G.R. No.

188467
RENATO MA. R. PERALTA vs JOSE ROY RAVAL

FACTS:

The controversy involves a lease agreement over two parcels of residential land, particularly Lot
Nos. 9128-A and 9128-B, owned by Spouses Arzaga. The Spouses Arzaga, as lessors, entered
into a Contract of Lease with Peralta, as lessee, over the subject lots and the improvements

Raval came into the picture after Flaviano Jr. assigned to him via a Deed of Assignment all his
interests, rights and participation in the subject properties for a consideration of ₱500,000.00.
Peralta refused to recognize the validity of the assignment to Raval, prompting him to still
deposit his rental payments for the account of Flaviano Jr.

Raval demanded from Peralta compliance with the lease contract's terms and conditions.  Atty.
Castor, wrote a letter to Peralta demanding the removal of the structures that the latter built on a
portion of Lot No. 9128-B, as he claimed that it was not covered by the lease agreement. This
demand was reiterated by Castor and he also sought access to the residential house's second
floor and an updated accounting of rentals already paid. Peralta's refusal to heed to the
demands of Castor prompted the latter to send several other demand letters and, eventually, to
refer the matter to barangay for conciliation.

When the parties still failed to settle the issue, Castor sent another letter to Peralta informing the
latter that a lessee was to occupy the second storey of the house and demanding that the area
be cleared for that purpose. After several more demands and another barangay conciliation,
Raval eventually filed a complaint for rescission of lease with the RTC. He alleged that Peralta
failed to comply with the terms of the lease contract

Peralta opposed the complaint and sought its dismissal, as he insisted that Raval was not his
lessor, and thus was not a real party-in-interest to the case. The supposed assignment between
Flaviano Jr. and Raval was allegedly void considering that he was not consulted thereon and his
prior approval thereto was not obtained.

The RTC dismissed both Raval's complaint. In any case, the RTC ruled that rescission should
be denied because Peralta had been depositing his monthly rentals in the bank accounts that
were opened "in trust for" Raval and specifically for the purpose of effecting the payments.
Neither was there any other substantial breach nor a "blatant refusal" on Peralta's part to
comply with his obligations as lessee. The alleged lapses were merely minor or trivial. The CA
still denied Raval's plea for rescission.

ISSUE: Whether the action has prescribed

Whether the lease contract shall be rescinded

HELD:

Above all matters, it must be emphasized though that specifically on the matter of rescission of
lease agreements, Article 1659 of the NCC applies as a rule. It reads:
Article 1659. If the lessor or the lessee should not comply with the obligations set forth in
Articles 1654 and 1657, the aggrieved party may ask for the rescission of the contract and
indemnification for damages, or only the latter, allowing the contract to remain in force.

Article 1654 referred to in Article 1659 pertains to the obligations of a lessor in a lease
agreement. Article 1657, on the other hand, enumerates the obligations of a lessee, as it
provides:

Article 1657. The lessee is obliged among others (1) to pay the price of the lease according to
the terms stipulated.

No, the action has not yet prescribed.

The Court has held that Article 1389: applies to rescissible contracts, as enumerated and
defined in Articles 1380 and 1381. The "rescission" in Article 1381 is not akin to the
"rescission" in Article 1191 and Article 1592. In Articles 1191 and 1592, the rescission is a
principal action which seeks the resolution or cancellation of the contract while in Article 1381,
the action is a subsidiary one limited to cases of rescission for lesion.

The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article
1144, which provides that the action upon a written contract should be brought within ten years
from the time the right of action accrues.The same prescriptive period of 10 years, counted from
the time that the right of action accrues, applies in the case at bar. Raval's cause of action
accrued not on the date of the lease agreement's execution in 197 4, but from the time that
there was a violation and default by Peralta in his obligations under the lease agreement.

The violations happened either immediately prior to Raval's repeated extrajudicial demands that
began in August 1995; or after Peralta's refusal to heed to the demands. There was no
indication that the violations dated back from the first few years of the lease agreement's
effectivity in the 1970s. Clearly, the filing of the action for rescission in 1998 was within the 10-
year prescriptive period that applies to the suit.

No, the lease is not rescissible.

Under Article 1659 of the NCC, an aggrieved party in a lease contract may ask for any of the
following remedies: (1) the rescission of the contract; (2) rescission and indemnification for
damages; and (3) only indemnification for damages, allowing the contract to remain in force. If
rescission is the option chosen, the demand must be for the lessee to pay rents or to comply
with the conditions of the lease and to vacate.

