EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY.
DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
CONTRACTS
Contents
CONTRACTS........................................................ 1
MODULE 1: CONCEPT OF CONTRACTS ................. 1
Concept of Contracts ............................................. 1
MODULE 2: PRINCIPLES OF CONTRACTS ............ 3
Liberty or Autonomy of Contracts ............................ 3
Mutuality of Contracts ............................................ 9
Relativity of Contracts .......................................... 14
Consensuality of Contracts .................................... 18
Obligatory Force of Contracts ................................ 20
MODULE 3: STAGES AND ELEMENTS OF
CONTRACTS...................................................... 22
Negotiation ......................................................... 22
Perfection............................................................ 22
Theories in Perfection of Contracts (Manifestation,
Expedition, Reception, and Cognition Theories) ........ 22
Elements of Contracts ........................................... 22
Consent .............................................................. 22
Offer .................................................................. 22
Acceptance .......................................................... 22
Parties ................................................................ 26
Capacity ............................................................. 26
Vices of Consent .................................................. 28
Simulation of Contracts ......................................... 33
Object (1347-1349) ............................................. 35
Cause (1350-1355) .............................................. 37
MODULE 4: FORM OF CONTRACTS .................... 42
MODULE 5: REFORMATION OF CONTRACTS ...... 43
Reformation of Instruments (1359-1369) ................ 43
MODULE 6: INTERPRETATION OF CONTRACTS . 45
Interpretation of Contracts (1370-1379) ................. 45
MODULE 7: DEFECTIVE CONTRACTS ................. 49
Rescissible Contracts (1380-1389) ......................... 49
Voidable Contracts (1390-1402) ............................ 53
Void or Inexistent Contracts (1409-1422) ............... 59
MODULE 1: CONCEPT OF CONTRACTS
Concept of Contracts (Art. 1305; 1307)
1) Sps, Pascual vs. Ramos, (G.R No.144712,
July 4, 2002)
Facts: Spouses Pascual executed a deed of sale with
right to repurchase over 2 parcels of land in Bambang,
Bulacan infavor of Ramos for consideration of 150k. Sps
Pascual did not exercise the right to repurchase within
the agreed period- 1 year so Ramos initiated transfer
proceedings. Sps Pascual averred that what was actually
entered into was a loan with a real estate mortgage and
no period was agreed upon. Also, they had actually
overpaid Ramos.
The trial court ruled that the transaction between the
parties was actually a loan in the amount of P150,000,
thepayment of which was secured by a mortgage.
Ramos filed an MR alleging that 7% annually was not to
be used and that the kasunduan stipulated 7% per
month. The trial court deleted the award of 141.5k
overpayment and ordered them to pay 511k
representing principal plus interest. Sps Pascual filed an
MR with the CA this time questioning the interest rate,
which was dismissed by the CA.
Issue: WON the interest rate of 5% monthly is
unconscionable? NO
Page 1 of 67
Ruling: It is a basic principle in civil law that parties are
bound by the stipulations in the contracts voluntarily
entered into by them. Parties are free to stipulate terms
and conditions which they deem convenient provided
they are not contrary to law, morals, good customs,
public order, or public policy.
The interest rate of 7% per month was voluntarily
agreed upon by RAMOS and the PASCUALs. There is
nothing from the records and, in fact, there is no
allegation showing that petitioners were victims of fraud
when they entered into the agreement with RAMOS.
Neither is there a showing that in their contractual
relations with RAMOS, the PASCUALs were at a
disadvantage on account of their moral dependence,
ignorance, mental weakness, tender age or other
handicap, which would entitle them to the vigilant
protection of the courts as mandated by Article 24 of the
Civil Code.
With the suspension of the Usury Law and the removal
of interest ceiling, the parties are free to stipulate the
interest to be imposed on loans. Absent any evidence of
fraud, undue influence, or any vice of consent exercised
by RAMOS on the PASCUALs, the interest agreed upon
is binding upon them. This Court is not in a position to
impose upon parties contractual stipulations different
from what they have agreed upon.
2) Cuizon vs. C.A, (260 SCRA 645)
FACTS:
Plaintiff is a businesswoman engaged in general
merchandising under the trademark Tropic Philippines
Food. In 1983, she was introduced to defendants
spouses Gerardo and Maria Paray, who are in the real
estate business, by a certain Romy Verano, a mutual
friend. When the friendship between the two parties
developed, Maria Paray proposed to Carmela Kuizon
that the spouses Paray would execute Special Power of
Attorney in favor of plaintiff for five parcels of land with
an aggregate area of 3,803 square meters, owned by
defendants, which the plaintiff is to mortgage in her
name using those same parcels of land as collaterals.
The defendants at that time were in dire need of money
to pay off their bank obligations. Plaintiff acceded to the
plans after much persuasion on the agreement that
Carmela Kuizon pay for the amortization of the loans
and that for whatever amounts covered by the loans
released from time to time, turned over to the
defendants by plaintiff, the defendants will immediately
convey to the plaintiff, each lot within the amount
received by them computed at a mutually agreed price
of P170.00 per square meter. As an inducement to the
proposal and in partial compliance with their agreement,
defendants executed in favor of plaintiff a Deed of Sale
of Real Property over Lot No. 800-A-1-B under TD No.
34504 (Exhibit M-Deed of Sale dated June 6, 1983-for
P25,000.00 over TCT No. 84791, Lot No. 800-A-1-B,
314 sq. m.). Defendants also executed Special Power of
Attorney, notarized June 30, 1983 over TCT Nos. 84793,
84792 and 84794 covering Lots Nos. 800-A-3, 800-A-2
and 800-A-4 (Exhibit C), and registered with the
Register of Deeds). After said SPA (Exhibit C) was
executed, plaintiff secured loan from the Rural, Bank of
Compostela for P50,000 with maturity dated on April 22,
1984 covering Lot No. 800-A-4 as collateral (Exhibit D
and D-1 Discount and Disclosure Statement of Loan
Transaction issued to Carmela Montalban by the Rural
Bank of Compostela (Cebu) for P50,000.00 with net
proceeds of P43,459.50; and Real Estate Mortgage
executed by Carmela and Antonio Montalban in favor of
Rural Bank of Compostela (Cebu).
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
Subsequently, plaintiff secured an IBRD loan from the
same Rural Bank of Compostela for P183,910.00
maturing on October 19, 1983 with Lots No. 800-A-3
800-A-2 and 800-A-4, part of the proceeds of which she
used to pay the previous loan of P50,000.00 with the
same bank (Exhibits F, F-1 and F-2 —Discount and
Disclosure Statement on Loan Transaction issued to
plaintiff by Rural Bank of Compostela for IBRD loan of
P188,910.00 dated November 25, 1983 with net
proceeds of P183,242.70; Promissory Note for
P188,910.00 executed by plaintiff; and Real Estate
Mortgage executed by Carmela and Antonio
Montalban over Lots Nos. 800-A-4, 800-A-2 and 800-A-
3). Later, defendants executed another Special Power of
Attorney notarized August 19, 1983 for Tax Declaration
No. 01-03242 under TCT No. 74735 covering Lot No.
720-A (Exhibit B) and registered with the Register of
Deeds (Exhibit B-3), with said SPA (Exhibit B) plaintiff
was able to secure a loan from Isla Bank in the amount
of P60,000.00 to mature on February 27, 1984 (Exhibit
E-Certified true copy of Discount Statement by Isla Bank
for loan of P60,000.00 by plaintiff of net proceeds of
P52,256.64; and Exhibit E-1-certified true copy of the
Real Estate Mortgage executed by plaintiff in favor of
Isla Bank over Lot No. 720-A to guarantee loan of
P60,000.00). Defendants again issued another Special
Power of Attorney (Exhibit- A) notarized on May 23,
1984 over Lot No. 800-A-1 covered by TD No. 01-34503
in favor of plaintiff and duly notarized by the Register of
Deeds (Exhibit-A-3).
Plaintiff, with said SPA, secured a loan from J. Finance
in the amount of P44,941.75 with maturity date on
November 30, 1985 (Exhibit A-2-letter and transmittal
dated May 30, 1984 from J. Finance Corporation for loan
of P44,941.75 with net proceeds of P35,000.00; and
Exhibit N-1 Deed of Real Estate Mortgage executed by
Carmela and Antonio Montalban in favor of J. Finance
over Lot No. 800-A-I-4). For Lot No. 800-A-1B which
was earlier conveyed by defendants to plaintiff in a Deed
of Sale (Exhibit M), defendants pressured plaintiff to
secure a housing loan with DBP in the amount of
P201,000.00
(Exhibits G and G-1-certiFIed true copy of Promissory
Note for P103,200.00 and P97,800.00, respectively,
dated February 8, 1984) using the same lots as
collateral, with defendants promising to convey to
plaintiff the adjacent Lot No. 800-A-1-A to serve as lawn
for the house erected: pictures of the house were
presented as Exhibits L, L-1, L-2, L-3.
After plaintiff remitted the P20,000.00 (Exhibit I of
defendant), Mrs. Paray borrowed plaintiff's title to a lot
in Ozamis City, under TCT No. 8648(Exhibit N dated May
28, 1983), and in turn Mrs. Paray handed to plaintiff the
Deed of Sale for Lot No. 800-A-1-B, together with two
documents, a Deed of Agreement (Annex A of Answer)
and a Supplemental Agreement (Annex B of Answer) for
plaintiff to sign. The Supplemental Agreement in effect
prohibited the plaintiff from selling the land unless with
consent of defendant spouses. Plaintiff initially refused
to sign the Deed of Agreement as the purchase price
indicated P25,170.00 with a down payment of
P20,000.00 but the balance reflected was P33,380.00
instead of only P5,000.00, but upon defendants plea,
she affixed her signature and issued a postdated check
for P33,380.00 to accommodate defendants with the
understanding that those will be deducted from the loan
releases and her assurance that these documents won't
be notarized.
Petitioner admitted that out of the P492,002.04 net
proceeds of the loans, P194,002.04 were used in the
building of her house on Lot No. 800-A-1-B, the land
Page 2 of 67
which was then subject to the DBP housing loan, and
P100,000.00 were allegedly given to the bank fixers as
grease money for the release of the loans. From 1983
to 1984, she also paid P2,342.63 worth of realty taxes
on the collaterals and complied with her obligation of
paying loan amortization in the amount of P109,916.28.
When she demanded that a deed of sale be executed
over Lot No. 800-A-1-A, the lot which was adjacent to
Lot No. 800-A-1-B, private respondents refused to
convey said lot claiming that an accounting or
liquidation of the loans and the lands she used as
collaterals must first be made.
On May 5, 1985, petitioner filed a complaint for specific
performance with damages against private
respondents. She alleged, inter alia, that in compliance
with their agreement, she turned over to private
respondents P198,000.00 of loan proceeds, deducting
the purchase price of P25,120.00 for Lot No. 800-A-1-B
from P198,000.00, private respondents were still
obligated to convey to petitioner a total of no less than
1,017 square meters of land representing the amount
of P172,880.00 (P198,000.00 minus P25,120.00)
computed at a mutually agreed price of P170.00 per
square meter. She asked specifically for the conveyance
of the 250 square meter Lot No. 800-A-1-A to provide a
spacious lawn to the house built on Lot No. 800-A-1-B
and to pay back the amount of P130,380.00
(P172,880.00 minus the price of P42,500.00 for Lot No.
800-A-1-A), or in the alternative to pay back the
amount of P172,880.00 plus interest.
ISSUE:
The first issue to be resolved is the determination of the
real agreement of the parties.
RULING:
It is well settled that in construing a written agreement,
the reason behind and the circumstances surrounding
its execution are of paramount importance to place the
interpreter in the situation occupied by the parties
concerned at the time the writing was executed.
Admittedly, the intention of the contracting parties
should always prevail because their will has the force of
law between them.
First, the sale of Lot No. 800-A-1-B was an incentive
given to petitioner who acquiesced to the proposal of
private respondents of securing loans for them by using
their lands as collaterals. As compared to the other five
lots which had a price of P170.00 per square meter, Lot
No. 800-A-1-B had a lower cost of P25,120.00 precisely
to serve as an inducement of private respondents for
petitioner to agree to their transaction.
Second, petitioner and private respondents in executing
the Deed of Agreement did not intend to be bound by
the provisions thereof. The alleged balance of
P33,380.00 was indicated in the Deed of Agreement
because private respondents wanted petitioner to issue
a postdated check for the same amount to pay the
farmer's obligations. Thus, the UCPB check which was
issued afterwards, was not intended for the payment of
the alleged balance of P33,380.00 as appearing in the
Deed of Agreement but was made by petitioner to
enhance the standing of private respondents to their
creditors. Petitioner's testimony in this regard is
enlightening we find that the Deed of Sale is the
embodiment of the parties' true agreement. The
consideration in the sale of Lot 800-A-1-B is P25,120.00
only which as appearing on record was fully paid by
petitioner. The Deed of Agreement was executed merely
to suit private respondents' nefarious motive of boosting
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
their credit image with an understanding that it was not
to become binding and operative between themselves.
At most it was a simulated agreement, which is not
really designed nor intended by the parties to produce
legal effects. As a fictitious and simulated agreement it
lacks valid consent so essential to a valid and
enforceable contract. we do not find it proper to use the
fair market value of P300.00 per square meter as the
price of Lot 800-A-1-A or for a total cost of P75,000.00.
This is not in accord with the contract between the
parties. It is not the province of the court to alter a
contract by construction or to make a new contract for
the parties; its duty is con􀁃ned to the interpretation of
the one which they have made for themselves without
regard to its wisdom or folly as the court cannot supply
material stipulations or read into the contract words
which it does not contain We cannot make a new
contract for the parties in the case at bar. Neither can
"present market value" result to a novation, which
cannot be presumed; neither can we disturb the
consensuality of a contract of sale where the rights and
obligations of the parties are determined at the time it
was entered into, but above all, courts are not to play
as decision-makers as to the terms of a business
contract when it is not asked to play that role. The
sanctity of contracts must be respected and delicately
preserved.
Petitioner also claims that she was forced by private
respondents to construct the house on Lot No. 800-A-1-
B, hence, the amount of P194,002.04 which were used
in the building of the house should likewise be credited
against the account of private respondents and be
considered as part of the purchase price of the real
properties involved. Simply stated, this allegation does
not deserve any credence. We take note of the fact that
petitioner was already the owner of Lot No. 800-A-1-B
as early as June, 1983 when the Deed of Sale over said
lot was executed and delivered to her by private
respondents. By law, all works, sowing and planting are
presumed made by the owner and at his expense,
unless the contrary is proved. No convincing and
sufficient evidence whatsoever was presented by
petitioner to rebut the presumption. On the contrary she
admitted that she spent an additional amount of
P100,000.00 in building the house. She also incurred
loans from private respondents and used them in the
construction of the house. These circumstances clearly
show that she of her own volition decided to build the
house on Lot No. 800-A-1-B.
Fraud is the deliberate or intentional evasion of the
normal fulfilment of an obligation. The mere failure of
private respondents to execute a deed of sale because
they demanded first an accounting of the lots used as
collaterals by petitioner and the amount of loans
secured could not be considered as fraud. Fraud is never
presumed. It must be alleged and proven. Fraus est
odiosa et non praesumenda. Fraud is negated when
private respondents had partially performed their
obligation when they executed a deed of sale over Lot
No. 800-A-1-B. Likewise, as appearing on record,
private respondents intimated their willingness to
execute a deed of sale over Lot No. 800-A-1-A.
MODULE 2: PRINCIPLES OF CONTRACTS
Page 3 of 67
Liberty or Autonomy of Contracts (1306; 1409;
1376;)
3) Castro vs. Court of Appeals (99 SCRA 722)
FACTS:
Petitioners allege that they are tenants on a 50-50
sharing basis on the net palay produce from their
respective palay landholdings owned by private
respondents, all located at Barrio San Bartolome,
Concepcion, Tarlac; that pursuant to their verbal
arrangement, the landowner merely provides the land
and the expenses for seedling, while petitioners
shoulder without reimbursement the expenses for
reaping and all other items for production;
That such verbal agreement had been faithfully
observed by both parties up to the agricultural year
1972-73; that sometime in the month of December,
1972, petitioners were subpoenaed and testified before
the Court of Agrarian Relations, Branch III, in Tarlac,
Tarlac in CAR Case No. 2442-T'72 entitled "Torres vs.
Baron" for reinstatement; that prior to their appearance
before said lower court, petitioners and other tenants of
respondent were called to a conference in the latter's
residence at Concepcion where they were instructed to
testify against their tenancy relationship and declare
that they were mere agricultural workers, but in spite of
such alleged instruction, they stuck to the truth of their
tenancy relationship on account of their oath;
That because of their refusal to heed the aforesaid
instruction, private respondent commenced to harass
them and refused to recognize them as tenants; that on
December 29, 1972, private respondent filed with the
municipal court of Concepcion Civil Case No. 1006,
"Baron vs. Castro, et al." to enjoin petitioners to desist
from further cultivating or working on the land, but
which case was dismissed for lack of jurisdiction; that
through false pretense and fraudulent machinations,
they were induced to sign the written of hired
agricultural workers; that said contracts were never
observed nor actually executed into practice as they
actually continued to observed their verbal tenancy
agreement earlier alleged; and that by reason of the
foregoing, petitioners have no peace of mind although
in actual possession of their landholdings.
Private respondent, upon the other hand, alleges that
the lands subject of the action are absolutely
untenanted and are farmed by administration and
mechanization; that petitioners are not tenants, but
were mere hired agricultural workers; that plaintiffs
have no cause of action against defendant; that private
respondent has long been in peaceful possession and
cultivation of the lands, the same being part of
respondent's land under administration and
mechanization; that the questions raised by petitioners
are factual questions;
That there must first be a showing that they are
tenanted lands for the action to fall under the referral
provisions of Pres. Decrees Nos. 316 and 946; that it is
clearly provided by Pres. Decree No. 27 that there
should be a showing that the action involves tenants;
that refuting petitioners' allegation, injunctions are not
proper where those affected are tenants and this matter
again requires a looking into the question of whether or
not petitioners are tenants; that the instant petition is
bereft of merit since the lands involved are not
embraced within Operation Land Transfer under Pres.
Decree No. 27 which only applies to tenanted lands; that
Pres. Decrees Nos. 316 and 946 apply only to ejectment
and harassment cases involving tenants;
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
That the decrees specify and use only the terms tenant-
farmer, tenant tiller and tenant (emphasis supplied);
that Pres. Decrees Nos. 27, 316 and 946 should be
applied prospectively and the same are inapplicable to
cases in the appellate courts; that petitioners are
estopped from assailing the jurisdiction of the lower and
appellate courts considering that petitioners themselves
were the ones who initiated the action in the Court of
Agrarian Relations and who appealed to the Court of
Appeals; that the question of lack of certification from
the Ministry of Agrarian Reform should have been
invoked in the trial court; and 􀁃nally, that the Court of
Appeal's decision is well supported by substantial
evidence — the testimony of petitioners and the written
contracts signed by them indicate that they were
agricultural workers, not share tenants.
ISSUE:
Petitioners seek recognition as tenants of private
respondent on the landholdings they have been
cultivating for years.
RULING:
It must be observed that the questioned contracts were
executed between petitioners and private respondents
annually, before the start of each agricultural season. In
the case of petitioner Castro, it should be noted that it
took him three contracts in a span of three successive
years (1970, 1971 and 1972) before he started
questioning said contracts. Inevitably, the question that
comes to mind is: What took him and the others so
long? Certainly, a person can forget the 􀁃rst incident or
experience, perhaps tolerate the second, but will not go
through a third time when he is well aware of the odds.
Time and again, this Court has consistently issued
pronouncements upholding the validity and
effectiveness of contracts. Thus, in the case of Phoenix
Assurance Co., Ltd. vs. United. States Lines, L-24033,
February 22, 1968, 22 SCRA 675, this Court held that a
contract is the law between the contracting parties, and
where there is nothing in it which is contrary to law,
morals, good customs, public policy or public order the
validity of the contract must be sustained. And in the
more recent case of Phil. American General Insurance
Co., Inc. vs. Mutuc, L-19632, November 13, 1974, 61
SCRA 22, this Court ruled that contracts which are the
private laws of the contracting parties should be fulfilled
according to the literal sense of their stipulations, if their
terms are clear and leave no room for doubt as to the
intention of the contracting parties, for contracts are
obligatory, no matter what form they may be, whenever
the essential requisites for their validity are present.
4) Banco Filipino Savings and Mortgage Bank
vs. Navarro (G.R. No .L-46591, July 28, 1987)
FACTS:
On May 20, 1975, respondent Florante del Valle (the
BORROWER) obtained a loan secured by a real estate
mortgage (the LOAN, for short) from petitioner BANCO
FILIPINO in the sum of Forty-one Thousand Three
Hundred (P41,300.00) Pesos, payable and to be
amortized within 􀁃fteen (15) years at twelve (12%) per
cent interest annually. Hence, the LOAN still had more
than 730 days to run by January 2, 1976, the date when
CIRCULAR No. 494 was issued by the Central Bank.
Stamped on the promissory note evidencing the loan is
an Escalation Clause, reading as follows:
"I/We hereby authorize Banco Filipino to
correspondingly increase the interest rate stipulated in
this contract without advance notice to me/us in the
Page 4 of 67
event a law should be enacted increasing the lawful
rates of interest that may be charged on this particular
kind of loan."
The Escalation Clause is based upon Central Bank
CIRCULAR No. 494 issued on January 2, 1976, OWER on
June 30, 1976 of the increase of interest rate on the
LOAN from 12% to 17% per annum effective on March
1, 1976. On September 24, 1976, Ms. Mercedes C.
Paderes of the Central Bank wrote a letter to the
BORROWER.
Contending that CIRCULAR No. 494 is not the law
contemplated in the Escalation Clause of the promissory
note, the BORROWER FIled suit against BANCO
FILIPINO for "Declaratory Relief" with respondent Court,
praying that the Escalation Clause be declared null and
void and that BANCO FILIPINO be ordered to desist from
enforcing the increased rate of interest on the
BORROWER's real estate loan. For its part, BANCO
FILIPINO maintained that the Escalation Clause signed
by the BORROWER authorized it to increase the interest
rate once a law was passed increasing the rate of
interest and that its authority to increase was provided
for by CIRCULAR No. 494.
ISSUE:
Whether BANCO FILIPINO can increase the interest rate
on the LOAN from 12% to 17% per annum under the
Escalation Clause. It is our considered opinion that it
may not.
RULING:
It is clear from the stipulation between the parties that
the interest rate may be increased "in the event a law
should be enacted increasing the lawful rate of interest
that may be charged on this particular kind of loan." The
Escalation Clause was dependent on an increase of rate
made by "law" alone.
CIRCULAR No. 494, although it has the effect of law, is
not a law. "Although a circular duly issued is not strictly
a statute or a law, it has, however, the force and effect
of law."
"An administrative regulation adopted pursuant to law
has the force and effect of law."
"That administrative rules and regulations have the
force of law can no longer be questioned." The
distinction between a law and an administrative
regulation is recognized in the Monetary Board
guidelines quoted in the letter to the BORROWER of Ms.
Paderes of September 24, 1976 (supra). According to
the guidelines, for a loan's interest to be subject to the
increases provided in CIRCULAR No. 494, there must be
an Escalation Clause allowing the increase "in the event
that any law or Central Bank regulation is promulgated
increasing the maximum interest rate for loans." The
guidelines thus presuppose that a Central Bank
regulation is not within the term "any law."
The distinction is again recognized by P.D. No. 1684,
promulgated on March 17, 1980, adding section 7-a to
the Usury Law, providing that parties to an agreement
pertaining to a loan could stipulate that the rate of
interest agreed upon may be increased in the event that
the applicable maximum rate of interest is increased "by
law or by the Monetary Board."
It is now clear that from March 17, 1980, escalation
clauses to be valid should specifically provide: (1) that
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
there can be an increase in interest if increased by law
or by the Monetary Board; and (2) in order for such
stipulation to be valid, it must include a provision for
reduction of the stipulated interest "in the event that the
applicable maximum rate of interest is reduced by law
or by the Monetary Board."
While P.D. No. 1684 is not to be given retroactive effect,
the absence of a de-escalation clause in the Escalation
Clause in question provides another reason why it
should not be given effect because of its one-sidedness
in favor of the lender. In the absence of any indication
in CIRCULAR No. 494 as to which particular type of loan
was meant by the Monetary Board, the more equitable
construction is to limit CIRCULAR No. 494 to loans
guaranteed by securities other than mortgage upon
registered realty.
5) Ferrazzini vs. Gsell, (34 Phil. 697)
FACTS:
On a Friday evening at supper, plaintiff together with
other employees, had some talk about Mr. Gsell
measuring the goods for the umbrellas. Plaintiff said
that Mr. Gsell does not seem to have confidence any of
them because he was investigating and verifying the
goods for the umbrellas; at the same time the plaintiff
said to this new man, got under the contracts was not
sufficient to live on and that he should not continue to
work for the defendant. Respondent asked the plaintiff
about the conversation which he had at the mess and
he did not deny it. The former was the very reason as
to what made Mr Gsell pleased to dismiss the plaintiff,
which was intimated in the record. Although he stated
that the "very first reason" why he dismissed the
petitioner was because several months, through April
and May, he had the habit of going out in the morning
and afternoon for having a drink. In the trial court,
defendant got a favorable judgment; plaintiff’s dismissal
was justified. The plaintiff within a few days after his
discharge and without the consent, either written or
verbal, of the defendant admits that he entered the
employment of Mr. Whalen in the Philippine Islands as
a foreman on some construction work for a cement
factory. This work was entirely different and
disassociated from that engaged in by the defendant
Gsell. This was opposed by the latter invoking that it
was stated in their contract that, during the term of this
contract, and for the period of five years after the
termination of the employment of the said party of the
second part, whether this contract continue in force for
the period of one, two, three or more years, or be
sooner terminated, the said party of the second part
shall not engage or interest himself in any business
enterprises similar to or in competition with those
conducted, maintained or operated by the said party of
the first part in the Philippines, and shall not assist, aid
or encourage any such enterprise by the furnishing of
information, advice or suggestions of any kind, and shall
not enter into the employ of any enterprises in the
Philippine Islands, whatever, save and except after
obtaining special written permission therefor from the
said party of the first part.
ISSUE:
WON those provisions in the contract are valid binding
upon the plaintiff and said contract was not against
public policy.
RULING:
NO. Article 1091 states that, obligations arising from
contracts have legal force between the contracting
parties, and must be fulfilled in accordance with their
Page 5 of 67
stipulations." The contracting parties may take the
agreement and establish the clauses and conditions
which they may deem advisable, provided they are not
in contravention of law, morals, or public order. (Article
1255).
The contract under consideration, tested by the law,
rules and principles, is clearly one in undue or
unreasonable restraint of trade and therefore against
public policy. It is well settled that contracts in undue or
unreasonable restraint of trade are unenforcible
because they are repugnant to the established public
policy in that country.It is not necessary for the
protection of the defendant, as this is provided for in
another part of the clause. It would force the plaintiff to
leave the Philippine Islands in order to obtain a
livelihood in case the defendant declined to give him the
written permission to work elsewhere in this country.
6) Del Castillo vs. Richmond, (45 Phil.697)
FACTS:
Petitioner Alfonso del Castillo, a pharmacist, was hired
by the defendant Shannon Richmond to paid at
P125/month and was assigned to take charge of the
prescription department of the drugstore known as the
Botica Americana situated in the district of Legaspi of
the Municipality and Province of Albay, Philippine
Islands, and to perform all the duties and obligations as
such pharmacist in a drugstore of this kind. Such
contract stipulates that: (1) said plaintiff agrees not to
open, nor own have any interest directly or indirectly in
any other drugstore either in his own name or in the
name of another; nor have any connection with or be
employed by any other drugstore situated within a
radius of four miles from the district of Legaspi,
municipality and Province of Albay, while the said
Shannon Richmond on his heirs may own or have open
a drugstore; (2) either of the parties to this contract
may terminate his relations as employer and employee
with or without reason, and upon thirty days' notice; (3)
del Castillo furthermore agrees not to divulge or make
use of any of the business secrets or private formulas of
the said Shannon Richmond. However, plaintiff alleges
that the provisions and conditions contained in the said
contract constitute an illegal and unreasonable
restriction upon his liberty to contract, are contrary to
public policy, thus should be declared as null and void.
Defendant opposed, contending that during the time the
plaintiff's employment he obtained knowledge of his
trade and professional secrets and came to know and
became acquainted and established friendly relations
with his customers so that to now annul the contract
and permit plaintiff to establish a competing drugstore
in the town of Legaspi, as plaintiff has announced his
intention to do, would be extremely prejudicial to
defendant's interest.
ISSUE:
WON the nature of their contract is reasonable.
RULING:
Yes. The law concerning contracts which tend to restrain
business or trade has gone through a long series of
changes from time to time with the changing conditions
of trade and commerce. The public welfare of course
must always be considered, and if it be not involved and
the restraint upon one party is not greater than
protection to
the other requires, contracts like the one we are
discussing will be sustained. If the contract is
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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reasonably necessary to protect the interest of the
parties, it will be upheld.
It will be noted that the restrictions placed upon the
plaintiff are strictly limited (a) to a limited district or
districts, and (b) during the time while the defendant or
his heirs may own or have open a drugstore, or have an
interest in any other one within said limited district.
We held that a contract by which an employee agrees
refrain a given length of time, after the expiration of the
term of his employment, from engaging in business,
competitive with that of his employer, is not void as
being in restraint of trade if the restraint imposed is not
greater than that which is necessary to afford a
reasonable protection.
7) Daywalt vs. Agustinos Recoletos, (39 Phil.
587)
FACTS:
In 1902, Teodorica Endencia executed a contract
whereby she obligated herself to convey to Geo W.
Daywalt a 452-hectare parcel of land for 4000. They
agreed a deed should be executed as soon as Endencia’s
title to the land was perfected in the Court of Land
Registration and a Torrens title issued in her name.
When the Torrens title was issued, Endencia found out
that the property measured 1248 hectares instead of
452 hectares, as she initially believed. Because of this,
she became reluctant to transfer the whole tract to
Daywalt, claiming that she never intended to sell so
large an amount and she had misinformed as to its area.
Daywalt filed an action for specific performance. SC
ordered Endencia to convey the entire tract to Daywalt.
Meanwhile, La Corporacion de los Padres Agustinos
Recolectos (Recolectos), was a religious corporation
which owned an estate immediately adjacent to the
property sold by Endencia to Daywalt. It also happened
that Fr. Sanz, the representative of the Recolectos,
exerted some influenceand ascendancy over Endenci,
who was a woman with of little force and easily subject
to the influence of other people. Fr. Sanz knew the
existence of the contracts with Daywalt and discouraged
her from conveying the entire tract.
Daywalt field an action for damages against Recolectos
on the ground that in unlawfully induced to refrain from
the performance of her contract for the sale of the land
in question and to withhold delivery of the Torrens title.
Daywalt’s claim for damages agaisnt the Recolectos was
for the huge sum of P500,000 (in the year 1919), since
he claims that because of the interference of the
Recolectos, he failed to consummate a contract with
another person for the sale of the property and its
conversion into a sugar mill.
ISSUE:
WON Recolectos is liable to Daywalt.
RULING:
No, Recolectos is not liable. The stranger who interferes
in a contract between other parties cannot become more
extensively liable in damages for the
non-performance of the contract than the party in
whose behalf he intermmediates. Hence, in order to
determine the liability of the Recolectos, there is first a
need to consider the liability of Endencia to Daywalt. The
damages claimed by Daywalt to Endencia cannot be
recover from her, because (1) these are special
Page 6 of 67
damages which were not within the contemplation of the
parties when the contract was made, (2) these damages
are too remote to be the subject of recovery. Since
Endencia is not liable for damages to Daywalt, neither
can Recolectos be held liable. As already suggested, by
advising Endencia not to perform the tract, the
Recolectos could in no event render itself more
extensively liable than the principal in the contract.
8) Cui vs. Arellano University, (112 Phil. 135)
FACTS: Plaintiff studied in defendant University since
from his preparatory law course up to on his first
semester of the fourth year in law school. During all the
time he was studying law in defendant university he was
awarded scholarship grants, for scholastic merit, so that
his semestral tuition fees were returned to him after the
ends of semesters and when his scholarship grants were
awarded to him. The whole amount of tuition fees paid
by plaintiff to defendant and refunded to him by the
latter from the first semester up to and including the
first semester of his last year in the college of law or the
fourth year, is in total P1,033.87. Plaintiff left the
defendant's law college and enrolled for the last
semester of his fourth year law in the college of law of
the Abad Santos University graduating from the college
of law of the latter university. After graduating in law he
applied to take the bar examination. To secure
permission to take the bar he needed the transcripts of
his records in defendant university. Plaintiff petitioned
the latter to issue to him the needed transcripts. The
defendant refused until after he had paid back the
P1,033.87 which defendant refunded to him as above
stated. As he could not take the bar examination without
those transcripts, plaintiff paid to defendant the said
sum under protest.
ISSUE: WON the contract of scholarship between the
plaintiff and the defendant university was void as
against contrary public policy.
RULING: Yes. In order to declare a contract void as
against public policy, a court must find that the contract
as to consideration or the thing to be done, contravenes
some established interest of society, or is inconsistent
with sound policy and good morals, or tends clearly to
undermine the security of individual rights.' The policy
enunciated in Memorandum No. 33, s. 1949 is sound
policy. If Arellano University understood clearly the real
essence of scholarships and the motives which
prompted this office to issue Memorandum No. 38 it
should have not entered into a contract of waiver with
Cui, which is a direc tviolation of our Memorandum and
an open challenge to the authority of the Director of
Private Schools because the contract was repugnant to
sound morality and civic honesty.
Section 5 of Article XIV of the Constitution, does not
require scholars to reimburse the corresponding value
of the scholarships if they transfer to other schools.
Scholarships are awarded in recognition of merit not to
keep outstanding students in school to bolster its
prestige. In the understanding of that university
scholarships award is a business scheme designed to
increase the business potential of an educational
institution.
9) Capitol Medical Center vs. CA G. R. No.
82499, October 13, 1989
FACTS: Some 14 years ago, the petitioner Capitol
Medical Center, Inc. (or CMCI), a hospital corporation,
organized, opened, and operated the Capitol Medical
Center College (CMCC or "the College") beside its
hospital, the Capitol Medical Center (hereafter "the
Hospital") in Quezon City. It offered a four-year nursing
course, a two-year midwifery course, and a two-year
medical secretarial course. Halfway through the first
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
semester in 1987, the college faculty, led by the Dean
of Nursing, demanded that they be granted vacation and
sick leave privileges similar to those enjoyed by hospital
personnel. Dialogues were held but no agreement was
reached between the faculty and the school
administration, headed by the president, Dr. Clemente,
who was concurrently also the chairman of the CMCI
Board. At a meeting of the CMCI Board on September
15, 1987, Dr. Clemente reported the deteriorating
relationship between the CMCC administration and the
teachers, which, from a simple disagreement, had
degenerated into open hostility. She feared that the
situation may give rise to mass action by the students,
because the faculty, exercising their moral influence
over the students, had enlisted the latter's sympathy
and support for their cause. The Board resolved to
authorize her, as president of the College, to close it at
the end of the first semester if the antagonism of the
faculty and students toward the college administration
should become uncontrollable.
During the next thirty (30) days, the rift between the
administration and the faculty aggravated. The school
administration scheduled the holding of the final
semestral examinations but the teachers defiantly and
unilaterally "postponed" them. On the scheduled dates
for the examinations, the students joined their teachers
in a noisy demonstration in front of the hospital. An
emergency special meeting was held by the CMCI
Board. It unanimously resolved "to close the school
effective at the end of the first semester of this school
year, 1987-88". As the DECS did not reply promptly, Dr.
Clemente on October 29, 1987, sent another letter to
DECS Secretary Lourdes Quisumbing reinforcing CMCI's
resolve to "cease operation of school immediately
effective as of the end of the first semester of the
current school year 1987-88." As the DECS did not react
to her second letter, CMCCI proceeded with the closure
of the college. The teachers, students and their parents,
a representative of the DECS and the school
administration, thereafter, held a series of dialogues to
persuade CMCCI to open the school for one more
semester or until the end of the school year. An
agreement was prepared by the DECS but CMCCI
wanted to include a written stipulation binding the
students and their parents to hold no more strikes,
rallies, or demonstrations until the end of the school
year. Since the latter did not sign the agreement, the
school did not reopen.
On December 2, 1987, fifteen (15) students and
parents purporting to represent the 900 students of the
CMCC filed a class suit against the school and petitioner
Dr. Clemente, in the RTC praying for the reopening of
the Capitol Medical Center College which had been
closed which was granted by the lower court.
ISSUE: WON CA correctly ruled that "the initial
enrollment" of the students (meaning their enrollment
in the first year of their chosen courses) created "a
binding contract" between the students and the school,
by which the latter became "legally and morally bound
to continue operating the school until such enrollees
shall have finished their courses."
RULING: NO. Par 137, Sec. IV of the Manual of
Regulations for Private Schools states that, after having
accepted a student for enrollment in a given course may
not expel him or refuse to re-enroll him until he
completes his course, except when he is academically
deficient or has violated the rules of discipline. He is
presumed to be qualified to study there for the entire
period it will take to complete his course. However,
there is no contract between him and the school for the
latter to remain open for the entire duration of his
course. When a student registers in a school, it is
understood that he is enrolling for the entire school year
Page 7 of 67
for elementary and secondary courses, and for the
entire semester for collegiate course. (Section VII,
paragraph No. 137, of the Manual of Regulations for
Private Schools)
The contract between the college and a student who is
enrolled and pays the fees for a semester, is for the
entire semester only, not for the entire course. The law
does not require a school to see a student through to
the completion of his course. If the school closes or is
closed by proper authority at the end of a semester, the
student has no cause of action for breach of contract
against the school. Since their contracts with the school
were terminated at the end of the first semester of
1987, and as the school has already ceased to operate,
therefore they have no "clear legal right" to reenroll and
the school has no legal obligation to reopen and readmit
them.
10) Sy Suan vs. Regala, (105 Phil.1024)
FACTS:
Petitioners executed in favor of the defendant a special
power of attorney authorizing the latter to prosecute the
former's applications for import licenses with the Import
Control Office. Pursuant to said special power of
attorney, Regala followed up and prosecuted the
applications with and through the different offices and
divisions of the Import Control Office, conferring with
the corresponding Import Control officials. Regala and
Suan agreed verbally that Regala's services for securing
the said licenses would be paid or compensated with ten
(10%) percent of the total value of the amounts
approved on the said applications. Petitioners argue that
the 10% commission sought by respondent and granted
by the Court of Appeals is inimical to public policy in that
it tends to increase the cost of production of candies
which they manufacture; that this increase will
necessarily be passed on to the consuming public by
way of increased prices, thus frustrating the avowed
purpose of the government to lighten the burden of the
people and to place essential consumers goods such as
candies within the reach of the masses; that if the giving
of 10% to intermediaries in the procurement of import
licenses is sanctioned, this practice would serve as a
deterrent, rather than an incentive, to the creation of
new industries encouraged by the government, as it
would syphon off a substantial percentage of the capital
invested by the fledging industries to the private
pockets of so called "ten percenters". Respondent claims
that the contract is not violative of sound public policy;
that a contract should not be declared void as against
public except when the cases is clear and free from
doubt and the injury to the public is substantial and not
theoretical or problematic.
ISSUE: WON the contract of remuneration contravenes
public policy, hence null and void ab initio.
RULING: YES. For a particular undertaking to be
against public policy actual injury need not be shown; it
is enough if the potentialities for harm are present. It is
a general rule that agreements against public policy are
illegal and void. As the contract in question is self-
evident that it violated any public policy. This is what is
commonly known as "10% contracts" which the press
decries and the public condemns as inimical to public
interest. If the granting of import license or quota
allocations depended solely upon the merits of each
application, there being a prohibition to firms or
individuals applying for such licenses or quota
allocations from paying "to any public official, directly or
indirectly, certainly the intervention of intermediaries,
such as herein respondent, would be unwarranted and
uncalled for, as such intervention would not render an
unmeritorious applications deserving, nor undeserving
applications meritorious, but would serve no other
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
purpose than to influence, or possibly corrupt, in
unmeritorious cases, the judgment of the public official
or officials performing an act or service connected with
the issuance of import license or quota allocation — an
eventuality which the law precisely sought to avoid.
11) Tee vs. Tacloban Electric and Ice Plant Co.,
(105 Phil.168)
FACTS:
Mathew S. Tee was approached by the agents of the
Tacloban Electric for him to secure dollar allocation from
the Central Bank for the company, upon payment of the
"standard fee" of 10% of the value of the allocation
obtained. Tee filed the necessary papers, followed them
up for six months, and finally obtained the allocation of
$243,500.00 for the company. Upon failure to collect his
10%, Tee filed the appropriate action with the Court of
First Instance of Manila, where defendants moved to
dismiss the complaint, which was granted, on the
ground that the contract was null and void ab initio as
being against public morals and public policy.
ISSUE: Whether or not the contract was null and void
ab initio as being against public morals and public policy
RULING:
Yes, a contract to work for the approval of a foreign
exchange application for a commission, including the
following up of the papers in the different government
offices, is void and inexistent, as being contrary to law,
good customs, public order, and public policy.
Section 3 of Article IV of Central Bank Circular No. 44,
provides:
"Authorized Agent Banks are hereby instructed to
inform their clients that under no circumstances should
any applicant, his agent or other representatives, follow
up an application with the Central Bank or the Bankers
Committee. All information concerning applications,
including actions taken thereon by the Monetary Board
or the Bankers' Committee, shall be communicated to
the applicants by their respective Authorized Agent
Banks."
Pursuant to this circular, all applications for foreign
exchange shall be made through authorized agent
banks, which are the only parties authorized to deal
with the Central Bank or the Bankers Committee in
connection therewith. Consistently with this scheme,
plan or pattern, the circular declares that, "under no
circumstances should any applicant, his agent, and
representatives follow up an application with the
Central Bank."
Plaintiff's alleged contract to work for the approval of
the foreign exchange application in question and the
services he claims to have performed in pursuance of
this contract, "following up the papers in the different
government offices to which they were referred" one of
which is the Central Bank are inconsistent with the law
(Republic Act No. 265, as amended) creating the
Central Bank" upon the authority of which the circular
above mentioned was issued and, hence, contrary to
the public policy thus adopted. In short, said contract
is "in-existent and void from the beginning."
12) Industrial Personnel and Management
Services, Inc. vs. De Vera, et al., GR 205703,
March 7, 2016
FACTS
Petitioner Industrial Personnel & Management Services,
Inc. (IPAMS) is a local placement agency duly organized
Page 8 of 67
and existing under Philippine laws. Petitioner SNC
Lavalin Engineers & Contractors, Inc. (SNC-Lavalin) is
the principal of IPAMS, a Canadian company with
business interests in several countries.
Respondent Alberto Arriola, a licensed general surgeon
in the Philippines, was hired by SNC-Lavalin, through its
local manning agency, IPAMS, as a safety officer in its
Ambatovy Project site in Madagascar. After three
months, Arriola received a notice of pre-termination of
employment due to diminishing workload in the area of
his expertise and the unavailability of alternative
assignments. Consequently, Arriola was repatriated and
he filed a complaint against the petitioners for illegal
dismissal and non-payment of overtime pay, vacation
leave and sick leave pay before the Labor Arbiter (LA).
He claimed that SNC-Lavalin still owed him unpaid
salaries equivalent to the three-month unexpired
portion of his contract and asserted that the latter never
offered any valid reason for his early termination and
that he was not given enough notice regarding the
same. He also insisted that the petitioners must prove
the applicability of Canadian law before the same could
be applied to his employment contract.
The petitioner denied the charge of illegal dismissal
against them. They relied on a copy of the Employment
Standards Act (ESA) of Ontario, which was duly
authenticated by the Canadian authorities and certified
by the Philippine Embassy. They insisted that all of
Arriola's employment documents were processed in
Canada, not to mention that SNC Lavalin's office was in
Ontario, the principle of lex loci celebrationis was
applicable. Hence, they insisted that Canadian laws
governed the contract.
The said foreign law did not require any ground for early
termination of employment, and the only requirement
was the written notice of termination. Even if Philippine
laws should apply, Arriola would still be validly
dismissed because domestic law recognized
retrenchment and redundancy as legal grounds for
termination.
The Labor Arbiter (LA) dismissed the complaint of
Arriola, while the NLRC reversed the LA's ruling stating
the Filipino workers are protected by our labor laws
wherever they may be working. The petitioners filed a
petition for certiorari before the CA arguing that it
should be the ESA, or the Ontario labor law, that should
be applied in Arriola's employment contract, but the
Court of Appeals affirmed NLRC. Hence, this petition.
ISSUES
Whether or not Canadian law shall be applied to this
case.
RULING
No, the foreign law invoked is contrary to the
Constitution and the Labor Code. As a rule, Philippine
laws apply even to overseas employment contracts. This
rule is rooted in the constitutional provision of Section
3, Article XIII that the State shall afford full protection
to labor, whether local or overseas. Hence, even if the
OFW has his employment abroad, it does not strip him
of his rights to security of tenure, humane conditions of
work and a living wage under our Constitution. As an
exception, the parties may agree that a foreign law shall
govern the employment contract. A synthesis of the
existing laws and jurisprudence reveals that this
exception is subject to the following requisites:
1. That it is expressly stipulated in the overseas
employment contract that a specific foreign law shall
govern;
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
2.That the foreign law invoked must be proven before
the courts pursuant to the Philippine rules on evidence;
3.That the foreign law stipulated in the overseas
employment contract must not be contrary to law,
morals, good customs, public order, or public policy of
the Philippines; and
4.That the overseas employment contract must be
processed through the POEA.
The Court is of the view that these four (4) requisites
must be complied with before the employer could invoke
the applicability of a foreign law to an overseas
employment contract. With these requisites, the State
would be able to abide by its constitutional obligation to
ensure that the rights and well-being of our OFWs are
fully protected. Lacking any one of the four requisites
would invalidate the application of the foreign law, and
the Philippine law shall govern the overseas
employment contract.
In the present case, as correctly held by the CA, even
though an authenticated copy of the ESA was
submitted, it did not mean that said foreign law could
be automatically applied to this case. The petitioners
miserably failed to adhere to the two other requisites.
The petitioners failed to comply with the first requisite
because no foreign law was expressly stipulated in the
overseas employment contract with Arriola. The
petitioners did not directly cite any specific provision or
stipulation in the said labor contract which indicated the
applicability of the Canadian labor laws or the ESA. They
failed to show on the face of the contract that a foreign
law was agreed upon by the parties. Rather, they simply
asserted that the terms and conditions of Arriola’s
employment were embodied in the Expatriate Policy,
Ambatovy Project - Site, Long Term.
The provisions of the ESA are patently inconsistent with
the right to security of tenure.Both the Constitution and
the Labor Code provide that this right is available to any
employee. In a host of cases, the Court has upheld the
employee's right to security of tenure in the face of
oppressive management behavior and management
prerogative. Security of tenure is a right which cannot
be denied on mere speculation of any unclear and
nebulous basis. Furthermore, not only do these
provisions collide with the right to security of tenure, but
they also deprive the employee of his constitutional
right to due process by denying him of any notice of
termination and the opportunity to be heard.
In fine, as the petitioners failed to meet all the four (4)
requisites on the applicability of a foreign law, then the
Philippine labor laws must govern the overseas
employment contract of Arriola.
Mutuality of Contracts (1308; 1182; 1197; 1266-
1267; 1309-1310)
13) Garcia v. Rita Legarda, Inc. (21 SCRA 555)
FACTS:
Petitioner Garcia is engaged in 3 contracts with
respondent to purchase 3 parcels of land (150 square
meters each) payable through installment. Respondent
Rita Legarda Inc. cancelled the 3 contracts. Petitioners
instituted a civil case against the respondent to have the
3 contracts declared as existing and subsisting.
According to respondent, petitioners were not able to
pay all of the installments under the 3 contracts which
is why respondent cancelled the contract. Petitioners
denied they were indebted to the 3 contracts which is
why they wished to have the 3 contracts declared as still
subsisting.
Petitioners said that the respondent's cancellation of the
contracts was in violation of Art. 1308: "The contract
Page 9 of 67
must bind both contracting parties. Its validity or
compliance cannot be left to the will of one of them."
Respondents' contention: the reason for their cancelling
of the 3 contracts was because there was a stipulation
in the contracts that gives the petitioner a certain
“'month grace period” in case the petitioner would not
be able to pay the installments in due time". If the
petitioner is still unable to pay after the 1 month grace
period, an additional period of 90 days is given". If the
petitioner is still unable to pay after the lapse of the
grace period and the additional 90 days, the respondent
has the right to declare the contract cancelled (said
stipulation is found under Paragraph 6 of the contract)
ISSUE:
Was the stipulation (Paragraph 6 of the contracts
wherein the respondent's contention was relied) upon
violative of Article 1308 of the NCC?
RULING:
No. Art. 1308: The contract must bind both contracting
parties; its validity or compliance cannot be left to the
will of one of them". The above provision's ultimate
purpose is to render void a contract containing a
condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the
contracting parties.The stipulation in question merely
gives the vendor the right to declare the contract
cancelled.
It does not leave the validity or compliance of the
contract entirely to the will of one of the contracting
parties. The stipulation or agreement simply says that
in case of default in the payment of installments by the
vendee, he shall have
(1) "a month of grace" and that (2) should said month
of grace expire without the vendee paying his arrears,
he shall
have another "period of 90 days" to pay "all the amounts
he should have paid", then the vendor "has the right to
declare this contract cancelled and of no elect."
A contract expressly giving to one party the right to
cancel, the same if a resolutory condition therein agreed
upon — similar to the one under consideration — is not
fulfilled, is valid, the reason being that when the
contract is thus cancelled, the agreement of the parties
is in reality being fulfilled. Indeed, the power thus
granted can not be said to be immoral, much less
unlawful, for it could be exercised — not arbitrarily —
but only upon the other contracting party committing
the breach of contract of non-payment of the
installments agreed upon. Obviously, all that said party
had to do to prevent the other from exercising the power
to cancel the contract was for him to comply with his
part of the contract. And in this case, after the maturity
of any particular installment and its non-payment, the
contract gave him not only a month grace but an
additional period of 90 days.
Having arrived at the above conclusions, We now come
to the question of whether or not by having previously
accepted payments of overdue installments the
respondent had waived its right to declare the contracts
cancelled and of no effect.
In this connection the record shows that on June 11,
1952 when the Contracts to Sell Nos. 234 and 965 were
cancelled, the vendees were ten months in arrears and
that in the case of contract to Sell No. 322 the vendees
had never resumed payment of a single installment from
the date when, upon their petition, said contract was
reinstated on September 28, 1952. The contracts under
consideration are not of absolute sale but mere
contracts to sell — on installment. They give the
respondent's (vendor) the right to declare the contracts
cancelled and of no effect — as in fact it did — upon
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FIRST SEMESTER | A.Y. 2020-2021
fulfillment of certain conditions. All said conditions — so
the record shows — have been fulfilled. Consequently,
respondent's (vendor) right to cancel the contracts can
not be doubted.
That prior to the cancellation it had in fact accepted
payment of installments in arrears was but another act
of forbearance on its part to give the petitioners an
additional opportunity to keep the contracts alive.
Rather than give rise to the presumption that by such
act of humanity it waived its right to cancel the
contracts, it strengthens its right to do so, considering
that even after such act of accommodation beneficial to
the petitioners, the latter subsequently defaulted again
and again in the fulfillment of their obligation.
DOCTRINE:
Stipulations allowing a party to cancel or rescind do not
militate against the mutuality of contracts - when the
contract expressly provides that one of the contracting
parties is authorized to cancel the same contract, the
agreement is just being fulfilled."
14) Allied Banking Corporation vs. Court
Appeals, (G.R. No. 124290, January 16,1998)
FACTS:
Spouses Tanqueco owned a 512-square meter lot. They
leased the property to Allied Banking Corporation
(ALLIED). The lease contract specifically states in its
Provision No. 1 that "the term of this lease shall be
fourteen (14) years commencing from April 1, 1978 and
may be renewed for a like term at the option of the
lessee."
Sometime in February 1988 the Tanqueco spouses
executed a deed of donation over the subject property
in favor of their four (4) children who accepted the
donation in the same public instrument.
A year before the expiration of the contract of lease, the
Tanquecos notified ALLIED that they were no longer
interested in renewing the lease. ALLIED replied that it
was exercising its option to renew their lease under the
same terms with additional proposals.
When the lease contract expired, an action for
ejectment was commenced before the MTC of Quezon
City. The MTC, RTC and CA ruled in favor of the
Tanquecos. Hence, this present petition.
ISSUE:
Whether or not a stipulation in a contract of lease to
the effect that the contract "may be renewed for a like
term at the option of the lessee" is void for being
potestative or violative of the principle of mutuality of
contracts under Art. 1308 of the Civil Code and,
corollarily, what is the meaning of the clause "may be
renewed for a like term at the option of the lessee;"
RULING:
Article 1308 of the Civil Code expresses what is known
in law as the principle of mutuality of contracts. It
provides that "the contract must bind both the
contracting parties; its validity or compliance cannot be
left to the will of one of them." The ultimate purpose is
to render void a contract containing a condition which
makes its fulfillment dependent solely upon the
uncontrolled will of one of the contracting parties.
An express agreement which gives the lessee the sole
option to renew the lease is frequent and subject to
statutory restrictions, valid and binding on the parties.
This option, which is provided in the same lease
agreement, is fundamentally part of the consideration
Page 10 of 67
in the contract and is no different from any other
provision of the lease carrying an undertaking on the
part of the lessor to act conditioned on the performance
by the lessee. It is a purely executory contract and at
most confers a right to obtain a renewal if there is
compliance with the conditions on which the rights is
made to depend. The right of renewal constitutes a part
of the lessee's interest in the land and forms a
substantial and integral part of the agreement.
The fact that such option is binding only on the lessor
and can be exercised only by the lessee does not render
it void for lack of mutuality. After all, the lessor is free
to give or not to give the option to the lessee.
With respect to the meaning of the clause "may be
renewed for a like term at the option of the lessee," we
sustain petitioner's contention that its exercise of the
option resulted in the automatic extension of the
contract of lease under the same terms and conditions.
15) Encarnacion vs. Baldomar,(77 Phil.470)
FACTS:
Vicente Singson Encarnacion, owner of the house some
six years ago leased it to Jacinta Baldomar and her son
upon a monthly basis for the monthly rental of P35.
After Manila was liberated in the last war, specifically
on March 16, 1945, and on April 7 of the same
year, plaintiff Singson Encarnacion notified
defendants to vacate the house on or before April 15,
1945, because plaintiff needed it for his offices. Despite
this demand, defendants insisted on continuing their
occupancy.
When the original action was lodged with the Municipal
Court of Manila, defendants were in arrears in the
payment of the rental corresponding to said month, the
agreed rental being payable within the first five days of
each month. That rental was paid prior to the hearing of
the case in the municipal court, as a consequence of
which said court entered judgment for restitution and
payment of rentals at the rate of P35 a month from May
1, 1945, until defendants completely vacate the
premises. Although plaintiff included in said original
complaint a claim for P500 damages per month, that
claim was waived by him before the hearing in the
municipal court, on account of which nothing was said
regarding said damages in the municipal court's
decision.
When the case reached the Court of First Instance of
Manila upon appeal, defendants filed therein a motion
to dismiss on the ground that the municipal court had
no Jurisdiction over the subject matter.
That motion to dismiss was denied by the Judge on the
ground that in the municipal court plaintiff had waived
said claim for damages and that, therefore, the same
waiver was understood also to have been made in the
Court of First Instance.
ISSUE:
Whether or not the defendants should vacate the
property of the plaintiff.
RULING:
Yes, the defense thus set up by defendant son would
leave to the sole and exclusive will of one of the
contracting parties the validity and fulfillment of the
contract of lease, within the meaning of article 1256
(1308) of the Civil Code, since the continuance and
fulfillment of the contract would then depend solely and
exclusively upon their free and uncontrolled choice
between continuing paying the rentals or not,
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completely depriving the owner of all say in the matter.
If this defense were to be allowed, so long as defendants
elected to continue the lease by continuing the payment
of the rentals, the owner would never be able to
discontinue it.
16) Garcia vs. Rita Legarda, Inc., (21 SCRA
555)
FACTS:
 Petitioner Garcia is engaged in 3 contracts with
respondent to purchase 3 parcels of land (150
square meters each) payable through
installment.
 Respondent Rita Legarda Inc. cancelled the 3
contracts.
 Petitioners instituted a civil case against the
respondent to have the 3 contracts declared as
existing and subsisting
 According to respondent, petitioners weren’t
able to pay all of the installments under the 3
contracts which is why respondent cancelled the
contract.
 Petitioners denied they were indebted to the 3
contracts which is why they wished to have the
3 contracts declared as still subsisting.
 Petitioners said that the respondent’s
cancellation of the 3 contracts was in violation
of Art. 1308:
 The contract must bind both contracting parties;
its validity or compliance cannot be left to the
will of one of them.
 Respondents contention: the reason for their
cancelling of the 3 contracts was because there
was a stipulation in the contracts that gives the
petitioner a certain “1 month grace period” in
case the petitioner wouldn’t be able to pay the
installments in due time. If the petitioner is still
unable to pay after the 1-month grace period,
an additional period of 90 days is given. If the
petitioner is still unable to pay after the lapse of
the grace period and the additional 90 days, the
respondent has the right to declare the contract
cancelled (said stipulation is found under
Paragraph 6 of the contract – just in case Mison
asks)
ISSUE:
Whether or not the stipulation (Paragraph 6 of the
contracts wherein the respondent’s contention relied
upon) violative of Art. 1308 of the NCC.
RULING:
● No. Art. 1308: The contract must bind both
contracting parties; its validity or compliance cannot be
left to the will of one of them.
● The above provision’s ultimate purpose is to
render void a contract containing a condition
which makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the
contracting parties.
● The stipulation in question merely gives the
vendor the right to declare the contract cancelled.
● It does not leave the validity or compliance
of the contract entirely “to the will of one of the
contracting parties”
● The stipulation or agreement simply says that in
case of default in the payment of installments by the
vendee, he shall have (1) “a month of grace”, and that
(2) should said month of grace expire without the
vendee paying his arrears, he shall have another “period
of 90 days” to pay “all the amounts he should have
paid”, etc., then the vendor “has the right to declare this
contract cancelled and of no effect.”
Page 11 of 67
● A contract expressly giving to one party
the right to cancel, if a resolutory condition
therein agreed upon is not fulfilled, is still valid
because when the contract is cancelled, the
agreement of the parties is actually being fulfilled.
● Jurisprudence also says that a contract with a
resolutory condition (as in this case) that expressly
gives one party the right to cancel once said condition
is not fulfilled is still valid. The party upon exercising
their right to cancel the contract was just fulfilling its
part of the contract therefore there was actually a
fulfillment in the agreement stipulated in their contract
which the parties both consented to. (Taylor vs. Ky
Tieng Po)
● In the case at bar, when respondent Rita
Legarda Inc. cancelled the contract, it was merely
fulfilling its part of the agreement. It was the petitioners
that did not do their part of the bargain being unable to
pay the installments on due time.
17) Liebenow vs. Phil. Vegetable Oil Co., (39
Phil. 60) G.R. No. L-13463 November 9, 1918
FACTS: H. C. Liebenow, plaintiff, instituted this
proceeding against Philippine Vegetable Oil Company to
recover a sum of money to which the plaintiff considers
himself entitled by way of a bonus in addition to the
salary earned by him while in the employment of the
defendant company as superintendent of its factory in
the district of Nagtahan, city of Manila.
The contract of service between the two parties stated
that Liebenow was to work as a superintendent for a
period of one year at a monthly compensation of P500
and living quarters and such further amount in the way
of bonus as the board of directors may see fit to grant
him. Liebenow continued to work at the factor in this
capacity not only for the period of one year specified in
the contract, but for an additional period of four months.
At some point during this period, the monthly salary of
P500 was raised to P750, but the contract was not
otherwise changed. After the employment ceased the
defendant company continued to deliver to the plaintiff
each month a check for P750, the equivalent of the
salary he had been receiving. These payments were
continued until the total sum of P4,500 had been thus
paid.
Liebenow contends that the stipulation in the contract
regarding the bonus was not satisfied given that it
cannot be denied that the service he rendered was
satisfactory to the company. He contends that the
P4,500, which he received in the form of a monthly
check of P750 for six successive months after the
termination of his services, seems to be considered by
the plaintiff purely in the light of a free gift.
ISSUE:
1. Was the P4,500 he received considered a
bonus?
2. Is the contract invalid under Article 1256
(now Article 1308) for the reason that the amount
payable is to be determined, namely, by the exercise of
the judgment and discretion of the employer?
RULING:
1. Yes, it was a bonus. While it is true the directors
did not by anticipation declare that these payments
should be considered in the light of a "bonus”, this
circumstance is unimportant. The money thus paid was
in addition to salary; and it came from the same source
and was paid by the same authority as any bonus that
might have been awarded to him. The fact that the
money was not so labelled is immaterial.
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2. The contract is valid. A promise of this character
creates a legal obligation binding upon the promisor,
although in its actual results it may not infrequently
prove to be illusory. Such a promise is not, in our
opinion, nugatory, under article 1115 of the Civil Code,
as embodying a condition dependent exclusively upon
the will of the obligor. Nor can it be held invalid
under article 1256 (now Article 1308) of the same
Code, which declares that the validity and
performance of a contract cannot be left to the will
of one of the contracting parties. The uncertainty of
the amount to be paid by way of bonus is also no
obstacle to the validity of the contract (article 1273, Civil
Code); since the contract itself specifies the manner in
which the amount payable is to be determined, namely,
by the exercise of the judgment and discretion of the
employer.
The amount of the bonus, it will be observed, is left by
the contract to the discretion of the board of directors.
It cannot be judicially reviewed. There would be a
manifest infringement of the contract if the court would
substitute the discretion of the directors. An employer,
in determining what amount to award as a bonus,
naturally and properly considers many things a court
could not well take into account, as for instance, the
personal peculiarities which make one man more
acceptable or more serviceable in the employment than
another. In the complex enterprises of modern industry,
especially, would it be difficult for a court to undertake
to say just what any particular employee might be
entitled to. The best course is to recognize that the
contracting parties have placed the discretion to
determine the amount of the bonus in the hands of the
employer, and to hold them bound by them.
Where a contract of service provides for a salary in a
fixed sum and an additional sum to be paid by way of
bonus, the whole contract is to be taken together, and
it is to be considered as having about the same effect
as if the parties, recognizing the inadequacy of the
amount fixed as salary, had agreed that a further bonus
should be paid sufficient to raise the amount to what
should be considered adequate upon the basis of a
quantum meruit.
If, as supposed, the contracting parties are really bound
by the stipulation which leaves the determination of the
amount of the bonus to the employer, two
consequences necessarily follow. The first is that where
something or other is paid by way of a bonus upon such
a contract, even though only a nominal amount, the
obligation is satisfied. The other is that, if nothing at all
is paid, the employee can recover in a legal action only
nominal damages. Such a contract contains nothing
which could serve as the basis of a title to special
damages and affords no measure by which the amount
of such damages could be ascertained.
It therefore becomes a matter of little or no practical
importance whether the sum of P4,500, which was paid
to the plaintiff after he quit work for the defendant, was
paid as a bonus or not; for even if it were not so paid,
the plaintiff could in this action recover no more than
mere nominal damages.
18) PNB vs. CA, (238 SCRA 20) [1994]
FACTS: Remedios Jayme-Fernandez and Amado
Fernandez (private respondents) as owners of a
NACIDA-registered enterprise, obtained a loan under
the Cottage Industry Guaranty Loan Fund (CIGLF) from
the Philippine National Bank (PNB) in the amount of Fifty
Thousand (P50,000.00) Pesos, as evidenced by a Credit
Agreement. Under the Promissory Note covering the
Page 12 of 67
loan, the loan was to be amortized over a period of three
(3) years to end on March 29, 1985, at twelve (12%)
percent interest annually. To secure the loan, (private
respondents) executed a Real Estate Mortgage and a
chattel mortgage over a machine.
The Credit Agreement provided an escalation clause
which states that the BANK reserves the right to
increase the interest rate within the limits allowed by
law at any time depending on whatever policy it may
adopt in the future xxx.
The Promissory Note, in turn, authorized the PNB to
raise the rate of interest, at any time without notice,
beyond the stipulated rate of 12% but only "within the
limits allowed by law." The Real Estate Mortgage
likewise provided a stipulation to the same effect.
Respondents were granted an additional loan for which
(private respondents) executed another Promissory
Note, a new Credit Agreement, changing the amount of
the loan, and another real estate mortgage. The credit
agreement preserved the stipulations contained in the
original agreement.
In a letter dated August 1, 1984, the PNB informed
(private respondents) "that the interest rate of your
CIGLF loan account with us is now 25% per annum plus
a penalty of 6% per annum on past dues." Records
showed that respondents’ outstanding balance
increased and the unpaid principal obligation amounted
to P62,830.32. Thereafter, (private respondents)
exerted efforts to get the PNB to re-adopt the 12%
interest and to condone the present interest and
penalties due; but to no avail.
In making the unilateral increases in interest rates,
petitioner bank relied on the escalation clause contained
in their credit agreement. The bank claims such clause
is This clause is authorized by Section 2 of Presidential
Decree (P.D.) No. 1684 which further amended Act No.
2655 ("The Usury Law"). The said law also empowered
the Central Bank's Monetary Board to prescribe the
maximum rates of interest for loans and certain
forbearances. Pursuant to such authority, the Monetary
Board issued Central Bank (C.B.) Circular No. 905 which
states that the rate of interest…regardless of maturity
and whether secured or unsecured, shall not be subject
to any ceiling prescribed under or pursuant to the Usury
Law.
ISSUE: Whether the bank is correct in posturing that
