CASE DIGESTS - CONTRACTS Case: George Batchelder vs. Central Bank of the Philippines, March 29, 1972, J.
Fernando. Facts: George Batchelder, who is an American citizen but permanently residing in the Philippines, is engaged in the construction business. Batchelder, in compliance with Monetary Board Resolution Resolution No. 857 ( Filipino Filipino and resident American contractors undertaking construction projects in US military bases in the Philippines shall be authorized to utilize 90% of the proceeds of their contracts for the purchase of construction equipment, and etc.) and Monetary Board Resolution No. 695 (Agent bank should, upon upon compliance with its terms, credit the contractor’s accounts in pesos, the buying rate being governed by the appropriate rules and regulations.), surrendered al Bank through the latter’s authorized agents, his dollar earnings and to the Centr al applied with the latter for license to utilize 90% of his surrendered earnings. However, the Central Bank never heeded to the plaintiff’s application arguing that the Monetary Board Resolutions relied upon simply laid down policy without in any way giving rise to a valid and binding agreement to which the law should give effect. The trial court found for Batchelder. On appeal, Central Bank interposed an issue that there was no such contractual obligation between the parties which will hold Central Bank liable therefore.
Issue: Whether th ere exist a contr contr act betwee between n Central Bank an d Batchelder, a doll ar earner ea rner by vir tue of the M onetary Board Res Resolution s of of the former.
Held: NO. What was done by the Central Bank was merely to issue in pursuance of its rule-making power the resolutions. There is no question that the Central Bank as a public corporation could e nter into contracts. It is so provided for among the corporate powers vested in it. Thus: "T he Central Bank is hereby authorized to adopt, alter, and use a corporate seal which shall be judicially noticed; to make contracts; to lease or own real personal property, and to sell or otherwise dispose of the same; to sue and be sued; and otherwise to do and perform any and all things that may be necessary or proper to carry out the purpos es of this Act." No doubt woul d have arisen therefore if defendant Central Bank, utilizing a power expressly granted, did enter into a contract with plaintiff. It could have done so, but it did not do so. Nor is this to deal unjustly with plaintiff. Defenda nt Central Bank in its motion to dismiss before the lower court was quite explicit as to why under the circumstances, no right could be recognized as possessed by him. As set forth in such pleading: "We contend that Monetary Board Resolution No. 857, dated June 17, 1960, as amended by Monetary Board Resolution No. 695, dated April 28, 1961, does not give right to Filipino and resident American contractors undertaking construction projects in U.S. military bases to reacquire at the preferred rate ninety per cent (90%) of the foreign exchange sold or surrendered to defendant Central Bank thru the authorized agent banks. Nor does said resolution serve as a general authorization or license granted by the Central Bank to utilize the ninety per cent (90%) of their dollar earnings. M.B. Resolution No. 857, as amended, merely laid down a general policy on the utilization of the dollar earnings of Filipino and resident American contractors undertaking projects in U.S. military bases, ... ." Further, there is this equally relevant portion in such motion to dismiss:
"It is clear from the aforecited provisions of said memorandum that not all imports against proceeds of contracts entered into prior to April 25, 1960 are entitled to the preferred buying rate of exc hange. Only imports against p roceeds of contracts entered into prior to April 25, 1960, not otherwise classified as dollar-to-dollar transactions , are entitled to the preferred rate of exchange. I t is for this reason reason that the contractor is required to first fil e an an application with defendant Central Central Bank (I mport Department) Departme nt) th ru the Author ize ized d Agent Banks, for the purpose of determin determin ing whether the impor ts again again st proceed proceedss of of contr acts entered into pri or to Apr il 25, 1960 are classifi classifi ed as doll ar-t o-doll ar tran sac saction tion s (whi ch are not enti enti tled to the preferr ed rate of exchange), or not (which ar e entitl ed to the preferred rate of exchange), and that i f said import s are enti enti tled to the preferred rate of exchange, defendant Central Bank would i ssue a li ce cense nse to the contractor for authori ty to buy f oreign exchange at the preferr ed rate for the payment of said imports." Had there been greater care therefore on the part of the plaintiff to show why in his opinion he could assert a right in accordance not with a contract binding on the Central Bank, because there is none, but by virtue of compliance with rules and regulations of an administrative tribunal, then perhaps a different outcome would have been justified. The decision of the trial court is dismissed without prejudice. Case: Republic of the Philippines vs. PLDT, January 27, 1969, J.B.L. Reyes. Facts: PLDT first entered into an agreement whereby telephone messages, coming from the US and received by RCA’s domestic station could automatically be transferred to the lines of PLDT and vice versa. Soon after, the Bureau of Telecommunications set up its own Government Telephone System by utilizing its own appropriation and equipment and by renting trunk lines of the PLDT to enable government offices to call private parties. Later on, the Bureau entered into an agreement with RCA Communications, Inc. for a joint overseas telephone service whereby the Bureau would convey radio-telephone overseas calls received by RCA’s station to and from local residents. PLDT complained into such agreement. With much demands for telephone servicing, neither the Bureau and PLDT filled those demands. Hence, the Bureau had proposed to the PLDT that both enter into an interconnecting agreement. The PLDT replied positively with condition that the Bureau would submit to the jurisdiction of Public Service Commission and in consideration of 37 ½% of the gross revenues. However, the Bureau disagreeable, commenced a suit against PLDT praying for judgment comma nding PLDT to execute a contract with it. Trial court ruled for PLDT stating that the Bureau could not compel PLDT to enter into an agreement with it because both parties were not in agreement.
Issue: Whethe Whetherr or not neither the court nor ev even en the Republic Republic thr ough the Bur ea eau u of Telecommunications Telec ommunications can compel compel PLD T to ente enterr into a contract with the latter.
Held: NO. Parties can not be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions of the contract. Freedom to stipulate such terms and conditions is of the essence of our contractual system, and by express provision of the statute, a contract may be annulled if tainted by violence, intimidation, or undue influence (Articles 1306, 1336, 1337, Civil Code of
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CASE DIGESTS - CONTRACTS the Philippines). But the court a quo has apparently overlooked that while the Republic may not compel the PLDT to celebrate a contract with it, the Republic may, in the exercise of the sovereign power of eminent domain, require the telephone company to permit interconnection of the govern ment telephone system and that of the PLDT, as the needs of the government service may require, subject to the payment of just compensation to be determined by the court. Case: R. Marino Corpus vs. CA and Juan David, June 30, 1980, J. Makasiar. Facts: Corpus and Atty. Juan David are intimately related to each other, being close friends. In fact, Corpus was called by Atty. David as Marino and latter to former as Juaning. Corpus was once charged with an administrative case by several employees of Central Bank Export Department of which he is the Director. By reason thereto, he was suspended and considered resigned. Thru Atty. Alvarez, he filed Petition before CFI of Manila under Judge Lantin which was dismissed for lack of exhaustion of administrative remedies. Hence, Atty. David was retained as counsel by Marino Corpus in a case dismissed by Judge Lantin. Before the SC, David was able to win the case. With that, Corpus wrote a letter to David and gave the latter a check worth P2,000. But David replied and gave the check back to Corpus, writing, “ When I decided to render professional services in your case, I was motivated by the value to me of the very intimate relations which you and I have enjoyed xxx and was not primarily for professional fee xxx. When you shall have have obtained a decision which would have finally resolved the case in your favor, remembering me then will make me happy.” Corpus was able to get a favorable judgment ordering his reinstatement and payment of back salaries and allowances. Marino Corp us contends that respondent David is not entitled to attorney's fees because there was no contract to that effect. On the other hand, respondent David contends that the absence of a formal contract for the payment of the attorney's fees will not negate the payment there of because the contract may be express or implied, and there was an implied understanding between the petitioner and private respondent th at the former will pay the latter attorne y's fees when a final decision shall have been rendered in favor of the petitioner reinstating him to his former position in the Central Bank and paying his back salaries.
Issue: Whether or not th ere has bee been n a contr act betwee between n Corpu s and Atty. Davi d for the payment of the latter’s attorney’s fees.
Held: YES. While there was express agreement between petitioner Corpus and respondent David as regards attorney's fees, the facts of the case support the position of respondent David that there was at least an implied agreement for the payment of attorney's fees. Petitioner's act of giving the check for P2,000.00 through his aforestated April 18, 1962 letter to respondent David indicates petitioner's commitment to pay the former attorney's fees, which is stressed by expressing that "I wish I could give more but as you know we were banking on a SC decision reinstating me and reimbursing my back salaries This last sentiment constitutes a promise to pay more upon his reinstatement and payment of his back salaries. Petitioner ended his letter that he was "looking forward to a continuation of the case in the lower court, ... to which the certiorari-
mandamus-quo warranto case was remanded by the Supreme Court for further proceedings. Moreover, the payment of attorney's fees to respondent David may also be justified by virtue of the innominate contract of facio ut des (I do and you give which is based on the principle that "no one shall unjustly enrich himself at the expense of another." innominate contracts have been elevated to a codal provision in the New Civil Code by providing under Article 130 7 that such contracts shall be reg ulated by the stipulations of the parties, by the general provisions or principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the customs of the people. The rationale of this article was stated in the 1903 case of Perez vs. Pomar (2 Phil. 982). In that case, the Court sustained the claim of plaintiff Perez for payment of services rendered against defendant Pomar despite the absence of an express contract to that effect, thus: It does not appear that any written contract was entered into between the parties for the employment of the plaintiff as interpreter, or that any other innominate contract was entered into but whether the plaintiffs services were solicitedorwhethertheywereoffered to the defendant for his assistance, inasmuch as these services were accepted and made use of by the latter, we must consider that there was a tacit and mutual consent as to the rendition of the services. This gives rise to the obligation upon the person benefited by the services to make compensation therefor, since the bilateral obligation to render service as interpreter, on the one hand, and on the other to pay for the service rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code). xxxxxxxxx ... Whether the service was solicited or offered, the fact remains that Perez rendered to Pomar services as interpreter. As it does not appear that he did this gratuitously, the duty is imposed upon the defendant, he having accepted the benefit of the service, to pay a just compensation ther efor, by virtue of the innominate contract of facio ut des implicitly established. xxxxxxxxx ... because it is a well-known principle of law that no one should permitted to enrich himself to the damage of another" (emphasis supplied; see also Tolentino, Civil Code of the Philippines, p. 388, Vol. IV 119621, citing Estate of Reguera vs. Tandra 81 Phil. 404 [1948]; Arroyo vs. Azur 76 Phil. 493119461; and Perez vs. Pomar. 2 Phil. 682 [1903]). WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976]) citing the case of Perez v. Pomar, supra thus: Where one has rendered services to another, and these services are accepted by the latter, in the absence of proof that the service was rendered gratuitously, it is but just remuneration therefor because 'it is a well-known that he should pay a reasonable remuneration principle of law, that no one s hould be permitted to enrich h imself to the damage of another (emphasis supplied). Case: Daisy Tiu vs. Platinum Plans Phil., Inc., February 28, 2007, J. Quisumbing. Facts: Daisy Tiu was an employee of Platinum Plans whose business is pre-need industry. She was the Division Marketing Director from 1987-1989, and later re-hired as Senior Assistant Vice-President and Territorial Operations Head in charge of its
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CASE DIGESTS - CONTRACTS Hongkong and ASEAN operations, with respect to the latter under a contract of employment for 5 years. However, stopped reporting to work and eventually became employed with Professional Pension Plans which is also a pre-need industry, being its Vice-President for Sales. Hence, Platinum sued Tiu for damages alleging that the latter violated the non-involvement clause in her contract of employment which provides The EMPLOYEE further undertakes that, “8. NON INVOLVEMENT PROVISION – The that during his/her engagement with EMPLOYER and in case of separation from the Company, whether voluntary or for cause, he/she shall not, for the next TWO (2) years thereafter, engage in or be involved with any corporation, association or entity, whether directly or indirectly, engaged in the same business or belonging to the same pre-need industry as the EMPLOYER.” However, Tiu countered that the non -involvement clause is unenforceable for being against public policy. The trial court sustained the validity of the non-involvement clause, stating that a contract in restraint of trade is valid provided there is a limitation upon either time or place. CA affirmed the trial court’s decision.
Issue: Whether th e non-in volveme volvement nt clau se in thi s cas case e is vali d. Held: YES. A non-involvement clause is not necessarily void for being in restraint of trade as long as there are reasonable limitations as to time, trade, and place. In this case, the non-involvement clause has a time limit: two years from the time petitioner’s employment with respondent respondent ends. It i s also limited as to trade, since it only prohibits petitioner from engaging in any pre-need business akin to respondent’s. More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations Head in charge of respondent’s Hongkong and Asean operations, she had been privy to confidential and highly sensitive marketing strategies of respondent’s business. To allow her to engage in a rival business soon after she lea ves would make respondent’s trade secrets vulnerable espec ially in a highly competitive marketing environment. In sum, we find the non-involvement clause not contrary to public welfare and not greater than is necessary to afford a fair and reasonable protection to respondent. In any event, Article 1306 of the Civil Code provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrar y to law, morals, good custo ms, public order, or pub lic policy. Article 1159 of the same Code also provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Courts cannot stipulate for the parties nor amend their agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and effect thereto. Not being contrary to public policy, the non-involveme nt clause, which petitioner and re spondent freely agreed upon, has the force of law between them, and thus, should be complied with in good faith Case: Emeterio Cui vs. Arellano University, May 30, 1961, J. Concepcion.
Facts: Emeterio Cui was enrolled in the College of Law in Arellano University and finished his law studies up to and including the first semester of fourth year, during which period, his uncle, Francisco Capistrano, the brother of Cui’s mother, was the dean and legal counsel of such University. Cui enrolled for the last semester of his law studies in Arellano but failed to pay his tuition fees because his uncle Dean Capistrano has severed his connection to such school for having accepted the deanship and chancellorship of the College of Law of Abad Santos University. Cui also transferred to such latter law school and graduated to such school. It will be noted that during those years of stay at Arellano, Cui was awarded scholarship grants for scholastic merits so that his semestral tuition fees were returned to him after the ends of semester and where his scholarship was granted to him. When Cui applied to take for the Bar Examination, he needed transcripts of his records in Arellano but the latter denied until the former will pay back the amount refunded to the former by Arellano citing this pertinent provision in a contract contract which Cui signed every after grant of scholarship, “"In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to another school without having refunded to the University (defendant) the equivalent of my scholarship cash.” Cui raised his defense into this Memorandum issued by the Director of Private Schools, as follow: “2. When students are given full or partial scholarsh ips, it is understood that such scholarships are merited and earned. The amount in tuition and other fees corresponding to these scholarships should not be subsequently charged to the recipient students when they decide to quit school or to transfer to another institution. Scholarships should not be offered merely to attract and keep students in a school. 3. Several complaints have actually been received from students who have enjoyed scholarships, full or partial, to the effect that they could not transfer to other schools since their credentials would not be released unless they would pay the fees corresponding to the period of the scholarships. Where the Bureau believes that the right of the student to transfer is being denied on this ground, it reserves the right to authorize such transfer.”
Issue: Whethe Whetherr the provision provision in the Contract betwe between en Cui and Ar ellano Un ivers iversity ity whereby the former waived his right to tr ansfe whereby ansferr to another school school with out r efunding to the latter the equi equi valent of hi s sc schol hol arship i n cash is vali d.
Held: NO. The stipulation whereby student cannot transfer to another school without refunding scholarship cash is null and void. Scholarship are awarded in recognition of merit not to keep outstanding students in school to bolster its prestige . In the understanding of that university scholarships award is a business scheme designed to increase the business potential of an education institution . Thus conceived it is not only inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is good customs; those generally accepted principles of morality which have received some kind of social and practical confirmation. The practice of awarding scholarships to attract students and keep them in school is not good customs nor has it received some kind of social and practical confirmation except in some private institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the Constitution with reference to the giving of
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CASE DIGESTS - CONTRACTS free scholarships to gifted children, does not require scholars to reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the leading colleges and universities of the United States after which our educational practices or policies are patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school for their propaganda mine but to reward merit or help gifted students in whom society has an established interest or a first lien. (Emphasis supplied.) In this case, scholarship award is a business scheme designed to increase the business potential of an educational institution with respect to Arellano’s case. Case: Ramon Saura vs. Estela Sindico, March 23, 1960, J.B.L. Reyes. Facts: Ramon E. Saura and Estela P. Sindico were contesting for nomination as the official candidate of the Nacionalista Party in the fourth district of Pangasinan in the congressional elections of November 12, 1957. On August 23, 1957, the parties entered into a written agreement bearing the same date, containing among other matters stated therein, a pledge that — Each aspirant shall respect the result of the aforesaid convention, i.e., no one of us shall either run as a rebel or independent candidate after losing in said convention. In the provincial convention held by the Nacionalista Party on August 31, 1957, Saura was elected and proclaimed the Party's official congressional candidate for the aforesaid district of Pangasinan. Nonetheless, Sindico, in disregard of the covenant, filed, on September 6, 1957, her certificate of candidacy for the same office with the Commission on Elections, and she openly and actively campaigned for her election. Wherefore, on October 5, 1957, plaintiff Saura commenced this suit for the recovery of damages. Upon motion of the defendant, the lower court, in its order of November 19, 1957, dismissed the complaint on the basis that the agreement sued upon is null and void, in tat (1) the subject matter of the contract, being a public office, is not within the commerce of man; and (2) the "pledge" was in curtailment of the free exercise of elective franchise and therefore against public policy. Hence, this appeal.