It is not disputed that at one point during the effectivity of the lease, Peralta began depositing his
rental payments in an account that was maintained "in trust for" Flaviano Jr. There is no
question that the money for the rental was in the bank. So to speak, 'it was there for the taking'.
It was therefore, incumbent upon [Flaviano Jr.] and [Raval] to arrange between them on how to
withdraw the money from the bank, to be paid to the rightful payee or beneficiary. From the
standpoint of lessee, he has already complied with his obligation to pay.
G.R. No. 216023, October 05, 2016
DR. RESTITUTO C. BUENVIAJE v. SPOUSES JOVITO R. AND LYDIA B. SALONGA,
JEBSON HOLDINGS CORPORATION AND FERDINAND JUAT BAÑEZ

FACTS:
Jebson, an entity engaged in the real estate business, through its Executive Vice President,
Bañez, entered into a Joint Venture Agreement (JVA) with Sps. Salonga. Under the JVA, Sps.
Salonga agreed for Jebson to construct thereon 10 high-end single detached residential units,
to be known as Brentwoods. The units allocated to Sps. Salonga were to be delivered within six
(6) months after Jebson's receipt of the down payment for the units allocated to it. Jebson was
also allowed to sell its allocated units under such terms as it may deem fit, subject to the
condition that the price agreed upon was with the conformity of Sps. Salonga.

Jebson entered into a Contract to Sell with Buenviaje without the conformity of Sps. Salonga.
Out of the purchase price, P7,800,000.00 was paid through a "swapping arrangement".
However, despite full payment of the contract price, Jebson was unable to complete Unit 5 in
violation of its contractual stipulation to finish the same within twelve (12) months from the date
of issuance of the building permit. Thus, in April 1999, Buenviaje formally demanded the
immediate completion and delivery of Unit 5.

Buenviaje filed before the (HLURB-RIV) a Complaint for Specific Performance praying for the
(a) completion of Unit 5, (b) partition and subdivision of the property, (c) delivery of the title to
Unit 5, and (d) payment of damages and attorney's fees. In the alternative, he prayed for the
rescission of the subject CTS, and the return of all payments made thereunder, with interest at
24% per annum (p.a.), as well as the house and lot, and golf share pursuant to the "swapping
arrangement."

The HLURB-RIV rescinded the respective contracts to sell entered into by Jebson with the
complainants. The HLURB-RIV found that respondents were not legally authorized to sell
Brentwoods as they have not secured the necessary Registration Certificate and License to
Sell. Furthermore, they failed to complete the construction of the units as well as to deliver the
units to the complainants on time, entitling the latter to the refund of their payments, including
interests.
The HLURB-BOC reversed and set aside the HLURB-RIV's ruling, and (a) upheld the validity of
the respective contracts to sell of Jebson with Buenviaje and Beliz Realty and rescinded the
"swapping arrangements" under the said CTS, and ordered Jebson and Bañez, jointly and
severally, to return the properties received thereunder.The HLURB-BOC held that considering
the accomplishment level of the work done on the said units, and further noting that the primary
relief sought in the complaints of Buenviaje and Beliz Realty was specific performance, the
HLURB-BOC ruled that the proper remedy, instead, was to fix the period for completion of the
concerned units. This decision was affirmed in the OP and by the CA.

ISSUE: Whether or not the CA correctly ruled that the grant of the remedy of specific
performance in Buenviaje's favor was proper
HELD: Yes.
Specific performance and "rescission" (more accurately referred to as resolution)
are alternative remedies available to a party who is aggrieved by a counter-party's breach of a
reciprocal obligation. This is provided for in Article 1191 of the Civil Code, which partly reads:

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

Specific performance pertains to "[t]he actual accomplishment of a contract by a party bound to

fulfill it." On the other hand, resolution is defined as the "unmaking of a contract for a legally
sufficient reason x x x."51 "[Resolution] does not merely terminate the contract and release the
parties from further obligations to each other, but abrogates the contract from its inception and
restores the parties to their original positions.
Notably, resolution under Article 1191 of the Civil Code "will not be permitted for a slight or
casual breach, but only for such substantial and fundamental violations as would defeat the very
object of the parties in making the agreement. Ultimately, the question of whether a breach of
contract is substantial depends upon the attending circumstances."

As between the two remedies made available to him, Buenviaje, had, in fact, chosen the
remedy of specific performance and therefore, ought to be bound by the choice he had made.
To add, "[t]he fundamental rule is that reliefs granted a litigant are limited to those specifically
prayed for in the complaint".

Relatedly, it is observed that Buenviaje's alternative prayer for resolution is textually consistent
with that portion of Article 1191 of the Civil Code which states that an injured party "may also
seek rescission, even after he has chosen fulfillment, if the latter should become impossible."
Nevertheless, the impossibility of fulfillment was not sufficiently demonstrated in the
proceedings conducted in this case. In fact, as the CA contrarily remarked, Buenviaje's "main
prayer [for specific performance] x x x appears to be the more plausible course of
action" "[s]ince the units covered by the disputed Contracts To Sell are almost finished, and
[have] most likely [been] complete[d]."