the escalation clause at bench gives it unbridled right to
unilaterally upwardly adjust the interest on private
respondents' loan.
RULING: No. The escalation clause at bench
cannot give the bank the unbridled right to
unilaterally upwardly adjust the interest on
private respondents' loan.
P.D. No. 1684 and C.B. Circular No. 905 no more than
allow contracting parties to stipulate freely regarding
any subsequent adjustment in the interest rate that
shall accrue on a loan or forbearance of money, goods
or credits. In fine, they can agree to adjust, upward or
downward, the interest previously stipulated. However,
contrary to the stubborn insistence of petitioner bank,
the said law and circular did not authorize either party
to unilaterally raise the interest rate without the other's
consent.
Contract changes must be made with the consent
of the contracting parties. The minds of all the
parties must meet as to the proposed modification,
especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be
gainsaid that the rate of interest is always a vital
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component, for it can make or break a capital venture.
Thus, any change must be mutually agreed upon,
otherwise, it is bereft of any binding effect.
The escalation clause at bench cannot give the bank the
unbridled right to unilaterally upwardly adjust the
interest on private respondents' loan. That would
completely take away from private respondents the
right to assent to an important modification in their
agreement, and would negate the element of mutuality
in contracts. Under Article 1308:
Art. 1308. The contract must bind both
contracting parties; its validity or compliance
cannot be left to the will of one of them.
In order that obligations arising from contracts may
have the force or law between the parties, there must
be mutuality between the parties based on their
essential equality. A contract containing a condition
which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties, is
void. It would have invested the loan agreement
with the character of a contract of adhesion, where
the parties do not bargain on equal footing, the weaker
party's (the debtor) participation being reduced to the
alternative "to take it or leave it"Such a contract is a
veritable trap for the weaker party whom the courts of
justice must protect against abuse and imposition.
Private respondents are not also estopped from
assailing the unilateral increases in interest rate made
by petitioner bank. No one receiving a proposal to
change a contract to which he is a party, is obliged to
answer the proposal, and his silence per se cannot be
construed as an acceptance. In the case at bench, the
circumstances do not show that private respondents
implicitly agreed to the proposed increases in interest
rate which by any standard were too sudden and too
stiff.
19) Buenaventura vs. Metropolitan Bank and
Trust Company, GR 167082, August 3, 2016
FACTS:
Petitioner Teresita Buenaventura executed two PNs
payable to Metropolitan Bank. The first PN was to
mature on July 1, 1997, with interest and credit
evaluation and supervision fee (or "CESF") at the rate
of 17.532% per annum, while the second PN was to
mature on April 7, 1998, with interest and CESF at the
rate of 14.239% per annum. Both PNs provide for
penalty of 18% per annum on the unpaid principal from
date of default until full payment of the obligation.
Despite demands, Buenaventura failed to pay the entire
amounts.
The bank filed an action for recovery of unpaid amounts.
In an Answer, petitioner claimed that she received from
her nephew, Rene Imperial (Or "Imperial"), three
postdated checks drawn against the bank as partial
payments for the purchase of her properties; that she
rediscounted the subject checks with appellee (Timog
Branch), for which she was required to execute the PNs
to secure payment thereof; and that she is a mere
guarantor and cannot be compelled to pay unless and
until appellee shall have exhausted all the properties of
Imperial.
ISSUES:
1. WON the PNs she executed were contracts of
adhesion because her only participation in their
execution was affixing her signature. – No.
2. WON the promissory notes were null and void for
being simulated and fictitious. – No proof.
Page 13 of 67
3. WON the promissory notes, even if valid, were
meant as guaranties to secure payment of the checks
by the issuer, Rene Imperial; hence, her liability was
that of a guarantor, and would take effect only upon
exhaustion of all properties and after resort to all legal
remedies against Imperial. – No.
4. WON the respondent bank was immediately
subrogated as the creditor of the accounts by its
purchase of the checks from her through its
rediscounting facility; and that legal subrogation should
be presumed because the petitioner, a third person not
interested in the obligation, paid the debt with the
express or tacit approval of the debtor. – No.
5. WON petitioner was made to believe by the
manager of the bank that the promissory notes would
be mere guaranties for the rediscounted checks and that
despite being a seasoned business woman, she
remained a layman face with complex banking terms
and that this should not be taken against her. – No
merit. The validity of the PNs should not be left to
the will of petitioner for this violates the principle
of mutuality of contracts.
RULING: Her appeal lacks merit.
1.No. The petitioner claims that the promissory notes
she executed were contracts of adhesion because her
only participation in their execution was affixing her
signature, and that the terms of the promissory notes
should consequently be strictly construed against the
respondent as the party responsible for their
preparation. In contrast, the respondent counters that
the terms and conditions of the promissory notes were
clear and unambiguous; hence, there was no room or
need for interpretation thereof.
The promissory notes were written as follows: “FOR
VALUE RECEIVED, I/we jointly and severally promise to
pay Metropolitan Bank and Trust Company, at its office
x x x the principal sum of PESOS xxx, Philippine
currency, together with interest and credit evaluation
and supervision fee (CESF) thereon at the effective rate
of xxx per centum xxx per annum, inclusive, from date
hereof and until fully paid.”
Even assuming that the promissory notes were
contracts of adhesion, such circumstance alone did not
necessarily entitle her to bar their literal enforcement
against her if their terms were unequivocal. It is
preposterous on her part to disparage the promissory
notes for being contracts of adhesion, for she thereby
seems to forget that the validity and enforceability of
contracts of adhesion were the same as those of other
valid contracts. A duly executed contract is the law
between the parties, and, as such, commands them to
comply fully and not selectively with its terms. A
contract of adhesion, of itself, does not exempt the
parties from compliance with what was mutually agreed
upon by them. The terms and conditions of the
promissory notes involved herein, being clear and
beyond doubt, should then be enforced accordingly.
2.Petitioner has no proof. Based on Article 1345 of the
Civil Code, simulation of contracts is of two kinds,
namely: (1) absolute; and (2) relative. Simulation is
absolute when there is color of contract but without any
substance, the parties not intending to be bound
thereby. It is relative when the parties come to an
agreement that they hide or conceal in the guise of
another contract. The effects of simulated contracts are
dealt with in Article 1346 of the Civil Code, to wit:
Art. 1346. An absolutely simulated or fictitious contract
is void. A relative simulation, when it does not prejudice
a third person and is not intended for any purpose
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contrary to law, morals, good customs, public order or
public policy binds the parties to their real agreement.
The proof required to overcome the presumption of
validity must be convincing and preponderant. Without
such proof, therefore, the petitioner's allegation that she
had been made to believe that the promissory notes
would be guaranties for the rediscounted checks, not
evidence of her primary and direct liability under loan
agreements, could not stand.
3.A guaranty is not presumed; it must be expressed
(Art. 2055, New Civil Code). The PNs provide, in clear
language, that appellant is primarily liable thereunder.
On the other hand, said PNs do not state that Imperial,
who is not even privy thereto, is the one primarily liable
and that appellant is merely a guarantor. In addition,
the disclosure statements and the statements of loan
release undeniably identified petitioner, and no other,
as the borrower in the transactions. Under such
established circumstances, she was directly and
personally liable for the obligations under the
promissory notes.
4.Legal subrogation finds no application because there
is no evidence showing that Imperial, the issuer of the
checks, had consented to the subrogation, expressly or
impliedly.
5.Relevant: After having determined that the terms
and conditions of the promissory notes were clear and
unambiguous, and thus should be given their literal
meaning and not be interpreted differently, we insist
and hold that she should be bound by such terms and
conditions. Verily, the promissory notes as
contracts should bind both contracting parties;
hence, the validity or compliance therewith should
not be left to the will of the petitioner. Otherwise,
she would contravene and violate the principles of
mutuality and of the obligatory force of contracts.
A respected commentator on civil law has written in this
respect:
The binding effect of the contract on both parties is
based on the principles (1) that obligations arising from
contracts have the force of law between the contracting
parties; and (2) that there must be mutuality between
the parties based on their essential equality, to which is
repugnant to have one party bound by the contract
leaving the other free therefrom. Xxx
Just as nobody can be forced to enter into a contract, in
the same manner once a contract is entered into, no
party can renounce it unilaterally or without the consent
of the other. It is a general principle of law that no one
may be permitted to change his mind or disavow and go
back upon his own acts, or to proceed contrary thereto,
to the prejudice of the other party. Xxx
If, after a perfect and binding contract has been
executed between the parties, it occurs to one of them
to allege some defect therein as a reason for annulling
it, the alleged defect must be conclusively proven, since
the validity and fulfillment of contracts cannot be left to
the will of one of the contracting parties. The fact that a
party may not have fully understood the legal effect of
the contract is no ground for setting it aside.
Relativity of Contracts (1311; 1312-1314; 2150;
1729)
20) Florentino vs. Encarnacion,(79 SCRA 192)
FACTS:
Petitioners-appellants filed with CFI an application for
the registration under Act 496 of a parcel of agricultural
Page 14 of 67
land. The application alleged that the applicants are the
common and pro-indiviso owners in fee simple of the
said land with the improvements existing thereon; that
to the best of their knowledge and belief, there is no
mortgage, lien or encumbrance of any kind; that said
applicants had acquired the aforesaid land thru and by
inheritance from their predecessors in interest, lately
from their aunt, Doña Encarnacion Florentino who died
and or which the said land was adjudicated to them by
virtue of the deed of extrajudicial partition ; that
applicants Salvador Encarnacion, Jr. and Angel
Encarnacion acquired their respective shares of the land
thru purchase from the original heirs, Jesus, Caridad,
Lourdes and Dolores, all surnamed Singson, on one
hand and from Asuncion Florentino on the other. After
due notice and publication, no opposition was filed
except that of the Director of Lands which was later
withdrawn, thus leaving the application unopposed.
Thus an order of general default was issued. The crucial
point in the controversy of the case is centered on the
stipulation in the deed of extrajudicial partition.
In his testimony during the trial, applicant Miguel
Florentino asked the court to include the said stipulation
as an encumbrance on the land sought to be registered,
and cause the entry of the same on the face of the title
that will finally be issued. Opposing its entry on the title
as an encumbrance, petitioners-appellees Salvador
Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel
Encarnacion filed on October 3, 1966 a manifestation
seeking to withdraw their application on their respective
shares of the land sought to be registered. The
withdrawal was opposed by the petitioners-appellants.
Embodied in the deed of extrajudicial partition states
the the land and the fruits shall serve to defray the
religious expenses.
The Court after hearing the motion for withdrawal and
the opposition issued an order and for the purpose of
ascertaining and implifying that the products of the land
made subject matter of this land registration case had
been used in answering for the payment of expenses for
the religious functions specified in the Deed of
Extrajudicial Partition which was not registered in the
Register of Deeds from time immemorial; and that the
applicants knew of this arrangement and the Deed of
Extrajudicial Partition of August 24,1947, was not
signed by Angel Encarnacion or Salvador Encarnacion,
that the self-imposed arrangement in favor of the
Church is a simple donation, but is void since the donee
has not accepted the donation and Salvador
Encarnacion, Jr. and Angel Encarnacion had not made
any oral or written grant at all so the court allowed the
religious expenses to be made and entered on the
undivided shares, interests and participations of all the
applicants in this case, except that of Salvador
Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel
Encarnacion.”
The court said that the donee Church has not showed
its clear acceptance of the donation, and is the real party
of this case, not the petitioners-appellants.
ISSUES:
1. WON the lower own erred in concluding that the
stipulation embodied in Exhibit O on religious expenses
is just an arrangement stipulation, or grant revocable at
the unilateral option of the co-owners
1.1 WON the lower court erred in finding and concluding
that the encumbrance or religious expenses embodied
in Exhibit O, the extrajudicial partition between the co-
heirs, is binding only on the applicants Miguel
Florentino, Rosario Encarnacion de Florentino, Manuel
Arce, Jose Florentino, Antonio Florentino, Victorino
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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Florentino, Remedios Encarnacion and Severina
Encarnacion
2. WON the lower court erred in holding that rule that
the petitioners-appellants are not the real parties in
interest, but the Church
3. WON the lower court as a registration court erred in
passing upon the merits of the encumbrance (Exhibit O-
1) as the same was never put to issue and as the
question involved is an adjudication of rights of the
parties
RULING
1. YES, the court erred in concluding that the stipulation
is just an arrangement stipulation. It cannot be revoked
unilaterally.
The contract must bind both parties, based on the
principles (1) that obligation wising from contracts has
the force of law between the contracting parties; and
(2) that they must be mutuality between the parties
band on their essential equality, to which is repugnant
to have one party bound by the contract leaving the
other free therefrom. The stipulation is part of an
extrajudicial partition duly agreed and signed by the
parties, hence the same must bind the contracting
parties thereto and its validity or compliance cannot be
left to the will of one of them. The said stipulation is a
Stipulation pour autrui. A stipulation pour autrui is a
stipulation in favor of a third person conferring a clear
and deliberate favor upon him, and which stipulation is
merely a part of a contract entered into by the parties,
neither of whom acted as agent of the third person, and
such third person may demand its fulfillment provided
that he communicates his acceptance to the obligor
before it is revoked.
For a valid stipulation pour autrui,it must be the purpose
and intent of the stipulating parties to benefit the third
person, and it is not sufficient that the third person may
be incidentally benefited by the stipulation. The
intention of the parties may be disclosed by their
contract. It matters not whether the stipulation is in the
nature of a gift or whether there is an obligation owing
from the promise to the third person. That no such
obligation exists may in some degree assist in
determining whether the parties intended to benefit a
third person.The evidence on record shows that the true
intent of the parties is to confer a direct and material
benefit upon the Church.
While a stipulation in favor of a third person has no
binding effect in itself before its acceptance by the party
favored, the law does not provide when the third person
must make his acceptance. As a rule, there is no time
limit; such third person has all the time until the
stipulation is revoked. Here, We find that the Church
accepted (implicitly) the stipulation in its favor before it
is sought to be revoked by some of the coowners.
1.1 YES, the court should have found the other co-
owners to be bound by the extrajudicial partition.
Being subsequent purchasers, they are privies or
successors in interest; it is axiomatic that contracts are
enforceable against the parties and their privies.The co-
owners are shown to have given their conformity to such
agreement when they kept their peace in 1962 and
1963, having already bought their respective shares of
the subject land but did not question the enforcement
of the agreement as against them. They are also shown
to have knowledge of Exhibit O-1 as they had admitted
in a Deed of Real Mortgage executed by them.
2. YES
Page 15 of 67
That one of the parties to a contract pour autrui is
entitled to bring an action for its enforcement or to
prevent its breach is too clear to need any extensive
discussion. Upon the other hand, that the contract
involved contained a stipulation pour autrui amplifies
this settled rule only in the sense that the third person
for whose benefit the contract was entered into may also
demand its fulfillment provided he had communicated
his acceptance thereof to the obligor before the
stipulation in his favor is revoked. The annotation of
Exhibit O-1 on the face of the title to be issued in this
case is merely a guarantee of the continued
enforcement and fulfillment of the beneficial stipulation.
3. NO
The otherwise rigid rule that the jurisdiction of the Land
Registration Court, being special and limited in
character and proceedings thereon summary in nature,
does not extend to cases involving issues properly
litigable in other independent suits or ordinary civil
actions. The peculiarity of the exceptions is based not
alone on the fact that Land Registration Courts are
likewise the same Courts of First Instance, but also the
following premises: (1) Mutual consent of the parties or
their acquiescence in submitting the aforesaid issues for
determination by the court in the registration
proceedings; (2) Full opportunity given to the parties in
the presentation of their respective sides of the issues
and of the evidence in support thereto; (3)
Consideration by the court that the evidence already of
record is sufficient and adequate for rendering a
decision upon these issues.
Also, the case has been languishing in our courts for
thirteen long years. To require that it be remanded to
the lower own for another proceeding under its general
jurisdiction is not in consonance with our avowed policy
of speedy justice.
21) Young vs. CA (G.R. No. 79518, January 13,
1989)
FACTS:
Defendant Philippine Holding, Inc. is the former owner
of a piece of land and a two storey building erected
thereon, consisting of six units. The owner secured an
order from the City Engineer to demolish the building.
Antonio Young filed an action to annul the demolition
Order. As an incident in said case, the parties submitted
a Compromise Agreement to the Court which provides
that Antonio Young and Rebecca Young and all persons
claiming rights under them bind themselves voluntarily
and peacefully to vacate the premises which they are
occupying as lessees (Units 1352 and 1354) which are
the subject of the condemnation and demolition order
and to surrender possession within 60 days from written
notice, subject to the proviso that should defendant
decided to sell the subject property or portion thereof,
"plaintiff and Rebecca C. Young have the right of first
refusal thereof.
Philippine Holding, Inc. had previously sold the said
property by way of dation in payment to PH Credit
Corporation. The property was subdivided into 2
parcels, area covering Units 1350, 1352 and 1354 (TCT
No. 152439) and the other area covering Units 1356,
1358 and 1360 (TCT No. 152440) and both titles were
placed in the name of PH Credit Corporation. On
December 8, 1982, PH Credit Corporation sold the
property covered by TCT 152439 to the Blessed Land
Development Corporation represented by its President
Antonio T.S. Young; and on September 16, 1983, PH
Credit Corporation sold the property covered by TCT
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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152440 embracing Units 1356, 1358 and 1360 to
spouses Fong Yook Lu and Ellen Yee Fong.
Petitioner Rebecca C. Young and her co-plaintiffs, the
spouses Chui Wan and Felisa Tan Yu filed for the
annulment of the sale in favor of herein respondent
spouses, Fong Yook Lu and Ellen Yee Fong and for
specific performance and damages against the PH Credit
Corporation and Philippine Holding, Incorporated.
Plaintiff spouses Chui Wan and Felisa Tan Yu alleged
that defendant corporation and Francisco Villaroman,
sold the property without affording them the right of
first refusal. Plaintiff Rebecca C. Young also prayed that
the sale be annulled and that they be allowed to exercise
her right of first refusal to purchase subject property
ISSUE:
Whether or not petitioner can enforce a compromise
agreement to which she was not a party.
RULING:
No. In J.M. Tuason & Co., Inc. v. Cadampog, it was
ruled that appellant is not entitled to enforce a
compromise agreement to which he was not a party and
that as to its effect and scope, it has been determined
in the sense that its effectivity if at all, is limited to the
parties thereto and those mentioned in the exhibits. It
was reiterated later that a compromise agreement
cannot bind persons who are not parties thereto.
The present compromise agreement states “Plaintiff
Antonio T.S. Young and the Defendant HOLDING hereby
agree to implead in this action as necessary party-
plaintiff, plaintiff's daughter Rebecca C. Young who is
the recognized lawful lessee of the premises known and
identified as 1354 Soller St., Sta. Cruz, Manila and
whose written conformity appears hereunder." From the
terms of this agreement, the conditions are very clear,
such as: (1) that Rebecca C. Young shall be impleaded
in the action and (2) that she shall signify her written
conformity thereto. These conditions were not complied
with. The parties did not make any move to implead
Rebecca as a necessary party nor did her written
conformity appear in the compromise agreement. She
even admitted that she did not sign the joint motion
since it was not presented to her.
Petitioner argued that the stipulation of right of first
refusal was a stipulation pour autrui under Art 1311. The
requisites of a stipulation pour autrui or a stipulation in
favor of a third person are the following: (1) there must
be a stipulation in favor of a third person. (2) the
stipulation must be a part, not the whole of the contract.
(3) the contracting parties must have clearly and
deliberately conferred a favor upon a third person, not
a mere incidental benefit or interest. (4) the third
person must have communicated his acceptance to the
obligor before its revocation. (5) neither of the
contracting parties bears the legal representation or
authorization of the third party.
Assuming that petitioner is correct in claiming that this
is a stipulation pour autrui, it is unrebutted that she did
not communicate her acceptance whether expressly or
impliedly. She insists however, that the stipulation has
not yet been revoked, so that her present claim or
demand is still timely. SC said this argument is pointless
considering the sale to some other person constitutes a
revocation of the grand of the right of first refusal to
Rebecca Young.
22) Cristobal vs. Gomez, (50 Phil.810)
FACTS:
Page 16 of 67
The property formerly belongs to Epifanio Gomez,
deceased husband of plaintiff and father of the 4
children who joined their mother in the complaint. On
December 13, 1891, Epifanio Gomez sold this property
under contract of sale with pacto de retro to Yangco,
redeemable in 5 years, for the sum of P2,500, the
vendor remaining in possession in the character of
lessee. The period expressed in this agreement passed
without redemption, with the result that the property
consolidated in Yangco, who, nevertheless, many years
later conceded to the vendor the privilege of
repurchasing. Gomez applied to a kinsman, Banas for
assistance. Bañas was called in consultation, at the
home of Telesfora Gomez in Manila, with Epifanio
Gomez and Marcelino Gomez. The four reached an
agreement, which was, in substance, that Bañas should
advance the sum of P7,000, upon the personal credit of
Marcelino and Telesfora Gomez, and that this money
should be used to repurchase the property in the names
of Marcelino Gomez and Telesfora Gomez, who should
hold and administer the property until the capital
advanced by Bañas should be paid off, after which the
property would be returned to Epifanio Gomez. It was
agreed that the property to be redeemed should be
placed in the name of Marcelino Gomez and Telesfora
Gomez, and that Marcelino Gomez should be its
manager. The provisions included that the income, rent
and produce of the property shall be applied exclusively
to the amortization of the capital employed by the 2
parties, as soon as the capital employed, with its
interest and other incidental expenses, shall have been
covered, said properties shall be returned to Epifanio or
his legitimate children, and in order that the property
may be returned, it is made essential that he shall
manifest good behavior in the opinion of the 2 parties.
On 12 August 1907, Marcelino and Telesfora
entered into a “private partnership in participation” for
the purpose of redeeming the property from Yangco.
Epifanio was present when said agreement was
discussed and assented to. The capital consisted of
P7000, of which P1500 came from Marcelino, and P5500
from Telesfora. Yangco conveyed the property to the 2
parties for P6700, P5000 to redeem, P1500 to pay
Epifanio’s loan with a sister of Yangco and P200 which
Yangco exacted as a present for his manager. Epifanio
died a year later, leaving petitioner and 4 children.
Marcelino Meanwhile, Marcelino Gomez continued to
possess the property, improved it, and earned income
from it. He acquired exclusive rights over it when
Telesfora conveyed her interest to him. He sold the
property with pacto de retro to Banas, redeemable
within five years. On April 1, 1918, he redeemed the
property from Banas.
Subsequently, Paulina and children filed action to
recover property from Marcelino. They claimed that the
capital had been covered by the property’s income,
hence, the same should be returned to them. Marcelino
submitted a notarial document wherein Epifanio certifies
that Marcelino had requested him to draw up a notarial
act showing the properties which Marcelino was known
to be the true owner. Marcelino relies upon this
instrument as proving title in him, contending that
Epifanio and his successors are estopped from claiming
said lot.
ISSUE: Whether there was acceptance by Epifanio of
the trust agreement.
RULING:
Yes. Contrary to defendant’s claim that the agreement
was kept secret from Epifanio, the testimony of Banas
stated that Gomez was present when the arrangement
for the repurchase of the property was discussed. Banas
even told Epifanio to be thankful that the latter was able
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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to recover the property from Yangco. But even
supposing that Epifanio Gomez may never have seen
the agreement, we have no doubt that he understood
the nature of the arrangement and his assent thereto
was a sufficient acceptance. This being true, it was not
competent for the parties to the trust agreement
thereafter to dissolve the partnership and destroy the
beneficial right of Epifanio Gomez in the property.
The so-called partnership agreement between Marcelino
Gomez and his sister created a trust for the express
purpose of rescuing the property of Epifanio Gomez; and
now that that purpose has been accomplished, the
property should be returned to his legitimate children,
as provided for in the agreement. The fact that one of
the two individuals who have constituted themselves
trustees for the purpose above indicated conveys his
interest in the property to his co-trustee does not relieve
the latter from the obligation to comply with the trust.
As against the beneficiary, prescription is not effective
in favor of a person who is acting as a trustee of a
continuing and subsisting trust. Therefore, Marcelino
cannot acquire ownership over the property through
prescription.
In Martinez vs. Graño, (42 Phil., 35), we held that a
person who, before consolidation of property in the
purchaser under a contract of sale with pacto de retro,
agrees with the vendors to buy the property and
administer it till all debts constituting an incumbrance
thereon shall be paid, after which the property shall be
turned back to the original owner, is bound by such
agreement; and upon buying in the property under
these circumstances such person becomes in effect a
trustee and is bound to administer the property in this
character. The same rule is applicable in the case before
us.
Defendants also claim that because Epifanio had not
accepted the donation in a public document, the same
is unenforceable. This is untenable. Epifanio need not
accept in accordance with formalities of donations. The
court said that the partnership agreement should be
viewed as an express trust, not as an intended donation.
23) Coquia vs. Fieldsmen’s Insurance Co., (26
SCRA 178)
FACTS: X (insurer) issued to Y (Taxicab Company) a
common carrier accident policy. The heirs of T, a driver
of one of the vehicles covered by the policy, who was
killed brought action against X to collect the proceeds of
said policy in view of the failure of X and Y to agree with
respect to the amount to be paid to said heirs.
X claims that the heirs had no cause of action as they
had no contractual relation with T.
ISSUE: Does the policy in question belong to contracts
pour autrui?
RULING: Yes. The policy provides, inter alia, that X “will
indemnify any authorized driver who is driving the
motor vehicle” of the insured and, in the event of death
of said driver, X shall, likewise, “indemnify his personal
representatives.’’ Thus, the policy is typical of contracts
pour autrui, this character being made more manifest
by the fact that the deceased driver paid 50% of the
premiums, which were deducted from his weekly
commissions.
24) Constantino vs. Espiritu, (39 SCRA 206)
FACTS: Plaintiff alleged that he executed a fictitious
deed of absolute sale of a house and 4 subdivision lots
in favor of defendant, with the understanding that
Page 17 of 67
defendant would hold the properties in trust for their
illegitimate son who is unborn at the time of
conveyance.
However, the defendant mortgaged the properties and
offered them for sale. Thus, the plaintiff sought for a
writ of preliminary injunction restraining the defendant
from further alienating the properties.
ISSUE: Is the son of the plaintiff needed to be included
as a party-plaintiff in the complaint?
RULING: No. Upon the facts alleged by plaintiff, the
contract between him and appellee was a contract pour
autrui, although couched in the form of a deed of
absolute sale, and that plaintiff’s action was, in effect,
one for specific performance. That one of the parties to
a contract is entitled to bring an action for its
enforcement or to prevent its breach is too clear to need
any extensive discussion. Upon the other hand, that the
contract involved contained a stipulation pour autrui
amplifies this settled rule only in the sense that the third
person for whose benefit the contract was entered into
may also demand its fulfillment provided he had
communicated his acceptance thereof to the obligor
before the stipulation in his favor is revoked.
25) Sps. Pontigon, et al vs. Heirs of Meliton
Sanchez, GR 221513, December 6, 2016
FACTS: Respondents’ predecessors-in-interest
executed an Extrajudicial Settlement with Deed of
Absolute Sale in favor of petitioners. However, the same
was not properly notarized, thus, it cannot be properly
regarded as a public document.
ISSUE: Is the Extrajudicial Settlement binding upon the
respondents?
RULING: Yes. The irregularity in the notarization is not
fatal to the validity of the Extrajudicial Settlement. For
even the absence of such formality would not
necessarily invalidate the transaction embodied in the
document — the defect merely renders the written
contract a private instrument rather than a public one.
While Art. 1358 of the New Civil Code seemingly
requires that contracts transmitting or extinguishing
real rights over immovable property should be in a
public document, hornbook doctrine is that the
embodiment of certain contracts in a public instrument
is only for convenience. Nonobservance of the
prescribed formalities does not necessarily excuse the
contracting parties from complying with their respective
obligations under their covenant, and merely grants
them the right to compel each other to execute the
proper deed. A contract of sale has the force of law
between the contracting parties and they are expected
to abide, in good faith, by their respective contractual
commitments notwithstanding their failure to comply
with Art. 1358.
The principle of relativity of contracts dictates that
contractual agreements can only bind the parties who
entered into them, and cannot favor or prejudice third
persons, even if he is aware of such contract and has
acted with knowledge thereof.
As a general rule, the heirs of the contracting parties are
precluded from denying the binding effect of the valid
agreement entered into by their predecessors-in-
interest. This is so because they are
not deemed "third persons" to the contract within the
contemplation of law. Additionally, neither the provision
nor the doctrine makes a distinction on whether the
contract adverted to is oral or written, and, even more
so, whether it is embodied in a public or private
instrument. It is then immaterial that the Extrajudicial
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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Settlement executed by Flaviana was not properly
notarized for the said document to be binding on her
heirs, herein respondents.
Consensuality of Contracts (1315 vs. 1316 [cf.
1934, 1963, 2093, 1933-1934]; 1305; 1306; 448;
1317 cf. 1403 and 1898; 1319;)
26) ABS-CBN vs. CA, et al., (301 SCRA 572)
FACTS: In 1990, ABS-CBN and VIVA executed a Film
Exhibition Agreement whereby the latter gave the
former an exclusive right to exhibit 24 VIVA Films for TV
telecast. Later, VIVA, through respondent Vincent del
Rosario, offered ABS-CBN a list of 3 film packages (36
titles) from which the latter may exercise its right of first
refusal under their agreement. ABS-CBN ticked off 10
titles therefrom.
Thereafter, in February 1992, Del Rosario offered ABS-
CBN airing rights over a package of 104 movies for P60
million. In April, 1992, Del Rosario, and Eugenio Lopez
of ABS-CBN, met at a restaurant to discuss the package
proposal. According to Lopez, however, what they
agreed upon was ABS-CBN's exclusive film rights to 14
films for P36 million. Del Rosario denied the same. He
insisted that the discussion was on VIVA's offer of 104
films for P60 million, to which ABS-CBN later made a
counter proposal but rejected by VIVA's Board of
Directors. Hence, VIVA later granted RBS the exclusive
right to air the 104 VIVA films, including the 14 films
supposedly granted to ABS-CBN. ABS-CBN then filed a
complaint for specific performance with prayer for
injunction. The RTC granted the prayer and required
ABS-CBN post a P35 million bond. But while ABS-CBN
was moving for reduction of the bond, RBS offered to
put up a counterbond and was allowed to post P30
million. Later, the RTC rendered a decision in favor of
RBS and VIVA, ordering ABS-CBN to pay RBS the
amount it paid for the print advertisement and premium
on the counterbond, moral damages, exemplary
damages and attorney's fee. ABS-CBN appealed to the
Court of Appeals. Viva and Del Rosario also appealed
seeking moral and exemplary damages and additional
attorney's fees. The Court of Appeals affirmed the RTC
decision and sustained the monetary awards, VIVA's
and Del Rosario's appeals were denied.
ISSUE:
1. WON there was a perfected contract between VIVA
and ABS-CBN?
2. WON RBS is entitled to damages and attorney's fees.
RULING:
1. The first issue is resolved against ABS-CBN, in the
absence of the requisites to make a valid contract. The
alleged agreement on the 14 films, if there is one, is not
binding to VIVA as it is not manifested that Del Rosario
has an authority to bind VIVA.
Thus, when ABS-CBN made a counter-proposal to VIVA,
the same was submitted to its Board of Directors, who
rejected the same. Further, the Court agreed that the
alleged agreement is not a continuation of the 1990
Contract as the right of first refusal under the said
contract had already been exercised by ABS-CBN.
2. On the issue of damages, the Court found ABS-CBN.
RBS is not entitled to actual damages as the claim
thereof did not arise from that which allows the same to
Page 18 of 67
be recovered. Neither is RBS entitled to attorney's fees
as there is no showing of bad faith in the other party's
persistence in his case. Also, being a corporation, RBS
is not entitled to moral damages as the same is awarded
to compensate actual injuries suffered. Lastly,
exemplary damages cannot be awarded in the absence
of proof that ABS-CBN was inspired by malice or bad
faith.
27) Palattao vs. CA, et al., (G.R. No. 131726,
May 7, 2002)
FACTS: Petitioner Palattao entered into a lease contract
whereby she leased to private respondent a house and
a 490-square-meter lot, covered by Transfer Certificate
of Title and registered in the name of petitioner. The
duration of the lease contract was for three years,
renewable at the option of the parties. The agreed
monthly rental was P7,500.00 for the first year;
P8,000.00 for the second year; and P8,500.00 for the
third year. The contract gave respondent lessee the first
option to purchase the leased property.
During the last year of the contract, the parties began
negotiations for the sale of the leased premises to
private respondent. petitioner offered to sell to private
respondent 413.28 square meters of the leased lot at
P7,800.00 per square meter, or for the total amount of
P3,223,548.00.
Private respondent replied that he "shall definitely
exercise [his] option [to buy]" the leased property.
Private respondent, however, manifested his desire to
buy the whole lot leased premises and inquired from
petitioner the reason why only 413.28 square meters of
the leased lot were being offered for sale. Petitioner
made a final offer to sell the lot at P7,500.00 per square
meter with a downpayment of 50% upon the signing of
the contract of conditional sale, the balance payable in
one year with a monthly lease/interest payment of
P14,000.00 which must be paid on or before the fifth
day of every month that the balance is still outstanding.
Respondent accepted petitioner's offer and reiterated
his request for clarification as to the size of the lot for
sale.
Petitioner gave private respondent on or before
November 24, 1993, within which to pay the 50%
downpayment in cash or manager's check. Petitioner
stressed that failure to pay the downpayment on the
stipulated period will enable petitioner to freely sell her
property to others. Petitioner likewise notified private
respondent that she is no longer renewing the lease
agreement upon its expiration on December 31, 1993.
Private respondent did not accept the terms proposed
by petitioner. Neither was there any documents of sale
nor payment by private respondent of the required
downpayment. Private respondent wrote a letter to
petitioner manifesting his intention to exercise his
option to renew their lease contract for another three
years. This was rejected by petitioner, reiterating that
she was no longer renewing the lease. Petitioner
demanded that private respondent vacate the premises,
but the latter refused. Hence, private respondent filed
compelling petitioner to sell to him the leased property.
After they failed to reach an amicable settlement,
petitioner filed the instant ejectment case. Respondent
alleged that he refused to vacate the leased premises
because there was a perfected contract of sale of the
leased property between him and petitioner.
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
ISSUE: WON respondent's acceptance of petitioner's
offer was absolute, and will consequently generate
consent that would perfect a contract.
RULING: NO. Contracts that are consensual in nature,
like a contract of sale, are perfected upon mere meeting
of the minds. Once there is concurrence between the
offer and the acceptance upon the subject matter,
consideration, and terms of payment, a contract is
produced. The offer must be certain. A qualified
acceptance, or one that involves anew proposal,
constitutes a counter-offer and is a rejection of the
original offer. Consequently, when something is desired
which is not exactly what is proposed in the offer, such
acceptance is not sufficient to generate consent because
any modification or variation from the terms of the offer
annuls the offer.
In the case at bar, while it is true that private
respondent informed petitioner that he is accepting the
latter's offer to sell the leased property, it appears that
they did not reach an agreement as to the extent of the
lot subject of the proposed sale. It was evident in his
reply-letter that he did not give his consent to buy only
413.28 square meters of the leased lot, as he desired to
purchase the whole 490 square-meter-leased premises
which, however, was not what was exactly proposed in
petitioner's offer. Clearly, therefore, private
respondent's acceptance of petitioner's offer was not
absolute, and will consequently not generate consent
that would perfect a contract.
28) National Commercial Bank of Saudi Arabia
vs. Court of Appeals, (G.R. No. 124267, January
17, 2005)
FACTS: As the case has been pending for more than
nineteen years, this Court ordered the trial court
(Regional Trial Court of Makati City) and the Court of
Appeals to elevate all the records of the case for final
resolution. Upon this Court's directive, petitioner
National Commercial Bank of Saudi Arabia and the
Metropolitan Bank and Trust Co., Inc. (successor of
movant respondent Philippine Banking Corporation)
filed their memoranda on October 14, 2004 and October
29, 2004, respectively.
On December 7, 2004, the parties, through their
respective counsels, filed a joint motion 4 before this
Court for approval of an undated compromise
agreement which was executed for the purpose of
ending the longstanding litigation. In the compromise
agreement, it involved the payment of $1,800,000 in US
Currency. Metrobank shall pay NCB. And it shall not
have any other causes of action after the fulfillment of
payment.
ISSUE: WON the compromise agreement is valid.
RULING: Yes. Under Article 1306 of the Civil Code,
contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
Thus, a compromise agreement whereby the parties
make reciprocal concessions to resolve their differences
to thereby put an end to litigation is binding on the
contracting parties and is expressly acknowledged as a
juridical agreement between them. To have the force of
res judicata, however, the compromise agreement must
be approved by final order of the court. To be valid, the
Page 19 of 67
compromise agreement must be based on real claims
and actually agreed upon in good faith. Both conditions
are present in the case at bar. In clear, categorical
language, each of the parties have manifested their
desire, by forging the Compromise Agreement, to
abbreviate the legal battle and settle the case amicably
to both their satisfaction. As the Agreement is not
contrary to law, public order, public policy, morals or
good customs, the same is hereby approved.
The petition having become moot and academic, it
should thus now be dismissed.
29) Development Bank of the Philippines vs.
Perez (G.R. No. 14854, November 11, 2004)
FACTS: Perez obtained a loan from DBP amounting to
P214,000.00 for the acquisition of machinery and
equipment and for working capital, and an additional
industrial loan amounting to P21,000.00 to cover
unforeseen price escalation. The respondents were then
made to sign four promissory notes covering the total
amount of the loan.
Due to the respondents' failure to comply with their
amortization payments, DBP decided to foreclose the
mortgages that secured the obligation. However, Mrs.
Perez requested for a restructuring of their account due
to difficulties they were encountering in collecting
receivables. DBP then informed Mrs. Perez that it had
approved the restructuring of their account.
Mrs. Perez then filed a Complaint for the nullification of
the new promissory note with damages and preliminary
prohibitory injunction. The complaint alleged that the
petitioner restructured the respondents' obligation in
bad faith by requiring them to sign another promissory
note for P231,000.00 without considering the total
payments made on the loan amounting to P224,383.43.
The respondents claimed that the petitioner failed to
explain to them how it had arrived at the amount of the
restructured loan. The respondents also alleged that the
petitioner failed to furnish them with a disclosure
statement as required by Rep. Act No. 3765, also known
as the Truth in Lending Act, prior to the consummation
of the transaction. They averred that the interest
imposed on the said transaction was usurious. They,
likewise, alleged that the new promissory note
constituted a novation of the previous obligations.
During trial, DBP pointed out that the respondents
admitted to having signed the new promissory note. It
avers that there was no evidence on record showing that
the signing of the new promissory note was attended by
mistake, violence, intimidation, undue influence, or
fraud. The petitioner posits that the respondents' claim
of having been forced to sign the restructured note for
fear of having their mortgaged property foreclosed
cannot serve as legal basis to conclude that the
respondents did not voluntarily sign the new promissory
note. DBP maintains that a perusal of the evidence
would reveal that the new promissory note was the
result of the mutual agreement of the parties and, as
such, is not a contract of adhesion. But the respondents
argue that the fact that the restructured loan proved
disadvantageous to them belies the petitioner's claim
that they voluntarily signed the new promissory note.
ISSUE: whether the new promissory note is voidable for
not having been voluntarily signed by the respondents
and for being a contract of adhesion.
RULING: NO. In the instant case, there was no
evidence showing that the respondents signed the new
promissory note through mistake, violence,
intimidation, undue influence, or fraud. The respondents
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merely alleged that they were forced to restructure their
loan for fear of having their mortgaged properties
foreclosed. However, it is axiomatic that this would not
amount to vitiated consent. The last paragraph of Article
1335 of the New Civil Code specifically states that a
threat to enforce one's claim through competent
authority, if the claim is just or legal, does not vitiate
consent. Foreclosure of mortgaged properties in case of
default in payment of a debtor is a legal remedy
afforded by law to a creditor. Hence, a threat to
foreclose the mortgage would not, per se, vitiate
consent.
30) Archbishop Fernando R. Capalla, etc. vs.
Comelec, G.R. No. 201112, June 13, 2012
FACTS: The Comelec and Smartmatic-TIM entered into
a Contract for the Provision of an Automated Election
System for the May 10, 2010 Synchronized National and
Local Elections (AES Contract) which is a Contract of
Lease with Option to Purchase (OTP) the goods listed
therein consisting of the Precinct Count Optical Scan
(PCOS), both software and hardware. The Comelec
opted not to exercise the same except for 920 units of
PCOS machines. Subsequently, the Comelec issued
Resolution resolving to seriously consider exercising the
OTP subject to certain conditions. It issued another
Resolution resolving to exercise the OTP in accordance
with the AES Contract.Later, the COMELEC issued
Resolution resolving to accept Smartmatic-TIM’s offer to
extend the period to exercise the OTP. The agreement
on the Extension of the OTP under the AES Contract
(Extension Agreement) was eventually signed. Finally,
it issued a Resolution resolving to approve the Deed of
Sale between the Comelec and Smartmatic-TIM to
purchase the latter’s PCOS machines to be used in the
upcoming elections. The Deed of Sale was forthwith
executed.
ISSUE:Whether or not assailed resolutions and
transactions entered are valid.
RULING: Yes. The SC decided in favor of respondents
and placed a stamp of validity on the assailed
resolutions and transactions entered into. Based on the
AES Contract, the Court sustained the parties’ right to
amend the same by extending the option period.
Considering that the performance security had not been
released to Smartmatic-TIM, the contract was still
effective which can still be amended by the mutual
agreement of the parties, such amendment being
reduced in writing. To be sure, the option contract is
embodied in the AES Contract whereby the Comelec was
given the right to decide whether or not to buy the
subject goods listed therein under the terms and
conditions also agreed upon by the parties.
Clearly, under the AES Contract, the Comelec was given
until December 31, 2010 within which to exercise the
OTP the subject goods listed therein including the PCOS
machines. The option was, however, not exercised
within said period. But the parties later entered into an
extension agreement giving the Comelec until March 31,
2012 within which to exercise it. With the extension of
the period, the Comelec validly exercised the option and
eventually entered into a contract of sale of the subject
goods. The extension of the option period, the
subsequent exercise thereof, and the eventual
execution of the Deed of Sale became the subjects of
the petitions challenging their validity in light of the
contractual stipulations of respondents and the
provisions of RA 9184.
As the Court simply held in the assailed decision that
the moment the performance security is released, the
Page 20 of 67
contract would have ceased to exist. However, since it
is without prejudice to the surviving provisions of the
contract, the warranty provision and the period of the
option to purchase survive even after the release of the
performance security. While these surviving provisions
may have different terms, in no way can we then
consider the provision on the OTP separate from the
main contract of lease such that it cannot be amended
under Article 19. Thus, not only the option and warranty
provisions survive but the entire contract as well. In
light of the contractual provisions, the SC sustained the
amendment of the option period.
Obligatory Force of Contracts (1159; 1305; 1315;
1266-1267)
31) LTB vs. Manubat (58 SCRA 650)
FACTS: A contract was executed whereby the Biñan
Transportation Company leased to the Laguna-Tayabas
Bus Company at a monthly rental of P2,500.00 its
certificates of public convenience. Sometime after the
execution of the lease contract, the plaintiff Biñan
Transportation Company was declared insolvent and
Francisco C. Manabat was appointed as its assignee.
From time to time, the defendants paid the lease rentals
up to December, 1957, with the exception of the rental
for August 1957, from which there was deducted the
sum of P1,836.92 without the consent of the plaintiff.
This deduction was based on the ground that the
employees of the defendants on the leased lines went
on strike for 6 days in June and another 6 days in July,
1957, and caused substantial losses.
The Batangas Transportation Company and Laguna-
Tayabas Bus Company then separately filed with the
Public Service Commission a petition for authority to
suspend the operation on the lines covered by the
certificates of public convenience leased to each of them
by the Biñan Transportation Company. The defendants
alleged as reasons the reduction in the amount of dollars
allowed by the Monetary Board of the Central Bank of
the Philippines for the purchase of spare parts needed
in the operation of their trucks, among others. Plaintiff's
assignee opposed the petition on the ground that the
Public Service Commission had no jurisdiction to grant
the relief prayed for as it would involve the
interpretation of the lease contract, which act falls
exclusively within the jurisdiction of the ordinary courts.
While the case at the Public Service Commission was
ongoing, the plaintiff Biñan Transportation Company,
represented by Francisco C. Manabat, assignee, filed
this action against defendants Laguna Tayabas Bus
Company and Batangas Transportation Company for the
recovery of the sum of P42,500 representing the
accrued rentals for the lease of the certificates of public
convenience of the former to the latter, corresponding
to the period from January, 1958, to May, 1959,
inclusive, plus the sum of P1,836.92 which was
deducted by the defendants from the rentals due for
August, 1957, together with all subsequent rentals from
June, 1959, that became due and payable; P5,000.00
for attorney's fees and such corrective and exemplary
damages as the court may find reasonable.
The defendants moved to dismiss the complaint for lack
of jurisdiction over the subject matter of the action,
there being another case pending in the Public Service
Commission between the same parties for the same
cause. The motion to dismiss was, however, denied.
The trial court eventually rendered judgment in favor of
plaintiff, ordering the defendants jointly and severally to
pay to the defendants the agreed amount of
rentals.From the decision of the Court of First Instance,
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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defendants appealed to the Court of Appeals, which
affirmed the same in toto.
ISSUE: WON petitioner is liable to respondent for the
amount of rentals. And whether a reduction of the same
is proper.
RULING: The undisguised object of petitioners'
discussion on the issue they raised is to justify their
plea for a reduction of the rentals on the ground that
the subject matter of the lease was allegedly not used
by them as a result of the suspension of operations on
the lines authorized by the Public Service Commission.
In support of said plea, petitioners invoke article 1680
of the Civil Code which grants lessees of rural lands a
right to a reduction of rentals whenever the harvest
on the land leased is considerably damaged by an
extraordinary fortuitous event. Reliance was also
placed by the petitioners on Our decision in Reyes v.
Caltex (Phil.) Inc., 84 Phil. 654, which supposedly
applied said article by analogy to a lease other than
that covered by said legal provision.
Article 1680, it will be observed, is a special provision
for leases of rural lands. No other legal provision
makes it applicable to ordinary leases. Had the
intention of the lawmakers been so, they would have
placed the article among the general provisions on
lease. Nor can the article be applied analogously to
ordinary leases, for precisely because of its special
character, it was meant to apply only to a special
specie of lease. It is a provision of social justice
designed to relieve poor farmers from the harsh
consequences of their contracts with rich landowners.
And taken in that light, the article provides no refuge
to lessees whose financial standing or social position
is equal to, or even better than, the lessor as in the
case at bar.
Even if the cited article were a general rule on lease,
its provisions nevertheless do not extend to
petitioners. One of its requisites is that the cause of
loss of the fruits of the leased property must be an
"extraordinary and unforeseen fortuitous event." The
circumstances of the instant case fail to satisfy such
requisite. As correctly ruled by the Court of Appeals,
the alleged causes for the suspension of operations on
the lines leased, namely, the high prices of spare parts
and gasoline and the reduction of the dollar
allocations, "already existed when the contract of
lease was executed" (p. 11, Decision; p. 30, rec.;
Cuyugan v. Dizon, 89 Phil. 80). The cause of
petitioners' inability to operate on the lines cannot,
therefore, be ascribed to fortuitous events or
circumstances beyond their control, but to their own
voluntary desistance.
Militating further against a grant of reduction of the
rentals to the petitioners is the petitioners' conduct
which is not in accord with the rules of fair play and
justice. Petitioners, it must be recalled, promised to
pay the accrued rentals in due time. Later, however,
when they believed they found a convenient excuse
for escaping their obligation, they reneged on their
earlier promise. Moreover, petitioners' option to
suspend operation on the leased lines appears
malicious. Thus, Justice Esguerra, speaking for the
Court of Appeals, propounded the following questions:
"If it were true that the cause of the suspension was
the high prices of spare parts, gasoline and needed
materials and the reduction of the dollar allocation,
why was it that only plaintiff-appellee's certificate of
public convenience was sought to be suspended? Why
did not the defendants-appellants ask for a
corresponding reduction or suspension under their
own certificate along the same route? Suppose the
prices of the spare parts and needed materials were
Page 21 of 67
cheap, would the defendants-appellants have paid
more than what is stipulated in the lease contract? We
believe not. Hence, the suspension of operation on the
leased lines was conceived as a scheme to lessen
operation costs with the expectation of greater profit.
|||
32) National Marketing Corp. vs. Atlas
Development Corp. (21 SCRA 359)
FACTS:
NMC predecessor is Pratra. On July 21, 1948, defendant
Atlas offered to sell to the plaintiff 8,000 metric tons of
galvanized sheets at the price of U.S. $247 per ton of
1,000 kilos, CIF Manila, to be shipped beginning August,
1948; 1 on July 24, 1948, the plaintiff made an order
and agreed to purchase the galvanized sheets offered
by defendant Atlas with the condition that the seller
should furnish a performance bond in favor of the
plaintiff in the amount of P100,000.00; 2 on August 5,
1948, the plaintiff and defendant Atlas as sales brokers
for West India Commercial Corp. of New York City, N.Y.,
U.S.A., executed a contract of purchase and sale
wherein the said defendant obligated itself to sell 8,000
metric tons of galvanized steel sheets, at the price of
U.S. $247 per ton of 1,000 kilos CIF Manila.
Defendant Atlas obligated itself to furnish in favor of
Pratra a performance bond in the sum of P100,000.00
to guarantee the faithful compliance of all the terms and
conditions of the said contract, with defendant Alto as
surety; 4 in compliance with its undertakings in the
contract, the plaintiff on August 26, 1948, opened a
letter of credit with the Philippine National Bank for the
amount of U.S. $1,976,000.00 in favor of the West India
Commercial Corp. of New York, United States. Neither
defendant Atlas nor its supposed principal the West
India Commercial Corp. of New York delivered the 8,000
metric tons of galvanized steel sheets involved in the
contract.
Plaintiff sought to recover liquidated damages as
stipulated on the contract which is 20% of the
contractual value from defendant Atlas and the amount
of P100,000 from Alto for the performance bond. Trial
court dismissed the complaint, absolving the
defendants. Even if its liability could be held to be direct,
the Pratra, having demanded payment of damages from
West India Commercial Corporation and not from it,
waived whatever claim it might have against Atlas.
ISSUE:
Whether or not the lower court erred on absolving from
liability defendants Atlas (under a contract for the sale
of galvanized steel sheets) and Alto (under a
performance bond).
RULING:
No. The trial court decision is correct. Under the
contract, the shipment of the galvanized steel sheets
could be made during a period from August, 1948 to
February, 1949 with a grace of 60 days, i.e., "all
shipments within 60 days of the above schedule would
be accepted as good delivery." The letter of credit on
the other hand did not provide for such a period of grace
of 60 days for late shipment. The corrected letter of
credit was received by the West India Commercial
Corporation only on September 7, 1948. As the first
shipment was supposed to have been made in August,
it was impossible for the West India Commercial
Corporation to make it on time. Under the above
circumstances the correctness of the assertion in a
radiogram of West India Commercial Corporation sent
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
to defendant Atlas stating that serious discrepancy
"from contract" would prevent it from "using letter of
credit in present form" cannot be denied.
The failure to open a letter of credit within a period
agreed upon suffices to prevent a binding juridical tie
from being created. That case, dealing with offer and
acceptance, reiterated the principle that to bind the
offeror, "the offeree must comply with the conditions of
the offer." the situation before us deals with a perfected
contract. Here the time element does not enter into the
failure of one party to live up to the terms of the
contract. What was manifest was the discrepancy
between what was agreed upon in the contract and the
letter of credit, the effectivity of which requires that "all
conditions contained [in it] be strictly complied with,
however onerous they may be."
An authoritative excerpt from Zollman on Banks and
Banking argues to the contrary. Thus: "Where,
therefore, legal relations arise from a letter of credit,
such letter contains the entire contract of the parties,
and their resulting obligations should be measured by
its provisions. It constitutes the complete agreement,
and is independent of the contract of sale between the
buyer and the seller, and is unaffected by any breach of
contract on the part of the seller or the buyer or by any
controversy which may arise between the buyer and
seller or by any other transaction between the buyer
and seller."
Such being the case, the question of whether or not
defendant Atlas, which acted as a sales broker, could be
held liable for the alleged breach need not be passed
upon. As for the surety, defendant Alto, the judgment
must likewise be affirmed for the obvious reason that as
no accountability of the principal arose from the failure
to make the delivery of the galvanized steel sheets, it
was equally exempt from liability.
MODULE 3: STAGES AND ELEMENTS OF
CONTRACTS
Negotiation (1324 vs. 1479; 1319; 1482)
33) Laudico vs. Arias, (43 Phil.270)
FACTS:
On Feb. 5, 1919, Arias wrote Laudico a letter, offering a
lease contract. On Mar. 6, 1919, Laudico wrote a letter
of complete acceptance, which was received by Arias
that same afternoon. But that same morning Arias had
already written Laudico a letter withdrawing the offer.
ISSUE:
Was there a contract here?
RULING:
No, because prior to receipt of the letter of acceptance,
the offer had already been withdrawn. In other words,
it does not matter that the letter of withdrawal may
have been received later by the offeree than receipt of
the letter of acceptance by the offerer. What is
important is that the letter of withdrawal was MADE
prior to the knowledge of acceptance.
Perfection (1318; 1319)
Theories in Perfection of Contracts
(Manifestation, Expedition, Reception, and
Cognition Theories)
Page 22 of 67
Elements of Contracts
Consent (1319-1346)
Offer
Acceptance
34) Yuviengco vs. Dacuycuy (104 SCRA 668)
FACTS:
Petitioners, owners of a parcel of land and the building
existing thereon, expressed through their
representative who wrote a letter to private
respondents, the tenants therein, their willingness to
sell their property to them. Private respondents replied
by telegram with the following words, "we agree to buy
proceed Tacloban to negotiate details". When
petitioners' representative arrived with the prepared
contract to purchase and to sell, private respondents
found variance between the terms of payment and what
they had in mind, hence the bank draft being offered for
payment was returned and the document remained
unsigned by the latter. Private respondents filed an
action for specific performance in the Court of First
Instance of Leyte and petitioners filed a motion to
dismiss the complaint on the grounds that the complaint
states no cause of action and/or that the claim alleged
therein is unenforceable under the Statute of Frauds.
Respondent judge ruled negatively; hence this petition.
ISSUE:
Whether or not the plaintiff has a cause of action?
Whether or not there was a perfected contract between
the parties?
RULING: In this respect, the governing legal provision
is, of course, Article 1319 of the Civil Code which
provides:
"ART. 1319. Consent is manifested by the meeting of
the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer
must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind
the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to
have been entered into in the place where the offer was
made."
In the case at bar, 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.
Dictionally, the implication of "to negotiate" is practically
the opposite of the idea that an agreement has been
reached. It does not necessarily connote acceptance of
the price but instead suggests that the details were to
be subject of negotiation.
Contention of the respondent: 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.
Answer: 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. As we see it,
what such allegations bring out in bold relief is that it
was precisely because of their past failure to arrive at
an agreement that petitioners had to put an end to the
uncertainty by writing the letter of July 12, 1978. On the
other hand, that respondents were all the time
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
agreeable to buy the property may be conceded, but
what impresses us is that instead of "absolutely"
accepting the "certain" offer — if there was one— of the
petitioners, they still insisted on further negotiation of
details.
Article 1475 of the Civil Code which provides that "the
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.
35) Enriquez vs. Sun Life Assurance Co., (41
Phil.269)
FACTS: Joaquin Herrera made an application to the Sun
Life Assurance Company of Canada through its office in
Manila for a life annuity. The application was
immediately forwarded to the head office at Montreal,
Canada. On November 26, 1917, the head office gave
notice of acceptance by cable to Manila. On December
18, 1917, Atty. Torres wrote to the Manila office stating
that Herrer desired to withdraw his application. The
following day, the local office replied to Mr. Torres,
stating that the policy has been issued and called
attention to the notification of November 26, 1917. This
letter was received by Mr. Torres on the morning of
December 21, 1917 while Herrer died on December 20,
1917.
ISSUE: WON Herrer received notice of acceptance of his
application
RULING: NO. While the Insurance Act deals with life
insurance, it is silent as to the methods to be followed
in order that there may be a contract of insurance. On
the supposition, therefore, that the special law on the
subject of insurance is deficient in enunciating the
principles governing acceptance, the subject-matter of
the Civil Code, if there be any, would be controlling.
The Civil Code rule, that an acceptance made by letter
shall bind the person making the offer only from the
date it came to his knowledge, may not be the best
expression of modern commercial usage. Still it must be
admitted that its enforcement avoids uncertainty and
tends to security. Not only this, but in order that the
principle may not be taken too lightly, an acceptance of
an offer of insurance not actually or constructively
communicated to the proposer does not make a
contract. Only the mailing of acceptance completes the
contract of insurance, as the locus poienitentise is ended
when the acceptance has passed beyond the control of
the party.
Article 1262 of the Civil Code provides that an
acceptance made by letter shall not bind the person
making the offer except from the time it came to his
knowledge. According to the provisional receipt, three
Page 23 of 67
things had to be accomplished by the insurance
company before there was a contract: (1) There had to
be a medical examination of the applicant; (2) there had
to be approval of the application by the head office of
the company; and (3) this approval had in some way to
be communicated by the company to the applicant.
The further admitted facts are that the head office in
Montreal did accept the application, did cable the Manila
office to that effect, did actually issue the policy and did,
through its agent in Manila, actually write the letter of
notification and place it in the usual channels for
transmission to the addressee. The fact as to the letter
of notification thus fails to concur with the essential
elements of the general rule pertaining to the mailing
and delivery of mail matter namely, when a letter or
other mail matter is addressed and mailed with postage
prepaid there is a rebuttable presumption of fact that it
was received by the addressee as soon as it could have
been transmitted to him in the ordinary course of the
mails. If any one of these elemental facts fails to appear,
it is fatal to the presumption.
36) Laudico vs. Arias, (43 Phil.270)
FACTS: Vicente Arias, with his co-defendants owned a
building. On behalf of all the owners, he wrote a letter
to Laudico giving him an option to lease the building to
a third person, transmitting to him for that purpose a
tentative contract in writing containing the conditions
upon which the proposed lease should be made. Laudico
presented Fred Harden as the party desiring it lease the
building. On one hand, other conditions were added to
those originally contained in the tentative contract, and,
on the other, counter-propositions were made and
explanations requested on certain points in order to
make them clear. No definite agreement having been
arrived at until Laudico, wrote a letter to Arias on March
6, 1919, advising him that all his propositions were
accepted. This was received by Arias by special delivery
at 2:53 pm of that day. On that same day at 11:25 in
the morning, Arias had written a letter to Laudico
withdrawing the offer to lease the building.
ISSUE: WON Arias et al can be compelled to execute
the contract of lease of the building in question
RULING: NO. Under article 1262, paragraph 2, of the
civil Code, an acceptance by letter does not have any
effect until it comes to the knowledge of the offerer.
Therefore, before he learns of the acceptance, the latter
is not yet bound by it and can still withdraw the offer.
Consequently, when Arias wrote Laudico, withdrawing
the offer, he had the right to do so, inasmuch as he had
not yet received notice of the acceptance. And when the
notice of the acceptance was received by Arias, it no
longer had any effect, as the offer was not then in
existence, the same having already been withdrawn.
There was no meeting of the minds, through offer and
acceptance, which is the essence of the contract. While
there was an offer, there was no acceptance, and when
the latter was made and could have a binding effect, the
offer was then lacking. Though both the offer and the
acceptance existed, they did not meet to give birth to a
contract.
There is a doctrine laid down in some decisions to the
effect that ordinarily notice of the revocation of an offer
must be given to avoid an acceptance which may
convert it into a binding contract, and that no such
notice can be deemed to have been given to the person
to whom the offer was made unless the revocation was
in fact brought home to his knowledge.
This, however, has no application in the instant case,
because when Arias received the letter of acceptance,
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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his letter of revocation had already been received. The
latter was sent through a messenger at 11:25 in the
morning directly to the office of Laudico and should have
been received immediately on that same morning, or
least, before Arias received the letter of acceptance. On
this point the Court did not give any credence to the
testimony of Laudico that he received this letter of
revocation at 3:30 in the afternoon of that day.
But even supposing Laudico's testimony to be true, still
the doctrine invoked has no application here. With
regard to contracts between absent persons there are
two principal theories, to wit, one holding that an
acceptance by letter of an offer has no effect until it
comes to the knowledge of the offerer, and the other
maintaining that it is effective from the time the letter
is sent.
The Civil Code, Article 1262 (2), has adopted the first
theory which means that before the acceptance is
known, the offer can be revoked, it not being necessary,
in order for the revocation to have the effect of impeding
the perfection of the contract, that it be known by the
acceptant Q. Mucius Scaevola says apropos: "To our
mind, the power to revoke is implied in the criterion that
no contract exists until the acceptance is known. As the
tie or bond springs form the meeting or concurrence of
the minds, since up to that moment there exists only a
unilateral act, it is evident that he who makes it must
have the power to revoke it by withdrawing his
proposition, although with the obligation to pay such
damages as may have been sustained by the person or
persons to whom the offer was made and by whom it
was accepted, if he in turn failed to give them notice of
the withdrawal of the offer. This view is confirmed by
the provision of article 1257, paragraph 2 concerning
the case where a stipulation is made in favor of a third
person, which provision, which provision authorizes the
contracting parties to revoke the stipulation before the
notice of its acceptance. That case is quite similar to that
under comment, as said stipulation in favor of a third
person (who, for the very reason of being a third person,
is not a contracting party) is tantamount to an offer
made by the makers of the contract which may or may
not be accepted by him, and which does not have any
effect until the obligor is notified, and may, before it is
accepted, be revoked by those who have made it;
therefore, the case being similar, the same rule applies.
37) Marlboro vs. Court of Appeals, (G.R.
No.125761, April 30, 2003)
FACTS: Sometime in January 1990, petitioner sent a
letter of resignation to Senen Valero and requested that
his 1989 incentive compensation as president of
Philtectic Corporation be paid to him. The respondent
accepted petitioner’s resignation and stated that he was
entitled to an incentive compensation in the amount of
P251,057.67 to be satisfied as follows: (1) 1982
Mitsubishi Super saloon car at a value of P220,000.00;
and (2) Membership shares of Tradestar International,
Inc., a subsidiary.
Petitioner was dismayed and told Da Costa that he was
entitled to no less than P395,000 as incentive
compensation. The petitioner refused to sign the letter-
offer and only put the words: “Rec’d original for review
purposes.” Despite the lapse of more than two weeks,
the respondent had not received the original Letter-offer
with the conformity of the petitioner on the space
provided therefor. The respondent decided to withdraw
its March 14, 1990 Offer. On April 3, 1996, the Board of
Directors of the respondent approved a resolution
demanding from the petitioner the return of the car.
Page 24 of 67
The petitioner countered that he cannot comply with
said demand as he already accepted the Letter-offer of
the respondent when he affixed on March 28, 1990 his
signature on the original copy of the letter-offer. The
petitioner enclosed a Xerox copy of the original copy of
the March 14,1990 Offer of the respondent, bearing his
signature on the space provided therefore dated March
28, 1990. He further avers that he had already impliedly
accepted the offer when after said respondent’s offer,
he retained possession of the car. With the refusal of the
petitioner to return the vehicle, the respondent filed a
complaint for recovery of personal property with
replevin with damages and attorney’s fees.
ISSUES:
1. Whether or not there was a valid acceptance on his
part of the March 14, 1990 Letter-offer of the
respondent;
2. Whether or not there was an effective withdrawal by
the respondent of said letter-offer
RULING:
1. NO. Art. 1318. There is no contract unless the
following requisites concur: (a) Consent of the
contracting parties; (b) Object certain which is the
subject matter of the contract; (c) Cause of the
obligation which is established.
Article. 1319. Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.
The acceptance of an offer must be made known to the
offeror, otherwise the contract is not perfected. The
offeror may withdraw its offer & revoke the same before
acceptance by the offeree.
If an offeror prescribes the exclusive manner in which
acceptance of his offer shall be indicated by the offeree,
an acceptance of the offer in the manner prescribed will
bind the offeror.
An acceptance which is not made in the manner
prescribed by the offeror is not effective but constitutes
a counter-offer which the offeror may accept or reject.
The acceptance by the offeree of the offer AFTER
knowledge of the revocation or withdrawal of the offer
is inefficacious.
In this case, the respondent made its offer through
Valero. On March 16, 1990, Da Costa handed over the
original of the March 14, 1990 Letter-offer of the
respondent to the petitioner. The respondent required
the petitioner to accept the offer by affixing his
signature on the space provided in said letter-offer and
writing the date of said acceptance.
However, on March 16, 1990, petitioner did not accept
or reject the same for the reason that he needed time
to decide whether to reject or accept the same.33 There
was no contract perfected between the petitioner and
the respondent corporation.
The petitioner claims that he had affixed his conformity
to the letter-offer on March 28, 1990, BUT he failed to
transmit the said copy to the respondent.
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On April 7, 1990, petitioner notified respondent of his

