YUVIENCO V.

DACUYCUY (May 27, 1981)

FACTS:
Petitioners own a property in Tacloban City which they intend to sell for 6.5M. They gave the
respondents the right to purchase the property nut only until July 31, 1978. Respondents replied
that they agree to buy the property and they will negotiate for details. Petitioner sent another
telegram informing respondents that their proposal is accepted and a contract will be prepared.

Lawyer of defendant, Mr.Gamboa, arrived bringing a contact with an altered mode of payment
which says that the balance payment should be paid withing 30 days instead of the former 90
days. (Otiginal terms: 2M payment upon execution. 4.5M after 90 days)

ISSUE:
WON there was already a perfected contract of sale between the parties.

HELD:
There was no perfected contract of sale yet because both parties are still under negotiation and
hence, no meeting of the minds. Mr.Gamboa even went to the respondents to negotiate for the
sale. Even though there was an agreement on the terms of payment, there was no absolute
acceptance because respondents still insisted on further details.

With regard to the alleged violation of terms of payment, there was no written document to prove
that the respondents agreed to pay not in cash but in installment. In sale of real property, payment
of installment must be in requisite of a note under the statute of frauds.
BRAGANZA v VILLA ABRILLE

FACTS:
Rosario Braganza and her sons loaned from De Villa Abrille P70,000 in Japanese war notes and
in consideration thereof, promised in writing to pay him P10,00 + 2% per annum in legal currency
of the Philippines 2 years after the cessation of the war. Because they have no paid, Abrille sued
them in March 1949. The Manila court of first instance and CA held the family solidarily liable to
pay according to the contract they signed. The family petitioned to review the decision of the CA
whereby they were ordered to solidarily pay De Villa Abrille P10,000 + 2% interest, praying for
consideration of the minority of the Braganza sons when they signed the contract.
ISSUE:
Whether the boys, who were 16 and 18 respectively, are to be bound by the contract of loan they
have signed.
RATIO:
The SC found that Rosario will still be liable to pay her share in the contract because the minority
of her sons does not release her from liability. She is ordered to pay 1/3 of P10,000 + 2% interest.
However with her sons, the SC reversed the decision of the CA which found them similarly liable
due to their failure to disclose their minority. The SC sustained previous sources in Jurisprudence
– “in order to hold the infant liable, the fraud must be actual and not constructive. It has been held
that his mere silence when making a contract as to his age does not constitute a fraud which can
be made the basis of an action of deceit.”
The boys, though not bound by the provisions of the contract, are still liable to pay the actual
amount they have profited from the loan. Art. 1340 states that even if the written contract is
unenforceable because of their non-age, they shall make restitution to the extent that they may
have profited by the money received. In this case, 2/3 of P70,00, which is P46,666.66, which when
converted to Philippine money is equivalent to P1,166.67.
Francisco vs. Herrera (392 SCRA 317)
March 26, 2016
G.R. No. 139982. November 21, 2002

FACTS
Eligio Herrera, Sr., the father of respondent, was the owner of two parcels of land, one consisting
of 500 sq. m. and another consisting of 451 sq. m., covered by Tax Declaration (TD) Nos. 01-
00495 and 01-00497, respectively. Both were located at Barangay San Andres, Cainta, Rizal.

On January 3, 1991, petitioner bought from said landowner the first parcel, covered by TD No. 01-
00495, for the price of P1,000,000, paid in installments from November 30, 1990 to August 10,
1991.
On March 12, 1991, petitioner bought the second parcel covered by TD No. 01-00497, for
P750,000.
Contending that the contract price for the two parcels of land was grossly inadequate, the children
of Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera, Jr., and respondent Pastor Herrera,
tried to negotiate with petitioner to increase the purchase price. When petitioner refused, herein
respondent then filed a complaint for annulment of sale, with the RTC of Antipolo City, docketed
as Civil Case No. 92-2267. In his complaint, respondent claimed ownership over the second
parcel, which is the lot covered by TD No. 01-00497, allegedly by virtue of a sale in his favor since
1973. He likewise claimed that the first parcel, the lot covered by TD No. 01-00495, was subject to
the co-ownership of the surviving heirs of Francisca A. Herrera, the wife of Eligio, Sr., considering
that she died intestate on April 2, 1990, before the alleged sale to petitioner. Finally, respondent
also alleged that the sale of the two lots was null and void on the ground that at the time of sale,
Eligio, Sr. was already incapacitated to give consent to a contract because he was already
afflicted with senile dementia, characterized by deteriorating mental and physical condition
including loss of memory.
In his answer, petitioner as defendant below alleged that respondent was estopped from assailing
the sale of the lots. Petitioner contended that respondent had effectively ratified both contracts of
sales, by receiving the consideration offered in each transaction.

