WELLEX v U-Land

Doonposa case koWellexvs U-Land. Medyo technical langsiyaperoang topic dun is Article 1370, Interpretation of
Contracts. Yung Verba Legis.

Yung partieskasihindisilanakapag execute ng Share Purchase Agreement (SPA) nakailangan dun sakontratanila. So
itongsiWellex, nagcontendsiyanabagomakapag execute ng SPA kailanganmagbayadmunang Purchase Price si U-Land.

Ang decision ng SC, the execution of the SPA should come first before the payment of the purchase price. It was
stated clearly in the First Memorandum of Agreement of the parties. Ditona mag-apply yung principle of Verba Legis. No
nee for interpretationkasi clearly stated nasa MOA. Therefore, there being no SPA, U-Land is under no obligation to begin
payment of the purchase price.

SulosaNayon vs. Nayong Filipino

FACTS:Respondent Nayong Pilipino Foundation Inc., is a government-owned and controlled corporation and owner
of land, known as the Nayong Pilipino Complex. Petitioner Philippine Village Hotel Inc. (PVH), formerly called
SuloNayon Inc., is a domestic corporation duly organized and existing under Philippine laws.

On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex to Petitioner SulosaNayon for the
construction and operation of a hotel building, to be known as the Philippine Village Hotel. The least is for 21 years, or
until May 1996. It is renewable for a period of 25 years under the same terms and conditions upon due notice in writing
to respondent of the intention to renew at least 6 months before its expiration. After notice of renewal, the parties
agreed to the renewal of the contract for another 25 years, or until 2021.

Beginning January 2001, petitioners defaulted in the payment of their monthly rental. Respondent repeatedly
demanded petitioners to pay the arrears and vacate the premises. In September 2001, respondent filed a complaint for
unlawful detainer before the Metropolitan Trial Court (MeTC). The MeTC ruled in favour of the respondent ordering the
petitioner to vacate the premises and to pay rentals, damages and attorney’s fees. Upon appeal to the Regional Trial
Court (RTC), the latter still ruled in favour of respondents with modifications to which it applied the rules on accession
in favor to petitioners as regards the improvements made by petitioner on the land such as but not limited to the erected
facilities. Respondent appealed to the Court of Appeals, from which it reversed RTC’s decision that petitioners were
builders on good faith and entitled of reimbursement. Hence, this petition for review.

ISSUE: Whether or not petitioner is entitled for reimbursement of value of improvements?

HELD: No. The Court applied Article 1678 of the NCC. Under Article 1678 of the New Civil Code, the lessor has
the option of paying one-half of the value of the improvements which the lessee made in good faith, which are suitable
for the use for which the lease is intended, and which have not altered the form and substance of the land. On the other
hand, the lessee may remove the improvements should the lessor refuse to reimburse.

Petitioners argue that to apply Article 1678 to their case would result to sheer injustice, as it would amount to
giving away the hotel and its other structures at virtually bargain prices. They allege that the value of the hotel and its
appurtenant facilities amounts to more than two billion pesos, while the monetary claim of respondent against them only
amounts to a little more than twenty six-million pesos. Thus, they contend that it is the lease contract that governs the
relationship of the parties, and consequently, the parties may be considered to have impliedly waived the application of
Article 1678.

The Court cannot sustain this line of argument by petitioners. Basic is the doctrine that laws are deemed
incorporated in each and every contract. Existing laws always form part of any contract. Further, the leasecontract in the
case at bar shows no special kind of agreement between the parties as to how to proceed in cases of default or breach of
the contract. Petitioners maintain that the lease contract contains a default provision which does not give respondent the
right to appropriate the improvements nor evict petitioners in cases of cancellation or termination of the contract due to
default or breach of its terms. They cite paragraph 10 of the lease contract, which provides that:

10. DEFAULT. - . . . Default shall automatically take place upon the failure of the LESSEE to pay
or perform its obligation during the time fixed herein for such obligations without necessity of demand, or, if no
time is fixed, after 90 days from the receipt of notice or demand from the LESSOR. . .

In case of cancellation or termination of this contract due to the default or breach of its terms, the
LESSEE will pay all reasonable attorney’s fees, costs and expenses of litigation that may be incurred by the LESSOR
in enforcing its rights under this contract or any of its provisions, as well as all unpaid rents, fees, charges, taxes,
assessment and others which the LESSOR may be entitled to.

Petitioners assert that respondent committed a breach of the lease contract when it filed the ejectment suit
against them. However, the Court find nothing in the above quoted provision that prohibits respondent to proceed the
way it did in enforcing its rights as lessor. It can rightfully file for ejectment to evict petitioners, as it did before the
court a quo.

LUCIA CARLOS ALIÑO vs. HEIRS OF ANGELICA A. LORENZO

On April 2, 1979, Angelica A. Lorenzo bought a 1,745 sqm. parcel of land located at Rosary Heights, Cotabato City
from Lucia C. Aliño for the price of P10,000.00 under a Deed of Absolute Sale. Consequently, TCT No. T-15500 was issued
in Angelica's name and the subject lot was also declared for taxation purposes in Angelica's name under Tax Declaration
No. 14136.

Lucia, however, still continued to pay, under her name, the real estate taxes due on the subject lot from 1980 to
1987. Sometime in 1984, Lucia designated Vivian Losaria as caretaker of the lot. In 1989, Lucia also executed a document
authorizing Felixberto Bautista to look for a buyer of the said property. Afterwhich, Lucia offered to sell to the Central
Bank of the Philippines (CBP) her lots in Rosary Heights, including the subject lot registered in Angelica's name.

On October 3, 1985, Angelica died, leaving private respondents, as surviving heirs who executed an Extra-Judicial
Settlement of her estate. The subject lot was adjudicated to the heirs.

On 1989, Lucia wrote a letter to Servillano, Sr., widower of Angelica, demanding the return of the subject lot. When
Servillano, Sr. refused to follow upon Lucia's demand, Lucia filed a complaint against the heirs of Angelicafor the
declaration of nullity of the Deed of Absolute Sale and annulment of the extra-judicial settlement and partition of estate.
She alleged that the sale of the subject lot was simulated, intended to merely accommodate the housing loan application
of Angelica.

In their answer, the heirs of Angelica denied Lucia's allegations, contending that the subject lot was acquired for
valuable consideration.

The RTC rendered a Decision in favor of the heirs of Angelica and ordered the complainant to pay the heirs of
Angelica P30,000.00 as attorney's fees. It held that the sale was not simulated because Lucia did not take concrete steps
to recover the subject lot for 10 years until she demanded from Servillano, Sr. its return.

Lucia appealed with the Court of Appeals however the CA adopted the findings of the RTC. The decision emphasized
that the deed of sale was a notarized document and enjoyed the presumption of regularity which Lucia failed to
overcome. It, however, deleted the award for attorney's fees.

Issues

Whether or not the Deed of Absolute Sale executed by Lucia in Favor of Angelica binding upon the parties.

Ruling

Petitioners contend that the sale was simulated and also pointed out the gross disproportion between the purchase
price and the market value of the property, the non-payment of the consideration, and sale having been made in
Angelica's name only as other indications of simulation.

The court ruled in favor of the petitioners.

In Interpretation of Contracts, the intention of the parties shall be primarily considered. Such intention is
determined from the express terms of their agreement, as well as their contemporaneous and subsequent acts. The
complete absence of an attempt in any manner on the part of the vendee to assert his rights of ownership over the
disputed property, can be a factor to determine intention. Thus, the subsequent acts of the parties in paying for the
property taxes, continuous possession, hiring of a caretaker and looking for an agent to sell the property belies the intent
to be bound by the deed of sale.
 Having resolved the core issue on the validity of the deed of sale, the Court sees no need to further discuss the
remaining matters raised in the petition.

Wherefore, the petition was granted and the decision of the lower court and CA were reversed, thus, declaring the
Deed of Absolute Sale and Deed of Extra Judicial Settlement null and void ab initio and the Clerk of Court is ordered to
execute the Deed of Reconveyance in favor of the petitioners.

