1.

Pakistan International Airlines by Castigador ● ‘In determining a public policy of the state, courts are limited to a
2. Cui v Arellano (1961) consideration of the Constitution, the judicial decisions, the statutes, and the
practice of government officers. Courts consider the practices of
DOCTRINE: To look at scholarship awards as a business scheme designed to government officials as one of the ‘four factors in determining a public policy
increase business potential is not only inconsistent with sound public policy but also of the state.
good morals. ● If Arellano University understood clearly the real essence of scholarships
and the motives which prompted the issuance of the Memorandum, it
FACTS: should have not entered into a contract of waiver with Cui. It was a direct
● Emeterio Cui studied in Arellano University for his pre-law. He also took up violation of the Memorandum and an open challenge to the authority of the
his law studies there until the 1st semester of his 4th year Director of Private Schools because the contract was repugnant to sound
● Cui enrolled for the last semester of his law studies in the same school but morality and civic honesty. The policy enunciated in Memorandum No. 38,
failed to pay his tuition fees. He later enrolled in Abad Santos University, s. 1949 is sound policy.
where his uncle Dean Capistrano became the new dean, and graduated ● Scholarships are awarded in recognition of merit not to keep
there. outstanding students in school to bolster its prestige. In the
● During the years Cui studied law in Arellano, he was awarded scholarship understanding of that university scholarships award is a business
grants for scholastic merits so that his semestral tuition fees were returned scheme designed to increase the business potential of an educational
to him at the end of every semester all totalling to P1033.87. institution. Thus conceived it is not only inconsistent with sound policy but
● Cui was made to sign a contract before being awarded the scholarship also good morals.
grants. It was waiver of his right to transfer to another school without ● In other institutions, scholarships are granted not to attract and to keep
first refunding the equivalent of his scholarship cash. brilliant students in school for their propaganda value but to reward
● merit or help gifted students in whom society has an established
● Arellano University refused to provide the TOR of Cui when later he was interest or a first lien.
applying for the bar until after he paid back the P1,033.87.
● When Cui raised the issue to the Bureau of Private Schools, they advised 3. Avon Cosmetics
Arellano to issue the TOR but still they refused. Cui thus paid the sum to be Doctrine:
able to take the bar examinations. As applied to contracts, in the absence of express legislation or constitutional
● The lower court ruled in the affirmative because: 1) the memorandum of the prohibition, a court, in order to declare a contract void as against public policy, must
Director of Private Schools is not a law; 2) the provisions thereof are find that the contract as to the consideration or thing to be done, has a tendency to
advisory, not mandatory in nature; and 3) that, injure the public, is against the public good, or contravenes some established interests
although the contractual provision “may be unethical, yet it was more of society, or is inconsistent with sound policy and good morals, or tends clearly to
unethical for Cui to quit studying with Arellano without good reasons and undermine the security of individual rights, whether of personal liability or of private
simply because he wanted to follow his uncle in Abad Santos.” property.

ISSUE: WON A contract waiving the right to transfer to another school without Facts
refunding is valid? Petitioner Avon and Respondent Luna entered into an agreement entitled
“Supervisor’s agreement.” The relevant provisions of the agreement are as follows:
RULING:
● The nature of the issue and its effects transcend personal equations and 5) That the Supervisor shall sell or offer to sell, display or promote only and
demand a determination of the case from a high impersonal plane, thus it exclusively products sold by the Company.
may not be necessary to deal with there were sufficient reasons for his 6) Either party may terminate this agreement at will, with or without cause,
transfer. Also, the stipulation in question is contrary to public policy at any time upon notice to the other.
and, hence, null and void, thus it may not be essential to pass upon the
validity Memorandum No. 38. The aforesaid memorandum merely Sometime in 1988, Luna was invited by the Sales Manager of Sandre Philippines (the
incorporates a sound principle of public policy. manager was a former Avon employee), a domestic corporation engaged in selling
vitamins. Luna then became Sandre’s Group Franchise Director and at the same Paragraph 6 or the cancellation clause does not violate public policy as well if done in
time Avon’s Group Supervisor. Luna’s employment with Sandre led her to promote good faith. In this case, the unilateral termination are available to both parties.
Sandre’s products to Avon employees as well as her friends. Moreover, there was just cause in terminating Luna.

Luna then consulted a law firm regarding the implication of doing business with
Sandre with respect to her Supervisory Agreement with Avon. The legal opinion of the 4. Bustamante vs. Rosel
law firm was that the supervisory agreement was contrary to law and public policy. Doctrine:
Upon receiving the legal opinion, Luna circulated a letter among Avon Employees Art. 1306: The contracting parties may establish such stipulations, clauses, terms and
encouraging them to work with Sandre by claiming that paragraph 5 is contrary to conditions as they may deem convenient, provided they are not contrary to law,
public policy while paragraph 6 is contrary to law and public policy. morals, good customs, public order or public policy.

Avon then gave a notice of termination to respondent Luna for signing up with Sandre Recit-ready:
Philippines Inc., selling and advertising to fellow Avon employees, and circulating a Bustamante loaned money from Rosel. In their agreement, Bustamante had to put a
letter encouraging Avon employees to sell SPI products. As a basis for her parcel of land as collateral which Rosel could buy if Bustamante can’t pay by the time
termination, Avon cited paragraphs 5 and 6 of the Supervisory Agreement. for payment. When the time for payment came, Bustamante attempted to give the
money to Rosel but the latter refused and instead insisted to buy the collateral. The
Aggrieved, respondent Luna filed for damages with the RTC. The RTC ruled in favor court held that the stipulation can be read as a manifest intent of Rosel to acquire the
of Luna which was affirmed in toto by the CA. collateral. This is akin to pactum commissorium, which is expressly forbidden by Art.
2088 of the Civil Code. Hence, the stipulation is void because it is contrary to law, as
Issues: stated by Art. 1306.
WON the exclusivity clause in Avon’s contract is violative of public policy - NO
Facts:
WON the cancellation clause in Avon’s contract is violative of public policy - NO Bustamante entered into a loan agreement with Rosel. In the agreement, it was
stipulated that Bustamante should put a parcel of land as collateral to guarantee
Ruling payment of the loan. Should Bustamante fail to pay on time, Rosel has the option to
buy the parcel of land for 200,000 pesos. When the time for payment came,
Exclusivity Clause Bustamante gave money but Rosel refused and instead insisted on buying the land.
Paragraph 5 or the exclusivity clause prohibiting respondent to sell products besides Bustamante refused and consigned the money in court. In retaliation, Rosel filed a
Avon does not violate public policy because it does not harm the competition in the case in court against Bustamante for specific performance with consignation.
market. It merely protects Avon's investments in training Luna.
Issue: WON stipulation regarding the option to buy the collateral was valid and
Contracts requiring exclusivity are not per se void. Each contract must be viewed vis- enforceable
à-vis all the circumstances surrounding such agreement in deciding whether a Held: No
restrictive practice should be prohibited as imposing an unreasonable restraint on .
competition. The question that now crops up is this, when is a restraint in trade The stipulation is an obligation with a suspensive condition – Rosel will only have the
unreasonable? Authorities are one in declaring that a restraint in trade is right to buy the collateral if Bustamante could not pay by the time of payment. In the
unreasonable when it is contrary to public policy or public welfare. case at bar the condition didn’t happen because Bustamante did have the ability to
pay but Rosel refused and insisted on buying the collateral.
The exclusivity clause, according to Avon, was to ensure that it maintains their sales
and promotions network because the supervisors were trained by Avon. To allow Moreover, Art. 1306 states that “the contracting parties may establish such
Luna to utilize the tricks of the trade learned from Avon would be tantamount to unjust stipulations, clauses, terms and conditions as they may deem convenient, provided
enrichment. they are not contrary to law, morals, good customs, public order or public policy.”

Cancellation Clause
According to the court, the stipulation in question revealed the intention of the creditor having transferred ownership for and in consideration of her payment of the loan in the
to acquire the collateral. This is tantamount to pactum commissorium, which is principal amount of P19,000. The agreement having been made through a public
prohibited by Art. 2088 of the Civil Code. Hence, the stipulation is void for being instrument, the execution was equivalent to the delivery of the property to respondent.
contrary to law. The substitution by respondent of petitioners as applicant in the land registration case
over the lot is not even necessary. The only requirement for application for registration
5. Magbanua v. Uy by Bundalian be amended is that the instrument be presented in court by the interested party with a
motion that the same be considered in relation with the application and prior notice be
6. Caoibes v. Caoibes-Pantoja given to the parties in the case. It was unnecessary for respondent to file the case for
specific performance subject of the present petition against petitioners to honor their
Facts:
Petitioners and respondent entered into an agreement covering a parcel of land in agreement allowing her to be substituted in their stead as applicant in the land
registration proceeding. CA decision reversed.
Batangas. The parcel of land is presently the subject of a land registration proceeding.
In consideration of the payment of respondent of the loan secured by real estate
Articles 1308-1310
mortgage, the respondent is subrogated and/or substituted to whatever rights,
interests or representations the petitioners may have in the prosecution of the proper 7. PS Bank v Sps Castillo (Mutuality of contracts)
May 30, 2011
land registration proceeding.
Facts:
14 years after the execution of the parties above-said agreement, respondent filed a Respondent spouses Alfredo M. Castillo and Elizabeth Capati-Castillo were the
motion to intervene and be substituted as applicant in the land registration proceeding. owners of a lot in Tondo, Manila. Respondent spouses Romeo B. Capati and Aquilina
However, it was opposed by the petitioners. The land registration court denied M. Lobo were the registered owners of another lot, also located in Tondo, Manila.
respondent's motion.
On May 7, 1997, respondents obtained a loan, with real estate mortgage over the said
Complaint for Specific Performance and Damages against petitioners was filed in the properties, from petitioner Philippine Savings Bank, as evidenced by a Promissory
RTC, for the enforcement of petitioner's obligation under the agreement. Petitioners Note.
argued that the right of action has prescribed. RTC granted petitioner's motion, that
immediately after renunciation of contract the defendants deemed to have renounced
and transferred their rights. From the release of the loan in May 1997 until December 1999, petitioner had
increased and decreased the rate of interest, the highest of which was 29% and the
CA reversed the RTC decision, holding that prescription had not yet set in. That it lowest was 15.5% per annum, per the Promissory Note.
should be from the time respondent moved to intervene and be substituted as the
applicant in the land registration proceeding involving the subject property that
Respondents were notified in writing of these changes in the interest rate. They
defendants-appellees raised the issue of genuineness and due execution of the
neither gave their confirmation thereto nor did they formally question the changes.
instrument, should the cause of action accrued.
However, respondent Alfredo Castillo sent several letters to petitioner requesting for
the reduction of the interest rates. Petitioner denied these requests.
Held:
Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by
the provisions of Title I and II of this Book, by the rules governing the most Respondents regularly paid their amortizations until December 1999, when they
analogous nominate contracts, and by the customs of the place. defaulted due to financial constraints. Petitioner sent them demand letters.
Respondents failed to pay.

Art. 1498. When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the contract, if Thus, petitioner initiated an extrajudicial foreclosure sale of the mortgaged properties.
from the deed the contrary does not appear or cannot clearly be inferred. The auction sale was conducted and awarded to petitioner as the only bidder.

The agreement of the parties is analogous to a deed of sale in favor of respondent, it

Respondents failed to redeem the property redemption period. However, on July the contract with respect to one of its significant components, i.e., the interest rates.
2001, Alfredo Castillo sent a letter to petitioner requesting for an extension of 60 days As we have held, no one receiving a proposal to change a contract is obliged to
before consolidation of its title so that they could redeem the properties. Petitioner answer the proposal. Therefore, respondents could neither be faulted, nor deemed to
conceded to Alfredo Castillos request, but respondents still failed to redeem the have assented to the modified interest rates, for not replying to the said memos from
properties. petitioner.

The Court disagrees with petitioner’s assertion that respondents recognized the
On October 2001, respondents filed a case with the RTC, Branch 14, Manila.
legality of the imposed interest rates through the letters requesting for the reduction of
the rates. The request for reduction of the interest does not translate to consent
After trial, the RTC rendered its decision declaring the questioned increases of interest thereto.
as arbitrary and ordering the petitioner Philippine Savings Bank to refund to the
respondents, the amount of interest collected in excess of seventeen percent (17%)
per annum. Basic is the rule that there can be no contract in its true sense without the
mutual assent of the parties. If this consent is absent on the part of one who
contracts, Similarly, contract changes must be made with the consent of the
Petitioner appealed to the CA. The CA modified the decision of the RTC. contracting parties. The minds of all the parties must meet as to the proposed
modification. In the case of loan contracts, the interest rate is undeniably always a vital
Petitioner contends that respondents consented to the imposition of the component, for it can make or break a capital venture. Thus, any change must be
modified interest rates; thus, there was no violation of the principle of mutuality mutually agreed upon, otherwise, it produces no binding effect.
of contracts. It further claims that respondents requested several times for the
reduction of the interest rates, thus, manifesting their recognition of the legality of the
said rates. Escalation clauses are generally valid and do not contravene public policy. The Court
has once held that there should be a corresponding de-escalation clause that would
Issue authorize a reduction in the interest rates corresponding to downward changes made
W/N CA erred in declaring that the modifications in the interest rates are by law or by the Monetary Board. As can be gleaned from the parties loan agreement,
unreasonable. a de-escalation clause is provided, by virtue of which, petitioner had lowered its
interest rates.

