contracts

termination upon death

- Contracts to perform personal acts which cannot be as well performed by others are discharged by the death
of the promissor. Conversely, where the service or act is of such a character that it may as well be performed
by another, or where the contract, by its terms, shows that performance by others was contemplated, death does
not terminate the contract or excuse nonperformance.

Here, no personal act is required from the late Encarnacion Bartolome and the obligation of Encarnacion in the
contract to deliver possession of the subject property to petitioner upon the exercise by the latter of its option to
lease the same may very well be performed by her heir Victor.

ratification

recission

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a period

. The party entitled to rescind should apply to the court for a decree of rescission.The right cannot be exercised
solely on a party’s own judgment that the other committed a breach of the obligation.The operative act which
produces the resolution of the contract is the decree of the court and not the mere act of the vendor. Since a
judicial or notarial act is required by law for a valid rescission to take place, the letter written by respondent
declaring his intention to rescind did not operate to validly rescind the contract.

resiccion distinguish

between rescission under Articles 1381 and 1191 of the Civil Code. Through this case we again emphasize that
rescission of reciprocal obligations under Article 1191 is different from rescissible contracts under Chapter 6 of
the law on contracts under the Civil Code.45 While Article 1191 uses the term rescission, the original term
used in Article 1124 of the old Civil Code, from which Article 1191 was based, was resolution.46 Resolution is
a principal action that is based on breach of a party, while rescission under Article 1383 is a subsidiary action
limited to cases of rescission for lesion under Article 1381 of the New Civil Code,47 which expressly
enumerates the following rescissible contracts:

ART. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more
than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding
number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due
them;

(4) Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.

Obviously, the Kasunduan does not fall under any of those situations mentioned in Article 1381. Consequently,
Article 1383 is inapplicable. Hence, we rule in favor of the respondents.

May the contract entered into between the parties, however, be rescinded based on Article 1191?

A careful reading of the Kasunduan reveals that it is in the nature of a contract to sell, as distinguished from a
contract of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to
the vendee until full payment of the purchase price.48 In a contract to sell, the payment of the purchase price is
a positive suspensive condition,49 the failure of which is not a breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring an obligatory force.50

obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that
obligation.52 Failure to pay, in this instance, is not even a breach but an event that prevents the vendor’s
obligation to convey title from acquiring binding force.53 Hence, the agreement of the parties in the instant
case may be set aside, but not because of a breach on the part of petitioners for failure to complete payment of
the second installment. Rather, their failure to do so prevented the obligation of respondents to convey title
from acquiring an obligatory force.54

sale of levy propety is fraudulent

YES
Ratio A conveyance is fraudulent if it is a trick and contrivance to defeat creditors, or if it conserves to the
debtor a special right. If defective in either of these particulars, although good between the parties involved in
the conveyance, it is voidable as to creditors.

Reasoning The following are some of the circumstances attending sales which have been denominated by the
courts badges of fraud:
> the fact that the consideration of the conveyance is fictitious/inadequate
> a transfer made by a debtor after suit has been begun, and while it is pending against him
> a sale upon credit by an insolvent debtor
> evidence of large indebtedness or complete insolvency
> the transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly
embarrassed financially
> the fact that the transfer is made between father and son, when there are present other of the above
circumstances
> the failure of the vendee to take exclusive possession of all the property

- The case at bar presents every one of the badges of fraud above enumerated. Tested by the inquiry, does the
sale prejudice the rights of creditors, the result is clear. The sale in the form in which it was made leaves the
creditors substantially without recourse.
 FRAUD - ACTION WHICH ARE RECESSIBLE

the contracts which are rescissible, and among them are "those contracts undertaken in fraud of creditors when
the latter cannot in any other manner collect the claims due them."

The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the
following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the alienation,
although demandable later; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a
third person; (3) the creditor has no other legal remedy to satisfy his claim; (4) the act being impugned is
fraudulent; (5) the third person who received the property conveyed, if it is by onerous title, has been an
accomplice in the fraud.

The general rule is that rescission requires the existence of creditors at the time of the alleged fraudulent
alienation, and this must be proved as one of the bases of the judicial pronouncement setting aside the contract.
Without any prior existing debt, there can neither be injury nor fraud. While it is necessary that the credit of
the plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date of the judgment
enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with
retroactive effect to the date when the credit was constituted.

In the instant case, the alleged debt of Lim in favor of petitioner was incurred in August 1990, while the deed
of donation was purportedly executed on 10 August 1989.

The Supreme Court is not convinced with the allegation of the petitioner that the questioned deed was
antedated to make it appear that it was made prior to petitioner's credit. Notably, that deed is a public
document, it having been acknowledged before a notary public. As such, it is evidence of the fact which gave
rise to its execution and of its date, pursuant to Section 23, Rule 132 of the Rules of Court.

In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not enough to
overcome the presumption as to the truthfulness of the statement of the date in the questioned deed, which is
10 August 1989. Petitioner's claim against Lim was constituted only in August 1990, or a year after the
questioned alienation. Thus, the first two requisites for the rescission of contracts are absent.

Even assuming arguendo that petitioner became a creditor of Lim prior to the celebration of the contract of
donation, still her action for rescission would not fare well because the third requisite was not met. Under
Article 1381 of the Civil Code, contracts entered into in fraud of creditors may be rescinded only when the
creditors cannot in any manner collect the claims due them. Also, Article 1383 of the same Code provides that
the action for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same. The term "subsidiary remedy" has been
defined as "the exhaustion of all remedies by the prejudiced creditor to collect claims due him before
rescission is resorted to." It is, therefore, essential that the party asking for rescission prove that he has
exhausted all other legal means to obtain satisfaction of his claim. Petitioner neither alleged nor proved that
she did so. On this score, her action for the rescission of the questioned deed is not maintainable even if the
fraud charged actually did exist." The fourth requisite for an accion pauliana to prosper is not present either.