On November 14, 1994, the Regional Trial Court handed down its decision, the dispositive portion
of which reads:

ISSUE

Are the assailed contracts of sale void or merely voidable and hence capable of being ratified?

HELD
Petitioner contends that the Court of Appeals erred when it ignored the basic distinction between
void and voidable contracts. He argues that the contracts of sale in the instant case, following
Article 1390 of the Civil Code are merely voidable and not void ab initio. Hence, said contracts can
be ratified. Petitioner argues that while it is true that a demented person cannot give consent to a
contract pursuant to Article 1327, nonetheless the dementia affecting one of the parties will not
make the contract void per se but merely voidable. Hence, when respondent accepted the
purchase price on behalf of his father who was allegedly suffering from senile dementia,
respondent effectively ratified the contracts. The ratified contracts then become valid and
enforceable as between the parties.

Coming now to the pivotal issue in this controversy. A void or inexistent contract is one which has
no force and effect from the very beginning. Hence, it is as if it has never been entered into and
cannot be validated either by the passage of time or by ratification. There are two types of void
contracts: (1) those where one of the essential requisites of a valid contract as provided for by
Article 1318 of the Civil Code is totally wanting; and (2) those declared to be so under Article 1409
of the Civil Code. By contrast, a voidable or annullable contract is one in which the essential
requisites for validity under Article 1318 are present, but vitiated by want of capacity, error,
violence, intimidation, undue influence, or deceit.

An annullable contract may be rendered perfectly valid by ratification, which can be express or
implied. Implied ratification may take the form of accepting and retaining the benefits of a contract.
This is what happened in this case. Respondents contention that he merely received payments on
behalf of his father merely to avoid their misuse and that he did not intend to concur with the
contracts is unconvincing. If he was not agreeable with the contracts, he could have prevented
petitioner from delivering the payments, or if this was impossible, he could have immediately
instituted the action for reconveyance and have the payments consigned with the court. None of
these happened. As found by the trial court and the Court of Appeals, upon learning of the sale,
respondent negotiated for the increase of the purchase price while receiving the installment
payments. It was only when respondent failed to convince petitioner to increase the price that the
former instituted the complaint for reconveyance of the properties. Clearly, respondent was
agreeable to the contracts, only he wanted to get more. Further, there is no showing that
respondent returned the payments or made an offer to do so. This bolsters the view that indeed
there was ratification. One cannot negotiate for an increase in the price in one breath and in the
same breath contend that the contract of sale is void.
Nor can we find for respondents argument that the contracts were void as Eligio, Sr., could not sell
the lots in question as one of the properties had already been sold to him, while the other was the
subject of a co-ownership among the heirs of the deceased wife of Eligio, Sr. Note that it was
found by both the trial court and the Court of Appeals that Eligio, Sr., was the declared owner of
said lots. This finding is conclusive on us. As declared owner of said parcels of land, it follows that
Eligio, Sr., had the right to transfer the ownership thereof under the principle of jus disponendi.
In sum, the appellate court erred in sustaining the judgment of the trial court that the deeds of sale
of the two lots in question were null and void.
ASE TITLE: SYLVIA LICHAUCO DE LEON, petitioner, vs. THE HON. COURT OF APPEALS,
MACARIA DE LEONAND JOSE VICENTE DE LEON, respondents.G.R. No. 80965DATE OF
PROMULGATION : June 6, 1990SUMMARY OF
FACTS: On November 23, 1973, Sylvia filed with the Superior Court of California, County of San
Francisco, a petition for dissolution of marriage against Jose Vicente. In the said divorce
proceedings, Sylvia also filed claims for support and distribution of properties. On March 16, 1977,
Sylvia succeeded in entering into a Letter-Agreement with her mother-in-law, private respondent
Macaria De Leon. Macaria made cash payments to Sylvia in the amount of P100,000 and
US$35,000.00 or P280,000.00, in compliance with her obligations as stipulated in the Letter-
Agreement. On April 20, 1980, Macaria filed with the trial court amotion for leave to intervene
alleging that she is the owner of the properties involved in the case. The motion was granted. She
assailed the validity and legality of the Letter-Agreement which had for its purpose, according to
her, the termination of marital relationship between Sylvia and Jose Vicente. Sylviainsists that the
consideration for her execution of the Letter-Agreement was the termination of property relations
with her husband. Indeed, Sylvia and Jose Vicente subsequently filed a joint petition for judicial
approval of the dissolution of their conjugal partnership, sanctioned by Article 191 of the Civil
Code. Onthe other hand, Macaria and Jose Vicente assert that the consideration was the
termination of marital relationship. In the petition for the dissolution of the conjugal partnership, it
was made to appear that the said properties are conjugal in nature. However, Macaria was able to
prove that the questioned properties are owned by her. Neither Sylvia nor Jose Vicente adduced
any contrary evidence. Granting, ingratia argumenti, the consideration of the Letter-Agreement
was the termination of property relations, the agreement nevertheless is void because it
contravenes the provisions of the Civil Code.
ISSUES: Sylvia alleges that since the nullity of the Letter-Agreement proceeds from the unlawful
considerationsolely of Macaria, applying the pari delicto rule, it is clear that she cannot recover
what she has given byreason of the Letter-Agreement nor ask for the fulfillment of what has been
promised her. On her part,Macaria raises the defenses of intimidation and mistake which led her
to execute the Letter-Agreement.
ISSUES RELATED TO OUR TOPIC: Applying the Article 1335 to the present case, the claim of
Macaria that Sylvia threatened her to bringJose Vicente to court for support, to scandalize their
family by baseless suits and that Sylvia wouldpardon Jose Vicente for possible crimes of adultery
and/or concubinage subject to the transfer of certainproperties to her, is obviously not the
intimidation referred to by law. With respect to mistake as a vice ofconsent, neither is Macaria's
alleged mistake in having signed the Letter-Agreement because of herbelief that Sylvia will
thereby eliminate inheritance rights from her and Jose Vicente, the mistakereferred to in
Article 1331 of the Civil Code, supra. It does not appear that the condition that Sylvia "willeliminate
her inheritance rights" principally moved Macaria to enter into the contract. Rather,
suchcondition was but an incident of the consideration thereof which, as discussed earlier, is the
termination
of marital relations. In the ultimate analysis, therefore, both parties acted in violation of the
laws.However, the pari delicto rule, expressed in the maxims "Ex dolo malo non oritur actio" and
"In paridelicto potior est conditio defendentis," which refuses remedy to either party to an illegal
agreementand leaves them where they are, does not apply in this case. RULING OF THE
SUPREME COURT:ACCORDINGLY, the petition is DENIED. The decision of the respondent
Court of Appeals dated June 30,1987 and its resolution dated November 24, 1987 are AFFIRMED
Case Brief: Lagunzad vs Vda de Gonzales
JANUARY 15, 2019 LEAVE A COMMENT
G.R. No. L-32066 August 6, 1979
MANUEL LAGUNZAD, petitioner,
vs.
MARIA SOTO VDA. DE GONZALES and THE COURT OF APPEALS, respondents.