Held:
No, The unilateral determination and imposition of the increased rates violates the But, the validity of the escalation clause did not give petitioner the unbridled
principle of mutuality of contracts under Article 1308 of the Civil Code, which provides right to unilaterally adjust interest rates. The adjustment should be subject to
that [t]he contract must bind both contracting parties; its validity or compliance cannot the mutual agreement of the contracting parties. In the absence of consent on
be left to the will of one of them. A perusal of the Promissory Note will readily show the part of respondents, the adjusted rates cannot bind them even if there is a
that the increase or decrease of interest rates hinges solely on the discretion of de-escalation clause in the loan agreement.
petitioner. It does not require the conformity of the maker before a new interest rate
could be enforced. Any stipulation regarding the validity or compliance of the contract The order of refund was based on the fact that the increases in the interest rate were
left solely to the will of one of the parties is likewise invalid. violative of the principle of mutuality of contracts. The petitioner should refund the
amount of interest that it has illegally imposed upon respondents. Any deficiency in the
The conformity of respondents with respect to the shortening of the interest rate payment of the obligation can be collected by petitioner in a foreclosure proceeding,
review period from 90 days to 30 days is separate and distinct from and cannot which it already did.
substitute for the required conformity of respondents with respect to the
modification of the interest rate itself. Moreover, respondents consent to the 8. Juico vs. China Banking
modifications in the interest rates cannot be implied from their lack of response to the G.R. No. 187678
memos sent by petitioner. The said memos were in the nature of a proposal to change
Doctrine: An escalation clause is void where the creditor unilaterally determines and should only be liable for only P55,000. They also contest that if they are still liable for
imposes an increase in the stipulated rate of interest without the express conformity of the interests, the same interest are not valid.
the debtor. Such would completely take away from the debtors the right to assent to Ø Applying 1253, the lower courts held that the petitioners are still responsible for the
an important modification in their agreement and would also negate the element of balance because the principal obligation still exists until the interests are paid.
mutuality in their contracts. Ø They also held that the interest rates are valid because it was agreed upon by the
parties, evidenced by the signing of the promissory note
Recit Ready:
Spouses Juico obtained loan from China Banking evidenced by two promissory notes Issue: WN the interest on the promissory note is valid
totaling to P10,355,000. The promissory note provides that interest rates on the
principal amount shall be adjusted based on the prevailing market rates without the Held: NO
need to notify the petitioners. The loan is secured by a mortgage on their property. Ø The court held that the stipulation in the promissory note is an escalation clause.
The petitioners fail to pay their monthly amortizations. Upon the last demand letter Ø Escalation clauses refer to stipulations allowing an increase in the interest rate
sent by China Bank, the amount dues P19,201,776.63 representing the principal, agreed upon by the contracting parties. This Court has long recognized that there is
interests, penalties and attorney’s fees. The mortgage covered P10,300,000. The nothing inherently wrong with escalation clauses which are valid stipulations in
respondents are now demanding the balance representing the interests. The lower commercial contracts to maintain fiscal stability and to retain the value of money in
courts held the petitioners liable for the balance. The petitioners are now contesting long term contracts.
the validity of the interest rate based on the prevailing market. The court held that Ø The court held that there is nothing inherently wrong in escalation clauses.
escalation clauses, which adjusts interest rates depending on the prevailing Escalation clauses are not basically wrong or legally objectionable as long as they are
market rate, are reasonable. However, the debtor shall not be deprived of his not solely potestative but based on reasonable and valid grounds. Obviously, the
right to assent to such modification. This would negate the element of mutuality fluctuation in the market rates is beyond the control of private respondent.
in their contracts. The clause in the promissory note authorizes China Bank to adjust Ø However, the debtor should not be deprived of his right to assent to such
interest rates without the need to notify the petitioners, thus depriving them their right modifications. By enabling a creditor to adjust the interest independently and
to assent. Therefore, it is not valid. upwardly, completely depriving the debtor of the right to assent to an important
modification in the agreement violates the element of mutuality in a contract.
Facts: Ø In this case, the clause in the promissory note allows China Bank to change the
Ø Spouses Juico obtained a loan from China banking evidenced by two promissory interest rates without notifying the petitioners. Thus, it is not valid.
notes totaling to P10,355,000. Ø The Court modified the decision of the lower courts by adjusting the interest rate on
Ø The loan was secured by a Real Estate Mortgage over petitioners’ property in the principal amount to 15%, and applying the legal interest for the penalties.
White Plains.
Ø The Promissory note provides:
“We hereby authorize the CHINA BANKING CORPORATION to increase or 9. DKC Holdings Corp by Evangelista
decrease as the case may be, the interest rate/service charge presently
stipulated in this note without any advance notice to me/us in the event a law or 10. Florentino v Encarnacion
Central Bank regulation is passed or promulgated by the Central Bank of the
Philippines or appropriate government entities, increasing or decreasing such interest Facts:
rate or service charge.” - On May 22, 1964, the petitioners-appellants Miguel Florentino, Remedios
Ø The petitioners failed to pay their monthly amortizations. Upon the last demand Encarnacion de Florentino, Manuel Arce, Jose Florentino, Victorino
letter sent by China Bank, the amount due was P19,201,776.63 representing the Florentino, Antonio Florentino, Remedior, Encarnacion and Severina
principal, interests, penalties and attorney’s fees. On the same day, the mortgage Encamacion, and the Petitiners-appellees Salvador Encamacion, Sr.,
property was sold at a price of P10,300,000. Respondent is now demanding the Salvador Encamacion, Jr. and Angel Encarnacion filed with the Court of
balance for the P8,901,776.63 First Instance of ilocos Sur an application for the registration under Act 496
Ø The petitioners contest that since the mortgage has covered the principal amount, of a parcel of agricultural land located at Barrio Lubong Dacquel Cabugao
it is deemed that the interests and other fees have been paid. They say that they
 Ilocos Sur. They are the common and pro-indiviso owners of a parcel of stipulation is merely a part of a contract entered into by the parties, neither of whom
land. acted as agent of the third person, and such third person and demand its fulfillment
- The land has been adjudicated to them by virtue of a deed of extrajudicial provoked that he communicates his to the obligor before it is revoked. 3 The requisites
partition. According to the deed, the fruits of the property shall answer are: (1) that the stipulation in favor of a third person should be a part, not the whole, of
for the expenses of certain religious functions. the contract; (2) that the favorable stipulation should not be conditioned or
- During the trial, Miguel Florentino asked the trial court that this stipulation compensated by any kind of obligation whatever; and (3) neither of the contracting
be included as encumbrance on the land and that it be entered on the face bears the legal represented or authorization of third person.
of the title. Petitiners-appellees Salvador Encamacion, Sr., Salvador - In the case at bar, the determining point is whether the co-owners intended to benefit
Encamacion, Jr. and Angel Encarnacion opposed the motion. the Church when in their extrajudicial partition of several parcels of land inherited by
- It appears that from the time of the death of the previous owner of the them from Doña Encarnacion Florendo they agreed that with respect to the land
property in 1941, as had always been the case since time immemorial, situated in Barrio Lubong Dacquel Cabugao Ilocos Sur, the fruits thereof shall serve to
up to a year before the filing of the application in May 1964, the Church defray the religious expenses specified in Exhibit O-1. The evidence on record shows
had been enjoying the benefits of the stipulation. that the true intent of the parties is to confer a direct and material benefit upon the
Issue: Church. The fruits of the aforesaid land were used thenceforth to defray the expenses
- Whether the stipulation (pour autrui) can be revoked or should be annotated as an of the Church in the preparation and celebration of the Holy Week, an annual Church
encumbrance on the face of the certificate of the title. function. Suffice it to say that were it not for Exhibit O-1, the Church would have
Held: necessarily expended for this religious occasion, the annual religious procession
- The stipulation embodied in Exhibit O-1 on religious expenses is not revocable at the during the Holy Week and also for the repair and preservation of all the statutes, for
unilateral option of the co-owners and neither is it binding only on the petitioners- the celebration of the Seven Last Word.
appellants Miguel Florentino, Rosario Encarnacion de Florentino Manuel Arce, Jose - We find that the trial court erred in holding that the stipulation, arrangement or grant
Florentino, Victorino Florentino Antonio Florentino, Remedios Encarnacion and (Exhibit O-1) is revocable at the option of the co-owners. While a stipulation in favor of
Severina E It is also binding on the oppositors-appellees Angel Encarnacion, a third person has no binding effect in itself before its acceptance by the party favored,
- The stipulation (Exhibit 411) in part of an extrajudicial partition (Exh. O) the law does not provide when the third person must make his acceptance. As a rule,
duly agreed and signed by the parties, hence the same must bind the there is no time at such third person has after the time until the stipulation is revoked.
contracting parties thereto and its validity or compliance cannot be left to the Here, We find that the Church accepted the stipulation in its favor before it is sought to
with of one of them (Art. 1308, N.C.C.). Under Art 1311 of the New Civil be revoked by some of the co-owners, namely the petitioners-appellants herein. It is
Code, this stipulation takes effect between the parties, their assign and not disputed that from the time of the with of Doña Encarnacion Florentino in 1941, as
heirs. The article provides: had always been the case since time immemorial up to a year before the firing of their
o Art. 1311. — Contracts take effect only between the parties, their application in May 1964, the Church had been enjoying the benefits of the stipulation.
assigns and heirs, except in cases where the rights and The enjoyment of benefits flowing therefrom for almost seventeen years without
obligations arising from the contract are not transmissible by their question from any quarters can only be construed as an implied acceptance by the
nature, or by stipulation or by provision of law. The heir is not Church of the stipulation pour autrui before its revocation.
liable beyond the value of the property he received from the o The acceptance does not have to be in any particular form, even
decedent. when the stipulation is for the third person an act of liberality or
o If a contract should contain a stipulation in favor of a third person, generosity on the part of the promisor or promise. 5
he may demand its fulfillment provided he communicated his - Hence, the stipulation (Exhibit O-1) cannot now be revoked by any of the stipulators
acceptance to the obligor before its revocation. A mere incidental at their own option. This must be so because of Article 1257, Civil Code and the
benefit or interest of a person is not sufficient. The contracting cardinal rule of contracts that it has the force of law between the parties.
parties must have clearly and deliberately conferred a favor upon - IN VIEW OF THE FOREGOING, the decision of the Court of First Instance of Ilocos
a third person. Sur in Land Registration Case No. N-310 is affirmed but modified to allow the
- The second paragraph of Article 1311 above-quoted states the law on stipulations annotation of Exhibit O-1 as an encumbrance on the face of the title to be finally
pour autrui. Consent the nature and purpose of the motion (Exh. O-1), We hold that issued in favor of all the applications (herein appellants and herein appellees) in the
said stipulation is a station pour autrui. A stipulation pour autrui is a stipulation in favor registration proceedings below.
of a third person conferring a clear and deliberate favor upon him, and which
11. Coquia v. Fieldmen’s Insurance 26 SCRA 178 (1968) a favor upon a third person." This is but the restatement of a well-known principle
Rosales, Andrew concerning contracts pour autrui, the enforcement of which may be demanded by a
third party for whose benefit it was made, although not a party to the contract, before
the stipulation in his favor has been revoked by the contracting parties
Doctrine: Art. 1311 is restatement of a well-known principle concerning contracts
pour autrui, the enforcement of which may be demanded by a third party for whose In the case at bar, the policy under consideration is typical of contracts pour autrui this
benefit it was made, although not a party to the contract, before the stipulation in his character being made more manifest by the fact that the deceased driver paid fifty
favor has been revoked by the contracting parties percent (50%) of the corresponding premiums, which were deducted from his weekly
commissions. Under these conditions, it is clear that the Coquias — who, admittedly,
Recit Ready: Fieldmen’s Insurance company issue in favor of Manila Yellow Taxicab
are the sole heirs of the deceased — have a direct cause of action against the
a common carrier insurance policy that in case of death or bodily injury to the
Company, and, since they could have maintained this action by themselves, without
passenger, driver or conductor wherein they shall indemnify the insured or personal
the assistance of the insured it goes without saying that they could and did properly
representatives. While the policy was in force, the driver Carlito Coquia died in
join the latter in filing the complaint herei
Pangasinan. The heirs of Coquia demanded payment from the Fieldmen’s Insurance
but was denied because they had no contractual relationship.

Issue: Whether or not plaintiffs have the right to collect on the policy. Held: Yes, as a 12. Constantino v. Espiritu (1971)
general rule only parties in a contract may bring an action based thereon but Art. 1311 Doctrine: In contracts with stipulation pour autrui, the third person for whose benefit
is an exemption. It is a restatement of a well-known principle concerning contracts the contract was entered into, may also demand its fulfillment provided he had
pour autrui, the enforcement of which may be demanded by a third party for communicated his acceptance thereof to the obligor before the stipulation in his favor
whose benefit it was made, although not a party to the contract, before the is revoked
stipulation in his favor has been revoked by the contracting parties. The Recit Ready: Pastor Constantino sold two parcels of land to Herminia Espiritu, on the
insurance company paid the plaintiffs. condition that the land will be held in trust for their already conceived but as yet
unborn illegitimate son. Espiritu took two mortgages on the land and then offered them
Facts: On Dec. 1, 1961, Fieldmen’s Insurance co. Issued in favor of the Manila Yellow
for sale. Constantino asked the court to: issue a temporary restraining order to stop
Taxicab a common carrier insurance policy with a stipulation that the company shall
the sale of the lands; and to compel Espiritu to execute a deed of absolute sale to
indemnify the insured of the sums which the latter may be held liable for with respect
Pastor Constantino Jr., then two years old. Espiritu moved to dismiss the case on two
to “death or bodily injury to any faire-paying passenger including the driver and
grounds. First, that Pastor Jr. was not a party to the suit and second, that the Statute
conductor”.
of Frauds (which basically says that some contracts, including those involving land,
The policy also stated that in “the event of the death of the driver, the Company shall should be in writing; and signed by all parties bound by the contracts). Constantino
indemnify his personal representatives and at the Company’s option may make argued that what was involved was an implied trust under Art. 1453. The trial court
indemnity payable directly to the claimants or heirs of the claimants.” dismissed the complaint. Constantino then filed a motion for an amended complaint, to
have his son Pastor Jr. included in the suit. The trial court dismissed the motion, and
During the policy’s lifetime, a taxicab of the insured driven by Coquia met an accident the case was appealed to the Supreme Court. The issue: WON the contract of sale by
and Coquia died. appellant Constantino in favor of appellee of the properties described in said pleadings
was subject to the agreement that the vendee would hold them in trust for their at that
When the company refused to pay the only heirs of Coquia, his parents, they instituted time already conceived but unborn. illegitimate child. The Court held that this is a
this complaint. The company contends that plaintiffs have no cause of action since contract pour autrui and thus, should be remanded back to the lower court as this is a
the Coquias have no contractual relationship with the company. question of fact.
Facts: Constantino had by a fictitious deed of absolute sale conveyed to Espiritu (on
Issue: Whether or not plaintiffs have the right to collect on the policy. October 30, 1953, for a consideration of P8K) the two-storey house and 4 subdivision
lots covered by TCT issued by the Register of Deeds of Rizal in the name of Pastor
Constantino, married to Honorata Geukeko with the understanding that Espiritu would
Held: YES. Although, in general, only parties to a contract may bring an action based hold the properties in trust for their illegitimate son, Pastor Constantino, Jr., still unborn
thereon, this rule is subject to exceptions, one of which is found in the second at the time of the conveyance.
paragraph of Article 1311 of the Civil Code of the Philippines, reading: "If a
contract should contain some stipulation in favor of a third person, he may Espiritu thereafter mortgaged said properties to the Republic Savings Bank
demand its fulfillment provided he communicated his acceptance to the obligor of Manila twice to secure payment of two loans, one of P3K and the other of P2K, after
before its revocation. A mere incidental benefit or interest of a person is not that she offered the properties for sale.
sufficient. The contracting parties must have clearly and deliberately conferred
 Constantino then prayed for the issuance of a writ of preliminary injunction Facts: PUJ operators Sps. Mamaril would park their 6 passenger jeepneys every
to restrain Espiritu and her representatives from further alienating or disposing of the night at BSP’s compound in Malate, Manila for a fee of P300.00 per month for each
properties, and for judgment ordering her to execute a deed of absolute sale of said unit. One day, one of the vehicles was missing and was never recovered. According to
properties in favor of their son. As a result of the conveyance, the TCT in
the security guards Peña and Gaddi of AIB Security Agency with whom BSP had
Constantino's name was cancelled and a new one was issued in Espiritu's name.
contracted for its security and protection, a male person who looked familiar to them
Espiritu moved to dismiss the complaint on the ground that there is no took the subject vehicle out of the compound. Sps. Mamaril prayed that Peña and
cause of action because Pastor Constantino, Jr., the beneficiary of the alleged trust, Gaddi, together with AIB and BSP, be held liable for: (a) the value of the subject
was not included as party-plaintiff, and on the further ground that cause of action was
vehicle; (b) amount representing daily loss of income/boundary reckoned from the day
unenforceable under the Statute of Frauds (which basically says that some contracts,
including those involving land, should be in writing; and signed by all parties bound by the vehicle was lost; (c) exemplary damages; (d) moral damages; (e) attorney's fees;
the contracts). and (f) cost of suit.

Constantino argued that the Statute of Frauds does not apply to trustee
BSP denied any liability contending that not only did Sps. Mamaril directly deal with
cestui que trust as in the case of appellee and her illegitimate child, and that for this
reason appellant would not be barred from proving by parol evidence an implied trust AIB with respect to the manner by which the parked vehicles would be handled, but
existing under Article 1453 of the Civil Code. the parking ticket itself expressly stated that the "Management shall not be
responsible for loss of vehicle or any of its accessories or article left therein." It also
On the other hand, the appellee argued that what the former was invoking in
his complaint was an implied trust under Article 1453 of the Civil Code and not an claimed that Sps. Mamaril erroneously relied on the Guard Service Contract. Apart
express trust under Section 3, Rule 3 of the Revised Rules of Court. The trial court from not being parties thereto, its provisions cover only the protection of BSP's
dismissed the complaint, with costs. properties, its officers, and employees.
Issue: WON the contract of sale by appellant Constantino in favor of appellee of the
properties described in said pleadings was subject to the agreement that the vendee Issue: Whether or not BSP may be held liable for the loss of the vehicle caused by the
would hold them in trust for their at that time already conceived but unborn. illegitimate negligence of its security guards.
child
Held: The proximate cause of the loss of Sps. Mamaril's vehicle was the negligent act
Held: The Court ruled that the contract appears to be a contract pour autrui, although
couched in the form of a deed of absolute sale, and appellant’s action was, in effect, of security guards Peña and Gaddi in allowing an unidentified person to drive out the
one for specific performance. subject vehicle. The records are bereft of any finding of negligence on the part of BSP.
Neither will the vicarious liability of an employer under Article 2180 of the Civil Code
That one of the parties to a contract is entitled to bring an action for its
apply in this case. Peña and Gaddi were assigned as security guards by AIB to BSP
enforcement or to prevent its breach is too clear to need any extensive discussion,
Upon the other hand, that the contract involved contained a stipulation pour autrui pursuant to the Guard Service Contract. No employer-employee relationship existed
amplifies this settled rule only in the sense that the third person for whose benefit the between BSP and the security guards assigned in its premises. Sps. Mamaril are not
contract was entered into may also demand its fulfillment provided he had parties to the Guard Service Contract. Guard Service Contract between defendant-
communicated his acceptance thereof to the obligor before the stipulation in his favor appellant BSP and defendant AIB Security Agency is purely between the parties
is revoked. therein.
The Court held that that the Statute of Frauds was not a strong defense as it
was “clear upon the facts alleged in the amended complaint that the contract between Contracts take effect only between the parties, their assigns and heirs, except in case
the parties had already been partially performed by the execution of the deed of sale, where the rights and obligations arising from the contract are not transmissible by their
the action brought below being only for the enforcement of another phase thereof, nature, or by stipulation or by provision of law. The heir is not liable beyond the value
namely, the execution by appellee of a deed of conveyance in favor of beneficiary
of the property he received from the decedent. If a contract should contain some
thereunder.” Whether the properties were sold to be held in trust for their child was a
matter of fact that should be proved in court. The case remanded to the lower court for stipulation in favor of a third person, he may demand its fulfillment provided he
further trial. communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have
13. Sps. Mamaril vs. Boy Scout of the Philippines | G.R. No. 179382 | January 14, clearly and deliberately conferred a favor upon a third person.
2013
Thus, in order that a third person benefited by the second paragraph of Article 1311,
referred to as a stipulation pour autrui, may demand its fulfillment, the following
requisites must concur: (1) There is a stipulation in favor of a third person; (2) The - Copies of the Writ of Possession, together with a notice addressed to MICC
stipulation is a part, not the whole, of the contract; (3) The contracting parties clearly “and/or All persons claiming rights under them” to voluntarily vacate the premises
and deliberately conferred a favor to the third person - the favor is not merely within 7 days from receipt thereof, were served on petitioners.
incidental; (4) The favor is unconditional and uncompensated; (5) The third person - Instead of vacating the two lots, however, petitioners filed separate petitions before
communicated his or her acceptance of the favor before its revocation; and (6) The the Court of Appeals assailing the validity of the Writ of Possession.
contracting parties do not represent, or are not authorized, by the third party. - The CA dismissed the consolidated petitions for lack of merit and upheld the
However, none of the foregoing elements obtains in this case.There is absolutely validity of the Writ of Possession. It likewise denied petitioners’ Motion for
nothing in the said contract that would indicate any obligation and/or liability on the Reconsideration.
part of the parties therein in favor of third persons such as herein plaintiffs-appellees. - Petitioners argue that:
(1) having purchased their respective properties in good faith from MICC, they are
Moreover, the Court concurs with the finding of the CA that the contract between the third parties whose right thereto are superior to that of Banco Filipino;
parties herein was one of lease as defined under Article 1643 of the Civil Code. It has (2) they are still entitled to redeem the properties and in fact a binding agreement
been held that the act of parking a vehicle in a garage, upon payment of a fixed between them and the bank had been reached;
amount, is a lease. The agreement with respect to the ingress and egress of Sps. (3) their respective houses should not have been included in the auction sale of the
Mamaril's vehicles were coordinated only with AIB and its security guards, without the mortgaged properties;
knowledge and consent of BSP. Accordingly, the mishandling of the parked vehicles (4) on the contrary, as builders in good faith, they are entitled to the benefits of Article
that resulted in herein complained loss should be recovered only from the tort feasors 448 of the Civil Code; and (5) the writ of possession issued by the RTC in 1996 had
(Peña and Gaddi) and their employer, AIB; and not against the lessor, BSP. already lost its validity and efficacy.

