OBLIGATIONS
CASE TITLE SUMMARY
Villaroel v. Estrada Villaroel assumed the debt his mother acquired before her death. Bernardino is
the sole heir of the creditors. The present petition was filed by Bernardino with
the aim of collecting the debt, after Villaroel signed the document assuming
responsibility of the debt. SC ruled that although the complaint has prescribed
on the part of Villaroel’s mother, it is still enforceable against Villaroel because
he assumed responsibility for paying it and promised its fulfillment.
Fisher v. Robb Fisher made 2 installment payments of his subscription as a stockholder in the
company which Robb is a part of. The company suffered losses and Robb felt
morally responsible to the stockholders, including Fisher, who had paid their
second installment. Through several letters, he informed them of his plan to pay
back their second installment payments from his own pocket, not because of
any legal obligation but because he felt that it was his moral responsibility to do
so as such payments were made in order to carry out his plans. Fisher sought to
have the said promise be enforced by the courts.
Velarde v. CA Velardes bought properties from Raymundo which was mortgaged by the latter.
Part of their agreement is for Velardes to pay the P1.8M mortgage loan in the
name of Raymundo. Their application to assume payment of such was
disapproved. So Velardes did not make any further payment of the balance of
the P1.8M mortgage loan. Velardes are willing to pay but with new conditions.
Thus Raymundo rescinded the contract.
Angeles v. Calasanz Calasanz et al. entered into contract to sell piece of land for P 3920 plus 7%
interest per annum to Angeles et al. who paid the downpayment and the
monthly installments which already amounted to P 4533.38. Calasanz cancelled
the contract after Angeles failed to pay subsequent payments. SC rules that the
breach committed by Calasanz (not paying August installment) is so slight that
DOCTRINE
Natural obligations, not being based on positive law but on
equity and natural law, do not grant a right of action to enforce
their performance, but after voluntary fulfillment by the
obligor, they authorize the retention of what has been delivered
or rendered by reason thereof (Article 1423)
The contract sought to be enforced by Fisher is onerous in
character because it supposes a deprivation of Robb of an
amount which impairs his property, which is a burden, and for
it to be legally valid it is necessary that it should have a
consideration consisting in the lending of or promise of a thing
or service by such party. Fisher has not promised anything. A
moral obligation unconnected with any legal liability or legal
benefit will not furnish a consideration for an executory
promise.
In a contract of sale, the seller obligates itself to transfer the
ownership of and deliver a determinate thing, and the buyer to
pay therefor a price certain in money or its equivalent.
Rescission creates the obligation to return the object of the
contract. It can happen only when the one who demands
rescission can return what he is obliged to restore. To rescind
is to declare a contract void at inception. It is not to terminate
it and release the parties from further obligations. It is to
abrogate it from the beginning and restore the parties to their
former positions as if no contract has been made.
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement.
 it does not warrant rescission of contract. Since the principal obligation is only
P 3920 and Angeles has paid P 4533.38 already, Calasanz should order
payment of remaining installments instead of rescinding contract. They also
waived such right of rescission when they accepted delayed payments.
Delta Motor Corp. v. The Genuinos entered into a contract with DMC for the purchase of black iron
Genuino pipes and made initial payments. DMC offered to deliver the pipes but the
Genuinos did not accept them since the area of installation was not yet finished.
3 years later, the Genuinos asked for the pipes but DMC refused to deliver and
asked for higher prices. The Genuinos rejected this and filed a complaint for
specific performance. DMC prayed for recission, which the CFI granted but the
CA reversed. The SC affirmed the CA, ruling that the parties comply with the
original terms in their contract because the conduct of DMC indicates that the
Genuino’s non-performance of its obligations was not a substantial breach that
would warrant rescission.
Vermen Realty v. CA Vermen Realty and Seneca Hardware entered into an "Offsetting Agreement"
where Seneca is obliged to deliver construction materials to Vermen who is
obliged to pay Seneca and to deliver possession of 2 condominium units to
Seneca upon completion. Seneca filed a complaint for rescission of the
offsetting against Vermen, alleging that the latter had stopped issuing purchase
orders of construction materials without valid reason, thus resulting in the
stoppage of deliveries of construction materials on its part, in violation of the
Offsetting Agreement.
Cetus Dev’t. V. CA Respondents were lesees of a property originally owned by Susana Realty, later
passed on to Cetus Development; with the same arrangement in paying rent via
a collector sent by the petitioner. However, for three months no collector came
to take their payments. Despite fulfillment of the demand letter sent to them by
the petitioner, an ejectment suit still was filed. It was dismissed by the court for
lack of merit since Art. 1169 requires that the creditor’s demand for a delay to
exist; which was not present since upon receipt of the demand letter,
respondents paid immediately the next day; nor was it proven that his case falls
on the exempting circumstances of the said provision
In construing Art. 1191, rescission will be ordered only where
the breach complained of is substantial as to defeat the object of
the parties in entering into the agreement. It will not be granted
where the breach is slight or casual. Further, the question of
whether a breach of contract is substantial depends upon the
attendant circumstances.
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very
object of the parties in executing the agreement. The question
of whether a breach of contract is substantial depends upon the
attendant circumstances. Art. 1191 of the Civil Code provides
the remedy of Rescission (or "Resolution") in case of reciprocal
obligations, where one of the obligors fails to comply with that
is incumbent upon him.
Mora solvendi or delay by the debtor occurs when the debtor
fails to fulfill its obligation upon the demand of the creditor.
Art. 1169 of the New Civil Code provides that those obliged to
deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the
fulfillment of their obligation. The demand
required in Article 1169 may be in any form, provided that it
can be proved. The proof of this demand lies upon the creditor.
Without such demand, oral or written, the effects of default do
not arise.
Aerospace Chemical v. CA Petitioner Aerospace purchased 500 MT of sulfuric acid from private Delay begins from the time of demand. The following
respondent Philphos. The agreement provided that the shipment shall be requisites must be present: 1) that the obligation be demandable
undertaken by the Aerospace. The chartered vessel was only able to carry 227.5 and liquidated; 2) that the debtor delays performance, and 3)
MT, and on its voyage, it sank. Philphos demanded Aerospace to undertake the that the creditor requires the performance judicially or
shipping of the remaining 272.5 MT, but Aerospace wanted to buy additional extrajudicially. Where there has been a breach of contract by
227.5 MT and to have the total 500 MT shipped in a single journey. Philphos the buyer, the seller has a right of action for damages.
did not agree to sell the additional orders. Aerospace then filed for a complaint
for specific performance. It claimed that the sinking of the ship was due to force
majeure, therefore, it should be exempt from liability. SC held that Aerospace
was guilty of delay, as the sinking was because of the instability and
unseaworthiness of the vessel. Delay began from the time of demand by the
Philphos.

Santos Ventura Foundation

v. Santos

Vazquez v. Ayala Corp.

Villaroel v. Manila Motor The Villaruels leased some of their property to Manila Motor for a period of 5 The creditor/obligee’s refusal to accept the performance of the
years beginning October 31, 1940. Japanese forces took possession of the same debtor/obligor without just cause places the former in default
from June 1, 1942 to March 31, 1945, leaving the rentals unpaid. When the (mora accipiendi), with the result that, thereafter, the obligor
lease contract was renewed by Manila Motors, the Villaruels, after accepting has to bear all supervening risks of accidental injury or
the rental payments for the renewed contract for some months, suddenly destruction.
demanded for payment of rentals covering the period of the Japanese
occupation. The Villaruels also sought reimbursement after the buildings in
question were burned down during the pendency of the suit. The Supreme
Court held that (1) the defendants were not liable for the rentals during the
Japanese occupation, the same having been done under color of title; and (2)
the defendants were not placed in default because the plaintiffs’ insistence on
collecting rentals during the occupation was without legal basis.

Central Bank v. CA The parities entered into a loan agreement for the amount for 80,000 pesos and
for which, the respondent mortgage his 100 hectares property. However, only
17,000 was issued by the petitioner bank. The respondent executed a
promissory note in consideration of the 17, 000 pesos received and obligated
himself to pay the amount after three years. However, the remaining balance of
63,000 was not released by the bank because of insolvency. In the meantime te
petitioner bank filed for an extra- judicial foreclosure of the mortgage covering
the property of the respondent due to the latter’s failure to pay 17,000 pesos.
In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other; and when one
party has performed or is ready and willing to perform his part
of the contract, the other party who has not performed or is not
ready and willing to perform incurs in delay (Art. 1169 of the
Civil Code).
 The respondent, as a result, filed a petition for injunction, specific performance
or rescission and damages with preliminary injunction, alleging the since the
petitioner was remised from its obligation, he entitled to specific performance
or recission. The Supreme Court ruled that Sulpicio may not claim for specific
performance. Likewise, because both parties in this case were in deafault,
recission cannot be granted also. Sulpicio is liable to pay 17, 000 pesos, but his
real estate mortgage cannot be entirely foreclosed to satisfy said amount.
Woodhouse v. Halili Woodhouse entered into a written agreement with Halili that a partnership shall
be organized for the bottling and distribution of Mission soft drinks. Halili
would finance while Woodhouse would secure an exclusive franchise with
Mission Dry corporation. Woodhouse was only able to secure a temporary 30
day option for exclusive franchise and thus, Halili would not execute the
partnership agreement claiming that Woodhouse’s misrepresentation of an
exclusive franchise annuls the agreement between them. SC held that there was
misrepresentation on Woodhouse’s part but this was not the principal
consideration which induced Halili to enter into a partnership.
Geraldez v. CA Petitioner Lydia Geraldez availed the tour package to Europe from private
respondent Kenstar Travel Corporation. The brochure and the sales talk
provided by the representative of the company set the following inclusions in
the travel package: Tour Manager who knows the attractions and the
destinations of the tour, accommodations in first class hotels, tour venues, and
an assigned experienced tour guide. Such expectations were not met and upon
return from said tour, petitioner sought relief to recover damages. CFI granted
moral, nominal, exemplary, attorney’s fees, and costs of suit. CA removed
moral and exemplary damages. SC held that Kenstar committed
fraud/misrepresentation specifically fraud in inducement in securing consent of
the other party.
Gutierrez v. Gutierrrez A collision occurred between a passenger truck and a private automobile. The
petitioner inside the passenger truck filed for damages as he suffered a fractured
right leg. The court held that the father of the driver of the automobile, the
driver of the passenger truck and the owner of the passenger truck are liable for
Article 1270 of the Spanish Civil Code distinguishes two kinds
of (civil) fraud, the causal fraud, which may be a ground for
the annulment of a contract, and the incidental deceit, which
only renders the party who employs it liable for damages. This
Court had held that in order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental
(dolo incidente), inducement to the making of the contract.
Fraud that is present at birth or perfection of the contract may
be either of the following:
Dolo Causante (Causal Fraud): Deception of serious character
without which the other party would not give their consent.
This is the essential cause of the consent given, in essence this
is why the party agreed to the contract in the first place. Once
proven, this results to the nullity of the contract and subsequent
indemnification of the injured party.
Dolo Incidente (Incidental Fraud): Not serious in character
without which the other party will still enter into the contract.
This refers to particular or accident of obligations. In essence,
there is already a contract in force between parties and the fraud
is committed in the performance of the fulfillment of the
obligation. Offended party may then seek to recover damages
from such fraud.
Pursuant to the provisions of Article 1903 of the Civil Code, the
father alone, and not the minor or the mother, would be liable
for damages caused by the minor.
 damages.
Vasquez v. Borja Borja filed a complaint against Vazquez to recover a sum of money equivalent
to the amount of undelivered cavans of palay under a contract. Vazquez denied
that he entered into the contract in his sole capacity and added that the contract
entered into was between Borja and the corporation of which he is the acting
manager. The CFI ordered that the amount claimed by Borja be paid. However,
the CA ordered that the case be remanded to the CFI for further proceeding on
the liability of Vazquez. The SC ruled that the cause of action of the complaint
is based on contract and that the proper party should be the corporation. Hence,
the case was dismissed.
De Guia v. Manila Electric Physician de Guia, passenger of Manila Electric Road Co., was injured after the
Co. rear wheels of the car he was riding got derailed, causing him to sustain bruises
and other injuries. The driver was found to be negligent, even though the
company was diligent in its selection. As a consequence de Guia is asking for
damages, including not only medical fees, and lost earning capacity but also
claims for mental anguish and trauma suffered.
US v. Barias Motorman on street car ran over a 3 year old child. The TC convicted him for
homicide from reckless negligence. In his appeal the SC determines whether he
exercised the degree of diligence required of him. The SC held that he did not.
Sarmiento v. Sps. Cabrido Petitioner Tomasa had a certain Tita Payag bring a pair of earrings to
Dingding’s Jewelry shop to have them reset. Upon the resetting, Respondent
Marilou was unsuccessful in dismounting the diamond, and while delegating
the task to their goldsmith, he broke the diamond in the process. Tomasa
required the Respondents to replace the diamond, which they refused, leading
her to file the present complaint. SC ruled that Respondents acted with
negligence by using wrong equipment, and thus they must be liable for
damages.
Obligations arising from negligence in the performance of a
contract (culpa contractual) is different from obligations arising
from negligence outside of a contract (culpa aquiliana). If the
cause of action is culpa contractual, then the negligent party to
the contract is liable. However, if the cause of action is culpa
aquiliana, the person who committed negligence shall be liable
irrespective of a contract.
If the law of contract does not state the diligence which is to be
observed in the performance of an obligation, that which is
expected of a good father of a family shall be required.
When De Guia boarded the train, the company undertook to
convey him to Manila. The relation between between the
plaintiff and defendant was of a contractual nature with the
defendant bound to carry the plaintiff safely to the destination
with a degree of care. Failure to carry out this obligation incurs
liability.
The diligence with which the law requires the individual at all
times to govern his conduct varies with the nature of the
situation in which he is placed and with the importance of the
act which he is to perform.
Those who in the performance of their obligations are guilty of
fraud, negligence or delay and those who in any manner
contravene the tenor thereof, are liable for damages. The fault
or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time
and of the place.
Crisostomo v. CA Crisostomo (petitioner) contracted the services of Caravan Travel & Tours
(respondent) for a European Tour. The former was given her ticket and travel
documents and was told her flight schedule. Without checking her ticket, she
arrived at the airport and found out that her flight was scheduled the previous
day. She complained and was told to take another tour instead for failure to join
the first tour. She agreed and paid for the second tour partially. Upon her return
from the tour, she demanded for reimbursement because she insisted that the
second tour was merely a substitute for the first tour, such that the cost should
be set-off. Respondent did not reimburse her. She filed a case. RTC ruled in her
favor. CA reversed RTC. SC affirmed CA.
Chaves v. Gonzales Chaves contracted Gonzales to repair his typewriter. Service was not finished
on time but Gonzales gave assurances to Chaves. Gonzales also asked money
for spare parts. After some time, Chaves demanded the return of the typewriter.
Gonzales complied but it was returned in shambles and some parts were
missing. Chaves demanded the return of the missing parts but Gonzales failed
this time. Chaves had the typewriter repaired by another person. Chaves sued
Gonzales for the cost of the repair as well as for the damages. CFI ordered
Gonzales to pay for the missing parts. On appeal, the SC held that Gonzales
should pay not just the cost of the missing parts but also of the repair. It is of no
moment that a period was not set because there was already a breach of the
agreement due to the contravention of the tenor.
Telefast v. Castro Via Telefast, Sofia C. Crouch sent a telegram to the US informing Castro Sr.
and their relatives of her mother’s death in Pangasinan. Telefast failed to send
the telegram to Castro, despite Crouch having paid the necessary fees. Her
mother was interred without the relatives’ knowledge. Crouch and the others
brought action for damages. Telefast contests the award of moral damages
because its negligent act was not motivated by fraud, malice or recklessness.
The SC held that the negligent act done by Telefast was the proximate cause for
the mental anguish and suffering the relatives underwent, and so moral
damages may be recovered from them.
Arrieta v. NARIC RE: BURMESE AND THAI RICE SHIPMENT | NARIC failed to open the
letter of credit, and this cost Arrieta. Arrieta sued NARIC for compensation for
unrealized profits. SC held that Arrieta is entitled to compensation and damages
because it was NARIC's fault that the rice was forfeited because the space on
The negligence of the obligor in the performance of the
obligation renders him liable for damages for the resulting loss
suffered by the obligee. Fault or negligence of the obligor
consists in his failure to exercise due care and prudence in the
performance of the obligation as the nature of the obligation so
demands. There is no fixed standard of diligence applicable to
each and every contractual obligation and each case must be
determined upon its particular facts. The degree of whether one
has been negligent is a question of fact that is to be determined
after taking into account the particulars of each case.
Where the time for compliance had expired and there was
breach of contract by non-performance, it was academic for the
plaintiff to have first petitioned the court to fix a period for the
performance of the contract before filing his complaint;
Where the defendant virtually admitted non-performance of the
contract by returning the typewriter that he was obliged to
repair in a non-working condition, with essential parts missing,
CC Art. 1197 cannot be invoked. The fixing of a period would
thus be a mere formality and would serve no purpose than to
delay.
Those who in the performance of their obligations in any
manner contravene the tenor thereof are liable for damages.
Moral damages may be recovered if mental anguish is the
proximate result of the contravention.
Any agreement to pay an obligation in a currency other than
Philippine legal tender is null and void as contrary to public
policy, and the most that could demanded is to pay said
obligation in Philippine currency "to be measured in the
 the ship closed. Its liability stems not only from the failure to satisfy the bank prevailing rate of exchange at the time the obligation was
requirements that would've granted them the letter of credit, but its culpability incurred.
also arises from the assumption of the contractual obligation despite knowledge
of its financial incapacity. It is liable because of "in any manner contravene the
tenor" which impairs the strict and faithful fulfillment of the obligation.

Magat v. Medialdea Defendant would operate taxicabs due to contract with U.S Navy. They were
required to procure both taximeters and radio transceivers to be imported from
Japan. Defendant was only able to get taximeters. He did not open the required
line of credit to cover the delivery of the Japanese radio transceivers. Instead,
he operated without them. Plaintiff filed for damages but RTC dismissed saying
there was lack of cause of action as he had not yet suffered damages. SC
reversed saying that the moment there was breach of contract, there was already
loss on the part of plaintiff in the form of lost expected profits.
Upon breach of the contract by either of them, the other would
necessarily suffer loss of his expected profits. Since the loss
comes into being at the very moment of breach, such loss is
real, “fixed and vested” and, therefore, recoverable under the
law.

Tanguilig v. CA JMT entered into a contract with Herce, where the former would install a If the person obliged to do something fails to do it, the same
windmill system for the latter. JMT filed the complaint when Herce failed to shall be executed at his cost.
pay the balance agreed upon, claiming he has already paid it to SPGMI, who
constructed a deep well. Furthermore, Herce claimed that the windmill
collapsed, and such defect already offset his obligation to pay the balance. JMT
denied that the construction of a deep well was part of their agreement. SC held
that construction of the deep well was never part of their agreement. The words
“deep well” and “deep well pump” appeared in the proposals merely to describe
the type of deep well pump for which the windmill system would be suitable.
Therefore, Herce is still under the obligation to pay the balance. However, JMT
is also required to repair the windmill system, since the “strong wind” that
caused its collapse was not a fortuitous event.

Khe Hong Cheng v. CA Ship sank so the insurance company paid the consignee for the loss; It then
filed suit against the petitioner ship owner. While the suit was pending, the
petitioner donated his properties to his children. 4 years after the deed of
donation was executed, the TC ruled in favor of the insurance company. A writ
of execution was thereafter issued but it remained unsatisfied because Khe had
no more properties. The insurance company now wants rescission (accion
pauliana) of the deeds claiming they were done in fraud of creditors. Khe
argues that the action has prescribed- that it should have been filed within 4
years from the date of registration of the deeds.
An action to rescind or an accion pauliana must be of last
resort, availed only after other legal remedies have been
exhausted and have been proven futile. It accrues only when the
creditor discovers that he has no other legal remedy for the
satisfaction of his claim.
It presupposes that there has been:
a. a judgment,
b. a writ of execution to satisfy the judgment, and
c. a failure of the sheriff to enforce and satisfy the court’s

Siguan v. Lim Lim was previously convicted under BP22 and for estafa. But prior to her
obtaining the credit, she executed a notarized Deed of Donation in favor other
children. Court ruled she did not defraud her creditors, mainly because the
credit was not yet existing at the time of the donation.
Juan Nakpil v. CA UCCI was the contractor of the PBA building, while the Nakpils were the
architects. The PBA office was completed in 1966. However, in 1968, when a
strong earthquake hit Manila, it sustained major damage. This prompted PBA
to file an action for recovery of damages. UCCI and Nakpils were seeking
exemption from liability, arguing that it was an act of God or a fortuitous event
that caused the damage to the building. The Court said that while the direct
damage was by the earthquake, it was proven by Commissioner Hizon that
there were defects not only in the plans and specifications of the building, but
also deviations from these plans and the actual building. As such, these
negligent acts of UCCI and Nakpils during the construction of the building
were the proximate cause of the demise of the building. As such, they cannot
claim exemption from liability.
Republic v. Luzon A barge of appellant struck a pile of Nagtahan bridge while it was being
Stevedoring towed by tugboats also belonging to the appellant. The appellant proceeded
at its own risk since river at that time was swollen and the current was swift.
Appellant took precautions but SC said this proves that the event was
foreseeable, thus not a fortuitous event, and that appellant was negligent.
Dioquino v. Laureano
Austria v. CA Abad received from Austria one pendant with diamonds to be sold on a
commission basis but Abad was robbed on her way home and failed to return
the pendant or pay for its value notwithstanding demands. Austria then brought
an action against her and her husband for recovery of the pendant or of its
value, and damages, to which the defendant spouses responded, claiming that
the alleged robbery had extinguished their obligation. TC found Abad guilty of
negligence for she went home late at night without any companion; CA
overruled the decision, finding it to be a fortuitous event. SC held that she was
judgment
Art. 1381 of the Civil Code enumerates the contracts which are
rescissible, and among them are “those contracts undertaken in
fraud of creditors when the latter cannot in any other manner
collect the claims due them."
When the negligence of a person concurs with a fortuitous even
in producing a loss, such person is not exempt from liability by
showing that the immediate cause of the damage was the act of
God. || To be exempt from liability for loss because of an act of
God, he must be free from any previous negligence or
misconduct by which that loss or damage may have been
occasioned.
Force majeure are extraordinary events that could not be
foreseen, or if foreseen, were inevitable. Thus it is not
enough that the event should not have been foreseen or
anticipated. It must also be one impossible to foresee to or to
avoid. Mere difficulty to foresee the happening is not
impossibility to foresee the same.
To avail of the exemption granted under Art. 1174, it is not
necessary that the persons responsible for the occurrence should
be found or punished; it would only be sufficient to establish
that the unforeseeable event did take place without any
concurrent fault on the debtor's part, and this can be done by
preponderant evidence.
 not negligent, as the crime rate at that time was considerably lower than in the
present day.
NaPoCor v. CA Typhoon Welming hit Central Luzon, passing through the Angat Dam of NPC.
The heavy downpour caused the water in the Dam to rise to dangerous levels,
prompting NPC to open the spillway gates to to prevent an overflow. The large
volume of water rushed out and hit ECI’s construction works, causing losses in
equipment and properties. NPC was found to be negligent because it opened the
spillway gates of the Dam only at the height of the typhoon, when it knew of
the coming typhoon at least four days before it actually struck. Also, NPC knew
it would have been safer to open the spillway gates gradually and earlier. Even
though the typhoon was a force majeure, NPC cannot escape liability because
its negligence was the proximate cause of the loss and damage.
Yobido v. CA Leny and Tito Tumboy were aboard Yubido Bus when its tire exploded that
resulted to the death of Tito Tumboy. Leny sued for damages against the owner
of the bus. Yubidos posed the defense of fortuitous event. The court ruled that
the tire explosion was not a fortuitous event and that the bus owner and driver
are liable to the death of their passenger.
Bacolod-Murcia v. CA Bacolod Murcia Milling Co (BMMC) and Alonso Gatuslao (a registered planter
of BMMC) executed a milling contract whereby Gatuslao will mill sugarcane
and BMMC would be responsible for the transportation of such from the
plantation to the mill. However, BMMC wasn’t able to transport the sugarcane
as its railroad tracks were closed. The closing was due to the expiration of
BMMC’s contract with landowners for a right of way (the tracks were located
in the private lands of these owners). Gatuslao then filed an action for
rescission against BMMC for breach of contract. BMMC’s defense was that the
closing of the railroad tracks was due to force majeure, hence it should be
exempt from liability. SC held that the closure of the railroad tracks does not
constitute force majeure as it was foreseeable. Petitioner should have
anticipated and should have provided for the eventuality of the expiration
If upon the happening of a fortuitous event or an act of God,
there concurs a corresponding fraud, negligence, delay or
violation or contravention in any manner of the tenor of the
obligation as provided for in Article 1170 of the Civil Code,
which results in loss or damage, the obligor cannot escape
liability.
A fortuitous event is possessed of the following characteristics:
(a) the cause of the unforeseen and unexpected occurrence, or
the failure of the debtor to comply with his obligations, must be
independent of human will; (b) it must be impossible to foresee
the event which constitutes the caso fortuito, or if it can be
foreseen, it must be impossible to avoid; (c) the occurrence
must be such as to render it impossible for the debtor to fulfill
his obligation in a normal manner; and (d) the obligor must be
free from any participation in the aggravation of the injury
resulting to the creditor.
The requisites for exemption due to fortuitous events are: 1)
The cause of the breach of the obligation must be independent
of the will of the debtor, 2)The event must either be
unforeseeable or unavoidable, 3) The event must be such as to
render it impossible for the debtor to fulfill his obligation in a
normal manner, 4) The debtor must be free from any
participation in or aggravation of the injury to the creditor.
 before committing itself. Under the circumstances, it has no one to blame but
itself and cannot now claim exemption from liability
Philcomsat v. Globe
Telecom
Eastern Shipping v. CA
Nacar v. Gallery Frames Dario filed a complaint for constructive dismissal against his employer, and the
LA ruled in his favor and granted the award of separation pay and backwages
and determined the respective amounts. After several recomputations resulting
from respondents’ appeals, Dario also sought a recomputation of the monetary
awards on the premise that the same should be computed up to the finality of
the SC decision on May 27, 2002, not when the LA decision was rendered on
October 15, 1998. The SC held that reliefs in case of illegal dismissal add up
until full satisfaction, and that a recomputation of the monetary awards upon
execution of the decision does not amount to an alteration of the final decision
as it does not affect the finding of illegal dismissal.
The Court also clarified that with regard the payment of legal interest on a final
and executory court judgment awarding a sum of money, as per Eastern
Shipping, the applicable rate is 12% per annum from finality until satisfaction.
As of May 16, 2013, however, as per BSP -MB Circular No. 799, effective July
1, 2013, the applicable rate of interest is only 6% per annum. With regard
judgments that have become final and executory prior to July 1, 2013, the
Circular will not have any effect and the judgments will not be disturbed.
A1174, which exempts an obligor from liability on account of
fortuitous events or force majeure, refers not only to events that
are unforeseeable, but also to those which are foreseeable, but
inevitable.
In order that Globe may be exempt from noncompliance with
its obligation to pay rentals under Section 8, the concurrence of
the following elements must be established: (1) the event must
be independent of the human will; (2) the occurrence must
render it impossible for the debtor to fulfill the obligation in a
normal manner; and (3) the obligor must be free of participation
in, or aggravation of, the injury to the creditor.
Re: computation of legal interest: the Court laid down the
guidelines in the Eastern Shipping Lines case, later modified
to embody BSP-MB Circular No. 799, which pegged the rate
of legal interest, in the absence of stipulation, to 6% per annum
effective July 1, 2013:
➔ When an obligation, regardless of its source, is
breached, the contravenor can be held liable for
damages as determined by the Civil Code provisions
on damages.
➔ With regard award of interest in the concept of actual
and compensatory damages, the rate of interest and the
accrual thereof, is as follows:
◆ When obligation consisting in the payment of
a sum of money is breached (loan,
forbearance), interest due = that which may
have been stipulated in writing. In addition,
the interest due shall itself earn legal interest,
at 6% per annum (in the absence of
stipulation), computed from default (Article
1169).
◆ When obligation not constituting

