Form of Contracts – Arts.

1356-1358
1. any form – oral
2. special form
a. validity – Arts. 748, 749, 1744, 1773, 1874, 1956, 2134,
Act 1147, Sec. 22
b. enforceability – Arts. 1403, 1878
c. greater efficacy or convenience – Arts. 1358

Lao Sok v. Sabaysabay, 138 SCRA 134

That petitioner Lao Sok promised to give his employees their separation pay, as soon as he
receives the insurance proceeds for his burned building was not rebutted.

It was in reality not a mere 'promise' as petitioner terms it but a contract, because all the
essential requisites of a valid contract are present, to wit: (1) consent was freely given by
the parties, (2) there was a subject matter, which is the payment of the separation pay of
private respondents, and (3) a cause, which is the loss of job of private respondents who
had been petitioner's salesladies for several years.

Lao Sok made an offer which was duly accepted by the private respondents. There was,
therefore, a meeting of the minds between two parties whereby one bound himself with
respect to the other, to give something or to render some service (Article 1305, Civil Code).
By the unconditional acceptance of the offer that they would be paid separation pay, a
contract was therefore perfected.

Petitioner contends that the contract though orally made is unenforceable since it does not
comply with the Statute of Frauds.

This contention has no merit.

Contracts in whatever form they may have been entered into are binding on the parties
unless form is essential for the validity and enforceability of that particular contract.

The requirement of writing for the offer made by Lao Sok is only for convenience and not
enforceability. In fact, the petitioner could be compelled to put the offer in writing, a step no
longer necessary now because of this petition.

Gallardo v. IAC, 155 SCRA 248

 The crux of the matter now centers on whether or not the unnotarized deed of sale
purportedly executed on August 10, 1937 by the primitive owner Pedro Villanueva, in
favor of petitioners, can be considered as a valid instrument for effecting the
alienation by way of sale of a parcel of land registered under the Torrens System.
Corollary thereto, it becomes necessary to examine other matters surrounding the
execution of the alleged document of sale (Exhibit B).
 Petitioners claim that the sale although not in a public document, is nevertheless
valid and binding citing this Court’s rulings in the cases of Cauto v. Cortes, 8 Phil. 459,
460; Guerrero v. Miguel, 10 Phil. 52, 53; Bucton v. Gabar, 55 SCRA 499 wherein this
Court ruled that even a verbal contract of sale of real estate produces legal effects
between the parties.
 The contention is unmeritorious.
 As the respondent court aptly stated in its decision:
  “True, as argued by appellants, a private conveyance of registered property is
valid as between the parties. However, the only right the vendee of registered
property in a private document is to compel through court processes the vendor
to execute a deed of conveyance sufficient in law for purposes of registration.
Plaintiffs-appellants’ reliance on Article 1356 of the Civil Code is unfortunate.
The general rule enunciated in said Art. 1356 is that contracts are obligatory, in
whatever form they may have been entered, provided all the essential requisites
for their validity are present. The next sentence provides the exception,
requiring a contract to be in some form when the law so requires for validity or
enforceability. Said law is Section 127 of Act 496 which requires, among other
things, that the conveyance be executed ‘before the judge of a court of record or
clerk of a court of record or a notary public or a justice of the peace, who shall
certify such acknowledgment substantially in form next hereinafter stated.’
 “Such law was violated in this case. The action of the Register of Deeds of
Laguna in allowing the registration of the private deed of sale was unauthorized
and did not lend a bit of validity to the defective private document of sale.”

It is therefore evident that Exhibit “E” in the case at bar is definitely not registerable
under the Land Registration Act.

 Likewise noteworthy is the case of Pornellosa and Angels v. Land Tenure

Administration and Guzman, 110 Phil. 986, where the Court ruled:
 “The deed of sale (Exhibit A), allegedly executed by Vicente San Jose in favor
of Pornellosa is a mere private document and does not conclusively establish
their right to the parcel of land. While it is valid and binding upon the parties
with respect to the sale of the house erected thereon, yet it is not sufficient to
convey title or any right to the residential lot in litigation. Acts and contracts
which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property must appear in a public
document.”
 Upon consideration of the facts and circumstances surrounding the execution of the
assailed document, the trial court found that said private document (Exhibit “B”) was
null and void and that it was signed by somebody else not Pedro Villanueva. 

Paredes v. Espino, 22 SCRA 1000

Dear Mr. Paredes:

          So far I received two letters from you, one dated April 17 and the
other April 29, both 1964. In reply thereto, please be informed that after
consulting with my wife, we both decided to accept your last offer of Four
(P4.00) pesos per square meter of the lot which contains 1826 square meters
and on cash basis.

          In order that we can facilitate the transaction of the sale in question,

we (Mrs. Espino and I), are going there (Puerto Princess, Pal.) to be there
during the last week of the month, May. I will send you a telegram, as per
your request, when I will reach Manila before taking the boat for Pto.
Princess. As it is now, there is no schedule yet of the boats plying between
Manila and Pto. Princess for next week.
          Plaintiff also appended as Annex "A-1", a telegram apparently from defendant
advising plaintiff of his arrival by boat about the last week of May 1964 (Annex "A-1" Record
on Appeal, p. 21), as well as a previous letter of defendant (Appendix B, Record on Appeal,
p. 35) referring to the lot as the one covered by Certificate of Title No. 62.

          These allegations and documents notwithstanding, the Court below dismissed the
complaint on the ground that there being no written contract, under Article 1403 of the Civil
Code of the Philippines —

          Although the contract is valid in itself, the same can not be enforced by virtue
of the Statute of Frauds.

The sole issue here is whether enforcement of the contract pleaded in the complaint is
barred by the Statute of Frauds; and the Court a quo plainly erred in holding that it was
unenforceable.

          The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines,
does not require that the contract itself be in writing. The plain text of Article 1403,
paragraph (2) is clear that a written note or memorandum, embodying the essentials of the
contract and signed by the party charged, or his agent, suffices to make the verbal
agreement enforceable, taking it out of the operation of the statute.

In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by
letter and telegram" (Record on Appeal, p. 2), and the letter referred to was evidently the
one copy of which was appended as Exhibit A to plaintiff's opposition to the motion dismiss.
This letter, transcribed above in part, together with that one marked as Appendix B,
constitute an adequate memorandum of the transaction. They are signed by the defendant-
appellee; refer to the property sold as a lot in Puerto Princesa, Palawan, covered, by TCT
No. 62; give its area as 1826 square meters and the purchase price of four (P4.00) pesos
per square meter payable in cash. We have in them therefore, all the essential terms of the
contract, and they satisfy the requirements of the Statute of Frauds. We have ruled in Berg
vs. Magdalena Estate, Inc., 92 Phil. 110, 115, that a sufficient memorandum may be
contained in two or more documents.

          Defendant-appellee argues that the authenticity of the letters has not been
established. That is not necessary for the purpose of showing prima facie that the contract
is enforceable. For as ruled by us in Shaffer vs. Palma, L-24115, March 1, 1968, whether
the agreement is in writing or not, is a question of evidence; and the authenticity of the
writing need not be established until the trial is held. The plaintiff having alleged that the
contract is backed by letter and telegram, and the same being a sufficient memorandum,
his cause of action is thereby established, especially since the defendant has not denied the
letters in question. At any rate, if the Court below entertained any doubts about the
existence of the written memorandum, it should have called for a preliminary hearing on
that point, and not dismissed the complaint.

Sps. Aguinaldo v. TORRES, G.R. No. 225808, 11 September 2017

While respondent denied participation in the execution of the 1979 deed of sale, he claimed
that the subject properties were validly sold by petitioners to him through the 1991 deed of
sale.[39] On the other hand, petitioners denied the existence and due execution of the said
deed, claiming that they could not have signed the same as they were in the USA when it
was supposedly executed.[40]
Thus, central to the resolution of the instant controversy is the determination of the
authenticity of the 1991 deed of sale which, however, is a question of fact rather than of
law.[41] It bears to stress that it is not the function of the Court to re-examine, winnow, and
weigh anew the respective sets of evidence of the parties,[42] absent a showing that they fall
under certain recognized exceptions, [43] none of which are present here.

At the outset, it should be pointed out that the 1991 deed of sale was improperly notarized,
having been signed by respondent and witness Bucapal in Makati City and by petitioners in
the USA, but notarized in Tanza, Cavite,[44] which is in violation of the notarial officer's duty
to demand that the party acknowledging a document must appear before him,[45] sign the
document in his presence,[46] and affirm the contents and truth of what are stated therein.
[47]
 As aptly observed by the CA, the evidence on record amply shows that Nelia could not
have been in the Philippines at the time the said deed was signed. [48]

The improper notarization of the 1991 deed of sale stripped it of its public character and
reduced it to a private instrument.[49] Hence, it is to be examined under the parameters of
Section 20, Rule 132 of the Rules of Court (Rules) which pertinently provides that "[b]efore
any private document offered as authentic is received in evidence, its due
execution and authenticity must be proved either: (a) [b]y anyone who saw the
document executed or written; or (b) by evidence of the genuineness of the signature
or handwriting of the maker."[50] Emphases supplied.

In relation thereto, Section 22, Rule 132 of the same Rules provides the manner by
which the genuineness of handwriting may be proved, i.e.: (a) by any witness who
believes it to be the handwriting of such person because he has seen the person write; or
he has seen writing purporting to be his upon which the witness has acted or been charged;
(b) by a comparison, made by the witness or the court, with writings admitted or
treated as genuine by the party against whom the evidence is offered, or proved to
be genuine to the satisfaction of the judge.

Interpretation of Contracts – Arts. 1370-1379

Lim v. CA, 99 SCRA 668

At this juncture, it is well to lay down cardinal rules in the interpretation of contracts as
provided in the New Civil Code, thus -

Art. 1370. If the terms of a contract are Clear and leave no doubt upon the intention of the
contracting parties. the literal meaning of its stipulation shall control.cha

If the words appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former.chanroblesvirtualawlibrary chanrobles virtual law library

Art. 1371. In order to judge the intention. Of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered.chanroblesvirtualawlibrary chanrobles virtual law library

Art. 1375. Words which may have different significations shall be understood in that which
is most in keeping with the nature and object of the
contract.chanroblesvirtualawlibrary chanrobles virtual law library
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.

According to the trial court, "(t)here is no question that the contract was signed on
November 13, 1970, in the office of the Hind Sugar Company at Manaoag, Pangasinan. The
contract itself is so clear and explicit that it cast no doubt as to its meaning. "Cash upon
signing of this contract meaning to say, that once the contract was signed, the payment of
the 4.085 piculs of sugar which is P142,975.00 was made. After the said contract was
signed and as sustained by the plaintiff, he has already delivered the P142,975.00 in cash
to the cashier of the defendan't, the said plaintiff was given all the delivery orders covering
the 4,085 piculs of sugar sold and by the giving of the delivery orders to the plaintiff, the
latter was entitled to withdraw all the 4,085 piculs sugar from the company's warehouse"
This is also the stand of the petition.ch

Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectua.

The evidence for the petitioner establishes that after paying the cash consideration to
Cashier Garcia and Manager Abalos, the parties signed the contract and thereafter a signed
copy of said contract was given to petitioner and also the four (4) delivery orders covering
the 4,085 piculs of sugar sold. The questioned stipulation recites exactly the act of payment
which is the paying of the money on the occasion of or at the time of the signing.
Respondent would have Us believe that the stipulation does not mean what it conveys
because petitioner has not paid cash after the signing of the contract nor at any time
thereafter. We cannot agree with the respondent for otherwise the sanctity of the written
contract can easily be violated and impugned, for otherwise oral testimony would prevail
over a written document to vary, alter or modify the written terms, and most importantly,
respondent's interpretation would render the stipulation ineffectual as a mere
agreement.chanroblesvirtualaw

Republic v. Castellvi, 58 SCRA 336

It is clear, therefore, that the "taking" of Catellvi's property for purposes of eminent domain
cannot be considered to have taken place in 1947 when the Republic commenced to occupy
the property as lessee thereof. We find merit in the contention of Castellvi that two essential
elements in the "taking" of property under the power of eminent domain, namely: (1) that
the entrance and occupation by the condemnor must be for a permanent, or indefinite
period, and (2) that in devoting the property to public use the owner was ousted from the
property and deprived of its beneficial use, were not present when the Republic entered and
occupied the Castellvi property in 1947.

Untenable also is the Republic's contention that although the contract between the parties
was one of lease on a year to year basis, it was "in reality a more or less permanent right to
occupy the premises under the guise of lease with the 'right and privilege' to buy the
property should the lessor wish to terminate the lease," and "the right to buy the property is
merged as an integral part of the lease relationship ... so much so that the fair market value
has been agreed upon, not, as of the time of purchase, but as of the time of
occupancy" 15 We cannot accept the Republic's contention that a lease on a year to year
basis can give rise to a permanent right to occupy, since by express legal provision a lease
made for a determinate time, as was the lease of Castellvi's land in the instant case, ceases
upon the day fixed, without need of a demand (Article 1669, Civil Code). Neither can it be
said that the right of eminent domain may be exercised by simply leasing the premises to
be expropriated (Rule 67, Section 1, Rules of Court). Nor can it be accepted that the
Republic would enter into a contract of lease where its real intention was to buy, or why the
Republic should enter into a simulated contract of lease ("under the guise of lease", as
expressed by counsel for the Republic) when all the time the Republic had the right of
eminent domain, and could expropriate Castellvi's land if it wanted to without resorting to
any guise whatsoever. Neither can we see how a right to buy could be merged in a contract
of lease in the absence of any agreement between the parties to that effect. To sustain the
contention of the Republic is to sanction a practice whereby in order to secure a low price
for a land which the government intends to expropriate (or would eventually expropriate) it
would first negotiate with the owner of the land to lease the land (for say ten or twenty
years) then expropriate the same when the lease is about to terminate, then claim that the
"taking" of the property for the purposes of the expropriation be reckoned as of the date
when the Government started to occupy the property under the lease, and then assert that
the value of the property being expropriated be reckoned as of the start of the lease, in
spite of the fact that the value of the property, for many good reasons, had in the meantime
increased during the period of the lease. This would be sanctioning what obviously is a
deceptive scheme, which would have the effect of depriving the owner of the property of its
true and fair market value at the time when the expropriation proceedings were actually
instituted in court. The Republic's claim that it had the "right and privilege" to buy the
property at the value that it had at the time when it first occupied the property as lessee
nowhere appears in the lease contract. What was agreed expressly in paragraph No. 5 of
the lease agreement was that, should the lessor require the lessee to return the premises in
the same condition as at the time the same was first occupied by the AFP, the lessee would
have the "right and privilege" (or option) of paying the lessor what it would fairly cost to put
the premises in the same condition as it was at the commencement of the lease, in lieu of
the lessee's performance of the undertaking to put the land in said condition. The "fair
value" at the time of occupancy, mentioned in the lease agreement, does not refer to the
value of the property if bought by the lessee, but refers to the cost of restoring the property
in the same condition as of the time when the lessee took possession of the property. Such
fair value cannot refer to the purchase price, for purchase was never intended by the parties
to the lease contract. It is a rule in the interpretation of contracts that "However general the
terms of a contract may be, they shall not be understood to comprehend things that are
distinct and cases that are different from those upon which the parties intended to agree"
(Art. 1372, Civil Code).

We hold, therefore, that the "taking" of the Castellvi property should not be reckoned as of
the year 1947 when the Republic first occupied the same pursuant to the contract of lease,
and that the just compensation to be paid for the Castellvi property should not be
determined on the basis of the value of the property as of that year. The lower court did not
commit an error when it held that the "taking" of the property under expropriation
commenced with the filing of the complaint in this case.

