals,201SCRA405
FACTS:
On June 20, 1984, private respondent Paulino de Chin, 23 years old, 5-month pregnant
was fetched from her house by a bank employee, upon the instruction of the petitioner
Branch Manager Francis Lee of Pacific Banking Corporation. Upon arriving at the
bank’s office,Lee did not attend to her immediately. After an hour later, the petitioner
confronted the private respondent about a forged Check. During the said confrontation,
the petitioner was shouting at her with piercing looks and threatened to file charges
against her unless and until she returned all the money equivalent of the subject check.
Accordingly, the private respondent was caused to sign a prepared withdrawal slip, and
later, an affidavit prepared by the bank's lawyer, where she was made to admit that she
had swindled the bank and had return the money equivalent of the spurious check.
During her stay at the said bank, she was watched by the bank's employees and
security guards. It was about six o'clock in the afternoon of the same day when the she
was able to leave the bank premises. And for this, the private respondent filed a
complaint against the petitioner.
The petitioner denied the charges, he averred that the private respondent was not
compelled into signing the withdrawal slip, but she acted freely and voluntarily in
executing her affidavit and in returning the money equivalent of the subject check.
ISSUE:
Whether or not the acts of petitioner in shouting at the private respondent with piercing
looksand threats to file charges against her constitutes intimidation
RULING:
No. There is nothing unlawful on the threat to sue.
The applicable provision will be of Article 1335 of the Civil Code that provides:
“There is intimidation when one of the contracting parties is compelled by a reasonable
and well-grounded fear of an imminent and grave evil upon his person or property or
upon the person or property of his spouse, descendants or ascendants, to give his
consent.
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To determine the degree of the intimidation, the age, sex and condition of the person
shall be borne in mind. A threat to enforce one’s claim through competent authority, if
the claim is just or legal, does not vitiate consent.”
Petitioner's demand that the private respondent returns the proceeds of the check
accompanied by a threat to file criminal charges was not improper. There is nothing
unlawful on the threat to sue. In the case of Berg v. National City Bank of New York, the
Supreme Court ruled that it is a practice followed not only by banks but even by
individuals to demand payment of their accounts with the threat that upon failure to do
so an action would be instituted in court. Such a threat is proper within the realm of the
law as a means to enforce collection. Such a threat cannot constitute duress even if the
claim proves to be unfounded so long as the creditor believes that it was his right to do
so.
Further, the SC ruled that it is clear that one acts as voluntarily and independently in the
eye of the law when he acts reluctantly and with hesitation as when he acts
spontaneously and joyously. Legally speaking he acts as voluntarily and freely when he
acts wholly against his better sense and judgment as when he acts in conformity with
them. Between the two acts there is no difference in law. But when his sense, judgment,
and his will rebel and he refuses absolutely to act as requested, but is nevertheless
overcome by force or intimidation to such an extent that he becomes a mere automaton
and acts mechanically only, a new element enters, namely, a disappearance of the
personality of the actor. He ceases to exist as an independent entity with faculties and
judgment, and in his place is substituted another -- the one exercising the force or
making use of the intimidation. While his hand signs, the will which moves it is
another's. While a contract is made, it has, in reality and in law, only one party to it; and,
there being only one party, the one using the force or the intimidation, it is
unenforceable for lack of a second party.If it is within the first class it is not duress in
law, if it falls in the second, it is."
The circumstances of this case reveal that the private respondent, despite her
protestations, indeed voluntarily, albeit reluctantly, consented to do all the acts she
executed.
And the most telling proof of the absence of intimidation was the fact that the
complainant refused to sign the promissory note in spite of the alleged threats of the
petitioner. Accordingly, petition is hereby granted.
iv. UndueInfluence(1337)
When undue influence vitiates consent

Under Article 1337, there is undue influence when a person takes improper advantage
of his power the will of another, depriving the latter of a reasonable freedom of choice.
For it to be present, the influence exerted must have so overpowered or subjugated the
mind of a contracting party as to destroy his free agency, making him express the will of
another than his own.
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Factors to be considered in determining the existence of undue influence:

1) Confidential, family, spiritual and other relations of the parties;
2) Mental weakness;
3) Ignorance; or
4) Financial distress of the person alleged to have been unduly influenced.
v. FraudorDolo(1338)
Under Article 1338, fraud exists when, through machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not
have agreed to. The fraud here is active fraud.
• Dolocausante(1338) v. Doloincidente(1344[2])
Dolo causante or causal fraud refers to those deceptions or misrepresentations of a

serious character employed by one party and without which the other party would not
have entered into the contract.
Dolo incidente or incidental fraud refers to those deceptions or misrepresentations
which are not serious in character and without which the other party would still have
entered into the contract.
The two may be distinguished from each other as follows:
1) The first refers to a fraud which is serious in character, while the second is not
serious.
2) The first is the cause which induces the party upon whom it is employed in
entering into the contract, while the second is not the cause.
3) The effect of the first is to render the contract voidable, while the effect of the
second is to render the party who employed it liable for damages.
Hillv.Veloso,31Phil.161
FACTS:
On December 30, 1910 Veloso, the herein respondent and Domingo Franco, her son-in-
law allegedly executed and signed a promissory note for value of the goods they have
received in La Cooperativa Filipino, owned by the respondent and promised to pay
jointly and severally to Michael & Co. the sum P6,319.33. This promissory note was
indorsed to L. L. Hill, the herein petitioner on January 12, 1911. Later, Hill brought the
present suit to recover the sum of money against the respondent. In answer to the
complaint, the respondent alleged as a special defense that on July 24, 1915 she was
tricked by her son-in-law Franco into signing a blank document, unknowingly binding
her to a debt to Michael & Co. According to her, she was made to sign as an
acknowledgement of anobligation to pay for the guardianship of the minor children of
Potenciano Veloso (her brother). And that she learned of the true nature of the
documentonly after Franco’s death. But, clearly her signatures on the promissory note
were obtained by means of fraud.
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The lower court rendered judgment absolving the respondent from the complaint,
sustainingthe special defense that the signatures on the promissory note were obtained
by means of the fraud. From this, the petitioner appealed.
ISSUE:
Whether or not there was deceit in the execution of the Promissory Note that could
annul the consent of the respondent
RULING:
No. Deceit and error alleged could not annul the consent of Veloso. The Supreme
Court held that even granted that there was deceit in executing the Promissory Note to
Michael & Co., still the deceit and error alleged could not annul the consent of Veloso
nor exempt her from the obligation incurred. The deceit, in order that it may annul the
consent, must be that which the law defines as a cause. 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.”
Franco was not one of the contracting parties who may have deceitfully induced the
other contracting party, Michael &Co.,to execute the contract. The one and the other of
the contracting parties, to whom the law refers, are the active and passive subjects of
the obligation, the party of the first part and the party of the second part who execute
the contract. The active subject and the party of the first part of the Promissory Note in
question was Michael & Co., and the passive subject and party of the second part were
Veloso and Franco.
Veloso and Franco, therefore, composed a single contracting party in contractual

relation with or against Franco, like any other person who might have induced Veloso
into signing the Promissory Note under the influence of deceit, would be but a third
person. Under the Civil Code, deceit by a third person does not in general annul
consent. This deceit may give rise to more or less extensive and serious responsibility
on the part of the third person and a corresponding right of action for the contracting
party prejudiced. Petition is hereby granted.
Woodhousev.Halili,supra.
FACTS:
Plaintiff Woodhouse and defendant Halili entered to a written agreement. Under this
agreement, they will going to organize a partnership for bottling and distribution of
Mission Soft drinks in the Philippines, wherein Woodhouse would act as the industrial
partner or manager while, the defendant will be the capitalist.
Prior to their agreement, Plaintiff Woodhouse informed the Mission Dry Corporation of
Los Angeles, California, U. S. A that there was a prominent financier who is interested to
invest to the bottling and distribution of the said beverages, he also requested in order that
he may close the deal with him, that the right to bottle and distribute be granted to him
for a limited time under the condition that it will finally be transferred to the corporation.
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The request was granted by given him thirty days to close the deal and on the year 1947
the agreement was signed.
When the bottling plant was already operating, Woodhouse requested the defendant to
execute the partnership papers. Defendant, however refused to do so as well as giving the
plaintiff allowances.
In view of which, a complaint was filed against the defendant.
In the complaint, plaintiff ask for the execution of the partnership papers, an accounting
of the profits, and a share thereof of 30 per cent, as well as damages in the amount of
P200,000. While, defendant allege that his consent to the agreement was secured by the
representation of plaintiff that he was the owner, or was about to become owner of an
exclusive bottling franchise, which representation was false, and that plaintiff did not
secure the franchise, but was given to defendant himself; that defendant did not fail to
carry out his undertakings, but that it was plaintiff who failed; and that plaintiff agreed to
contribute the exclusive franchise to the partnership, but plaintiff failed to do so
Trial court ruled in favor of the plaintiff saying that it is improbable for the defendant to
have not seen the contract, granting plaintiff the option; that defendant would not have
gone to the United States without knowing what authority plaintiff had; that the drafts of
the contract prior to the final one cannot be considered for the purpose of determining the
issue, as they are presumed to have been already integrated into the final agreement; that
fraud is never presumed and must be proved.
On appeal defendant contends that as appellant, insists that plaintiff did represent to the
defendant that he had an exclusive franchise, when as a matter of fact, at the time of its
execution, he no longer had it as the same had expired, and that, therefore, the consent of
the defendant to the contract was vitiated by fraud and it is, consequently, null and void.
ISSUE:
Whether defendant had falsely represented that he had an exclusive franchise to bottle
Mission beverages.
Whether this false representation or fraud, if it existed, annuls the agreement to form the
partnership.
RULING:
First Issue: Yes. The defendant falsely represented that he has an exclusive franchise to
bottle Mission beverages.
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At the time of the preliminary conversation of the parties, the defendant told that the
plaintiff that he must come back to him once he has the authority to operate. When he
called again, the plaintiff told the defendant that he has already the authority however, he
did not disclose the fact that he had only an option to the exclusive franchise, which was
to last thirty days only, and still more improbable for him to have disclosed that, at the
time of the signing of the formal agreement, his option had already expired. Had he
done so, he would have destroyed all his bargaining power and authority, and in all
probability lost the deal itself.
The assurance made by the plaintiff that defendant could get the franchise confirm the
conclusion that defendant believed, or was made to believe, the plaintiff was the grantee
of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to
be transferred to the name of the partnership, and that, upon its dissolution or termination,
the same shall be reassigned to the plaintiff. These were shown on the draft made by the
defendant’s attorney. And also, defendant would not have gone to California unless he
believed that plaintiff did have that exclusive privilege, and that the latter would be able
to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant
believed about his (plaintiff's) exclusive franchise, as he induced him to that belief, and
he may not be allowed to deny that defendant was induced by that belief.
Second Issue:
No. The Supreme Court held in the case of Hill v Veloso, Spanish Civil Code that in
order for the fraud to vitiate, it must be causal (dolo causante) and not merely incidental
(dolo incidente). In the case at bar, the principal cause that induced defendant to enter
into the partnership agreement with plaintiff, was the ability of plaintiff to get the
exclusive franchise to bottle and distribute for the defendant or for the partnership, the
false representation made by the plaintiff was not the casual consideration, or the
principal inducement, that led the defendant to enter in the partnership agreement.
This supposed ownership of an exclusive franchise was actually the consideration or

price plaintiff gave in exchange for the share of 30 per cent granted him in the net profits
of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the
net profits because he was transferring his exclusive franchise to the partnership.
With this, it may be seen that the contract cannot be declared null and void, or may the
agreement be carried out or executed. The SC finds no merit in the claim of plaintiff that
the partnership was already a fait accompli from the time of the operation of the plant,
as it is evident from the very language of the agreement that the parties intended that
the execution of the agreement to form a partnership was to be carried out at a later
date. The defendant may not be compelled against his will to carry out the agreement
nor execute the partnership papers. The law recognizes the individual’s freedom or
liberty to do an act he has promised to do, or not to do it, as he pleases.
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Geraldezv.CourtofAppeals,230SCRA320
FACTS:
An action for damages by reason of contractual breach was filed by petitioner Lydia L.
Geraldez against private respondent Kenstar Travel Corporation. That on October
11989, Petitioner came to know about private respondent from numerous
advertisements in newspapers of general circulatios regarding tours in Europe. She
then contacted private respondent by phone and the latter sent its representative,
Alberto Vito Cruz, for the tour and later discussed its highlights. The petitioner chose the
classification denominated as "VOLARE 3" covering a 22-day tour of Europe for she
paid the total equivalent amount of P190,000.00 for her and her sister.
Petitioner claimed that, during the tour, she was very uneasy and disappointed when it
turned out that, contrary to what was stated in the brochure, there was no European
tour manager for their group of tourists, the hotels in which she and the group were
billeted were not first-class, the UGC Leather Factory which was specifically added as a
highlight of the tour was not visited, and the Filipino lady tour guide by private
respondent was a first timer, that is, she was performing her duties and responsibilities
as such for the first time.
The trial rendered judgment in favor of the petitioner however, CA ruled on the contrary
saying that that private respondent did commit fraudulent misrepresentations amounting
to bad faith, to the prejudice of petitioner and the members of the tour group.
Hence, this petition.
ISSUE: Whether or not private respondent did commit fraudulent misrepresentations

amounting to bad faith.
RULING:
Yes. Private respondent did commit fraudulent misrepresentations amounting to bad
faith. The Kenstar Travel Corporation provided Volare tourist group, in which Geraldez
was a member, first, with an inexperience and first timer tour guide. The Kenstar Travel
Corporation treated their clients indifferently from their slogan “Let your heart sing”. It
is the responsibility of Kenstar to provide trainings for their employees to be an
“experienced” tour guides. Private respondent should have selected an experienced
European tour guide, or it could have allowed Zapanta to go merely as an understudy
under the guidance, control and supervision of an experienced and competent European
or Filipino tour guide, who could give her the desired training.
Second, the inability of the group to visit the leather factory is likewise reflective of the
neglect and ineptness of Zapanta in attentively following the itinerary of the day. It must
be noted, however, that the visit to the UGC Leather Factory was one of the highlights of
the Volare 3 program which even had to be specifically inserted in the itinerary, hence it
was incumbent upon the organizers of the tour to take special efforts to ensure the same.
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Third, is that when they also misrepresented that there will be European tour manager
however, there was none. No one could possibly accompany the members of the tour
group to places in Europe; neither can it answer questions from the tourist during the
tour.
And lastly, private respondent likewise committed a grave misrepresentation when it

assured in its Volare 3 tour package that the hotels it had chosen would provide the
tourists complete amenities and were conveniently located along the way for the daily
itineraries. It turned out that some of the hotels were not sufficiently equipped with even
the basic facilities and were at a distance from the cities covered by the projected tour.
Petitioner testified on her disgust with the conditions and locations of the hotels
Showing the above circumstances, the corporation clearly fraudulently misrepresented.