Macalinao v. BPI The petitioner was an approved cardholder of BPI Mastercard. When she
defaulted in the payment for purchases she incurred using the credit card, a
letter demanding payment was sent to her by the respondent bank. For failure of
petitioner to settle her obligations, respondent BPI filed a complaint for a sum
of money against her and her husband. The MeTC ruled in favor of respondent
BPI and ordered petitioner to pay the amount of PhP 141,518.34 plus interest
and penalty charges of 2% per month. This decision was affirmed in toto by the
RTC, upon appeal. Aggrieved, petitioner filed an appeal with the CA. The
appellate Court modified the RTC’s decision by increasing the interest to 3%
per annum. The Supreme Court ruled that the 3% per annum interest was
unconscionable and excessive. Thus, it must be reduced to 2% per annum only.
loan/forbearance is breached, an interest on
the amount of damages awarded may be
imposed at the court’s discretion at 6% per
annum. No interest shall be adjudged on
unliquidated claims or damages except
when/until the demand can be established
with reasonable certainty. If demand is
established with reasonable certainty, interest
begins to run from the (extra)judicial claim is
made; otherwise, interest runs only from the
date of the court judgment. In any case, the
actual base for computation of legal interest
shall be on the amount finally adjudged.
◆ When judgment of the court awarding a
sum of money becomes final and
executory, the rate of legal interest, in
either of the two cases above, shall be 6%
per annum from such finality until
satisfaction, the interim period being
deemed to be by then an equivalent to a
forbearance of credit.
◆ Judgments that have become final and
executory prior to July 1, 2013 shall not be
disturbed and shall continue to be
implemented applying the interest rate fixed
therein.
Stipulated interest rates of 3% per month and higher are
excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against
the law. While C.B. Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling on interest
rates for both secured and unsecured loans, regardless of
maturity, nothing in the said circular could possibly be read as
granting carte blanche authority to lenders to raise interest rates
to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets. (Chua vs. Timan)
 Also, it ruled that there is no basis for the dismissal of the case. Respondent
BPI should not be made to suffer for petitioner’s failure to file an answer and
concomitantly, to allow the latter to submit additional evidence by dismissing
or remanding the case for further reception of evidence.
Sps. Mallari v. Prudential Spouses Mallari obtained 2 loans from Prudential Bank secured by a mortgage
Bank but they defaulted. The bank filed with the RTC of Tarlac a petition for the
extrajudicial foreclosure of petitioners’ mortgaged property. It also sent
petitioners two Statements of Account showing that the loan incurred interest.
Spouse sfiled a complaint for annulment of mortgage claiming that there were
onerous terms and conditions imposed by respondent bank when it tried to
unilaterally increase the charges and interest over and above those stipulated.
The RTC ruled in favor of the bank. CA affirmed. Using jurisprudence, SC held
that the interest rate, as well as the penalty, is not unconscionable.
Crismina Garments v. CA Crismina Garments (an exporter of girls' denim) contracted the services of
Norma Siapnoʹs DʹWilmar Garments to sew 20,762 pieces of denim for PhP
76,410. D’Wilmar delivered the denims and this was acknowledged to be in
good condition by Crismina. However, D’Wilmar was later informed that 6,164
pairs of denim were defective valued at 49,925.51 as a result, Crismina
demanded refund. Private filed complaint for collection of money. RTC and CA
ruled in favor of Private respondent and ordered PET to pay 76,140 with 12%
interest per annum. PET on MR questioned the 12% interest and SC agreed
with PE that interest would only be 6% per annum.
Keng Hua Products v. CA A bill of lading was issued by Sea-Land for the delivery of a shipment for
Keng-Hua. Sea-Land delivered a shipment for Keng Hua. Keng Hua failed to
discharge the shipment on time and it accrued demmurage charges. Sea-Land
demanded Keng Hua to pay the charges. Court ruled that Keng Hua is liable for
the charges as they are bound by the bill of lading, which states that the shipper
and consignee are liable for the demurrage charges.
Parties are free to enter into agreements and stipulate as to the
terms and conditions of their contract, but such freedom is not
absolute; Hence, if the stipulations in the contract are valid, the
parties thereto are bound to comply with them, since such
contract is the law between the parties. A 12% per annum
penalty charge is not excessive. Likewise, an interest rate of
23% per annum is not unconscionable.
It is not proper to impose a 12% interest per annum because the
amount due in this case arose from a contract for a piece of
work, not from a loan or forbearance of money. The legal
interest of 6% per annum should be applied. Furthermore, since
the amount of the demand could be established with certainty
when the complaint was filed, the 6% interest should be
computed from the filing of the said complaint. But after the
judgment becomes final and executory until the obligation is
satisfied, the interest should be reckoned at 12% per year. The
Court also referred to the guidelines set in Eastern Shipping
Lines v CA.
Forbearance ‑ Contractual obligation of a lender or creditor to
refrain, during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and
payable.
The acceptance of a bill of lading by the shipper and the
consignee, with full knowledge of its contents, gives rise to the
presumption that the same was a perfected and binding
contract. If the sum of money claimed is not clearly stipulated
or changes in value as the days went by, the actual base for the
computation of legal interest shall be on the amount finally
adjudged.
Security Bank v. RTC Eusebio executed three promissory notes in favor of Security Bank in lieu of a
Makati loan contracted by the former. The said PNs shall be payable in six monthly
installments with 23% interest rate per annum. Upon maturity and demand of
Security Bank, Eusebio refused to pay the remaining balance of the three PNs.
Security Bank instituted a collection case against Eusebio. The RTC ruled in
Security Bank’s favor but it reduced the interest rate to 12% per annum based
on the Usury Law. Security Bank filed a motion for partial reconsideration but
the RTC denied the motion. The SC ruled in favor of Security Bank stating that
Central Bank Circular 905 effectively suspended the application of the Usury
Law. Parties can stipulate agreed rate in the contract.
Almeda v. CA PNB granted several loans to Sps. Almeda amounting to Php 18M payable in 6
years at 21% per annum. The credit agreement gave PNB the right to increase
interest rates within the limits allowed by law at any time. PNB raised interest
rate to 28% then 64%. PNB contended that increase was not illegal, unilateral,
excessive, and arbitrary because it was in accordance with the agreement and
justified by C.B. Circular No. 905 which removed the Usury Law ceiling on
interest rates
First Metro Investment v. Este del Sol was granted a loan to build a sports complex, with simultaneous
Este del Sol execution of a Underwriting Agreement and Consultancy agreement. Este del
Sol was not able to pay FMIC. TC: ordered Este del Sol to pay. CA: Reverse
and declared the agreements mere subterfuges to camouflage the excessively
usurious interest charged. SC: Affirmed CA.
Gaite v. Fonacier Fonacier owned mineral claims to which he assigned its rights to Gaite. Gaite
thus developed and exploited the land, only to return the same to Fonacier on
the condition he is paid 20,000 plus royalties for the developments and right to
use the Larap Iron Mines corporate name, as well as 75,000 pesos for the
24,000 metric tons of Iron ore he exploited. 10,000 was paid upon execution of
In a loan or forebearance of money, the interest due should be
that stipulated in writing, and in the absence thereof, the rate
shall be 12% per annum.
CC1956 expressly says that “no interest shall be due unless it
has been expressly stipulated in writing.”
PNB unilaterally altered the terms of its conditions. What has
been stipulated in writing was that the Almedas were bound to
pay 21% subject to possible escalationor de-escalation when the
circumstances warrant it is within the law, and upon agreement.
Moreover, while the Usury Law ceiling on interest rates was
lifted by CB Circular 905, nothing in the said circular could
possibly read as granting the bank carte blance authority to
raise interest rates to levels which would either enslave its
borrowers or lead to a hemorrhaging of their assets.
The form of the contract is not conclusive for the law will not
permit a usurious loan to hide itself behind a legal form; Parol
evidence is admissible to show that a written documentthough
legal in form was in fact a device to cover usury.
What characterizes a conditional obligation is the fact that its
efficacy or obligatory force is subordinated to the happening of
a future and uncertain event; so that if the suspensive condition
does not take place, the party would stand as if the conditional
obligation had not existed.
 the signing of the agreement and the remainder to be paid from the first credit
of sale of the iron ore. This was secured by Far Eastern Bank as surety, with
such security having an expiration date. When the security period had lapsed,
no sale had yet been
made by Larap Mines, nor had the balance been paid, thus Gaite filed the
present complaint. SC ruled that the stipulated obligation to pay the balance is
one with a period, and not one under a suspensive condition, thus the balance
had not expired.

Gonzales v. Heirs of Tomas
Paula Cruz together with her heirs entered into a contract of lease/purchase of a
parcel of land with Felix Gonzales. It stated in the contract that the lessee shall
purchase the property for 1M pesos after the period of one year upon signing
the contract and that the lessors will obtain a separate and distinct TCT. After
one year, Gonzales did not purchase the property immediately but possession
remained with him. The lessors wanted to rescind the contract due to the breach
and demanded Gonzales to vacate the property. Gonzales refused to vacate. The
lessors brought the case to court and wanted the recovery of the property and
payment for damages. During this time, the TCT still remained with lessors’
predecessors in interest. The trial court ruled in favor of Gonzales. The Court of
Appeals reversed TC decision. The Supreme Court reversed CA decision.
Condition has been defined as “every future and uncertain event
upon which an obligation or provision is made to depend. It is a
future and uncertain event upon which the acquisition or
resolution of rights is made to depend by those who execute the
juridical act.” Without it, the sale of the property under the
Contract cannot be perfected, and petitioner cannot be obliged
to purchase the property. “When the consent of a party to a
contract is given subject to the fulfillment of a suspensive
condition, the contract is not perfected unless that condition is
first complied with.”

Coronel v. CA and Alcaraz
Coronels executed a receipt of downpayment for an inherited house and lot in By operation of Art. 1187, the obligations of the parties under
favor of Alcaraz. It was stipulated that they will transfer the title to Alcaraz the contract became mutually due and demandable as of the
from the name of their deceased father. When the new TCT is ready, the time of fulfilment of the suspensive condition on Feb 6, 1985.
Coronels should execute a deed of absolute sale and the balance shall be paid
by Alcaraz immediately. Title was transferred to Alcaraz on Feb. 6.
However, on Feb 18, Coronels sold the property to Mabanag (for a higher
price) and cancelled the contract with Alcaraz. Alcaraz filed a complaint for
specific performance which she won until the SC. The TC, CA, and SC held
that the receipt of downpayment is a conditional contract of sale. Thus, when
the TCT was ready (suspensive condition), Coronel should have executed the
deed of absolute sale in favor of Mabanag.

Sps. Bonrostro v. Sps. Luna
Constancia Luna, seller, and Lourdes Bonrostro, buyer, entered into a Contract
to Sell a piece of property in Diliman, QC. Bonrostro failed to pay the
stipulated subsequent amortizations and so Luna filed a Complaint for
Rescission. Bonrostro uses as a defense a letter she sent to Luna signifying her
willingness to pay the remaining balance. The SC ruled that rescission is not
In a contract to sell, payment of the price is a positive
suspensive condition, failure of which is not a breach of
contract warranting rescission, but rather just an event that
prevents the supposed seller from being bound to convey title to
the supposed buyer.
 applicable in a Contract to Sell, since payment of the price is a positive
suspensive condition; non-payment would not be a breach, and would just
prevent the seller from conveying title to the supposed buyer.

Parks v. Province of Tarlac
Cirer and Hill donated parcels of land to the Municipality of Tarlac on the When a condition is imposed and the compliance acquired,
condition that they build on the land a public school and a park. The condition such condition is a condition subsequent.
has not been complied with. Years after, Cirer and Hill sold the same parcels of
land to George Parks. He prayed that the donation of the lands to Tarlac be
annulled because of its non-compliance with the condition. The Court ruled that
the donations were effective and even if they would want to revoke the
donation because of their non-compliance with the condition, their right to
bring an action for revocation had already prescribed.

Central Phil. University v. Don Ramon Lopez executed a deed of donation of a parcel of land in favor of
CA CPU, on the condition that the land shall be utilized by the CPU for the
establishment and use of a medical college. Fifty years have passed and the
condition still has not been complied with. Because of this, the heirs of Don
Ramon want the donation annulled and the land reconveyed to them for non-
compliance with the condition. The Court held that more than a reasonable
period of 50 years has already been allowed CPU to avail of the opportunity to
comply with the condition to make the donation in its favor forever valid but it
still failed to do so. CPU is ordered to reconvey the land to the heirs of Lopez.

Quijada v. CA Trinidad Quijada, together with her siblings, executed a deed of donation over a
2-hectare parcel of land in favor of the Municipality of Talacogon, on the
condition that the land shall be used as part of the campus of the proposed
provincial high school. Subsequently, she sold the same land to Regalado
Mondejar. The proposed provincial high school failing to materialize, the
Municipality of Talacogon reverted the ownership back to the donors. The
Court held that the sale of the land to Mondejar was valid.
When a person donates land to another on the condition that the
latter would build upon the land a school, the condition
imposed is not a condition precedent but a resolutory one. //
Ownership by the seller on the thing sold at the time of
perfection of the contract of sale is not an element for its
perfection. What the law requires is that the seller has the right
to transfer ownership at the time the thing sold is delivered.

Lao Lim v. CA Dy and Lao Lim entered a second Contract of Lease pursuant to a Compromise
Agreement. A specific stipulation is in issue. The CA states that it gives Dy the
right to renew the lease as long as he needs it and is able to pay for it and that
such is a resolutory condition. The Court disagreed stating that the stipulation is
a potestative one as it leaves the effectivity of the contract on the hands of one
Such a stipulation is invalid since it would leave to the lessees
the sole power to determine whether the lease should continue
or not. If this defense were to be allowed, so long as defendants
elected to continue the lease by continuing the payment of the
rentals, the owner would never be able to discontinue it;
 party. So as not to invalidate the contract, the Court interpreted it to mean that
the two parties must both agree to renew the lease.
Naga Telephone Co. v. CA NATELCO and CASURECO entered into a contract whereby the former can
use the latter’s posts and in return the former must provide the latter with 10
telephone units free of charge. 10 years into the enforcement of the contract,
CASURECO asked for reformation stating that the contract was too one sided
in favor of NATELCO. The Court ruled that indeed the contract should be
reformed based on Art. 1267 as the service to be provided by CASURECO has
become so difficult and inequitable that it was manifestly beyond their
contemplation. It also ruled that their action for reformation has not prescribed
since the cause of action only arose when the circumstances have drastically
changed and thus, CASURECO was able to file the instant case within
the prescriptive period. Lastly, the court said that the subject condition is valid
as it is not a purely potestative condition but mixed.
Hermosa v. Longora There were 3 claims against the estate of the late Hermosa Sr. Luz and Hermosa
Jr. assail the CA’s approval of the 3 claims against it. They said that the
obligation entered into by Hermosa Sr. is null and void for being a potestative
condition. The court said that it was valid as it wasn’t a potestative condition
but a mixed condition. That the fact that Hermosa Sr. was going to
sell his house was already certain but that the fact that other people would buy
conversely, although the owner should desire the lease to
continue, the lessees could effectively thwart his purpose if they
should prefer to terminate the contract by the simple expedient
of stopping payment of the rentals.
The continuance, effectivity and fulfillment of a contract of
lease cannot be made to depend exclusively upon the free and
uncontrolled choice of the lessee between continuing the
payment of the rentals or not, completely depriving the owner
of any say in the matter. Mutuality does not obtain in such a
contract of lease and no equality exists between the lessor and
the lessee since the life of the contract is dictated solely by the
lessee.
A potestative condition is a condition, the fulfillment of which
depends upon the sole will of the debtor, in which case, the
conditional obligation is void. Based on this definition, the
CA’s finding that the provision in the contract, to wit:
“That the term or period of this contract shall be as long as
NATELCO has need for the electric light posts of CASURECO
is a potestative condition, is correct. However, it must have
overlooked the other conditions in the same provision, to wit:
…it being understood that this contract shall terminate when
for any reason whatsoever, CASURECO is forced to stop,
abandon its operation as a public service and it becomes
necessary to remove the electric light posts which are casual
conditions since they depend on chance, hazard, or the will of a
third person. In sum, the contract is subject to mixed conditions,
that is, they depend partly on the will of the debtor and partly
on chance, hazard or the will of a third person, which do not
invalidate the aforementioned provision.
The condition was not purely potestative, but a mixed one,
depending partly upon the will of intestate and partly upon
chance.

Smith Bell v. Matti
Rustan Pulp and Paper Mills
Romero v. CA
Roman Catholic
Archdiocese of Manila v.
CA
said house would be dependent on other factors not dependent on Hermosa
Sr.’s will. Because the conditions were valid, then the debt only becamse
demandable upon the sale of the house. It was only after the sale would
prescription run.
Smith, Bell & Co., Ltd. and Matti entered into a contract, wherein the former
would sell 2 steel tanks, 2 steel expellers, and 2 electric motors. As stipulated in
the contract, the company promised that these will be delivered within a
specific time. None of the equipment arrived on time, and Matti refused to
accept and to pay for them. The Supreme Court declared that Matti should pay
and accept the equipment, and Smith, Bell & Co. is not liable for delay because
there was no day certain/fixed period in the contract. According to Article
1125, such obligations are deemed conditional.
Rustan Pulp enter into a contract to supply with Lluch with a stipulation that the
former has a right to stoppage if the supply become sufficient, subject to
redelivery when such becomes necessary. Both instances are up to the
discretion of petitioner. When petitioners informed herein respondents to stop
the deliveries, the latter sued for breach of contract. Court holds that such a
condition is potestative and should be inoperative.
Romero and Ongsiong entered into a contract of sale of a parcel of land.
Romero agreed to pay the balance upon the ejectment of the squatters on the
subject property. Ongsiong filed an action for rescission for failing to “get rid
of the squatters”. SC held that the right to rescind belongs to Romero; under the
CC, it is the obligee who may choose between rescinding the agreement or
waiving the condition. Here, Romero took it upon himself to ensure the
eviction.
Spouses de Castro and Rieta donated a parcel of land to the Roman Catholic
Church. The deed of donation contained a condition wherein the donee shall not
dispose or sell the property within a period of 100 years. Just 50 years after, the
Obligations for the performance of which a day certain has
been fixed shall be demandable only when the day arrives.
A day certain is understood to be one which must necessarily
arrive, even though its date be unknown.
If the uncertainty should consist in the arrival or non-arrival of
the day, the obligation is conditional and shall be governed by
the rules of the preceding section. (Article 1125, according to
the case. A similar provision, though worded differently, is
found in Article 1193 of the New Civil Code.)
A purely potestative imposition of this character must be
obliterated from the face of the contract without affecting the
rest of the stipulations considering that the condition relates to
the fulfillment of an already existing obligation and not to its
inception.
The undertaking required of private respondent does not
constitute a “potestative condition dependent solely on his
“will” that might, otherwise, be void in accordance with Article
1182 of the Civil Code but a “mixed” condition “dependent not
on the will of the vendor alone but also of third persons like the
squatters and government agencies and personnel concerned.”
where the so-­called “potestative condition” is imposed not on
the birth of the obligation but on its fulfillment, only the
condition is avoided, leaving unaffected the obligation itself.
In deeds of donation, conditions unduly restricting the rights of
ownership for a period of more than 20 years is contrary to
public policy and may be considered an illegal or impossible
 Bishop of Imus sold the property to Spouses Ignao. Private respondents then
went to court seeking nullification of the deed of donation. The Court said that
there is lack of cause of action as the condition imposed in the contract is “an
unreasonable emasculation and denial of an integral attribute of ownership,
should be declared as an illegal or impossible condition.” Therefore, it will be
considered as if no condition has been imposed. Being as the condition was the
basis of the action, there is no cause of action. Petition dismissed.
Heirs of Timoteo Moreno v. MCIAA was tasked to expand Lahug airport. It expropriated lots from heirs
MCIAA with the promise that the heirs can repurchase them once the Lahug airport was
closed. The lots were not utilized since no expansion happened. Heirs filed for
reconveyance to compel repurchase. Court decided in their favor. However,
heirs must return to MCIAA the just compensation with interest, the expenses
of MCIAA in sustaining the lots, the monetary value of MCIAA's services in
managing the lots, and the prevailing market price of improvements built by
MCIAA if both parties decide to buy and sell these improvements.
Herrera v. Leviste Leviste sold mortgaged properties to Herrera who then paid for its principal
amount to Leviste and Leviste’s debt to GSIS. GSIS, however, did not approve
Herrera’s assumption of mortgage obligation. Leviste, despite Herrera’s full
payment did not facilitate the assumption of mortgage request to GSIS. The
lands were foreclosed. Leviste sold the right to redeem mortgaged lands to
Marcelo who redeemed lands and gave them back to Leviste. CFI, CA, SC
ruled in favor of Leviste. Teehankee dissented and ruled that Leviste prevented
Herrera’s fulfillment of his obligation to assume mortgage by not facilitating
the same with GSIS.
Carlos Lim v. DBP SC held that DBP’s cancellation of the Restructuring Agreement did not justify
the extinguishment of the Lims’ loan obligation under the Principle of
Constructive Fulfillment found in Art. 1186, CC. Their promissory notes were
due and demandable as early as 1972 and 1976 and it was only in 1989 that the
Lims tried to negotiate, until DBP agreed to restructure the loan. DBP only
condition.
Art. 1454, CC: If an absolute conveyance of property is made in
order to secure the performance of an obligation of the grantor
toward the grantee, a trust by virtue of law is established. If the
fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand the reconveyance of the property
to him.
Art. 1190, CC: When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what
they have received. In case of the loss, deterioration or
improvement of the thing, the provisions which, with respect to
the debtor, are laid down in the preceding article shall be
applied to the party who is bound to return.
Art. 1186: The condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment. In this case, it
cannot be validly said that Herrera had fully complied with all
the conditions of his contract with Leviste. For one thing, he
was not able to substitute the Parañaque Property with another
collateral for the GSIS loan. Moreover, nowhere in the letter (of
the GSIS) was mentioned that a final deed of sale must first be
executed and presented before the assumption may be
considered.
Art. 1186 enunciates the doctrine of constructive fulfillment of
suspensive conditions, which applies when the following 3
requisites concur, viz.: (1) The condition is suspensive; (2) The
obligor actually prevents the fulfillment of the condition; and
(3) He acts voluntarily. Suspensive condition is one the
 cancelled the Restructuring Agreement after the Lims failed to comply with the happening of which gives rise to the obligation.
additional conditions. As it was cancelled, it could not have novated or
extinguished their loan, and DBP had the right to foreclose.

Song Fo v. Hawaiian Phils. In the court of First Instance of Iloilo, Song Fo & Company, plaintiff, The general rule is that rescission will not be permitted for a
presented a complaint with two causes of action for breach of contract against slight or casual breach of the contract, but only for such
the Hawaiian-Philippine Co., defendant. In an amended answer and cross- breaches as are so substantial and fundamental as to defeat the
complaint, the defendant set up the special defense that since the plaintiff had object of the parties in making the agreement.
defaulted in the payment for the molasses delivered to it by the defendant under
the contract between the parties, the latter was compelled to cancel and rescind
the said contract. The judgment of the trial court condemned the defendant to
pay to the plaintiff for the latter’s additional expenses incurred in buying
molasses elsewhere. The SC also decided in favor of Petitioner.

Boysaw v. Interphil Solomon Boysaw entered into a contract with Interphil Promotions to fight
Promotions Gabriel “Flash” Elorde on September 30, 1961. The fight was moved to a later
date, which prompted Boysaw to sue for damages.
The power to rescind obligations is implied, in reciprocal ones,
in case one of the obligors should not comply with what is
incumbent upon him. [Part 1, Art. 1191, Civil Code].
Where the plaintiff is the party who did not perform the
undertaking which he was bound by the terms of the agreement
to perform 4 he is not entitled to insist upon the performance of
the contract by the defendant, or recover damages by reason of
his own breach

UP v. De Los Angeles UP and ALUMCO entered into a logging agreement. ALUMCO incurred an The party who deems the contract violated may consider it
unpaid account which was left unpaid after repeated demands. ALUMCO then resolved or rescinded and act accordingly, without previous
executed an "Acknowledgment of Debt and Proposed Manner of Payments" court action, but it proceeds at its own risk. It is not always
stating that UP shall have the right rescind the logging agreement without necessary for the injured party to resort to court for rescission
necessity of judicial suit if ALUMCO still fails to pay. ALUMCO continued of the contract.
logging but incurred an additional unpaid account. UP then rescinded the
logging agreement and filed a collection case. ALUMCO contended that it is
only after a final court decree declaring the contract rescinded that UP could
disregard ALUMCO's rights and treat the agreement as breached. The SC ruled
in favor of UP.

De Erquiaga v. CA
Angeles v. Calasanz Calasanz et al. entered into contract to sell piece of land for P 3920 plus 7%
interest per annum to Angeles et al. who paid the downpayment and the
monthly installments which already amounted to P 4533.38. Calasanz cancelled
the contract after Angeles failed to pay subsequent payments. SC rules that the
breach committed by Calasanz (not paying August installment) is so slight that
it does not warrant rescission of contract. Since the principal obligation is only
P 3920 and Angeles has paid P 4533.38 already, Calasanz should order
payment of remaining installments instead of rescinding contract. They also
waived such right of rescission when they accepted delayed payments.
Ong v. CA
Iringan v. CA Palao sold to Iringan a parcel of land located in Tugegarao. When Iringan failed
to comply with his obligation to pay the full amount of the second installment,
Palao sent a letter to Iringan stating that he considered the contract as rescinded.
The parties failed to arrive at an agreement. Hence, Palao filed a Complaint for
Judicial Confirmation of Rescission of Contract and Damages against Iringan
and his wife. The RTC and CA ruled in favor of Palao. When the case was
brought to the Supreme Court, the Court ruled that the contract was validly
rescinded. The Court also ruled that contrary to Iringan’s argument, the action
has not yet prescribed because the applicable provision in this case was not
Article 1381 but 1191 and 1592.
Visayan Sawmill v. CA and RJH and VSC entered into a contract for purchase and sale of scrap iron,
RJH trading subject to RJH’s opening of an irrevocable and unconditional letter of credit for
the purchase price of P250,000.00 in favor of VSC, on or before May 15, 1983.
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement.
Obviously, the contract entered into by the parties does not fall
under any of those mentioned by A1381. Consequently, A1383
is inapplicable. A careful reading of the parties’ “Agreement of
Purchase and Sale” shows that it is in the nature of a contract
to sell, as distinguished from a contract of sale. In a contract of
sale, the title to the property passes to the vendee upon the
delivery of the thing sold; while in a contract to sell, ownership
is, by agreement, reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price. In a contract to
sell, the payment of the purchase price is a positive suspensive
condition, the failure of which is not a breach, casual or serious,
but a situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force.
The "rescission" in Article 1381 is not akin to the term
"rescission" in Article 1191 and Article 1592. In Articles 1191
and 1592, the rescission is a principal action which seeks the
resolution or cancellation of the contract while in Article 1381,
the action is a subsidiary one limited to cases of rescission for
lesion as enumerated in said article.
The prescriptive period applicable to rescission under Articles
1191 and 1592, is found in Article 1144, which provides that
the action upon a written contract should be brought within ten
years from the time the right of action accrues.
(Article 1597, New Civil Code) Where the goods have not been
delivered to the buyer, and the buyer has repudiated the contract
of sale, has manifested his inability to perform his obligations
 Upon RJH’s failure to comply, VSC sought to cancel the contract. RJH filed a thereunder, or has committed a breach thereof, the seller may
complaint for specific performances and damages against VSC. The trial court totally rescind the contract of sale by giving notice of his
and the CA ruled in favor of RJH, holding that there had been “implied election so to do to the buyer.
delivery” which would require judicial intervention for the resolution of the
contract. The SC reversed the CA, ruling that RJH failed to comply with the
positive suspensive condition (opening the letter of credit on/by the date and
under the conditions stipulated), and that VSC’s obligation, as a result, did not
arise.

Deiparine v. CA and The respondent spouses entered into an agreement with petitioner Deiparine for Article 1191, unlike Article 1385, is not predicated on
Trinidad the construction of a three storey dormitory. Subsequently, it was discovered economic prejudice to one of the parties but on breach of faith
that Deiparine was not complying with his obligation, because he has been by one of them that violates the reciprocity between them.
deviating from the plans and specifications for the construction made by
Trinidad, a civil engineer, to secure the strength and safety of the building. A
core test was conducted in order to ascertain the compliance of the construction
with the safety requirements. The results however revealed that the building
was structurally defective. Because of this, the spouses Carungay filed
complaint with the Regional Trial Court of Cebu for the rescission of the
construction contract and for damages. The RTC ruled in favor of the spouses
Carungay. This decision was affirmed in toto by the Court of Appeals. The
Supreme Court affirmed the decision of the respondent court.

Grace Park Engineering v. Dimaporo had executed a contract of sale with Grace Park Engineering Corp
Dimaporo for cassava flour and starch processing equipment. It was stipulated in the
contract that Dimaporo would pay an initial amount upon signing, pay an
additional amount within 30 days of signing, and pay the remaining balance in
12 monthly installments. While Dimaporo obliged with the first two conditions,
he was unable to pay the remaining balnce. As a result, Grace Park installed the
equipment a year after. Lower court ruled for rescission of contract because
both parties failed to comply with their contractual obligations. SC affirmed.
1. The duty of parties in rescission of contract is to surrender
that which they have received and to place the parties in their
original situation
2. Where both parties committed a breach of obligation and it
cannot be determined who is the first infractor, each party
should bear his/its own damages

Roque v. Lapuz Roque sold 3 parcels of land to Lapuz whereby the latter agreed to pay the full
amount in 120 monthly installments. Lapuz was only able to pay the initial
amount and 4 monthly installments. Roque filed a complaint for rescission of
the agreement which was granted by the RTC and the CA. Lapuz on MR was
given a period of 90 days to complete the payment invoking art. 1592. The SC
held the Lapuz is not entitled to the grant of period and that the agreement
should be rescinded.
In a CTS, the ownership is retained by the seller and is not
transferred until the full payment of the price, such payment,
is a positive suspensive condition, the failure of which is
not a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from
acquiring binding force.
In CTS, the full payment of the price through punctual

Suria v. IAC Respondents entered into a deed of sale with mortgage with the petitioners.
Petitioners defaulted in their payment. Respondents wanted to rescind the
contract based on Article 1191 (reciprocal obligations). Petitioners moved to
dismiss thecomplaint of the respondents since the rescission of this contract is
based on Article 1383, which makes the rescission subsidiary. Court ruled in
favor of the petitioners as the contract of sale was already perfected. The
contract subsisting is between a mortgagor and a mortgagee. The propoer
remedy according to law and to the stipulation of the contract is a foreclosure.
Rescission, in this case, is only subsidiary.
Lachica v. Araneta Gregorio Araneta, Inc. offered for sale a parcel of land. Lachica sent letters of
offer to buy the said land which contained proposals of purchase price and the
terms of payment. Araneta then sent a letter to Lachica containing his proposed
terms which Lachica accepted. Lachica and Araneta executed a deed of sale
with mortgage. When Lachica made a payment before the end of the fixed term,
Araneta refused to accept such payment. Lachica then tendered payment of the
whole obligation including interest not yet due but the same is still not
accepted. Lachica consigned the payment with CFI. CFI ordered Araneta to
release the mortgage.
Ponce de Leon v. Syjuco Ponce de Leon obtained 2 loans from Syjuco in 1944, 1st for P200k and the 2nd
for P16k, both loans were in Japanese Military notes. Their agreement provided
that the debts would be paid within 1 year from May 1948 and that promisor
could not pay and payee could not demand within the aforementioned period. In
1944, Ponce de Leon tendered payment for the entire obligation including
interest until 1948. Syjuco refused to accept thus Ponce deposited the amount to
performance of the monthly payments is a condition precedent
to the execution of the final sale and to the transfer of the
property from the owner to the proposed buyer; so that there
will be no actual sale until and unless full payment is made.
There can be no rescission or resolution of an obligation as yet
non-existent, because the suspensive condition did not happen.
Article 1952 requiring demand by suit or notarial notice does
not apply to a CTS or promise to sell, where the title remains
with the vendor until fulfillment to a positive condition, such
as full payment of the price.
Rescission under Article 1191 (reciprocal obligations) is
principal. Rescission under Article 1383 (economic prejudice)
is only subsidiary and must only be resulted to when there are
no other legal means to obtain reparation for the same.
If a term is fixed, it is presumed to have been established for the
benefit of the creditor as well as that of the debtor, unless from
its tenor or from other circumstances it should appear that the
term was established for the benefit of one or the other. Such
mutual benefit has been interpreted to consist of the time
granted a debtor to find means to comply with his obligation
and the fruits such as interest accruing to the creditor.
The consignation was invalid and did not relieve Ponce de Leon
of his obligation. The plaintiff, before making the consignation,
did not give prior notice to Syjuco regarding the performance of
the obligation, and the obligation was not yet due and
demandable.