CAPACITY TO GIVE CONSENT-to both not alone

According to Art. 1390 of the Civil Code, among the voidable contracts are "[T]hose where one of the parties
is incapable of giving consent to the contract." (Par. 1.) In the instant case-Gimena had no capacity to give
consent to the contract of sale. The capacity to give consent belonged not even to the husband alone but to both
spouses.
 3rd PARTY STANDING TO ANNUL CONTRACT

3. NO
Ratio A contract cannot be assailed by one who is not a party thereto. However, when a contract prejudices the
rights of a third person, he may file an action to annul the contract.
Reasoning This Court has held that a person, who is not a party obliged principally or subsidiarily under a
contract, may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of
the contracting parties, and can show detriment which would positively result to him from the contract in
which he has no intervention.
-The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the
properties of the partnership "Isabela Sawmill" in favor of Margarita G. Saldajeno by the remaining partners,
Leon Garibay and Timoteo Tubungbanua, hence, they have a right to file an action to nullify the chattel
mortgage.

3RD PARTY RIGHTS TO A CONTRUCT

He who is not the party obligated principally or subsidiarily in a contract may perhaps be entitled to exercise
an action for nullity, if he is prejudiced in his rights with respect to one of the contracting parties; but, in order
that such be the case, it is indispensable to show the detriment which positively would result to him from the
contract in which he had no intervention

xxx xxx xxx

(Emphasis supplied)

There is an important and clear, albeit implicit, limitation upon the right of a person who is in fact injured by
the very operation of a contract between two (2) third parties to sue to nullify that contract: that contract may
be nullified only to the extent that such nullification is absolutely necessary to protect the plaintiff's lawful
rights. It may be expected that in most instances, an injunction restraining the carrying out of acts in fact
injurious to the plaintiff's rights would be sufficient and that there should be no need to set aside the contract
itself which is a res inter alios acta and which may have any number of other provisions, implementation of
which might have no impact at all upon the plaintiff's rights and interests.

REDEMPTION MADE B THE MINORS

Any action for the annulment of the contracts thus entered into by the minors would require that: (1) the
plaintiff must have an interest in the contract; and (2) the action must be brought by the victim and not the
party responsible for the defect.23 Thus, Article 1397 of the Civil Code provides in part that "[t]he action for
the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily.
However, persons who are capable cannot allege the incapacity of those with whom they contracted." The
action to annul the minors’ redemption in 1973, therefore, was one that could only have been initiated by the
minors themselves, as the victims or the aggrieved parties in whom the law itself vests the right to file suit.
This action was never initiated by the minors. We thus quote with approval the ratiocination of the Court of
Appeals:

(Respondents contend that the redemption made by the petitioners was simulated, calculated to avoid the
effects of agrarian reform considering that at the time of redemption the latter were still minors and could not
have resources, in their own right, to pay the price thereof.)

We are not persuaded. While it is true that a transaction entered into by a party who is incapable of consent is
voidable, however such transaction is valid until annulled. The redemption made by the four petitioners has
never been annulled, thus, it is valid.24
 ESSENTIAL REQUISITE

Total absence of consideration is what renders a contract absolutely void and

inexistent.
Reasoning The CA points out that the deed of assignment is void ab initio and inexistent on the grounds that
real consent was wanting and the consideration of P1.00 is so shocking to the conscience that there was in fact
no consideration, hence the action for declaration of its inexistence does not prescribe.
BUT the sum of P1.00 is clear evidence that there was no absence of consideration. In addition, the document
recites that the decedent Mateo Carantes had, during his lifetime, expressed to the signatories to the contract
that the property subjectmatter thereof rightly and exclusively belonged to petitioner Maximino Carantes.
This acknowledgment by the signatories definitely constitutes valuable consideration for the contract. As for
fraud and the prescription of action, the Court agrees with the RTC.

INTEREST
Petitioner insists that in computing the interest due should be computed at 6% on the principal sum pursuant to
Article 2209 and then interest on the legal interest should also be computed in accordance with the language of
article 2212 of the Civil Code. In view of this means Compound interest.

In cases where no interest had been stipulated by the parties, no accrued conventional interest could further
earn interest upon judicial demand.

CONTRACT PERFECTION BY MERE CONSENT

Ruling:

The parties had agreed on the three elements of subject matter, price, and terms of payment. Hence, the
contract of sale was perfected, it being consensual... in nature, perfected by mere consent, which, in turn, was
manifested the moment there was a meeting of the minds as to the offer and the acceptance thereof

The perfection of the sale is not negated by the fact that the property subject of the sale was... not yet in
existence.

his is so because the ownership by the seller of the thing sold at the time of the perfection of the contract of
sale is not an element of its perfection. A perfected contract of sale cannot be challenged on the ground of non-
ownership on the... part of the seller at the time of its perfection.

What the law requires is that the seller has the right to transfer ownership at the time the thing is delivered.
Perfection per se does not transfer ownership which occurs upon the actual or constructive... delivery of the
thing sold.