acceptance of the offer but on April 4, 1990, respondent
had already notified petitioner that it had withdrawn its
offer
Indubitably, there was no contract perfected by the
parties on the March 14, 1990 Letter-offer of the
respondent.
The petitioner's complaint that he was not accorded by
the respondent reasonable time to accept or reject its
offer does not persuade. It must be underscored that
there was no time frame fixed by the respondent for the
petitioner to accept or reject its offer. When the offeror
has not fixed a period for the offeree to accept the offer,
and the offer is made to a person present, the
acceptance must be made immediately.
In this case, the respondent made its offer to the
petitioner when Da Costa handed over on March 16,
1990 to the petitioner its March 14, 1990 Letter-offer
but that the petitioner did not accept the offer. The
respondent, thus, had the option to withdraw or revoke
the offer, which the respondent did on April 4, 1990.
Even if it is assumed that the petitioner was given a
reasonable period to accept or reject the offer of the
respondent, the petitioner had more than two weeks
which was more than sufficient for the petitioner to
accept the offer of the respondent.
"ART. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn any
time before acceptance by communicating such
withdrawal, except when the option is founded upon
consideration as something paid or promised."
Since there was an offer and acceptance, there is
already a contract.
ISSUE:
Was there a perfected contract of sale?
RULING:
Yes. Furthermore, an option is unilateral: a promise to
sell at the price fixed whenever the offeree should
decide to exercise his option within the specified time.
After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He
is free either to buy or not to buy later. In this case,
however, upon accepting herein petitioner's offer a
bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a
purchaser. He did not just get the right subsequently to
buy or not to buy. It was not a mere option then; it was
a bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option
which is not binding for lack of consideration, the
authorities hold that:

"If the option is given without a consideration, it is a

2. YES. Implicit in the authority given to Philtectic
mere offer of a contract of sale, which is not binding
Corporation to demand for and recover from the
until accepted. If, however, acceptance is made before
petitioner the subject car and to institute the
a withdrawal, it constitutes a binding contract of sale,
appropriate action against him to recover possession of
even though the option was not supported by a
the car is the authority to withdraw the respondent's
sufficient consideration. ... . (77 Corpus Juris
March 14, 1990 Letter-offer.
Secundum, p. 652. See also 27 Ruling Case Law 339
and cases cited.)
38) Sanchez vs. Rigor, (45 SCRA 368)
FACTS:
"It can be taken for granted, as contended by the
Rigor is owner of a parcel of land. Sanchez is the
defendant, that the option contract was not valid for lack
prospective buyer. They executed an instrument
of consideration. But it was, at least, an offer to sell,
entitled "Option to Purchase," whereby Mrs. Rigos
which was accepted by letter, and of the acceptance the
"agreed, promised and committed ... to sell" to Sanchez
offerer had knowledge before said offer was withdrawn.
the sum of P1,510.00, a parcel of land situated in the
The concurrence of both acts — the offer and the
barrios of Abar and Sibot, municipality of San Jose,
acceptance — could at all events have generated a
province of Nueva Ecija, and more particularly described
contract, if none there was before (arts. 1254 and 1262
in Transfer Certificate of Title No. NT-12528 of said
of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)
province, within two (2) years from said date with the
understanding that said option shall be deemed
In other words, since there may be no valid contract
"terminated and elapsed," if "Sanchez shall fail to
without a cause or consideration, the promisor is not
exercise his right to buy the property" within the
bound by his promise and may, accordingly, withdraw
stipulated period. Inasmuch as several tenders of
it. Pending notice of its withdrawal, his accepted
payment of the sum of Pl,510.00, made by Sanchez
promise partakes, however, of the nature of an offer to
within said period, were rejected by Mrs. Rigos, on
sell which, if accepted, results in a perfected contract of
March 12, 1963, the former deposited said amount with
sale.
the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for
This view has the advantage of avoiding a conflict
specific performance and damages.
between Articles 1324 — on the general principles on
contracts — and 1479 — on sales — of the Civil Code,
in line with the cardinal rule of statutory construction
Rigor argues that the relevant provision is in the law on
that, in construing different provisions of one and the
sales:
same law or code, such interpretation should be favored
"ART. 1479. A promise to buy and sell a determinate
as will reconcile or harmonize said provisions and avoid
thing for a price certain is reciprocally demandable.
a conflict between the same. Indeed, the presumption
is that, in the process of drafting the Code, its author
An accepted unilateral promise to buy or sell a
has maintained a consistent philosophy or position.
determinate thing for a price certain is binding upon the
Moreover, the decision in Southwestern Sugar &
promisor if the promise is supported by a consideration
Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding
distinct from the price."
that Art. 1324 is modified by Art. 1479 of the Civil Code,
in effect, considers the latter as an exception to the
Since there was no consideration distinct from the price,
former, and exceptions are not favored, unless the
there is no contract.
intention to the contrary is clear, and it is not so, insofar
as said two (2) articles are concerned. What is more,
Sanchez argues that the relevant provision is in the law
the reference, in both the second paragraph of Art. 1479
on obligations and contracts:
and Art. 1324, to an option or promise supported by or
Page 25 of 67
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founded upon a consideration, strongly suggests that
the two (2) provisions intended to enforce or implement
the same principle.
Upon mature deliberation, the Court is of the considered
opinion that it should, as it hereby reiterates the
doctrine laid down in the Atkins, Kroll & Co. case, and
that, insofar as inconsistent therewith, the view adhered
to in the Southwestern Sugar & Molasses Co. case
should be deemed abandoned or modified.
39) Leoquinco vs. Postal Savings (47 Phil. 772)
FACTS:
Plaintiff alleged that he was the highest bidder at a
public auction held by the defendants on March 31,
1924, for the sale of a piece or parcel of land belonging
to the Bank, situated at Navotas, Province of Rizal,
having offered P27,000 for said property; that in
Resolution No. 31 of the board of directors of the Bank,
authorizing the sale of said property at public auction,
as well as in the public notice announcing said sale, the
board of directors have expressly reserved to
themselves the right to reject any and all bids; that as
such highest bidder at said auction, he wrote a letter to
the defendants on May 9, 1924, advising that he was
ready to tender payment for the land as soon as the
deed of sale of the same in his favor is executed and
delivered by the defendants; that the defendants
refused to execute the deed in spite of requests made
therefor by him; that said refusal caused him damages
in the sum of P25,000 more or less. Plaintiff prayed that
said defendants be ordered to execute and deliver the
deed of sale of said land in his favor, and to pay him
damages amounting to P25,000, and the costs.
The defendants answered, admitting the allegations of
the complaint, except the conclusions of law therein set
forth and the damages alleged to have been suffered by
plaintiff. As a special defense, the defendants alleged
that in Resolution No. 31 of the board of directors of the
Postal Savings Bank, authorizing the sale at public
auction of the property in question, as well as in the
notice announcing said sale, the defendants expressly
reserved to themselves "the right to reject any and all
bids," and that they never accepted the bid or offer of
the plaintiff. The defendants prayed for relief from the
complaint, with costs against the plaintiff.
ISSUE:
Is there a perfected contract of sale?
RULING:
No. There is absolutely no merit in this appeal. It may
be summarily disposed of, without need for a discussion
of the errors assigned by appellant's counsel. Appellant
set forth and admitted in his pleadings that in the
resolution adopted by the board of directors authorizing
the sale at public auction of the land, as well as in the
notice announcing the auction, the appellees had
expressly reserved to themselves the right to reject any
and all bids. By taking part in the auction and offering
his bid, the appellant voluntarily submitted to the terms
and conditions of the auction sale, announced in the
notice, and clearly acknowledged the right so reserved
to the appellees. The appellees, making use of that
right, rejected his offer. Clearly, the appellant has no
ground of action to compel them to execute a deed of
sale of the land in his favor, nor to compel them to
accept his bid or offer. "The owner of property offered
for sale at auction has the right to prescribe the manner,
conditions and terms of sale, and where these are
reasonable and are made known to the buyer, they are
binding upon him, and he cannot acquire a title in
opposition to them, and against the consent of the
owner. ..."
Page 26 of 67
40)
Parties
Capacity
41) Mercado and Mercado vs. Espiritu, (37 Phil.
125)
FACTS:
This is a case involving a Deed of Sale of the inherited
land. The buyer is one of the heirs while the seller is the
administrator of the property. It is contended by the
buyer that the sale is void for lack of capacity because
they were minors at that time. However, it was proven
by testimony that they were 18 and 19 at the time of
the sale.
ISSUE:
If the buyers were indeed minors, would there be a valid
contract of sale?
RULING:
Yes. The courts, in their interpretation of the law, have
laid down the rule that the sale of real estate, made by
minors who pretend to be of legal age, when in fact they
are not, is valid, and they will not be permitted to excuse
themselves from the fulfillment of the obligations
contracted by them, or to have them annulled in
pursuance of the provisions of Law 6, title 19, of the 6th
Partida; and the judgment that holds such a sale to be
valid and absolves the purchaser from the complaint
filed against him does not violate the laws relative to the
sale of minors' property, nor the juridical rules
established in consonance therewith. (Decisions of the
supreme court of Spain, of April 27, 1860, July 11,
1868, and March 1, 1875.) itc@alf
With respect to the true age of the plaintiffs, no proof
was adduced of the fact that it was Luis Espiritu who
took out Domingo Mercado's personal registration
certificate on April 13, 1910, causing the age of 23 years
to be entered therein in order to corroborate the date of
the notarial instrument of May 17th of the same year;
and the supposition that he did, would also allow it to
be supposed, in order to show the propriety of the claim,
that the cedula Exhibit C was taken out on February 14,
1914, where in it is recorded that Domingo Mercado was
on that date 23 years of age, for both these facts are
not proved; neither was any proof adduced against the
statement made by the plaintiffs Domingo and Josefa in
the notarial instrument Exhibit 3, that, on the date when
they executed it, they were already of legal age, and,
besides the annotation contained in the copybook
Exhibit A, no supplemental proof of their true ages was
introduced.
Aside from the foregoing, from a careful examination of
the record in this case, it cannot be concluded that the
plaintiffs, who claim to have minors when they executed
the notarial instrument Exhibit 3, have suffered positive
and actual losses and damages in their rights and
interests as a result of the execution of said document,
inasmuch as the sale effected by the plaintiffs' mother,
Margarita Espiritu, in May, 1894, of the greater part of
the land of 21 cavanes of seed, did not occasion any
damage or prejudice to the plaintiffs, inasmuch as their
father stated in the document Exhibit 2 that he was
obliged to mortgage or pledge said remaining portion of
the land in order to secure the loan of the P375
furnished by Luis Espiritu and which was subsequently
increased to P600 so as to provide for certain
engagements or perhaps to meet the needs of his
children, the plaintiff; and therefore, to judge from the
statements made by their father himself, they received
through him, in exchange for the land of 6 cavanes of
seed, which passed into the possession of the creditor
Luis Espiritu, the benefit which must have accrued to
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them from the sums of money received as loans; and,
finally, on the execution of the impugned document
Exhibit 3, the plaintiffs received and divided between
themselves the sum of P400, which sum, added to that
P2,000 received by Margarita Espiritu, and to that of the
P600 collected by Wenceslao Mercado, widower of the
latter and father of the plaintiffs, makes all together the
sum of P3,000, the amount paid by the purchaser as the
price of all the land containing 21 cavanes of seed, and
is the just price of the property, was not impugned, and,
consequently, should be considered as equivalent to,
and compensatory for, the true value of said land.
42) Hermosa vs. Zobel, (104 Phil. 768)
FACTS:
On December 19, 1944, Fernando Hermosa Sr., owner
of certain real estate in San Sebastian Spain, died,
intestate proceedings were instituted in C.F.I. of Samar
for settlement of his estate and his daughter Luz
Hermosa was appointed administratrix daughter Luz
and a grandson Fernando Hermosa Jr. On January 14,
1947, the administratrix requested permission from the
court to sell the property located in Spain with the
consent of her co-heir Fernando Jr., which was to be
made public Auction. The court granted the permission
on April 5, 1943.
October 23, 1947, the administratrix requested
permission to sell the property privately. The court
granted permission to sell property. Alfonso Zobel was
approached for property to buy it but did not wish to
have negotiation with heirs.f.) Luz and Fernando agreed
to have the property ceded and and adjudicated to one
of them who may later carry on negotiation with
prospective buyers. Luz Hermosa, renewed negotiation
the sale of the property to Alfonso Zobel and agreed that
the sale price would be P20,000.00 under the law of
Spain, the property may repurchase the sale price in
Spanish pesetas at the rate of exchange. In order to
protect the investment of the buyer, it was agreed to
state in the deed of sale , the price of P80,000.
Problem arose in connection with the tax that may be
made to pay if the price were fixed at P80,000.00, so it
was agreed that P60,000.00 to be appeared as payment
or has been paid during Japanese occupation.
Thereafter, Luz Hermosa executed the necessary deed
of sale with the remaining balance of P5,000 after the
property had been registered in the name of the vendor.
April 27, 1948, the remainder was in effect paid by
Zobel to Luz Hermosa to complete the transaction. Luz
Hermosa died and Fernando Hermosa Jr. was appointed
as administrator of the estate of his late father. He
demanded from Zobel the payment of the balance of
P60,000 as it was indicated in the deed of sale. Zobel
refused to accede his demand. May 28, 1954, Fernando
Hermosa filed action in CFI of Samar asking for specific
performance or the rescission of sale plus damages, in
his capacity as Judicial Administrator. The court found
the complaint unmeritorious and rendered judgment
dismissing it but ordering the plaintiff to pay the
defendant the sum of P1000 as moral damages and
P500 as attorney’s fees and cost.
ISSUE: Whether or not that the action of rescission of
the contract of sale by the plaintiff is enforceable.
RULING: No, even if it is granted that the plaintiff has
sufficient legal ground to ask for the rescission of the
sale , the fact remains that his right of action has
already prescribed. It appears that he became of age on
January 7, 1948 and he only brought the presentation
on May 28, 1954, or more than four years after the he
attained the age of majority. Under Article 1389 of NCC,
Page 27 of 67
Action for rescission prescribes in four years from
removal of one’s incapacity, and this happened more
than four years ago. We entertain a different opinion
considering that the plaintiff did not take part in the sale
and so he was not aware of the circumstances under
which it was carried out. Apparently he was of the belief
that the real consideration was P80,000 as it was made
to appear in the document and he brought this action in
the belief that defendant has not paid the balance of
P60,000.The decision appealed from is affirmed with
only modification that the award of damages and
attorney’s fees should be eliminated.
43) Braganza vs. Villa (105 Phil. 456)
FACTS:
Petitioners received from Villa Abrille, as a loan, on
October 30, 1944 P70,000 in Japanese war notes and in
consideration thereof, promised in writing (Exhibit A) to
pay him P10,000 "in legal currency of the P. I. 2 years
after the cessation of the present hostilities or as soon
as International Exchange has been established in the
Philippines", plus 2% per annum. Because payment had
not been made, Villa Abrille sued them in March 1949.
Defendants claimed to have received P40,000 only--
instead of P70,000 as plaintiff asserted. They also
averred that Guillermo and Rodolfo were minors when
they signed the promissory note.
ISSUE: Whether or not the petitioner can be held liable
despite the minority of her co-debtor.
RULING: Yes. There can be no question about the
responsibility of Mrs. Rosario L. Braganza because the
minority of her consigners does not release her from
liability; since it is a personal defense of the minors.
However, such defense will benefit her the extent of the
shares for which such minors may be responsible. (Art.
1148, Civil Code). It is not denied that at the time of
signing Exhibit A, Guillermo and Rodolfo Braganza were
minors--16 and 18 respectively. Despite failing to make
known of their minority, Rodolfo and Guillermo
Braganza could not be legally bound by their signatures
in Exhibit A.
Upon the other hand, these minors may not be entirely
absolved from monetary responsibility. In accordance
with the provisions of the Civil Code, even if their written
contract is unenforceable because of non-age, they shall
make restitution to the extent that they may have
protected by the money they received. (Art. 1340)
There is testimony that the funds delivered to them by
Villa Abrille were used for their support during the
Japanese occupation. Such being the case, it is but fair
to hold that they had profited to the extent of the value
of such money, which value has been authoritatively
established in the so-called Ballantine Schedule: in
October 1944, P40.00 Japanese notes were equivalent
to P1 of current Philippine money. Wherefore, as the
share of these minors was 2/3 of P70,000 or
P46,666.66, that should now return P1,166.67. Their
liability, to repeat, is presently declared without regard
of said Exhibit A, but solely in pursuance of Article 1304
of the Civil Code.
44) Frias vs. Esquivel (67 SCRA 487)
FACTS:
Spouses Frias filed for an application to register a
residential lot. The application was opposed by Santiago
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Esquivel, his sisters and the widow of their brother as
legal guardian of the minor children of the latter.
The Esquivels alleged that they inherited pro-indiviso
the subject lot from their parents and while the property
was owned in common one of the co-owners sold the lot
to Frias spouses, who knew that the vendor only owned
a part thereof.
The Court declared the Deed of Sale to Frias spouses as
valid but invalid insofar as to the minor children since
the applicable law at that time was Section 553 of the
Code of Civil Procedure which provided that the parents
is only deemed to be the natural guardian of the minor
children and not of his estate unless appointed by the
court.
By virtue of the decision upholding the validity of the
Deed of Sale, the registration of the subject lot in the
name of Spouses Frias was ordered.
Later on, some of the minor children filed a petition to
reopen the decree of registration on the ground of
extrinsic fraud.
ISSUE: Whether or not extrinsic fraud was present.
RULING: No. To justify the setting aside or review of a
decree of registration under Section 38 of Act No. 496,
the party seeking relief must allege and prove, inter alia,
that the registration was procured through fraud —
actual and extrinsic.
It has been held in this connection that if the fraud
alleged in the petition to set aside the decree is involved
in the same proceedings in which the party seeking
relief had ample opportunity to assert his right, to attack
the document presented by the applicant for
registration and to cross-examine the witnesses who
testified relative thereto, then the fraud relied upon is
intrinsic.
The fraud is extrinsic if it was employed to deprive a
party of his day in court, thus preventing him from
asserting his right to the property registered in the
name of the applicant.
Upon consideration of the facts relied upon by
appellants to justify a review of the decree in question,
we find that the same do not constitute the extrinsic
fraud required as justification for the granting of the
relief sought by them.
45) National Power Corporation vs. National
Merchandising Corp. (117 SCRA 789)
FACTS:
Plaintiff-appellant NPC and defendant-
appellant NAMERCO, the Philippine representative of
New-York based International Commodities
Corporation, executed a contract of sale of sulfur with
stipulation for liquidated
damages in case of breach. Defendant Domestic
Insurance Company executed a performance bond in
favor of NPC to guarantee the seller’s obligation.
It was stipulated in the contract of sale that the seller
would deliver the sulfur at Iligan City within 60 days
from notice of the establishment in its favor of a letter
of credit for $212,120 and that failure to effect delivery
would subject the seller and its surety to the payment
of liquidated damages at the rate of two-fifth of one
percent of the full contract price for the first thirty days
Page 28 of 67
of default and four-fifth of one percent for everyday
thereafter until complete delivery is made.
In entering into the contract, NAMERCO, however did
not disclose to NPC that NAMERCO’s principal, in cabled
instruction, stated that the sale was subject to
availability of a steamer, and contrary to its principal
instruction, Namerco agreed that non-availability of a
steamer was not a justification for non-payment of
liquidated damages.
The New York supplier was not able to deliver the sulfur
due to its inability to secure shipping space.
Consequently, the Government Corporate Counsel
rescinded the contract of sale due to the supplier’s non-
performance of its obligation, and demanded payment
of the liquidated damages from both NAMERCO and the
surety. Thereafter, NPC sued for recovery of the
stipulated liquidated damages. After trial, the Court of
First Instance rendered judgment ordering defendants
to pay solidarily to the NPC reduced liquidated damages
with interest.
ISSUE: WON NAMERCO exceeded their authority.
RULING: YES. SC held that before the contract of sale
was signed, NAMERCO was already aware that its
principal was having difficulties in booking shipping
space. It is being enforced against the agent because
Article 1897 implies that the agent who acts in excess
of his authority is personally liable to the party with
whom he contracted. Moreover, the rule is
complemented by Article 1898 of the CC which provides
that “if the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal
does not ratify the contract, it shall be void if the party
with whom the agent contracted is aware of the limits
of the powers granted by the principal.
In this case, NAMERCO did not disclose to NPC the
cabled or written instructions of its principal. For than
reason and because NAMERCO exceeded the limits of
the authority, it virtually acted in its own name and not
as agent and it is, therefore, bound by the contract of
sale which, however, is not enforceable against its
principal.
Vices of Consent
46) Pangadil vs. CFI (116 SCRA 347)
FACTS: Sometime in 1941, a parcel of land owned by
petitioner's father was conveyed to the private
respondents in an oral transaction. In 1946, petitioner
Salandang Pangadil filed in respondent court an action
praying for her appointment as guardian of her minor
brothers and sisters who are the other petitioners in this
case, to enable her to execute the necessary document
to formalize the verbal sale executed by their father.
The petition was granted and subsequently the
questioned document, entitled "Ratification De Una
Venta", acknowledging the sale made by their deceased
father in favor of private respondent for the
consideration of P750.00 was presented to court for
approval. Upon approval of the document, the
guardianship proceeding was declared closed. On
January 7, 1969, petitioners filed Civil Case No. 2187
seeking the annulment of the aforementioned document
and the declaration of the nullity of the court order
approving said document. They contended that the
transaction was a mortgage and not a sale as claimed
by private respondents. A motion to dismiss was filed
on the grounds that plaintiff's cause of action has
already prescribed and that the same is barred by a
prior judgment. The respondent court declared the
questioned document legal and binding and the action
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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to annul the sale filed more than twenty-one years after
the approval thereof barred by the statute of limitations.
ISSUE: WON the document is void ab initio.
RULING: NO. The supposed inexistence of the
questioned contract is predicated on the allegation of
the petitioners that the execution of the questioned
document was attended by fraud and
misrepresentation. In their complaint filed in the trial
court, they averred that petitioners Salandang Pangadil
and Tinting Pangadil were made to sign the document
on the misrepresentation that it was merely to ratify an
oral contract of mortgage executed by her father during
the latter's lifetime, and not to confirm an oral sale of
the land in question. Assuming, once again, that the
execution of the deed of ratification was attended by
fraud, such circumstance would only make the contract
voidable or annulable (Art. 1309, Civil Code), and not
an inexistent and void contract in accordance with
Article 1409 of the same Code. The action to annul a
voidable contract is not imprescriptible, unlike in the
case of an inexistent contract. If the action to annul a
voidable contract is based on fraud, as in the case
herein, it prescribes in four years from the time of the
discovery of the fraud.
It is equally unbelievable that in the span of time from
December 1941 up to the date that Civil Case No. 2187
was filed on January 7, 1969, a period of more than
twenty-seven years, the petitioners would not have
taken any step to verify the status of the land of their
father which had been in the possession of the private
respondents during all the time, particularly as to the
possibility of redeeming the supposed mortgage their
father had constituted thereon. Their inaction for such a
considerable period of time reflects on the credibility of
their pretense that they merely intended to confirm an
oral mortgage, instead of a sale of the land in question.
There is less legal basis to hold that the questioned
document is inexistent and void ab initio for being
supposedly a simulated or fictitious contract. Under the
law, the simulation of a contract may either be absolute
or relative. It is only when the contract is absolutely
simulated or fictitious that it is deemed void. There is
absolute simulation "when the parties do not intend to
be bound at all." In case the parties merely conceal their
true agreement, the simulation is relative, and the
contract with that defect is binding upon the parties
unless it prejudices a third person and is intended for a
purpose contrary to law, morals, good customs, public
order or public policy. (Arts. 1345 and 1346, Civil Code.)
The document in question may not be deemed
absolutely simulated or fictitious. By petitioners' own
admission, they intended to be bound thereby; they
merely contend that they thought it was to ratify a
contract of oral mortgage, instead of an oral sale of land.
In short, it is not a contract wherein the parties do not
intend to be bound at all which would thereby make it
absolutely simulated and, therefore, void. Petitioners,
accordingly, may not seek umbrage under, the provision
that an action to annul an inexistent contract is
imprescriptible.
47) Dumasug vs. Modelo (34 Phil 252)
FACTS: On June 17, 1912, counsel for Andrea Dumasug
filed a written complaint in the Court of First Instance of
Cebu, in which he alleged that about the month of
November 1911, defendant persuaded plaintiff to sign a
document by falsely and maliciously making her believe
that it contained an engagement on plaintiff's part to
pay defendant a certain amount of money as expenses
by reason of a lawsuit in which Dumasug was one of the
parties. In the document document, plaintiff signed by
affixing her mark thereto, (because she doesn't know
how to write) believing in good faith that defendant had
Page 29 of 67
told her the truth and that said document referred to
the expenses incurred by defendant. Three months after
the execution of said document, defendant took
possession of a carabao belonging to plaintiff and also
of two parcels of land, likewise belonging to her. In spite
of plaintiff's opposition and protests, defendant took
possession of said property and, up to the date of the
complaint, continued to hold possession thereof and to
enjoy the products of the lands and of the labor of the
carabao; and that, by reason of such acts, defendant
had caused loss and damage to plaintiff in the sum of
P1,000.
the court rendered the aforementioned judgment, to
which defendant excepted and by written motion asked
for a reopening of the case and a new trial. This motion
was denied.
The defendant Felix Modelo stated in his sworn
testimony that the sale of the parcels of land and the
carabao was in payment of a debt of P333.49 which the
plaintiff was owing him for money he had advanced her
to maintain two actions against Albarracin and Saniel,
which sum plaintiff had borrowed of him in small
amounts, and that these sums of money were expended
by plaintiff in the payment of attorney's fees. The
defendant in the case at bar, Felix Modelo, is neither an
attorney nor a procurador judicial, and the record does
not show that he acted as an attorney, procurador
judicial, or friend of Andrea Dumasug in the case
brought by the latter in the justice of the peace court of
Argao, or in the said case No. 1211, prosecuted in the
Court of First Instance of Cebu.
ISSUE: WON the instrument of purchase and sale of
two parcel of land and a plow carabao is null and void?
RULING: Plaintiff stated that she had never sold her
lands or her carabao to defendant; that she neither
offered to sell them to defendant, nor did the latter offer
to buy them from her; that if defendant was now in
possession of her two parcels of land and her carabao.
She also stated that she signed only one document in
favor of the defendant Felix
Modelo, which was that in which she acknowledged she
owed him the sum of P101.
It is evident that the document to which the defendant
anchors his ownership of the properties is not the
instrument of debt which the plaintiff had signed, and if
it is the same, one of its content were not duly and
faithfully explained to the plaintiff in the act of its
execution. In either case, the consent said to have been
given by Andrea Dumasug in said document Exhibit 1 is
null and void, as it was given by mistake (arts. 1265 and
1266, Civil Code). This error invalidates the contract,
because it goes to the very substance of the thing which
was the subject matter of said contract, for, had the
maker thereof truly understood the contents of said
document, she would neither have accepted nor
authenticated it by her mark. If Exhibit 1 is the
document signed by her, it is undeniable that she was
deceived in order to obtain her consent thereto, and if
the document which she signed is different from the one
now presented as Exhibit 1, then this latter has no value
whatever, for the reason that it is not the one which, of
her own free will, she authenticated with her mark.
48) Luna vs. Linatoc, (74 Phil.15)
Note: wala juy full text ani. Syllabus ra sa case ang
naa sa CD Asia. Gikuha rani nako from a digest
online.
FACTS:
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
The wife sold a portion of their conjugal property to the
respondent. The parcel of land was the husband’s
portion of the conjugal property. The wife, with the
knowledge and consent of the husband, sold the lot to
the respondent as evidenced by the deed of sale and the
deed of recognition wherein the husband recognized and
reiterated his acquiescence to the sale. Such sale was
prohibited by Art 1432 because partitioning the conjugal
property during marriage can only be done if there was
a judicial separation of property, or else it would be
illegal and void. The sale can only be valid if the land
was sold under the name of the conjugal partnership
and not of the husband only. The spouses (petitioners)
now assail the validity of the sale claiming that they do
not know of such prohibition.
ISSUE:
Whether or not the contract of sale is void
RULING:
NO. Mistake of law does not make a contract voidable,
because ignorance of the law does not excuse anyone
from its compliance (art. 2, Civil Code; 8 Manresa, 646,
2d ed.). That the petitioners did not know the
prohibition against partition of the conjugal partnership
property during marriage (art. 1432, Civil Code) is no
valid reason why they should ask for the annulment of
the sales made in Exhibits C and D and recognized in
Exhibit I.
Moreover, there is the time-honored legal maxim that
no man can take advantage of his own wrong. To
repudiate the sales in question, petitioners are setting
up their own wrongful act of partitioning their conjugal
property, which violated article 1432 of the Civil Code.
The prohibition in said article affects public policy, as it
is designed to protect creditors of the conjugal
partnership and other third persons. Petitioners shall
not, therefore, be allowed thus to rest their cause of
action to recover the lands sold, upon the illegality of
the partition which they attempted to make. Otherwise,
they would profit by their own unlawful act.
49) Constantino vs. CA, (264 SCRA 59)
FACTS:
This involves a parcel of land owned by Josefa Torres
who died intestate. Among her heirs are respondents.
Sometime in 1984, the heirs of Josefa Torres, as
vendors, and petitioner Nelia A. Constantino, as vendee,
entered into a contract to sell a parcel of land with a
total land area of (250) square meters. Pursuant to their
agreement, the heirs authorized petitioner to prepare
the necessary Deed of Extrajudicial Settlement of Estate
with Sale. After having the document drafted — with
several spaces left blank including the specification as
to the metes and bounds of the land — petitioner asked
the heirs to affix their signatures on the document. The
heirs signed the document with the understanding that
respondent Aurora S. Roque, one of the heirs, would be
present when the latter would seek permission from the
Bureau of Lands and have the land surveyed. However,
without the participation of any of the Torres heirs, the
property was subsequently surveyed, subdivided and
then covered by TCT
Petitioner did not furnish the heirs with copies of the
Deed of Extrajudicial Settlement of Estate with Salenor
of the subdivision plan and the certificates of title. Upon
securing a copy of the deed from the Registry of Deeds,
the respondents learned that the area of the property.
purportedly sold to petitioner was much bigger than that
agreed upon by the parties. Respondents sent a letter
Page 30 of 67
to petitioner demanding the surrender to them of the
deed of settlement and conveyance, the subdivision
plan and the certificates of title; but to no avail.
Respondents filed with the an action for annulment of
the deed and cancellation of the certificates of title.
Petitioner controverted the allegations of respondents
by presenting the Deed of Extrajudicial Settlement of
Estate with Sale wherein respondents agreed to divide
and adjudicate among themselves the inherited
property. In reply, private respondents reiterated that
all the heirs signed the document before the land was
surveyed and subdivided, hence, there was as yet no
definite area to be sold that could be indicated in the
deed at the time of the signing. They also claimed that
they were not notified about the survey and the
subdivision of the lot and therefore they could not have
agreed on the area supposedly sold to petitioner.
ISSUE:
Whether or not the Deed of Extrajudicial Settlement of
Estate with Sale can be annulled.
RULING:
YES. There was as yet no meeting of the minds on the
land area to be sold since private respondents were still
awaiting the survey to be conducted on the premises.
Respondents as reflected in their demand letter that
they did not give their consent to the sale. When
respondents affixed their signatures on the deed, it was
still incomplete since petitioner who caused it to be
prepared left several spaces blank, more particularly as
regards the dimensions of the property to be sold. The
heirs were persuaded to sign the document only upon
the assurance of petitioner that respondent Roque,
pursuant to their understanding, would be present when
the property would be surveyed after obtaining
permission from the Bureau of Lands. Apparently,
petitioner deceived respondents. Another compelling
reason for the annulment of the document of settlement
and conveyance is that the second page thereof clearly
manifests that the number of the subdivision plan and
the respective areas of Lots 4-A and 4-B were merely
handwritten while all the rest of the statements therein
were typewritten, which leads us to the conclusion that
handwritten figures thereon were not available at the
time the document was formalized.
50) Songco vs. Sellner (37 Phil. 254)
FACTS:
Federico Songco, a man of scant education being only a
first grader, owned a private jeepney, which was
covered by a common carrier’s liability insurance by the
Fieldman’s Insurance Co. The contract was procured by
the company’s agent, who induced Federico to have the
vehicle insured, although it was NOT a COMMON
CARRIER, but a private one. In fact, the 42-year-old son
of Federico had misgivings, for the vehicle was merely
for private use. The agent assured Federico, however,
that the contract was valid. Sometime later, the vehicle
was involved in a collision, resulting in death to Federico
and one of his sons, and physical injuries to two others.
When the surviving widow and other children sued the
Company under the terms of the contract, the latter
alleged that the same was not valid, for it was not a
common carrier. The principal defense in this action for
specific performance relates to the false representation
which, it is claimed, was made by the plaintiff Songco
with respect to the quantity of uncut cane standing in
the fields at the time the defendant Sellner became the
purchaser thereof. It is proved that Songco estimated
that the crop would yield 3,000 piculs of sugar. As the
crop turned out, it produced only 2,017 piculs of sugar.
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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The question now is whether such representation of the
plaintiff- vendor is fraudulent, which, under Art. 1338,
would invalidate the contract. Holding that such
representation can only be considered as a mere
expression of an opinion.
ISSUE:
Whether or not the company is liable.
RULING:
YES. The Company is liable on account of estoppel.
Moreover, the contract of insurance is one of perfect
good faith (uberrima fides) not for the insured alone,
but equally so for the insurer; in fact, it is more so for
the latter, since its dominant bargaining position carries
with it stricter responsibility. “It is of course elementary
that a misrepresentation upon a mere matter of opinion
is not an actionable deceit, nor is it a sufficient ground
for avoiding a contract as fraudulent. We are aware that
statements may be found in the books to the effect that
there is a difference between giving an honest opinion
and making a false representation as to what one’s real
opinion is. We do not think, however, that this is a case
where any such distinction should be drawn. “The law
allows considerable latitude to seller’s statement, or
dealer’s talk, and experience teaches that it is
exceedingly risky to accept it at its face value. The
refusal of the seller to warrant his estimate should have
admonished the purchaser that such estimate was put
forth as a mere opinion; and we will not now hold the
seller to a liability equal to that which would have been
created by a warranty, if one had been given.
“Assertions concerning the property which is the subject
of a contract of sale, or in regard to its qualities and
characteristics, are the usual and ordinary means used
by sellers to obtain high price and are always
understood as affording to buyers no ground for
omitting to make inquiries. A man who relies upon such
an affirmation made by a person whose interest might
so readily prompt him to exaggerate the value of his
property does so at his peril and must take the
consequences of his own imprudence.’’
51) Rural Bank of Caloocan, Inc. v. Court
Appeals, G.R. No. L-32116, [April 21, 1981]
FACTS:
Maxima Castro, 70 years old, ignorant and
unlettered, obtained a P3,000.00 loan from petitioner
bank with the help of Severino Valencia who arranged
everything regarding the loan and supplied the bank
with the personal data required for her loan. On the
same date Castro got her loan, the Valencia spouses
also obtained a P3,000.00 loan from petitioner and
caused Castro to affix her signature as co-maker in their
promissory note. The two loans were secured by a real
estate mortgage on Castro's house and lot.
Consequently, the mortgage was extra-judicially
foreclosed and the property sold at public auction on the
day following the scheduled date which was declared a
special public holiday. In the meantime, Castro had filed
a complaint against petitioners, among others, claiming
that the Valencias had fraudulently induced her to sign
as co-maker and to constitute a mortgage on her
property to secure the spouses's loan. Castro deposited
with the Clerk of Court the amount of P3,383.00 in full
payment of her personal P3,000.00 loan plus interest.
The trial Court declared void: (I) the questioned
promissory note as against Castro; (2) the mortgage
contract in so far as it exceeded Castro's personal loan;
and (3) the extra-judicial foreclosure sale of Castro's
property. The trial Court also ordered the application of
the amount deposited by Castro to her personal loan
Page 31 of 67
plus interest. The Court of Appeals affirmed the
decision. Hence, this petition
ISSUE:
1. WON the promissory note is invalid in so far as it
affect respondent Castro vis-à-vis petitioner bank?
2. WON the mortgage contract is valid?
RULING:
RULING: 1. The promissory note signed by Castro
was tainted with fraud perpetuated on her by the
Valencias who had abused her confidence by taking
advantage of her old age and ignorance of her financial
need. A contract may be annulled on the ground of
vitiated consent, if deceit by a third person, even
without connivance or complicity with one of the
contracting parties, resulted in mutual error on the part
of the parties to the contract. The mandate of fair play
decrees that she should be relieved of her obligation
under the contract" pursuant to Articles 24 and 1332 of
the Civil Code. The decision declared the Valencias
solely responsible for the defraudation of Castro.
Petitioners' contention that the decision was silent
regarding the participation of the bank in the fraud is,
therefore, correct. We cannot agree with the contention
of petitioners that the bank was defrauded by the
Valencias. For, one, no claim was made on this in the
lower court. For another, petitioners did not submit
proof to support its contention. On the contrary, it is
demanded of petitioners to exercise the highest order of
care and prudence in its business dealings with the
Valencias considering that it is engaged in a banking
business ¾ a business affected with public interest. It
should have ascertained Castro's awareness of what she
was signing or made her understand what obligations
she was assuming, considering that she was giving
accommodation to, without any consideration from, the
Valencia spouses.
2. Aforesaid sale is null and void, it not having been
carried out in accordance with Section 9 of Act No. 3135.
We agree with respondent court. The pretermission of a
holiday applies only where the day, or the last day for
doing any act, required or permitted by law falls on a
holiday," or when the last day of a given period for doing
an act falls on a holiday. It does not apply to a day fixed
by an office or officer of the government for an act to be
done, as distinguished from a period of time within
which an act should be done, which may be on any day
within that specified period. Since April 10, 1961 was
not the day or the last day set by law for the
extrajudicial foreclosure sale, nor the last day of a given
period, but a date fixed by the deputy sheriff, the
aforesaid sale cannot legally be made on the next
succeeding business day without the notices of the sale
on that day being posted as prescribed in Section 9, Act
No. 3135.
52) Asiain v. Jalandoni, G.R. No. 20435,
[October 23, 1923]
FACTS:
The parties agreed upon the sale of the land there
in question, they had in mind chiefly the area and
quality of the land, the subject of the contract, as will
be seen from the letter of Asiain dated May 6, 1920, in
which, among other things, Purchase of land of Mr. Luis
Asiain and his wife Maria Cadenas, by B. Jalandoni,
containing 25 hectares more or less of land bounded by
property of the purchaser, with its corresponding crop,
estimated at 2,000 piculs, the total value of which is 55
thousand. The price is to be paid by paying 30 thousand
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
at the signing of the document, and 25 thousand within
one year with interest at the rate of 10 per cent.” In
accordance with the foregoing memorandum the deed
of sale was executed in the City of Iloilo, the parties
stipulating among other things, the following: “(1) That
Luis Asiain does hereby promise and bind himself to sell
to Benjamin Jalandoni a parcel of land of the hacienda
“Maria” of the aforesaid Luis Asiain, situated in the
municipality of La Carlota, Province of Occidental
Negros, P.I. “(2) That Benjamin Jalandoni does hereby
promise and bind himself to purchase the aforesaid
parcel of land in the sum of P55,000 upon certain
conditions specified in a memorandum signed by the
parties which is in the hands of Attorneys Padilla &
Treñas.” Jalandoni then took possession of the land,
milled the cane at La Carlota Central, from which he
realized 800 piculs and 23 cates of the centrifugal sugar.
And after he had secured from Asiain the certificate of
title, he had a surveyor measure the land, which was
found to contain only 18 hectares, 54 centares, and 22
centares. Jalandoni had paid P30,000 leaving an unpaid
balance of P25,000 of the purchase price of P55,000
stipulated in the contract. Asiain sued to recover the
balance from Jalandoni. The competent court declared
the deed of sale void, absolved the defendant from
paying P25,000 and ordered the parties to return what
they had received under the contract.Upon Appeal to
the Supreme Court, the judgment was affirmed on the
ground that both parties had acted by a mutual mistake
ISSUE:
WON the buyer and seller misrepresented each
other or committed an error.
RULING:
YES. Article 1343 states that misrepresentation
made in good faith iss not fraudulent but may constitute
error. Both parties committed mutual errors. The vendor
undertook to deliver to the vendee a parcel of land some
25 hectares in area and of such a quality as to be able
to produce 2,000 piculs of centrifugal sugar. The
vendee, in turn, agreed to buy said parcel of land with
the understanding that it contained that area and was
of the quality guaranteed by the vendor. Inasmuch as
the land had neither the area nor the quality the vendor
had assured the vendee it had, it is clear the latter was
entitled to rescind the contract, upon the strength of the
authorities cited in the opinion of the court. We believe
that Jalandoni was entitled to rescind that contract,
inasmuch as the vendor did not deliver a parcel of land
of the area and quality stipulated in the contract.
Wherefore, the defendants are absolved from the
complaint. The ultimate result is to put the parties back
in exactly their respective positions before they became
involved in the negotiation and before accomplishment
of the agreement. This was the decision of the trial
judge and we think that decision conforms to the facts
and the principles of equity.
53) Tankeh v. Development Bank of the Phils.,
G.R. No. 171428, [November 11, 2013],
FACTS:
Sometime in 1980, Alejandro was approached by
his brother, Ruperto (president of SSL) informing him
that the latter was operating a new shipping line
business and offered him 1000 shares worth P1M to be
a director of the business. Alejandro accepted the offer
based on the promised that he be part of the admin staff
so that he can oversee the operation of the business
Page 32 of 67
plus his son, who is a practicing lawyer would be given
a position in the company.
A loan was applied from DBP for financing of an
ocean-going vessel with the conditions that the first
mortgage is obtained over the vessel, the future
earnings of the mortgage including proceeds should be
assigned to DBP and DBP is assigned to no less than
67% of the voting shares of the company. Alejandro
signed the Assignment of Shares of Stock with Voting
Rights and the promissory note making him liable jointly
and severally for the amount of the loan. After the
vessel is acquired, a deed of assignment was executed
in favor of DBP. On 1983, upon realizing that he was
only being made a tool to realize the purposes of
Ruperto, Alejandro officially informed the company by
means of letter that he has severed his connection with
the company and asking the board to pass a resolution
to released him from his liabilities with DBP and notify
the latter about this.
On 1986, the account of SSL in the DBP were transferred
to Asset Privatization Trust by virtue of Presidential
Proclamation No. 50. The asset including loan in favor
of DBP were ordered to be transferred to the national
government. Despite the assignment and cash equity
contribution of SSL to cover part of the acquisition cost
of the vessel and the like, the promissory note still
subsisted. Hence, Alejandro is still bound as a debtor
because of the promissory note.
Petitioner contends that the promisorry note must be
declared as null and void and he be absolved from any
liability. Ruperto exercised deceit and fraud in causing
him to bind himself jointly and severally to pay DBP the
amount of the mortgage loan. All the money supposedly
invested by him were put by Ruperto, hence he had
never invested any money. He was invited to attend the
board meeting only once and he was never
compensated by SSL for being called director and
stockholder. None of the promises of Ruperto was
complied with.
ISSUE:
WON the fraud perpetrated by Ruperto is serious
enough to warrant annulment of the contract?
RULING:
No. Only incidental fraud exists in this case.
Therefore it is not sufficient to warrant the annulment
of the contracts petitioner entered into but respondent
Ruperto is liable to pay him damages. The distinction
between fraud as a ground for rendering a contract
voidable or as basis for an award of damages is provided
in Article 1344: In order that fraud may make a contract
voidable, it should be serious and should not have been
employed by both contracting parties. Incidental fraud
only obliges the person employing it to pay damages.
There are two types of fraud contemplated in the
performance of contracts: dolo incidente or incidental
fraud and dolo causante or fraud serious enough to
render a contract voidable. If there is fraud in the
performance of the contract, then this fraud will give
rise to damages. If the fraud did not compel the
imputing party to give his or her consent, it may not
serve as the basis to annul the contract, which exhibits
dolo causante. However, the party alleging the
existence of fraud may prove the existence of dolo
incidente. This may make the party against whom fraud
is alleged liable for damages.
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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Article 1340 of the Civil Code recognizes the reality of
some exaggerations in trade which negates fraud. It
reads: The usual exaggerations in trade, when the
other party had an opportunity to know the facts, are
not in themselves fraudulent.
Given the standing and stature of the petitioner, he was
in a position to ascertain more information about the
contract. The following facts show that petitioner was
fully aware of the magnitude of his undertaking: First,
petitioner was fully aware of the financial reverses that
SSL had been undergoing, and he took great pains to
release himself from the obligation. Second, his
background as a doctor, as a bank organizer, and as a
businessman with experience in the textile business and
real estate should have apprised him of the irregularity
in the contract that he would be undertaking. This
meant that at the time petitioner gave his consent to
become a part of the corporation, he had been fully
aware of the circumstances and the risks of his
participation. Intent is determined by the acts. Finally,
the records showed that petitioner had been fully aware
of the effect of his signing the promissory note. The bare
assertion that he was not privy to the records cannot
counteract the fact that petitioner himself had admitted
that after he had severed ties with his brother, he had
written a letter seeking to reach an amicable settlement
with respondent Rupert. Petitioner’s actions defied his
claim of a complete lack of awareness regarding the
circumstances and the contract he had been entering.
The required standard of proof – clear and convincing
evidence – was not met. There was no dolo causante or
fraud used to obtain the petitioner’s consent to enter
into the contract. Petitioner had the opportunity to
become aware of the facts that attended the signing of
the promissory note. He even admitted that he has a
lawyer-son who the petitioner had hoped would assist
him in the administration of Sterling Shipping Lines, Inc.
The totality of the facts on record belies petitioner’s
claim that fraud was used to obtain his consent to the
contract given his personal circumstances and the
applicable law.
However, in refusing to allow petitioner to participate in
the management of the business, respondent Ruperto
V. Tankeh was liable for the commission of incidental
fraud. In Geraldez, this Court defined incidental fraud
as "those which are not serious in character and without
which the other party would still have entered into the
contract. Although there was no fraud that had been
undertaken to obtain petitioner’s consent, there was
fraud in the performance of the contract.
Simulation of Contracts
54) Gardner vs. CA (131 SCRA 585)
FACTS:
A chain of successive transfers of real property, five in
all, is involved.
On November 27, 1961, the GARDNERS and the
spouses Ariosto SANTOS and Cirila Serrano
(SANTOSES) entered into an agreement for the
subdivision of the two parcels, with the SANTOSES
binding themselves to advance to the GARDNERS the
amount of P93.000.00 in installments.
For the protection of both parties they executed the
following documents all on the same date and referring
to the same parcels of land:
1) Absolute Deed of Sale in favor of the SANTOSES (the
First Transfer, considering the nature of the document);
Page 33 of 67
2) Subdivision Joint Venture Agreement; and 3)
Supplemental Agreement.
Despite the "sale,", the GARDNERS were still
denominated in the Subdivision Joint Venture
Agreement and in the Supplemental Agreement as
"owners" and Ariosto SANTOS merely as "broker". It
appears from the evidence that the sale to the
SANTOSES was one "in trust" for the protection of the
SANTOSES who had obligated themselves to give cash
advances to the GARDNERS from time to time.
MOREOVER, on December 5, 1961, new titles were
issued in favor of the SANTOSES (First Transfer).
Unknown to the GARDNERS, in 1964, the SANTOSES
transferred Lot No. 1426-New to Jose Cuenca, married
to Amanda Relova (JOSE CUENCAS), and on June 15,
1964, Lot No. 4748-New to Juan Cuenca, married to
Soledad Advincula (JUAN CUENCAS) (jointly, the
Second Transfer). Titles were thereafter issued in their
respective names.
Upon learning of the transfer of the properties to the
CUENCAS, petitioner Ruby GARDNER, caused the
inscription of an Adverse Claim on the titles of the
CUENCAS with the Register of Deeds of Laguna.
In 1966, the JUAN CUENCAS and the JOSE CUENCAS,
respectively, transferred the lots to Michael VERROYA,
an office assistant of Ariosto SANTOS (the Third
Transfer). Titles were issued in VERROYA's name with
the Adverse Claim carried over.
In 1967, VERROYA constituted a mortgage on both lots
in favor of Anita Nolasco and Rosario Dalma, which
encumbrance was registered on the existing titles. Also,
VERROYA executed a deed of transfer of the properties
to respondent Deogracias Natividad, married to Juanita
Sanchez (the NATIVIDADS) (the Fourth Transfer).
In the same year, the NATIVIDADS transferred the lots
to Ignacio Bautista and Encarnacion de los Santos (the
BAUTISTAS (the Fifth Transfer). No titles were issued
to the BAUTISTAS.
It should be noted that from the titles of the CUENCAS
(the Second Transferees) to the titles of the
NATIVIDADS (the Fourth Transferee), the Adverse
Claim of the GARDNERS continued to be carried, and
that throughout the successive transfers, or over a span
of approximately six years, the GARDNERS continued to
remain in possession, cultivation and occupation of the
disputed properties.
The GARDNERS then filed a suit in 1969 for "Declaration