Buce v. CA
Araneta v. Phil. Sugar Estate
Dev’t Co.
Central Phil. Univ c. CA
the CFI and filed complaint. SC held that such consignation was not valid as
the debt was not yet due.
Araneta and Phil Sugar bound themselves to a reciprocal obligation that Phil.
Sugar would build a church and Araneta would construct streets on the borders
around it. By the time the church was finished, Araneta was still unable to build
on one of the roads as there were still settlers who had refused to vacate. Phil.
Sugar thus complained, praying for specific performance. Araneta argued that
there was no set period stipulated in their contract. The Lower Courts initially
dismissed the case for prematurity, but overturned and set a period of 2 years.
This was upheld in the Court of Appeals.
Don Ramon Lopez executed a deed of donation of a parcel of land in favor of
CPU, on the condition that the land shall be utilized by the CPU for the
establishment and use of a medical college. Fifty years have passed and the
condition still has not been complied with. Because of this, the heirs of Don
Ramon want the donation annulled and the land reconveyed to them for non-
compliance with the condition. The Court held that more than a reasonable
period of 50 years has already been allowed CPU to avail of the opportunity to
comply with the condition to make the donation in its favor forever valid but it
In order that consignation may be effective, the debtor must
first comply with certain requirements. The debtor must show:
1. that there was a debt due;
2. that the consignation of the obligation had been made
bacause the creditor to whom tender of payment was
made refused to accept it, or because he was absent for
incapacitated, or because several persons claimed to be
entitled to receive the amount due;
3. that previous notice of the consignation have been
given to the person interested in the performance of
the obligation;
4. that the amount due was placed at the disposal of the
court; and
5. that after the consignation had been made the person
interested was notified thereof.
When a period is established but certain stipulations of the
contract is unclear (like the subject of renewal), it is presumed
to be for the benefit of both parties to the contract.
Civil Code Art. 1197 provides that the Court may intervene, but
such is qualified by a two-step process:
a) To determine that the obligation does not fix a period, and
that the nature and circumstances of the obligation nonetheless
show that a period was intended; and
b) Decide the period probably contemplated by the parties.
When in an obligation with a resolutory condition, more than a
reasonable period has been allowed to comply with the
condition and the donee still failed to do so, there is no more
need to fix the duration of the term.
 still failed to do so. CPU is ordered to reconvey the land to the heirs of Lopez.
Deudor v. JM Tuason The Deudors and JM Tuason & Co. entered into a compromise agreement over
a parcel of land which they both claim. The lower court fixed the period upon
which the Deudors must comply with the conditions. The Deudors complain
that this is tantanmount to the the amendment of their compromise agreement.
The SC said that it is not (see doctrine).
Ynchausti v. Yulo 6 siblings, Gregorio, Pedro, Concepcion, Francisco, Manuel, and Carmen,
executed a notarial document acknowledging their indebtedness in solidum to
Inchausti & Co. The 1st installment was not paid when due so Inchausti filed an
action only as against Gregorio. 3 of the siblings, Francisco, Manuel, and
Carmen made a compromise with the firm which reduced the debt and changed
the maturity dates of the installments. Gregorio argues that the compromise
novated the obligation so that the debt is not yet due and that the amount is
reduced. He also questions why the action was only brought against him.
Inciong v. CA Inciong, Naybe and Pantanosas signed a promissory note for P50k to PBCOM.
The note says that Inciong et al. are JOINTLY AND SEVERALLY liable for
the P50k. PBCOM came to collect the P50k, but Inciong et al. were not able to
pay. Naybe went to Saudi Arabia and Pantanosas & the case was dismised.
Hence, only Inciong was summoned to court. Inciong claims that as a solidary
guarantor, he is released from his obligation to pay PBCOM. SC ruled that
Inciong is not a solidary guarantor, but a solidary debtor, as stipulated in the
promissory note itself.
RCBC v. CA Ching is surety of PBM obligations to RCBC. PBM receives a SEC Order
suspending claims against them and claims that such suspension also applies to
their surety Alfredo Ching. SC disagrees and says that SEC order only applies
to PBM. Petitioner RCBC may proceed to recover claims against surety
Alfredo Ching.
When the authority to fix a period granted by Article 1197,
Civil Code is exercised by the courts, it does not amend or
modify the obligation concerned. Whenever a period is fixed,
the court merely enforces or carries out an implied stipulation
in the contract in question. In other words, the court merely
ascertains the will of the parties and gives effect thereto.
SC ruled that since the obligation was solidary, the creditor can
demand the full obligation as to any one of the solidary debtors.
However while the compromise had not novated the obligation
as to the other debtors who was not party to the compromise,
the remission of the debt as to those who did benefits the
former. The non-maturity of the obligation, as to those who
were part of the compromise, however, cannot be set up as a
defense by those who were not part of the compromise.
Solidarity may exist even though the debtors are not bound in
the same manner and for the same periods and under the same
conditions.
A solidary or joint and several obligation is one in which each
debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation. There is a solidarity
liability only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so
requires.
Where an obligation expressly states a solidary liability, the
concurrence of two or more creditors or two or more debtors in
one and the same obligation implies that each one of the former
has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. The creditor may
proceed against any one of the solidary debtors or some or all
of them simultaneously
Lafarge Cement Phil. v.
Continental Cement
Jaucian v. Querol
Rehabilitation Finance Corp.
v. CA
Quiombing v. CA
Alipio v. CA
Makati Dev’t Corp. v.
Empire Insurance Co.
Petitioner Lafarge agreed to purchase Respondent CCC. Issue is WON both
Lim and Mariano as officers can be held jointly and severally liable with the
Respondent CCC.
Dayadante and Rogero obliged themselves to be indebted to Jaucian. Rogero is
the surety, but on the terms of obligation both debtors bound themselves jointly
and severally. Jaucian went after Rogero but she had died, so he charged the
claim against Rogero’s estate belatedly, 2 years after the committee filed their
report for allowance on the claims against the estate. Rogero being solidarily
liable to the obligation with Dayadante, Jaucian’s claim is an absolute one, one
that should have been allowed by the committee had it been presented to the
committee on time.
Jaring subleased a fishpond to spouses Alipio and spouses Manuel. Jaring sued
to collect their unpaid balance. Purita sought to dismiss the case with respect to
the claim against her and her husband on the ground that her husband had
passed away prior to the filing of the suit. RTC and CA held that the surviving
spouse may still be sued. SC ruled otherwise, for the reason that the conjugal
partnership terminates upon the death of either spouse. Therefore, Jaring’s
remedy is to file a claim against the Alipios in the proceeding for the settlement
of the estate of petitioner’s husband or, if none has been commenced, he can
file a petition either for the issuance of letters of administration or for the
allowance of will , depending on whether petitioner’s husband died intestate or
testate. Also, the obligation in this case is merely joint.
MDC sold a lot to Andal with a condition that the latter shall construct and
complete at least 50% of his house within 2 years after the execution of the
sale. To ensure compliance, this was supported by a surety, Empire Insurance
who undertook to jointly and severally paying 12k in case of non-compliance.
Instead of building a house, Andal sold the lot to Juan Carlos. 3 days after the
The court held that respondents are solidarily liable. The fact
that the liability sought against the CCC is for specific
performance and tort, while that sought against the individual
respondents is based solely on tort does not negate the solidary
nature of their liability for tortuous acts alleged in the
counterclaims.
Where a guarantor or surety is jointly and severally bound with
the principal debtor, the obligation of the guarantor or surety,
equally with that of the principal debtor, is absolute and not
contingent.
When the spouses are sued for the enforcement of an obligation
entered into by them, they are being impleaded in their capacity
as representatives of the conjugal partnership and not as
independent debtors such that the concept of joint or solidary
liability, as between them, does not apply.
Court has the power to mitigate penalties based on penal
clauses in certain instances like: (a) partial or irregular
compliance, (b) amount of the indemnity not fixed according to
anticipated damage, and (c) indemnity provided for is for
enforcement of the contract.
 expiration of the period, MDC demanded payment of 12k pursuant to their
penal clause. When Empire refused, filed a complaint to recover bond. CFI
ruled in favor of MDC but only ordered payment of 1,500 instead of 12k. Court
said the mitigation of the penalty was okay since the penal clause was not
intended for cases of breach but merely to ensure compliance with the
condition. Aside from that, Juan Carlos had already completed more than 50%
of his house barely a month after the period; hence, substantial compliance

Tan v. CA Tan obtained a loan from CCP but he defaulted. He admitted his loan but he NCC permits an agreement upon a penalty apart from the
contends that since there is already monetary interest, there should be no penalty monetary interest
charge anymore. Court held that it is legal for the parties to stipulate that the penalty
charge will be different from the monetary interest. A stipulation about payment of additional interest partakes of
Tan also contends that this penalty charge should not earn interest. Court held that the nature of a penalty clause. Penalty clauses can be in the
the penalty charge is a penalty clause that can be in the form of compensatory form of penalty or compensatory interest, and the compounding
interest. As such, under Art. 1959, the compensatory interest can also earn interest.of such is allowed by Art.1959.
Finally, Tan seeks reduction of penalty since he made partial payments. Court held
that his partial payments and offers to a compromise indicate good faith. And that Interest due shall earn legal interest from the time it is judicially
the 2% penalty charge on the total amount due compounded monthly for 21 years isdemanded.
unconscionable so Court ordered its reduction to 12% p.a. on the total amount due.Judge shall equitably reduce penalty when principal obligation
has been partly complied with by debtor.

Country Bankers v. CA OVEC leased theaters to Sy but Sy failed to pay rentals and amusement taxes
despite demands. Sy’s remaining deposit was forfeited by virtue of a forfeiture
clause in the lease agreement. SC states that such forfeiture is valid.
General Rule: In obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of
interests in case of non-compliance (Art. 1226). Proof of actual
damages suffered by the creditor is not necessary in order that
the penalty may be demanded (Art. 1228). Exceptions: (1)
when there is a stipulation to the contrary; (2) when the obligor
is sued for refusal to pay the agreed penalty; (3) when the
obligor is guilty of fraud (Art. 1226).

Arrieta v. NARIC Arrieta won a bid called by NARIC for the supply of 20K MT of Burmese rice.
They entered into a contract of sale of rice, which made NARIC liable for a
letter of credit in favor of Arrieta, with Arrieta being obligated to deliver the
rice. Arrieta told NARIC that it was urgent to open the letter of credit, because
it would be necessary (after her downpayment) to allocate space on the ship for
the rice from her supplier in Rangoon. However, NARIC failed to open the
letter of credit, and this cost Arrieta around P200K in losses because the space
on the ship was forfeited. Though Arrieta offered to substitute the lost Burmese
Any agreement to pay an obligation in a currency other than
Philippine legal tender is null and void as contrary to public
policy, and the most that could demanded is to pay said
obligation in Philippine currency "to be measured in the
prevailing rate of exchange at the time the obligation was
incurred.
 rice with Thailand rice, NARIC declined. She then sued NARIC for
compensation for unrealized profits. SC held that Arrieta is entitled to
compensation and damages because it was NARIC’s fault that the rice was
forfeited because the space on the ship closed. Its liability stems not only from
the failure to satisfy the bank requirements that would’ve granted them the
letter of credit, but its culpability also arises from the assumption of the
contractual obligation despite knowledge of its financial incapacity. It is liable
because of “;in any manner contravene the tenor” which impairs the strict and
faithful fulfillment of the obligation. In the premises, however, a minor
modification must be effected in the disposition portion of the decision
appealed from insofar as it expresses the amount of damages in U.S. currency
and not in Philippine Peso. RA 529 specifically requires the discharge of
obligations onl “;in any coin or currency which at the time of payment is legal
tender for public and private debts.” In view of that law, therefore, the award
should be converted into and expressed in Philippine Peso.

Kalalo v. Luz Kalalo (civil engineer) entered into a commission-based agreement with Luz
(architect) in 1959 for engineer design services, with stipulated commission
from the architect’s fees. After refusing Luz’ partial payment in 1962, Kalalo
filed a complaint for payment, and the Commissioner’s report stated that the
amount due was USD 28,000 (20% of the USD 140,000 project with the
International Research Institute), among other fees.
Under RA 529, if the obligation was incurred prior to the
enactment in a particular kind of coin or currency other than the
Philippine currency the same shall be discharged in Philippine
currency measured at the prevailing rate of exchange at the time
the obligation was incurred. RA 529 does not provide for the
rate of exchange for the payment of obligation incurred after
the enactment of said Act. The logical conclusion is that the
rate of exchange should be that prevailing at the time of
payment for such contracts.

St. Paul Fire and Marine St. Paul, as insurer of Winthrop, claims the loss and damages it paid to the latter The insurer after paying the claim of the insured for damages
Insurance v. Macondray against the carrier and port service. The Court ruled that it can only claim as to under the insurance is subrogated merely to the rights of the
the amount recoverable by the consignee as provided in the bill of lading. insured and therefore can necessarily recover only that to what
was recoverable by the insured.

Papa v. Valencia Petitioner Papa sold a parcel of land to private respondent Peñarroyo, who paid
P5,000 in cash and in check worth P40,000. However, Papa was not able to
deliver the certificate of title to Peñarroyo. A litigation ensued 10 years after,
and Papa argued that the sale between him and Peñarroyo was never
consummated because he did not encash the P40,000 check. RTC and CA ruled
in favor of Peñarroyo. SC held that after more than ten (10) years from the
payment in part by cash and in part by check, the presumption is that the check
had been encashed.
The acceptance of a check implies an undertaking of due
diligence in presenting it for payment, and if he from whom it is
received sustains loss by want of such diligence, it will be held
to operate as actual payment of the debt or obligation for which
it was give.
PAL v. CA

Carlos Lim v. DBP SC held that DBP’s cancellation of the Restructuring Agreement did not justify
the extinguishment of the Lims’ loan obligation under the Principle of
Constructive Fulfillment found in Art. 1186, CC. Their promissory notes were
due and demandable as early as 1972 and 1976 and it was only in 1989 that the
Lims tried to negotiate, until DBP agreed to restructure the loan. DBP only
cancelled the Restructuring Agreement after the Lims failed to comply with the
additional conditions. As it was cancelled, it could not have novated or
extinguished their loan, and DBP had the right to foreclose.
Art. 1186 enunciates the doctrine of constructive fulfillment of
suspensive conditions, which applies when the following 3
requisites concur, viz.: (1) The condition is suspensive; (2) The
obligor actually prevents the fulfillment condition; and (3) He
acts voluntarily. Suspensive condition is one the happening of
which gives rise to the obligation.

Reparations Commission v. Universal was awarded 6 trawl boats by the Reparations Commission. Three The rules contained in Articles 1252 to 1254 of the Civil Code
Universal Deep Fishing separate deliveries of the vessels were made, each delivery covered by a apply to a person owing several debts of the same kind to a
separate contract which laid out the terms of payments. Universal claimed to single creditor. They cannot be made applicable to a person
have been confused by allegedly conflicting amounts and due dates such that it whose obligation as a mere surety is both contingent and
defaulted on the first installments on all three contracts and installment 1 of 10 singular, which in this case is the full and faithful compliance
on the balance for the first two contracts. The Supreme Court held that the with the terms of the contract.
terms of payment under the three contracts were all very clear and not at all
obscure. With respect to the course outline, the Court held that Manila Surety’s
obligation as a surety was singular, such that the provisions on applications of
payment (premised on the existence of various debts) have no application to its
singular obligation (to pay) in its undertaking to guarantee faithful compliance
with Universal’s obligations under the contracts.

Paculdo v. Regalado The parties entered into a contract of lease over a parcel of land with a wet Under the law, if the debtor did not declare at the time he made
market building located in Fairview Park, Quezon City. Aside from this, the payment to which of his debts with the creditor the payment
petitioner leased eleven (11) other property from respondent, ten (10) of which is to be applied, the law provided the guideline--no payment is
were located within the Fairview compound, while the eleventh was located to be made to a debt that is not yet due and the payment has to
along Quirino Highway, Quezon City. Petitioner also purchased from be applied first to the debt most onerous to the debtor.
respondent eight (8) units of heavy equipment and vehicles in the aggregate
amount of P1,020,000.00. Subsequently, the petitioner failed to pay his
monthly rentals. Because of petitioner’s continued failure to settle his liability
despite demands by the respondent, the respondent filed an ejectment complaint
against petitioner. The MTC ruled in favor of respondent. The trial court, upon
appeal, affirmed in toto the MTC’s decision. Petitioner filed a petition for
review before the Court of Appeals. However, the appellate court denied the
motion. Hence, this petition. The Supreme Court, in ruling in favor of
petitioner, said that there was no clear assent by petitioner to the change in the
manner of application of payment. The petitioner’s silence as regards the

DBP v. CA
Filinvest Credits v.
Philippine Acetylene
Sps. Bonrostro v. Sps. Luna
application of payment by respondent cannot mean that he consented thereto.
Lydia Cuba is a grantee of Fishpond Lease Agreement from the government.
She obtained a loan from DBP, and as security for the loans, she executed a
promissory note and two Deeds of Assignment of her Leasehold Rights. She
failed to pay her loan so DBP, without foreclosure proceedings, appropriated
the Leasehold Rights over the fishpond. Cuba, wanting to get back the
fishpond, negotiated with DBP for a Deed of Conditional Sale of the Leasehold
Rights. However, she was unable to pay the amortization. DBP then sold the
Leasehold Rights to a third person, Caperal. Cuba argued that the Deed of
Assignment of Leasehold Rights was a mortgage, and not a dation in payment
nor a cession. Therefore, according to Art 2088 of CC, DBP as the creditor
cannot appropriate the mortgage. DBP argued that it was a dation in payment
(if not, a cession), whose appropriation was allowed. SC held that it was not a
dation nor cession (based on some provisions in Deed of Assignment of
Leasehold Rights).
RESP Philippine Acetylene bought a motor vehicle and executed in favor of
Lim (rights finally assigned to Filinvest Credit) a chattel mortgage. RESP
defaulted on the installment payments and returned the vehicle to FCC,
together with a “Voluntary Surrender with SPA to Sell”. FCC was unable to
sell to vehicle due to unpaid taxes. FCC demanded payment in arrears and
wanted to return the vehicle to RESP which refused the accept it. FCC filed a
complaint for collection of sum of money but RESP maintains that the return of
the vehicle is a mode of payment (dacion en pago) which extinguished its
obligation to pay. SC held that there was no dacion en pago, Philippine
Acetylene should accept the return of the vehicle and pay FCC the balance.
Constancia Luna, seller, and Lourdes Bonrostro, buyer, entered into a Contract
Mortgage and Dation: The essence of mortgage is security
while for dation it is the satisfaction of indebtedness.
CC 1245: Dation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be
governed by the law of sales.
The mere return of the mortgaged vehicle does not constitute
dation in payment or dacion en pago in the absence, express or
implied of the true intention of the parties.
In its modern concept, dacion en pago, is an objective
novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is
considered as the purchase price. In any case, common consent
is an essential prerequisite, be it a sale or novation, to have
the effect of totally extinguishing the debt or obligation.
In this case, evidence does not show that the delivery of the
vehicle can be construed as actual payment. The fact that it was
delivered does not necessarily mean that the ownership thereof,
juridically contemplated by dacion en pago, was transferred
from the appellant to appellee. In the absence of clear consent
of appellees to the preferred special mode of payment, there can
be no transfer of ownership of the mortgaged vehicle. If at all,
there was only transfer of possession
In a contract to sell, payment of the price is a positive
 to Sell a piece of property in Diliman, QC. Bonrostro failed to pay the
stipulated subsequent amortizations and so Luna filed a Complaint for
Rescission. Bonrostro uses as a defense a letter she sent to Luna signifying her
willingness to pay the remaining balance. The SC ruled that rescission is not
applicable in a Contract to Sell, since payment of the price is a positive
suspensive condition; non-payment would not be a breach, and would just
prevent the seller from conveying title to the supposed buyer.
Mc Laughlin v. CA McLaughlin and Flores entered into a conditional contract of sale of real
property. When Flores failes to pay the balance of the 2nd installment,
McLaughlin filed a complaint for rescission. The parties made a compromise
agreement and Flores paid the downpayment amount. When Flores failed to
pay the 1st installment, McLaughlin demanded payment of the balance due.
McLaughlin filed a Motion for Writ of Execution. CFI granted. Flores filed MR
and at the same time issued a manager’s check but the CFI denied the motion.
Flores filed a Petition for Certiorari which the CA granted by setting aside and
reversing the CFI order.
Soco v. Militante Soco leased building to Francisco (Php 800/month for 10 years). He stopped
sending the collector for payments and did not issue receipts on some occasions
(at this point he discovered Francisco subleases to NACIDA for Php3k/month).
Francisco sent the payments for rent via checks issued by Commercial Bank
and Trust Co. Soco notified Francisco to vacate the premises for non-­‐
‑payment. Francisco said all payments were made through the Clerk of Court.
Soco filed for illegal detainer. City Court held the consignation was not valid
while the CFI held that it was valid due to substantial compliance. The Supreme
Court held that the consignation was NOT valid because there was no tender of
payment and no sufficient evidence to prove that notice was given to Soco
before and after the consignation was made.
Sotto v. Mijares Mijares indebted to Sotto, agress to deposit P5,106 if the complaint by Sotto
was dismissed. The lower court resolved by ordering Mijares to deposits
suspensive condition, failure of which is not a breach of
contract warranting rescission, but rather just an event that
prevents the supposed seller from being bound to convey title to
the supposed buyer.
Tender of payment must be distinguished from consignation.
Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and
from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be
extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. The
requisites of a valid consignation are the following: (a) tender
of payment was made; (b) creditor refuses to accept payment
without just cause; (c) consignation must be announced to
persons interested in the fulfillment of the obligation; (d) the
thing due must be deposited at the disposal of judicial authority
and (e) the interested parties shall be notified of the
consignation made.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment. (CC
1257(2))
Notification is made to the person interested in the fulfillment
of the obligation prior and after consignation has been made to
enable the creditor to withdraw the goods. It would be unjust to
make him suffer the risk for any deterioration, depreciation, or
loss of such for the reason of lack of knowledge.
The debtor has the right to refuse to make the consignation
unless the condition imposed by him is complied with and the
 without the condition he is asking for. The SC held that Mijares cannot be court may notcompel him to make the consignation without
forced to deposit. observing the condition imposed.

Reisenbeck v. CA Maile’s acceptance of the amount consigned by Riesenbeck

with a reservation or qualification as to the correctness of the
petitioner’s obligation, is legally permissible. When the
creditor’s s acceptance of the money consigned is conditional
and with reservations, he is not deemed to have waived the
claims he reserved against his debtor. Thus, when the amount
consigned does not cover the entire obligation, the creditor may
accept it, reserving his right to the balance (SEE ART 1260) o
In this case, the creditor is not barred from raising his other
claims, as he did in his answer with special defenses and
counterclaim against Riesenbeck. As Maile’s acceptance of the
amount consigned was with reservations, it did not completely
extinguish the entire indebtedness of Riesenbeck. Consignation
is completed at the time the creditor accepts the same without
objections, or, if he objects, at the time the court declares that it
has been validly made in accordance with law.

Rural Bank of Caloocan v. Castro, together with a certain Valencia applied for an industrial loan from In certain circumstances, consignation may be considerd valid
CA Rural Bank of Caloocan, wherein Valencia arranged everything about the loan. under the more liberal considerations of equity.
After the loan was approved, Castro and Valencia spouses signed a promissory
note corresponding to the loan in favor of the bank. The Valencia spouses
obtained an equal amount of the first loan and signed a promissory note in favor
of the bank and had Castro sign as co-maker. The loans were secured by a real-
estate mortgage on Castro’s house and lot. The property was sold at an auction
to satisfy the obligation covering two promissory notes. Castro filed a case. CFI
and CA ruled in favor of Castro. SC affirmed.