Principles:

The parties had agreed on the three elements of subject matter, price, and terms of payment. Hence, the
contract of sale was perfected, it being consensual... in nature, perfected by mere consent, which, in turn, was
manifested the moment there was a meeting of the minds as to the offer and the acceptance thereof.[35] The
perfection of the sale is not negated by the fact that the property subject of the sale was... not yet in existence.
This is so because the ownership by the seller of the thing sold at the time of the perfection of the contract of
sale is not an element of its perfection. A perfected contract of sale cannot be challenged on the ground of non-
ownership on the... part of the seller at the time of its perfection. What the law requires is that the seller has
the right to transfer ownership at the time the thing is delivered. Perfection per se does not transfer ownership
which occurs upon the actual or constructive... delivery of the thing sold.[36]
In a contract of sale, until and unless the contract is resolved or rescinded in accordance with law, the vendor
cannot recover the thing sold even if the vendee failed to pay in full the initial payment for the property. The
failure of the buyer to pay the purchase price... within the stipulated period does not by itself bar the transfer of
ownership or possession of the property sold, nor ipso facto rescind the contract
RECISSION

Raymundo may choose either

(1) demand fulfillment of the contract, or (2) demand its rescission (Article 1191,... Civil Code)... cannot be
used as an excuse
In said letter, Velarde registered their willingness to pay the balance in cash but enumerated 3 new conditions...
new agreement which is subject to the consent or approval of Raymundo... there can be no novation because
there was no agreement of all the parties to the new contract... automatic rescission... vendee may still pay... for
as long as no demand for rescission of the contract has been made upon him

(Article 1592, Civil Code)

Raymundo sent Velarde a notarial notice dated January 8, 1987 of cancellation/rescission of the contract due to
the latter's failure to comply with their obligation... substantial and fundamental... agreement of the parties
involved a reciprocal obligation... non-fulfillment... rescind the contract

Velarde having violated the contract, they have lost their right... to its enforcement... cannot avail of the action
for specific performance

In the present case, private respondents validly exercised their right to rescind the contract, because of the
failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the
latter violated the very essence of reciprocity in the... contract of sale, a violation that consequently gave rise to
private respondents' right to rescind the same in accordance with law.

RECISSON ON THE GROUND OF MINORITY

ISSUE
WON the plaintiff might have the right to rescind this contract on the ground of minority
NO.
The right of the minor to rescind, upon attaining his majority, a contract entered into during his minority is
subject to to the conditions (1) that the election to rescind must be made within a reasonable time after majority
and (2) that all of the consideration which was in the minor's possession upon his reaching the majority must
be returned. The disposal of any part of th econsideration after the attainment of majority imports an
affirmance of the contract.
Reasoning Because, with full knowledge of his rights in the premises, he failed to disaffirm his contract within
a reasonable time after reaching majority; and Because he not only failed to tender, or offer, to produce and
pay the consideration in esse when he reached majority, and when he filed his action, but proceeded, after such
events, to demand, collect and dispose of such consideration, when according to his own statement under oath
he had no other funds with which to make reimbursement.

STATUTES OF FRAUDS(rule which prohibits testimony against deceased persons)

Besides, even if the action were for specific performance, it was premature for the respondent Judge to dismiss
the complaint by reason of the Statute of Frauds despite the explicit allegations of partial payment. As this
Court stated in Carbonnel vs. Poncio, et al.: 21

For obvious reasons, it is not enough for a party to allege partial performance in order to hold that there has
been such performance and to render a decision declaring that the Statute of Frauds is inapplicable. But neither
is such party required to establish such partial performance by documentary proof before he could have the
opportunity to introduce oral testimony on the transaction. Indeed, such oral testimony would usually be
unnecessary if there were documents proving partial performance. Thus, the rejection of any and all
testimonial evidence on partial performance, would nullify the rule that the Statute of Frauds is inapplicable to
contracts which have been partly executed, and lead to the very evils that the statute seeks to prevent.

xxx xxx xxx

When the party concerned has pleaded partial performance, such party is entitled to a reasonable chance to
establish by parol evidence the truth of this allegation, as well as the contract itself. "The recognition of the
exceptional effect of part performance in taking an oral contract out of the statute of frauds involves the
principle that oral evidence is admissible in such cases to prove both the contract and the part performance of
the contract" (49 Am. Jur. 927).

We thus rule that an action by a withdrawing party to recover his partial payment of the consideration of a
contract, which is otherwise unenforceable under the Statute of Frauds, by reason of the failure of the other
contracting party to comply with his obligation, is not covered by the Statute of Frauds.

FORMS - GUARANTEE

ISSUES Whether or not a guaranty was established; and

Whether or not it is enforceable since it was not in writing

RULING Petition is GRANTED. Under Sec. 335 of Act No. 195, in cases an agreement has been entered,
such should be made in writing otherwise, it would be unenforceable. Hence, any evidence obtained, in this
case for a debt, cannot be received without the writing or secondary evidence of its contents. In order to
ascertain the provision’s application, there must be a determination whether the promise is an original or a
collateral one.

If the promise is an original or independent one, whereby the promisor is primarily liable for payment of debt,
the promise is not within the statute. On the other hand, if it is collateral, whereby the promisor acts as a surety,
the promise must be in writing. The ultimate question is: “Upon whose credit the goods were sold or the
money advanced, or whatever other thing done which the defendant by his promise procured be done?” This
can be determined from the language and expression used by the parties and from the examination of the
circumstance showing the understanding of the parties.

The Court is convinced that the credit for the lumber delivered by the plaintiff to the contractor was extended
SOLELY and EXCLUSIVELY to the defendant under verbal agreement and under the provisions of the statute,
it need not be in writing. It is clear that the contractor was unable to secure credit so the payment for lumber
was clearly undertaken by the defendant

STATUTES OF FRAUD

Here, however, the alleged fraud is predicated upon the existence of the agreement itself which violates the
rule of petitio principii. Evidently, the fraud to exist must be established by evidence aliunde and not by the
same evidence which is to sought to be prevented. The infringement of the rule is evident.

