TEOCO v. METROPOLITAN BANK & TRUST CO.

– Contracts which must appear in a PUBLIC DOCUMENT

FACTS of the CASE:

Lydia Co was the registered owner of 2 parcels of land situated in Samar. Ramon Co, her
husband, mortgaged the said land to Metrobank for a sum of P200,000.00.

On 1981, the properties were sold to Metrobank in an extrajudicial foreclosure sale. One year
after the registration of the Certificates of Sale, the titles to the properties were merged in the name of
Metrobank for failure of Ramon Co to redeem the same within the one-year period provided for by law.

Metrobank filed a petition for the issuance of a writ of possession against the spouses Co.
However, since they were no longer residing in the Philippines at the time the petition was filed, the
trial court ordered Metrobank, on 1994 to effect summons by publication against the spouses Co.

Later of the same year, the brothers Teoco alleged that they are the successors-in-interest of the
spouses Co because they had duly and validly redeemed the subject properties in a public auction. The
brothers Teoco thus prayed for the dismissal of Metrobank's petition, for the nullification of the TCTs
issued in the name of Metrobank and for the issuance in their name of new certificates of title.

Then, trial court was informed that the brothers Teoco had deposited the amount of P356,297.57
to the clerk of court of the RTC in Catbalogan, Samar.

Metrobank refused to accept the amount alleging that they are obligated to pay the spouses Co's
subsequent obligations as well. The brothers Teoco says that they are not bound to pay all the obligations
of the spouses Co, but only the value of the property sold during the public auction.

On 1997, the trial court reiterated its earlier order directing Metrobank to effect summons by
publication to the spouses Co. The brothers Teoco challenged this summons by publication made by
Metrobank, arguing that the newspaper where the where it was published, the Samar Reporter, was not a
newspaper of general circulation in the Philippines. The brothers Teoco furthermore argued that
Metrobank did not present witnesses to identify the documents to prove summons by publication.

The RTC ruled that Metrobank’s petition shall be dismissed since the publication made by the
petitioner is fatally flawed and defective while the CA ruled in favor of Metrobank because the issue of
the validity of summons to the spouses Co is unimportant considering that the properties in question were
mortgaged and then sold to Metrobank after the latter failed to satisfy the principal obligation.
Furthermore, the CA says that the amount tendered by the Teocos was insufficient.

ISSUE: Whether or not the writ of summons published by Metrobank was valid and vital for the Teoco
brothers to have the right to redeem the said properties.

RULINGS: No. The SC rules on the negative regarding the said issue.

The necessity of a public document for contracts which transmit or extinguish real rights over
immovable property, as mandated by Article 1358 of the Civil Code, is only for convenience; it is not
essential for validity or enforceability.
 In the case at bar, the brothers Teoco would have to comply with all the requirements imposed by
law on the spouses Co. Metrobank would not lose any security for the satisfaction of any loan obtained
from it by the spouses Co. In fact, the assignment would even prove to be beneficial to Metrobank, as it
can foreclose on the subject properties anew, provided it proves that the subsequent loans entered into by
the spouses Co are covered by the mortgage contract.

The decision of the Court of Appeals is SET ASIDE. The decision of the Regional Trial Court in
Catbalogan, Samar is REINSTATED with the following MODIFICATION: the redemption by
Bienvenido C. Teoco and Juan C. Teoco, Jr. of the properties covered by TCT Nos. T-6910 and T-6220
shall be without prejudice to the subsequent foreclosure of same properties by Metropolitan Bank and
Trust Company to satisfy other loans covered by the Real Estate Mortgage.
QUIROS vs. ARJONA – on the: REFORMATION of INSTRUMENTS

FACTS of the CASE:

Quiros and Villegas filed a complaint before the barangay captain for recovery of ownership and
possession of a parcel of land in Pangasinan as they seek to recover from their uncle, Marcelo Arjona,
their lawful share of their inheritance from Doza, their late grandmother. Thus, for this, Arjona
executed a document called "Paknaan" or “Agreement”. Although , even as both parties agreed to
transfer a 1-hectare parcel of land, they failed to include in the written document a sufficient
description of the property to convey.

MCTC denied Quiros’ prayer for writ of execution of compromise agreement because the subject
property cannot be determined with certainty. RTC reversed MCTC and ordered issuance of writ of
execution. CA ruled that the contract is null.

ISSUE: Whether or not the error of uncertainty of the object of the Paknaan is one for
NULLIFICATION or its REFORMATION.

RULING: The petition was DENIED. Although, the SC rules that the error is not one for nullification
but only for reformation of the instrument.

It cannot be disputed that the object is determinable as to its kind and can be determined without need
of a new contract or agreement. Although both parties agreed to transfer the 1-hectare property, they
failed to include in the written document a sufficient description of the property to convey.

In order that an action for reformation of instrument as provided in Article 1359 of the Civil Code
may prosper, the following requisites must concur: (1) there must have been a meeting of the minds of the
parties to the contract; (2) the instrument does not express the true intention of the parties; and (3) the
failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable
conduct or accident.

Both parties acknowledge that Quiros and Villegas are entitled to their inheritance, hence, if the
Paknaan is nullified and in effect be invalidated, it would deprive Quiros and Villegas of their just share
of the inheritance. Arjona cannot, as an afterthought, be allowed to back out on his legal obligation to
transfer the property to its rightful heirs.

A refusal to reform the Paknaan under such circumstances would have the effect of penalizing one
party for negligent conduct, and at the same time permitting the other party to escape the consequences of
his negligence and profit. No person shall be unjustly enriched at the expense of another.
GARCIA vs. BISAYA
- on PRESCRIPTION as a Requisite of Reformation

FACTS of the CASE:

On 1952, Garcia filed a complaint against Bisaya alleging that on 1938, the latter executed a deed
of sale; that the parcel of land in the deed was unregistered, when in fact, it was registered to a certain
Sandoval. Despite demand by Garcia, Bisaya refused to correct such error. Garcia prayed for judgment
ordering Bisaya to make the correction and reform the deed of sale.

The Lower court dismissed the case on the ground that Garcia’s action had already prescribed,
which is 10 years for written contracts. Garcia appealed that the case should not be dismissed on the
ground of prescription since he discovered the error in the deed of sale only recently.

ISSUE: Whether or not the case be dismissed on the ground of prescription.

RULING: No. Garcia could not have instituted his action to correct an error in the deed until that error
was discovered. It was not proven that the error was discovered more than ten years before the action was
filed. Hence, it should not be dismissed due to prescription.

BUT, it should be dismissed for lack of cause of action of the complaint.

It failed to allege that the deed does not express the real agreement of the parties. Such allegation
is essential since the objective in an action for reformation is to make an instrument conform to the real
agreement or intention of the parties. Courts do not reform instruments for the sake of it, but to enable
some party to assert rights under the reform.

If reformation will be applied by stating that the land is already covered by a TCT under
Sandoval, what right will Garcia be able to assert as a vendee? He would be in the position of knowingly
purchased a property not belonging to Bisaya, the vendor. Perhaps Garcia’s real grievance is that Bisaya
misled him that the land was unregistered. If that’s the case, the proper remedy is not reformation but
annulment of the contract according to Art. 1359, par. 2 which reads “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.”

SC affirmed lower court’s dismissal: not because appellant’s action has already prescribed, but
because his complaint states no cause of action.
HUIBONHOA vs CA – on INTERPRETATION of Contracts

FACTS of the Case:

            On 1983, Florencia Huibonhoa entered into a memorandum of agreement with siblings Rufina
Lim, Severino Gojocco and Loreta Chua stipulating that Huibonhoa would lease from the Gojoccos 3
adjacent commercial lots in Binondo, Manila which were all in their (Gojoccos’) names.

Later that year, pursuant to the said memorandum of agreement, the parties inked a contract of
lease of the same lots for a period of 15 years upon their agreement. Subject contract was to enable the
lessee, Florencia T. Huibonhoa, to construct a “four-storey reinforced concrete building with concrete
roof deck, according to plans and specifications approved by the City Engineer’s Office.” The parties
agreed that the lessee could let/sublease the building and/or its spaces to interested parties under such
terms and conditions as the lessee would determine and that all amounts collected as rents or income from
the property would belong exclusively to the lessee.  The lessee undertook to complete construction of the
building “within eight (8) months from the date of the execution of the contract of lease.

The parties also agreed that upon the termination of the lease, the ownership and title to the
building thus constructed on the said lots would automatically transfer to the lessor, even without any
implementing document therefor.  Real estate taxes on the land would be borne by the lessor while that on
the building, by the lessee, but the latter was authorized to advance the money needed to meet the lessors’
obligations such as the payment of real estate taxes on their lots.  The lessors would deduct from the
monthly rental due all such advances made by the lessee.

During the construction of the building which later became known as Poulex Merchandise
Center, former Senator Benigno Aquino, Jr. was assassinated.  The incident must have affected the
country’s political and economic stability.  The consequent hoarding of construction materials and
increase in interest rates allegedly affected adversely the construction of the building such that Huibonhoa
failed to complete the same within the stipulated eight-month period from July 1, 1983.   Projected to be
finished on February 29, 1984, the construction was completed only in September 1984 or seven (7)
months later.