of Nullity, Rescission and Damages" against the Five
Transferees, including the mortgagees, praying for the
declaration of nullity of all the Five Transfers and the
cancellation of all titles issued pursuant thereto on the
ground that they were all simulated, fictitious, and
without consideration.
In their Answer, the SANTOSES claimed, in brief, that
the sale to them was conditional in the sense that the
properties were to be considered as the investment of
the GARDNERS in the subdivision venture and that in
the event that this did not materialize they were to
reconvey the lots to the GARDNERS upon
reimbursement by the latter of all sums advanced to
them; and that the deed of sale was to be registered for
the protection of the SANTOSES considering the moneys
that the latter would be advancing.
Regional Trial Court (RTC)
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The RTC rendered judgment in favor of the GARDNERS
declaring as null and void the five transfers; rescinding
the Subdivision Joint Venture Agreement as well as the
Supplemental; authorizing the cancellation of the
corresponding titles issued pursuant to the deeds of sale
and the issuance of new ones in favor of the GARDNERS;
ordering the deletion from the titles of the mortgage
executed by VERROYA; and requiring the Five
Transferees but not mortgagees, to pay the GARDNERS
P90.000.00 actual damages, P5.000.00 exemplary
damages, and to pay the costs.
Court of Appeals (CA)
As far as the NATIVIDADS are concerned, the CA
declared the sale of the land to them as valid as well as
the titles issued pursuant thereto.
ISSUE:
Whether or not the CA erred in ruling that the sales of
the questioned properties from the GARDNERS to the
BAUTISTAS are not null and void ab initio?
RULING:
Yes. The Supreme Court (SC) held that the First
Transfer in favor of the SANTOSES was "indubitably
established" to have been without consideration and
is, therefore, void and inexistent. That sale was
executed merely as a means of protection to the
SANTOSES for their promised cash advances to the
GARDNERS in one year in the sum of P93.000.00. Added
to this is the admission against his own interest by
Ariosto SANTOS that the GARDNERS did not receive
from him any consideration, thereby corroborating the
declarations of the GARDNERS. The Subdivision Joint
Venture Agreement and the Supplemental Agreement
eloquently express that the true and real nature of the
agreement between the GARDNERS and the SANTOSES
was for a subdivision and not a sale transaction.
The SC also ruled that the Second Transfer to the
CUENCAS was fictitious and simulated for not having
been supported with any consideration. By his own
admission, Ariosto SANTOS transferred to the
CUENCAS, who are his "compadres", the disputed
properties, together with others that he owned, merely
to conceal his ownership and "to protect them from
persons who had filed suits against him and were
running after the properties registered in his name. The
subsequent registration of the adverse claim on their
titles, therefore, could not but serve as notice and
warning to all subsequent buyers that someone was
claiming an interest in the properties or a better right
than the registered owners.
The Third Transfer in favor of VERROYA was similarly
without consideration and, therefore, void ab initio.
The evidence on record shows that Ariosto SANTOS
himself caused the execution of the deeds of sale favor
of VERROYA, who is SANTOS' office manager in his
brokerage business. The only purpose of the transfer
was to enable VERROYA to secure for SANTOS a loan
with the Veterans Bank so much so that when the
documents of sale were signed by the CUENCAS in their
respective houses in favor of VERROYA, the latter was
not even present. Also significant is the fact that
Verroya was declared in default and had not even
bothered to resist the suit, which he would have done if
the sale transaction were genuine.
On equal footing is the Fourth Transfer from VERROYA
to private respondents NATIVIDADS. It was SANTOS
who had caused the preparation of the deed of sale in
favor of the NATIVIDADS after sensing that VERROYA
Page 34 of 67
was not inclined to return the title to the properties.
Deogracias NATIVIDAD was SANTOS' close and trusted
"compadre", who agreed to put the titles in his
(NATIVIDAD's) name because of the pending cases
against SANTOS. The amount of P80.000.00 stated in
the document of sale was not actually paid by the
NATIVIDADS to VERROYA, according to SANTOS' own
testimony. The latter further declared that VERROYA
was only coerced to sign the deeds after he was boxed
by NATIVIDAD in SANTOS' office. That coercion did exist
is shown by VERROYA's telegram to the Register of
Deeds of Laguna to dishonor any transaction involving
the subject properties.
The Fifth Transfer to the BAUTISTAS partook of the
same nature — a simulated and fictitious
transaction, for being without consideration, as shown
by the evidence. Added proof of the fictitiousness of the
chain of transfers is that fact that, notwithstanding the
same, the GARDNERS remained in actual possession,
cultivation and occupation of the disputed lots
throughout the entire series of transactions. As
concluded in the original Decision of respondent Court,
all Five Transfers starting from that of the
SANTOSES down to the NATIVIDADS, were
absolutely simulated and fictitious and were,
therefore, void ab initio and inexistent.
Contracts of sale are void and produce no effect
whatsoever where the price, which appears therein as
paid, has, in fact, never been paid by the purchaser to
the vendor. Such sales are inexistent and cannot be
considered consummated.
55) Laganda vs. CA (G.R. No. 55999, August
24, 1984)
FACTS:
Clemencia Aseneta, a spinster who retired as Division
Superintendent had a nephew named Bernardo
Aseneta, the child of her sister Gloria, and a niece
named Salvacion, the daughter of her sister Flora. She
legally adopted Bernardo in 1961.
On a single date, April 6, 1974, Clemencia, then 78
years old, signed nine (9) deeds of sale in favor of
Salvacion, for various real properties. One deed of sale
concerned the said Paco property, administered by
Agustin and Salvacion (spouses Ladanga) which
purportedly was sold to Salvacion for P26.000.00. The
total price involved in the 9 deeds of sale and in the 10th
sale executed on November 8, 1974 was P92.200.00.
The deed of sale for the Paco property was signed in the
office of the Quezon City registry of deeds. In May 1975,
Bernardo, as guardian of Clemencia, filed an action for
reconveyance of the Paco property, accounting of the
rentals and damages, with the CFI Manila. Clemencia
was not mentally incompetent but she was placed under
guardianship because she was an easy prey for
exploitation and deceit.
Clemencia testified and denied having “received even
one centavo” of the price of P26.000.00, much less the
P92.000.00 This testimony was corroborated by
Soledad Maninang, 69, a dentist with whom Clemencia
had lived for more than 30 years. The Notary Public
stated that he did not see Salvacion hand any money to
Clemencia for the purported sale when the deed was
signed in the Registry of Deeds.
The Trial Court declared void the sale of the Paco
property.
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Moreover, when Clemencia died, she allegedly
bequeathed her properties in a holographic will to
Doctor Maninang. In that will, she disinherited
Bernardo. The will was presented for probate.
On appeal, the Court of Appeals (CA) affirmed the
decision of the Trial Court and ordered the Register of
Deeds to issue a new title to Clemencia, and ordered the
spouses to pay Clemencia’s estate P2.000.00 as moral
and exemplary damages and attorney’s fees.
ISSUE:
Whether or not the alleged sale by Clemencia to
Salvacion is void?
RULING:
Yes. Clemencia herself testified that the price of
P26.000.00 was not paid to her. Spouses Ladanga was
not able to prove the contrary. Also, the notary testified
that the deed of sale for the Paco property was signed
in the office of the Quezon City Registry of Deeds. He
did not see Salvacion giving any money to Clemencia.
As spouses Ladanga was not able to prove the payment
of that amount, thus the sale was fictitious.
Moreover, Clemencia did not intend to donate the Paco
property to spouses Ladanga. Her testimony and the
notary’s testimony destroyed any presumption that the
sale was fair and regular and for a true consideration. It
seemed that spouses Ladanga abused Clemencia’s
confidence and defrauded her of properties with a
market value of P393.559.25 when she was already 78
years old.
Void contract in the absence of price being paid;
sale inexistent and cannot be considered
consummated
A contract of sale is void and produces no effect
whatsoever where the price, which appears therein as
paid, has in fact never been paid by the purchaser to
the vendor.
Object (1347-1349)
56) Yu Tek & Co. vs. Gonzales (29 Phil. 384)
DOCTRINE: There is a perfected sale with regard to the
“thing” whenever the article of sale has been physically
segregated from all other articles.
FACTS:
Respondent Gonzalez (respondent) received P3.000.00
from petitioner Yu Tek and Co. (petitioner) and in
exchange, the former obligated himself to deliver 600
piculs of sugar of the first and second grade, according
to the result of the polarization, within the period of
three months. It was also stipulated that in case
Gonzales fails to deliver, the contract will be rescinded
he will be obligated to return the P3.000.00 received
and also the sum of P1.200.00 by way of indemnity for
loss and damages.
The petitioner proved that no sugar had been delivered
to him under the contract nor had he been able to
recover the P3.000.00.
Page 35 of 67
The respondent assumed that the contract was limited
to the sugar he might raise upon his own plantation;
that the contract represented a perfected sale; and that
by failure of his crop he was relieved from complying
with his undertaking by loss of the thing due.
ISSUES:
1)Whether or not the compliance of the obligation to
deliver depends upon the production of respondent’s
plantation?
2)Whether or not there was a perfected contract of sale?
(Relevant)
RULING:
First ISSUE: The case appears to be one to which the
rule which excludes parol evidence to add to or vary the
terms of a written contract is decidedly applicable. There
is not the slightest intimation in the contract that the
sugar was to be raised by the respondent. Parties are
presumed to have reduced to writing all the essential
conditions of their contract. While parol evidence is
admissible in a variety of ways to explain the meaning
of written contracts, it cannot serve the purpose of
incorporating into the contract additional
contemporaneous conditions which are not mentioned
at all in the writing, unless there has been fraud or
mistake.
It may be true that the respondent owned a plantation
and expected to raise the sugar himself, but he did not
limit his obligation to his own crop of sugar.
As concluded by the Supreme Court (SC), the condition
which the defendant seeks to add to the contract by
parol evidence cannot be considered. The rights of the
parties must be determined by the writing itself.
Second ISSUE: No. This Supreme Court (SC) has
consistently held that there is a perfected sale with
regard to the “thing” whenever the article of sale has
been physically segregated from all other articles.
In the case at hand, the undertaking of the respondent
was to sell to the petitioner 600 piculs of sugar of the
first and second classes.
Was this an agreement upon the “thing” which was the
object of the contract? For the purpose of sale its bulk
is weighed, the customary unit of weight being
denominated a “picul.” Now, if called upon to designate
the article sold, it is clear that the respondent could only
say that it was “sugar.” He could only use this generic
name for the thing sold. There was no “appropriation”
of any particular lot of sugar. Neither party could point
to any specific quantity of sugar and say: “This is the
article which was the subject of our contract.”
Hence, the SC held that the contract was merely an
executory agreement; a promise of sale and not a sale.
There was no perfected sale.
57) Blas vs. Santos (111 Phil. 503)
FACTS: This action was instituted by plaintiffs against
the administration of the estate of Maxima Santos, to
secure a judicial declaration that one-half of the
properties left by Maxima Santos Vda. de Blas, the
greater bulk of which are set forth and described in the
project of partition presented in the proceedings for the
administration of the estate of the deceased Simeon
Blas, had been promised by the deceased Maxima
Santos to be delivered upon her death and in her will to
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the plaintiffs, and requesting that the said properties so
promised be adjudicated to the plaintiffs. The complaint
also prays for actual damages in the amount of P50,000.
The alleged promise of the deceased Maxima Santos is
contained in a document executed by Maxima Santos on
December 26, 1936 attached to the complaint as Annex
“H” and introduced at the trial as Exhibit “A”. The
complaint also alleges that the plaintiffs are entitled to
inherit certain properties enumerated in paragraph 3
thereof, situated in Malabon, Rizal and Obando,
Bulacan, but which properties have already been
included in the inventory of the estate of the deceased
Simeon Blas and evidently partitioned and conveyed to
his heirs in the proceedings for the administration of his
estate. Spouses Simeon Blas and Marta Cruz have three
children they also have grandchildren. One year after
Marta Cruz died, Blas married Maxima Santos but they
don’t have children and the properties that he and his
former wife acquired during the first marriage were not
liquidated. Simeon Blas executed a will disposing half of
his properties in favor of Maxima the other half for
payment of debts, Blas also named a few devisees and
legatees therein. In lieu of this, Maxima executed a
document whereby she intimated that she understands
the will of her husband; that she promises that she’ll be
giving, upon her death, one-half of the properties she’ll
be acquiring to the heirs and legatees named in the will
of his husband; that she can select or choose any of
them depending upon the respect, service, and
treatment accorded to her by said heirs. On 1937
Simeon Blas died while Maxima died on 1956 and
Rosalina Santos became administrator of her estate. In
the same year, Maria Gervacio Blas, child of Simeon Blas
in his first marriage, together with three other
grandchildren of Simeon Blas (heirs of Simeon Blas),
learned that Maxima did not fulfill her promise as it was
learned that Maxima only disposed not even one-tenth
of the properties she acquired from Simeon Blas. The
heirs are now contending that they did not partition
Simeon Blas’ property precisely because Maxima
promised that they’ll be receiving properties upon her
death.
ISSUE: Whether or not the heirs can acquire the
properties that Maxima promised with them.
RULING: YES, they can acquire the properties that
Maxima promised with them because it was stated in
Art. 1347 that “No contract may be entered into upon
future inheritance except in cases expressly authorized
by law.”. In this case the contract was authorized by law
because the promise made by Maxima to their heirs
before she died is a valid reason and it should be
enforceable upon her death and her heirs can now
acquire the succession of the properties in issue.
58) Milagros De Belen Vda. De Cabalu vs. Tabu
& Laxamana, G.R. No. 188417, September 24,
2012
FACTS: Faustina Maslum (Faustina) was the original
owner of a parcel of land covered by TCT No. 16776.
The land had a total area of 140,211 square meters. On
December 8, 1941, Faustina died without any children.
She left a holographic will, assigning and distributing her
property to her nephews and nieces. The said
holographic will, however, was not probated.
Benjamin Laxamana was one of Faustinas heirs. He died
in 1960. He had two heirs: his wife and his son,
Domingo Laxamana (Domingo). On March 5, 1975,
Domingo executed a Deed of Sale in favor of Laureano
Cabalu covering 9,000 square meters of the land
inherited by his father from Faustina.
On August 1, 1994, the legitimate heirs of Faustina
executed a Deed of Extra-Judicial Succession with
Page 36 of 67
Partition. The said deed imparted 9,000 square meters
of the land covered by TCT No. 16776 to Domingo.
Thereafter, Domingo sold 4,500 square meters of the
9,000 square meters of the land to his nephew, Eleazar
Tabamo. The remaining portion was registered in
Domingos name under TCT No. 281353.
On August 4, 1996, Domingo died. On October 8, 1996,
or two (2) months after Domingos death, Domingo
purportedly executed a Deed of Sale of TCT No. 281353
in favor of Renato Tabu (Tabu). Tabu and his wife
Dolores Laxamana subdivided the lot into two which
resulted to TCT Nos. 291338 and 291339.
Consequently, petitioners Milagros de Belen Vda. De
Cabalu, Meliton Cabalu, Spouses Angela Cabalu and
Rodolfo Talavera, and Patricio Abus filed a complaint
before the RTC seeking to declare TCT Nos. 291338 and
291339 as null and void. They averred that they were
the lawful owners of the subject property because it was
sold to their father, Laureano Cabalu, by Domingo,
through a Deed of Absolute Sale, dated March 5, 1975.
ISSUES:
1. Whether or not the Deed of Sale of Undivided Parcel
of Land covering the 9,000 square meter property
executed by Domingo in favor of Laureano Cabalu on
March 5, 1975, is valid
2. Whether or not the Deed of Sale dated October 8,
1996, covering the 4,500 square meter portion of the
9,000 square meter property, executed by Domingo in
favor of Renato Tabu, is null and void
RULING:
1. NO, March 5, 1975 Deed of Sale is null and void.
Even if Benjamin died sometime in 1960, Domingo in
1975 could not yet validly dispose of the whole or even
a portion thereof for the reason that he was not the sole
heir of Benjamin, as his mother only died sometime in
1980. Besides, under Article 1347 of the Civil Code, "No
contract may be entered into upon future inheritance
except in cases expressly authorized by law." Paragraph
2 of Article 1347, characterizes a contract entered into
upon future inheritance as void. The law applies when
the following requisites concur: (1) the succession has
not yet been opened; (2) the object of the contract
forms part of the inheritance; and (3) the promissor
has, with respect to the object, an expectancy of a right
which is purely hereditary in nature.
In this case, at the time the deed was executed,
Faustinas will was not yet probated; the object of the
contract, the 9,000 square meter property, still formed
part of the inheritance of his father from the estate of
Faustina; and Domingo had a mere inchoate hereditary
right therein.
Domingo became the owner of the said property only on
August 1, 1994, the time of execution of the Deed of
Extrajudicial Succession with Partition by the heirs of
Faustina, when the 9,000 square meter lot was
adjudicated to him.
2. YES, the Deed of Absolute Sale, dated October 8,
1996, null and void.
Regarding the deed of sale covering the remaining
4,500 square meters of the subject property executed
in favor of Renato Tabu, it is evidently null and void.The
document itself, the Deed of Absolute Sale, dated
October 8, 1996, readily shows that it was executed on
August 4, 1996 more than two months after the death
of Domingo. Contracting parties must be juristic entities
at the time of the consummation of the contract. Stated
otherwise, to form a valid and legal agreement it is
necessary that there be a party capable of contracting
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and a party capable of being contracted with. Hence, if
any one party to a supposed contract was already dead
at the time of its execution, such contract is
undoubtedly simulated and false and, therefore, null
and void by reason of its having been made after the
death of the party who appears as one of the contracting
parties therein. The death of a person terminates
contractual capacity.
The contract being null and void, the sale to Renato
Tabu produced no legal effects and transmitted no rights
whatsoever. Consequently, TCT No. 286484 issued to
Tabu by virtue of the October 8, 1996 Deed of Sale, as
well as its derivative titles, TCT Nos. 291338 and
291339, both registered in the name of Rena to Tabu,
married to Dolores Laxamana, are likewise void.
Cause (1350-1355)
59) Liguez vs. Court of Appeals, (102 Phil.577)
FACTS: Petitioner filed a complaint for the recovery of
a parcel of land against the widow and heirs of Salvador
Lopez. Petitioner averred that he is the owner of the
aforementioned parcel of land pursuant to a Deed of
Donation executed in her favor by the late owner,
Salvador Lopez. The defense interposed that the
donation was null and void for having illicit cause or
consideration which was the petitioner’s entering into a
marital relations with Salvador, a married man, and that
the property had been adjudicated to the appellees as
heirs of Salvador Lopez by the Court of First Instance.
Meanwhile, the Court of Appeals found that the Deed of
Donation was prepared by a Justice of Peace and was
ratified and signed when petitioner Liquez was still a
minor, 16 years of age. It was the ascertainment of the
Court of Appeals that the donated land belonged to the
conjugal partnership of Salvador and his wife and that
the Deed of Donation was never recorded. Hence, the
Court of Appeals held that the Deed of Donation was
inoperative and null and void because the donation was
tainted with illegal cause or consideration.
ISSUE: Whether or not the Deed of Donation is void for
having illicit cause or consideration
RULING: NO.
Under Article 1279 of the Civil Code of 1989, which was
the governing law during the execution of the Deed of
Donation, the liberality of the donor is deemed cover
only in those contracts that are pure beneficence. In
these contracts, the idea of self interest is totally absent
in the part of the transferee. Here, the facts as found
demonstrated that in making the donation, Salvador
Lopez was not moved exclusively by the desire to
benefit the petitioner but also to secure her cohabiting
with him. Petitioner seeks to differentiate between the
liberality of Lopez as cause and his desire as a motive.
However, motive may be regarded as cause when it
predetermined the purpose of the contract. The Court
of Appeals rejected the claim of petitioner on the ground
on the rule on pari delicto embodied in Article 1912 of
the Civil Code. However, this rule cannot be applied in
the case because it cannot be said that both parties had
equal guilt where petitioner was a mere minor when the
donation was made and that it was not shown that she
was fully aware of the terms of the said donation.
60) Rodriquez vs. Rodriquez, (20 SCRA 908)
FACTS: Concepcion Felix, widow of the late Don Felipe
Calderon and with whom she had one living child,
Concepcion Calderon, contracted a second marriage on
June 20, 1929, with Domingo Rodriguez, widower with
four children by a previous marriage, named Geronimo,
Esmeragdo, Jose and Mauricio, all surnamed
Rodriguez.Prior to her marriage to Rodriguez,
Page 37 of 67
Concepcion Felix was the registered owner of 2
fishponds located in the barrio of Babañgad, Bulacan
which she consequently sold to her daughter
Concepcion Calderon for P2,500. The properties were
then donated back to her and Rodriguez thus, having
the properties registered under the names of the
spouses.
On March 6, 1953, Domingo Rodriguez died intestate,
survived by the widow, Concepcion Felix, his children
Geronimo Esmeragdo and Mauricio and grandchildren
Oscar, Juan and Ana, surnamed Rodriguez, children of
a son, Jose, who had predeceased him.The heirs of
Domingo entered into an extra-judicial settlement of his
estate. Among the properties listed as conjugal were the
two parcels of land in Bulacan, which, together with
another piece of property, were divided as follows: ½ to
Concepcion Feix as her share to the conjugal property;
¾ of the remaining ½ to his children and ¼ of the
remaining ½ to his grandchildren. Corresponding new
TCTs were issued.
On March 23, 1953, in a power of attorney executed by
the children and grandchildren of Domingo Rodriguez,
Concepcion Felix was named their attorney in-fact,
authorized to manage their shares in the fishponds. On
October 12, 1954, the Rodriguez children executed
another document granting unto the widow lifetime
usufruct over one-third of the fishpond which they
received as hereditary share in the estate of Domingo,
which grant was accepted by Concepcion Felix. Then, in
a contract dated December 15, 1961, the widow
appeared to have leased from the Rodriguez children
and grandchildren the fishpond for a period of 5 years
commencing August 16, 1962, for an annual rental of
P7,161.37. At this time, the relationship between
Concepcion Felix and her step children turned sour and
the widow subsequently failed to deliver the balance of
the earnings of the fishpond. A demand letter was sent
to her to claim such, but her answer was the present
case seeking the annulment of the transfer to the
conjugal partnership of the two fishponds on the ground
that the conveyances in issue were obtained through
duress, and were inexistent, being simulated and
without consideration.
ISSUE: WON the transfer of the two fishponds to the
conjugal property were valid
RULING: The charge of simulation is untenable, for the
characteristic of simulation is the fact that the apparent
contract is not really desired or intended to produce
legal effects or in 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 a
transfer of it to another, he does not really intend to
divest himself of his title and control of the property;
hence, the deed of transfer is but a sham. But appellant
contends that the sale by her to her daughter, and the
subsequent sale by the latter to appellant and her
husband, the late Domingo Rodriguez, were done for the
purpose of converting the property from paraphernal to
conjugal, thereby vesting a half interest in Rodriguez,
and evading the prohibition against donations from one
spouse to another during coverture. If this is true, then
the appellant and her daughter must have intended the
two conveyance to be real and effective; for appellant
could not intend to keep the ownership of the fishponds
and at the same time vest half of them in her husband.
The two contracts of sale then could not have been
simulated, but were real and intended to be fully
operative, being the means to achieve the result
desired. Nor does the intention of the parties to
circumvent by these contracts the law against donations
between spouses make them simulated ones.
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
What would invalidate the conveyances now under
scrutiny is the fact that they were resorted to in order
to circumvent the legal prohibition against donations
between spouses. The illicit purpose then becomes
illegal causa within the terms of the old Civil Code.
Unfortunately for herein appellant, in contracts
invalidated by illegal subject matter or illegal causa,
apply rigorously the rule in pari delicto non oritur action,
denying all recovery to the guilty parties inter se. And
appellant is clearly as guilty as her husband in the
attempt to evade the legal interdiction of Article 1334.
Wherefore, her present action to reivindicate the,
conveyed properties was correctly repulsed by the
Court. In view of the foregoing, the decision
appealed from is affirmed. Costs against appellant
Concepcion Felix Vda. de Rodriguez.
Notes:
Art. 87. Every donation or grant of gratuitous
advantage, direct or indirect, between the spouses
during the marriage shall be void, except moderate gifts
which the spouses may give each other on the occasion
of any family rejoicing. The prohibition shall also apply
to persons living together as husband and wife without
a valid marriage.
Art. 1306. If the act which constitutes the illicit
consideration is neither a crime nor a misdemeanor, the
following rules shall be observed:
1. When both parties are guilty, neither of them can
recover what he may have given by virtue of the
contract, or enforce the performance of the undertaking
of the other party; (not sure what article is this in the
NCC)
61) Phil. Banking Corp. vs. Lui She, (21 SCRA
52)
Justina Santos and her sister own a piece of land in
Manila, while Wong Heng is a long-time lessee of the
property. Eventually, Justina became the owner of the
property. Already in advanced age, Justina trusted
various tasks to Wong including the delivery of rental
payments to her property.
In November 1957, in grateful acknowledgement of his
personal services, Justina executed a contract of lease
in favor of Wong covering a portion property, and later,
the entire property for 50 years with right to withdraw
at any time. In December 1957, Justina executed a
contract for option to buy the leased property with a
condition that Wong obtain Philippine Citizenship then
pending before the Court of First Instance of Rizal.
However, the application was withdrawn because it was
discovered that he was not a resident of Rizal. In
October 1958, Justina filed a petition to adopt Wong and
his children in the belief that adoption would confer him
Philippine Citizenship. Discovering there was error, the
proceedings were abandoned.
In November 1958, Justina executed two other
contracts extending the lease to 99 years, and fixing the
term of option to buy at 50 years. Both were written in
Tagalog. In two wills executed on August 1959, Justina
bade her legatees to respect the contracts entered into
with Wong. However, Justina appeared to have a
change of heart, and claimed that the contracts were
made through machinations and inducements practiced
by Wong. Thus, Justina directed her executor to secure
the annulment of the contracts.
In November 1959, a complaint was then filed before
the Court of First Instance of Manila on the said grounds,
and asked the court to direct the Register of Deeds of
Page 38 of 67
Manila to cancel the registration of the contracts. Wong
denied having taken advantage of the trust and
confidence given to him by Justina. The CFI rendered its
decision annulling all the contracts, except the lease
contract, and condemned Wong to pay Justina the
unpaid rentals.
Both parties filed an appeal before the Supreme Court.
Justina (through Petitioner Philippine Banking
Corporation) maintained that the lease contract should
have been annulled as it lacks mutuality, that it was
obtained in violation of the fiduciary relations of the
parties, and that her consent was obtained through
undue influence, fraud and misrepresentation.
ISSUE
Whether or not the lease contract is valid, thus, granting
rights to Wong.
HELD
The Court ruled that the least contract is valid. The lease
contract does not lack mutuality because Wong was
never an agent of Justina. The relationship between the
parties were admittedly close, but did not amount to an
agency. Actually, it was cited that the lease contract was
made on the basis of the data of Wong given to the
lawyer who prepared the contract, and that Justina told
him that whatever Wong wants must be followed.
Despite the words supplied by Wong, it was testified
that Justina was unyielding and firm in her decision to
follow Wong. Undue influence cannot stand as well given
that the contract was signed in the presence of Justina’s
close friend and maid, who could have testified against
it. Further, Justina’s consent was given freely and
voluntarily as shown by her recited in the Deed of
Conditional Option and emphatic avowal gratitude in the
lease contract that Wong saved her and her sister from
the fire that destroyed their house during the liberation
of Manila. All told, the lease contract stands to be valid.
However, despite validity of the lease contract, it also
gives the clue to a circumvention of the Constitutional
prohibition against transfer of land to aliens. Taken
singly, the contracts show nothing that is necessarily
illegal, but considered collectively, they reveal an
insidious pattern to subvert by indirection what the
Constitution directly prohibits. To be sure, a lease to an
alient for a reasonable period is valid. So is the option
giving an alien the right to buy the property on condition
that he is granted Philippine Citizenship.
But if an alien is given not only a lease, but also an
option to buy, a piece of land, by virtue of which the
Filipino owner cannot sell or otherwise dispose of his
property, this is to last for 50 years, is a virtual transfer
of ownership whereby the owner divests himself in
stages not only of the right to enjoy the land but also
the right to dispose of it – rights the sum total of which
makes up ownership.
62) Fisher vs. Robb, (69 Phil.101)
John C. Robb made a business trip to Shanghai as per
request by the board of directors of the Philippine
Greyhound Club, Inc. to study the operation of a dog
racing course. The defendant stayed at American Club
where he became acquainted with Fisher. Upon knowing
the purpose of the defendant the plaintiff himself asked
the defendant if he could be part of the stockholder. The
defendant agreed to it, and the plaintiff then paid the
first installment.
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
The defendant went back to Manila and the board of
directors of PGCI issued a call for the payment of the
second installment in which the plaintiff answered that
he had already paid the same. The PGCI was then
replaced by The Philippine Racing Club. The defendant
then sends letters to plaintiff informing him of the
critical condition of the PGCI to reimburse the second
installment out of moral responsibility.
ISSUE:
Whether or not there was sufficient consideration to
justify the promise made by the defendant-appellant in
his letters
RULING:
No. The Supreme Court held that the promise made by
an organizer of a dog racing course to a stockholder to
return to him certain amounts paid by the latter in
satisfaction of his subscription upon the belief of said
organizer that he was morally responsible because of
the failure of the enterprise, is not the consideration
required by article 1261 of the Civil Code as an essential
element for the legal existence of an onerous contract
which would bind the promisor to comply with his
promise.
ART. 1261. There is no contract unless the following
requisites exists:
The consent of the contracting parties;
A definite object which is the subject-matter of the
contract;
A consideration for the obligation established.
In the present case, while the defendant-appellant told
the plaintiff-appellee that he felt morally responsible for
the second payments which had been made to carry out
his plan, and that Mr. Hilscher and he would do
everything possible so that the stockholders who had
made second payments may receive the amount paid
by them from their personal funds because they
voluntarily assumed the responsibility to make such
payment as soon as they receive from the Philippine
racing Club certain shares for their services as
promoters of said organization, it does not appear that
the plaintiff-appellee had consented to said form of
reimbursement which he had directly paid to the
Philippine Greyhound Club, Inc., in satisfaction of the
second installment. The first essential requisite required
by the cited article 1261 of the Civil Code for the
existence of a contract, does not exists.
63) Villaroel vs. Estrada, (71 Phil. 14)
FACTS: On May 9, 1912, Alejandro Callao, mother of
Juan Villaroel, obtained a loan of P1,000 from spouses
Mariano Estrada and Severina payable after seven
years. Alejandra died, leaving Juan Villaroel as sole heir,
Spouses Mariano Estrada and Severina also died,
leaving Bernardino Estrada as sole heir.
On August 9, 1930, Juan Villaroel signed a document in
which he declared to pay the debt of his deceased
mother in the amount of P1,000 with legal interest of
12% per annum.
Page 39 of 67
The Court of First Instance of Laguna ordered Juan
Villaroel to pay the amount of P1,000 with an interest of
12% per annum since August 9, 1930 until full payment
Villaroel appealed.
ISSUE: Whether or not the right to prescription may be
waived or renounced.
RULING: Yes, right to prescription may be waived or
renounced. As a general rule, when a debt has already
prescribed, it cannot be imposed by the creditor.
However, a new contract which recognizes and assumes
the prescribed debt is an exception, for it would be valid
and enforceable. Hence, a person who acknowledges
the correctness of the debt and promises to pay it
despite knowing that the debt has already prescribed,
such as the case at bar, waived the benefit of the
prescription.
64) Velez vs. Ramos, (40 Phil. 787)
FACTS: Defendant Roberto Quirante is the father of
Restituta Quirarnte, who is in turn the wife of the other
defendant Salmon Ramas.
Plaintiffs, Teodoro Valez and wife, were the owners of a
pawnshop and had Restituta as an employee who was
entrusted with plaintiffs’ money amounting to
P2,303.60. It was discovered that Restituta illegally
abstracted such sums of money.
In order to prevent Restituta from being brought before
the courts for the unlawful act she has executed, the
defendants executed a contract with plaintiffs to which
they guaranteed to the plaintiffs the payment of the
aforesaid sum. By virtue of such contract, the plaintiffs
agreed to suspend the action they intend to bring
against Restituta.
Subsequently, an action was instituted by the plaintiffs
before the CFI against the defendants to recover from
defendants a sum of money evidence by the subject
contract. The defendants raised the defense that the
alleged contract was illegal on its face.
The CFI sustained the defense and absolved both
defendants from the complaint.
ISSUE: WON the contract is valid
RULING: The trial court was correct in the conclusion
that an action cannot be maintained upon this contract.
The preliminary recitals clearly disclose the fact that the
purpose of the contracting parties was to prevent a
prosecution for crime; and the injured parties, on their
part, agree to suspend the criminal proceedings which
they had intended to promote. the consideration for this
agreement is clearly illicit, which fact is apparent on the
face of the contract; and the case is accordingly
governed by article 1275 of the Civil Code.
A contract based upon an unlawful consideration or
designed to promote an unlawful object is and always
has been void ab initio by the common law, by the civil
law, moral law, and all laws whatsoever
It has been considered contrary to public policy to allow
parties to make agreements designed to prevent or
stifle prosecutions for crime.
65) Mactal vs. Melegrito, (111 Phil. 363)
FACTS: Mactal delivered P1,770.00 to Melegrito, to be
used by him in the purchase of palay for Mactal, with a
ten (10%) per cent commission in his (Melegrito's)
favor, or returned to Mactal, within ten (10) days,
should he (Melegrito) fail to buy palay. This obligation
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
was set forth in a receipt signed by Melegrito, who
neither bought palay nor returned said amount. Hence,
Mactal accused him or estafa.
When the case was about to be heard, Florencio Paraso,
then chief of police of Guimba, acting upon Melegrito's
request, prevailed upon Mactal to move for the dismissal
of the case and be contented with a promise on the part
of Melegrito to pay, not later than January, 1954, said
P1,777.00.
Accordingly, Melegrito signed a document Exhibit A
prepared by Paraso. Forthwith, the receipt above
mentioned was destroyed and the criminal case was, on
the same day, dismissed on motion of Mactal. Despite,
however, repeated demands by the latter, Melegrito
subsequently failed to pay.
ISSUE:
WON the consideration was the “dismissal of the estafa
case”
RULING: Where the defendant admits his
indebtedness, and the dismissal of the estafa case
against him merely furnished the occasion for the
execution of a promissory note acknowledging said
indebtedness, the consideration is the pre-existing
obligation and not the dismissal of the criminal case,
hence the promissory note is valid and enforceable.
The lower court speci􀁃cally found that Melegrito had on
February 5, 1953, received from Mactal P1,777.00 to be
used in the purchase of palay for the latter, with the
obligation to return said amount, within ten (10) days,
if not spent for said purpose. In fact, Melegrito admitted,
on the witness stand, that he is indebted to the plaintiff
in the aggregate sum of P1,777.00, although he claims
that his liability therefor was merely that of a guarantor,
not principal debtor. So when the chief of "police
succeeded in persuading Mactal to withdraw the criminal
case for estafa, Melegrito was only too willing to sign
Exhibit A, in which he promised to pay the
aforementioned amount in January, 1954. The
consideration for this promise was, therefore, the
aforesaid pre- existing debt of Melegrito, not the
dismissal of the estafa case, which merely furnished the
occasion for the execution of Exhibit A.
66) Ong vs. Ong (G.R. No. 67888, October 8,
1985)
FACTS: Imelda Ong, for and in consideration of P1.00
and other valuable considerations, executed a quitclaim
over a parcel of land in favor of Sandra Maruzzo, then a
minor. Thereafter, Imelda revoked the quitclaim and
donated the property to her son, Rex.
Sandra, through her guardian ad litem Alfredo Ong, filed
an action to recover the land and to declare the donation
to Rex null and void.
In their responsive pleading, petitioners claimed that
the quitclaim is equivalent to a donation which requires
acceptance by the donee, and since Sandra was a
minor, there was no valid acceptance.
The trial court rendered judgment in favor of Maruzzo
and held that the Quitclaim Deed is equivalent to a Deed
of Sale and, hence, there was a valid conveyance in
favor of the latter.
Petitioners appealed to the IAC. They reiterated their
argument below and, in addition, contended that the
P1.00 consideration is not a consideration at all to
sustain the ruling that the Deed of Quitclaim is
equivalent to a sale.
Page 40 of 67
IAC affirmed the trial court’s decision.
ISSUE: WON the quitclaim is equivalent to a Deed of
Sale or Deed of Donation
RULING: The quitclaim is equivalent to a Deed of Sale.
A careful perusal of the subject deed reveals that the
conveyance of the 1/2 undivided portion of the property
was for and in consideration of the P1.00 Peso and the
other valuable considerations paid by private
respondent Sandra Maruzzo, through her
representative, Alfredo Ong, to petitioner Imelda Ong.
Stated differently, the cause or consideration is not the
P1.00 alone but also the other valuable considerations.
As aptly stated by the Appellate Court —
". . . although the cause is not stated in the
contract it is presumed that it is existing unless the
debtor proves the contrary. This presumption cannot be
overcome by a simple assertion of lack of consideration
especially when the contract itself states that
consideration was given, and the same has been
reduced into a public instrument with all due formalities
and solemnities.
The execution of a deed purporting to convey ownership
of a realty is in itself prima facie evidence of the
existence of a valuable consideration, the party alleging
lack of consideration has the burden of proving such
allegation.
67) Eduardo M. Cojuangco, Jr. vs. Republic,
G.R. No. 180705. November 27, 2012
FACTS: R.A 6260 was enacted creating the Coconut
Investment Company to administer the Coconut
Investment Fund. The following were some of the
issuances on the coco levy, its collection and utilization,
how the proceeds of the levy will be managed and by
whom and the purpose it was supposed to serve:
1. P.D. No. 755 providing under its Section 1 the
following:
It is hereby declared that the policy of the State is to
provide readily available credit facilities to the coconut
farmers at preferential rates; that this policy can be
expeditiously and efficiently realized by the
implementation of the "Agreement for the Acquisition of
a Commercial Bank for the benefit of Coconut Farmers"
executed by the [PCA] . . .; and that the [PCA] is hereby
authorized to distribute, for free, the shares of stock of
the bank it acquired to the coconut farmers.
Towards achieving the policy thus declared, Section 2,
authorized PCA to utilize the CCSF and the CIDF
collections to acquire a commercial bank and
deposit the CCSF levy collections in said bank
interest free
2. P.D. No. 1468 (Revised Coconut Industry Code),
read:
Section 5. Exemption. — The [CCSF] and the [CIDF] as
well as all disbursements as herein authorized, shall not
be construed as special and/or fiduciary funds, or as
part of the general funds of the national government
within the contemplation of PD 711; . . . the intention
being that said Fund and the disbursements
thereof as herein authorized for the benefit of the
coconut farmers shall be owned by them in their
private capacities
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Through the years, a part of the coconut levy funds went
directly or indirectly to finance projects and/or was
converted into various assets or investments.
Relevant to the present petition is the acquisition
of the First United Bank ("FUB"), which was
subsequently renamed as United Coconut Planters
Bank ("UCPB").
In the agreement entered into by and between
Cojuangco for and in his behalf and in behalf of "certain
other buyers", and Pedro Cojuangco in which the former
was purportedly accorded the option to buy 72.2% of
FUB's outstanding capital stock(the "option shares," for
brevity), at PhP200 per share. On its face, this
agreement does not mention the word "option."
In the second but related agreement and as additional
consideration for PCA's buy-out of what Cojuangco
would later claim to be his exclusive and personal
option, it was stipulated that, from PCA, Cojuangco
shall receive equity in FUB amounting to 10%, or
7.22%, of the 72.2%, or fully paid shares. And so as not
to dilute Cojuangco's equity position in FUB, later UCPB.
The Sandiganbayan found and so tagged the alleged
cause for the agreement in question, i.e. Cojuangco's
"personal and exclusive option to acquire the Option
Shares," as fictitious.
ISSUE: WON the claim that the acquisition by petitioner
Cojuangco of UCPB shares was supported by valuable
consideration
RULING: The PCA-Cojuangco agreement is a valid
contract for having the requisite consideration.
A perusal of the PCA-Cojuangco Agreement disclosed an
express statement of consideration for the transaction:
NOW, THEREFORE, for and in consideration of the
foregoing premises and the other terms and conditions
hereinafter contained, the parties hereby declare
and affirm that their principal contractual intent is
(1) to ensure that the coconut farmers own at
least 60% of the outstanding capital stock of the
Bank, and (2) that the SELLER shall receive
compensation for exercising his personal and
exclusive option to acquire the Option Shares, for
transferring such shares to the coconut farmers at
the option price of P200 per share, and for
performing the management services required of
him hereunder.
xxx xxx xxx
4. As compensation for exercising his personal
and exclusive option to acquire the Option Shares
and for transferring such shares to the coconut
farmers, as well as for performing the
management services required of him, SELLER shall
receive equity in the Bank amounting, in the aggregate,
to 95,304 fully paid shares in accordance with the
procedure set forth in paragraph 6 below.
The express and positive declaration by the parties
of the presence of adequate consideration in the
contract makes conclusive the presumption of
sufficient consideration in the PCA Agreement.
The Sandiganbayan, however, pointed to the perceived
"lack of any pecuniary value or advantage to the
government of the said option, which could compensate
for the generous payment to him by PCA of valuable
shares of stock.
Page 41 of 67
Inadequacy of the consideration, however, does
not render a contract void under Article 1355 of the
Civil Code.
While one may posit that the PCA-Cojuangco Agreement
puts PCA and
the coconut farmers at a disadvantage, the facts do not
make out a clear case of violation of any law that will
necessitate the recall of said contract.
While consideration is usually in the form of money or
property, it need not be monetary. This is clear from
Article 1350 which reads:
Art. 1350. In onerous contracts the cause is understood
to be, for each contracting party, the prestation or
promise of a thing or service by the other; in
remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence,
the mere liability of the benefactor.
Gabriel v. Monte de Piedad y Caja de Ahorros tells us of
the meaning of consideration:
. . . A consideration, in the legal sense of the word, is
some right, interest, benefit, or advantage
conferred upon the promisor, to which he is otherwise
not lawfully entitled, or any detriment, prejudice,
loss, or disadvantage suffered or undertaken by the
promisee other than to such as he is at the time of
consent bound to suffer.
The Court rules that the transfer of the subject UCPB
shares is clearly supported by valuable consideration.
68) Sta. Fe Realty Inc., (SFRI) et al. vs. Sison,
GR 199431, August 31, 2016
FACTS: The subject of this petition is a parcel of land.
The records showed that SFRI agreed to sell to Sison
the south eastern portion of the land. SFRI executed a
Deed of Sale over the subject property to Fabregas (one
of the petitioners). Fabregas, then, executed another
deed of sale in favor of Sison for the same amount.
However, Sison was not able to register the sale and
secure a title in his name because the petitioners
refused to pay realty taxes and capital gains tax, as well
as to turn over the owner's copy of the certificate of title.
Subsequently, SFRI sold the same property to Orosa.
Accordingly, when Sison learned about the subsequent
sale of the subject property that he bought, he instituted
an action for reconveyance.
Sison anchors his cause of action upon the two deeds of
sale and his possession and occupation of the subject
property. The petitioners, however, counter that:
1. That the deeds of sale were simulated;
They contended that they merely accommodated
Sison's request to sign another set of deeds of sale over
the subject property with a reduced price of P10,918
(from P700,000) so that the capital gains tax would be
reduced.
They also asserted that Sison did not pay the
consideration agreed upon for the sale of the subject
property; thus, Fabregas rescinded the sale by sending
a notice to Sison who did not contest the rescission of
the sale.
2. That Fabregas had unilaterally rescinded the
sale; and
3. That the subject property is now registered in
the hands of an innocent purchaser for value.
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ISSUE: WON the Deed of Absolute Sale by and between
SFRI and Fabregas, as well as the deed of absolute sale
between Fabregas and Sison are valid and enforceable.
RULING: Yes. All the elements for a contract to be valid
are present.
A perfected contract of absolute sale exists between
SFRI and Fabregas and then Fabregas and Sison. There
was meeting of the minds between the parties when
they agreed on the sale of a determinate subject matter,
which is the south eastern portion of the subject
property, and the price is certain, without any condition
or reservation of title on the part of the petitioners.
The petitioners argue that there is gross disproportion
between the price and the value of the subject property.
The Court, however, ruled that gross inadequacy of
price by itself will not result in a void contract.
Gross inadequacy of price does not even affect the
validity of a contract of sale, unless it signifies a
defect in the consent or that the parties actually
intended a donation or some other contract. Inadequacy
of cause will not invalidate a contract unless there has
been fraud, mistake or undue influence.
The Court observed that the petitioners are assailing the
deeds of sale for being absolutely simulated and for
inadequacy of the price. However, these two grounds
are incompatible. If there exists an actual consideration
for transfer evidenced by the alleged act of sale, no
matter how inadequate it be, the transaction could not
be a simulated sale.
MODULE 4: FORM OF CONTRACTS
69) Dauden-Hernaez vs. De los Angeles, (27
SCRA 1276)
FACTS: Petitioner, an actress, filed a complaint against
Hollywood Far East Productions to recover fees
(P14,700) for her services as leading actress in two
motion pictures produced by the company. Respondent
judge, De los Angeles ordered the complaint dismissed
grounded on the reason that the “claim of plaintiff was
not evidenced by any written document, either public or
private”. That according to Article 1358 governing
unenforceable contracts, writing was absolute and
indispensable, because the amount involved exceeds
five hundred pesos.
 Alcedo's property as collateral for Sepe's crop loan, it
ISSUE: WON said contract must be in writing to be valid
and enforceable.
RULING: No. The aforementioned contract needs not to
be in writing.
Article 1315 of the Civil Code provides that: “Contracts
are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what
has been expressly stipulated but also to all the
consequences which, according to their nature, may be
in keeping with good faith, usage and law.”.
Furthermore Article 1356 of the same book provides
that: “Contracts shall be obligatory in whatever form
they may have been entered into, provided all the
essential requisites for their validity are present….”
Exemptions to the general rule are solemn contracts
(needs to be in writing to be valid) and memorandums
(governed by Article 1402(2) of the Statute of Frauds).
In the matter of formalities, the contractual system of
our Civil Code still follows the upholding of the spirit and
Page 42 of 67
intent of the parties over formalities: hence, in general,
contracts are valid and binding from their perfection
regardless of form whether they be oral or written.
The contract sued upon by petitioner (compensation for
services) need not be in written form. It is true that it
appears included in Article 1358, last clause, providing
that "all other contracts where the amount involved
exceeds five hundred pesos must appear in writing,
even a private one." But Article 1358 nowhere provides
that the absence of written form in this case will make
the agreement invalid or unenforceable. On the
contrary, Article 1357 clearly indicates that contracts
covered by Article 1358 are binding and enforceable by
action or suit despite the absence of writing.
70) Philippine National Bank vs. IAC (G.R. No.
66715, Sep. 18, 1990)
FACTS:
Leticia de la Vina-Sepe executed a real estate mortgage
in favor of PNB, San Carlos Branch, over a lot registered
in her name to secure the payment of a sugar crop loan
of P3,400. Later, Leticia Sepe, acting as attorney-in-fact
for her brother-in-law, private respondent Romeo
Alcedo, executed an amended real estate mortgage to
include his land as additional collateral for Sepe's
increased loan of P16,500 . Leticia Sepe and private
respondent Alcedo verbally agreed to split fifty-fifty (50-
50) the proceeds of the loan but failing to receive his
one-half share from her, Alcedo wrote a letter on May
12, 1970 to the PNB, San Carlos Branch, revoking the
Special Power of Attorney which he had given to Leticia
Sepe to mortgage his land. PNB Branch Manager
advised Alcedo that his land had already been included
as collateral, and he assured Alcedo that the bank would
exclude his lot as collateral for Sepe's forthcoming loan.
Sepe was able to secure an additional loan. Alcedo
received two (2) letters from PNB: (1) informing him of
Sepe's failure to pay her loan in the total amount of P
56,638.69; and (2) giving him six (6) days to settle
Sepe's outstanding obligation, as otherwise, foreclosure
proceedings would be commenced against his property.
Alcedo sued Sepe and PNB for collection and injunction
with damages
ISSUE: WON PNB validly foreclosed the real estate
mortgage on Alcedo's property?
RULING: No, since PNB had promised to exclude
should have released the property to Alcedo. The
mortgage which Sepe gave to the bank on Alcedo's lot
as collateral for her sugar crop loan was null and void
for having been already disauthorized by Alcedo.
While Article 1358 of the New Civil Code requires that
the revocation of Alcedo's Special Power of Attorney to
mortgage his property should appear in a public
instrument, nevertheless, a revocation embodied in a
private writing is valid and binding between the parties
The PNB acted with bad faith in proceeding against
Alcedo's property to satisfy Sepe's unpaid sugar crop
loan. The extrajudicial foreclosure being null and void
ab initio, the certificate of sale which the Sheriff
delivered to PNB as the highest bidder at the sale is also
null and void.
71) Manotok Realty vs. CA (L-35367, April 9,
1987)
FACTS:
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
Vicente Legarda as co-administrator allegedly sold an