. . . The reason for this rule is that "if death has closed the lips of one party, the policy of the law is to close the
lips of the other.' Another reason is that `the temptation to falsehood and concealment in such cases is
considered too great to allow the surviving party to testify in his own behalf.' Accordingly, the incompetency
applies whether the deceased died before or after the commencement of the action against him, if at the time
the testimony was given he was dead and cannot disprove it, since the reason for the prohibition, which is to
discourage perjury, exists in both instances. (Moran, Comments on the Rules of Court, Vol. 3, 1952 Ed., p.
234.).lawphi1.net

FORM, STATUTES OF FRAUD, PARTIAL PERFORMANCE

WON the lower court erred in holding that the Statute of Frauds bars the plaintiff’s cause of action.
HELD
YES
Ratio The Statute of Frauds is applicable only to executory contracts not to contracts that are totally or partially
performed.
Reasoning “It is well settled in Great Britain and in this country, with the exception of a few states, that a
sufficient part performance by the purchaser under a parol contract for the sale of real estate removes the
contract from the operation of the statute of frauds." (49 Am. Jur. 722-723.)
- In the words of former Chief Justice Moran: "The reason is simple. In executory contracts there is a wide
field for fraud because unless they be in writing there is no palpable evidence of the intention of the
contracting parties. The statute has precisely been enacted to prevent fraud." (Comments on the Rules of Court,
by Moran, Vol. 111 [1957 ed.], p. 178.) However, if a contract has been totally or partially performed, the
exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the
benefits already derived by him from the transaction in litigation, and, at the same time, evade the obligations,
responsibilities or liabilities assumed or contracted by him thereby.
- For obvious reasons, it is not enough for a party to allege partial performance in order to hold that there has
been such performance and to render a decision declaring that the Statute of Frauds is inapplicable. But neither
is such party required to establish such partial performance by documentary proof before he
could have the opportunity to introduce oral testimony on the transaction. Indeed, such oral testimony would
usually be unnecessary if there were documents proving partial performance. Thus, the rejection of any and all
testimonial evidence on partial performance, would nullify the rule that the Statute of Frauds is inapplicable
to contracts which have been partly executed, and lead to the very evils that the statute seeks to prevent.
- The true basis of the doctrine of part performance according to the overwhelming weight of authority, is that
it would be a fraud upon the plaintiff if the defendant were permitted to escape performance of his part of the
oral agreement after he has permitted the plaintiff to perform in reliance upon the agreement. The oral contract
is enforced in harmony with the principle that courts of equity will not allow the statute of frauds to be used as
all instrument of fraud. In other words, the doctrine of part performance was established for the same purpose
for which the statute of frauds itself was enacted, namely, for the, prevention of, and fraud, and
arose from the necessity of preventing, the statute from becoming an agent of fraud for it could not have been
the intention of the statute to enable any party to commit a fraud with impunity." (49 Am. Jur., 725-726; italics
supplied.)
- When the party concerned has pleaded partial performance, such part is entitled
to a reasonable chance to establish by parol evidence the truth of this allegation, as
well as the contract itself. "The recognition of the exceptional effect of part
performance in taking an oral contract out of the statute of frauds involves the
principle that oral evidence is admissible in such cases to prove both the contract
and the part performance of the contract" (49 Am. Jur., 927).
- Upon submission of the case for decision on the merits, the Court should
determine whether said allegation is true, bearing in mind that parol evidence is
easier to concoct and more likely to be colored or inaccurate than documentary
evidence. If the evidence of record fails to prove clearly that there has been partial
performance, then the Court should apply the Statute of Frauds, if the cause of
action involved falls within the purview thereof. If the Court is, however, convinced
that the obligation in question has been partly executed and that the allegation of
partial performance was not resorted to as a devise to circumvent the Statute, then
the same should not be applied.
- Apart from the foregoing, there are in the case at bar several circumstances
indicating that plaintiff's claim might not be entirely devoid of factual basis. Thus,
for instance, Poncio admitted in his answer that plaintiff had offered several times
to purchase his land. The fact that Poncio’s bank book is with the plaintiff should be
also clarified in a full trial.- Without expressing any opinion on the merits of plaintiff's claim, it is clear,
therefore, that she is entitled, legally as well as from the viewpoint of equity, to an
opportunity to introduce parol evidence in support of the allegations of her second
amended complaint. Wherefore, the order appealed from is hereby set aside, and
let this case be REMANDED to the lower court for further proceedings not
inconsistent with this decision, with the costs of this instance against defendantsappellees.
It is so ordered.

PARI DELICTO - DEMOLISH ILEGAL STRUCTURE IN THE EASE PROPETY

ISSUE: Whether or not Menchavez is liable for Teves for the sheriff’s act of demolishing the constructed
dikes.

HELD: No. A void contract is deemed legally non-existent. It produces no legal effect. As a general rule,
courts leave parties to such a contract as they are, because they are in pari delicto or equally at fault. Neither
party is entitled to legal protection.

RATIO: The defendants ought to have known that they cannot lease what does not belong to them for as a
matter of fact, they themselves are still applying for a lease of the same property under litigation from the
government. On the other hand, Florentino Teves, being fully aware that petitioners were not yet the owners,
had assumed the risks and under the principle of VOLENTI NON FIT INJURIA NEQUES DOLUS — He who
voluntarily assumes a risk, does not suffer damages thereby. As a consequence, when Teves leased the fishpond
area from petitioners — who were mere holders or possessors thereof, he took the risk that it may turn out later
that his application for lease may not be approved. Unfortunately however, even granting that the lease of
petitioners and their application in 1972 were to be approved, still they could not sublease the same. In view
therefore of these, the parties must be left in the same situation in which the court finds them, under the
principle IN PARI DELICTO NON ORITOR ACTIO, meaning: Where both are at fault, no one can found a
claim.