With these in mind, the CA therefore correctly upheld the directive for Jebson to comply with its
obligations under the subject CTS with Buenviaje as prayed for by the latter. Failing to show any
cogent reason to hold otherwise, Buenviaje can no longer recant his primary choice of relief. His
prayer for resolution in the instant petition must perforce fail.
G.R. No. 167519, January 14, 2015
THE WELLEX GROUP, INC. v. U-LAND AIRLINES, CO., LTD
FACTS:
Wellex is a corporation owning shares of stock in several corporations including Air Philippines
International Corporation (APIC), Philippine Estates Corporation (PEC), and Express Savings
Bank (ESB). Wellex alleges that it owns all shares of stock of Air Philippines Corporation (APC).
U-Land Airlines Co. Ltd. (U-Land) is engaged in the business of air transportation in Taiwan and
in other Asian countries. Wellex and U-Land entered into a Memorandum of Agreement (First
Memorandum of Agreement) to expand their respective airline operations in Asia.
In the First Memorandum of Agreement, Wellex and U-Land agreed to develop a long-term
business relationship. This long-term business relationship would be implemented through the
following transactions: the ULAND will acquire from Wellex shares of stock of APIC and PEC;
and ULAND is to enter in a joint development agreement with PEC, among others.
A Second Memorandum of Agreement was allegedly incorporated into the First Memorandum of
Agreement as a disclosure to U-Land that Wellex was still in the process of acquiring and
consolidating its title to shares of stock of APIC.” It “included the terms of a share swap whereby
[Wellex] agreed to transfer to APIC its shareholdings and advances to APC in exchange for the
issuance by APIC of shares of stock to [Wellex].”

The 40-day period lapsed. Wellex and U-Land were not able to enter into any share purchase
agreement. Despite the absence of a share purchase agreement, U-Land remitted to Wellex a
total of US$7,499,945.00. Wellex acknowledged the receipt of these remittances in a
confirmation letter addressed to U-Land.
According to Wellex, the parties agreed to enter into a security arrangement wherein U-Land
could recover the amount it paid to Wellex by selling these shares of stock and land titles or
using them to generate income. Thus, after the receipt of US$7,499,945.00, Wellex delivered to
U-Land stock certificates representing 60,770,000 PEC shares and 72,601,000 APIC shares. In
addition, Wellex delivered to U-Land Transfer Certificates of Title covering properties owned by
Rexlon Realty Group, Inc. U-Land received a letter from Wellex, indicating a list of stock
certificates that the latter was giving to the former by way of “security.”

Despite these transactions, Wellex and U-Land still failed to enter into the share purchase
agreement and the joint development agreement.

10 months after the last formal communication between the two parties, U-Land, through
counsel, demanded the return of the US$7,499,945.00. Counsel for U-Land claimed that
“[Wellex] ha[d] unjustifiably refused to enter into the Share Purchase Agreement.” As far as U-
Land was concerned, the First Memorandum of Agreement was no longer in effect, pursuant to
Section 9. As such, U-Land offered to return all the stock certificates covering APIC shares and
PEC shares as well as the titles to real property given by Wellex as security for the amount
remitted by U-Land.

Wellex sent U-Land which refuted U-Land’s claims. Wellex believed that the parties had already
“gone beyond the ‘intent’ stage of the [First Memorandum of Agreement] and [had already]
effected partial implementation of an over-all agreement.” Thus, Wellex maintained that “the
inability of the parties to execute the [share purchase agreement] and the [joint development
agreement] principally arose from problems at [U-Land’s] side, and not due to [Wellex’s]
‘unjustified refusal to enter into [the] [share purchase agreement.

U-Land filed a Complaint praying for rescission of the First Memorandum of Agreement.
In its Answer, Wellex countered that under the First Memorandum of Agreement, the parties
agreed to enter into a share purchase agreement and a joint development agreement and to
bring the share purchase agreement to fruition, it would have to acquire the corresponding
shares in APIC. It claimed that U-Land was fully aware that the former “still ha[d] to consolidate
its title over these shares.” This was the reason for Wellex’s attachment of the Second
Memorandum of Agreement to the First Memorandum of Agreement.

The RTC held that rescission of the First Memorandum of Agreement was proper. On appeal,
the CA affirmed the ruling of the RTC. 
ISSUE: Whether the Court of Appeals erred in affirming the Decision of the Regional Trial Court
that granted the rescission of the First Memorandum of Agreement prayed for by U-Land.

HELD: This requires a clarification of rescission under Article 1191, and rescission under Article
1381 of the Civil Code. Gotesco Properties v. Fajardo categorically stated that Article 1385 is
applicable to Article 1191:
Mutual restitution is required in cases involving rescission under Article 1191. This
means bringing the parties back to their original status prior to the inception of the contract as
provided by Article 1385 of the Civil Code. Rescission, as defined by Article 1385, mandates
that the parties must return to each other everything that they may have received as a result of
the contract. This pertains to rescission or resolution under Article 1191, as well as the
provisions governing all forms of rescissible contracts.