Issue:
14. SPS PADERES V CA WON the Writ of Possession over the mortgaged properties was validly awarded to
Doctrine: A recorded real estate mortgage is a right in rem (real right), a lien on the Banco Filipino – YES
property whoever its owner may be.
Held:
- That petitioners purchased their properties from MICC in good faith is of no
Facts:
- Manila International Construction Corporation (MICC) executed a real estate moment. The purchases took place after MICC’s mortgage to Banco Filipino had been
registered in accordance with Article 2125 of the Civil Code and the provisions of P.D.
mortgage over 21 registered parcels of land including the improvements thereon in
favor of Banco Filipino Savings and Mortgage Bank (Banco Filipino) to secure a loan 1529 (PROPERTY REGISTRY DECREE).
- As such, under Articles 1312 and 2126 of the Civil Code, a real right or lien in favor
of P1,885,000.00.
- The mortgage was registered with the Registry of Deeds of Pasay City and of Banco Filipino had already been established, subsisting over the properties until the
discharge of the principal obligation, whoever the possessor(s) of the land might be.
annotated on the corresponding TCTs covering the properties. The said mortgaged
properties included two lots both located in Parañaque City. - In rejecting a similar argument, the SC, in Philippine National Bank v. Mallorca
held:
- Subsequently, MICC sold one lot, together with the house thereon, to Sps.
Paderes (petitioners in the 1st case). It also sold the house built on the other lot to Sps. o Sale or transfer cannot affect or release the mortgage. A purchaser is necessarily
bound to acknowledge and respect the encumbrance to which is subjected the
Bergado (petitioners in the 2nd case). Neither sale was registered.
- Banco Filipino filed a verified Petition for the extrajudicial foreclosure of MICC’s purchased thing and which is at the disposal of the creditor “in order that he, under the
terms of the contract, may recover the amount of his credit therefrom.” For, a recorded
mortgage for the latter’s failure to pay its obligations. At the auction sale of the
foreclosed properties, Banco Filipino declared the highest bidder. A Certificate of Sale real estate mortgage is a right in rem, a lien on the property whoever its owner may
be.
was issued in its favor which was registered with the Registry of Deeds and annotated
on the corresponding TCTs covering the mortgaged properties. o Because the personality of the owner is disregarded; the mortgage subsists
notwithstanding changes of ownership; the last transferee is just as much of a debtor
- No redemption of the foreclosed mortgage having been made within the
reglementary period, Carlota P. Valenzuela, the then Liquidator of Banco Filipino, filed as the first one; and this, independent of whether the transferee knows or not the
person of the mortgagee. So it is, that a mortgage lien is inseparable from the property
an ex parte Petition for the issuance of a Writ of Possession of the foreclosed
properties with the Regional Trial Court (RTC) of Makati. The Petition was granted. mortgaged. All subsequent purchasers thereof must respect the mortgage, whether
the transfer to them be with or without the consent of the mortgagee. For, the RTC ruled that there was perfected contract, that there was mutual consent on definite
mortgage, until discharge, follows the property. subject matter and consideration was determined between petitioner and BPI and so it
- The purchaser’s right of possession is recognized only as against the judgment ordered cancellation of sale by BPI to National Book Store as well as nullification of
debtor and his successor-in-interest but not against persons whose right of title issued in favor of respondent NBS. It further ordered BPI to receive petitioner’s
possession is adverse to the latter. tendered full payment (33M) and to execute deed of sale in favor of petitioner. CA
- As transferees of mortgagor MICC, petitioners merely stepped into its shoes and reversed this, held that there was no perfection of contract as there was no
are necessarily bound to acknowledge and respect the mortgage it had earlier concurrence of the three reqs (Art. 1318).
executed in favor of Banco Filipino.
- As for petitioners’ argument that they are still entitled to redeem the foreclosed ISSUES: (1.) Was there meeting of minds as to the subject matter and cause of the
properties, it must be rejected too. The debtor in extrajudicial foreclosures under Act obligation? (2.) Were the bank officials involved in transaction authorized by BPI to
No. 3135, or his successor-in-interest, has, one year from the date of registration of enter into the questioned contract? (3.) And lastly was the sale to NBS during
the Certificate of Sale with the Registry of Deeds, a right to redeem the foreclosed pendency of trial effected in good faith?
mortgage.
- Petitioners, as MICC’s successors-in-interest, had one year from the registration of
the Certificate of Sale for the purpose. However, failed to do so. Ownership of the RULING:: Yes, Yes, No. Petition granted. CA reversed.
subject properties was thus consolidated in favor of Banco Filipino and the TCTs were
issued in its name. On issue of authority, Albano and Amorin (the VPs) were considered by SC to be
- The SC also cited F. David Enterprises v. Insular Bank of Asia and America: authorized by BPI on this transaction, absent evidence proving the contrary. It is
o The buyer in a foreclosure sale becomes the absolute owner of the property undisputed that Revilla a licensed real estate broker was authorized by BPI and that
purchased if it is not redeemed during the period of one year after the registration of the former saw it fit to bring amorin and albano into the transaction. SC saw no reason
the sale. As such, he is entitled to the possession of the said property and can to doubt the authority to sell of the two BPI VPs whose precise job in the Bank was to
demand it at any time following the consolidation of ownership in his name and the manage and administer real estate property. Aromin was BPI Assistant VP and Trust
issuance to him of a new TCT. Possession of the land then becomes an absolute right Officer directly supervising the BPI Real Property Management Unit, was the head
of the purchaser as confirmed owner. supervising officer of real estate matters. His immediate superior VP Albano had been
with the Real Estate Division (same as Aromin) and was as well present in the
15. So Bing Pun by Hermoso discussions with petitioner. Aromin was also a trust officer. Revilla brought the
petitioners to him as he was an officer routinely handling real estate transactions and
16. Limketkai Milling Sons v. CA as trust officer, also entering into contracts to sell trust properties. The records also
Dec. 1995 show that the letter of instruction from owner of Philippine Remnants Co. regarding the
FACTS: sale of the firm’s property herein was addressed to Aromin
In this case BPI was a trustee to manage administer and sell real estate properties of
Philippine Remnants Co. In 1988 Revilla a licensed real estate broker was given
On BPI’s contention that there was no perfected contract since petitioner’s offer to pay
authority by BPI to sell the disputed lot herein and so Revilla contracted a potential
in terms rather than in cash constituted as a counter-offer This is untenable. It is
buyer in the name of Alfonso Lim (petitioner). The latter together with Albino Limketkai
undisputed in this case that there was already meeting of the minds as to the cause or
went to BPI to confirm the sale. They were met by Albano and Aromin (BPI’s VPs) and
the price of the property. It was set at 1k per sqm after series of negotiations. Since
both parties agreed that the lot would be sold at 1k per sqm to be paid in cash.
the price has already been determined, the requirement as to the cause was already
Subsequently, petitioner Lim offered to pay in terms (10% initial and 90% balance
complied with. There was already perfection when petitioner and BPI agreed on the
within period of 90 days). Two or three days he would learn that his offer had been
sale of the subject parcel of land and on the definite price of 1k per sqm. Relate this to
frozen. He subsequently tendered the full amount for payment but such was denied by
Villonco Realty Company v. Bormache, which stated that acceptance may be express
Albano stating that his authority to sell such property in Pasig had been withdrawn
or implied. As stated therein “it is true that an acceptance may contain a request for
from his unit. Hence petitioner filed for specific performance with damages against BPI
certain changes in the terms of the offer and YET be a BINDING acceptance. So long
with the RTC. BPI would inform the trial court that it had sold the property under
as it is clear that the meaning of the acceptance is positively to accept the offer,
litigation to National Book Store (NBS) in 1989.
whether such request is granted or not, a contract is FORMED.” Changes in a phrase
of the offer to purchase (such as in this case, when petitioner offered to pay in - After 2 months from receipt of Litonjua’s letter, Enriquez informed the former
installment rather than in full cash) which change does not essentially change the that the proposed sale with local buyers did not materialize and invited to resume
terms of the offer, does not amount to a rejection of the offer or a counter-offer (SC negotiations for the sale of Phimco shares based on a new set of conditions, as to
held likewise in this case). There was no essential change in the price or cause. reducing the period of sale from 30-day to 15, to which Litonjua expressed objections
and emphasized that the new offer constituted an attempt to reopen the already
Lastly, SC held that the records show that NBS was not an innocent purchaser. It perfected contract of sale.
acted in bad faith. It ignored the notice of lis pendens annotated on the title when it
bought the lot. There were also several badges of fraud committed by BPI and NBS.
Issue:
E.g. sale was supposed to be done through an authorized broker, but top officials of
BPI personally took over this particular sale when a close friend became interested W/N there was a perfected contract of sale between petitioners and
respondents with respect to Phimco shares
(BPI’s senior VP Barcelon was a friend of NBS’s President Alfredo Ramos). NBS
officials made offer to petitioner to drop the case against BPI and NBS. Hence SC
Held:
ruled that there was a perfected contract between BPI and petitioner, that BPI officials
Aromin and Albano who transacted with petitioner had authority to bind the bank, and - NO, there was no perfected contract of sale since Litonjua’s letter of
proposing acquisition of the Phimco shares for US$36 million was merely an offer.
that he sale to NBS was characterized by bad faith. CA then reversed and ruling of
RTC is reinstated. Consent in contract of sale should be manifested by the meeting of the offer and
acceptance upon the thing and cause which are to constitute the contract.
17. SWEDISH MATCH V. COURT OF APPEALS - The lack of definite offer on part of the respondents could not possibly serve
as the basis of their claim that the sale of the Phimco shares in their favor was
G.R. 128120
October 20, 2004 perfected, for one essential element of a contract of sale needed to be certain — the
price in money or its equivalent.
Facts: - Obviously, there can be no sale without a price. Respondents’ attempt to
prove the alleged verbal acceptance of their US$36 million bid becomes futile since
- Swedish Match AB (SMAB) is a corporation organized under laws of
Sweden, with 3 subsidiary corporations Phimco, Provident Tree Farms, and OTT/ there was in the first place no meeting of the minds with respect to the price and such
was merely a preliminary offer. Respondents’ failure to submit their final bid on the
Louie Phils Inc. In 1988, STORA, its parent company, decided to sell SMAB and the
latter’s worldwide match, lighter and shaving products operation to Swedish Match NV deadline set by the petitioners prevented the perfection of the contract of sale.
(SMNV).
- Enriquez, VP of SMSA (management company of SMAB), was held under 18. Malborosa by Fabia
special instructions that the sale of Phimco shares should be executed on or before
June 30, 1990. Respondent GM Antonio Litonjua of ALS Management and 19. Sanchez v. Rigos
Facts:
Development Corp. was one of the interested parties to acquire the Phimco shares
offering US$36 million. Nicolas Sanchez and Severina Rigos
executed an instrument entitled “Option to Purchase” wherein Mrs. Rigos agreed,
- After an exchange of information between CEO Rossi of SMAB America
and Litonjua, the latter informed that they may not be able to submit their final bid on promised and committed to sell to Mr. Sanchez a parcel of land for the amount of
P1,510 within two years from the date of the instrument, with the understanding that
the given deadline considering the acquisition audit of Phimco and the review of the
draft agreements have not been completed. the said option shall be deemed terminated and elapsed if Mr. Sanchez shall fail to
exercise his right to buy the property within the stipulated period.
- In a letter dated July 3, 1990, Rossi informed Litonjua that on July 2, SMAB
signed a conditional contract with local group for disposal of Phimco and that the Mrs. Rigos agreed and committed to sell and Mr. Sanchez agreed and committed to
latter’s bid would no longer be considered unless the local group would fail to buy. But there is nothing in the contract to indicate that her agreement, promise and
consummate the transaction on or before September 15, 1990. Irked by SMAB’s undertaking is supported by a consideration distinct from the price stipulated for the
decision to junk his bid, Litonjua asserted that the US$36 million bid was final, thus sale of the land.
finalizing the terms of the sale.
Mr. Sanchez has made several tenders of payment in the said amount within the
period before any withdrawal from the contract has been made by Mrs. Rigos, but I fully agree with the abandonment of the view previously adhered to in Southwestern
were rejected nevertheless. Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co. (97 Phil 249) which hold that
an option to sell can still be withdrawn, even if accepted, if the same is not supported
Issue: by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. v.
Can an accepted unilateral promise to sell without consideration distinct from the price Cua Hian Tek (102 Phil 948), holding that “an option implies xxx the legal obligation to
be withdrawn arbitrarily? keep the offer (to sell) open for the time specified;” that it could be withdrawn before
acceptance, if there was no consideration for the option, but once the “offer to sell” is
Held: accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto
assumes the obligations of a purchaser. In other words, if the option is given without a
No. An accepted promise to sell is an offer to sell when accepted becomes a contract
of sale. consideration, it is a mere offer to sell, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract of sale. The
concurrence of both acts – the offer and the acceptance – could in such event
Rationale: generate a contract.

Since there may be no valid contract without a cause or consideration, the promisor is While the law permits the offerror to withdraw the offer at any time before acceptance
not bound by his promise and may, accordingly, withdraw it. Pending notice of its even before the period has expired, some writers hold the view, that the offeror cannot
withdrawal, his accepted promise partakes, however, of the nature of an offer to sell exercise this right in an arbitrary or capricious manner. This is upon the principle that
which, if accepted, results in a perfected contract of sale. an offer implies an obligation on the part of the offeror to maintain it for such length of
time as to permit the offeree to decide whether to accept or not, and therefore cannot
This view has the advantage of avoiding a conflict between Articles 1324 – on the arbitrarily revoke the offer without being liable for damages which the offeree may
general principles on contracts – and 1479 – on sales – of the Civil Code. suffer. A contrary view would remove the stability and security of business
transactions.
Article 1324. When the offeror has allowed the offeree a certain period to accept, the
20. Adelfa v. CA
offer may be withdrawn at any time before acceptance by communicating such
Recit Ready Facts:
withdrawal, except when the option is founded upon consideration, as something paid
or promised.
Private respondents entered into an agreement to sell a parcel of land to
Petitioner Adelfa. An “Exclusive Option to Purchase” was executed stipulating that
Article 1479. A promise to buy and sell a determinate thing for a price certain is petitioner Adelfa would pay the sum of 50,000 as option money. It was also agreed
reciprocally demandable. upon that the 50,000 would be credited as partial payment upon the
consummation of the sale. It was agreed upon also that the remaining balance of
An accepted unilateral promise to buy or to sell a determinate thing for a price certain 2,000,000 would be paid upon the consummation of the sale.
is binding upon the promissory if the promise is supported by a consideration distinct
from the price. The Supreme Court held that the “Exclusive Option to Purchase” was
actually a contract to sell, NOT an option. The fact that the P50,000.00 would be
credited to the remaining balance shows that it is actually earnest money. In other
The Court is of the considered opinion that it should, as it hereby reiterates the words, the alleged option money of P50,000.00 was actually earnest money which
doctrine laid down in the Atkins, Kroll and Co. case, and that, insofar as inconsistent was intended to form part of the purchase price.
therewith, the view adhered to in the Southwestern Sugar & Molasses Co. case
should be deemed abandoned or modified.
Facts
J. Antonio concurring
● Private respondents [Rosario Jimenez-Castaneda and Salud Jimenez] and ● Petitioner did not surrender said title.
their brothers, Jose and Dominador Jimenez were owners of a parcel of ● Private respondents filed for annulment of contract.
land situated in Las Pinas. ● RTC ruled in favor of private respondents ruling that the agreement entered
● Jose and Dominador owned the eastern portion of their lot while private into by the parties was merely an option contract, and declaring that the
respondents owned the western portion. suspension of payment constituted a counteroffer which was tantamount to
● Jose and Dominador sold their portion to petitioner Adelfa Properties. a rejection.
● Thereafter, in November 25, 1989, petitioner Adelfa Properties entered into ● CA affirmed
an agreement to purchase the remaining portion of the lot from private
respondents. Issue: Whether or not the “Exclusive Option to Purchase” is an option contract?
● An “Exclusive Option to Purchase” was executed between petitioner and
private respondent which stated the following: Held: No, it is a contract to sell.
○ The sum of P50,000 which we received from petitioner as an
option money shall be credited as partial payment upon the Ratio:
consummation of the sale and the balance in the sum of
P2,856,150 to be paid on or before November 30, 1989. ● It is undeniable that the intention of the parties was to enter into a contract
● Meanwhile, the owner’s copy of the certificate of title of private respondent to sell. The title of a contract does not necessarily determine its true nature.
was missing. Hence, the fact that the document under discussion is entitled “Exclusive
○ Petitioner’s counsel Atty. Bernardo acted as private respondent’s Option to Purchase” is not controlling where the text thereof shows that it is
counsel in a petition for obtaining a new owner’s copy of a contract to sell.
certificate of title. Atty Bernardo kept possession of it until he ● What is an option?
turned it over to petitioner Adelfa Properties. ○ An option is a continuing offer or contract by which the owner
● Before petitioner could make payment one day before the due date, stipulates with another that the latter shall have the right to buy
nephews and nieces of the Jimenezes filed for annulment of the deed of the property at a fixed price within a certain time, or under, or in
sale in favor of Household Corporation and recovery of the property covered compliance with, certain terms and conditions, or which gives to
by TCT No. 309773. the owner of the property the right to sell or demand a sale.
● As a consequence, petitioner informed private respondents that it would ○ It is also sometimes called an “unaccepted offer.”
hold payment of the full purchase price and suggested that private ○ An option is not itself a purchase, but merely secures the privilege
respondents settle the case with their nephews and nieces. to buy.
● Private respondent refused to heed the suggestion of petitioner and ○ It is not a sale of property but a sale of the right to purchase.
attributed the suspension of payment of the purchase price to “lack of ○ It is simply a contract by which the owner of the property agrees
word of honor.” with smother person that he shall have the right to buy his
● Private respondents then informed petitioner Adelfa that they were property at a fixed price within a certain time.
cancelling the transaction. As a response, petitioner’s counsel Atty. ○ Its distinguishing characteristic is that it imposes no binding
Bernardo offered to pay the purchase price provided that P500,000.00 be obligation on the person holding.
deducted therefrom for the settlement of the civil case. This was rejected ● The distinction between an [option] and [a contract of sale] is that an option
and another offer was proposed lowering it to P300,000 instead. is an unaccepted offer.
● Meanwhile, RTC of Makati dismissed the case of the nieces and nephews. ● A perusal of the contract in this case, as well as the oral and documentary
Thus, petitioner caused to be annotated anew on the TCT the exclusive evidence presented by the parties, readily shows that there is indeed a
option to purchase. concurrence of petitioner’s offer to buy and private respondent's’
● Private respondents then sold the same parcel of land to another person acceptance thereof.
[Emylene Chua]. ● Petitioner was supposed to pay on November 25, 1989, but it later offered
● After selling the land, private respondents returned 50% of the “option to make a down payment of P50,000.00 with the balance of P2,806,150.00
money” and requested that petitioner Adelfa return the owner’s duplicate to be paid on or before November 30, 1989.
copy of the certificate of title to Salud.
 ○ In other words, the alleged option money of P50,000.00 was · The annulment of a deed of sale was sought by the plaintiffs.
actually earnest money which was intended to form part of the § They asserted that two of the four parties were minors (Domingo and Josefa
purchase price. This is therefore, clearly not an option, but a Mercado);
contract to sell. § Who presented themselves to be of legal age upon signing the deed of sale and
● Furthermore, the reason of attributing the phrase “lack of word of before the notary public.
honor” is to the Court a clear indication that private respondents considered
petitioner already bound by its obligation to pay the balance of the
consideration. In effect, private respondents were demanding or exacting Issue: Whether or not the deed of sale is a valid contract when the minors presented
fulfillment of the obligation from herein petitioner. themselves that they were of legal age.
● The test in determining whether a contract is a [contract of sale or purchase] Ruling:
or a mere [option] is whether or not the agreement could be specifically Yes. The courts have laid down the rule that the sale of a real estate, made by minors
enforced. In this case, there is no doubt that the obligation of petitioner to who presented themselves to be of legal age, when in fact they are not, is a valid
pay the purchase price is specific, definite, and certain. contract. Moreover, they will not be permitted to excuse themselves from the fulfilment
of the obligations contracted by them, or to seek for annulment.
21. Mercado and Mercado v. Espiritu
G.R. No. L-11872 December 1, 1917
Ratio:
The courts have laid down that such sale of real estate was still valid since it was
Petitioner/Plaintiffs: Domingo Mercado and Josefa Mercado executed by minors, who have passed the ages of puberty and adolescence, and
Respondent/Defendant: Jose Espiritu, administrator of the estate of the deceased are near adulthood, and that the minors pretended that they had already reached
Luis Espiritu the age of majority.