Those written in their brochure were indifferent from what the clients have experienced.
Sierrav.CourtofAppeals,211SCRA785
FACTS:
On November 1984 Armando Sierra filed a complaint against Epifania, Sol, and Ele
Ebarle in the RTC. He sought to recover of a sum of money he lent to the said
respondents under a promissory note for P85,000.
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PROMISSORY NOTE
For value received, WE, EPIFANIA EBARLE, SOL EBARLE, & ELE
EBARLE, hereby promise to pay Mr. Armando V. Sierra, his heirs and
assigns, the sum of EIGHTY FIVE THOUSAND PESOS ONLY (P85,000.00)
Philippine Currency, on or before October 8, 1984 at his residence in
Dumaguete City.
In case of default, I will shoulder all expenses incurred in the collection and
attorney's fees of P1,000.00 plus an interest of 12% per annum.
(Sgd.)EPIFANIA EBARLE
(Sgd.) SOL EBARLE
(Sgd.) ELE EBARLE.
September 8, 1984
Dumaguete City.
WITNESSES:
1. (Illegible) 2. _______________________.
SUBSCRIBED AND SWORN TO BEFORE ME this 8th day of September

1984 at the
City of Dumaguete.
(Sgd.) FRANCISCO B. ZERNA, JR.
Respondents denied under oath the genuineness of the promissory note. They alleged
that the note was executed "under duress, fear and undue influence." They claimed that
they had been tricked into signing the note for Php85,000 (and another note for
Php54,550, but not the subject of this suit) for what they owed was only for Php
20,000.00.
The petitioner testified that he had lent the private respondents who the owners and
operators of an hacienda the sum of P85,000 which they said they needed "to pay some
cattle for fattening to be inspected by the inspector of the Land Bank that day" in
connection with their application for a loan of P400,000 from the said bank to finance
their logging and cattle business. The application however, was not approved. He made
several demands for the payment of the said note but it was ignored by the
respondents.
Private respondents claimed that they were asked by the petitioner to sign two
promissory notes, one for P85,000 and another for P54,550, in consideration of Epifania
Ebarle's outstanding debt of P20,000 to him. They initially objected because of the
amounts indicated in the said notes. They eventually agreed, however, on the
petitioner's assurance that the documents were a mere formality that he had to show his
business partner, who was demanding immediate payment of the said loan.
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The petitioner also said that if a complaint was filed against them for recovery under the
notes, what they should do was not answer so that they would be declared in default. A
new agreement would then be concluded for the correct amount of Epifania Ebarle's
loan and with easier terms of payment.
The trial court rendered a decision holding that the promissory note for P85,000 was
invalid and that the private respondents were liable to the petitioner only for the loan of
P20,000.
The CA affirmed the RTC decision.
Hence this appeal.
ISSUE: Whether there was fraud in the said promissory note
HELD:
Article 1334 and 1338 of the New Civil Code provides:
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and
should not have been employed by both contracting parties.
In the case at bar, the respondents are not unlettered peasants and unfamiliar with
business and legal matters. They are educated persons with not a little experience in
business affairs and possibly even legal transactions. There is no question that these
three professionals fully understood the import and consequences of what they were
doing when they signed the two promissory notes. The notes were written in plain
English and consisted of only two short paragraphs. There was no fine print to conceal
hidden meanings. Each was a simple promise to pay to the petitioner, for value
received, with 12% interest, in case of default. The private respondents say they had
misgivings about signing the notes but they signed them just the same upon the
petitioner's prodding. Therefore, there was no fraud constituted by the petitioner.
For the fraud to be established, to quote Tolentino, the "misrepresentation constituting
the fraud must be established by full, clear, and convincing evidence, and not merely by
a preponderance thereof. The deceit must be serious. The fraud is serious when it is
sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity. The circumstances of each
case should be considered, taking into account the personal conditions of the victim."
• FailuretoDiscloseFactswhenthereisadutytorevealthem(1339)
Article 1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud.
General Rule:
Silence or concealment, by itself, does not constitute fraud, unless there is a special
duty to disclose certain facts.
Fraud by concealment:
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 A neglect or failure to communicate that which a party to a contract knows and

ought to communicate constitutes concealment. By reason of which omission or
concealment the other party was induced to give a consent which he would not
otherwise have given.
 The injured party is entitled to rescind or annul the contract whether the failure to
disclose the material facts is intentional or unintentional as long as there is a
duty to reveal them and the party is misled or deceived in entering into the
contract.
 If the failure is unintentional, the basis of the action for annulment is not fraud but
mistake or error (Art. 1343.); even if intentional but there is no duty to make the
disclosure, the parties are bound by their contract.
Tuasonv.Marquez,45Phil381
Facts:
On March 5, 1921, Marquez, the owner of the electric light plan of Lucena
Tayabas, offered Tuason to purchase the plant for P14,400 and Tuason took advantage
of it. They agreed that Tuason has to pay P14,400; P2,400 within sixty days, and the
remaining P12,000, within a year. The first installment was paid within sixty days but the
he wasn’t able to pay the remaining P12,000. Tuazon managed the Consolidated
Electric Company from March 20, 1921, to July 19, 1922.
On July 19, 1922, the property was sold to Gregorio Marquez, brother of Crisanto
Marquez, who paid P5,501.57 for the property. From 1913 or 1914, a franchise for
thirty-five years was granted the Lucena Electric Company. The rights of this company
passed to Crisanto Marquez at a sheriff's sale on September 10, 1919. Marquez
became disgusted with the business. On February 28, 1921 prior to the accomplishment
of the contract, he announced to the Public Utility Commissioner his intention to give up
the franchise. On March 29, 1921, subsequent to the accomplishment of the contract,
the Public Utility Commissioner took action and declared all the franchise acquired by
Crisanto Marquez from Lucena Electric Light, Ice and Water company, cancelled.
Tuason and his outfit were permitted to operate the company pursuant to a
special license until they obtained a new franchise. Public Utility Commissioner granted
it with certain conditions amounted to renovation of the entire plant.
Tuason decided to file a complaint against Crisanto Marquez for the rescission of
the contract. CFI ruled in favor of Marquez..
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Issue: Whether or not the contract should be rescinded due to misinterpretation and
fraud
Ruling:
No, the contract of the electric light company renewed a previous inventory of the
property. Hence, it was not the determining cause of the purchase. The franchise was
then in force and either party could easily have ascertained its status by applying at the
office of the Public Utility Commissioner. The innocent non-disclosure of a fact does not
affect the formation of the contract or operate to discharge the parties from their
agreement.
"Estoppel by laches," applies in this case. Inexcusable delay in asserting a right

and acquiescence in existing conditions are a bar to legal action. The plaintiff operated
the electric light plant for sixteen months without any question; he made the first
payment on the contract without protest; he bestirred himself to secure what damages
he could from the defendant only after the venture had proved disastrous and only after
the property had passed into the hands of a third party. There is no proof of fraud on the
part of the defendant and find the plaintiff in estopped to press his action.
RuralBankofSta.Mariav.CA,314SCRA255
Facts:
A 49,969 square meter parcel of land registered in the name of Manuel Behis
and his wife Cristina. Manuel Behis mortgaged the land in favor of the Bank in a Real
Estate Mortgage as security for loans. Behis was delinquent in paying his debts.
On January 9, 1985, Manuel Behis sold the land to Rayandayan and Arceno
(Plaintiff) in a Deed of Absolute Sale with Assumption of Mortgage for the sum of
P250,000.00 which bears the signature of his wife Cristina Behis. On the same date
Rayandayan, Arceno and Manuel entered into another agreement which contain the
real consideration of the sale of the land in the sum of P2,400,000.00 payable in
installments with P10,000.00 paid upon signing and in case of default in the
installments. Manuel Behis shall have legal recourse to the portions of the land
equivalent to the unpaid balance of the amounts in installments.
The title remained in the name of Manuel Behis, pursuant to their two contracts
plaintiffs were able to pay him 227,153.75 until he died on June 21, 1985. Thereafter,
Rayandayan and Arceño negotiated with the principal stockholder of the bank, Engr.
Natividad for the assumption of the indebtedness of Behis and the subsequent release
of the mortgage on the property by the bank. Rayandayan and Arceño did not show to
the bank the Agreement with Behis providing for the real consideration of
P2,400,000.00 for the sale of the property to the former. The bank consented to the
substitution of plaintiffs as mortgage debtors in place of Manuel in a Memorandum of
Agreement with restructured and liberalized terms for the payment of the mortgage
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debt. Instead of immediate foreclosing of the bank for non-payment of the delinquent
account, the bank agreed to received only a partial payment of P143,000.00 by
installment on specified dates. After payment, the bank agreed to release the mortgage
of Manuel Behis, give its consent to the transfer of title to the private respondents and to
the payment of the balance of P200,000.00 under new terms with a new mortgage to be
executed by the private respondents over the same land. The Bank failed to comply
with its obligation under the Memorandum of Agreement.
On September 5, 1986 Rayandayan and Arceno filed an action against the Rural
Bank of Sta. Maria, Pangasinan for declaration of Nullity of Assignment of Mortgage and
Damages. The court declared the deed of sale valid until annulled or cancelled and
declaring the MOA annulled due to the fraud. Plaintiffs filed a motion for reconsideration
but was denied.CA affirmed the validity of the Memorandum of Agreement between
parties; reversed and set aside the finding of the trial court on the bad faith of
Rayandayan and Arceño in concealing the real purchase price of the land sold to them
by Manuel Behis during negotiations with the bank on the assumption of the mortgage
debt.
Issue: Whether or not the Rayandayan and Arceno’s concealment of information from
the Bank would render their Memorandum of Agreement (MOA) voidable on the ground
that its consent to enter the agreement was vitiated by fraud.
Ruling:
No, concealment of information from the bank is not a determining clause to give
consent to the private respondents.
Fraud must be the determining cause of the contract, or must have caused the
consent to be given. The non-disclosure of the purchase price of sale of the land
between private respondents and Manuel Behis is not "fraud. The consideration of the
purchase of land between Manuel Behis and Rayandayan and Arceño could not be the
determining cause for the petitioner bank to enter the memorandum of agreement, the
bank entered into the agreement in order to effect payment on the indebtedness of
Manuel Behis.
In this case, the consideration for the sale with assumption of mortgage was not
the inducement to defendant bank to give the consent to the private respondents.
According to Article 1339 of the 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. Rayandayan and Arceño had no duty, and did not act in bad faith, in failing to
disclose the real consideration of the sale between them and Manuel Behis.
The bank had other means and opportunity of verifying the financial capacity of
private respondents and cannot avoid the contract on the ground of the non-disclosure
of the purchase price. The bank security remained unimpaired regardless of the
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consideration of the sale. Under the terms of the Memorandum of Agreement, the
property remains as security for the payment of the indebtedness, in case of default of
payment. The bank has not shown that it was induced to enter into the agreement by
the non-disclosure of the purchase price, and that the same resulted in damages to the
bank.
• Usualexaggerationsintrade:opportunitytoknowthefacts(1340)
Article 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
Usual exaggerations in trade:

 It is the natural tendency for merchants and traders to resort to exaggerations
in their attempt to make a sale at the highest price possible. When the person
dealing with them had an opportunity to know the facts, the usual
exaggerations in trade are not in themselves fraudulent.
Tolerated Fraud:
 Which includes minimizing the defects of the thing, exaggeration of its good
qualities, and giving it qualities that is does not have. This is lawful
misrepresentation, known as dolus bonus.
 They are tolerated, and do not affect the validity of the contract, so long as they
do not go to the extent of malice or bad faith, such as changing the appearance
of the thing by false devices, and of preventing all verification or discovery of
the truth by the other party.
Azarragav.Gay,52Phil.599
Facts:
On January 17, 1921, plaintiff sold two parcels of lands to the defendant for
P47,000, payable in installment basis P5,000 at the time of signing the contract;
P20,000 upon delivery to the purchaser of the Torrens title to the first parcel described
in the deed of sale, P10,000 upon delivery to the purchaser of Torrens title to the
second parcel; and lastly the sum of P12,000 one year after the delivery of the Torrens
title to the second parcel.
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The vendee paid P5,000 to the vendor when the contract was signed. The
vendor delivered the Torrens title to the first parcel to the vendee who paid him
P20,000. On March 1921, Torrens title to the second parcel was issued and forthwith
delivered by the vendor to the vendee who, however, failed to pay the P10,000 as
agreed, neither did she pay the remaining P12,000 one year after having received the
Torrens title to the second parcel. The plaintiff claims the sum of P22,000, with legal
interest from the month of April 1921 on the sum of P10,000, and from April 1922 on the
sum of P12,000, until full payment of the amounts claimed.
The defendant admits that she purchased the two parcels of land but alleges that
the plaintiff knowing that the second parcels of land he sold had an area of 60 hectares,
by misrepresentation lead the defendant to believe that said second parcel contained 98
hectares, and thus made it appear in the deed of sale and induced the vendee to bind
herself to pay the price of P47,000 for the two parcels of land, which he represented
contained an area of no less than 200 hectares, to which price the defendant would not
have bound herself had she known that the real area of the second parcel was 60
hectares, and, consequently, she is entitled to a reduction in the price of the two parcels
in proportion to the area lacking, that is, that the price be reduced to P38,000; that the
defendant, in addition to the amounts acknowledged by the plaintiff, had paid other
sums amounting to P4,000; and that the defendants never refused to pay the justly
reduced price, but the plaintiff refused to receive the just amount of the debt.
The defendant filed a cross complaint. Court ruled in favor of the plaintiff and
dismissed the cross complaint of the defendant.
Issue: Whether or not there was fraud in the agreement to induce the defendant to
enter into a contract with the plaintiff.
Ruling:
No, the plaintiff did not deceive the defendant in their agreement upon the sale of
the two parcels of land. Before the execution of the contract, the defendant went to the
plaintiff's land and calculate the area of the two parcels. The plaintiff delivered the deed
to the defendant covering the two parcels. It states that the area of the second parcel is
about 70 hectares. The defendant entrusted the drawing of the deed of sale to her
lawyer and notary, Hontiveros in the presumption that both of them who illustrated the
parcel had read the contents of the document. Gay stated that upon signing the contract
he did not pay any attention to the area of the second parcel, believing that in the
drawing of the document the data concerning the area of the land had been taken from
the parcel.
There is no evidence of record that the plaintiff made false representation of the
area of the second parcel, and even if he did, the defendant accepted such
representations at her own risk and she is the only one responsible for the
consequences of her inexcusable credulousness.
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The defendant knew that the area of the second parcel was only about 70
hectares as shown in the document she received before the execution of the contract
on September 30, 1920; which is the notification of the day for the trial of the application
for registration of the two parcel, it had an area of 60 hectares more or less. She
received the copy of the plans of two parcels, where it states its respective areas; and
yet, she did not complain in the difference of the area of second parcel until the year
1926. The record contains several letters of the defendant in the years 1921 to 1925, in
which she acknowledged her debt, and confining herself to petitioning for extension of
time within which to make payment for the reasons given therein. But none of these
letters state lacking of area, she did not even complain to the plaintiff of the supposed
deceit to which she believes she is a victim. It shows that there is no deceit in the
agreement.
Trinidadv.IntermediateAppellateCourt,204SCRA524
FACTS:
Sometime in early 1969, petitioner approached Francisco and offered to buy his
property. Francisco was willing to pay.
Petitioner inspected the house and lot and examined a vicinity map which indicated
drainage canals along the property. The purchase price was P700K with down payment
of P11.5K. The remaining balance is payable in five equal annual instalments not later
than July 1 of each year at 12% interest per annum.
Petitioner paid Francisco the agreed down payment and executed the Contract of
Conditional Sale thereafter.
Petitioner paid the 1970 and 1971 instalment however, decided not to continue paying
because the house was flooded several instance, the water rising as high as five feet.
Upon her return from US, she wrote the City Engineer’s office of QC and requested an
inspection of the subject premises to determine the cause of flooding. The finding of
said office was “the lot is low and is a narrowed portion of the creek”.
Petitioner filed her complaint against Francisco alleging that she was induced to enter
into the contract of sale because of his misrepresentation. She asked the agreement be
annulled and her payments refunded.
RTC favoured the petitioner. However, upon appeal, this was reversed by appellant
court, hence this petition.
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ISSUE:
Whether or not, under the established facts, there was misrepresentation on the part of
Francis to justify the rescission of the sale and the award damages to the petitioner.
RULING:
No. The pertinent provisions of the Civil Code on fraud are the following:
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the
parties are bound by confidential relations, constitutes fraud.
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent.
In the case above, Petitioner admitted that she was the one who approached Francisco,
who never advertised the property nor offered it for sale to her. That petitioner had full
opportunity to inspect the premises before she entered into the contact of condition.
Jurisprudence says that one who contracts for the purchase of real estate in reliance on
the representation and statements of the vendor as to its character and value, but after
he has visited and examined it for himself and has had the means and opportunity of
verifying such statements, cannot avoid the contract on the ground that they were false
and exaggerated. Lastly, the petitioner is an experienced buyer being a licensed real
estate broker.
• Mereexpressionofopinion(1341);Effects(1344)
Article 1341. A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the former’s special
knowledge.
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General Rule:
Mere expression of opinion does not constitute fraud.
Expression of opinion:
 To constitute fraud, the misrepresentation must refer to facts, not opinions.
 In order that it may amount to fraud, the following requisites must be present:
1. It must be made by an expert;

