TITLE 2 – CONTRACTS

CHAPTER 1 – GENERAL PROVISIONS

ARTICLE 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service. (1254a)

G.R. No. 147410 February 5, 2004

THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner

vs.
ASSET BUILDERS CORPORATION, respondent.

DECISION

PANGANIBAN, J.:

Where the parties merely exchange offers and counteroffers, no agreement or contract is
perfected. A party may withdraw its offer or counteroffer prior to its receipt of the other party's
acceptance thereof. To produce an agreement, the offer must be certain and the acceptance
timely and absolute.

The Case

Before us is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court, assailing
the September 20, 2000 Decision 2 and the March 7, 2001 Resolution 3 of the Court of Appeals
(CA) in CA-GR CV No. 61607. The dispositive part of the Decision reads as follows:

"IN THE LIGHT OF ALL THE FOREGOING, the appeal of the [petitioner] is DISMISSED.
The Decision of the Court a quo is AFFIRMED."4

The assailed Resolution denied petitioner's Motion for Reconsideration.

Ruling of the Court of Appeals

The CA affirmed the lower court's Decision. According to the appellate court's ruling, the failure
of petitioner to prove that it gave respondent a written notice of the former's unqualified
acceptance of the latter's bid, as required in the Instruction to Bidders, did not give birth to
consent. The appellate court explained that when the exact terms desired were not in the offer,
any modification or variation therefrom would annul that offer. Furthermore, estoppel did not
apply because of petitioner's own carelessness or want of diligence.

Hence this Petition.29

The Issues

"I. The Court of Appeals gravely erred in not holding that there exists a valid contract for
the construction of the building project between IL30 and ABC.31

"II. The Court of Appeals gravely erred in not holding that IL has notified ABC of the
award of the construction of the building project to it before it withdrew its bid proposal.

"III. The Court of Appeals gravely erred in not holding that ABC's withdrawal from the
contract constituted a breach of that contract.

"IV. The Court of Appeals gravely erred in not holding that the contract had been
perfected and that its consummation stage [had] in fact been commenced.

"V. The Court of Appeals gravely erred in not holding that ABC is estopped from
claiming the contract was not perfected.

"VI. The Court of Appeals gravely erred in not holding that ABC, instead of IL, is liable
for damages[,] and that, at worst, there is no evidence that supported the award in favor
of ABC.

"VII. In any event, there is no basis to penalize IL for going to court."32

There is really only one major issue: Was there a valid contract between petitioner and
respondent?

The Court's Ruling

The Petition is unmeritorious.

ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. (1255a)

G.R. No. 142830 March 24, 2006

WILLIAM GOLANGCO CONSTRUCTION CORPORATION, Petitioner,

vs.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK*, Respondent

DECISION

CORONA, J.:

The facts of this case are straightforward.1

William Golangco Construction Corporation (WGCC) and the Philippine Commercial

International Bank (PCIB) entered into a contract for the construction of the extension of PCIB
Tower II (denominated as PCIB Tower II, Extension Project [project]) 2 on October 20, 1989.
The project included, among others, the application of a granitite wash-out finish 3 on the exterior
walls of the building.

PCIB, with the concurrence of its consultant TCGI Engineers (TCGI), accepted the turnover of
the completed work by WGCC in a letter dated June 1, 1992. To answer for any defect arising
within a period of one year, WGCC submitted a guarantee bond dated July 1, 1992 issued by
Malayan Insurance Company, Inc. in compliance with the construction contract.4

The controversy arose when portions of the granitite wash-out finish of the exterior of the
building began peeling off and falling from the walls in 1993. WGCC made minor repairs after
PCIB requested it to rectify the construction defects. In 1994, PCIB entered into another contract
with Brains and Brawn Construction and Development Corporation to re-do the entire granitite
wash-out finish after WGCC manifested that it was "not in a position to do the new finishing
work," though it was willing to share part of the cost. PCIB incurred expenses amounting
to P11,665,000 for the repair work.