Facts: Art. 38. Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and
civil-interdiction are mere restrictions on the capacity to act, and do not exempt the
· April 9, 1913 counsel for Domingo and Josefa Mercado brought suit in the Court incapacitated person from certain obligations, as when the latter arise from his acts or
of First Instance of Bulacan against Luis Espiritu, who died afterwards. from property relations, such as easements.

· Since Luis Espiritu died, the complaint was amended and was filed against Also, these minors cannot be permitted afterwards to excuse themselves from
compliance with the obligation assumed by them or seek their annulment. This is in
Jose Espiritu.
accordance with the provisions of the law on estoppels.

· The plaintiffs alleged that they and their sisters Concepcion and Paz Mercado
CC Art. 1431 Through estoppel, an admission or representation is rendered
were the children and sole heirs of Margarita Espiritu, who is the sister of the
deceased Luis Espiritu. conclusive upon the person making it, and cannot be denied or disproved as against
the person relying thereon.

· Margarita Espiritu died in 1897, leaving a tract of land of 48 hectares in area as

Rule 123, sec 68, Par. A. “Whenever a party has, by his own declaration, act or
her paraphernal property, which is located in the barrio of Panducot, municipality of
omission, intentionally and deliberately led another to believe a particular thing to be
Calumpit, Bulacan.
true, and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission, cannot be permitted to falsify it”.
· 1910, Luis Espiritu was accused to have induced and fraudulently succeeded in
getting the plaintiffs to sell their land for a sum of P400 as opposed to its assessed 21. Mercado by De Jesus
value of P3,795.
22 Braganza v. De Villa
Facts ■ Article 1301 provides that an action to annul a contract
● Petitioner and her sons filed a petition for review for a case adjudged by reason of majority must be filed within 4 years after
against them wherein they are solidarily liable to pay respondent a sum of the minor has reached the age of majority.
money. ● Upon the other hand, these minors may not be entirely absolved from
● They received from respondent a loan in Japanese war notes and in monetary responsibility. In accordance with the provisions of the Civil Code,
consideration thereof, they promised to pay respondents P10,000 in legal even if their written contract is unenforceable because of non-age, they shall
currency two years after the cessation of present hostilities or as soon as make restitution to the extent that they have profited by the money they
International Exchange has been established in the Philippines. received.
○ They failed to pay which is why respondent sued them in March
1949. 23. Ching v Goyangko
● They answer in the CFI that the defendants claimed to have received Recit Ready:
P40,000 only instead of the P70,000 the plaintiff asserted. They also Respondents Joseph Goyanko et al. filed with the Regional Trial Court of Cebu City a
contended that the two sons of petitioner were minors when they signed the complaint for recovery of property and damages against Maria Ching, praying for the
promissory note. nullification of the deed of sale and of transfer certificate and the issuance of a new
one. Goyangko et al. aver that they are the real owners of the property involved. They
ISSUE: Are respondents obligated to pay in full? Or just for the share of the one further contend that it was after their father‘s death that they found out that a contract
of legal age? of sale involving the same property has been executed by their father and common-
law wife Ching. However, Ching claimed that she is the actual owner of the property
RULING: Only the part of the person in legal age. as it was she who provided its purchase price. The RTC dismissed the complaint
● “There is no question about the responsibility of Mrs. Rosario L. Braganza against Ching, declaring that there is no valid and sufficient ground to declare the sale
because the minority of her consignors note does not release her from as null and void, fictitious and simulated.
liability since it is a personal defense of the minors.
○ However, such defense will benefit her to the extent of the shares On appeal, the Court of Appeals reversed the decision of the trial court and declared
for which such minors may be responsible. null and void the questioned deed of sale and TCT No. 138405.
■ For during the time of the signing, the two children were
16 and 18 years old. The subject property having been acquired during the existence of a valid marriage
● It is if no matter that the two appellants did not make it appear in the between Joseph Sr. and Epifania dela Cruz-Goyanko, is presumed to belong to the
promissory note that they were not yet of legal age which is why the SC conjugal partnership. Moreover, while this presumption in favor of conjugality is
disagrees with the CA rebuttable with clear and convincing proof to the contrary, the court find no evidence
○ The minors had “no juridical duty to disclose their inability” as it on record to conclude otherwise. The record shows that while Joseph Sr. and his wife
has been held that mere silence when making a contract as to the Epifania have been estranged for years and that he and defendant-appellant Maria
age does not constitute a fraud which can be made the basis of Ching, have in fact been living together as common-law husband and wife, there has
an action of deceit. never been a judicial decree declaring the dissolution of his marriage to Epifania nor
● The contract stated no age which meant that petitioners cannot be held their conjugal partnership. It is therefore undeniable that the property located at Cebu
responsible or even guilty of fraud when they were in fact minors as they City belongs to the conjugal partnership. Assuming that the subject property was not
technically did not lie. conjugal, still the court cannot sustain the validity of the sale of the property by
● “We hold, on this point, that being minors, Rodolfo and Guillermo Braganza Joseph, Sr. to defendant-appellant Maria Ching, there being overwhelming evidence
could not be legally bound by their signatures in Exhibit A. on records that they have been living together as common-law husband and wife.
● As a final argument, respondent contends that Rodolfo reached the age of
majority as this case was pending which means that he can be bound by The court therefore finds the contract of sale in favor of the defendant-appellant Maria
the contract now. Ching null and void for being contrary to morals and public policy. The purported sale,
○ What happened in this case though that it was too late to invoke it having been made by Joseph Sr. in favor of his concubine, undermines the stability of
because more than 4 years had already elapsed after he had the family, a basic social institution which public policy vigilantly protects.
become emancipated upon reaching the age of majority.
FACTS: ♣ This is also designed to prevent the exercise of undue influence of one
• The respondents are the seven children out of the legal union of Joseph spouse over the other and to protect the institution of marriage, which is the
Goyanko, Sr. and Epifania dela Cruz. cornerstone of family law.
• Respondents claim that in 1961, their parents acquired a real property 661 o Therefore, sale of the property made by Joseph Goyanko, Sr. in favor of his
square meter property located in Cebu which was first registered in the name of their common-law wife is null and void.
aunt as their parents was still Chinese citizens this time.
• In May, 1993, their aunt executed a Deed of Absolute Sale over the subject 24. Matabuena vs Cervantez
property in favor of their father. In turn, on October 1993, respondent’s father ● In 1956, herein appellant’s brother Felix Matabuena donated a piece of lot
executed a Deed of Absolute Sale in favor of the petitioner, Maria Ching, his common- to his common-law spouse, herein appellee Petronila Cervantes.
law wife. ● Felix and Petronila got married only in 1962 or six years after the deed of
• After Goyanko Sr.’s death, the respondents discovered that the property donation was executed.
had been transferred to the name of the petitioner. ● Five months later, or September 13, 1962, Felix died.
• Thus, the respondents filed a Complaint for the recovery of the property and ● Thereafter, appellant Cornelia Matabuena, by reason of being the only
damages against petitioner and they prayed for the nullification of the deed of sale sister and nearest collateral relative of the deceased, filed a claim over the
and the issuance of a new one in favor of their father. property, by virtue of a an affidavit of self-adjudication executed by her in
1962, had the land declared in her name and paid the estate and
ISSUES: inheritance taxes thereon.
• Whether or not the subject property was part of the conjugal property of ● The lower court of Sorsogon declared that the donation was valid inasmuch
Spouses Joseph Goyanko and Epifania dela Cruz. as it was made at the time when Felix and Petronila were not yet spouses,
• Whether or not the Deed of Absolute Sale in favor of herein petitioner was rendering Article 133 of the Civil Code inapplicable.
void and inexistent. ISSUE: Whether or not the ban on donation between spouses during a marriage
applies to a common-law relationship.
HELD: HELD:
1) YES. The subject property was part of the conjugal property of the Spouses. ● While Article 133 of the Civil Code considers as void a donation between
As it was acquired during the existence of a valid marriage between Joseph Sr. and the spouses during marriage, policy consideration of the most exigent
Epifania. Moreover, there was no decree of dissolution of marriage, nor of their character as well as the dictates of morality requires that the same
conjugal partnership. prohibition should apply to a common-law relationship.
2) YES. ● As stated in Buenaventura vs. Bautista (50 OG 3679, 1954), if the policy of
• Supreme Court held that the contract of sale was null and void for being the law is to prohibit donations in favor of the other consort and his
contrary to morals and public policy. The sale was made by a husband in favor of his descendants because of fear of undue and improper pressure and influence
concubine. upon the donor, then there is every reason to apply the same prohibitive
• According to Article 1409: Contracts whose cause, object or purpose is policy to persons living together as husband and wife without the benefit of
contrary to law, morals, good customs, public order or public policy are void and nuptials
inexistent from the very beginning. ● The lack of validity of the donation by the deceased to appellee does not
• Article 1352, NCC, also provides that: Contracts without cause or with necessarily result in appellant having exclusive right to the disputed
unlawful cause produce no effect whatsoever. The cause is unlawful if it is contrary to property. As a widow, Cervantes is entitled to one-half of the inheritance,
law, morals, good customs, public order or public policy. and the surviving sister to the other half.
o Moreover, the sale of the property in favor of herein petitioner also fell under ● Article 1001, Civil Code: Should brothers and sisters or their children survive
the prohibition of sale of property between the spouses provided for by Art. 1490, with the widow or widower, the latter shall be entitled to one-half of the
NCC(New Civil Code). This provision also applies to common law relationship. inheritance and the brothers and sisters or their children to the other half.
o To rule otherwise would mean that “the condition of those who incurred guilt
would be better than those in legal union”
♣ This is so because if transfers and conveyances are allowed between 25. Rubias v Batiller
spouses during marriage would destroy the system of conjugal partnership.
FACTS Art 1491 prohibits certain persons by reason of
the relation of trust or their peculiar control over the property,
Petitioner Rubias was the counsel for this father-in-law, from acquiring property in their trust or control: (1) guardians;
Francisco Militante, in a land registration case involving the (2) agents; (3) administrators; (4) public officers/employees; (5)
disputed property filed in the land registration court. Court judicial officers/employees; (6) others specifically disqualified
dismissed the application for registration. Francisco appealed by law
to the CA but CA also dismissed
The Civil Code recognizes the absolute nullity of contracts
Pending the disposal of the appeal, Francisco sold to Rubias whose cause, object of purpose is contrary to law, morals, good
the land in question customs, public order or public policy or which are expressly
prohibited or declared void by law
Rubias filed a suit to recover the ownership and possession of
the land against its present occupant, Isaias Batiller who The criterion of nullity of such prohibited contracts as a matter
allegedly entered the lot of public order and policy should apply with greater reason to
judges, judicial officers, fiscals and lawyers
Batiller counterclaimed that he and his
predecessors in interest have always been in actual and open
possession of the lot since time immemorial. CFI ruled in favor
of Batiller 26. Paragas v Heirs of Dominador Balacano
August 31, 2005
Lower court held that the contract of sale between Rubias and
Francisco was void because it was made when the former was Doctrine: The general rule is that a person is not incompetent to contract merely
the counsel of the latter in a land registration case because of advanced years or by reason of physical infirmities. However, when such
age or infirmities have impaired the mental faculties so as to prevent the person from
properly, intelligently, and firmly protecting her property rights then she is undeniably
incapacitated.
ISSUE: WON the contract of sale between Rubias and Francisco Facts:
over the property subject was void ● Balacano, married to Sumigcay, owned two lots a in Isabela
● Balacano purportedly sold a portion of one of the lots and the whole of the
other to Spouses Paragas.
● Spouses Paragas then sold a portion of the lot to another person.
● The children of Balacano filed a complaint as the older Balacano was at the
HELD: YES
time of the execution of the deed of sale seriously ill
● The lower court ruled that the deed of the sale by Balacano to Paragas was
Upon the CA’s final judgment affirming the dismissal of
invalid as Balacano was at that time ill. Because of the seriousness of his
Francisco’s application for registration, there was no right or illness, it is not expected that he would be negotiating a contract of sale.
title to the land that could be transferred or sold by Francisco’s ● CA affirmed but modified it as the two lots belongs to the estate of
sale in favor of Rubias Balacano.

Assuming arguendo that Francisco can sell the property, the ISSUE: WON Sale was invalid despite physical illness?
purchase of a lawyer of the property in litigation from his client
is prohibited under Art 1491 of the Civil Code HELD:
 ● There was no prior and perfected contract of sale that remained to be fully null and void because Eligio was afflicted with senile dementia making him
consummated . incapacitated to give consent.
● In Domingo v. Court of Appeals, the Court declared as null and void the
deed of sale therein inasmuch as the seller, at the time of the execution of Francisco, in his answer, claims that the Herreras were estopped from questioning the
sale because the Herreras had effectively ratified the two contracts when they
the alleged contract, was already of advanced age and senile.
received the consideration offered in each transaction.
● The general rule is that a person is not incompetent to contract merely
because of advanced years or by reason of physical infirmities. However, The RTC ruled in favor of the Herreras. The court declared that the sale was null and
when such age or infirmities have impaired the mental faculties so as to void. It ordered Herrera to return the 1,750,000 pesos to Francisco and it ordered
prevent the person from properly, intelligently, and firmly protecting her Francisco to return the parcels of land to Herrera. The CA affirmed the decision of the
property rights then she is undeniably incapacitated. RTC in toto.
● In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his
death bed in the hospital. Gregorio was an octogenarian at the time of the Petitioner Francisco contends that the CA erred in ruling that the contract of sale was
void. Francisco argues that although Eligio was suffering from a senile dementia
alleged execution of the contract and suffering from liver cirrhosis at that—
making him incapacitated under article 1327, the contract should be voidable under
circumstances which raise grave doubts on his physical and mental article 1390. Hence when respondent Herrera accepted the payment, he ratified the
capacity to freely consent to the contract. contracts on behalf of his father.

27. Francisco v. Herrera 392 SCRA 317, November 21, 2002 Issue: Are the assailed contracts void or merely voidable? - The contracts are
merely voidable.
Doctrine:
Ruling:
Where a party’s capacity to consent to a contract was vitiated by senile dementia, the
contract is not void or inexistent per se but is valid and binding unless annulled (Distinction between void and voidable contracts)
through a proper action filed in court seasonably.
Coming now to the pivotal issue in this controversy. A void or inexistent contract is one
An annullable contract may be rendered perfectly valid by ratification, which can be which has no force and effect from the very beginning. Hence, it is as if it has never
express or implied, such as by accepting and retaining the benefits of a contract; One been entered into and cannot be validated either by the passage of time or by
cannot negotiate for an increase in the price in one breath and in the same breath ratification. There are two types of void contracts: (1) those where one of the essential
contend that the contract of sale is void requisites of a valid contract as provided for by Article 1318 of the Civil Code is totally
wanting; and (2) those declared to be so under Article 1409 of the Civil Code. By
Facts: contrast, a voidable or annullable contract is one in which the essential requisites for
validity under Article 1318 are present, but vitiated by want of capacity, error, violence,
Eligio Herrera Sr., the father of the respondent, is the owner of 2 parcels of land in intimidation, undue influence, or deceit.
Cainta Rizal. On two different dates, Julian Francisco bought the said parcels of land
from Herrera. On January 3, 1991, Francisco bought the first parcel of land for (Main ruling regarding the issue of Eligio’s senile dementia)
1,000,000 pesos payable in installments. On March 12, 1991, Francisco bought the
second parcel of land for 750,000 pesos. We note that both the trial court and the Court of Appeals found that Eligio, Sr. was
already suffering from senile dementia at the time he sold the lots in question. In other
Finding the purchase price inadequate, the heirs of Herrera namely Pastor Herrera, words, he was already mentally incapacitated when he entered into the contracts of
Eligio Jr., and Josefina Cavestany negotiated with the petitioner to increase the sale.
purchase price. This was rejected by the petitioner. Hence, the Herreras instituted an
action against Francisco for the nullification of the sale between Herrera Sr. and In the present case, it was established that the vendor Eligio, Sr. entered into an
Francisco with the RTC of Antipolo. agreement with petitioner, but that the former’s capacity to consent was vitiated by
senile dementia. Hence, we must rule that the assailed contracts are not void or
The Herreras have 3 arguments. First, they argue that Herrera Sr. had already sold inexistent per se; rather, these are contracts that are valid and binding unless annulled
the second parcel of land to Pastor. Second, they argue that the first parcel of land through a proper action filed in court seasonably.
was subject to the co-ownership of the surviving heirs of Francisca Herrera who died
intestate. Lastly, they argue that the sale between Eligio Sr. and Francisco was
An annullable contract may be rendered perfectly valid by ratification, which can be the name of the Balguma brothers with their dad, Atty. Balguma, collecting the rentals
express or implied. Implied ratification may take the form of accepting and retaining from the lessees of the apartments.
the benefits of a contract.
In March 1987, respondent filed with the RTC a complaint for annulment of the Deed
Article 1318 of the Civil Code states that no contract exists unless there is a of Absolute Sale, arguing that his brother Miguel, Atty. Balguma, and Inocencio Valdez
concurrence of consent of the parties, object certain as subject matter, and convinced him to work abroad. He argued that the latter made it appear that they were
cause of the obligation established. Article 1327 provides that insane or making him sign several documents to secure his flight and employment abroad when,
demented persons cannot give consent to a contract. But, if an insane or in truth, it was the Deed of Absolute Sale which they made him sign through insidious
demented person does enter into a contract, the legal effect is that the contract words and machinations. Respondent also averred that he never received the P187K
is voidable or annullable as specifically provided in Article 1390. consideration stated in the contract. Petitioners denied all of the allegations.