area of about 280 square meters of the subdivision
situated at Dinalupihan, Tondo, Manila at P30.00 per
square meter to Abelardo Lucero. The sale was on an
installment basis and Lucero paid an initial amount of
P200.00 by virtue of which a receipt was issued by
Legarda. On the same day, Lucero took possession of
the lot. Lucero leased the lot to six persons, one of
whom is herein private respondent.
In the meantime, Lucero accordingly awaited the
sending by Legarda of the formal contract but as none
came, he could not make further payments. Probate
court issued another order authorizing the Philippine
Trust Company as administrator. Lucero went to PTC to
make further payments, showing it the receipt
evidencing the down payment but the latter refused
either to receive payment or to issue a formal contract.
The deed of sale of the entire subdivision was executed
by and between petitioner and Philippine Trust Company
and the same was approved by the probate court.
Thereafter, Lucero executed a deed of assignment of the
lot in question in favor of his lessees, including the
private respondent. Petitioner filed an ejectment case
against the respondent and the lower court ruled that
petitioner is the owner and entitled to the possession of
the land. But reversed by the CA.
ISSUE: WON there is valid sale between Legard and
Lucero?
RULING:
NO, the alleged sale made by Legarda to Lucero should
have been embodied in a public instrument in
accordance with Article 1358 of the Civil Code and
should have been duly registered with the Register of
Deeds to make it binding against third persons. The
authority given by the probate court to Legarda
specifically required the execution of necessary
documents. Lucero not only failed to obtain a deed of
sale from Legarda but also failed to secure any kind of
writing evidencing the contract of sale other than the
receipt issued by Legarda acknowledging the amount of
P200.00.
No explanation was offered by the private respondent
as to why there was no effort on the part of Lucero to
pay the balance of the purchase price during the time
that Legarda was the special co- administrator. The
private respondent merely alleged that Lucero awaited
the sending of the formal contract by Legarda but as
none came, he could not make further payments. It was
only after about five years that Lucero allegedly went to
the administrator and offered to pay the balance. By this
time, Philippine Trust Company was already the
administrator of the Legarda-Tambunting estate and it
refused to accept further payments from Lucero who
had only the receipt in the amount of P200.00 and
nothing more as proof that more than five years earlier
a piece of real property was sold to him by a special
administrator acting under court orders.
We, therefore, rule that the alleged sale made by
Legarda to Lucero did not bind the Legarda-Tambunting
estate, much less, the petitioner who acquired the
property in dispute with the approval of the probate
court and in a sole reliance on the clean title of the said
property.
MODULE 5: REFORMATION OF CONTRACTS
Reformation of Instruments (1359-1369)
72) City of Cabanatuan vs. Lazaro (39 SCRA
653)
Page 43 of 67
FACTS: Plaintiff-appellant City of Cabanatuan and
defendant-appellees Lazaro et al. entered into a lease
agreement over a portion of land owed by the City. It
was stipulated therein that the defendant-appelles have
an option to renew the lease for another 10 years after
the expiration of the original period. Plaintiff-appellant
now sought the reformation of a lease agreement
pursuant to Article 1359 of the New Civil Code. It alleged
that due to mistake or accident, the aforesaid provision
of renewal of lease for another 10 years, was inserted
in the agreement and that the same does not reflect the
true intention of the parties.
ISSUE: Whether or not the action for reformation was
filed prematurely.
RULING: No. Every party to a contract has a clear
interest that the instrument embodying its terms should
conform to the actual and true agreement had by and
between the contracting parties. Hence, if by accident
or mistake, as expressly pleaded in the complaint, the
document does not conform to or reflect the actual
agreement, either party can ask for the reformation of
the instrument as provided by Articles 1359 (Chapter 4,
Title 2, Book 4) of the Civil Code of the Philippines, to
forestall future litigations on the true import of the
agreement.
In this case, that the defendant-appellees’ option to
renew the contract for another term of 10 years was not
yet exercisable when the suit for reformation was
instituted, because the original and uncontested lease
term of 10 years had not yet expired, does not render
the action premature, for precisely its purpose was to
have such option embodied in the instrument declared
ineffective as one not agreed upon by the parties. No
cogent reason exists why the plaintiff-appellant should
wait for the lapse of the first ten years before having the
instrument reformed, when the inconsistency between
it and the true agreement existed right from the time
the document was executed. To hold otherwise tends to
make the reformation more difficult, for the evidence on
the true intent of the parties may disappear before the
first ten Years are over.
73) Huibonhoa vs. COA, (320 SCRA 625)
FACTS:
Lim, Chua and Gojocco, who are owners of 3
parcels of land, entered into a lease contract with
Huibonhoa, whereby the latter would construct a
building which would be owned by the lessors after the
expiration of the 15-year lease period. They also agreed
that after the building is constructed within 8 months
from signing of the lease contract, Huibonhoa would
start paying P45,000.00 monthly rentals. Subsequently,
former Sen. Benigno Aquino, Jr. was assassinated. Due
to the resulting hoarding of construction materials and
skyrocketing interest rates, Huibonhoa failed to
complete the building within the 8-month period and
was unable to start paying monthly rentals. Huibonhoa
filed an action for reformation of the contract alleging
that by reason of mistake and accident, the lease
contract failed to provide that should an unforeseen
event dramatically increase the cost of construction, the
monthly rental would be equitably reduced from
P45,000.00 to P30,000.00 and the term of the lease
would be extended by 5 years. Subsequently, one of the
lessors, Gojocco, entered into an agreement with
Huibonhoa extending the term of the lease and reducing
the monthly rental.
ISSUE: Whether or not reformation of contract was
proper
RULING:
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
No. Reformation is that remedy in equity by means of
which a written instrument is made or construed so as
to express or conform to the real intention of the
parties. An action for reformation of instrument has the
following requisites: (1) there must have been a
meeting of the minds of the parties to the contract; (2)
the instrument does not express the true intention of
the parties; and (3) the failure of the instrument to
express the true intention of the parties is due to
mistake, fraud, inequitable conduct or accident.
In this case, Huibonhoa having failed to discharge that
burden of proving that the true intention of the parties
has not been accurately expressed in the lease contract
sought to be reformed, no clear and convincing proof
warrants the reformation thereof. Further, Huibonhoa
honestly admitted that there was an oversight in the
drafting of the contract by her own counsel. By such
admission, oversight may not be attributed to all the
parties to the contract and therefore, it cannot be
considered a valid reason for the reformation of the
same contract. In fact, because it was Huibonhoa's
counsel himself who drafted the contract, any obscurity
therein should be construed against her. By bringing an
action for the reformation of subject lease contract
Huibonhoa chose to reform the instrument and not the
contract itself. She is thus precluded from inserting
stipulations that are not extant in the lease contract
itself lest the very agreement embodied in the
instrument is altered.
74) Rita Sarming vs. Dy, et al., (G.R. No.
133646, June 6, 2002)
FACTS:
The parties herein were the successors-in-interest of the
original parties involved in the case. It originated from
a complaint for reformation of instrument against
Silveria Flores. Jose, Venancio, and Silveria were heirs
to two parcels of land which was subdivided into three
equal parts distributed among the three siblings, while
Lot No. 4163, which was registered solely in the name
of Silveria Flores, was actually subdivided between
Silveria and Jose. The grandchildren of Jose who were
then the owners of one half portion of Lot 4163 decided
to sell their share to Alejandra Delfino with the
knowledge and permission of Silveria. However, Silveria
mistakenly delivered the Original Certificate of Title of
another lot. Upon discovery of the error, Alejandra paid
the necessary fees so that the title to Lot No. 4163 could
be released to Silveria, who promised to turn over the
same for the reformation of the deed of sale. However,
despite repeated demands, Silveria failed to deliver the
title, which prompted Alejandra to file a complaint
against Silveria for reformation of the deed of sale with
damages. The case lasted for several years in the trial
court due to substitution of parties. The trial court finally
decided in favor of the respondents herein, successors-
in interest of Alejandra, thereby ordering the
reformation of the deed of sale and correction of the
corresponding documents affected. The CA affirmed the
ruling of the trial court. Hence, this petition.
ISSUE: Whether reformation of the instrument was
proper
RULING:
Yes. Reformation is that remedy in equity by means of
which a written instrument is made or construed so as
to express or conform to the real intention of the
parties. If mistake, fraud, inequitable conduct, or
accident has prevented a meeting of the minds of the
parties, the proper remedy is not reformation of the
instrument but annulment of the contract. An action for
reformation of instrument under this provision of law
Page 44 of 67
may prosper only upon the concurrence of the following
requisites: (1) there must have been a meeting of the
minds of the parties to the contract; (2) the instrument
does not express the true intention of the parties; and
(3) the failure of the instrument to express the true
intention of the parties is due to mistake, fraud,
inequitable conduct or accident.
In the case at bar, all of these requisites are present.
There was a meeting of the minds between the parties
to the contract but the deed did not express the true
intention of the parties due to mistake in the designation
of the lot subject of the deed. There is no dispute as to
the intention of the parties to sell the land to Alejandra
but there was a mistake as to the designation of the lot
intended to be sold as stated in the Settlement of Estate
and Sale.
75) Bentir and Formida vs. Judge Leanda and
Leyte Gulf Traders, Inc., (G.R. No. 1228991, April
12, 2000)
FACTS:
Respondent Leyte Gulf Traders, Inc. filed a
complaint about a reformation of an instrument, specific
performance, annulment of conditional sale and
damages with prayer for a writ of injunction against
petitioners Yolanda Rosello-Bentir and the spouses
Samuel and Charito Pormida.
Respondent corporation alleged that it entered into a
contract of lease of a parcel of land with petitioner Bentir
for a period of twenty (20) years starting May 5, 1968.
According to respondent corporation, the lease was
extended for another four (4) years or until May 31,
1992. On May 5, 1989, petitioner Bentir sold the leased
premises to petitioner spouses Samuel Pormada and
Charito Pormada. Respondent corporation questioned
the sale alleging that it had a right of first refusal. It filed
civil case seeking the reformation of the expired
contract of lease on the ground that its lawyer
inadvertently omitted to incorporate in the contract of
lease executed in 1968, the verbal agreement or
understanding between the parties that in the event
petitioner Bentir leases or sells the lot after the
expiration of the lease, respondent corporation has the
right to equal the highest offer.
Petitioners filed their answer alleging that the
inadvertence of the lawyer who prepared the lease
contract is not a ground for reformation. They further
contended that respondent corporation is guilty of
laches for not bringing the case for reformation of the
lease contract within the prescriptive period of ten (10)
years from its execution.
ISSUE:
Has the action for reformation prescribed?
RULING:
No. The Action for Reformation has prescribed.
Prescription is intended to suppress fraudulent claims
arising from transactions like the facts had become so
obscure from the lapse of time or defective memory.
Our law and jurisprudence set such limitations, among
which is laches. A suit for reformation of an instrument
may be barred by lapse of time. The prescriptive period
for actions based upon a written contract and for
reformation of an instrument is ten (10) years under
Article 1144 of the Civil Code. Respondent corporation
had ten (10) years from 1968, the time when the
contract of lease was executed, to file an action for
reformation. Sadly, it did so only on May 15, 1992 or
twenty-four (24) years after the cause of action
accrued, hence, its cause of action has become stale,
hence, time-barred.
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
76) NIA vs. Gamit, et al., (215 SCRA 436)
FACTS: NIA entered into a contract of lease over
Gamit’s parcel of land. NIA allegedly inserted provisions
in the lease contract to the effect that it will become the
owner of the property upon paying 25,000 to Gamit and
that the rentals previously paid form part of the
purchase price. Because of these provisions, an issue
arose on the nature of the contract and the parties’
intentions.
Gamit filed a case for reformation of contract, recovery
of possession and damages against NIA, alleging that
the contract does not reflect the true intentions of the
parties.
The RTC did not conduct a trial and decided the case on
summary judgment:
That the issue in this case, is a question of law not a
question of fact because it involved the interpretation of
the contract between the parties only. Therefore, there
is no genuine issue of material fact to be determined by
the court in a trial on the merits and the case may be
decided by way of summary judgment
CA affirmed.
ISSUE: Was it proper for the RTC to decide the
reformation case on summary judgment?
RULING: No.
The trial court erred in holding that the issue in this case
is a question of law and not a question of fact because
it merely involves the interpretation of the contract
between the parties. The lower court erred in not
conducting a trial for the purpose of determining the
true intention of the parties. It failed to appreciate the
distinction between interpretation and reformation of
contracts. While the aim in interpretation of contracts is
to ascertain the true intention of the parties,
interpretation is not, however, equivalent to reformation
of contracts.
"Interpretation" is the act of making intelligible what
was before not understood, ambiguous, or not obvious.
It is a method by which the meaning of language is
ascertained. The "interpretation" of a contract is the
determination of the meaning attached to the words
written or spoken which make the contract.
On the other hand, "reformation" is that remedy in
equity by means of which a written instrument is made
or construed so as to express or conform to the real
intention of the parties. In granting reformation,
therefore, equity is not really making a new contract for
the parties, but is confirming and perpetuating the real
contract between the parties which, under the technical
rules of law, could not be enforced but for such
reformation. As aptly observed by the Code
Commission, the rationale of the doctrine is that it would
be unjust and inequitable to allow the enforcement of a
written instrument which does not reflect or disclose the
real meeting of the minds of the parties.
Since the complaint raises the issue that the contract of
lease does not express the true intention or agreement
Page 45 of 67
of the parties due to mistake on the part of the plaintiff
and fraud on the part of the defendant, the court a quo
should have conducted a trial and received the evidence
of the parties for the purpose of ascertaining the true
intention of the parties when they executed the
instrument in question.
Summary judgment can be resorted to only where there
are no questions of fact in issue or where the material
allegations of the pleadings are not disputed.
MODULE 6: INTERPRETATION OF CONTRACTS
Interpretation of Contracts (1370-1379)
77) Kasilag vs. Rodriguez (69 Phil. 217)
FACTS:
Heirs of Emiliana filed a case to recover the subject land
from petitioner.
Emiliana was granted a homestead patent over the
subject land with fruit-bearing trees. The fruit-bearing
trees (improvements) were mortgaged to Kasilag to
secure the sum of 1,000. It was stipulated in contract
(Exhibit 1) that Emiliana was to file a motion for the
cancellation of the Homestead Certificate of Title of the
land within 30 days after the date of the execution of t
mortgage. It was further stipulated that if upon the
expiration of the period of time (4½) years stipulated in
this mortgage, the mortgagor should fail to redeem this
mortgage, she would execute a deed of absolute sale of
the property herein described for the same amount as
this mortgage, including all unpaid interests at the rate
of 12 per cent per annum, in favor of the mortgagee.
One year after the execution of the mortgage, Emiliana
Ambrosio was unable to pay the stipulated interests as
well as the tax on the land and its improvements. For
this reason, she and the petitioner entered into another
verbal contract (antichresis) whereby she conveyed to
the latter the possession of the land on condition that
the latter would not collect the interest on the loan,
would attend to the payment of the land tax, would
benefit by the fruits of the land, and would introduce
improvements thereon. By virtue of this verbal contract,
the petitioner entered upon the possession of the land,
gathered the products thereof, did not collect the
interest on the loan, introduced improvements upon the
land valued at P5,000, according to him and on May 22,
1934 the tax declaration was transferred in his name.
CA interpreted Exhibit 1 as one of absolute sale of the
land and its improvements. Since it involved “sale” of
homestead land within 5 years from its grant, Exhibit 1
was declared null and void.
ISSUE:
Should Exhibit 1 be interpreted as a sale or loan?
RULING:
The words used by the contracting parties in Exhibit 1
clearly show that they intended to enter into the
principal contract of loan in the amount of P1,000,
with interest at 12 per cent per annum, and into the
accessory contract of mortgage of the improvements on
the land acquired as homestead, the parties having
moreover, agreed upon the pacts and conditions stated
in the deed.
The cardinal rule in the interpretation of contracts is to
the effect that the intention of the contracting parties
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
should always prevail because their will has the force of
law between them. Article 1281 of the Civil Code
consecrates this rule and provides, that if the terms of
a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal sense of
its stipulations shall be followed; and if the words
appear to be contrary to the evident intention of the
contracting parties, the intention shall prevail.
Another fundamental rule in the interpretation of
contracts, not less important than those indicated, is to
the effect that the terms, clauses and conditions
contrary to law, morals and public order should be
separated from the valid and legal contract and when
such separation can be made because they are
independent of the valid contract which expresses the
will of the contracting parties.
The foregoing considerations bring us to the conclusion
that error was committed in holding that the contract
entered into between the parties was one of absolute
sale of the land and its improvements and that Exhibit
1 is null and void.
78) University of the Philippines vs. Gabriel
(G.R. No. 70826, Oct. 12, 1987)
FACTS:
On December 27, 1966, the UP and Beta Construction
Co., Inc., entered into a contract for the latter to
construct the Biological Science Building of the U.P.
College of Agriculture at Los Banos, Laguna for a total
lump sum price of Three Million Seven Hundred Ninety
Two Thousand Two Hundred Eighteen Pesos and Seven
Centavos (P3,792,218.07). On January 4, 1967, Beta
subcontracted its plumbing works to private respondent
Allied Plumbing Company represented by its general
manager Domingo P. Gabriel for the total amount of One
Hundred Fifty Five Thousand Eight Hundred Twenty
Eight and 60/100 Pesos (P155,828.60) The plumbing
contract was duly approved by the U.P. Bidding
Committee. On the ground that after Allied Plumbing
Company completed its works, Beta refused to remit the
balance of P64,626.08 plus the payment of additional
works asked by Beta in the total amount of P4,017.90,
the former filed a complaint for "sum of money with
damages" against U.P. and Beta with the Court of First
Instance of Rizal.
ISSUE:
Whether or not petitioner University of the Philippines
(UP) is solidarily liable with Beta Construction Company,
Inc., to pay the amount of P68,843.98 representing the
unpaid balance for labor and materials expended in the
plumbing and extra works performed at the Biological
Science Building of the U.P. College of Agriculture, by
the sub-contractor, Allied Plumbing Company,
RULING:
Act 3959 was intended for private persons, companies,
firms, or corporations using the services of contractors
who may employ their own carpenters, masons, and
laborers or hire sub-contractors. This is made even
more evident by the fact that Presidential Decree No.
442, The Labor Code of the Philippines, Articles 106 to
109 and its Rules and Regulations, Rule VIII, Sections
7-9, have superseded Act 3959. The Labor Code does
not cover government employment.
The applicable law is Act 3688 which is titled "AN ACT
FOR THE PROTECTION OF PERSONS FURNISHING
Page 46 of 67
MATERIAL AND LABOR FOR THE CONSTRUCTION OF
PUBLIC WORKS."
Petitioner UP was established "to provide advanced
instruction in literature, philosophy, the sciences and
arts, and to give professional and technical training."
(Mindanao Federation of Labor v. University of the
Philippines, 138 SCRA 623, citing University of the
Philippines v. Court of Industrial Relations, et al., 107
Phil. 848). Thus, UP performs a governmental
function. It is neither a corporation created for profit
nor an industry or business corporation, but it is a public
institution of higher learning created for a fundamental
public purpose.
There is no doubt that it was in furtherance of its
governmental function as an institution of higher
learning that the UP bidded out the construction of the
Biological Science Building of the College of Agriculture
at Los Banos, Laguna. Thus, the construction of this
building should be considered as a construction of public
works.
In the instant case, Beta, the contractor posted a
"performance bond" in the amount of P758,443.61
"conditioned for the faithful performance of the contract
and for the full payment of all obligation and fees (legal
or business) arising thereunder."
Section 1 of Act 3688 provides that:
"x x x If no suit should be brought by the Government
of the Philippine Islands within six months from the
completion and final settlement of said contract, or if
the Government expressly waives its right to institute
action on the penal bond, then the person or persons
supplying the contractor with labor and materials shall,
upon application therefor, and furnishing affidavit to the
department under the direction of which said work has
been prosecuted, that labor or materials for the
prosecution of such work have been supplied by him or
them, and payment for which has not been made, be
furnished with a certified copy of said contract and bond,
upon which he or they shall have a right of action, and
shall be, and are hereby, authorized to bring suit in the
name of the Government of the Philippine Islands in the
Court of First Instance in the district in which said
contract was to be performed and executed, and not
elsewhere, for his or their use and benefit against said
contractor and his sureties, and to prosecute the same
to final judgment and execution. x x x "
Thus, the private respondent should have requested for
a certified copy of the contract and bond from UP and
sued Beta Construction and the surety company for
unpaid labor and materials instead of proceeding
against UP. Under the circumstances of this case, UP is
not solidarily liable with Beta for the claims of the sub-
contractor against Beta.
79) Sy vs. CA (131 SCRA 116)
FACTS:
Petitioner Priscilo Sy (then plaintiff) was the registered
owner of a parcel of land together with the
improvements thereon, situated in the municipality of
Minglanilla, Province of Cebu. Petitioner obtained a loan
from the Development Bank of the Philippines (which
will hereafter be referred to as DBP) in the amount of
P113,200.00, and to secure the payment thereof,
petitioner and his wife executed a Real Estate Mortgage
in favor of the DBP.Petitioner and respondent Justiniano
Quirino entered into a lease agreement over the said
property for a period of two (2) years, renewable by
mutual consent for another period of two (2) years.
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
Meanwhile, petitioner defaulted in the payment of the
stipulated amortizations on his loan with the DBP and
the latter as mortgagee, sent to petitioner on June 29,
1976, a notice of foreclosure. Petitioner sought a re-
structuring of said loan and an extension of payment,
both of which were denied by DBP. Petitioner then
turned to respondent Quirino, the lessee of the
mortgaged property, and later negotiated with him for
the sale thereof with assumption of mortgage.
Respondent Quirino with the conformity of petitioner
sent a letter to the DBP proposing to assume the
mortgage obligations of petitioner. Petitioner and
respondent, with the consent of their respective
spouses, executed a Deed of Sale with Assumption of
Mortgage of the property in question for and in
consideration of One Peso. It further appears that on
September 10, 1976, petitioner and respondent
executed a separate document (not notarized)
denominated as Deed of Option to Re-purchase.
ISSUE:
WON the Deed of Option to Repurchase is invalid
because it was not notarized and even if it was valid,
the right to repurchase can be exercised only after the
three (3) year-period specified in the agreement
RULING:
It is a basic and fundamental rule in the interpretation
of contract that if the terms thereof are clear and leave
no doubt as to the intention of the contracting parties,
then the literal meaning of the stipulations shall control
but when the words appear contrary to the evident
intention of the parties, the latter shall prevail over the
former. 2 In order to judge the intention of the parties,
their contemporaneous and subsequent acts shall be
principally considered.
Clearly then, from the said respondent's testimony
which stand unrebutted, what petitioner wanted was to
exercise the option at the expiration of four (4) years
and what the respondent agreed to was for petitioner to
exercise the option at the end of three (3) years.
This must be so because at that time, respondent was
occupying the property in question as a lessee of the
petitioner for a period of two (2) years from January 31,
1976, renewable for another period of two (2) years or
up to January 31, 1980. And, as such lessee, respondent
had invested a substantial amount of money in
connection with his business therein, which was the
importation of livestock. The evidence on record shows
that in 1976, when the deed of sale and the option to
repurchase were executed respondent had 280 heads of
imported hogs which he figured out he will be able to
dispose of only in a period of about three (3) years.
Therefore, respondent could not have agreed to a
repurchase which may be done anytime within three (3)
years from the execution of the deed.
Considering however that three (3) years had already
elapsed since September 10, 1976 (execution of the
Deed of Repurchase) the foregoing discussion is now
rendered academic and there is no more any legal
impediment to the exercise of the said right by the
herein petitioner.
80) Angeles vs. Calasang (L-42283, March 18,
1985)
FACTS:
Ursula and Tomas Calasanz sold a piece of land to
Buenaventura Angeles and Teofila Juani covered by a
Page 47 of 67
contract to sell. Angeles paid a down payment upon the
execution of the contract and started paying the balance
in monthly installments for nine years with only a few
remaining installments left to pay. Although Calasanz
accepted late payments before, Angeles was now five
months late. Calasanz demanded payment of past due
accounts, but did not receive any. Eventually, Calansanz
canceled the said contract and Angeles asked for
reconsideration, but was denied.
A provision in the contract to sell gave Calasanz the
right to cancel the contract and consider the amounts
paid as rent for the property. However, the lower court
ruled that the contract was not validly canceled and
ordered Calasanz to execute a final Deed of Sale in favor
of Angeles.
ISSUE:
Was the contract to sell validly canceled?
RULING:
No. The act of a party in treating a contract as canceled
or resolved on account of infractions by the other must
be made known to the other and is always provisional,
being ever subject to scrutiny and review by the proper
court. If the other party denies that rescission is
justified, it is free to bring the matter to court. Then,
should the court decide that the resolution of the
contract was not warranted, the responsible party will
be sentenced to damages; in the contrary case, the
resolution will be affirmed and indemnity awarded to the
party prejudiced.
The right to rescind the contract for non-performance of
one of its stipulations is not absolute. The general rule
is that rescission of a contract will not be permitted for
a slight or casual breach, but only for such substantial
and fundamental breach as would defeat the very object
of the parties in making the agreement. The question of
whether a breach of a contract is substantial depends
upon the attendant circumstances.
The breach of the contract alleged by Calasanz is so
slight considering that Angeles had already paid
monthly installments for almost nine years. In only a
short time, the entire obligation would have been paid.
To mitigate the unilateral act of Calasanz in cancelling
the contract, Article 1234 of the Civil Code provides
that: If the obligation has been substantially performed
in good faith, the obligor may recover as though there
had been a strict and complete fulfillment, less damages
suffered by the obligee.
81) Century Properties, Inc. vs. Babiano, et al,
GR 220978, July 5, 2016
FACTS: Babiano was hired by CPI as Director for Sales
who eventually was promoted for VP for Sales. He is
receiving a salary, allowance and sales commission. His
employment contract contains a clauses which bars him
from disclosing confidential information to business
competing with CPI while he is employed and after 1
year from termination or resignation, otherwise his
compensation will be forfeited. Concepcion was hired
as a Sales Agent who was promoted to Project Director.
She signed a Contract of Agency for Project Director and
receives a monthly subsidy, commission and incentive.
She signed two contracts and both stipulated that no
employee employer relationship exist. After receiving
that Babiano provided a competitor with information
and being AWOL for 5 days, CPI sent a notice to explain
why he should not be charged with disloyalty, conflict of
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interest and breach of trust. He tendered his resignation
but later he was terminated 8 days later. He revealed
he was accepted as VP in a competitor company. 2 days
before Babiano tendered, Concepcion also tendered.
Babiano and Concepcion filed before the NLRC for non-
payment of commissions and damages against CPI. CPI
maintained that the they are just agents tasked with
selling projects, there was due process and termination
was based on just cause.
The Labor Arbiter ruled in favor of CPI. On Appeal, the
NLRC concurred with the Labor Arbtiter, that Babiano’s
acts constituted just cause for termination however
forefeiture is confiscatory and unreasonable. CPI went
to CA, while the affirmed the NLRC ruling, it ruled that
there is a proper money claim from employee-employer
relationship. Hence this appeal.
ISSUES & RULING:
(1) Was there a breach of contract?
YES. The Confidentiality and Non-Compete Clause is not
limited to acts done after the cessation of employer-
employee relationship. Babiano categorically admitted
that he sought employment with a competitor before his
formal resignation. This is a glaring violation of the
Confidentiality and Non-Compete Clause.
(2) Should the CPI be liable for unpaid
commissions?
YES. . There exists an employer-employee relationship.
This is proven by (a) CPI hired and promoted
Concepcion (b) the monthly "subsidy" and cash
incentives that Concepcion was receiving from CPI are
actually remuneration in the concept of wages (c) CPI
had the power to discipline or even dismiss Concepcion
(d) CPI possessed the power of control because in the
performance of her duties as Project Director, she did
not exercise independent discretion. While the
employment contract is denominated as "Contract of
Agency for Project Director" the existence of employer-
employee relations could not be negated by the mere
expedient of repudiating it in a contract. since there
exists an employer-employee relationship between
Concepcion and CPI, thus the CA is correct in ruling that
Labor Code, it nonetheless failed to include all of
respondents' earned commissions thus, necessitating
the increase in award of unpaid commissions in
Concepcion's favor.
82) Werr International Corporation vs.
Highlands Prime, Inc., GR 187543 & 187580,
February 8, 2017
FACTS: Highlands Prime, Inc. (HPI) and Werr
Corporation International (Werr) are domestic
corporations engaged in property development and
construction, respectively. For the construction of 54
residential units contained in three clusters of five-
storey condominium structures, known as “The Horizon-
Westridge Project,” in Tagaytay. The project was not
completed on the last extension given. Thus, HPI
terminated its contract with Werr.
Not having received any payment, Werr filed a
Complaint for arbitration against HPI before the CIAC to
recover the ₱14,834,926.71 representing the balance of
its retention money. In its Answer, HPI countered that
it does not owe Werr because the balance of the
retention money answered for the payments made to
suppliers and for the additional costs and expenses
incurred after termination of the contract. By way of
counterclaim, HPI prayed for the payment of liquidated
damages
Page 48 of 67
After due proceedings, the CIAC rendered its Decision
on August 11, 2008 where it granted Werr’s claim for
the balance of the retention money and arbitration
costs. It also granted HPI’s claim for liquidated damages
in the amount of ₱2,535,059.0l equivalent to 9.327 days
of delay, but denied its counterclaim for damages,
attorney’s fees, and litigation expenses.
The CIAC further ruled that Werr incurred only 9.327
days of delay. Citing Article 137629 of the Civil Code
and considering the failure of the Agreement to state
otherwise, it applied the industry practice in the
construction industry that liquidated damages do not
accrue after achieving substantial compliance. While
according to the CA, delay should be computed from
October 27, 2006 until termination of the contract on
November 28, 2006, or 33 days, since the contract
prevails over the industry practice.
Werr argues that the CA erred in modifying the CIAC
decision on the amount of liquidated damages and
arbitration costs. It insists that the appellate court
disregarded Articles 1234, 1235, and 1376 of the Civil
Code and the industry practice. On the other hand, HPI
argues that Werr was unjustly enriched when the CA
disallowed HPI’ s recovery of the amounts it paid to
suppliers.
ISSUE: Does the industry practice of computing
liquidated damages only up to the substantial
completion of the project apply in the computation of
liquidated damages? (IOW, should delay be computed
until the termination of the contract, or only until the
substantial compliance of the contract?)
RULING:
NO. While this industry practice may supplement the
Agreement, Werr cannot benefit from it. Hence, Werr
must be adjudged with delay until the termination of the
contract.
Deemed incorporated into every contract are the
general provisions on obligations and interpretation of
contracts found in the Civil Code. The Civil Code
provides:
Art. 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment,
less damages suffered by the obligee.
Art. 1376. The usage or custom of the place shall be
borne in mind in the interpretation of the ambiguities of
a contract, and shall fill the omission of stipulations
which are ordinarily established.
In previous cases, the SC applied these provisions in
construction agreements to determine whether the
project owner is entitled to liquidated damages. It was
consistently held that substantial completion of the
project equates to achievement of 95% project
completion which excuses the contractor from the
payment of liquidated damages. Considering the
foregoing, it was error for the CA to immediately dismiss
the application of industry practice on the sole ground
that there is an existing agreement as to liquidated
damages. As expressly stated under Articles 1234 and
1376, and in jurisprudence, the construction industry’s
prevailing practice may supplement any ambiguities or
omissions in the stipulations of the contract.
In this case, clause 41.5 of the Agreement is
undoubtedly a valid stipulation. However, while clause
41.5 requires payment of liquidated damages if there is
delay, it is silent as to the period until when liquidated
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damages shall run. The Agreement does not state that
liquidated damages is due until termination of the
project; neither does it completely reject that it is only
due until substantial completion of the project. This
omission in the Agreement may be supplemented by the
provisions of the Civil Code, industry practice, and the
CIAP Document No. 102. Hence, the industry practice
that substantial compliance excuses the contractor from
payment of liquidated damages applies to the
Agreement.
Werr cannot benefit from the effects of substantial
compliance. Here, there is no dispute that Werr failed to
prove that it completed 95% of the project before or at
the time of the termination of the contract. As found by
CIAC, it failed to present evidence as to what
accomplishment it achieved from the time of the last
billing until the termination of the contract. What was
admitted as accomplishment at the last billing is
93.18%. For this reason, even if we adopt the rule that
no liquidated damages shall run after the date of
substantial completion of the project, Werr cannot claim
benefit for it failed to meet the condition precedent, i.e.,
the contractor has successfully proven that it actually
achieved 95% completion rate.
More importantly, Werr failed to show that it is the
construction industry’s practice to project the date of
substantial completion of a project, and to compute the
period of delay based on the rate in past progress
billings just as what the CIAC has done. Consequently,
the CIAC erred when it assumed that Werr continued to
perform works, and if it did, that it performed them at
the rate of accomplishment of the previous works in the
absence of evidence.
MODULE 7: DEFECTIVE CONTRACTS
Rescissible Contracts (1380-1389)
83) Rosencor Development Corporation vs.
Inquing, et al., (G.R. No. 140479, March 8, 2001)
FACTS: Paterno Inquing, Irene Guillermo, Frederico
Bantugan, Fernando Magbanua, and Liza Tiangco,
herein respondents, averred that they are the lessees,
of a two-story residential apartment located at Tomas
Morato Ave., Quezon City since 1971, and which is
owned by the spouses Faustino and Cresencia Tiangco.
The lease was not covered by a contract and the lessees
were assured by the Spouses Tiangco that they had the
pre-emptive right to purchase the property if ever there
was a decision to sell it.
The original lessors died, and their heir also promised
the lessees the same pre-emptive right to purchase.
However, the new lessors, represented by Eufrocina de
Leon, subsequently demanded the lessees to vacate the
property because the building will allegedly be
demolished. After the lessees declined, she sent them a
letter offering to sell the property for 2M. Lessees made
a counter offer of 1Mn but no reply was made by the
lessors.
De Leon subsequently informed the lessees that the
property was already sold to Rosencor. Lessees claimed
that they were deceived because the property was
already sold to Rosencor before it was offered to them.
They offered to reimburse the payment to the lessors
but the offer was declined. Hence, the lessors filed this
action for the rescission of the Deed of Absolute Sale
between Rosencor and de Leon.
ISSUE: Was the contract of sale to Rosencor
rescissible?
RULING: NO.
Page 49 of 67
The right of first refusal is not covered by the Statute of
Frauds. The application of such statute presupposes the
existence of a perfected contact which is not applicable
in this case. As such, a right of first refusal need not be
written to be enforceable and can be proved by oral
evidence.
Lessees have proven that the lessors admit the right of
first refusal given to them when the property was
offered to them by 2M.
The prevailing doctrine is that a contract of sale entered
in violation of right of first refusal is rescissible.
However, that doctrine cannot be applied to the case at
bar. Under Article 1381 of the Civil Code, paragraph 3,
a contract validly agreed upon may be rescinded if it is
“undertaken in fraud of creditors when the latter cannot
in any manner collect the claim due them.”
Moreover, under Article 1385, rescission shall not take
place “when the things which are the object of the
contract are legally in the possession of third persons
who did not act in bad faith.”
Good faith is always presumed unless contrary to the
evidence is adduced. In the case at bar, there clear and
convincing evidence should have been shown to prove
that petitioners were aware of the right of first refusal
accorded to the respondents.
Respondents point to the letter by Atty. Aguila as proof
of the right of first refusal. However, no mention about
the rights of first refusal was made in said letter. Neither
was there any showing that respondents notified
Rosencor of Atty. Aguila of their right of first refusal
after they received the said letter.
Respondents also point to the letter by De Leon where
she recognized the right of first refusal of the
respondents. However, De Leon was writing on her
behalf and not on behalf of petitioners and, as such, it
only shows that De Leon was aware of the existence of
the rights. It does not show that petitioners were aware
of such rights. Clearly, De Leon is the only party in bad
faith in this case.
Considering the there was no showing of bad faith on
the part of the petitioners, the CA erred in ordering for
the rescission of the Deed of Absolute Sale between
Rosencor and De Leon.
Rosencor could not have acted in bad faith because they
are not aware of the right of first refusal given verbally.
Respondents remedy is not rescission but an action for
damages against De Leon and the heirs of the Spouses
Tiangco for the unjustified disregard of their right of first
refusal.
84) Khe Hong Cheng vs. CA., (G.R. No. 144169,
March 28, 2001)
FACTS
A civil case was filed against the petitionersfor a breach
of contract of carriage. While the case was pending,
petitioner executed deeds of donations of parcels of land
to his children on December 20, 1989. The lower court
rendered judgement against petitioners on December
29, 1993. A writ of execution was served but it was not
satisfied as the sheriff did not found any property of the
petitioner on January, 17, 1997. Respondents filed a
case to annul the deed of donation in favour of the
children by reason it was an act to defraud his creditors
on February 25, 1997.
ISSUES
Is the action to rescind the subject deeds of donations
already prescribed?
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RULING
No. As a general rule an the prescriptive period would
commence when the cause of action accrues.
An accion pauliana accrues only when the creditor
discovers that he has no other legal remedy for the
satisfaction of his claim against the debtor other than
an accion pauliana. The accion pauliana is an action of
a last resort.
Respondent Philam only learned about the unlawful
conveyances made by petitioner Cheng in January 1997
when its counsel accompanied the sheriff to Butuan City
to attach the properties of Cheng. There they found that
he no longer had any properties in his name. it was only
then that respondent Philam’s action for rescission of
the deeds of donation accrued because then it could be
said that respondent Philam had exhausted all legal
means to satisfy the trial court’s judgement in its favour.
Accion pauliana presupposes a judgment and
unsatisfied execution, which cannot exist when the debt
is not yet demandable at the time the rescissory action
is brought. Rescission is a subsidiary action, which
presupposes that the creditor has exhausted the
property of the debtor which is impossible in credits
which cannot be enforced because of a suspensive term
or condition.
Since respondent Philam filed its complain for accion
pauliana against Cheng on February 25, 1997, barely a
month from its discovery that Cheng had no property to
satisfy the judgement award against him, its action for
rescission of the subject deeds clearly had not yet
prescribed.
85) Guzman, Bocaling and Co., Inc. vs.
Bonnnevie, (206 SCRA 668)
FACTS:
Renoso is the owner of the property being leased by the
Bonnevies. Their Contract of Lease states that the
lessee shall be given a first priority to purchased the
same. Reynoso sold the property to Guzman, Bocaling
and Co. (GBC) without informing the Bonnevies that the
property shall be sold. Hence, the lessees were not able
to exercise their right of first priority to purchase. The
Guzman, bocaling and Co. were aware of the lease
agreement. The Bonnevies then filed an action for the
annulment of the Contract of Sale between GBC and
Reynoso.
ISSUE:
Whether or not the Contract of Sale between Guzman,
Bocaling & Co. and Reynoso is rescissible
RULING
Yes. The Contract of Sale was not voidable but
rescissible. Under Article 1380 to 1381 (3) of the Civil
Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third
persons, like creditors.
Rescission is a remedy granted by law to the contracting
parties and even to third persons, to secure reparations
for damages caused to them by a contract, even if this
should be valid, by means of the restoration of things to
their condition at the moment prior to the celebration of
said contract. It is a relief allowed for the protection of
one of the contracting parties and even third persons
from all injury and damage the contract may cause, or
to protect some incompatible and preferent right
created by the contract. Rescission implies a contract
which, even if initially valid, produces a lesion or
Page 50 of 67
pecuniary damage to someone that justifies its
invalidation for reasons of equity.
It is true that the acquisition by a third person of the
property subject of the contract is an obstacle to the
action for its rescission where it is shown that such third
person is in lawful possession of the subject of the
contract and that he did not act in bad faith. However,
this rule is not applicable in the case before us because
the petitioner is not considered a third party in relation
to the Contract of Sale nor may its possession of the
subject property be regarded as acquired lawfully and
in good faith.
The petitioner are the vendees. Moreover they, cannot
be deemed a purchaser in good faith for the record
shows that it categorically admitted that it was aware of
the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold
to it.
86) Concepcion vs. Sta. Anna, (87 Phil. 787)
FACTS
Perpetua Conception sold her three parcels of land to
Paciencia during her lifetime. When Perpetua died,
Monico, the only surviving legitimate brother of the
former filed an Action to Annul the Sale. According to
the complaint, the deceased, in connivance with the
defendant and with intent to defraud the plaintiff sold
and conveyed them to the latter, for false and fictitious
consideration. The Court of First Instance dismissed the
complaint. On appeal, Monico added that as an heir of
Perpetua, he can bring the action to annul the contract.
ISSUE:
Whether or not Perpetua has transmitted to the plaintiff
any right in order that he can bring an action herein.
RULING:
None. As the deceased had no forced heir, she was free
to dispose of all her properties as absolute owner
thereof, without further limitation than those
established by law, and the right to dispose of a thing
involves the right to give or to convey it to another
without any consideration. The only limitation
established by law on her right to convey said properties
to the defendant without any consideration is, that she
could not dispose of or transfer her property to another
in fraud of her creditors.
ON RESCISSION:
Also, the court ruled, using the words of Maneas, that
forced heir has the right to institute an action for
rescission. The reason is that the right to the legitime is
similar to a creditor of a creditor. Plaintiff, being the
brother of the deceased is not among those enumerated
in the Civil Code as forced heir of the decedent.
87) Rivera vs. Li Tam and Co., (4 SCRA 1072)
FACTS:
Deceased – Rafael Litam
Administrator – Arminio Rivera, nephew of Marcosa
Rivera
Wife of deceased – Marcosa Rivera
This is a case of an action to recover shares of
stock. Petitioner Arminio Rivera, administrator of the
estate of the deceased Rafael Litam, filed an action to
recover from the defendants 54/204 shares of stock
belonging to the deceased (Rafael Litam) in the Li Tam
& Co. Inc. Petitioner Rivera alleges that the said shares
have been fraudulently transferred by the defendants –
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the alleged children of the deceased Rafael Litam in a
previous marriage in China.
Rafael Litam was married to Marcosa Rivera.
When he died, intestate proceedings were instituted
for the settlement of his estate by Gregorio Dy Tam.
Gregorio Dy Tam alleged that he, William, Henry, Luis
Litam, and Li Hong Hap are the children of Rafael Litam
by a Chinese wife with whom the deceased Rafael Litam
contracted marriage in China before his marriage to
Marcosa Rivera. The wife of the deceased, Marcosa
Rivera, proposed Ariminio Rivera, her nephew, as
administrator. Arminio Rivera was chosen as appointed
by the court as administrator.
During the pendency of the intestate
proceedings, Marcosa Rivera, wife of the deceased
Rafael Litam, filed a claim for a total sum of
PHP252,658.33 against the intestate.
Arminio Rivera, administrator of the intestate,
moved the court to require the president and manager
of Li Tam & Company, Inc., Lee Chu, to give an account
of the income derived from the 54/205 shares of stock
of the intestate. The president and manager of the
company, Lee Chu, alleged that at the time of Rafael
Litam’s death, the deceased was no longer a
stockholder, having transferred his shares to the alleged
children of the deceased.
ISSUE:
WON there was fraud in the transfer of property. Yes.
RULING:
In Atty. DBL’s syllabus, he placed this case under
Rescissible Contracts. The SC in this case only discussed
the matter on fraud. So, I suggest we relate this case to
Article 1381 (3) of the Civil Code, under rescissible
contracts – Those undertaken in fraud of creditors when
the latter cannot in any other manner collect claims due
them;
It appears, therefore, that the deceased Rafael Litam
had been getting money from his Filipina wife (to
distinguish her from the Chinese wife by whom he had
his children, the defendants bearing his surname),
borrowing from her big sums which he put in the
company, Li Tam and Company, Inc., in shares of stock
of this corporation, later endorsing the certicates
evidencing transfer thereof, without date, and delivering
the shares to his children, also investing the funds of
the company, in the purchase of real estate also in the
name of the corporation, thus depriving his wife, from
whom the money came, of the legal means to get back
the money loaned. And to complete the fraudulent
scheme and in order to make the properties more
invulnerable to the claims of Rafael Litam's creditors,
the defendants for no apparent reason, dissolved the old
corporation and formed the new Li Tam and Company,
Inc., on October 3, 1952, the defendants, children of the
deceased being the new stockholders (See Exhibit "X").
The fact that in the new corporation the respective
shares of the incorporators do not exactly coincide with
the shares each had received from Rafael Litam,
according to the endorsements of the original shares,
prove that Rafael Litam's children actually divided his
assets among themselves, not according to the
endorsements of the shares.
The fraudulent character of the transfer of all his shares
of stock by Rafael Litam is clearly inferable from the
following circumstances, namely, the transferees are his
own children, no consideration or price was given or
received for the transfer; the shares of stock were the
only properties of Rafael Litam; there was no apparent
need for him to dispose of all of them as the corporation
Page 51 of 67
was the only source of business that he had, and he had
an outstanding indebtedness of more than P250,000
with his wife with whom he had no issue.
In view of the fraud and all the foregoing, the transfer
of the shares must be declared null and void and of no
effect (Article 1409, Civil Code), and the transferees, as
well as the corporation which consented to the transfer,
must all be held liable for the return of the properties
that the shares represented, or their values (Articles
1352, Civil Code).
88) Oria vs. McMiking, (21 Philo. 243)
FACTS:
Defendant: Gutierrez Hermanos – creditor who filed 2
cases against Oria Hermanos & Co.
Plaintiff: Manuel Oria Gonzalez – alleged buyer of the
properties of Oria Hermanos & Co.
Debtor: Oria Hermanos & Co. (managing partner &
liquidator: Tomas Oria y Balbas)
Respondent Gutierrez Hermanos filed 2 cases
against Oria Hermanos & Co. for the recovery of
PHP147,204.28, and PHP12,318.57.
After the filing of the 2 cases, the partners of
Oria Hermanos & Co., on account of the expiration of
the time stated in the agreement of their copartnership,
dissolved their relations and entered into liquidation.
Tomas Oria y Balbas (manager), the managing
partner & liquidator of Oria Hermanos & Co., entered
into a contract on his behalf and on behalf of the other
co-owners, with plaintiff Manuel Oria Gonzalez. This
contract was for the purpose of selling and transferring
to plaintiff in this action all of the property of which the
said Oria Hermanos & Co. was owner.
Among the goods being transferred to plaintiff
Manuel Oria Gonzalez was the steamship Serantes,
which is the subject of this litigation.
One of the cases filed by respondent Gutierrez
Hermanos against Oria Hermanos & Co. was ruled in his
favor. Upon execution of the judgment, the sheriff
immediately demanded payment from Tomas Oria y
Balbas (manager) as liquidator of Oria Hermanos & Co..
The manager replied that there were no funds with
which to pay the judgment.
The sheriff then levied the steamer Serantes,
took possession of the same, and announced it for sale
at public auction.
Three days before the sale, the plaintiff, Manuel
Oria Gonzalez presented to the sheriff a written
statement claiming to be the owner of the steamship.
The plaintiff then presented a bond required by the
sheriff. Respondent Gutierrez Hermanos became the
purchaser during the public sale.
Plaintiff Manuel Oria Gonzalez then filed a complaint
praying for (1) an issuance of a preliminary injunction
to prevent the sale of the steamship, (2) a declaration
that he is the owner of the said steamship and is entitled
to the possession of the same, (3) that the defendant
Gutierrez Hermanos be required to restore the same to
him and to pay PHP10,000 damages for its detention.
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ISSUE: (Panla), Ramon Baylon (Ramon) and herein petitioner