2. The other contracting party has relied on the expert’s opinion; and
3. The opinion turned out to be false or erroneous.
Songcov.Sellner,37Phil.254
FACTS:
Both defendant and the plaintiff are owners’ of sugar cane farms which are contiguous
to each other’s land, ready to be cut. Defendant bought the plaintiff’s sugar cane
harvest for an estimated 3,000 piculs of the sugar for P12,000 and executed three
promissory notes of P4,000 each. Two of these notes were paid; and the present action
was instituted to recover upon the third. From a judgement rendered in favor of the
plaintiff, the defendant has appealed.
The defendant denied all the allegations of the complaint and alleged that the
promissory note was obtained from him by means of certain false and fraudulent
representations.
Defendant contended that plaintiff estimated that this cane would produce 3,000 piculs
of sugar and that the he bought the crop believing this estimate to be substantially
correct. As the crop turned out it produced 2,017 piculs, gross, and after the toll for
milling was deducted, the net left to the defendant was very much less. Defendant
requested plaintiff to guarantee the quantity which the latter claimed to be in fields but
he would not do so. He, however, repeated that he was sure the fields contained the
quantity estimated by him
ISSUE
Whether or not the plaintiff was guilty of fraudulent representation of his cane.
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RULING
No. It has been a well settled rule and jurisprudence says that misinterpretation upon a
mere matter of opinion is not an actionable deceit, nor is it a sufficient ground for
avoiding a contract as fraudulent.
The law allows considerable latitude to seller’s statements, or dealer’s talk; and
experience teaches that it is exceedingly risky to accept it at its face value. The refusal
of the seller to warrant his estimate should have cautioned the purchaser that the
estimate was put forth as a mere opinion; and we will not now hold the seller to a liability
equal to that which would have been created by a warranty, if one had been given.
Assertions concerning the property which is the subject of a contract of sale, or in

regard to its qualities and characteristics, are the usual and ordinary means used by
defendant to obtain a high price and are always understood as affording to buyers no
ground for omitting to make inquiries. A man who relies upon such an affirmation made
by a person whose interest might so readily prompt him to exaggerate the value of his
property does so at his peril, and must take the consequences of his own imprudence.
The Court added that it is aware that where one party to a contract, having special or
expert knowledge, takes advantage of the ignorance of another to impose upon him, the
false representation may afford ground for relief, though otherwise the injured party
would be bound. In this case, plaintiff was not an experienced farmer, while defendant
was, as he claims, a mere novice in the business, brings this case within that exception.
vi. Misrepresentation
• byathirdperson(1342)
Article 1342
Misrepresentation by a third person does not vitiate consent, unless
misrepresentation has created substantial mistake and the same is
mutual.
 Fraud by third person
 General Rule: Fraud employed by a third person upon one
of the parties does not vitiate consent and cause of the
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nullity of a contract; it merely gives rise to an action for

damages by the party against such third person.
 Except when one of the parties is in collusion with the third
person, or knows of the fraud by the third person, and he is
benefited thereby.
 The party who colluded with the person may be considered
an accomplice of the fraud and the contract becomes
voidable.
 Mutual Error
 Deceit of the third person, even without the connivance or
complicity with one of the contracting parties, may lead to
error on the part of the parties to the contract. The contract
may be annulled. Consent is vitiated.
 Compared with Violence

 In violence or intimidation, even if exercised by third person,
the contract is annulled.
 Fraud and Violence or Intimidation

 In fraud, the act of a third person does not annul the
contract, unless it produces substantial mutual mistake on
the part both contracting parties. While in violence or
intimidation, exercise of the third person alone may nullify
the contract. This has been justified by two reasons 1) that
the party has nothing to do with fraud of a third person and
cannot be blamed for it; 2) intimidation can be more easily
resisted than fraud. However, these reasons became
unacceptable, some writers believe that fraud and violence
should be treated alike, and even if the fraud was exercised
by a third person, the injured party should be entitled to
annulment. Both fraud and violence nullify consent,
whoever may have employed the same. The Supreme Court
also believe that such principle is more juridical and
philosophical that whatever the source of the fraudulent
machination, the juridical act induced by it is vitiated.
• madeingoodfaith(1343)
Article 1343
Misrepresentation made in good faith is not fraudulent but may
constitute error.
 Once misrepresentation was constituted in good faith it is not
fraudulent but an error
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• activeorpassive
Mercadov.Espiritu,37Phil.215
Facts:
Counsel for Domingo and Josefa Mercado brought suit in the Court of First Instance of
Bulacan, against Luis Espiritu, but, as the latter died soon thereafter, the complaint was
amended by being directed against Jose Espiritu in his capacity of his administrator of
the estate of the deceased Luis Espiritu.
The plaintiffs alleged that they and their sisters, were the children and sole heirs of
Margarita Espiritu, sister of the deceased Luis Espiritu; that Margarita Espiritu died in
1897, leaving her 48 hectares of land in Bulacan. They alleged that Luis Espiritu, by
means of cajolery, induced, and fraudulently succeeded in getting the plaintiffs Domingo
and Josefa Mercado to sign a deed of sale of the land left by their mother, for the sum
of P400,
Counsel of plaintiffs asked that judgment be rendered in plaintiffs' favor by holding the
sale of their respective shares of their land to be null and void on the ground that at the
time of the execution of the deed of sale, two of the four parties were still minors
(Domingo & Josefa Mercado) who presented themselves to be of legal age before the
notary public.
ISSUE
Whether or not the sale is valid when the minor parties presented themselves to be of
legal age before the notary public.
RULING
The contract of sale was valid, even if it was made and entered into by minors, who
pretended to be of legal age. The court stated that they will not be permitted to excuse
themselves from the fulfilment of the obligations contracted by them, or to have them
annulled.
The plaintiffs have absolutely no right whatever to recover said first parcel of land, as its
ownership was conveyed to the purchaser by means of a singular title of purchase and
sale.
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It has been a well settled rule that the sale of real estate, made by minors who pretend
to be of legal age, when in fact they are not, is valid, and they will not be permitted to
excuse themselves from the fulfilment of the obligations contracted by them, or to have
them annulled and the judgment that holds such a sale to be valid and absolves the
purchaser from the complaint filed against him does not violate the laws relative to the
sale of minors' property, nor the juridical rules established in consonance therewith.
(Decisions of the supreme court of Spain, of April 27, 1860, July 11, 1868, and March 1,
1875.)
Article 38. Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and
civil-interdiction are mere restrictions on the capacity to act, and do not exempt the
incapacitated person from certain obligations, as when the latter arise from his acts or
from property relations, such as easements.
Braganzav.VillaAbrille,105Phil.456
d. SimulationofContracts
i. Kinds:AbsoluteandRelative(1345)
Article 1345
Simulation of a contract may be absolute or relative. The former takes place when
the parties do not intend to be bound at all; the latter, when the parties conceal
their true agreement.
 Definition of Simulation
 Simulation- the declaration of a fictitious will, deliberately

made by agreement of the parties, in order to produce, for
the purpose of deception, the appearance of a juridical act
which does not exist or is different from that which was
really executed.
 It is the process of intentionally deceiving others by
producing the appearance of a contract that really does not
exist (absolute simulation) or which is different from the true
agreement (relative simulation). (See TS, Dec. 19, 1951).
(Paras).
 Requisites for Simulation

(a) An outward declaration of will different from the will of the parties;
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(b) The false appearance must have been intended by mutual agreement;
(c) The purpose is to deceive third persons.
 Absolute Simulation
 Absolute Simulation (simulados)- absolutely simulated

contract. There is color of a contract, without any substance
thereof, the parties not having any intention to be bound.
Example: As a joke, A and B executed a deed of sale although they did not
intend to be bound at all by the contract. [NOTE: An absolutely simulated contract is
inexistent and VOID. (De Belen v. Collector of Customs, 46 Phil.241).] (Paras)
 Relative Simulation
 Relative Simulation (desimulados)- relatively simulated

contracts. The parties have an agreement which they conceal
under the guise of another contract.
Example: Although a deed of sale was made, the parties really intended a donation but
they wanted to conceal the existence of the donation (simulation of the NATURE of the
contract); or a true sale at a different price had really been agreed upon (simulation of
the CONTENT or TERMS of the contract).
(NOTE: Third persons should not be prejudiced; therefore, as to them, the apparent or
ostensible contract is the one valid. Reason: The contracting parties are in estoppel, and
they should be penalized for their deception.) (Paras)
 Two juridical acts involved in relative simulation.
1) Ostensible act, also called apparent or fictitious, which is the contract that the parties
pretend to have executed;
2) Hidden act, also called real, which is the true agreement between the parties. If the
concealed or hidden act is lawful, it is enforceable.
If the essential requisites are present, such as when the true consideration was not
stated.
ii. Effects(1346)
Article 1346.
An absolutely simulated or fi ctitious contract is void. A relative simulation, when
it does not prejudice a third person and is not intended for any purpose contrary
to law, morals, good customs, public order or public policy binds the parties to
their real agreement.
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Rodriguezv.Rodriguez,28SCRA229
Suntayv.CourtofAppeals,251SCRA430
Pangadiletal.v.CourtofFirstInstance,G.R.No.L32437,August31,1982
FACTS:
Sometime in 1941, a parcel of land owned by petitioner's father was conveyed to the
private respondents in an oral transaction. In 1946, petitioner Salandang Pangadil filed
in respondent court an action praying for her appointment as guardian of her minor
brothers and sisters who are the other petitioners in this case, to enable her to execute
the necessary document to formalize the verbal sale executed by their father. The
petition was granted and subsequently the questioned document, entitled "Ratification
De Una Venta", acknowledging the sale made by their deceased father in favor of
private respondent for the consideration of P750.00 was presented to court for approval.
Upon approval of the document, the guardianship proceeding was declared closed. On
January 7, 1969, petitioners filed Civil Case No. 2187 seeking the annulment of the
aforementioned document and the declaration of the nullity of the court order approving
said document. They contended that the transaction was a mortgage and not a sale as
claimed by private respondents. Petitioner also alleges that the document is inexistent
and void ab initio for being a simulated or fictitious contract.
ISSUE:
Whether or not there the questioned document is a simulated contract
RULING:
No. The Supreme Court held here is less legal basis to hold that the questioned
document is inexistent and void ab initio for being supposedly a simulated or fictitious
contract. Under the law, the simulation of a contract may either be absolute or relative. It
is only when the contract is absolutely simulated or fictitious that it is deemed
void. There is absolute simulation "when the parties do not intend to be bound at all." In
case the parties merely conceal their true agreement, the simulation is relative, and the
contract with that defect is binding upon the parties unless it prejudices a third person
and is intended for a purpose contrary to law, morals, good customs, public order or
public policy.
The document in question may not be deemed absolutely simulated or fictitious. By
petitioners' own admission, they intended to be bound thereby; they merely contend that
they thought it was to ratify a contract of oral mortgage, instead of an oral sale of land.
In short, it is not a contract wherein the parties do not intend to be bound at all which
would thereby make it absolutely simulated and, therefore, void. Petitioners,
accordingly, may not seek umbrage under the provision that an action to annul an
inexistent contract is imprescriptible.
Umaliv.CourtofAppeals, 189 SCRA 529

FACTS:
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Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Mur Vda. de Castillo. The
Castillo family are the owners of parcel of land located in Lucena City which was given
as security for a loan from the development Bank of the Philippines (DBP) for their
failure to pay the amortization, foreclosure of the said property was about to be initiated.
This problem was made known to Santiago Rivera, who proposed to them the
conversion into subdivision of the four parcels of land adjacent to the mortgaged
property to raise the necessary fund. The idea was accepted by the Castillo family and
to carry out the project, a memorandum of agreement was executed by and between
Slobec Realty and Development Inc. represented by its president Santiago Rivera and
Castillo family. In this agreement, Santiago Rivera obliged himself to pay the Castillo
family the sum of P70,000 immediately after the execution of the agreement and to pay
additional amount of P40,000 after the property has been converted into a subdivision.
Rivera, with agreement approached Mr. Modesto Cervantes, president of defendant
Bormaheco and proposed to purchase from Bormaheco two tractors. In 1971, Slobec,
through Rivera, executed in favor of Bormaheco a chattel mortgage over the said
equipment as security for the payment of the aforesaid balance of P180,000 among
others. Meanwhile, for violation of the terms and conditions of the counter-guaranty
agreement, the properties of the Castillos were foreclosed. In 1976, the petitioners filed
an action for annulment of title in the CFI. Petitioners contend that all the transactions
are void for being entered into in fraud and without the consent and approval of the
Court of First Instance of Quezon, (Branch IX) before whom the administration
proceedings has been pending. CFI declared the contracts as void for being fictitious
and simulated. CA reversed decision. Petitioners appealed.
ISSUE:
Whether or not there the transactions entered by the parties are absolutely simulated
RULING:
No. There is absolute simulation, which renders the contract null and void, when the
parties do not intend to be bound at all by the same. The basic characteristic of this
type of simulation of contract is the fact that the apparent contract is not really desired
or intended to either produce legal effects or in any way alter the juridical situation of the
parties. The subsequent act of Rivera in receiving and making use of the tractor subject
matter of the Sales Agreement and Chattel Mortgage, and the simultaneous issuance of
a surety bond in favor of Bormaheco, concomitant with the execution of the Agreement
of Counter-Guaranty with Chattel/Real Estate Mortgage, conduce to the conclusion that
petitioners had every intention to be bound by these contracts. The occurrence of these
series of transactions between petitioners and private respondents is a strong indication
that the parties actually intended, or at least expected, to exact fulfillment of their
respective obligations from one another.
Neither will an allegation of fraud prosper in this case where petitioners failed to show
that they were induced to enter into a contract through the insidious words and
machinations of private respondents without which the former would not have executed
such contract. To set aside a document solemnly executed and voluntarily delivered,
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the proof of fraud must be clear and convincing. We are not persuaded that such
quantum of proof exists in the case at bar.
2. Object
a. Mustbedeterminateastoitskind(1379)
Article 1379.
The principles of interpretation stated in Rule 123 of the Rules of Court shall
likewise be observed in the construction of contracts.
b. WhatmayNOTbeobjectsofcontracts(1347)
Article 1347.
All things which are not outside the commerce of men, including future things,
may be the object of a contract. All rights which are not intransmissible may also
be the object of contracts. No contract may be entered into upon future
inheritance except authorized by law. All services which are not contrary to law,
morals, good customs, public order or public policy may likewise be the object of
a contract
i. Allthingsoutsidethecommerceofman
ii. Allintransmissiblerights
iii. Thoseserviceswhicharecontrarytolaw,morals,goodcustoms,public order,orpublic policy
iv. Futureinheritance,exceptwhenauthorizedbylaw
v. Impossiblethingsorservices(1348)
Article 1348 – Impossible things or services cannot be the object of contracts