Eastern Shipping v. Margarina-Verkaufs-Union, 93 SCRA 256

After trial, the lower court rejected petitioner's defense that did not exceed 5% of
respondent's interest in the cargo it was not liable under Philippine Law for the damage
which I rendered judgment on April 25, 1969 "ordering the defendant, Eastern Shipping
Lines, Inc. to pay to the plaintiff, Margarine-Verkaufs-Union GMBH, the sum of US$ 591.38,
with interest at the legal rate from the date of the filing of the complaint until fully paid,
plus US$ 250.00 as attorney's fees and the costs of the suit."
In this review on questions of law, petitioner reiterates as its first assignment t of error its
submittal that Article 848 of the Code of Commerce 1 which would bar claims for averages
not exceeding 5% of the claimant's interest should be applied rather than the lower court's
ruling that petitioner's bill of lading expressly contained "an agreement to the contrary," i.e.
for the application of the York-Antwerp Rules which provide for respondent's fun recovery of
the damage loss.

The Court finds no error and upholds the lower court's ruling sustaining respondent's
damage claim although the amount thereof did not exceed 5% of respondent's interest in
the cargo and would have been barred by the cited article of the Commerce Code. We hold
that the lower court correctly ruled the cited codal article to be "not applicable in this
particular case for the reason that the bill of lading (Exhibit "F") contains "an agreement to
the contrary" for it is expressly provided in the last sentence of the first paragraph (Exhibit
"1-A") that "In case of average, same shall be adjusted according to York-Antwerp Rules of
1950." The insertion of said condition is expressly authorized by Commonwealth Act No. 65
which has adopted in toto the U.S. Carriage of Goods by Sea Act. Now, it has not been
shown that said rules limit the recovery of damage to cases within a certain percentage or
proportion that said damage may bear to claimant's interest either in the vessel or cargo as
provided in Article 848 of the Code of Commerce On the contrary, Rule 3 of said York-
Antwerp Rules expressly states that "Damage done to a ship and cargo, or either of them,
by water or otherwise, including damage by breaching or scuttling a burning ship, in
extinguishing a fire on board the ship, shall be made good as general average. ... "

There is a clear and irreconcilable inconsistency between the York-Antwerp Rules expressly
adopted by the parties as their contract under the bill of lading which sustains respondent's
claim and the codal article cited by petitioner which would bar the same. Furthermore, as
correctly contended by respondent, what is here involved is a contract of adhesion as
embodied in the printed bill of lading issued by petitioner for the shipment to which
respondent as the consignee merely adhered, having no choice in the matter, and
consequently, any ambiguity therein must be construed against petitioner as the author.

I. Kinds of Contracts as to Validity

1. Valid and binding
2. Valid but defective
i) Rescissible Contracts – Arts. 1380-1389, 1191
ii) Voidable Contracts – Arts. 1390-1402, 1327-1328, 1330
iii) Unenforceable Contracts – Arts. 1403-1408, 1317, 1878
3. Void or Inexistent – Arts. 1409-1422, 1318, 1353, 1378, 1491,
1898

Rescissible Contracts

Cabaliw v. Sadorra, 64 SCRA 310

Cabaliw was the second wife of Benigno. During their marriage, they bought 2 parcels of
land. They had a daughter Soledad.  Benigno abandoned his wife Cabaliw, thus the latter
filed an action in court for support. The Court ordered Benigno to pay her P75 a
month. However, Benigno did not pay and instead sold their property to his son-in-law by
his daughter Encarnacion in the first marriage, Soterro. The transaction was done without
Cabaliw’s consent. Prior to the sale, Soterro already knew that there was a judgment
rendered against his father-in-law but proceeded to buy the property anyway. When
Cabaliw found out, she instituted an action along with her daughter to recover the
properties.

Alienations by onerous title are presumed fraudulent when made by persons against whome
some judgment has been rendered or some writ of attachment has been issued. Benigno
was ordered by the Court to pay Cabaliw support and he failed to do so. Instead, he sold his
properties to his son-in-law. The close relationship between Benigno and Soterro is a badge
of fraud. Soterro knew about the judgment against Benigno but proceeded to purchase the
properties anyway. He cannot be said to be a purchaser in good faith. The presumption of
fraud is not overcome by the fact that the transactions were all made in the nature of public
instruments between Soterro and Benigno. The properties sold were conjugal properties.
These cannot be sold without Cabaliw’s consent.

 As well said in the dissenting opinion of Justice Magno Gatmaitan, the principle invoked by
the majority opinion that to destroy the validity of an existing public document "strong and
convincing evidence is necessary", operates "where the action was brought by one party
against the other to impugn the contract ... but that rule can not operate and does not,
where the case is one wherein the suit is not between the parties inter se but is one
instituted by a third person, not a party to the contract but precisely the victim of it because
executed to his prejudice and behind his back; neither law, nor justice, nor reason, nor
logic, should so permit, otherwise, in such a suit, the courts would be furnishing a most
effective shield of defense to the aggressor." (pp. 30-31, CA Decision)

Furthermore, the presumption of fraud established by the law in favor of petitioners is

bolstered by other indicia of bad faith on the part of the vendor and vendee. Thus (1) the
vendee is the son-in-law of the vendor. In the early case of Regalado vs. Luchsinger &
Co., 5 Phil. 625, this Court held that the close relationship between the vendor and the
vendee is one of the known badges of fraud. (2) At the time of the conveyance, the vendee,
Sotero, was living with his father-in-law, the vendor, and he knew that there was a
judgment directing the latter to give a monthly support to his wife Isidora and that his
father-in-law was avoiding payment and execution of the judgment. 6 (3) It was known to
the vendee that his father-in-law had no properties other than those two parcels of land
which were being sold to him.7 The fact that a vendor transfers all of his property to a third
person when there is a judgment against him is a strong indication of a scheme to defraud
one who may have a valid interest over his properties.8

Added to the above circumstances is the undisputed fact that the vendee Sotero Sadorra
secured the cancellation of the lis pendens on O.C.T. No. 1, which was annotated in 1940 at
the instance of Isidora Cabaliw, and the issuance of a transfer certificate of title in his favor,
by executing an affidavit, Exhibit H, on June 7, 1948, wherein he referred to Isidora as "the
late Isidora Cabaliw' when he knew for a fact that she was alive, and alleged that Civil Case
449 of the Court of First Instance of Nueva Vizcaya was decided in his favor where in truth
there was no such decision because the proceedings in said case were interrupted by the
last world war. Such conduct of Sotero Sadorra reveals, as stated by the lower court, an
"utter lack of sincerity and truthfulness" and belies his pretensions of good faith.

On the part of the transferee, he did not present satisfactory and convincing evidence
sufficient to overthrow the presumption and evidence of a fraudulent transaction. His is the
burden of rebutting the presumption of fraud established by law, and having failed to do so,
the fraudulent nature of the conveyance in question prevails. 9
The decision of the Court of Appeals makes mention of Art. 1413 of the old Civil Code which
authorizes the husband as administrator to alienate and bind by onerous title the property
of the conjugal partnership without the consent of the wife, and by reason thereof,
concludes that petitioner Isidora Cabaliw can not now seek annulment of the sale made by
her husband. On this point, counsel for petitioners rightly claims that the lack of consent of
the wife to the conveyances made by her husband was never invoked nor placed in issue
before the trial court. What was claimed all along by plaintiff, Isidora Cabaliw now
petitioner, was that the conveyances or deeds of sale were executed by her husband to
avoid payment of the monthly support adjudged in her favor and to deprive her of the
means to execute said judgment. In other words, petitioner seeks relief not so much as an
aggrieved wife but more as a judgment creditor of Benigno Sadorra. Art. 1413 therefore is
inapplicable; but even if it were, the result would be the same because the very article
reserves to the wife the right to seek redress in court for alienations which prejudice her or
her heirs. 10 The undisputed facts before Us clearly show that, the sales made by the
husband were merely a scheme to place beyond the reach of the wife the only properties
belonging to the conjugal partnership and deprive her of what rightly belongs to her and her
only daughter Soledad.

Hongkong & Shanghai Bank v. Pauli, 161 SCRA 634

Hongkong & Shanghai Banking Corporation filed a complaint against the defendant Ralph
Pauli, to collect the sum of P258,964.15. Judgment was rendered in favor of the Bank. The
decision having become final, the Bank endeavored to execute it but the writs of execution
were returned unsatisfied because no leviable assets of Pauli could be located by the
sheriffs.

Unknown to the Hongkong & Shanghai Bank, Pauli had on January 8, 1957 purchased from
the Philippine National Bank (PNB) a sugar cane plantation known as Hacienda Riverside
(Lot No. 693 of Saravia Cadastre, Negros Occidental). To avoid discovery of the transaction
by his creditors, he did not register the deed of Sale. Six years later, on March 1, 1963, he
fraudulently sold the hacienda to his daughter, defendant-appellee Sally Garganera, and her
husband Mateo Garganera. The sale was registered on March 5, 1963. Transfer Certificate
of Title No. 34425 was issued to the Garganeras.

The Bank filed a new complaint against Pauli and the Garganeras which was docketed as
Civil Case No. 465 in the Court of First Instance of Negros Occidental, Branch I, praying for
annulment of the Conditional Sale as well as the Deed of Sale, of Hacienda Riverside to the
Garganeras and also for annulment of Garganera's Certificate of Title No. T-34425.

Has the action for annulment of the sale of Lot 693 to the Garganeras prescribed? Did
prescription of the action commence to run from the registration of the sale, or from the
discovery of the transaction by the Bank?

When a transaction involves registered land, the four-year period fixed in Article 1391
within winch to bring an action for annulment of the deed, shall be computed from the
registration of the conveyance (March 5, 1963) on the familiar theory that the registration
of the document is constructive notice of the conveyance to the whole world

Plaintiff's submission that the four-year period commenced to run from the date when the
Bank obtained actual knowledge of the fraudulent sale of Pauli's land to the Garganeras
(sometime in 1969) and that hence the four-year period for bringing an action to annul the
sale had not yet expired when it filed the action for annullment on February 17, 1971, is
unacceptable. That theory would diminish public faith in the integrity of torrens titles and
impair commercial transactions involving registered lands for it would render uncertain the
computation of the period for the prescription of such actions.

Civil Case No. 465, the action for annulment of the Sale is not barred by res judicata,
specifically, the prior judgment in Civil Case No. 75319, for revival of the judgment in the
collection suit, Civil Case No. 32799, for the subject matter and causes of action in the two
cases are different. The three (3) Identities required for the application of the bar by prior
judgment: Identity of parties, of subject matter and causes of action, are lacking.

Nevertheless, as the plaintiff's right of action in Civil Case No. 465 had already prescribed,
the trial court did not err in dismissing the case.

Voidable Contracts

Felipe v. Heirs of Aldon, 120 SCRA 628

The sale made by Gimena is certainly a defective contract but of what category? The
answer: it is a voidable contract.
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.

The view that the contract made by Gimena is a voidable contract is supported by the legal
provision that contracts entered by the husband without the consent of the wife when such
consent is required, are annullable at her instance during the marriage and within ten years
from the transaction questioned. (Art. 173, Civil Code.)

Gimena's contract is not rescissible for in such contract all the essential elements are
untainted but Gimena's consent was tainted. Neither can the contract be classified as
unenforceable because it does not fit any of those described in Art. 1403 of the Civil Code.
And finally, the contract cannot be void or inexistent because it is not one of those
mentioned in Art. 1409 of the Civil Code. By process of elimination, it must perforce be a
voidable contract.

The voidable contract of Gimena was subject to annulment by her husband only during the
marriage because he was the victim who had an interest in the contract. Gimena, who was
the party responsible for the defect, could not ask for its annulment. Their children could
not likewise seek the annulment of the contract while the marriage subsisted because they
merely had an inchoate right to the lands sold. The termination of the marriage and the
dissolution of the conjugal partnership by the death of Maximo Aldon did not improve the
situation of Gimena. What she could not do during the marriage, she could not do
thereafter.

House Int’l. v. IAC, 151 SCRA 703

Petitioner House International Building Tenants Association, Inc. (ASSOCIATION, for short)
is a domestic non-stock, non-profit civic corporation, whose incorporators, directors and
members constitute the great majority of more than a hundred heads of families who are
tenants of long and good standing of the 14-storey House International Building located at
777 Ongpin Street, Binondo, Manila. The land and the improvements thereon were formerly
owned by Atty. Felipe Ang who mortgaged the same to the Government Service Insurance
System (hereinafter referred to as GSIS) to secure payment of an obligation. After
foreclosure of the mortgage and for failure of Ang to exercise his right of redemption over
the foreclosed property, the ownership thereof was consolidated with the GSIS which
subsequently sold it to Centertown Marketing Corporation (CENTERTOWN, for short) in a
deed of conditional sale, without notice to the tenants of the building and without securing
the prior clearance of the then Ministry of Human Settlements.

As CENTERTOWN was not authorized by its Articles of Incorporation to engage in the real
estate business, it organized a sister corporation, with almost all the same incorporators
and stockholders, as CENTERTOWN’s, under the corporate name of Manila Towers
Development Corporation (TOWERS, for short) for the primary purpose of engaging in the
real estate business. Subsequently, CENTERTOWN assigned to its sister corporation
TOWERS all its rights and obligations under the Deed of Conditional Sale, with the consent
and approval of the GSIS.

Thereafter, herein petitioner filed a complaint with the Regional Trial Court of Manila against
CENTERTOWN, TOWERS and GSIS for annulment of the deed of conditional sale and the
subsequent assignment thereof by CENTERTOWN to TOWERS. The complaint alleged in part
that the Deed of Conditional Sale is null and void ab initio for being ultra vires, since
defendant CENTERTOWN is not qualified to acquire real estate property or to engage in real
estate transactions.

The main thrust of the petitioner’s challenge on the validity of the conditional sale is that
the contract is ultra vires because the respondent CENTERTOWN is not qualified to acquire
properties under its Articles of Incorporation. The petitioner has confused a void contract
with an ultra vires contract which is merely voidable.

Art. 1397. The action for the annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily.

Petitioner is neither a party nor a privy to the Deed of Conditional Sale and the assignment
thereof: thus, it cannot assail the validity of the said contracts.

Poole-Blunden v. Union Bank, G.R. No. 205838, 29 November 2017

Banks are required to observe a high degree of diligence in their affairs. This encompasses
their dealings concerning properties offered as security for loans. A bank that wrongly
advertises the area of a property acquired through foreclosure because it failed to dutifully
ascertain the property's specifications is grossly negligent as to practically be in bad faith in
offering that property to prospective buyers. Any sale made on this account is voidable for
causal fraud. In actions to void such sales, banks cannot hide under the defense that a sale
was made on an as-is-where-is basis. As-is-where-is stipulations can only encompass
physical features that are readily perceptible by an ordinary person possessing no
specialized skills.

Sometime in March 2001, Poole-Blunden came across an advertisement placed by Union

Bank in the Manila Bulletin. The ad was for the public auction of certain properties. One of
these properties was a condominium unit, identified as Unit 2-C of T-Tower Condominium
(the "Unit"), located at 5040 P. Burgos corner Calderon Streets, Makati City. 6 UnionBank
had acquired the property through foreclosure proceedings "after the developer defaulted in
the payment of its loan from [UnionBank]." 7
The Unit was advertised to have an area of 95 square meters. Thinking that it was sufficient
and spacious enough for his residential needs, Poole-Blunden decided to register for the sale
and bid on the unit.8

About a week prior to the auction, Poole-Blunden visited the unit for inspection. He was
accompanied by a representative of UnionBank. The unit had an irregular shape; it was
neither a square nor a rectangle and included a circular terrace. Poole-Blunden did not
doubt the unit's area as advertised. However, he found that the ceiling was in bad condition,
that the parquet floor was damaged, and that the unit was in need of other substantial
repairs to be habitable.9

On the day of the auction, Poole-Blunden inspected the Master Title of the project owner to
the condominium in the name of Integrated Network (TCT No. 171433) and the
Condominium Certificate of Title of UnionBank (CCT No. 36151) to verify once again the
details as advertised and the ownership of the unit. Both documents were on display at the
auction venue.10

Poole-Blunden placed his bid and won the unit for P2,650,000.00. 11 On May 7, 2001, Poole-
Blunden entered into a Contract to Sell with UnionBank. This Contract stipulated that Poole-
Blunden would pay 10% of the purchase price as down payment 12 and that the balance
shall be paid over a period of 15 years in equal monthly instalments, with interest of 15%
per annum starting July 7, 2001.13

Poole-Blunden started occupying the unit in June 2001. By July 20, 2003, he was able to
fully pay for the Unit, paying a total amount of P3,257,142.49.14

In late 2003, Poole-Blunden decided to construct two (2) additional bedrooms in the Unit.
Upon examining it, he noticed apparent problems in its dimensions. He took rough
measurements of the Unit, which indicated that its floor area was just about 70 square
meters, not 95 square meters, as advertised by UnionBank. 15

Poole-Blunden got in touch with an officer of UnionBank to raise the matter, but no action
was taken.16 On July 12, 2004, Poole-Blunden wrote to UnionBank, informing it of the
discrepancy. He asked for a rescission of the Contract to Sell, along with a refund of the
amounts he had paid, in the event that it was conclusively established that the area of the
unit was less than 95 square meters.