Issue: Whether or not th e agreeme agreement nt between between Saura and Sin dico is valid. Held: NO. We agree with the lower court in adjudging the contract or agreement in question a nullity. Among those that may not be the subject matter (object) of contracts are certain rights of individuals, which the law and public policy have deemed wise to exclude from the commerce of man. Among them are the political rights conferred upon citizens, including, but not limited to, once's right to vote, the right to present one's candidacy to the people and to be voted to public office, provided, however, that all the qualifications prescribed by law obtain. Such rights may not, therefore, be bargained away curtailed with i mpunity, for they are conferred not for individual or private benefit or advantage b ut for the public good and interest. Constitutional and statutory provision fix the qualifications of persons who may be eligible for certain elective public offices. Said requirements may neither be enlarged nor reduced by mere agreements between private parties. A voter possessing all the qualifications required to fill an office may, by himself or through a political party or group, present his candidacy without further limitations than those provided by law.
Substit tit uted by Salu Salu d Santiago), Case: Leal vs. IAC and Vicente Santiago ( Subs November 5, 1987, J. Sarmiento. Facts: On March 21, 1941, a document entirely in Spanish language entitled as “Compraventa” was executed by Vicente Santiago and his brother Luis Santiago in favor of Cirilo Leal ( the deceased father of herein petitioners), involving the three parcels of land, as per paragraph (b) thereof states in translation as, “"they shall not sell to others these three lots but only to the seller Vicente Santiago or to his heirs or successors". However, pursuant to the “Compra “ Compraventa”, venta”, the title over those three parcels of land was cancelled and a new one was issued in the name of Cirilo Leal who immediately took possession and exercised possession and ownership over those lands which was inherited by herein petitioners after Cir ilo’s ilo’s death. These parcels of land were either mortgaged or leased by petitioner-children of Cirilo to their co-petitioners. However, Vicente Santiago approached the petitioners and offered re-purchase of subject properties in pursuant to the Compraventa. Trial court dismissed the complaint for being premature. Court of Appeals under Justice Paras affirmed the trial court’s decision. Whetherr or not the prohibiti on to sell sell to thir d parties pursuant to the Issue: Whethe Compraventa is vali vali d.
Held: NO. Contracts are generally binding between the parties, their assigns and heirs; however, under Art. 1255 of the Civil Code of Spain, which is applicable in this instance, pacts, clauses, and conditions which are contrary to public order are null and void, thus, without any binding effect. Parenthetically, the equivalent provision in the Civil Code of the Philippines is that of Art. 1306, which states: "That contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Public order signifies the public weal — public public policy. 5 Essentially, therefore, public order and public policy mean one and the same thing. Public po licy is simply the English equivalent of "order publico" in Art. 1255 of the Civil Code of Spain. 6 One such condition which is contrary to public policy is the present prohibition to self to third parties, because the same virtually amounts to a perpetual restriction to the right of ownership, specifically the owner's right to freely dispose of his properties. This, we hold that any such prohibition, indefinite and stated as to time, so much so that it shall continue to be applicable even beyond the lifetime of the original parties to the contract, is, without doubt, a nullity. In the light of this pronouncement, we grant the petitioners' prayer for the cancellation of the annotations of this prohibition at the back of their Transfer Certificates 'Title. In the case before us, we cannot and any express or implied grant of a right to repurchase, nor can we infer, from any word or words in the questioned paragraph, the existence of any such right. The interpretation in the resolution (Justice Sison) is rather strained. The phrase "in case case" of should be construed to mean "should the buyers wish to sell which is the plain and simple import of the words, and not "the buyers should sell," which is clearly a contorted construction of the same phrase. The resort to
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CASE DIGESTS - CONTRACTS Article 1373 of the Civil Code of the Philippines is erroneous. The subject phrase is patent and unambiguous, hence, it must not be give n another interpretation But even assuming that such a right of repurchase is granted under the "Compraventa," the petitioner correctly asserts that the same has already prescribed. Under Art. 1508 of the Civil Code of Spain (Art,. 1606 of the Civil Code of the Philippines), the right to redeem or repurchase, in the absence of an express agreement as to time, shall last four years from the date of the contract. In this case then, the right to repurchase, if it was at four guaranteed under in the "Compraventa," should have been exercise within four years from March 21, 1941 (indubitably the date of execution of the contract), or at the latest in 1945. In the respondent court's resolution, it is further ruled that the right to repurchase was given birth by the condition precedent provided for in the phrase "siempre y cuando estos ultimos pueden hacer la compra" (when the buyer has money to buy). In other words, it is the respondent court's contention that the right may be exercised only when the buyer has money to buy. If this were so, the second paragraph of Article 1508 would apply — there is agreement as to the time, although it is indefinite, therefore, the right should be exercised within ten years, because the law does not favor suspended ownership. Since the alleged right to repurchase was attempted to be exercised by Vicente Santiago only in 1966, or 25 years from the date of the contract, the said right has undoubtedly expired. The law provides that for conventional redemption to take place, the vendor should reserve, in no uncertain terms, the right to repurchase the thing sold. Thus, the right to redeem must be expressly stipulated in the contract of sale in order that it may have legal existence.
Case: Banco Filipino Savings and Mortgage Bank vs. Hon. Navarro and Florante Del Valle, July 28, 1987, J. Melencio-Herrera. Facts: On May 20, 1975, respondent Florante del Valle (the BORROWER) obtained a loan secured by a real estate mortgage (the LOAN, for short) from petitioner BANCO FILIPINO1 in the sum of Forty-one Thousand Three Hundred (P41,300.00) Pesos, payable and to be amortized within fifteen (15) years at twelve (12 %) per cent interest annually. Hence, the LOAN still had more than 730 days to run by January 2, 1976, the date when CIRCULAR No. 494 was issued by the Central Bank. Stamped on the promissory note evidencing the loan is an Escalation Clause, reading as follows: I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan. The Escalation Clause is based upon Central Bank CIRCULAR No. 494 issued on January 2, 1976, the pertinent portion of which reads: 3. The maximum rate of interest, including commissions, premiums, fees and other charges on loans with maturity of more than seven hundred thirty (730) days, by banking institutions, including thrift ba nks and rural banks, o r by financial
intermediaries authorized to engage in quasi-banking functions shall be nineteen percent (19%) per annum. xxx xxx xxx 7. Except as provided in this Circular and Circular No. 493, loans or renewals thereof shall continue to be governed by the Usury Law, as amended." On the strength of CIRCULAR No. 494 BANCO FILIPINO gave notice to the BORROWER on June 30, 1976 of the increase of interest rate on the LOAN from 12% to 17% per annum effective on March 1, 1976. Contending that CIRCULAR No. 494 is not the law contemplated in the Escalation Clause of the promissory note, the BORROWER filed suit against BANCO FILIPINO for "Declaratory Relief" with respondent Court, praying that the Escalation Clause be declared null and void and that BANCO FILIPINO be ordered to desist from enforcing the increased rate of interest on the BORROWER's real estate loan. For its part, BANCO FILIPINO maintained that the Escalation Clause signed by the BORROWER authorized it to increase the interest rate once a law was passed increasing the rate of interest and that its authority to increase was provided for by CIRCULAR No. 494. In its judgment, respondent Court nullified the Escalation Clause and ordered BANCO FILIPINO to desist from enforcing the increased rate of interest on the BORROWER's loan. * On February 24, 1983, the parties represented by their respective counsel, not only moved to withdraw the appeal on the ground that it had become moot and academic "because of recent developments in the rules and regulations of the Central Bank," but also prayed that "the decision rendered in the Court of First Instance be therefore vacated and declared of no force and effect as if the case was never filed," since the parties would like to end this matter o nce and for all." However, "considering the subject matter of the controversy in which many persons similarly situated are interested and because of the need for a definite ruling on the question," the Court, in its Resolution of February 24, 1983, impleaded the Central Bank and required it to submit its Comment, and encouraged homeowners similarly situated as the BORROWER to intervene in the proceedings.
Issue: Whether or not Banco F ili pino can i ncrease the interest rate on the loan fr om 12% to 19% per ann um un der the Escalation clause.
Held: NO. It is clear from the stipulation between the parties that the interest rate may be increased "in the event a law should be enacted increasing the lawful rate of interest that may be charged on this particular kind of loan ." " The Escalation Clause was dependent on an increase of rate made by "law" alone. CIRCULAR No. 494, although it has the effect of law, is not a law. "Although a circular duly issued is not strictly a statute or a law , it has, however, the force and effect of law."6 (Italics supplied). "An administrative regulation adopted pursuant to law has the force and effect of law." 7 "That administrative rules and regulations have the force of law can no longer be questioned. " 8 The distinction between a law and an administrative regulation is recognized in the Monetary Board guidelines quoted in the letter to the BORROWER of Ms. Paderes of
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CASE DIGESTS - CONTRACTS September 24, 1976 ( supra). According to the guidelines, for a loan's interest to be subject to the increases provided in CIRCULAR No. 494, there must be an Escalation Clause allowing the increase "in the event that any law or Central Bank regulation is promulgated increasing the ma ximum interest rate for loans." The guidelines thus presuppose that a Central Bank r egulation is not within the te rm "any law." It is now clear that from March 17, 1980, escalation clauses to be valid should
specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board." Case: Spouses Mariano and Gilda Florendo vs. CA and Land Bank of the Philippines, December 17, 1996, J. Panganiban. Facts: Gilda Florendo (was) an employee of (Respondent Bank) from May 17, 1976 until August 16, 1984 when she voluntarily resigned. However, before her resignation, she applied for a housing loan of P148,000.00, payable within 25 years from (respondent bank's) Provident Fund on July 20, 1983. Florendo and Land Bank entered into a Housing Loan Agreement which the former executed a Real Estate Mortgage and Promissory Note. Land Bank increased the interest rate from 9% to 17% per annum pursuant to ManCom Resolution No. 85-08 and Provident Fund Memorandum Circular proving that, “ManCom (Management Committee) Resolution No. 85 -08, together with PF (Provident Fund) Memorandum Circular No. 85-08, which escalated the interest rates on outstanding housing loans of bank employees who voluntarily "secede" (resign) from the Bank; the range of rates varied depending upon the number of years service rendered by the employees concerned. The rates were made applicable to those who had previously resigned from the bank as well as those who would be resigning in the future.” And the same increase being stated in the real estate mortgage as follows, “The rate of interest charged on the obligation secured by this mortgage. . ., sha ll be subject, during the life of this contract, to such an increase/decrease in accordance with prevailing rules, regulations and circulars of the Central Bank of the Philip pines as the Provident Fund Board of Trustees of the Mortgagee may prescribe for its debtors and subject to the condition that the increase/decrease shall only take effect on the date of effectivity of said increase/decrease and shall only apply to the remaining balance of the loan.” Florendo protested such increase. The trial court ruled in favor of the bank. However, Florendo argued that, the increased rate of interest is onerous and was imposed unilaterally, without the consent of the borrower-spouses. And that there is in fact no Central Bank rule, regulation or other issuance which would have triggered an application of the escalation clause as to her factual situation.
Issue: Whether or not th e bank has valid and l egal basis to impose an i ncreased interest rate on the petitioner’s housing loan.
Held: NO. In the case at bar, the loan was perfected on July 20, 1983. PD No. 116 became effective on Januar y 29, 1973. CB Circular No. 416 was issued on July 29 , 1974. CB Circ. 504 was issued February 6, 1976. CB Circ. 706 was issued December 1, 1979. CB Circ. 905, lifting any interest rate ceiling prescribed under or pursuant to the Usury Law, as amended, was promulgated in 1982. These and other relevant CB issuances had already come into existence prior to the perfection of the housing loan agreement and mortgage contract, and thus it may be said that these regulations had been taken into considera tion by the contracting parties when they first entered into their loan contract. In light of the CB issuances in force at that time, respondent bank was fully aware that it could have imposed an interest rate higher than 9% per annum rate for the housing loans of its employees, but it did not. In the subject loan, the respondent bank knowingly agreed that the interest rate on petitioners' loan shall remain at 9% p.a. unless a CB issuance is passed authorizing an increase (or decrease) in the rate on such employee loans and the Provident Fund Board of Trustees acts accordingly. Thus, as far as the parties were concerned, all other onerous factors, such as employee resignations, which could have been used to trigger an application of the escalation clause were considered barred or waived. If the intention were otherwise, they — especially respondent bank — should have included such factors in their loan agreement. ManCom Resolution No. 85-08, which is neither a rule nor a resolution of the Monetary Board, cannot be used as basis for the escalation in lieu of CB issuances, since paragraph (f) of the mortgage contract very categorically specifies that any interest rate increase be in accordance with "prevailing rules, regulations and circulars of the Central Bank . . . as the Provident Fund Board . . . may prescribe." The Banco Filipino and PNB doctrines are applicable four-square in this case. As a matter of fact, the said escalation clause further provides that the increased interest rate "shall only take effect on the date of effectivity of (the) increase/decrease" authorized by the CB rule, regulation or circular. Without such CB issuance, any proposed increased rate will never become effective. We have already mentioned (and now reiterate our holding in several cases 15) that by virtue of CB Circular 905, the Usury Law has been rendered ineffective. Thus, petitioners' contention that the escalation clause is violative of the said law is bereft of any merit. On the other hand, it will not be amiss to point out that the unilateral determination and imposition of increased interest rates by the herein respondent bank is obviously violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code. As this Court held in PNB: 16 In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the . . . loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of
6
CASE DIGESTS - CONTRACTS adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. The respondent bank tried to sidestep this difficulty by averring that petitioner Gilda Florendo as a former bank employee was very knowledgeable concerning respondent bank's lending rates and p rocedures, and therefore, p etitioners were "on an equal footing" with respondent bank as far as the subject loan contract was concerned. That may have been true insofar as entering into the original loan agreement and mortgage contract was concerned. However, that does not hold true when it comes to the determination and imposition of escalated rates of interest as unilaterally provided in the ManCom Resolution, where she had no voice at all in its preparation and application. To allay fears that respondent bank will inordinately be prejudiced by being stuck with this "sweetheart loan" at patently concessionary interest rates, which according to respondent bank is the "sweetest deal" anyone could obtain and is an act of generosity considering that in 1985 lending rates in the banking industry were peaking well over 30% p.a., 17 we need only point out that the bank had the option to impose in its loan contracts the condition that resignation of an employee-borrower would be a ground for escalation. The fact is it did not. Hence, it must live with such omission. Case: Aniceto Saludo Jr. vs. Security Bank Corporation, October 13, 2010, J.
Perez. Facts: On 30 May 1996, Booklight was extended an omnibus line credit facility3 by SBC in the amount of P10,000,000.00. Said loan was covered by a Credit Agreement4 and a Continuing Suretyshi p5 with petitioner as surety, both documents dated 1 August 1996, to secure full payment and performance of the obligations arising from the credit accommodation. Booklight drew several availments of the approved credit facility from 1996 to 1997 and faithfully complied with the terms of the loan. On 30 October 1997, SBC approved the renewal of credit facility of Booklight in the amount of P10,000,000.00 under the prevailing security lending rate.6 From August 3 to 14, 1998, Booklight executed nine (9) promissory notes7 in favor of SBC in the aggregate amount of P9,652,725.00. For failure to settle the loans upon maturity, demands8 were made on Booklight and petitioner for the payment of the o bligation but the duo failed to pay. As of 15 May 2000, the obligation of Booklight stood at P10,487,875.41, inclusive of interest past due and penalty.9 On 16 June 2000, SBC filed against Booklight and herein petitioner an action for collection of sum of money with the RTC. RTC ruled that Saludo is jointly and severally liable with Booklight. CA affirmed in toto. Saludo argued that the Continuing Suretyship is a contract of adhesion and that its participation thereto is only his signing the same.
Issue: Whether or not a lawyer can be excused fr om li ability by argui ng that th e contract i s one of a contract of adh esion .