CAUSA - PARI DEICTO

Whether or not the conveyance was predicated on illegal causa.

RULING:

Yes. Conchita Liguez entitled to so much of the donated property as may be found, upon proper liquidation,
not to prejudice the share of the widow Maria Ngo in the conjugal partnership or the legitimes of Salvador’s
forced heirs. Under the cited Art. 1274, liberality of the donor is deemed causa only in contracts that are of
“pure” beneficence, or contracts designed solely and exclusively to procure the welfare of the beneficiary,
without any intent of producing any satisfaction for the donor.

In this case, Salvador was not moved exclusively by the desire to benefit Conchita, but also to secure her
cohabiting with him, and so that he could gratify his sexual impulses. This is clear from Salvador’s confession
to two witnesses that he was in love with her but her parents would not agree unless he donated the land in
question to her. Actually, therefore, the donation was but one part of an onerous transaction (at least with
Conchita’s parents) that must be viewed in its totality. Thus considered, the conveyance was clearly predicated
upon an illicit causa. Lopez would not have conveyed the property in question had he known that Conchita
would refuse to cohabit with him. The cohabitation was an implied condition to the donation and being
unlawful, necessarily tainted the donation.

Moreover, the CA erred in applying the pari delicto rule. It cannot be said that both parties had equal guilt.
Salvador was a man advanced in years and mature experience, and Conchita was only 16 when the donation
was made. Her acceptance of the deed does not imply knowledge of conditions and terms not set forth therein.
Witnesses testified that it was Conchita’s parents who insisted on the donation. The rule that parties to an
illegal contract, if equally guilty, will not be aided by the law but will both be left where it finds them, has been
interpreted by this Court as barring the party from pleading the illegality of the bargain either as a cause of
action or as a defense. But where the plaintiff can establish a cause of action without exposing its illegality, the
vice does not affect the right to recover.

NOT IN PARI DELICTO

‘In Pari delicto potior est conditio defendentis’: The proposition is universal that no action arises, in equity
or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money agreed to be paid, or
damages for its violation. No affirmative relief of any kind will be given to one against the other.

- The doctrine is subject to one important limitation: whenever public policy is considered as advanced by
allowing either party to sue for relief against the transaction. The cases in which this limitation may apply
include the class of contracts which are intrinsically contrary to public policy, contracts in which the illegality
itself consists in their opposition to public policy, and any other species of illegal contracts in which, from their
particular circumstances, incidental and collateral motives of public policy require relief, e.g. usurious
contracts, marriagebrokerage contracts and gambling contracts.
- The contract in question does not come under this exception because it is not intrinsically contrary to public
policy, It is illegal because it is against the Constitution. Nor may it be contended that to apply the doctrine of
pari delicto would be tantamount to contravening the fundamental policy embodied in the constitutional
prohibition in that it would allow an alien to remain in the illegal possession, of the land, because in this case
the remedy is lodged elsewhere. To adopt the contrary view would be merely to benefit petitioner and not to
enhance public interest.

2.
Ratio The petitioner is prohibited from invoking Pari Delicto.
Reasoning There are at present two ways by which this situation may be remedied:
action for reversion; escheat to the state.
- Escheat proceedings may be instituted as a consequence on a violation of article XIII, section 5 of our
Constitution, which prohibits transfers of private agricultural lands to aliens, whereas an action for reversion is
expressly authorized by the Public Land Act. Escheat is an incident or attribute of sovereignty, and rests on the
principle of the ultimate ownership by the state of all property within its jurisdiction.
- If escheat lies against aliens holding lands in those states of the Union where common law prevails or where
similar constitutional or statutory prohibitions exist, no cogent reason is perceived why similar proceedings
may not be instituted in this jurisdiction.
- By following either of these remedies, or by approving an implementary law as above suggested, we can
enforce the fundamental policy of our Constitution regarding our natural resources without doing violence to
the principle of pari delicto. With these remedies there is no justifiable reason for pursuing the extreme unusual
remedy now vehemently urged by the amici curiae.
Disposition The sale in question is null and void, but plaintiff is barred from taking
the present action under the principle of pari delicto.

ESSENTIAL REQUISITE OF A CONTRACTS

1. WON the provision “lessee may at any time withdraw from the agreement” makes the contract invalid

1. NO
Ratio The stipulation in the contract does not violate Art.1308 CC, for it is considered as a resolutory condition
to the contract, permitting the cancellation of such contract.
Reasoning It is claimed that the stipulation offends Art. 1308 CC which provides that "the contract must bind
both contracting parties; its validity or compliance cannot be left to the will of one of them." As was held in
Taylor v Uy Tiong Piao, “art. 1256 [now art. 1308] CC in our opinion creates no impediment to the insertion in
a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of
the parties. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of the
contract dependent upon the will of the party to whom is conceded the privilege of cancellation; for where the
contracting parties have agreed that such option shall exist, the exercise of the option is as much in the
fulfillment of the contract as any other act which may have been the subject of agreement, Indeed, the
cancellation of a contract in accordance with conditions agreed upon beforehand is fulfillment.”
The right of the lessee to continue the lease or to terminate it is so circumscribed by the term of the contract
that it cannot be said that the continuance of the lease depends upon his will. At any rate, even if no term had
been fixed in the agreement, this case would at most justify the fixing of a period but not the annulment of the
contract.