Estanislao vs. East West Banking

Facts: Sps. Estanislao obtained a loan from the East West Banking in the amount of P3,925,000.00
evidenced by a promissory note and secured by two deeds of chattel mortgage dated July 10, 1997: one covering two
dump trucks and a bulldozer to secure the loan amount of P2,375,000.00, and another covering bulldozer and a wheel
loader to secure the loan amount of P1,550,000.00. Petitioners defaulted in the amortizations and the entire obligation
became due and demandable. Thereafter, East West bank filed a suit for replevin and damages. East West Banking moved
for the suspension of the proceedings. During the course of negotiation, a deed of assignment was drafted. Said deed of
assignment stated that the spouses are assigning their 2 Isuzu Dump Trucks and Caterpillar Buldozer to East West
Banking as full payment of their debt. However, on June 20, 2001, respondent filed a manifestation and motion to admit
an amended complaint for the seizure and delivery of two more heavy equipment—the bulldozer and wheel loader—which
are covered under the second deed of chattel mortgage. Respondent claimed that its representative inadvertently failed
to include the second deed of chattel mortgage among the documents forwarded to its counsel when the original
complaint was being drafted. Respondent likewise claimed that petitioners were given a chance to submit a refinancing
scheme that would allow them to keep the remaining two heavy equipment, but they failed to come up with such a
scheme despite repeated promises to do so.

Issue: Whether or not the deed of assignment entered into by the parties is subject to interpretation.

Held: NO. With its years of banking experience, resources and manpower, respondent bank is presumed to be
familiar with the implications of entering into the deed of assignment, whose terms are categorical and left nothing for
interpretation. The alleged non-inclusion in the deed of certain units of heavy equipment due to inadvertence, plain
oversight or mistake, is tantamount to inexcusable manifest negligence, which should not invalidate the juridical tie that
was created. Respondent is presumed to have maintained a high level of meticulousness in its dealings with petitioners.
The business of a bank is affected with public interest; thus, it makes a sworn profession of diligence and meticulousness
in giving irreproachable service.

The legal presumption is always on the validity of contracts. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally considered. When respondent accepted delivery
of all three units of heavy equipment under the deed of assignment, there could be no doubt that it intended to be bound
under the agreement.

Constantino vs. Heirs of Pedro Constantino, Jr.

FACTS:

This involves a controversy over a parcel of land claimed to be part of an estate, which needed to be
proportionally subdivided among heirs. Pedro Constantino, Sr., (Pedro Sr.) ancestors of the petitioners and respondents,
owned several parcels of land, one of which is an unregistered parcel of land declared for taxation purposes Tax
Declaration 20814, the subject matter of the case. Pedro Sr. was survived by his six children. On June 17, 1999
Laquindanum (Asuncion) and Josefina Calipan (Josefina), great grandchildren of Pedro Sr., in representation of Pedro Jr.,
filed a complaint against petitioners, grandchildren of Pedro Sr. for nullification of a document entitled as
“PagmamanasaLabasngHukuman”, dated August 10, 1992.

In the complaint, respondents alleged that petitioners asserted their claim of ownership over the whole parcel
of land owned by Pedro Sr., to the exclusion of respondents who are occupying thereof. The issuance of the new tax
declaration was allegedly due to the execution of a simulated, fabricated and fictitious document, petitioners
misrepresented themselves as the sole and only heirs of Pedro Sr.
 After a pre-trial conference, the Regional Trial Court held that in view of the “Extrajudicial Settlement with
Waiver” executed by the heirs of Pedro Jr. and the subsequent execution of another deed denominated as
“PagmamanasaLabasngHukuman” executed by the heirs of Santiago and Bruno (sons of Pedro Sr.), to the exclusion of the
heirs, both plaintiffs and defendants acted equally at fault and in pari delicto. The Court of Appeals reversed the decision
in favor of the respondent heirs of Pedro Jr., declaring the lot actually belongs to Pedro Jr. Hence, this petition for
review.

ISSUE:

Whether or not parties are in pari delicto?

HELD:

No. In this case, there are two Deeds of extrajudicial assignments unto the signatories of the portions of the
estate of an ancestor common to them and another set of signatories likewise assigning unto themselves portions of the
same estate. The separate Deeds came into being out of an identical intention of the signatories in both to exclude their
co-heirs of their rightful share in the entire estate of Pedro Sr. It was, in reality, an assignment of specific portions of the
estate of Pedro Sr., without resorting to a lawful partition of estate as both sets of heirs intended to exclude the other
heirs.

Clearly, the principle of in pari delicto cannot be applied. The inapplicability is dictated not only by the fact that two
deeds, not one contract, are involved, but because of the more important reason that such an application would result in
the validation of both deeds instead of their nullification as necessitated by their illegality. It must be emphasized that
the underlying agreement resulting in the execution of the deeds is nothing but a void agreement. Article 1409 of the
Civil Code provides that: ART. 1409. The following contracts are in existent and void from the beginning: (1) Those whose
cause, object or purpose is contrary to law; morals, good customs, public order or public policy.

Corollarily, given the character and nature of the deeds as being void and in existent, it has, as a consequence,
of no force and effect from the beginning, as if it had never been entered into and which cannot be validated either by
time or ratification.

In light of the foregoing, while both parties acted in violation of the law on legitimes, the pari delicto rule,
expressed in the maxims "Ex dolomalo non oritur action" and "in pari delicto potiorest condition defendentis," which
refuses remedy to either party to an illegal agreement and leaves them where they are, does not apply in this case.

CARLOS A. LORIA vs. LUDOLFO P. MUÑOZ, JR

Facts:

Loria invited Muñoz to advance P2,000,000.00 for a subcontract of a P50,000,000.00 river-dredging project in
Guinobatan

Loria represented that he would make arrangements such that Elizaldy Co, owner of Sunwest Construction and
Development Corporation, would turn out to be the lowest bidder for the project. Elizaldy Co would pay P8,000,000.00
to ensure the project's award to Sunwest.

Sunwest allegedly finished dredging the Masarawag and San Francisco Rivers without subcontracting Muñoz. With
the project allegedly finished, Muñoz demanded Loria to return his P2,000,000.00. Loria, however, did not return the
money.

Muñoz then filed the complaint for sum of money.

As the trial and appellate courts found, Muñoz paid Loria P2,000,000.00 for a subcontract of a government project.
The parties' agreement, therefore, was void for being contrary to law, specifically, the Anti-Graft and Corrupt Practices
Act, the Revised Penal Code, and Section 6 of Presidential Decree No. 1594. The agreement was likewise contrary to the
public policy of... public or open competitive bidding of government contracts.

Since the parties' agreement was void, Loria argues that the parties were in pari delicto, and Muñoz should not be
allowed to recover the money he gave under the contract.

Issues:
 whetherLoria is liable to Muñoz for P2,000,000.00

Ruling:

Loria must return Munoz's P2,000,000.00... under the principle of unjust enrichment

Under Article 22 of the Civil Code of the Philippines, "every person who through an act of performance by another,
or any other means, acquires or comes into possession of something at the expense of the latter without just or legal
ground, shall return the same to him."

There is unjust enrichment "when a person unjustly retains a benefit to the loss of another, or when a person
retains money or property of another against the fundamental principles of justice, equity and good conscience.

The principle of unjust enrichment has two conditions. First, a person must have been benefited without a real or
valid basis or justification. Second, the benefit was derived at another person's expense or damage.

In this case, Loria received P2,000,000.00 from Muñoz for a subcontract of a government project to dredge the
Masarawag and San Francisco Rivers in Guinobatan, Albay. However, contrary to the parties' agreement, Muñoz was not
subcontracted for the project. Nevertheless Loria retained the P2,000,000.00.

"the application of the doctrine of in pari delicto is not always rigid." An exception to the doctrine is "when its
application contravenes well-established public policy." In Gonzalo, this court ruled that "the prevention of unjust
enrichment is a recognized public policy of the State." It is, therefore, an exception to the application of the in pari
delicto doctrine. This court explained that public policy has been defined as "that principle of the law which holds that
no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good."