Under the contract, Huibonhoa was supposed to start paying rental in March 1984 but she failed
to do so.  Consequently, the Gojoccos made several verbal demands upon Huibonhoa for the payment of
rental arrearages and, for her to vacate the leased premises.  On December 19, 1984, lessors sent lessee a
final letter of demand to pay the rental arrearages and to vacate the leased premises.   The former also
notified the latter of their intention to terminate the contract of lease.

However, on January 3, 1985, Huibonhoa brought an action for reformation of contract before
Branch 148 of the Regional Trial Court in Makati.  Docketed as Civil Case No. 9402, the Complaint
alleged that although there was a meeting of the minds between the parties on the lease contract, their true
intention as to when the monthly rental would accrue was not therein expressed due to mistake or
accident.

ISSUE: Whether or not contract must be reformed.

RULING: 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.
 Article 1359 of the Civil Code provides that “(w)hen, there having been a meeting of the minds
of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such intention may be expressed.  xxx.” An action for
reformation of instrument under this provision of law 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 contact; (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.

The meeting of the minds between Huibonhoa, on the one hand, and the Gojoccos, on the other, is
manifest in the written lease contract duly executed by them.  The success of the action for reformation of
the contract of lease at bar should therefore, depend on the presence of the two other requisites
aforementioned.

Such contention betrays Huibonhoa’s confusion on the distinction between interpretation and
reformation of contracts.  In National Irrigation Administration v. Gamit, the Court distinguished the two
concepts as follows:
‘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.”

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.
OIL & NATURAL GAS COMMISSION VS. CA
- on Stipulations with Several Meanings
FACTS of the CASE:
On February 1983, an Indian company: Oil and Natural Gas Co. entered into a contract with
domestic company Pacific Cement Company, where the latter was to supply ONGC with 4,300 metric
tons of oil well cement, in consideration of ONGC’s payment of $477k through a letter of credit.
The cement has been loaded in Surigao for delivery to India. However, because of the shipowner
& Pacific’s dispute, the cargo was held up in Bangkok and didn’t reach India. Pacific already received the
payments, but despite several demands of ONGC, the former did not deliver. Negotiations ensued
between them, and they resolved that Pacific would deliver replacement of Class “G” cement cost free,
but upon ONGC’s inspection, the Class “G” cement did NOT conform to ONGC’s specifications.
ONGC informed Pacific that pursuant to Clause 161 of their contract, it was referring its claim to
an arbitrator. In 1988, ONGC’s chosen arbitrator, Mr. Malhotra, resolved the dispute and set arbitral
award in favor of ONGC, directing Pacific to pay 1) the amount received by Pacific thru the letter of
credit, 2) reimbursement of expenditure incurred due to ONGC inspection team’s visit to the Phils., 3.)
establishment charges, & 4.) losses suffered = $899k (+ interest + 1/2 of arbitration expenses).
To execute the awards, ONGC filed a Petition before the Court of the Civil Judge in Dehra Dun,
India (hereinafter, “foreign court”), praying that the arbitrator’s decision by made the “Rule of Court” in
India. The Foreign court issued notices to Pacific for objections. Pacific complied and sent objections, but
when the court directed it to pay filing fees, it instead sent a letter asking how much was to be paid.
Without responding, foreign court did not admit Pacific’s objections, so it issued its ruling,
making the arbitrator’s award (“Paper No. 3/B-1) the Rule of the Court, entitling ONGC to get from
Pacific $899k 9. ONGC sent notices of demand for Pacific’s compliance, but refused to pay.

ISSUE: Whether or not the non-delivery of the oil well cement is a matter properly cognizable by the
regular courts as stipulated by the parties in Clause 15 of their contract.

RULING: Yes. The SC agrees with this in connection to the appellate court’s ruling.
All questions, disputes and differences, arising under out of or in connection with this supply
order, shall be subject to the exclusive jurisdiction of the court, within the local limits of whose
jurisdiction and the place from which this supply order is situated. The following fundamental principles
in the interpretation of contracts and other instruments served as our guide in arriving at the foregoing
conclusion:
Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.
The dispute between the parties had its origin in the non-delivery of the 4,300 metric tons of oil
well cement to the petitioner. The petitioner contends that the same was a matter within the purview of
Clause 16, particularly the phrase, ". . . or as to any other questions, claim, right or thing whatsoever, in
any way arising or relating to the supply order/contract, design, drawing, specification, instruction . . .".
 It is argued that the foregoing phrase allows considerable latitude so as to include non-delivery of
the cargo which was a "claim, right or thing relating to the supply order/contract". The contention is
bereft of merit. First of all, the petitioner has misquoted the said phrase, shrewdly inserting a comma
between the words "supply order/contract" and "design" where none actually exists.
An accurate reproduction of the phrase reads, ". . . or as to any other question, claim, right or
thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing,
specification, instruction or these conditions . . .". The absence of a comma between the words "supply
order/contract" and "design" indicates that the former cannot be taken separately but should be viewed in
conjunction with the words "design, drawing, specification, instruction or these conditions". It is thus
clear that to fall within the purview of this phrase, the "claim, right or thing whatsoever" must arise out of
or relate to the design, drawing, specification, or instruction of the supply order/contract. The petitioner
also insists that the non-delivery of the cargo is not only covered by the foregoing phrase but also by the
phrase, ". . . or otherwise concerning the materials or the execution or failure to execute the same during
the stipulated/extended period or after completion/abandonment thereof . . .".
The doctrine of noscitur a sociis, although a rule in the construction of statutes, is equally
applicable in the ascertainment of the meaning and scope of vague contractual stipulations, such as the
aforementioned phrase. According to the maxim, where a particular word or phrase is ambiguous in itself
or is equally susceptible of various meanings, its correct construction may be made clear and specific by
considering the company of the words in which it is found or with which it is associated, or stated
differently, its obscurity or doubt may be reviewed by reference to associated words.
Thus, this Court has held that as in statutes, the provisions of a contract should not be read in
isolation from the rest of the instrument but, on the contrary, interpreted in the light of the other related
provisions. The whole and every part of a contract must be considered in fixing the meaning of any of its
harmonious whole. The rule is that a construction that would render a provision inoperative should be
avoided; instead, apparently inconsistent provisions should be reconciled whenever possible as parts of a
coordinated and harmonious whole.
CHUA VS. VALDES-CHOY – on Ambiguity of words used
FACTS of the Case:
Valdes-Choy advertised for sale her paraphernal house and lot and Chua responded to the
advertisement. After several meetings, they agreed on a purchase price of P10.8M payable in cash.
Valdes-Choy received a check from Chua amounting to P100k and agreed that the balance is payable on
or before July 15, 1989. Failure to pay would forfeit the earnest money.
On July 13, 1989, they met with their respective counsels to execute the necessary documents and
arrange the payments. They signed two Deeds of Absolute Sale: the first one covering the house and lot
for P8M with the second one for the furnishings, fixtures and movable properties contained in the house
for P2M. Capital gains tax amounting to P485k was also included.
The next day, Valdes-Choy deposited the P485k manager’s check to her account and check to the
counsel who undertook to pay the capital gains tax. Chua showed to Valdes-Choy a PBCom manager’s
check for P10.215M representing the balance of the purchase price. Chua, however, did not give this
PBcom manager’s check to Valdes-Choy because the TCT was still registered in the name of Valdes-
Choy.
Chua required that the property be registered first in his name before he would turn over the
check to Valdes-Choy. This angered the latter who tore up the Deeds of Sale, claiming that what the
former required was not part of their agreement.
On July 15, 1989, the deadline for the payment of the balance, Valdes-Choy suggested to her
counsel that to break the impasse, Chua should deposit in escrow the P10.215M balance.
Valdes-Choy was willing to cause the issuance of a new TCT in the name of Chua even without
receiving the balance of the purchase price. Chua filed a complaint for specific performance against
Valdes-Choy.
In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full
consideration only after the Property is registered in his name was not the agreement of the parties. The
Court of Appeals noted that there is a whale of difference between the phrases "all papers are in proper
order" as written on the Receipt, and "transfer of title" as demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in
order and that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a position to
deliver the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the
latest realty tax receipt. The Property was also free from all liens and encumbrances.
The Court of Appeals declared that the trial court erred in considering Chua's showing to Valdes-
Choy of the PBCom manager's check for P10.215M as compliance with Chua's obligation to pay on or
before July 15,1989. The Court of Appeals pointed out that Chua did not want to give up the check unless
"the property was already in his name." Although Chua demonstrated his capacity to pay, this could not
be equated with actual payment which he refused to do.