2. WON the property cannot be leased for being in custodio legis, thus making contract of lease void
3. WON contracts are void for being violative of fiduciary relationship, contrary to Art. 16468
4. WON consent of Santos was valid
5. WON the contracts are void for trying to circumvent Philippine laws against alienation of property to
foreigners

2. NO
Ratio Ownership of the property (that used to belong to her sister) transferred to Santos upon the death of the
sister, thus enabling her to bind such in contracts
Reasoning Santos became the owner of the entire property upon the death of her sister Lorenza on September
22, 1957 by force of art. 777 CC. Hence, when she leased the property on NoV15, she did so already as owner
thereof.
3. NO
Ratio Art.1646 is not violated for Wong was never an agent for Santos.
Reasoning The relationship of the parties, although admittedly close and confidential, did not amount to an
agency so as to bring the case within the prohibition of the law. Atty. Yumol testified that she signed the lease
contract in the presence of her close friend and her maid who was constantly by her side. Any of them could
have testified on the undue influence that Wong supposedly wielded over Santos, but neither of them was
presented as a witness. The truth is that even after giving his client time to think the matter over, the lawyer
could not make her change her mind.
4. YES
Ratio Consent given by her voluntarily and on well-informed bases, as shown by the testimonies of her lawyer,
is valid.
Reasoning There is no merit in the claim that her consent to the lease contract, as well as to the rest of the
contracts in question, was given out of a mistaken sense of gratitude to Wong who, she was made to believe,
had saved her and her sister from a fire that destroyed their house during the liberation of Manila. As it was
with the lease contract so it was with the rest of the contracts - the consent of Santos was given freely and
voluntarily.
As Atty. Alonzo, testifying for her, said: “In nearly, all documents, it was either Wong or Judge Torres [who]
… used to tell me what the documents should contain. But, … , I would always ask the old woman about them
and invariably the old woman used to tell me: “That’s okay. It’s all right.”
5. YES, contracts are void
Ratio The collection of contracts, as well as the intentions of Santos, shows a scheme to circumvent the
Constitutional prohibition against the transfer of land of aliens, thus making each contract void.
Reasoning “The illicit purpose then becomes the illegal cause rendering the contracts void.” Taken singly, the
contracts show nothing that is necessarily illegal, but considered collectively, they reveal an insidious pattern
to subvert by indirection what the Constitution directly prohibits. To be sure, a lease to an alien for a
reasonable period is valid, so is an option giving an alien the right to buy real property on condition that he is
granted Philippine citizenship. However, if an alien is given not only a lease of, but also an option to buy, a
piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last
for 50 years, then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner
divests himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus
abutendi), but also of the right to dispose of it (jus disponendi) rights the sum total
of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day,
the disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an
alien. And yet this is just exactly what the parties in this case did within this pace of one year, with the result
that Santos’ ownership of her property was reduced to a hollow concept. If this can be done, then the
Constitutional ban against alien landholding in the Phil, as announced in Krivenko, is in grave peril.
Disposition: Contracts annulled and set aside.

PROHIBITED SALE CONTRACT

HELD
Ratio The sales of three parcels of land in favor of the petitioner who is a foreigner is illegal per se. The
transactions are void ab initio because they were entered into in violation of the Constitution . Thus, to allow
the petitioner to recover the properties or the money used in the purchase of the parcels of land would be
subversive of public policy. Art 1416 applies only to those contracts which are merely prohibited, in order to
benefit private interests. It does not apply to contracts void ab initio
Reasoning Lands of the public domain, which include private lands, may be transferred or conveyed only to
individuals or entities qualified to acquire or hold private lands or lands of the public domain. Aliens, whether
individuals or corporations, have been disqualified from acquiring lands of the public domain

ONEROUS CONTRACT - ESSENTIAL ELEMENTS

ISSUE
WON the promise made by defendant-appellant is the sufficient consideration contemplated under Art. 1261
(as an essential element for the legal existence of an onerous contract which would bind the promisor to
comply with his promise)
HELD
NO
Ratio A mere moral obligation or conscientious duty arising wholly from ethical motives or a mere
conscientious duty unconnected with any legal obligation, will not furnish a consideration for executory
promise.
Reasoning The promise made by an organizer of a dog racing course to a stockholder to return to him certain
amounts paid by the latter in satisfaction of his subscription upon the belief of said organizer that he was
morally responsible because of the failure of the enterprise, is not the consideration required by article
1261 of the Civil Code as an essential element for the legal existence of an onerous contract which would bind
the promisor to comply with his promise.
-The promise which defendant-appellant made to the plaintiff-appellee was prompted by a feeling of pity,
resulting from the loss which the latter had suffered because of the failure of the enterprise. The obligation
which said defendantappellant had contracted with the plaintiff-appellee is, therefore, purely moral and, as
such, not demandable in law but only in conscience, over which human judges have no jurisdiction.
MORAL OBLIGATION -ORIGINAL DEBT PRESCRIBE

ISSUE
WON Villaroel should pay the amount despite the prescription of the original debt
HELD
- The present action is not based on the original obligation contracted by the mother Villaroel, which has
prescribed, but on that which he contracted on August 9, 1930 when assuming the fulfillment of that
obligation. Being the sole heir of the indebted one, with right her inheritance, that debt which was contracted
by his mother legally, although no longer effective by prescription, now is, nevertheless, a moral obligation.
That consideration is sufficient to create and to make his obligation voluntarily contracted, effective August of
1930.
- The rule in which a new promise to pay a prescribed debt must be done only by the same person or another
who is legally authorized by her, is not applicable to the present case, because Villaroel voluntarily wanted to
assume this obligation.
Disposition The appealed sentence is confirmed, with costs to the apellant.