PCIB filed a request for arbitration with the Construction Industry Arbitration Commission
(CIAC) for the reimbursement of its expenses for the repairs made by another contractor. It
complained of WGCC’s alleged non-compliance with their contractual terms on materials and
workmanship. WGCC interposed a counterclaim for P5,777,157.84 for material cost adjustment.

The CIAC declared WGCC liable for the construction defects in the project. 5 WGCC filed a
petition for review with the Court of Appeals (CA) which dismissed it for lack of merit. 6 Its
motion for reconsideration was similarly denied.7
In this petition for review on certiorari, WGCC raises this main question of law: whether or not
petitioner WGCC is liable for defects in the granitite wash-out finish that occurred after the lapse
of the one-year defects liability period provided in Art. XI of the construction contract.8

We rule in favor of WGCC.

The controversy pivots on a provision in the construction contract referred to as the defects
liability period:
ARTICLE 1308. The contracts must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. (1256a)

G.R. No. 146839 March 23, 2011

ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL and

ERLINDA CATUNGAL-WESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the
Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the
August 8, 2000 Decision,1 which affirmed the Decision2 dated May 30, 1992 of the Regional
Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil Case No. 2365-L, and (b) the
January 30, 2001 Resolution,3 denying herein petitioners’ motion for reconsideration of the
August 8, 2000 Decision.

The relevant factual and procedural antecedents of this case are as follows:

This controversy arose from a Complaint for Damages and Injunction with Preliminary
Injunction/Restraining Order4 filed on December 10, 1990 by herein respondent Angel S.
Rodriguez (Rodriguez), with the RTC, Branch 27, Lapu-lapu City, Cebu, docketed as Civil Case
No. 2365-L against the spouses Agapita and Jose Catungal (the spouses Catungal), the parents of
petitioners.

In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land
(Lot 10963) with an area of 65,246 square meters, covered by Original Certificate of Title (OCT)
No. 1055 in her name situated in the Barrio of Talamban, Cebu City. The said property was
allegedly the exclusive paraphernal property of Agapita.

On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to
Sell6 with respondent Rodriguez. Subsequently, the Contract to Sell was purportedly "upgraded"
into a Conditional Deed of Sale 7 dated July 26, 1990 between the same parties. Both the Contract
to Sell and the Conditional Deed of Sale were annotated on the title.
 The Court's Ruling (DOCTRINE)

Petitioners posited that the above stipulation was the "deadliest" provision in the Conditional
Deed of Sale for violating the principle of mutuality of contracts since it purportedly rendered
the contract subject to the will of respondent.

We do not agree.

It is petitioners’ strategy to insist that the Court examine the first sentence of paragraph 5 alone
and resist a correlation of such sentence with other provisions of the contract. Petitioners’ view,
however, ignores a basic rule in the interpretation of contracts – that the contract should be taken
as a whole.

Article 1374 of the Civil Code provides that "[t]he various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them
taken jointly." The same Code further sets down the rule that "[i]f 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."68

Similarly, under the Rules of Court it is prescribed that "[i]n the construction of an instrument
where there are several provisions or particulars, such a construction is, if possible, to be adopted
as will give effect to all"69 and "for the proper construction of an instrument, the circumstances
under which it was made, including the situation of the subject thereof and of the parties to it,
may be shown, so that the judge may be placed in the position of those whose language he is to
interpret."70

Bearing in mind the aforementioned interpretative rules, we find that the first sentence of
paragraph 5 must be taken in relation with the rest of paragraph 5 and with the other provisions
of the Conditional Deed of Sale.