Licuanan v. Diaz Licuanan leased a property to Pineda. Licuanan found out that Pineda had been Consignation or deposit of rentals should be made with the
occupying her garage. Licuanan demanded Pineda to vacate but the latter said court and/or under BP 25 in the bank and not elsewhere;
that court action is needed. Pineda sought help from the AFP Civil Relations Civil code provision delaing with consignation should be
Office whose officer instructed her, as a precautionary measure, to deposit the accorded mandatory construction.
rental due that month. Pineda filed an unlawful detainer case. CFI dismissed it
but, on appeal, the SC ruled that consignation can only be made in the courts
(Art. 1258, CC) of in the bank (BP 25).
Chan v. CA Felisa Chan and Grace Cu entered into a contract of lease, with an initial term
of one year, which was renewed for 2 successive years. After Feb. 1, 1986,
there was no longer any written contract of lease but Cu continued to occupy
the premises for a learning center. Eventually, Chan terminated the lease and
gave Cu until Jan. 1, 1990 to vacate. Chan did not collect the rental for Dec.
1989, and refused to accept Cu’s tendering of a check. Cu proceeded to file a
case for consignation in the MTC, and the court ruled that the consignation was
valid, and extended the term of the lease until June 1990. The RTC affirmed
this, but the CA held dismissed the complaint for consignation.
Meat Packing Corp. v. MPCP (creditor) and PIMECO (debtor) entered into a Lease-Purchase
Sandiganbayan Agreement for a meat packing factory. PIMECO’s alleged breach of the
obligation was its failure to pay a total amount of more than P12M, or more
than 3 years’ worth of cumulative sums. However, when the PCGG sequestered
the meat packing plant, it paid P5M to MPCP as Tender of Payment, which
MPCP refused. Hence, the PCGG consigned the payment with the court. SC
held that it was a valid consignation.
Occena v. CA Respondent Tropical Home had sharing agreement with Petitioner for 40% cash
receipts of sale of subdivision lots. Citing changed circumstances due to higher
prices, respondent prayed for modification of terms and conditions of
subdivision contract. SC ruled pointing out that respondents were not asking for
release from the obligation under Article 1267 but modification of the contract
which is not authorized by said article.
Naga Telephone Co. v. CA NATELCO and CASURECO entered into a contract whereby the former can
use the latter’s posts and in return the former must provide the latter with 10
telephone units free of charge. 10 years into the enforcement of the contract,
CASURECO asked for reformation stating that the contract was too one sided
in favor of NATELCO. The Court ruled that indeed the contract should be
reformed based on Art. 1267 as the service to be provided by CASURECO has
become so difficult and inequitable that it was manifestly beyond their
Requisites of consignation: The debtor must show that
a. There was a debt due;
b. The consignation had been made because the
creditor refused the tender of payment, or
because he was absent or incapacitated;
c. Previous notice of the consignation had been
given to the creditor/person interested in the
performance of the obligation;
d. The amount due was placed at the disposal of
the court; and
e. After the consignation had been made, the
person interested was notified thereof.
- The term of a lease can be decided upon in a case for
consignment, provided that the court handling the latter also has
jurisdiction over the former (case for ejectment).
For the consignation to be valid, the refusal of the tender of
payment should be without just cause. What “just cause” is will
be determined by the courts.
The cited article does not grant the courts this authority to
remake, modify or revise the contract or to fix the division of
shares between the parties as contractually stipulated with the
force of law between the parties, so as to substitute its own
terms for those covenanted by the parties themselves
Article 1267 speaks of “service”; which has become so
difficult. Taking into consideration the rationale behind this
provision, the term “service” should be understood as referring
to the “performance” of the obligation. The service here is the
obligation of CASURECO to allow its posts to be used.
 contemplation. It also ruled that their action for reformation has not prescribed
since the cause of action only arose when the circumstances have drastically
changed and thus, CASURECO was able to file the instant case within the
prescriptive period. The court also said that the subject condition is valid as it is
not a purely potestative condition but mixed.
PNCC v. CA PNCC refused to pay rentals in accordance with the contract of lease with the
Raymundos. They assert that they should be released from the obligatory force
of the contract of lease because the purpose of the contract did not materialize
due to unforeseen events and causes beyond its control, i.e., due to the abrupt
change in political climate after the EDSA Revolution and financial difficulties.
The Court did not subscribe to this argument, because the unforeseen event and
causes mentioned by PNCC are not the legal or physical impossibilities
contemplated in Article 1266.
Yam v. CA The parties entered into two loan agreements. The first loan (500k) was fully
paid. Meanwhile, Manphil wsa placed under receivership by the Central Bank.
For the second loan (300k), only 50k was paid. Petitioners only paid the
principal amount and interest. Petitioners allege that the penalty and service
charge was condoned by the president of Manphil. The court finds that
petitioners are still liable for the penalty and service charge since the
condonation was improper as it didn’;t comply with the forms of donation.
Also, as Manphil was already under receivership, the president had no authority
to condone anything. Further, the notation in the check doesn’t prove that
Manphil agreed that the payment they received was for the full amount.
Gan Tion v. CA Ong Wan Sieng was awarded attorney’s fees for P500.00 in one case against
Gan Tion. In a subsequent case, Gan Tion demanded rents in arrears from Ong
Wan Sieng amounting to P4320.00. When the latter obtained a writ of
execution for the judgment for attorney’s fees, Gan Tion pleaded for legal
compensation. CA denied Gan Tion’s petition. SC reversed CA decision and
decided for Gan Tion.
BPI v. Reyes Edvin had two joint accounts with BPI: One joint account with his wife and
another joint account with his grandmother, Emeteria. When Emeteria died, the
US Treasury Department was not informed so they still released her
pension/treasury warrant. Later on, they discovered that the treasury warrant
was issued 3 days after Emeteria’s death, and demanded that the amount paid to
Emeteria be reimbursed. The amount, however, was already transferred by
Article 1266 which states that “[T]he debtor in obligations to do
shall be released when the prestation becomes legally or
physically impossible without the fault of the obligor” is an
exception to the principle of the obligatory force of contracts.
This article only applies to obligations “to do.” An obligation to
pay rentals or deliver the thing in a contract of lease falls within
the prestation “to give”; hence, it is not within the scope of
Article 1266.
Art. 1270 par. 2, NCC provides that express condonation must
comply with the forms of donation. Art. 748, par. 3 provides
that donation and acceptance of a movable, the value of which
exceeds 5k must be made in writing, otherwise the same shall
be void. Under Art. 417, par. 1, obligations, referring to credits,
are considered as movable property.
Award for attorney’s fees is made in favor of the litigant, not of
his counsel. It is the litigant who is the judgment creditor and
who may enforce the judgment by execution. Such credit,
therefore, may properly be the subject of legal compensation.
Legal compensation operates even agains the will of the
interested parties and without their consent. Since this
compensation takes place ipso jure, its effects arise on the very
day on which all its requisites concur.
The requisites for legal compensation are the following:
 Edvin to his joint account with his wife. When BPI apprised him of this, Edvin
gave verbal authorization for the bank to debit the amount from his joint
account. When Edvin visited the bank with his lawyer, however, he demanded
that the bank return the debited amount. The Supreme Court held that since BPI
and Edvin are both creditors and debtors of each other, legal compensation ipso
jure took place. Therefore, even without Edvin’s consent, BPI had the right to
debit the amount from Edvin’s other joint account. Edvin’s claim that he did
not give any verbal authorization was not given credence by the court because it
was proven that he attempted, and to some extent, successfully deceived the
bank to believe that Emeteria was still alive.
PNB v. Sapphire Shipping PNB double credited the account of Sapphire in two instances. It then
intercepted the fund transfer to Sapphire coursed through it for deposit in the
Citibank account of the latter and applied the amount to the obligation of
Sapphire to return the double credited amounts. It also compensated another
amount sent by Sapphire’s foreign principal that was intended to be deposited
to Sapphire’s account in PNB.
CKH Industrial CKH and Century Well entered into a contract of sale for two parcels of land.
Development v. CA CKH’s President Rubi Saw sought to rescind the sale on the ground that it had
not received any consideration therefor. Century Well alleged that the
obligation has been paid in cash and by way of legal compensation of the
obligations of CKH’s then president to his sons (who are Century Well
stockholders). SC reinstated the TC decision holding that there was no valid
compensation since the parties were not mutually bound principally as creditors
and debtors.
Mirasol v. CA The sugar business of the Mirasols were financed by the PNB under a loaning
scheme, wherein PNB had the authority to negotiate and sell their sugar in both
• That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other
• That both debts consists in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated
• That the 2 debts be due
• That the debts be liquidated and demandable
• That over neither of them there be any retention or
controversy, commenced by 3rd persons and communicated in
due time to the debtor
SC said the first one was an invalid compensation since PNB
and Sapphire were not the debtor-creditor of each other at the
same time. They were only debtor-creditor as to the double
payments but were trustee-beneficiary as to the fund transfer
since the funds were supposed to be deposited to a different
bank. On the other hand, the SC found that application of PNB
of another amount to compensate for Sapphire’s obligation was
valid since it was for deposit to Sapphire’s account in PNB.
Article 1279 of the Civil Code provides for the requisites of
legal compensation: “Article 1279. In order that compensation
may be proper, it is necessary: (1) That each one of the obligors
be bound principally, and that he be at the same time a principal
creditor of the other; (2) That both debts consist in a sum of
money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due; (4) That they be liquidated and
demandable; (5) That over neither of them there be any
retention or controversy, commenced by third persons and
communicated in due time to the debtor.”
The requisites of legal compensation according to Articles 1278
and 1279: (a) Two persons are creditors and debtors of each
 domestic and export markets and the proceeds therefrom were to be applied to
their obligations. They also availed of other loans from PNB. During this time,
Marcos created PD 579 which mandated that sugar sales be remitted to a
special fund. They had 2 sets of accounts with ~20M obligation. To pay for the
first set, PNB foreclosed their properties. To pay for the second set, the
Mirasols conveyed properties by way of dacion en pago. They were then left
with a balance of 12.55M and 1.5M for both sets of accounts, respectively.
They filed a complaint for accounting. They argue that the proceeds of their
sales (those remittted), if properly liquidated were enough to offset their
obligations, and that legal compensation already took place. Court said that no,
there was no legal compensation as the Mirasols and PNB were not mutually
creditors and debtors of each other. The proceeds of their sugar sale went to the
gov’t. not to PNB. Aside from that, Mirasols’ debt were still subject of
litigation.
Associated Bank v. Tan Tan deposited postdated P101k UCPB check to Assoc.Bank. So his balance
increased to P297k. Bank told him that the check was already cleared and
backed up by sufficient funds. So Tan withdrew P240k; left balance of
P57,793.45. He then deposited P50k making his existing balance P107,793.45,
because he issued several checks to his business partners. But business partners
said that the checks bounced due to insufficiency of funds. It turned out that the
checks bounced because bank debited the P101k. Tan informed the bank to take
steps but latter did not offer any apology. So he filed complaint for damages
against bank. SC held that Tan withdrew his money upon the advice by Bank
that his money was already cleared. Without such advice, Tan would not have
withdrawn the sum of P240k. Therefore it was Bank’s fault which allowed Tan
to withdraw a huge sum which he believed was already his. Also, Tan had
sufficient funds for the check. Had the P101k not been debited, the subject
checks would not have been dishonored. Hence, Tan’s injury arose from the
dishonor of his well-funded checks.
Villanueva v. Tantuico Villanueva was accused of illegally disbursing seminar funds amounting to 31k
so Auditor Cruz caused the withholding of the money he was supposed to get
from the government (salaries, etc.) and applied it to his indebtedness. SC ruled
that such compensation cannot be decided by an administrative officer.
other; (b) Both debts are in a sum of money, or if consumable,
they are of the same kind and quality; (c) Both debts are due,
liquidated and demandable; and (d) Debts are neither subject of
retention or controversy, commenced by third persons and
communicated in due time to the debtor | There can be no legal
compensation without presence of all.
Generally, a bank has a right of setoff over the deposits therein
for the payment of any withdrawals on the part of a depositor.
Hence, the relationship between banks and depositors has been
held to be that of creditor and debtor. Thus, legal compensation
under Art. 1278, CC may take place when all the requisites in
1279 are present:
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due
(4) That they be liquidated and demandable
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in
due time to the debtor.
While Sec. 624 of the Revised Administrative Code authorizes
the set-off of a person's indebtedness to the Government against
"any money due him or his estate to be applied in satisfaction of
such indebtedness," that indebtedness must be one that is
admitted by the alleged debtor or pronounced by final judgment
of a competent court.
Perez v. CA Congeneric, a company engaged in money market transactions, issued 2 PNs in
favor of Mojica. Mever borrowed 500K from Congeneric, and issued a
negotiable PN (NCI). Congeneric received 200K from Corazon and all of
Congeneric’s interest in the NCI would be transferred to her. Mever paid 100K
to Congeneric for NCI and Congeneric paid 100K plus interest to Corazon.
Congeneric then paid the interest for the 2 PNs to Mojica, the principal being
rolled over to mature on later dates. Mojica assigned the 2 PNs to Mever, who
surrendered them to Congeneric and asked Congeneric to compute the balance
of the account of Mever, taking account the 2 bills. Mever was served with
garnishment in 2 cases against Congeneric. Congeneric told Mever about the
sale of the 200K and Mever gave the amount it still owed Congeneric to the
sheriff. Corazon filed suit before the CFI of Rizal against Mever for the
recovery of 100K and won, but the CA reversed. The SC reversed the CA’s
decision, holding that legal compensation did not take place, since the 2 PNs
were not yet due and demandable. Also, the SC noted that what was involved
here was a money market transaction, and Art. 1285 par. 1 is the applicable part
of the provision, not par. 3.
Silahis Marketing Corp. v. De Leon (Mark Industrial Sales) sold various items to Silahis. Upon maturity,
IAC Silahis failed to pay despite demands. De Leon filed complaint for collection,
where Silahis filed a counter-claim which included a Debit Memo for PhP
22,200 as unrealized profit for supposed commission that Silahis should have
received for the sale of sprockets De Leon made directly to Dole Philippines
(which supposedly should have been coursed through Silahis).
BPI v. CA Edvin had two joint accounts with BPI: One joint account with his wife and
another joint account with his grandmother, Emeteria. When Emeteria died, the
US Treasury Department was not informed so they still released her
pension/treasury warrant. Later on, they discovered that the treasury warrant
was issued 3 days after Emeteria’s death, and demanded that the amount paid to
Emeteria be reimbursed. The amount, however, was already transferred by
Edvin to his joint account with his wife. When BPI apprised him of this, Edvin
gave verbal authorization for the bank to debit the amount from his joint
account. When Edvin visited the bank with his lawyer, however, he demanded
that the bank return the debited amount. The Supreme Court held that since BPI
and Edvin are both creditors and debtors of each other, legal compensation ipso
jure took place. Therefore, even without Edvin’s consent, BPI had the right to
debit the amount from Edvin’s other joint account. Edvin’s claim that he did
No legal compensation can take place where the loan
instruments to be set-off are not yet due and demandable . In
money market transactions, no notice is given to borrower or
issuer of commercial paper of its sale to the investor. Art. 1285,
1 st par. Is applicable in such cases as to bar legal compensation
between debtor and assignee of creditor’s rights.
ART. 1285. The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set
up against the assignee the compensation which would pertain
to him against the assignor, unless the assignor was notified by
the debtor at the time he gave his consent, that he reserved his
right to the compensation.
Article 1279 requires, among others, that in order that legal
compensation shall take place, “the two debts be due” and “they
be liquidated and demandable.” Compensation is not proper
where the claim of the person asserting the set-off against the
other is neither clear nor liquidated; compensation cannot
extend to unliquidated, disputed claim existing from breach of
contract.
Legal compensation operates even agains the will of the
interested parties and without their consent. Since this
compensation takes place ipso jure, its effects arise on the very
day on which all its requisites concur. The requisites for legal
compensation are the following: • That each one of the obligors
be bound principally, and that he be at the same time a principal
creditor of the other • That both debts consists in a sum of
money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated •
That the 2 debts be due • That the debts be liquidated and
demandable • That over neither of them there be any retention
or controversy, commenced by 3rd persons and communicated
in due time to the debtor
 not give any verbal authorization was not given credence by the court because it
was proven that he attempted, and to some extent, successfully deceived the
bank to believe that Emeteria was still alive.

Millar v. CA Petitioner Millar obtained a favorable judgment from CFI in a civil case, where Where the new obligation merely reiterates or ratifies the old
respondent Gabriel was ordered to pay him (Millar) P1,746 with 12% interest. obligation, although the former effects but minor alterations or
When Gabriel defaulted, the sheriff seized his jeep. He then pleaded with Millar slight modifications with respect to the cause or object or
to release the jeep under an arrangement where Gabriel will pay Millar the conditions of he latter, such changes do not effectuate any
amount of P1,700, and as a security, the jeep will be mortgaged. Again, Gabriel substantial incompatibility between the two obligations.
was not able to pay, hence Millar obtained writs of execution. Before the
execution sale, however, Gabriel filed an urgent motion for suspension of
execution sale on the ground of payment of the judgment obligation. CFI
ordered the execution and ruled that the parties had executed the chattel
mortgage only “to secure or get better security for the judgment.” CA held that
the subsequent agreement of the parties impliedly novated the judgment
obligation in the original civil case. SC held that there was no implied novation
as there was no inherent incompatibility.

Dormitorio v. Fernandez Santos v. Acuna where it was contended that a lower court
decision was novated by subsequent agreement of the parties.
Implicit in this Court’s ruling is that such a plea would merit
approval if indeed that was what the parties intended. Such is
not the case here.

Magdalena Estate v. The spouses bought a parcel of land from Magdalena Estates. The spouses had Novation by presumption has never been favored. To be
Rodriguez an unpaid balance of 5,000. They executed a promissory note in favor of sustained, it needs to be established that the old and new
Magdalena. They also executed a surety bond with Luzon Surety in favor of contracts are incompatible in all points, or that the will to
Magdalena. When the obligation became due, Luzon paid the 5,000 and novate appears by express agreement of the parties or in acts of
Magdalena accepted. Magdalena afterwards claimed from the spouses the similar import.
payment of the interest due which the latter refused. The court rules that the
spouses should pay the interests as this was not condoned/waived by
Magdalena when it accepted without qualifications the 5,000 from the surety.
Further, there was no novation despite the absence of any stipulation re: interest
in the surety bond because said surety bond is not incompatible with the old
obligation.

Reyes v. Sec. of Justice Reyes and Eleazar entered into a loan agreement, for which Eleazar issued In order that a novation can take place, the concurrence of the
PDCs as payment. The checks were dishonored due to a stop payment order, so following requisites is indispensable:
Reyes filed BP 22/estafa complaints against Eleazar. The latter argued that she 1. A previous valid obligation;
 ordered that the payments be stopped when, despite having agreed that Eleazar
was to pay directly to AFP-MBAI and DECS, the actual owners of the fund
which was lent to her by Reyes, Reyes continued collecting on the initially
issued PDCs. AFP-MBAI filed its own BP 22/estafa complaints against Reyes
from whom it bought several securities. On the issue of novation, the Court
held that there was no valid novation in both cases (substitution of creditor
from Reyes to AFP-MBAI and DECS under the contract of loan between Reyes
and Eleazar, and substitution of debtor from Reyes to Eleazar under the contract
of sale of securities between Reyes and AFP-MBAI) as the requisites of a valid
novation were missing.
Cochingyan v. RB Surety PAGRICO applied and was granted an increase in its line credit. As a security,
and Insurance it submitted a surety bond issued by R&B Surety. Consequently, two Identical
indemnity agreements were entered into by PAGRICO with R & B Surety.
When PAGRICO failed to comply with its Principal Obligation to the PNB, the
PNB demanded payment from R & B Surety. R & B Surety made a series of
payments to PNB. R & B Surety in turn sent formal demand letters to
petitioners for reimbursement of the payments made by it to the PNB and for a
discharge of its liability to the PNB under the Surety Bond. When petitioners
failed to heed its demands, R & B Surety brought a suit against petitioners. The
trial court ruled in favor of R&B. When the case was certified by the CA to the
SC, the Court ruled that there was no novation in this case. The Trust
Agreement did not expressly terminate the obligation of R & B Surety under
the Surety Bond. On the contrary, the Trust Agreement expressly provides for
the continuing subsistence of the obligation.
2. An agreement of the parties concerned to a new
contract;
3. The extinguishment of the old contract; and
4. The validity of the new contract.
Novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one
which terminates it, either by changing its object or principal
conditions, or by substituting a new debtor in place of the old
one, or by subrogating a third person to the rights of the
creditor. Novation through a change of the object or principal
conditions of an existing obligation is referred to as objective
(or real) novation. Novation by the change of either the person
of the debtor or of the creditor is described as subjective (or
personal) novation. Novation may also be both objective and
subjective (mixed) at the same time. In both objective and
subjective novation, a dual purpose is achieved-an obligation is
extinguished and a new one is created in lieu thereof.
If objective novation is to take place, it is imperative that the
new obligation expressly declare that the old obligation is
thereby extinguished, or that the new obligation be on every
point incompatible with the old one. Novation is never
presumed: it must be established either by the discharge of the
old debt by the express terms of the new agreement, or by the
acts of the parties whose intention to dissolve the old obligation
as a consideration of the emergence of the new one must be
clearly discernible.
If subjective novation by a change in the person of the debtor is
to occur, it is not enough that the juridical relation between the
parties to the original contract is extended to a third person. It is
essential that the old debtor be released from the obligation, and

Broadway Centrum v. Broadway Centrum and Tropical Hut executed on 28 November 1980 a
Tropical Hut contract of lease for a period of ten years, commencing from 1 February 1981
and expiring on 1 February 1991, "renewable for a like period upon the mutual
agreement of both parties." Due to low sales volume, Tropical proposed to
reduce the rental rates. A letter of agreement was executed in April 1982
regarding the reduction of the rates and it also stated that any reduction in rental
extended is merely a temporary suspension of the original rate of rental
stipulated in the lease contract and not an amendment thereto. However, in
December 1982, Tropical again proposed further rent reductions but Broadway
refused. Tropical opposed and so petitioner wanted to implement penalty clause
of the contract (Sec. 5 - 2% penalty on delayed payments). SC held that there
was no novation. The agreement clearly stated that it is provisional and
temporary. Broadway retained the discretionary right to return to the original
contractual rates whenever it deemed appropriate.
Molino v. Security Diners Jeanette signed a Surety Undertaking when Danilo Alto (brother-in-law)
International applied for a credit card with Diners Club. Danilo was first issued a Local Card
with credit limit of 10,000 and was later upgraded, upon his request, to a
Diamond Edition Card with unlimited credit limit. Danilo incurred 166,408.31
debt. SDIC filed an action against Danilo and Jeanette (as surety) to collect said
debt. Danilo did not file an answer so the case against him was dismissed while
the case against Jeanette prospered. RTC dismissed the case against Jeanette.
CA and SC found Jeanette liable for the debt incurred by Danilo.
There is no doubt that the upgrading was a novation of the original agreement
covering the Local Card issued to Danilo, basically since it was committed
with the intent of cancelling and replacing the said card. However, the
novation did not serve to release Jeanette from her surety obligations because
in the Surety Undertaking, she expressly waived discharge in case of change or
novation in the agreement governing the use of the Local card.
Garcia v. Llamas Llamas filed a case against solidary co-debtors Garcia and De Jesus. Garcia
contended that he was relieved of the obligation as the payment of De Jesus in a
form of a check absolved him of any liability. He claimed that the payment was
the third person or new debtor take his place in the new
relation. If the old debtor is not released, no novation occurs
and the third person who has assumed the obligation of the
debtor becomes merely a co-debtor or surety or a co-surety.
An essential requirement for an objective novation is the
express declaration that the old obligation is extinguished, or
that the new obligation be incompatible on every point with the
old one. Novation is never presumed.
Novation, as a mode of extinguishing obligations, may be done
in two ways: by explicit declaration, or by material
incompatibility (implied version).
The test of incompatibility is whether the 2 obligations can
stand together, each having its independent existence. If they
cannot, they are incompatible and the latter obligation novates
the first. Novation must be established either by the express
terms of the new agreement or by the acts of the parties clearly
demonstrating the intent to dissolve the old obligation as a
consideration for the emergence of the new one. The will to
innovate, whether totally or partially, must appear by express
agreement of the parties, or by their acts which are too clear or
unequivocal to be mistaken.
Modes of substituting the debtor: (1) expromision – the
initiative for the change does not come from – and may even be
made without the knowledge of – the debtor, since it consists of

California Bus Lines v. State
Investment
a novation. The Court ruled that there was no novation because: (1) Check
bounced and effected no payment; (2) There was no express or implied
novation; (3) No substitution of debtors as there was no showing that a third
person substituted Garcia, or that the solidary liability was cancelled by the
solitary undertaking of De Jesus; (4) No proof that Llamas consented to the
novation.
Delta Motors entered into credit agreements with State Inestment House (SIHI).
Delta sold 35 buses to California Bus under 16 promissory notes. When
California Bus failed to pay, it entered into a restructuring agreement with
Delta. Delta also failed to pay SIHI so it assigned its receivables including 5
PNs paid by California Bus. SIHI demanded payment of the 5 PNS from
California Bus. California Bus refused alleging that the obligation to pay 5 PNs
was novated by the restructuring agreement.
a third person’s assumption of the obligation; this requires the
consend of the third person and the creditor; (2) delegacion –
the debtor offers, and the creditor accepts, a third person who
consents to the substitution and assumed the obligation; the
consent of the three persons are necessary. Both modes require
the consent of the creditor.
Novation has been defined as the extinguishment of an
obligation by the substitution or change of the obligation by a
subsequent one which terminates the first, either by changing
the object or principal conditions, or by substituting the person
of the debtor, or subrogating a third person in the rights of the
creditor.
Novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old
obligation subsists to the extent it remains compatible with the
amendatory agreement. An extinctive novation results either by
changing the object or principal conditions (objective or real),
or by substituting the person of the debtor or subrogating a third
person in the rights of the creditor (subjective or personal).
Novation has two functions: one to extinguish an existing
obligation, the other to substitute a new one in its place. For
novation to take place, four essential requisites have to be met,
namely, (1) a previous valid obligation; (2) an agreement of all
parties concerned to a new contract; (3) the extinguishment of
the old obligation; and (4) the birth of a valid new obligation.
Novation is never presumed, and the animus novandi, whether
totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be
mistaken.
The extinguishment of the old obligation by the new one is a
necessary element of novation which may be effected either
expressly or impliedly. The term "expressly" means that the
contracting parties incontrovertibly disclose that their object in

Babst v. CA The spouses Ponciano obtained loans from PNB covered by a mortgage over
the Marvin Plaza. PNB continually and unilaterally increased the interest rate of
the loans, which led to the spouses defaulting their obligation.
Quinto v. People Lower Court convicted Leonida Quinto for the crime of estafa; for fraudulently
misappropriating various jewelries of Aurelia Caraga worth 36,000php which
she offered to take only to show to prospective buyers and sell them on a
executing the new contract is to extinguish the old one. Upon
the other hand, no specific form is required for an implied
novation, and all that is prescribed by law would be an
incompatibility between the two contracts. While there is really
no hard and fast rule to determine what might constitute to be a
sufficient change that can bring about novation, the touchstone
for contrariety would be an irreconcilable incompatibility
between the old and the new obligations.
There are two ways which could indicate, in fine, the presence
of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. The first is
when novation has been explicitly stated and declared in
unequivocal terms. The second is when the old and the new
obligations are incompatible on every point. The test of
incompatibility is whether the two obligations can stand
together, each one having its independent existence. If they
cannot, they are incompatible and the latter obligation novates
the first. Corollarily, changes that breed incompatibility must be
essential in nature and not merely accidental. The
incompatibility must take place in any of the essential elements
of the obligation, such as its object, cause or principal
conditions thereof; otherwise, the change would be merely
modificatory in nature and insufficient to extinguish the
original obligation.
Any contract which appears to be heavily weighed in favor of
one of the parties so as to lead to an unconscionable result is
void. Any stipulation regarding the validity or compliance of
the contract which is left solely to the will of one of the parties,
is likewise, invalid. Furthermore, in facilitating collection of
debts through the automatic foreclosure provisions of PD 385,
the government is, however, not exempted from observing
basic principles of law, and ordinary fairness and decency
under the due process clause of the Constitution.
There are two forms of novation by substituting the person of
the debtor, depending on whose initiative it comes from, to wit:
expromision and delegacion. In expromision, the initiative for
 commission basis. This conviction came after hearing both sides of the story
(see Facts 2 and 3). Leonida appeals the decision to the Supreme Court, saying
that there was a novation upon Aurelia’s agreement with a buyer named Mrs.
Camacho, to pay the remaining balance over the items she purchased. SC ruled
that there was no novation as the changes alluded to by Leonida consists only in
the manner of payment; Aurelia did not consent to entering into a new contract.
SC held that the changes alluded to by petitioner consists only in the manner of
payment. There was really no substitution of debtors since private complainant
merely acquiesced to the payment but did not give her consent to enter into a
new contract.
the change does not come from the debtor and may even be
made without his knowledge. Since a third person would
substitute for the original debtor and assume the obligation, his
consent and that of the creditor would be required. In
delegacion, the debtor offers, and the creditor accepts, a third
person who consents to the substitution and assumes the
obligation, thereby releasing the original debtor from the
obligation, here, the intervention and the consent of all parties
thereto would perforce be necessary. In either of these two
modes of substitution, the consent of the creditor, such as can
be seen, is an indispensable requirement.

Licaros v. Gatmaitan Abelardo Licaros invested his money worth $150,000 with Anglo-Asean Bank, Conventional subrogation requires an agreement among the
a money market placement by way of deposit, based in the Republic of three parties concerned the original creditor, the debtor, and the
Vanuatu. Unexpectedly, he had a hard time getting back his investments as well new creditor. It is a new contractual relation based on the
as the interest earned. He then sought the counsel of Antonio Gatmaitan, a mutual agreement among all the necessary parties.
reputable banker and investor. They entered into an agreement, where a non-
negotiable promissory note was to be executed in favor of Licaros worth
$150,000, and that Gatmaitan would take over the value of the investment made
by Licaros with the Anglo-Asean Bank at the former's expense. When
Gatmaitan contacted the foreign bank, it said they will look into it, but it didn't
prosper. Because of the inability to collect, Gatmaitan did not bother to pay
Licaros the value of the promissory note. Licaros, however, believing that he
had a right to collect from Gatmaitan regardless of the outcome, demanded
payment, but was ignored. Licaros filed a complaint against Gatmaitan for the
collection of the note. The trial court ruled in favor of Licaros, but CA reversed.