EXCEPTION TO ESTOPPEL

2. WON the City of Manila is estopped from questioning the validity of the sale it
executed on July 13, 1911 conveying the subject property to the Manila Lodge No.
761, BPOE

2. NO
Ratio The Government is never estopped by mistakes or errors on the part of its agents and estoppel does not
apply to a municipal corporation to validate a contract that is prohibited by law or its against public policy.
Reasoning The sale of July 13, 1911 executed by the City of Manila to Manila Lodge was certainly a contract
prohibited by law. Estoppel cannot be urged even if
the City of Manila accepted the benefits of such contract of sale and the Manila Lodge No. 761 had performed
its part of the agreement, for to apply the doctrine of estoppel against the City of Manila in this case would be
tantamount to enabling it to do indirectly what it could not do directly. The sale of the subject property
executed by the City of Manila to the Manila Lodge No. 761, BPOE, was void and inexistent for lack of
subject matter. [a park is outside the commerce of man] It suffered from an incurable defect that could not be
ratified either by lapse of time or by express ratification. The Manila Lodge No. 761 therefore acquired no
right by virtue of the said sale. Hence to consider now the contract inexistent as it always has been, cannot be
an impairment of the obligations of contracts, for there was in contemplation of law, no contract at all. The
inexistence of said sale can be set up against anyone who asserts a right arising from it, not only against the
first vendee, the Manila Lodge No. 761, BPOE, but also against all its Successors, including the TDC, which
are not protected by law. The doctrine of bone fide purchaser without notice, being claimed by the TDC, does
not apply where there is a total absence of title in the vendor, and the good faith of the purchaser TDC cannot
create title where none exists. The restoration or restitution of what has been given is in order.
3. NO. We have shown in our discussion of the first issue that the decision of the trial court is fully in
accordance with law. It follows that when such decision was affirmed by the CA, the affirmance was likewise
in accordance with law. Hence, no useful purpose will be served in further discussing this issue.

LACHES-
Notwithstanding these errors, the Court believes that the judgment in favor of Agyapao should be sustained.
Despite the invalidity of the sale, Bacaquio suffered Agyapao to enter, posses and enjoy the land without
protest from 1928-1943, and the appellants in turn took no steps to reivindicate the lot from 1944-1962. As
held in Mejia de Lucas v. Gamponia, even granting that the title does not prescribe, their inaction of 34 years
justifies the defendant’s equitable defense of laches, wherein the original owner’s right to recover the property
has been converted into a stale demand

As in the Gamponia case, the four elements of laches are present in the case at bar, namely: (a) conduct on the
part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made
and for which the complaint seeks a remedy; (b) delay in asserting the complainant's rights, the complainant
having had knowledge or notice, of the defendant's conduct and having been afforded an opportunity to
institute a suit; (c) lack of knowledge or notice on the part of the defendant that the complainant would assert
the right on which he bases his suit; and (d) injury or prejudice to the defendant in the event relief is accorded
to the complainant, or the suit is not held to be barred.
- In the present case, the appellants knew the 1928 sale was invalid and did not have to wait for 34 years to
institute a suit, clearly bringing prejudice to the defendant who was made to feel secure of his ownership over
the lot.
- As held in Nielson & Co. v. Lepanto Consolidated Mining Co., prescription is concerned with the fact of
delay (matter of time), while laches with the effect of delay (a question of inequity), and thus both apply
independently of each other.
- Since the appellants are barred from recovery, the Court was justified in ordering that Bacaquio’s certificate
be cancelled and the new transfer certificate in defendant’s name be issued by the Register of Deeds.

ESTOPPEL

·On issue of estoppel: Estoppel can only be invoked between the person making the misrepresentation and the
person to whom it was addressed. It is essential that the latter shall have relied upon the misrepresentation and
had been influenced and misled thereby
oNo showing that respondent intentionally and deliberately led the Mendozas to believe what was in the
pleading and to make them act upon it
oPetitioners cannot invoke estoppel

LACHES/PRESCIPTION - CONSTRUCTIVE TRUST

2. WON laches may bar an action to enforce a constructive trust

2. YES
Ratio In constructive trusts, the rule is that laches constitutes a bar to actions to enforce the trust, and
repudiation is not required, unless there is a concealment of the facts giving rise to the trust.

Reasoning Assignment of sale certificate 547 was effected on October 5, 1928; and the actual transfer of lot
164 was made on the following November 14. It was only on July 8, 1960, 32 big years later, that the
appellants for the first time came forward with their claim to the land. It is not seriously asserted that the
appellees concealed the facts giving rise to the trust. On the contrary, the stipulation of facts of the parties
states with striking clarity "that defendants herein have been in possession of the land in question since 1928
up to the present publicly and continuously under claim of ownership; they have cultivated it, harvested and
appropriated the fruits for themselves."

3. WON title to the land has vested in the appellees through the mode of acquisitive Prescription

1. YES
Ratio An action for reconveyance of real property based upon a constructive or implied trust, resulting from
fraud, may be barred by the statute of limitations, and the action therefor may be filed within four years from
the discovery of the fraud, the discovery in that case being deemed to have taken place when new certificates
of title were issued exclusively in the names of the respondents therein.
Reasoning Upon the undisputed facts in the case at bar, not only had laches set in when the appellants
instituted their action for, reconveyance in 1960, but as well their right to enforce the constructive trust had
already prescribed. Ten years actual adverse possession by any person claiming to be the owner for that time of
any land or interest in land, uninterruptedly continued for ten years by occupancy, descent, grants, or
otherwise, in whatever way such occupancy may have commenced or continued, shall vest in every actual
occupant or possessor of such land a full and complete title.
Disposition The judgment a quo, dismissing the complaint, is affirmed. No