For Article 1191 to be applicable, however, there must be reciprocal prestations as

distinguished from mutual obligations between or among the parties. A prestation is the object
of an obligation, and it is the conduct required by the parties to do or not to do, or to
give. Parties may be mutually obligated to each other, but the prestations of these obligations
are not necessarily reciprocal. The reciprocal prestations must necessarily emanate from
the same cause that gave rise to the existence of the contract.The failure of one of the parties to
comply with its reciprocal prestation allows the wronged party to seek the remedy of Article
1191. The wronged party is entitled to rescission or resolution under Article 1191. It is a
principal action precisely because it is a violation of the original reciprocal prestation.

Rescission, as contemplated in Articles 1380 is a remedy granted by law to the contracting

parties and even to third persons, to secure the reparation of damages caused to them by a
contract, even if this should be valid, by restoration of things to their condition at the moment
prior to the celebration of the contract. It implies a contract, which even if initially valid, produces
a lesion or a pecuniary damage to someone.
Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations.
Reciprocal obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon the
obligation of the other. They are to be performed simultaneously such that the performance of
one is conditioned upon the simultaneous fulfillment of the other. Rescission of reciprocal
obligations under Article 1191 of the New Civil Code should be distinguished from rescission of
contracts under Article 1383.
While Article 1191 uses the term “rescission,” the original term which was used in the old Civil
Code, from which the article was based, was “resolution.” Resolution is a principal action which
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. When a party seeks the relief of rescission
as provided in Article 1381, there is no need for reciprocal prestations to exist between or
among the parties. All that is required is that the contract should be among those enumerated in
Article 1381 for the contract to be considered rescissible. Unlike Article 1191, rescission under
Article 1381 must be a subsidiary action because of Article 1383.

This is not rescission under Article 1381 of the Civil Code. The actions of the parties involving
the terms of the First Memorandum of Agreement do not fall under any of the enumerated
contracts that may be subject of rescission.

Further, respondent U-Land is pursuing rescission or resolution under Article 1191, which is a
principal action. Article 1191 is a principal action retaliatory in character, it being unjust that a
party be held bound to fulfill his promises when the other violates his. As expressed in the old
Latin aphorism: “Non servanti fidem, non est fides servanda.” Hence, the reparation of damages
for the breach is purely secondary.On the contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is subordinated to the existence of that prejudice,
because it is the raison detre as well as the measure of the right to rescind.
Thus, respondent U-Land correctly sought the principal relief of rescission or resolution under
Article 1191. The obligations of the parties gave rise to reciprocal prestations, which arose from
the same cause: the desire of both parties to enter into a share purchase agreement that would
allow both parties to expand their respective airline operations in the Philippines and other
neighboring countries.
G.R. No. 175483, October 14, 2015
VALENTINA S. CLEMENTE v. THE COURT OF APPEALS, ANNIE SHOTWELL
JALANDOON, ET AL.
FACTS:
Adela owned three (3) adjoining parcels of land. Among the improvements on the Properties
was Adela's house. During her lifetime, Adela allowed her children and her grandchildren, the
use and possession of the Properties and its improvements.

Sometime in 1985 and 1987, Adela simulated the transfer of Lots 32 and Lot 34 to her two
grandsons from Carlos Sr., Carlos Jr. and Dennis V. Shotwell. On the other hand, Lot 35-B
remained with Adela. It is undisputed that the transfers were never intended to vest title to
Carlos Jr. and Dennis who both will return the lots to Adela when requested. Prior to Adela and
petitioner's departure for the US, Adela requested Carlos Jr. and Dennis to execute a deed of
reconveyance.

Adela executed a deed of absolute sale over Lots 32 and 34, and their improvements, in favor of
petitioner. On the same day, Adela also executed a special power of attorney (SPA) in favor of
petitioner. Petitioner's authority under the SPA included the power to administer, take charge
and manage, for Adela's benefit, the Properties and all her other real and personal properties in
the Philippines. When petitioner returned to the Philippines, she registered the sale over Lots 32
and 34 with the Registry of Deeds. TCT No. 19811 and TCT No. 19809 were then issued in the
name of petitioner over Lots 32 and 34, respectively.