Reading paragraph 5 in its entirety will show that Rodriguez’s option to rescind the contract is
not absolute as it is subject to the requirement that there should be written notice to the vendor
and the vendor shall only return Rodriguez’s downpayment of ₱500,000.00, without interest,
when the vendor shall have been able to sell the property to another party. That what is stipulated
to be returned is only the downpayment of ₱500,000.00 in the event that Rodriguez exercises his
option to rescind is significant. To recall, paragraph 1(b) of the contract clearly states that the
installments on the balance of the purchase price shall only be paid upon successful negotiation
and procurement of a road right of way. It is clear from such provision that the existence of a
road right of way is a material consideration for Rodriguez to purchase the property. Thus, prior
to him being able to procure the road right of way, by express stipulation in the contract, he is
not bound to make additional payments to the Catungals. It was further stipulated in paragraph
1(b) that: "[i]f however said road right of way cannot be negotiated, the VENDEE shall give
notice to the VENDOR for them to reassess and solve the problem by taking other options and
should the situation ultimately prove futile, he [Rodriguez] shall take steps to rescind or [cancel]
the herein Conditional Deed of Sale." The intention of the parties for providing subsequently in
paragraph 5 that Rodriguez has the option to rescind the sale is undeniably only limited to the
contingency that Rodriguez shall not be able to secure the road right of way. Indeed, if the
parties intended to give Rodriguez the absolute option to rescind the sale at any time, the contract
would have provided for the return of all payments made by Rodriguez and not only the
downpayment. To our mind, the reason only the downpayment was stipulated to be returned is
that the vendee’s option to rescind can only be exercised in the event that no road right of way is
secured and, thus, the vendee has not made any additional payments, other than his
downpayment.

In sum, Rodriguez’s option to rescind the contract is not purely potestative but rather also subject
to the same mixed condition as his obligation to pay the balance of the purchase price – i.e., the
negotiation of a road right of way. In the event the condition is fulfilled (or the negotiation is
successful), Rodriguez must pay the balance of the purchase price. In the event the condition is
not fulfilled (or the negotiation fails), Rodriguez has the choice either (a) to not proceed with the
sale and demand return of his downpayment or (b) considering that the condition was imposed
for his benefit, to waive the condition and still pay the purchase price despite the lack of road
access. This is the most just interpretation of the parties’ contract that gives effect to all its
provisions.

In any event, even if we assume for the sake of argument that the grant to Rodriguez of an option
to rescind, in the manner provided for in the contract, is tantamount to a potestative condition,
not being a condition affecting the perfection of the contract, only the said condition would be
considered void and the rest of the contract will remain valid. In Romero, the Court observed that
"where the so-called ‘potestative condition’ is imposed not on the birth of the obligation but on
its fulfillment, only the condition is avoided, leaving unaffected the obligation itself." 71

It cannot be gainsaid that "contracts have the force of law between the contracting parties and
should be complied with in good faith."72 We have also previously ruled that "[b]eing the
primary law between the parties, the contract governs the adjudication of their rights and
obligations. A court has no alternative but to enforce the contractual stipulations in the manner
they have been agreed upon and written."73 We find no merit in petitioners’ contention that their
parents were merely "duped" into accepting the questioned provisions in the Conditional Deed of
Sale. We note that although the contract was between Agapita Catungal and Rodriguez, Jose
Catungal nonetheless signed thereon to signify his marital consent to the same. We concur with
the trial court’s finding that the spouses Catungals’ claim of being misled into signing the
contract was contrary to human experience and conventional wisdom since it was Jose Catungal
who was a practicing lawyer while Rodriquez was a non-lawyer. 74 It can be reasonably presumed
that Atty. Catungal and his wife reviewed the provisions of the contract, understood and accepted
its provisions before they affixed their signatures thereon.

After thorough review of the records of this case, we have come to the conclusion that petitioners
failed to demonstrate that the Court of Appeals committed any reversible error in deciding the
present controversy. However, having made the observation that it was desirable for the
Catungals to file a separate action to fix the period for respondent Rodriguez’s obligation to
negotiate a road right of way, the Court finds it necessary to fix said period in these proceedings.
It is but equitable for us to make a determination of the issue here to obviate further delay and in
line with the judicial policy of avoiding multiplicity of suits.
If still warranted, Rodriguez is given a period of thirty (30) days from the finality of this decision
to negotiate a road right of way. In the event no road right of way is secured by Rodriquez at the
end of said period, the parties shall reassess and discuss other options as stipulated in paragraph
1(b) of the Conditional Deed of Sale and, for this purpose, they are given a period of thirty (30)
days to agree on a course of action. Should the discussions of the parties prove futile after the
said thirty (30)-day period, immediately upon the expiration of said period for discussion,
Rodriguez may (a) exercise his option to rescind the contract, subject to the return of his
downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the Conditional
Deed of Sale or (b) waive the road right of way and pay the balance of the deducted purchase
price as determined in the RTC Decision dated May 30, 1992.
 CHAPTER 3 – FORM OF CONTRACTS

ARTICLE 1356. Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present. However,
when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute and
indispensable. In such cases, the right of the parties stated in the following article cannot be
exercised. (1278a)

G.R. No. L-27010 April 30, 1969

MARLENE DAUDEN-HERNAEZ, petitioner,

vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Quezon
City, HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON
VALENZUELA, respondents.