Unenforceable Contracts

Ortega v. Leonardo, 103 Phil 870

1. SALE; PAROL CONTRACT OF SALE OF REALTY UNENFORCEABLE; DOCTRINE OF PART

PERFORMANCE. — While, as a general rule, an oral agreement to sell a piece of land is not
provable, however, where there is partial performance of the sale contract, the principle
excluding evidence of parol contracts for the sale of realty will not apply.

2. ID.; CIRCUMSTANCES INDICATING PARTIAL PERFORMANCE. — Some circumstance

indicating partial performance of an oral contract of sale of realty are: relinquishment of
rights, continued possession, building of improvements, tender of payment rendition of
services, payment of taxes, surveying of the land at the vendee’s expense, etc.
Complaint averred that long before and until her house had been completely destroyed
during the liberation of the City of Manila, plaintiff occupied a parcel of land, designated as
Lot I, Block 3 etc. (hereinafter called Lot I) located at San Andres Street, Malate, Manila;
that after liberation she reoccupied it; that when the administration and disposition of the
said Lot I (together with other lots in the Ana Sarmiento Estate) were assigned by the
Government to the Rural Progress Administration 2 plaintiff asserted her right thereto (as
occupant) for purposes of purchase; that defendant also asserted a similar right, alleging
occupancy of a portion of the land subsequent to plaintiff’s; that during the investigation of
such conflicting interests, defendant asked plaintiff to desist from pressing her claim and
definitely promised that if and when he succeeded in getting title to Lot I, 3 he would sell to
her a portion thereof with an area of 55.60 square meters (particularly described) at the
rate of P25.00 per square meter, provided she paid for the surveying and subdivision of the
Lot, and provided further that after he acquired title, she could continue holding the lot as
tenant by paying a monthly rental of P10.00 until said portion shall have been segregated
and the purchase price fully paid; that plaintiff accepted defendant’s offer, and desisted
from further claiming Lot I; that defendant finally acquired title thereto; that relying upon
their agreement, plaintiff caused the survey and segregation of the portion which defendant
had promised to sell, incurring expenses therefor, said portion being now designated as Lot
I-B in a duly prepared and approved subdivision plan; that in remodelling her son’s house
constructed on a lot adjoining Lot I she extended it over said Lot I-B; that after defendant
had acquired Lot I plaintiff regularly paid him the monthly rental of P10.00; that in July
1954, after the plans of subdivision and segregation of the lot had been approved by the
Bureau of Lands, plaintiff tendered to defendant the purchase price which the latter refused
to accept, without cause or reason.

Carbonel v. Poncio, 103 Phil 655

STATUTE OF FRAUDS; WHEN APPLICABLE; PART PERFORMANCE; ORAL EVIDENCE

ADMISSIBLE TO PROVE BOTH CONTRACT AND PART PERFORMANCE. — The Statute of
Frauds is applicable only to executory contracts, not to contracts that are totally or partially
performed. 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. 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. So that 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

on January 27, 1955, she purchased from defendant José Poncio, at P9.50 a square meter,
a parcel of land of about 195 square meters, more or less, located in San Juan del Monte,
Rizal, known as Lot No. 13-B of subdivision plan Psd-19567, and more particularly described
in Transfer Certificate of Title No. 5040 (now No. 37842), excluding the improvements
thereon; that plaintiff paid P247.26 on account of the price and assumed Poncio’s obligation
with the Republic Savings Bank amounting to P1,177.48, with the understanding that the
balance would be payable upon execution of the corresponding deed of conveyance; that
one of the conditions of the sale was that Poncio would continue staying in said land for one
year, as stated in a document signed by him (and later marked as Exhibit A), a translation
of which was attached to the said complaint; that Poncio refuses to execute the
corresponding deed of sale, despite repeated demands; that plaintiff has thereby suffered
damages in the sum of P5,000, aside from attorney’s fees amounting to P1,000; that Poncio
has conveyed the same property to defendants Ramón R. Infante and Emma L. Infante,
who knew of the first sale to plaintiff; and that the Infantes had thereby caused damages to
plaintiff in the sum of P5,000.

Plaintiff prayed, therefore, that she be declared owner of the land in question; that the sale
to the Infantes be annulled; that Poncio be required to execute the corresponding deed of
conveyance in plaintiff’s favor; that the Register of Deeds of Rizal be directed to issue the
corresponding title in plaintiff’s name; and that defendants be sentenced to pay damages.

Defendants moved to dismiss said complaint upon the ground that plaintiff’s claim is
unenforceable under the Statute of Frauds, and that said pleading does not state facts
sufficient to constitute a cause of action. The motion was denied, "without prejudice to
considering, when this case is decided on the merits, whether the same falls under the
Statute of Frauds."cralaw virtua1aw library

Thereafter, the Infantes filed an answer denying most of the allegations of said complaint
and alleged, by way of special defense, that they purchased the land in question in good
faith, for value, and without knowledge of the alleged sale to plaintiff; and that plaintiff’s
claim is unenforceable under the Statute of Frauds. They, likewise, set up oounterclaims for
damages.

We are of the opinion and so hold that the appeal is well taken. It is well settled in this
jurisdiction that the Statute of Frauds is applicable only to executory contracts 

Subject to a rule to the contrary followed in a few jurisdictions, it is the accepted view that
part performance of a parol contract for the sale of real estate has the effect, subject to
certain conditions concerning the nature and extent of the acts constituting performance
and the right to equitable relief generally, of taking such contract from the operation of the
statute of frauds, so that chancery may decree its specific performance or grant other
equitable relief. 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. III [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 an
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 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 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).

May 1958 - Philippine Supreme Court Decisions/Resolutions

Philippine Supreme Court Jurisprudence

Philippine Supreme Court Jurisprudence > Year 1958 > May 1958 Decisions > G.R. No. L-

11231 May 12, 1958 - ROSARIO CARBONNEL v. JOSE PONCIO

103 Phil 655:

EN BANC

[G.R. No. L-11231. May 12, 1958.]

ROSARIO CARBONNEL, Plaintiff-Appellant, v. JOSE PONCIO, RAMON INFANTE, and

EMMA INFANTE, Defendants-Appellees.

Tolentino & Garcia & D. R. Cruz for Appellant.

Guillermo B. Guevarra, Ricardo P. Guevarra and Emmanuel S. Tipon for Appellees.

 SYLLABUS

1. STATUTE OF FRAUDS; WHEN APPLICABLE; PART PERFORMANCE; ORAL EVIDENCE

ADMISSIBLE TO PROVE BOTH CONTRACT AND PART PERFORMANCE. — The Statute of
Frauds is applicable only to executory contracts, not to contracts that are totally or partially
performed. 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. 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. So that 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).

DECISION

CONCEPCION, J.:

The issue in this case is whether the Statute of Frauds is applicable thereto.

Plaintiff Rosario Carbonnel alleges, in her second amended complaint, filed with the Court of
First Instance of Rizal, that, on January 27, 1955, she purchased from defendant José
Poncio, at P9.50 a square meter, a parcel of land of about 195 square meters, more or less,
located in San Juan del Monte, Rizal, known as Lot No. 13-B of subdivision plan Psd-19567,
and more particularly described in Transfer Certificate of Title No. 5040 (now No. 37842),
excluding the improvements thereon; that plaintiff paid P247.26 on account of the price and
assumed Poncio’s obligation with the Republic Savings Bank amounting to P1,177.48, with
the understanding that the balance would be payable upon execution of the corresponding
deed of conveyance; that one of the conditions of the sale was that Poncio would continue
staying in said land for one year, as stated in a document signed by him (and later marked
as Exhibit A), a translation of which was attached to the said complaint; that Poncio refuses
to execute the corresponding deed of sale, despite repeated demands; that plaintiff has
thereby suffered damages in the sum of P5,000, aside from attorney’s fees amounting to
P1,000; that Poncio has conveyed the same property to defendants Ramón R. Infante and
Emma L. Infante, who knew of the first sale to plaintiff; and that the Infantes had thereby
caused damages to plaintiff in the sum of P5,000.

Plaintiff prayed, therefore, that she be declared owner of the land in question; that the sale
to the Infantes be annulled; that Poncio be required to execute the corresponding deed of
conveyance in plaintiff’s favor; that the Register of Deeds of Rizal be directed to issue the
corresponding title in plaintiff’s name; and that defendants be sentenced to pay damages.

Defendants moved to dismiss said complaint upon the ground that plaintiff’s claim is
unenforceable under the Statute of Frauds, and that said pleading does not state facts
sufficient to constitute a cause of action. The motion was denied, "without prejudice to
considering, when this case is decided on the merits, whether the same falls under the
Statute of Frauds."cralaw virtua1aw library

Thereafter, the Infantes filed an answer denying most of the allegations of said complaint
and alleged, by way of special defense, that they purchased the land in question in good
faith, for value, and without knowledge of the alleged sale to plaintiff; and that plaintiff’s
claim is unenforceable under the Statute of Frauds. They, likewise, set up oounterclaims for
damages.

In his answer, Poncio denied specifically some allegations of said complaint and alleged that
he had no knowledge sufficient to form a belief as to the truth of the other averments
therein. By way of special defenses, he alleged that he had consistently turned down several
offers, made by plaintiff, to buy the land in question, at P15 a square meter, for he believes
that it is worth not less than P20 a square meter; that Mrs. Infante, likewise, tried to buy
the land at P15 a square meter; that, on or about January 27, 1955, Poncio was advised by
plaintiff that should she decide to buy the property at P20 a square meter, she would allow
him to remain in the property for one year; that plaintiff then induced Poncio to sign a
document, copy of which is probably the one appended to the second amended complaint;
that Poncio signed it "relying upon the statement of the plaintiff that the document was a
permit for him to remain in the premises in the event that defendant decided to sell the
property to the plaintiff at P20 a square meter" ; that on January 30, 1955, Mrs. Infante
improved her offer and he agreed to sell the land and its improvements to her for P3,535;
that Poncio has not lost "his mind," to sell his property, worth at least P4,000, for the paltry
sum of P1,177.48, the amount of his obligation to the Republic Savings Bank; and that
plaintiff’s action is barred by the Statute of Frauds. Poncio similarly set up a counterclaim
for damages.

As, the case came up for trial, on February 23, 1956, plaintiff introduced the testimony of
one Constancio Meonada, who said that he is janitor of the Sto. Domingo Church and a high
school, as well as auto-mechanic, graduate; that he has been and still is a paying boarder in
plaintiff’s house; that Poncio is his townmate, both being from Mahatao, Batanes; that, after
making a rough draft, based upon data furnished by plaintiff, he typed Exhibit A, which is in
the Batanes dialect; that, thereafter, Poncio came to plaintiff’s house, where he was shown
Exhibit A; that after the witness had read its contents to Poncio and given him a copy
thereof, Poncio signed Exhibit A and so did the plaintiff; that Meonada likewise signed at the
foot of Exhibit A, as attesting witness; and that translated freely into English, Exhibit A,
reads as follows:jgc:chanrobles.com.ph

"From this date, January 27, José Poncio may stay in this lot that I bought from him until
one year without payment. After that one year and he cannot find any place where to
transfer his house, he can also stay in this lot and he will pay according to agreement."
(t.s.n., p. 4.)

Then, taking the witness stand, plaintiff testified that she has known Poncio since childhood,
he being related to her mother; that Poncio’s lot adjoins her lot, in San Juan, Rizal; that one
day Poncio told her that he wanted to sell his property; that, after both had agreed on its
price, he said that his lot is mortgaged to the Republic Savings Bank; and that, at noon
time, on the same day, he came back stating that both would "go to the bank to pay the
balance in arrears." At this juncture, defense counsel moved to strike out the statement of
the witness, invoking, in support of the motion, the Statute of Frauds. After an extended
discussion, the parties agreed to submit memoranda and the hearing was suspended. Later
on, the lower court issued an order dismissing plaintiff’s complaint, without costs, upon the
ground that her cause of action is unenforceable under the Statute of Frauds. The
counterclaims were, also, dismissed. Hence, this appeal by plaintiff.

We are of the opinion and so hold that the appeal is well taken. It is well settled in this
jurisdiction that the Statute of Frauds is applicable only to executory contracts (Facturan v.
Sabanal, 81 Phil., 512), not to contracts that are totally or partially performed (Almirol, Et
Al., v. Monserrat, 48 Phil., 67, 70; Robles v. Lizarraga Hermanos, 50 Phil., 387; Diana v.
Macalibo, 74 Phil., 70).

"Subject to a rule to the contrary followed in a few jurisdictions, it is the accepted view that
part performance of a parol contract for the sale of real estate has the effect, subject to
certain conditions concerning the nature and extent of the acts constituting performance
and the right to equitable relief generally, of taking such contract from the operation of the
statute of frauds, so that chancery may decree its specific performance or grant other
equitable relief. 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. III [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 an
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 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 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).

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.

Again, there is Exhibit A, as document signed by the defendant. It is in the Batanes dialect,
which, according to plaintiff’s uncontradicted evidence, is the one spoken by Poncio, he
being a native of said region. Exhibit A states that Poncio would stay in the land sold by him
to plaintiff for one year, from January 27, 1955, free of charge, and that, if he cannot find a
place where to transfer his house thereon, he may remain in said lot under such terms as
may be agreed upon. Incidentally, the allegation in Poncio’s answer to the effect that he
signed Exhibit A under the belief that it "was a permit for him to remain in the premises in
the event" that "he decided to sell the property" to the plaintiff at P20 a sq. m." is, on its
face, somewhat difficult to believe. Indeed, if he had not decided as yet to sell the land to
plaintiff, who, had never increased her offer of P15 a square meter, there was no reason for
Poncio to get said permit from her. Upon the other hand, if plaintiff intended to mislead
Poncio, she would have caused Exhibit A to be drafted, probably in English, instead of taking
the trouble of seeing to it that it was written precisely in his native dialect, the Batanes.
Moreover, Poncio’s signature on Exhibit A suggests that he is neither illiterate nor so
ignorant as to sign a document without reading its contents, apart from the fact that
Meonada had read Exhibit A to him and given him a copy thereof, before he signed thereon,
according to Meonada’s uncontradicted testimony.

Babao v. Perez, 102 Phil 756

Plaintiff is the judicial  administrator  of  the estate of the late  Santiago Babao while
defendant Florencio Perez is the judicial  administrator of  the  estate of the  late Celestina
Perez.  The other defendants are purchasers and actual owners  of portions  of the land 
which  is  sought to be recovered in  the present litigation.