Adela died in the United States and was succeeded by her four children.Soon thereafter,
petitioner sought to eject Annie and Carlos Sr., who were then staying on the Properties. Only
then did Annie and Carlos Sr. learn of the transfer of titles to petitioner. Thus, Annie, Carlos Sr.
and Anselmo, represented by Annie, filed a complaint for reconveyance of property against
petitioner. They sought nullification of the Deeds of Absolute Sale. They alleged that Adela only
wanted to help petitioner travel to the United States, by making it appear that petitioner has
ownership of the Properties.
The trial court promulgated a Decision in favor of private respondents.
On appeal, the CA affirmed with modification the Decision. The CA ruled that the Deeds of
Absolute Sale were simulated. It also ruled that the conveyances of the Properties to petitioner
were made without consideration and with no intention to have legal effect.

ISSUE: Whether the Deeds of Absolute Sale between petitioner and her late grandmother over
the Properties are simulated and without consideration, and hence, void and inexistent
HELD: No.
As one of the essential elements, consent when wanting makes the contract non-existent.
Consent is manifested by the meeting of the offer and the acceptance of the thing and the
cause, which are to constitute the contract. Here, there was no valid contract of sale between
petitioner and Adela because their consent was absent. The contract of sale was a mere
simulation.
Simulation takes place when the parties do not really want the contract they have executed to
produce the legal effects expressed by its wordings. Article 1345 of the Civil Code provides that
the simulation of a contract may either 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. In absolute simulation, there is a colorable contract but it has no substance as
the parties have no intention to be bound by it. As a result, an absolutely simulated or
fictitious contract is void.

In ruling that the Deeds of Absolute Sale were absolutely simulated, the lower courts considered
the totality of the prior, contemporaneous and subsequent acts of the parties. The following
circumstances led the RTC and the CA to conclude that the Deeds of Absolute Sale are
simulated, and that the transfers were never intended to affect the juridical relation of the
parties:

a)  There was no indication that Adela intended to alienate her properties in favor of petitioner.
In fact, the letter of Adela to Dennis dated April 18, 1989  reveals that she has reserved the
ownership of the Properties in favor of Dennis.

b) Adela continued exercising acts of dominion and control over the properties, even after the
execution of the Deeds of Absolute Sale, and though she lived abroad for a time.
c) The SPA executed on the same day as the Deeds of Absolute Sale appointing petitioner as
administratrix of Adela's properties, including the Properties, is repugnant to petitioner's claim
that the ownership of the same had been transferred to her.

In a contest for the declaration of nullity of an instrument for being simulated, any person who
is prejudiced by a simulated contract may set up its inexistence. In this instant case, it
does not matter if the contest is made by one, some or all of the heirs.
G.R. No. 183947, September 21, 2016
RIZAL COMMERCIAL BANKING CORPORATION v. TEODORO G. BERNARDINO
FACTS:
MMC obtained an unsecured bridge loan from RCBC to finance the acquisition of twelve (12)
Rig Mining Trucks and one (1) Demag Excavator Shovel. Payment of the bridge loan was
supposed to be sourced from the proceeds of a long term loan MMC was seeking from EXIM
Bank. EXIM Bank, however, failed to approve the long term loan due to a tailing spill in MMC's
mining area in Marinduque.

MMC mortgaged twelve (12) units of Rig Haul Trucks and one (1) Demag Hydraulic Excavator
Shovel in favor of RCBC. Additionally, MMC pledged shares of stocks covered by Deeds of
Pledge. RCBC later expressed interest in substituting these collaterals with MMC's Forbes Park
property, which was mortgaged with the Asian Development Bank (ADB).
Representatives of MMC and RCBC met to discuss the details of MMC's proposals for the
modes of payment. RCBC representatives signified their intention to choose Option 2. MMC
also informed them that Placer Dome would only agree to let go of the Forbes Park property if
RCBC would release in its favor the mining equipment mortgaged to RCBC. It was also
discussed that another condition for the second option was for a stockholder of MMC to act as a
surety for two (2) promissory notes intended to be executed between the parties.

MMC made some revisions of the second option in view of RCBC s concern regarding accrued
interest. RCBC, through Rojas and Santos, signed its conformity. MMC forwarded four (4)
documents to RCBC for signature. Subsequently, MMC sent a letter regarding the
considerations for Forbes Park in which RCBC only signed the Deed of Assignment of the
Forbes Park property and returned the Deed of Release from Mortgage. MMC sent RCBC the
surety agreements duly executed by Bernardino, together with the two (2) promissory notes
covermg the remaining obligation of MMC after effecting partial payment through the
assignment of the Forbes Park property to RCBC.