R. M. Coronado and Associates for petitioner.

Francisco Lavides for respondent.

REYES, J.B.L., Acting C.J.:

Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of
Quezon City (Branch IV), in its Civil Case No. Q-10288, dismissing a complaint for breach of
contract and damages, denying reconsideration, refusing to admit an amended complaint, and
declaring the dismissal final and unappealable.

The Court's Ruling (DOCTRINE)

Appellants contend that the lower court erred in not admitting their amended complaint
and in holding that their action had already prescribed. Appellants are right on both
counts.

Amendments to pleadings are favored and should be liberally allowed in the furtherance
of justice. (Torres vs. Tomacruz, 49 Phil. 913). Moreover, under section 1 of Rule 17,
Rules of Court, a party may amend his pleading once as a matter of course, that is,
without leave of court, at any time before a responsive pleading is served. A motion to
dismiss is not a "responsive pleading". (Moran on the Rules of Court, vol. 1, 1952, ed., p.
376). As plaintiffs amended their complaint before it was answered, the motion to admit
the amendment should not have been denied. It is true that the amendment was presented
after the original complaint had been ordered dismissed. But that order was not yet final
for it was still under reconsideration.
The foregoing observations leave this Court free to discuss the main issue in this petition. Did
the court below abuse its discretion in ruling that a contract for personal services involving more
than P500.00 was either invalid of unenforceable under the last paragraph of Article 1358 of the
Civil Code of the Philippines?

We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable
misunderstanding of the role of the written form in contracts, as ordained in the present Civil
Code.

In the matter of formalities, the contractual system of our Civil Code still follows that of the
Spanish Civil Code of 1889 and of the "Ordenamiento de Alcala" 2 of upholding the spirit and
intent of the parties over formalities: hence, in general, contracts are valid and binding from their
perfection regardless of form whether they be oral or written. This is plain from Articles 1315
and 1356 of the present Civil Code. Thus, the first cited provision prescribes:

ART. 1315. Contracts are perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping with good faith,
usage and law. (Emphasis supplied)

Concordantly, the first part of Article 1356 of the Code Provides:

ART. 1356. Contracts shall be obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present.... (Emphasis
supplied)

These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and
(3) consideration or causa for the obligation assumed (Article 1318). 3 So that once the three
elements exist, the contract is generally valid and obligatory, regardless of the form, oral or
written, in which they are couched.
ART. 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel each
other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract. (1279a)

G.R. No. 162333 December 23, 2008

BIENVENIDO C. TEOCO and JUAN C. TEOCO, JR., petitioners,

vs.
METROPOLITAN BANK AND TRUST COMPANY, respondent.

DECISION

REYES, R.T., J.:

REAL creditors are rarely unwilling to receive their debts from any hand which will pay
them.1 Ang tunay na may pautang ay bihirang tumanggi sa kabayaran mula kaninuman.

This is a petition for review on certiorari seeking the reversal of the Decision2 of the Court of
Appeals (CA) in CA-G.R. CV No. 58891 dated February 20, 2004 which annulled and set aside
the decision of the Regional Trial Court (RTC) of Catbalogan, Samar on July 22, 1997 in
Cadastral Record No. 1378. The RTC originally dismissed the petition for writ of possession
filed by respondent Metropolitan Bank and Trust Company (Metrobank) on the ground that
intervenors and present petitioners, the brothers Bienvenido Teoco and Juan Teoco, Jr. (the
brothers Teoco), have redeemed the subject property. The CA reversed this dismissal and
ordered the issuance of a writ of possession in favor of respondent Metrobank.