The complaint alleges that Celestina Perez was in her lifetime the owner of the parcel of
land in question which was not registered either  under Act 496 or  under the Spanish 
Mortgage Law; that sometime in 1924 when the deceased  Santiago  Babao  married Maria 
Cleofe  Perez, niece of  Celestina Perez, the latter and the former entered into a verbal
agreement whereby Santiago  Babao bound himself to improve the land by levelling and
clearing all the forest trees standing thereon and planting in lieu thereof coconuts,  rice,
corn and  other crops  such as bananas and  bamboo trees,  and  to  act  at the same time
as administrator thereof during the lifetime of Celestina Perez, all  expenses for labor and 
materials  to be  at his  cost, in consideration  of which Celestina in turn bound  herself to
convey to Santiago Babao or his  wife 1/2 of the  land, together with  all  the improvements 
thereon  upon her death; that pursuant  to said verbal  agreement, Santiago Babao in 1924
left his job as administrator of  the Liana Estate in San Juan, Batangas for which he was
receiving a salary of P150 a  month,  and started levelling and clearing the land having
planted in an area of 50 hectares  5,000 coconuts trees, and  rice and corn in another area
of 70 hectares,  leaving out only about 50 hectares unimproved, all of which having been
administered by him from 1924 to 1946; that for clearing and improving the portions of
land above-mentioned, he incurred expenses amounting to P7,400 which added to his
salary as administrator  from 1924 to 1946  at the rate of P150  a  month amounting to
P39,600, makes a total of P47,000; that in violation of the aforesaid verbal agreement,
Celestina  Perez, acting through. Leovigildo Perez,  to whom she extended  a power of 
attorney to sell, sold few days before she died about 1271/2 hectares of 'the land in
question in consequence of which Santiago  Babao was deprived of the possession and
administration  thereof from 1945;  that  said  sales  were fictitious  and were made in clear
violation  of the oral agreement made between Celestina  Perez  and Santiago Babao and as
such the same are null and  void; that Celestina Perez died on August 24, 1947 as a result
of which intestate proceedings were instituted  for the settlement of her estate and one
Florencio Perez was named as judicial administrator; that Santiago Babao  died  on January
6, 1948 and as a consequence intestate  proceedings were  instituted for the settlement of 
his  estate and Bienvenido Babao  was appointed judicial administrator; and that in the
event the estate of Santiago  Babao failed to recover the 1/2  portion of  the  land herein
litigated,  said  estate would  suffer an  irreparable damage of  not less  than P366.700
representing fruits which it has failed to receive during the last 20 years. 

That  the  alleged verbal agreement is one  which by its terms is not to  be  performed
within one year is  very apparent from  the allegations  of  the complaint. Thus, it is therein
alleged that  the agreement  was  allegedly made in 1924 and by its terms Santiago  Babao
bound himself  (1)  to improve  all  the  156 hectares of forest lands by levelling  and
clearing  all the forest trees and planting thereon  coconuts,  rice, corn  and  other  crops
such as  bananas and bamboo trees,  and (2)  to act at the same time as administrator of
said land  and improvements during the  lifetime of  Celestina Perez.  And in consideration
of such undertaking-,  Celestina  Perez "bound herself  to  give and deliver,  either  to
Santiago Babao or his wife Cleofe Perez, one-half  (1/2) of the  whole  area of said land  as
improved with all the improvements thereon "upon her death".   It  is also alleged in the
complaint that  Celestina  Perez  died on August 24,  1947, or  23 years after the making of
the alleged  agreement,  while Santiago  Babao died  on January  6,  1948.   From the
above terms, therefore, it is  not  difficult to  see that the undertaking assumed  by
Santiago  Babao which was to clear, level and plant to coconut trees and other plants 156
hectares of forest  land could not be accomplished in one year.  In fact, the alleged
improvements were supposedly accomplished during the lifetime of  Celestina, which lasted
over a period  of  28  years,  and even then not all  was cleared and  planted but only a
portion thereof.   Another part of  his  undertaking is that he is to administer the land 
during the  lifetime of  Celestina, and  as we  have already said, her  death occurred 23
years after the agreement.

But the trial court expressed the view that the statute does riot  apply because it  assumed
that Santiago  Babao fully  complied with his  part of the oral contract between the parties, 
and in its opinion "performance by one party of his part of the contract takes the case out of
the statute." Even if this assumption were  correct, still  we find  one flaw  in  its  logic 
which  fully  nullifies it for it fails to consider that in order that a partial  performance  of the
contract may take the case out of the operation of the statute,  it must  appear  clear that 
the full  performance has been made by one  party within  one  year,  as  otherwise the
statute would apply.  Thus, the rule on this point is well stated  in Corpus  Juris in the 
following  wise:  "Contracts which  by their terms are not to be performed within one year,
may be taken out of the statute through performance by one party   thereto.  All  that  is
required in such case is complete performance within the year by one party, however many
years may have to elapse before the  agreement is performed by the other party.   But
nothing less  than full performance by one party will suffice , and it has been held that, if
anything remains to be done after the expiration of the  year besides the mere payment of
money, the statute will apply."1 (Italics supplied).  It- is not therefore correct to  state that 
Santiago  Babao has fully  complied  with  his  part  within  the year  from the alleged
contract in question.

"When, in  an oral contract  which, by its terms,  is not to be performed  within  one year
from the execution thereof, one  of the contracting: parties has complied  within the year
with the obligations imposed on him by said contract, the other  party cannot avoid the
fulfillment  of those incumbent on him under the same  contract by invoking  the  statute  of
frauds because the latter  aims to  prevent and not  to protect fraud."  (Shoemaker  vs. La
Tondeña,  Inc. 68 Phil.,  2A.)

"The broad view is that the statute of Frauds applies  only to agreements not to be
performed on either side within a year from the making thereof.    Agreements to be fully
performed on one side within the  year are taken out of the operation of the statute."
(National Bank vs. Philippine Vegetable Oil Co.,  49 Phil, 857, 858.)
Assuming arguendo that the agreement  in question falls also under paragraph  (a) of
Article 1403  of the new Civil Code, i. e., it is a contract or  agreement for the sale  of real
property or of an interest therein, it cannot  also be contended  that that provision does  not
apply to the present case  for  the  reason  that  there  was part performance on the  part 
of  one  of  the  parties.  In  this  connection, it must the noted that this statute is one
based on  equity. It is  based  on equitable  estoppel or  estoppel  by conduct. It operates
only  under  certain  specified conditions and when adequate relief at law is  unavailable 
(49 Am.  Jur., Statute of Frauds,  Section 422, p. 727).   And  one  of the requisites that
need be present is that the agreement relied on must be certain, definite,  clear, 
unambiguous and unequivocal  in  its terms before  the  statute  may operate. Thus, the
rule on  this matter is  as  follows:

"The contract must be fully made and completed in every respect except for  the writing
required by the statute,  in order to be enforceable on the ground of part  performance.
The  parol agreement relied on must  be  certain,  definite, clear,  unambiguous, and
unequivocal in its  terms, particularly where  the agreement is between parent and child,
and be  clearly  established by  the evidence.  The requisite of  clearness  and definiteness
extends to both the  terms and the  subject matter  of the  contract.   Also, the oral contract
must  be  fair, reasonable, and just in  its provisions for equity to enforce it on the ground 
of part performance.   If it would be inequitable to enforce the  oral agreement, or if its 
specific enforcement  would be harsh, or  oppressive upon the defendant, equity will
withhold  its aid. Clearly, the doctrine of  part performance taking an oral  contract out of
the statute of  frauds does not apply so as to support  a  suit for  specific, performance
where both the  equities and the statute support the defendant's  case." (49 Am. Jur.,  p.
729.)

The alleged agreement is far from complying with the above requirement for,  according to
the complaint, Santiago Babao bound himself to convert a  big parcel  of forest land of 156
hectares into a veritable farm planted to coconuts, rice,  corn and other crops such  as
bananas and bamboo trees and to act as administrator of said farm during the  lifetime of
Celestina Perez;, while the latter in turn bound herself to give either to Santiago or his wife
1/2  of the land as improved  with all the  improvements thereon upon her death.  This
agreement is indeed vague and ambiguous for it does not specify how  many hectares was 
to be  planted  to  coconuts, how many to rice and corn,  and what portion to bananas and
bamboo trees.  And as counsel for appellants puts it, "as the alleged contract stands,  if
Santiago Babao should  plant one-half hectares to coconuts, one-half to  rice, and another
half hectare  to corn,  and the rest to bananas  and bamboo trees, he  would be entitled to
receive one-half of 156 hectares, or  78 hectares, of land for his  services.  That certainly
would  be unfair and unheard of;  no  sane  property  owner  would enter into such
contract.   It costs much more time, money, and labor to plant coconut trees than to plant
bananas and bamboo trees; and it also costs less to convert forest land to rice  and corn
land than to convert  it into a  coconut plantation.  On the part of Celestina  Perez, her
promise is also incapable of execution.  How  could  she give and deliver one-half of the 
land upon  her death?"

Cabague v. Auxilio, 92 Phil 294

According to the Rules of Court parol evidence is not admissible to prove an agreement
made upon the consideration of marriage other than a mutual promise to marry.

The complaint alleged, in short; (a) that defendants promised such marriage to plaintiffs,
provided the latter would improve the defendants' house in Basud and spend for the
wedding feast and the needs of the bride; (b) that relying upon such promises plaintiffs
made the improvement and spent P700; and (c) that without cause defendants refused to
honor their pledged word.

The defendants moved to dismiss, arguing that the contract was oral, unenforceable under
the rule of evidence hereinbefore mentioned.

It should be observed preliminarily that, under the former rules of procedure, when the
complaint did not state whether the contract sued on was in writing or not, the statute of
frauds could be no ground for demurrer. Under the new Rules "defendant may now present
a motion to dismiss on the ground that the contract was not in writing, even if such fact is
not apparent on the face of the complaint. 

For breach of that mutual promise to marry, Geronimo may sue Socorro for damages. This
is such action, and evidence of such mutual promise is admissible.[2] However Felipe
Cabague's action may not prosper, because it is to enforce an agreement in consideration of
marriage. Evidently as to Felipe Cabague and Matias Auxilio this action could not be
maintained on the theory of "mutual promise to marry".[3] Neither may it be regarded as
action by Felipe against Socorro "on a mutual promise to marry."

Yuvienco v. Dacuycuy, 104 SCRA 668

RTC: Our first task then is to dwell on the issue of whether or not in the light of the
foregoing circumstances, the complaint in controversy states sufficiently a cause of action.
This issue necessarily entails the determination of whether or not the plaintiffs have alleged
facts adequately showing the existence of a perfected contract of sale between herein
petitioners and the occupant represented by respondent Yao King Ong.

In the instant case, We can lay aside, for the moment, petitioners' contention that the letter
of July 12, 1978 of Atty. Pedro C. Gamboa to respondents Yao King Ong and his
companions constitute an offer that is "certain", although the petitioners claim that it was a
mere expression of willingness to sell the subject property and not a direct offer of sale to
said respondents. What We consider as more important and truly decisive is what is the
correct juridical significance of the telegram of respondents instructing Atty. Gamboa to
"proceed to Tacloban to negotiate details." We underline the word "negotiate" advisedly
because to Our mind it is the key word that negates and makes it legally impossible for Us
to hold that respondents' acceptance of petitioners' offer, assuming that it was a "certain"
offer indeed, was the "absolute" one that Article 1319 above-quoted requires.

Respondents now maintain that what the telegram refers to as "details" to be "negotiated"
are mere "accidental elements", not the essential elements of the contract. They even invite
attention to the fact that they have alleged in their complaint (Par. 6) that it was as early as
"in the month of October, 1977 (that) negotiations between plaintiffs and defendants for the
purchase and sale (in question) — were made, thus resulting to offers of same defendants
and counter-offer of plaintiffs". But to Our mind such alleged facts precisely indicate the
failure of any meeting of the minds of the parties, and it is only from the letter and
telegrams above-quoted that one can determine whether or not such meeting of the minds
did materialize. 

For anyone to read in the telegram of Yao that they accepted the price of P6,500,000.00
would be an inference not necessarily warranted by the words "we agree to buy" and
"proceed Tacloban to negotiate details"

But the foregoing conclusion is not enough to carry the day for respondents. It only brings
Us to the question of whether or not the claim for specific performance of respondents is
enforceable under the Statute of Frauds. In this respect, We man, view the situation at
hand from two angles, namely, (1) that the allegations contained in paragraphs 8 to 12 of
respondents' complaint should be taken together with the documents already
aforementioned and (2) that the said allegations constitute a separate and distinct cause of
action. We hold that either way We view the situation, the conclusion is inescapable e that
the claim of respondents that petitioners have unjustifiably refused to proceed with the sale
to them of the property v in question is unenforceable under the Statute of Frauds.

It is nowhere alleged in said paragraphs 8 to 12 of the complaint that there is any writing or
memorandum, much less a duly signed agreement to the effect that the price of P6,500,000
fixed by petitioners for the real property herein involved was agreed to be paid not in cash
but in installments as alleged by respondents. The only documented indication of the non-
wholly-cash payment extant in the record is that stipulated in Annexes 9 and 10 above-
referred to, the deeds already signed by the petitioners and taken to Tacloban by Atty.
Gamboa for the signatures of the respondents. In other words, the 90-day term for the
balance of P4.5 M insisted upon by respondents choices not appear in any note, writing or
memorandum signed by either the petitioners or any of them, not even by Atty. Gamboa.
Hence, looking at the pose of respondents that there was a perfected agreement of
purchase and sale between them and petitioners under which they would pay in
installments of P2 M down and P4.5 M within ninety 90) days afterwards it is evident that
such oral contract involving the "sale of real property" comes squarely under the Statute of
Frauds (Article 1403, No. 2(e), Civil Code.)

RULING:

The foregoing disquisition of respondent judge misses at least two (2) juridical substantive
aspects of the Statute of Frauds insofar as sale of real property is concerned. First, His
Honor assumed that the requirement of perfection of such kind of contract under Article
1475 of the Civil Code which provides that "(t)he contract of sale is perfected at the
moment there is a meeting of the minds upon the thing which is the object of the contract
and upon the price", the Statute would no longer apply as long as the total price or
consideration is mentioned in some note or memorandum and there is no need of any
indication of the manner in which such total price is to be paid.

We cannot agree. In the reality of the economic world and the exacting demands of
business interests monetary in character, payment on installments or staggered payment of
the total price is entirely a different matter from cash payment, considering the
unpredictable trends in the sudden fluctuation of the rate of interest. In other words, it is
indisputable that the value of money - varies from day to day, hence the indispensability of
providing in any sale of the terms of payment when not expressly or impliedly intended to
be in cash.

Thus, We hold that in any sale of real property on installments, the Statute of Frauds read
together with the perfection requirements of Article 1475 of the Civil Code must be
understood and applied in the sense that the idea of payment on installments must be in
the requisite of a note or memorandum therein contemplated. Stated otherwise, the
inessential elements" mentioned in the case of Parades vs. Espino, 22 SCRA 1000, relied
upon by respondent judge must be deemed to include the requirement just discussed when
it comes to installment sales. There is nothing in the monograph re — the Statute of Frauds
appearing in 21 SCRA 250 also cited by His Honor indicative of any contrary view to this
ruling of Ours, for the essence and thrust of the said monograph refers only to the form of
the note or memorandum which would comply with the Statute, and no doubt, while such
note or memorandum need not be in one single document or writing and it can be in just
sufficiently implicit tenor, imperatively the separate notes must, when put together', contain
all the requisites of a perfected contract of sale. To put it the other way, under the Statute
of Frauds, the contents of the note or memorandum, whether in one writing or in separate
ones merely indicative for an adequate understanding of all the essential elements of the
entire agreement, may be said to be the contract itself, except as to the form.