In this case, both the trial and appellate courts found that Loria received P2, 000,000.00 from Muñoz for a
subcontract of the river-dredging project. Loria never denied that he failed to fulfill his agreement with Muñoz.
Throughout the case's proceedings, Loria failed to justify why he has the right to retain Muñoz's P2, 000,000.00. As the
Court of Appeals ruled, "it was not shown that Muñoz benefited from the delivery of the amount of P2, 000,000.00 to
Loria

SPOUSES MAY S. VILLALUZ AND JOHNNY VILLALUZ, JR., Petitioners, v. LAND BANK OF THE PHILIPPINES

Facts:

In 1996, Paula Agbisit (Agbisit), mother of petitioner May S. Villaluz (May), requested the latter to provide her
with collateral for a loan. On March 25, 1996, the Spouses Villaluz executed a Special Power of Attorney in favor of
Agbisit authorizing her to, among others, "negotiate for the sale, mortgage, or other forms of disposition a parcel of
land" (located in Calinan, Davao City) and "sign in our behalf all documents relating to the sale, loan or mortgage, or
other disposition of the aforementioned property."

On June 19, 1996, Agbisit executed her own Special Power of Attorney, appointing Milflores Cooperative as
attorney-in-fact in obtaining a loan from and executing a real mortgage in favor of Land Bank of the Philippines (Land
Bank). On June 21, 1996, Milflores Cooperative, in a representative capacity, executed a Real Estate Mortgage in favor of
Land Bank in consideration of the P3,000,000 loan to be extended by the latter. Land Bank partially released one-third of
the total loan amount, or P995,500, to Milflores Cooperative on June 25, 1996. Land Bank released the remaining loan
amount of P2,000,500 to MilfloresCooperative on October 4, 1996.

Unfortunately, Milflores Cooperative was unable to pay its obligations to Land Bank. Thus, Land Bank filed a
petition for extra-judicial foreclosure sale with the Office of the Clerk of Court of Davao City. Sometime in August, 2003,
the Spouses Villaluz learned that an auction sale covering their land had been set for October 2, 2003. Land Bank won the
auction sale as the sole bidder.

The Spouses Villaluz filed a complaint with the Regional Trial Court (RTC) of Davao City seeking the
annulment of the foreclosure sale, citing, among others, Article 1409(3), which provides that obligations "whose cause or
object did not exist at the time of the transaction" are void ab initio. The Spouses Villaluzposit that the mortgage was
void because the loan was not yet existent when the mortgage was executed on June 21, 1996. Since the loan was released
only on June 25, 1996, the mortgage executed four days earlier was without valuable consideration.

The Accordingly, the RTC dismissed the complaint. On appeal, the Court of Appeals (CA) affirmed the RTC
Decision. Thus, this petition.

Issue:Whether or not the contract is void for lack of object, which is an essential requisite for the validity of the
contract.
 Held:The petition is DENIED Article 1347 provides that "[a]ll things which are not outside the commerce of men,
including future things, may be the object of a contract." Under Articles 1461 and 1462, things having a potential
existence and "future goods," i.e., those that are yet to be manufactured, raised, or acquired, may be the objects of
contracts of sale. The narrow interpretation advocated by the Spouses Villaluz would create a dissonance between
Articles 1347, 1461, and 1462, on the one hand, and Article 1 409(3), on the other. A literal interpretation of the phrase
"did not exist at the time of the transaction" in Article 1409(3) would essentially defeat the clear intent and purpose of
Articles 1347, 1461, and 1462 to allow future things to be the objects of contracts. To resolve this apparent conflict,
Justice J.B.L. Reyes commented that the phrase "did not exist" should be interpreted as "could not come into existence"
because the object may legally be a future thing.

In order to give effect to Articles 1347, 1461, and 1462, Article 1409(3) must be interpreted as referring to contracts
whose cause or object is impossible of existing at the time of the transaction.

The cause of the disputed Real Estate Mortgage is the loan to be obtained by Milflores Cooperative. This is clear
from the terms of the mortgage document, which expressly provides that it is being executed in "consideration of certain
loans, advances, credit lines, and other credit facilities or accommodations obtained from [Land Bank by Milflores
Cooperative] x xx in the principal amount of [P3,000,000]."26 The consideration is certainly not an impossible one
because Land Bank was capable of granting the P3,000,000 loan, as it in fact released one-third of the loan a couple of
days later.

SPS.NESTOR AND MA. NONA BORROMEO vs HONORABLE COURT OF APPEALS and EQUITABLE SAVINGS BANK

FACTS:At the time of the dispute, Equitable Savings Bank (ESB) was a subsidiary of Equitable PCI Bank (EPCIB), a
domestic universal banking corporation. Spouses Nestor and Nona Borromeo (Nestor and Nona) were client-depositors of
EPCIB for more than twelve (12) years. They applied for a loan of P4,000,000.00, which was approved sometime in
October 1999. To secure the payment of loan, Nestor and Nora executed a Real Estate Mortgage (REM) over their land.
They asserted that even if the loan documents were signed in blank, it was understood that they executed the REM in
favor of EPCIB.

From April 2001 to September 2002, ESB released a total amount of P3,600,000.00 in four installments, while
the balance of P400,000.00 was not drawn by Nestor and Nora. On the other hand, Nestor and Nora started to pay their
monthly amortizations on 21 April 2001. Nestor and Nora made repeated verbal requests to EPCIB to furnish them their
copies of the loan documents. They further claimed that they purposely did not draw the remaining balance of the loan in
the amount of P400,000.00 and stopped paying their loan amortizations to protest EPCIB’s continued failure to provide
them copies of the loan documents and its imposition of an interest rate higher than that agreed upon. EPCIB clarified
that since Nestor and Nora’s loan had not been fully released, the original documents were not yet sent to them.

Finally, on 3 October 2003, petitioners received copies of the loan documents which they had earlier signed in blank.
According to petitioners, they were surprised to find out that the Loan Agreement and REM designated respondent ESB as
lender and mortgagor, instead of EPCIB with whom they allegedly entered into the agreement.

When the Nestor and Nora failed to pay for the loan in full by 30 September 2003, ESB sought to extra-
judicially foreclose the REM. On 20 November 2003, Nestor and Nora filed with the Regional Trial Court (RTC) a
Complaint for Injunction, Annulment of Mortgage with Damages and with Prayer for Temporary Restraining Order and
Preliminary and Mandatory Injunction against EPCIB and ESB. They also sought to prevent the Extrajudicial Sale from
taking place on 26 November 2003.

On 3 March 2004, the RTC granted Nestor and Nora’s motion for reconsideration and ordered the issuance of a
preliminary injunction after declaring that the validity of the REM was yet to be determined. It found that Nestor and
Nora were bound to suffer grave injustice if they were deprived of their property before the RTC could rule on the
validity of the REM constituted on the same. The Court of Appeals (CA), on the other hand, reversed the order of the RTC.

ISSUE:Whether or not ESB is the real party-in-interest.

RULING:The Court ruled in the negative.

In the instant case, Nestor and Nora assert that their creditor-mortgagee is EPCIB and not ESB. While ESB
claims that Nestor and Nora have had transactions with it, particularly the five check payments made in the name of ESB,
it fails to categorically state that ESB and not EPCIB is the real creditor-mortgagor in this loan and mortgage transaction.
Records also show that Nestor and Nora repeatedly dealt with EPCIB.

ESB, although a wholly-owned subsidiary of EPCIB, has an independent and separate juridical personality from
its parent company. From a perusal of the records, Nestor and Nora did not enter into a Loan Agreement and REM with
ESB. ESB, therefore, has no right to foreclose the subject property even after default, since this right can only be claimed
by the creditor-mortgagor, EPCIB; and, consequently, the extrajudicial foreclosure of the REM by ESB would be in
violation of Nestor and Nora’s property rights.

FloranteVitug vs. Evangeline Abuda

Facts:

On March 17, 1997, Abuda loaned P250,000.00 to Vitug and his wife, NarcisaVitug. As security for the
loan, Vitug mortgaged to Abuda his property in Tondo Foreshore. The property was then subject of a conditional
Contract to Sell between the National Housing Authority and Vitug. On November 17, 1997, the parties executed a
"restructured" mortgage contract on the property to secure the amount of P600,000.00 representing the original
P250,000.00 loan, additional loans, and subsequent credit accommodations given by Abuda to Vitug with an
interest of five (5) percent per month. By then, the property was covered by Transfer Certificate of Title No. 234246
under Vitug's name. Spouses Vitug failed to pay their loans despite Abuda's demands. On November 21, 2003,
Abuda filed a Complaint for Foreclosure of Property before the Regional Trial Court (RTC) of Manila. On December
19, 2008, the RTC promulgated a Decision in favor of Abuda.