The Court's Ruling (DOCTRINE)

Sufficiency of Amount Tendered

We find that neither petitioners, the brothers Teoco, nor respondent, Metrobank, were able to
present sufficient evidence to prove whether the additional loans granted to the spouses Co by
Metrobank were covered by the mortgage agreement between them. The brothers Teoco failed to
present any evidence of the supposed trust receipt agreement between Metrobank and the
spouses Co, or an evidence of the supposed payment by the spouses Co of the other loans
extended by Metrobank. Metrobank, on the other hand, merely relied on the stipulation on the
mortgage deed that the mortgage was intended to secure "the payment of the same (P200,000.00
loan) and those that may hereafter be obtained."12 However, there was no mention whatsoever of
the mortgage agreement in the succeeding loans entered into by the spouses Co.

While we agree with Metrobank that mortgages intended to secure future advancements are valid
and legal contracts,13 entering into such mortgage contracts does not necessarily put within its
coverage all loan agreements that may be subsequently entered into by the parties. If Metrobank
wishes to apply the mortgage contract in order to satisfy loan obligations not stated on the face of
such contract, Metrobank should prove by a preponderance of evidence that such subsequent
obligations are secured by said mortgage contract and not by any other form of security.

In order to prevent any injustice to, or unjust enrichment of, any of the parties, this Court holds
that the fairest resolution is to allow the brothers Teoco to redeem the foreclosed properties
based on the amount for which it was foreclosed (P255,441.14 plus interest). This is subject,
however, to the right of Metrobank to foreclose the same property anew in order to satisfy the
succeeding loans entered into by the spouses Co, if they were, indeed, covered by the mortgage
contract. The right of Metrobank to foreclose the mortgage would not be hampered by the
transfer of the properties to the brothers Teoco as a result of this decision, since Article 2127 of
the Civil Code provides:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing
fruits, and the rents or income not yet received when the obligation becomes due, and to
the amount of the indemnity granted or owing to the proprietor from the insurers of the
property mortgaged, or in virtue of expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third person. (Emphasis
supplied)

Further, Article 2129 of the Civil Code provides:

Art. 2129. The creditor may claim from a third person in possession of the mortgaged
property, the payment of the part of the credit secured by the property which said third
person possesses, in the terms and with the formalities which the law establishes.

The mortgage directly and immediately subjects the property upon which it is imposed, whoever
the possessor may be to the fulfillment of the obligation for whose security it was constituted.
Otherwise stated, a mortgage creates a real right which is enforceable against the whole world.
Hence, even if the mortgage property is sold or its possession transferred to another, the property
remains subject to the fulfillment of the obligation for whose security it was constituted. 14

Thus, the redemption by the brothers Teoco shall be without prejudice to the subsequent
foreclosure of same properties by Metrobank in order to satisfy other obligations covered by the
Real Estate Mortgage.

Transfer of Right of Redemption

The CA held that the brothers Teoco have not sufficiently shown that the spouses Co’s right of
redemption was properly transferred to them. The assignment of the right of redemption only
stated that the spouses Co are transferring the right of redemption to their parents, brothers, and
sisters, but did not specifically include the brothers Teoco, who are just brothers-in-law of
Ramon Co. Furthermore, the spouses Co no longer reside in the Philippines, and the assignment
of the right of redemption was not properly executed and/or authenticated.
 CHAPTER 6 – RECISSIBLE CONTRACTS

ART. 1380. Contracts validly agreed upon may be rescinded

in the cases established by law. (1290)

G.R. No. 188467 March 29, 2017

RENATO MA. R. PERALTA, Petitioner

vs
JOSE ROY RAVAL, Respondent

x-----------------------x

JOSE ROY B. RAVAL, Petitioner,

vs.
RENATO MA. R. PERALTA, Respondent.