The following cannot be the object of contract
 Things that are outside the commerce of men
 Future inheritance
Blasv.Santos,1SCRA899
FACTS:
Simeon Blas contracted a first marriage with Marta Cruz sometime before 1898. They
had three children, only one of whom, Eulalio, left children, namely, Maria Gervacio
Blas, one of the plaintiffs, Marta Gervacio Blas, one of the defendants, and
LazaroGervacio Blas. Lazaro died in 1950, and is survived by three legitimate children
who are plaintiffs herein, namely, Manuel Gervacio Blas, Leoncio Gervacio Blas and
Loida Gervacio Blas. Marta Cruz died in 1898, and the following year, Simeon Blas
contracted a second marriage with Maxima Santos. At the time of this second marriage,
no liquidation of the properties required by Simeon Blas and Marta Cruz was made.
Three of the properties left are fishponds located in Obando, Bulacan.
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On December 26, 1936, only over a week before his death on January 9, 1937, Simeon
Blas executed a last will and testament. In the said testament Simeon Blas gave to
Maxima Santos de Blas one half of all her properties. MAXIMA SANTOS DE BLAS on
the other hand made a document giving one half of all her inheritance to the children of
maximo in the first marriage, labelled as exhibit “A”. As a result, the children of Simeon
by his first marriage brought an action against the estate of Maxima asking for the
enforcement of the promise contained in the document. It is contended that the promise
is not enforceable because it lacks a sufficient cause or consideration and that, being a
contract with respect to future inheritance, it falls within the purview of the prohibition
under Art. 1347.
ISSUE:
Whether or not the contract involving future inheritance should be declared void
RULING:
NO. Exhibit “A” is not a contract on future inheritance. it is an obligation or promise

made by the maker to transmit one-half of her share in the conjugal properties acquired
with her husband, which properties are stated or declared to be conjugal properties in
the will of the husband. The conjugal properties were in existence at the time of the
execution of Exhibit “A” on December 26, 1936. As a matter of fact, Maxima Santos
included these properties in her inventory of her husband’s estate of June 2, 1937. The
promise does not refer to any properties that the maker would inherit upon the death of
her husband, because it is her share in the conjugal assets. That the kind of agreement
or promise contained in Exhibit “A” is not void under Article 1271(now Art 1347) of the
old Civil Code, has been decided by the Supreme Court of Spain, thus: It will be noted
that what is prohibited to be the subject matter of a contract under Article 1271 of the
Civil Code is “future inheritance.”
The Supreme Court held that future inheritance is any property or right not in existence
or capable of determination at the time of the contract, that a person may in the future
acquire by succession. The properties subject of the contract Exhibit “A” are well
defined properties, existing at the time of the agreement, which Simeon Blas declares in
his statement as belonging to his wife as her share in the conjugal partnership. Certainly
his wife’s actual share in the conjugal properties may not be considered as future
inheritance because they were actually in existence at the time Exhibit “A” was
executed.
JLTAgro,Inc.v.Balansag, 453 SCRA 211

FACTS:
The present controversy involves a parcel of land which was originally registered
in the name of Don Julian T. Teves (JLT) and Antonia; the said spouses had two
children named Josefa and Emilio. After Antonia died, Don Julian married to Milagros
Donio without partitioning the properties in his first marriage; the second marriage had
four children named Maria, Jose, Milagros Reyes and Pedro. In order to avoid any
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conflict the said parties entered into a Compromise Agreement which covers the
partition of all the properties of Don Julian, the parcel of land that is in this controversy
was included to the share of the second spouse Milagros and her children.
Don Julian, Emilio and Josefa executed a Deed of Assignments of Assets with
Assumption of Liabilities in favor of the petitioner J.L.T. Agro, Inc. and, less than a year
later, Don Julian, Emilio, and Josefa also executed a Supplemental Deed which the
ownership of the said parcel of land was transferred in favor of J.L.T. Agro, Inc. On April
14, 1974 Don Julian died intestate.
On the same year, Milagros immediately took possession of the said parcel of
land, A deed of absolute sale of real estate was executed by Milagros dated November
9 1983 in favor of the respondents Antonio Balansag and his wife Hilaria Cadayday.
However, the respondents failed to register the said property under their name due to
the fact that the said parcel of land was named under J.L.T Agro Inc. The respondents
then filed a complaint before the RTC of Bais City, seeking the declaration of nullity and
cancellation of the title that was named in favor of the petitioner.
The RTC ruled in favor of the petitioner, however, the CA reversed the said
decision and declared the title registered under J.L.T. Agro Inc. null and void
ISSUE:
Whether or not a future legitime can be determined, adjudicated and reserved
prior to the death of the testator
HELD:
Yes, pursuant to article 1347 of the New Civil Code, All things which are not
outside the commerce of men, including future things, may be the object of the contract.
All rights which are not intransmissible may also be the object of the contracts.
However, No contract may be entered into upon future inheritance except in cases
expressly authorized by law. The exception of the exception is the partition inter vivos
with pursuant to article 1080 that states: “Should person make a partition shall be
respected, insofar as it does not prejudice the legitime of the compulsory heirs.”
The partition of the properties of Don Julian is valid under Article 1347. However,
it would become legally operative only upon the death of the latter; the right of his heirs
from the second marriage to the properties adjudicated to him under the compromise
agreement was a mere expectancy. The interest by its nature is inchoate, which relates
at the time nonexistent and might never exist.
At the time of the execution of the said deed of assignment covering the property
involved in favor of petitioner. Don Julian remained the owner of the property since
ownership over the subject property would only pass to his heirs from the second
marriage at the time of his death. Don Julian retained the absolute right to dispose it
during his lifetime. His right cannot be challenged by Milagros Donio and her children on
the ground that it had already been adjudicated to them by virtue of the
Compromise Agreement. However, it was proven that there was no evidence showing
the acceptance by the petitioner as the donee.
The Supreme Court affirmed the CA decision granting the ownership to
respondents.
3. Cause
a. MeaningofCause(1350)
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Article 1350 - In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the other; in
remuneratory ones, the service or benefit which is remunerated; and in contracts
of pure beneficence, the mere liberality of the benefactor.
 Cause of Contract – the essential or more proximate purpose which the
contracting parties have in view at the time of entering into the contract.
 Causes of Contract
o Onerous contract – foe each contracting party, the prestation or promise
of a thing or service of the other
o Reciprocal contract – obligation or promise to each party
o Remuneratory – the service or benefir which is remunerated
o Contracts of pure beneficence – mere liberality of the benefactor
i. inonerouscontracts
ii. inremuneratorycontracts
iii. incontractsofpurebeneficence
b. DistinguishedfromMotive (1351)
Art. 1351. The particular motives of the parties in entering into a contract are
different from the cause thereof. (n)
 Cause is the essential reason for the contract while motive is the particular
reason for the contracting party, which does not affect the other party and which
does not preclude the existence of a different consideration
 General rule – motive or particular purpose of a party in entering into a contract
does not affect the validity nor existence of the contract
o Exception – when the realization of such motive or particular purpose has
been made a condition upon which the contract is made to depend.
c. Presumption:ExistenceandLawfulnessofCause(1354)
d. DefectiveCausesandEffects:
i. AbsenceofCauseorUnlawfulCause(1352)
ii. StatementofFalseCause(1355)
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1. Ad esentia, ad solemnitatem – those required for the validity of contracts, such

as those referred to in:
 Art 748 – Donation of movable
 Art 749 – Donation of immovable
 Art 1874 – Sale of a piece of land through an agent
 Art 2134 – Contract of antichresis, amount of principal/ and of the interest
 Art 1771 – Partnership; immovable property or real rights are contributed
 Art 1773 – Partnership; inventory of immovable property contributed
 Art 1956 – Interest for using someone else’s money
 Art 2140 – Chattel mortgage
Those required, not for the validity, but to make the contract effective as against
2.
third persons, such as those covered by Art 1357 (if law requires a special form,
parties may compel each other to observe that form upon perfection of the
contract and Art 1358 (documents which must appear in a public document, it
also constitutes constructive delivery)
a. Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property, sales of property, sales of real property or of an
interest therein are governed by Arts. 1403 and 1405
b. The cession, repudiation or renunciation of heredity rights or of those
of the conjugal partnership of gains
c. The power to administer property or any other power which has for its
object an act appearing or which should appear in a public document,
or should prejudice a third person
d. The cession of actions or rights proceeding from an act appearing in a
public document
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels, or things in action
are governed by Articles 1403, and 1405.
3. Ad probationem – those required for the purpose of proving the existence of the
contract such as those under the statute of frauds (Art 1403)
iii. InadequacyofCauseorLesion(1355)
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence.
Essential Requisites of Cause. — In order that there will be a sufficient cause upon
which a contract may be founded, it is essential that the following requisites must
concur:
1. The cause should be in existence at the time of the celebration of the contract
2. The cause should be licit or lawful
3. The cause should be true
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Effects of:
a. Lack of cause
 If the contract is not founded upon any cause, then it shall not produce any
effect whatsoever (Art 1352)
b. Unlawful cause
 The cause is unlawful when it is contrary to law, morals, good customs,
public order or public policy. According to the same article, if a contract has
an unlawful cause, it shall not produce any effect whatsoever; in other words,
it is void from the very beginning.
c. False cause
 The statement of a false cause in contracts shall render them void, if it should
not be proved that they were founded upon another cause which is true and
lawful
Liguezv.CourtofAppeals,102Phil.577
FACTS:
Conchita Liguez filed a complaint against the heirs of Salvador Lopez alleging
that she is the legal owner of a parcel of land situated in Davao. Liguez provided a deed
of donation executed by the late Salvador Lopez when she was still 16 years of age.
The said deed of donation states that “for and in consideration of his love and affection
for Conchita Liguez and also for the good and valuables services rendered to Salvador
to Conchita, does by these presents, voluntarily give, grant and donate the said property
to the donee.” the said donation was made in view of Salvador’s desires to have sexual
relations with Conchita, also, the latter’s parents would not allow her to live with
Salvador unless he will donate the subject property to Conchita. However, the said
property was actually belonged to the conjugal partnership of Salvador and his wife
Maria Ngo.
ISSUE:
Whether or not the donation was tainted unlawful cause.
HELD:
Yes. According to article 1352, “Contracts without cause, or with unlawful cause,
produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good
customs, public order or public policy.”
In the case at bar, it is obvious that the cause of Salvador Lopez to execute the
said deed of donation was unlawful. The mere fact that he donated the said property
involved was just to satisfy his desire which is to have a sexual relation with Conchita,
also the parents of the latter would not allow them to have such relationship if Salvador
will not donate the said property to Conchita.
The Supreme Court ruled in favor of the private respondents.
Carantesv.CourtofAppeals,76SCRA514
FACTS:
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The late Mateo Carantes was the original owner of the Lot. No. 44 and was
evidenced by its original certificate of title No. 3 which is situated in Baguio City,
However he died in 1913 leaving Ogasia his widow, and their six children. In 1930,
there is an expansion by the government in the landing field of the Loakan Airport, filed
an expropriation of the said lot portion of which is the Lot. No. 44. The said lot was then
subdivided into Lots. No. 44A,44B,44C,44D,44E for the said purpose.
In 1913, one of the children of Mateo Carantes named Maximino
Carrantes was appointed by as the judicial administrator of the estate of their late father.
Four heirs, namely, Bilad, Lauro, Sianang, and Crisipino, executed a deed denominated
“Assignment of Right to Inheritance” assigning to Maximino their rights over the said lot
in 1939. Maximino sold Lot Nos. 44B and 44C to the government. However, a year later
the Court of First Instance, issued an order cancelling O.C.T. No. 3 and TCT No. 2533
was issued in its place under the joint names of the five children and also the heirs of
the deceased son of Mateo Carantes the one named Apung Carantes.
On March 16, 1940 Maximino Carantes, registered the deed of "Assignment of
Right to Inheritance." But the names of the heirs was cancelled, Transfer Certificate of
Title No. 2540 was issued on the same date in the name of Maximino Carantes, the
latter is now acting as the exclusive owner of the land covered by T.C.T. No. 2540, then
executed a formal deed of sale in favor of the Government over Lots Nos. 44-B & 44-C.
ISSUE:
Whether or not the Deeds of Sale are void for lack of consideration
HELD:
NO. It is not the payment of price that determines the validity of a contract of
sale. Payment of the price has nothing to do with the perfection of the contract.
Payment of the price goes into the perfection of the contract. Failure to pay the
consideration is different from lack of consideration. The former results in a right to
demand the fulfillment or cancellation of the obligation under an existing valid contract
while the latter prevents the existence of a valid contract. Also, Maximino failed to show
that the prices in the Deeds of Sale were absolutely simulated. To prove simulation,
petitioners presented Emma Joaquin Valdoz’s testimony stating that their father,
respondent Leonardo Joaquin, told her that he would transfer a lot to her through a
deed of sale without need for her payment of the purchase price. The trial court did not
find the allegation of absolute simulation of price credible. Petitioners’ failure to prove
absolute simulation of price is magnified by their lack of knowledge of their respondent
siblings’ financial capacity to buy the questioned lots. On the other hand, the Deeds of
Sale which petitioners presented as evidence plainly showed the cost of each lot sold.
Not only did respondents’ minds meet as to the purchase price, but the real price also
stated in the Deeds of Sale. As of the filing of the complaint, respondent siblings have
also fully paid the price to their respondent father.
SpousesBuenaventurav.CourtofAppeals,416SCRA263
FACTS:
Petitioners sought to declare as null and void ab initio certain deeds of sale of real
property executed by their parents, in favor of their co-respondents-children and the
corresponding certificates of title issued in their names. They alleged that the sale of the
subject properties impaired their legitime and that there was no actual valid
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consideration for the deeds of sale, and even assuming that there was indeed
consideration, the price was grossly inadequate.
The trial court ruled in favor of the respondents and dismissed the complaint. It states
the Deeds of Sale were all executed for valuable consideration. This assertion must
prevail over the negative allegation of petitioners and that petitioners had no valid cause
of action against respondents since there can be no legitime to speak of prior to the
death of their parents.
On appeal, the Court of Appeals affirmed the decision of the trial court and ruled that
petitioners have no legal capacity to challenge the validity of the subject deeds since
they are not parties thereto and are not principally or subsidiarily bound thereby.
ISSUE:
Whether the Deeds of Sale are void for gross inadequacy of price?
RULING:
No, it is not. Under Article 1355 of the Civil Code states that except in cases specified
by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has
been fraud, mistake or undue influence. And Article 1470 further provides that gross
inadequacy of price does not affect a contract of sale, except as may indicate a defect
in the consent, or that the parties really intended a donation or some other act or
contract.
Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of
the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there
is no requirement that the price be equal to the exact value of the subject matter of sale.
All the respondents believed that they received the commutative value of what they
gave.
In the instant case, the trial court found that the lots were sold for a valid consideration,
and that the defendant children actually paid the purchase price stipulated in their
respective Deeds of Sale. Actual payment of the purchase price by the buyer to the
seller is a factual finding that is conclusive.
C. Form of Contracts
1. General Rule: Obligatory in whatever form (1356)
Art. 1356. Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.
However, when the law requires that a contract be in some form in order that it may
be valid or enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such cases, the right of the parties
stated in the following articles cannot be exercised
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 Contracts shall be obligatory, in whatever form they may have been entered into,
provided that all the essential requisites for their validity are present
2. Exception: When required by law (1356)