Facts:

A Licensing Agreement was entered into by and between Lagunzad and Gonzales, which contract
petitioner claims to be null and void for having been entered into by him under duress, intimidation
and undue influence.

Sometime in August, 1961, petitioner Manuel Lagunzad began the production of a movie entitled
“The Moises Padilla Story”. It was based mainly on the copyrighted but unpublished book of Atty.
Ernesto Rodriguez, Jr., entitled “The Long Dark Night in Negros” subtitled “The Moises Padilla
Story,” the rights to which petitioner had purchased from Atty. Rodriguez in the amount of
P2,000.00. The book narrates the events which culminated in the murder of Moises Padilla.
Although the emphasis of the movie was on the public life of Moises Padilla, there were portions
which dealt with his private and family life including the portrayal in some scenes, of his mother,
Maria Soto Vda. de Gonzales, private respondent herein, and of one “Auring” as his girlfriend.

On October 3, 1961, petitioner received a telephone call from one Mrs. Nelly Amante, half-sister of
Moises Padilla, objecting to the filming of the movie and the “exploitation” of his life. Shown the
early “rushes” of the picture, Mrs. Amante and her sister, Mrs. Gavieres, objected to many portions
thereof notwithstanding petitioner’s explanation that the movie had been supervised by Ernesto
Rodriguez, Jr., based on his book “The Long Dark Night in Negros.” On October 5, 1961, Mrs.
Amante, for and in behalf of her mother, private respondent, demanded in writing for certain
changes, corrections and deletions in the movie. Petitioner contends that he acceded to the
demands because he had already invested heavily in the picture to the extent of mortgaging his
properties, in addition to the fact that he had to meet the scheduled target date of the premiere
showing.