ISSUE: Whether or not the CA’s decision is right that Chua's stance to pay the full consideration only
after the Property is registered in his name was not the agreement of the parties
RULING: Yes. The SC sees no reason to disturb the ruling of the CA.
Chua insists that he was ready to pay the balance of the purchase price but withheld
payment because Valdes-Choy did not fulfill her contractual obligation to put all the papers in
"proper order." Specifically, Chua claims that Valdes-Choy failed to show that the capital gains
tax had been paid after he had advanced the money for its payment. For the same reason, he
contends that Valdes-Choy may not forfeit the earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase "all papers are in proper order" as
written in the Receipt. There is no dispute though, that as long as the papers are "in proper
order," Valdes-Choy has the right to forfeit the earnest money if Chua fails to pay the balance
before the deadline.
In this case, the contract to sell stipulated that Chua should pay the balance of the
purchase price "on or before 15 July 1989." The signed Deeds of Sale also stipulated that the
buyer shall pay the balance of the purchase price upon signing of the deeds.
However, on the agreed date, Chua refused to pay the balance of the purchase price as
required by the contract to sell, the signed Deeds of Sale. Chua was therefore in default and has
only himself to blame for the rescission by Valdes-Choy of the contract to sell.
Even if measured under existing usage or custom, Valdes-Choy had all her papers "in
proper order." Article 1376 of the Civil Code provides that:
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 this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers
that customarily would complete the sale, and to pay as well the capital gains tax. On the other
hand, Chua's condition that a new TCT be first issued in his name before he pays the balance is
not customary in a sale of real estate.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to
him the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and
the latest realty tax receipt. It was only a matter of time before the capital gains tax would be
paid. Chua acted impulsively in filing the action for specific performance a mere two days after
the deadline of July 15, 1989 when there was a stoppage.
Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to
him because the suspensive condition - the full payment of the purchase price - did not happen.
There is no correlative obligation on the part of Valdes-Choy to transfer ownership of the
Property to Chua. There is also no obligation on the part of Valdes-Choy to cause the issuance of
a new TCT in the name of Chua since unless expressly stipulated, this is not one of the
obligations of a vendor.
GACOS VS. CA – on Gratuitous and Onerous Contracts
SUMMARY:
Petrona inherited a share of land. She sold a part of it to Olaybal who in turn sold it to P Rosario.
The latter registered the Deed of Sale indicating the area of the land she bought as the enitre hereditary
share of Petrona. Later on, she sold the land to Prieto, who in turn leased the said land. Upon learning of
the later transactions, the heirs of Petrona filed a complaint for recovery of the remnant land from the sale
from Petrona to Olaybal. The P contend that the entire land was sold to them. The Court said, the variance
in the areas specified in the different documents presented cast doubt on the identity of the land sold to
Olaybal. Hence, Art. 1378 applies on the rules regarding gratuitous contract, given that the first sale was
between aunt and nephew-in-law.
DOCTRINE: Art. 1378, when it is absolutely impossible to settle doubts by the rules established, and the
doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and
interests shall prevail.
FACTS of the Case:
1. Three sisters, Petrona, Fortunata and Lucia (all surnamed Gacos) inherited an unregistered land in
Irosin, Sorsogon from their father, Eladio Gacos. When Eladio was ill, sometime in 1935-36, he verbally
adjudicated to them their respective inheritance shares by dividing the property lines from east to west
and assigned them their portions.
2. Petrona immediately took possession and occupied her 1/3 share of the land. Their father died in 1937.
On March 13, 1948, before the land was formally partitioned, she sold a part of her share to her nephew-
in-law, Marcial Olaybal. - Here’s what they did: she pointed (to the land) and indicated to him what she
was selling. They executed a document captioned “Escritura de VentaAbsoluta” - This document: (1)
described therein that the land inherited by Petrona was 2,720 m2, and (2) provided boundaries for such
land, specifically: N and W by the land of Eladio and other heirs together with the widow of the late
SeveroGacos, on the E by National Road Irosin-Juban-Bulan and on the S, irrigation canal, and beyond
the heirs abovementioned. - He took possession of the land, measured it and declared the same under his
name under Tax Declaration (TD) 5487. It was indicated therein that the area was 866 m2.
3. Before Petrona died in Jan. 1949, she instructed her sister Lucia, who administered the remaining
portion of her property, to sell the small area on the east for her funeral expenses and novena. - After her
death, this land was sold to TeodolfoMendones, as manifested in a document captioned “Documento de
CompraAbsoluta”, indicating therein an area of 84 m2. Mendones took possession of this land. -
PetronaGacos-Briones was survived by her four minor children who were left to the care and custody of
Lucia.
4. On May 14, 1950, Lucia, on her own behalf and in representation of Petrona, and Jose Cambal, in
behalf of his mother Fortunata, executed an Agreement of Partition of Real Property wherein they
formally apportioned their shares in the land: Petrona, north, 2,242 m2; Lucia, middle, 2,148 m2; and,
Fortunata, south, 2,194 m2.
5. On Dec. 1950, Olaybal sold the parcel of land he bought from Petrona to Rosario Gacos (no idea how
they’re related). The property indicated in the Deed of Absolute Sale was an area of 2,025 m2 (a 1,159
m2 difference from what he declared in his TD), and with boundaries: N, Lucia and Rosario Gacos; E,
national road; S, irrigation canal; and, W, Heirs of Petrona Gacos.
6. Rosario took possession of the land, and registered the deed of sale. 17 years later (April 1967), she
executed a document, “Ratification of Ownership of Realty”, consolidating 4 adjoining parcels of land
into one for tax purposes: (1) the 866 m2 acquired from Olaybal, (2) the 351 m2 and 534 m2 acquired
from Lucia, (3) the 1,200 m2 bought from Cornelia Galit, and (4) the 2,246 m2 bought from Rogelio
Galit. Issued TD10024.
7. In 1973, or 6 years later, Rosario sold all 5,187 m2 covered by TD 10024 to her nephew, Arnulfo
Prieto. On March 14, 1975, he entered into a 15-year lease contract with his sister Vivencia, who then
constructed a ricemill on said land.
8. On August 1, 1975, after learning of the sale to Rosario and the construction of the ricemill, the
children of Petrona (all surnamed Briones), executed a Deed of Extra-judicial Settlement, adjudicating
onto themselves the 1/3 undivided portion of their mother’s share.
9. [1st CASE] On Sept. 1, 1975, the Briones children filed a complaint before the CFI Sorsogon, seeking
to recover the 1,352 m2 from Rosario and Arnulfo, which they alleged to be the remnant of their mother’s
land after the sale to Olaybal. They alleged that: a. In the concept of negotiorium gestio (as they were then
minors), Lucia administered the land of their mom b. When Lucia Gacos died in 1971, Rosario came into
possession of the land in question and then executed the Ratification document for the purpose of having
the land declared in her name c. Without lawful authority, she sold it to Arnulfo Prieto, who despite
demands, refused to return the same to them.
10. Defendants admitted that the land was inherited by Petrona from her father, but: a. Contended that
Petrona sold not a portion, but the whole share of Petrona consisting of 2,780 m2, as per the Escritura de
VentaAbsoluta; there is no remnant land to speak of. b. The plaintiffs are no longer owners of the land
since 11948; they are toral stranger and have no legal right to intervene. c. The continued and undisturbed
possession for 27 years barred by acquiitive prescription whatever rights the plaintiffs may have over the
land.
11. [2nd CASE] Sometime in June 1976, Sps. Prieto filed a complaint with CFI Sorsogon against
Mendones and Sps. Gabitos, seeking to recover the 84 m2 portion of hereditary share of Petrona, which
according to them, was entirely sold to Olaybal in 1950, and in turn sold to Rosario then to them. They
claimed that this portion of land was fraudulently and without authority sold by Lucia to Mendones, then
by Mendones to the Gabitos, who hurriedly constructed a residential house thereon blocking from public
view the Prieto Ricemill and damaging their business.
12. Mendones and Gabitos: (1) denied that Petrona sold her entire share, only 866 m2 (2) Mendones
acquired the 84 m2 in good faith and for value, as evidenced by a sale document (fact #3), (3) having
legally acquired it, they had the right to sell the same, (4) the Gabitos are rightful owners by virtue of
purchase, and (5) the Gabitos are entitled to exercise their right of dominion by building a house on the
land.
13. CFI: After joint trial on the two cases, rendered judgment in favor of the Brioneses, and Mendones
and Gabitos. CA affirmed. (Note that the parties even hired a Geodetic Engineer to survey the
inheritance)
ISSUE: Whether or not the whole hereditary share of Petrona was sold to Olaybal
RULING: No.
In delineating the boundaries of the property sold, the boundaries indicated in the deed of sale
(Escritura de VentaAbsoluta) as enclosing the land and indicating its limit put its identification beyond
doubt and not the area mentioned in its description.
SC says this argument would have merit if the boundaries were certain and definite. However, the
boundaries given in the Escritura(2,750 m2) do not coincide with the Deed of Absolute Sale (2,025 m2)
between Olaybal and Rosario; the boundaries do not coincide with the one in the Agreement of Partition
(2,242 m2); the boundaries are general and vague.
The variance in the boundaries put to doubt the identity of the land sold by Petrona to Olaybal.
Both the RTC and CA found that only a parcel was sold. Evidence used in its findings: TD 5487 of
Olaybal himself, declared an area of 866 m2, the filed sheet and sketch plan submitted by Olaybal to the
assessors’ office, specifying the area of 866 m2 in both docs, Olaybal’s testimony that he bought only 866
m2; he even pointed and specifically identified the land he bought in the sketch plan made by the
Geodetic Engineer, the boundary to the West, in the Deed of Absolute Sale between Olaybal and Rosario,
indicated “Heirs of the late PetronaGacos”.
These evidences clearly indicate that Petrona did not sell her entire share to Olaybal, and neither
did Olaybal sell the hereditary share of Petrona to Rosario for he cannot sell what he does not own.
Petrona could not have sold her entire hereditary share as she and her four children were then
staying in the disputed land with Lucia.
Art. 1372 and Article 1378 applies. It must be observed that Olaybal was a close relative of
Petrona, he being married to Fortunata’s daughter. Court considered this as a gratuitous contract, and
should be interpreted as “to effect the least possible transmission of rights or interests.”
The possession of the petitioners cannot be characterized as possession in good faith, since:
As early as 1949, Rosario had recognized the sale by Lucia to Mendones; in the sale between
Lucia and Rosario, Mendones is mentioned as the boundary owner of the south; Encarnacion Prieto,
mother of P, even signed as witness; P never raised any objection on the exercise of Mendones of his
domical rights over the eastern portion when the latter mortgaged it as a collateral for a loan; Olaybal
even constructed a fence separating the property he bought from that of Petrona.
WHEREFORE, RTC and CA’s decisions were AFFIRMED.
SIGUAN vs. LIM – on RESCISSIBLE Contracts
FACTS of the Case:
Rosa Lim (Lim) issued two Metrobank checks in the sums of P300k and P241,668,
respectively, payable to “cash.”
Upon presentment by petitioner Siguan with the drawee bank, the checks were
dishonored for the reason “account closed.” Demands to make good the checks proved futile.
Lim was charged w/ estafa, and was found guilty. CA affirmed this decision on appeal.
However, on appeal to the SC, Lim was acquitted, though her civilly liable in the amount of
P169,000, as actual damages, plus legal interest, was retained.
While these proceedings were happening, Lim executed a Deed of Donation (DoD)
conveying the following parcels of land in favor of her children, registered with the Office of the
Register of Deeds of Cebu City. New transfer certificates of title were thereafter issued in the
names of the donees.
Siguan filed an accion pauliana against Lim and her children before in RTC Cebu City to
rescind the DoD and to declare as null and void the new TCTs issued for the lots covered by the
questioned deed. Petitioner claimed that through the DoD, Lim had fraudulently transferred all
her real property to her children in bad faith and in fraud of creditors, including her. She further
alleged that Lim confederated with her children in antedating the DoD to petitioner’s and other
creditors’ prejudice; and that Lim, at the time of the fraudulent conveyance, left no sufficient
properties to pay her obligations.
Lim denied any liability to petitioner. She maintained that the DoD was not antedated but
was made in good faith at a time when she had sufficient property. She alleged that the Deed of
Donation was registered only on 2 July 1991 because she was seriously ill.
RTC: ordered the rescission of the DoD, declared TCTs void, Lims to pay Siguan P10k
as moral damages; P10k as attorney’s fees; and P5k as expenses of litigation.
CA: reversed decision, thus an appeal.
Petitioner's argument: CA decision contrary to Oria vs McMicking ruling, w/c
enumerated circumstances for existence of fraud. They also contended that CA misapplied the
Rules of Court, and that they overlooked NCC Art 759 w/c provides: “The donation is always
presumed to be in fraud of creditors when at the time of the execution thereof the donor did not
reserve sufficient property to pay his debts prior to the donation.” In this case, Lim made no
reservation of sufficient property to pay her creditors prior to the execution of the DoD.
Respondents argue that (a) having agreed on the law and requisites of accion pauliana,
petitioner cannot take shelter under a different law; (b) petitioner cannot invoke the credit of
Victoria Suarez, who is not a party to this case, to support her accion pauliana; (c) CA correctly
applied or interpreted Section 23 of Rule 132 of the Rules of Court; (d) petitioner failed to
present convincing evidence that the DoD was antedated and executed in fraud of petitioner; and
(e) CA correctly struck down the awards of damages, attorney’s fees and expenses of litigation
because there is no factual basis therefor in the body of the TC’s decision.
ISSUE: Whether or not the Deed of Donation executed by Rosa Lim in favor of her children be
rescinded for being in fraud of her alleged creditor, petitioner Siguan
RULING: No. Petition was dismissed, affirming the Decision of the CA.
For accion pauliana to prosper, the ff. requisites must be present: (1) the plaintiff asking
for rescission has a credit prior to the alienation, although demandable later; (2) the debtor has
made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has
no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third
person who received the property conveyed, if it is by onerous title, has been an accomplice in
the fraud.
The general rule is that rescission requires the existence of creditors at the time of the
alleged fraudulent alienation, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. W/o any prior existing debt, there can neither be injury
nor fraud.
However, while it is necessary that the credit of the plaintiff in the accion pauliana must
exist prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even
if the judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to
the date when the credit was constituted. In the instant case, the alleged debt of Lim in favor of
petitioner was incurred in August 1990, while the deed of donation was purportedly executed on
10 August 1989. SC disagreed w/ the allegation of the petitioner that the questioned deed was
antedated to make it appear that it was made prior to petitioner’s credit.
Notably, that deed is a public document, it having been acknowledged before a notary
public As such, it is evidence of the fact which gave rise to its execution and of its date, pursuant
to Section 23, Rule 132 of the Rules of Court. Petitioner’s contention that the public documents
referred to in said Section 23 are only those entries in public records made in the performance of
a duty by a public officer does not hold water.
The petitioner's contentions are not enough to overcome the presumption as to the
truthfulness of the statement of the date in the questioned deed, which is 10 August 1989.
Petitioner’s claim against Lim was constituted only in August 1990, or a year after the
questioned alienation, making the first two requisites for the rescission of contracts are absent.
For the presumption of fraud to apply, it must be established that the donor did not leave
adequate properties which creditors might have recourse for the collection of their credits
existing before the execution of the donation. Since petitioner’s alleged credit existed only a year
after the deed of donation was executed, she be said to have been prejudiced or defrauded by
such alienation.
 Further, petitioner did not present evidence that would indicate the actual market value of
Lim's properties. It was not, therefore, sufficiently established that the properties left behind by
Lim were not sufficient to cover her debts existing before the donation was made. Hence, the
presumption of fraud will not come into play.
The seven badges of fraud mentioned in Oria vs McMicking is not an exclusive list,
circumstances evidencing fraud are as varied as the men who perpetrate the fraud in each case.
But in this case the petitioner failed to discharge the burden of proving any of the circumstances
enumerated above or any other circumstance from which fraud can be inferred. Accordingly,
since the four requirements for the rescission of a gratuitous contract are not present in this case,
petitioner’s action must fail.
In any case it is essential that the party asking for rescission under accion pauliana to
prove that he has exhausted all other legal means to obtain satisfaction of his claim. Petitioner
neither alleged nor proved that she did so. On this score, her action for the rescission of the
questioned deed is not maintainable even if the fraud charged actually did exist.
CANNU vs. GALANG – on Rescission or Resolution
FACTS of the Case:
Galang obtained a loan from Fortune Savings & Loan to purchase a house in Las Pinas which he
later on sold to Cannu: the house plus the assumption of mortgage obligations. After payment by Cannu,
P45k was left of the balance of the purchase price. Galang demanded either payment of the balance or to
vacate the property but because Cannu refused to pay the loan, the former assumed the mortgage balance.
Galang alleged that because they paid the balance, it is an initial step in the rescission of the Deed of Sale.
CA ruled that the breach of the contract is substantial and rescission is justified.