Held: NO. The lameness of petitioner’s stand is pointed up by his attempt to escape from liability by labelling the Continuing Suretyship as a contract of adhesion. A contract of adhesion is defined as one in which one of the parties imposes a readymade form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his ‘adhesion’ thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. A contract of adhesion presupposes that the party adhering to the contract is a weaker party. That cannot be said o f petitioner. He is a lawyer. He is d eemed knowledgeable of the legal implications of the contract that he is signing. It must be borne in mind, however, that contracts of adhesion are not invalid per se. Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not entirely prohibited. The one who adheres to the contract is, in reality, free to reject it entirely; if he adheres, he gives his consent. Case: Metropolitan Bank and Trust Company vs. Rogelio Reynado and Jose Adrandea, August 9, 2010, J. Del Castillo. Facts: On January 31, 1997, petitioner Metropolitan Bank and Trust Company charged respondents before the Office of the City Prosecutor of Manila with the crime of estafa under Article 315, paragraph 1(b) of the Revised Penal Code. In the affidavit of petitioner’s audit officer, Antonio Ivan S. Aguirre, it was alleged that the special audit conducted on the cash and lending operations of its Port Area branch uncovered anomalous/fraudulent transactions perpetrated by respondents in connivance with client Universal Converter Philippines, Inc. (Universal). In their defense, respondents denied responsibility in the anomalous transactions with Universal and claimed that they only intended to help the Port Area branch solicit and increase its deposit accounts and daily transactions. Meanwhile, on February 26, 1997, petitioner and Universal entered into a Debt Settlement Agreement whereby the latter acknowledged its indebtedness to the former in the total amount of P50,990,976.27 as of February 4, 1997 and undertook to pay the same in bi-monthly amortizations in the sum of P300,000.00 starting January 15, 1997, covered by postdated checks, “plus balloon payment of th e remaining principal balance and interest and other charges, if any, on December 31, 2001.” The City Prosecutor and DOJ dismissed the case. Hence, Metrobank filed a petition for certiorari and mandamus to CA. CA likewise affirmed the decisions of the City Prosecutor and DOJ stating that, while novation does not extinguish criminal liability, it may prevent the rise of such liability as long as it occurs prior to the filing of the criminal information in court.
Issue: Whether or not th e Debt Settlement Agr eement between M etropoli tan Ban k and Tr ust Company and Uni versal is tantamount to a novation of obligation by the latter to the former which extingui shes the criminal liabil ity for Estafa by the latter.
Held: NO. Initially, it is best to emphasize that “ novation is not one of the grounds prescribed by the Revised Penal Code for the extinguishment of criminal liability.” In a catena of cases, it was ruled that criminal liability for estafa is not affected by a
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CASE DIGESTS - CONTRACTS compromise or novation of contract. In F ir aza v. People and Recuerdo v. People , this Court ruled that in a crime of estafa, reimbursement or belated payment to the offended party of the money swindled b y the accused does no t extinguish the criminal liability of the latter. We also held in People v. Mor eno and in People v. L adera that “criminal liability for estafa is not affected by compromise or novation of contract, for it is a public offense which must be prosecuted and punished by the Government on its own motion even though complete reparation should have been made of the damage suffered by the offended party.” Similarly in the case of M etropolitan Bank and Tr ust cited by petitioner, we held that in a crime of estafa, Company v. Tonda reimbursement of or compromise as to the amount misappropriated, after the commission of the crime, affects only the civil liability of the offender, and not his criminal liability. Thus, the doctrine that evolved from the aforecited cases is that a compromise or settlement entered into after the commission of the cr ime does not extinguish accused’s liability for estafa. Neither will the same bar the prosecution of said crime. Accordingly, in such a situation, as in this case, the complaint for estafa against respondents should not be dismissed just because petitioner entered into a Debt Settlement Agreement with Universal. Even the OSG arrived at the same conclusion: Contrary to the conclusion of public respondent, the Debt Settlement Agreement entered into between petitioner and Universal Converter Philippines extinguishes merely the civil aspect of the latter’s liability as a corporate entity but not the criminal liability of the persons who actually committed the crime of estafa against petitioner Metrobank. x x x Case: Prudential Bank and Trust Company (BPI) vs. Liwayway Abasolo, September 27, 2010, J. Carpio Morales. Facts: Leonor Valenzuela-Rosales inherited two parcels of land in Laguna which upon her death were inherited by her heirs thereby appointing Liwayway Abasolo as their agent thru the SPA empowering the latter to sell the properties. One, Corazon Marasigan expressed her interest in buying that same properties but because she had no money yet she suggested the idea of first mortgaging the properties to Prudential Bank and the proceeds of which would be paid directly to Abasolo. On consultation with Prudential Bank’s employee named Norberto Mendiola, a Deed of Absolute Sale was executed thereby transferring to Marasigan the property with assurance that the proceeds thereof would be paid directly to Abasolo. When all went well with the loan, in the absence of a written request for a bank guarantee, the PBTC released the proceeds of the loan to Ma rasigan, whom latter despite repeated demands failedto pay the purchase price of the properties. Marasigan only paid in kind but never the entire purchase price. Hence, Abaso lo filed a complaint for collection o f sum of money and annulment of sale and mortgage with damages. Marasigan, however, denied the existence of any agreement that the proceeds be paid to Abasolo and that the payment in kind was already sufficient. RTC ruled in favor of Abasolo ordering PBTC to pay Abasolo in the event that Marasigan failed to pay. CA affirmed.
Issue: Whether or n ot PBTC woul d be subsidi ari ly li able to Abasolo in t he absence of any contractual r elation ship between the two.
Held: NO. In the absence of a lender-borrower relationship between petitioner and Liwayway, there is no inherent obligation of petitioner to release the proceeds of the loan to her. To a banking institution, well-defined lending policies and sound lending practices are essential to perfor m its lending function effectively and minimize the risk inherent in any extension of credit. In order to identify and monitor loans that a bank has extended, a system of documentation is necessary. Under this fold falls the issuance by a bank of a guarantee which is essentially a promise to repay the liabilities of a debtor, in this case Corazon. It would be contrary to established banking practice if Mendiola issued a bank guarantee, even if no request to that effect was made. The principle of relativity of contracts in Article 1311 of the Civil Code supports petitioner’s cause: Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulatio n or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (underscoring supplied) For Liwayway to prove her claim against petitioner, a clear and deliberate act of conferring a favor upon her must be present. A written request would have sufficed to prove this, given the nature of a banking business, not to mention the amount in volved. Since it has not been established that petitioner had an obligation to Liwayway, there is no breach to speak of. Liwayway’s claim should only be directed against Co razon. Petitioner cannot thus be held subisidiarily liable. Case: Asian Cathay Finance and Leasing Corporation vs. Spouses Cesario Gravador and Norma De Vera and Spouses Dumigpi, July 5, 2010, J. Nachura. Facts: Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of Eight Hundred Thousand Pesos (P800,000.00) to respondent Cesario Gravador, with respondents Norma de Vera and Emma Concepcion Dumigpi as co-makers. The loan was payable in sixty (60) monthly installments of P24,400.00 each. To secure the loan, respondent Cesario executed a real estate mortgage 5 over his property in Sta. Maria, Bulacan. Respondents paid the initial installment due in November 1999. However, they were unable to pay the subsequent ones. Hence, petitioner filed a petition for extrajudicial foreclosure of mortgage. Respondent, however, filed a suit for annulment of such mortgage claiming that the real estate mortgage is null and void. They pointed out that the mortgage does not make reference to the promissory note dated October 22, 1999. The promissory note does not specify the maturity date of the loan, the interest rate, and the mode of payment; and it illegally imposed liquidated damages. The real estate mortgage, on the other hand, contains a provision on the waiver of the mortgagor’s right of redemption, a provision that is contrary to law and public policy. Respondents added that ACFLC violated Republic Act No. 3765, or the Truth in Lending Act, in the disclosure statement that should be issued to the borrower. RTC
8
CASE DIGESTS - CONTRACTS denied the application for TRO by respondent and thereafter dismissed the complaint sustaining the validity of the promissory note and real estate mortgage stating among others that, respondents are well-educated in dividu als who coul d not f eign n aiveté in the execution of t he loan documents . It, therefore, rejected respondents’ claim that ACFLC deceived them into signing the promissory note, disclosure statement, and deed of real estate mortgage. The RTC further held that the alleged defects in the promissory note and in the d eed of real estate mortgage are too insubstantial to warrant the nullification of the mortgage. It added that a promissory note is not one of the essential elements of a mortgage; thus, reference to a promissory note is neither indispensable nor imperative for the validity of the mortgage. CA reversed the trial court’s decision.
whereby Laigo was to undertake the development of the property into a subdivision. Laigo, on the other hand, entered into a contract with Lumanlan to construct for the home buyers, 20 houses on the subdivision. Another contract was entered into between Laigo and Velasco for construction of the houses. However, when neither Laigo nor the individual home buyers paid for the home constructed, Velasco wrote the GSIS to intercede for the unpaid accounts of the home buyers. Contracts that were subsequently entered into by Laigo include that of Delos Santos, Galang and Lumbang. However, GSIS categorically denied that the firm has clear legal ground against Laigo having no privity of contract between pet itioners. With the same plight, herein petitio ners filed a case against GSIS. The latter however, presented a defense through the execution of Deed of Quitclaim and Undertaking by Laigo Realty.
Issue: Whether or not th e subj ect promi ssory note and r eal estate mortgage is one of
Issue: Whether there is contractual privity between GSIS and L umanlan and
contract of adhesion .
Velasco.
Held: YES. The supposed waiver by the mortgagors was contained in a statement
Held: YES. What is more, the reliance of GSIS on the Deed of Quitclaim of May 7,
made in fine print in the REM. It was made in the form and language prepared by [petitioner]ACFLC while the [respondents] merely affixed their signatures or adhesion thereto. It thus partakes of the nature of a contract of adhesion. It is settled that doubts in the interpretation of stipulations in contracts of adhesion should be resolved against the party that prepared them. This principle especially holds true with regard to waivers, which are not presumed, but which must be clearly and convincingly shown. [Petitioner] ACFLC presented no evidence hence it failed to show the efficacy of this waiver. Moreover, to say that the mortgagor’s right of redemption may be waived through a fine print in a mortgage contract is, in the last analysis, tantamount to placing at the mortgagee’s absolute disposal the property foreclosed. It would render practically nugatory this right that is provided by law for the mortgagor for reasons of public policy. A contract of adhesion may be struck down as void and unenforceable for b eing subversive to public policy, when the weaker party is completely deprived of the opportunity to bargain on equal footing.
1970 is to Our mind misplaced. We have analyzed this document carefully, and We are of the considered view that it is actually evidence against GSIS. Even if what is unnatural in ordinary business or industrial experience were assumed, that is, that GSIS was unaware all along during the period of their construction of the work then being done by petitioners - albeit it is possible there was no express consent given to - by and thru the aforementioned deed of quitclaim, GSIS agreed to receive and did actually receive the benefits of what petitioners had accomplished or would accomplish under their contracts with Laigo., So much so, that the dispositi ve porti on of the qui tclai m dead does not r eally reli eve GSIS fr om li abil ity to petiti oners. Properly viewed, GSIS vir tual ly assumed under said deed, li abil ity in r egard to clai ms li ke those of petition ers who might not be paid by Lai go albeit said li abil ity has been made subj ect to the reservati on that it coul d seek indemni ty from L aigo. GSIS received Alta Farms' proposal about the conversion of their piggery project into a subdivision (in which Laigo Realty's participation was mentioned) as early as February 5, 1970. It was only in November, 1970 that it issued its "cease and desist" order. From all indications, the jobs of petitioners were already practically finished then. And in the Joint Manifestation filed by the parties with the trial court as late as February 20, 1976, GSIS made it clear that "defendant (GSIS) up to the present has not collected from the house owners of the 63 houses built by the plaintiffs notwithstanding the foreclosure proceedings and conso lidation 6f ownership." Aga in, it is thus obvious that GSIS assumed ownership of the houses built by petitioners and was benefited by the same, and the fact that it has not collected any payment from the "house owners" or the construction of the houses respectively occupied by them is of no moment insofar as its liability to petitioners is concerned. Surely, it is not pretended that those "house owners" would be allowed to enrich themselves at the expense of petitioners. Indeed, the term "house owners" is inappropriate, if only because in Paragraph 16 of its Comment on the petition herein, GSIS unequivocally state that "GSIS foreclosed the properties including all improve ments (the houses in 1970 " and, thereby, became the owner of said houses.
Case: Pepito Velasco, et al. vs. CA and GSIS, January 28, 1980, J. Barredo. Facts: Sometime on November 10, 1965, Alta Farms secured from the GSIS a Three Million Two Hundred Fifty Five Thousand Pesos (P3,255,000.00) loan and an additional loan of Five Million Sixty-Two Thousand Pesos (P5,062,000.00) on October 5, 1967, to finance a piggery project. These loans were secured by two mortgage. Alta Farms defaulted in the payment of its amortizations presumably because of this that Alta Farms executed a Deed of Sale With Assumption of Mortgage with Asian Engineering Corporation on July 10, 1969 but with out the previous consent or and in direct violation of the provisions of the mortgage approval of the GSIS contracts. Even without the approval of the Deed of Sale With Assumption of Mortgage by the GSIS, Asian Engineering Corporation executed an Exclusive Sales Agency, Management and Administration Contract in favor of Laigo Realty Corporation, with the intention of converting the piggery farm into a subdivision. And on October 20, 1969, Asian Engineering executed another contract with Laigo,
9
CASE DIGESTS - CONTRACTS Case: George Kauffman vs. PNB, Sept. 29, 1921, J. Street. Facts: George A. Kauffman, was the president of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the plaintiff apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918, the board of directors of said comp any, declared a dividend of P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of P98,000. This amount was accordingly placed to his credit on the books of the company, and so remained until in October of the same year when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff in New York City. In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and Produce Company, presented himself in the exchange department of the Philippine National Bank in Manila and requested that a telegraphic transfer of $45,000 should be made to the plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. Upon receiving this telegraphic message, the bank's representative in New Yo rk sent a cable message in rep ly suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to accept certain bills of the Philippine Fiber and Produce Company. The Philippine National Bank acquiesced in this a nd on October 11 d ispatched to its New York agency another message to withhold the Kauffman payment as suggested. Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in New York, advising him that $45,000 had been placed to his credit in the New York agency of the Philippine National Bank; and in response to this advice Kauffman presented himself at the office of the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By this time, however, the message from the Philippine National Bank of October 11, directing the withholding of payment had been received in New York, and pa yment was therefore refused. Hence, Kauffman instituted a suit before the CFI of Manila to recover the sum.
Issue: Whether or n ot Kauff man has ri ght of action against PNB. Held: YES. In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history and interpretation of the paragraph above quoted and so complete is the discussion contained in that opinion that it would be idle for us here to go over the same matter. Suffice it to say that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions governing the right of the person for whose benefit a contract is made to maintain an action for the breach thereof in the following words: So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person in a contract is a stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. If a third person claims an enforcible interest in the contract, the question must be settled by determining whether the contracting parties desired to tender him such an interest. Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such third person? In resolving this question, of course, the
ordinary rules of construction and interpretation of writings must be observed . (Uy Tam and Uy Yet vs. Leonard, supra.) Further on in the same opinion he adds: " In applying this test to a stipulation pour autrui, it matters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third pers on. That no such obligation exists may in some degree assist in determining whether the parties intended to benefit a third person, whether they stipulated for him. " (Uy Tam and Uy Yet vs. Leonard, supra.) In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough ; for it is undeniable that the ban k's promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the money upon demand in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it; and indeed if the provision in question were not applicable to the facts now before us, it would be difficult to conceive of a case arising under it. It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his accep tance to the ban k by demanding payment; and although the Philippine National Bank had already directed its New York agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing he exchange.
Case: Bonifacio Brothers Inc., et al. vs. Enrique Mora, et al., May 29, 1967, J.
Castro. Facts: Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QCmortgaged the same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile with the latter as beneficiary. The automobile was thereafter insured on June 23, 1959 with the State Bonding & Insurance Co., Inc., and motor car insurance policy A-0615 was issued to Enrique Mora. During the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the accident to the Bayne Adjustment Co. for investigation and appraisal of the damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne Adjustment Co. In the meantime, the car was delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and materials. Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the Municipal Court of Manila against Enrique
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CASE DIGESTS - CONTRACTS Mora and the State Bonding & Insurance Co., Inc. for the collection of the sum of P2,002.73.
Issue: Whether or n ot the stipulation, ar rangement or grant i s revocable at the
Issue: Whether there is privit y of contr act between the Bonif acio Bros. In c. and the
Held: NO. We find that the trial court erred in holding that the stipulation,
Ayala Au to Parts Co. on the one hand and th e insurance company on the other.
arrangement or grant (Exhibit O-1) is revocable at the option of the co-owners. While a stipulation in favor of a third person has no binding effect in itself before its acceptance by the party favored, the la w does not provide when the third person must make his acceptance. As a rule, there is no time at such third person has after the time until the stipulation is revoked. Here, We find that the Church accepted the stipulation in its favor before it is sought to be revoked by some of the co-owners, namely the petitioners-appellants herein. It is no t disputed that from the time of the with of Doña Encarnacion Florentino in 1941, as had always been the case since time immemorial up to a year before the firing of their application in May 1964, the Church had been enjoying the benefits of the stipulation. The enjoyment of benefits flowing therefrom for almost seventeen years without question from any quarters can only be construed as an implied acceptance by the Church of the stipulation pour autrui before its revocation. We hold that said stipulation is a stipulation pour autrui. A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, and which stipulation is merely a part of a contract entered into by the parties, neither of whom acted as agent of the third person, and such third person and demand its fulfillment provoked that he communicates his to the obligor before it is revoked. The requisites are: (1) that the stipulation in favor of a third person should be a part, not the whole, of the contract; (2) that the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and (3) neither of the contracting bears the legal represented o r authorization of third person. To constitute a valid stipulation pour autrui it must be the purpose and intent of the stipulating parties to benefit the third and it is not sufficient that the third person may be incidentally benefited b y the stipulation. The fairest test to d etermine whether the interest of third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In applying this test, it meters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promisee to the third person. That no such obsorption exists may in some degree assist in determining whether the parties intended to benefit a third person.