On the same date, October 5, 1961, after some bargaining as to the amount to be paid, which was
P50,000.00 at first, then reduced to P20,000.00, petitioner and private respondent, represented by
her daughters and Atty. Ernesto Rodriguez, at the law office of Jalandoni and Jamir, executed a
“Licensing Agreement”.

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Petitioner takes the position that he was pressured into signing the Agreement because of private
respondent’s demand, through Mrs. Amante, for payment for the “exploitation” of the life story of
Moises Padilla, otherwise, she would “call a press conference declaring the whole picture as a
fake, fraud and a hoax and would denounce the whole thing in the press, radio, television and that
they were going to Court to stop the picture.”

On October 10, 1961, petitioner paid private respondent the amount of P5,000.00 but contends
that he did so not pursuant to their Agreement but just to placate private respondent.

On October 14, 1961, the filming of the movie was completed. The movie was shown in different
theatres all over the country.

Because petitioner refused to pay any additional amounts pursuant to the Agreement, on
December 22, 1961, private respondent instituted the present suit against him praying for
judgment in her favor ordering petitioner 1) to pay her the amount of P15,000.00, with legal
interest from the filing of the Complaint; 2) to render an accounting of the proceeds from the
picture and to pay the corresponding 2-1/2% royalty therefrom; 3) to pay attorney’s fees equivalent
to 20% of the amounts claimed; and 4) to pay the costs.

Traversing the Complaint, petitioner contended in his Answer that the episodes in the life of
Moises Padilla depicted in the movie were matters of public knowledge and occurred at or about
the same time that the deceased became and was a public figure; that private respondent has no
property right over those incidents; that the Licensing Agreement was without valid cause or
consideration and that he signed the same only because private respondent threatened him with
unfounded and harassing action which would have delayed production; and that he paid private
respondent the amount of P5,000.00 in October, 1961, only because of the coercion and threat
employed upon him. By way of counterclaim, petitioner demanded that the Licensing Agreement
be declared null and void for being without any valid cause; that private respondent be ordered to
return to him the amount of P5,000.00; and that he be paid P50,000.00 by way of moral damages,
and P7,500.00 as attorney’s fees.

Private respondent duly filed her Answer to Counterclaim alleging that the transaction between her
and petitioner was entered into freely and voluntarily.

RTC rendered a decision, holding that the Licensing Agreement was valid, and ordering Lagunzad
to pay the plaintiff. CA affirmed the judgment.

In his appeal, petitioner assailed the validity of the Licensing Agreement, alleging that: 1) it was
null and void for having lack of, or having an illegal cause or consideration of contract, petitioner
having previously obtained the authority purposely granted to him by respondent under said
licensing agreement; and 2) it was null and void because the respondent had no property rights
over the incidents in the life of Moises Padilla who was a public figure; and; 3) it was null and void
because the petitioner’s consent was procured by means of duress, intimidation, and undue
influence.

Issue:
Whether or not the Licensing Agreement entered into by the petitioner and respondents is valid.

Held:
YES. The Licensing Agreement is valid. (For the copy of the Licensing Agreement, see full text of
the case).

SC did not agree with petitioner’s submission that the Licensing Agreement is null and void for
lack of, or for having an illegal cause or consideration. While it is true that petitioner had
purchased the rights to the book entitled “The Moises Padilla Story,” that did not dispense with the
need for prior consent and authority from the deceased heirs to portray publicly episodes in said
deceased’s life and in that of his mother and the members of his family. As held in Schuyler v.
Curtis, “a privilege may be given the surviving relatives of a deceased person to protect his
memory, but the privilege exists for the benefit of the living, to protect their feelings and to prevent
a violation of their own rights in the character and memory of the deceased.”

Petitioner’s averment that private respondent did not have any property right over the life of
Moises Padilla since the latter was a public figure, is neither well taken. Being a public figure ipso
facto does not automatically destroy in toto a person’s right to privacy. The right to invade a
person’s privacy to disseminate public information does not extend to a fictional or novelized
representation of a person, no matter how public a figure he or she may be. In the case at bar,
while it is true that petitioner exerted efforts to present a true-to-life story of Moises Padilla,
petitioner admits that he included a little romance in the film because without it, it would be a drab
story of torture and brutality.