WON the conveyance to plaintiff Manuel Oria Gonzalez
was fraudulent. Yes.
RULING:
In determining whether or not a certain conveyance is
fraudulent the question in every case is whether the
conveyance was a bona fide transaction or a trick and
contrivance to defeat creditors, or whether it conserves
to the debtor a special right. It is not sufficient that it is
founded on good consideration or is made with bona fide
intent: it must have both elements. If defective in either
of these particulars, although good between the parties,
it is voidable as to creditors. The rule is universal both
at law and in equity that whatever fraud creates justice
will destroy. The test as to whether or not a
conveyance is fraudulent is, does it prejudice the
rights of creditors?
Lilia B. Ada (Lilia).
Dolores died intestate and without issue on August 4,
1976. Victoria died on November 11, 1981 and was
survived by her daughter, herein petitioner Luz B.
Adanza. Ramon died intestate on July 8, 1989 and was
survived by herein respondent Florante Baylon
(Florante), his child from his rst marriage, as well as by
petitioner Flora Baylon, his second wife, and their
legitimate children, namely, Ramon, Jr. and herein
petitioners Remo, Jose, Eric, Florentino and Ma. Ruby,
all surnamed Baylon.
SUMMARY:

In the consideration of whether or not certain transfers

were fraudulent, courts have laid down certain rules by
which the fraudulent character of the transaction may
be determined. The following are some of the
circumstances attending sales which have been
denominated by the courts badges of fraud:

1. The fact that the consideration of the conveyance is

fictitious or is inadequate.

2. A transfer made by a debtor after suit has been begun

and while it is pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete

insolvency.

5. The transfer of all or nearly all of his property by a

debtor, especially when he is insolvent or greatly
embarrassed financially.

6. The fact that the transfer is made between father and

son; when there are present other of the above
circumstances.

7. The failure of the vendee to take exclusive possession

of all the property.
The case at bar presents every one of the badges of
fraud above enumerated. Tested by the inquiry, does
the sale prejudice the rights of creditors, the result is
clear. The sale in the form in which it was made leaves
the creditors substantially without recourse. The
property of the company is gone, its income is gone, the
business itself is likely to fail, the property is being
dissipated, and is depreciating in value. As a result,
even if the claims of the creditors should live twelve
years and the creditors themselves wait that long, it is
more than likely that nothing would be found to satisfy
their claims at the end of the long wait.
89) Lilia B. Ada, etc. vs. Baylon, (G.R. No.
182435, August 13, 2012)
FACTS:
Spouses Florentino Baylon and Maximina Elnas Baylon
(Spouses Baylon) died on November 7, 1961 and May
5, 1974, respectively. At the time of their death,
Spouses Baylon were survived by their legitimate
children, namely, Rita Baylon (Rita), Victoria Baylon
(Victoria), Dolores Baylon (Dolores), Panla Gomez
The petitioners then filed a complaint for partition,
accounting, and damages against Florante, Rita, and
Panfila. They alleged that Spouses Baylon, during their
lifetime, owned 43 parcels of land. After the death of the
spouses, they alleged that Rita took possession on the
43 parcels and appropriated for herself the income from
the same. They further alleged that Rita, using the
income produced by the 43 parcels, purchased 2 parcels
of land. According to the petitioners, Rita refused to
effect a partition of the 43 parcels of land.
In their answer, Florante, Rita, and Panfila
asserted that they and the petitioners co-owned only 22
out of the 43 parcels of land mentioned in the complaint,
while the remaining 11 parcels are separately owned by
Petra Adanza, Florante, Meliton Adalia, Consorcia
Adanza, Lilia, and Santiago Mendez. They also claimed
that the 2 lots bought by Rita were acquired using her
own money, and that she didn’t appropriate solely for
herself the income of the estate of the Spouses Baylon.
They also alleged that Rita expressed no objection to
the partition of the estate of Spouses Baylon, but only
with respect to the co-owned parcels of land.
During the pendency of the case filed by the
petitioners, Rita, through a Deed of Donation, conveyed
Lot No. 4709 and half of Lot No. 4706 to Florante.
Because of this donation, the petitioners filed a
Supplemental Pleading praying that the donation in