Held: NO. In this connection, this Court has laid down the rule that the fairest test to determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.4 In the instant case the insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in question. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." ind icating that it was only the H.S. Re yes, Inc. which they intended to benefit. We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or pretension of the appellants that they are privy to the contract. If it were the intention of the insurance company to make itself liable to the repair shop or materialmen, it could have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the insurance contract intended to confer upon the appellants the benefit claimed by them would require us to ignore the indespensable requisite that a stipulation pour autrui must be clearly expressed by the parties, which we cannot do. As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishing privity between the appellants and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of the appellants a right of action against the insurance company as such intention can never be inferred therefrom.
Case : Miguel Florentino, et al. vs. Salvador Encarnacion, et al., Sept. 30, 1977, J.
Guerrero. Facts: Just after the death of Encarnacion FIorentino in 1941 up to last year and as had always been the case since time immomorial the products of the land made subject matter of this land has been used in answering for the payment for the religious functions specified in the Deed Extrajudicial Partition belated August 24, 1947. This arrangement about the products answering for the comment of expenses for religions functions as mentioned above was not registered in the office of the Register of Deeds under Act No 3344, Act 496 or and, other system of registration. The heirs, however, of Encarnacion filed with CFI of Ilocos Sur an application for registration of a parcel of agricultural land and the revocation of the said provision in the Deed pertaining to the products of such land subj ect to payment of religious functio ns expenses.
option of the co-heir s.
Case: Bank of America NT & SA vs. IAC and Air Cargo and Travel Corporation, Nov. 11, 1986, J. Melencio-Herrera. Facts: Plaintiff Air Cargo and Travel Corporation is the owner of Account Number 19842-01-2 with defendant Bank of America. Defendant Toshiyuki Minami, President of plaintiff corporation in Japan, is the owner of Account Number 24506-01-7 with defendant Bank. On March 10, 1981, the Bank received a tested telex advise from Kyowa Bank of Japan stating, ADVISE PAY USDLS 23,595. — TO YOUR A/C NBR 24506-01-7 OF A. C. TRAVEL CORPORATION MR. TOSHIYUKO MINAMI and the Bank Credited the amount of US$23,595.00 to Account Number 24506-07-1
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CASE DIGESTS - CONTRACTS (should be 24506-01-7) owned, as aforesaid, by Minami. On March 12, 1981, Minami withdrew the sum of P180,000.00 the equivalent in Philippine Pesos of the sum of US$23,595.00 from the Bank on his Account Number 24506-07-1 (should be 2450601-7). According to ACTC in its Comment, in the early part of 1981, it was Tokyo Tourist Corporation in Japan which applied with Kyowa Bank, Ltd. also based in Tokyo, Japan, for telegraphic transfer of the sum of US$23,595.00 payable to ACTC's account with BANKAMERICA, Manila. When the tested telex was received on May 10, 1981, employees of BANKAMERICA noted its patent ambiguity. Notwithstanding, on the following da y, BANKAMERICA credited the amount o f US$23,595.00 to the account of Minami. ACTC claimed that the amount should have been credited to its account an d demanded restitution, but BANK AMERICA refused. On February 18, 1982, ACTC filed suit for damages against BANKAMERICA and Minami before the Trial Court in Pasig for the failure of BANKAMERICA to restitute. Trial court decided in favor of the respondent. CA also affirmed.
Issue: Whether or not there was a stipulation pour au trui . Held: YES. In Vargas Plow Factory, Inc. vs. Central Bank, it was held that "the opening of a letter of credit in favor of the exporter becomes ultimately but the result of a stipulation pour autrui" (27 SCRA 84 [1969]). Similarly, when KYOWA asked
BANK-AMERICA to pay an amount to a beneficiary (either ACTC or Minami), the contract was between KYOWA and BANK-AMERICA and it had a stipulation pour autrui. It is our considered opinion that, in the tested telex, considered either as a patent ambiguity or as a latent ambiguity, the beneficiary is Minami. The mention of Account No. 24506-01-7, a s well as the name of Minami, has to be given more weight than t he mention of the name of ACTC. BANKAMERICA could not have very well disregarded that account number. It could also be that the mention of ACTC's name was a further identification of Minami, to prevent payment to a possible another "Toshiyuko Minami" who may not be connected with ACTC. On the other hand, it should be difficult to concede that, in the tested telex, Account No. 24506-01-7 was erroneously written and should be substituted by Account No. 19842-01-2 in the name of ACTC. It should be recalled that the tested telex originated from KYOWA at the behest of Tokyo Tourist Corporation with whom ACTC had business dealings. Minami, on the other hand, was the liaison officer of ACTC in Japan. As the entity responsible for the tested telex was Tokyo Tourist Corporation, it can reasonably be concluded that if it had intended that the US$23,595.00 should be credited to ACTC, upon learning that the amount was credited to Minami, it should have gone, together with the representatives of ACTC, in protest to KYOWA and lodged a protest. Since that was not done, it could well be that Tokyo Tourist Corporation had really intended its remittance to be credited to Minami. The identity of the beneficiary should be in accordance with the identification made by KYOWA, and ACTC cannot question that identification as it is not a party to the arrangement between KYOWA and BANKAMERICA (see Manila Railroad Co. vs. Compañia Trasatlantica, 38 Phil. 875 [1918]).
Case: Marimperio Campañia Naviera, S.A. vs. CA and Union Import and Export Corporation and Philippine Traders Corporation, Dec. 14, 1987, J. Paras. Facts: In 1964 Philippine Traders Corporation and Union Import and Export Corporation entered into a joint business venture for the purchase of copra from Indonesia for sale in Europe. James Liu President and General Manager of the Union took charge of the European market and the chartering of a vessel to take the copra to Europe. Peter Yap of Philippine on the other hand, found one P.T. Karkam in Dumai Sumatra who had around 4,000 tons of copra for sale. Exequiel Toeg of Interocean was commissioned to look for a vessel and he found the vessel "SS Paxoi" of Marimperio available. Philippine and Union authorized Toeg to negotiate for its charter but with instructions to keep confidential the fact that they are the real charterers. Consequently on March 21, 1965, in London England, a "Uniform Time Charter" for the hire of vessel "Paxoi" was entered into by the owner, Marimperio Compania Naviera, S.A. through its agents N. & J. Vlassopulos Ltd. and Ma tthews Wrightson, Burbridge, Ltd. to be referred to simply as Matthews, representing Interocean Shipping Corporation, which was made to appear as charterer, although it merely acted in behalf of the real charterers, private respondents herein. The Charterer was however twice in default in its payments which were supposed to have been done in advance. Hence, Union Import and Export Corporation and Philippine Traders Corporation filed a complaint with the Court of First Instance of Manila, Branch VIII, against the Unknown Owners of the Vessel "SS Paxoi" for specific performance with prayer for preliminary attachment. CFI rendered its decision in favor of Marimperio and against UIEC. CA affirmed.
Issue: Whether or not UI EC has legal capacity to brin g the suit for specifi c perfor mance against Mar imperi o based on the Charter Part y.
Held: NO. It is obvious from the disclosure made in the charter party by the authorized broker, the Overseas Steamship Co., Inc., that the real charterer is the Interocean Shipping Company (which sublet the vessel to Union Import and Export Corporation which in turn sublet it to Philippine Traders Corporation). In a sub-lease, there are two leases and two distinct judicial relations although intimately connected and related to each other, unlike in a case of assignment of lease, where the lessee transmits absolutely his right, and his personality disappears; there only remains in the juridical relation two persons, the lessor and the assignee who is converted into a lessee (Moreno, Philippine Law Dictionary, 2nd ed., p. 594). In other words, in a contract of sub-lease, the personality of the lessee does not disappear; he does not transmit absolutely his rights and obligations to the sub-lessee; and the sub-lessee generally does not have any direct action against the owner of the premises as lessor, to require the compliance of the obligations contracted with the plaintiff as lessee, or vice versa (10 Manresa, Spanish Civil Code, 438). However, there are at least two instances in the Civil Code which allow the lessor to bring an action directly (accion directa) against the sub-lesse e (use and preservation of the premises under Art. 1651, and rentals under Article 1652).
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CASE DIGESTS - CONTRACTS Art. 1651 reads: “Without prejudice to his obligation toward the sub-lessor, the sublessee is bound to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee.” Article 1652 reads: “The sub-lessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sub-lessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sub-lease, at the time of the extra-judicial demand by the lessor. Payments of rent in advance by the sub-lessee shall be deemed not to have been made, so far as the lessor's claim is concerned, unless said payments were effected in virtue of the custom of the place.” It will be noted however that in said two Articles it is not the sub-lessee, but the lessor, who can bring the action. In the instant case, it is clear that the sub-lessee as such cannot maintain the suit they filed with the trial court (See A. Maluenda and Co. v. Enriquez, 46 Phil. 916). In the law of agency "with an undisclosed principal, the Civil Code in Article 1883 reads: If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provisions of this article shag be understood to be without prejudice to the actions between the principal and age nt. While in the instant case, the true charterers of the vessel were the private respondents herein and they chartered the vessel through an intermediary which upon instructions from them did not disclose their names. Article 1883 cannot help the private
respondents, because although they were the actual principals in the charter of the vessel, the law does not allow them to bring any action against the adverse party and vice, versa. Case: Geo Daywalt vs. La Corporacion De Los Padres Agustinos Recoletos, et al.,
J. Street. Facts: In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of Mindoro, executed a contract whereby she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in the barrio of Mangarin, municipality of Bulalacao, now San Jose, in said province. It was agreed that a deed should be executed as soon as the title to the land should be perfected by proceedings in the Court of Land Registration and a Torrens certificate should be produced therefore in the name of Teodorica Endencia. A decree recognizing the right of Teodorica as owner was entered in said court in August 1906, but the Torrens certificate was not issued until later. The second contract was not immediately carried into effect for the reason that the Torrens certificate was not yet obtainable and in fact said certificate was not issued until the period of performance contemplated in the contract had expired. The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the proceedings relative to the reg istration of the land, it was found b y official survey that the area of the tract inclosed in the boundaries stated in the contract was about 1.248
hectares of 452 hectares as stated in the contract. In view of this development Teodorica Endencia became reluctant to transfer the whole tract to the purchaser, asserting that she never intended to sell so large an amount of land and that she had been misinformed as to its area. This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the Supreme Court, in obtaining a decree for specific performance; and Teodorica Endencia was ordered to convey the entire tract of land to Daywalt pursuant to the contract of October 3, 1908, which contract was declared to be in full force and effect. When the Torrens certificate was finally issued in 1909 in favor of Teodorica Endencia, she delivered it for safekeeping to the defendant corporation, and it was then taken to Manila where it remained in the custody and under the control of P. Juan Labarga the procurador and chief official of the defendant corporation, until the deliver thereof to the plaintiff was made compulsory by reason of the decree of the Supreme Court in 1914. Agustines then entered into some arrangement with Endencia with the use of the land. Daywalt, however, sued Agustines for unlawfully inducing Endencia to refrain from the performance of her contract for the sale of land in question.
Issue: Whether L a Corporaci on may be held li able to the vendee, beyond the value of the use and occupation of th e lan d by coll udin g with th e vendor.
Held: NO. Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting one of the parties to evade performance, there is one proposition upon which all must agree. This is, that the stranger cannot become
more extensively liable in damages for the nonperformance of the contract than the party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could be recovered against the immediate party to the contract would lead to results at once grotesque and unjust. In the case at bar, as Teodorica Endencia was the party directly bound by the contract, it is obvious that the liability of the defendant corporation, even admitting that it has made itself coparticipant in the breach of the contract, can in no even exceed hers. This leads us to consider at this point the extent of the liability of Teodorica Endencia to the plaintiff by reason of her failure to surrender the certificate of title and to place the plaintiff in possession. It should in the first place be noted that the liability of Teodorica Endencia for damages resulting from the breach of her contract with Daywalt was a proper subject for adjudication in the action for specific performance which Daywalt instituted against her in 1909 and which was litigated by him to a successful conclusion in this court, but without obtaining any special adjudication with reference to damages. Indemnification for damages resulting from the breach of a contract is a right inseparably annexed to every action for the fulfillment of the obligation (art. 1124, Civil Code); and its is clear that if damages are not sought or recovered in the action to enforce performance they cannot be recovered in an independent action. As to Teodorica Endencia, therefore, it should be considered that the right of action to recover damages for the breach of the contract in question was exhausted in the prior suit. However, her attorneys have not seen fit to interpose the defense of res judicata in her behalf; and as the defendant
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CASE DIGESTS - CONTRACTS corporation was not a party to that action, and such defense could not in any event be of any avail to it, we proceed to consider the question of the liability of Teodorica Endencia for damages without refernce to this point. The most that can be said with refernce to the conduct of Teodorica Endencia is that she refused to carry out a contract for the sale of certain land and resisted to the last an action for specific performance in court. The result was that the plaintiff was
prevented during a period of several years from exerting that control over the property which he was entitled to exert and was meanwhile unable to dispose of the property advantageously. Case: C.S. Gilchrist vs. E.A. Cuddy, et al. and Jose Fernandez Espejo and Mariano Zaldarriaga, Feb. 18, 1915, J. Trent. Facts: Cuddy, a resident of Manila, was the owner of the "Zigomar;" that Gilchrist was the owner of a cinematograph theater in Iloilo; that in accordance with the terms of the contract entered into between Cuddy and Gilchrist the former leased to the latter the "Zigomar" for exhibition in his (Gilchrist's) theater for the week beginning May 26, 1913; and that Cuddy willfully violate his contract in order that he might accept the appellant's offer of P350 for the film for the same period. Espejo admitted that he knew that Cuddy was the owner of the film. He received a letter from his agents in Manila dated April 26, assuring him that he could not get the film for about six weeks . The arrangement between Cuddy and the appellants for the exhibition of the film by the latter on the 26th of May were perfected after April 26, so that the six weeks would include and extend beyond May 26.
Issue: Whether or n ot there was in terference. Held: YES. In the case at bar the only motive for the interference with the Gilchrist — Cuddy contract on the part of the appellants was a desire to make a profit by exhibiting the film in their theater. There was no malice beyond this desire; but this fact does
not relieve them of the legal liability for interfering with that contract and causing its breach. It is, therefore, clear, under the above authorities, that they were liable to Gilchrist for the damages caused by their acts, unless they are relieved from such liability by reason of the fact that they did not know at the time the identity of the original lessee (Gilchrist) of the film. The liability of the appellants arises from unlawful acts and not from contractual obligations, as they were under no such obligations to induce Cuddy to violate his contract with Gilchrist. So that if the action of Gilchrist had been one for damages, it would be governed by chapter 2, title 16, book 4 of the Civil Code. Article 1902 of that code provides that a person who, by act or omission, causes damages to another when there is fault or negligence, shall be obliged to repair the damage do done. There is nothing in this article which requires as a condition precedent to the liability of a tortfeasor that he must know the identity of a person to whom he causes damages. In fact, the chapter wherein this article is found clearly shows that no such knowledge is required in order that the injured party may recover for the damage suffered. But the fact that the appellants' interference with the Gilchrist contract was actionable did not of itself entitle Gilchrist to sue out an injunction against them.
Case: Estate of K.H. Hemady, deceased vs. Luzon Surety Co., Inc., Nov. 28, 1956,
J.B.L. Reyes. Facts: The Luzon Surety Co. had filed a claim against the Estate based on twenty different indemnity agreements, or counter bonds, each subscribed by a distinct principal and by the decea sed K. H. Hemady, a suret y solidary guarantor) in all of them, in consideration of the Luzon Surety Co.’s of having guaranteed, the various principals in favor of different cred itors. The Luzon Surety Co., pra yed for allowance, as a contingent claim, of the value of the twenty bonds it had executed in consideration of the counterbonds, and further asked for judgment for the unpaid premiums and documentary stamps affixed to the bonds, with 12 per cent interest thereon. The lower court dismissed the claims of Luzon Surety stating, (1) that the premiums due and cost of documentary stamps were not contemplated under the indemnity agreements to be a part of the undertaking of the guarantor (Hemady), since they were not liabilities incurred after the execution of the counterbonds; and (2) that “whatever losses may occur after Hemady’s death, are not chargeable to his estate, because upon his death he ceased to be guarantor.”
Issue: Whether or n ot Lu zon Sur ety can fi le against the estate a contingent clai m for reimbursement.