ISSUE: Whether or not the CA is right that rescission is valid, instead of a resolution.
RULING: Yes, the CA is right. The SC affirmed that 18%, representing portion of the unpaid balance, is
substantial. Last payment was 18 months before respondent paid mortgage balance. There was sufficient
time for petitioner to pay the balance. There was clear intention of the petitioners to renege their
obligations. Failure to fulfill their obligation gave respondents the right to rescission. The contract does
not contain provision authorizing extra-judicial rescission. Galang should have asked for judicial
intervention. SC then orders the respondents, Galang to return the partial payment made by the
petitioners, Cannu.
EQUATORIAL vs. MAYFAIR – on Rescission or Resolution
FACTS of the Case:
Carmelo and Bauermann, Inc. leased its parcel of land with a 2-storey building to Mayfair
Theater, Inc.
Carmelo informed Mayfair that they intend to sell the entire property. Mayfair replied that they
were interested to buy the entire property if the price is reasonable. However, Carmelo sold the entire
property to Equatorial.
Mayfair filed an action for specific performance and annulment of the sale because it violated
their exclusive option to purchase the property for 30 days as stipulated in the lease contract. Carmelo
contended that they informed Mayfair their desire to sell the property and the option to purchase by
Mayfair is null and void for lack of consideration.
ALTERNATIVE FACTS of the CASE:
Mayfair Theater, Inc. was a lessee of portions of a building owned by Carmelo & Bauermann,
Inc. Their lease contracts of 20 years. Lease contracts contained a provision granting Mayfair a right of
first refusal to purchase the subject properties.
However, before the contracts ended, the subject properties were sold for P11,300 by Carmelo to
Equatorial Realty Development, Inc. This prompted Mayfair to file a case for the annulment of the Deed
of Absolute Sale between Carmelo and Equatorial, specific performance and damages.
In 1996, the Court ruled in favor of Mayfair.
Barely five months after Mayfair had submitted its Motion for Execution, Equatorial filed an
action for collection of sums of money against Mayfair claiming payment of rentals or reasonable
compensation for the defendant’s use of the subject premises after its lease contracts had expired.
Maxim Theater contract expired on May 31, 1987, while the Lease Contract covering the
premises occupied by Miramar Theater lapsed on March 31, 1989.
The lower court debunked the claim of Equatorial for unpaid back rentals, holding that the
rescission of the Deed of Absolute Sale in the mother case did not confer on Equatorial any vested or
residual propriety rights, even in expectancy.
It further ruled that the Court categorically stated that the Deed of Absolute Sale had been
rescinded subjecting the present complaint to res judicata.
Hence, Equatorial filed the present petition.