This is what happened in this case. Respondent’s contention that he merely received During the trial, a Psychiatrist at UP-PGH, Dr. Revilla, made a diagnosis on
payments on behalf of his father merely to avoid their misuse and that he did not Repsondent’s mental capacity who only finished the 3rd grade and was illiterate and
intend to concur with the contracts is unconvincing. If he was not agreeable with the had the mental capacity of a 6-year old. Dr. Revilla disclosed that Respondent indeed
contracts, he could have prevented petitioner from delivering the payments, or if this had a low IQ and was slow to comprehend.
was impossible, he could have immediately instituted the action for reconveyance and
have the payments consigned with the court. None of these happened. As found by Nevertheless, finding that Respondent could comprehend well based on the trial court
the trial court and the Court of Appeals, upon learning of the sale, respondent judge’s own observation of Katipunan’s demeanor and actions during the case, the
negotiated for the increase of the purchase price while receiving the installment RTC rendered a judgment in favor of Petitioners.
payments. It was only when respondent failed to convince petitioner to increase the
price that the former instituted the complaint for reconveyance of the properties. The CA reversed the trial court’s decision, stating that the lower court should have
Clearly, respondent was agreeable to the contracts, only he wanted to get more. given more weight to the testimony of the expert witness in this case since the
respondent was clearly mentally slow and that, even when the contract in question
Further, there is no showing that respondent returned the payments or made an offer was in english and contained legal jargon, there was nothing in the records which
to do so. This bolsters the view that indeed there was ratification. One cannot show that the contents of the same were explained to him when he was made to sign
negotiate for an increase in the price in one breath and in the same breath contend it.
that the contract of sale is void.
Issue: W/N the circumstances surrounding Katipunan’s signing of the Deed of
Nor can we find for respondent’s argument that the contracts were void as Eligio, Sr., Absolute Sale made the same voidable
could not sell the lots in question as one of the properties had already been sold to
him, while the other was the subject of a co-ownership among the heirs of the Held: YES. CA decision is AFFIRMED
deceased wife of Eligio, Sr. Note that it was found by both the trial court and the Court
of Appeals that Eligio, Sr., was the “declared owner” of said lots. A contract of sale is born from the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. This meeting of the minds
WHEREFORE, the instant petition is GRANTED. The decision dated August 30, 1999 speaks of the intent of the parties in entering into the contract respecting the subject
of the Court of Appeals in CAG. R. CV No. 47869, affirming the decision of the matter and the consideration thereof. Thus, the elements of a contract of sale are
Regional Trial Court in Civil Case No. 922267 is REVERSED. The two contracts of consent, object, and price in money or its equivalent.
sale covering lots under TD No. 0100495 and No. 0100497 are hereby declared
VALID. Costs against respondent. SO ORDERED. Under Article 1330 of the Civil Code, consent may be vitiated by any of the following:
(a) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud. The
28. Katipunan vs Katipunan presence of any of these vices renders the contract voidable.

Facts: Here, as borne by the facts on hand, respondent signed the deed without the remotest
idea of what it was.
Respondent Katipunan, Jr. is the registered owner of a 203 square meter lot in San
Miguel Manila and an apartment on the land which was being leased. During the cross-examination of the respondent, it was revealed that he was in fact
forced to sign the Deed of Absolute Sale by Atty. Balguma and his brother Miguel. He
In December 1985, respondent with his brother, Miguel Katipunan, entered into a signed it without knowing what it was he was actually signing because he was being
Deed of Absolute Sale with brothers Balguma involving the subject lot for a shoved side to side while he was being told to sign it. He was also told that
consideration of P187K. The respondents’ title to the property was then transferred to “Something will happen” if he didn’t sign the document.
The circumstances surrounding the execution of the contract manifest a vitiated 5. Knowing that criminal complaints would be filed against him, Alejandro
consent on the part of respondent. Undue influence was exerted upon him by his went to Macao (Portuguese colony) a territory not covered by the extradition treaty
brother Miguel and Inocencio Valdez (petitioners) and Atty. Balguma. It was his between US and Portuguese.
brother Miguel who negotiated with Atty. Balguma. However, they did not explain to 6. Aldecoa filed a complaint against Alejandro for
him the nature and contents of the document. Worse, they deprived him of a • Falsification of commercial document. The GPR requested the
reasonable freedom of choice. It bears stressing that he reached only grade three. Portuguese government for extradition but this was denied
Thus, it was impossible for him to understand the contents of the contract written in • Embezzlement
English and embellished in legal jargon. 5. Aldecoa & Co. and the bank, on the settlement, insisted upon the
conveyance not only of all the property of Alejandro but also of at least a portion of the
Thus, his lack of education, coupled with his mental affliction, placed him not only at a property claimed by Mercedes.
hopelessly disadvantageous position visàvis petitioners to enter into a contract, but • Alejandro's representative did not resist but Mercedes resisted with
virtually rendered him incapable of giving rational consent. To be sure, his ignorance respect to her properties alleging that these were exclusively hers.
and weakness made him most vulnerable to the deceitful cajoling and intimidation of 8. They met again to try and settle the case
petitioners. The trial court obviously erred when it disregarded Dr. Revilla’s testimony • The conditions and terms were to be explained to Mr. Kingcome (son-
without any reason at all. It must be emphasized that petitioners did not rebut her in-law of Mercedes and businessman)
testimony. • The explanation was made by Mr. Stephen, the manager of the bank
(one of the friends of Mr. Kingcome) but it is contested whether Kingcome
30. Martinez vs Hongkong and Shanghai Bank communicated such substance to Mercedes before she signed the document
• Reference was made to the British Colony in Manila where Kingcome,
Violence and Intimidation Stephen, Alejandro were prominent members and scandal and disgrace will ensure if
settlement is not made.
Date: February 19, 1910 • Mr. Kingcome got the impression from that interview that Mr. Stephen
Ponente: J. Moreland thought unless the settlement were consummated additional and mortifying
misfortunes would fall upon Alejandro's family.
Plaintiffs-appellants: MERCEDES MARTINEZ Y FERNANDEZ, ET AL.
Defendants-appellants: THE HONGKONG & SHANGHAI BANKING CORPORATION, 9. A long conference was held
ET AL. • If Mercedes accepts, the civil suits against them would be dismissed
and criminal charges would be withdrawn
• If she refuses, her husband will spend the rest of his life in Macao or be
criminally prosecuted
FACTS: • She refused and it was evident no settlement or comprise can be
1. Alejandro S. Macleod (husband of Mercedes) was for many years the arrived at and just do the best to defend Alejandro.
managing partner of the house of Aldecoa & Co. in the city of Manila.
2. He withdrew from the management when Aldecoa & Co. went into 10. Mercedes and Mr. William (nephew and close friend of Mercedes and
liquidation. Alejandro), now her attorney, talked wherein Mercedes agreed to the terms and
3. Hongkong & Shanghai banking Corporation was a creditor of that firm to authorized William to execute the contract of settlement on her behalf, and after
the extent of several hundred thousand pesos and claimed to have a creditor's lien in corrections, it was signed.
the nature of a pledge over certain properties of the debtor.
4. Bank began a civil action against Alejandro, Mercedes, Aldecoa & Co.,
and the firm known as Viuda e Hijos de Escaño. 11. Aldecoa took possession of the properties of Alejandro and Mercedes,
• A certain undertaking in favor of Aldecoa & Co. had been pledged to and the complaints were withdrawn or dismissed, Alejandro returned to Manila.
the bank to secure the indebtedness of Aldecoa & Co., but that this obligation had
been wrongfully transferred by Alejandro into an obligation in favor in Mercedes to the 12. Mercedes filed a complaint that there was intimidation.
prejudice of the bank.
• Aldecoa & Co. began a civil action against Alejandro S. Macleod and ISSUE1: WON the contract can be annulled since Mercedes' consent was
others for the recovery of certain shares of stock basing its right to recover upon obtained due to violence and intimidation?
alleged criminal misconduct of Alejandro in his management of the firm's affairs. HELD 1: Valid, no duress.

Discussion
• Contracts which are declared void and of no force upon the ground that 4. The property transferred or encumbered by the act complained of was
they were obtained by fraud, duress, or undue influence are so declared for the the separate property of the person performing the act in which the person for whom
reason that the complaining party never really gave his consent thereto. The consent the act was performed claimed no interest whatever.
in such case is not in the eye of the law a consent at all. The person has not acted. He 5. There was no dispute as to the title of the property transferred or
has done nothing he was in vinculis(in chains). encumbered, no claim made to it by anybody, no suits pending to recover it or any
Real Duress Consent given against his wishes or portion of it, and no pretension that it could be taken for the debts of the husband or of
judgment or reluctantly or without hope any other person.
of profit
The 2 other cases had the benefit of legal advice or friend but none of the other
circumstances listed above were present.
Void Valid

Example: A person settles since he Basically, the cases cited had material differences with the instant case.
injured another. He must make
reparation or face the consequences.

31. Woodhouse vs. Halili

No difference between one choosing
which gives him greater profit and one
Plaintiff: Charles F. Woodhouse
choosing the lesser evil
Defendant: Fortunato F. Halili

Plaintiff: Charles F. Woodhouse

Defendant: Fortunato F. Halili

Nov. 29, 1947

- written agreement between plaintiff and defendant
In this case
1. The elements of duress is lacking. Important Provisions
2. The most that the facts disclose is that the plaintiff was reluctant to (I) organize a partnership for the bottling and distribution of Mission soft drinks
relinquish certain rights which she claimed to have in certain property to the end that plaintiff: industrial partner or manager
she might be relieved from litigation then pending against her and that her husband Defendant: capitalist, furnishing the capital necessary
might escape prosecution for crimes alleged to have been committed; and that she (2) defendant: decide matters of general policy regarding the business and plaintiff:
persisted for a considerable time in her refusal to relinquish such claimed rights. to attend to the operation and development of the bottling plant;
3. The fact that she did relinquish them upon such consideration and under (3) plaintiff: secure the Mission soft Drinks franchise for and in behalf of the proposed
such condition does not of itself constitute duress or intimidation, nor does it destroy partnership
the obligatory effect and force of her consent. (4) plaintiff: receive 30 per cent of the net profits of the business
4. Duress needs more than that – she must have acted from fear and not
from judgment. Prior to agreement
● Woodhouse informed the Mission Dry Corporation of Los Angeles
ISSUE2: WON the cases cited by plaintiff is applicable? manufacturers of the bases and ingredients of the beverages bearing its
HELD2: NO, not applicable. name
○ that he had interested a prominent financier (defendant herein)
in the business, who was willing to invest half a million
1. In those cases there was no time within which to deliberate the matter dollars in the bottling and distribution of the said beverages,
as it should have been deliberated or take the advice of others or counsel. and requested, in order
2. The treats made to secure the performance of the acts complained of ○ that he may close the deal with him,
were made directly to the complaining party by the person directly interested or by ○ that the right to bottle and distribute be granted him for a limited
someone in his behalf who was working in his interest and who had no interest time under the condition that it will finally be transferred to the
whatever in the welfare of the complaining party. corporation.
3. There was no consideration for the performance of the act complained
of except immunity from the prosecution threatened.
Woodhouse was given "a thirty days' option on exclusive bottling and distribution Response - Defendant alleges
rights for the Philippines". 1. that defendant's consent to the agreement was secured by the
representation of plaintiff that he was the owner, or was about to
Nov. 27, 1947 become owner of an exclusive bottling franchise, which representation was
Formal negotiations between them began at a meeting at the Manila Hotel, with their false, and that plaintiff did not secure the franchise, but was given to
lawyers attending. defendant himself ;
● (prior to mtg) plaintiff’s lawyer had prepared a draft of the agreement, but 2. that defendant did not fail to carry out his undertakings, but that it was
this was not satisfactory because a partnership, instead of a plaintiff who failed ;
corporation, was desired. 3. that plaintiff agreed to contribute the exclusive franchise to the partnership,
● Defendant's lawyer prepared after the meeting his own draft. (became the but plaintiff failed to do so.
main basis of the agreement) Counter-claim
Dec. 3 ● 200,000 damages
● contract was finally signed by Woodhouse
● He did not like to go to the United States without the agreement being first Decision:
signed ● ordered defendant to render an accounting of the profits of the bottling and
Dec. 10 distribution business, subject of the action, and
● both of them went to the US ● ordered plaintiff 15 per cent thereof
● a franchise agreement was entered into between the Mission Dry ● held that the execution of the contract of partnership could not be enforced
Corporation and Fortunato F. Halili and/r Charles F. Woodhouse, granting upon the parties
defendant the exclusive right, license, and authority to produce, bottle, ● also held that the defense of fraud was not proved
distribute, and sell Mission beverages in the Philippines
Both parties appealed.
Went back to to PH.
ISSUE/S
Jan. 1948 1. W/N defendant had falsely represented that he had an exclusive franchise
● Woodhouse already reported for duty to bottle Mission beverages,
● Woodhouse given as advance, on account of profits, the sum of P2,000, 2. Whether this false representation or fraud, if it existed, annuls the
besides the use of a car agreement to form the partnership
First week of Feb. 1948
● only then did operations began TC:
● also given 2,000 1. it is improbable that defendant was never shown the letter granting plaintiff
Mar. 1948 the option defendant would not have gone to the United States without
● given 1,000 knowing what authority plaintiff had the drafts of the contract prior to the
● car was withdrawn final one can not be considered for the purpose of determining the issue, as
they are presumed to have been already integrated into the final agreement.
Bottling plant already in operation when Woodhouse demanded from Halili that 2. fraud is never presumed and must be proved
partnership papers be executed. 3. the parties were represented by attorneys, and that if any party thereto got
the worse part of the bargain, this fact alone would not invalidate the
Response agreement.
At first: excused himself 4. On this appeal the defendant, as appellant, insists that plaintiff did represent
Next: promised to do so after the sales of the products had been increased to P50,000 to the defendant that he had an exclusive franchise, when as a matter of
fact, at the time of its execution, he no longer had it as the same had
Woodhouse caused his attorneys to take up the matter with defendant with a view to expired, and that, therefore, the consent of the defendant to the contract
possible settlement. As none could be arrived at, the present action was instituted. was vitiated by fraud and it is, consequently, null and void.

Complaint Halili
● asks for the execution of the contract of partnership, an accounting of the ● insists that Woodhouse did represent to the defendant that he had an
profits, and a share thereof of 30 per cent, as well as damages in the exclusive franchise, when as a matter of fact, at the time of its execution,
amount of P200,000 he no longer had it as the same had expired, and that, therefore, the
 consent of the defendant to the contract was vitiated by fraud and it is, ● Had he done so, he would have destroyed all his bargaining power and
consequently, null and void authority, and in all probability lost the deal itself.