Secondly, We are of the considered opinion that under the rules on proper pleading, the
ruling of the trial court that, even if the allegation of the existence of a sale of real property
in a complaint is challenged as barred from enforceability by the Statute of Frauds, the
plaintiff may simply say there are documents, notes or memoranda without either quoting
them in or annexing them to the complaint, as if holding an ace in the sleeves is not
correct. To go directly to the point, for Us to sanction such a procedure is to tolerate and
even encourage undue delay in litigation, for the simple reason that to await the stage of
trial for the showing or presentation of the requisite documentary proof when it already
exists and is asked to be produced by the adverse party would amount to unnecessarily
postponing, with the concomitant waste of time and the prolongation of the proceedings,
something that can immediately be evidenced and thereby determinable with decisiveness
and precision by the court without further delay.

Clarin v. Rulona, 127 SCRA 512

1. CIVIL LAW; CONTRACTS; SALES; PERFECTION THEREOF, CASE AT BAR. — A contract of

sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. Such contract is binding in whatever form it may
have been entered into. Construing Exhibits A and B together, it can be seen that the
petitioner agreed to sell and the respondent agreed to buy a definite object, that is, ten
hectares of land which is part and parcel of Lot 20 PLD No. 4, owned in common by the
petitioner and his sisters although the boundaries of the ten hectares would be delineated at
a later date. The parties also agreed on a definite price which is P2,500.00. Exhibit B further
shows that the petitioner has received from the respondent as initial payment, the amount
of P800.00. Hence, it cannot be denied that there was a perfected contract of sale between
the parties and that such contract was already partially executed when the petitioner
received the initial payment of P800.00. The latter’s acceptance of the payment clearly
showed his consent to the contract thereby precluding him from rejecting its binding effect.

2. ID.; ID.; ID.; ID.; PARTIAL EXECUTION; EFFECTS. — With the contract being partially
executed, the same is no longer covered by the requirements of the Statute of Frauds in
order to be enforceable. Therefore, with the contract being valid and enforceable, the
petitioner cannot avoid his obligation by interposing that Exhibit A is not a public document.
On the contrary, under Article 1357 of the Civil Code, the petitioner can even be compelled
by the respondent to execute a public document to embody their valid and enforceable
contract.

Bisaya Land Transportation v. Sanchez, 153 SCRA 532

What then is the status of the Contracts which Receiver Amor entered into with Sanchez,
without the approval of the court which appointed him receiver? Even the petitioners
noticeably waver as to the exact status of these Contracts. The petitioners allege in their
Memorandum 16 submitted to this Court that they are void contracts under Article 1409(l)
of the Civil Code, whereas, in their Petition, 17 they labelled the contracts as unenforceable
under Article 1403(l) of the Civil Code.

The determination, therefore, of whether the questioned contracts are void or merely
unenforceable is important, because of the settled distinction that a void and inexistent
contract can not be ratified and become enforceable, whereas an unenforceable contract
may still be ratified and, thereafter, enforced.
The petitioners allege that the Contracts are void, citing Article 1409(l) of the Civil Code
which provides that contracts whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy, are inexistent and void from the beginning. In
the case at bar, the contracts of agency were entered into for the management and
operation of BISTRANCO's business in Butuan City. Said Contracts necessarily imposed
obligations and liabilities on the contracting parties, thereby affecting the disposition of the
assets and business of the company under receivership. But a perusal of the Contracts in
question would show that there is nothing in their cause, object or purpose which renders
them void. The purpose of the Contracts was to create an agency for BISTRANCO with
Marciano Sanchez as its agent in Butuan City. Even as to the other provisions of the
Contracts, there is nothing in their cause or object which can be said as contrary to law,
morals, good customs, public order or public policy so as to render them void.

On the other hand, paragraph 1. Article 1403 of the Civil Code provides that contracts
"entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers" are unenforceable, unless they
are ratified.

In the case at bar, it is undisputed that Atty. Adolfo Amor was entrusted, as receiver, with
the administration of BISTRANCO and it business. But the act of entering into a contract is
one which requires the authorization of the court which appointed him receiver.
Consequently, the questioned Contracts can rightfully be classified as unenforceable for
having been entered into by one who had acted beyond his powers, due to Receiver Amor's
failure to secure the court's approval of said Contracts.
These unenforceable Contracts were nevertheless deemed ratified in the case at bar, based
upon the facts and circumstances on record which have led this Court to conclude that
BISTRANCO had actually ratified the questioned Contracts.

Benjamin G. Roa, as Executive Vice-President of BISTRANCO, still sent Sanchez three (3)
separate letters with the following contents: (3) reducing his passage commission from
10%, as he used to receive in the previous years, to 7-1/2% "as stated in the agency
contract dated 27 July 1976, 18 (2) advising Sanchez that in view of "his failure to post a
bond or such other securities acceptable to the company in the sum of P5,000.00 pursuant
to par. 8 of the Contract executed by Sanchez the plaintiff with BISTRANCO on 27 July
1976, we are recalling all unused passage tickets issued your agency" and reminding him
(Sanchez) also that "pursuant to par. 2 of aforementioned Contract, solicitation of cargo and
passengers shall be undertaken by you strictly in accordance with the scheduled rates of the
Company; 19 and (3) informing Sanchez that "we (petitioners) are abiding strictly with the
terms of the contracts executed between Marciano C Sanchez, and Atty. Adolfo V Amor in
behalf of BISTRANCO, etc. etc. 20\

The three (3) letters of Benjamin G. Roa in effect recognized and gave efficacy to the
Contracts in question. 

Void or Inexistent

Clemente v. CA, Jalandoon, GR No. 175483, October 14, 2015

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. 46 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. The case of Heirs of Policronio M. Ureta, Sr. v. Heirs of
Liberato M. Ureta47 is instructive on the matter of absolute simulation of contracts, viz:

In absolute simulation, there is a colorable contract but it has no substance as the parties
have no intention to be bound by it. The main characteristic of an absolute simulation is that
the apparent contract is not really desired or intended to produce legal effect or in any way
alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious
contract is void, and the parties may recover from each other what they may have given
under the contract...48 (Emphasis supplied)

In short, in absolute simulation there appears to be a valid contract but there is actually
none because the element of consent is lacking.49 This is so because the parties do not
actually intend to be bound by the terms of the contract.

In determining the true nature of a contract, the primary test is the intention of the parties.
If the words of a contract appear to contravene the evident intention of the parties, the
latter shall prevail. Such intention is determined not only from the express terms of their
agreement, but also from the contemporaneous and subsequent acts of the parties. 50 This is
especially true in a claim of absolute simulation where a colorable contract is executed.
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, 198951 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. In Adela’s letter dated August 25, 198952 to a certain Candy, she advised the
latter to stay in the big house. Also, in petitioner’s letter to her cousin Dennis dated
July 3, 1989,53 she admitted that Adela continued to be in charge of the Properties;
that she has no "say" when it comes to the Properties; that she does not intend to
claim exclusive ownership of Lot 35-B; and that she is aware that the ownership and
control of the Properties are intended to be consolidated in Dennis.

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.

d) The previous sales of the Properties to Dennis and Carlos, Jr. were simulated. This
history, coupled with Adela’s treatment of petitioner, and the surrounding
circumstances of the sales, strongly show that Adela only granted petitioner the
same favor she had granted to Dennis and Carlos Jr.

Clearly, the submission of petitioner to the orders of Adela does not only show that the
latter retained dominion over the Properties, but also that petitioner did not exercise acts of
ownership over it. If at all, her actions only affirm the conclusion that she was merely an
administratrix of the Properties by virtue of the SPA.

On the SPA, petitioner claims the lower courts erred in holding that it is inconsistent with
her claim of ownership. Petitioner claims that she has sufficiently explained that the SPA is
not for the administration of the Properties, but for the reconstitution of their titles.

We agree with the lower courts that the execution of an SPA for the administration of the
Properties, on the same day the Deeds of Absolute Sale were executed, is antithetical to the
relinquishment of ownership. The SPA shows that it is so worded as to leave no doubt that
Adela is appointing petitioner as the administratrix of her properties in Scout Ojeda. Had the
SPA been intended only to facilitate the processing of the reconstitution of the titles, there
would have been no need to confer other powers of administration, such as the collection of
debts, filing of suit, etc., to petitioner.5

Hernandez v. CA, 160 SCRA 821

Lastly, the Appellate Court may have been convinced of the impossibility of the inclusion of
the disputes lot in the 516 square meters stated as sold to Hernandez's parents in the deed
of sale in their favor, 17 but only because the Court missed sight of the fact that the
adjoining lots sold to the spouses and to Fr. Garcia were unregistered and unsurveyed at
the time of the transfer. This explains the discrepancy between the area of the land
purportedly conveyed to the Hernandezes in the instrument (516 square meters) and the
actual area falling within the boundaries described in the same document, which, after the
survey, was found to be 716 square meters. The respondents cannot hold Hernandez to the
approximate area fixed in the deed and claim ownership over the excess. All the land
embraced within the stated boundaries was sold. 18 If the respondent insist on the figures
named in the deeds of sale, then they themselves stand to lose 736 square meters of land.
San Buenaventura had only sold 1,545 square meters to Fr. Garcia, 19 but the estate was
later found to be actually 2,328 square meters in area. 20
Given the weight they deserve, the recorded facts prove Hernandez's entitlement to the
relief sought. The respondents' reliance on the Statute of Frauds to secure a contrary
judgment is misplaced. The Statute of Frauds finds no application to this case. Not every
agreement "affecting land" must be put in writing to attain enforceability. Under the Statute
of Frauds, Article 1403(2) (e) of the Civil Code, such formality is only required of contracts
involving leases for longer than one year, or for the sale of real property or of an interest
therein. Hernandez's testimony is thus admissible to establish his agreement with Fr. Garcia
as to the boundary of their estates. It is also to be noted that the presence of Hernandez's
tenants on the land within his side of the border, were this to be reckoned from the
"mojones," further buttresses his claim.
The foregoing considerations demonstrate more than adequately that the inclusion of the
220-square-meter area in the Original Certificate of Title No. 8664 of the Register of Deeds
of Rizal is null and void.

Rubias v. Batiller, 51 SCRA 120

The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2) legal
posers — (1) whether or not the contract of sale between appellant and his father-in-law,
the late Francisco Militante over the property subject of Plan Psu-99791 was void because it
was made when plaintiff was counsel of his father-in-law in a land registration case
involving the property in dispute;

1. The stipulated facts and exhibits of record indisputably established plaintiff's lack of cause
of action and justified the outright dismissal of the complaint. Plaintiff's claim of ownership
to the land in question was predicated on the sale thereof for P2,000.00 made in 1956 by
his father-in- law, Francisco Militante, in his favor, at a time when Militante's application for
registration thereof had already been dismissed by the Iloilo land registration court and was
pending appeal in the Court of Appeals.

With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's
application for registration, the lack of any rightful claim or title of Militante to the land was
conclusively and decisively judicially determined. Hence, there was no right or title to the
land that could be transferred or sold by Militante's purported sale in 1956 in favor of
plaintiff.

Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner of

the land and to be restored to possession thereof with damages was bereft of any factual or
legal basis.

2. No error could be attributed either to the lower court's holding that the purchase by a
lawyer of the property in litigation from his client is categorically prohibited by Article 1491,
paragraph (5) of the Philippine Civil Code, reproduced supra;6 and that consequently,
plaintiff's purchase of the property in litigation from his client (assuming that his client could
sell the same since as already shown above, his client's claim to the property was defeated
and rejected) was void and could produce no legal effect, by virtue of Article 1409,
paragraph (7) of our Civil Code which provides that contracts "expressly prohibited or
declared void by law' are "inexistent and that "(T)hese contracts cannot be ratified. Neither
can the right to set up the defense of illegality be waived."

The 1911 case of Wolfson vs. Estate of Martinez7 relied upon by plaintiff as holding that a
sale of property in litigation to the party litigant's lawyer "is not void but voidable at the
election of the vendor" was correctly held by the lower court to have been superseded by
the later 1929 case of Director of Lands vs. Abagat.8 In this later case of Abagat, the Court
expressly cited two antecedent cases involving the same transaction of purchase of property
in litigation by the lawyer which was expressly declared invalid under Article 1459 of the
Civil Code of Spain (of which Article 1491 of our Civil Code of the Philippines is the
counterpart) upon challenge thereof not by the vendor-client but by the adverse parties
against whom the lawyer was to enforce his rights as vendee thus acquired.

In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of the
lawyer's purchase of the land in litigation from his client, ordered the issuance of a writ of
possession for the return of the land by the lawyer to the adverse parties without
reimbursement of the price paid by him and other expenses, and ruled that "the appellant
Palarca is a lawyer and is presumed to know the law. He must, therefore, from the
beginning, have been well aware of the defect in his title and is, consequently, a possessor
in bad faith.

Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six
paragraphs certain persons, by reason of the relation of trust or their peculiar control over
the property, from acquiring such property in their trust or control either directly or
indirectly and "even at a public or judicial auction," as follows: (1) guardians; (2) agents;
(3) administrators; (4) public officers and employees; judicial officers and employees,
prosecuting attorneys, and lawyers; and (6) others especially disqualified by law.

Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be
cured by ratification. The public interest and public policy remain paramount and do not
permit of compromise or ratification. In his aspect, the permanent disqualification of public
and judicial officers and lawyers grounded on public policy differs from the first three cases
of guardians, agents and administrators (Article 1491, Civil Code), as to whose transactions
it had been opined that they may be "ratified" by means of and in "the form of a
new contact, in which cases its validity shall be determined only by the circumstances at the
time the execution of such new contract. The causes of nullity which have ceased to exist
cannot impair the validity of the new contract. Thus, the object which was illegal at the time
of the first contract, may have already become lawful at the time of the ratification or
second contract; or the service which was impossible may have become possible; or the
intention which could not be ascertained may have been clarified by the parties. The
ratification or second contract would then be valid from its execution; however, it does not
retroact to the date of the first contract." 19

As applied to the case at bar, the lower court therefore properly acted upon defendant-
appellant's motion to dismiss on the ground of nullity of plaintiff's alleged purchase of the
land, since its juridical effects and plaintiff's alleged cause of action founded thereon were
being asserted against defendant-appellant. The principles governing the nullity of such
prohibited contracts and judicial declaration of their nullity have been well restated by
Tolentino in his treatise on our Civil Code, as follows:

Parties Affected. — Any person may invoke the in existence of the contract

whenever juridical effects founded thereon are asserted against him. Thus, if
there has been a void transfer of property, the transferor can recover it by
the accion reinvindicatoria; and any prossessor may refuse to deliver it to the
transferee, who cannot enforce the contract. Creditors may attach property of
the debtor which has been alienated by the latter under a void contract; a
mortgagee can allege the inexistence of a prior encumbrance; a debtor can
assert the nullity of an assignment of credit as a defense to an action by the
assignee.

Action On Contract. — Even when the contract is void or inexistent, an action

is necessary to declare its inexistence, when it has already been fulfilled.
Nobody can take the law into his own hands; hence, the intervention of the
competent court is necessary to declare the absolute nullity of the contract
and to decree the restitution of what has been given under it. The judgment,
however, will retroact to the very day when the contract was entered into.

If the void contract is still fully executory, no party need bring an action to
declare its nullity; but if any party should bring an action to enforce it, the
other party can simply set up the nullity as a defense. 20

Javier v. vda. De Cruz, 80 SCRA 343

However, the undisputed facts of record support the evidence of the plaintiff that the deed
of sale of the land in question is void and inexistent for lack of consent and consideration.

It is a fact that on January 17, 1941 when the deed of sale was executed, Eusebio Cruz was
almost 100 years old and was in a weak condition.

Leonardo Valle, son of the notary public, Ciriaco Valle, declared that Eusebio Cruz was
already very old and could not answer the question whether the signature on the deed of
sale, Exhibit A, was his signature. The pertinent portion of the testimony of Leonardo Valle
reads:

Eusebio Cruz could not talk, was very ill and was about to die when his thumbmark was
affixed on the deed of sale, Exhibit A.[8]

Delfin Cruz did not have any means of livelihood. He was only the houseboy of Eusebio
Cruz.[9]
It is obvious that on January 17, 1941 Delfin Cruz could not have raised the amount of
P700.00 as consideration of the land supposedly sold to him by Eusebio Cruz.