Vitug appealed the December 19, 2008 RTC Decision before the Court of Appeals (CA). He contended that the
real estate mortgage contract, he and Abuda entered into was void on the grounds of fraud and lack of consent
under Articles 1318, 1319, and 1332 of the Civil Code. He alleged that he was only tricked into signing the mortgage
contract, whose terms he did not really understand. Hence, his consent to the mortgage contract was vitiated.

CA found that Vitug failed to pay his obligation within the stipulated six-month period under the March 17,
1997 mortgage contract. As a result of this failure, the parties entered into a restructured mortgage contract on
November 17, 1997. The new mortgage contract was signed before a notary public by Vitug, his wife Narcisa, and
witnesses Rolando Vitug, Ferdinand Vitug, and Emily Vitug.

CA also found that all the elements of a valid mortgage contract were present in the parties' mortgage
contract. The mortgage contract was also clear in its terms—that failure to pay the P600,000.00 loan amount, with
a 5% interest rate per month from November 17, 1997 to November 17, 1998, shall result in the foreclosure of
Vitug's mortgaged property. No evidence on record showed that Vitug was defrauded when he entered into the
agreement with Abuda.

However, the Court of Appeals found that the interest rates imposed on Vitug's loan were "iniquitous,
unconscionable, and exorbitant." It instead ruled that a legal interest of 1% per month or 12% per annum should
apply from the judicial demand.

On November 23, 2011, Vitug moved for the reconsideration of the Court of Appeals' October 26, 2011 Decision.
He pointed out that not all the requisites of a valid mortgage contract were present since he did not have free
disposal of his property when he mortgaged it to Abuda. His transfer certificate of title had an annotation by the
National Housing Authority, which restricted his right to dispose or encumber the property. The restriction clause
provided that the National Housing Authority's consent must first be obtained before he may dispose or encumber
his property.

Abuda, according to Vitug, failed to get the National Housing Authority's consent before the property was
mortgaged to him. Vitug also argued in his Motion for Reconsideration that the property was exempt from
execution because it was constituted as a family home before its mortgage.

In the Resolution promulgated on March 8, 2012,29 the CA denied Vitug's Motion for Reconsideration. Vitug
filed this Petition for Review on Certiorari to assail the Court of Appeals' Decision and Resolution.

Issue:Whether the restriction clause in petitioner's title rendered invalid the real estate mortgage he and
respondent Evangeline Abuda executed.

Ruling:

The Court held that even if the mortgage contract were illegal or wrongful, neither of the parties may assail
the contract's validity as against the other because they were equally at fault. This is the principle of in pari delicto
(or in delicto) as embodied in Articles 1411 and 1412 of the Civil Code.

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.

Under this principle, courts shall not aid parties in their illegal acts. The court shall leave them as they are. It
is an equitable principle that bars parties from enforcing their illegal acts, assailing the validity of their acts, or
using its invalidity as a defense.

Petitioner in this case did not come to this court with clean hands. He was aware of the restrictions in his title
when he executed the loan and mortgage contracts with respondent. He voluntarily executed the contracts with
respondent despite this knowledge. He also availed himself of the benefits of the loan and mortgage contract. He
cannot now assail the validity of the mortgage contract to escape the obligations incurred because of it.

Petitioner also failed to show that upholding the validity of the mortgage contract would be contrary to law,
morals, good customs, and public policy.

Petitioner's contract with the National Housing Authority is not a law prohibiting the transfer or encumbrance
of his property. It does not render subsequent transactions involving the property a violation of morals, good
customs, and public policy. Violation of its terms does not render subsequent transactions involving the property
void ab initio. It merely provides the National Housing Authority with a cause of action to annul subsequent
transactions involving the property.

WHEREFORE, the Petition is DENIED. The Court of Appeals Decision dated October 26, 2011 and its Resolution
dated March 8, 2012 are AFFIRMED. The interest rate for the loan of P600,000.00 is further reduced to 6% per
annum from July 1, 2013 until fully paid.

ILOS v. PNBDOCTRINE:

Escalation clauses providing for unilateral increases made by one party violatesthe principle of mutuality of
contracts. Although these provisions are deemedpart of the contract, there cannot be a unilateral increase by one
partybecause there must still be assent by the other party. In a loan contract, sinceinterest rates are an essential part,
any changes to it must be mutually assentedto by both parties.

FACTS:
 Spouses Silos secured a credit line with PNB involving a Credit Agreement and amortgage to secure such an
agreement. The spouses also issued severalpromissory notes to cover their payment. In all documents, there
wereescalation clauses/provisions allowing PNB to increase or reduce interest ratesunilaterally. These were found to be
violative of the principle of the mutuality ofcontracts.

ISSUE:

WON the interest rate provision in the Credit Agreement and theAmendment to Credit Agreement is null and void for
giving PNB the sole powerto fix the rates [YES]

HELD:

The provision giving PNB the sole unilateral determination to fix the interestisvoid.Spouses: The provision relegates
to PNB the sole power to

fix the rates basedon arbitrary criteria and the promissory notes were left blank for PNB tounilaterally fill = violates
the principle of mutuality of contracts.PNB: Since the Credit Agreement and promissory notes contained both
anescalation clause and a de-escalation clause, the bank did not violate theprinciple of mutuality; plus, the parties
mutually agreed, as shown by thecontinuous payment without protest by the spouses.

Spouses: Principle of estoppel doesn’t apply because no estoppel can proceed

from an illegal act

PNB: Spouses are estopped because they failed toquestion the imposed rates and they continued to pay without
opposition.In a number of decided cases, the Court struck down provisions in creditdocuments issued by PNB to, or
required of, its borrowers which allow the bank

to increase or decrease interest rates “

within the limits allowed by law at anytime depending on whatever policy it may adopt in the future

a)PNB v. CA

(1991): stipulation and similar ones were declared in violation ofArt. 1308 NCC.b)PNB v. C (1994): again invalidated

Bank relied on the escalation clause, which is authorized by Sec. 2 ofPD 1684, which amended Act No. 2655 (“The
Usury Law”)

Sec. 1 of PD 1684 also empowered the MonetaryBoard to prescribemaximum rates of interest for loans and certain
forbearances and theCentral Bank Circular (issued by the Monetary Board) provides that therate of interest shall not
be subject to any ceiling prescribed under orpursuant to the Usury LaW Court here held that while PD 1684 and CB
Circular No. 905 allowed contracting parties to stipulate freely regarding adjustments in theinterest rate, the law and
circular did not authorize either party to unilaterally raise the interest rate without the other’s consent. There can be no
contract in the true sense in the absence of theelement of agreement or of mutual assent of the parties.

Contract changes must be made with the consent of the contractingparties, especially when it affects an important
aspect of theagreement; rate of interest is always a vital component of loan contracts Cannot countenance PNB’s
posturing that the escalation clause givesit unbridled right to unilaterally upwardly adjust the interest because it would
take away the respondents’ right to assent to an important modification in their agreement and would negate the
element ofmutuality of contractsc)

Sps. Almeda v. CA (1996): court invalidated the same provisions as in the instant case’s Credit Agreement Here, PNB
unilaterally altered the terms of its contract by increasingthe interest rates on the loan without the prior assent of the
petitioners. Escalation clauses are not basically wrong or legally objectionable solong as they are not solely potestative
but based on reasonable and valid grounds

d)PNB v. CA (1996): The Court in Banco Filipino Savings & Mortgage Bank v. Navarrosaidthat there must be a de-
escalation clause to mitigate the one-sidedness of the escalation clause because of concern for theunequal status of
borrowers vis-à-vis the banks and any increase in therate of interest made pursuant to an escalation clause must be
theresult of agreement between the parties

Court, citing a PNB v. CA case, declared that increases unilaterallyimposed by PNB are in violation of the principle of
mutuality asembodied in Art. 1308, NCC