ISSUE: Whether or not the sale to Equatorial is rescissible.

RULING: Yes, the sale is rescissible. Both Carmelo and Equatorial acted in bad faith knowing
that a right of first refusal was agreed upon in the lease contract and Mayfair was an interested
buyer of the property.
 Equatorial is not the rightful owner of the subject because the sale to them may have been
valid from inception, but it was judicially rescinded before it could be consummated. Equatorial
never acquired ownership, not because the sale was void, as erroneously claimed by the trial
court, but because the sale was not consummated by a legally effective delivery of the property
sold.
Thus, this also does not reserve the right for Equatorial to its fruits or rentals.
This is supported by Article 1385 of the Civil Code which reads: “[r]escission creates the
obligation to return the things which were the object of the contract, together with their fruits,
and the price with its interest; . . . .” Not only the land and building sold, but also the rental
payments paid, if any, had to be returned by the buyer.
On the basis of the evidence presented during the hearing of Mayfair’s Motion to
Dismiss, the RTC found that the issue of ownership of the subject property has been decided by
the SC in favor of Mayfair.
Hence, the RTC decided the Motion to Dismiss on the basis of res judicata, even if it
erred in interpreting the meaning of “rescinded” as equivalent to “void.” In short, it ruled on the
ground raised; namely, bar by prior judgment. By granting the Motion, it disposed correctly,
even if its legal reason for nullifying the sale was wrong.
ARMENTIA vs. PATRIARCA – on WHO MAY FILE for Annulment of Contracts
FACTS of the Case:
Laurentio Armentia, and Juliana and Marta Armentia (plaintiffs), were brother and sisters of the
full blood. Jose Someciera is the acknowledged natural son of their deceased mother. Defendants
Florencia Someciera is a daughter of Jose Someciera. while Erlinda Patriarca is a grand-daughter of
Juliana Armentia. Marta Armentia was married to Gregorio Bueno who died sometime in 1942.
On 1955, Marta Armentia did two things: First, she decided to herself a parcel of land with the
improvements thereon, which she inherited from her deceased husband and second, for and in
consideration of P99.00, which she acknowledged to have received from Erlinda Patriarca, 13 years of
age, single, and Florencia Someciera, 20 years of age, single, she sold to them the property just
mentioned. The foregoing document was recorded in the registry of deeds. Whereupon, Torrens title
21323 was cancelled by Transfer Certificate of Title 18797 in the names of Erlinda Patriarca and
Florencia Someciera.
Marta Armentia died intestate and without forced heirs on May 28, 1960.
On 1960, Laurentio Armentia commenced suit against Erlinda Patriarca and Florencia Someciera
as principal defendants. The complaint, as amended, and reamended, avers: That the sale made by Marta
in favor of Erlinda and Florencia is null and void because it is simulated and fictitious and if not null and
void it is voidable because the said defendants were minors at the time the contract was executed and
could not then have given their consent to the sale; that the said sale was fraudulently executed, and after
the supposed sale, Marta Armentia remained in possession of the house and lot, as owner paying the taxes
on the land until she died; that even assuming hypothetically that there was consideration in the supposed
sale, the consideration was grossly inadequate; that plaintiff only came to know of the supposed sale one
week before the suit was filed; that at the time of the alleged sale, the house was already standing on the
land, and that after its execution Marta Armentia repaired the house; and that the defendants Erlinda
Patriarca, Plorencia Someciera, Juliana Armentia and Jose Someciera are personally possessing the land
and the house in question.
Marta Armentia’s execution of the document, and the fact that the vendees were minors, makes
the sale merely voidable and the contract, at worst, annullable by them.
The plaintiff's case is bottomed on fraud, which renders the contract voidable.

ISSUE: Whether or not Laurentio has the personality to annul the sale on the theory of fraud.
RULING: No. Plaintiff was but a brother of the deceased Marta Armentia.
True, he is an intestate heir of Marta; but he is not a forced heir. Upon the other hand, Marta was
free to dispose of her properties the way she liked it. She had neither ascendants nor descendants.
By Article 1397 of the Civil Code, "the action for annulment of contracts may be instituted by all
who are thereby obliged principally or subsidiarily". This must be construed in conjunction with Article
1311 of the same code providing that "contracts take effect only between the parties, their assigns and
heirs except in case where the rights and obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law", and that "the heir is not liable beyond the value of
the property he received from the decedent".
Plaintiff is not a forced heir. He is not obliged principally or subsidiarily under the contract.
Marta Armentia did not transmit to him by device or otherwise any rights to the property, the subject
thereof. On the contrary, Marta voluntarily disposed of it. No creditors are defrauded; there are none. No
legitimes are impaired. Therefore, plaintiff has no cause of action to annul or to rescind the sale.
The SC says that plaintiff here has no cause of action.
But even if a right of action be conceded, plaintiff's case fails just the same. An action to annul a
contract based on fraud must be filed within four years from the discovery thereof. In legal
contemplation, discovery must be reckoned to have taken place from the time the document was
registered in the office of the register of deeds. For, the familiar rule is that registration is notice to the
whole world, including plaintiff. The document in question was recorded on July 22, 1955. Action was
started only on September 17, 1960. The four-year period has elapsed. And, plaintiff's cause of action, if
any, is time-barred.
The SC affirms the dismissal of the complaint.
KATIPUNAN vs. KATIPUNAN – on Mutual Restitution/Reimbursement
FACTS of the Case:
This is a petition for review on certiorari assailing the decision of the CA in Braulio Katipunan,
Jr. vs. Miguel Katipunan, Inocencio Valdez, Atty. Leopoldo Balguma, Sr., Edgardo Balguma and
Leopoldo Balguma, Jr. which reversed the decision of the RTC of Manila for the annulment of a Deed of
Absolute Sale.
Braulio Katipunan, Jr. owns a 203 square meter lot and a five-door apartment in San Miguel,
Manila and is registered under his name in the Registry of Deeds in Manila. Braulio, was assisted by his
brother, petitioner – Miguel Katipunan, into entering a Deed of Absolute Sale with brothers Edgardo
Balguma, Leopoldo Balguma, Jr., represented by Atty. Leopoldo Balguma, Sr. – for the subject property
for a consideration of 187,000PHP.
Respondent filed a complaint for the annulment of the Deed of Absolute Sale and averred that the
petitioners convinced him to work abroad and that through insidious words and machinations, they made
him sign a document that he thought was a contract of employment. This document turned out to be the
Deed of Absolute Sale. He also claimed that he did not receive the consideration stated in the contract. He
argued that the petitioners, with evident bad faith, conspired with one another in taking advantage of his
ignorance. The RTC dismissed this complaint on grounds that the respondent failed to prove his causes of
action since he admitted that he obtained loans from the Balgumas, he signed the Deed of Absolute sale
and he acknowledged selling the property and that he stopped collecting rentals.
On the other hand, the CA gave credit to the testimony of Dr. Ana Marie Revilla, a psychiatrist at
the UP-PGH, as an expert witness – explaining that the respondent is slow in comprehension and has a
very low IQ. They ruled that the contract entered into by respondent and petitioners was voidable
pursuant to the provisions of Article 1390 of the NCC. The petitioners filed a MFR but was denied.
Hence, this petition.

ISSUE: Whether the contract entered into by the parties is voidable.

RULING: Yes. The contract entered into by respondent and petitioners was voidable.
A contract where one of the parties is incapable of giving consent or where consent is vitiated by
mistake, fraud, or intimidation is not void ab initio but only voidable and is binding upon the parties
unless annulled by proper Court action. The effect of annulment is to restore the parties to the status quo
ante insofar as legally and equitably possible-- this much is dictated by Article 1398 of the Civil Code. As
an exception however to the principle of mutual restitution, Article 1399 provides that when the defect of
the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make
any restitution, except when he has been benefited by the things or price received by him. Thus, since the
Deed of Absolute Sale between respondent and the Balguma brothers is voidable and hereby annulled,
then the restitution of the property and its fruits to respondent is just and proper. Petitioners should turn
over to respondent all the amounts they received starting January, 1986 up to the time the property shall
have been returned to the latter.
 Wherefore, the petition was DENIED. The assailed Decision of the CA was AFFIRMED with
MODIFICATION in the sense that the Balgumas are ordered to turn over to respondent Braulio
Katipunan, Jr. the rentals they received for the five-door apartment corresponding to the period from
January, 1986 up to the time the property shall have been returned to him, with interest at the legal rate.