SC also found it difficult to sustain petitioner’s posture that his consent to the Licensing Agreement
was procured thru duress, intimidation and undue influence exerted on him by private respondent
and her daughters at a time when he had exhausted his financial resources, the premiere showing
of the picture was imminent, and “time was of the essence.” As held in Martinez vs. Hongkong &
Shanghai Bank, it is necessary to distinguish between real duress and the motive which is present
when one gives his consent reluctantly. A contract is valid even though one of the parties entered
into it against his own wish and desires, or even against his better judgment. In legal effect, there
is no difference between a contract wherein one of the contracting parties exchanges one
condition for another because he looks for greater profit or gain by reason of such change, and an
agreement wherein one of the contracting parties agrees to accept the lesser of two
disadvantages. In either case, he makes a choice free and untrammelled and must accordingly
abide by it. The Licensing Agreement has the force of law between the contracting parties and
since its provisions are not contrary to law, morals, good customs, public order or public policy
(Art. 1306, Civil Code), petitioner should comply with it in good faith.
RANCIS LEE v. COURT OF APPEALS (G.R. No. 90423)
September 6, 1991

Medialdea, J.

FACTS

Pelagia Panlino de Chin assisted Honorio Carpio in withdrawing cash proceeds from an
apparently fake check.

Modus: De Chin presented a Midland National Bank Cashier's check worth $5200 payable to
Carpio's savings account, which was created earlier with an initial deposit of P50. Upon assuring
Mr. Cruz of Pacific Banking Corporation that the check will be honored by the two banks, a notice
was sent to Carpio indicating that the proceeds of the check amounting to P92,557 had already
been credited to his account.
Subsequently, the money was withdrawn by De Chin, first for P12,607, then 80,000.44, after which
she closed Carpio's account.

Francis Lee, the PBC Branch Manager, was not present when this scam was perpetrated.

After discovering what happened, Lee had De Chin fetched from her house in Caloocan. De Chin
waited for an hour at the bank before Lee confronted her.

During the said confrontation, the petitioner Francis Lee was shouting at De Chin with piercing
looks and threatened to file charges against her unless and until she returned all the money
equivalent of the subject cashier check. Accordingly, the complainant was caused to sign a
prepared withdrawal slip, and later, an affidavit prepared by the bank's lawyer, where she was
made to admit that she had swindled the bank and had return the money equivalent of the
spurious check. During her stay at the said bank, the complainant, who was five (5) months in the
family way, was watched by the bank's employees and security guards. It was about six o'clock in
the afternoon of the same day when the complainant was able to leave the bank premises.

De Chin filed a case against Lee for grave coercion, for which Lee was found guilty.
Whether or not Lee is guilty of grave coercion. - NO.

RULING

The circumstances of this case reveal that the complainant De Chin, despite her protestations,
indeed voluntarily, albeit reluctantly, consented to stay at the bank and sign the document.

The Court finds that complainant's lengthy stay at the bank was not due to the petitioner's threat. It
was rather due to her desire to prove her innocence.

Moreover, while complainant claimed that her freedom of movement was restrained, she,
however, was able to move about freely unguarded from the office of the petitioner situated at the
ground floor to the office of Cruz at the mezzanine floor where her sister found her.

The most telling proof of the absence of intimidation was the fact that the complainant refused to
sign the promissory note in spite of the alleged threats of the petitioner. American authorities have
declared that "(t)he force which is claimed to have compelled criminal conduct against the will of
the actor must be immediate and continuous and threaten grave danger to his person during all of
the time the act is being committed. That is, it must be a dangerous force threatened 'in praesenti.'
It must be a force threatening great bodily harm that remains constant in controlling the will of the
unwilling participant while the act is being performed and from which he cannot then withdraw in
safety." (State v. Hood, 165 NE 2d, 28, 31-32,).