Court cited another PNB v. CA case which stated that while the UsuryLaw ceiling on rates was lifted, nothing could
be read as granting thebankcarte blanche authority to raise interest rates to levels whichwould either enslave its
borrowers or lead to a hemorrhaging of theirassets; Court found that there was no attempt by PNB there to securethe
conformity of the borrowers, and the assent to the increasesCANNOT be implied from the lack of response to the letters
of PNBinforming them of increases

e)New Sampaguita Builders Construction, Inc. v. PNB

(2004): court saidthat excessive interests, penalties and other charges not revealed indisclosure statements issued
by banks, even if stipulated in the promissorynotes, cannot be given effect under the Truth in Lending Act

f)PNB v. Sps. Rocamora

(2009): above pronouncements were reiterated to

debunk PNB’s repeated reliance on its invalidated contract stipulation

PNB’s argument that the spouses failure to contest the increased

interest rates amounted to implied acceptance increase should fail. All the cases, including the present one, involve
identical or similarprovisions

SC: These stipulations must be once more invalidated, as

wasdonein previous cases. The common denominator in these cases is the lackof agreement of the parties to the
imposed interest rates

-Lack of consent: spouses signed the promissory notes in blank(credible testimony by Lydia)

-PNB Branch Manager even admitted that interest rates werefixed solely by its Treasury Department, and the factors
considereddo not include factors which affect PNB’s borrowers

-PNB’s method of fixing interest rates is arbitrary based on one

-sided, indeterminate, and subjective criteria

SC: any modification in the contract, such as the interest rates, mustbe made with the consent of the contracting parties.
The minds of allthe parties must meet as to the proposed modification, especiallywhen it affects an important aspect of
the agreement. In the case ofloan agreements, the rate of interest is a principal condition, if not themost important
component. Thus, any modification thereof must bemutually agreed upon; otherwise, it has no binding effect.
 The stipulations here don’t even provide that the parties will agree upon the interest rate- they are worded in such a
way that theborrower shall agree towhatever interest rate PNB fixes (ABSURD)

SC: with the present credit agreement, the element of consent oragreement by the borrower is now completely
lacking, which makes

respondent’s unlawful act all the more reprehensible.

SC: petitioners are correct in arguing that estoppel should not apply to

them, for “estoppel cannot be predicated on an illegal act.

Since PNB violated the Truth in Lending Act (RA 3765), which wasenacted to protect citizens from a lack of
awareness of the truecost of credit to the user by using a full disclosure of such cost-

By requiring the spouses to sign the documents and notes in blank,and then unilaterally filling them up later on, PNB
violated the Truthin Lending Act, and was remiss in its disclosure obligations- BUT the 1-year period to file a case
prescribed already

SC: Cannot subscribe to PNB’s argument that in every repricing, the

spouses are given the right to question the interest rates = if only one questions PNB’s practice, the rest will still be
victim to the questionablepractice and the Court cannot condone this.

Since the escalation clause is annulled, the principal amount of theloan is subject to the original or stipulated rate of
interest, and uponmaturity, the amount due shall be subject to legal interest at the rateof 12% per annu

-Interests to be applied first to the payment of the stipulated orlegal and unpaid interest, and later, to the capital or
principal

-Because only the interest rates are found to be improper, theobligation to pay interest subsists, fixed at the legal
rate of 12% Perannum (only until June 30, 2013). Starting July 1, 2013, it shall be 6%per annum, pursuant to Nacar v.
Gallery Frames and MonetaryBoard Circular No. 799

DISPOSITIVE: Petition granted. CA Decision ANNULLED and SET ASIDE

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, v. VALENTIN L. FONG, Respondent.

Facts:

Fort Bonifacio Development Corporation (FBDC) and MS Maxco Company Inc., entered into a Trade Contract
for the execution of the structural and partial architectural works on one of its projects in Taguig City; under the contract
the FBDC had the option to hire other contractors to rectify errors committed by MS Maxco by reason of its negligence,
omission, act, or default. It was also prohibited from assigning or transferring any of its rights, obligations or liabilities
without the express consent of FBDC. For failure of MS Maxco comply with the Trade Contract, FBDC had to hire other
contractors and perform corrective works which eventually cost FBDC P11,567,779.12. In April, 2005, FBDC received a
letter dated April 18, 2005 from the counsel of one Valentin Fong, informing it that MS Maxco had already assigned its
receivables from FBDC to him (Valentin), thru a Deed of Assignment, particularly the amount of P1,577,115.90, to be
taken from the retention money with the FBDC. Replying, FBDC acknowledged the 5% retention money of MS Maxco but
asserted that the same was not yet due and demandable and the subject of garnishment by MS Maxco’s creditors. Despite
repeated requests, FBDC refused to release the retention money. In a letter dated January 31, 2006, FBDC informed Fong
that nothing was left of MSMaxco’s retention money after the rectification of the defects in the projects.
 Valentin then filed a complaint against FBDC to collect the P1, 577, 115.90 before the RTC. In its defense, FBDC
alleged that MS Maxco incurred delays in the performance of its obligations under the Trade Agreement, constraining
FBDC to hire other contractors to rectify its works, which cost was deducted from the retention money; the retention
money was already depleted, hence FBDC was not liable to pay it to Fong; FBDC was not bound under the Deed of
Assignment between Fong and MS Maxco, not being a party thereto. Fong being a mere assignee, was bound to observe
the terms of the Trade contract of MS Maxco with FBDC.

After trial, the RTC ruled in favour of Fong. It held that the case was one of assignment of credit under Article
1624 of the Civil Code, hence, did not require FBDC’s consent as debtor for its validity and enforceability. What the law
requires is not the consent of the debtor, but merely notice to him, as the assignment takes effect only from the time of
his knowledge thereof. Also, Fong could not be adversely affected by the garnishment of Maxco’s retention money, as he
had become the owner of the receivables to the extent of the amount indicated in the Deed of Assignment. When Maxco
assigned the amount to Fong, he effectively became the owner of the said amount, especially since the garnishment of the
retention money came after FBDC was informed of the Deed of Assignment. Also, Fong is not bound by the stipulation
prohibiting Maxco from assigning its obligations and credits under the Trade Contract since he did not become
automatically a party to it by the mere expedient of entering into a Deed of Assigment with Maxco.

Issue:

Whether or not FBDC was bound by the Deed of Assignment between Fong and MS Maxco;

Whether or not it was liable to pay the amount under the Deed of Assignment.

Ruling:

The petition is meritorious. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.⁠1 As such, the stipulations in contracts are binding on them unless the
contract is contrary to law, morals, good customs, public order or public policy.⁠2

The same principle on obligatory force applies by extension to the contracting party’s assignees, in turn, by
virtue of the principle of relativity of contracts which is fleshed out in Article 1311 of the Civil Code, viz.:

Art. 1311. 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. The
heir is not liable beyond the value of the property he received from the decedent.

WILLIAM GENATO V. JESUSITA BAYHON

FACTS:Respondent filed an action before the RTC seeking for the nullification of a dacion en pago allegedly executed
by respondent Bayhon in favor of petitioner. Allegedly, the former obtained from the petitioner a loan; that to cover the
loan, he executed a Deed of Real Estate Mortgage over a property; that, however, the execution of the Deed of Real Estate
Mortgage was conditioned upon the personal assurance of the petitioner that the said instrument is only a private
memorandum of indebtedness and that it would neither be notarized nor enforced according to its tenor. Respondent also
assailed the dacion en pago as a forgery alleging that neither he nor his wife, who had died 3 years earlier, had executed
it. The petitioner however alleged that on the date that the real estate mortgage was to be signed, respondent introduced
to him a woman as his wife who signed the dacion en pago. While the case was pending in the CA, respondent Bayhon
died.

ISSUE:Whether the obligation of Respondent Bayhonis transmissible to his heirs?

RULING:No. As a general rule, obligations derived from a contract are transmissible. The loan in this case was
contracted by respondent. He died while the case was pending before the Court of Appeals. While he may no longer be
compelled to pay the loan, the debt subsists against his estate. No property or portion of the inheritance may be
transmitted to his heirs unless the debt has first been satisfied. Notably, throughout the appellate stage of this case, the
estate has been amply represented by the heirs of the deceased, who are also his co-parties. The procedure in vindicating
monetary claims involving a defendant who dies before final judgment is to file a claim against the estate of the deceased
respondent.

CARMELA BROBIO MANGAHAS v. EUFROCINA A. BROBIO, GR No. 183852, 2010-10-20

Facts:On January 10, 2002, Pacifico S. Brobio (Pacifico) died intestate, leaving three parcels of land. He was
survived by his wife, respondent Eufrocina A. Brobio, and four legitimate and three illegitimate children; petitioner
Carmela BrobioMangahas is one of the illegitimate... children.