MMC failed to settle the obligations. Final demand was sent declaring the whole obligation
under the promissory notes due and payable and giving it five (5) days from receipt to settle the
whole obligation. Demand was also made on Bernardino, as surety for MMC.
Bernardino instituted a Complaint for specific performance, and for the declaration of nullity or
unenforceability of surety agreements against RCBC. Bernardino prayed that judgment be
rendered declaring the surety agreements between him and RCBC null and void and/or
unenforceable. RCBC alleged that contrary to Bernardino's assertion, the parties did not agree
to execute an agreement on Bernardino's subrogation rights and a release of mortgage and
pledge over MMC's properties.
The RTC held that the subrogation agreement was a condition precedent before Bernardino
may be held liable under the comprehensive surety agreements. Since there was no
subrogation agreement, the comprehensive surety agreements are unenforceable and have no
effect. The CA denied RCBC's appeal and affirmed the RTC Decision.
ISSUE: Whether there was a condition precedent, a subrogation agreement, to the surety
agreements Bernardino executed in favor of RCBC
HELD:
The rule is that where the language of a contract is plain and unambiguous, its meaning
should be determined without reference to extrinsic facts or aids. The intention of the
parties must be gathered from that language, and from that language alone.  Courts
cannot make for the parties better or more equitable agreements than they themselves
have been satisfied to make, or rewrite contracts because they operate harshly or
inequitably as to one of the parties, or alter them for the benefit of one party and to the
detriment of the other, or by construction, relieve one of the parties from terms which he
voluntarily consented to, or impose on him those which he did not.
The surety agreements do not include or refer to the execution of a subrogation agreement as a
condition precedent before Bernardino could be held liable.
The correspondence exchanged by the parties show that no agreement on the execution of the
subrogation agreement was reached. Bernardino claims that discussions about the subrogation
agreement were held yet, when the surety agreements were transmitted to RCBC he had
already duly executed them with nary a colatilla, an addendum, or a disclaimer, about a
subrogation agreement.
Suretyship is a contractual relation resulting from an agreement whereby one person, the
surety, engages to be answerable for the debt, default or miscarriage of another, known as the
principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, his liability is directly and equally bound with the principal. The surety
therefore becomes liable for the debt or duty of another although he possesses no direct or
personal interest over the obligations nor does he receive any benefit therefrom.

Bernardino cannot now renege on his obligation to pay the promissory notes under the claim
that there was a previous agreement between the parties for RCBC to execute a subrogation
agreement before Bernardino could be held liable under the surety agreements. We stress that
the right to subrogation of a paying surety is by operation of law. Article 2067 of the Civil Code
provides in part that the guarantor who, pays is subrogated to all the rights which the creditor
had against the debtor. Although Article 2067 explicitly pertains to guarantors, the right to
subrogation extends as well to sureties.
G.R. No. 200765, August 08, 2016
DESIDERIO RANARA, JR. v. ZACARIAS DE LOS ANGELES, JR
FACTS:
Parada loaned from Zacarias, Sr. money amounting to P60,000.00 to finance her migration to
Canada. It was agreed that the loan would be payable within a period of 10 years. At the same
time, Zacarias, Sr. informed Parada that the money came from his son, the respondent. As
security, Parada mortgaged a parcel of agricultural land. It was stipulated that the respondent
would take Possession of and farm the land as payment for the loan interest. Parada, Deed of
Sale with Right to Repurchase. The respondent took possession of the land, paid taxes due and
converted the forested portion into irrigated land, without objection from Parada.

When Zacarias, Sr. fell sick, the respondent pleaded with Noel, Parada's son, to repurchase the
property to finance his father's hospital and medical bills. The respondent later wrote a letter to
Parada demanding that she repurchase the property. Parada paid P40,000.00 delivered
personally to Zacarias Sr. by Noel at the hospital. The respondent found the amount
unacceptable and returned the P40,000.00 and along with P10,000.00 to Parada.

The respondent sold the land to the petitioner. The respondent then sent Parada a letter
enforcing the Deed of Sale with Right of Repurchase giving her 15 days to repurchase the
property. Parada insisted, in her response, that there was no pacto de retro sale. After exerting
all efforts to settle and to no avail, Parada filed a Complaint against the petitioner and the
respondent.

The petitioner denied any knowledge of any defect in the title of the property, since the
respondent was in the possession of and cultivating the land. The petitioner claimed that he is
an innocent purchaser for value. For his part, the respondent insisted that the contract he
entered with Parada was one of sale. He claimed that he introduced the improvements in the
property and sought reimbursement for the same.
RTC ruled in favor of Parada. It found that Parada and the respondent entered into an Equitable
mortgage. Moreover, the RTC ruled that the petitioner did not have any privity of contract
between Parada and the respondent. With respect to the counterclaim and cross-claim of the
petitioner, the RTC dismissed the same. It stated that when the petitioner purchased the land
from the respondent, he knew of the property's status. He knew that he was dealing with a
registered land and the fact that title to the land reflected Parada as the owner. CA affirmed the
RTC's decision respecting the denial of the petitioner's counterclaim and cross-claim. It, thus,
affirmed that the petitioner was a buyer in bad faith and was not entitled to reimbursement since
the water pump hat he introduced was a useful expense.
ISSUE: Whether petitioner has the right to be reimbursed
HELD: None.
Court agrees with the courts a quo that the petitioner was in bad faith in purchasing the land
since it was his duty to investigate. A purchaser of land that is in the actual possession of the
seller must make some inquiry in the rights of the possessor of the land. The rule of caveat
emptor requires the purchaser to be Ware of the supposed title of the vendor and one who buys
without checking the vendor's title takes all the risks and losses consequent to such
failure.28chanrobleslaw