Held: YES. Our conclusion is that the solidary guarantor’s liability is not extinguished by his death, and that in s uch event, the Luzon Suret y Co., had the right to file against the estate a contingent claim for reimbursement. It becomes unnecessary now to discuss the estate’s liability for premium s and stamp taxes, because irrespective of the solution to this question, the Luzon Surety’s claim did state a cause of action, and its dismissal was erroneous. The foregoing concept is confirmed by the next Article 2057, that runs as follows: “ART. 2057. — If the guarantor should be convicted in first instance of a crime involving dishonesty or should become insolvent, the creditor may demand another who has all the qualifications required in the preceding article. The case is excepted where the creditor has required and stipulated that a specified person should be guarantor.” From this article it should be immediately apparent that the supervening dishonesty of the guarantor (that is to say, the disappearance of his integrity after he has become bound) does not ter minate the contract but merely entitles the creditor to demand a replacement of the guarantor. But the step remains optional in the creditor: it is his right, not his duty; he may waive it if he chooses, and hold the guarantor to his bargain. Hence Article 2057 of the present Civil Code is incompatible with the trial court’s stand that the requirement of integrity in the guarantor or surety makes the latter’s undertaking strictly personal, so linked to his individuality that the guaranty automatically terminates upon his death. The contracts of suretyship entered into by K. H. Hemady in favor of Luzon Surety Co. not being rendered intransmissible due to the nature of the undertaking, nor by the stipulations of the contracts themselves, nor by provision of law, his eventual liability
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CASE DIGESTS - CONTRACTS thereunder necessarily passed upon his death to his heirs. The contracts, therefore, give rise to contingent claims provable against his estate under section 5, Rule 87 (2 Moran, 1952 ed., p. 437; Gaskell & Co. vs. Tan Sit, 43 Phil. 810, 814). “The most common example of the contigent claim is that which arises when a person is bound as surety or guarantor for a principal who is insolvent or dead. Under the ordinary contract of suretyship the surety has no claim whatever against his principal until he himself pays something by way of satisfaction upon the obligation which is secured. When he does this, there instantly arises in favor of the surety the right to compel the principal to exonerate the surety. But until the surety has contributed something to the payment of the debt, or has performed the secured obligation in whole or in part, he has no right of action against anybody — no claim that could be reduced to judgment. (May vs. Vann, 15 Pla., 553; Gibson vs. Mithell, 16 Pla., 519; Maxey vs. Carter, 10 Yarg. [Tenn.], 521 Reeves vs. Pulliam, 7 Baxt. [Tenn.], 119; Ernst vs. Nou, 63 Wis., 134.)” Case Discussions: “Contracts take effect only as between the parties, their assigns and heirs, ex cept in the case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.” While in our successional system the responsibility of the heirs for the debts of their decedent cannot exceed the value of the inheritance they receive from him, the principle remains intact that these heirs succeed not only to the rights of the deceased but also to his obligations. “The principle on which these decisions rest is not affected by the provisions of the new Code of Civil Procedure, and, in accordance with that principle, the heirs of a deceased person cannot be held to be “third persons” in relation to any contracts touching the real estate of their decedent which comes in to their hands by right of inheritance; they take such property subject to all the obligations resting thereon in the hands of him from whom they derive their rights.” The binding effect of contracts upon the heirs of the deceased party is not altered by the provision in our Rules of Court that money debts of a deceased must be liquidated and paid from his estate before the residue is distributed among said heirs (Rule 89). The reason is that whatever payment is thus made from the estate is ultimately a payment by the heirs and distributees, since the amount of the paid claim in fact diminishes or reduces the shares that the heirs would have been entitled to receive. General rule: A party’s contractual rights and obligations are transmissible to the successors. Ratio: The rule is a consequence of the p rogressive “depersonalization” of patrimonial rights and duties that, as observed by Victorio Polacco, has characterized the history of these institutions. From the Roman concept of a relation from person to person, the obligation has evolved into a relation from patrimony to patrimony, with the persons occupying only a representative position, barring those rare cases where the obligation is strictly personal, i.e., is contracted intuitu personae, in consideration of its performance by a specific person and by no other. The transition is marked by the disappearance of the imprisonment for debt. Exceptions:
1.
The nature of the obligation of the surety or guarantor does not warrant the conclusion that his peculiar individual qualities are contemplated as a principal inducement for the c ontract. 2. Intransmissibility by stipulation of the parties. Being exceptional and contrary to the general rule, this intransmissibility should not be easily implied, but must be expressly established, or at the very least, clearly inferable from the provisions of the contract itself, and the text of the agreements s ued upon nowhere indicate that they are non-transferable. Because under the law (Article 1311), a person who enters into a contract is deemed to have contracted for himself and his heirs and assigns, it is unnecessary for him to expressly stipulate to that effect; hence, his failure to do so is no sign that he intended his bargain to terminate upon his death. Similarly, that the Luzon Surety Co., did not require bondsman Hemady to execute a mortgage indicates nothing more than the company’s faith and confidence in the financial stability of the surety, but not that his obligation was strictly personal. 3. “Not transmissible by operation of law”. a. The provision makes reference to those cases where the law expresses that the rights or obligations are extinguished by death, as is the case in legal support (Article 300), parental authority (Article 327), usufruct (Article 603), contracts for a piece of work (Article 1726), partnership (Article 1830 and agency (Article 1919). By contract, the articles of the Civil Code that regulate guaranty or suretyship (Articles 2047 to 2084) contain no provision that the guaranty is extinguished upon the death of the guarantor or the surety. Case: So Ping Bun vs. CA and Tek Hua Enterprises Corp. and Manuel Tiong, September 21, 1999, J. Quisumbing. Facts: In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts were premises located at Nos. 930, 930-Int., 924-B and 924C, Soler Street, Binondo, Manila. Tek Hua used the areas to store its textiles. The contracts each had a one-year term. They provided that should the lessee continue to occupy the premises after the term, the lease shall be on a month-to-month basis. When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the premises. In 1976, Tek Hua Trading Co. was dissolved. Later, the original members of Tek Hua Trading Co. including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein respondent corporation. So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok's grandson, petitioner So Ping Bun, occupied the warehouse for his own textile business, Trendsetter Marketing. On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the latter of the 25% increase in rent effective September 1, 1989. The rent increase was later on reduced to 20% effective January 1, 1990, upon other lessees' demand. Again on December 1, 1990, the lessor implemented a 30% rent increase.
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CASE DIGESTS - CONTRACTS Enclosed in these letters were new lease contracts for signing. DCCSI warned that failure of the lessee to accomplish the contracts shall be deemed as lack of interest on the lessee's part, and agreement to the termination of the lease. Private respondents did not answer any of these letters. Still, the lease contracts were not rescinded. Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok, he had been occupying the premises for his textile business and religiously paid rent. DCCSI acceded to petitioner's request. The lease contracts in favor of Trendsetter were executed. In the suit for injunction, private respondents pressed for the nullification of the lease contracts between DCCSI and petitioner. They also claimed d amages. Trial court ruled in annulling the contract of lease between So Ping Bun and Dee. CA upheld trial court’s decision.
Issue: Whether or not So Ping Bun is guilty of tor tuous interference of contract. Held: YES. 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. A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other of his private property. This may pertain to a situation where a third person induces a party to renege on or violate his undertaking under a contract. In the case before us, petitioner's Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latter's property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference above-mentioned are present in the instant case. Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of furthering his own financial or economic interest. One view is that, as a general rule, justification for interfering with the business relations of another exists where the actor's motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe that it is not necessary that the interferer's interest outweigh that of the p arty whose rights are invaded, and that an individual acts under an economic interest that is substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts in self-protection. Moreover justification for protecting one's financial position should not be made to depend on a comparison of his economic interest in the subject matter with that of others. It is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives. As early as Gilchrist vs. Cuddy, we held that where there was no malice in the interference of a contract, and the impulse behind one's conduct lies in a proper business interest rather than in wrongful motives, a party cannot b e a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.
In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his enterprise at the expense of respondent corporation. Though petitioner took interest in the p roperty of respondent corpo ration and benefited from it, nothing on record imputes deliberate wrongful motives or malice on him. Case: Nicolas Sanchez vs. Severina Rigos, June 14, 1972, J. Concepcion. Facts: On April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,5 10.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, within two (2) years from said date with the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and damages. Rigos contended that the contract between the parties "is a unilateral promise to sell, and the same being unsupp orted by any valuable consideration, by force of the New Civil Code, is null and void". Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance.
Issue: Whether or not th ere was a perfected contr act of sale. Held: YES. However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek , 8 decided later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said: Furthermore, an option is unilateral : a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option , the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was a bilateral contract of sale. Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that: "If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not
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CASE DIGESTS - CONTRACTS supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and cases cited.) "It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts — the offer and the acceptance — could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.) In other words, since there may be 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. Case: Tong Brothers Co vs. IAC and Juliano and Company, Dec. 21, 1987, J.
Gutierrez Jr. Facts: The petitioner is a registered general partnership engaged in the construction and repair of vessels with drydocking facilities at Recodo Zamboanga del Sur while the private respondent is a do mestic corporation engaged in the coastwise shipping industry operating for that purpose the vessel M/S Zamboanga-J. Sometime in December, 1974, the private respondent allegedly contracted with the petitioner the annual drydocking and repair of the Zamboan ga-J. On the ground that the petitioner did not complete and execute all the work necessary, e ssential and indispensable to rendering the vessel seaworthy resulting in its deterioration and total loss, the private respondent filed a complaint against the petitioner for specific performance and damages with the Court of First Instance of Cotabato. The petitioner denied that there was a perfected contract to repair Zamboanga-J between the two parties.
Issue: Whether or not th ere was a perfected contr act between the petition er and th e pri vate respondents to repair the vessel Zamboanga- J.
Held: NO. There was not yet a meeting of the minds as to the cause of the contract. The cause of a contract has been defined "as the essential reason which moves the contracting parties to enter into it (8 Manresa, 5th Edition, p. 450). In other words, the cause is the immediate, direct and proximate reason which justifies the creation of an obligation thru the will of the contracting parties (3 Castan, 4th Edition, p. 347)." (General Enterprises, Inc. v. Lianga Bay Logging Co., Inc., 11 SCRA 733, 739). For the private respondent, the cause of the contract was the repair of its vessel Zamboanga-J while for the petitioner the cause would be its commitment to repair the vessel and make it seaworthy. The telegrams dated January 17, January 20, and
January 28, 1975 sent by the petitioner to the private respondent, however, indicate that the former had not accepted the repair of Zamboanga-J, the reason being that the extent of the repair to be made necessitated a major expense so that the petitioner insisted on the presence of the private respondent for evaluation before it accepted the repair of the wooden vessel. That the petitioner had not yet
consented to the contract is evident when on January 28, 1975, it sent a telegram stating: "... NO AGREEMENT AS TO THE EX TENT OF REPAIRS AND PAYMENT WILL UNDOCK VESSEL." The fact that the private respondent who received this telegram ignored it, confirms that there was no perfected contract to repair ZamboangaJ. It is to be noted that despite its knowledge of Zamboanga-J having been undocked as early as February 7, 1975 when the petitioner sent a telegram advising that Zamboanga-J undocked already, " the private respondent took no action to save its vessel. Instead, its officers and crew were ordered ashore and the vessel was left to rot and decay in the sea of Zamboanga. It was only on July 28, 1975, after the lapse of almost six months, that the private respondent tried to recover the value of its vessel from the petitioner. Under the circumstances, we rule that the proximate cause of the total loss of Zamboanga-J was the negligence of the private respondent. Breach of contract by the appellant could not have been the proximate cause as there was no perfected contract between the parties to repair Zambo anga-J. Hence, the p rivate respondent is not entitled to recover damages against the private respondent. Case: Lorenzo Velasco and Socorro Velasco vs. CA and Magdalena Estate, Inc., June 29, 1973, J. Castro. Facts: This is a suit for specific performance filed by Lorenzo Velasco against the Magdalena Estate, Inc. on the allegation that on November 29, 1962 the plaintiff and the defendant had entered into a contract of sale by virtue of which the defendant offered to sell the plaintiff and the plaintiff in turn agreed to buy a parcel of land at No. 39 corner 6th Street and Pacific Avenue, New Manila, this City, for the total purchase price of P100,000.00 . It is alleged by the plaintiff that the agree ment was that the plaintiff was to give a down pa yment of P10,000.00 to b e followed by P20,000.0 0 and the balance of P70,000.00 would be paid in installments, the equal monthly amortization of which was to be determined as soon as the P30,000.00 down payment had been completed. It is further alleged that the plaintiff paid down payment of P10,000.00 on November 29, 1962 as per receipt No. 207848 and that when on January 8, 1964 he tendered to the defendant the payment of the additional P20,000.00 to complete the P30,000.00 the defendant refused to accept and that eventually it likewise refused to execute a formal deed of sale obviously agreed upon. The plaintiff demands P25,000.00 exemplary damages, P2,000.00 actual damages and P7,000.00 attorney's fees. The defendant, in its Answer, denies that it has had any direct dealings, much less,
contractual relations with the plaintiff regarding the property in question, and contends that the alleged contract is entirely unenforceable under the Statute of Frauds. Issue: Whether or not a contr act of sale was perfected alth ough th e parties did not agree yet as to the “manner of payment”.
Held: NO. It is not difficult to glean from the aforequoted averments that the petitioners themselves admit that they and the respondent still had to meet and agree on
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CASE DIGESTS - CONTRACTS how and when the down-payment and the installment payments were to be paid. Such being the situation, it cannot, therefore , be said that a definite and firm sales agreement between the parties had been perfected over the lot in questio n. Indeed, this Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential ele ment in the formation of a binding and unforceable contract of sale. 3 The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000 as part of the down-payment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under article 1482 of the new Civil Code, as the petitioners t hemselves admit that some essential matter — the terms of payment — still had to be mutually covenanted. Case: Pentacapital Investment Corp. vs. Makilito Mahinay, July 5, 2010, J.
Nachura. Facts: Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay based on two separate loans obtained by the latter, amounting to P1,520,000.00 and P416,800.00, or a total amount of P1,936,800.00. These loans were evidenced by two promissory notes dated February 23, 1996. Despite repeated demands, respondent failed to pay the loans, hence, the complaint. In his Answer with Compulsory Counterclaim, respondent claimed that petitioner had no cause of action because the promissory notes on which its complaint was base d were subject to a condition that did not occur. While admitting that he indeed signed the promissory notes, he insisted that he never took out a loan and that the notes were not intended to be evidences of indebtedne ss. By way of counterclaim, respondent prayed for the payment of moral and exemplary damages plus attorney’s fees. In this case, respondent denied liability on the ground that the promissory notes lacked consideration as he did not receive the proceeds of the loan.
Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful unless the debtor proves the contrary. Moreover, under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1) private transactions have been fair and regular; (2) the ordinary course of business has been followed; and (3) there was sufficient consideration for a contract. A presumption may operate a gainst an adversary who ha s not introduced proo f to rebut it. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to mee t the legal presumption or the p rima facie case created thereby, and which, if no proof to the contrary is presented and offered, will prevail.
The burden of proof remains where it is, but by the presumption, the one who has that burden is relieved for the time being from introducing evidence in support of the averment, because the presumption stands in the place of evidence unless rebutted. In the present case, as proof of his claim of lack of consideration, respondent denied under oath that he owed petitioner a single centavo. He added that he did not apply for a loan and that when he signed the promissory notes, they were all blank forms and all the blank spaces were to be filled up only if the sale transaction over the subject properties would not push thr ough because of a possible adverse decision in t he civil cases involving them (the properties). He thus posits that since the sale pushed through, the promissory notes did not become effective. Contrary to the conclusions of the RTC and the CA, we find such proof insufficient to overcome the presumption of consideration. The presumption that a contract has sufficient consideration cannot be overthrown by the bare, uncorroborated and self-serving assertion of respondent that it has no consideration. The alleged lack of consideration must be shown by preponderance of evide nce.
Case: Agustino Ong Yiu vs. CA and Philippine Air Lines, Inc., June 29, 1979, J.
Issue: Whether or not th e respondent is bound by the promi ssory note.
Melencio-Herrera. Facts: On August 26, 1967, petitioner was a fare paying passenger of respondent
Held: YES. In its complaint for sum of money, petitioner prayed that respondent be
Philippine Air Lines, Inc. (PAL), on board Flight No. 463-R, from Mactan Cebu, bound for Butuan City. He wa s scheduled to attend the trial o f Civil Case No. 1005 and Spec. Procs. No. 1125 in the Court of First Instance, Branch II, thereat, set for hearing on August 28-31, 1967. As a passenger, he checked in one piece of luggage, a blue "maleta" for which he was issued Claim Check No. 2106-R. The plane left Mactan Airport, Cebu, at about 1:00 o'clock P.M., and arrived at Bancasi airport, Butuan City, at past 2:00 o'clock P.M., of the same day. Upon arrival, petitioner claimed his luggage but it could not be found. The next day, the missing lu ggage was delivered to hi m but with folder containing certain exhibits, transcripts and private documents in Civil Case No. 1005 and Sp. Pro cs. No. 1126 were missing, aside from two gift items for his parents-in-law. Petitioner refused to ac cept the luggage. Dagorro re turned it to the porter clerk, Maximo Gomez, who sealed it and forwarded the same to PAL Cebu. Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss of his documents, which was granted by the Court. Hence, Ong filed a complaint against PAL for damages for breach of contract of transportation. Trial court found PAL to have acted in bad faith and awarded moral damages amounting to 80,000
ordered to pay his obligation amounting to P1,936,800.00 plus interest and penalty charges, and attorney’s fees. This obligation was evidenced by two promissory notes executed by respondent. Respondent, however, denied liability on the ground that his obligation was subject to a condition that did not occur. He explained that the promissory notes were depend ent upon the happenin g of a remote event that the p arties tried to anticipate at the time they transacted with each other, and the event did not happen.36 He further insisted that he did not receive the proceeds of the loan. To ascertain whether or not respondent is bound by the promissory notes, it must be established that all the elements of a contract of loan are present. Like any other contract, a contract of loan is subject to the rules governing the requisites and validity of contracts in general. It is elementary in this jurisdiction that what determines the validity of a contract, in general, is the presence of the following elements: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.