On May 12, 2002, the heirs of the deceased executed a Deed of Extrajudicial Settlement of Estate of the Late
PacificoBrobio with Waiver. In the Deed, petitioner and Pacifico's other children, in consideration of their love and
affection for respondent and the sum of

P150,000.00, waived and ceded their respective shares over the three parcels of land in favor of respondent.
According to petitioner, respondent promised to give her an additional amount for her share in her father's estate. Thus,
after the signing of the Deed, petitioner... demanded from respondent the promised additional amount, but respondent
refused to pay, claiming that she had no more money.

A year later, while processing her tax obligations with the Bureau of Internal Revenue (BIR), respondent was
required to submit an original copy of the Deed. Left with no more original copy of the Deed, respondent summoned
petitioner to her office on May 31, 2003 and asked her... to countersign a copy of the Deed. Petitioner refused to
countersign the document, demanding that respondent first give her the additional amount that she promised.

Considering the value of the three parcels of land (which she claimed to be worth P20M), petitioner asked... for
P1M, but respondent begged her to lower the amount. Petitioner agreed to lower it to P600,000.00. Because respondent
did not have the money at that time and petitioner refused to countersign the Deed without any assurance that the
amount would be paid, respondent... executed a promissory note. Petitioner agreed to sign the Deed when respondent
signed the promissory note which read:

I will give a Financial Assistance to CARMELA B. MANGAHAS the amount of P600,000.00 Six Hundred Thousand
only on June 15, 2003

When the promissory note fell due, respondent failed and refused to pay despite demand. Petitioner made several
more demands upon respondent but the latter kept on insisting that she had no money.

On January 28, 2004, petitioner filed a Complaint for Specific Performance with Damages[5] against respondent,
alleging

That plaintiff and defendant are legal heirs of the deceased, Pacifico S. Brobio

That in consideration of the said waiver of the plaintiff over the listed properties in the extra-judicial settlement,
plaintiff received the sum of P150,000.00, and the defendant executed a "Promissory Note" on June 15, 2003, further
committing herself to give plaintiff a... financial assistance in the amount of P600,000.00.

That on its due date, June 15, 2003, defendant failed to make good of her promise of delivering to the plaintiff the
sum of P600,000.00 pursuant to her "Promissory Note"... respondent admitted that she signed the promissory note but
claimed that she was forced to do so. She also claimed that the undertaking was not supported by any consideration.
More specifically, she... contended that

Defendant was practically held "hostage" by the demand of the plaintiff. At that time, defendant was so much
pressured and was in [a] hurry to submit the documents to the Bureau of Internal Revenue because of the deadline set
and for fear of possible penalty if... not complied with. Defendant pleaded understanding but plaintiff was adamant. Her
hand could only move in exchange for 1 million pesos

out of pressure and confused disposition, was constrained to make a promissory note in a reduced amount in favor
of the plaintiff. The circumstances in the execution of the promissory note were obviously attended by involuntariness
and the same was issued without... consideration at all or for illegal consideration.

the Regional Trial Court (RTC) rendered a decision in favor of petitioner. The RTC found that the alleged "pressure
and confused disposition" experienced by respondent and the circumstances that led to the execution of the promissory
note do not constitute undue... influence as would vitiate respondent's consent thereto

In other words, as the defendant had repeatedly rebuffed her plea for additional consideration by claiming lack of...
money, it is only natural for the plaintiff to seize the unexpected opportunity that suddenly presented itself in order to
compel the defendant to give to her [what is] due [her]. And by executing the promissory note which the defendant had
no intention of honoring, as testified... to by her, the defendant clearly acted in bad faith and took advantage of the trust
and confidence that plaintiff had reposed in her. the promissory note was an additional consideration for the waiver of
petitioner's share in the three properties in favor of respondent. Its conclusion was bolstered by the fact that the
promissory note was executed after negotiation and haggling between the parties. the CA reversed the RTC decision and
dismissed the complaint. found that there was a complete absence of consideration in the execution of the promissory
note, which made it inexistent and without any legal force and... effect. The court noted that "financial assistance" was
not the real reason why respondent executed the promissory note, but only to secure petitioner's signature. The CA found
that intimidation attended the signing of the promissory note. Respondent needed the Deed countersigned by petitioner
in order to comply with a BIR requirement; and, with petitioner's refusal to sign the said document, respondent was
forced to sign the... promissory note to assure petitioner that the money promised to her would be paid.

Issues:The Honorable Court of Appeals erred in the appreciation of the facts of this case when it found that
intimidation attended the execution of the promissory note subject of this case.

Ruling:Contracts are voidable where consent thereto is given through mistake, violence, intimidation, undue
influence, or fraud. In determining whether consent is vitiated by any of these circumstances, courts are given a wide
latitude in weighing the facts or circumstances in a given... case and in deciding in favor of what they believe actually
occurred, considering the age, physical infirmity, intelligence, relationship, and conduct of the parties at the time of the
execution of the contract and subsequent thereto, irrespective of whether the contract is in a... public or private writing.

Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the execution of the promissory note.
Still, respondent insists that she was "forced" into signing the promissory note because petitioner would not sign the
document required by the BIR.

that such allegation is tantamount to saying that the other party exerted undue influence upon them.
However, the Court said that the fact that respondents were "forced" to sign the... documents does not amount
to vitiated consent.

Respondent may have desperately needed petitioner's signature on the Deed, but there is no showing that she was
deprived of free agency when she signed the promissory note. Being forced into a situation does not amount to vitiated
consent where it is not shown that the party is... deprived of free will and choice. Respondent still had a choice: she could
have refused to execute the promissory note and resorted to judicial means to obtain petitioner's signature. Instead,
respondent chose to execute the promissory note to obtain petitioner's... signature, thereby agreeing to pay the amount
demanded by petitioner.

Respondent herself testified that she bargained with petitioner to lower the amount... the situation did not amount
to intimidation that vitiated consent. There is intimidation when one of the contracting parties is compelled to give his
consent by a reasonable and well-grounded fear of an imminent and grave evil upon his person or... property, or upon the
person or property of his spouse, descendants, or ascendants.[19] Certainly, the payment of penalties for delayed
payment of taxes would not qualify as a "reasonable and well-grounded fear of an imminent and grave evil."

We join the RTC in holding that courts will not set aside contracts merely because solicitation, importunity,
argument, persuasion, or appeal to affection was used to obtain the consent of the other party. Influence obtained by
persuasion or argument or by appeal to affection is... not prohibited either in law or morals and is not obnoxious even in
courts of equity

Principles:There is undue influence when a person takes improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice.[16] For undue influence to be present, the influence exerted must
have so overpowered or... subjugated the mind of a contracting party as to destroy his free agency, making him express
the will of another rather than his own.

SIERRA V PAIC SAVINGS

A. Vitiation of Consent.

Time and again, the Court has stressed that allegations must be proven by sufficient evidence because mere allegation is not
evidence.47 Thus,one who alleges any defect or the lack of a valid consent toa contract must establish the same by full, clear, and
convincing evidence, not merely by preponderance of evidence.48 The rule is that he who alleges mistake affecting a transaction must
substantiatehis allegation, since it is presumed that a person takes ordinary care of his concerns and that private transactions have been
fair and regular.49 Where mistake or error is alleged by parties who claim to have not had the benefit of a good education, as in this
case, they must establish that their personal circumstances prevented them from giving their free, voluntary, and spontaneous consent
to a contract.50

After a judicious perusal of the records, the Court finds petitioners’ claim of mistake or error (that they acted merely as
accommodation mortgagors) grounded on their "very limited education" and "lack of proper instruction" not to be firmly supported by
the evidence on record.