Although the deed of sale, Exhibit A, purports to convey a parcel of land with an area of
only 26,577 square meters, defendants, as heirs of Delfin Cruz, claim a much bigger land
containing an area of 182,959 square meters assessed at P4,310.00.[10] The consideration
of P700.00 is not only grossly inadequate but is shocking to the conscience. No sane person
would sell the land claimed by the defendants for only about P40.00 per hectare.
In view of the foregoing, this Court finds that Eusebio Cruz did not voluntarily affix his
thumbmark on the deed of sale, Exhibit A, and did not receive any consideration for said
sale.

Menil v. CA, 84 SCRA 413

Since We ruled that the deed of sale executed within the 5 years prohibitory period was null
and void, the vendor homesteader (the private respondent herein) must return or reimburse
the price of the sale to the vendees who are the
petitioners.chanroblesvirtualawlibrary chanrobles virtual law libra
Director of Lands v. Alba, 88 SCRA 51

Earlier, We had quoted in full the Amended Petition for reconstitution. As to the original
petition, the original records and the Record on Appeal do not contain nor include said
original petition. We have also reproduced in full the Notice of Hearing of the original
petition as published in the Official Gazette, Vol. 66, No. 31, pp. 7226- 7227, Aug. 3, 1970;
and Vol. 66, No. 32, p. 7493, Aug. 10, 1970 as well as the Notice of Hearing of the
amended petition published in the Official Gazette, Vol. 67, Nos. 5 and 6, with date of issue
of Feb. 1, 1971 and Feb. 8, 1971, respectively, purposely to check and verify whether the
strict and mandatory requirements of the law have been complied with by the petitioner,
now the respondent Demetria Sta. Maria Vda. de Bernal. It is Our finding that in the Notice
of Hearing of the original petition the following were listed to be notified by registered mail,
namely: Olimpia B. Sta. Maria, The Director of Lands The Land Registration Commissioner,
The Register of Deeds of Rizal The Provincial Fiscal of Rizal, and The Office of the Solicitor
General. According to the Notice, copies were required to be posted in the bulletin board of
the Provincial Capitol of Rizal, the Municipal Building of Muntinlupa, Rizal, and on Lots 1 and
3.chanroblesvirtualawlibrary chanrobles virtual law library

In the Notice of Hearing of the amended petition, copies of the Notice were required to be
posted only in the bulletin board of the Provincial Capitol of Rizal and on Lots I and 3. The
Notice now omits the Municipal Building of Muntinlupa, Rizal which the Court order of
December 7, 1970 had specifically directed. Likewise, in said Notice of Hearing of the
Amended Petition, no person was named to whom copies of the Notice should be sent by
registered mail so that the names of Manuela Aquial Olimpia B. Sta. Maria, the Director of
Lands, the Land Registration Commissioner, the Register of Deeds of Rizal, the Provincial
Fiscal of Rizal, and the Office of the Solicitor General were now omitted, whereas the order
of the Court required notices to the alleged boundary owners, namely: Manuela Aquial
Olimpia B. Sta. Maria, Director of Lands, Director of Forestry, Atty. Casiano P. Laquihon, and
Atty. Josefina Nepomuceno.chanroblesvirtualawlibrarychanrobles virtual law library

We also find that the Amended Petition does not state or contain the nature and description
of the buildings or improvements on the land not belonging to Demetria Sta. Maria Vda. de
Bernal. It also does not state or contain the names and addresses of the owners of such
buildings or improvements. The names and addresses of the occupants or persons in
possession of the property and the names and addresses of the owners of the adjoining
properties are not also stated in the petition.chanroblesvirtualawlibrary chanrobles virtual
law library
And since the above date do not appear in the Amended Petition, the same data does not
also appear in the Notice of Hearing of the petition published in the Official Gazette.
Patently, the provisions of Section 12 which enumerates mandatorily the contents of the
Petition for Reconstitution and Section 13 which similarly require the contents of the Notice
have not been complied with. In view of these multiple omissions which constitute non-
compliance with the above-cited sections of the Act, We rule that said defects have not
invested the Court with the authority or jurisdiction to proceed with the case because the
manner or mode of obtaining jurisdiction as prescribed by the statute which is mandatory
has not been strictly followed, thereby rendering all proceedings utterly nun and void. We
hold that the mere Notice that "all interested parties are hereby cited to appear and show
cause if any they have why said petition should not be granted" is not sufficient for the law
must be interpreted strictly; it must be applied rigorously, with exactness and precision. We
agree with the ruling of the trial court granting the motion to amend the original petition
provided all the requisites for publication and posting of notices be complied with, it
appearing that the amendment is quite substantial in nature. As We have pointed above,
respondent Demetria Sta. Maria Vda. de Bernal failed to comply with all the requirements
for publication and posting of notices, which failure is fatal to the jurisdiction of the
Court.chanroblesvirtualawlibrary chanrobles virtual law library

The rule on notification to the possessor or one having interest in the property whose title is
sought to be reconstituted is laid down explicitly in Manila Railroad Company vs. Hon. Jose
M Moya et al., L-17913, June 22, 1965, 14 SCRA 358, thus: chanrobles virtual law library

Where a petition for reconstitution would have the certificates of title reconstituted from the
plans and technical descriptions of the lots involved, which sources may fall properly under
section 3 (e) or 3. (f) of Republic Act No. 26, the possessor thereof or the one who is known
to have an interest in the property should be sent a copy of the notice of the petition at the
expense of the petitioner, pursuant to section 13 of the said
Act.chanroblesvirtualawlibrary chanrobles virtual law library

If no notice of the date of hearing of a reconstitution case is served on a possessor or one

having interest in the property involved, he is deprived of his day in court and the order of
reconstitution is null and void, even if otherwise the said order should have been final and
executory.chanroblesvirtualawlibrary chanrobles virtual law library

Under Section 13 of Republic Act No. 26, notice by publication is not sufficient but such
notice must be actually sent or delivered to parties affected by the petition for
reconstitution.

In the instant case, the change in the number of the certificate of title sought to be
reconstituted from T-12/79 to TCT No. 42449 rendered at once the authenticity or
genuineness of respondent's certificate of title under suspicion or cloud of doubt. And since
respondent alleges that the technical descriptions under both certificates of title are
Identical and the same, which the trial court also finds and affirms in its Decision (Record on
Appeal, p. 70), We hold that the instant petition for judicial reconstitution falls squarely
under Section 3 of Republic Act. No. 26, because the Director of Lands claims that the
respondent's duplicate of the Certificate of Title No. T-1 2/79 or TCT No. 42449 are both
fake and fictitious.chanroblesvirtualawlibrary chanrobles virtual law library

Tongoy v. CA, 123 SCRA 99

The Court of Appeals found enough convincing evidence not barred by the aforecited
survivorship rule to time effect that the transfers made by the co-owners in favor of Luis D.
Tongoy were simulated.

2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; VOID CONTRACTS; EFFECTS. — A void or

in existent contract is one which has no force and effect from the very beginning, as if it has
never been into. and which cannot be validated either by time or by ratification (p. 592,
Civil Code of the Philippines, Vol. IV, Tolentino, 1973 Ed.). A void contract procedures no
effect what so ever either against or in favor of anyone; it does not create, modify or
extinguish the juridicial relation to which refers.

3. ID.; ID.; ID.; SIMULATED CONTRACTS; CHARACTERISTICS THEREOF. — Time

characteristic of simulation is the fact that the apparent contract is not really desired nor
intended to produce legal effects nor any way alter the juridical situation of the parties.
Thus, where a person, in order to place his Property beyond the reach of his creditors,
simulates to transfer of it to another, he does not really intend to divest himself of his title
and control of the property; hence, the does of transfer is but a sham. This characteristics
of simulation was defined by this Court in this case of Rodriguez v. Rodriguez, No. L-23002,
July 31, 1967, 20 SCRA 908.

4. ID.; ID.; ID.; FUNDAMENTAL CHARACTERISTICS. — The following are the most
fundamental characteristics of avoid or inexistent contracts: 1) As a general rule, they
produce no legal effects whatsoever in accordance with the principle "quod nullum est
nullum producit effectum." 2) They are not susceptible of ratification. 3) The right to set up
the defense inexistent or absolute -nullity cannot be waived or renounce. 4) The action or
defense for the declaration of their inexistence or absolute nullity is imprescriptible. 5) Time
inexistence or absolute nullity of a contract cannot be invoked by a person whose interest
are not directly affected (p.444, Comments and jurisprudence on obligation and contracts,
Jurado, 1969 Ed., Emphasis supplied)

5. ID.; ID.; ID.; CANNOT BE CURED BY RATIFICATION. — The nullity of these contracts is
definite and cannot be cured by ratification. The nullity is permanent, even if the cause
thereof has created to exist, or even when the parties have complied with the contracts
spontaneously

6. ID.; ID.; ID.; DEED OF TRANSFER EXECUTED TO RESTRUCTURE MORTGAGE TO PREVENT

ITS FORECLOSURE, VOID CONTRACT. — Evidently, therefore, the deeds of transfer
executed in favor of Luis Tongoy were from the very beginning. absolutely simulated or
fictitious, since the same were made merely for the purpose of restructuring the mortgage
over the subject properties and thus preventing the foreclosure by the PNB.

7. ID.; ID.; ID.; SIMULATED TRANSFER CANNOT GIVE RISE TO IMPLIED TRUST. — The is
no implied trust that was generated by the simulated transfers; because being fictitious or
simulated, the transfers were null and void ab initio- from the very beginning-and thus
vested no rights whatsoever in favor in Luis Tongoy or his heirs. That which is inexistent
cannot give life to anything.

On April 17, 1918, Hacienda Pulo was mortgaged by its registered co owners to the
Philippine National Bank (PNB), Bacolod Branch, as security for a loan of P11,000.00
payable in ten (10) years at 8% interest per annum. The mortgagors however were unable
to keep up with the yearly amortizations. as a result of which the PNB instituted judicial
foreclosure proceedings over Hacienda Pulo on June 18, 1931. To avoid foreclosure, one of
the co-owners and mortgagors, Jose Tongoy, proposed to the PNB an amortization plan that
would enable them to liquidate their account. But, on December 23, 1932, the PNB Branch
Manager in Bacolod advised Jose Tongoy by letter that the latter’s proposal was rejected
and that the foreclosure suit had to continue. As a matter of fact, the suit was pursued to
finality up to the Supreme Court which affirmed on July 31, 1935 the decision of the CFI
giving the PNB the right to foreclose the mortgage on Hacienda Pulo. In the meantime,
Patricio D. Tongoy and Luis Tongoy executed on April 29, 1933 a Declaration of Inheritance
wherein they declared themselves as the only heirs of the late Francisco Tongoy and
thereby entitled to the latter’s share in Hacienda Pulo. On March 13, 1934, Ana Tongoy,
Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora and Patricio Tongoy
executed an ‘Escritura de Venta’ (Exh. 2 or Exh. W, which by its terms transferred for
consideration their rights and interests over Hacienda Pulo in favor of Luis D. Tongoy.
Thereafter, on October 23, 1935 and November 5, 1935, respectively, Jesus Sonora and
Jose Tongoy followed suit by each executing a similar ‘Escritura de Venta’ (Exhs. 3 or DD
and 5 or AA) pertaining to their corresponding rights and interests over Hacienda Pulo in
favor also of Luis D. Tongoy. In the case of Jose Tongoy, the execution of the ‘Escritura de
Venta’ (Exh. 5 or AA) was preceded by the execution on October 14, 1935 of an Assignment
of Rights (Exh. 4 or Z) in favor of Luis D. Tongoy by the Pacific Commercial Company as
judgment lien-holder (subordinate to the PNB mortgage) of Jose Tongoy’s share in Hacienda
Polo. On the basis of the foregoing documents, Hacienda Pulo was placed on November 8,
1935 in the name of Luis D. Tongoy, married to Maria Rosario Araneta, under Transfer
Certificate of Title No. 20154 (Exh. 20). In the following year, the title of the adjacent
Cuaycong property also came under the name of Luis D. Tongoy, married to Maria Rosario
Araneta, per Transfer Certificate of Title No. 21522, by virtue of an ‘Escritura de Venta’
(Exh. 6) executed in his favor by the owner Basilisa Cuaycong on June 22, 1936 purportedly
for P4,000.00. On June 26, 1936, Luis D. Tongoy executed a real estate mortgage over the
Cuaycong property in favor of the PNB, Bacolod Branch, as security for loan of P4,500.00.
Three days thereafter, on June 29, 1936, he also executed a real estate mortgage over
Hacienda Pulo in favor of the same bank to secure an indebtedness of P21,000.00, payable
for a period of fifteen (15) years at 8% per annum. After two decades, on April 17, 1956,
Luis D. Tongoy paid off all his obligations with the PNB, amounting to a balance of
P34,410.00, including the mortgage obligations on the Cuaycong property and Hacienda
Pulo. However, it was only on April 22, 1958 that a release of real estate mortgage was
executed by the bank in favor of Luis D. Tongoy. On February 5, 1966, Luis D. Tongoy died
at the Lourdes Hospital in Manila, leaving as heirs his wife Maria Rosario Araneta and his
son Francisco A. Tongoy. Just before his death, however, Luis D. Tongoy received a letter
from Jesus T. Sonora, dated January 26, 1966, demanding the return of the shares in the
properties to the co-owners.

"Not long after the death of Luis D. Tongoy, the case now before Us was instituted in the
court below on complaint filed on June 2, 1966 by Mercedes T. Sonora, Juan T. Sonora **,
Jesus T. Sonora, Trinidad T. Sonora, Ricardo P. Tongoy and Cresenciano P. Tongoy. Named
principally as defendants were Francisco A. Tongoy, for himself and as judicial administrator
of the estate of the late Luis D. Tongoy, and Maria Rosario Araneta Vda. de Tongoy. Also
impleaded as defendants, because of their unwillingness to join as plaintiffs were Amado P.
Tongoy, Norberto P. Tongoy ** and Fernando P. Tongoy. Alleging in sum that plaintiffs
and/or their predecessors transferred their interests on the two lots in question to Luis D.
Tongoy by means of simulated sales, pursuant to a trust arrangement whereby the latter
would return such interests after the mortgage obligations thereon had been settled, the
complaint prayed that ‘judgment be rendered in favor of the plaintiffs and against the
defendants —

Lita Enterprises v. IAC, 129 SCRA 79

(b) that private respondents be declared liable to petitioner for whatever amount the latter
has paid or was declared liable (in Civil Case No. 72067) of the Court of First Instance of
Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died
as a result ot the gross negligence of private respondents' driver while driving one private
respondents' taxicabs. (p. 39, Rollo.)

Unquestionably, the parties herein operated under an arrangement, comonly known as the
"kabit system", whereby a person who has been granted a certificate of convenience allows
another person who owns motors vehicles to operate under such franchise for a fee. A
certificate of public convenience is a special privilege conferred by the government . Abuse
of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has
been Identified as one of the root causes of the prevalence of graft and corruption in the
government transportation offices. In the words of Chief Justice Makalintal, 1 "this is a
pernicious system that cannot be too severely condemned. It constitutes an imposition upon
the goo faith of the government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably
recognized as being contrary to public policy and, therefore, void and inexistent under
Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave them both where it finds them. Upon this
premise, it was flagrant error on the part of both the trial and appellate courts to have
accorded the parties relief from their predicament. Article 1412 of the Civil Code denies
them such aid. It provides:têñ.£îhqwâ£

ART. 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 defect of inexistence of a contract is permanent and incurable, and cannot be cured by
ratification or by prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse of
time cannot give efficacy to contracts that are null void."