There was no coercion in this case. Therefore, petitioner Lee should be acquitted.
G.R. No. 138703 June 30, 2006 DEVELOPMENT BANK OF THE PHILIPPINES1 and
PRIVATIZATIONAND MANAGEMENT OFFICE (formerly ASSET PRIVATIZATIONTRUST),
Petitioners, vs. HON. COURT OF APPEALS, PHILIPPINE UNITED FOUNDRY
ANDMACHINERY CORP. and PHILIPPINE IRON MANUFACTURING CO.,INC.,
Respondents.
FACTS: 1. Petitioner's/Plaintiff's claim/s (no more than 3 sentences) DBP gave private
respondents an industrial credit of P2,500,000-P500,000 in cash and P2,000,000 in DBP
Progress Bank in March 1968, itwas proven by a promissory note and secured by respondents'
mortgageson their current and prospective properties. DBP also provided a loan ofP1,700,000 in
the form of a 5-year revolving guarantee; due tononpayment, the outstanding
accounts with DBP were restructured in1975. A total of P4,655,992.35 has been combined
into one account and allaccumulated interest and charges totaling P3,074,672.21 were,
on theother hand, labeled as Notes Taken for Interests and evidenced by aseparate
promissory note; DBP began foreclosure proceedingsafter determining that it had failed to
meet its obligations. 2. Respondent's/Defendant's claim/s (no more than 3 sentences)
The respondent's loans were P62,954,473.68 in overdue. Respondents'contention that DBP was
collecting an unconscionable, if not unlawful orusurious obligation of P62,954,473.68 from
them as of September 30,1985, out of a simple P6,200,000 loan gave rise to their cause of
action.Respondents argued that the amount claimed by DBP is incorrect becausethey transferred
roughly P5,300,000 to DBP to cover their originalobligation. 3. Decisions of the lower
courts (e.g. RTC, CA) The RTC imposed a temporary restraining order on December 24, 1986.On
May 4, 1987, a Writ of Preliminary Injunction was granted in response.Following a merits trial, the
court ruled in favor of the respondents. Theconclusive part of which reads: Wherefore, in light of
the aforesaid considerations, judgment is enteredin favor of the [respondents] and against the
defendants [DBP and APT],with the following orders:
(1) The Writ of Preliminary Injunction already issued be made permanent;
(2) The [respondents] be made to pay the original loans in theaggregate amount of
Six Million Two Hundred Thousand (P6,200,000)Pesos;
(3) The [respondents’] payment in the amount of Five Million ThreeHundred Thirty-Five
Thousand, Eight Hundred Twenty-seven Pesos andSeventy-one Centavos (P5,335,827.71) be
applied to payment for interestand penalties; and
(4) No further interest and/or penalties on the aforementionedprincipal obligation of P6.2
million shall be imposed/charged upon the
[respondents] for failure of the military establishment to honor theircommitment to a
valid and consummated contract with the former. Costsagainst the defendants. As previously
stated, the RTC finally ruled in favor of the respondentsand made the preliminary injunction
issued to stop the foreclosureproceedings permanent. Respondents were told to pay only
the originalloan amount, which was P6.2 million, with the P5.3 million they had alreadypaid going
toward interest and penalties. The RTC found respondents notto be at fault for defaulting on their
loan obligations, instead blaming theAFP for failing to meet its contractual responsibilities to
respondents. The CA upheld the RTC's ruling, agreeing that DBP cannot forecloseon the
mortgage that secures the respondents' loan.
The CA reasoned thatbecause DBP failed to adequately explain how it arrived at P62.9 million,the
original loan amount of P6.2 million could only have been "blatantlyenlarged or erroneously
computed" by DBP by impositionof an "unconscionable rate of interest and charges."
This viewpoint isuntenable and unsupported.
Issue/s (one sentence) Whether the DBP's demand to collect is unjust or usurious.
HELD: 4. Disposition of the case (one sentence) Part of the petition is granted. The Court
of Appeals' decision isoverturned and put aside. The case has been remanded to the trial
courtfor further proceedings. The total amount of the respondent's obligation ased on the
promissory notes, calculated at the parties' agreed-uponinterest rate of 12 percent per
annum, whichever is lower. 5. Dictum (no more than five sentences addressing the issue
relevantto the topic under discussion) The fact that respondents claim they had no
"option" but to signimplies that DBP exerted undue influence over them. The Court is
awarethat the law gives an aggrieved party the right to have a contract annulled ifit is vitiated by
elements such as mistake, violence, intimidation, undueinfluence, or fraud. The fact that the
representatives were "forced" to signthe promissory notes and mortgage contracts to
haverespondents' initial loans restructured and keep their homes from beingforeclosed
does not, however, constitute vitiated consent.
CHARLES F. WOODHOUSE, plaintiff-appellant, vs.
FORTUNATO F. HALILI, defendant-appellant.
G.R. No. L-4811 July 31, 1953

Subject: BusOrg 1 (PAT)