 When the law requires that a contract be in some form in order that it may be
valid or enforceable
Art 1356 Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.
EXCEPTION: When the law requires that a contract be in some form in order that it may
be VALID or ENFORCEABLE
Art 1356 However, when the law requires that a contract be in some form in order that it
may be valid or enforceable or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such cases, the right of the parties stated
in the following article cannot be exercised.
a. Kindofformalitiesrequiredbylaw:
i. Forvalidity(748,749,1874,2134,1771,1773, 1744, 1874, 1956)
Ad esentia, ad solemnitatem—Those required for the validity of contracts, such as

those:
Art 748 Donation of movable
Art 749 Donation of immovable
Art 1874 Sale of piece of land through an agent; regarding authority of agent
Art 2134 Contract of antichresis; amount of principal and of the interest
Art 1744 Contract of carriage; limiting liability for consideration other than the service
itself—must be reasonable, just, and not against public policy
Art 1771 Partnership; immovable property or real rights are contributed; includes real
property
Art 1773 Partnership; inventory of immovable property contributed
Art 1956 Interest for using someone else’s money
Art 2140 Chattel mortgage; must have affidavit of good faith; in order to be effective
against 3rd persons, must be registered in chattel mortgage register
ii. Tomakeiteffectiveastothirdparties(1357,1358)
Those required, not for the validity, but to make the contract effective as against third
persons , such as those covered by Art 1357 (if law requires a special form, parties
may compel each other to observe that form upon perfection of the contract) and
Art 1358 (documents which must appear in a public document; it also constitutes
constructive delivery
(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein a governed by Articles 1403, No. 2, and 1405;
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(2) The cession, repudiation or renunciation of hereditary rights or of those of the

conjugal partnership of gains;
(3) The power to administer property , or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document
iii. Forpurposesofprovingexistenceofcontract(1403)
Article 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;
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:
(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 some part 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 the purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
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(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.
(3) Those where both parties are incapable of giving consent to a contract.
Situation What the Court will do
It appears that a contract was entered in good May take into consideration the relations
faith and there is ambiguity in its meaning existing between the parties, their respective
situations, the surrounding circumstances and
the purpose and tenor of the whole contract.
Parties have themselves placed an Follow such interpretation as indicating the

interpretation to their contract or its terms intention of the parties
The contract is contained in several documents All of them must be taken together to
determine the intention of the parties
Unenforceable Definition
Contracts
Unauthorized When a person enters into a contract for and in the name of another, without authority to do
Contracts so, the contract does not bind the latter, unless he ratifies the same
Statute of Frauds Descriptive of statutes which require certain classes of contracts to be in writing. This does
not deprive the parties of the right to contract with respect to the matters therein involved, but
merely regulates the formalities of the contract necessary to render it enforceable.
Does not apply to actions which are neither for specific performance of the contract nor for
the violation thereof.
Parties Neither party or his representative can enforce the contract unless it has been previously
Incapacitated ratified.
Ratification of one party - converts the contract into voidable contract — voidable at the
option of the party who has not ratified; the latter, therefore, can enforce the contract against
the party who has already ratified. Or instead of enforcing the contract, the party may ask for
annulment on the ground of his incapacity.
Statute of Frauds
Purpose Prevent fraud and perjury in the enforcement of obligations depending for their
evidence upon the unassisted memory if witnesses by requiring certain enumerated
contracts and transactions to be evidenced in writing signed by the party to be
charged.
Validity of Contract A contract falling under the statute of frauds cannot be proved without the writing or a memorandum thereof.
An oral contract cannot be made as basis for action for damages caused by non-performance thereof.
Contract exists and is valid, though it may not be clothed with the necessary form, and the effect of noncompliance
with the statute is simply that no action can be proved unless the requirement is complied with.
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Statute of Frauds
Action to Enforce Uniformly interpreted to be applicable to executory and not to competed or executed contracts.
Not applicable to contracts which are either totally or partially performed, on the theory that there is a wide field for
the commission of frauds in executory contracts which can only be prevented by requiring them to be in writing, a
fact which is reduced to a minimum in executed contracts because the intention of the parties becomes apparent by
their execution, and execution concludes, in most cases, the rights of parties.
Note or Memorandum Evidence of agreement, and is used to show the intention of the parties.
Contracts that is under Purpose of the Contract to be in writing

Statute of Frauds
agreement that by its The making of the agreement for the purpose of determining whether or not the
period for performance brings the agreement within the statute of frauds, means
terms is not to be the day the agreement is made and the time begins to run from the time that
performance of it is entered upon.
performed within a year
from the making
Guaranty of Another’s A promisor receiving none of the benefit for which the debt was incurred should
be bound only to the exact terms of his promise.
Debt
In consideration of Marriage It a well-settled that any verbal executory promise or agreement other than
mutual promises to marry, made in consideration of marriage, is embraces
within the provisions of the statute of frauds requiring the agreements made
upon consideration of marriage should be in writing, and signed by the party to
be charged therewith
Agreement for the sale Because if it is oral, it cannot be the basis of an action for damages for breach of
the agreement.
of goods, chattels or
things in action, at a
price not less than
P500.00
Hernaezv.delosAngeles,27SCRA1276
FACTS:
Marlene Dauden Hernaez, a motion picture actress, had 􏰃filed a complaint against
herein 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 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
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and 1358 of the Civil Code of the Philippines, as well as for containing defective
allegations.
ISSUE:
Whether a contract for personal services involving more than P500.00 was either invalid
or unenforceable under the last paragraph of Article 1358 of the Civil Code of the
Philippines?
RULING:
No, it does not. The general rule that the form (oral and written) is irrelevant to the
binding effect inter partes of a contract that possesses the three validating elements of
consent, subject matter and causa. Article 1356 of the Civil Code establishes only two
exceptions, such as when the law requires that a contract be in some form in order that
it may be valid or enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable.
The contract sued upon by petitioner, 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 􏰃P500.00 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.
Resuenav.CourtofAppeals, 454 SCRA 42

FACTS:
Petitioners resided in the upper portion of Lot No. 2587allegedly under the
acquiescence of the late Spouses Bascon and their heir, Andres Bascon; and occupied
a portion of Lot No. 2592, allegedly with the permission of the heirs of Nicolas Maneja,
one of the original co-owners of Lot No. 2587.
Borromeo, co-owner and overseer of Lots Nos. 2587 and 2592 developed it into a
resort. In his desire to expand and extend the facilities of the resort, he demanded that
petitioners vacate the property, which they refused to do.
Borromeo filed a Complaint for ejectment with the MTC against the petitioners. The
MTC ruled that respondent did not have a preferential right of possession over the
portions occupied by petitioners, since Lots Nos. 2587 and 2592 were not yet
partitioned nor the disputed portions assigned to respondent as his determinate share. It
is proven by the testimony given by Borromeo, himself, that the parcel of land was
undivided and Spouses Bascon agreed verbally, that with respect to the portion of the
land towards the sea-shore it will be Borromeo’s share and that portion of the land
towards the upper part will be Spouses Bascon’s share.
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ISSUE:
Whether the verbal agreement entered into by and between spouses Bascon and
Basilisa Maneja on the one hand and Juanito Borromeo on the other more than 20years
ago, was already an EXECUTED CONTRACT?
RULING:
No, it is not. In order that the petition may acquire any whiff of merit, petitioners are
obliged to establish a legal basis for their continued occupancy of the properties. The
mere tolerance of one of the co-owners, assuming that there was such, does not suffice
to establish such right. Tolerance in itself does not bear any legal fruit, and it can easily
be supplanted by a sudden change of heart on the part of the owner. Petitioners have
not adduced any convincing evidence that they have somehow become successors-in-
interest of the Spouses Bascon, or any of the owners of Lot No. 2587.
Indeed, there is no writing presented to evidence any claim of ownership or right to

occupancy to the subject properties. There is no lease contract that would vest on
petitioners the right to stay on the property. Article 1358 of the Civil Code provides that
acts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property must appear in a public
instrument.
Assuming that there was any verbal agreement between petitioners and any of the
owners of the subject lots, Article 1358 grants a coercive power to the parties by which
they can reciprocally compel the documentation of the agreement.
Thus, the absence of any document or any occupancy right of petitioners is a negation
of their claim that they were allowed by the Spouses Bascon to construct their houses
thereon and to stay thereon until further notice.
D. Interpretation of Contracts
• The language of a writing is to be interpreted according to the legal meaning it

bears in the place of its execution, unless the parties have reference to a
different place
1. Vis-à-vis rules on statutory construction
 When the terms of the agreement are so clear and explicit is that they do not
justify an attempt to read into any alleged intention of the parties, the terms are to
be understood literally just as they appear on the face of the contract.
2. PrimacyofIntention(1370,1372)
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Article 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall
control.
If the words appear to be contrary to the evident intention of the parties, the latter
shall prevail over the former.
Intent of the Parties

- In constructing an agreement, it must be pursued.
- When the true intent and agreement of the parties is established, it must be
given effect and prevail over the bare words of the written contract.
- The important task of in contract interpretation is the ascertainment of the
intention of the contracting parties, and the task is to be discharged by
looking to the words they used to project that intention in their contract.
Proof of Intention
- Must be clear or, in other words, besides the fact that such intention should
be proved by competent evidence, the latter must be of such character as to
carry in the mind of the judge an equivocal conviction.
- The evident intention which prevails against the defective wording of the
contract, is not that of one of the parties, but the general intent, which, being
so, is to a certain extent equivalent to mutual consent, inasmuch as it was
the result desired and intended by the contracting parties.
- The failure of a contract to express the true intent of the parties should be
expressly put in issue in the pleadings whether the action is for reformation
or annulment of the contract, before parol evidence may be admitted.
Article 1372. However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are different
from those upon which the parties intended to agree.
Scope of General Terms

- When a general and a particular provision are inconsistent, the latter is
paramount to the former. A particular intent will control a general one that is
inconsistent with it.
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- The contract cannot be construed so as to include matters distinct from

those with respect to which the parties intended to contract.
Borromeov.CourtofAppeals,47SCRA65
FACTS:
Jose Villamor was the distributor of lumber belonging to Mr. Miller. Borromeo being a
friend and former classmate of Villamor, borrowed a large sum of money for which he
mortgaged his property as a security because if his obligation to Mr. Miller. Mr. Miller
then filed a civil action against Villamor and attached his properties including the
mortgaged property. He then pressed the defendant to settle his obligation but the
Villamor offered to execute a document promising to Miller that he would pay his debt
even after the lapse of 10 years with 12% interest per annum. However, Villamor still
failed to settle his debt despite of repeated demands of Miller. Miller did not file any
complaint against Villamor within 10 years from the execution of the document as there
was no property registered in Villamor’s name, who assured him that he could collect
even after the lapse of 10 years.
ISSUE:
Whether or not the CA was correct in their interpretation of the contract
RULING:
No. 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”.” 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. 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 necessary implication declares the entire contract void.
Kasilagv.Rodriguez,69Phil.217
FACTS:
MarcialKasilag and EmilianaAmbrosio entered a contract of mortgage of improvements
of land acquired as homestead to secure the payment of the indebtedness of P1,000
plus interest. The parties stipulated that Ambrosio was to pay the debt with interest
within 4 ½ years and mortgage would not have any effect. They also agreed that she
would execute the a deed of sale if it would not be paid within 4 ½ years and that she
would pay the tax on the land. After a year, she was not able to pay the tax. Hence, they
entered a verbal agreement whereby she conveyed to the latter the possession of the
land on the condition that they would not collect the interest of the loan, would attend to
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the payment of the land tax, would benefit by the fruits of the land, & would introduce
improvement thereof.
ISSUE:
Whether or not Kasilag should be deemed the possessor of the land in good faith
because he was not aware of any flaw in his title or in the manner of its acquisition by
which it is invalidated
RULING:
Yes. The pacts made by the parties independently were calculated to alter the mortgage
a contract clearly entered into, converting the latter into a contract of antichresis. Gross
and inexcusable ignorance of law may not be the basis of good faith, but possible,
excusable ignorance may be such basis. It is a fact thatKasilagis not conversant with
the laws 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 contract of antichresis and that the latter, as
a lien, was prohibited by section 116. These considerations again bring us to the
conclusion that, as to the petitioner, his ignorance of the provisions of section 116 is
excusable and may, therefore, be the basis of his good faith.
Santiv.CourtofAppeals,G.R.No.93625,227SCRA54
FACTS:
On July 12, 1957, Esperanza Jose leased a portion of her parcel of land to spouses
Eugenio Vitan and Beatriz Francisco for a period of 20 years “automatically extended”
for another 20 years but with rental of P220 per month as per Lease Contract.
Sometimes in 1962, the lessees sold all their rights their rights, interest and participation
over the property, where a cinema house was constructed, to Augusto Reyes Jr. In the
interim, Jose sold all her rights and participation over the property to Vicente Santi. After
the contract of lease expired, Santi wrote to Reyes’ heirs demanding recover of
possession over the property leased to Reyes. Reyes’ heirs, however, refused on the
ground that thee lease was automatically extended for another 20 years as per the
contract of lease. The heirs then paid the P220 but was refused by Santi. The trial court
ordered the return of the property to Santi’s possession which was reversed by the CA.
ISSUE:
Whether or not the contract of lease contained automatic extension of lease
RULING:
No. When terms and stipulations embodied in the contract are clear and leave no room
for doubt, such should be read in its literal sense and that there is absolutely no reason
to construe the same in another meaning. The lease between Jose and the spouses on
July 12, 1957 provided for an automatic extension. However, the phrase “automatically
extended” did not appear and was not used in the lease contract subsequently entered
into by Jose and Reyes Jr. for the simple reason that the lessor does not want to be
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bound by the stipulation of automatic extension as provided in the previous lease

contract.If the intention of the parties were to provide for an automatic extension of the
lease contract, then they could have easily provided for a straight forty years contract
instead of twenty.
a. How intention is determined (1371)
Article 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (1282)
 For the proper construction of an instrument, the circumstances under which it