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CASE DIGESTS - CONTRACTS and exemplary damages, 30,000, with attorney’s fees, 5,000 . However, CA only found PAL guilty of simple negligence and revered the decision of trial court granting moral and exemplary damages to Ong but ordered PAL to pay Ong the sum of 100.00, the baggage li abil ity assumed by the form er under the conditi on of carr iage at the back of the ticket.
Issue: Whether or not Ong and PAL entered into a contract which limited PAL’s liabil ity on l ost documents of Ong.
Held: YES. We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the plan e ticket reads: 8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damaged baggage of the passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher valuation in excess of P100.00, but not in excess, however, of a total valuation of P1,000.00 and additional charges are paid pursuant to Carrier's tariffs. There is no dispute that petitioner did not declare any higher value for his luggage, much less did he pay any additional transportation charge. But petitioner argues that there is nothing in the evidence to show that he had actually entered into a contract with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, a nd that Article 1750* of the Civi l Code has not been complied with. While it may be true that petitioner had not signed the plane ticket, he is nevertheless bound by the provisions th ereof. "Such provision s have been held to b e a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation". It is what is known as a contract of "adhesion", in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding one from contracting against his own negligence. Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be permitted a recovery in exces s of P100.00.Besi des, passengers are advised not to place valuable items inside their baggage but "to avail of our Vcargo service ". I t is likewise to be noted that there is nothing in the evidence to show the actual value of the goods allegedly lost by petitioner. Case: Weldon Construction Corp. vs. CA and Manuel Cancio, Oct. 12, 1987, J. Cortes. Facts: In 1961 Lucio Lee, whose name was later changed to Lucio Lee Rodriguez, was doing business under the trade name Weldon Construction, the predecessor-in-interest of the herein petitioner, WELDON CONSTRUCTION CORPORATION. The latter corporation was incorporated in July, 1963 as a closed corporation composed of Lucio Tee (owner of Weldon Construction), his wife, his sister and the latter's husband, and a cousin. The assets of Weldon Construction were transferred to, and its liabilities
assumed by the new corporation. Hence, the instant case was brought by WELDON CONSTRUCTION CORPORATION as successor-in-interest of Weldon Construction and Lucio Lee. Prior to March 7, 1961, Lucio Lee drafted plans for a theater-apartment building which private respondent Cancio inte nded to put up. There after, on March 7, 1961 , he submitted to the latter a proposal for the supervision of the construction of said building on commission b asis. The proposal was signed not by Lee but by his office manager, Antonio Wong. The private respondent never affixed his signature on the document. Among the provisions Contained in the proposal was the setting up of a revolving fund of P10,000.00 Pesos for the costs and expenditures to be incurred in the construction of the building, such as materials and labor among others. The fund was to be replenished by the owner of the buildin g from time to time ( Id ). The proposal also provided for th e payment to Weldon Con structi on of a commission of ten per cent (10%) of the total cost of the buildi ng.
Issue: Whether or n ot the contract providing for the commission of Weldon was perfected.
Held: NO. In view of all the foregoing considerations this Court finds that the agreement between the parties is the contract of construction for a stipulated price which is akin to a contract for a piece of work defined in the aforequoted article. Both parties having fully performed their reciprocal obligations in accor dance with said contract, petitioner is estopped from invoking an entirely different agreement so as to demand additional consideration. Once a contract has been consummated, there is nothing left to be done or to be demanded by the parties thereto. All obligations arising from the contract are extinguished. As set by the parties, the consideration for the construction of the Gay Theater building is P600,000.00 Pesos which amount has been fully paid by the private respondent.
There is no basis for the petitioner's demand for the payment of P62,378.83 Pesos as commission of ten per cent (10%) of the total cost of construction. The first proposal submitted by Weldon Construction for rendering service under a contract of supervision (Exhibit "A") is simply that, a proposal. It never attained perfection as the contract betwe en the parties. Only an absolute or unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract (Article 1319, New Civil Code). The advance payment of P10,000.00 Pesos was not an unqualified acceptance of the offer contained in the first proposal (Exhibit "A") as in fact an entirely new proposal (Exhibit "4") was submitted by Weldon Construction subsequently. If, as claimed by the petitioner, the parties had already agreed upon a contract of supervision under Exhibit "A," why then was a second proposal made? Res ipsa loquitur. The existence of the second proposal belies the perfection of any contract arising from the first proposal . Case: C & C Commercial Corp. vs. Antonio Menor (Acting as Gen. M anager of National Waterworks and Sewerage Auth ority) and Members of the Committee on Pre-qualification, NAWASA, Jan. 27, 1983, J. Aquino.
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CASE DIGESTS - CONTRACTS Facts: Judge Cloribel of the Court of First Instance of Manila in his decision dated
Facts: On September 25, 1965, Lee See Guat, a widow, 61 years old, and an illiterate
March 1, 1967 in Civil Case No. 66750, a mandamus case, ordered the Acting General Manager of the National Waterworks and Sewerage Authority and the members of the Committee on Pre-Qualification to allow C & C Commercial Corporation to participate as a qualified bidder in the public bidding for the supply of asbestos cement pressure pipes to the Nawasa in spite of the fact t hat it had a pending tax case and had no tax clearance certificate. By virtue of that judgment, which became final because the Nawasa did not appeal, C & C Commercial Corporation took part in the bidding. When the bids were opened on May 18, 1967, it was found to be the lowest bidder. Judge Cloribel i n hi s order of August 23, 1967 granted the motion and or dered Menor and the other Nawasa off icials to award withi n ten days fr om notice the contract to C & . From that order, the Nawasa C Commercial Cor porati on as the lowest bidder appealed to this Court. Judge Cloribel approved its record on appeal in his order of November 9, 1967. Realizing that the appeal would dela y the award and that another bidder might be given the co ntract, C & C Commercial Corporatio n filed in the lower court another petition for mandamus dated November 21, 1967 wherein it prayed that the Nawasa Board of Directors, its Committee of Awards and Menor, its acting general manager, be restrained from awarding the contract to another bidder and that they be ordered to award the contract to C & C Commercial Corporation. Issue: Whether or not NA WASA can be compell ed to award th e contr act to C & C as the lowest bidder th ereof.
who spoke only Chinese, applied for an insurance on her life for P60,000 with the respondent Company. The application consisted of two parts, both in the English language. The second part of her application dealt with her state of health and because her answers indicated that she was healthy, the Company issued her Policy No. 0690397, effective October 23, 1965, with her nephew Vicente E. Tang, herein Petitioner, as her beneficiary, On November 15, 1965, Lee See Guat again applied with the respondent Company for an additional insurance on her life for P40,000. Considering that her first application had just been approved, no further medical examination was made. On April 20, 1966, Lee See Guat died of lung cancer. Thereafter, the beneficiary of the two policies, Vicente E. Tang claimed for their face value in the amount of P100,000 which the insurance company refused to pay on the ground that the insured was guilty of concealment and misrepresentation at the time she applied for the two policies. Hence, the filing of Civil Case No. 90062 in the Court of First Instance of Manila which dismissed the claim because of the concealment practised by the insured in violation of the Insurance Law. CA affirmed the decision of the CFI.
Held: NO. It was not the ministerial duty of the Nawasa officials to award the contract
show that the terms of the contract had been fully explained to the party who is unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here the insurance company is not seeking to enforce the contracts; on the contrary, it is seeking to avoid their performance. It is petitioner who is seeking to en force them even as fraud or mistake is not alleged. Accordingly, respondent company was under no obligation to prove that the terms of the insurance contracts were fully explained to the other party. Even if we were to say that the insurer is the one seeking the performance of the contracts by avoiding paying the claim, it has to be noted as above stated that there has been no imputation of mistake or fraud by the illiterate insured whose personality is represented by her beneficiary the petitioner herein. In sum, Art. 1332 is inapplicable to the case at bar. Considering the findings of both the CFI and Court of Appeals that the insured was guilty of concealment as to her state of health, we have to affirm.
to C & C Commercial Corporation even if it was the lowest bidder, The Nawasa in its addendum No.1 to the invitation to bid dated July 6, 1966 reserved the right "to reject the bid of any bidder" (p. 35, Record on Appeal). Therefore, a bidder whose bid is rejected has no cause for complaint nor a right to dispute the award to another bidder (Esguerra & Sons vs. Aytona, 114 Phil. 1189; Surigao Mineral Reservation Board vs. Cloribel, L-27072, July 31, 1968, 24 SCRA 491). It should be noted that "advertisements for bidders are simply invitations to make proposals, and the advertiser is no t bound to accept the h ighest or lowest bidd er, unless the contrary appears" (Art. 1326, Civil Code). No such contrary intention appears in this case. Moreover, the Nawasa was justified in not awarding the contract- to C & C Commercial Corporation because it had no tax clearance certificate. It had a pending tax case in the Bureau of Internal Revenue. The award to C & C Commercial Corporation would be in gross contravention of Administrative Order No. 66. That was the ruling in Nawasa vs. Reyes, L-28597, February 29, 1968, 22 SCRA 905, where the bidder was also the appellee herein, C & C Commercial Corporation. It was held therein that C & C Commercial Corporation was disqualified under the said order to take part in the bidding to supply the Nawasa with steel pipes because it had "tremendous tax liabilities ". Case: Vicente Tang vs. CA and Phil. American Life Insurance Company (PALIC), May 25, 1979, J. Abad Santos.
Issue: Whether or not it is PALIC’s obligation to explain the terms of the contract to an il literate insured.
Held: NO. It should be noted that under Art. 1332 above quoted, the obligation to
Case: Juanito Cariño and Cirila Vicencio vs. CA and Pablo Encabo, Juanita De los Santos and Land Authority, July 31, 1987, J. Padilla. Facts: On 22 January 1954, Pablo Encabo formally applied with the Land Estates Division, Bureau of Lands, to purchase a parcel of land designated as Lot 1, Block 4, Plan Psd-24819, which was a part of the Tuason Estate purchased by the government pursuant to the provisions o f Commonwealth Act No. 53 9, for resale to bona fide tenants or occupants who are qualified to own public land in the Philippines. Thereafter, Encabo, through petitioner Cirila Vicencio, supposedly as "agent, " came to an agreement with Josue Quesada transferring rights over the lot to the latter, conditioned on approval by the Land Tenure Administration (LTA, for short). The
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CASE DIGESTS - CONTRACTS transfer of rights by Encabo to Quesada was not put in writing but payment of the price for the rights transferred was evidenced by receipts. In November (undated) 1958, Encabo executed a Deed of Sale of House and Transfer of Rights (Exh. "D-1"), purportedly conveying to he rein petitioners (Juanito Cari ño and Cirila Vicencio), his rights over the lot, subject to approval of the LTA. On 17 December 1958, Encabo wrote a letter to the LTA (Exh. "1") requesting permission to transfer his rights. On 19 April 1960, Juanito Cariño filed a petition with the LTA seeking approval of the transfer to herein petitioners of rights to the lot in question on the basis of the Deed of Sale of House and Transfer of Rights executed by Pablo Encabo (Exh. "D-1"). The petition of Juanito Cariño was do cketed as LTA Case No. 490 , to which respondent Pablo Encabo objected and filed an Answer in opposition thereto. LTA ruled in maintaining the status quo. Cariño appealed to Office of the President and refused to give up possession of the land. Hence, Encobo filed an action in CFI of Manila declaring them as owners. Lower court favored Encobo. CA affirmed.
Issue: Whether or not Deed of Sale of H ouse and Transfer of Ri ghts on which the petition ers have based their appl icati on over the question ed lot is simulat ed and therefor e an inexi stent deed of sale.
Held: YES. This Court finds that there is substantial and convincing evidence that Exhibit "D-1" was a simulated deed of sale and transfer of rights, to warrant the affirmance of the decision of the respondent Court of Appeals. The characteristic of simulation is the fact that the apparent contract is not really desired or intended to produce legal effects nor in an y way alter the judicial situation of the par ties. 13 Under the circumstances surrounding their transaction, the parties knew that the document Exhibit "D-1" was at once fictitious and simulated where none of the parties intended to be bound thereby. Strongly indicative of the simulated character of Exhibit ,"D-1" is the fact that the Cariños could not produce the receipts evidencing their alleged payments to the Land Authority for the disputed lot, nor were the y able to produce the Agreement to Sell. Contracts of sale are void and produce no effect whatsoever where the price, which appears therein as paid, has in fact never been paid by the vendee to the vendor. A sale of land without consideration, but intended merely to protect a party to a joint venture for the cash advances he was to make for the realty subdivision that the parties wanted to put up, is null and void. The law is clear on this matter. The Civil Code provides: Art. 1409. The following contracts are inexistent and void from the beginning: xxx xxx xxx (2) Those which are absolutely simulated or fictitious; xxx xxx xxx These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. Furthermore, even without going into the merits and/or validity of Exhibit "D-1", it is clear that there has been no legal transfer of rights in favor of the Cariños because neither the LTA nor the Land Authority has approved or given due course to such transfer of rights.25 The LTA never waived its right to approve the transfer of rights. It only ruled that the status quo will be maintained so long as the Court has not yet ruled
on the authenticity of document Exhibit "D-1". The ownership of the lot by the Cariños is still contingent on the approval of the LTA upon their compliance with all the requirements of the latter. Since no approval or due course has yet been given by the LTA or LA to such transfer of rights, the document Exhibit "D-1" is not enforceable against the latter. Case: Manuel Lagunzad vs. Maria Soto Vda. De Gonzales and CA, Aug. 6, 1979, J.
Melencio-Herrera. Facts: The present controversy stems from a "Licensing Agreement" entered into by and between petitioner Manuel M. Lagunzad and private respondent Maria Soto Vda. de Gonzales on October 5, 1961, which contract petitioner claims to be null and void for having been entered into by him under duress, intimidation and undue influence. The antecedental facts follow: Sometime in August, 1961, petitioner Manuel Lagunzad, a newspaperman, began the production of a movie entitled "The Moises Padilla Story" under the name of his own business outfit, the "MML Productions." It was based mainly on the copyrighted but unpublished book of Atty. Ernesto Rodriguez, Jr., entitled "The Long Dark Night in Negros" subtitled "The Moises Padilla Story," the rights to which petitioner had purchased from Atty. Rodriguez in the amount of P2,000.00. The book narrates the events which culminated in the murder of Moises Padilla sometime between November 11 and November 17, 1951. Padilla was then a mayoralty candidate of the Nacionalista Party (then the minority party) for the Municipality of Magallon, Negros Occidental, during the November, 1951 elections. Governor Rafael Lacson, a member of the Liberal Party then in power and his men were tried and convicted for that murder in People vs. Lacson, et al . In the book, Moises Padilla is portrayed as "a martyr in contemporary political history." Although the emphasis of the movie was on the public life of Moises Padilla, there were portions which dealt with his private and family life including the portrayal in some scenes, of his mother, Maria Soto Vda. de Gonzales, private respondent herein, and of one "Auring" as his girl friend. On October 3, 1961, petitioner received a telephone call from one Mrs. Nelly Amante, half-sister of Moises Padilla, objecting to the filming of the movie and the "exploitation" of his life. On October 5, 1961, Mrs. Amante, for and in behalf of her mother, private respondent, demanded in writing for certain changes, corrections and deletions in the movie. 5 Petitioner contends that he acceded to the demands because he had already invested heavily in the picture to the extent of mortgaging his properties, 6 in addition to the fact that he had to meet the scheduled target date of the premiere showing. On the same date, October 5, 1961, after some bargaining as to the amount to be paid, which was P50,000.00 at first, then reduced to P20,000.00, 7 petitioner and private respondent, represented by her daughters and Atty. Ernesto Rodriguez, at the law office of Jalandoni and Jamir, executed a "Licensing Agreement". Petitioner takes the position that he was pressured into signing the Agreement b ecause of private respondent's demand, through Mrs. Amante, for payment for the "exploitation" of the life story of Moises Padilla, otherwise, she would "call a press conference declaring the whole picture as a fake, fraud and a hoax and would denounce the whole thing in the press, radio, television and tha t they were going to Court to s top the picture." Because
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CASE DIGESTS - CONTRACTS petitioner refused to pay any ad ditional amounts pursuant to the Agreement, on December 22, 1961, private respondent instituted the present suit against him. The trial court favored respondent. CA affirmed.