DECISION

REYES, J.:

Before the Court are consolidated petitions for review on certiorari under Rule 45 of the Rules
of Court, docketed as G.R. No. 188764 and G.R. No. 188467 and filed by Jose Roy B. Raval
(Raval) and Renato Ma. R. Peralta (Peralta), respectively. Subject of both petitions is the
Decision1 dated October 8, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 85685,
wherein the CA affirmed with modification the Decision 2 dated May 17, 2005 of the Regional
Trial Court (RTC) of Laoag City, Branch 14, in the action for rescission of lease agreement,
docketed as Civil Case No. 11424-14, that was filed by Raval against Peralta.

The Court's Ruling (DOCTRINE)

Rights and Interests of Raval

It is crucial to determine, at the outset, the rights and interests of Raval over the disputed
properties, specifically as he invokes the deed of assignment that was· executed in his favor by
Flaviano Jr.

Peralta insists that the deed is void and thus cannot be deemed to have conferred to Raval the
rights of a new owner and lessor. Contrary to these assertions, however, the Court sustains the
validity of the assigm11ent. Raval cannot be deemed a "total stranger" to Peralta's contract of
lease with the Spouses Arzaga because by the subsequent transfers of rights over the leased
premises, Peralta became the original lessors' successor-in-interest. It is material that the lone
heir of the Spouses Arzaga, Flaviano Jr., has executed the subject deed of assignment, with
pe1iinent portions that read:
That for and in consideration of the sum of FIVE HUNDRED THOUSAND PESOS
(₱500,000.00), Philippine Currency, in hand, paid and delivered unto me by JOSE ROY RA
VAL, of legal age, married to LUISITA S[.] RAVAL, Filipino and resident of Brgy. 11, Laoag
City, I, FLAVIANO ARZAGA, JR., hereby assign all my right[s], participation and interest in
and into the said lots, including the improvement[ s] standing thereon, with the right to substitute
me in the case pending before the [CA] and the Supreme Court, if and when a petition for review
on certiorari is filed therein and to file any other case before any court in relation to said
property for the protection of his right as assignee[.]46

In his petition, Peralta vehemently assails the validity and enforceability of the deed of
assignment, as he likewise questions the ensuing right of Raval to seek the rescission of the
contract of lease. On this matter, the Court refers to the outcome of a separate petition for the
registration of the deed of assignment and cancellation of TCT Nos. T-3538 and T-240p that was
filed by Raval with the RTC of Laoag City, Branch 15, and docketed as Cad. Case No. 51. On
April 17, 1998, the deed of assignment between Flaviano Jr. and Raval was declared valid by the
trial court, as it ordered the cancellation of the Spouses Arzaga's TCTs, and the issuance of new
titles under Raval's name. This decision had become final and executory. 47 Accordingly, TCT
Nos. T-30107 and T-30108 under Raval's name were issued by the Register of Deeds.48

The ruling in Cad. Case No. 51 resulted in an acknowledgment of Raval's rights over the
property, his interest in the court action and entitlement to monthly rentals from Peralta. New
TCTs were· issued by virtue of the decision. When later called upon to rule on the petition for
rescission of lease, the RTC then correctly rejected Peralta's claim against the agreement's
legality, as it cited the prohibition against a collateral attack on the land titles. The trial court
correctly explained:

[T]he issue raised by [Peralta] that the Deed of Assignment is simulated m1d void ab initio,
would necessmi.ly also raise the issue of the validity of TCT Nos. T-30107 and T-30108. This
issue cannot be collaterally attacked. There is no question that the titles of the properties covered
by the Deed of Assignment had already been issued in favor of [Raval]. Well-settled is the rule
that a certificate of title [cannot] be altered, modified or cm1celled except in a direct proceeding
in accordance with law x x x. In the instant case, it is obvious that m1y attack on the Deed of
Assigm11ent is also m1 attack upon [Raval's] title. In this case, it is being made collaterally as a
defense to the action for rescission. This cannot be done. It is only when the object of the action
or proceeding is to nullify the title, and thus challenge the judgment pursuant to which the title
was decreed, that such an action cm1 be considered a direct attack and, therefore, allowable x x
x. Otherwise, a collateral attack would not [prosper], as it is improper in this action. 49

Similarly, the Court sustains the validity of the deed of assignment upon which Raval anchored
his claims against the subject properties and contract of lease. By being the assignee under the
deed, Raval obtained the rights, interests and privileges of his predecessors-in-interest over the
property, including the right to seek the rescission of the agreement, should valid grounds exist
to support it. Peralta's defenses against Raval's claim of rights, in effect, challenge the prior
decision of the trial court to recognize the deed of assignment and more importantly, the ruling
that ordered the issuance of the TCTs under Raval's name. Essentially, it is also a challenge upon
the TCTs that were already issued by the Register of Deeds. By law and jtirispn1dence, these
TCTs that have been issued by virtue of the assignment, however, cannot be collaterally attacked
by Peralta in this case.