UY SOO LIM vs. TAN – on Action for Annulment: When Extinguished

FACTS of the CASE:
An action for annulment of contract by terms was instituted by Uy Soo Lim against
Francisca Pastrano, wherein he sold all his interest in the estate of the late Santiago Pastrano Uy
Toco to her.The latter, a Chinese man, came from China to reside in the Philippines. He married
Candida Vivares; two daughters were born, Francisca and Concepcion.
In 1891, he returned to China and bore a son, Uy Soo Lim, with a Chinese woman, Chan
Quieg Santiago returned to the Philippines. He never saw Chan Quieg anymore but he received
letters from her informing that she had borne him a son. When he died, a large portion of his
estate was given to Uy Soo Lim (through a will instituted by Santiago).
A couple of suits were filed regarding this distribution. The effect of all was to put the
right of Uy Soo Lim to 7/9 of the property and even to put in question his right to receive
anything at all. Candida Vivares filed a motion claiming that as a widow, she has the right to ½
of the estate of Santiago. A motion of similar purport was filed by her in the matter of
guardianship of Uy Soo Lim et al.
Francisca and Concepcion filed, through their attorneys, a motion in the guardianship of
Uy Soo Lim, alleging that he was not entitled for the reason that the marriage between Santiago
and her mother was null and void and that he was not a legitimate or illegitimate son. Chan
Quieg also asked to be declared entitled to ½ of the estate.
Meanwhile, Uy Soo Lim had married in China. He was aware of the fact that he was heir
under the terms of the will of Santiago, having already drawn from the estate for his personal use
P26,800. Before setting out for Manila, Uy Soo Lim employed Choa Tek Hee, a resident
merchant of Manila, to be his agent and advisor. He also secured the services of two attorneys,
Major Bishop to represent him in Manila and Levering to represent him in Cebu. An agreement
was reached between Choa Tek Hee and Uy Soo Lim and Tan Unchuan and Del Rosario,
attorney representing the interest of Candida Vivares and Francisca and Concepcion to submit
the entire matter in dispute to the judgment of three respectable Chinese merchants.
Conclusion was reached that the sum of P82,500 should be accepted by Uy Soo Lim in
full satisfaction and relinquishment of all his right, title, and interest in the estate of Santiago.
This was accepted by both parties. Uy Soo Lim then executed a deed by which he relinquished
and sold to Francisca Pastrano all his right, title, and interest in the estate of Santiago. This is the
document he is seeking to annul. Several documents were executed in favor of Francisca
Pastrano re estate of Santiago. All these documents were presented to court. Thus, the court
issued an order in the matter of guardianship of Uy Soo Lim by which Francisca was declared
the sole owner of the property. Thus, Uy Soo Lim filed (in 1914) an action to rescind and annul
the deed he entered into on the ground that he was induced to execute the deed of cession and
that they were taking advantage of his youth, passions, and inexperience by misrepresenting
material facts concerning the value of the property and interest in questions. Lower court held
that appellant had not been induced by deceit or undue influence but did so deliberately with full
knowledge of the facts, after mature deliberation and upon advice of capable counsel. Some
shadow of claim might be made on this issue if plaintiff, then a minor, had signed the document
without careful and competent advisers to direct him.
ISSUE: Whether or not Uy Soo Lim must be held to have forfeited any right to bring an action
for annulment
RULING: Yes, not only should plaintiff have refunded all moneys in his possession upon filing
his action to rescind, but, by insisting upon receiving and spending such consideration after
reaching majority, knowing the rights conferred upon him by law, he must be held to have
forfeited any right to bring such action.
Article 1314, Civil Code, provides as follows: The action for nullity of a contract shall
also be extinguished when the thing which is the object thereof should be lost by fraud or fault of
the person having the right to bring the action.
If the cause of the action should be the incapacity of any of the contracting parties, the
loss of the thing shall be no obstacle for the action to prevail, unless it has occurred by fraud or
fault on the part of the plaintiff after having acquired capacity.
Plaintiff has disposed of the whole of the P85,000 which was paid him in consideration of
the execution of the contract he is now seeking to annul. The record establishes beyond
peradventure of doubt that he is utterly without funds to reimburse this consideration. In the
Choa Tek Hee suit (Exhibit 10) there appears at folio 17 a motion by plaintiff, under oath,
wherein he recites as a ground for realizing certain of the moneys deposited under this contract
that he (plaintiff) has no funds with which to support himself except such as may be advanced to
him out of the moneys belonging to him which is now or may hereafter be in the hands of the
clerk of this court." Being without other funds, there was the greater reason why this deposit,
derived from the very contract sought to be repudiated, should have been held intact to reimburse
his vendee.
With a full knowledge of his rights in the premises, he failed to disaffirm his contract
within a reasonable time after reaching majority; and because he not only failed to tender, or
offer to produce and pay the consideration in ease when he reached majority, and when he filed
his action, but proceeded, after such events, to demand, collect and dispose of such consideration
when according to his own statement under oath he had no other funds with which to make
reimbursement.
FELIPE VS. HEIRS OF ALDON – on RATIFICATION
FACTS of the Case:
Maximo Aldon married Gimena Almosara in 1936. The spouses bought several pieces of land
sometime between 1948 and 1950. In 1960-62, the lands were divided into three lots, 1370, 1371 and
1415 of the San Jacinto Public Land Subdivision, San Jacinto, Masbate.
In 1951, Gimena Almosara sold the lots to the spouses Eduardo Felipe and Hermogena V. Felipe.
The sale was made without the consent of her husband, Maximo.
On April 26, 1976, the heirs of Maximo Aldon, namely his widow Gimena and their children
Sofia and Salvador Aldon, filed a complaint in the Court of First Instance of Masbate against the Felipes.
The complaint which was docketed as Civil Case No. 2372 alleged that the... plaintiffs were the owners of
Lots 1370, 1371 and 1415; that they had orally mortgaged the same to the defendants; and an offer to
redeem the mortgage had been refused so they filed the complaint in order to recover the three parcels of
land.
The defendants asserted that they had acquired the lots from the plaintiffs by purchase and
subsequent delivery to them. The trial court sustained the claim of the defendants and rendered the
following judgment:
"a. declaring the defendants to be the lawful owners of the property subject of the present
litigation;... b. declaring the complaint in the preset action to be without merit and is therefore hereby
ordered dismissed;... c. ordering the plaintiffs to pay to the defendants the amount of P2,000.00 as
reasonable attorney's fees and to pay the costs of the suit."
The plaintiffs appealed the decision to the Court of Appeals which rendered the following
judgment:
"PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and SET
ASIDE, and a new one is hereby RENDERED, ordering the defendants-appellees to surrender the lots in
question as well as the plaintiffs'-appellants' muniments of title thereof to said... plaintiffs-appellants, to
make an accounting of the produce derived from the lands including expenses incurred since 1951, and to
solidarily turn over to the plaintiffs-appellants the NET monetary value of the profits, after deducting the
sum of P1,800.00. No attorney's fees nor... moral damage are awarded for lack of any legal justification
therefor. No costs."

ISSUE: Whether or not the sale made by Gimena was a voidable contract.
RULING: Yes, it is a voidable contract.
According to Art. 1390 of the Civil Code, among the voidable contracts are "[T]hose
where one of the parties is incapable of giving consent to the contract." (Par. 1.) In the instant
case Gimena had no capacity to give consent to the contract of sale. The capacity to give...
consent belonged not even to the husband alone but to both spouses.
 The view that the contract made by Gimena is a voidable contract is supported by the
legal provision that contracts entered by the husband without the consent of the wife when such
consent is required, are annullable at her instance during the marriage and within ten years...
from the transaction questioned. (Art. 173, Civil Code)
Gimena's contract is not rescissible for in such a contract all the essential elements are
untainted but Gimena's consent was tainted. Neither can the contract be classified as
unenforceable because it does not fit any of those described in Art. 1403 of the Civil Code and
finally, the contract cannot be void or inexistent because it is not one of those mentioned in Art.
1409 of the Civil Code. By process of elimination, it must per force be a voidable contract.
The voidable contract of Gimena was subject to annulment by her husband only during
the marriage because he was the victim who had an interest in the contract. Gimena, who was the
party responsible for the defect, could not ask for its annulment. Their children could not...
likewise seek the annulment of the contract while the marriage subsisted because they merely
had an inchoate right to the lands sold.
The termination of the marriage and the dissolution of the conjugal partnership by the
death of Maximo Aldon did not improve the situation of Gimena. What she could not do during
the marriage, she could not do thereafter.
The case of Sofia and Salvador Aldon is different. After the death of Maximo, they
acquired the right to question the defective contract insofar as it deprived them of their hereditary
rights in their father's share in the lands. The father's share is one-half (1/2) of the... lands and
their share is two-thirds (2/3) thereof, one-third (1/3) pertaining to the widow.
WHEREFORE, the decision of the Court of Appeals was modified. Judgment is entered
awarding to Sofia and Salvador Aldon their shares of the lands as stated in the body of this
decision; and the petitioners as possessors in bad faith shall make an accounting of the fruits
corresponding to the share aforementioned from 1959 and solidarity pay their value to Sofia and
Salvador Aldon; costs against the petitioners.
GUTIERREZ HERMANOS VS. ORENSE – on Unauthorized Contracts
FACTS of the Case:
On 1907, Jose Duran, nephew of Respondent Orense, sold parcel of land to Petitioner Gutierrez
Hermanos. Said property is owned by Orense. The sale, with the knowledge and consent of Orense, was
executed before a notary public instrument. It contained a provision giving Duran the right to repurchase
the said land for the same prince within a period of 4 years.
Orense and Duran continued to occupy the land by virtue of a contract to lease executed by
Gutierrez Hermanos to Duran which was to end by Feb. 14, 1911. After the lapse of 4 years from the Feb.
1907 sale, Gutierrez Hermanos asked Orense to deliver the property and pay their rentals for their
occupation. Orense refused and claimed that the sale was void. He averred that it was done without his
authority. He claimed that Duran acted without his consent.
Gutierrez Hermano then charged Duran with estafa for having fraudulently represented himself in
the deed of sale. However, Orense testified as a witness for Duran. Orense claimed that he did in fact
consented to the sale. CFI then acquitted Duran. Gutierrez Hermanos then filed suit against Orense
pointing the validity and efficacy of the sale of the parcel of land. Lower court favored Gutierrez.