HELD: defendant's contention is not without merit. Plaintiff only undertook in the agreement "to secure the Mission Dry franchise for and
in behalf of the proposed partnership."
1st Issue: on false representation ● The existence in the final agreement does not militate against plaintiff
Mr. Laurea, testified that Woodhouse presented himself as being the exclusive having represented that he had the exclusive franchise;
grantee of a franchise ● it rather strengthens belief that he did actually make the representation.
I notice from the first draft of the document which I prepared which calls for the ○ How could plaintiff assure defendant that he would get the
organization of a corporation, that the manager, that is, Mr. Woodhouse, is franchise for the latter if he had not actually obtained it for
represented as being the exclusive grantee of a franchise from the Mission Dry himself? Defendant would
Corporation.” Proof: . . . and the manager is ready and willing to allow the capitalists to use the
exclusive franchise . . .1. In the event of the dissolution or termination of the
First draft prepared - expressly states that plaintiff had the exclusive franchise. partnership, . . . the franchise from Mission Dry Corporation shall be reassigned
Whereas, the manager is the exclusive grantee of a franchise from the Mission to the manager.
Dry Corporation San Francisco, California, for the bottling of Mission products and
their sale to the public throughout the Philippines; These statements confirm the conclusion that defendant believed, or was made to
3. That the manager, upon the organization of the said corporation, shall forthwith believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was
transfer to the said corporation his exclusive right to bottle Mission products and to also agreed upon that the franchise was to be transferred to the name of the
sell them throughout the Philippines.” partnership, and that, upon its dissolution or termination, the same shall be
reassigned to the plaintiff.
Court held:
● principle invoked is inapplicable, since the purpose of considering the prior These statements confirm the conclusion that defendant believed, or was made to
draft is not to vary, alter, or modify the agreement, but to discover the believe, that plaintiff was the grantee of an exclusive franchise.
intent of the parties thereto and the circumstances surrounding the
execution of the contract 2nd Issue: Does it amount to a fraud that would vitiate the contract?
● Did plaintiff represent to defendant that he had an exclusive franchise? Cer-
tainly, his acts or statements prior to the agreement are essential and With the modification above indicated, the judgment appealed from is hereby affirmed.
relevant to the determination of said issue. Without costs.
● Act or statement of the plaintiff: not sought to be introduced to change or
alter the terms of the agreement, but to prove how he induced the Fraud
defendant to enter into it—to prove the representations or inducements, or ● manifested in illimitable number of degrees or gradations, from the innocent
fraud, with which or by 'which he secured praises of a salesman about the excellence of his wares to those malicious
machinations and representations that the law punishes as a crime.
Fraud and false representation incident to the creation of a jural act, not to its ● In consequence, article 1270 of the Spanish Civil Code distinguishes two
integration, and are not governed by the rules on integration. Were parties kinds of (civil) fraud, the causal fraud, which may be a ground for the
prohibited from proving said representations or inducements, on the ground that the annulment of a contract, and the incidental deceit, which only renders the
agreement had already been entered into, it would be impossible to prove party who employs it liable for damages.
misrepresentation or fraud. The parol evidence rule expressly allows the evidence to ● in order that fraud may vitiate consent, it must be the causal (dolo
be introduced when the validity of an instrument is put in issue by the pleadings, as in causante), not merely the incidental (dolo causante), inducement to the
this case. making of the contract.
Case at hand
Plaintiff's own version of preliminary conversation ● The record abounds with circumstances indicative that the fact that the
● "Well, come back to me when you have the authority to operate. I am principal consideration, the main cause that induced defendant to enter into
definitely interested in the bottling business." the partnership agreement with plaintiff, was the ability of plaintiff to get
● must have exultantly told defendant that he had the authority already the exclusive franchise to bottle and distribute for the defendant or for
● improbable and incredible for him to have disclosed the fact that he had the partnership.
only an option to the exclusive franchise, which was to last thirty days ● The original draft prepared by defendant's counsel was to the effect that
only, and still more improbable for him to have disclosed that, at the time of plaintiff obligated himself to secure a franchise for the defendant.
the signing of the formal agreement, his option had already expired.
 ● Correction appears in this same original draft, but the change is made not agreement to form a partnership was to be carried out at a later date. They expressly
as to the said obligation but as to the grantee. agreed that they shall form a partnership.
● In the corrected draft the word "capitalist"(grantee) is changed to ● As a matter of fact, from the time that the franchise from the Mission Dry
"partnership." Corporation was obtained in California, plaintiff himself had been
● The contract in its final form retains the substituted term "partnership." The demanding that defendant comply with the agreement. And plaintiff's
defendant was, therefore, led to the belief that plaintiff had the exclusive present action seeks the enforcement of this agreement. Plaintiff's claim,
franchise, but that the same was to be secured for or transferred to the therefore, is both inconsistent with their intention and incompatible with his
partnership. own conduct and suit.
● The plaintiff no longer had the exclusive franchise, or the option ● the defendant may not be compelled against his will to carry out the
thereto, at the time the contract was perfected. But while he had already agreement nor execute the partnership papers. Under the Spanish Civil
lost his option thereto (when the contract was entered into), the principal Code, the defendant has an obligation to do, not to give. The law recognizes
obligation that he assumed or undertook was to secure said franchise for the individual's freedom or liberty to do an act he has promised to do, or not
the partnership, as the bottler and distributor for the Mission Dry to do it, as he pleases. It falls within what Spanish commentators call a very
Corporation. We declare, therefore, that if he was guilty of a false personal act (acto personalismo), of which courts may not compel
representation, this was not the causal consideration, or the principal compliance, as it is considered an act of violence to do so.
inducement, that led plaintiff to enter into the partnership agreement.
Last issue: Award for damages
Ownership of Exclusive was actually the consideration or price plaintiff gave in Against this amount of damages, we must set off the damage defendant suffered by
exchange for the share of 30 percent granted him in the net profits of the partnership plaintiff's misrepresentation that he had obtained a very high percentage of share in
business. the profits. We can do no better than follow the appraisal that the parties themselves
Defendant agreed to give plaintiff 30 per cent share in the net profits because he was had adopted.
transferring his exclusive franchise to the partnership. Thus, in the draft prepared by
plaintiff's lawyer, the following provision exists: That the MANAGER, upon the With the modification above indicated, the judgment appealed from is hereby affirmed.
organization of the said corporation, shall forthwith transfer to the said corporation his Without costs.
exclusive right to bottle Mission products and to sell them throughout the Philippines.
As a consideration for such transfer, the CAPITALIST shall transfer to the
Manager fully paid non assessable shares of the said corporation . . . twenty-five 29. Hemedes v. CA (October 8, 1999)
per centum of the capital stock of the said corporation.
J. Gonzaga-Reyes
Plaintiff
● never been a bottler or a chemist; Doctrine
● he never had experience in the production or distribution of beverages. ● Article 1324: When the offerer has allowed the offeree a certain period to
● As a matter of fact, when the bottling plant being built, all that he suggested accept, the offer may be withdrawn at any time before acceptance by
was about the toilet facilities for the laborers. communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
We conclude from the above that while the representation that plaintiff had the ● Art. 1324 is applicable when consent was given by mistake or fraud and not
exclusive franchise did not vitiate defendant's consent to the contract, it was used by when there is a complete absence of consent.
plaintiff to get from defendant a share of 30 per cent of the net profits; in other words, Facts
by pretending that he had the exclusive franchise and promising to transfer it to ● The subject parcel of land was originally owned by Jose Hemedes, father of
defendant, he obtained the consent of the latter to give him (plaintiff) a big slice Maxima Hemedes and Enrique Hemedes.
in the net profits. This is the dolo incidente defined in article 1270 of the Spanish ○ Jose executed a document entitled “Donation Inter Vivos with
Civil Code, because it was used to get the other party's consent to a big share in the Resolutory Conditions” where he conveyed ownership over the
profits, an incidental matter in the agreement. subject land, together with all its improvements, in favor of his
third wife, Justa Kausapin, subject to the following resolutory
Since fraudulent: May the agreement be carried out or executed? conditions:
We find no merit in the claim of plaintiff that the partnership was already a fait ■ Upon the death or remarriage of the DONEE, the title to
accompli from the time of the operation of the plant, as it is evident from the very the property donated shall revert to any of the children,
language of the agreement that the parties intended that the execution of the or their heirs, of the DONOR expressly designated by
the DONEE in a public document conveying the
property to the latter
 ■ In absence of such an express designation made by person enforcing the contract must show that the terms thereof have been
the DONEE before her death or remarriage contained fully explained to the former.
in a public instrument as above provided, the title to the ● Article 1332 was intended for the protection of a party to a contract who is at
property shall automatically revert to the legal heirs of a disadvantage due to his illiteracy, ignorance, mental weakness or other
the DONOR in common. handicap.23 This article contemplates a situation wherein a contract has
○ Pursuant to the first condition, Justa executed on September 27, been entered into, but the consent of one of the parties is vitiated by
1960 a “Deed of Conveyance of Unregistered Real Property by mistake or fraud committed by the other contracting party. Clearly, article
Reversion” conveying to Maxima the subject property. 1332 assumes that the consent of the contracting party imputing the
■ The ownership, title, and all rights and interests of the mistake or fraud was given, although vitiated, and does not cover a situation
property will be transferred to Maxima; except the where there is a complete absence of consent.
possession and enjoyment of the said property which ○ Justa disclaims any knowledge of the “Deed of Conveyance of
will remain with her until her death or remarriage. Unregistered Real Property by Reversion” in favor of Maxima.
● Maxima constituted a real estate mortgage over the property with R & B ● It is private respondents’ own allegations which render article 1332
Insurance. inapplicable for it is useless to determine whether or not Justa Kausapin
○ R&B Insurance extrajudicially foreclosed the mortgage since was induced to execute said deed of conveyance by means of fraud
Maxima failed to pay the loan. It was sold at a public auction with employed by Maxima Hemedes, who allegedly took advantage of the fact
R&B as the highest bidder. Maxima failed to redeem the property. that the former could not understand English, when Justa Kausapin denies
○ Register of Deeds issued a TCT in the name of R&B with the even having seen the document before the present case was initiated in
annotation of usufruct in favor of Justa. 1981.
● Justa executed a “Kasunduan” where she transferred the same property to ● The property was conveyed to Maxima and not to Enrique. The sale of
her Enrique. Enrique to Dominion is null and void.
● Enrique sold the land to Dominium Realty and Construction Corporation.
Justa executed an affidavit affirming such conveyance. 32. Tankeh v DBP
○ Dominium leased the property to Asia Brewery. Panaligan, Celina
● R&B and Maxima informed Asia Brewery of their ownership of the property.
● Dominium and Enrique filed a claim for the annulment of R&B’s TCT and/or Petitioner: Alejandro Tankeh
the reconveyance to Dominium of the property. They alleged that Dominium Respondent: Ruperto Tankeh (petitioner’s younger brother, President of Sterling
was the absolute owner. Shipping Lines, Inc.)
● RTC: ruled in favor of Dominium and Enrique. CA: affirmed.
Issue Doctrine: Dolo incidente, as opposed from dolo causante, does not vitiate consent; as
● Which of the two conveyances effectively transferred ownership over the such, any contract entered into is not annullable because it is merely incidental and
subject land? Maxima not causal fraud. Dolo incidente, referred to in Art. 1344 of the NCC, is the type of
Held fraud which is not serious in character and without which the other party would still
● CA ruled that the deed of conveyance in favor of Maxima was in English have entered into the contract. However the party liable for dolo causante is liable to
and that it was not explained to Justa Kausapin, although she could not the other party for damages.
read nor understand English; thus, Maxima failed to discharge her burden,
pursuant to Art. 1332 of the Civ Code, to show that the terms were fully Recit Ready: Petitioner claims that his younger brother respondent defrauded him by
explained. The registration of the property on the strength of the spurious making misrepresentations (saying that petitioner would be made shareholder in
deed of conveyance is null and void and does not confer any right of respondent’s company, etc.) that thereafter made him agree to said arrangement and
ownership upon Maxima. sign a promissory note binding him (petitioner) to be solidarily liable to DBP, the
● Maxima refutes the applicably of Art. 1332. Such provision is not applicable creditor of respondent’s company Sterling Shipping which made possible the
since there was not party seeking to enforce a contract. She is not enforcing procurement of a vessel (Sterling Ace). When he said that he wanted to be released
the deed of conveyance as her basis for ownership. from liability from the loan evidenced by the note, he alleged that because respondent
● Public respondent was in error when it sustained the trial court’s decision to did not deliver his promises, he (respondent) had committed causal fraud against him
nullify the “Deed of Conveyance of Unregistered Real Property by (petitioner). The SC found that there was only incidental, not causal, fraud, which did
Reversion” for failure of Maxima Hemedes to comply with article 1332 of the not make their agreement/promissory note annullable. Respondent was only held
Civil Code, which states: liable for damages in favor of petitioner (worth 500k).
When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the Facts:
 ● Ruperto Tankeh is the president of Sterling Shipping Lines Inc., a company fraud. In Geraldez, this Court defined incidental fraud as “those which are not serious
incorporated to operate ocean-going vessels engaged primarily in foreign in character and without which the other party would still have entered into the
trade. contract.”
● He applied for a $3.5m loan from Development Bank of the Philippines for
the partial financing of the vessel M/V Golden Lilac (later renamed Sterling “Although there was no fraud that had been undertaken to obtain petitioner’s consent,
Ace). DBP required among other things that the vessel be mortgaged in there was fraud in the performance of the contract. The records showed that
favor of DBP and that its earnings shall be assigned to DBP until such time petitioner had been unjustly excluded from participating in the management of the
that the loan has been paid. DBP also required that 67% of the outstanding affairs of the corporation. This exclusion from the management in the affairs of Sterling
voting shares of Sterling Shipping Lines be assigned to it. Shipping Lines, Inc. constituted fraud incidental to the performance of the obligation.
● To secure this loan, Respondent along with Petitioner et al bound
themselves jointly and severally liable through a promissory note Art. 1344 provides that
● Before this promissory note was signed, Respondent approached his older
brother respondent and told him that he (petitioner) would be given 1000 “In order that fraud may make a contract voidable, it should be serious
shares to be director of Sterling Shipping. These shares were worth 1m. and should not have been employed by both contracting parties.
● In consideration of this, petitioner signed the Assignment of Shares of Stock Incidental fraud only obliges the person employing it to pay damages.”
With Voting Rights and the promissory note abovementioned. The 67%
shares of the company were also assigned thereafter to DBP. Dolo incidente, referred to in par. 2 of Art 1344 only obliges the person employing it to
● Two years later petitioner informed respondent saying that he was severing pay damages. Since Ruperto Tankeh was found to have defrauded his brother by
all ties and terminating his involvement with Sterling Shipping. Among the making him believe that he would be part of the Board of Directors of respondent’s
reasons he stated was that he was never really involved in the company’s company, the SC found him liable for P500,000.
management; he never got to join any meeting and was not informed of the
decisions being made by the Board of Directors (which his brother told him As to the allegation by petitioner that his consent had been induced through causal
that he would be part of). Petitioner’s son, who was promised a position in fraud, the Court finds that, considering petitioner’s standing as a doctor, he should
the company, never got to be part of the company as well. have inquired more into the nature of the contract he had entered into, wherein he
● Some time later petitioner found out that the vessel mortgaged to DBP was sworn in as a shareholder of the company (he had been given 1,000 shares with
(which by that time had already been transferred to Asset Privatization Trust a par value of 1m by respondent) without paying a single cent. The unusual
by virtue of Presidential Proclamation 50) had been sold for a mere $350k in circumstances should have alerted him that there was an irregularity in the contract.
Singapore. Petitioner was still bound through promissory note for the Furthermore, Art. 1340 provides that “The usual exaggerations in trade, when the
outstanding loan balance. other party had an opportunity to know the facts, are not in themselves
● Petitioner prayed that he be released from liability, arguing that respondent fraudulent.”
had exercised deceit and fraud in causing petitioner to bind himself
solidarily to pay DBP for the amount of the loan. He alleged that he had Incidental fraud, which is defined in Art. 1338 of the NCC, is not applicable to
never invested any amount in the corporation and that he was not even an this case as the fraud committed by respondent was during the performance of
actual member of the Board. the contract, and not when the contract is entered into.
● The Regional Trial Court, finding the existence of (causal) fraud, rendered
null and void the promissory note.
● Respondent appealed this to the CA, and the CA reversed the RTC 33. Rural Bank of Sta. Maria vs. CA
decision making no finding of fraud By Claud Bernas
● Hence this petition to the Supreme Court.
DOCTRINE:
Issue: W/N The Court of Appeals, in reversing the decision of the RTC, erred in The elements of fraud vitiating consent for purposes of annulling a contract are: (a) It
finding that Ruperto Tankeh did not commit any fraud against his brother Alejandro was employed by a contracting party upon the other; (b) It induced the other party to
Tankeh enter into the contract; (c) It was serious; and, (d) It resulted in damages and injury to
the party seeking annulment.
Held: There was fraud committed in this case, but such was merely incidental, not Pursuant to Article 1339 of the Civil Code, silence or concealment, by itself, does not
causal, inasmuch as Alejandro Tankeh would still have entered into the agreement constitute fraud, unless there is a special duty to disclose certain facts, or unless
with his brother even with it being present. according to good faith and the usages of commerce the communication should be
made.
“However, in refusing to allow petitioner to participate in the management of the
business, respondent Ruperto V. Tankeh was liable for the commission of incidental FACTS:
● Manuel Behis is the owner of a parcel of land that was mortgaged in favor of WON the memorandum of agreement between the bank and private respondents is
Rural Bannk of Sta. Maria voidable on the ground that its consent to enter said agreement was vitiated by fraud
● Unfortunately, thereafter, Manuel Behis was delinquent in paying his debts. because private respondents withheld from petitioner bank the material information
● On January 9, 1985, Manuel Behis sold the land to the plaintiffs4 in a Deed of that the real consideration for the sale with assumption of mortgage of the property by
Absolute Sale with Assumption of Mortgage for the sum of P250,000.00 which Manuel Behis to Rayandayan and Arceño is P2,400,000.00, and not P250,000.00 as
bears the signature of his wife Cristina Behis. Manuel Behis took it upon himself represented to petitioner bank.
to secure the signature of his wife and came back with it. On the same date of
January 9, 1985, plaintiffs and Manuel Behis simultaneously executed another HELD:
Agreement whereby plaintiffs are indebted to Manuel Behis for the sum of ● NO
P2,400,000.00 payable in installments with P10,000.00 paid upon signing and ● The kind of fraud that will vitiate a contract refers to those insidious words or
in case of default in the installments, Manuel Behis shall have legal recourse to machinations resorted to by one of the contracting parties to induce the other to
the portions of the land equivalent to the unpaid balance of the amounts in enter into a contract which without them he would not have agreed to
installments ● Simply stated, the fraud must be the determining cause of the contract, or must
● Pursuant to their two contracts with Manuel Behis, plaintiffs paid him during his have caused the consent to be given
lifetime the sum of P10,000.00 plus P50,000.00 plus P145,800.00 and the sum ● It is believed that the nondisclosure to the bank of the purchase price of the sale
of P21,353.75 for the hospitalization, medical and burial expenses of Manuel of the land between private respondents and Manuel Behis cannot be the
Behis when he died on June 21, 1985. “fraud” contemplated by Article 1338 of the Civil Code.
● Obviously, from the above payments, the plaintiffs were unable to complete ● From the sole reason submitted by the petitioner bank that it was kept in the
their full payment to Manuel Behis of the sale of the land as it is nowhere near dark as to the financial capacity of private respondents, we cannot see how the
P2,400,000.00. omission or concealment of the real purchase price could have induced the
● On September 5, 1985, Cristina Behis, widow of Manuel Behis, wrote a letter to bank into giving its consent to the agreement; or that the bank would not have
the Bank claiming the Real Estate mortgage was without her signature. And in otherwise given its consent had it known of the real purchase price.
another letter dated October 28, 1985 to the Bank. Cristina Behis stressed she ● the consideration for the purchase of the land between Manuel Behis and
did not authorize anybody to redeem the property in her behalf as one of the herein private respondents Rayandayan and Arceño could not have been the
mortgagors of the land. determining cause for the petitioner bank to enter into the memorandum of
● Then, months passed, and nothing was heard from the plaintiffs by the Bank. agreement. To all intents and purposes, the bank entered into said agreement
On the first week of July, 1986, Teodoro Verzosa, President of Halsema, Inc., in order to effect payment on the indebtedness of Manuel Behis.
heard about the land and got interested and had preliminary talks with Vicente ● In this case, the consideration for the sale with assumption of mortgage was not
Natividad, President of the Bank, and with Edilberto Natividad, the principal the inducement to defendant bank to give a consent which it would not
stockholder of the bank. otherwise have given.
● upon suggestion of the lawyer of Halsema, an Assignment of Mortgage was ● We are, therefore, constrained to uphold the validity of the Memorandum of
entered into on July 28, 1986 between Halsema and the Bank for the Agreement, Exhibit F, and reverse and set aside the ruling declaring the same
consideration of P520,765.45 (Exhibit ‘1,’ Bank) which amount was the total annulled allegedly due to fraud of plaintiffs-appellants
indebtedness of Manuel Behis with the Bank at the time (Exhibit ‘7A,’ Halsema). ● pursuant to Article 1339 of the Civil Code,16 silence or concealment, by itself,
Note however, that what was assigned was the Mortgage made originally by does not constitute fraud, unless there is a special duty to disclose certain facts,
Manuel Behis and not the Mortgage as or unless according to good faith and the usages of commerce the
● In other words, the bank assigned the mortgage to Halsema while it was still communication should be made.
under Arceño ● the bank had other means and opportunity of verifying the financial capacity of
● the Bank explained it entered into the Assignment of Mortgage because at the private respondents and cannot avoid the contract on the ground that they were
time it considered the Memorandum of Agreement cancelled as first, plaintiffs kept in the dark as to the financial capacity by the non disclosure of the
failed to settle the objections of Cristina Behis aforesaid on her signature being purchase price.
forged in the Deed of Sale with Assumption of Mortgage despite the lapse of ● Consequently, not all the elements of fraud vitiating consent for purposes of
time from February, 1986 to July, 1986. Second, the terms of the Memorandum annulling a contract concur, to wit: (a) It was employed by a contracting party
of Agreement have not been fully complied with as the payments were not upon the other; (b) It induced the other party to enter into the contract; (c) It was
made on time on the dates fixed therein; and third, their consent to the serious; and, (d) It resulted in damages and injury to the party seeking
Memorandum of Agreement was secured by the plaintiffs thru fraud as the Bank annulment.
was not shown the Agreement containing the real consideration of
P2,400,000.00 of the sale of the land of Manuel Behis to plaintiffs.
34.
ISSUE
 - Such decision is AFFIRMED by the Supreme Court;
35. AZARRAGA v. GAY (1928)
TOPIC: DOLO/FRAUD Respondent cannot claim that she was defrauded or that the land was misrepresented
PETITIONER: Azarraga when she herself had ample opportunity to appraise the land she was purchasing, and
RESPONDENT: Gay the petitioner was not preventing her from doing so. In fact, Respondent RECEIVED
DOCTRINE: In the sale of REAL PROPERTIES, purchaser cannot claim that he was the original title that the petitioner had received when he himself purchased the land
defrauded/deceived by misrepresentation of the area/size of the land when (1) he had from its original owner, PRIOR to the institution of the contract in Exhibit A. Such is a
all the opportunity and means to appraise the land in question, without the vendor well-settled principle in American jurisprudence, that:
ever preventing him from doing so, and (2) that the title of the land gives a correct and
accurate description of the land in question. “Misrepresentation by a vendor of real property with reference to its area are not
actionable, where a correct description of the property was given in the deed and
Petitioner Azarraga sold 2 parcels of land to respondent Gay for a lump sum of 47k recorded chain of title, which the purchaser's agent undertook to investigate and
PHP, payable in installments.Such was manifested in a public document called Exhibit report upon, and the vendor made on effort to prevent a full investigation." (Shappirio
A dated January 17 1921. vs. Goldberg, 48 Law. ed., 419.)