As correctly observed by the CA, the testimony of petitioner Francisco Sierra as to petitioners’ respective educational
backgrounds51 remained uncorroborated. The other petitioners-signatories to the deed never testified that their educational background
prevented them from knowingly executing the subject deed as mere accommodation mortgagors. Petitioners’ claim of lack of "proper
instruction on the intricacies in securing [the] loan from the bank" is further belied by the fact that petitioners Francisco and Rosario
Sierra had previously mortgaged two (2) of the subject properties twiceto the Rural Bank of Antipolo.Moreover, petitioners did not: (a)
demand for any loan document containingthe details of the transaction, i.e., monthly amortization, interest rate, added charges, etc.,
and the release of the remaining amount of their alleged loan; and (b) offer to pay the purported partial loan proceeds they received at
any time,52 complaining thereof only in 1991 when they filed their complaint. Indeed, the foregoing circumstances clearly show that
petitioners are aware that they were mere accommodation mortgagors, debunking their claim that mistake vitiated their consent to the
mortgage.

Thus, there being valid consent on the part of petitioners to act as accommodation mortgagors, no reversible error was committed
by the CA in setting aside the RTC’s Decision declaring the real estate mortgage as void for vices of consent and awardingdamages to
petitioners. As mere accommodation mortgagors, petitioners are not entitled to the proceeds of the loan, nor were required to be
furnished with the loan documents53 or notice of the borrower’s default in payingthe principal, interests, penalties, and other charges
on due date,54 or of the extrajudicial foreclosure proceedings, unless stipulated in the subject deed.55 As jurisprudence states, an
accommodation mortgagor is a third person who is not a debtor to a principal obligation but merely secures it by mortgaging his or her
own property.56 Like an accommodation party to a negotiable instrument, the accommodation mortgagor in effect becomes a surety to
enable the accommodated debtor to obtain credit,57 as petitioners in this case.

B. Prescription.
 On a second matter, petitioners insist that the CA erred in ruling that their action for nullification of the subject deed had already
prescribed, contending that the applicable provision is the ten-year prescriptive period of mortgage actions under Article 114258 of the
Civil Code

The contention is bereft of merit.Based on case law, a "mortgage action" refers to an action to enforcea right necessarily arising
from a mortgage.59 In the present case, petitioners are not "enforcing"their rights under the mortgage but are, in fact, seeking to be
relieved therefrom.The complaint filed by petitioners is, therefore, not a mortgage actionas contemplated under Article
1142.Considering, however, petitioners’ failure to establish that their consent to the mortgage was vitiated, rendering them without a
cause of action, much less a right of action to annul the mortgage, the question of whether or not the complaint has prescribed becomes
merely academic.60

In any event, even assuming that petitioners have a valid cause of action, the four-year prescriptive period on voidable contracts61
shall apply. Since the complaint for annulment was anchored on a claim of mistake, i.e., that petitioners are the borrowers under the
loan secured by the mortgage, the action should have been brought withinfour (4) years from its discovery. 1A perusal of the complaint,
however, failed to disclose when petitioners learned that they were not the borrowers under the loan secured by the subject mortgage.
Nonetheless, considering that petitioners admitted receipt on June 19, 198462 of PSMB’s letter dated June 11, 1984 informing them of the
scheduled foreclosure sale on June 27, 1984 due to GCI’s breach of its loan obligation secured by the subject properties, the discovery of
the averred mistake should appear to be reckoned from June 19, 1984, and not from the dishonor of the checks on January 9, 1984 as
ruled by the CA.1âwphi1

ALIO v Heirs of ANGELICA LORENZO

A contract, as defined in the Civil Code, is a meeting of minds, with respect to the other, to give something or to render some
service. Article 1318 provides:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligtion which is established.

Accordingly, for a contract to be valid, it must have three essential elements: (1) consent of the contracting parties; (2) object
certain which is the subject matter of the contract; and (3) cause of the obligation which is established.All these elements must be
present to constitute a valid contract. Consent is essential to the existence of a contract; and where it is wanting, the contract is non-
existent. In a contract of sale, its perfection is consummated at the moment there is a meeting of the minds upon the thing that is the
object of the contract and upon the price. Consent is manifested by the meeting of the offer and the acceptance of the thing and the
cause, which are to constitute the contract.

In this case, the CA ruled that the deed of sale executed by Ireneo and Salvacion was absolutely simulated for lack of consideration
and cause and, therefore, void. Articles 1345 and 1346 of the Civil Code provide:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound
at all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person
and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real
agreement.

If the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively simulated and the
parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers
only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their
successors in interest.13ςrνll

In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. "The
main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in
any way alter the juridical situation of the parties."14ςrνll "As a result, an absolutely simulated or fictitious contract is void, and the
parties may recover from each other what they may have given under the contract."15ςrνll

In the case at bench, the Court is one with the courts below that no valid sale of the subject property actually took place between
the alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses Intac. There was simply no consideration and no intent to
sell it.Critical is the testimony of Marietto, a witness to the execution of the subject absolute deed of sale. He testified that Ireneo
personally told him that he was going to execute a document of sale because Spouses Intac needed to borrow the title to the property
and use it as collateral for their loan application. Ireneo and Salvacion never intended to sell or permanently transfer the full ownership
of the subject property to Spouses Intac. Marietto was characterized by the RTC as a credible witness.

On the other hand, respondent heirs failed to present evidence that Angelica, during her lifetime, paid the realty taxes on the
subject lot. They presented only two tax receipts showing that Servillano, Sr. belatedly paid taxes due on the subject lot for the years
1980-1981 and part of year 1982 on September 8, 1989, or about a month after the institution of the complaint on August 3, 1989, a clear
indication that payment was made as an afterthought to give the semblance of truth to their claim.

Thus, the subsequent acts of the parties belie the intent to be bound by the deed of sale. [

The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract
appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express
terms of their agreement, but also from the contemporaneous and subsequent acts of the parties.20ςrνll As heretofore shown, the
contemporaneous and subsequent acts of both parties in this case, point to the fact that the intention of Ireneo was just to lend the title
to the Spouses Intac to enable them to borrow money and put up a hospital in Sta. Cruz, Laguna. Clearly, the subject contract was
absolutely simulated and, therefore, void.

It is well-settled that an action for reconveyance prescribes in 10 years, the reckoning point of which is the date of registration of
the deed or the date of issuance of the certificate of title over the property. In an action for reconveyance, the decree of registration is
highly regarded as incontrovertible. What is sought instead is the transfer of the property or its title, which has been erroneously or
wrongfully registered in another person's name, to its rightful or legal owner or to one who has a better right.

However, in a number of cases in the past, the Court has consistently ruled that if the person claiming to he the owner of the
property is in actual possession thereof, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not
prescribe. The reason for this is that one who is in actual possession of a piece of land claiming to be the owner thereof may wait until
his possession is disturbed or his title is attacked before taking steps to vindicate his right. The reason being, that his undisturbed
possession gives him the continuing right to seek the aid of a court of equity to ascertain the nature of the adverse claim of a third party
and its effect on his title, which right can be claimed only by one who is in possession. Thus, considering that Lucia continuously
possessed the subject lot, her right to institute a suit to clear the cloud over her title cannot he barred by the statute of limitations

Orduna v Fuentabella

Statute of Frauds Inapplicable to Partially Executed Contracts

It is undisputed that Gabriel Sr., during his lifetime, sold the subject property to Antonita, the purchase price payable on
installment basis. Gabriel Sr. appeared to have been a recipient of some partial payments. After his death, his son duly recognized the
sale by accepting payments and issuing what may be considered as receipts therefor. Gabriel Jr., in a gesture virtually acknowledging
the petitioners’ dominion of the property, authorized them to construct a fence around it. And no less than his wife, Teresita, testified as
to the fact of sale and of payments received.

Pursuant to such sale, Antonita and her two sons established their residence on the lot, occupying the house they earlier
constructed thereon. They later declared the property for tax purposes, as evidenced by the issuance of TD 96-04012-111087 in their or
Antonita’s name, and paid the real estates due thereon, obviously as sign that they are occupying the lot in the concept of owners.

Given the foregoing perspective, Eduardo’s assertion in his Answer that "persons appeared in the property"27 only after "he
initiated ejectment proceedings"28 is clearly baseless. If indeed petitioners entered and took possession of the property after he
(Eduardo) instituted the ejectment suit, how could they explain the fact that he sent a demand letter to vacate sometime in May 2000?

With the foregoing factual antecedents, the question to be resolved is whether or not the Statute of Frauds bars the enforcement of
the verbal sale contract between Gabriel Sr. and Antonita.