Vector Shipping Corp. v. Vector, operator of M/T Vector, and Soriano, its owner, appeals the decision of Subrogation under Article 2207 of the Civil Code gives rise to a
American Home Assurance the CA which held them jointly and severally liable to American Home for the cause of action created by law. For purposes of the
insurance it paid to Caltex due to the loss of M/T Vector’s entire petroleum
cargo (owned by Caltex) after its collision with M/V Doña Paz. The CA based law on the prescription of actions, the period of limitation is ten
its decision on the first ground in Art. 1144, Civil Code but the SC held that the years.
correct ruling must be based on second ground of the same article because the
relationship between the operator and owner of a ship and an insurance
company which insured its passenger is not based on breach of contract or
quasi-delict but on an obligation created by law via a legal subrogation of rights
between the insured and the insurer upon payment.
Asian Terminals v. Philam Westwind shipped 219 packages of Nissan Pickup Truck Double Cabs to
Insurance Universal Motors in Manila, insured with Philam. When it arrived, it was found
that packages were in bad order. Universal Motors filed a formal claim for
damages, which was left unheeded. Universal Motors then was compensated by
Philam for the damages, and the former issued a Subrogation Receipt in favor
of the latter. Philam, as subrogee of Universal Motors, filed a Complaint for
damages against Westwind, ATI and RF Revilla Brokerage. Westwind and ATI
question the subrogation documents and their being held liable by the RTC and
the CA. The SC held that Philam was validly subrogated to the rights of
Universal Motors when it, as insurer, paid the insurance claim to UM, the
insured. It also held Westwind and ATI liable for not exerting the diligence
required of the carrier and the arrastre operator in handling shipped goods.
CONTRACTS
CASE TITLE SUMMARY
Robern Dev’t. Corp. v. PELA wanted to buy a lot of Al-Amanah Bank, and offered to pay the bank
PELA P300k as purchase price for the lot. Bank sold the lot to Robern instead. PELA
contested this and argued that it had a perfected contract of sale with the bank.
Robern said there was no written nor oral acceptance of PELA's offer. The SC
ruled that there was NO proof of a perfected contract of sale between PELA
and the bank, and that the transaction never went past the negotiation stage.
Hence, the sale between petitioner Roben and the bank is valid.
Dizon v. Gaborro Dizon had 2 mortgage liens with DBP and PNB on 3 parcels of land in
Mabalacat, Pampaga. Dizon then entered into two contracts involving said
lands with Gaborro for Deed of Sale with Assumption of Mortgage and Option
to Purchase Real Estate. Gaborro would introduce improvements to land but
later on Dizon wanted to reimburse payments made by Gaborro saying the two
contracts were not absolute sale to Gaborro but mere equitable mortgage. SC
sided with Dizon stating that during the period of foreclosure by DBP, all
Dizon possessed was right to redemption meaning that was the only right that
could have been transferred to Gaborro under the two contracts and so it could
The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.
DOCTRINE
Contracts undergo 3 stages:
(1) Negotiation - begins from the time the prospective
contracting parties indicate interest in the contract, and ends at
the moment of their agreement
(2) Perfection/Birth - takes place when the parties agree upon
all essential elements of the contract
(3) Consummation - occurs when the parties fulfill/perform
the terms agreed upon, culminating in the extinguishment
thereof.
Agreement between petitioner Dizon and respondent Gaborro is
one of those inanimate contracts under Art. 1307 of the New
Civil Code whereby petitioner and respondent agreed "to
give and to do" certain rights and obligations respecting
the lands and the mortgage debts of petitioner which would be
acceptable to the bank. but partaking of the nature of the
antichresis insofar as the principal parties, petitioner Dizon and
respondent Gaborro, are concerned.
 not have been absolute sale. Contract was reformed.
Gabriel v. Monte de Piedad Gabriel executed a chattel mortgage to secure the payment of the deficiencies
which resulted from his erroneous appraisal of the jewels to Monte de Piedad,
amounting to P14,679.67. Gabriel denied the genuineness of the chattel
mortgage contract and sought to nullify it, being allegedly against public
policy. The Court held that the chattel mortgage contract is not void.
Pakistan International PIA executed employment contracts with Farrales and Mamasig. It was
Airlines v. Ople stipulated therein that the period of the contract is for 3 years but can be
terminated anytime at PIA’s option. The court ruled that though stipulations
between the parties should be followed, in the instant case, it cannot be done
because the stipulations were made to circumvent the acquisition of tenurial
security of the two employees.
Cui v. Arellano Cui studied law in Arellano University and was awarded scholarship grants
during his stay. He transferred to Abad Santos University for his last semester
in law school where he graduated. When he applied to take the bar exam, he
petitioned Arellano to issue him his transcripts which was denied by the latter
until he paid back the amount returned to him due to a stipulation in his
scholarship contract whereby it is stated that he waives his right to transfer to
another school unless he pays the equivalent amount of his scholarship. The
Court ruled that the provision in the contract is not valid.
Filipinas Compana de Thirty nine (39) non-life insurance companies instituted a special civil action
Seguros v. Mandanas for declaratory relief to secure a declaration of legality of Art.22 of the
In the absence of express legislation or constitutional
prohibition, a court, in order to declare a contract void as
against public policy, must find that the contract as to the
consideration or thing to be done: a. has a tendency to injure the
public b. is against the public good c. contravenes some
established interests of society d. is inconsistent with sound
policy and good morals, or e. tends clearly to undermine the
security of individual rights, whether of personal liablity or of
private property.
A contract freely entered into should be respected since a
contract is the law between the parties. The principle of party
autonomy in contracts is not, however, an absolute principle.
The rule in Article 1306, of our Civil Code is that the
contracting parties may establish such stipulations as they may
deem convenient, “provided they are not contrary to law,
morals, good customs, public order or public policy.” Thus,
counter-balancing the principle of autonomy of contracting
parties, is the equally general rule that provisions of applicable
law, especially provisions relating to matters affected with
public policy, are deemed written into the contract. In other
words, the governing principle is that parties may not contract
away applicable provisions of law especially peremptory
provisions dealing with matters heavily impressed with public
interest.
Void contracts do not bind the parties. In this case, the
declaration of the contract as void reversed the effects of the
contract.
The test on whether a given agreement constitutes an unlawful
machination or a combination in restraint of trade
 Constitution of the PH Rating Bureau, of which they are members against
Commissioner Mandanas' claim of its illegality for undue restraint of trade. CFI
Manila ruled that Article 22 is neither contrary to law nor
against public policy, which the SC affirmed.
Bustamante v. Rosel Natalia Bustamante and her husband (already deceased) entered into a loan
agreement with the Sps. Rosel. According to their agreement, should Natalia
fail to pay the loan, the spouses will have the option to buy the land owned by
Natalia, which was designated as collateral. When the loan was about to
mature, the spouses told Natalia that they would like to buy the lot instead.
Natalia refused, and the spouses refused to accept her payment for the loan.
RTC ruled in favor of Natalia. CA ruled in favor of the spouses. SC initially
ruled in favor of the spouses, citing that contracts have the force of law between
contracting parties. In Natalia’s MR, however, the SC found that the stipulation
providing for an option to buy is void for being a pactum commissorium, which
is proscribed by law under Article 2088, in relation to Article 1306.
Daywalt v. La Corporacion Endencia bound herself to convey a tract of land to Daywalt. The contract
stipulated that it was 452 hectares but later on upon survey she found out that it
was actually 1,248 hectares. The Corporacion, which owned the lot adjacent to
hers, adviced her to stand out against the performance of the contract with
Daywalt. Daywalt seeks damages against Endencia and the Corporacion for its
interference as its contract to sell with Wakefield fell through when the former
could not immediately take possession of the subject property
So Ping Bun v. CA DCCSI leased premises to Tek Hua Trading and then to its successor, Tek Hua
Enterprising. Tek Hua Enterprising allowed So Ping Bun to use the premises
for his business, Trendsetter Marketing. Later, one of the owners of Tek Hua
Enterprising advised So Ping Bun to vacate the premises but he refused. So
Ping Bun then executed formal contracts of lease with DCCSI in favor of
TrendSetter Marketing. Lower court annulled the said contracts and found So
Ping Bun guilty of tortuous interference of a contract. SC affirmed.
Lagon v. CA [P] Lagon bought two parcels of land from the estate of Bai Tonina Sepi. These
is, whether, under the particular circumstances of the case and
the nature of the particular contract involved in it, the
contract is, or is not, unreasonable. Restrictions may be upheld
when not contrary to the public welfare and not greater than
is necessary to afford a fair and reasonable protection to the
party in whose favor it is imposed.
The general rule is contracts have the force of law between
contracting parties, and that parties are free to establish
stipulations, clauses, terms, and conditions as they may deem
convenient. One of the exceptions is when the stipulation is
contrary to law, which in this case, was a pactum
commissorium. According to Article 2088, “The creditor
cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is
null and void.”
Damages sought for failure of the Wakefield project could not
be recovered from Endencia, first, because the damages in
question are special damages which were not within
contemplation of the parties when the contract was made, and
secondly, because said damages are too remote to be the subject
of recovery. This is necessarily fatal to the right to recover from
the Corporacion since the stranger cannot become more
extensively liable in damages for the nonperformance of the
contract than the party in whose behalf he intermeddles.
The elements of tort interference are: (1) existence of a valid
contract; (2) knowledge on the part of the third person of the
existence of contract; and (3) interference of the third person is
without legal justification or excuse.
Elements of interference with contractual relations: (1)
 parcel of land were part of a lease contract between private respondent Lapuz
and Bai Bonina Sepi. The [PR] filed a complaint for torts and damages when
[P] began collecting rentals from the tenants of the commercial buildings in the
said lots. He alleged that petitioner induced the heirs into selling the property to
him, violating his leasehold rights over it. The Court said that there was no
tortuous interference in this case since [P] did not know of the lease contract
when he bought the property. He bought it merely for advancement of
economic and financial interests, no bad faith/malice.
Existence of a valid contract; (2) Knowledge on the part of the
third person of the existence of the contract; and (3)
Interference of the third person without legal justification or
excuse. || To sustain a case for tortuous interference, the
defendant must have acted with malice or must have been
driven by purely impious reasons to injure the plaintiff.

GSIS v. CA Sps Leuterio won a lottery draw for allocation of lots and housing units in GSIS Art. 1473, CC: the fixing of price can never be left to the
village. Sps and GSIS then entered into a Deed of Conditional Sale which discretion of one of the contracting parties.
provides that upon full payment of purchase price, GSIS will execute final
Deed of Sale. But after completion of land development and housing units,
GSIS increased purchase price in the DCS because of construction cost. A
marginal notation was made in the DCS saying that purchase price is “subject
to adjustment pending approval of Board”. After years of paying the monthly
amortizations and real estate taxes, Sps informed GSIS that payments for the
property had been completed and hence the execution of an absolute deed of
sale was in order. So Sps filed complaint for specific performance with
damages to compel GSIS to execute in their favour a final DOS, and alleged
that the notation was not in the DCS when they signed it in 1965. SC ruled in
their favour, holding that it is illegal for GSIS to make a unilateral upward
adjustment of the purchase price.

Professional Academic Plans
v. Crisostomo
PAPI and AFPSLAI executed a MOA in connection with their scholarship
agreements. Crisostomo, PAPI employee, received a franchise commission for
being involved with the negotiations with AFPSLAI. New AFPSLAI Colonel
wanted to review the first MOA and, after negotiations, PAPI and AFPSLAI
executed a second MOA. Crisostomo stopped receiving her commission. PAPI
claims this is due to the cancellation of the first MOA, among others. RTC, CA,
and SC all ruled that the second MOA did not cancel the first MOA.
Once a contract is entered into, no party can renounce it
unilaterally or without the consent of the other. To effectuate
abandonment of a contract, mutual assent is always required.
The mere fact that one has made a poor bargain may not be a
ground for setting aside the agreement.

Manila Road v. La LCT transported 2 locomotive boilers for Manila Railroad. The ship’s
Compania equipment for discharging the heavy cargo was not strong enough, so LCT
contracted the services of Atlantic. However, when the 1st boiler was being
hoisted, it fell twice, causing the boiler to be so badly damaged that it had to be
shipped back to England to be rebuilt. Manila Railroad then filed for damages
against LCT, who caused Atlantic to be brought as co-defendant arguing that
Atlantic had undertaken to discharge the boilers and had become responsible
Implied contracts may arise between parties, but in a situation
where there is an implied contract and an express contract
attributable to the same parties, the latter should be given effect
without prejudice to any damages. | Only a party to the contract
can maintain an action to enforce the obligations arising under
said contract.
 for the damage. The CFI found that the fall was due to the negligence of the
Atlantic’s foreman, and also absolved LCT. The SC reversed and held that LCT
was liable to Manila Railroad as it had the obligation to transport the boiler in a
proper manner. Since there was no contract between Manila Railroad and
Atlantic, Manila Railroad had no right of action to recover damages from
Atlantic. However, there existed an implied contract where Atlantic had duty to
use due care in the performance of the service. Atlantic could not be doubly
liable to LCT and Manila Railroad, as an implied contract never arises where an
express contract has been made. The rights of Manila Railroad can only be
made effective through LCT with whom the contract of affrieghtment was
made. The SC thus ordered LCT to pay Manila Railroad and Atlantic to pay
LCT.

DKC Holdings v. CA On March 16, 1998, petitioner DKC Holdings Corporation (DKC) entered into The general rule, therefore, is that heirs are bound by contracts
a Contract of Lease with Option to Buy with Encarnacion Bartolome, decedent entered into by their predeccesorsininterest except when the
herein, whereby petitioner was given the option to lease or lease with purchase rights and obligations arising therefrom are not transmissible by
the subject land. Encarnacion died. Thereafter, petitioner coursed its payment to (1) their nature, (2) stipulation or (3) provision of law.
private respondent Victor Bartolome, being the sole heir of Encarnacion.
Victor, however, refused to accept these payments. On March 14, 1990,
petitioner served upon Victor, via registered mail, notice that it was exercising
its option to lease the property, tendering the amount of P15,000.00 as rent.
Again, Victor refused to accept the tendered rental fee and to surrender
possession of the property to petitioner. On April 23, 1990, petitioner filed a
complaint for specific performance and damages against Victor and the
Register of Deeds

Sps. Dela Cruz v. Planters Petitioner Spouses, represented by Gloria, the wife, obtained a regular credit Contracts take effect only between the parties, their assigns and
Products line of P200,000.00 for a 60-day term with Respondent Planters Products Inc heirs.
(PPI). The same was for the distribution and sale of agricultural products to
farmers. Proceeds were to be applied to their credit. Typhoon Kading destroyed
the farmer’s crops and as such, Petitioners could not collect proceeds from
them. The 60-day term lapsed with Petitioners being unable to pay. PPI sued
for recovery. Petitioners claimed that PPI’s recourse was through the farmers.
Petitioners claim that Gloria was only a marketing outlet, not a dealer and no
creditor-debtor relationship existed between them. RTC, CA, and SC ruled in
favor of Respondent PPI, as contracts take effect only between the parties.
Also, there was a creditor-debtor relationship as Gloria made herself directly
liable to PPI for the value of the inputs delivered to the farmers.
Gutierrez v. Orense
Florentino v. Encarnacion Appellants and appellees inherited land from their aunt, Doña Encarnacion
Florentino. In the registration proceedings for the said land, Miguel sought to
annotate Exhibit O-1 of the Deed of Extrajudicial Partition, which provides that
fruits of the land will be used to cover the religious expenses of the Church, on
the face of the title to be issued. Appellees opposed the same. The lower court,
in granting their application for registration, first held that the arrangement was
a void donation for the failure of the Church to accept. The decision was later
modified to say that the stipulation, being one in favor of a third person, cannot
be enforced because the same was revoked before acceptance was
communicated. The Supreme Court held that the stipulation pour autrui had
been impliedly accepted by the Church because of the fact that it has enjoyed
the benefits of the stipulation for years. The appellees cannot unilaterally
revoke the same and are bound thereby.
Coquia v. Fieldmen Fieldmen's Insurance Company, Inc. issued, in favor of the Manila Yellow
Insurance Co. Taxicab Co., Inc. a common carrier accident insurance policy. While the policy
was in force, a taxicab of the Insured, driven by Carlito Coquia, met a vehicular
accident which caused Carlito’s death. The parties failed to arrive at an
agreement concerning the amount of the claim. Hence, the Insured and Carlito's
parents filed a complaint against the Company to collect the proceeds of the
aforementioned policy. The Company admitted the existence of the policy, but
pleaded lack of cause of action on the part of the plaintiffs. The trial court ruled
against the company. Hence, this petition. The Suprem Court ruled that the
policy under consideration is a contract pour autrui. From the stipulations
contained in the policy, t is clear that the Coquias, who, admittedly, are the sole
heirs of the deceased have a direct cause of action against the Company, and,
The sale of the said property made by Duran to Gutierrez
Hermanos was indeed null and void in the beginning, but
afterwards became perfectly valid and cured of the defect of
nullity it bore at its execution by the confirmation solemnly
made by the said owner upon his stating under oath to the judge
that he himself consented to Duran's making the sale.
Moreover, pursuant to A1309, OCC (A1392, NCC), the right of
action for nullification that could have been brought became
legally extinguished from the moment the contract was validly
confirmed and ratified. It is unquestionable that Orense did
confirm the said contract of sale and consent to its execution.
This is also an unenforceable contract under Art. 1403 (1)
While a stipulation in favor of a third person has no binding
effect in itself before its acceptance by the favored party, the
law does not provide when the third person must make his
acceptance. As a rule, there is no time limit; such third person
has all the time until the stipulation is revoked. Furthermore,
the acceptance does not have to be in any particular form. It
need not be made expressly or formally. Notification of
acceptance, other than such as is involved in the making of
demand, is unnecessary. The beneficiary of a trust may demand
performance of the obligation without having formally accepted
the benefit of the trust in a public document, upon mere
acquiescence in the formation of the trust.
Although, in general, only parties to a contract may bring an
action based thereon, this rule is subject to exceptions, one of
which is found in the second paragraph of Article 1311 of the
Civil Code of the Philippines. This is but the restatement of a
well-known principle 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.
 since they could have maintained this action by themselves, without the
assistance of the Insured, it goes without saying that they could and did
properly join the latter in filing the complaint herein. Also, the petitioner cannot
invoke Section 17 of the policy because the record shows that neither of the
parties has invoked the same during the entire proceedings. Their acts or
omissions had the effect of a waiver of their respective right to demand an
arbitration.

Constantino v. Espiritu Pastor Constantino sold two parcels of land to Herminia Espiritu, on the
condition that the land will be held in trust for their yet unborn illegitimate son.
Espiritu took two mortgages on the land and then offered them for sale.
Constantino asked the court to issue a temporary restraining order to stop the
sale of the lands; and two: compel Espiritu to execute a deed of absolute sale to
Pastor Constantino Jr.
Espiritu moved to dismiss the case on two grounds: Pastor Jr. was not a party to
the suit; and the Statute on Frauds. Constantino argued that what was involved
was an implied trust under Art. 1453. The trial court 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 the case
was appealed to the Supreme Court. SC held that the contract bet. Constantino
and Espiritu was a contract pour autrui.
That one of the parties to a contract pour autrui is entitled to
bring an action for its 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
amplifies this settled rule only in the sense that the third person
for whose benefit the contract was entered into may also
demand its fulfillment provided he had communicated his
acceptance thereof to the obligor before the stipulation in his
favor is revoked.

Young v. CA City Engineer of Manila ordered Philippine Holding Inc(PHI) (Private Resp) to
demolish its building which it was leasing. PHI then entered into a compromise
agreement with its lessees. The lessees, including Rebecca, agreed to vacate the
premises within 60 days subject to a proviso that they have the right of first
refusal should PHI decide to sell the subject property. PHI sold the said
property by way of dacion en pago to PH Credit Corp (PCC). PCC then sold it
to private respondents. Rebecca now seeks to annul the sale, argued that her
right to first refusal was denied. RTC, CA and SC held that such right does not
exist.
Petitioner further argued that the stipulation giving her the right of first refusal
is a stipulation pour autrui or a stipulation in favor of a third person under
Article 1311 of the Civil Code. IX. Assuming that petitioner is correct in
claiming that this is a stipulation pour autrui, it is unrebutted that she did not
communicate her acceptance whether expressly or impliedly. She insists,
however, that the stipulation has not yet been revoked, so that her present claim
The requisites of a stipulation pour autrui or a stipulation in
favor of a third person are the following:
1) there must be a stipulation in favor of a third person.
2) the stipulation must be a part, not the whole of the
contract.
3) the contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere
inciden-tal benefit or interest.
4) the third person must have communicated his acceptance
to the obligor before its revocation.
5) neither of the contracting parties bears the legal
representation or authorization of the third party.
 or demand is still timely.
As correctly observed by the Court of Appeals, the above argument is
pointless, considering that the sale of subject property to some other person or
entity constitutes in effect a revocation of the grant of the right of first refusal
to Rebecca C. Young.
Marmont Resort v. Guiang Marmont entered into an agreement with Maris to build a water facility for
them. The water facility was located on the land of the Spouses Guiang. Maris
and the spouses executed a second agreement wherein the spouses transferred
their possessory rights over the land where the facility was built to Maris. When
the water supplied to Marmont became inadequate, they decided to upgrade
their facilities and thus, secured the permission of the spouses for access to the
facility. The spouses refused. Marmont sued for damages. The court ruled that
Marmont has the right to access the facility as the second agreement contained
a stipulation pour autri.
Mandarin Villa v. CA De Jesus hosted a dinner with his friends in Mandarin Villa’s restaurant. He
paid the bill using his Bankard Credit Card but such was not accepted for
having been expired. De Jesus claimed that the card was not yet expired as
evidenced by the date of expiration in front of the card. Left with no choice, De
Jesus used his BPI Credit Card to pay. He filed suit against Mandarin Villa and
Bankard. RTC ruled in favor of De Jesus. CA affirmed but absolved Bankard of
liability and reduced damages.
Sanchez v. Rigos On April 3, 1961, Sanchez and Rigos executed an "ʺOption to Purchase"ʺ
wherein Rigos committed to sell to Sanchez a parcel of land for PhP 1,510.
Within two years from said date, if Sanchez shall not exercise his right to buy
the property, the option shall be terminated. Within the said period, Sanchez
made several attempts to pay but Rigos rejected said payment.
Sanchez deposited the amount in the CFI of Nueva Ecija.
Rosentock v. Burke Burke owned a yacht known as Bronzewing. Elser, the plaintiff, negotiated for
the purchase of the yacht. The plan of Elser was to create a yacht club and sell
it afterwards for P120,000. P20,00 to be retained by Elser and P100,000 to be
A stipulation pour autri is a stipulation in favor of a third person
conferring a clear and deliberate favor upon him, which
stipulation is found in a contract entered into by parties neither
of whom acted as agent of the beneficiary. The interest must
not be merely incidental. It must clearly show that it will
benefit the third person.
Mandarin Villa is affiliated with BANKARD evidenced by an
"Agreement" entered into by petitioner and BANKARD. While
De Jesus may not be a party to the agreement, it conferred a
favor upon him as a holder of credit card issued by
BANKARD. This stipulation is a stipulation pour autri and
under Art. 1311 De Jesus may demand its fulfillment provided
he communicated his acceptance to Mandarin Villa before its
revocation.
Art. 1479 applies in this case. An accepted unilateral promise
can only have
a binding effect if supported by a consideration. Since there is
no valid contract without a cause or consideration, the promisor
is not bound by his promise and may, accordingly, withdraw it.
Pending notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell which, if
accepted, results in a
perfected contract of sale.
The question whether or not an expression is a definite offer to
purchase or merely an invitation to a proposition being made to
him, is one of intention of the person using said expression,

Malbarosa v. CA
San Lorenzo Dev’t. Corp. v.
CA
paid to Burke. Elser requested that a voyage be down to the south using the said
yacht fo rpurposes of advertising and creating opportunities for the sale.
However, the yacht needed some repairs for the voyage thus making the
plaintiff pay for such repair.Elser never accepted the offer for the purchase
rather requested that the engine should replaced thus asking for a loan of P20,
000. After a talk with the bank manager Mr. Avery, they agreed that the yacht
was to be sold to Elser for the amount of P80,000. Elser agreed but stated in the
letter that he is in a position to entertain the purchase of the said yacht. The trial
court ruled in favor of Elser and asked Burke to pay for the repairs. Elser is then
asked to comply with the conditions stated in the letter. SC: reverse, held the
letter not to be a definite offer.
Malbarosa decided to retire as president and general manager of Philtectic. He
was offered a compensation package consisting of a company vehicle and
stocks at a value which he felt was notcompensatory of the amount he deserved.
When he decided to accept the offer, he failed tocommunicate his acceptance
prior to the Company’s withdrawal of the offer.
Sps. Lu purportedly sold 2 parcels to Babasanta. However, the sps. Lu declined
to push through with the sale, claiming that when Babasanta requested for a
discount and they refused, he rescinded the agreement. Babasanta filed a case
for Specific Performance. Meanwhile, San Lorenzo Dev't Corp. (SLDC)
alleged that the 2 parcels of land had been sold to it in a Deed of Absolute Sale
with Mortgage. SC held that San Lorenzo had a better right because even
though both their contracts were perfected, Babastanta only had a contract TO
SELL, while San Lorenzo had a Contract OF SALE.
which is to be determined by the circumstaces surrounding the
case.
Consent is manifested by meeting of the offer and the
acceptance upon the thing and the cause which are to constitute
the contract. Such acceptance must be absolute, unconditional,
and without variance of any sort from the offer when made
known to the offeror. An acceptance not made in the manner
prescribed is not effective but constitutes a counter-offer.
Contracts, in general, are perfected by mere consent, which is
manifested by the meeting of the offer and the acceptance upon
the thing which are to constitute the contract. The offer must be
certain and the acceptance absolute. Moreover, contracts shall
be obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are
present.
Sale, being a consensual contract, is perfected by mere consent
and from that moment, the parties may reciprocally demand
performance. The essential elements of a contract of sale, to
wit:
(1) Consent or meeting of the minds, that is, to transfer
ownership in exchange for the price;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
The perfection of a contract of sale should not, however, be
confused with its consummation. In relation to the acquisition
and transfer of ownership, it should be noted that sale is not a

MMDA v. Jancom
Heirs of Sevilla v. Sevilla
Andres v. Manufacturers
Hanover
mode, but merely a title. A mode is the legal means by which
dominion or ownership is created, transferred or destroyed, but
title is only the legal basis by which to affect dominion or
ownership.
Pursuant to the government’s solid waste management program, a build- There being a perfected contract, MMDA cannot revoke or
operate- transfer contract was entered into and signed by the Philippine renounce the same without the consent of the other. From
Government (through DENR Secretary and the overseeing MMDA/EXECOM fulfillment of what has been expressly stipulated but also to all
Chairman) and JANCOM for the San Mateo landfill. the consequences which, according to their nature, may be in
keeping with good faith, usage, and law.
However, as President Ramos’s term was about to end when it was presented to
him for signature, he did not sign it and only endorsed it to
incoming President Estrada. During Pres. Estrada’s term, however, the San
Mateo landfill was ordered closed. Due to this, the Greater Manila Solid Waste
Management Committee adopted a resolution not to pursue the contract.
JANCOM filed against an action against the MMDA. MMDA alleges that there
is no valid and binding contract because it does not bear the signature of the
President, there was no valid notice of award, and that JANCOM failed to
comply with conditions precedent. The SC held that there was a perfected
contract when the MMDA accepted JANCOM’s bid proposal, showing a
meeting of the minds on the waste management project and the cause (the BOT
scheme). The President’s signature was only necessary for the contract’s
effectiveness, not its perfection.
A parcel of land was donated to respondent Leopoldo Sevilla by his aunt Felisa One who alleges defect or lack of valid consent to a contract by
Almirol. Petitioner Heirs of William Sevilla are contesting that this was an reason of fraud or undue influence must be established by full,
invalid donation. The SC ruled that insofar as the Deed of Donation, it is valid clear and convincing evidence that such specific acts vitiated a
because there is no proof as to why Felisa was incapable of executing the deed. party’s consent, otherwise, the latter's presumed consent to the
Insofar as the Deed of Extra-Judicial Partition, there is want of Felisa's legal contract prevails.
capacity to execute the said deed because at the time she signed it, she had
already donated the 1/2 share of the parcel of land to Leopoldo. Hence, the
Deed of Extra-Judicial Partition is void. However, this does not affect the first
Deed of Donation Felisa executed in favor of Leopoldo.
Petitioner Andres received remittances from its foreign buyer FACETS. The resolution of this issue would hinge on the applicability of
Respondent Manufacturers Hanover and Trust effected the transfer. Art. 2154 of the New Civil Code. x x x For this article to apply
Manufacturers unaware that Andres already received the 1 st $10,000 and so the following requisites must concur: “(1) that he who paid was
instructed to send a 2 nd $10,000. Later on, they asked for return of $10,000. not under obligation to do so; and, (2) that payment was made
 RTC ruled in favor of Andres. CA: reversed and ordered to return the money.
SC: Affirmed CA.
Sps. Theis v. CA Calsons Development Corporation, the owner of the parcels of land, sold the
wrong parcel to Spouses Theis because of a mix-up in the TCT numbers. The
mistake in the identity of the lots is traceable to the erroneous survey conducted
in 1985. To remedy the mistake, Calsons offered parcel nos. 1 and 2 as these
two were precisely the two vacant lots which it owned and intended to sell.
Spouses Theis rejected the good faith offer. Calsons made another offer, this
time the return of an amount double the price paid by them. Spouses Theis still
refused. Calsons was then compelled to file an action for annulment of deed of
sale and reconveyance of the properties subject thereof. The Court held that the
deed of sale should be annulled on the ground of mistake in the identification of
the parcels of land intended to be the subject matter of said sale.
Hemedes v. CA A lot was donated to Justa. She first transferred her ownership over it to
Maxima via a Deed of Conveyance. Maxima then mortgaged said lot to
R&B who eventually acquired ownership over it via its extrajudicial
foreclosure. Then Justa made a Kasunduan wherein she gave the same lot to
Enrique who subsequently sold it to Dominium. Court herein ruled that the first
conveyance to Maxima should prevail since it was a valid conveyance. CA said
that Maxima failed to discharge her burden in 1332 when she failed to prove
that she explained fully the meaning of the deed to Justa who doesn’t
understand English. SC ruled that 1332 doesn’t apply since Justa herself denied
having seen the deed (see doctrine).
by reason of an essential mistake of fact” [City of Cebu v.
Piccio] Art. 2154, doctrine of Solutio indebiti, the SC must
reject the common law principle invoked.
Article 1330. A contract where consent is given through
mistake, violence, intimidation, undue influence, or fraud is
voidable. Article 2154. If something received when there is no
right to demand it, and it was unduly delivered through mistake,
the obligation to return it arises.
The concept of error must include both ignorance, which is the
absence of knowledge with respect to a thing, and mistake
which is a wrong conception about said thing or a belief in the
existence of some circumstance, fact, or event, which in reality
does not exist.
1332 was intended for the protection of a party to a contract
who is at a disadvantage due to his illiteracy, ignorance, mental
weakness or other handicap. This article contemplates a
situation wherein a contract has been entered into, but the
consent of one of the parties is vitiated by mistake/fraud
committed by the other contracting party. This is apparent from
the ordering of the provisions under Book IV, Title II, Chap 1
Sec 1, NCC from which 1332 is taken. 1330 states when a
contract is voidable. It’s immediately followed by provisions
explaining what constitutes said vices of consent. For mistake
to invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into
the contract. For fraud, it’s present when, through insidious
words or machinations of one of the contracting parties, the
other’s induced to enter into a contract which, without them, he
would not have agreed to. Clearly, 1332 assumes that the
consent of the contracting party imputing the mistake or fraud