was made, including the situation of the subject thereof and of the parties to it,
may be shown, so that the judge may be placed in the position of those whose
language he is to interpret.
 All circumstances may be proved, necessary for the interpretation of the contract
and the court should consider them in order to give effect to the tru intention of
the contracting parties.
Rapanutv.CourtofAppeals,246SCRA323(1995)
FACTS:
On November 29, 1985, petitioner and private respondent executed a Deed of
Conditional Sale with Mortgage whereby the latter agreed to sell to petitioner a parcel of
land forP42,840.00, payable in monthly installments of P500.00 to be paid not later than
the fifth day of every month and in semi-annual installments of P1,000.00 to be paid on
June 30and December 31 of every year, "with an interest of 10% per annum on the
remaining balance until the full amount is paid". After a year, both parties then entered
into a Supplemental Agreement which states that:"the VENDOR/MORTGAGEE is
willing to sell said portion of her lot to the VENDEE/MORTGAGOR for a total price of
P37,485.00 payable in monthly installments of P500.00 with an interest of 10% per
annum on the remaining balance until the full amount is paid"
Petitioner had been paying the monthly installments until he received a letter dated
February 13, 1990 from private respondent’s counsel informing him that for his failure to
pay the monthly installments, the contract was rescinded. Private respondent filed
against the trial court for rescission of contracts which it ordered the contract rescinded.
Petitioner appealed to the Court of Appeals which affirmed the appealed decision.
Hence, this petition. Private respondent posits that the 10% interest must be paid every
year while petitioner avers that the P500.00 monthly installments include the 10%
interest.
ISSUE:
Whether or not the February 13,1990 letter resolving the two contracts was effective
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RULING:
No, it was not effective. The Court ruled in favor of the petitioner. The Court applied
article 1371 of the Civil Code whereby it ruled that to ascertain the intent of the parties
in making the contract, their contemporaneous and subsequent acts must be
considered. The controversy stems from the interpretation of the principal contract and
the supplemental agreement. The Deed of Conditional Sale with Mortgage categorically
provides for the date of payment of the P500.00 monthly installments, that is, not later
than the fifth of every month, and of the P1,000.00 semi-annual installment, that is, on
June 30 and December31. The Supplemental Agreement was likewise specify that
petitioner shall pay private respondent "monthly installments of P500.00 with an interest
of 10% per annum on the remaining balance until the full amount is paid".
A liberal interpretation of the contracts in question is that at the end of each year,all the
installment payments made shall be deducted from the principal obligation. The10%
interest on the balance is then added to whatever remains of the principal. Thereafter,
petitioner shall pay the monthly installments on the stipulated dates. Inother words, the
interests due are added to and paid like the remaining balance of the principal. Thus,
the Court ruled that the parties intended that petitioner pay the monthly installments at
predetermined dates, until the full amount, consisting of the purchase price and the
interests on the balance, is paid. Petition is granted.
3. Rules of Interpretation
a. Under Civil Code
i. When stipulations admitofseveralmeanings (1373)
-A contract must be interpreted as a whole and the intention of the parties is to be gathered
from the entire instrument and not from particular words, phrases, or clauses, having in mind
the intention of the parties and the purpose to be achieved, consistent with their
contemporaneous and subsequent acts as regards the execution of the contract
OilandNaturalGasCommissionv.CA, 293 SCRA 26

FACTS:
The petitioner is a foreign corporation owned and controlled by the Government of India
while the private respondent is a private corporation duly organized and existing under
the laws of the Philippines. The controversy stems from the contract entered into by the
petitioner and private respondent whereby the latter undertook to supply the former
4,300 metric tons of oil well cement. The oil well cement was loaded on board the ship
MV SURUTANA NAVA at the port of Surigao City, Philippines for delivery at Bombay
and Calcutta, India. However, the cargo did not reach its destination. Notwithstanding
the fact that the private respondent had already received payment and despite several
demands made b0y the petitioner, the private respondent failed to deliver the oil well
cement. The parties then agreed that the private respondent will replace the entire
4,300 metric tons of oil well cement with Class "G" cement. However, upon inspection,
the Class "G" cement did not conform to the petitioner's specifications.
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The petitioner then informed the private respondent that it was referring its claim to an
arbitrator pursuant to Clause 16 of their contract which states that: “Except where
otherwise provided in the supply order/contract all questions and disputes, relating to
the meaning of the specification designs, drawings and instructions herein before
mentioned and as to quality of workmanship of the items ordered or as to any other
question, claim, right or thing whatsoever, in anyway arising out of or relating to the
supply order/contract design, drawing, specification, instruction or these conditions or
otherwise concerning
thematerialsortheexecutionorfailuretoexecutethesameduringstipulated/extended period
or after the completion/abandonment thereof shall be referred to the sole arbitration of
the persons appointed by Member of the Commission at the time of dispute.”
The chosen arbitrator in India decided in favor of the petitioner with arbitral award but
private respondent refused to pay. Petitioner filed for the enforcement of the decision of
the foreign court with the RTC. The trial court ruled in favor of the private respondent
and further stated that the clause was erroneous. Petitioner then appealed to the
respondent court which affirmed the lower court’s decision. Hence, this petition.
ISSUE: Whether or not the non-delivery of the said cargo is a proper subject for
arbitration under the above-quoted Clause 16.
RULING: No, the non-delivery is not a proper subject for arbitration under the clause.
Petitioner contends that the non-delivery was a matter within the purview of Clause 16,
particularly the phrase, “or as to any other questions, claim ,right or thing whatsoever, in
any way or relating to the supply order/contract, design, drawing, specification,
instruction”. Petitioner argues that the foregoing phrase includes the non-delivery of the
cargo which was a "claim, right or thing relating to the supply order/contract". However,
the Court found that the non-delivery of the oil well cement is not in the nature of a
dispute arising from the failure to execute the supply order/contract design, drawing,
instructions, specifications or quality of the materials as stated in the disputed clause.
The Court then ruled that the accurate interpretation of the phrase reads, "or as to any
other question, claim, right or thing whatsoever, in any way arising out of or relating to
the supply order/contract design, drawing, specification, instruction or these conditions".
The absence of a comma between the words "supply order/contract" and "design"
indicates that the former cannot be taken separately but should be viewed in
conjunction with the words "design, drawing, specification, instruction or these
conditions. It is thus clear that to fall within the purview of this phrase, the "claim, right or
thing whatsoever" must arise out of or relate to the design, drawing, specification, or
instruction of the supply order/contract. Clause 16 should pertain only to matters
involving the technical aspects of the contract.
In the foregoing conclusion the Court applied article 1373 which states that “if some
stipulation of any contract should admit of several meanings, it shall be understood as
bearing that import which is most adequate to render it effectual.”Thus, the Court has
held that as in statutes, the provisions of a contract should not be read in isolation from
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the rest of the instrument but, on the contrary, interpreted in the light of the other related
provisions. The whole and every part of a contract must be, considered in fixing the
meaning of any of its parts and in order to produce a harmonious whole. Equally
applicable is the canon of construction that in interpreting a statute (or a contract as in
this case), care should be taken that every part thereof be given effect, on the theory
that it was enacted as an integrated measure and not as a hodge-podge of conflicting
provisions. The rule is that a construction that would render a provision in operative
should be avoided; instead, apparently inconsistent provisions should be reconciled
whenever possible as parts of a coordinated and harmonious whole.
Petition is nevertheless granted since the offer of the replacement did not conform to
the specifications of the contract which would be under Clause 16.
ii. Whenitcontainsvariousstipulations,someofwhicharedoubtful(1374)
-Where the contract is contained in several documents or in two or more separate writings all
of them must be taken together to determine the intention of the parties
SpousesRigorv.ConsolidatedOrixLeasingandFinanceCorporation, 387 SCRA 437

FACTS:
Petitioner Chiara Construction obtained a loan from private respondent Consolidated
Orix Leasing and Finance Corporation and as security for the payment, the former
executed a deed of chattel mortgage over two dump trucks in favor of the latter.
However, the petitioners failed to pay the loan despite demands which resulted to the
private respondent’s seeking to foreclose the chattel mortgage by filing a complaint in
RTC Dagupan. Petitioner moved to dismiss the complaint ground of improper venue
based on a provision in the promissory note which states that, “all legal actions arising
out of this note or in connection with the chattels subject hereof shall only be brought in
or submitted to the proper court in Makati City, Philippines.” Private respondent
opposed stating that the venue was properly laid in Dagupan where it has a branch
office based on the provision of the chattel mortgage which states that, “in case of
litigation arising out of the transaction that gave rise to this contract, complete
jurisdiction is given the proper court of the city of Makati or any proper court within the
province of Rizal, or any court in the city or province where the holder/mortgagee has a
branch office, waiving for this purpose any proper venue.” The RTC ruled in favor of the
private respondent. The Court of Appeals denied petitioner’s motion for reconsideration
and applied article 1374 of the Civil Code. According to the appellate court, both the
Promissory Note and the Chattel Mortgage should be treated as a singular contract with
one complementing the other. Hence, this petition.
ISSUE:
Whether or not the venue was properly laid under the provisions of the chattel mortgage
contract in the light of article 1374 of the Civil Code
RULING:
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Yes, the venue was properly laid in Dagupan court. The Court held that the venue
stated in the chattel mortgage should not be disregarded. The chattel mortgage
constituted over the two dump trucks is an accessory contract to the loan obligation as
embodied in the promissory note. The chattel mortgage cannot exist as an independent
contract since its consideration is the same as that of the principal contract. A principal
obligation is an indispensable condition for the existence of an accessory contract.
Indeed, contracts may be classified according to the degree of dependence. Loans,
sales or leases are classified as principal contracts while pledges, mortgages and
suretyships are classified as accessory contracts because their existence is dependent
upon the principal obligations they guarantee or secure.
The Court reiterated the ruling in Velasquez vs. Court of Appeals, where article 1374
was applied as in the case of a surety: “the doctrine finds support in the principle that
the surety contract is merely an accessory contract and must be interpreted with its
principal contract, which was the loan agreement. This doctrine closely adheres to the
spirit of Art. 1374 of the Civil Code which states that—The various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that sense which
may result from all of them taken jointly. The Court further held that private respondent
is not barred from filing its case against petitioners in Dagupan City where private
respondent has a branch office as provided for in the deed of chattel mortgage.
According to Tolentino, “the whole contract must be interpreted or read together in

order to arrive at its true meaning. Certain stipulations cannot be segregated and then
made to control; neither do particular words or phrases necessarily determine the
character of a contract. The legal effect of the contract is notto be determined alone by
any particular provision disconnected from all others, but in the ruling intention of the
parties as gathered from all thelanguage they have used; and from their
contemporaneous, and subsequent acts. Provisions of a contract are to be given a
reasonable and practical interpretation so as to be efficacious. Titles given to sections
of a contract may be resorted to in interpreting its scope. An interpretation that gives
effect to the contract as a whole should be adopted.”
In any event, petitioners did not contest the chattel mortgage. The rules on venue are
intended to assure convenience for the plaintiff and his witnesses and to promote the
ends of justice. As correctly pointed out by private respondent, Dagupan City is the
more convenient venue for both parties considering that private respondent has a
branch office in the city while petitioners reside in nearby Tarlac. Petition is denied.
iii. Whenitcontainswordswithdifferentmeanings(1375)
-If a word is susceptible of two or more meanings, it is to be understood in that sense which is
most in keeping with the nature and object of the contract in line with the cardinal rule that the
intention of the parties must prevail
iv. Whenitcontainsambiguitiesandomissionofstipulations(1376)
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Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
 Usage or customs:
- An instrument may be construed according to usage, in order to
determine its true character. The usage must be consistent with
the contract.
- Where a contract for the lease of services did not provide for the
amount of the compensation to be paid this was determined by
the rate customarily paid in the place where the services were
rendered.
Chuav.CourtofAppeals, 401 SCRA 54

FACTS:
Valdes-Choy advertised for sale her paraphernal house and lot located at San Lorenzo
Village, Makati City. Chua responded to the advertisement. After several meetings,
Chua and Valdes-Choy agreed on a purchase price of P10, 800,000.00 payable in
cash. The respondent received from Chua a check for P100, 000.00. The receipt
evidencing the transaction signed by Valdes-Choy as seller and Chua as buyer. Chua
and Valdes-Choy met with their respective counsels to execute the necessary
documents and arrange the payments. Valdes-Choy as vendor and Chua as
vendee signed two Deeds of Absolute Sale. The parties met again at the office of
Valdes-Choy's counsel. Chua handed to Valdes-Choy the PB Com manager's check for
P485,000.00 so Valdes-Choy could pay the capital gains tax as she did not have
sufficient funds to pay the tax. Valdes-Choy issued a receipt showing that Chua had a
remaining balance of P10,215,000.00 after deducting the advances made by Chua.
Valdes-Choy, accompanied by Chua, deposited the P485,000.00 manager's check to

her account with Traders Royal Bank. It was then also that Chua showed to Valdes-
Choy a PB Com manager's check for P10,215,000.00 representing the balance of the
purchase price. Chua, however, did not give this PB Com manager's check to Valdes-
Choy because the TCT was still registered in the name of Valdes-Choy. The petitioner
required that the property be registered first in his name before he would turn over the
check to Valdes-Choy. Chua confirmed his stop payment order by submitting to PB
Com an affidavit of loss of the PB Com Manager's Check for P480,000.00. On 15 July
1989, the deadline for the payment of the balance of the purchase price, Valdes-Choy
suggested to her counsel that to break the impasse Chua should deposit in escrow the
P10,215,000.00 balance. Upon such deposit, Valdes-Choy was willing to cause the
issuance of a new TCT in the name of Chua even without receiving the balance of the
purchase price.
ISSUE:
Whether or not there are ambiguities and omissions on the contract between Chua and
Valdes-Choy.
RULING:
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No. There are no ambiguities or omissions on the contract between them. Chua insists
that he was ready to pay the balance of the purchase price but withheld payment
because Valdes-Choy did not fulfill her contractual obligation to put all the papers in
proper order. Specifically, Chua claims that Valdes-Choy failed to show that the capital
gains tax had been paid after he had advanced the money for its payment. For the
same reason, he contends that Valdes-Choy may not forfeit the earnest money even if
he did not pay on time.
In the instant case, Valdes-Choy was in a position to comply with all her obligations as a
seller under the contract to sell. First, she already signed the Deeds of Sale in the office
of her counsel in the presence of the buyer. Second, she was prepared to turn-over the
owner's duplicate of the TCT to the buyer, along with the tax declarations and latest
realty tax receipt. Even if measured under existing usage or custom, Valdes-Choy had
all her papers in proper order as stated in the Article 1376 of the Civil Code.
Such a condition, not specified in the contract to sell as evidenced by the receipt cannot
be considered part of the omissions of stipulations which are ordinarily established by
usage or custom. Clearly, at this point Valdes-Choy was ready, able and willing to
transfer ownership of the property to the buyer as required by the contract to sell. She
was ready, able and willing to submit to Chua all the papers that customarily would
complete the sale.
v. Withrespecttothepartywhocausedtheobscurity(1377)
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity.
 Obscure Terms Construed:
- The contract is construed against the party who caused the obscurity. Words or stipulations
that are susceptible to different interpretations causing ambiguity in their application shall
be construed against the person who chose to use such ambiguous words or phrases.
- In Orient Air Services and Hotel Representatives vs. Court of Appeals, the Court upheld
the doctrine that any ambiguity in a contract whose terms are susceptible of
different interpretation, must be read against the party who drafted it.
 Contracts of Adhesion:
- Contracts of adhesion are those contracts where there is already a printed form
containing the stipulations of the agreement, such as transportation or insurance
contracts, and one party merely takes it or leave it.
- In the event of ambiguity in such contracts, the doubt must always be resolved in
favor of the one who merely adhered to the contract and against the party who
prepared it. Thus, contracts of insurance are construed liberally in favor of the
insured and strictly against the insurer, and ambiguous words are
RizalCommercialBankingCorporationv.CourtofAppeals, 305 SCRA 449