The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance with the Statute of Frauds.
 We disagree for several reasons. Foremost of these is that the Statute of Frauds expressed in Article 1403, par. (2),29 of the Civil
Code applies only to executory contracts, i.e., those where no performance has yet been made. Stated a bit differently, the legal
consequence of non-compliance with the Statute does not come into play where the contract in question is completed, executed, or
partially consummated.

The Statute of Frauds, in context, provides that a contract for the sale of real property or of an interest therein shall be
unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed by the party or his agent. However,
where the verbal contract of sale has been partially executed through the partial payments made by one party duly received by the
vendor, as in the present case, the contract is taken out of the scope of the Statute.

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.31 The Statute requires certain contracts to be evidenced by some note or memorandum in order to be enforceable.
The term "Statute of Frauds" is descriptive of statutes that require certain classes of contracts to be in writing. The Statute does not
deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable.32

Since contracts are generally obligatory in whatever form they may have been entered into, provided all the essential requisites for
their validity are present,33 the Statute simply provides the method by which the contracts enumerated in Art. 1403 (2) may be proved
but does not declare them invalid because they are not reduced to writing. In fine, the form required under the Statute is for
convenience or evidentiary purposes only.

There can be no serious argument about the partial execution of the sale in question. The records show that petitioners had, on
separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial payments of the purchase price. These payments were
duly receipted by Gabriel Jr. To recall, in his letter of May 1, 1997, Gabriel, Jr. acknowledged having received the aggregate payment of
PhP65,000 from petitioners with the balance of PhP 60,000 still remaining unpaid. But on top of the partial payments thus made,
possession of the subject of the sale had been transferred to Antonita as buyer. Owing thus to its partial execution, the subject sale is no
longer within the purview of the Statute of Frauds.

Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of benefits under the contract.34
Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial payments made by the petitioners. Thus, neither Gabriel Jr.
nor the other respondents—successive purchasers of subject lots—could plausibly set up the Statute of Frauds to thwart petitioners’
efforts towards establishing their lawful right over the subject lot and removing any cloud in their title. As it were, petitioners need only
to pay the outstanding balance of the purchase price and that would complete the execution of the oral sale.

Metropolitan Fabrics, Inc., et al. v. Prosperity Credit Resources, Inc. et al.,

FACTS:

Metropolitan Fabrics, Incorporated (MFI), a family corporation, owned a 5.8hectare industrial compound at No. 685
TandangSora Avenue, Novaliches, Quezon City which was covered by TCT No. 241597.Pursuant to a P2 million, 10-year 14% per annum
loan agreement with Manphil Investment Corporation (Manphil) dated April 6, 1983, the said lot was subdivided into11 lots, with
Manphil retaining four lots as mortgage security.

The other seven lots, now covered by TCT Nos. 317699 and 317702 to 317707, were released to MFI. In July 1984, MFI sought
from PCRI a loan in the amount of P3,443,330.52, the balance of the cost of its boiler machine, to prevent its repossession by the seller.
PCRI, also family-owned corporation licensed since 1980 to engage in money lending, was represented by Domingo Ang (“Domingo”) its
president, and his son Caleb, vice-president. The parties knew each other because they belonged to the same familyassociation, the
LiocKui Tong Fraternity.

On the basis only of his interview with Enrique, feedback from the stockholders and the Chinese community, as well as
information given by his own father Domingo, and without further checking on the background of Enrique and his business and
requiring him to submit a company profile and a feasibility study of MFI, Caleb recommended the approval of the P3.44 million with an
interest ranging from 24% to 26% per annum and a term of between five and ten years (Decision, p. 5).

According to the court, it sufficed for Caleb that Enrique was a well-respected Chinese businessman, that he was the
presidentof their Chinese family association, and that he had other personal businesses aside fromMFI, such as the Africa
Trading.However, in September 1984, the first amortization check bounced for insufficient fund due to MFI’s continuing business
losses. It was then that the appellees allegedly learnedthat PCRI had filled up the 24 blank checks with dates and amounts that
reflected a 35%interest rate per annum, instead of just 24%, and a two year repayment period, instead of10 years

On September 4, 1986, Enrique received a Notice of Sheriff’s Sale dated August 29, 1986, announcing the auction of the
seven lots on September 24, 1986 due to unpaid indebtedness of P10.5 million. Vicky (daughter of owner of MFI, because their father
went into a coma because of intense pressure from the foreclosure) insisted that prior to the auction notice, they never received any
statement or demand letter from the defendants to pay P10.5 million, nor did the defendants inform them of the intended foreclosure.

ISSUES:Was the Mortgage Contract VOID

HELD:No. As the records show, petitioners really agreed to mortgage their properties as security for their loan, and signed the deed of
mortgage for the purpose. Thereafter, they delivered the TCTs of the properties subject of the mortgage to respondents. Consequently,
petitioners’ contention of absence of consent had no firm moorings. It remained unproved. To begin with, they neither alleged nor
established that they had been forced or coerced to enter into the mortgage. Also, they had freely and voluntarily applied for the loan,
executed the mortgage contract and turned over the TCTs of their properties. And, lastly, contrary to their modified defense of absence
of consent, Vicky Ang’s testimony tended at best to prove the vitiation of their consent through insidious words, machinations or
misrepresentations amounting to fraud, which showed that the contract was voidable.

Where the consent was given through fraud, the contract was voidable, not void ab initio. This is because a voidable or annullable
contract is existent, valid and binding, although it can be annulled due to want of capacity or because of the vitiated consent of one of
the parties. Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the
fraud.

According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to
vitiate consent, must be the causal (dolocausante), not merely the incidental (doloincidente), inducement to the making of the contract.
In Samson v. Court of Appeals, causal fraud is defined as “a deception employed by one party prior to or simultaneous to the contract in
order to secure the consent of the other.”

Gonzalo v ternate

According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract cannot recover from one another and are not
entitled to an affirmative relief because they are in pari delicto or in equal fault. The doctrine of in pari delicto is a universal doctrine
that holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or
to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the
parties are in pari delicto, no affirmative relief of any kind will be given to one against the other.17

Nonetheless, the application of the doctrine of in pari delicto is not always rigid. An accepted exception arises when its application
contravenes well-established public policy.18 In this jurisdiction, public policy has been defined as “that principle of the law which
holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good.”19

Unjust enrichment exists, according to Hulst v. PR Builders, Inc.,20 “when a person unjustly retains a benefit at the loss of another, or
when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.” The
prevention of unjust enrichment is a recognized public policy of the State, for Article 22 of the Civil Code explicitly provides that
“[e]very person who through an act of performance by another, or any other means, acquires or comes into possession of something at
the expense of the latter without just or legal ground, shall return the same to him.” It is well to note that Article 22 “is part of the
chapter of the Civil Code on Human Relations, the provisions of which were formulated as basic principles to be observed for the
rightful relationship between human beings and for the stability of the social order; designed to indicate certain norms that spring
from the fountain of good conscience; guides for human conduct that should run as golden threads through society to the end that law
may approach its supreme ideal which is the sway and dominance of justice.”21

Lastly, the letter and spirit of Article 22 of the Civil Code command Gonzalo to make a full reparation or compensation to
Tarnate. The illegality of their contract should not be allowed to deprive Tarnate from being fully compensated through the
imposition of legal interest. Towards that end, interest of 6% per annum reckoned from September 13, 1999, the time of
the judicial demand by Tarnate, is imposed on the amount of P233,526.13. Not to afford this relief will make a travesty of
the justice to which Tarnate was entitled for having suffered too long from Gonzalo’s unjust enrichment.

URETA V LIBERATO

Article 1311 and Article 1421 of the Civil Code provide:

Art. 1421. The defense of illegality of contracts is not available to third persons whose interests are not directly affected.

The right to set up the nullity of a void or non-existent contract is not limited to the parties, as in the case of annullable or voidable
contracts; it is extended to third persons who are directly affected by the contract. Thus, where a contract is absolutely simulated, even
third persons who may be prejudiced thereby may set up its inexistence.41 The Heirs of Alfonso are the children of Alfonso, with his
deceased children represented by their children (Alfonso’s grandchildren). The Heirs of Alfonso are clearly his heirs and successors-in-
interest and, as such, their interests are directly affected, thereby giving them the right to question the legality of the Deed of Sale.