Issues: (1) Whether or n ot the L icensing Agreement was null and void. (2) Whether or not the consent of Petitioner i n entering i nto such Li censing Agr eement was procur ed with dur ess, in timi dation and undu e in fl uence.
Held: (1) NO. Neither do we agree with petitioner's sub mission that the Licensing Agreement is null and void for lack of, or for having an illegal cause or consideration. While it is true that petitioner had purchased the rights to the book entitled "The Moises Padilla Story," that did not dispense with the need for prior consent and authority from the deceased heirs to portray publicly episodes in said deceased's life and in that of his mother and the members of his family. As held in Schuyler v. Curtis, 14 "a privilege may be given the surviving relatives of a deceased person to protect his memory, but the privilege exists for the benefit of the living, to protect their feelings and to prevent a violation of their own rights in the character and memory of the deceased." Petitioner's averment that private respondent did not have any property right over the life of Moises Padilla since the latter was a public figure, is neither well taken. Being a public figure ipso facto does not automatically destroy in toto a person's right to privacy. The right to invade a person's privacy to disseminat e public information does not extend to a fictional or novelized representation of a person, no matter how public a figure he or she may be. 15 In the case at bar, while it is true that petitioner exerted efforts to present a true-to-life story of Moises Padilla, petitioner admits that he included a little romance in the film because without it, it would be a drab story of torture and brutality. (2) NO. We also find it difficult to sustain petitioner's posture that his consent to the Licensing Agreement was procured thru duress, intimidation and undue influence exerted on him by private respondent and her daughters at a time when he had exhausted his financial resources, the premiere showing of the picture was imminent, and "time was of the essence." As held in Martinez vs. Hongkong & Shanghai Bank , 17 it is necessary to distinguish between real duress and the motive which is present when one gives his consent reluctantly. A contract is valid even though one of the parties entered into it against his own wish and desires, or even against his better judgment. In legal effect, there is no difference between a contract wherein one of the contracting parties exchanges one cond ition for another because he looks for greater profit or gain by reason of such change, and an agreement wherei n one of the contracting p arties agrees to accept the lesser of two disadvantages. In either case, he makes a choice free and untramelled and must accordingly abide by it. The Licensing Agreement has the force of law between the contracting parties and since its provisions are not contrary to law, morals, good customs, public order or public policy (Art. 1306, Civil Code), petitioner Should comply with it in good faith.
Case: Liam Law vs. Olympic sawmill Co. and Elino Lee Chi, May 28, 1984, J.
Melencio-Herrera. Facts: On or about September 7, 1957, plaintiff loaned P10,000.00, without interest, to defendant partnership and defendant Elino Lee Chi, as the managing partner. The loan became ultimately due on J anuary 31, 1960, b ut was not paid on that date, with the debtors asking for an extension of three months, or up to April 30, 1960. On March 17, 1960, the parties executed another loan document. Payment of the P10,000.00 was extended to April 30, 1960, but the obligation was increased by P6,000.00. Defendants again failed to pay their obligation by April 30, 1960 and, on September 23, 1960, plaintiff instituted this collection case. Defendants admitted the P10,000.00 principal obligation, but claimed that the additional P6,000.00 constituted usurious interest. Trial court favored Law and ordered herein respondents to pay the former, the principal amount of 10,000 plus 6,000 by way of liquidated damages.
Issue: Whether or n ot the addition al P6,000 is recoverabl e. Held: YES. Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative to the P6,000.00 obligation, "it is presumed th at it exists and is lawful, unless the debtor proves the contrary". No evidentiary hearing having been held, it has to be concluded that defendants had not proven that the P6,000.00 obligation was illegal. Confirming the Trial Court's finding, we view the P6,000.00 obligation as liquidated damages suffered by plaintiff, as of March 17, 1960, representing loss of interest income, attorney's fees and incidentals. Case: Lao Sok vs. Lydia Sabaysabay, et al., Aug. 9, 1985, J. Gutierrez Jr. Facts: Petitioner Lao Sok owned and operated the Shelton Department Store located at Carriedo Street, Quiapo, Manila. Private respondents, Lydia Sabaysabay, Amparo Mangulat, Rosita Salviejo, Nenita Ruinata, Vilma Capillo and Virginia Sanorjo were all salesladies of the department store with a daily wage of P14.00 each. On October 12, 1980, petitioner's store was razed by fire. He did not report the loss of jobs of the salesladies which resulted from the burning of his department store to the Regional Office of the Ministry of Labor. Petitioner promised the private respondents that he would transfer them to his other department stores. Several weeks passed but petitioner still did not fulfill his promise. The petitioner, however, told the respondents that he would give them their separation pay and other benefits due them as soon as he collected the insurance proceeds arising from his burned store. The private respondents accepted this offer of the petitioner. Petitioner later collected the proceeds of his insurance but he did not give the private respondents their separation pay and other benefits. Neither did he employ them in his other stores as earlier promised. On May 14, 1981, the private respondents filed a complaint with the Ministry of Labor and Employment charging the petitioner with illegal dismissal and non-payment of their separation pay, allowance and incentive leave pay. Labor Arbiter favored herein respondents. NLRC affirmed.
Issue: Whether or not a cont ract was perfected between th e sales ladies and Lao Sok in payment of f ormers separation pay.
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CASE DIGESTS - CONTRACTS Held: YES. Lao Sok made an offer which was duly accepted by the private respondents. There was, therefore, a meeting of the minds between two parties whereby one bound himself with respect to the other, to give something or to render some service (Article 1305, Civil Code). By the unconditional acceptance of the offer that they would be paid separation pay, a contract was therefore perfected. Petitioner contends that the contract though orally made is unenforceable since it does not comply with the Statute of Frauds. This contention has no merit. Contracts in whatever form they may have been entered into are binding on the parties unless form is essential for the validity and enforceability of that particular contract. (See Lopez v. Auditor General, 20 SCRA 655). We held in Shaffer v. Palma (22 SCRA 934): xxx xxx xxx ... Whether the agreement is in writing or not is a question of evidence. Nevertheless, even granting that the agreement is not in writing, this circumstance does not militate against the validity or enforceability of said agreement, because contracts are binding upon the parties in whatever form they may have been entered into unless the law requires otherwise. (Article 1356, Civil Code; Lopez v. The Auditor General, et al., L25859, July 13, 1967; Pilar Gil Vdan de Murciano v. The Auditor General, et al., 103 Phil. 907). It is true that Article 1358 of the Civil Code provides that contracts involving more than P500.00 must appear in writing, but nothing is said therein that such requirement is necessary for their validity or enforceability. It has been held that the writing required under Article 1358 is merely for convenience, (Thunga Chui v. Que Bentac, 2 Phil. 561; Ng Hoc v. Tong Ho, 52 0,G., 4396) and so the agreement alleged in the amended complaint in the present case can be enforced even if it may not be in writing. The requirement of writing for the offer made by Lao Sok is only for convenience and not enforceability. In fact, the petitioner could be compelled to put the offer in writing, a step no longer necessary now because of this petition. Case: Meliton Gallardo and Teresa Villanueva vs. IAC and Marta Villanueva, et al., Oct. 29, 1987, J. Paras. Facts: A parcel of land situated in Cavinti, Laguna was owned and registered in the name of late Pedro Villanueva. Herein petitioners claimed that the aforestated land was sold to them in a private document, an unnotarized deed of sale written in Tagalog that was allegedly by the late Villanueva. Subsequently, the Original Certificate of Title was cancelled on the basis of the private document of sale (Exhibit "B") and a new certificate of title was issued in the name of the petitioners. However, during the Second World War, the records as well as the Office of the Register of Deeds of Laguna, where the original of their new transfer certificate of title was kept, were completely burned. Accordingly, by virtue of an Affidavit of Reconstitution dated December 2, 1958 (Record on Appeal, Annex "DD," pp. 41-42) and upon presentation of the Owner's Duplicate Certificate of Title, the title was administratively reconstituted and the Register of Deeds of Laguna issued Transfer Certificate of Title No. RT-6293 (No. 23350 ) in the name of the petitioners ( Record on Appeal, Anne x "B", pp. 7). On November 17, 1976, defendant Marta Villanueva together with Pedro
Villanueva, Jr., and Restituto R. Villanueva executed and filed an Affidavit of Adverse Claim with the Office of the Register of Deeds of Laguna. petitioners instituted court suit against the private respondent and her husband, Dr. Marcelo S. Agana, Sr. by filing a complaint for Quieting of Title and Damages with the Court of First Instance of Laguna. CFI of Laguna declared the deed of sale void ab initio. IAC affirmed. Petitioners claim that the sale although not in a public document, is nevertheless valid and binding citing this Court's rulings in the cases of Cauto v. Cortes, 8 Phil. 459, 460; Guerrero v. Miguel, 10 Phil. 52, 53; Bucton v. Gabar 55 SCRA 499 wherein this Court ruled that even a verbal contract of sale of real estate produces legal effects between the parties.
Issue: Whether or not the un notar ized deed of sale purportedly executed on Augu st 10, 1937 by the pri mit ive owner Pedro Vi ll anueva, in f avor of petiti oners, can be considered as a valid i nstrument f or eff ecting the ali enation by way of sale of a parcel of l and registerd under th e Torr ens System.
Held: NO. True, as argued by appellants, a private conveyance of registered property is valid as between the parties. However, the only right the vendee of registered property in a private docu ment is to compel through co urt processes the vendor to execute a deed of conveyance sufficient in law for purposes of registration. Plaintiffsappellants' reliance on Article 1356 of the Civil Code is unfortunate. The general rule enunciated in said Art. 1356 is that contracts are obligatory, in whatever form they may have been entered, provided all the essential requisites for their validity are present. The next sentence provides the exception, requiring a contract to be in some form when the law so requires for validity or enforceability. Said law is Section 127 of Act 496 which requires, among other things, that the conveyance be executed "before the judge of a court of record or clerk of a court of record or a notary public or a justice of the peace, who shall certify such a cknowledgment substantially in form next hereinafter stated." Such law was violated in this case. The action of the Register of Deeds of Laguna in allowing the registration of the private deed of sale was unauthorized and did not lend a bit of validity to the defective private document of sale. Upon consideration of the facts and circumstances surrounding the execution of the assailed document, the trial court found that said private document (Exhibit "B") was null and void and that it was signed by somebody else not Pedro Villanueva. Such findings of fact besides being based on the records, were sustained by the Court of Appeals. Case: Lim Yhi Luya vs. CA and Hind Sugar Company, Sept.11, 1980, J. Guerrero. Facts: Petitioner Lim Yhi Luya is a businessman, resident of Lingayen, Pangasinan where he operates a grocery store, hardware store and gasoline station. Private respondent Hind Sugar Company is engaged in the manufacturing and marketing of sugar, its principal office located in Manaoag, Pangasinan. Vice President and General Manager of respondent company is Atty. Emiliano Abalos. His assistant is Generoso Bongato, while the cashier and accountant of the company is Teodoro Garcia.
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CASE DIGESTS - CONTRACTS Petitioner and private respondent since 1958 have had business dealings with each other, the company selling sugar to the petitioner and the latter has been supplying the company with diesoline, gasoline, muriatic acid, sulfuric acid, other supplies and materials ordered on credit. On November 12, 1970, petitioner received a telegram from Manager Abalos in the following tenor: "Please come tomorrow morning without fail." (Exh. "B"). The following day, November 13, 1970, petitioner proceeded to the company and in the office of Manager Abalos, the latter offered to sell sugar at P37.00 per picul. The parties agreed to the purchase of 4,085 p iculs of sugar at P35.00 p er picul. With the terms as follows: “TERMS: CASH UPON SIGNING OF THIS CONTRACT”. Between November 13, 1970 to January 27, 1971, petitioner withdrew from the company warehouse in varying quantities a total amount of 3,735 piculs under substitute delivery orders, leaving a balance of 350 piculs undelivered. On January 22, 1971, the question of payment cropped out between the parties. Petitioner claimed that he had paid P142,975.00 to the company officials, Cashier Garcia and Manager Abalos on November 13. 1970 and as proof of his payment, he referred to the contract, particularly to the stipulation stating "Terms: Cash upon sing of this contract." Respondent company officials denied the claim of the petitioner, alleging that petitioner never paid for the sugar on November 13, 1970 or at any time thereafter. An audit report or examination of the books of the company made by External Auditor Victorino Daroya showed no payment by petitioner. On May 17, 1971, petitioner, as plaintiff below, filed the complaint against the defendant Hind Sugar Company stating 6 causes of actions. The trial court favored Lim. But CA reversed.
Issue: Whether or n ot payment has alr eady been made. Held: YES. Considering the admitted fact that the contract of sale (Exhibit "A") was prepared in the office of respo ndent company b y Generoso Bongato, Assistan t to the Manager of the company, upon instruction of General Manager Emiliano L. Abalos who is a lawyer, and We are now confronted with the varying or conflicting interpretations of the parties thereto, the respondent company contending that the stipulation "Terms: Cash upon signing of this contract" does not mean that the agreement was a cash transaction because no money was paid by the petitioner at the time of the signing thereof, whereas the petitioner insists that it was a cash transaction inasmuch as he paid cash amounting to P142,975.00 upon the signing of the contract, the payment having been made at around 1:30 in the afternoon of November 13, 1970 to the cashier, Teodoro Garcia, and Manager Abalos although the sale was agreed to in the morning of the same day, November 13, 1970, the conflicting interpretations have shrouded the stipulation with ambiguity or vagueness. Then, the cardinal rule should and must apply, which is that the interpretation shall not favor the party who caused the ambiguity (Art. 1377, New Civil Code). We rule that in the instant case, the interpretation to be taken shall not favor the respondent company since it is the party who caused the ambiguity in its preparation. We do not agree with the meaning of the provision in the contract ascribed by the respondent court in its decision that: "Stated in another way, the provision of the Contract in question means that the payment of the P142,975.00 IS TO FOLLOW or IS
TO BE MADE (and NOT WAS MADE) upon the signing of said contract." As already drafted or drawn up, complete and finalized with all the signatures thereon of the contracting parties and presented in court as Exhibit "A" without any change whatsoever in the mode of payment, such provision plainly and simply means that the payment was in CASH, and n ot on CREDIT. The ambiguity raised b y the use of the words or phrases in the questioned provision must be resolved and interpreted against the respondent company. In truth the stipulation in the contract which reads: "Terms: Cash upon signing of this contract" is very clear and simple in its meaning, leaving no doubt in Our minds upon the intention of the contracting parties, hence, the first rule of contract interpretation that the literal meaning of its stipulation shall control, is the governing rule at hand. Resorting to Webster's Third New International Dictionary, p. 2515, for the definition of the word "upon" which literally means, among others, "10a (1): immediately following on; very soon after; ... b: on the occasion of at the time of; ... " the clear import of the stipulation is that payment was made on the occasion of or at the time of the signing of the contract and not that payment will follow the signing. We must adopt the former meaning because it is such an interpretation that would most adequately render the contract effectual, following Article 1373 of the New Civil Code which provides: Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectua. The evidence for the petitioner establishes that after paying the cash consideration to Cashier Garcia and Manager Abalos, the parties signed the contract and thereafter a signed copy of said contract was given to petitioner and also the four (4) delivery orders covering the 4,085 piculs of sugar sold. The questioned stipulation recites exactly the act of payment which is the paying of the money on the occasion of or at the time of the signing. Respondent would have Us believe that the stipulation does not mean what it conveys because petitioner has not paid cash after the signing of the contract nor at any time thereafter. We cannot agree with the respondent for otherwise the sanctity of the written contract can easily be violated and impugned, for otherwise oral testimony would prevail over a written document to vary, alter or modify the written terms, and most importantly, respondent's interpretation would render the stipulation ineffectual as a mere agreement. Case: Republic of the Philippines vs. Carmen M. Vda. De Castellvi, et al., Aug. 15, 1974, J. Zaldivar. Facts : Plaintiff-appellant, the Republic of the Philippines, (hereinafter referred to as the Republic) filed, on June 26, 1959, a complaint for eminent domain against defendant-appellee, Carmen M. Vda. de Castellvi, judicial administratrix of the estate of the late Alfonso de Castellvi (hereinafter referred to as Castellvi), over a parcel of land situated in the barrio of San Jose, Floridablanca, Pampanga. In its complaint, the Republic alleged, among other things, that the fair market value of the abovementioned lands, according to the Committee on Appraisal for the Province of Pampanga, was not more than P2,000 per hectare, or a total market value of P259,669.10; and prayed, that the provisional value of the lands be fixed at P259.669.10, that the court authorizes plaintiff to take immediate possession of the
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CASE DIGESTS - CONTRACTS lands upon deposit of that amount with the Provincial Treasurer of Pampanga; that the court appoints three commissioners to ascertain and report to the court the just compensation for the property sought to be expropriated, and that the court issues thereafter a final order of condemnation. On June 29, 1959 the trial court issued an order fixing the provisional value of the lands at P259,669.10. In her "motion to dismiss" filed on July 14, 1959, Castellvi alleged, among other things, that the land under her administration, being a residential land, had a fair market value of P15.00 per square meter, so it had a total market value of P11,389,485.00; that the Republic, through the Armed Forces of the Philippines, particularly the Philippine Air Force, had been, despite repeated demands, illegally occupying her property since July 1, 1956, thereby preventing her from using and disposing of it, thus causing her damages by way of unrealized profits. This defendant prayed that the complaint be dismissed, or that the Republic be ordered to pay her P15.00 per square meter, or a total of P11,389,485.00, plus interest thereon at 6% per annum from July 1, 1956; that the Republic be ordered to pay her P5,000,000.00 as unrealized profits, and the costs of the suit. The Republic argues that the " taking" should be reckoned from th e year 1947 when by vir tue of a special lease agreement between the Republi c and appell ee Castellvi, the former was granted the " ri ght and pri vilege" to buy the property shoul d the lessor wi sh to termi nate the lease, and that in the event of such sale, it was stipulated that the fair market value should be as of the time of occupancy; and that the permanent improvements amo unting to more that half a million p esos constructed during a period of twelve years on the land, subject of expropriation, were indicative of an agreed pattern of permanency and stability of occupancy by the Philippine Air Force in the interest of national Security.