Page 52 of 67
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favor of respondent Florante be rescinded in accordance
with Article 1381 (4) of the Civil Code.
Florante and Panfila opposed the rescission of
the said donation, asserting that Article 1381 (4) of the
Civil Code applies only when there is already a prior
judicial decree on who between the contending
parties actually owned the properties under
litigation.
ISSUE:
WON the donation inter vivos in favor of Florante may
only be rescinded if there is already a judicial
determination that the same actually belonged to
the estate of Spouses Baylon.
Short answer: No. The right to ask rescission of a
contract under Article 1381 (4) of the Civil Code is not
contingent upon the final determination of the
ownership of the thing subject of litigation.
RULING:
Article 1381. The following contracts are
rescissible:
(4) Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of competent
judicial authority.
The rescission of a contract under Article 1381 (4) of the
Civil Code only requires the concurrence of the
following: first, the defendant, during the pendency of
the case, enters into a contract which refers to the thing
subject of litigation; and second, the said contract was
entered into without the knowledge and approval of the
litigants or of a competent judicial authority. As long as
the foregoing requisites concur, it becomes the duty of
the court to order the rescission of the said contract.
The petitioners had sufficiently established the presence
of the requisites for the rescission of a contract pursuant
to Article 1381 (4) of the Civil Code. It is undisputed
that, at the time they were gratuitously conveyed by
Rita, Lot No. 4709 and half of Lot No. 4706 are among
the properties that were the subject of the partition case
then pending with the RTC. It is also undisputed that
Rita, then one of the defendants in the partition case
with the RTC, did not inform nor sought the approval
from the petitioners or of the RTC with regard to the
donation inter vivos of the said parcels of land to
Florante.
Although the gratuitous conveyance of the said parcels
of land in favor of Florante was valid, the donation inter
vivos of the same being merely an exercise of
ownership, Rita's failure to inform and seek the approval
of the petitioners or the RTC regarding the conveyance
gave the petitioners the right to have the said donation
rescinded pursuant to Article 1381 (4) of the Civil Code.
It bears stressing that the right to ask for the rescission
of a contract under Article 1381 (4) of the Civil Code is
not contingent upon the final determination of the
ownership of the thing subject of litigation. The
primordial purpose of Article 1381 (4) of the Civil Code
is to secure the possible effectivity of the impending
judgment by a court with respect to the thing subject of
litigation. It seeks to protect the binding effect of a
Page 53 of 67
court's impending adjudication vis-à-vis the thing
subject of litigation regardless of which among the
contending claims therein would subsequently be
upheld. Accordingly, a definitive judicial determination
with respect to the thing subject of litigation is not a
condition sine qua no before the rescissory action
contemplated under Article 1381 (4) of the Civil Code
may be instituted.
Moreover, conceding that the right to bring the
rescissory action pursuant to Article 1381 (4) of the Civil
Code is preconditioned upon a judicial determination
with regard to the thing subject litigation, this would
only bring about the very predicament that the said
provision of law seeks to obviate. Assuming arguendo
that a rescissory action under Article 1381 (4) of the
Civil Code could only be instituted after the dispute with
respect to the thing subject of litigation is judicially
determined, there is the possibility that the same may
had already been conveyed to third persons acting in
good faith, rendering any judicial determination with
regard to the thing subject of litigation illusory. Surely,
this paradoxical eventuality is not what the law had
envisioned.
Voidable Contracts (1390-1402)
90) Bael vs. Intermediate Appellate Court (169
SCRA 617)
Facts: Eustaquio Bael (Petitioner) entered into a
contract of sale in 1964 with Desiderio Bael over the
land which the latter inherited from his father.
Desiderio, along with his mother and siblings, claimed
that the Deed of Absolute Sale was obtained through
fraud as he believed that the contract was actually one
of mortgage to guarantee his loans. His mother, Eusebia
Bael, claimed that she never signed the contract
although her thumbmark appears therein. As such, the
Baels filed a complaint for nullification of deed of sale on
1972.
In his answer, petitioner alleged that the action is barred
by prescription. The trial court ruled in favor of
petitioner but the IAC reversed the ruling.
Issue: WON the action for annulment has prescribed
Ruling: YES. Under Article 1391 of the Civil Code, the
prescriptive period for annulment of contracts based on
intimidation, violence, undue influence is four (4) years
from the time the defect of the consent ceases while in
case of mistake or fraud, the period of prescription
commences to run from the discovery of the same.
In legal contemplation, discovery of fraud or mistake
must be reckoned to have taken place from the
execution of the contract if there is an allegation that it
did not reflect the true intention of the parties or from
the registration of the alleged fraudulent document with
the assessor's office for the purpose of transferring the
tax declaration.
The trial court found that from the execution of Exhibit
"1," the Deed of Absolute Sale in 1964 and of the private
documents, Exhibits "2"," "3" and "4" in 1963 up to the
time (1972) of the filing of the action or for a period of
eight or nine years, petitioners Eustaquio Bael et al.
openly took possession of the property, claimed
ownership thereof and enjoyed the produce exclusively.
On the other hand, the heirs of Zoilo Bael never asserted
any right over the land, much less, institute legal action
to recover possession except in 1972 after a lapse of
more than eight (8) years (Rollo, pp. 112-113).
Accordingly, the four year prescriptive period should be
computed from 1964, the execution of Exhibit "1" or
1963, the execution of Exhibits "2," "3" and "4" or in
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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1967 which appears to be the date of the registration of
the document with the Assessor's Office when Tax
Declaration No. 6332 or Exhibit "13" was issued in the
name of Eustaquio Bael. In either case the action filed
on October 20, 1972 by private respondent had
prescribed.
91) Braganza vs. Villa Abrille, (105 Phil. 466)
Facts: Rosario Braganza and her sons loaned from De
Villa Abrille P70,000 in Japanese war notes and in
consideration thereof, promised in writing to pay him
P10,00 + 2% per annum in legal currency of the
Philippines 2 years after the cessation of the war.
Because they have no paid, Abrille sued them in March
1949. The Manila court of first instance and CA held the
family solidarily liable to pay according to the contract
they signed. The family petitioned to review the decision
of the CA whereby they were ordered to solidarily pay
De Villa Abrille P10,000 + 2% interest, praying for
consideration of the minority of the Braganza sons when
they signed the contract.
Issue: Whether the boys, who were 16 and 18
respectively, are to be bound by the contract of loan
they have signed.
Ruling: The SC found that Rosario will still be liable to
pay her share in the contract because the minority of
her sons does not release her from liability. She is
ordered to pay 1/3 of P10,000 + 2% interest.
However with her sons, the SC reversed the decision of
the CA which found them similarly liable due to their
failure to disclose their minority. The SC sustained
previous sources in Jurisprudence – “in order to hold the
infant liable, the fraud must be actual and not
constructive. It has been held that his mere silence
when making a contract as to his age does not
constitute a fraud which can be made the basis of an
action of deceit.”
92) Singson vs. Isabela Sawmill, (88 SCRA
623)
Facts: In 1951, defendants entered into a contract of
partnership under the firm name “Isabela Sawmill”. In
1956 the plaintiff sold to the partnership a motor truck
and two tractors. The partnership was not able to pay
their whole balance even after demand was made. One
of the partners withdrew from the partnership but
instead of terminating the said partnership it was
continued by the two remaining partners under the
same firm name. Plaintiffs also seek the annulment of
the assignment of right with chattel mortgage entered
into by the withdrawing partner and the remaining
partners. The appellants contend that the chattel
mortgage may no longer be nullified because it had been
judicially approved and said chattel mortgage had been
judicially foreclosed.
Issue: WON Saldenajo is liable to the plaintiffs for the
partnership properties which were mortgaged to her and
which she purchased at the public auction
Ruling: Yes. It does not appear that the withdrawal of
the partner was not published in the newspapers. The
appellees and the public in general had a right to expect
that whatever, credit they extended to the remaining
partners could be enforced against the properties of the
partnership. The withdrawing partner cannot be relieved
from her liability to the creditor of the partnership due
to her own fault by not insisting on the liquidation of the
partnership. Though she had acted in good faith, the
appellees also acted in good faith in extending credit to
the partnership. Where one of two innocent persons
must suffer, that person who gave occasion for the
damages to be caused must bear the consequences.
Technically, the partnership was dissolved by the
Page 54 of 67
withdrawal of one of the partners. Through her acts of
entering into a memorandum with the remaining
partners misled the creditors that they were doing
business with the partnership. Hence, from the order of
the lower court ordering the withdrawing partner to pay
the plaintiffs, she is thus entitled for reimbursement
from the remaining partners.
As a rule, a contract cannot be assailed by one who is
not a party thereto. However, when a contract
prejudices the rights of a third person, he may file an
action to annul the contract. This Court has held that a
person, who is not a party obliged principally or
subsidiarily under a contract, may exercised an action
for nullity of the contract if he is prejudiced in his rights
with respect to one of the contracting parties, and can
show detriment which would positively result to him
from the contract in which he has no intervention.
The plaintiffs-appellees were prejudiced in their rights
by the execution of the chattel mortgage over the
properties of the partnership "Isabela Sawmill" in favopr
of Margarita G. Saldajeno by the remaining partners,
Leon Garibay and Timoteo Tubungbanua. Hence, said
appelees have a right to file the action to nullify the
chattel mortgage in question.
93) Talag vs. Tankengko (32 Phil. 1066)
NO SUCH CASE WAS FOUND IN CD ASIA
94) Unenforceable Contracts (1403-
1408)
PLEASE DO REFER TO YOUR CODALS
95) Rosencor Development Corporation vs.
Inquing, et al.,(supra.)
FACTS:
This action was originally for the annulment of the Deed
of Absolute Sale dated September 4, 1990 between
defendants Rosencor and Eufrocina de Leon but later
amended praying for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are
the lessees since 1971 of a two-story residential
apartment located at No. 150 Tomas Morato Ave.,
Quezon City covered by TCT No. 96161 and owned by
spouses Faustino and Cresencia Tiangco. The lease was
not covered by any contract. The lessees were renting
the premises then for P150.00 a month and were
allegedly verbally granted by the lessors the pre-
emptive right to purchase the property if ever they
decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the
management of the property was adjudicated to their
heirs who were represented by Eufrocina de Leon. The
lessees were allegedly promised the same pre-emptive
right by the heirs of Tiangcos since the latter had
knowledge that this right was extended to the former by
the late spouses Tiangcos. The lessees continued to stay
in the premises and allegedly spent their own money
amounting from P50,000.00 to P100,000.00 for its
upkeep.
These expenses were never deducted from the rentals
which already increased to P1,000.00. In June 1990, the
lessees received a letter from Atty. Erlinda Aguila
demanding that they vacate the premises so that the
demolition of the building be undertaken. They refused
to leave the premises.
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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In that same month, de Leon refused to accept the
lessees' rental payment claiming that they have run out
of receipts and that a new collector has been assigned
to receive the payments. Thereafter, they received a
letter from Eufrocina de Leon offering to sell to them the
property they were leasing for P2,000,000.00.
The lessees offered to buy the property from de Leon
for the amount of P1,000,000.00. De Leon told them
that she will be submitting the offer to the other heirs.
Since then, no answer was given by de Leon as to their
offer to buy the property. However, in November 1990,
Rene Joaquin came to the leased premises introducing
himself as its new owner.
In January 1991, the lessees again received another
letter from Atty. Aguila demanding that they vacate the
premises. A month thereafter, the lessees received a
letter from de Leon advising them that the heirs of the
late spouses Tiangcos have already sold the property to
Rosencor. The following month Atty. Aguila wrote them
another letter demanding the rental payment and
introducing herself as counsel for Rosencor/Rene
Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had
disregarded the pre-emptive right she and the late
Tiangcos have promised them. They also asked for a
copy of the deed of sale between her and the new
owners thereof but she refused to heed their request. In
the same manner, when they asked Rene Joaquin a
copy of the deed of sale, the latter turned down their
request and instead Atty. Aguila wrote them several
letters demanding that they vacate the premises. The
lessees offered to tender their rental payment to de
Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken
by the Building Official, the barangay interceded
between the parties herein after which Rosencor raised
the issue as to the rental payment of the premises. It
was also at this instance that the lessees were furnished
with a copy of the Deed of Sale and discovered that they
were deceived by de Leon since the sale between her
and Rene Joaquin/Rosencor took place in September 4,
1990 while de Leon made the offer to them only in
October 1990 or after the sale with Rosencor had been
consummated. The lessees also noted that the property
was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling
price of P726,000.00 plus an additional P274,000.00 to
complete their P1,000,000.00 earlier offer. When their
offer was refused, they filed the present action praying
for the following: a) rescission of the Deed of Absolute
Sale between de Leon and Rosencor dated September
4, 1990; b) the defendants Rosencor/Rene Joaquin be
ordered to reconvey the property to de Leon; and c) de
Leon be ordered to reimburse the plaintiffs for the
repairs of the property, or apply the said amount as part
of the price for the purchase of the property in the sum
of P100,000.00.
ISSUE:
1.) Whether a "right of first refusal" is among those
enumerated in the list of contracts covered by the
Statute of Frauds. More specifically, is a right of first
refusal akin to "an agreement for the leasing of a longer
period than one year, or for the sale of real property or
of an interest therein" as contemplated by Article 1403,
par. 2(e) of the New Civil Code.
2.) Whether or not respondents have satisfactorily
proven their right of first refusal over the property
subject of the Deed of Absolute Sale dated September
Page 55 of 67
4, 1990 between petitioner Rosencor and Eufrocina de
Leon.
3.) Whether or not the Court of Appeals erred in
ordering the rescission of the Deed of Absolute Sale
dated September 4, 1990 between Rosencor and
Eufrocina de Leon and in decreeing that the heirs of the
spouses Tiangco should afford respondents the exercise
of their right of first refusal.
RULING:
At the onset, we note that both the Court of Appeals and
the Regional Trial Court relied on Article 1403 of the New
Civil Code, more specifically the provisions on the
statute of frauds, in coming out with their respective
decisions.
The trial court, in denying the petition for reconveyance,
held that the right of first refusal relied upon by
petitioners was not reduced to writing and as such, is
unenforceable by virtue of the said article. The Court of
Appeals, on the other hand, also held that the statute of
frauds governs the "right of first refusal" claimed by
respondents. However, the appellate court ruled that
respondents had duly proven the same by reason of
petitioners' waiver of the protection of the statute by
reason of their failure to object to the presentation of
oral evidence of the said right.
Both the appellate court and the trial court failed to
discuss, however, the threshold issue of whether or not
a right of first refusal is indeed covered by the provisions
of the New Civil Code on the statute of frauds.
The resolution of the issue on the applicability of the
statute of frauds is important as it will determine the
type of evidence which may be considered by the trial
court as proof of the alleged right of first refusal. The
term "statute of frauds" is descriptive of statutes which
require certain classes of contracts to be in writing. This
statute does not deprive the parties of the right to
contract with respect to the matters therein involved,
but merely regulates the formalities of the contract
necessary to render it enforceable. Thus, they are
included in the provisions of the New Civil Code
regarding unenforceable contracts, more particularly
Art. 1403, paragraph 2.
"Art. 1403. The following contracts are unenforceable,
unless they are ratified:
xxx xxx xxx
(2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
a) An agreement that by its terms is not to be performed
within a year from the making thereof;
b) A special promise to answer for the debt, default, or
miscarriage of another;
c) An agreement made in consideration of marriage,
other than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things
in action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such goods
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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and chattels, or the evidences, or some of them, of such
things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction
and entry is made by the auctioneer in his sales book,
at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of purchasers
and person on whose account the sale is made, it is a
sufficient memorandum;
e) An agreement for the leasing of a longer period than
one year, or for the sale of real property or of an interest
therein;
f) A representation to the credit of a third person."
The purpose of the statute is to prevent fraud and
perjury in the enforcement of obligations depending for
their evidence on the unassisted memory of witnesses
by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the
party to be charged.
Moreover, the statute of frauds refers to specific kinds
of transactions and cannot apply to any other
transaction that is not enumerated therein. The
application of such statute presupposes the existence of
a perfected contract.
1.)
A right of first refusal is not among those listed as
unenforceable under the statute of frauds. Furthermore,
the application of Article 1403, par. 2(e) of the New Civil
Code presupposes the existence of a perfected, albeit
unwritten, contract of sale. A right of first refusal, such
as the one involved in the instant case, is not by any
means a perfected contract of sale of real property. At
best, it is a contractual grant, not of the sale of the real
property involved, but of the right of first refusal over
the property sought to be sold. It is thus evident that
the statute of frauds does not contemplate cases
involving a right of first refusal. As such, a right of first
refusal need not be written to be enforceable and may
be proven by oral evidence.
2.)
On this point, we agree with the factual findings of the
Court of Appeals that respondents have adequately
proven the existence of their right of first refusal.
Federico Bantugan, Irene Guillermo, and Paterno
Inquing uniformly testified that they were promised by
the late spouses Faustino and Crescencia Tiangco and,
later on, by their heirs a right of first refusal over the
property they were currently leasing should they decide
to sell the same.
Moreover, respondents presented a letter dated October
9, 1990 where Eufrocina de Leon, the representative of
the heirs of the spouses Tiangco, informed them that
they had received an offer to buy the disputed property
for P2,000,000.00 and offered to sell the same to the
respondents at the same price if they were interested.
Verily, if Eufrocina de Leon did not recognize
respondents' right of first refusal over the property they
were leasing, then she would not have bothered to offer
the property for sale to the respondents.
3.)
Page 56 of 67
Thus, the prevailing doctrine, as enunciated in the cited
cases, is that a contract of sale entered into in violation
of a right of first refusal of another person, while valid,
is rescissible.
There is, however, a circumstance which prevents the
application of this doctrine in the case at bench. In the
cases cited above, the Court ordered the rescission of
sales made in violation of a right of first refusal precisely
because the vendees therein could not have acted in
good faith as they were aware or should have been
aware of the right of first refusal granted to another
person by the vendors therein. The rationale for this is
found in the provisions of the New Civil Code on
rescissible contracts. Under Article 1381 of the New Civil
Code, paragraph 3, a contract validly agreed upon may
be rescinded if it is "undertaken in fraud of creditors
when the latter cannot in any manner collect the claim
due them." Moreover, under Article 1385, rescission
shall not take place "when the things which are the
object of the contract are legally in the possession of
third persons who did not act in bad faith."
It must be borne in mind that, unlike the cases cited
above, the right of first refusal involved in the instant
case was an oral one given to respondents by the
deceased spouses Tiangco and subsequently recognized
by their heirs. As such, in order to hold that petitioners
were in bad faith, there must be clear and convincing
proof that petitioners were made aware of the said right
of first refusal either by the respondents or by the heirs
of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless
contrary evidence is adduced. A purchaser in good faith
is one who buys the property of another without notice
that some other person has a right or interest in such a
property and pays a full and fair price at the time of the
purchase or before he has notice of the claim or interest
of some other person in the property. In this regard, the
rule on constructive notice would be inapplicable as it is
undisputed that the right of first refusal was an oral one
and that the same was never reduced to writing, much
less registered with the Registry of Deeds. In fact, even
the lease contract by which respondents derive their
right to possess the property involved was an oral one.
On this point, we hold that the evidence on record fails
to show that petitioners acted in bad faith in entering
into the deed of sale over the disputed property with the
heirs of the spouses Tiangco.
Respondents failed to present any evidence that prior to
the sale of the property on September 4, 1990,
petitioners were aware or had notice of the oral right of
first refusal. Respondents point to the letter dated June
1, 1990 as indicative of petitioners' knowledge of the
said right. In this letter, a certain Atty. Erlinda Aguila
demanded that respondent Irene Guillermo vacate the
structure they were occupying to make way for its
demolition.
We fail to see how the letter could give rise to bad faith
on the part of the petitioner. No mention is made of the
right of first refusal granted to respondents. The name
of petitioner Rosencor or any of its officers did not
appear on the letter and the letter did not state that
Atty. Aguila was writing in behalf of petitioner. In fact,
Atty. Aguila stated during trial that she wrote the letter
in behalf of the heirs of the spouses Tiangco. Moreover,
even assuming that Atty. Aguila was indeed writing in
behalf of petitioner Rosencor, there is no showing that
Rosencor was aware at that time that such a right of
first refusal existed.
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Neither was there any showing that after receipt of this
June 1, 1990 letter, respondents notified Rosencor or
Atty. Aguila of their right of first refusal over the
property. Respondents did not try to communicate with
Atty. Aguila and inform her about their preferential right
over the disputed property. There is even no showing
that they contacted the heirs of the spouses Tiangco
after they received this letter to remind them of their
right over the property.
Respondents likewise point to the letter dated October
9, 1990 of Eufrocina de Leon, where she recognized the
right of first refusal of respondents, as indicative of the
bad faith of petitioners. We do not agree.
Eufrocina de Leon wrote the letter on her own behalf
and not on behalf of petitioners and, as such, it only
shows that Eufrocina de Leon was aware of the
existence of the oral right of first refusal. It does not
show that petitioners were likewise aware of the
existence of the said right. Moreover, the letter was
made a month after the execution of the Deed of
Absolute Sale on September 4, 1990 between petitioner
Rosencor and the heirs of the spouses Tiangco. There is
no showing that prior to the date of the execution of the
said Deed, petitioners were put on notice of the
existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on
respondents' evidence, it would only be on the part of
Eufrocina de Leon as she was aware of the right of first
refusal of respondents yet she still sold the disputed
property to Rosencor. However, bad faith on the part of
Eufrocina de Leon does not mean that petitioner
Rosencor likewise acted in bad faith. There is no
showing that prior to the execution of the Deed of
Absolute Sale, petitioners were made aware or put on
notice of the existence of the oral right of first refusal.
Thus, absent clear and convincing evidence to the
contrary, petitioner Rosencor will be presumed to have
acted in good faith in entering into the Deed of Absolute
Sale over the disputed property. Considering that there
is no showing of bad faith on the part of the petitioners,
the Court of Appeals thus erred in ordering the
rescission of the Deed of Absolute Sale dated September
4, 1990 between petitioner Rosencor and the heirs of
the spouses Tiangco. The acquisition by Rosencor of the
property subject of the right of first refusal is an obstacle
to the action for its rescission where, as in this case, it
was shown that Rosencor is in lawful possession of the
subject of the contract and that it did not act in bad
faith.
This does not mean however that respondents are left
without any remedy for the unjustified violation of their
right of first refusal. Their remedy however is not an
action for the rescission of the Deed of Absolute Sale but
an action for damages against the heirs of the spouses
Tiangco for the unjustified disregard of their right of first
refusal.
96) Carbonell vs. Poncio, (103 Phil. 655)
FACTS:
Petitioner Rosario Carbonnel allegedly purchased a
parcel of land from respondent Jose Poncio. Such land
was mortgaged to a bank which the respondent has an
obligation to pay. It was alleged that petitioner partially
paid the respondent of the price of the land and to
assume respondent`s responsibility to recover the land.
One of the conditions of the alleged sale was that Poncio
would be allowed to continue in staying in said land for
one year. However, Poncio has conveyed the same land
to the other respondents herein which are the spouses
Mr. and Mrs. Infante. Respondents herein claim that the
Page 57 of 67
previous sale between Poncio and petitioner was
unenforceable due to a violation of the Statute of Fraud
as the alleged sale was never deduced to writing.
Petitioner here claims ownership of the said property.
ISSUE:
Whether or not the transaction falls under the Statute
of Frauds.
RULING:
No. It is well settled in this jurisdiction that the Statute
of Frauds is applicable only to executory contracts. 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. 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 denied by him
from the transaction in litigation, and, at the same time,
evade the obligations, responsibilities or liabilities
assumed or contracted by him thereby.
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.
In the case at bar, it appears that Poncio still asked
permission from the petitioner to stay in the premises.
Aside from that, it was shown that the passbook of
Poncio was in the hand of the Petitioner and it has a
credit account allegedly representing the amount
partially paid by petitioner.
Wherefore, the order appealed from is hereby set aside,
and let this case be remanded to the lower court for
further proceedings not inconsistent with this decision,
with the costs of this instance against defendants-
appellees. It is so ordered.
97) Facturan vs. Sabanal, 81 Phil. 512)
Contrary to petitioner's contention, the transcription of
stenographic notes attached to the record of the case
elevated to this Court shows that exceptions were
expressly taken from the trial court's orders striking out
the corroborative testimonies of witnesses for appellant.
Under the last assignment of error such ruling might and
it is to be presumed to have been discussed on appeal
as erroneous (appellant's brief not being attached to
the reconstituted record), because of the legal
presumption that the Court of Appeals, in considering
said testimonies, acted in accordance with law.
Even disregarding such corroborative evidence, widow's
own testimony to the effect that the property was
acquired during marriage, even if uncorroborated by
other evidence, is a sufficient basis for the legal
presumption that the property in question is conjugal,
there being no sufficient evidence to destroy said
presumption according to the conclusion of the Court of
Appeals,which can not be disturbed by this Court.
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Assuming that said testimonies were the only evidence
on the acquisition of the property in question during
marriage, and disregarding the widow's testimony, the
question of law; whether or not the Court of Appeals
erred in reversing the rulings of the lower court that
ordered that the corroborative testimony of witnesses
for appellant be stricken out, is unsubstantial, for it is
very obvious that said decision is in accord with law,
because the statute of frauds on which the ruling of the
Court of First Instance is based "is not applicable in
actions which are neither for a violation of contract nor
for the performance thereof," (III Moran on Evidence,
165), and the action at bar is not such kind of action.
And besides the statute of frauds is applicable only to
executory contracts (dicto 167) and not to executed
contracts such as the contract of sale of the property in
question to the spouses during their marriage, testified
to by the witnesses whose testimonies were stricken out
by the erroneous ruling of the said Court of First
Instance.
Therefore the notion for reconsideration is denied.
98) Diana vs. Macalibo, (75 Phil. 71: CASE NOT
FOUND
99) Asturias Sugar Central vs. Montinola, (69
Phil. 725)
- 1940 case; it is in spanish
100) Western Mindanao Lumber Co. vs. Medalla,
(79 SCRA 702)
FACTS: In 1955, Western Mindanao Lumber (Western),
a logging company, obtained a right-of-way over a
property owned by Hernandez. Medalle, the new owner
of the property, notified Western that he will close the
road running through his property through which
Western's trucks pass in hauling logs. Western's filed a
complaint for injunction praying that a writ of
preliminary injunction be issued restraining Medalle
from closing the said road, and after hearing, make the
injunction permanent. Medalle filed a motion to dismiss
the complaint upon the ground that the claim on which
the action or suit is founded is unenforceable under the
provisions of the Statute of Frauds and special law, in
that the first page of the said road right-of-way
agreement was not signed by both parties and their
instrumental witnesses; page two thereof is not dated,
and the signature of the plaintiffs corporate agent does
not appear; and that said agreement is not
acknowledged before a person authorized to administer
oaths. Western opposed the motion, stating that the
agreement between Western and Hernandez is not one
of those agreements specified in the Statute of Frauds.
The trial court granted the motion to dismiss. Hence,
Western appealed.
ISSUE: Whether statute of frauds is applicable to
agreements creating a right of way
RULING: The Statute of Frauds refers to specific kinds
of transactions and cannot apply to any that is not
enumerated therein. Obviously, an agreement creating
an easement of right-of-way is not one of those
contracts covered by the statue of frauds since it is not
a sale of property or of an interest therein. The trial
court therefore, erred in dismissing the case upon the
defendants' claim that the road fight-of-way agreement
in question is unenforceable under the statute of frauds.
(Western Mindanao Lumber vs Medalle, G.R. No. L-
23213, October 28, 1977)
Note: Also, the Statute of Frauds is applicable only to
executory contracts, not to contracts that are totally or
partially performed. Here, the verbal agreement with
Page 58 of 67
respect to the right of way had already been totally
executed.
101) Shoemaker vs. La Tondeña, (68 Phil. 24) -
FACTS: Plaintiff Harry Ives Shoemaker filed a second
amended complaint against La Tondeña, Inc., in which,
on the facts therein alleged, he prayed that judgment
be rendered against said defendant, sentencing it to pay
him. To said amended complaint the defendant
company interposed a demurrer base on the ground
that the facts therein alleged do not constitute a cause
of action. In sustaining the demurrer interposed to the
second amended complaint, the court a quo based its
action on the ground that the facts alleged in said
amended complaint do not constitute a cause of action
for the reason that plaintiff’s action rests on an oral
contract which, by its nature, is unenforceable by action
as it is included within the statute of frauds.
ISSUE: Whether or not the facts alleged in the second
amended complaint constitute a cause of action.
RULING:
Yes, the facts alleged in the second amended complaint
constitute a cause of action.
In the present case it is hypothetically admitted that
plaintiff complied within the year with all the obligations
he had bound himself to fulfill under the modified oral
contract. It is also hypothetically admitted that the
defendant corporation benefited from the fulfillment of
said obligations by the plaintiff; hence, it cannot, in
equity and justice, avoid its own obligations assumed
under the same modified oral contract, for to allow it to
do so under the protection of the statute of frauds would
make of the latter a shield of and not a protection
against frauds.
For the foregoing considerations, the SC is of the opinion
and so hold that 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.
102) Reiss vs. Memije, (15 Phil. 350)
FACTS:
Defendant appellant entered into a contract with
Buenaventura Kabalsa for the repair of a house in
Manila. The contractor being unable to secure credit
therefor, and was compelled to pay cash for all
purchases. Having no money and no credit he was
unable to continue the purchase of the necessary
lumber, hence, the work on the house has been delayed.
Defendant accompanied the contractor to plaintiffs’
lumber yard, and after satisfying plaintiffs as to his own
financial responsibility, and that as a property owner
and an attorney in active practice in Manila, he was good
for the amount of lumber needed in the repair of his
house, he entered into an agreement with them
whereby they were to deliver the necessary lumber to
the contractor for use in the repair of his house. In
pursuance of and in accordance with the directions of
the defendant, plaintiffs delivered to Kabalsa a
considerable amount of lumber which was used in the
repairs upon defendant’s house.
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ISSUE: Whether or not the alleged guaranty of payment
of the purchase price of the lumber furnished at his
request to his contractor Kabalsa not being in writing, it
is unenforceable in this action.
RULING:
To determine to whom the credit has actually been
given, the language and expressions used by the parties
promising, and from an examination of the circumstance
showing the understanding of the parties, should be
considered. The word was not used by this witness in its
technical sense, and that he did not mean thereby to
say that defendant guaranteed payment by the
contractor, but rather that after satisfying plaintiffs as
to his own financial responsibility, he obligated himself
to pay for the lumber delivered to his contractor for use
in his house.
The SC is satisfied that the credit for the lumber
delivered by the plaintiffs to defendant’s contractor was
extended solely and exclusively to the defendant under
the verbal agreement had with him, and therefore, that
the provisions of the statue did not require that it should
be made in writing.
Under Section 335 of Act No. 190, a special promise to
answer for the debt, default, or miscarriage of another
must be in writing. The true test as to whether a promise
is within the statute had been said to lie in the answer
to the question whether the promise is an original or a
collateral one. If the promise is an original or an
independent one; that is, if the promisor becomes
thereby primarily liable for the payment of the debt, the
promise is not within the statute. But, on the other
hand, if the promise is collateral to the agreement of
another and the promisor becomes thereby merely a
surety, the promise must be in writing.
Just what is the character of a promise as original or
collateral is a question of law and fact which must in
each case be determined from the evidence as to the
language used in making the promise, and the
circumstances under which the promise was made; and,
since as a general rule the parties making a promise of
this nature rarely understand the legal and technical
difference between an original and a collateral promise,
the precise form of words used, even when established
by undisputed testimony is not always conclusive. So
that it is said that "While, as a matter of law, a promise,
absolute in form, to pay or to be 'responsible' or to be
the 'paymaster,' is an original promise, and while, on
the other hand, if the promisor says, 'I will see you paid,'
or 'I will pay if he does not,' or uses equivalent words,
the promise standing alone is collateral, yet under all
the circumstances of the case, an absolute promise to
pay, or a promise to be 'responsible,' may be found to
be collateral, or promises deemed prima facie collateral
may be adjudged original."
If goods are sold upon the sole credit and responsibility
of the party who make the promise, then, even though
they be delivered to a third person, there is no liability
of the third person to which that of the party promising
can be collateral, and consequently such a promise to
pay does not require a memorandum in writing; and on
the same principle it has been held that when one
advances money at the request of another (on his
promise to repay it) to pay the debt of a third party, as
the payment creates no debt against such third party,
not being made at all upon his credit, the liability of the
party on whose request and promise it was made is
original and not collateral, and not with the Statute of
Frauds.
Void or Inexistent Contracts (1409-1422)
Page 59 of 67
103) Liguez vs. Court of Appeals (supra.)
FACTS:
Conchita Liguez filed a complaint against the widow and
heirs of Salvador Lopez to recover a parcel of 51.84
hectares of land in Davao. She averred to be its legal
owner, pursuant to a deed of donation executed in her
favor by Salvador. At the time the deed was executed,
Conchita was 16. She had also been living with
Salvador’s parents for barely a month. The deed of
donation recites that the donor Salvador, “for and in
consideration of his love and affection” for Conchita, and
“also for the good and valuable services rendered to
[Salvador] by [Conchita], does by these presents,
voluntarily give, grant and donate…”
The donation was made in view of Salvador’s desire to
have sexual relations with Conchita. Furthermore,
Conchita’s parents would not allow Conchita to live with
him unless he first donated the subject land. The
donated land originally belonged to the conjugal
partnership of Salvador and his wife, Maria Ngo. The
deed of donation was inoperative, and null and void
because: (a) Lopez had no right to donate conjugal
property to Conchita; and (b) the donation was tainted
with illegal causa or consideration.
ISSUE:
Whether or not the conveyance was predicated on illegal
causa.
RULING:
Yes. Conchita Liguez entitled to so much of the donated
property as may be found, upon proper liquidation, not
to prejudice the share of the widow Maria Ngo in the
conjugal partnership or the legitimes of Salvador’s
forced heirs. Under the cited Art. 1274, liberality of the
donor is deemed causa only in contracts that are of
“pure” beneficence, or contracts designed solely and
exclusively to procure the welfare of the beneficiary,
without any intent of producing any satisfaction for the
donor.
In this case, Salvador was not moved exclusively by the
desire to benefit Conchita, but also to secure her
cohabiting with him, and so that he could gratify his
sexual impulses. This is clear from Salvador’s confession
to two witnesses that he was in love with her but her
parents would not agree unless he donated the land in
question to her. Actually, therefore, the donation was
but one part of an onerous transaction (at least with
Conchita’s parents) that must be viewed in its totality.
Thus considered, the conveyance was clearly predicated
upon an illicit causa. Lopez would not have conveyed
the property in question had he known that Conchita
would refuse to cohabit with him. The cohabitation was
an implied condition to the donation and being unlawful,
necessarily tainted the donation.
Moreover, the CA erred in applying the pari delicto rule.
It cannot be said that both parties had equal guilt.
Salvador was a man advanced in years and mature
experience, and Conchita was only 16 when the
donation was made. Her acceptance of the deed does
not imply knowledge of conditions and terms not set
forth therein. Witnesses testified that it was Conchita’s
parents who insisted on the donation. The rule that
parties to an illegal contract, if equally guilty, will not be
aided by the law but will both be left where it finds them,
has been interpreted by this Court as barring the party
from pleading the illegality of the bargain either as a
cause of action or as a defense. But where the plaintiff
can establish a cause of action without exposing its
illegality, the vice does not affect the right to recover.
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104) Maria Castillo vs. Josefa Galvan, (85 SCRA
526)
FACTS:
Paulino Galvan was the registered owner of an undivided
one- half (1/2) interest over two parcels of land, the
other undivided half is owned by his two daughters by a
first marriage herein defendants Josefa and Natividad
Galvan. On 1961, Paulino Galvan died, Maria Castillo
(the second wife and their 2 children), out of
"delicadeza" waited for the defendants to initiate the
move for the settlement of his estate. But, after finding
that none was forthcoming, the plaintiffs became
apprehensive, so that they began to go over the papers
concerning the properties of the decedent. In the office
of the Register of Deeds of Dagupan City, they were
surprised to find a deed of sale, signed by the late
Paulino Galvan and the plaintiff, Castillo, whereby they
had purportedly sold for P500 the ½ undivided portion
of Paulino Galvan over said lots in favor of defendants,
so Maria Castillo remembered that way back in 1953,
she and her husband Paulino Galvan were made to sign
a certain document by Josefa Galvan through fraud.
Wherefore, they prayed that the deed of sale be
declared null and void; that the plaintiffs be declared the
owners of four-sixths (4/6) of the undivided half share
pertaining to Paulino Galvan.
The defendants filed a motion to dismiss the complaint
upon the ground that the action is barred by the statute
of stations for the reason that the present action for the
annulment of the instrument of sale based upon fraud
which should be brought within four (4) years from the
time of the discovery of the same in accordance with
Article 1391 of the Civil Code is already prescribe. The
lower court, thereafter, dismiss the case.
ISSUE:
WON the trial court improperly dismissed the complaint
on the ground of prescription
RULING:
Yes. The court sustains defendants' contention. The
basis of the annulment is alleged fraud, and the action
for the. annulment of the document should be brought
within 4 years from the discovery of fraud however, the
plaintiffs' action is to declare void and inexistent the
deed of sale executed by Paulino Galvan and
Encarnacion Castillo on August 3. 1955 in favor of Josefa
and Natividad Galvan, upon 'the grounds that (a) there
is fraud in securing the signatures of the vendors in said
deed of sale: and (b) there was no consideration given
at the time of the transaction. In other words, the
plaintiffs are seeking a judicial declaration that the deed
of sale in question is void ab initio, which action is
imprescriptible.
105) Rodriquez vs. Rodriquez, (20 SCRA 908)
FACTS:
Concepcion Felix, widow of the late Don Felipe Calderon
and with whom she had one living child, Concepcion
Calderon, contracted a second marriage on June 20,
1929, with Domingo Rodriguez, widower with four
children by a previous marriage, named Geronimo,
Esmeragdo, Jose and Mauricio, all surnamed
Rodriguez.Prior to her marriage to Rodriguez,
Concepcion Felix was the registered owner of 2
fishponds located in the barrio of Babañgad, Bulacan
which she consequently sold to her daughter
Concepcion Calderon for P2,500. The properties were
then donated back to her and Rodriguez thus, having
the properties registered under the names of the
spouses.
Page 60 of 67
On March 6, 1953, Domingo Rodriguez died intestate,
survived by the widow, Concepcion Felix, his children
Geronimo Esmeragdo and Mauricio and grandchildren
Oscar, Juan and Ana, surnamed Rodriguez, children of
a son, Jose, who had predeceased him.The heirs of
Domingo entered into an extra-judicial settlement of his
estate. Among the properties listed as conjugal were the
two parcels of land in Bulacan, which, together with
another piece of property, were divided as follows: ½ to
Concepcion Feix as her share to the conjugal property;
¾ of the remaining ½ to his children and ¼ of the
remaining ½ to his grandchildren. Corresponding new
TCTs were issued.
On March 23, 1953, in a power of attorney executed by
the children and grandchildren of Domingo Rodriguez,
Concepcion Felix was named their attorney in-fact,
authorized to manage their shares in the fishponds. On
October 12, 1954, the Rodriguez children executed
another document granting unto the widow lifetime
usufruct over one-third of the fishpond which they
received as hereditary share in the estate of Domingo,
which grant was accepted by Concepcion Felix. Then, in
a contract dated December 15, 1961, the widow
appeared to have leased from the Rodriguez children
and grandchildren the fishpond for a period of 5 years
commencing August 16, 1962, for an annual rental of
P7,161.37. At this time, the relationship between
Concepcion Felix and her stepchildren turned sour and
the widow subsequently failed to deliver the balance of
the earnings of the fishpond. A demand letter was sent
to her to claim such, but her answer was the present
case seeking the annulment of the transfer to the
conjugal partnership of the two fishponds on the ground
that the conveyances in issue were obtained through
duress, and were inexistent, being simulated and
without consideration.
ISSUE:
WON the transfer of the two fishponds to the conjugal
property were valid
RULING:
The charge of simulation is untenable, for the
characteristic of simulation is the fact that the apparent
contract is not really desired or intended to produce
legal effects or in 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 a
transfer of it to another, he does not really intend to
divest himself of his title and control of the property;
hence, the deed of transfer is but a sham. But appellant
contends that the sale by her to her daughter, and the
subsequent sale by the latter to appellant and her
husband, the late Domingo Rodriguez, were done for the
purpose of converting the property from paraphernal to
conjugal, thereby vesting a half interest in Rodriguez,
and evading the prohibition against donations from one
spouse to another during coverture. If this is true, then
the appellant and her daughter must have intended the
two conveyance to be real and effective; for appellant
could not intend to keep the ownership of the fishponds
and at the same time vest half of them in her husband.
The two contracts of sale then could not have been
simulated, but were real and intended to be fully
operative, being the means to achieve the result
desired. Nor does the intention of the parties to
circumvent by these contracts the law against donations
between spouses make them simulated ones.
What would invalidate the conveyances now under
scrutiny is the fact that they were resorted to in order
to circumvent the legal prohibition against donations
between spouses. The illicit purpose then becomes
illegal causa within the terms of the old Civil Code.
Unfortunately for herein appellant, in contracts
invalidated by illegal subject matter or illegal causa,
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apply rigorously the rule in pari delicto non oritur action,
denying all recovery to the guilty parties inter se. And
appellant is clearly as guilty as her husband in the
attempt to evade the legal interdiction of Article 1334.
Wherefore, her present action to reivindicate the,
conveyed properties was correctly repulsed by the Court
Art. 1306. If the act which constitutes the illicit
consideration is neither a crime nor a misdemeanor, the
following rules shall be observed:
1. When both parties are guilty, neither of them can
recover what he may have given by virtue of the
contract, or enforce the performance of the undertaking
of the other party.
106) Angel Jose Warehousing vs. Chelda
Enterprises (23 SCRA 119)
FACTS
Plaintiff corporation filed suit in the Court of First
Instance of Manila on May 29, 1964 against the
partnership Chelda Enterprises and David Syjueco, its
capitalist partner, for recovery of alleged unpaid loans
in the total amount of P20,880.00, with legal interest
from the filing of the complaint, plus attorney’s fees of
P5,000.00. Alleging that postdated checks issued by
defendants to pay said account were dishonored, that
defendants’ industrial partner, Chellaram I. Mohinani,
had left the country, and that defendants have removed
or disposed of their property, or are about to do so, with
intent to defraud their creditors, preliminary attachment
was also sought.
Answering, defendants averred that they obtained four
loans from plaintiff in the total amount of P26,500.00,
of which P5,620.00 had been paid, leaving a balance of
P20,880.00; that plaintiff charged and deducted from
the loan usurious interests thereon, at rates of 2% and
2.5% per month, and, consequently, plaintiff has no
cause of action against defendants and should not be
permitted to recover under the law. A counterclaim for
P2,000.00 attorney’s fees was interposed.
Great reliance is made by appellants on Art. 1411 of the
New Civil Code which states:
Art. 1411. When the nullity proceeds from the illegality
of the cause or object of the contract, and the act
constitutes criminal offense, both parties being in pari
delicto, they shall have no action against each other,
and both shall be prosecuted. Moreover, the provisions
of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things
or the price of the contract.
This rule shall be applicable when only one of the parties
is guilty; but the innocent one may claim what he has
given and shall not be bound to comply with his
promise.
Since, according to the appellants, a usurious loan is
void due to illegality of cause or object, the rule of pari
delicto expressed in Article 1411, supra, applies, so that
neither party can bring action against each other. Said
rule, however, appellants add, is modified as to the
borrower, by express provision of the law (Art. 1413,
New Civil Code), allowing the borrower to recover
interest paid in excess of the interest allowed by the
Usury Law. As to the lender, no exception is made to
the rule; hence, he cannot recover on the contract. So
— they continue — the New Civil Code provisions must
be upheld as against the Usury Law, under which a loan
with usurious interest is not totally void, because of
Article 1961 of the New Civil Code, that: “Usurious
contracts shall be governed by the Usury Law and other
Page 61 of 67
special laws, so far as they are not inconsistent with this
Code.” (Emphasis ours.)
ISSUE
Whether or not the illegal terms as to payment of
interest likewise renders a nullity the legal terms as to
payments of the principal debt.
HELD
Article 1420 of the New Civil Code provides in this
regard: “In case of a divisible contract, if the illegal
terms can be separated from the legal ones, the latter
may be enforced.”
In simple loan with stipulation of usurious interest, the
prestation of the debtor to pay the principal debt, which
is the cause of the contract (Article 1350, Civil Code), is
not illegal. The illegality lies only as to the
prestation to pay the stipulated interest; hence,
being separable, the latter only should be deemed
void, since it is the only one that is illegal.
107) Development Bank of the Philippines vs.
Perez (G.R. No. 14854, November 11, 2004)
FACTS:
● On April 28, 1978, petitioner Development
Bank of the Philippines (DBP) sent a letter to
respondent Bonita Perez, informing the latter of the
approval of an industrial loan amounting to
P214,000.00 for the acquisition of machinery and
equipment and for working capital, and an additional
industrial loan amounting to P21,000.00 to cover
unforeseen price escalation.
● On May 18, 1978, the respondents were made
to sign four promissory notes covering the total
amount of the loan, P235,000.00. Three
promissory notes for P24,000.00, P48,000.00, and
P142,000.00, respectively, were executed, totaling
P214,000.00. These promissory notes were all due on
August 31, 1988. A fourth promissory note due on
September19, 1988 was, likewise, executed to cover
the additional loan ofP21,000.00. The promissory notes
were to be paid in equal quarterly amortizations and
were secured by a mortgage contract covering real
and personal properties
● On September 6, 1978, the petitioner sent a
letter to the respondents informing them of the terms
for the payment of theP214,000.00 industrial loan.
On November 8, 1978, the petitioner sent another
letter to the respondents informing them about the
terms and conditions of their additional
P21,000.00industrial loan.
● Due to the respondents' failure to comply
with their amortization payments, the petitioner
decided to foreclose the mortgages that secured the
obligation. However, in a Letter dated October 7,
1981, Mrs. Perez requested for a restructuring of
their account due to difficulties they were
encountering in collecting receivables.
● On April 1, 1982, the petitioner informed the
respondents that it had approved the restructuring of
their accounts. The loan was restructured, and on May
6, 1982, the respondents signed another promissory
note in the amount of P231,000.00 at eighteen
percent (18%) interest per annum, payable quarterly at
P12,553.27, over a period of ten years.
● The first amortization was due on August 7,
1982, and the succeeding amortizations, every quarter
thereafter. However, the respondents made their
first payment amounting toP15,000.00 only on April
20, 1983 or after the lapse of three quarters. Their
second payment, which should have been paid on
November 7, 1982, was made on December 2, 1983 and
only in the amount of P5,000.00. The third payment was
then made at the time when the ninth quarterly
amortization should have been paid. After this, the
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
respondents completely stopped paying. The total
payments they made after the restructure of the loan
amounted to P35,000.00 only.
● This failure to meet the quarterly amortization
of the loan prompted the petitioner to institute
foreclosure proceedings on the mortgages. The sale
of the properties covered by the mortgage contract
was scheduled on October 30, 1985
ISSUE:
Whether the new promissory note is voidable for not
having been voluntarily signed by the respondents and
for being a contract of adhesion
RULING:
In the instant case, there was no evidence showing that
the respondents signed the new promissory note
through mistake, violence, intimidation, undue
influence, or fraud. The respondents merely alleged that
they were forced to restructure their loan for fear of
having their mortgaged properties foreclosed. However,
it is axiomatic that this would not amount to vitiated
consent. The last paragraph of Article 1335 of the New
Civil Code specifically states that a threat to enforce
one’s claim through competent authority, if the claim is
just or legal, does not vitiate consent. Foreclosure of
mortgaged properties in case of default in payment of a
debtor is a legal remedy afforded by law to a creditor.
Hence, a threat to foreclose the mortgage would not,
per se, vitiate consent.
The CA noted that the petitioner prepared the new
promissory note on its own and that the only
participation of the respondents was to sign the same.
The CA concluded, therefore, that the new promissory
note was a contract of adhesion
A contract of adhesion is so-called because its terms are
prepared by only one party while the other party merely
affixes his signature signifying his adhesion thereto.
While we accede to the appellate court’s conclusion that
the new promissory note was in the nature of a contract
of adhesion, we cannot fathom how this can further the
respondents’ case. In discussing the consequences of a
contract of adhesion, we held in Rizal Commercial
Banking Corporation v. Court of Appeals:
It bears stressing that a contract of adhesion is just as
binding as ordinary contracts. It is true that we have,
on occasion, struck down such contracts as void when
the weaker party is imposed upon in dealing with the
dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely deprived
of the opportunity to bargain on equal footing.
Nevertheless, contracts of adhesion are not invalid per
se; they are not entirely prohibited. The one who
adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent.
108) Ras vs. Sua (25 SCRA 153)
FACTS:
To secure recovery of possession of a parcel of land
which he leased to the spouses Ramon and Estela Sua,
Alejandro Ras filed a complaint alleging that while in
need of money and unaware of the provisions of
Republic Act 477, leased to the defendants a four-
hectare parcel of land he acquired from the National
Abaca and Other Fibers Corporation (NAFCO). Under the
said contract the lessees assumed the obligation to pay
to the government the yearly installments on the land
when they fall due, as well as the taxes thereon, for the
duration of the lease. The defendants failed to pay the
taxes and installments due and failed to return to the
plaintiff the possession of the parcel of land.
Page 62 of 67
Answering the complaint, the defendant spouses denied
having violated any condition of the lease and, in turn,
contested the jurisdiction of the court to order the return
of the land to plaintiff, as well as the latter's right to
reacquire possession of the same property. It was their
contention that plaintiff's action, which is for rescission
of contract under Article 1191 of the Civil Code,
prescribes in 4 years; that since the contract of lease
was entered into on 25 February 1958, the present
action, commenced on 6 May 1963, was already barred
by prescription. Defendants, likewise, claimed that
plaintiff had failed to establish violation by the
defendants of the terms of the lease, that, if there was
any, the breach is casual and slight that would not
warrant a rescission thereof.
The spouses also contends that plaintiff has no
personality to bring the action, the proper party being
the Republic of the Philippines; that the jurisdiction to
order the return to plaintiff of the land belongs, not to
the courts, but to the Board of Liquidators; and that
plaintiff may no longer recover the land from defendants
under the pari delicto doctrine.
ISSUE:
WON plaintiff's violation of Republic Act 477 means that
he automatically loses his rights over the land and said
rights immediately revert to the State.
RULING: No. Republic Act 477 is silent as to the
consequence of the alienation or encumbering of the
land after the execution of the contract of sale, but
within 10 years from the issuance of the corresponding
certificate of title. Considering that the aim of the
government in allowing the distribution or sale of
disposable public lands to deserving applicants is to
enable the landless citizens to own the land they could
work on, and the reversion of these lands to the
government is penal in character, reversion cannot be
construed to be implied from the provision making
certain acts prohibited. Where, as in this case, the
interest of the individual outweighs the interest of the
public, strict construction of a penal provision is
justified. Article 1416 of the Civil Code of the
Philippines prescribes as follows:
Art. 1416. 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 paid or delivered.
Under Section 9 of Republic Act No. 477, the disposition
of lands by the NAFCO is to be governed by the Public
Land Act (C.A. 141); and it has been ruled, in connection
with the same, that a disregard or violation of the
conditions of the land grant does not produce automatic
reversion of the property to the State, nor work to
defeat the grantee's right to recover the property he had
previously disposed of or encumbered.
Clearly, until and unless an appropriate proceeding for
reversion is instituted by the State, and its reacquisition
of the ownership and possession of the land decreed by
a competent court, the grantee can not be said to have
been divested of whatever right that he may have over
the same property.
109) Phil. Banking Corp. vs. Lui She, (21 SCRA
52)
FACTS:
Justina Santos executed on a contract of lease of real
properties in favor of Wong.The lease was for 50 years,
although the lessee was given the right to withdraw at
any time from the agreement.
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Subsequently, she executed another contract giving
Wong the option to buy the leased premises for
P120,000, payable within ten years at a monthly
installment of P1,000. The option imposed on him the
obligation to pay for the food of the dogs and the
salaries of the maids in her household, the charge not
to exceed P1,800 a month. The option was conditioned
on his obtaining Philippine citizenship, a petition for
which was then pending in the CFI of Rizal.
It appears, however, that this application for
naturalization was withdrawn when it was discovered
that he was not a resident of Rizal. On October 28, 1958
she filed a petition to adopt him and his children on the
erroneous belief that adoption would confer on them
Philippine citizenship. The error was discovered and the
proceedings were abandoned.
In two wills, she bade her legatees to respect the
contracts she had entered into with Wong, but in a
codicil of a later date she appears to have a change of
heart. Claiming that the various contracts were made by
her because of machinations and inducements practiced
by him, she now directed her executor to secure the
annulment of the contracts.
ISSUE:
Whether the contracts involving Wong were valid.
RULING:
No, the contracts show nothing that is necessarily
illegal, but considered collectively, they reveal an
insidious pattern to subvert by indirection what the
Constitution directly prohibits. To be sure, a lease to an
alien for a reasonable period is valid. So is an option
giving an alien the right to buy real property on
condition that he is granted Philippine citizenship.
But if an alien is given not only a lease of, but also an
option to buy, a piece of land, by virtue of which the
Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years, then it becomes clear
that the arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages not only of
the right to enjoy the land but also of the right to
dispose of it.
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 law is designed for the protection
of the plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered.” The
Constitutional provision that “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 in the Philippines” is an
expression of public policy to conserve lands for the
Filipinos.
Accordingly, the contracts in question are annulled and
set aside; the land subject-matter of the contracts is
ordered returned to the estate of Justina Santos.
110) Manotok Realty vs. CA (supra.)
FACTS:
Vicente Legarda as co-administrator allegedly sold an
area of about 280 square meters of the subdivision
situated at Dinalupihan, Tondo, Manila at P30.00 per
square meter to Abelardo Lucero. The sale was on an
installment basis and Lucero paid an initial amount of
P200.00 by virtue of which a receipt was issued by
Legarda. On the same day, Lucero took possession of
the lot. Lucero leased the lot to six persons, one of
whom is herein private respondent.
Page 63 of 67
In the meantime, Lucero accordingly awaited the
sending by Legarda of the formal contract but as none
came, he could not make further payments. Probate
court issued another order authorizing the Philippine
Trust Company as administrator. Lucero went to PTC to
make further payments, showing it the receipt
evidencing the down payment but the latter refused
either to receive payment or to issue a formal contract.
The deed of sale of the entire subdivision was executed
by and between petitioner and Philippine Trust Company
and the same was approved by the probate court.
Thereafter, Lucero executed a deed of assignment of the
lot in question in favor of his lessees, including the
private respondent. Petitioner filed an ejectment case
against the respondent and the lower court ruled that
petitioner is the owner and entitled to the possession of
the land. But reversed by the CA.
ISSUE: WON there is valid sale between Legarda and
Lucero?
RULING:
NO, the alleged sale made by Legarda to Lucero should
have been embodied in a public instrument in
accordance with Article 1358 of the Civil Code and
should have been duly registered with the Register of
Deeds to make it binding against third persons. The
authority given by the probate court to Legarda
specifically required the execution of necessary
documents. Lucero not only failed to obtain a deed of
sale from Legarda but also failed to secure any kind of
writing evidencing the contract of sale other than the
receipt issued by Legarda acknowledging the amount of
P200.00.
No explanation was offered by the private respondent
as to why there was no effort on the part of Lucero to
pay the balance of the purchase price during the time
that Legarda was the special co- administrator. The
private respondent merely alleged that Lucero awaited
the sending of the formal contract by Legarda but as
none came, he could not make further payments. It was
only after about five years that Lucero allegedly went to
the administrator and offered to pay the balance. By this
time, Philippine Trust Company was already the
administrator of the Legarda-Tambunting estate and it
refused to accept further payments from Lucero who
had only the receipt in the amount of P200.00 and
nothing more as proof that more than five years earlier
a piece of real property was sold to him by a special
administrator acting under court orders.
We, therefore, rule that the alleged sale made by
Legarda to Lucero did not bind the Legarda-Tambunting
estate, much less, the petitioner who acquired the
property in dispute with the approval of the probate
court and in a sole reliance on the clean title of the said
property.
111) Marin vs. Adil (130 SCRA 406)
FACTS:
This case is about the rescission of a deed of exchange.
In a 1963 document, Aquilina P. Marin assigned to the
brothers Manuel P. Armada and Ariston P. Armada her
hereditary share in the testate estate of her deceased
mother, Monica Pacificar Vda. de Provido. The exchange
would be rescindible when it is definitely ascertained
that the parties have respectively no right to the
properties sought to be exchanged. The exchange did
not mean that the parties were definitely entitled to the
properties being exchanged but it was executed "in
anticipation of a declaration of said right". This
agreement was embodied in a Deed of Exchange with
Quitclaim.
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021
The Armadas and Marin are first cousins. When
the deed of exchange was executed, the estate of
Proceso Pacificar, in which the Armadas expected to
inherit a part, had been adjudicated to Soledad, a sister
of Marin and a first cousin also of the Armadas. Soledad
claimed to be the sole heir of Proceso. So, the Armadas
and the other heirs had to sue Soledad. The protracted
litigation ended in a compromise in 1976 when the
Armadas were awarded Lots 906-A-2 and 906-A-3.
Marin never possessed these two lots. They were
supposed to be exchange for her proindiviso share in
her parents' estate. Marin did not actually inherit
anything from her parents. She chose to forget the deed
and her conduct showed that she considered herself not
bound by it. 5 years after that deed, she agreed to
convey to her sister, Aurora, her interest in the 2 lots in
payment for her obligation. In the extrajudicial partition
of her parents' estate (when the instant case for
rescission was already pending), her share was formally
adjudicated to Aurora. It was stated therein that Mrs.
Marin "has waived, renounced and quitclaimed her
share" in favor of Aurora. The Armadas filed the instant
rescissory action against Marin.
ISSUE:
What is the nature of the deed of exchange
between the Armadas and Marin?
RULING:
The deed of exchange is void and inexistent. It is
evident from the deed of exchange that the intention of
the parties relative to the lots, which are the objects of
the exchange, cannot be definitely ascertained. We hold
that this circumstance renders the exchange void or
inexistent. In Paragraph 7, it states that the deed should
not be construed as an acknowledgment by the
Armadas and Marine that they are entitled and that it
was executed in anticipation of a declaration of their
rights to the properties. While Paragraph 8 stated that
the parties should take possession and make use of the
properties. The 2 provisions are irreconcilable since
paragraph 7 contemplates that properties are still to be
awarded while paragraph 8 presupposes there is control
and possession.
The instant rescissory action may be treated as
an action to declare void the deed of exchange. The
action to declare the inexistence of a contract does not
prescribe. Marin rendered impossible the performance
of her obligation under the deed. Because of that
impossibility, the Armadas could rescind extrajudicially
the deed of exchange. If Marin should sue the Armadas,
her action would be barred under the rule of Exeptio non
adimpleti contractus (plaintiff is not entitled to sue
because he has not performed his part of the
agreement).
112) Cabral vs. CA (130 SCRA 498)
FACTS:
This case is about the application of res judicata
to an action to declare void or inexistent an alleged
forged sale of registered land. That proindiviso one-sixth
portion was supposedly sold by the spouses Silvino San
Diego and Eugenia Alcantara to the spouses Eugenio
Cabral and Sabina Silvestre for P4000. The San Diegos
claim that the sale was fabricated. Cabral was charged
in the CFI with falsification of that sale. Judge Echiverri
dismissed the charge on the ground of prescription. The
dismissal was upheld by this Court. More than a quarter
of a century after that sale, the San Diego spouses filed
an action to nullify the title which the Cabrals had
Page 64 of 67
obtained for the 1/6 portion and for damages on the
theory that the sale was falsified. Judge Caguioa
dismissed the action on the ground that the order of
dismissal issued by Judge Echiverri in the criminal case
was res judicata in the civil case.
The San Diegos assailed the order of dismissal
by means of a petition for certiorari in the Court of
Appeals. In the resolution, Justices Gancayco, and
Gorospe ruled that Judge Caguioa erred in applying res
judicata and that the San Diegos' action was
imprescriptible because it was an action to nullify a
document which was void ab initio. However, in its
succeeding decision the justiced dismissed the petition
because certiorari is not available to correct erroneous
factual or legal conclusions and because an action based
on a contract prescribes in ten years.
The San Diegos filed a motion for
reconsideration. The Appellate Court set aside its
decision holding that the action is for a declaration of
the forged character thus it is imprescriptible. The
Cabrals then appeal to the court contending the
Appellate Court erred in not applying res judicata.
ISSUE:
WON the Appellate Court erred in not applying
the principle of res judicata in this case?
RULING:
No, res judicata cannot be applied in this case.
It is obvious that the order of dismissal in the criminal
action for falsification, which was based on prescription
of the crime, cannot be considered res judicata or a bar
to the civil action of the San Diegos against the Cabrals.
The civil complaint of the San Diegos does not stress
that the deed of sale is void ab initio. For that reason,
its imprescriptible character is not immediately
apparent. But the fact is that the concocted character of
the sale and the imprescriptibility of the action to
declare it inexistent constitute the premise on which the
civil action is based
113) Razon, Inc. vs. PPA (G.R. No.75197, June
22, 1987)
FACTS:
Petitioner E. Razon, Inc. (ERI) is a corporation organized
in 1962 principally to bid for the right to operate arrastre
services in Manila. They acquired rights to operate
Manila’s south harbor starting 1974. (The company was
later renamed MPSI)
On July 19, 1986 or two years before the expiration of
the eight-year term, the PPA cancelled the management
contract for alleged violations thereof. PPA took over the
cargo-handling operations as well as all the equipment
of MPSI
Two days later or on July 21, 1986, the PPA issued
Permit No. 104286 for cargo-handling services to Marina
Port Services, Inc. (MARINA). The latter began the
arrastre services and required all workers of ERI/MPSI
to accomplish individual information sheets. Weeks
later, the bulk of the 2,700 employees concerned
discovered that they had been hired by MARINA as new
employees effective July 21, 1986. Hence, they
clamored for the payment of their separation pay but
both the MARINA and ERI/MPSI refused to be liable
therefor.
Secretary took jurisdiction. He held that it was MPSI’s
liability to pay the separation pay, even if MARINA
assumed the liabilities of MPSI. This was because such
liability was personal (in personam), hence not
enforceable against a successor-employer.
ISSUE:
WON MARINA assumed liability for paying the
employees’ separation pay
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FIRST SEMESTER | A.Y. 2020-2021
RULING:
NO. By absorbing ERI/MPSI employees and honoring the
terms and conditions in the collective bargaining
agreement between ERI/MPSI and the employees,
MARINA did not assume the responsibility of ERI/MPSI
to pay separation pay to its employees. The fact that a
couple of days later, the PPA, without public bidding,
issued to MARINA, permit to operate, does not imply
that MARINA stepped into the shoes of ERI/MPSI as if
there were absolute identity between them.
There is no privity of contract between ERI/MPSI and
MARINA so as to make the latter a common or even
substitute employer that it should be burdened with the
obligations of the former.
Admittedly, the consequent separation from the
employment of its employees was not of the ERI/MPSI’s
own making. However, it may not validly lay such
consequence on the lap of MARINA which, like itself, had
no hand in the termination of the management contract
by the PPA.
114) Bough vs. Contiveros (40 Phil. 209)
FACTS: W and her husband H signed a marital contract
of separation. Through the influence of C, whom W
regarded with great confidence, who brought a story to
W that H might contest the contract for the separation
of the conjugal property, H was induced to sign a
fictitious contract of sale of all her property to D, the
wife of C and a cousin of Wfor the price of only 1/3 of
their value.
In order to reassure W that they would not take
advantage of the fictitious sale, C and D signed a deed
of donation of the property of W to be effective in case
of death of themselves and their children before the
death of W. W asked to be relieved from the agreement.
ISSUE: Is W entitled to recover the property?
RULING: Yes. The agreement is against public policy.
W, who was induced to enter into it by means of fraud,
is in delicto, but not in pari delicto with the other party.
The deed was procured by misrepresentation sufficient
to vitiate the transaction. As the rights of creditors are
not affected, justice will be done if the grantor (W) is
placed in the position in which she was before these
transactions were entered into.
115) Homena vs. Casa (157 SCRA 188)
FACTS: Defendants executed a deed of sale in favor of
plaintiffs for the sale of a two-hectare portion of a
homestead with the understanding that the actual
conveyance would be made only after the lapse of the
five-year period during which, under the Public Land
Act, the homestead owner was prohibited from
transferring his rights.
ISSUE: Can plaintiffs compel the defendants to honor
their agreement?
RULING: No. The agreement is clearly illegal and void
ab initio; it is intended to circumvent and violate the
law. As parties to a void contract, the plaintiffs have no
rights which they can enforce and the court cannot lend
itself to its enforcement.
Plaintiffs can neither invoke the doctrine of implied trust
based on an illegal contract. The issue of prescription or
laches becomes irrelevant in a case such as this, where
plaintiffs clearly have no cause of action.
116) Spouses Abella vs. Spouses Abella, GR
195166, July 8, 2015
Page 65 of 67
FACTS: Respondents obtained a loan of P500,000.00
from petitioners. Out of this amount, only P300,000.00
has been paid.
ISSUE: Is a 2.5% monthly or 30% annual interest rate
valid?
RULING: No. Even if it can be shown that the parties
have agreed to monthly interest at the rate of 2.5%,
this is unconscionable. The willingness of the parties to
enter into a relation involving an unconscionable
interest rate is inconsequential to the validity of the
stipulated rate. The imposition of an unconscionable
interest rate is void ab initio for being "contrary to
morals, and the law."
In determining whether the rate of interest is
unconscionable, the mechanical application of pre-
established floors would be wanting. The lowest rates
that have previously been considered unconscionable
need not be an impenetrable minimum. What is more
crucial is a consideration of the parties' contexts.
Moreover, interest rates must be appreciated in light of
the fundamental nature of interest as compensation to
the creditor for money lent to another, which he or she
could otherwise have used for his or her own purposes
at the time it was lent. It is not the default vehicle for
predatory gain. As such, interest need only be
reasonable. It ought not be a supine mechanism for the
creditor's unjust enrichment at the expense of another.
Petitioners here insist upon the imposition of 2.5%
monthly or 30% annual interest. Compounded at this
rate, respondents' obligation would have more than
doubled — increased to 219.7% of the principal — by
the end of the third year after which the loan was
contracted if the entire principal remained unpaid. By
the end of the ninth year, it would have multiplied more
than tenfold (or increased to 1,060.45%). In 2015, this
would have multiplied by more than 66 times (or
increased to 6,654.17%).
Thus, from an initial loan of only P500,000.00,
respondents would be obliged to pay more than P33
million. This is grossly unfair, especially since up to the
fourth year from when the loan was obtained,
respondents had been assiduously delivering payment.
This reduces their best efforts to satisfy their obligation
into a protracted servicing of a rapacious loan.
117) Sps. Jonsay, et al. vs. Solidbank Bank
Corporation, GR 206459, April 6, 2016
FACTS: Momarco, controlled and owned by the Spouses
Jonsay, is an importer, manufacturer and distributor of
animal health and feedmill products catering to cattle,
hog and poultry producers. Momarco
obtained loans of P40,000,000.00 and P20,000,000.00,
respectively, from Solidbank for which the Spouses
Jonsay executed a blanket mortgage over three parcels
of land they owned in Calamba City, Laguna. The
stipulated rate of interest was 18.75% per annum, along
with an escalation clause tied to increases in pertinent
Central Bank-declared interest rates, by which
Solidbank was eventually able to unilaterally increase
the interest charges up to 30% per annum. Momarco
religiously paid the monthly interests charged by
Solidbank from November 1995 until January 1998.
Claiming business reverses brought on by the 1997
Asian financial crisis, Momarco tried unsuccessfully to
negotiate a moratorium or suspension in its interest
payments. Solidbank proceeded to extra-judicially
foreclose on the mortgage, and at the auction sale was
held and Solidbank was the highest bidder. Sheriff
Adelio Perocho issued a certificate of sale to Solidbank,
duly annotated on the lots' titles. A month before the
expiration of the period to redeem the lots, the
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
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petitioners filed a Complaint against Solidbank, Sheriff
Perocho and the Register of Deeds of Calamba, Laguna,
for Annulment of the Extrajudicial Foreclosure of
Mortgage, Injunction, Accounting and Damages with
Prayer for the Immediate Issuance of a Writ of
Preliminary Prohibitory Injunction. The RTC ruled that
the mortgage contract and the promissory notes
prepared by Solidbank, which the Spouses Jonsay
signed in blank, were contracts of adhesion and ruled in
favor of petitioners finding among others that the extra-
judicial foreclosure is void and ordered the reduction of
the interest rate of the indebtedness to 12% per annum.
On appeal, the CA rendered judgment affirming the RTC
in toto. In a motion for reconsideration however, the CA
amended its decision and find the extrajudicial
foreclosure valid but maintained the reduction of
interest rate to 12% per annum.
ISSUE: Whether or not the lending bank may
unilaterally increase the interest rate without prior
notice to and consent of the borrower.
RULING: No. An escalation clause in a loan agreement
granting the lending bank authority to unilaterally
increase the interest rate without prior notice to and
consent of the borrower is void
In Philippine National Bank v. CA, the Court declared
void the escalation clause in a credit agreement
whereby the "bank reserves the right to increase the
interest rate within the limits allowed by law at any time
depending on whatever policy it may adopt in the future
x x x." The Court said:
It is basic that there can be no contract in the true sense
in the absence of the element of agreement, or of
mutual assent of the parties. If this assent is wanting on
the part of one who contracts, his act has no more
efficacy than if it had been done under duress or by a
person of unsound mind.
Similarly, contract changes must be made with the
consent of the contracting parties. The minds of all the
parties must meet as to the proposed modification,
especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be
gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture.
Thus, any change must be mutually agreed upon,
otherwise, it is bereft of any binding effect. We cannot
countenance petitioner bank's posturing that the
escalation clause at bench gives it unbridled right to
unilaterally upwardly adjust the interest on private
respondents' loan. That would completely take away
from private respondents the right to assent to an
important modification in their agreement, and would
negate the element of mutuality in contracts.
The "unilateral determination and imposition" of
increased rates is "violative of the principle of mutuality
of contracts ordained in Article 1308 of the Civil Code."
One-sided impositions do not have the force of law
between the parties, because such impositions are not
based on the parties' essential equality. Although
escalation clauses are valid in maintaining fiscal stability
and retaining the value of money on long-term
contracts, giving respondent an unbridled right to adjust
the interest independently and upwardly would
completely take away from petitioners the "right to
assent to an important modification in their agreement"
and would also negate the element of mutuality in their
contracts. The clause cited earlier made the fulfillment
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of the contracts "dependent exclusively upon the
uncontrolled will" of respondent and was therefore void.
Besides, the pro forma promissory notes have the
character of a contract of adhesion, "where the parties
do not bargain on equal footing, the weaker party's [the
debtor's] participation being reduced to the alternative
'to take it or leave it."'
118) Peña vs. Delos Santos, et al. GR 202223,
March 2, 2016
FACTS: Jesus Delos Santos and Rosita Delos Santos
Flores were the judgment awardees of the two-thirds
portion or 9,915 square meters of four adjoining lots
designated as Lots 393-A, 393-B, 394-D and 394-E,
located in Boracay Island, Malay, Aklan, representing as
their shares in the intestate estate of Leonardo delos
Santos. Peña averred that he is the transferee of Jesus
and Rosita's adjudged allotments over the subject lots.
He claimed that he bought the same from Atty. Romeo
Robiso who acquired the properties from Jesus and
Rosita through assignment and sale. The plaintiffs
opposed Pefia's motion claiming that the conveyance
made by Jesus and Rosita in favor of Atty. Robiso was
null and void for being a prohibited transaction because
the latter was their counsel in the case. RTC upheld that
the conveyance made by Jesus and Rosita in favor of
Atty. Robiso is valid since it was not made during the
pendency of litigation but after judgment has been
rendered. CA reversed the decision of the RTC.
ISSUE: Whether the deeds of conveyance between
Atty. Robiso and Jesus and Rosita were void.
RULING: Yes. Article 1491(5) of the Civil Code
expressly prohibits lawyers from acquiring property or
rights that may be the object of any litigation in which
they may take part by virtue of their profession. Records
show that the judicial action over the subject lots was
still in the appellate proceedings stage when they were
conveyed to Jesus and Rosita's counsel, Atty.Robiso.
Clearly then, since the property conveyed to Atty.
Robiso by Jesus and Rosita was still the object of
litigation, the deeds of conveyance executed by the
latter are deemed inexistent. Under Article 1409 of the
Code, contracts, which are expressly prohibited or
declared void bylaw, are considered inexistent and void
from the beginning. WHEREFORE, foregoing considered,
the Motion for Reconsideration is hereby DENIED for
lack of merit.
119) Guillermo, et al. vs. Philippine Information
Agency, GR 223751, March 15, 2017
FACTS: Petitioners Guillermo and AV Manila contracted
with Respondents Philippine Information Agency and
DPWH to create a documentary film showcasing the
milestones of the Arroyo Administration to counteract
the public’s negative perception of the performance of
the outgoing administration.
Petitioners claim that their transaction is worth P25M
and evidenced by a memoranda and other
communications. Demand letters were sent by the
petitioners, however, the amount remains unpaid.
Petitioner filed a case for sum of money and damages
before the RTC of Marikina but was dismissed due to a
finding that although a contract existed between
petitioners and the Acting Secretary Domingo, this
contract was not binding on the government of the
Philippines. Because of the absence of legal
requirements for entering into a contract with the
government, petitioners could not file a complaint for
specific performance against the government. The Court
of Appeals affirmed the order of the RTC.
 EH403 | OBLICON CONTRACTS REVIEW CASE DIGESTS | ATTY. DARYL BRETCH LARGO
FIRST SEMESTER | A.Y. 2020-2021

Respondents argue that the Complaint was properly

dismissed for failure to state a cause of action.
Respondents noted that the absence of public bidding
for the "Joyride" project renders it null and void ab initio.
72 Sections 46, 47, and 48 of Book V, Title I, Subtitle B,
Chapter 8 of the Administrative Code requires
appropriation before entering into a contract, as well as
a certificate showing said appropriation. Contracts
entered into without these requirements are void.

ISSUES: Whether the Complaint was properly

dismissed for failure to state a cause of action
considering that the elements of a contract were absent

RULING: Yes. The Complaint attempted to lay down the

elements of a contract between the petitioners on one
hand, and respondents on the other. Thus, it alleged a
series of communications, meetings, and memoranda,
all tending to show that petitioners agreed to complete
and deliver the "Joyride" project, and that respondents
agreed to pay P25,000,000.00 as consideration.
Assuming that the Complaint's factual allegations are
true, they are not sufficient to establish that the
Regional Trial Court could grant its prayer.

The Complaint attempts to establish a contract that

involves expenditure of public funds. As pointed out by
respondents, contracts involving the expenditure of
public funds have additional requisites to be valid. In
COMELEC v. Quijano-Padilla, the Court ruled that the
law expressly declares void a contract that fails to
comply with the two requirements, namely, an
appropriation law funding the contract and a
certification of appropriation and fund availability. ICAB,
the Complaint, however, completely ignored the
foregoing requisites for the validity of contracts
involving expenditure of public funds. Thus, the
Regional Trial Court could not order the enforcement of
the alleged contract on the basis of the Complaint, and
the Complaint was properly dismissed for failure to state
a cause of action.

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