ISSUE: Whether or not Orense’s approval produced the effect of an express authorization.
RULING: Yes, Orense’s approval produced the effect of an express authorization to make the sale.
Even though sale was not previously authorized by owner, his subsequent consent to the act cures
the flaw at the time the sale was executed. Trial records in the Estafa case show that Orense did consent
that Duran sell the property. He even confirmed and ratified the sale through a notary public.
Article 1259 of Civil Code: “No one can contract in the name of another without being authorized
by him or without having his legal representation according to law. A contract executed in the name of
another by one who has neither his authorization nor legal representation shall be void, unless it should be
ratified by the person in whose name it was executed before being revoked by the other contracting
party.”
Shown that Orense consented indeed, it follows that the Principal must fulfill all the obligations
contract by his Agent who acted within his scope of authority. The sworn statement by Orense in
testifying at the trial of Duran for estafa confirms and ratifies the sale. The initial sale was thus null and
void but it was cured of its nullity and defects when Respondent Orense took oath in court claiming that
he did indeed give consent to Duran’s sale.
Furthermore, with Orense’s admission to the consent in Duran’s estafa case, it would be unjust or
impermissible for him to deny such admission in the present litigation.
Thus, the SC affirms the CA’s decision, concluding that the repeated and successive statements
made by the defendant Orense in two actions, wherein he affirmed that he had given his consent to the
sale of his property, meet the requirements of the law and legally excuse the lack of written authority,
and, as they are a full ratification of the acts executed by his nephew Jose Duran, they produce the effects
of an express power of agency.

SHOEMAKER V LA TONDEÑA, INC. – on the Violation of the Statute of Frauds

FACTS of the CASE:
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
invoking the Statute of Frauds.

RULING: Yes.
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, we are 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.
The SC has seen that in the present case it is hypothetically admitted that plaintiff complied,
within the year, that is, from March 1 to December 31, 1933, 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.
Hence, the facts alleged in the second amended complaint constitute a cause of action.
Wherefore, the order appealed from is reversed and it is ordered that case be remanded to the
court of origin so that the same may overrule the demurrer interposed by the defendant company, La
Tondeña, Inc., and the latter may be required to answer the second amended complaint, with costs against
the appellee.
ASIA PRODUCTION VS. PAÑO – on Unenforceable Contracts
FACTS of the CASE:
Lolita Lee Le Hua and Alberto Dy claimed to be the owners of a building constructed on a lot
leased from Lucio San Andres. They offered to sell the building to petitioners Asia Production Company,
Wang Ta Peng and Winston Wang. Asia Production et. Al agreed because of the former’s assurance that
they will also assign to them the contract of lease over the land. However, the agreement and promise
were not reduced to writing.
Relying on the good faith of Hua and Dy, Asia Prod et. Al constructed a weaving factory on the
leased lot. Unfortunately, Hua and Dy, failed to comply with their undertaking to execute the Deed of
Sale and to assign the contract despite the fact that they were able to encash the checks Asia Prod paid.
Worse, the lot owner made it plain to Asia Prod that he was unwilling to give consent to the assignment
of the lease unless they agreed to certain onerous terms such as an increase in rental or the purchase of the
land at a very unconscionable price.
Asia Prod et. Al thus, compelled to request for a stop payment order of the remaining checks.
Succeeding negotiations to save the transaction proved futile by reason of the continued failure of Hua
and Dy to execute the DoS of the building and the Deed of Assignment of the contract of lease.
Asia Prod then, removed all their property, machinery and equipment from the building and
vacated the same, returning its possession to Hua and Dy. The former demanded from the latter the return
of their partial payments for the purchase price of the building but the former refused to return it.
Hence, Asia Prod filed a complaint. In their defense, Alberto Dy averred that the claim on which
the action is based, an alleged purchase of a building not evidence by any writing, cannot be proved by
evidence since Art. 1356 in relation to Art. 1358 of the Civil Code requires that it should be in writing.
But according to Asia Prod, their complaint is essentially for collection of a sum of money and
not to enforce the sale but to compel Hua and Dy to refund the sum of money they paid for the supposed
purchase which did not materialize due to their bad faith.
Judge Paño of the CFI Quezon City dismissed the complaint on the ground that it is barred by the
Statute of Frauds.

ISSUE: Whether or not Judge Paño was right or was it simply an unenforceable contract.
RULING: The contracts concerned were simply unenforceable, and thus, Judge Paño committed grave
abuse of discretion in dismissing the complaint on the said ground.
This is as explicitly provided for in Art. 1403, paragraph 2 of the Civil Code: that for a contract to
be unenforceable, they or some note or memorandum thereof be in writing, referring only to the manner
they are to be proved. This makes the claim of Asia Prod as meritorious.
 The SC says that 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. It
was not designed to perpetuate fraud.
Thus, the SC granted the petition.

PANGADIL vs. CFI

– on Simulated/Fictitious Contracts as a ground of
VOID/INEXISTENT CONTRACTS
FACTS of the CASE:
A parcel of land owned by Pangadil was conveyed in favor of the respondent Tandingan through
averbal sale. After the death of Pangadil, his daughter Salandang executed the document
called"Ratificacion De Una Venta" wherein she acknowledged the verbal sale made by her deceased
father Pangadil over the parcel of land in favor of respondent Tandingan. The sale was approved by the
guardianship court.
Wherein 21 years later, Salandang filed a civil case before the CFI seeking to annul the said
document. Salandang averred that she and her sister were made to sign the document on the
misrepresentation that it was merely to ratify a verbal mortgage executed by her father during his lifetime,
and not to confirm a verbal sale of the land. CFI dismissed the case on the ground of prescription, and
declared that the document was legal, binding and effective, hence, the acton to annul the sale which was
filed more than 21 years after the approval thereof is already barred by the Statute of Limitations.
In their present petition for review on certiorari, Salandang disputed the CFI’s ruling on the
ground that the document was inexistent and void and the action for declaration of its non-existence does
not prescribe pursuant to Article 1410 of the Civil Code.

ISSUE: Whether or not the document is inexistent and void.

RULING: No, there is no 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, prejudices a third person and is intended
for a purpose contrary to law, morals, good customs, public order or public policy.
The document is a contract wherein the parties intended to be bound, which makes it valid. They
admitted that they merely contended that they thought their actions were to ratify a contract of oral
mortgage, instead of an oral sale of land.

WHEREFORE, the Order appealed from is hereby affirmed. With costs against the petitioners.
MAPALO vs. MAPALO
– on Cause/Object as Inexistent at the Time of the Transaction as a ground for
VOID/INEXISTENT CONTRACTS

FACTS of the CASE:

Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners of a
residential land in Manaoag, Pangasinan. Out of love and affection for Maximo Mapalo, Miguel’s brother
who was about to get married, they decided to donate the eastern half of the land. However, they were
deceived into signing a deed of absolute sale of the entire land on October 15, 1936. The document
showed a consideration of P500, but the spouses actually did not receive anything. The spouses built a
fence segregating the donated land. They continued to possess the western part up to the present.
Not known to them, on March 15, 1938, Maximo registered the deed of sale in his favor and was
able to obtain a TCT. On October 20, 1951, Maximo sold the entire land to the Narcisos, and a TCT was
issued. The Narcisos took possession of the eastern part and filed a suit against Miguel and Candida, as
well as Floro Guieb and Rosalia Mapalo Guieb who had a house on the western portion consented by the
spouses. The spouses filed an answer with counterclaim, seeking cancellation of the TCT of the Narcisos
on the ground that their consent to the deed of sale in favor of Maximo was obtained through fraud. The
spouses also instituted a complaint to nullify the deeds of sale in 1936 and 1951.
The trial court tried the case jointly. It ruled in favor of Miguel and Candida. The appellate court,
however, reversed the judgment and rendered the sale valid on the ground of prescription. According to
the appellate court, the sale is voidable and subject to annulment only within 4 years after discovery of
fraud. It reckoned March 15, 1938, the date of registration, to be the reckoning period.