As a doctrine in civil law, the rule on pari delicto is principally governed by Articles 1411 and
1412 of the Civil Code, which state that:
Article 1411. When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no
action against each other, and both shall be prosecuted.

xxxx

Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:

1. When the fault is on the part of both contracting parties, neither may recover what he has
given by virtue of the contract, or demand the performance of the other's undertaking;

The petition at bench does not speak of an illegal cause of contract constituting a criminal
offense under Article 1411. Finding the inapplicability of the in pari delicto doctrine, We find
occasion to stress that Article 1412 of the Civil Code that breathes life to the doctrine
speaks of the rights and obligations of the parties to the contract with an illegal cause or
object which does not constitute a criminal offense. It applies to contracts which are void for
illegality of subject matter and not to contracts rendered void for being simulated, or those in
which the parties do not really intend to be bound thereby. Specifically, in pari delicto situations
involve the parties in one contract who are both at fault, such that neither can recover nor have
any action against each other.
Here, there is neither an illegal cause nor unlawful cause which would necessitate the
application of Articles 1411 and 1412 of the Civil Code. The petitioner is mistaken in the
application of the doctrine of in pari delicto.

The Court agrees with the courts a quo that the petitioner cannot claim reimbursement for any
expense incurred in the improvements on the lot.
G.R. No. 181508               October 2, 2013
OSCAR CONSTANTINO, MAXIMA CONSTANTINO and CASIMIRA MATURINGAN vs.
HEIRS OF PEDRO CONSTANTINO, JR., represented by ASUNCION LAQUINDANUM
FACTS:
On 17 June 1999, respondents Asuncion Laquindanum (Asuncion) and Josefina Cailipan
(Josefina), great grandchildren of Pedro Sr., in representation of Pedro, Jr. filed a complaint
against petitioners Oscar Constantino, Maxima Constantino and Casimira
Maturingan, grandchildren of Pedro Sr., for the nullification of a document denominated as
"Pagmamana sa Labas ng Hukuman" and reinstatement of Tax Declaration No. 20814 in the
name of Pedro Sr. Respondents alleged that petitioners asserted their claim of ownership over
the whole parcel of land owned by the late Pedro Sr., to the exclusion of respondents who are
occupying a portion thereof.
Respondents learned that a Tax Declaration No. 02010-2170-33235 in the name of petitioner
Oscar Constantino and his cousin Maxima Constantino was unlawfully issued, which in effect
canceled Tax Declaration No. 20814 in the name of their ancestor Pedro Sr. The issuance of
the new... tax declaration was allegedly due to the execution of a simulated, fabricated and
fictitious document denominated as "Pagmamana sa Labas ng Hukuman," wherein the
petitioners misrepresented themselves as the sole and only heirs of Pedro Sr. It was further
alleged that... subsequently, the subject land was divided equally between petitioners Oscar and
Maxima resulting in the issuance of Tax Declaration No. 96-10022-02653 in the name of Oscar,
with an area of 120 sq m and the other half in the name of Maxima covered by Tax Declaration
No. 96-10022-02652. The share of Maxima was eventually conveyed to her sister, petitioner
Casimira in whose name a new Tax Declaration No. 96-10022-02655 was issued.
Respondents sought to annul the "Pagmamana sa Labas ng Hukuman" as well as the Tax
Declarations that were issued on the basis of such document.The petitioners claimed that the
document "Pagmamana sa Labas ng Hukuman" was perfectly valid and legal, as it was a
product of mutual and voluntary agreement between and among the descendants of the
deceased Pedro Sr. In essence, petitioners position was that the Deed of Extrajudicial
Settlement with Waiver which led to the issuance of Tax Declaration No. 9534 was acquiesced
in by the other heirs of Pedro Sr., including the petitioners, on the understanding that the
respondent heirs of Pedro Jr. would no longer share and participate in the settlement and
partition of the remaining lot covered by the "Pagmamana sa Labas ng Hukuman."
ISSUE: Whether there is failure of the CA to appreciate the existence of misrepresentation in
both documents, thereby ignoring the propriety of the application of the in pari delicto doctrine.
HELD: Yes.
Latin for "in equal fault," in pari delicto connotes that two or more people are at fault or are guilty
of a crime. Neither courts of law nor equity will interpose to grant relief to the parties, when an
illegal agreement has been made, and both parties stand in pari delicto. Under the pari delicto
doctrine, the parties to a controversy are equally culpable or guilty, they shall have no action
against each other, and it shall leave the parties where it finds them.
This Court cannot give positive relief to either petitioner or respondent because we are asked to
interpret and enforce an illegal and immoral arrangement. (See Articles 1409, 1411, and 1412 of
the Civil Code). Both the petitioners and the private respondent are in pari delicto. Neither one
may expect positive relief from courts of justice in the interpretation of their contract. The courts
will leave them as they were at the time the case was filed.
The trial court erroneously applied the doctrine. This is not to say, however, that the CA was
correct in upholding the validity of the contract denominated as "Pagmamana sa Labas ng
Hukuman." The CA decision being, likewise, based on pari delicto, is also incorrect.
Article 1412 of the Civil Code applies to contracts which are void for illegality of subject matter
and not to contracts rendered void for being simulated, or those in which the parties do not
really intend to be bound thereby. Specifically, in pari delicto situations involve the parties in one
contract who are both at fault, such that neither can recover nor have any action against each
other.
In this case, there are two Deeds of extrajudicial assignments unto the signatories of the
portions of the estate of an ancestor common to them and another set of signatories likewise
assigning unto themselves portions of the same estate. The separate Deeds came into being
out of an identical intention to exclude their co-heirs of their rightful share in the entire estate of
Pedro Sr. It was an assignment of specific portions of the estate of Pedro Sr., without resorting
to a lawful partition of estate as both sets of heirs intended to exclude the other heirs.
Clearly, the principle of in pari delicto cannot be applied.
G.R. No. 51058 January 27, 1992
ASIA PRODUCTION CO., INC., ET AL. v. ERNANI CRUZ PAÑO
FACTS:
Private respondents, owners of a building constructed on a lot leased from Lucio San Andres
offered to sell the building to the petitioners. Petitioners agreed because of private respondents’
assurance that they will also assign to the petitioners the contract of lease over the land. The
above agreement and promise were not reduced to writing.
Private respondents undertook to deliver to the petitioners the deed of conveyance over the
building and the deed of assignment of the contract of lease within sixty (60) days from the date
of payment of the downpayment of P20,000.00. The balance was to be paid in monthly
installments.