Lustan v. CA A Deed of Definite Sale was executed by Petitioner in favor of Respondent.
Petitioner contends that their true intention was to establish an equitable
mortgage. Since Petitioner is illiterate, SC asserts that the burden lies on
Respondent to enforce the contract of definite sale, where petitioner purportedly
ceded all her rights to the subject lot in favor of Parangan. SC ruled that this
burden was not discharged by Respondent.
Katipunan v. Katipunan Braulio Katipunan and Balguma brothers, assisted by Miguel Katipunan,
purportedly executed a Deed of Absolute Sale. However, Braulio claims to
have no intention of transferring such property. He claims to have been tricked
into agreeing to the contract because of his ignorance and lack of education. He
now seeks for the annulment of said DoAS. The SC decided in favor of Braulio,
saying that his consent was vitiated by undue influence, taking advantage of his
lack of education and mental affliction.
Leonardo v. CA Restitua Leonardo was made to sign a deed of extrajudicial settlement of estate.
She refused because it was written in English, and requested that respondents
wait for her husband, who could translate it to her because she understands only
the Pangasinan dialect. Respondents assured her that she will be given her
share. Restituta signed, but still asked that respondents wait for her husband.
Her husband arrived, but no copy of the document was left for them to
reexamine. SC ruled that the deed of extrajudicial partition is void because
Restituta’s consent was vitiated with mistake. Restituta did not understand
English, and finished only until Grade 3.
Martinez v. HSBC Martinez alleges that she was under duress when she signed the contract in
which she transferred property (she claims as her separate property) in
exchange for the nonpursuance of the claims against her husband, both civil and
criminal. SC says she was under no duress and that she fully consented to the
contract serving both her and her husband’s interests.
Lee v. CA Maria was invited to the bank where Lee had shouted at her with piercing looks
and threatened to file charges against herunless she return the money equivalent
was given, although vitiated, and does not cover a situation
where there is a complete absence of consent.
Where a party to a contract is illiterate or cannot read or cannot
understand the language in which the contract is written, the
burden is on the party interested in enforcing the contract to
prove that the terms thereof are fully explained to the former in
a language understood by him.
Consent may be vitiated by any of the following: (a) mistake,
(2) violence, (3) intimidation, (4) undue influence, and (5)
fraud. The presence of any of these vices renders the contract
voidable.
In case one of the parties to a contract is unable to read, and
fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former.
Where a party is unable to read, and he expressly pleads in his
reply that he signed the voucher in question without knowing
its contents, this plea is tantamount to one of mistake or fraud in
the execution of the voucher or receipt in question and the
burden is shifted to the other party to show that the former fully
understood the contents of the document. If he fails to prove
this, the presumption of mistake (if not fraud) stands unrebutted
and controlling.
Not every contract executed by a wife, even though made solely
to save her husband from the consequences of his crimes, is
voidable. Solicitation, importunity, argument, and persuasion
are not undue influence and a contract is not to be set aside
merely because one party used these means to obtain the
consent of the other.
Threatening to sue is not unlawful.
 of the cashier check she allegedly forged. For this, Francis Lee was convicted
of light coercion by the RTC. SC ruled that his acts do not constitute coercion.
Hill v. Veloso Maximina and her son-in-law, Domingo Franco, executed a promissory note in
favor of Michael & Co. for goods to be delivered to La Cooperativa. However,
upon default and commencement of court proceedings, Maximina alleged that
she was told by Franco (alleging deceit) that the PN she was signing was for
her 8k debt to the children of her deceased brother, not anything whatsoever in
favor of Michael & Co. The Court, being that there were no proof as to her
allegations of error and deceit, ruled that the deceit in this case is not one that
annuls the consent of the other party in a contract; they (Franco and Maximina)
are but one single contracting party in contractual relation with, or as against,
Michael & Co. At most, this is a deceit by a third person, which she still failed
to prove. Other circumstances in the case also prove the absence of deceit. She
is still liable.
Geraldez v. CA Geraldez availed the tour package to Europe from Kenstar Travel Corporation.
The brochure and the sales talk provided by the representative of the company
set the following inclusions in the travel package: Tour Manager who knows
the attractions and the destinations of the tour, accommodations in first class
hotels, tour venues, and an assigned experienced tour guide. Such expectations
were not met and upon return from said tour, petitioner sought relief to recover
damages. CFI granted moral, nominal, exemplary, attorney’s fees, and costs of
suit. CA removed moral and exemplary damages. SC held that Kenstar
committed fraud/misrepresentation specifically fraud in inducement in securing
consent of the other party.
Sierra v. CA Sierra is demanding the P85k which was signed by the Ebarles in promissory
notes. Ebarles claim such PNs were invalid and that the true amount that they
owe to Sierra is only P20k. Court ruled that the Ebarles signed the 2 PNs and
they failed to prove that they signed such PNs under duress, fear, and undue
influence. There was also no fraud.
Deceit by a third person does not in general annul consent. This
will happen when the third person causes the deceit in
connivance with, or at least with the knowledge, without
protest, of the favored contracting party: the most probable
suppositions, in which the latter cannot be considered exempt
from responsibility. This deceit may give rise to more or less
extensive and serious responsibility on the part of the third
person, and a corresponding right of action for the contracting
party prejudiced.
Fraud that is present at birth or perfection of the contract may
be either of the following:
Dolo Causante (Causal Fraud): Deception of serious character
without which the other party would not give their consent.
This is the essential cause of the consent given, in essence this
is why the party agreed to the contract in the first place. Once
proven, this results to the nullity of the contract and subsequent
indemnification of the injured party.
Dolo Incidente (Incidental Fraud): Not serious in character
without which the other party will still enter into the contract.
This refers to particular or accident of obligations. In essence,
there is already a contract in force between parties and the fraud
is committed in the performance of the fulfillment of the
obligation. Offended party may then seek to recover damages
from such fraud.
Undue influence is any means employed upon a party which,
under the circumstances, he could not well resist, and which
controlled his volition and induced him to give his consent to
the contract, which otherwise he would not have entered into. /
The misrepresentation constituting the fraud must be
established by full, clear, and convincing evidence, and not

Tuason v. Marquez
Rural Bank of Sta. Maria v.
CA
Azarraga v. Gay
Marquez originally owned a franchise of the Electric Light Company of Lucena
but because it never functioned properly, he informed the Public Utility
Commissioner his intention to give up the franchise, who then cancelled it.
Marquez then sold it to Tuason for 14,400. However, Marquez already gave up
his franchise of the plant prior to selling it to Tuason. Tuason thus had to
operate under a special license until he obtains a new franchise, which was
granted, but with the condition that the plant would be renovated. Tuason filed
for rescission alleging that Marquez fraudulently misrepresented his ownership
of the franchise because he already had it cancelled. The SC held that the
contract may not be rescinded despite the allegations of fraud since the
franchise was not the determining cause of the purchase. It must be noted that
either party could have ascertained the status of the franchise with the PUC,
Tuason operated the plant for 16 months without question, made the 1st
payment without protest, and only filed the case when the business proved
disastrous, thus he is estopped by laches.
A Deed of Absolute Sale with Assumption of Mortgage was then executed
between Manuel Behis (vendor/assignor) and Rayandayan & Arceño
(vendees/assignees) for the sum of Php 250K. On the same day, Rayandayan &
Arceño together with Manuel Behis executed another Agreement containing the
real consideration of the sale of the land (Php 2.4M). Rayandayan & Arceño
negotiated in a MOA with the bank for the assumption of the indebtedness of
Manuel Behis and the subsequent release of the mortgage (showing to the bank
the Deed of Absolute Sale with Assumption of Mortgage worth 250K).
However, Rayandayan & Arceño did not show to the bank the 2nd Agreement
with Manuel Behis (which contained the real purchase price of Php 2.4M). The
bank did not comply with the MOA because it alleged that the bank's consent to
the MOA was secured thru fraud since the bank was not shown the 2nd
Agreement containing the real purchase price of Php 2.4M. The SC said that the
MOA was not void because the non-disclosure to the bank of the real purchase
price cannot be fraud under Art. 1338.
Azarraga sold two parcels of land to Gay. Gay was not able to pay the last two
installments, thus Azarraga instituted an action for collection. Gay alleged that
there was misrepresentation on the part of Azarraga who said that the 2 nd parcel
merely by a preponderance thereof.
Silence or concealment does not constitute fraud, except if there
is a special duty to disclose certain facts or it is according to
good faith and usages of commerce that the communication
should have been made. Innocent non-disclosure of a fact does
not necessarily affect the formation of the contract or operate to
discharge the parties from their agreement | Caveat emptor
The kind of fraud that will vitiate a contract refers to those
insidious words or machinations resorted to byone of the
contracting parties to induce the other to enter into a contract
which without them he would nothave agreed to. The fraud
must be the determining cause of the contract, or must
havecaused the consent to be given.
Pursuant to Article 1339 of the Civil Code, silence or
concealment, by itself, does not constitute fraud, unless there is
a special duty to disclose certain facts, or unless according to
good faith and the usages of commerce the communication
should be made.
The general rule is that whosoever alleges fraud or mistake in
any transaction must substantiate his allegation, since it is
presumed that a person takes ordinary care of his concerns and
that private transactions have been fair and regular.
When the purchaser proceeds to make investigations by
himself, and the vendor does nothing to prevent such
investigation from being as complete as the former might wish,
 of land was 98 ha, but it was really just 70 ha. Court ruled in favor of Azarraga,
considering that Gay went to the area and made her own calculations. Thus, she
knew the actual area of the land.
Trinidad v. IAC Trinidad bought a house near a creek and it flooded. Trinidad sued vendor
Songco v. Sellner Sellner bought Songco’s sugar cane as they stood on the latter’s property for
P12,000, payable through 3 PNs of P4,000 each. Songco sued for payment of
the last PN, which Sellner refused on the claim that Songco had fraudulently
misrepresented the actual quantity of the output of the sugar cane after milling.
The Court held that Songco’s estimate (which was way below the actual output
less the toll from the milling) was on a mere matter of opinion, and a
misrepresentation on the same cannot serve to avoid the contract.
Mercado v. Espiritu In this case, the petitioners sought to annul the deed executed by them on May
17, 1910 wherein they recognized the absolute and perpetual ownership of Luis
over the subject parcels of land previously owned by their mother through
ratification of the previous pacto de retro sale executed by their mother and the
contract of pledge or mortgage effected by their father Wenceslao Mercado.
They alleged that the document was void because Luis Espiritu employed
fraud, deceit, violence, or intimidation, in order to effect the sale and that on the
date of its execution they were minors without legal capacity to contract. The
Supreme Court, in deciding against the petitioners, ruled that the evidence
adduced at the trial does not show, even circumstantially, that the purchaser
Luis Espiritu employed fraud, deceit, violence, or intimidation, in order to
effect the sale mentioned in the document executed on May 17, 1910. Said
document is virtually an acknowledgment of the contract of sale and the
the purchaser cannot later allege that the vendor made false
representations to him.
Arts. 1338, 1339, 1340. The fraud alleged by Trinidad has not
been satisfactorily established to call for the annulment of the
contract. o It was Trinidad who admittedly approached
Francisco, who never advertised the property nor offered it for
sale to her. Trinidad had full opportunity to inspect the
premises, including the drainage canals indicated in the vicinity
map that was furnished her, before she entered into the contract
of conditional sale. o It is assumed that she made her appraisal
of the property not with the untrained eye of the ordinary
prospective buyer but with the experience and even expertise of
the licensed real estate broker that she was. If she minimized
the presence of the drainage canals, she has only her own
negligence to blame.
A misrepresentation upon a mere matter of opinion is not an
actionable deceit, nor is it a sufficient ground for avoiding a
contract as fraudulent. It is not every false representation
relating to the subject matter of a contract which will render it
void. It must be as to matters of fact substantially affecting the
buyer’s interest, not as to matters of opinion, judgment,
probability, or expectation.
The courts, in their interpretation of the law, have laid down the
rule that the sale of real estate, made by minors who pretend to
be of legal age, when in fact they are not, is valid, and they will
not be permitted to excuse themselves from the fulfillment of
the obligations contracted by them, or to have them annulled in
pursuance of the provisions of Law 6, title 19, of the 6th
Partida; and the judgment that holds such a sale to be valid and
absolves the purchaser from the complaint filed against him
does not violate the laws relative to the sale of minors' property,
nor the juridical rules established in consonance therewith.
 contract mortgage and pledge validly executed by the petitioners’ parents. Also,
even in the doubt whether they certainly were of legal age on the date referred
to, it cannot be gainsaid that in the document Exhibit 3 they stated that they
were of legal age at the time they executed and signed it, and on that account
the sale mentioned in said notarial deed Exhibit 3 is perfectly valid.

Braganza v. Villa Abrille Rosario, together with her sons Rodolfo and Guillermo Braganza, received a Minors are liable in as much as they benefited from the loan.
loan,on October 30, 1944 from Villa Abrille amounting to P70,000 in Japanese Minority is a personal defense to the children. In order to hold a
war notes. They promised in writing to pay him P10,000 “in legal currency of minor liable to the contract, the fraud must be actual and not
the P.I. two years after the cessation of the present hostilities or as soon as constructive.
International Exchange has been established inthe Philippines” plus 2 % per
annum. Payment was not made, thus, Villa Abrille sued them. CFI Manila and
CA held that they shall be liable to pay according to the contract they signed.
SC found Rosario will still be liable to pay her share because the minority of
her sons does not release her from liability.

Rodriguez v. Rodriguez Concepcion, owned of two parcels of land (fishponds) prior to her 2 nd marriage
to Domingo Rodriguez (widower with 4 kids). Concepcion executed a deed of
sale of the said property to her daughter. Three days later, the daughter
executed a deed of sale to convey the same property to her mother and stepdad.
In 1953 (19 years later), Domingo died intestate, Concepcion and the kids
entered into an extrajudicial settlement. Subsequent deeds and instruments
were executed. The relationship of Concepcion with the kids turned for the
worse prompting Concepcion to file a complaint to annul the deeds of sale
executed between her and her daughter and her husband. SC held that DOS
were valid.
The characteristic of simulation is the fact that the apparent
contract is not really desired or intended to produce legal
effects or in way alter the juridical situation of the parties. Thus,
where a person, in order to place his property beyond the reach
of his creditors, simulates a transfer of it to another, he does not
really intend to divest himself of his title and control of the
property; hence, the deed of transfer is but a sham.

Suntay v. CA Federico was applying to be a miller-contractor but his application was The failure of the buyer to take exclusive possession of the
rejected. To circumvent the requirements, he asked his nephew, Rafael, to apply property allegedly sold to him is a clear badge of fraud.
for him. Federico executed a deed of sale in favor of Rafael for this matter.
When Federico was asking for the title to the land, Rafael refused to give it
stating that the sale was valid. The Court ruled that the sale was a simulated and
fictitious contract. In arriving at the ruling, the Court looked into the
circumstances surrounding the case. The contract is null and void as the parties
did not intend to be bound by the contract.

Pangadil v. CFI Pangadil Maslamama, father of petitioners, sold land to Tandingan Kagui. The The simulation of a contract may either be absolute or relative.
sale is oral and not evidenced in writing. Guardianship proceedings was It is only when the contract is absolutely simulated or fictitious
commenced by Salandang to enable her to represent her minor siblings in that it is deemed void. There is absolute simulation "when the
 executing a document formalizing the verbal sale between their father and
Kagui. The guardianship proceeding was approved and the document created
was also approved. However, the petitioners asked for the annulment of the
document and the proceedings on the ground that their consent was vitiated by
fraud and the contract is simulated making the document null and void. CFI
dismissed.
Umali v. CA The Castillo Family filed an action for annulment of ICP’s title over 4 parcels
of land which the family had previously owned. They contended that all
transactions were entered in fraud and without the consent and approval of the
CFI Quezon, where administration proceedings were pending.
Blas v. Santos Simeon Blas married Marta Cruz with whom he has heirs. Marta died in 1898.
Simeon married Maxima in 1899. The properties he and his former wife
acquired during the first marriage were not liquidated. In 1936, Simeon Blas
executed a will disposing half of his properties in favor of Maxima the other
half for payment of debts. In lieu of this, Maxima executed a document, Exhibit
A , that she I will respect and obey all and every disposition of said will and
promises that she’ll be giving one-half of the properties she’ll be acquiring to
the heirs and legatees named in the will of her husband. Simeon Blas died.
Heirs of Simeon Blas with Marta learned that Maxima did not comply with her
promise. TC: Dismissed the complaint SC: held that Exhibit A was a
compromise and a contract with sufficient cause and consideration.
JLT Agro v. Balansag Don Julian had two wives. When his first wife Antonia died, a parcel of land
under their conjugal property was subject to partitioning, finally distributed
through a Compromise Agreement which states that upon Don Julian’s death,
the property allotted to him shall be adjudicated to the 2nd wife Milagros and
her kids. However, before his death, Don Julian executed a Deed of Assignment
in favor of JLT Agro, while Milagros leased and eventually partitioned the
same lot to Respondent Spouses Balansag.
parties do not intend to be bound at all." In case the parties
merely conceal their true agreement, the simulation is relative,
and the contract with that defect is binding upon the parties
unless it prejudices a third person and is intended for a purpose
contrary to law, morals, good customs, public order or public
policy.
Absolute simulation renders the contract null and void, when
the parties do not intend to be bound by the same. There is
absolute simulation, which renders the contract null and void,
when the parties do not intend to be bound at all by the same.
The basic characteristic of this type of simulation of contract is
the fact that the apparent contract is not really desired or
intended to either produce legal effects or in any way alter the
juridical situation of the parties.
When agreement to transmit one-half of conjugal share is a
contract as to future inheritance. A document signed by the
testator’s wife, promising that she would respect and obey all
the dispositions in the latter’s will, and that she would hold one-
-half of her share in the conjugal assets in trust for the heirs and
legatees of her husband in his will, with the obligation of
conveying the same to such of his heirs or legatees as she might
choose in her last will and testament, is a compromise and at
the same time a contract with sufficient cause or consideration.
It will be noted that what is prohibited to be the subject matter
of a contract under Article 1271 of the Civil Code is “future
inheritance.”
For the inheritance to be considered future, the succession must
not have been opened at the time of the contract. A contract
may be classified as a contract upon future inheritance,
prohibited under the second paragraph of Article 1347, where
the following requisites concur: (1) That the succession has not
yet been opened; (2) That the object of the contract forms part
of the inheritance; and (3) That the promissor has, with respect
to the object, an expectancy of a right which is purely
hereditary in nature. The exception to this rule is Art. 1080:
Should a person make a partition of his estate by an act inter
 vivos,or by will, such partition shall be respected, insofar as it
does not prejudice the legitime of the compulsory heirs.

Liguez v. CA Petitioner averred to be the legal owner of a parcel of land pursuant to a Deed
of Donation executed in her favour by the late Salvador Lopez. The defense
interposed that the donation was null and void for having an illicit causa or
consideration, which was the petitioner entering into a relationship with
Salvador, a married man. The CA held that the donation was inoperative.
Under Article 1274, of the Civil Code of 1889, liberality of the
donor is deemed causa only in those contracts that are of "pure"
beneficence; that is to say, contracts designed solely and
exclusively to procure the welfare of the beneficiary, without
any intent of producing any satisfaction for the donor;
contracts, in other words, in which the idea of selfinterest is
totally absent on the part of the transferor. For this very reason,
the same Article 1274 provides that in remuneratory contracts,
the consideration is the service or benefit for which the
remuneration is given; causa is not liberality in these cases
because the contract or conveyance is not made out of pure
beneficence, but "solvendi animo". The motive of the parties
may be regarded as causa when it predetermines the purpose of
the contract.

Carantes v. CA In an Assignment of Right to Inheritance, Mateo Carantes’ children (as well as It is total absence of cause or consideration that renders a
Mateo’s son Apung’s heirs) assigned all their rights to inherit from Mateo’s Lot contract absolutely void and inexistent.
No. 44 to their brother Maximino. The stated monetary consideration for the
assignment was P1.00. The document also contained a provision that Mateo
had, during his lifetime, expressed to the signatories that the property rightly
and exclusively belonged to Maximino. Maximino sold parts of the lot to the
Government for the construction of the Loakan Airport. The children filed a
complaint, seeking to declare the Assignment null and void for having been
executed on the ground of fraud. Maximino argued that the action had already
prescribed (based on the 10-year period in Art. 1144). The trial court ruled that
it had already prescribed, since actions based on fraud prescribe in 4 years from
the discovery of the fraud, and that the discovery must be deemed to have
occurred when the deed was registered (1940); yet, the action was filed in 1958.
The CA ruled that the P1.00 consideration was so shocking that effectively,
there was no consideration or cause in the contract. The SC held consideration
was not absent, and that fraudulent contracts are only voidable. It also ruled that
the action had already prescribed, the 4-year period having commenced at the
time of the contract’s registration in the Register of Deeds.

Sps. Buenaventura v. CA Private respondents Sps. Joaquin are the parents of petitioners Sps. Failure to pay consideration is different from lack of
Buenaventura. Sps. Buenaventura want to declare null and void ab initio the consideration. Failure to pay consideration results in a right to
 deeds of sale of real property executed by their respondent parents. The grounds demand the fulfillment or cancellation of the obligation under
of the Sps. Buenaventura relevant to our discussion is that there was no actual an existing valid contract. Lack of consideration prevents the
valid consideration for the deeds of sale of the properties. Supreme Court held existence of a valid contract.
otherwise, stating that a contract of sale is a real contract, and not a consensual
contract. For as long as there is a meeting of the minds as to the price, the
contract of sale is valid. In this case, Sps. Beunaventura failed to show that the
prices were absolutely simulated. They also lacked knowledge of their siblings’
financial capacity to buy the lots. The Deeds of Sale plainly showed the cost of
each lot. The purchase and real prices were stated. As of the filing of the
complaint, the prices were fully paid.

Cruz and Ibias v. Gruspe There was a car accident between petitioner’s minibus and respondent’s Toyota Contracts are obligatory no matter what their forms may be,
Corolla. Respondent Gruspe’s car was wrecked and so the two signed a joint whenever the essential requisites for their validity are present
affidavit of undertaking for petitioner to pay costs to replace Gruspe’s damaged
car. When petitioner failed to pay, respondent filed for collection of sum of
money owned. Supreme Court held for Gruspe saying that joint affidavit of
undertaking was a contract with all essential requisites present.

Dauden-Hernanez v. Judge Marlene Dauden-Hernaez was a motion picture actress. She filed a complaint In our contractual system, it is not enough that the law should
delos Angeles against respondents Hollywood Far East Productions and its President and require that the contract be in writing. The law must further
General Manager, Ramon Valenzuela to recover P14,700 representing a prescribe that without the writing, the contract is not valid or
balance allegedly due Dauden for her services as leading actress in 2 motion not enforceable by action.
pictures produced by the company, and to recover damages. CFI QC dismissed
the complaint, mainly because the claim of plaintiff was not evidenced by any
written document, either public or private, and the complaint was defective on
its face for violating Articles 1356 and 1358 of the Civil Code

Resuena v. CA Borromeo co owned 2 parcels of land with certain people. Petitioners occupied
certain portions of said lands. When Borromeo demanded that they vacate,
petitioners refused. They alleged that they were authorized to stay by
Borromeo’s co owners or said co owners’ heirs. Court herein found that
Borromeo, as a co owner had the right to bring the action for ejectment since.
Furthermore, petitioners were not able to provide any basis for their occupation
of said lots. They did not prove that they were authorized to occupy said lots.
There was no compliance with Art 1358 which requires that the transmission of
real rights over said property must appear at a public instrument.
Article 1358 provides that acts which have for their object the
creation, transmission, modification or extinguishment of real
rights over immovable property must appear in a public
instrument. Assuming there was any verbal agreement between
petitioners and any of the owners of the subject lots, Art 1358
grants a coercive power to the parties by which they can
reciprocally compel the documentation of the agreement.

Borromeo v. CA Debtor, Villamor, being a friend and a former classmate, used to borrow from It is a fundamental principle in the interpretation of contracts
time to time various sums of money from the creditor, Borromeo. Then faced that while ordinarily the literal sense of the words employed is
 with the need to settle a pressing obligation with a Miller, he did borrow from to be followed, such is not the case where they "appear to
the latter sometime in 1933 what respondent Court called "a large sum of be contrary to the evident intention of the contracting parties,
money for which he mortgaged his land and house in Cebu City. Villamor which intention shall prevail.
unable to pay, executed a document promising "to pay his indebtedness
even after the lapse of ten years.” When debtor failed to pay, creditor filed a
complaint for collection only in 1953. RTC decided in favour of creditor which
CA reversed.

Santi v. CA A portion of a parcel of land originally owned by Esperanza Jose was leased to When terms and conditions embodied in the contract are clear
Sps. Vitan and Francisco for a period of 20 years, automatically extendable and leave no room for doubt, such should be read in its literal
for another 20 years subject to an increased rent of P220. A cinema was sense and that there is absolutely no reason to construe the same
constructed therein. Subsequently, rights and interests over the cinema and the in another meaning. However, if the words appear to be
leased land was transferred to Augusto Reyes, Jr. He then executed another contrary to the evident intention of the parties, the intention of
contract of lease with Jose for a term of 20 years, extendable for another 20 the parties shall prevail over the words of the contract.
years at a rate of P220. Jose then sold the property to Santi, who assumed all
rights over the property. Upon termination of the term provided for in the lease
contract, Santi demanded the turn over of possession, which Alexander Reyes
(representative) refused claiming automatic extension of the lease. The SC
interpreted the provision in the lease contract as NOT BEING
AUTOMATICALLY EXTENDED, contrary to respondent's claim.

Rapanut v. CA Flunker executed a Deed of Conditional Sale with Mortgage in favor of To ascertain the intent of the parties, the Court shall look at
Rapanut, where it was stipulated that paymets were “payable in monthly their contemporaneous and subsequent acts.
installments of P500.00 with an interest of 10% per annum on the remaining
balance until the full amount is paid.” Flunker informed Rapanut that she has
rescinded the contract due to Rapanut’s failure to pay. Rapanut argues that the
P500 monthly installments included the 10% interest, but Flunker says that the
10% interest must be paid every year. Pursuant to CC 1371, the SC looked at
the contemporaneous and subsequent acts of the parties, and found that the
interest principal. Even assuming that Flunker was correct, she is estopped
anyway.

Oil and Natural Gas ONGC and PACIFIC entered into a supply contract, but PACIFIC failed to do
Commission v. CA deliver the cargo to India. They agreed that PACIFIC will deliver Class “G”
cement instead, but upon seeing that it did not comply with their specs, ONGC
resorted to arbitration pursuant to Clause 16. The arbitrator ruled in ONGC’s
favor, which decision was adopted by the Indian Civil Court, enabling ONGC
to collect form PACIFIC. ONGC sought to enforce this ruling in the
Philippines, but PACIFIC moved to dismiss. SC ruled that although ONGC
Noscitur a sociis: “where a particular word/phrase is
ambiguous in itself or is equally susceptible of various
meanings, its correct construction may be made clear and
specific by considering the company of the words in which it is
found or with which it is associated”
 erroneously invoked and interpreted Clause 16 as basis of their remedy, the
foreign judgment still holds and PACIFIC was, in the end, still liable to ONGC.

Sps. Rigor v. Consolidated Sps. Rigor obtained a loan from COLFC, but they failed to pay. In the PN, any Complementary Contracts Construed Together Doctrine - The
Orix Leasing and Finance action arising from the transaction should be exclusively brought to the proper provisions of an accessory contract such as a surety bond must
Corp. court in Makati City. In the deed of chattel mortgage, however, there were be read in its entirety and together with the principal contract
alternative venues: Makati City, Rizal, any court in the province or city where between the parties. The provisions must be construed together
the holder/mortgagee has a branch office. The spouses claim that COLFC’s to arrive at their true meaning.
complaint for replevin with damages (to foreclose the chattel mortgage over 2
dump trucks used as security for PN) should be dismissed for being brought to
the wrong venue. SC declared that the action was correctly brought to RTC
Dagupan City because (1) it was more convenient for both parties, and venue is
supposedly dictated by convenience, and (2) the PN and deed of chattel
mortgage should be construed together because the latter was merely an
accessory of the former transaction.

Chua v. CA Chua, the buyer, entered into a contract to sell with Valdez-Choy for the latter’s
paraphernal house and lot. The contract evidenced by a receipt stipulated the
earnest money paid will be forfeited if the buyer fails to pay the balance on or
before July 15, 1989 provided that “all papers are in order” Chua argued that
this meant that a TCT must first be issued in his name before he pays the
balance. SC held that such requirement is not found in their agreement or in the
law, nor is it customary in a sale of real property.
Customarily, in the absence of a contrary agreement, the
submission by an individual seller to the buyer of the following
papers would complete a sale of real estate: owner’s duplicate
copy of torrens title, signed deed of absolute sale, tax
declaration, latest realty tax receipt

RCBC v. CA Felipe Lustre issued postdated checks representing payment for the car he
purchased. One of which was debited and later re-credited to his account
because it was unsigned. RCBC then held him in default, invoking the terms of
their chattel mortgage contract. RTC held that the chattel mortgage being a
contract of adhesion should be construed against RCBC which prepared the
same as per Art. 1377 of the CC regarding construction of obscurities and
ambiguities in contracts. Thus, it should be construed to cover only deliberate
and advertent failure on mortgagor’s part. SC held that Art. 1377 is not
applicable where the terms of the contract is clear as in this case.
Notwithstanding, Lustre is not in delay for lack of malice or negligence.
While ambiguities in a contract of adhesion are to be construed
against the party that prepared the same, this rule applies only if
the stipulations in such contract are obscure or ambiguous. If
the terms thereof are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulations shall control.