ISSUE: Whether, under the old civil code which was in effect during the execution of the sale, the sale to
Maximo is void or merely voidable.

RULING:
For a contract to exist at all, three essential requisites must concur: (1) consent, (2) object, and (3)
cause or consideration.
The Court of Appeals is right in that the element of consent is present as to the deed of sale of
October 15, 1936. For consent was admittedly given, albeit obtained by fraud. Accordingly, said consent,
although defective, did exist. In such case, the defect in the consent would provide a ground for
annulment of a voidable contract, not a reason for nullity ab initio. The parties agreed that the second
element of object is likewise present in the deed of October 15, 1936, namely, the parcel of land subject
matter of the same.
Not so, however, as to the third element of cause or consideration. As regards the eastern portion
of the land, the Mapalo spouses are not claiming the same, it being their stand that they have donated and
freely given said half of their land to Maximo Mapalo. And since they did not appeal from the decision of
the trial court finding that there was a valid and effective donation of the eastern portion of their land in
favor of Maximo Mapalo, the same pronouncement has become final as to them, rendering it no longer
proper herein to examine the existence, validity efficacy of said donation as to said eastern portion. Now,
as to the western portion, however, the fact not disputed herein is that no donation by the Mapalo spouses
obtained as to said portion. Accordingly, we start with the fact that liberality as a cause or consideration
does not exist as regards the western portion of the land in relation to the deed of 1936; that there was no
donation with respect to the same.
Was there a cause or consideration to support the existence of a contrary of sale?
Since the deed of sale of 1936 is governed by the Old Civil Code, it should be asked whether its
case is one wherein there is no consideration, or one with a statement of a false consideration. If the
former, it is void and inexistent; if the latter, only voidable, under the Old Civil Code. As observed
earlier, the deed of sale of 1936 stated that it had for its consideration P500. In fact, however, said
consideration was totally absent. According to Manresa, what is meant by a contract that states a false
consideration is one that has in fact a real consideration but the same is not the one stated in the
document. A contract of purchase and sale is null and void and produces no effect whatsoever where the
same is without cause or consideration in that the purchase price which appears thereon as paid has in fact
never been paid by the purchaser to the vendor.

Wherefore, the decision of the CA was hereby reversed and set aside, and another one is hereby
rendered affirming in toto the judgment of the Court of First Instance a quo, with attorney's fees on appeal
in favor of appellants in the amount of P1,000.00, plus the costs, both against the private appellees.
RUBIAS vs. BATILLER
– on Contracts declared Void by Law as a ground
for VOID/INEXISTENT CONTRACTS
FACTS of the CASE:
On 1964, Domingo Rubias, a lawyer, filed a suit to recover the ownership and possession of
certain portions of a lot in Iloilo, which he bought from his father-in-law, Francisco Militante in 1956.
The lot was occupied by Isaias Batiller, who illegally entered said portions of the lot on two occasions—
in 1945 and 1959. Rubias also prayed for damages and attorney’s fee. Meanwhile, in his answer, Batiller
claims that he and his predecessors-in-interest have always been in actual, open, and continuous
possession since time immemorial under claim and ownership of the portions of the lot in question.
Batiller claims that due to the allegations, he has suffered moral damages in the amount of P2,000 and a
sum of P500 for attorney’s fees.

ISSUE: Whether or not the sale is void.

RULING: Yes, the sale was void.
The stipulated facts and exhibits of record indisputably established plaintiff’s lack of cause of
action and justified the outright dismissal of the complaint.
Plaintiff’s claim of ownership to the land in question was predicated on the sale thereof for
P2,000.00 made in 1956 by his father-in-law, Francisco Militante, in his favor, at a time when Militante’s
application for registration thereofhad already been dismissed by the Iloilo land registration court and was
pending appeal in the Court of Appeals. Hence, there was no right or title to the land that could be
transferred or sold by Militante’s purported sale in 1956 in favor of plaintiff. Manifestly, then plaintiff’s
complaint against defendant, to be declared absolute owner of the land and to be restored to possession
thereof with damages was bereft of any factual or legal basis.
'Art. 1409. The following contracts are inexistent and void from the beginning:
(7) Those expressly prohibited by law.
When Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its
six paragraphs certain persons, by reason of the relation of trust or their peculiar control over the property,
from acquiring such property in their trust or control either directly or indirectly and even at a public or
judicial auction, as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and
employees; judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others especially
disqualified by law.

No error could be attributed either to the lower court's holding that the purchase by a lawyer of
the property in litigation from his client is categorically prohibited by the said provision and that
consequently, plaintiff's purchase of the property in litigation from his client (assuming that his client
could sell the same since as already shown above, his client's claim to the property was defeated and
rejected) was void and could produce no legal effect, as previously stated, and that these contracts cannot
be ratified. Neither can the right to set up the defense of illegality be waived.
ANGEL JOSE WAREHOUSING vs. CHELDA ENTERPRISES
- on the In Pari Delicto Rule
FACTS of the CASE:
Chelda Enterprises 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 post dated 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 special laws, so far as
they are not inconsistent with this Code.”

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.

RULING: No, the illegality lies only as to the prestation to pay the stipulated interest.
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. Hence, being
separable, the latter only should be deemed void, since it is the only one that is illegal.
RAMIREZ vs. RAMIREZ
- on the In Pari Delicto Rule
FACTS of the CASE:
Petitioner Potenciano Ramirez filed a complaint against respondent Ma. Cecilia Ramirez for
annulment of: 1) a Deed of Donation; 2) Waiver of Possessory Rights; and 3) Transfer Certificates of
Title (TCT) Nos. T-5618 and T-5617. Petitioner claimed that respondent caused the execution of the
Deed of Donation and Waiver of Possessory Rights to acquire ownership over the land and improvements
then covered by TCT Nos. T-4575 and T-4576. Using the Deed of Donation, respondent allegedly
succeeded in having TCT Nos. T-4575 and T-4576 cancelled and TCT Nos. T-5618 and T-5617 issued in
her name.
The Deed of Donation and Waiver of Possessory Rights were allegedly executed by petitioner
and his wife, Dolores Ramirez, on January 29, 1993 and October 24, 1995, respectively. However, the
death certificate presented showed that Dolores died on April5, 1991 and, consequently, could not have
executed the assailed documents. Petitioner repudiated the other signatures appearing on the two
documents that were purportedly his and insisted that he did not intend to transfer the properties to
respondent.
In her Answer, respondent alleged that her father, petitioner, would not have filed the case were it
not for the fact that here married despite his age of 84 years. She further claimed that it was her father’s
idea to cause the preparation of the Deed of Donation and Waiver of Possessory Rights to save on
expenses for publication and inheritance taxes. The RTC ruled that the signature of Dolores on the Deed
of Donation was a forgery while her signature on the Waiver of Possessory Rights was genuine. It also
found petitioner’s signatures on both documents to be genuine.

ISSUE: Whether or not both parties are in pari delicto.

RULING: Yes. Neither one may expect positive relief from the courts from their illegal acts and
transactions.
Art. 1411 of the New Civil Code provides:
When the nullity proceeds from the illegality of the cause or object of the contract, and the act
constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each
other, and both shall be prosecuted. 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.
Petitioner alleged that the signatures of Dolores on the Deed of Donation and on the Waiver of
Possessory Rights are a forgery. Respondent does not deny this allegation. Forging a person’s signature
corresponds to the felony of falsification under Section 4, Title IV of the Revised Penal Code. Hence, the
act of forging Dolores’s signature constitutes a criminal offense under the terms of Article 1411 of the
Civil Code.
Petitioner claims that the “object or cause” of the Deed of Donation and of the Waiver
of Possessory Rights is the transferred real properties and that there is nothing illegal about them. He
maintains that the illegality stems from the act of forgery which pertains to consent, which is not material
to the application of Article 1411. The argument is untenable. Object and cause are two separate elements
of a donation and the illegality of either element gives rise to the application of the doctrine of pari
delicto. Object is the subject matter of the donation, while cause is the essential reason which moves the
parties to enter into the transaction. Petitioner wrongly asserts that the donated real properties are both the
object and cause of the donation.
In fact, the donated properties pertain only to the object. Therefore, while he is correct in stating
that the object of the donation is legal, his argument misses the point insofar as the cause is concerned.
The cause which moved the parties to execute the Deed of Donation and the Waiver of Possessory Rights,
the motive behind the forgery, is the desire to evade the payment of publication expenses and inheritance
taxes, which became due upon the death of Dolores. Undeniably, the Deed of Donation and the
Waiver of Possessory Rights were executed for an illegal cause, thus completing all the requisites for the
application of Article 1411.
WHEREFORE, the petition was denied.