Doctrine: Fraud

FACTS
On November 29, 1947, plaintiff Woodhouse entered into a written agreement with defendant
Halili stating among others that: 1) that they shall organize a partnership for the bottling and
distribution of Missionsoft drinks, plaintiff to act as industrial partner or manager, and the
defendant as a capitalist, furnishing the capital necessary therefore; 2) that plaintiff was to secure
the Mission Soft Drinks franchise for and in behalf of the proposed partnership and 3) that the
plaintiff was to receive 30 per cent of the net profits of the business.
Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los
Angeles, California, that he had interested a prominent financier (defendant herein) in the
business, who was willing to invest half a milliondollars in the bottling and distribution of the said
beverages, and requested, in order that he may close the deal with him, that the right to bottle and
distribute be granted him for a limited time under the condition that it will finally be transferred to
the corporation. Pursuant to this request, plaintiff was given “a thirty days’ option on exclusive
bottling and distribution rights for the Philippines”. The contract was finally signed by plaintiff on
December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of defendant that the
partnership papers be executed. Defendant Halili gave excuses and would not execute said
agreement, thus the complaint by the plaintiff.
Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits and
3)share thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the
other hand claims that: 1) the defendant’s consent to the agreement, was secured by the
representation of plaintiff that he was the owner, or was about to become owner of an exclusive
bottling franchise, which representation was false, and that plaintiff did not secure the franchise
but was given to defendant himself 2) that defendant did not fail to carry out his undertakings, but
that it was plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive franchise to
the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2)
execution of contract cannot be enforced upon parties. Lastly, the 3) fraud wasn’t proved

ISSUES
1. WON plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages
2. WON false representation, if it existed, annuls the agreement to form the partnership

HELD
1. Yes. Plaintiff did make false representations and this can be seen through his letters to Mission
Dry Corporation asking for the latter to grant him temporary franchise so that he could settle the
agreement with defendant. The trial court reasoned, and the plaintiff on this appeal argues, that
plaintiff only undertook in the agreement “to secure the Mission Dry franchise for and in behalf of
the proposed partnership.” The existence of this provision in the final agreement does not militate
against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief
that he did actually make the representation. The defendant believed, or was made to believe, that
plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the
franchise was to be transferred to the name of the partnership, and that, upon its dissolution or
termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not
have the exclusive franchise, was to reduce, as he himself testified, plaintiff’s participation in the
net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff
actually made him believe that he(plaintiff) was the exclusive grantee of the franchise.

2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be ground for the annulment of a contract, and the incidental
deceit, which only renders the party who employs it liable for damages only. The Supreme Court
has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente) inducement to the making of the contract.
The record abounds with circumstances indicative of the fact that the principal consideration, the
main cause that induced defendant to enter into the partnership agreement with plaintiff, was the
ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the
partnership. The original draft prepared by defendant’s counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or the principal inducement, that led plaintiff
to enter into the partnership agreement. On the other hand, this supposed ownership of an
exclusive franchise was actually the consideration or price plaintiff gave in exchange for the share
of 30 per cent granted him in the net profits of the partnership business. Defendant agreed to give
plaintiff 30 per cent share in the net profits because he was transferring his exclusive franchise to
the partnership.
Having arrived at the conclusion that the contract cannot be declared null and void, may the
agreement be carried out or executed? The SC finds no merit in the claim of plaintiff that the
partnership was already a fait accompli from the time of the operation of the plant, as it is evident
from the very language of the agreement that the parties intended that the execution of the
agreement to form a partnership was to be carried out at a later date. , The defendant may not be
compelled against his will to carry out the agreement nor execute the partnership papers. The law
recognizes the individual’s freedom or liberty to do an act he has promised to do, or not to do it, as
he pleases.

Dispostive Postion: With modification above indicated, the judgment appealed from is hereby
affirmed.
Hill vs. Veloso, G.R. No. 9421
FACTS: On July 24, 1915 Maximina Veloso claimed that she was tricked by her son-in-law
Domingo Franco into signing a blank document, unknowingly binding her to a debt of P6,319 to
Michael & Co. She thought, according to her, she was made tosign to acknowledge an obligation
to pay for the guardianship of the minor children of Potenciano Veloso (her brother). And that she
learned of the true nature of the document (a promissory note to Michael & Co.) only after
Franco's death. But, clearly her signatures on the promissory note were obtained by means of
fraud.
ISSUES:Whether or not deceit by a third person even without connivance or complicity with one of
the contracting parties is valid?
HELD:No.Granted there was deceit in executing the Promissory Note to Michael & Co., still the
deceit and error alleged could not annul the consent of Veloso nor exempt her from the obligation
incurred. The deceit, in order that it may annul the consent, must be that which the law defines as
a cause. "Thereis deceit when by words or insidious machinations on the part of one of the
contracting parties, the other is induced to execute a contract which without them he would not
have made." Franco was not one of the contracting parties who may have deceitfully induced the
other contracting party, Michael & Co., to execute the contract. The one and the other of the
contracting parties, to whom the law refers, are the active and passive subjects of the obligation,
the party of the first part and the party of the second part who execute the contract. The active
subject and the party of the first part of the Promissory Note in question was Michael & Co., and
the passive subject and party of the second part were Veloso and Franco. Veloso and Franco,
therefore, composed a single contracting party in contractual relation with or against Franco, like
any other person who might have induced Veloso into signing the Promissory Note under the
influence of deceit, would be but a third person. Under the Civil Code, deceit by a third person
does not in general annul consent. This deceit may give rise to more or less extensive and serious
responsibility on the part of the third person (Franco) and a corresponding right of action for the
contracting party prejudiced (Veloso). Veloso will probably just have to file an action against the
estate of Franco.
RURAL BANK OF STA. MARIA, PANGASINAN vs. THE HONORABLE COURT OF APPEALS,
ROSARIO R. RAYANDAYAN, CARMEN R. ARCEÑO
G.R. No. 110672 September 14, 1999