FACTS:
Atty. Felipe Lustre purchased a Toyota Corolla from Toyota Shaw, Inc. for which he
made a down payment of P164,620.00, the balance of the purchase price to be paid in
24 equal monthly installments. To secure the balance, private respondent executed a
promissory note and a contract of chattel mortgage over the vehicle in favor of Toyota
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Shaw, Inc. The contract of chattel mortgage provided for an acceleration clause stating
that should the mortgagor default in the payment of any installment, the whole amount
remaining unpaid shall become due. Toyota Shaw, Inc. assigned all its rights and
interests in the chattel mortgage to petitioner Rizal Commercial Banking Corporation
(RCBC).
All the checks dated April 10, 1991 to January 10, 1993 were thereafter encashed and
debited by RCBC from private respondent's account, except for one check representing
the payment for August 10, 1991, which was unsigned. Previously, the amount
represented by RCBC Check No. 279805 was debited from private respondent's
account but was later recalled and re-credited, to him. On the theory that respondent
defaulted in his payments the check representing the payment for August 10, 1991
being unsigned petitioner in a letter dated January 21, 1993, demanded from private
respondent the payment of the balance of the debt, including liquidated damages.
ISSUE:
Whether or not the contract of Chattel Mortgage is considered as adhesion contract
RULING:
Yes. The contract of Chattel Mortgage is considered as adhesion contract as provided
in this case, according to the ruling of the Supreme Court, the Chattel Mortgage contract
being a contract of adhesion that is one wherein a party usually a corporation prepares
the stipulations in the contract while the other party merely affixes his signature or his
adhesion thereto is to be strictly construed against appellant bank which prepared the
form contract. It states in paragraph 11 of the Chattel Mortgage contract should be
construed to cover only deliberate and advertent failure on the part of the mortgagor to
pay an amortization as it became due in line with the consistent holding of the Supreme
Court construing obscurities and ambiguities in the restrictive sense against the drafter
thereof in accordance with Article 1377 of the Civil Code.
Clearly, appellant bank was remiss in the performance, of its functions for it could have
easily called the defendant's attention to the lack of signature on the check and sent the
check to or summoned the latter to affix his signature. It bears stressing that a contract
of adhesion is just as binding as ordinary contracts. It is true that we have on occasion
struck down such contracts as void when the weaker party is imposed upon in dealing
with the dominant bargaining party and is reduced to the alternative of taking it or
leaving it, completely deprived of the opportunity to bargain on equal
footing. Nevertheless, contracts of adhesion are not invalid itself they are not entirely
prohibited. While ambiguities in a contract of adhesion are to be construed against the
party that prepared the same this rule applies only if the stipulations in such contract are
obscure or ambiguous.
vi. Whenitisimpossibletosettledoubtsusingtheabove‐citedrules(1378)
Art. 1378. When it is absolutely impossible to settle doubts by the rules established
in the preceding articles, and the doubts refer to incidental circumstances of a
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gratuitous contract, the least transmission of rights and interests shall prevail. If the
contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interests.
If the doubts are cast upon the principal object of the contract in such a way that it
cannot be known what may have been the intention or will of the parties, the
contract shall be null and void.
 Reciprocity of Interests:
- Where a contract is susceptible of being interpreted as a sale with right of
repurchase, and as a loan with mortgage, the latter interpretation is to be followed
because it is in favor of the greater reciprocity of interests.
 Least Transmission of Rights:
- Construction which would amount to impairment or loss of right is not favored;
conservation and preservation, not waiver, abandonment or forfeiture of a right, is
the rule.
- The interpretation that a mortgage is gratuitous is to be favored, “to effect the least
possible transmission of rights or interests”
- Where the terms of the contract are not clear on the period of redemption, that
period is to be interpreted as being indefinite or unlimited as it provides for the least
transmission of rights or interests between the contracting parties.
 Intention Unknown:
- A deed of exchange is void or inexistent where the intention of parties relative to the
objects of the exchange cannot be definitely ascertained.
• Ingratuitouscontracts
-Least transmission of rights and interests shall prevail when it is absolutely impossible
to settle doubts and such doubts refer to incidental circumstances of a gratuitous
contract. (1378)
Gacosv.CourtofAppeals,G.R.Nos.8596263,August3,1992
FACTS:
Eladio Gacos owned a 6,584 square meter unregistered land located in Sorsogon.
During the time he was ill sometime he verbally adjudicated to his three daughters,
namely, Petrona, Fortunata and Lucia, their respective inheritance shares by dividing
the property lines from east to west and assigned the northernmost portion to Fortunata,
the middle portion to Lucia, and the southernmost portion to Petrona. Sometime in
1948, or before the land was formally partitioned, Petrona offered to sell to her nephew
in law, son in law of her sister Fortunata, a part of her share which was pointed and
indicated to him. The transaction was consummated in a document written in Spanish
describing therein the land inherited by Petrona as containing an area of 2,720 square
meters.
Before her death, Petrona Gacos, instructed her sister Lucia, who administered the
remaining portion of her property, to sell the small area on the east for her funeral
expenses and novena. After her death, Lucia Gacos, following the wish of her sister,
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sold the said portion of land on the east containing an area of 84 square meters in a
document of sale expressly stating therein that the proceeds were to be spent for said
funeral expenses and novena.
Arnulfo Prieto entered into a 15-year lease contract with his sister Vivencia Prieto
allowing her to use the land for her own purposes. A ricemill was constructed thereon by
Vivencia Prieto. The children of Petrona Gacos, executed a Deed of Extra-judicial
Settlement adjudicating onto themselves the 1/3 undivided portion of the 2,242 square
meters of their mother's share of inheritance from Eladio Gacos after Leonora G.
Briones was informed in 1972 by her aunt, Lucia, that a portion of the land had been
sold to Encarnacion Gacos although Rosario Gacos appeared in the deed of sale as the
vendee, and that a ricemill had been constructed on the land.
ISSUE:
Whether or not there was a perfected gratuitous contract
RULING:
The Court finds the abovequoted articles applicable in the instant case. It must be
observed that the Escritura de Venta Absoluta was consummated in favor of a close
relative being married to the daughter of her sister Fortunata Gacos-Cambal. Thus, in
accordance with Article 1378 of the Civil Code, said contract should be interpreted as to
effect the least possible transmission of rights or interests. If the entire hereditary share
of Petrona was sold on March 13, 1948, as asserted by petitioners, the eastern portion
of her hereditary estate involved could not have been sold. Petitioners never raised any
objection on the exercise of Teodolfo Mendones of his dominical rights over the said
eastern portion when the latter mortgaged the land as collateral for a loan with the Rural
Bank of Bulan, Inc. which was discharged and released.
The Court rejected petitioner's contention that Article 1542 of the Civil Code applies to
support his theory that in case of conflict between the boundaries and the area the
former should prevail. In ruling that only that portion of 500 square meters is included in
the mortgage contract on the basis of the findings that the boundaries relied upon do
not identify the land beyond doubt, the Court applied instead the provisions found in
Article 1372 and Article 1378 of the New Civil Code.
• Inonerouscontracts
-The doubt shall be settled in favor of greater reciprocity of interests (1378)
vii. Whendoubtsarecastupontheprincipalobjectsothatthetrueintention cannotbeknown(1378)

 Reciprocity of Interests
Here a contract is susceptible of being interpreted as a sale with right of repurchase, and
as a loan with mortgage, the latter interpretation is to be followed because it is in favor
of the greater reciprocity of interests.
 Least Transmission of Rights

Construction which would amount to impairment or loss of right is not favored;
conservation and preservation, not waiver, abandonment or forfeiture of right is a rule.
The terms of the contract are not clear on the period of redemption that period is to be
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interpreted as being indefinite or unlimited as it provides for the least transmission of

rights or interests between contracting parties.
 Intention Unknown
A deed of exchange is void or inexistent where the intention of the parties relative to the
objects of the exchange cannot be definitely ascertained.
b. UndertheRulesofCourt(Rule130,Sections10to19)
Section 10. Interpretation of writing according to its legal meaning – The language of a
writing is to be interpreted according to the legal meaning it bears in the place of its
execution, unless the parties intended otherwise.
Section 11. Instrument construed so as to give effect to all provisions – In the

construction of an instrument where there are several provisions or particulars, such a
construction is if possible to be adopted as will give effect to all.
Section 12. Interpretation according to intention; general and particular provisions –

In the construction of an instrument, the intention of the parties is to be pursued; and
when a general and particular provision are inconsistent, the latter is paramount to the
former. So a particular intent will control a general one that is inconsistent with it.
Section 13. Interpretation according to circumstances – For the proper construction of

an. instrument the circumstances under which it was made, including the situation of
the subject thereof and the parties to it, may be shown, so that the judge may be placed
in the position of those whose language he is to interpret
Section 14. Peculiar signification of terms – The terms of a writing are presumed to
have been used in their primary and general acceptation, but evidence is admissible to
show that they have a local, technical, or otherwise peculiar signification, and were so
used and understood in the particular instance, in which case the agreement must be
construed accordingly
Section 15. Written words control printed – When an instrument consists partly of
written words and partly of a printed form and the two are inconsistent, the former
controls the latter
Section 16. Experts and interpreters to be used in explaining certain writings – When
the characters in which an instrument is written are difficult to be deciphered, or the
language is not understood by the court, the evidence of persons skilled in deciphering
the characters, or who understand the language, is admissible to declare the characters
or the meaning of the language.
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Section 17. Of two constructions which preferred – When the terms of an agreement
have been intended in a different sense by the different parties to it, that sense is to
prevail against either party in which he supposed the other understood it, and when
different constructions of a provision are otherwise equally proper, that is to be taken
which is the most favourable to the party whose favour the provision was made.
Section 18. Construction in favor of natural right – When an instrument is equally

susceptible of two interpretations, one in favor of natural right and the other against it,
the former is to be adopted.
Section 19. Interpretation according to usage – An instrument may be construed

according to usage, in order to determine its true character.
E. Reformation of Contracts
1. Requisites(1359)
Art. 1359. When, there having been a meeting of the minds of the parties to a
contract, their true intention is not expressed in the instrument purporting to
embody the agreement, by reason of mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the reformation of the instrument to the
end that such true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the
minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract.
a. Meetingoftheminds - there must be an agreement between parties

b. Trueintentionofthepartiesarenotexpressedintheinstrument
c. Failuretoexpresstrueintentionduetomistake,fraud,inequitableconduct,or accident
- Effects of statute of fraud is no impediment to the reformation of an instrument,

whether by way of correcting a description which by mistake includes property other
than that intended.
Article 1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed.
Requisites:
- That the mistake is one of fact;
- That it was common to both parties; and
Art. 1362. If one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show their true
intention, the former may ask for the reformation of the instrument.
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- If the mistake is unilateral and reformation is sought, it must be shown that the other party
has acted fraudulently or inequitably resulting in the drafting of a document which does not
correspond to the actual contract agreed upon by the parties.
- It must refer to the contents of the instrument, and the subject matter or the conditions of the
agreement; in the latter case an action for annulment of the contract is the remedy.
Art. 1363. When one party was mistaken and the other knew or believed that
the instrument did not state their real agreement, but concealed that fact from
the former, the instrument may be reformed.
- Knowledge by one party of the other’s mistake regarding the expression of the agreement is
equivalent to mutual mistake. Hence, reformation of the contract can be sought by the
injured party.
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on
the part of the person drafting the instrument or of the clerk or typist, the
instrument does not express the true intention of the parties, the courts may
order that the instrument be reformed.
- If the person drafting or typing the instrument is not able to come up with a correct written
document embodying the contract of the parties because of failure to follow instructions or
because of ignorance, lack of skill, negligence or bad faith, the mistake will be deemed to be
mutual, and therefore reformation can be availed of.
Art. 1365. If two parties agree upon the mortgage or pledge of real or personal
property, but the instrument states that the property is sold
Garciav.Bisaya,97Phil.609
FACTS:
On May 20, 1952, plaintiff filed a complaint against the defendants in the CFI of Oriental
Mindoro, alleging that on November 1938, defendants executed with the plaintiff a deed
of sale covering a land therein described; that the said land was not registered under
Act 496, nor under the Spanish Mortgage Law when in truth and in fact said land is a
portion of a big mass of land registered under Original Certificate of Title in the Office of
the Register of Deeds of Oriental Mindoro, that despite persistent demand from plaintiff
to have the error corrected, defendants have refused to do so. Plaintiff prayed for
ordering defendants to make the correction in the deed of sale. Defendants denied
having executed the alleged deed of sale and pleaded prescription as a defense.
Traversing the plea of prescription, plaintiff alleged, among other things, that he "was
without knowledge of the error sought to be corrected at the time the deed of sale was
executed and for many years thereafter," having discovered the said error "only
recently". Without trial on the merits and merely upon motion, the lower court dismissed
the case on the ground that plaintiff's action had already prescribed.
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ISSUE:
Whether the case must be dismissed because of prescription?
RULING:
Yes, but not because of prescription but because of there was no cause of action .An
action to correct an alleged mistake in a deed of sale covering a piece of land,
prescribes in ten years counted from the day it could have been instituted. There being
nothing in the pleadings to show that the error was discovered more than ten years
before the present action was filed the action should not have been dismissed as having
already prescribed before the factual basis for prescription had been established and
clarified by evidence. Appellant's complaint states no cause of action, for it fails to allege
that the instrument to be 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 be real agreement or intention of the
parties. It is not the function of the remedy to make a new agreement, but to establish
and perpetuate the true existing one.
Bentirv.Leande,330SCRA591
FACTS:
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (respondent corporation) filed a
complaint for reformation of instrument, specific performance, annulment of conditional
sale and damages with prayer for writ of injunction against petitioners Yolanda Rosello-
Bentir and the spouses Samuel and Charito Pormida. contract of lease of a parcel of
land with petitioner Bentir for a period of twenty (20) years starting May 5, 1968.
According to Respondent Corporation, the lease was extended for another four (4)
years or until May 31, 1992. On May 5, 1989, petitioner Bentir sold the leased premises
to petitioner spouses Samuel Pormada and Charito Pormada. Respondent corporation
questioned the sale alleging that it had a right of first refusal. Rebuffed, it filed 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 or understanding between the parties that in the event petitioner Bentir
leases or sells the lot after the expiration of the lease, respondent corporation has the
right to equal the highest offer. In due time, petitioners filed their answer alleging that
the inadvertence of the lawyer who prepared the lease contract is not a ground for
reformation. They further contended that respondent corporation is guilty of laches for
not bringing the case for reformation of the lease contract within the prescriptive period
of ten (10) years from its execution.
ISSUE:
Whether the complaint for reformation of instrument has prescribed
RULING:
Yes. The remedy of reformation of an instrument is grounded on the principle of equity
where, to express the true intention of the contracting parties, an instrument already
executed is allowed by law to be reformed. 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. Prescription is
intended to suppress stale and fraudulent claims arising from transactions like the one
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at bar which facts had become so obscure from the lapse of time or defective memory.
In the case at bar, respondent corporation had ten (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 twenty-four (24) years after the cause of action accrued, hence, its
cause of action has become stale, hence, time barred.
Respondent corporation argument that the prescription should run after the extension of
the lease is incorrect because Art. 1670 would not apply as this provision speaks of an
implied new lease (tacita reconduccion) where at the end of the contract, the lessee
continues to enjoy the thing leased "with the acquiescence of the lessor", so that the
duration of the lease is "not for the period of the original contract, but for the time
established in Article 1682 and 1687." In other words, 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. 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
often (10) years provided for in Art. 1144 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 of the contract of lease in 1968.Even if we were to assume for the sake of
argument that the instant action for reformation is not time-barred, respondent
corporation’s action will still not prosper. Under Section 1, Rule 64 of the New Rules of
Court, an action for the reformation of an instrument is instituted as a special civil action
for declaratory relief. 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.
Quirosv.Arjona, 425 SCRA 57