AGREEMENT (ang napagusapan!) "One who contracts for the purchase of real estate in reliance on the representations
1. 5k upon signing Exhibit A (contract) and statements of the vendor as to its character and value, but after he has visited
2. 20k upon delivery of the Torrens title of the 1st parcel of land and examined it for himself, and has had the means and opportunity of verifying such
3. 10k upon delivery of the Torrens title of the 2nd parcel of land statements, cannot avoid the contract on the ground that they were false or
4. 12k after one year of delivering the Torrens title of 2nd parcel of land exaggerated." (Brown vs. Smith, 109 Fed., 26.)

ACTUAL! (eto yung nangyari) Respondent knew of the area of the land, having seen and acquired in her possession
1. 5k PAID upon signing [Jan 17 1921] the original title of the land that petitioner had purchased from its original owner, as
2. 1st Torrens title DELIVERED; 20k PAID early as September 1920. She did not complain of the difference in the allegations of
3. 2nd title DELIVERED; 10k NOT PAID [March 1921] the vendor and the title until the year 1926. And it would appear from her
4. 10k still UNPAID; 12k NOT PAID after 1 year corresponding letters with petitioner, respondent admitted the existence of her debt
but never mentioned the reduced area, nor did she complain the supposed “deceit.”
PETITIONER: Asking for payment of 22k with legal interest (on the 10k, from April The court believes there was no deceit in such case.
1921 & on the 12k, from April 1922) OTHER unrelated issue - Art 1471 (not important)
RESPONDENT: Counter-claimed, that Petitioner Azarraga misrepresented the 2nd
parcel of land to be 98 hectares when it was, in fact, 60 hectares. She claimed that
such was made to appear in the deed of the sale, in which she was induced to bind 36. Intac VS CA
herself to pay 47k for two parcels of land no less than 200sq meters, but had she Facts:
known that the 2nd parcel was of 60sqm she would not have bought it. Respondent § Ireneo Mendoza, married to Salvacion Fermin, was the owner of the subject
Gay then contends that she is entitled to a reduced price of 38k, and that other than property located in Quezon city which he purchased in 1954. (TCT No.
those acknowledged by Petitioner, she paid 4k as well. She claims likewise that they 242655)
have never refused to pay the reduced price, but that the plaintiff refused to accept § Ireneo had two children: respondents Josefina and Martina (respondents),
payment. Respondent prays for indeminification of 15k for the damages sustained at Salvacion being their stepmother.
the malicious filing of herein complaint. § When he was still alive, Ireneo, also took care of his niece, Angelina, since
she was three years old until she got married.
Lower court held that the two parties had not given importance to the area of the land § On October 25, 1977, Ireneo, with the consent of Salvacion, executed a
in consenting to the contract in question, and that there was no fraud when the two deed of absolute sale of the property in favor of Angelina and her husband,
parties agreed to the contract. Mario (Spouses Intac).
 § Despite the sale, Ireneo and his family, including the respondents, continued
staying in the premises and paying the realty taxes. After Ireneo died intestate Articles 1345 and 1346 of the Civil Code provide:
in 1982, his widow and the respondents remained in the premises. After Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
Salvacion died, respondents still maintained their residence there. Up to the when the parties do not intend to be bound at all; the latter, when the parties conceal
present, they are in the premises, paying the real estate taxes thereon, leasing their true agreement.
out portions of the property, and collecting the rentals.
§ The controversy arose when respondents sought the cancellation of TCT
No. 242655, claiming that the sale was only simulated and, therefore, void. Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation,
§ The heirs of Ireneo, the respondents in this case, alleged that: 1. When when it does not prejudice a third person and is not intended for any purpose contrary
Ireneo was still alive, Spouses Intac borrowed the title of the property (TCT No. to law, morals, good customs, public order or public policy binds the parties to their
106530) from him to be used as collateral for a loan from a financing real agreement.
institution; 2. they objected because the title would be placed in the names of
said spouses and it would then appear that the couple owned the property; that Relatively simulated agreement vs. Absolute simulation
Ireneo, however, tried to appease them, telling them not to worry because If the parties state a false cause in the contract to conceal their real agreement, the
Angelina would not take advantage of the situation considering that he took contract is only relatively simulated and the parties are still bound by their real
care of her for a very long time; that during his lifetime, he informed them that agreement. Hence, where the essential requisites of a contract are present and the
the subject property would be equally divided among them after his death; and simulation refers only to the content or terms of the contract, the agreement is
3. that respondents were the ones paying the real estate taxes over said absolutely binding and enforceable between the parties and their successors in
property. interest
§ Spouses Intac countered, among others, that the subject property had been
transferred to them based on a valid deed of absolute sale and for a valuable
In absolute simulation, there is a colorable contract but it has no substance as the
consideration; that the action to annul the deed of absolute sale had already
parties have no intention to be bound by it. "The main characteristic of an absolute
prescribed; that the stay of respondents in the subject premises was only by
simulation is that the apparent contract is not really desired or intended to produce
tolerance during Ireneo’s lifetime because they were not yet in need of it at that
legal effect or in any way alter the juridical situation of the parties." "As a result, an
time; and that despite respondents’ knowledge about the sale that took place
absolutely simulated or fictitious contract is void, and the parties may recover from
on October 25, 1977, respondents still filed an action against them.
each other what they may have given under the contract."
§ RTC ruled in favor of the respondents saying that the sale to the spouses
Intac was null and void. The CA also ruled that there was no consideration in
the sale to the spouses Intac and that the contract was one for equitable No valid sale took place between Ireneo and Spouses Intac
mortgage. 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.

Issues: Evidences to prove that there was no absolute deed of sale between the parties
WON the Deed of Absolute Sale was a simulated contract or a valid agreement. Critical is the testimony of Marietto, a witness to the execution of the subject absolute
WON the Deed of Absolute Sale, dated October 25, 1977, involving the subject real deed of sale. He testified that Ireneo personally told him that he was going to execute
property in Pagasa, Quezon City, was a simulated contract or a valid agreement. 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
Held: 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.

The deed of sale executed by Ireneo and Salvacion was absolutely simulated for lack
of consideration and cause and, therefore, void.
Aside from their plain denial, the heirs of Intac failed to present any concrete evidence registration does not vest title. As a logical consequence, petitioners did not become
to disprove Marietto’s testimony. They claimed that they actually paid P150,000.00 for the owners of the subject property even after a TCT had been issued in their names.
the subject property. They, however, failed to adduce proof, even by circumstantial
evidence, that they did, in fact, pay it. Even for the consideration of P60,000.00 as 37. Arogante v. Deliarte (July 24, 2007)
stated in the contract, petitioners could not show any tangible evidence of any Aragon, Jyn E.
payment therefor. Their failure to prove their payment only strengthened Marietto’s
story that there was no payment made because Ireneo had no intention to sell the DOCTRINE:
subject property. A contract entered into upon future inheritance is void. The law applies when the
following requisites concur:
Angelina’s story, except on the consideration, was consistent with that of Marietto.
Angelina testified that she and her husband mortgaged the subject property sometime (1) The succession has not yet been opened.
in July 1978 to finance the construction of a small hospital in Sta. Cruz, Laguna. (2) The object of the contract forms part of the inheritance.
Angelina claimed that Ireneo offered the property as he was in deep financial need. (3) The promissor has, with respect to the object, an expectancy of a right
which is purely hereditary in nature.
The contract of sale was only for the purpose of lending the title of the property
to Spouses Intac to enable them to secure a loan. The general rule is that contracts are valid in whatever form they may be. One
Their arrangement was only temporary and could not give rise to a valid sale. Where exception is the Statute of Frauds. A Statute of Fraud states that contracts must be
there is no consideration, the sale is null and void ab initio. The case of Lequin vs. written and executed properly to prevent perjury and fraud. However, this Statute of
VIzconde was cited in this case. Frauds only applies to executory, not to completed, executed, or partially
consummated, contracts
The fact that Ireneo was still in physical possession of the subject property after
the sale is a strong evidence to prove that there was no valid sale between the
parties.
More importantly, Ireneo and his family continued to be in physical possession of the RECIT READY:
subject property after the sale in 1977 and up to the present. They even went as far as
leasing the same and collecting rentals. If Spouses Intac really purchased the subject The lot in controversy is Lot no 472-A, situated in Poblacion, Daanbantayn, Cebu. It was
property and claimed to be its true owners, why did they not assert their ownership originally owned by Bernabe Deliarte Sr. and petitioner Gregoria Palcenta. Beethoven
immediately after the alleged sale took place? Why did they have to assert their (son of Bernabe and Gregoria) occupied and possessed the subject lot openly as an
ownership of it only after the death of Ireneo and Salvacion? One of the most striking owner, without any protests from his siblings. This was the arrangement after
badges of absolute simulation is the complete absence of any attempt on the part of a Beethoven paid for the hospitalization and burial expenses of the parents.
vendee to assert his right of dominion over the property.
In August 1993, the son of Fe (nephew of Beethoven) Lordito Arrogante installed
As heretofore shown, the contemporaneous and subsequent acts of both parties in placards on the fence erected by respondents, claiming that the subject lot was illegally
this case, point to the fact that the intention of Ireneo was just to lend the title to the acquired by the latter. The placards depicted Beethoven as a land grabber who had
Spouses Intac to enable them to borrow money and put up a hospital in Sta. Cruz, unconscionably taken the subject lot from Lordito who claimed that the lot is a devise
Laguna. Clearly, the subject contract was absolutely simulated and, therefore, void. from his grandfather.

The Spouses Intac never became the owners of the property despite its ISSUE: Whether the private deed of sale is a valid contract, allowing for conveyance of
registration in their names. the entire lot to Beethoven?
It is also of no moment that TCT No. 106530 covering the subject property was
cancelled and a new TCT (TCT No. 242655)21 was issued in their names. After all,
HELD: No. The private deed of sale is void for being a conveyance of future who had unconscionably taken the subject lot from Lordito who claimed that the lot is
inheritance. Likewise, the deed of confirmation of sale which sought to ratify the a devise from his grandfather.
previous sale is also void.
Allegedly, the bequeathal was made in Bernabes last will and testament which was,
The general rule is that contracts are valid in whatever form they may be. One unfortunately, torn up and destroyed by Beethoven. Respondents filed an action for
exception is the Statute of Frauds. A Statute of Fraud states that contracts must be quieting of title and damages against the petitioners.
written and executed properly to prevent perjury and fraud. However, this Statute of
Frauds only applies to executory, not to completed, executed, or partially RTC rendered a Decision quieting title on the subject lot in favor of respondents and
consummated, contracts. In this case, the agreement between the parties had long directing petitioners, jointly and severally, to pay the respondents P150,000.00 as
been consummated and completed. It was even ratified by the parties involved. moral damages, P25,000.00 as attorneys fees, and P10,000.00 as litigation expenses.
CA affirmed the decision but deleted the award of attorneys fees and litigation
expenses
FACTS:
ISSUE:
The lot in controversy is Lot no 472-A, situated in Poblacion, Daanbantayn, Cebu. It Whether the private deed of sale is a valid contract, allowing for conveyance of the
entire lot to Beethoven?
was originally owned by Bernabe Deliarte Sr. and Gregoria Placencia. They had nine
children including respondent Beethoven Deliarte and petitioner Fe Deliarte
Arrogante. HELD: No. The private deed of sale is void for being a conveyance of future
inheritance. Likewise, the deed of confirmation of sale which sought to ratify the
A series of misfortune struck the Deliarte family. Beethoven initially shouldered the previous sale is also void. Article 1342, par 2 of the civil code states:
hospitalization and death of a brother, including the transport of the body from Davao
to Cebu. Beethoven also paid for the hospitalization and burial of their father No contract may be entered into upon future inheritance except in cases
(Bernabe) and mother (Gregoria). expressly authorized by law.