Facts:
A parcel of land is registered in the name of Manuel Behis, married to Cristina Behis. Said
land originally was part of a bigger tract of land owned by Behis, father of Manuel Behis. And upon
the latter's death, his children, namely: Saro Behis, Marcelo Behis, Manuel Behis, Lucia Behis,
Clara Behis and Arana Behis, in an extrajudicial settlement with Simultaneous Sale of Inheritance,
agreed to sell the land to Manuel Behis, married to Cristina Behis but which subsequently was
explained as only an arrangement adopted by them to facilitate transactions over the land in a
Confirmation of Rights of Co-Ownership over real Property, showing that the Behis brothers and
sisters, including Manuel Behis, are still co-owners thereof.
Manuel Behis mortgaged said land in favor of the Bank in a Real Estate Mortgage as security for
loans obtained, covered by six promissory notes and trust receipts under the Supervised Credit
Program and annotated at the back of the title. The mortgage, the promissory notes and trust
receipts bear the signatures of both Manuel Behis and Cristina Behis. Unfortunately thereafter,
Manuel Behis was delinquent in paying his debts.
Manuel Behis sold the land to the plaintiffs in a Deed of Absolute Sale with Assumption of
Mortgage which bears the signature of his wife Cristina Behis. Manuel Behis took it upon himself
to secure the signature of his wife and came back with it. On the same date, plaintiffs and Manuel
Behis simultaneously executed another Agreement whereby plaintiffs are indebted to Manuel
Behis for the sum of P2,400,000.00 payable in installments with P10,000.00 paid upon signing and
in case of default in the installments, Manuel Behis shall have legal recourse to the portions of the
land equivalent to the unpaid balance of the amounts in installments. Plaintiffs did not present to
the Register of Deeds said two contracts and ask that the title in the name of Manuel Behis be
cancelled and a new one issued in their name which normally a buyer does. Neither did plaintiffs
annotate at the back of the title the aforesaid two contracts. Nor did they immediately go to the
Bank and present said two contracts. Thus, the title to the land remained in the name of Manuel
Behis.
The plaintiffs were unable to complete their full payment to Manuel Behis of the sale of the land as
it is nowhere near P2,400,000.00. Meantime, the loan in the name of Manuel Behis with the Bank
secured by the Real Estate Mortgage on the land continued to accumulate being delinquent.

Issue:
Whether or not the Memorandum is voidable on the ground of fraud

Ruling:
The Supreme Court held that the kind of fraud that will vitiate a contract refers to those
insidious words or machinations resorted to by one of the contracting parties to induce the other to
enter into a contract which without them he would not have agreed to. Simply stated, the fraud
must be the determining cause of the contract, or must have caused the consent to be given. It is
believed that the non-disclosure to the bank of the purchase price of the sale of the land between
private respondents and Manuel Behis cannot be the "fraud" contemplated by Article 1338 of the
Civil Code. From the sole reason submitted by the petitioner bank that it was kept in the dark as
to the financial capacity of private respondents, we cannot see how the omission or concealment
of the real purchase price could have induced the bank into giving its consent to the agreement; or
that the bank would not have otherwise given its consent had it known of the real purchase price.

Secondly, pursuant to Article 1339 of the Civil Code, silence or concealment, by itself, does not
constitute fraud, unless there is a special duty to disclose certain facts, or unless according to
good faith and the usages of commerce the communication should be made. Verily, private
respondents Rayandayan and Arceño had no duty, and therefore did not act in bad faith, in failing
to disclose the real consideration of the sale between them and Manuel Behis.