Section 48 of Presidential Decree No. 1529, otherwise known as the Property Registration
Decree, provides that "[a] certificate of title shall not be subject to collateral attack. It cannot be
altered, modified, or cancelled except in a direct proceeding in accordance with law." Pursuant to
this provision,: the courts have consistently ruled against collateral attacks on land titles.· In Sps.
Decaleng v. Bishop of the "Missionary District of the Philippine Islands of Protestant Episcopal
Church in the United States of America, et al.,50 the Court reiterated:

It is a hornbook principle that "a certificate of title serves as evidence of an indefeasible title to
the property in favor of the person whose name appears therein." x x x.

xxxx

A torrens title cannot be attacked collaterally, and the issue on its validity can be raised only in
an action expressly instituted for that purpose. A 'collateral attack is made when, in another
action to obtain a different relief, the certificate of title is assailed as an incident in said
action.51 (Citations omitted)
ART. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by more than onefourth
of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject
to rescission. (1291a)

G.R. No. 173441 December 3, 2009

HEIRS OF SOFIA QUIRONG, Represented by ROMEO P. QUIRONG, Petitioners,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.

DECISION

ABAD, J.:

This case is about the prescriptive period of an action for rescission of a contract of sale where
the buyer is evicted from the thing sold by a subsequent judicial order in favor of a third party.

The Court's Ruling (DOCTRINE)

The CA held that the Quirong heirs’ action for rescission of the sale between DBP and their
predecessor, Sofia Quirong, is barred by prescription reckoned from the date of finality of the
December 16, 1992 RTC decision in Civil Case D-7159 and applying the prescriptive period of
four years set by Article 1389 of the Civil Code.

Unfortunately, the CA did not state in its decision the date when the RTC decision in Civil Case
D-7159 became final and executory, which decision resulted in the Quirong heirs’ loss of 80% of
the lot that the DBP sold to Sofia Quirong. Petitioner heirs claim that the prescriptive period
should be reckoned from January 17, 1995, the date this Court’s resolution in G.R. 116575
became final and executory.15

But the incident before this Court in G.R. 116575 did not deal with the merit of the RTC decision
in Civil Case D-7159. That decision became final and executory on January 28, 1993 when the
DBP failed to appeal from it within the time set for such appeal. The incident before this Court in
G.R. 116575 involved the issuance of the writ of execution in that case. The DBP contested such
issuance supposedly because the dispositive portion of the decision failed to specify details that
were needed for its implementation. Since this incident did not affect the finality of the decision
in Civil Case D-7159, the prescriptive period remained to be reckoned from January 28, 1993,
the date of such finality.

The next question that needs to be resolved is the applicable period of prescription. The DBP
claims that it should be four years as provided under Article 1389 of the Civil Code. 16 Article
1389 provides that "the action to claim rescission must be commenced within four years." The
Quirong heirs, on the other hand, claim that it should be 10 years as provided under Article 1144
which states that actions "upon a written contract" must be brought "within 10 years from the
date the right of action accrues."

Now, was the action of the Quirong heirs "for rescission" or "upon a written contract"? There is
no question that their action was for rescission, since their complaint in Civil Case CV-98-
02399-D asked for the rescission of the contract of sale between Sofia Quirong, their
predecessor, and the DBP and the reimbursement of the price of P78,000.00 that Sofia Quirong
paid the bank plus damages. The prescriptive period for rescission is four years.