Gacos v. CA Petrona inherited a share of land. She sold A PART of it to Olaybal who in turn Accdg to Art. 1378, when it is absolutely impossible to settle
sold it to P Rosario. The latter registered the Deed of Sale indicating the area of doubts by the rules established, and the doubts refer to
the land she bought as the entire hereditary share of Petrona. Later on, she sold incidental circumstances of a gratuitous contract, the least
the land to P Prieto, who in turn leased the said land. Upon learning of the later transmission of rights and interests shall prevail.
 transactions, the heirs of Petrona filed a complaint for recovery of the remnant
land from the sale from Petrona to Olaybal. The P contend that the entire land
was sold to them. The Court said, the variance in the areas specified in the
different documents presented cast doubt on the identity of the land sold to
Olaybal. Hence, Art. 1378 applies on the rules regarding gratuitous contract,
given that the first sale was between aunt and nephew-in-law. The least
transmission of rights should be effected; hence; just the part sold to Olaybal
(as proven during trial and by other evidence) is to be retained by P. The rest
shall return to the heirs.
Bentir v. Leande Bentir and Leyte Gulf entered into a contract of lease in 1968, for 20 years. In
1989, the premises of the lease contract was sold to Sps Pormida. Leyte Gulf
filed complaint in 1992, alleging that it has a right of first refusal, and that the
lease contract was extended for 4 years after expiration. SC held that the action
has prescribed, because Leyte Gulf had 10 years from 1968 to file but it did so
only in 1992, or 24 years after the cause of action accrued.
Quiros v. Arjona Parties executed an agreement wherein Arjona promised to give a parcel of land
to Quiros and Villegas as part of their inheritance from Doza. Although both
parties agreed to transfer 1-hectare real property, they failed to include in the
written document a sufficient description of the property to for reformation of
the instrument.
Atilano v. Atilano Eulogio Atilano I bought a parcel land, subdivided it into 5 and built his house
on one of the portions. He sold one portion to his brother Eulogio Atilano II
upon which the latter also built his house. The titles to the lots were obtained at
once. However, it was discovered many years later that the title of Atilano I’s
The right of reformation is necessarily an invasion or limitation
of the parol evidence rule since, when a writing is reformed, the
result is that an oral agreement is by court decree made legally
effective.
Prescription is intended to suppress stale and fraudulent claims
arising from transactions, the facts of which had become so
obscure from the lapse of time or defective memory.
An action for reformation of an instrument is instituted as a
special civil action for declaratory relief. Since the purpose of
an action for declaratory relief is to secure an authoritative
statement of the rights and obligations of the parties for their
guidance in the enforcement thereof, or compliance therewith,
and not to settle issues arising from an alleged breach thereof, it
may be entertained only before the breach or violation of the
law or contract to which it refers.
Requisites for Reformation: (1) There must have been a
meeting of the minds of the parties to the contract; (2) The
instrument does not express the true intention of the parties; (3)
The failure of the instrument to express the true intention of the
parties is due to mistake, fraud, inequitable conduct or accident.
When one sells or buys real property, one sells or buys the
property as he sees it, in its actual setting and by its physical
metes and bounds, and not by the mere lot number assigned to
it in the certificate of title. Reformation can only be sought
 lot pertained to the lot sold to Atilano II, and the latter’s title conversely
pertained to the lot of Atilano I which had a much bigger area. Atilano II’s
family sought to obtain the land on the force of the title. The Court denied their
plea. It held that the families are in possession of the lots which the contracting
parties have intended. There was only a mistake with the content of the
instruments thus reformation may be sought; however, this is no longer needed
since the intent of the parties have already been carried out. The parties must
only convey to each other a document reflecting the correct description of their
lots.
Carantes v. CA Mateo Carantes was the original owner of a certain parcel of land in Baguio, a
(Reformation) portion of which was to be expropriated by the government to build an airport.
When Mateo died, he was survived by his wife and six children. An
"Assignment of Right of Inheritance" was executed by four of Mateo’s children
assigning Maximino Carantes their rights to inheritance over the land.
Maximino sold the remaining lots to the government and also registered the
deed of Assignment of Right to Inheritance. The still remaining lot was issued
in the name of Maximino. The other Carantes siblings filed against Maximino
alleging that the deed be annulled on the ground of fraud. Maximino's wife
(who substituted him as petitioner) said that the respondents' action should not
be for annulment but for reformation of instrument, and therefore should have
prescribed long before filing of complaint. The SC said this was a new theory,
not initially raised by Maximino in his answer, and therefore should not have
been raised for the first time on appeal.
Sarming v. Dy Lot 5734 is in possession of three siblings: Jose, Venancio, and Silveria. Each
occupies 1/3 portion. On the other hand, Lot 4163 is solely registered under the
name of Silveria, but is subdivided between Jose and Silveria. Jose sold to
Alejandra his share in Lot 4163, but what was stated in the deed was the title to
Lot 5734. Alejandra’s heirs now seek to reform the contract. SC held that the
reformation was proper as all the requisites are satisfied.
Universal Food Corp. v. CA Mafran banana ketchup case
pending the enforcement of the contract but not when the
intended consideration or obligations have already been carried
out.
The procedure for the reformation of instrument shall be
governed by rules of court to be promulgated by the Supreme
Court. (Art. 1369, NCC)
(Relevant to this case): Defenses not pleaded in the Answer
may not be raised for the first time on appeal. A party cannot,
on appeal, change fundamentally the nature of the issue in the
case.
An action for reformation of instrument under this provision of
law may prosper only upon the concurrence of the following
requisites:
1. there must have been a meeting of the minds of the
parties to the contact;
2. the instrument does not express the true intention of
the parties; and the failure of the instrument to express
the true intention of the parties is due to mistake,
fraud, inequitable conduct or accident.
UFC violated the Bill of Assignment, specifically paragraph
5(a) and (b), by terminating Magdalo’s service, without lawful
and justifiable cause (see facts). This is a fundamental and

Sps. Cannu v. Sps. Galang The Galangs and the Cannus entered into a sale of the Galangs’ house and lot
with assumption of the Galangs’ mortgage obligation. The Cannus left a
balance of P45,000 (out of the P125,000) unpaid, and they also failed to
formally assume the mortgage with the NHMFC, leading Mrs. Galang into
paying the full amount of the mortgage loan obligation herself. The Cannus
filed a Complaint for Specific Performance and Damages against the herein
respondents. The lower court, the CA, and the Supreme Court all held that the
Cannus had committed a substantial breach of their obligation, warranting the
Galangs’ rescission of their contract under Article 1191, which is a principal
action predicated on the breach of faith by one party, violating reciprocity.
Iringan v. CA Palao sold to Iringan a parcel of land located in Tugegarao. When Iringan failed
to comply with his obligation to pay the full amount of the second installment,
Palao sent a letter to Iringan stating that he considered the contract as rescinded.
The parties failed to arrive at an agreement. Hence, Palao filed a Complaint for
Judicial Confirmation of Rescission of Contract and Damages against Iringan
and his wife. The RTC and CA ruled in favor of Palao. When the case was
brought to the Supreme Court, the Court ruled that the contract was validly
rescinded. The Court also ruled that contrary to Iringan’s argument, the action
has not yet prescribed because the applicable provision in this case was not
Article 1381 but 1191 and 1592.
Rivera v. Del Rosario The Del Rosarios owned a parcel of agricultural land denoted as Lot 1083-C.
The Del Rosario kids executed a Special Power of Attorney in favor of their
mother Fidela who now had the right to sell, mortgage or convey the land.
Fidela borrowed as sum of 250k from Rivera. To secure the loan they executed
a deed of mortgage with an agreement to sell the land. Three documents were
signed by Del Rosario: Kasunduan, A Deed of Real Estate Mortgage and the
Deed of Absolute Sale surreptitiously prepared by Rivera.
In order to secure compliance with the Kasunduan, the Del Rosarios gave the
substantial breach of the Bill of Assignment.
Universal Food Corp. v CA:
● Rescission on account of breach (Art. 1191) -- not
predicated on economic injury, but on breach of faith
violating reciprocity between the contracting parties; a
principal action, retaliatory in character, it being unjust
that a party be bound to fulfill his promises while the
other violates his; non servant fidem, not est fides
servanda; reparation of damages for breach is purely
secondary
● Rescission by reason of lesion or economic prejudice
(Art. 1381) -- subordinated to the existence of
economic prejudice as the raison d’etre and the
measure of the right to rescind; where the defendant
makes good the damages caused, action cannot be
maintained or continued (Arts. 1383-1384, limited to
rescission for lesion, n/a to 1191)
The rescission in Article 1381 is not akin to the term rescission
in Article 1191 and Article 1592. In Articles 1191 and 1592, the
rescission is a principal action which seeks the resolution or
cancellation of the contract while in Article 1381, the action is a
subsidiary one limited to cases of rescission for lesion as
enumerated in said article. The prescriptive period applicable to
rescission under Articles 1191 and 1592, is found in Article
1144, which provides that the action upon a written contract
should be brought within ten years from the time the right of
action accrues.
Resolution (called rescission in 1191) is a principal action that
is based on breach of a party, while rescission under Article
1383 is a subsidiary action limited to cases of rescission for
lesion under Article 1381 of the NCC, which expressly
enumerates the rescissible contracts.

Equatorial Realty v. Mayfair
Theatre
Union Insurance Society v.
CA
owner's copy of the parcel's TCT to Rivera but he did not want to return the
TCT. A case was filed by the Del Rosarios to rescind the Kasunduan for failure
to comply with the conditions plus damages. They also asked for the annulment
of the Deed of Absolute Sale due to fraud.
SC held that the contract cannot be enforced since the failure to make the
installment prevented the happening of the positive suspensive condition that
will oblige the Del Rosarios to convey the title. The Court ruled that the action
for rescission had not prescribed. The period for prescription runs four years
from the discovery of the fraud, not from the reckoning of the contract under
1391.
In the mother case, the SC held that the sale between Equatorial and Carmelo
was rescinded and that the property should instead be sold to Mayfair because
of a provision of right of first refusal. The order became final and executory
thus prompting Mayfair to file a Motion for Execution. However, it could not
be enforced since Carmelo was nowhere to be found. The trial court issued a
Deed of Reconveyance but was questioned by Equatorial in the CA (issue of
withholding tax). Barely 5 months after Mayfair submitted its Motion for
Execution, Equatorial filed an action for collection of a sum of money against
Mayfair, claiming payment of rentals or reasonable compensation. TC
dismissed case on the ground of res judicata which was upheld by the SC.
From the peculiar facts of this case, it is clear that Equatorial never took actual
control and possession of the property sold, in view of Mayfair’s timely
objection to the sale and the continued actual possession of the property.
Mayfair’s opposition to the transfer of the property by way of sale to
Equatorial was a legally sufficient impediment that effectively prevented
the passing of the property into the latter's hands.
The Union Insurance Society of Canton, as subrogee for the Litton Mills, Inc.,
filed a claim against the Philippine Tugs Inc. The Philippine Tugs Inc.
transferred some of its vessels to another Valenzuela Watercraft Corporation.
The vessels were sold to Far East Chemco Leasing Corporation. Again, these
were sold to Peninsula Tourist Shipping Corporation. The Union filed a case
Rent is a civil fruit that belongs to the owner of the property
producing it by right of accession. Consequently and ordinarily,
the rentals that fell due from the time of the perfection of the
sale to petitioner until its rescission by final judgment should
belong to the owner of the property during that period.
By a contract of sale, "one of the contracting parties obligates
himself to transfer ownership of and to deliver a determinate
thing and the other to pay therefor a price certain in money or
its equivalent."
Ownership of the thing sold is a real right, which the buyer
acquires only upon delivery of the thing to him. This right is
transferred, not by contract alone, but by tradition or delivery.
The execution of a public instrument gives rise, therefore, only
to a prima facie presumption of delivery. Such presumption is
destroyed when the instrument itself expresses or implies that
delivery was not intended; or when by other means it is shown
that such delivery was not effected, because a third person was
actually in possession of the thing. In the latter case, the sale
cannot be considered consummated.
The rescission under Art. 1383 is subsidiary. It cannot be
instituted except when the party suffering damage has no other
legal means to obtain reparation for the same.
 for the recovery of the vessels or their value against Far East stating that there
was a lien annotated on the vessels and Far East bought them at their own risk.
The Court ruled that the Union must first file an action to rescind the sale to Far
East. It must prove that there are no other legal means to obtain reparation
except for the rescission of the sale.

Rivera v. Del Rosario The Del Rosarios owned a parcel of agricultural land denoted as Lot 1083-C. Resolution (called rescission in 1191) is a principal action that
The Del Rosario kids executed a Special Power of Attorney in favor of their is based on breach of a party, while rescission under Article
mother Fidela who now had the right to sell, mortgage or convey the land. 1383 is a subsidiary action limited to cases of rescission for
Fidela borrowed as sum of 250k from Rivera. To secure the loan they executed lesion under Article 1381 of the NCC, which expressly
a deed of mortgage with an agreement to sell the land. Three documents were enumerates the rescissible contracts. Art. 1385 was not
signed by Del Rosario: Kasunduan, A Deed of Real Estate Mortgage and the explicitly mentioned!
Deed of Absolute Sale surreptitiously prepared by Rivera. In order to secure
compliance with the Kasunduan, the Del Rosarios gave the owner’s copy of the
parcel’s TCT to Rivera but he did not want to return the TCT. A case was filed
by the Del Rosarios to rescind the Kasunduan for failure to comply with the
conditions plus damages. They also asked for the annulment of the Deed of
Absolute Sale due to fraud. SC held that the contract cannot be enforced since
the failure to make the installment prevented the happening of the positive
suspensive condition that will oblige the Del Rosarios to convey the title. The
Court ruled that the action for rescission had not prescribed. The period for
prescription runs four years from the discovery of the fraud, not from the
reckoning of the contract under 1391.

Siguan v. Lim Lim issued two checks as payment for her debts to Siguan. Checks were
dishonored. A complaint for violation of BP 22 was filed. Lim was convicted
on Dec 1992. On July 1991, a Deed of Donation was purportedly executed by
Lim, conveying parcels of land to her children. Siguan then filed an accion
pauliana, claimind that the Deed was antedated, and executed in fraud of
creditors.
Court not convinced that Deed of Donation was antedated.
Donation was made prior the existence of Siguan’s Credit.
In addition, when the deed was executed, Lim still had property
sufficient to cover her indebtedness to Siguan. Moreoever,
Siguan failed to prove that she had exhausted all other remedies
available prior to resorting to accion pauliana.

Gotesco Properties v. Sps. Sps Fajardo had a contract to sell with GPI. After full payment, GPI failed to
Fajardo execute the deed of sale. Sps. asked for specific performance or recission of
contract with damages and also violation of PD 957. HLURB-ENCRFO: ruled
in favor of Sps. HLURB Board of Commissioners, OP and CA and SC
affirmed, but modified the amount to be refunded, instead of just the purchase
price plus interest to the prevailing market value of the property. Based on
equity and justice from Solid Homes case.
Rescission does not merely terminate the contract and release
the parties from further obligations to each other, but abrogates
the contract from its inception and restores the parties to their
original positions as if no contract has been
made.Consequently, mutual restitution, which entails the return
of the benefits that each party may have received as a result of
the contract, is thus required. To be sure, it has been settled that

Oria v. McMicking Gutierrez Hermanos filed an action for recovery of a sum of money against
Oria Hermanos & Co. and Manuel Oria filed an action for recovery also for the
same defendant. Before the institution of the suits, members of the Company
dissolved their relations and entered into liquidation. Tomas Oria y Balbas
acting in behalf of his co-owners entered into a contract with Manuel Oria for
the purpose of transferring and selling all the property which the Oria
Hermanos & Co. owned including the steamship Serpantes. When the TC
resolved the action for recovery filed by Gutierrez Hermanos and jugdment was
in his favor, the sheriff demanded Tomas Oria to make payment but the latter
said there were no funds to pay. The sheriff then levied upon the steamer, sold
it in a public auction to Gutierrez Hermanos. Manuel Oria brought suit,
claiming that he is the owner of the steamer by virtue of the selling of all the
properties of the said Company.
Suntay v. CA Federico was applying to be a miller-contractor but his application was
rejected. To circumvent the requirements, he asked his nephew, Rafael, to apply
for him. Federico executed a deed of sale in favor of Rafael for this matter.
When Federico was asking for the title to the land, Rafael refused to give it
stating that the sale was valid. The Court ruled that the sale was a simulated and
fictitious contract. In arriving at the ruling, the Court looked into the
circumstances surrounding the case. The contract is null and void as the parties
did not intend to be bound by the contract.
China Banking Corp v. CA Pursuant to a favorable decision in an action for collection (1985), a notice of
levy on execution on the ½ portion pertaining to Alfonso Roxas Chua in a
conjugal property was issued in favor of China Bank (Feb. 1991). Two years
prior to the notice of levy (Nov. 1988), Alfonso executed an Assignment of
Rights to Redeem such portion in favor of his son, Paulino. When a certificate
of sale was issued for China Bank, Paulino averred that he had a prior and
better right to the property. The SC held that the Assignment was done to
defraud Alfonso’s creditors, based on the presumption provided in Art. 1387.
Furthermore, it also took note of the fact (as a badge of fraud) that the transfer
was made between father and son while the father was insolvent and had no
property to pay off his creditors.
the effects of rescission as provided for in Article 1385 of the
Code are equally applicable to cases under Article 1191.
Rules by which the fraudulent character of the transaction may
be determined:
1. The fact that the consideration of the conveyance is fictitious
or is inadequate. 2. A transfer made by a debtor after suit has
been begun and while it is pending against him. 3. A sale upon
credit by an insolvent debtor. 4. Evidence of large indebtedness
or complete insolvency. 5. The transfer of all or nearly all of his
property by a debtor, especially when he is insolvent or greatly
embarrassed financially. 6. The fact that the transfer is made
between father and son, when there are present other of the
above circumstances. 7. The failure of the vendee to take
exclusive possession of all the property.
The failure of the buyer to take exclusive possession of the
property allegedly sold to him is a clear badge of fraud.
In Oria v. Mcmicking, the Supreme Court considered the
following instances as badges of fraud:
1. The fact that the consideration of the
conveyance is fictitious or inadequate.
2. A transfer made by a debtor after suit has
begun and while it is pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete
insolvency.
5. The transfer of all or nearly all of his property
by a debtor, especially when he is insolvent or
greatly embarrassed financially.

MR Holdings Limited v.
Carlos
Felipe v. Heirs of Aldon
Singsong v. Isabela Sawmill
Samahan ng Magsasaka v.
Valisno
Marcopper executed a Deed of Assignment in favor of petitioner MR Holdings
after a judgment was rendered against Marcopper by the RTC in another case.
When the respondent sheriff was going to levy Marcopper's properties, MR
Holdings asserted ownership over Marcopper's properties and applied for a writ
of preliminary injunction. RTC and CA denied MR Holdings' writ of
preliminary injunction, reasoning that the assignment agreement and deed of
assignment executed by Marcopper in favor of MR Holdings were in fraud of
creditors. The SC ruled otherwise, stating that the assignments were made in
good faith and for valuable consideration, as evidenced by the previous
transactions of Marcopper, ADB and MR Holdings way before the RTC case
was even decided.
Wife Gimeno sold land to petitioner spouses Felipe without permission of her
husband Maximo. Heirs of husband filed complaint against Felipes to recover
said land. Supreme Court sided with petitioners saying that this was a voidable
contract, that defendants acted in bad faith, and that petitioner children are not
barred by statute of limitations.
Singsong et al. filed a complaint praying for the chattel mortgage executed by
Garibay and Tubungbanua in favor of Saldejeno to be declared null and void,
being in fraud of creditors of Isabela Sawmill and without valuable
consideration. Isabela Sawmill et al. are contending that Singsong cannot bring
an action to annul the contract.
A 12 hectare portion of the late Nicolas Valisno Sr’s property was mortgaged to
the Bantings. This was foreclosed and thereafter redeemed by 4 of Nicolas’
grandchildren. 3 of them were minors then. Retention rights were granted to
them by the CA. This is being assailed by petitioner. Court said that an action
to annul their redemption could only have been initiated by said minors. Since
they haven’t filed any action, said redemption is valid.
6. The fact that the transfer is made between father
and son, when there are present other of the
above circumstances.
7. The failure of the vendee to take exclusive
possession of all the property.
NCC 1387 presumes the existence of fraud made by a debtor.
Thus, in the absence of satisfactory evidence to the contrary, an
alienation of a property will be held fraudulent if it is made
after a judgment has been rendered against the debtor making
the alienation. This presumption of fraud is not conclusive and
may be rebutted by satisfactory and convincing evidence. All
that is necessary is to establish affirmatively that the
conveyance is made in good faith and for a sufficient and
valuable consideration.
According to Art. 1390 of the Civil Code, among the voidable
contracts are “Those where one of the parties is incapable of
giving consent to the contract.” (Par. 1.) In the instant case-
Gimena had no capacity to give consent to the contract of sale.
The capacity to give consent belonged not even to the husband
alone but to both spouses.
General rule is that a person not a party to a contract cannot
assail the contract; exception to the rule is when although not a
party, his rights are prejudiced with respect to one of the
contracting parties.
The action to annul the minors’ redemption was one that could
only have been initiated by the minors themselves, as the
victims or the aggrieved parties in whom the law itself vests the
right to file suit. While it is true that a transaction entered into
by a party who is incapalble of consent is voidable, such
transaction is valid until annulled. The redemption made by the
four petitioners has never been annulled, thus, it is valid.
Malabanan v. Gaw Ching Gaw Ching was the lessee of the subject property when it was sold by the
owner Malabanan to Senolos. Gaw Ching instituted first case to annul such sale
and to enjoin the demolition of a building standing on that piece of land. The
second case demanded damages from Senolos for bringing about the demolition
of the building. TC decided in favor of Malabanan and Senolos. This was
reversed by IAC. SC reinstated TC decision.
Armentia v. Patriarca A notarial document contemplating a sale of a parcel of land was made by
Marta Armentia in favor of Erlinda and Florencia. Marta died and left no forced
heirs. Laurentio, her brother, commenced suit to annul the sale, contending that
it was simulated and that E&F were minors when document was executed.
Defendants filed and MTD, which was granted by the lower court. On appeal,
the SC affirmed the dismissal since Laurention lacks cause of action and action
has already prescribed.
Carantes v. CA In an Assignment of Right to Inheritance, Mateo Carantes’ children (as well as
(Prescription) Mateo’s son Apung’s heirs) assigned all their rights to inherit from Mateo’s Lot
No. 44 to their brother Maximino. The stated monetary consideration for the
assignment was P1.00. The document also contained a provision that Mateo
had, during his lifetime, expressed to the signatories that the property rightly
and exclusively belonged to Maximino. Maximino sold parts of the lot to the
Government for the construction of the Loakan Airport. The children filed a
complaint, seeking to declare the Assignment null and void for having been
executed on the ground of fraud. Maximino argued that the action had already
prescribed (based on the 10-year period in Art. 1144). The trial court ruled that
it had already prescribed, since actions based on fraud prescribe in 4 years from
the discovery of the fraud, and that the discovery must be deemed to have
occurred when the deed was registered (1940); yet, the action was filed in 1958.
The CA ruled that the P1.00 consideration was so shocking that effectively,
there was no consideration or cause in the contract. The
SC held consideration was not absent, and that fraudulent contracts are only
voidable. It also ruled that the action had already prescribed, the 4-
year period having commenced at the time of the contract’s registration in the
Register of Deeds.
He who is not the party obligated principally or subsidiarily in a
contract may perhaps be entitled to exercise an action for
nullity, if he is prejudiced in his rights with respect to one of the
contracting parties; but, in order that such be the case, it is
indispensable to show the detriment which positively would
result to him from the contract in which he had no intervention.
By Article 1397 of the Civil Code, "[t]he action for annulment
of contracts may be instituted by all who are thereby obliged
principally or subsidiarily". This must be construed in
conjunction with Article 1311 of the same code providing that
"contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising
from the contract are not transmissible by their nature, or by
stipulation or by provision of law", and that "the heir is not
liable beyond the value of the property he received from the
decedent".
Art 1391 provides that an action for annulment must be brought
within FOUR (4) years. If the ground is fraud, its prescriptive
period is four years from the time of the discovery of the fraud.
If ground is intimidation/violence/undue influence, its
prescriptive period is from the time the defect of the consent
ceases)
Cadwallader v. Smith Bell PEABODY acted as consignee-agent of PELCO for the sale of cedar piles Upon annulment, parties should be restored to their original
provided by the later. Upon misrepresentation by PEABODY to PELCO that position by mutual restitution.
due to lack of demand, the price of the piles will have to be lowered, PELCO
agreed for its sale for only $12/piece, instead of $15/piece. Without PELCO’s
knowledge, PEABODY had already sold to the government 213 cedar piles for
$19/piece one month before. SC held that PEABODY & SMITH
committed breach of duty in their concealment and misrepresentation, giving
CADWALLADER, as assignee of PELCO, the right to annul the contract.

Velarde v. CA The Raymundos executed a Deed of Sale with Assumption of Mortgage and, in Rescission creates the obligation to return the object of the
relation to this, the Velardes executed an Undertaking. BPI, the mortgage bank, contract. It can be carried out only when the one who demands
denied the assumption of mortgage. After this, the Velardes stopped paying the rescission can return whatever he may be obliged to restore. To
Raymundos’ debt with the bank. But aside from stopping payment of the loan, rescind is to declare a contract void at its inception and to put
the Velardes also stopped paying for the purchase price of the property. This an end to it as though it never was. It is not merely to terminate
prompted the Raymundos to rescind the contract, which the Velardes contested it and release the parties from further obligations to each other,
because they offered to pay the purchase price one month after it was due. The but to abrogate it from the beginning and restore the parties to
Court applied Article 1191 ruled that despite such offer, the rescission was their relative positions as if no contract has been made.
valid because the mere offer to pay or promise to pay does not translate to an
actual fulfillment of their obligation. Moreover, when they offered to pay, they
also imposed new conditions upon the Raymundos. As a result of rescission,
the Court ruled that there should be mutual restitution – the Raymundos will
have to return initial payment of the purchase price and the mortgage payments
to the Velardes, and the Velardes will have to return ownership of the land to
the Raymundos.a

Ines v. CA TC declared the deed of sale void only as to the ½ share of the husband and
ordered the buyers to reconvey only half of the property upon return of the
purchase price. CA held that the deed is void in its entirety and ordered the
reconveyance of the entire property upon return of the purchase price with legal
interest from the date the deed of sale was executed. SC held that the CA was
correct in ordering the payment of legal interest even if the buyers did not
appeal and seek affirmative relief upon the ground that such is but a necessary
consequence of the finding that the deed was void. However the Court said that
the legal interest should only commence to run from the date of the TC
decision.
The award of legal interest on the amount due is a necessary
consequence of the finding that the Contract of Sale executed is
void in its entirety. The CA in the exercise of its appellate
jurisdiction, may resolve or consider errors not assigned in the
appellant's brief when it is necessary for a just, fair and
equitable resolution of the case, or when an issue is closely
related to an error properly assigned in the appellants' brief and
upon which the resolution of an assigned error is dependent.