In between the deaths of Gregoria and Bernabe, on November 16, 1978, the Deliarte The law applies when the following requisites concur:
siblings agreed to waive and convey in favor of Beethoven all their rights, interests,
and claims to the subject lot in consideration of P15,000.00. At the signing of the deed (1) The succession has not yet been opened.
of absolute sale, the siblings who failed to attend the family gathering, either because (2) The object of the contract forms part of the inheritance.
they were dead or were simply unable to, were represented by their respective (3) The promissor has, with respect to the object, an expectancy of a right
spouses who signed the document on their behalf. Bernabe, who was already blind at which is purely hereditary in nature.
that time, was likewise present and knew of the sale that took place among his
children.
The deed of sale is void, even though there is consent and acquiescence of each
Deliarte sibling. There was no objection even after Beethoven forthwith possessed and
Beethoven occupied and possessed the subject lot openly as an owner, without any occupied the subject lot. This arrangement vaguely reflected in the void deed of sale,
protests from his siblings. All of Beethoven’s siblings, except Fe signed a deed of points to a meeting of the minds among the parties constitutive of an innominate
confirmation of sale in favor of Beethoven to ratify the 1978 private deed of sale. contract, akin to both an onerous and a remuneratory donation. Thus, he agreement
between the parties had both an onerous and a remunerative cause.
In August 1993, the son of Fe (nephew of Beethoven) Lordito Arrogante installed
placards on the fence erected by respondents, claiming that the subject lot was In this regard, Bernabes waiver and relinquishment of his share in the subject lot is
illegally acquired by the latter. The placards depicted Beethoven as a land grabber effectively a donation inter vivos to his children. However, the gratuitous act is coupled
with an onerous cause equal accountability of the Deliarte siblings for the
hospitalization and death expenses of deceased family members to be taken from their covering the properties. Respondent attempted to return the deposit, but petitioner
shares in the subject lot. In turn, the remunerative cause pertains to Beethovens refused on the ground that respondent's option to purchase had already expired.
recompense for the family expenses he initially shouldered.
Respondent filed a complaint for specific performance against petitioner before the
RTC. Petitioner filed a motion to dismiss alleging that the complaint did not allege a
The general rule is that contracts are valid in whatever form they may be. One
exception is the Statute of Frauds. A Statute of Fraud states that contracts must be cause of action because there was no "meeting of the minds" between the parties
and, therefore, no perfected contract of sale. RTC granted the motion to dismiss. MR
written and executed properly to prevent perjury and fraud. However, this Statute of
Frauds only applies to executory, not to completed, executed, or partially of respondent denied. CA revered judgement of RTC. Held that all the requisites of a
perfected contract of sale had been complied with as the offer made in connection
consummated, contracts
with which the earnest money in the amount of P1 million was tendered by
respondents, had already been accepted by petitioner. MR of petitioner denied.
This is not applicable here because even if all requisites for a valid contract are
present, specifically: (1) consent of the parties; (2) object or subject matter, comprised
of the parties respective shares in the subject lot; and (3) the consideration, over and Issue: WON there was a perfected contract of sale between the parties
above the P15,000.00 stipulated price, the agreement between the parties had long
been consummated and completed. More importantly, the parties, including petitioner Ruling:
Fe, ratified the agreement by the acceptance of benefits thereunder. No. The condition for an option period of 30 days sufficiently shows that a sale was
never perfected. All that respondents had was just the option to buy the properties
which privilege was not, however, exercised by them because there was a failure to
agree on the terms of payment.
38. San Miguel Properties v. Spouses Huang
Equally compelling as proof of the absence of a perfected sale is the second condition
Doctrine: The manner of payment of the purchase price is an essential element that, during the option period, the parties would negotiate the terms and conditions of
before a valid and binding contract of sale can exist. Agreement on the manner of the purchase. In the present case, the parties never got past the negotiation stage.
payment goes into the price such that a disagreement on the manner of payment is The alleged "indubitable evidence" of a perfected sale cited by the appellate court was
tantamount to a failure to agree on the price. nothing more than offers and counter-offers which did not amount to any final
arrangement containing the essential elements of a contract of sale. While the parties
Facts: already agreed on the real properties which were the objects of the sale and on the
2 parcels of land in Pasig owned by San Miguel were offered for sale for 52,140,000 in purchase price, the fact remains that they failed to arrive at mutually acceptable
cash to the Atty. Dauz who was acting for respondent spouses. Dauz signified the terms of payment, despite the 45-day extension given by petitioner.
acceptance of the amount, but with the following terms: the sum of P500,000.00 would
be given as earnest money and the balance would be paid in eight equal monthly The manner of payment of the purchase price is an essential element before a
installments. Petitioner refused the counter-offer. Dauz wrote another letter proposing valid and binding contract of sale can exist. Although the Civil Code does not
a different term for the purchase of property [1M deposit money, with the ff conditions: expressly state that the minds of the parties must also meet on the terms or manner of
exclusive option to purchase property within 30 days, during said period we will payment of the price, the same is needed, otherwise there is no sale. Agreement on
negotiate terms and conditions of purchase and we will initiate documentation if there the manner of payment goes into the price such that a disagreement on the manner of
is a mutual agreement, and if no agreement 1M will be refundable upon demand]. payment is tantamount to a failure to agree on the price.
Sobrecarey, petitioners vice-president and operations manager for corporate real
estate, indicated his conformity to the offer by affixing his signature to the letter and 39. Uy v. CA
accepted the "earnest-deposit" of P1 million.
Doctrine/Summary:
They commenced negotiation, but petitioner returned the deposit because they failed · Cause is the essential reason, which moves the contracting parties to enter into it—it
to agree to terms and condition despite extension granted by petitioner. Respondent is the immediate, direct and proximate reason, which justifies the creation of an
spouses through counsel, wrote petitioner demanding the execution of a deed of sale obligation through the will of the contracting parties.
 o The cancellation, therefore, was not a rescission under Article 1191. · RTC of QC – petitioners filed complaint for damages against NHA and its Gen.
Rather, the cancellation was based on the negation of the cause Manager Balao
arising from the realization that the lands, which were the object o RTC awarded 1.225M, the same amount initially offered by NHA
of the sale, were not suitable for housing. · CA – reversed the decision
· Cause, which is the essential reason for the contract, should be distinguished from o “It saw no reason for the award of damages”
motive, which is the particular reason of a contracting party which does not affect the o Also noted that petitioners were mere attorneys-in-fact and not real
other party. parties-in-interest in the action before the TC.
· Ordinarily, a party’s motives for entering into a contract do not affect the contract, but § Par. 4 – plaintiffs alleged themselves to be “sellers’ agents
when the motive predetermines the cause, the motive may be regarded as the for the several owners of the 8 lots”
cause. · Uy and Roxas acted as attorneys-in-fact of
o In Liguez vs. Court of Appeals the owners of the lot who should be the real
§ It is well to note, however, that Manresa himself (Vol. 8, parties in interest
pp. 641642), while maintaining the distinction and o Where the action is brought by an
upholding the inoperativeness of the motives of the attorney-in-fact of a land owner in
parties to determine the validity of the contract, his name, and not in the name of
expressly excepts from the rule those contracts that are the principal, the action was
conditioned upon the attainment of the motives of either properly dismissed
party. o Uy and Roxas, an attorneys-in-fact cannot by themselves lawfully
§ The same view is held by the Supreme Court of Spain, in commence this action. Even if they were authorized by the lot
holding that the motive may be regarded as cause owners, same must still be filed in the name of the principal
when it predetermines the purpose of the contract. ISSUES
· A buyer may justifiably cancel a contract of sale upon realization of the mistake as WON the cancellation of the contract was a recession under Art. 1911
regards the quality of the land, resulting in the negation of the motive/cause thus HELD
rendering the contract inexistent
o The NHA was justified in canceling the contract. The realization of · No, the cancellation was based on the negation of the cause arising from the
the mistake as regards the quality of the land resulted in the realization that the lands, the object od the sale, were not suitable for housing
negation of the motive/cause thus rendering the contract · Cause – immediate, direct and proximate reason which justifies the creation of an
inexistent. obligation through the will of the contracting parties
FACTS o Cause – essential reason for the contract
· Petitioners William Uy and Rodel Roxas are agents authorized to sell 8 parcels of land o Motive – particular reason of a contracting party which does not
by the owners thereof affect the other party
o Petitioners offered to sell lands located in Tuba, Tadiangan Benguet · Cause of the vendor in entering the contract is to obtain the price
to NHA to be utilized and developed as a housing project · Motive of the NHA – use said lands for housing
· NHA board passed a resolution approving the acquisition of said lands, executed a o When motive predetermines the cause, motive may be regarded as
series of Deeds of Absolute Sale covering the subject lands cause
o Area: 31.8 hectares · Quality of land was an implied condition for the NHA to enter into the contract
o Cost: P23.8M o Part of the NHA – motive was the cause for its being a party to the
· 5 out of 8 were only paid because of the report NHA received from the Land sale
Geosciences Bureau of the DENR – that the remaining area is located at an active · Findings of the Land Geosciences were sufficient basis for the cancellation of the sale
landslide area and thereof, not sustainable for development into a housing project
· NHA issued another resolution cancelling the sale over the 3 parcels of land; through 40. Yu Bun Guan vs. Ong
a different Resolution, NHA subsequently offered 1.225M pesos to the landowners as
danos perjuicos (liquidated damages)
DOCTRINE: A simulated deed of sale has no legal effect, and the transfer certificate If only to reflect the true ownership of the JP Rizal property, a Deed of Sale was then
of title issued in consequence thereof should be cancelled. Pari delicto does not apply executed in 1972. Believing in good faith that his owner's copy of the title was lost and
to simulated sales. not knowing that the same was surreptitiously 'concealed' by Elvira, he filed in 1993 a
petition for replacement of the owner's copy of the title, in court. That Elvira could not
have purchased the property because she had no financial capacity to do so; on the
FACTS:
Elvira Ong and Yu Bun Guan are husband and wife, having been married according to other hand, he was financially capable although he was financially capable although
he was disqualified to acquire the property by reason of his nationality.
Chinese rites on April 30, 1961. They lived together until she and her children were
abandoned by Yu Bun Guan on August 26, 1992, because of the latter's 'incurable
promiscuity, volcanic temper and other vicious vices'; out of the reunion were born RTC voided the Deed of Absolute Sale of the JP Rizal property.
three (3) children, now living with her [respondent]. CA upheld the decision of the RTC.

She purchased on March 20, 1968, out of her personal funds, a parcel of land, then ISSUE: WON the sale was valid
referred to as the Rizal property, from Aurora Seneris, and supported by Title No.
26795, then subsequently registered on April 17, 1968, in her name. HELD: No

Before their separation in 1992, she 'reluctantly agreed' to Yu Bun Guan 'importunings' Petitioner argues that there was a valid sale between the parties, and that the
that she execute a Deed of Sale of the J.P. Rizal property in his favor, but on the consideration consisted of his promise to construct a commercial building for the
promise that he would construct a commercial building for the benefit of the children. benefit of their three children and to pay the loan he had obtained from Allied Bank.
He suggested that the J.P. Rizal property should be in his name alone so that she
would not be involved in any obligation. The consideration for the 'simulated sale' was
that, after its execution in which he would represent himself as single, a Deed of We disagree. In Rongavilla v. Court of Appeals, the Court declared that a deed of
Absolute Sale would be executed in favor of the three (3) children and that he would sale, in which the stated consideration had not in fact been paid, is null and void.
pay the Allied Bank, Inc. the loan he obtained.
In the present case, it is clear from the factual findings of both lower courts that the
Because of the sale, a new title (TCT No. 181033) was issued in his name, but to Deed of Sale was completely simulated and, hence, void and without effect. No
'insure' that he would comply with his commitment, she did not deliver the owner's portion of the P200,000 consideration stated in the Deed was ever paid And, from the
copy of the title to him. facts of the case, it is clear that neither party had any intention whatsoever to pay that
amount.
Yu Bun on the other hand, filed with the RTC, Makati, in 1993 a 'Petition for
Replacement' of an owner's duplicate title, which was granted. Upon discovery of the Instead, the Deed of Sale was executed merely to facilitate the transfer of the property
'fraudulent steps' taken by the [petitioner], [respondent] immediately executed an to petitioner pursuant to an agreement between the parties to enable him to construct
Affidavit of Adverse Claim on November 29, 1993. She precisely asked the court that a commercial building and to sell the Juno property to their children. Being merely a
the sale of the JP Rizal property be declared as null and void; for the title to be subterfuge, that agreement cannot be taken as the consideration for the sale.
cancelled; payment of actual, moral and exemplary damages; and attorney's fees.

Yu Bun Guan’s contention: 41. Heirs of Balite v Lim

That sometime in 1968 the JP Rizal property was being offered to him for sale.
Because he was not a Filipino, he utilized Elvira as his 'dummy' and agreed to have Doctrine:
the sale executed in her name of, although the consideration was his own and from When the statement of false cause is based on another cause that is truthful and
his personal funds. lawful, it would not render the contract void.
There is a difference between cause/consideration/subject-matter from motive. The
latter, whether legal or illegal, would not determine nor take place of the former.
 o 1353 provides that statement of false cause shall only render the contract void if
Recit ready: there’s no proof that it is founded on another cause that is truthful and lawful.
The heirs of Balite are assailing the validity of Deed of Absolute Sale executed by their o The court held that the Joint Affidavit is a valid proof of the truthful and lawful
mother in favor of Lim. The contract falsely stated the price for the 10,000 parcel of consideration for the property.
land of Balite. The motive of the simulation was reduce the capital gains tax liability. o The court held that the subject matter of 1,000,000 for the property is truthful and
The actual price agreed upon for the property is 1,000,000, which was stated in a lawful. The cause/consideration shall not be confused with motive. The motive neither
Joint Affidavit executed by Balite and Lim. The court held that the false cause does determine nor take place of a consideration.
not render the sale void. It was based on another truthful and lawful cause, which is Ø Other Issues <unrelated>
the price of P1,000,000 proved by the joint affidavit. The court held that while the o The consent of the co-owners is not needed for sale of the co-owner’s own share.
motive behind the simulation was illegal [avoiding taxes], it shall not be confused with The 10,000 lot shall be reflected on the share of Balite, and the excess shall be taken
the cause of the contract. Motive does not determine nor take place of the from Antonio and Cristeta who consented to the sale.
consideration of the contract. o The sale was made when Balite was alive, therefore the children did not acquire
the property.
Facts o It is not an inequitable mortgage because there is no proof that it is the only
Ø Spouses Aurelio and Balite were the owners of 17551 sqm land in North Samar.
security for the loan.
When Aurelio died, Balite and her 9 childen inherited the undivided share of 9751 of
the property.
Ø When Balite became sick and needed money, she offered, through her daughter 44. Meneses v Venturozo (2011)
Cristeta,
to sell her undivided portion to Lim. Doctrine: The necessity of a public document for contracts which transmit or
Ø They agreed to a price of 1,000,000. However, they agreed to execute Deed of extinguish real rights over immovable property, as mandated by Article 1358 of
Absolute sale which reflected a price of 150,000 for the 10,000 sqm lot. They the Civil Code, only for convenience; it is not essential for validity or
executed a Joint Affidavit which stated that the actual price for the lot is 1,000,000, enforceability.
payable by installments:
o 30,000 upon signing RR: Respondent-plantiff Venturozo filed a complaint over a piece of coconut land in
o 170,000 upon survey by Geodetic Engr Dagupan City against petitioner-defendant Adelaida Meneses. Venturozo claims that
o 200,000 payable on May 15 1996 she bought the land in good faith from spouses De Guzman as evidenced by June 20,
o 200,000 payable on July 15 1996 1966 absolute deed of sale. Meneses countered that her signature was forged and
o 200,000 payable on September 15 1996 she never appeared in the said Notary Public. WON the absolute deed of sale is valid.
o 200,000 payable on December 15 1996 NO. It was held as a forgery. The necessity of a public document for contracts
which transmit or extinguish real rights over immovable property, as mandated
Ø However, some of her children expressed that they did not consent to the sale
by Article 1358 of the Civil Code, only for convenience; it is not essential for
Ø Balite assigned, through an SPA, her son Antonio to receive payments from Lim
validity or enforceability. Consequently, when there is a defect in the notarization of
Ø Lim subsequently mortgage the property for a loan of 2,000,000
a document, the clear and convincing evidentiary standard normally attached to a
duly-notarized document is dispensed with, and the measure to test the validity of
Issue: WN the sale was valid. Yes
such document is preponderance of evidence.
Held:
Facts: On June 8, 1988, plaintiff Rosario G. Venturozo, respondent herein, filed a
Ø The deed of sale did not state the actual cause for sale [price of the property],
Complaint for ownership, possession x x x and damages in the Regional Trial Court
intended to avoid paying higher taxes
(RTC) of Dagupan City against defendant Adelaida Meneses, petitioner herein,
o 1345 provides the two types of Simulation of Cause, absolute and relative. The
alleging that she (plaintiff) is the absolute owner of an untitled coconut land, containing
former takes place when the parties do not intend to be bound at all; the latter, when
an area of 2,109 square meters, situated at Embarcadero, Mangaldan, Pangasinan,
the parties conceal their true agreement.
and declared under Tax Declaration No. 239. Plaintiff alleged that she purchased the
property from the spouses Basilio de Guzman and Crescencia Abad on January 31,
1973 as evidenced by a Deed of Absolute Sale, and that the vendors, in turn, In the Deed of Absolute Sale dated June 20, 1966, the Notary Public signed his name
purchased the property from defendant as evidenced by a Deed of Absolute Sale
as one of the two witnesses to the execution of the said deed; hence, there was
dated June 20, 1966. Plaintiff alleged that she has been in possession of the land until
May 1983 when defendant with some armed men grabbed possession of the land and actually only one witness thereto. Moreover, the residence certificate of petitioner was
refused to vacate despite repeated demands prompting her to engage the services of issued to petitioner and then it was given to the Notary Public the day after the
counsel.
execution of the deed of sale and notarization; hence, the number of petitioners
Defendant Adelaida Meneses stated that plaintiff is the daughter of Basilio de residence certificate and the date of issuance (June 21, 1966) thereof was written on
Guzman, the vendee in the Deed of Absolute Sale dated June 20, 1966 that was
the Deed of Absolute Sale by the Notary Public on June 21, 1966, after the execution
purportedly executed by her (defendant) covering the subject property. Defendant
alleged that she never signed any Deed of Absolute Sale dated June 20, 1966, and and notarization of the said deed on June 20, 1966. Considering the defect in the
that the said deed is a forgery. Defendant also alleged that she never appeared before notarization, the Deed of Absolute Sale dated June 20, 1966 cannot be considered a
any notary public, and she did not obtain a residence certificate; hence, her alleged
sale of the subject property to Basilio de Guzman is null and void ab initio. public document, but only a private document, and the evidentiary standard of its
Consequently, the Deed of Absolute Sale dated January 31, 1973, executed by validity shall be based on preponderance of evidence. Section 20, Rule 132 of the
Basilio de Guzman in favor of plaintiff, covering the subject property, is likewise null
Rules of Court provides that before any private document offered as authentic is
and void. Defendant stated that she acquired the subject property from her deceased
father and she has been in possession of the land for more than 30 years in the received in evidence, its due execution and authenticity must be proved either: (a) by
concept of owner. Plaintiffs allegation that she (defendant) forcibly took possession of
anyone who saw the document executed or written; or (b) by evidence of the
the land is a falsehood. Defendant stated that this is the fourth case the plaintiff filed
against her concerning the land in question. genuineness of the signature or handwriting of the maker.

Issue: WON the deed of absolute sale was valid

In regard to the genuineness of petitioners signature appearing on the Deed of
Held: NO. It was a forged instrument held by the High court. Absolute Sale dated June 20, 1966, the Court agrees with the trial court that her
signature therein is very much different from her specimen signatures and those
The necessity of a public document for contracts which transmit or extinguish
appearing in the pleadings of other cases filed against her, even considering the
real rights over immovable property, as mandated by Article 1358 of the Civil
difference of 17 years when the specimen signatures were made. Hence, the Court
Code, only for convenience; it is not essential for validity or enforceability. As
rules that petitioners signature on the Deed of Absolute Sale dated June 20, 1966 is a
notarized documents, Deeds of Absolute Sale carry evidentiary weight conferred upon
forgery.
them with respect to their due execution and enjoy the presumption of regularity which
may only be rebutted by evidence so clear, strong and convincing as to exclude all 45. Sabitsana v Muertegui, G.R. No. 181359 (2013)
controversy as to falsity. The presumptions that attach to notarized documents can be
affirmed only so long as it is beyond dispute that the notarization was regular. A Doctrine:
Facts:
defective notarization will strip the document of its public character and reduce it to a
Issue:
private instrument. Consequently, when there is a defect in the notarization of a Held
document, the clear and convincing evidentiary standard normally attached to a duly-
notarized document is dispensed with, and the measure to test the validity of such
document is preponderance of evidence.