Relying on the good faith of private respondents, petitioners constructed a weaving factory on
the leased lot. Unfortunately, private respondents failed to comply with their undertaking to
execute the deed of sale and to assign the contract despite the fact that they were able to
encash the checks. Worse, the lot owner made it plain to petitioners that he was unwilling to
give his consent to the assignment of the lease.
Petitioners were thus compelled to request for a stop payment order of the six (6) remaining
checks. Succeeding negotiations to save the transaction proved futile by reason of the
continued failure of private respondents to execute the deed of sale of the building and the deed
of assignment of the contract of lease.

So, upon prior agreement with private respondents, petitioners removed all their property,
machinery and equipment from the building, vacated the same and returned its possession to
private respondents. Petitioners demanded from the latter the return of their partial payment for
the purchase price of the building in the total sum of P50,000.00. Private respondents refused to
return it.
Hence, Petitioners, filed against private respondents a complaint for its recovery with the then
Court of First Instance presided over by herein respondent Judge.

In his Order, respondent Judge granted the motion to dismiss on the ground that the complaint
is barred by the Statute of Frauds.

ISSUE: Whether an action for the refund of partial payments of the purchase price of a building
covered by an oral agreement to sell it with an oral promise to assign the contract of lease on
the lot where the building is constructed is barred by the Statute of Frauds
HELD: No.
Article 1403 of the Civil Code declares the following contracts, among others, as unenforceable,
unless they are ratified:

"(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 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 legs 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;

(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 to the credit of a third person."

The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged.
Accordingly, its application is limited. It makes only ineffective actions for specific performance
of the contracts covered by it; it does not declare them absolutely void and of no effect. As
explicitly provided for in the above-quoted paragraph (2), Article 1403 of the Civil Code, the
contracts concerned are simply "unenforceable". The statute will apply only to executory rather
than executed contracts. Partial execution is even enough to bar the application of the statute.
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. 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."

It follows then that the statute applies only to executory contracts and in actions for their specific
performance. It does not apply to actions which are neither for violation of a contract nor for the
performance thereof.

Petitioners merely seek to recover their partial payment for the agreed purchase price of the
building, which was to be paid on installments, with the private respondents promising to
execute the corresponding deed of conveyance, together with the assignment of the leasehold
rights, within two (2) months from the payment of the agreed downpayment of P20,000.00. By
their motion to dismiss, private respondents theoretically or hypothetically admitted the truth of
the allegations of fact in the complaint.
The action is definitely not one for specific performance, hence the Statute of Frauds does not
apply. And even if it were for specific performance, partial execution thereof by petitioners
effectively bars the private respondents from invoking it.

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.
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.

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.