Arra Realty v. Guarantee ARC and Peñaloza agreed to share the purchase price of one floor of the Art. 1398 of CC: An obligation having been annulled, the
Dev’t Corp. building. Upon discovering that ARC had mortgaged the property to a bank, contracting parties shall restore to each other the things which
Peñaloza stopped paying installments due on the purchase price. The mortgage have been the subject matter of the contract, with their fruits,
 was foreclosed and thereafter ARC and Guarantee Development Corporation
executed a deed of conditional sale for P22M, part of which to be used to
redeem the property. ARC then executed a deed of absolute sale in favor of
GDCIA. This prompted Peñaloza to file complaint for specific performance and
damages. RTC upheld the deed of conditional sale and deed of absolute sale
finding that GDCIA was an innocent purchaser in good faith. SC affirmed and
ordered ARC to refund the amount paid by Peñalosa in conformity with Art.
1398 of CC.
Uy Soo Lim v. Tan Unchuan Uy Soo Lim, an alleged illegitimate son of Santiago, was given 7/9 of the
estate. The estate proceedings were closed. However, upon reaching of majority
of the three heirs (P and the 2 legit daughters of Santiago), when the
distribution of the estate was ordered by the court, objections arose as to his
entitlement to the estate. After negotiations, with the advice of his counsel, he
executed a deed of cession (while a minor), relinquishing all his rights and
interest to the estate for a consideration of 83k. 3 years later, he files a suit
asking for the annulment of the cession claiming that he was induced to execute
it and that there were misrepresentation of facts regarding the extent of his
share. Court said that he cannot rescind because (1) he failed to bring the action
within a reasonable time and that (2) he cannot return whatever he received.
Aside from that, he had full knowledge of the circumstances of his share, he
had advice by his counsel, and his acts were indicative of ratification of the
deed of cession.
Asia Production Co. v. PRs sold a building built on a leased lot to PETs, with the promise that PRs will
Judge Pano assign to PETs the contract of lease over the land. Such agreement was not
reduced to writing. PETs paid downpayment and 2 installments and constructed
a weaving factory but PRs failed to execute the deed of sale and to assign the
lease contract. PET vacated the building and demanded the return of partial
payment. PRs refused to return. So PETs filed complaint for collection of sum
of money before CFI. PR filed MTD which the judge granted by reason of the
complaint being barred by Statute of Frauds. SC ruled in favor of PETs. Since
the complaint is not for specific performance, SOF does not apply. Assuming it
is for specific performance, SOF will still not apply since there is an allegation
of partial execution/payment.
and the price with its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the
basis for damages.
The rule that certain contracts of a minor are voidable and
giving him the right to affirm or disaffirm after he arrives at
majority, is for their protection, and so that they shall not be
prejudiced by acts done or obligations incurred at a time when
they are not capable of determining what is for their interest to
do. For this purpose, the law gives them an opportunity, after
they have become capable of judging for themselves, to
determine whether such acts or obligations are beneficial or
prejudicial to them, and whether they will abide by or avoid
them. If the right to affirm or disaffirm extends beyond an
adequate opportunity to so determine and to act on the result, it
ceases to be a measure of protection.
Purpose of SOF is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the
unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a
writing signed by a party to be charged.
SOF makes only ineffective the actions for specific
performance of the contracts covered by it; it does not declare
them absolutely void and of no effect. The requirement that
they or some note or memorandum thereof be in writing refers
only to the manner they are to be proved.
SOF will apply only to executory contracts and in actions for
specific performance. SOF does not apply to executed
contracts and to actions which are neither for violation of a
contract nor for the performance thereof. Partial execution is

Western Mindanao v. Western is engaged in logging operations and in connection with such they
Medalle executed a right-of- way agreement with respect tto the lot formerly owned by
Hernandez but now currently owned by the Medalles. The Medalles wanted to
close the road. After an issuance of writ of preliminary injunction against the
Medalles, Western now prays that the Medalles be forced to recognize the
right-of-way agreement. The Medalles allege that the claim on which the action
is founded is unenforceable under Statute of Frauds and CFI granted the
Medalles’ MTD. SC ruled that the CFI erred because:
Limketkai v. CA
Babao v. Perez Santiago Babao married the niece of Celestina Perez. Santiago and Celestina
allegedly had a verbal agreement where Santiago was bound to improve the
land of Celestina by leveling, clearing, planting fruits and other crops; that he
will act as the administrator of the land; that all expenses for labor and
materials will be at his cost, in consideration of which Celestina in turn bound
herself to convey to Santiago or his wife ½ of the land, with all the
improvements after the death of Celestina. But, shortly before Celestina’s
death, she sold the land to another party. SC held that the said verbal agreement
was unenforceable under the Statute of Frauds.
Reiss v. Memije Defen entered into a contract with a contractor for the repair of a house. The
contractor was unable to secure credit for the lumber purchases, hence the
repair was delayed. Defendant then accompanied the contractor to the
enough to bar the application of SOF.
The Statute of Frauds refers to specific kinds of transactions
and cannot apply to any that is not enumerated therein. An
agreement creating an easement of right-of- way is not one of
those contracts covered by the statue of frauds since it is not a
sale of property or of an interest therein.
Under A1403, NCC, an exception to the unenforceability of
contracts pursuant to the Statute of Frauds is the existence of a
written note or memorandum evidencing the contract. The
memorandum may be found in several writings, not necessarily
in one document. The memorandum or memoranda is/are
written evidence that such a contract was entered into.
Contracts which by their terms are not to be performed within
one year may be taken out of the Statute of Frauds through
performance by one party thereto (Doctrine of Part
Performance). All that is required in such case is complete
performance within the year by one party, even if many years
may have to elapse before the agreement is performed by the
other party.
Where the contract is vague and ambiguous, the doctrine of part
performance cannot be invoked to take the case out of the
operation of the Statute of Frauds. Obviously, there can be no
part performance until there is a definite and complete
agreement between the parties. In order to warrant the specific
enforcement of a parol contract for the sale of land, on the
ground of part performance, all the essential terms of the
contract must be established by competent proof, and shown to
be definite, certain, clear and unambiguous.
Under Sec 335 of Act 190, a special promise to answer for the
debt of another shall be in writing. The true test as to whether a
promise is within the statute had been said to lie in the answer
 plaintiffs’ lumber yard to satisfy the plaintiffs as to his own financial
responsibility (he being a property owner and a lawyer) for the purchase of
lumber. However, there was default for the payment of lumber. Thus, the
plaintiffs instituted action for collection of the unpaid balance. The lower court
ruled in favor of plaintiffs. Defendant assails the decision, claiming that his
alleged guaranty of payment was unenforceable for not being in writing. The
SC held that since the defendant undertook to pay the purchase price
independently and on his own, the Statute of Fraud does not apply.
Villanueva v. CA
PNB v. Phil. Vegetable Oil PVO was on the brink of insolvency, with debt amounting to P30M, P17M of
Co. which was due PNB and was secured principally by two chattel mortgages. The
GM of PVO offered to pledge his private properties to secure the many
creditors of PVO, and he also had a receiver appointed by the Court, all on the
understanding that PNB had agreed to furnish capital to sustain PVO’s
operations indefinitely. PNB obtained a third mortgage from PVO. When
receivership was terminated, PNB foreclosed on the third mortgage and shut
down PVO’s plant. The trial court ordered PVO to pay PNB P15M. The SC
held (1) that the third mortgage executed during the period of receivership was
voidable because it had neither participation/consent of the receiver nor the
authorization from the court for the receiver to give consent, and the property
was in custodia legis; and (2) that the evidence presented, both oral and
documentary, disclose no binding promise, tacit or express, made by PNB to
continue backing PVO’s operations indefinitely. The GM of PNB, whom the
PVO GM alleges had entered into the promise/agreement to finance PVO’s
operations unlimitedly, was not backed by any board resolution to act
accordingly. The evidence presented by the PVO GM made no specific
reference to any promise of the sort that he insists was made by PNB. (PNB
being very parent, according to Sir.)
Carbonell v. Poncio Carbonnel alleged that she purchased a parcel of land from Poncio. Carbonnel
paid the price of P247.26 and assumed Poncio's obligation with the Republic
Savings Bank amounting to P1,177.48, with the understanding that the balance
would be payable upon execution of the corresponding deed of conveyance.
Despite repeated demands, however, Poncio refused to execute the
corresponding deed of sale and instead, conveyed the land to the spouses
Infante. On the other hand, Poncio moved to dismiss the complaint upon the
ground that plaintiff's claim is unenforceable under the Statute of Frauds. After
to the question whether the promise is an original or a collateral
one.
If the promise is an original or an independent one; that is, if
the promisor becomes thereby primarily liable for the payment
of the debt, the promise is not within the statute. But, on the
other hand, if the promise is collateral to the agreement of
another and the promisor becomes thereby merely a surety, the
promise must be in writing.
The broad view is that the Statute of Frauds applies only to
agreements not to be performed on either side within a year
from the making thereof. Agreements to be fully performed on
one side within the year are taken out of the operation of the
statute. In this case, as Whitaker’s theory proceeds on the
assumption that he has entirely performed his part of the
agreement, equity would argue that all evidence be admitted to
prove the alleged agreement. Surely since the Statute of Frauds
was enacted for the purpose of preventing frauds, it should not
be made the instrument to further them.
When the party concerned has pleaded partial performance,
such party is entitled to a reasonable chance to; establish by
parol evidence the truth of this allegation, as well as the
contract itself. "The recognition of the exceptional effect of part
performance in taking an oral contract out of the statute of
frauds involves the principle that oral evidence is admissible in
such cases to prove both the contract and the part performance
of the contract" (49 Am. Jur., 927).
 trial, the lower court issued an order dismissing plaintiff's complaint, without
costs, upon the ground that her cause of action is unenforceable under the
Statute of Frauds. When the case was brought to the Supreme Court, the Court
ruled that there are in the case at bar several circumstances indicating that
plaintiff's claim might not be entirely devoid of factual basis. Hence, she is
entitled, legally as well as from the viewpoint of equity, to an opportunity to
introduce parol evidence in support of the allegations of her second amended
complaint.

First Phil. International Bank
v. CA
Producers Bank (now First Philippine International Bank), which has been Contracts infringing the Statute of Frauds, referred to in No. 2
under conservatorship since 1984, is the owner of 6 parcels of land. The Bank of Article 1403, are ratified by the failure to object to the
had an agreement with Demetrio Demetria and Jose Janolo for the two to presentation of oral evidence to prove the same, or by the
purchase the parcels of land for a purchase price of P5.5 million pesos. The said acceptance of benefits under them [Art. 1405]
agreement was made by Demetria and Janolo with the Bank’s manager,
Mercurio Rivera. Later however, the Bank, through its conservator, Leonida
Encarnacion, sought the repudiation of the agreement as it alleged that Rivera
was not authorized to enter into such an agreement, hence there was no valid
contract of sale. Subsequently, Demetria and Janolo sued Producers Bank.
During the pendency of the proceedings in the CA, Henry Co and several other
stockholders of the Bank filed an action-purportedly a derivative suit. SC
affirmed CA and held that there was a perfected contract of sale, FPIB
committed forum shopping and that the contract is enforceable because, the
bank’s letters, taken together with plaintiff’s letter dated September 30, 1987,
constitute in law a sufficient memorandum of a perfected contract of sale.

Tongoy v. CA Siblings Tongoy owned Hacienda Pulo in Bacolod. The property was about to
be foreclosed by PNB, they had a family conference whereupon they decided to
transfer their rights to LUIS to facilitate the restructuring of the mortgage. LUIS
executed 2 real estate mortgages (Hacienda Pulo and Cuaycong property) in
favor of PNB and he was able to pay off his obligations in two decades. Just
before his death, LUIS received a letter from Jesus, one of the RESPs,
demanding their shares in the properties as co-owners. Thus, an action for
reconveyance was instituted. SC held that the deeds of transfer in favor of LUIS
were from the very beginning absolutely simulated or fictitious, since they were
merely made for the purpose of restructuring the mortgage over the 2 properties
and thus preventing the foreclosure by the PNB.
The following are the most fundamental characteristics of void
or inexistent contracts:
1. As a general rule, they produce no legal effects
whatsoever in accordance with the principle “quod
nullum est nullum producit effectum.”
2. They are not susceptible of ratification.
3. The right to set up the defense of inexistence or
absolute nullity cannot be waived or renounced.
4. The action or defense for the declaration of their
inexistence or absolute nullity is imprescriptible.
5. The inexistence or absolute nullity of a contract
cannot be invoked by a person whose interests are
not directly affected.

Cui v. Arellano Cui studied law in Arellano University and was awarded scholarship grants
during his stay. He transferred to Abad Santos University for his last semester
in law school where he graduated. When he applied to take the bar exam, he
petitioned Arellano to issue him his transcripts which was denied by the latter
until he paid back the amount returned to him due to a stipulation in his
scholarship contract whereby it is stated that he waives his right to transfer to
another school unless he pays the equivalent amount of his scholarship. The
Court ruled that the provision in the contract is not valid.
Chavez v. PCGG Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene Marcos-
Araneta filed a motion to intervene and to partially reconsider the decision of
the SC nullifying the General and Supplemental Agreements between them and
the PCGG regarding their alleged ill-gotten wealth. They allege that their
constitutional right to due process and equal protection was violated. SC ruled
that there is no violation of due process because the Agreement is void for
being contrary to law and the Constitution. Hence, no rights or interests was
violated by the nullification of the Agreements.
Guiang v. CA Judie Corpuz sold their conjugal house to the Sps. Guiang without the consent
of his wife, Gilda, who was then in Manila. Upon Gilda’s return, she found her
children living in different households, while her husband was nowhere to be
found. Gilda challenged the validity of the sale. PETs averred that without
Gilda’s consent the sale was merely voidable, incorrectly applying CC1390.
Court held that consent wasn’t vitiated as provided by 1390 but was completely
The nullity is permanent, even if the cause thereof has ceased to
exist, or even when the parties have complied with the contract
spontaneously.
Void contracts do not bind the parties. In this case, the
declaration of the contract as void reversed the effects of the
contract.
No denial of due process. The movants are merely incidental,
not indispensable, parties to the instant case. Being contractors
to the General and Supplemental Agreements involving their
supposed properties, they claim that their interests are affected
by the petition. However, the Agreements undeniably contain
terms and conditions that are clearly contrary to the
Constitution and the laws and are not subject to compromise.
Such terms and conditions cannot be granted by the PCGG to
anyone, not just to movants. Being so, no argument of the
contractors will make such illegal and unconstitutional
stipulations pass the test of validity. The void agreement will
not be rendered operative by the parties’ alleged performance
(partial or full) of their respective prestations. A contract that
violates the Constitution and the law is null and void ab initio
and vests no rights and creates no obligations. It produces no
legal effect at all. In legal terms, the movants have really no
interest to protect or right to assert in this proceeding. Contrary
to their allegations, no infraction upon their rights has been
committed.
Art. 1390, par. 2, refers to contracts with vices of consent,
entered into by a person whose consent was obtained and
vitiated through mistake, violence, intimidation, undue
influence or fraud.
In this case, there was absolute lack of consent, making
 absent and the contract, falling within the ambit of FC 124 and was therefore
void.
Castillo v. Galvan In this case, the plaintiffs instituted an action to declare void ab initio the sale of
a land, which had alleged fraud and no consideration in it. The SC held that the
TC made a mistake in applying the prescriptive period of 4 years as a judicial
declaration to render a deed void ab initio is imprescriptible in this scenario
Menchavez v. Teves Petitioners executed a Contract of Lease with Teves over a fishpond. Petitioners
failed to inform Teves about a prior civil case regarding the fishpond dikes,
leading to demolition of Respondent’s own dikes, prompting him to file a case
against Petitioner. HOWEVER, TC found fisheries according to law are
considered owned by the government, thus there was no contract to begin with.
Furthermore, Petitioner and Respondent were found in pari delicto, hence were
made to bear their own faults. CAReversed. SC Ruled that there was in fact, in
pari delicto; Respondent’s claim of the exception has to have been substantiated
by a preponderance of evidence, which he failed to do. Evidence points to the
contrary.
Angel v. Aledo and Modales Sps. Angel engaged the services of Modales to construct a two-storey
residential building. The parties made it appear that Aledo was the contractor.
Aledo filed a complaint for collection of sum of money from the Sps. The Sps.
claimed that Aledo had no cause of action. The Sps. then filed a third party
complaint against Modales for failure to comply with his obligation. Modales
alleged that The Sps. had no cause of action. The TC ruled in favor of the Sps.
CA reversed and set aside TC decision and dismissed the third party complaint
CC1390 inapplicable. The case falls under FC124, which says
that “In the event that one spouse is incapacitated or otherwise
unable to participate in the administration of the conjugal
properties, the other spouse may assume sole powers of
administration. These powers do not include disposition or
encumbrance without authority of the court or the written
consent of the other spouse. In the absence of such authority
or consent, the disposition or encumbrance shall be void.”
Moreover, the amicable settlement does not cure the defects of
the contract, it being an agreement that is the direct result of a
previous illegal contract, making it void and inexistent as well.
(CC1422)
The plaintiffs are seeking a judicial declaration that the deed of
sale in question is void ab initio, where the action is
imprescriptible.(Void contracts never prescribe.)
Parties to a void agreement cannot expect the aid of the law; the
courts leave them as they are, because they are deemed in pari
delicto or “in equal fault.” To this rule, however, there are
exceptions that permit the return of that which may have
been given under a void contract. One of the exceptions is
found in Article 1412(2) of the Civil Code. HOWEVER, such
must be proven with a preponderance of evidence.
Ex dolo malo non oritur actio. In pari delicto potior est
conditio defendentis (No right of action arises from fraud. In
equal fault, the condition of the defendant is better).
 and held that the contracts were contrary to law and public policy.
Liguez v. CA Through a deed of donation, Salvador Lopez donated a parcel of land to
Conchita Liguez, who was then 16. In an action commenced by Conchita to
recover the same, the CA found that the deed was null and void for having an
illegal causa and for Salvador’s lack of right to donate conjugal property. This
was based upon the finding that Salvador donated the land in order to cohabit
with and have sexual relations with Conchita. The CA also rejected the claim
based on the in pari delicto rule. The SC found that the conveyance was indeed
predicated on an illegal causa. However, the pari delicto rule does not apply
since at the time of the donation, Salvador was a man advanced in years and
Conchita was only 16. Furthermore, Salvador’s forced heirs are barred from
invoking the illegality of the causa, and are thereby only entitled to a
declaration of the donation as inofficious.
Rellosa v. Gaw Cheen Hun Rellosa sold Gaw a parcel of land. Later, Rellosa alleged that the sale is void
under the premises of not being approved by the Japanese Military
Administration and under the 1943 Constitution. While the CFI and CA ruled
that the sale was valid in favor of Gaw, the SC ruled that while the sale is null
and void under the 1943 Constitution, Rellosa cannot recover his property
under the doctrine of in pari delicto, which states that no action can arise from
an illegal contract. In this case, Rellosa was guilty in knowing that selling land
to Gaw, an alien, was illegal under the Constitution.
Phil. Banking Corp. v. Lui Petitioner Justina, who is old, blind, and invalid, owned property with two
She houses and restaurant. She leased the property to respondent Hen Wah, foreign
citizen, with option to buy said property. When she died, her estate filed for
annulment of lease andoption contracts. Supreme Court said while contracts,
while not per se illegal, were contrary to the public policy in the Constitution to
conserve lands for Filipinos.
Frenzel v. Catito Frenzel is an Australian citizen of German descent who had an amorous
relationship with Catito, a Filipina. Frenzel bought lots of properties for Catito -
- parcels of land, houses and lots, a building, and even a beach resort. Since
Frenzel knew that as an alien he was disqualified from owning lands in the
Philippines, he agreed that only Catito’s name would appear in the deeds of sale
and in the titles covering the properties. When their relationship turned sour,
The rule that parties to an illegal contract, if equally guilty, will
not be aided by the law but will both be left where it finds them,
has been interpreted by this Court as barring the party from
pleading the illegality of the bargain either as a cause of action
or as a defense.
A donation with illegal causa may produce effects under certain
circumstances where the parties are not of equal guilt.
NCC Art. 1414 states that if the property is delivered for an
illegal purpose, the contract may be repudiated before the
purpose has been accomplished. In this case, the courts did
NOT allow Rellosa to have the sale declared void because to
allow Rellosa to recover the property would only benefit him,
and not public interest as stated in Art. 1414.
Arts 1416 of the Civil Code provides, as an exception to the
rule on pari delicto, that "When the agreement is not
illegal per se butis merely prohibited, and the prohibition by
law is designed for the protection of the plaintiff, he may, if
public policy is therebyenhanced, recover what he has paid or
delivered
The law will not aid either party to an illegal contract; it leaves
them where it finds them.
Frenzel cannot find solace in Art 1416 (When an agreement is
not illegal per se but is merely prohibited, and the prohibition
by the law is designed for the protection of the plaintiff, he
 Frenzel sought to recover the properties, but the court did not rule in his favor.
Acabal and Nicolas v. Villaner sold conjugal property to Leonardo but claims that the document he
Acabal executed was only a contract of lease. He says that in any case, the sale would
be void for violating the retention limits in the CARL. Court says even
assuming that the sale is void, he would still have no remedy since he and
Leonardo were in pari delicto, hence not entitled to affirmative relief.
Formaran v. Ong Petitioner was the beneficiary of a land donated to her by her uncle and aunt.
Upon the proddings of respondent Glenda, that she badly needed a collateral for
a loan which she was applying from a bank to equip her dental clinic, petitioner
made it appear that she sold one-half of the afore-described parcel of land to
Glenda. Sale was totally without any consideration and fictitious. Contrary to
plaintiff’s agreement with defendant Glenda for the latter to return the land,
defendant Glenda filed a case for unlawful detainer against the petitioner. To
protect petitioner’s rights and interest over the land in question, she filed the
instant case. RTC decided in favour of petitioner. CA reversed. SC reinstated
RTC decision finding absolute simulation of the deed.
Kalalo v. Luz Kalalo (civil engineer) and Luz (architect) entered into agreement to render
engineering design services with agreement that payment will be in the form of
may, if public policy is thereby enhanced, recover what he has
paid). This provision applies only to those contracts which are
merely prohibited in order to protect private interests. It does
not apply to contracts void ab initio.
A contract that violates the Constitution and the law is null and
void and vests no rights and creates no obligations. It produces
no effect at all.
The sale of parcels of land in favor of a foreigner is illegal per
se. The transactions are void ab initio because they were
entered into in violation of the Constitution. Thus, to allow a
foreigner to recover the properties or the money used in the
purchase of parcels of land would be subversive of public
policy.
The principle of pari delicto, however, is not absolute,
admitting an exception under Art 1416. Under this article,
recovery for what has been paid or delivered pursuant to an
existent contract is allowed only when the following requisites
are met: (1) the contract is not illegal per se but merely
prohibited; (2) the prohibition is for the protection of the
plaintiffs; and (3) if public policy is enhanced thereby.
While the Deed of Absolute Sale was notarized, it cannot
justify the conclusion that the sale is a true conveyance to
which the parties are irrevocably and undeniably bound.
Although the notarization of Deed of Absolute Sale, vests in its
favor the presumption of regularity, it does not validate nor
make binding an instrument never intended, in the first place, to
have any binding legal effect upon the parties thereto.
If an act, conduct or misrepresentation of the party sought to be
estopped is due to ignorance founded on innocent mistake,
 percentages of the architect’s fee. Initially, Kalalo sent Luz a Statement of
Accounts. Luz claimed lower dues, sent a check for P10K but was refused by
Kalalo. Luz claimed that Kalalo was in estoppel because of certain acts,
representations, admission/silence, which led appellant to believe certain facts
to exist and to act upon said facts. Kalalo claimed that he is not in estoppel
because when he prepared the statement of account, he was laboring under an
innocent mistake and because appellant was not ignorant of the services
actually rendered by appellee and the fees due to the latter under the
original agreement. SC ruled that estoppel does not apply.
Manila Lodge v. CA
Miguel v. Catalino The petitioners’ father sold a parcel of land in Baguio to Florendo, but no
formal deed of sale was executed. After 34 years, they now claim ownership
over the land. SC held that Florendo is already the rightful owner. The
petitioner’s demand has been converted into a stale demand. And although
there is no legal basis for their claim, Florendo has acquired a right over the
property because of laches.
estoppel will not arise.
Government is never estopped by the mistakes or errors on the
part of its agents. Estoppel does NOT apply to a municipal
corporation to validate a contract that is prohibited by law or is
against public policy
While no legal defense to the action lies, an equitable one lies
in favor of defendant, and that is the equitable defense of
laches.
Elements of laches are present in the case:
·Conduct on the part of the defendant, or of one under whom
he claims, giving rise to the situation of which complaint
is made and for which the complaint seeks a remedy
·Delay in asserting the complainant’s rights, the complaint
having had knowledge or notice, of the defendant’s
conduct and having been afforded an opportunity to
institute a suit
·Lack of knowledge or notice on the part of the defendant that
the complainant would assert the right on which he bases
his suit
·Injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held to be
barred.
In the case at bar, Bacaquio sold the land in 1928 but the sale is
void for lack of the governor’s approval. The vendor, and also
his heirs after him, could have instituted an action to annul the
sale from that time, since they knew of the invalidity of the

Mendoza v. Reyes and CA A deed of sale of a conjugal property was annulled because the husband did not
give his consent nor had knowledge of the sale. The Petitioners argue that the
husband is in estoppel because of an earlier statement in a pleading, submitted
by the latter, in another case, wherein he said that he and his wife never had any
kind of fund that could be classified as conjugal. SC says estoppel does not
apply.
Salao v. Salao Estate of Valentina Ignacio was partitioned extrajudicially to her four legal
heirs, namely her three children, Alejandra, Juan and Ambrosia, and her
grandson, Valentin Salao, in representation of his deceased father, Patricio.
Prior to the death of Valentina, Juan and Ambrosia had secured a Torrens title
in their names for a 47 ha fishpond in Calunuran.. Heirs of Valentin filed the
instant petition for the receonveyance of the Calunuran fishpond as Valentin’s
supposed 1/3 share in the 145 ha of fishpond registered in the names of Juan
and Ambrosia. They claim that the Calunuran fishpond was held in trust for
Valentin by Juan and Ambrosia. Affirming the findings of the TC, SC resolved
that there was no no community of property among Juan Y. Salao, Sr.,
Ambrosia Salao and Valentin Salao when the fishponds were acquired.
Plaintiffs raised for the first time in their applellants’ brief that their action is to
enforce a trust Juan Salao, Jr. allegedly violated. SC held that they failed to
prove a trust by clear, satisfactory and convincing evidene.
Fabian v. Fabian Pablo Fabian bought a land. When he died, one of his four daughters [R
Silbina], and his niece [R Teodora] represented themselves to be the sole heirs
of Pablo and had the land assigned to them. After a few months, they bought it
for a consideration of P120. 32 years later, the 2 other daughters [P] filed an
action for reconveyance alleging fraud in the transfer. Court said, dude. 32
years na. Barred by laches, prescription and acquisitive prescription.
Bueno v. Reyes Francisco filed an answer in cadastral case claiming the lot as belonging to him
sale, which is a matter of law; they did not have to wait for 34
years to institute suit. The defendant was made to feel secure in
the belief that not action would be filed against him by such
passivity, and also because he “bought” again the land in 1949
from Grace Ventura who, alone, tried to question his
ownership; so that the defendant will be plainly prejudiced in
the event the present action is not held to be barred.
Estoppel can only be invoked between the person making the
misrepresentation and the person to whom it was addressed. It
is essential that the latter shall have relied upon the
misrepresentation and had been influenced and misled thereby
Nature of Trusts—In its technical legal sense, a trust is defined
as the right enforceable soly in equity, to the beneficial
enjoyment of property, the legal title to which is vested in
another, but the word “trust” is frequently employed to
indicate duties, relations, and responsibilities which are not
strictly technical trusts.
An action for reconveyance of real property based upon a
constructive or implied trust, resulting from fraud, may be
barred by the statute of limitations. The action therefore may be
filed within four years from the discovery of the fraud (what the
Court applied is the prescription of voidable contracts. Not
good law. 10 years accdg to subsequent jurisprudence)
In a constructive trust, which is a kind of implied trust: if

Tamayo v. Callejo
Heirs of Sanjorjo v. Quijano
and to his two brothers. The lot was adjudicated in their favor. Then, the heirs
of the original owner of the lot filed complaint for reconveyance. Heirs allege
that Francisco was entrusted to file an answer in the cadastral proceedings and
to obtain the title for and in behalf of the heirs of the original owner of the lot.
But what Francisco actually did was he declared the lot in his and his two
brothers’ names, thus he is in bad faith. Francisco’s brothers filed motion to
dismiss alleging prescription, which was granted. Hence this appeal from the
order of dismissal.
SC held that the express trust – filing an answer in the cadastral proceeding and
obtaining the title in behalf of the heirs – never materialized. Instead, the trust
was an implied one – when Francisco, in bad faith, obtained the title to the lot
in his and his brothers’ names. Such implied trust prescribes in 10 years, which
must be counted from the discovery of the bad faith or mistake – upon the
discovery by heirs that Francisco had obtained registration of the lot in his and
his brothers’ names.
Sps. Tamayo sold a part of their land to Domantay who sold it to Callejo. Sps.
Tamayo died so their children, Tamayo brothers, inherited their land and such
was registered in their name. Tamayo sold a portion of the land to Estacio but
Callejo did not allow entrance to such portion. Callejo asked that the land he
held be excluded from Tamayo’;s TCT but Tamayo refused. Callejo filed
complaint for reconveyance but CFI dismissed. CA reversed: the land claimed
is covered by TCTs and the action has not prescribed since the land claimed by
Callejo was held in trust by Tamayo a.k.a. an implicit trust that doesn’t
prescribe. SC reversed: by virtue of a public instrument executed by the parties,
it is actually an express trust whose period of prescription begins to run only
from time of repudiation which in this case happened just weeks before case
was filed, hence, it has not prescribed.
The Heirs of Sanjorjo are claiming that Lots 374 & 379 (with free patents in the
names of Heirs of Quijano) and Lots 376 & 378 were only leased to Manuel
Quijano and when Manuel died, his heirs divided the lots among themselves.
They claim that having inherited the lots, these actually belonged to them. The
Heirs of Quijano filed a MTD based on res judicata, since the
Regional Executive Director previously ruled that the free patents over Lots
374 & 379 cannot be disturbed since the complaint for cancellation was filed
more than 1 year from its issuance. TC dismissed based on res judicata. CA
affirmed, but based on prescription. SC held that res judicata does not apply
property is acquired through mistake or fraud, the person
obtaining it is by force of law considered a trustee of an implied
trust for the benefit of the person from whom the property
comes.”
Registration of property by one person in his name, whether by
mistake or fraud, the real owner being another person,
impresses upon the title acquired the character of a constructive
trust for the real owner, which would justify an action for
reconveyance.
Prescription supervenes where the trust is merely an implied
one – in 10 years, which should be counted from the discovery
of fraud or bad faith.
An express trust is created by the will of the parties, no
particular words being required for the creation of an express
trust, it being sufficient that a trust is clearly intended. Express
trust is a continuing and subsisting trust, not subject to the
statute of limitations, at least, until repudiated, in which event
the period of prescription begins to run only from the time of
the repudiation.
Article 1456 of the New Civil Code provides that a person
acquiring property through fraud becomes by operation of law a
trustee of an implied trust for the benefit of the real owner of
the property. The prescriptive period for an implied trust
founded on an allegation of fraud is 10 years, counted from the
time when the Certificate of Title was issued.
 (Regional Exec. Dir. decision was not one on its merits) and that the action was
not barred by prescription (granting of free patent can be reviewed only within
one year in the RTC, on the ground of actual fraud. However, an aggrieved
party may still file an action for reconveyance based on implied or constructive
trust, which prescribes in 10 years from the date of the issuance of the
Certificate of Title over the property provided that the property has not been
acquired by an innocent purchaser for value. The presence of fraud in this case
created an implied trust in favor of the Heirs of Sanjorjo, giving them the right
to seek reconveyance of the property from the Heirs of Quijano. However,
because of the TC’s dismissal order, the Heirs of Sanjorjo have been unable to
prove their charges of fraud and misrepresentation. The action for reconveyance
may not be said to have prescribed, for, basing the present action on implied
trust, the prescriptive period is 10 years.)

Aznar Brothers Realty v. Crisanta Maloloy-on owned a parcel of land which was transferred to her eight
Aying children, Aying Siblings, upon her death. The heirs of the Aying Siblings
executed an Extra-Judicial Partition of Real Estate with Deed of Absolute Sale
conveying the parcel of land to Aznar Brothers Realty Company. Around 220
allegedly heirs of the eight Aying siblings filed a complaint for cancellation of
the said document alleging that not all the heirs signed and executed the same.
RTC ruled in favor of AZNAR stating that the document is valid and the action
has prescribed being one based on an implied trust. CA affirmed with
modification holding that the document does not bind the herein respondents
for they did not execute and sign the same. SC partially granted the petition
dismissing the claim of the heirs of Roberta Aying for being barred by
prescription but sustaining the claims of the heirs of Simeon and Emiliano
Aying not being barred by prescription.
Crisanta Maloloy-on owned a parcel of land which was
transferred to her eight children, Aying Siblings, upon her
death. The heirs of the Aying Siblings executed an Extra-
Judicial Partition of Real Estate with Deed of Absolute Sale
conveying the parcel of land to Aznar Brothers Realty
Company. Around 220 allegedly heirs of the eight Aying
siblings filed a complaint for cancellation of the said document
alleging that not all the heirs signed and executed the same.
RTC ruled in favor of AZNAR stating that the document is
valid and the action has prescribed being one based on an
implied trust. CA affirmed with modification holding that the
document does not bind the herein respondents for they did not
execute and sign the same. SC partially granted the petition
dismissing the claim of the heirs of Roberta Aying for being
barred by prescription but sustaining the claims of the heirs of
Simeon and Emiliano Aying not being barred by prescription.