The principle of in pari delicto is well known not only in this jurisdiction but also in the
United States where common law prevails. Under American jurisdiction, the doctrine is
stated thus: "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 damages for its property agreed to be sold or
delivered, or damages for its violation. The rule has sometimes been laid down as though it
was equally universal, that where the parties are in pari delicto, no affirmative relief of any
kind will be given to one against the other." 3 Although certain exceptions to the rule are
provided by law, We see no cogent reason why the full force of the rule should not be
applied in the instant case.
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private
respondents, purchased in installment from the Delta Motor Sales Corporation five (5)
Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate
taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative,
Manuel Concordia, for the use of the latter's certificate of public convenience in
consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per
taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of
petitioner Lita Enterprises, Inc, Possession, however, remained with tile spouses Ocampo
who operated and maintained the same under the name Acme Taxi, petitioner's trade
name.

About a year later, on March 18, 1967, one of said taxicabs driven by their employee,
Emeterio Martin, collided with a motorcycle whose driver, one Florante Galvez, died from
the head injuries sustained therefrom. A criminal case was eventually filed against the
driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian
Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the
taxicab in the latter case, Civil Case No. 72067 of the Court of First Instance of Manila,
petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of
P25,000.00 and P7,000.00 for attorney's fees.

This decision having become final, a writ of execution was issued. One of the vehicles of
respondent spouses with Engine No. 2R-914472 was levied upon and sold at public auction
for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car with Engine No. 2R-
915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr.
Lopez.

Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in
his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the
registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a
complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety &
Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with damages,
docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits
ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion of
which reads: têñ.£îhqwâ£

Arsenal v. IAC, 143 SCRA 40

The law on the matter which is the Public Land Act (Commonwealth Act No. 141, as
amended) provides:

"Sec. 118. Except in favor of the Government or any of its branches, units or institutions,
lands acquired under free patent or homestead provisions shall not be subject to
encumbrance or alienation from the date of the approval of the application and for a term of
five years from and after the date of issuance of the patent or grant nor shall they become
liable to the satisfaction of any debt contracted prior to the expiration of said period; but
the improvements or crops on the land may be mortgaged or pledged to qualified persons,
associations, or corporations.

'No alienation, transfer, or conveyance of any homestead after five years and before
twenty-five years after issuance of title shall be valid without the approval of the Secretary
of Agriculture and Natural Resources, which approval shall not be denied except on
constitutional and legal grounds (As amended by Com. Act No. 456, approved June 8,
1939).

xxxxxxxxx

"Sec. 120. Conveyance and encumbrance made by persons belonging to the so-called 'non-
Christian Filipinos' or national cultural minorities, when proper, shall be valid if the person
making the conveyance or encumbrance is able to read and can understand the language in
which the instrument or conveyance or encumbrance is written. Conveyances and
encumbrances made by illiterate non- Christians or literate non-Christians where the
instrument of conveyance is in a language not understood by the said literate non- Christian
shall not be valid unless duly approved by the Chairman of the Commission on National
Integration. (As amended by Rep. Act No. 3872, approved June 18, 1964).

xxxxxxxxx

"Sec. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or
executed in violation of any of the provisions of sections one hundred and eighteen, one
hundred and twenty, one hundred and twenty-one, one hundred and twenty-two, and one
hundred twenty-three of this Act shall be unlawful and null and void from its execution and
shall produce the effect of annulling and cancelling the grant, title, patent, or permit
originally issued, recognized or confirmed, actually or presumptively, and cause the
reversion of the property and its improvements to the State."
The above provisions of law are clear and explicit. A contract which purports of alienate,
transfer, convey or encumber any homestead within the prohibitory period of five years
from the date of the issuance of the patent is void from its execution. In a number of cases,
this Court has held that such provision is mandatory (De los Santos v. Roman Catholic
Church of Midsayap, 94 Phil. 405).

Under the provisions of the Civil Code, a void contract is inexistent from the beginning. It
cannot be ratified neither can the right to set up the defense of its illegality be waived. (Art.
1409, Civil Code).

To further distinguish this contract from the other kinds of contract, a commentator has
stated that:

"The right to set up the nullity of a void or non-existent contract is not limited to the parties
as is the case of annullable or voidable contracts; it is extended to third persons who are
directly affected by the contract." (Tolentino, Civil Code of the Philippines, Vol. IV, p. 604,
[1973]).

"Any person may invoke the inexistence of the contract whenever juridical effects founded
thereon are asserted against him." (Id. p. 595).

Concededly, the contract of sale executed between the respondents Palaos and Suralta in
1957 is void. It was entered into three (3) years and eight (8) months after the grant of the
homestead patent to the respondent Palaos in 1954.

Being void, the foregoing principles and rulings are applicable. Thus, it was erroneous for
the trial court to declare that the benefit of the prohibition in the Public Land Act "does not
inure to any third party." Such a sweeping declaration does not find support in the law or in
precedents, A third person who is directly affected by a void contract may set up its nullity.
In this case, it is precisely the petitioners' interest in the disputed land which is in question.

As to whether or not the execution by the respondents Palaos and Suralta of another
instrument in 1973 cured the defects in their previous contract, we reiterate the rule that an
alienation or sale of a homestead executed within the five-year prohibitory period is void
and cannot be confirmed or ratified. 

x x x This execution of the formal deed after the expiration of the prohibitory period did not
and could not legalize a contract that was void from its inception. Nor was this formal deed
of sale 'a totally distinct transaction from the promissory note and the deed of mortgage', as
found by the Court of Appeals, for it was executed only in compliance and fulfillment of the
vendor's previous promise, under the perfected sale of January 4, 1938, to execute in favor
of his vendee the formal act of conveyance after the lapse of the period of inhibition of five
years from the date of the homestead patent. What is more, the execution of the formal
deed of conveyance was postponed by the parties precisely to circumvent the legal
prohibition of their sale.

"The law prohibiting any transfer or alienation of homestead land within five years from the
issuance of the patent does not distinguish between executory and consummated sales; and
it would hardly be in keeping with the primordial aim of this prohibition to preserve and
keep in the family of the homesteader the piece of land that the State had gratuitously
given to them, (Pascua v. Talens, 45 O.G, No. 9 [Supp.] 413; De los Santos v. Roman
Catholic Church of Midsayap, G.R. No. L-6088, Feb. 25, 1954.) to hold valid a homestead
sale actually perfected during the period of prohibition but with the execution of the formal
deed of conveyance and the delivery of possession of the land sold to the buyer deferred
until after the expiration of the prohibitory period, purposely to circumvent the very law that
prohibits and declares invalid such transaction to protect the homesteader and his family.
To hold valid such arrangements would be to throw the door wide open to all possible
fraudulent subterfuges and schemes that persons interested in land given to homesteaders
may devise to circumvent and defeat the legal provision prohibiting their alienation within
five years from the issuance of the homestead's patent."

The respondents Palaos and Suralta admitted that they executed the subsequent contract of
sale in 1973 in order to cure the defects of their previous contract. The terms of the second
contract corroborate this fact as it can easily be seen from its terms that no new
consideration passed between them. The second contract of sale being merely confirmatory,
it produces no effect and can not be binding.

Manotok Realty v. IAC, 149 SCRA 372

 Wife retains ownership of paraphernal property; husband can only administer it by

means of a public instrument (Art. 136 – 137, Civil Code)
 A void contract cannot be ratified nor defended (Arsenal v. IAC)
 Right to setup nullity of a void contract extended to directly affected third persons 
 Wife retains ownership of paraphernal property; husband can only
administer it by means of a public instrument (Art. 136 – 137, Civil Code)
 “Art. 136. The wife retains the ownership of the paraphernal property.
 “Art. 137. The wife shall have the administration of the paraphernal property,
unless she delivers the same to the husband by means of a public instrument
empowering him to administer it. In this case, the public instrument shall be
recorded in the Registry of Property. As for the movables, the husband shall
give adequate security.”
 A void contract cannot be ratified nor defended (Arsenal v. IAC)
 Under the provisions of the Civil Code, a void contract is inexistent from the
beginning. It cannot be ratified neither can the right to set up the defense of
its illegality be waived.
 Right to setup nullity of a void contract extended to directly affected third
persons (Tolentino, cited in Arsenal v. IAC)
 The right to set up the nullity of a void or non-existent contract is not limited
to the parties as in the case of annullable or voidable contracts; it is extended
to third persons who are directly affected by the contract.
2.6. SHORTHAND DIGEST

 This petition on a Court of Appeals decision involved the sale of a lot, wherein the
husband sold the lot his deceased wife owned to respondent despite only having
authority to do so as administrator three months after. The Supreme Court, upon
finding these facts, found the husband in violation of Articles 136 – 137 of the Civil
Code, ruling the sale of the lot as void, therefore being unfit for ratification. More so,
the husband failed to apply for authority to sell the property under Section 1, Rule 89
of the Revised Rules of Court. Thus the decision appealed from reversed and set
aside, demanding the private respondent return the disputed lot to petitioner realty,
who was the court approved administrator of the lot.

Portugal v. IAC, 159 SCRA 178

Petitioner Cornelia Clanor and her late husband Pascual Portugal, during the lifetime of the
latter, were able to accumulate several parcels of real property.

 the private respondent Hugo Portugal, a son of the spouses, borrowed from his
mother, Cornelia, the certificates of title to the above-mentioned parcels of land on
the pretext that he had to use them in securing a loan that he was negotiating.
 Cornelia, the loving and helpful mother that she was, assented and delivered the
titles to her son.
 The matter was never again brought up until after Pascual Portugal died on
November 17, 1974.
 When the other heirs of the deceased Pascual Portugal, the petitioners herein, for the
purposes of executing an extra-judicial partition of Pascual’s estate, wished to have
all the properties of the spouses collated, Cornelia asked the private respondent for
the return of the two titles she previously loaned, Hugo manifested that the said
titles no longer exist.
 When further questioned, Hugo showed the petitioners Transfer Certificate of Title
(T.C.T.) No. 23539 registered in his and his brother Emiliano Portugal’s names, and
which new T.C.T. cancelled the two previous ones.
 This falsification was triggered by a deed of sale by which the spouses Pascual
Portugal and Cornelia Clanor purportedly sold for P8,000.00 the two parcels of land
adverted to earlier to their two sons, Hugo and Emiliano. Confronted by his mother
of this fraud, Emiliano denied any participation.
 Whether the present action has prescribed?
 No.
 Apropos the first issue, which is the timeliness of the action, the trial court
correctly ruled that the action instituted by the petitioners has not yet
prescribed. Be that as it may, the conclusion was reached through an
erroneous rationalization, i.e., the case is purely for reconveyance based on
an implied or constructive trust.
 Obviously, the trial court failed to consider the lack of consideration or cause
in the purported deed of sale by which the residential lot was allegedly
transferred to the private respondent by his parents. On the other hand, the
respondent Intermediate Appellate Court held that since the action for
reconveyance was fathered by a fraudulent deed, of sale, Article 1391 of the
Civil Code which lays down the rule that an action to annul a contract based
on fraud prescribes in four years, applies.
  Hence, according to the respondent court, as more than four years had
elapsed from January 23, 1967 when the assailed deed was registered and
the petitioners’ cause of action supposedly accrued, the suit has already
become stale when it was commenced on October 26, 1976, in the Court of
First Instance of Cavite. For reasons shortly to be shown, we can not give our
imprimatur to either view.
 The case at bar is not purely an action for reconveyance based on an implied
or constructive trust. Neither is it one for the annullment of a fraudulent
contract. A closer scrutiny of the records of the case readily supports a finding
that fraud and mistake are not the only vices present in the assailed contract
of sale as held by the trial court. More than these, the alleged contract of sale
is vitiated by the total absence of a valid cause or consideration. The
petitioners in their complaint, assert that they, particularly Cornelia, never
knew of the existence of the questioned deed of sale.
 They claim that they came to know of the supposed sale only after the private
respondent, upon their repeated entreaties to produce and return the owner’s
duplicate copy of the transfer certificate of title covering the two parcels of
land, showed to them the controversial deed. And their claim was
immeasurably bolstered when the private respondent’s co-defendant below,
his brother Emiliano Portugal, who was allegedly his co-vendee in the
transaction, disclaimed any knowledge or participation therein.
 If this is so, and this is not contradicted by the decisions of the courts below,
the inevitable implication of the allegations is that contrary to the recitals
found in the assailed deed, no consideration was ever paid at all by the
private respondent.
 Applying the provisions of Articles 1350, 1352, and 1409 of the new Civil
Code in relation to the indispensable requisite of a valid cause or
consideration in any contract, and what constitutes a void or inexistent
contract, we rule that the disputed deed of sale is void ab initio or inexistent,
not merely voidable. And it is provided in Article 1410 of the Civil Code, that
“(T)he action or defense for the declaration of the inexistence of a contract
does not prescribe.”
 But even if the action of the petitioners is for reconveyance of the parcel of
land based on an implied or constructive trust, still it has been seasonably
filed. For as heretofore stated, it is now settled that actions of this nature
prescribe in ten years, the point of reference being the date of registration of
the deed or the date of the issuance of the certificate of title over the
property
 In this case, the petitioner commenced the instant action for reconveyance in
the trial court on October 26, 1976, or less than ten years from January 23,
1967 when the deed of sale was registered with the Register of Deeds.[5]
Clearly, even on this basis alone, the present action has not yet prescribed.

Yanas v. Acaylar, 136 SCRA 52

 Luis Yanas, also known as Sulung Subano, an illiterate, occupied Lot No. 5408 with
an area of 13 hectares located at Sitio Dionom (Lower Gumay), Barrio Sianib, Piñan
(Dipolog), Zamboanga del Norte. He claimed the lot in the cadastral proceeding
through lawyer Leoncio S. Hamoy. Lawyer Valeriano S. Concha, Sr., an adjoining
owner of Yanas since 1946, testified the same up to his death in 1962.
 1950, August 7
  Yanas thumbmarked in Dapitan a deed of sale and conveyance wherein he
purportedly sold to Antonio L. Acaylar of Dapitan for P200 his 13-hectare land.
The sale was notarized on the following day, August 8. An instrumental witness
was lawyer Hamoy.
 1953, May 15
 The sale was approved by Governor Felipe B. Azcuna, 33 months after the
sale.
 1954, June 5
 The said decree was only registed on June 5, 1954. OCT NO. 64 was issued to
Yanas
 1954, December 21
 Acaylar registerd the 1950 deed of sale. He obtained TCT No. T-3338
 How Acaylar possessed the owner’s duplicate of the OCT in question and why
it was not delivered to Yanas was not shown on the record.

Whether the deed of sale was fraudulent and therefore void?

Yes

We hold that the sale was fictitious and fraudulent. Among the badges of fraud and
fictitiousness taken collectively are the following:

(1) the fact that the sale is in English, the alleged vendor being illiterate;

(2) the fact that his wife did not join in the sale and that her name is indicated
in the deed as “Maria S. Yanas” when the truth is that her correct name is
Maria Aglimot Yanas;

(3) the obvious inadequacy of P200 as price for a 13-hectare land (P15.40 a
hectare);

(4) the notarization of the sale on the day following the alleged thumbmarking
of the document;

(5) the failure to state the boundaries of the lot sold;

(6) the fact that the governor approved it more than two years after the
alleged sale;

(7) its registration more than three years later, and

(8) the fact that the Acaylars were able to occupy only four hectares out of the
13 hectares and were eventually forcibly ousted therefrom by the children and
agents of the vendor. It was not a fair and regular transaction done in the
ordinary course of business.

Barsobia v. Cuenco, 113 SCRA 547

Public policy against alien ownership,1935 Constitution

 Save in cases of hereditary succession, no private agricultural land shall be
transferred or assigned except to individuals, corporations, or associations, qualified
to acquire or hold lands of the public domain

Bar against alien ownership inapplicable if litigated property is owned by a

naturalized Filipino

Respondent, as a naturalized citizen, was constitutionally qualified to own the

subject property. There would be no more public policy to be served in allowing
petitioner Epifania to recover the land as it is already in the hands of a qualified
person.