FACTS:
On December 19, 1996, petitioners Proceso Quiros and Leonarda Villegas filed with the
office of the barangay captain of Labney, San Jacinto, Pangasinan, a complaint for
recovery of ownership and possession of a parcel of land located at Labney, San
Jacinto, Pangasinan. Petitioners sought to recover from their uncle Marcelo Arjona, one
of the respondents herein, their lawful share of the inheritance from their late
grandmother Rosa Arjona Quiros alias Doza, the same to be segregated from the
following parcels of land. On January 5, 1997, an amicable settlement was reached
between the parties. By reason thereof, respondent Arjona executed a document
denominated as "PAKNAAN"("Agreement", in Pangasinan dialect)
Petitioners filed a complaint with the MCTC with prayer for the issuance of a writ of
execution of the compromise agreement which was denied because the
subject property cannot be determined with certainty. The RTC reversed the
decision of the municipal court on appeal and ordered the issuance of the writ of
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execution. Respondents appealed to the CA, which reversed the decision of the RTC
and reinstated the decision of the MCTC.
ISSUES:
Whether the failure of the Paknaan to describe with certainty the object of the contract
can nullify the Paknaan?
RULING:
No, the inability of the municipal court to identify the exact location of the inherited
property did not negate the principal object of the contract. This is an error occasioned
by the failure of the parties to describe the subject property, which is correctible by
reformation and does not indicate the absence of the principal object as to render the
contract void. It cannot be disputed that the object is determinable as to its kind, i.e. 1
hectare of land as inheritance, and can be determined without need of a new contract or
agreement. Clearly, the Paknaan has all the earmarks of a valid contract.
Although both parties agreed to transfer one-hectare real property, they failed to include
in the written document a sufficient description of the property to convey. This error is
not one for nullification of the instrument but only for reformation. Reformation is a
remedy in equity whereby a written instrument is made or construed to express or
conform to the real intention of the parties where some error or mistake has been
committed. In granting reformation, the remedy in equity is not making a new contract
for the parties but establishing and perpetuating the real contract between the parties
which, under the technical rules of law, could not be enforced but for such reformation.
In order that an action for reformation of instrument as provided in Article 1359 of the
Civil Code may prosper, the following requisites must concur: (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.
When the terms of an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be, between the parties and their
successors in interest, no evidence of such terms other than the contents of the written
agreement, except when it fails to express the true intent and agreement of the parties
thereto, in which case, one of the parties may bring an action for the reformation of the
instrument to the end that such true intention may be expressed. Both parties
acknowledge that petitioners are entitled to their inheritance, hence, the remedy of
nullification, which invalidates the Paknaan, would prejudice petitioners and deprive
them of their just share of the inheritance. Respondent cannot, as an afterthought, be
allowed to renege on his legal obligation to transfer the property to its rightful heirs. A
refusal to reform the Paknaan under such circumstances would have the effect of
penalizing one party for negligent conduct, and at the same time permitting the other
party to escape the consequences of his negligence and profit thereby. No person shall
be unjustly enriched at the expense of another.
2. WhenReformationisnotallowed(1366)
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Art. 1366. There shall be no reformation in the following cases:

(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void
(1) An action to reform an instrument is in the nature of specific performance and requires a
valuable consideration – an element lacking as between donor and done, and between
testator and beneficiary.
(2) Only imperfect and erroneous descriptions of persons or property can be corrected, but
the manner in which the testator disposes of his property cannot be changed by a
reformation of the instrument.
(3) Upon the reformation the reformation of an instrument, the general rule is that it relates
back and takes effect from the time of its original execution as between the parties.
3. ImpliedRatification(1367)
Article 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
Reason
 Courts deny relief of reformation when the party seeking reformation has brought
an action to enforce the instrument, because there has been an election as
between inconsistent remedies, one in affirmance of the written contract and the
other in disaffirmance. (Implied Ratification)
 The party suing under the written contract may be said to have ratified the same.
 A party seeking to enforce an agreement necessarily acknowledges that the
instrument embodies the contract intended by the parties and therefor, he is
estopped from filing a case for reformation alleging that the contract does not
contain the true intent of the parties.
4. Whomayaskforreformation(1368)
Article 1368. Reformation may be ordered at the instance of either party or his
successors in interest, if the mistake was mutual; otherwise, upon petition of the
injured party, or his heirs and assigns.
 This provides the persons who are given legal standing to initiate an action for
reformation.
Mutual Mistake: either party or successor in interest
Mistake By One: injured party, heirs or assigns
5. Procedureforreformation(1369)
Article 1369. The procedure for the reformation of instruments shall be governed
by rules of court to be promulgated by the Supreme Court.
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 An action for reformation of instrument may be brought in accordance with the

rules on filing a special civil action for declaratory relief.
 In accordance with Rule 63 of the 1997 New Rules of Civil Procedure specifically
promulgated by the Supreme Court which provides that, in action for declaratory
relief, any person interested under a deed, will, contract or other written
instrument, or whose rights are affected by a statue, executive order or
regulation, ordinance or any other governmental regulation may, before beach or
violation thereof, bring an action in the appropriate Regional Trial Court to
determine any question of construction or validity arising, and for the declaration
of his rights and duties, thereunder.
 If before the final termination of the action may thereupon be converted into an
ordinary action, and the parties shall be allowed to file such pleadings as may be
necessary or proper.
Atilanov.Atilano,28SCRA2232
FACTS:
In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot
No. 535 of the then municipality of Zamboanga cadastre. 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.
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. Three other portions were likewise sold to
other persons, 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. Eulogio Atilano II and his children obtained transfer certificate of title
No. 4889 over lot No. 535-E in their names as co-owners. On July 16, 1959, desiring to
put an end to the co-ownership, they had the land resurveyed so that it could properly
be subdivided and 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, 960, the heirs of Eulogio Atilano II filed the present action in the
Court of First Instance 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 an area of 2,612 square meters as
compared to the 1,808 square-meter area of lot No. 535-A. The defendants interposed
a counterclaim, praying that the plaintiffs be ordered to execute in their favor the
corresponding deed of transfer with respect to Lot No. 535-E.
ISSUE:
W/N lot No. 545-A was the real intention of the parties to the sale?
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HELD:
Yes, the Supreme Court said that where the object of the sale, as intended and
understood by the parties, was that specific portion where the vendee was already
residing, where he reconstructed his house at the end of the war, and where his heirs
continued to reside thereafter, namely lot No. 535-A. That its designation as lot No. 535-
E in the deed of sale was a simple mistake in the drafting of the document. Also the
mistake did not vitiate the consent of the parties, or affect the validity and binding effect
of the contract between them. The Court also added that when one sells or buys real
property, a piece of land, for example, one sells or buys the property as he sees it, in its
actual setting and by its physical metes and bounds, 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 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. Wherefore, the Court reversed the judgment made
by the trial court, saying that since the property was registered under the Land
Registration Act, the defendants could not acquire it through prescription, and ordered
the plaintiffs to execute a deed of conveyance of lot No. 535-E in favor of the
defendants, and the latter, in turn, are ordered to execute a similar document, covering
lot No. 535-A, in favor of the plaintiffs.
Carantesv.CourtofAppeals,76SCRA514
FACTS:
The late Mateo Carantes was the original owner of the Lot. No. 44 and was
evidenced by its original certificate of title No. 3 which is situated in Baguio City,
However he died in 1913 leaving Ogasia his widow, and their six children. In 1930,
there is an expansion by the government in the landing field of the Loakan Airport, filed
an expropriation of the said lot portion of which is the Lot. No. 44. The said lot was then
subdivided into Lots. No. 44A,44B,44C,44D,44E for the said purpose.
In 1913, one of the children of Mateo Carantes named Maximino
Carrantes was appointed by as the judicial administrator of the estate of their late father.
Four heirs, namely, Bilad, Lauro, Sianang, and Crisipino, executed a deed denominated
“Assignment of Right to Inheritance” assigning to Maximino their rights over the said lot
in 1939. Maximino sold Lot Nos. 44B and 44C to the government. However, a year later
the Court of First Instance, issued an order cancelling O.C.T. No. 3 and TCT No. 2533
was issued in its place under the joint names of the five children and also the heirs of
the deceased son of Mateo Carantes the one named Apung Carantes.
76
Course Outline
On March 16, 1940 Maximino Carantes, registered the deed of "Assignment of

Right to Inheritance." But the names of the heirs was cancelled, Transfer Certificate of
Title No. 2540 was issued on the same date in the name of Maximino Carantes, the
latter is now acting as the exclusive owner of the land covered by T.C.T. No. 2540, then
executed a formal deed of sale in favor of the Government over Lots Nos. 44-B & 44-C.
ISSUE:
Whether or not the Assignment of Right to Inheritance can be annulled on the
grounds of fraud.
HELD:
Yes. Pursuant to article 1359, which deals on reformation of instruments,
provides in its paragraph 2 that "If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the proper remedy is not reformation of
the instrument but annulment of the contract." When the consent to a contract was
fraudulently obtained, the contract is voidable. Fraud or deceit does not render a
contract void ab initio, and can only be a ground for rendering the contract voidable or
annullable pursuant to article 1390 of the new Civil Code.
Sarmingv.Dy,383SCRA131
FACTS:
Petitioners are the successors-in-interest of original defendant Silveria Flores

while respondents are the successors-in-interest of the original plaintiff Alejandra
Delfino, the buyer of one of the lots subject of this case joined by the descendants of
Venancio and Jose, the brothers of the original defendant Silveria Flores. 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 decided to sell their share to Alejandra
Delfino with the knowledge and permission of Silveria. Silveria even sold her three
coconut trees found in the half portion for P15 during the conference made by Atty.
Pinili. However, Silveria through her daughter, Cristita Corsame, 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. Alejandra Delfino immediately took
possession and introduced improvements on the purchased lot, which was actually one-
half of Lot 4163 instead of Lot 5734 as designated in the deed. 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.
77
Course Outline
ISSUE:
W/N reformation of subject deed is proper by reason of mistake in designating

the correct lot number?
HELD:
Yes, according to the Supreme Court, due to the mistake in the designation of
the lot subject of the deed, reformation of the deed is the proper remedy to reflect the
true intent of the parties. 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. As provided in Article 1359 of the Civil Code, “When, there having been a
meeting of the minds of the parties to a contract, their true intention is not expressed in
the instrument purporting to embody the agreement by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the reformation of the
instrument to the end that such true intention may be expressed. If mistake, fraud,
inequitable conduct, or accident has prevented a meeting of the minds of the parties,
the proper remedy is not reformation of the instrument but annulment of the contract.”
The Court also said that all requisites for an action for reformation are present in
this case. There was a meeting of the minds between the parties to the contract but the
deed did not express the true intention of the parties due to mistake in the designation
of the lot subject of the deed. There is no dispute as to the intention of the parties to sell
the land to Alejandra Delfino but there was a mistake as to the designation of the lot
intended to be sold as stated in the Settlement of Estate and Sale. Also, the very portion
which was pointed to and delivered to Alejandra Delfino by Silveria Flores and her two
children, together with the vendors on January 19, 1956. Moreover, Silveria Flores did
not object when Alejandra Delfino took possession of one-half portion of Lot 4163
immediately after the sale, considering that it was Silveria's son, Michael Corsame, who
developed the area purchased by Alejandra. Through her actions, Silveria Flores 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. The Court concur in the conclusion reached by
the courts a quo that reformation of the instrument is proper. Wherefore, the decision of
the Court of Appeals is affirmed by the Supreme Court with modification regarding
damages.

OBLICON Digest May 09

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Adamson University

Obligations and Contracts

As to substance of object - Invalidates consent if it refers to the

As to the identity or qualifications of one of - For identity/error as to a person –

Mistakes that do not affect the validity of the contract:

GENERAL RULE: Ignoratia legis non neminem excusat

EXCEPTION: Mutual error of law (Art 1334)

Requisites for mutual error of law:

Justa Kausapin disclaims any knowledge of the "Deed of Conveyance of Unregistered

In upholding the deed of conveyance in favor of Maxima Hemedes, Enrique D.

2. That the threatened act be unjust or unlawful;

In July, 1907, it becoming apparent that criminal proceedings would be instituted

The petitioner, however, refused to’accept’such’settlement.

When undue influence vitiates consent

Factors to be considered in determining the existence of undue influence:

Dolo causante or causal fraud refers to those deceptions or misrepresentations of a

Veloso and Franco, therefore, composed a single contracting party in contractual

In view of which, a complaint was filed against the defendant.

This supposed ownership of an exclusive franchise was actually the consideration or

Hence, this petition.

ISSUE: Whether or not private respondent did commit fraudulent misrepresentations

And lastly, private respondent likewise committed a grave misrepresentation when it

Showing the above circumstances, the corporation clearly fraudulently misrepresented.

(Sgd.) SOL EBARLE

(Sgd.) ELE EBARLE.

SUBSCRIBED AND SWORN TO BEFORE ME this 8th day of September

(Sgd.) FRANCISCO B. ZERNA, JR.

 A neglect or failure to communicate that which a party to a contract knows and

"Estoppel by laches," applies in this case. Inexcusable delay in asserting a right

Usual exaggerations in trade:

1. It must be made by an expert;

Assertions concerning the property which is the subject of a contract of sale, or in

nullity of a contract; it merely gives rise to an action for

 Compared with Violence

 Fraud and Violence or Intimidation

 Simulation- the declaration of a fictitious will, deliberately

 Requisites for Simulation

 Absolute Simulation (simulados)- absolutely simulated

 Relative Simulation (desimulados)- relatively simulated

 Two juridical acts involved in relative simulation.

Umaliv.CourtofAppeals, 189 SCRA 529

Article 1348 – Impossible things or services cannot be the object of contracts

NO. Exhibit “A” is not a contract on future inheritance. it is an obligation or promise

JLTAgro,Inc.v.Balansag, 453 SCRA 211

1. Ad esentia, ad solemnitatem – those required for the validity of contracts, such

1. General Rule: Obligatory in whatever form (1356)

2. Exception: When required by law (1356)

Ad esentia, ad solemnitatem—Those required for the validity of contracts, such as

(2) The cession, repudiation or renunciation of hereditary rights or of those of the

Situation What the Court will do

Parties have themselves placed an Follow such interpretation as indicating the

Contracts that is under Purpose of the Contract to be in writing

Resuenav.CourtofAppeals, 454 SCRA 42

Indeed, there is no writing presented to evidence any claim of ownership or right to

• The language of a writing is to be interpreted according to the legal meaning it

1. Vis-à-vis rules on statutory construction

Intent of the Parties

Scope of General Terms

- The contract cannot be construed so as to include matters distinct from

bound by the stipulation of automatic extension as provided in the previous lease

a. How intention is determined (1371)

 For the proper construction of an instrument, the circumstances under which it

OilandNaturalGasCommissionv.CA, 293 SCRA 26