But it is not that simple. The remedy of "rescission" is not confined to the rescissible contracts
enumerated under Article 1381.17 Article 1191 of the Civil Code gives the injured party in
reciprocal obligations, such as what contracts are about, the option to choose between fulfillment
and "rescission." Arturo M. Tolentino, a well-known authority in civil law, is quick to note,
however, that the equivalent of Article 1191 in the old code actually uses the term "resolution"
rather than the present "rescission."18 The calibrated meanings of these terms are distinct.

"Rescission" is a subsidiary action based on injury to the plaintiff’s economic interests as

described in Articles 1380 and 1381. "Resolution," the action referred to in Article 1191, on the
other hand, is based on the defendant’s breach of faith, a violation of the reciprocity between the
parties. As an action based on the binding force of a written contract, therefore, rescission
(resolution) under Article 1191 prescribes in 10 years. Ten years is the period of prescription of
actions based on a written contract under Article 1144.

The distinction makes sense. Article 1191 gives the injured party an option to choose between,
first, fulfillment of the contract and, second, its rescission. An action to enforce a written contract
(fulfillment) is definitely an "action upon a written contract," which prescribes in 10 years
(Article 1144). It will not be logical to make the remedy of fulfillment prescribe in 10 years
while the alternative remedy of rescission (or resolution) is made to prescribe after only four
years as provided in Article 1389 when the injury from which the two kinds of actions derive is
the same.

Here, the Quirong heirs alleged in their complaint that they were entitled to the rescission of the
contract of sale of the lot between the DBP and Sofia Quirong because the decision in Civil Case
D-7159 deprived her heirs of nearly the whole of that lot. But what was the status of that contract
at the time of the filing of the action for rescission? Apparently, that contract of sale had already
been fully performed when Sofia Quirong paid the full price for the lot and when, in exchange,
the DBP executed the deed of absolute sale in her favor. There was a turnover of control of the
property from DBP to Sofia Quirong since she assumed under their contract, "the ejectment of
squatters and/or occupants" on the lot, at her own expense.19

Actually, the cause of action of the Quirong heirs stems from their having been ousted by final
judgment from the ownership of the lot that the DBP sold to Sofia Quirong, their predecessor, in
violation of the warranty against eviction that comes with every sale of property or thing. Article
1548 of the Civil Code provides:

Article 1548. Eviction shall take place whenever by a final judgment based on a right prior to the
sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of thing
purchased.
ART. 1382. Payments made in a state of insolvency for obligations to whose fulfi llment the
debtor could not be compelled at the time they were effected, are also rescissible. (1292)

G.R. No. 182435 August 13, 2012

LILIA B. ADA, LUZ B. ADANZA, FLORA C. BA YLON, REMO BA YLON, JOSE BA

YLON, ERIC BA YLON, FLORENTINO BA YLON, and MA. RUBY BA
YLON, Petitioners,
vs.
FLORANTE BA YLON, Respondent.

VILLARAMA, JR.,*

DECISION

REYES, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to annul and set aside the Decision 1 dated October 26, 2007 rendered by the Court of
Appeals (CA) in CA-G.R. CV No. 01746. The assailed decision partially reversed and set aside
the Decision2 dated October 20, 2005 issued ~y the Regional Trial Court (RTC), Tan jay City,
Negros Oriental, Branch 43 in Civil Case No. 11657.

Issue

The lone issue to be resolved by this Court is whether the CA erred in ruling that the donation
inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may only be rescinded
if there is already a judicial determination that the same actually belonged to the estate of
Spouses Baylon.

The Court's Ruling (DOCTRINE)

The petition is partly meritorious.

Procedural Matters

Before resolving the lone substantive issue in the instant case, this Court deems it proper to
address certain procedural matters that need to be threshed out which, by laxity or otherwise,
were not raised by the parties herein.

Misjoinder of Causes of Action

The complaint filed by the petitioners with the RTC involves two separate, distinct and
independent actions – partition and rescission. First, the petitioners raised the refusal of their co-
heirs, Florante, Rita and Panfila, to partition the properties which they inherited from Spouses
Baylon. Second, in their supplemental pleading, the petitioners assailed the donation inter vivos
of Lot No. 4709 and half of Lot No. 4706 made by Rita in favor of Florante pendente lite.