Long inaction bars right to claim, Sotto v. Teves

it is likewise inescapable that petitioner Epifania had slept on her rights for 26 years
from 1936 to 1962. By her long inaction or inescusable neglect, she should be held
barred from asserting her claim to the litigated property

The lot in controversy is a one-half portion (on the northern side) of two adjoining
parcels of coconut land located at Barrio Mancapagao, Sagay, Camiguin, Misamis
Oriental (now Camiguin province), with an area of 29,150 square meters, more or less.
[2]

The entire land was owned previously by a certain Leocadia Balisado, who had sold it to
the spouses Patricio Barsobia (now deceased) and Epifania Sarsosa, one of the
petitioners herein. They are Filipino citizens.

1936, September 5,

Epifania Sarsosa, then a widow, sold the land in controversy to a Chinese, Ong
King Po, for the sum of P1,050.00 (Exhibit “B”). Ong King Po took actual
possession and enjoyed the fruits thereof.

1961, August 5

Ong King Po sold the litigated property to Victoriano T. Cuenco (respondent

herein), a naturalized Filipino, for the sum of P5,000.00 (Exhibit “A”). Respondent
immediately took actual possession and harvested the fruits therefrom.

1962, March 6

Epifania “usurped” the controverted property,

1962, July 26

Epifania (through her only daughter and child, Emeteria Barsobia), sold a one-
half (1/2) portion of the land in question to Pacita W. Vallar, the other petitioner
herein

Epifania claimed that it was not her intention to sell the land to Ong King Po and
that she signed the document of sale merely to evidence her indebtedness to the
 latter in the amount of P1,050.00. Epifania has been in possession ever since
except for the portion sold to the other petitioner Pacita.

Whether the sale of the lot is valid?

No.

As the facts stand, a parcel of coconut land was sold by its Filipino owner, petitioner
Epifania, to a Chinese, Ong King Po, and by the latter to a naturalized Filipino,
respondent herein. In the meantime, the Filipino owner had unilaterally repudiated
the sale she had made to the Chinese and had resold the property to another
Filipino. The basic issue is: Who is the rightful owner of the property?

There should be no question that the sale of the land in question in 1936 by Epifania
to Ong King Po was inexistent and void from the beginning (Art. 1409 [7], Civil
Code) [6] because it was a contract executed against the mandatory provision of
the 1935 Constitution, which is an expression of public policy to conserve lands for
the Filipinos. Said provision reads:

“Save in cases of hereditary succession, no private agricultural land shall be

transferred or assigned except to individuals, corporations, or associations,
qualified to acquire or hold lands of the public domain.”[7]

Had this been a suit between Epifania and Ong King Po, she could have been
declared entitled to the litigated land on the basis, as claimed, of the ruling in
Philippine Banking Corporation vs. Lui She,[8] reading:

“x x x For another thing, and this is not only cogent but also important. Article
1416 of the Civil Code provides as an exception to the rule on pari delicto that
when the agreement is not illegal per se but is merely prohibited, and the
prohibition by the law is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has sold or delivered. x x
x”

Whether the respondent retains rightful ownership of the property?

Yes.

But the factual set-up has changed. The litigated property is now in the hands of a
naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a
naturalized citizen, was constitutionally qualified to own the subject property. There
would be no more public policy to be served in allowing petitioner Epifania to
recover the land as it is already in the hands of a qualified person. Applying by
analogy the ruling of this Court in Vasquez vs. Giap and Li Seng Giap & Sons:[9]

“x x x if the ban on aliens from acquiring not only agricultural but also urban
lands, as construed by this Court in the Krivenko case, is to preserve the
nation’s lands for future generations of Filipinos, that aim or purpose would
not be thwarted but achieved by making lawful the acquisition of real estate
by aliens who became Filipino citizens by naturalization.”
 Whether petitioner has the right to claim the litigated property?

No.

While, strictly speaking, Ong King Po, private respondent’s vendor, had no rights of
ownership to transmit, it is likewise inescapable that petitioner Epifania had slept on
her rights for 26 years from 1936 to 1962. By her long inaction or inescusable
neglect, she should be held barred from asserting her claim to the litigated property
(Sotto vs. Teves, 86 SCRA 157 [1978]).

“Laches has been defined as the failure or neglect, for an unreasonable and
unexplained length of time, to do that which by exercising due diligence could
or should have been done earlier; it is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert it. (Tijam, et al. vs.
Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA 29, 35).” (cited in
Sotto vs. Teves, 86 SCRA 154 [1978]).

Respondent, therefore, must be declared to be the rightful owner of the property.

Godinez v. Fong, 120 SCRA 223

Whether or not the heirs of a person who sold a parcel of land to an alien in
violation of a constitutional prohibition may recover the property if it had, in the
meantime, been conveyed to a Filipino citizen qualified to own and possess it?

Yes.

The question is not a novel one. Judicial precedents indicate fairly clearly how the
question should be resolved.

There can be no dispute that the sale in 1941 by Jose Godinez of his residential lot
acquired from the Bureau of Lands as part of the Jolo townsite to Fong Pak Luen, a
Chinese citizen residing in Hongkong, was violative of Section 5, Article XIII of the 1935
Constitution which provided:

Sec. 5. Save in cases of hereditary succession, no private agricultural land will be

transferred or assigned except to individuals, corporations, or associations qualified
to acquire or hold lands of the public domain in the Philippines.

The meaning of the above provision was fully discussed in Krivenko v. Register of Deeds
of Manila (79 Phil. 461) which also detailed the evolution of the provision in the public
land laws, Act No. 2874 and Commonwealth Act No. 141. The Krivenko ruling that “under
the Constitution aliens may not acquire private or agricultural lands, including residential
lands” is a declaration of an imperative constitutional policy. Consequently, prescription
may never be invoked to defend that which the Constitution prohibits. However, we see
no necessity from the facts of this case to pass upon the nature of the contract of sale
executed by Jose Godinez and Fong Pak Luen whether void ab initio, illegal per se, or
merely prohibited.[*] It is enough to stress that insofar as the vendee is concerned,
prescription is unavailing. But neither can the vendor or his heirs rely on an argument
based on imprescriptibility because the land sold in 1941 is now in the hands of a Filipino
citizen against whom the constitutional prescription was never intended to apply. The
lower court erred in treating the case as one involving simply the application of the
statute of limitations.

From the fact that prescription may not be used to defend a contract which the
Constitution prohibits, it does not necessarily follow that the appellants may be allowed to
recover the property sold to an alien. As earlier mentioned, Fong Pak Luen, the
disqualified alien vendee later sold the same property to Trinidad S. Navata, a Filipino
citizen qualified to acquire real property.

In Vasquez v. Li Seng Giap and Li Seng Giap & Sons (96 Phil. 447), where the alien
vendee later sold the property to a Filipino corporation, this Court, in affirming a
judgment dismissing the complaint to rescind the sale of real property to the defendant Li
Seng Giap on January 22, 1940, on the ground that the vendee was an alien and under
the Constitution incapable to own and hold title to lands, held:

“In Caoile vs. Yu Chiao, 49 Off. Gaz., 4321; Talento vs. Makiki, 49 Off. Gaz., 4331;
Bautista vs. Uy 49 Off. Gaz., 4336; Rellosa vs. Gaw Chee, 49 Off. Gaz., 4345 and
Mercado vs. Go Bio, 49 Off. Gaz., 5360, the majority of this Court has ruled that in
sales of real estate to aliens incapable of holding title thereto by virtue of the
provisions of the Constitution (Section 5, Article XIII; Krivenko vs. Register of
Deeds, 44 Off. Gaz., 471) both the vendor and the vendee are deemed to have
committed the constitutional violation and being thus in pari delicto the courts will
not afford protection to either party. (Article 1305, old Civil Code; Article 1411, new
Civil Code) From this ruling three Justices dissented. (Mr. Justice Pablo, Mr. Justice
Alex. Reyes and the writer.) See Caoile vs. Yu Chiao, Talento vs. Makiki, Bautista
vs. Uy, Rellosa vs. Gaw Chee and Mercado vs. Go Bio, supra.

“The action is not of rescission because it is not postulated upon any of the grounds
provided for in Article 1291 of the old Civil Code and because the action of
rescission involves lesion or damage and seeks to repair it. It is an action for
annulment under Chapter VI, Title II, Book II, on nullity of contracts, based on a
defect in the contract which invalidates it independently of such lesion or damages.
(Manresa, Commentarios al Codigo Civil Español, Vol. VIII, p. 698, 4th ed.) It is
very likely that the majority of this Court proceeded upon that theory when it
applied the in pari delicto rule referred to above.

“In the United States the rule is that in a sale of real estate to an alien disqualified
to hold title thereto the vendor divests himself of the title to such real estate and
has no recourse against the vendee despite the latter’s disability on account of
alienage to hold title to such real estate and the vendee may hold it against the
whole world except as against the State. It is only the State that is entitled by
proceedings in the nature of office found to have a forfeiture or escheat declared
against the vendee who is incapable of holding title to the real estate sold and
conveyed to him. (Abrams vs. State, 88 Pac. 327; Craig vs. Leslie et al., 4 Law, Ed.
460; 3 Wheat, 563, 589-590; Cross vs. Del Valle, 1 Wall, [U.S.] 513; 17 Law. Ed.,
515; Governeur vs. Robertson, 11 Wheat, 332, 6 Law. Ed., 488.)

“However, if the State does not commence such proceedings and in the meantime
the alien becomes naturalized citizen, the State is deemed to have waived its right
to escheat the real property and the title of the alien thereto becomes lawful and
valid as of the date of its conveyance or transfer to him. (Osterman vs. Baldwin, 6
 Wall, 116, 18 Law. ed. 730; Manuel vs. Wulff, 152 U.S. 505, 38 Law. ed. 532;
Pembroke vs. Houston, 79 SW 470; Fieorella vs. Jones, 259 SW 782. The rule in the
United States that in a sale of real estate to an alien disqualified to hold title
thereto, the vendor divests himself of the title to such real estate and is not
permitted to sue for the annulment of his contract, is also the rule under the Civil
Code. . . . Article 1302 of the old Civil Code provides: ‘. . . Persons sui juris cannot,
however, avail themselves of the incapacity of those with whom they contracted; . .
..’

“. . . . (I)f the ban on aliens from acquiring not only agricultural but also urban
lands, as construed by this Court in the Krivenko case, is to preserve the nation’s
land for future generations of Filipinos, that aim or purpose would not be thwarted
but achieved by making lawful the acquisition of real estate by aliens who became
Filipino citizens by naturalization. The title to the parcel of land of the vendee, a
naturalized Filipino citizen, being valid that of the domestic corporation to which the
parcel of land has been transferred, must also be valid, 96.67 per cent of its capital
stock being owned by Filipinos.”

Herrera v. Luy kim Guan (1 SCRA 406) reiterated the above ruling by declaring that
where land is sold to a Chinese citizen, who later sold it to a Filipino, the sale to the latter
cannot be impugned.

The appellants cannot find solace from Philippine Banking Corporation v. Lui She (21
SCRA 52) which relaxed the pari delicto doctrine to allow the heirs or successors-in-
interest, in appropriate cases, to recover that which their predecessors sold to aliens.

Yap v. Grageda, 121 SCRA 244

 Constitutional prohibition against aliens acquiring land may not apply if

vendee a naturalized citizen when said property is in litigation, citing
Bersabia v. Cuenco
 But the factual set-up has changed. The litigated property is now in the hands
of a naturalized Filipino. It is no longer owned by a disqualified vendee…. If the
ban on aliens from acquiring not only agricultural but also urban lands, as
construed by this Court in the Krivenko case, is to preserve the nation’s lands for
future generations of Filipinos, that aim or purpose would not be thwarted but
achieved by making lawful the acquisition of real estate by aliens who became
Filipino citizens by naturalization.
 1939, April 12
 Maximino Rico, for and in his own behalf and that of minors Maria Rico,
Filomeno Rico, Prisco Rico, and Lourdes Rico executed a Deed of Absolute
Sale over Lot 339 and a portion of Lot 327 in Guinobatan in favor of petitioner
Donato Reyes Yap, then a Chinese national.
 Petitioner registered the instrument of sale, cancelled the original certificates
of the lots, and was issued in his favor a Transfer Certificate of Title of the
lots sold to him.
 Fifteen years after, petitioner was admitted as Filipino citizen, took an oath of
allegiance to the Republic of the Philippines, and was issued a Certificate of
Naturalizaiton in CFI Albay
 1967, December 1
 Petitioner ceded a major portion of Lot 327 to his engineer son, Felix Yap, a
Filipino because of his Filipino mother and naturalized Filipino father.
  Lourdes Rico, aunt and co-heir of respondent Jose A. Rico, sold the remaining
portion of Lot 347 to petitioner, who have been in possession of the lots in
question since 1939.

Pineda v. de la Rama, 121 SCRA 671

Section 24 of the Negotiable Instruments Law which reads:

SECTION 24. Presumption of consideration.—Every negotiable instrument is deemed prima

facie to have been issued for a valuable consideration; and every person whose signature
appears thereon to have become a party thereto for value.

The Court of Appeals' reliance on the above provision is misplaced. The presumption that a
negotiable instrument is issued for a valuable consideration is only puma facie. It can be
rebutted by proof to the contrary. (Bank of the Philippine Islands v. Laguna Coconut Oil Co.
et al., 48 Phil. 5).

According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on two
occasions five days apart - first loan for P5,000.00 and second loan for P4,300.00, both
given in cash. He also alleged that previously he loaned P3,000.00 but Pineda paid this
other loan two days afterward.

These allegations of Dela Rama are belied by the promissory note itself. The second
sentence of the note reads - "This represents the cash advances made by him in connection
with my case for which he is my attorney-in- law."

The terms of the note sustain the version of Pineda that he signed the P9,300.00
promissory note because he believed Dela Rama's story that these amounts had already
been advanced by Dela Rama and given as gifts for NARIC officials.

Dela Rama himself admits that Pineda engaged his services to delay by one month the filing
of the NARIC case against Pineda while the latter was trying to work out an amicable
settlement. There is no question that Dela Rama was indeed a close friend of then NARIC
Administrator Jose Rodriquez having worked with him in the Philippine consulate at
Hongkong and that Dela Rama made what he calls "proper representations" with Rodriguez
and with other NARIC officials in connection with the investigation of the criminal charges
against Pineda.

We agree with the trial court which believed Pineda. It is indeed unusual for a lawyer to lend
money to his client whom he had known for only three months, with no security for the loan
and on interest. Dela Rama testified that he did not even know what Pineda was going to do
with the money he borrowed from him. The petitioner had just purchased a hacienda in
Mindoro for P210,000.00, owned sugar and rice lands in Tarlac of around 800 hectares, and
had P60,000.00 deposits in three banks when he executed the note. It is more logical to
believe that Pineda would not borrow P5,000.00 and P4,300.00 five days apart from a man
whom he calls a "fixer" and whom he had known for only three months.

There is no dispute that an air-conditioning unit valued at P1,250.00 was purchased by

Pineda's son and given to Dela Rama although the latter claims he paid P1,250.00 for the
unit when he received it. Pineda, however, alleged that he gave the air-conditioning unit
because Dela Rama told him that Dr. Rodriguez was asking for one air-conditioning machine
of 1.5 horsepower for the latter's NARIC office. Pineda further testified that six cavans of
first class rice also intended for the NARIC Chairman and General Manager, together with
the airconditioning unit, never reached Dr. Rodriguez but were kept by the lawyer.

Considering the foregoing, we agree with the trial court that the promissory note was
executed for an illegal consideration. Articles 1409 and 1412 of the Civil Code in part,
provide:

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public
order and public policy;

xxx xxx xxx

Art. 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.

xxx xxx xxx

Whether or not the supposed cash advances reached their destination is of no moment. The
consideration for the promissory note - to influence public officers in the performance of
their duties - is contrary to law and public policy. The promissory note is void ab initio and
no cause of action for the collection cases can arise from it.