PRESCIPTION OF CAUSE OF ACTION

. WON Callejo’s cause of action had already prescribed

1. NO
Ratio Where an implied trust was created in favor of Domantay by the erroneous inclusion in the Tamayo
brothers' certificate of title of the parcel of land formerly sold by their parents to Domantay (who in turn sold it
to Aurelio Callejo) and on June 28, 1918, Mariano Tamayo, on his behalf and that of his brother Marcos,
expressly recognized the said previous sale by their parents to Domantay, such express recognition had the
effect of imparting to the aforementioned trust the nature of an express trust which is not subject to the statute
of limitations, at least, until repudiated, in which event the period of prescription begins to run only from the
time of the repudiation. In the instant case, repudiation took place only in early June, 1952, when Mariano
Tamayo rejected Callejo's demand that the disputed portion be excluded from TCT No. 5486 in the former's
name. When the instant case for reconveyance was filed on June 25, 1952, the period of prescription had
barely begun to run.
Reasoning It should be noted that although the trust created by the application for registration filed by Mariano
and Marcos Tamayo, on or about September 29, 1913, and the inclusion in OCT No. 2612, issued in their
names, on November 15, 1915, of the tract of land previously sold by their parents to Fernando Domantay -
and later conveyed by him to Aurelio Callejo - may have had a constructive or implied nature, its status was
substantially affected on June 28, 1918, by the following facts, namely: On the date last mentioned, Fernando
Domantay and petitioner Mariano Tamayo executed the public instrument whereby Mariano
explicitly acknowledged that his deceased parents had sold to Domantay the parcel of land of about 22,125/13
square meters. then held by the latter, and stipulating that Domantay is the absolute owner of said land, free
from any lien or encumbrance thereon. This express recognition by Mariano Tamayo of the previous
sale, made by their parents, to Fernando Domantay had the effect of imparting to the aforementioned trust the
nature of an express trust - it having been created by the will of the parties, "no particular words" being
"required for the creation of an express trust, it being sufficient that a trust is clearly intended" - which express
trust is a "Continuing and subsisting" trust, not subject to the statute of limitations, at least, until repudiated, in
which event the period of prescription begins to run only from the time of the repudiation. The latter did not
take place until early in June, 1952, when Mariano Tamayo rejected Aurelio Callejo's demand.
But, then, the case at bar was filed weeks later when the period of prescription had barely begun to run.

PRESCRIPTION

ISSUES
WON the action for reconveyance prescribes in 10 years
HELD
Yes
Reasoning
- The appellants counter argument is untenable.
- What was apparently designed to be an express trust was for the late Francisco H. Reyes to file an answer in
the cadastral proceeding and to obtain title to the land for and in behalf of all the heirs of Jorge Bueno. But
such express trust failed to materialize.
- If any trust can be deduced at all from the foregoing facts it was an implied one
- While there are some decisions which hold that an action upon a trust is imprescriptible, without
distinguishing between express and implied trusts, the better rule, as laid down by this Court in other decisions,
is that prescription does supervene where the trust is merely an implied one.
- Upon the general proposition that an action for reconveyance such as the present is subject to prescription in
ten years the appellees and the court a quo are correct. The question here, however is: from what time should
the prescriptive period be counted, in the light of the allegations in the complaint?
- the cause of action upon such trust must be deemed to have accrued only upon the discovery of such bad faith
or mistake, or to put it more specifically, upon the discovery by the appellants that Francisco H. Reyes, in
violation of their agreement with him, had obtained registration of the disputed property in his own name and
in the names of his brothers.
- It would not do to say that the cadastral proceeding itself, by virtue of its nature as a proceeding in rem, was
constructive notice to the appellants, for as far as they were concerned the cadastral answer they had
authorized Francisco H. Reyes to file was not adverse to them; and neither he nor the appellee may
invoke the constructive-notice rule on the basis of their own breach of the
authority thus given. On top of all this, it was the appellants and not the appellees who were in possession of
the property as owners, continuously up to 1962, when for the first time the latter appeared upon the scene and
tried to get such possession, thereby revealing to them the fact of the mistaken or fraudulent registration.
- But the foregoing are not facts already established by evidence. They are merely alleged in the complaint.
These are matters of defense that must be substantiated at the trial.
- With this view we take of the case, it is unnecessary to take Lip the second error assigned.
Ratio
- If any trust can be deduced at all from the foregoing facts it was an implied one, arising by operation of law
not from any presumed intention of the parties but to satisfy the demands of justice and equity and as A
protection against unfair dealing or downright fraud. Indeed, in this kind of implied trust, commonly
denominated constructive, as distinguished from resulting, trust, there exists a certain antagonism between the
cestui que trust and the trustee.
- Thus, for instance, under Article 1456 of the Civil Code, "if property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of a" implied trust for the benefit of the person from
whom the property comes." In a number of cases this Court has held that registration of property by one person
in his name, whether by mistake or fraud, the real owner being another person, impresses upon the title so
acquired the character of a constructive trust for the real owner, which would justify an action for
reconveyance.
- J.B.L. Reyes in J.M. Tuason and Co., Inc. v. Magdangal: "Under Section 40 of the old Code of the Civil
Procedure, all actions for recovery of real property prescribes in 10 years, excepting actions based on
continuing or subsisting trusts that were considered by Section 38 as imprescriptible. As held in the case of
Diaz v. Gorricho, however, the continuing or subsisting trusts contemplated in Section 38
of the Code of Civil Procedure referred only to express unrepudiated trusts, and did not include constructive
trusts where no fiduciary relation exists and the trustee does not recognize the trust of all."
Disposition the order appealed from is set aside and the case is remanded for
further proceedings.