Issue : Whether or not the value of th e land should be computed at the time when the Republ ic occupi ed the land as lessee.
Held : NO. The Republic's claim that it had the "right and privilege" to buy the property at the value that it had at the time when it first occupied the property as lessee nowhere appears in the lease contract . What was agreed expressly in paragraph No. 5 of the lease agreement was that, should the lessor require the lessee to return the premises in the same condition a s at the time the same was first occup ied by the AFP, the lessee would have the "right and privilege" (or option) of paying the lessor what it would fairly cost to put the premises in the same condition as it was at the commencement of the lease, in lieu of the lessee's performance of the undertaking to put the land in said condition. The "fair value" at the time of o ccupancy, mentioned in the lease agreement, does not refer to the value of the property if bought by the lessee, but refers to the cost of restoring the p roperty in the same condition as of the time when the lessee took possession of the property. Such fair value cannot refer to the purchase price, for purchase was never i ntended by the parties to the le ase contract. It is a rule in the interpretation of contracts that "However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree" (Art. 1372, Civil Code).
Case : Eastern Shipping Lines, Inc. Vs. Margarine-Verkaufs-Union GmbH, Sept. 27, 1979, J. Teehankee. (Acting) Facts: Respondent corporation, a West German corporation not engaged in business in the Philippines, was the consignee of 500 long tons of Philippine copra in bulk with a total value of US$ 108,750.00 shipped from Cebu City on board petitioner's (a Philippine corporation) vessel, the SS "EASTERN PLANET" for discharge at Hamburg, Germany. Petitioner's bill of lading for the cargo provided as follows: ... Except as otherwise stated herein and in - the Charter Party, this contract shag be governed by the laws of the Flag of the Ship carrying the goods. In case of average, same shall be adjusted according to York-Antwerp Rules of 1950. While the vessel was off Gibraltar, a fire broke out aboard the and caused water damage to the copra shipment in the amount of US$ 591.38. Petitioner corporation rejected respondent's claim for payment of the and respondent filed on June 18, 1966 in the Manila court of first instance its complaint against petitioner as defendant for recovery of the same and US$ 250.00 - attorney's fees and expenses of litigation. After trial, the lower court rejected petitioner's defense that did not exceed 5% of respondent's interest in the cargo it was not liable under Philippine Law for the damage which I rendered judgment on April 25, 1969 "ordering the defendant, Eastern Shipping Lines, Inc. to pay to the plaintiff, Margarine-Verkaufs-Union GMBH, the sum of US$ 591.38, with interest at the legal rate from the date of the filing of the complaint until fully paid, plus US$ 250.00 as attorney's fees and the costs of the suit." In this review on questions of law, petitioner reiterates as its first assignment t of error its submittal that Article 848 of the Code of Commerce 1 which would bar claims for averages not exceeding 5% of the claimant's interest should be applied rather than the lower court's ruling that petitioner's bill of lading expressly contained "an agreement to the contrary," i.e. for the application of the York-Antwerp Rules which provide for respondent's fun recovery of the damage loss.
Issue: Whether A rti cle 848 of th e Code of Commerce which would bar claims for averages not exceeding 5% of th e claiman ts interest shoul d be applied.
Held: NO. We hold that the lower court correctly ruled the cited codal article to be "not applicable in this particular case for the reason that the bill of lading (Exhibit "F") contains "an agreement to the contrary" for it is expressly provided in the last sentence of the first paragraph (Exhibit "1-A") that "In case of average, same shall be adjusted according to York-Antwerp Rules of 1950." The insertion of said condition is expressly authorized by Commonwealth Act No. 65 which has adopted in toto the U.S. Carriage of Goods by Sea Act. Now, it has not been shown that said rules limit the recovery of damage to cases within a certain percentage or proportion that said damage may bear to claimant's interest either in the vessel or cargo as provided in Article 848 of the Code of Commerce On the contrary, Rule 3 of said York-Antwerp Rules expressly states that "Damage done to a ship and cargo, or either of them, by water or otherwise, including damage by breaching or scuttling a burning ship, in extinguish ing a fire on board the ship, shall be made good as general average. ... "
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CASE DIGESTS - CONTRACTS There is a clear and irreconcilable inconsistency between the York-Antwerp Rules expressly adopted by the parties as their contract under the bill of lading which sustains respondent's claim and the codal article cited by petitioner which would bar the same. Furthermore, as correctly contended by respondent, what is here involved is a contract of adhesion as embodied in the printed bill of lading issued by petitioner for the shipment to which respondent as the consignee merely adhered, having no choice in the matter, and consequently, any ambiguity therein must be construed against petitioner as the author.
RESCISSIBLE CONTRACTS Case: Isidora Cabaliw and Soledad Sadorra vs. Sotero Sadorra, et al., June 11, 1975, Facts: Isidora Cabaliw was the wife of Benigno Sadorra by his second marriage solemnized on May 5, 1915, before the Justice of the Peace of Bayambang, Pangasinan. This couple had a daughter named Soledad Sadorra. During their marriage, the spouses acquired two (2) parcels of land situated in Iniangan, Dupax, Nueva Vizcaya. Having been abandoned by her husband, Isido ra Cabaliw instituted an action for support with the Court of First Instance of Manila, entitled "Isidora Cabaliw de Orden versus Benigno Sadorra" docketed therein as Civil Case No. 43193. On January 30, 1933, judgment was rendered requiring Benigno Sadorra to pay his wife, Isidora Cabaliw, the amount of P75.00 a month in terms of support as of January 1, 1933, and P150.00 in concept of attorney's fees and the costs. Unknown to Isidora Cabaliw, on August 19, 1933, Benigno Sadorra executed two (2) deeds of sale over the two parcels of land above described in favor of his son-in-law, Sotero Sadorra, the latter being married to Encarnacion Sadorra, a daughter of Benigno Sadorra by his first marriage. Because of the failure of her husband to comply with the judgment of support, Isidora Cabaliw filed in Civil Case 43192 a motion to cite Benigno Sadorra for contempt and the Court of First Instance of Manila in its Order of May 12, 1937, authorized Isidora to take possession of the conjugal property, to administer the same, and to avail herself of the fruits thereof in payment of the monthly support in arrears. With this order of the Court, Isidora proceeded to Nueva Vizcaya to take possession of the aforementioned parcels of land, and it was then that she discovered that her husband had sold them to his son-in-law Sotero. On February 1, 1940, Isidora filed with the Court of First Instance of Nueva Vizcaya Civil Case No. 449 against her husband and Sotero Sadorra for the recovery of the lands in question on the ground that the sale was fictitious; at the same time a notice of lis pendens was filed with the Register of Deeds of Nueva Vizcaya. In May of 1940, Benigno Sadorra died. Issue: Whether or not the sale by Benigno to Sotero Sadorra was valid. Held: NO. The facts narrated in the first portion of this Decision which are not disputed, convincingly show or prove that the conveyances made by Benigno Sadorra in favor of his son-in-law were fraudulent. For the heart of the matter is that about seven months after a judgment was rendered against him in Civil Case No. 43192 of the Court of First Instance of Manila and without paying any part of that judgment,
Benigno Sadorra sold the only two parcels of land belonging to the conjugal partnership to his son -in-law. Such a sale even i f made for a valuable co nsideration is presumed to be in fraud of the judgment creditor who in this case happens to be the offended wife. Article 1297 of the old Civil Code which was the law in force at the time of the transaction provides: Contracts by virtue of which the debtor alienates property by gratuitous title are presumed to be made in fraud of creditors. Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated and need not have been obtained by the party seeking rescission. (emphasis supplied) The above-quoted legal provision was totally disregarded by the appellate court, and there lies its basic error. Furthermore, the presumption of fraud established by the law in favor of petitioners is bolstered by other indicia of bad faith on the par t of the v endor and ven dee. Thus (1) the vendee is the son-i n-l aw of the vendor. I n th e earl y case ofRegalado vs. Lu chsinger & Co., 5 Phil . 625, this Court h eld that the close relationship between the vendor and th e vendee is one of th e known badges of f rau d. (2) At t he time of th e conveyance, the vendee, Sotero, was livi ng wit h hi s fath er-i n-l aw, the vendor , and he knew that there was a judgment di rectin g the latter to give a monthly support to hi s wife I sidora and that hi s father-i n-law was avoiding payment and execution of the ju dgment . 6 (3) I t was known to th e vendee that hi s fath er-i n-l aw had no properti es other than those two parcels of land whi ch were bein g sold to hi m. 7 The fact that a vendor transfers all of his property to a third person when there is a judgment against him is a strong indication of a scheme to defraud one who may have a valid interest over his properties.
CASE: HONGKONG AND SHANGHAI BANKING CORPORATION VS. RALPH PAULI AND SPOUSES SALLY GARGANERA AND MATEO GARGANERA, MAY 30, 1988, J. GRIÑO-AQUINO. Facts: On June 14, 1957, the Hongkong & Shanghai Banking Corporation filed a complaint against the defendant Ralph Pauli, to collect the sum of P258,964.15. The decision having become final, the Bank endeavored to execute it but the writs of execution were returned unsatisfied because no leviable assets of Pauli could be located by the sheriffs. Unknown to the Hongkong & Shanghai Bank, Pauli had on January 8, 1957 purchased from the Philippine National Bank (PNB) a sugar cane plantation known as Hacienda Riverside (Lot No. 693 of Saravia Cadastre, Negros Occidental). To avoid discovery of the transaction by his creditors, he did not register the deed of Sale. Six years later, on March 1, 1963, he fraudulently sold the hacienda to his daughter, defendant-appellee Sally Garganera, and her husband Mateo Garganera. The sale was registered on March 5, 1963. Transfer Certificate of Title No. 34425 was issued to the Garganeras.
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CASE DIGESTS - CONTRACTS Having discovered that the sugar plantation belonged to Paul, the Hongkong and Shanghai Bank filed on January 13, 1969 in the Court of First Instance of Manila a complaint for revival of the 1962 judgment in its favor in Civil Case No. 32799. However, Pauli and Garganera filed a motion to dismiss on the ground of prescription and res judicata. Trial court granted the motion and was affirmed by the CA.
Issues: (1) Whether or not the action for annulment of sale has prescribed. (2) Whether or not res judicata applies in the case at bar.
Held: (1) YES. When a transaction involves registered land, the four-year period fixed in Article 1391 within winch to bring an action for annulment of the deed, shall be computed from the registration of the conveyance (March 5, 1963) on the familiar theory that the registration of the document is constructive notice of the conveyance to the whole world (Armentia vs. Patriarca, 18 SCRA 1253; Avecilla vs. Yatco, 103 Phil. 666). Plaintiff's submission that the four-year period commenced to run from the date when the Bank obtained actual knowledge of the fraudulent sale of Pauli's land to the Garganeras (sometime in 1969) and that hence the four-year period for bringing an action to annul the sale had not yet expired when it filed the action for annullment on February 17, 1971, is unacceptable. That theory would diminish public faith in the integrity of torrens titles and impair commercial transactions involving registered lands for it would render uncertain the computation of the period for the prescription of such actions. (2) NO. Civil Case No. 465, the action for annulment of the Sale is not barred by res judicata, specifically, the prior judgment in Civil Case No. 75319, for revival of the judgment in the collectio n suit, Civil Case No. 32799, for the subject matter and ca uses of action in the two cases are different. The three (3) Identities required for the application of the bar by prior judgment: Identity of parties, of subject matter and causes of action, are lacking.
VOIDABLE CONTRACTS CASE: EDUARDO FELIPE, ET AL. VS. HEIRS OF MAXIMO ALDON, FEB. 16, 1983, J. ABAD SANTOS. Facts: Maximo Aldon married Gimena Almosara in 1936. The spouses bought several pieces of land sometime between 1948 and 1950. In 1960-62, the lands were d ivided into three lots, 1370, 1371 and 1415 of the San Jacinto Public Land Subdivision, San Jacinto, Masbate. In 1951, Gimena Almosara sold the lots to the spouses Eduardo Felipe and Hermogena V. Felipe. The sale was made without the consent of her husband, Maximo. On April 26, 1976, the heirs of Maximo Aldon, namely his widow Gimena and their children Sofia and Salvador Aldon, filed a complaint in the Court of First Instance of Masbate against the Felipes. The complaint which was docketed as Civil Case No. 2372 alleged that the plaintiffs were the owners of Lots 1370, 1371 and 1415; that they had orally mortgaged the same to the defendants; and an offer to redeem the mortgage
had been refused so they filed the complaint in order to recover the three parcels of land. The defendants asserted that they had acquired the lots from the plaintiffs by purchase and subsequent delivery to them. The trial court favored the Felipes as lawful owners thereto. However, it was reversed by CA. Hence, this petition. Issue: Whether or not the sale of land to the Felipes by one of the spouses is voidable.
Held: YES. The view that the contract made by Gimena is a voidable contract is supported by the legal provision that contracts entered by the husband without the consent of the wife when such consent is required, are annullable at her instance during the marriage and within ten years from the transaction questioned. (Art. 173, Civil Code.) According to Art. 1390 of the Civil Code, among the voidable contracts are "[T]hose 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. Gimena's contract is not rescissible for in such contract all the essential elements are untainted but Gimena's consent was tainted. Neither can the contract be classified as unenforceable because it does not fit any of those described in Art. 1403 of the Civil Code. And finally, the contract cannot be void or inexistent because it is not one of those mentioned in Art. 1409 of the Civil Code. By process of elimination, it must perforce be a voidab le contract. The voidable contract of Gimena was subject to annulment by her husband only during the marriage because he was the victim who had an interest in the contract. Gimena, who was the party responsible for the defect, could not ask for its annulment. Their children could not likewise seek the annulment of the contract while the marriage subsisted because they merely had an inchoate right to the lands sold. The termination of the marriage and the dissolution of the conjugal partnership by the death of Maximo Aldon did not improve the situation of Gimena. What she could not do during the marriage, she could not do thereafter. The case of Sofia and Salvador Aldon is different. After the death of Maximo they acquired the right to question the defective contract insofar as it deprived them of their hereditary rights in their father's share in the lands. The father's share is one-half (1/2) of the lands and their share is two-thirds (2/3) thereof, one-third (1/3) pertaining to the widow.
CASE: HOUSE INTERNATIONAL BUILDING TENANTS ASSOCIATION, INC. VS. IAC, CENTERTOWN MARKETING CORP., ET AL., Facts: Petitioner House International Building Tenants Association, Inc. (ASSOCIATION, for short) is a domestic non-stock, non-profit civic corporation, whose incorporators, directors and members constitute the great majority of more than a hundred heads of families who are tenants of long and good standing of the 14-storey House International Building located at 777 Ongpin Street, Binondo, Manila. The land and the improvements thereon were formerly owned by Atty. Felipe Ang who mortgaged the same to the Government Service Insurance System (hereinafter referred to as GSIS) to secure payment of an obligation. After foreclosure of the mortgage and for failure of Ang to exercise his right of redemption over the foreclosed property, the
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CASE DIGESTS - CONTRACTS ownership thereof was consolidated with the GSIS which subsequently sold it to Centertown Marketing Corporation (CENTERTOWN, for short) in a deed of conditional sale, without notice to the tenants of the building and without securing the prior clearance of the then Ministry of Human Settlements. As CENTERTOWN was not authorized by its Articles of Incorporation to engage in the real estate business, it organized a sister corporation, with almost an the same incorporators and stockholders, as CENTERTOWN'S, under the corporate name of Manila Towers Development Corporation (TOWERS, for short) for the primary purpose of engaging in the real estate business. Subsequently, CENTERTOWN assigned to its sister corporation TOWERS all its rights and obligations under the Deed of Conditional Sale, with the consent and approval of the GSIS. Thereafter, herein petitioner filed a complaint with the Regional Trial Court of Manila against CENTERTOWN, TOWERS and GSIS for annulment of the deed of conditional sale and the subsequent assignment thereof by CENTERTOWN to TOWERS. The complaint alleged in part that the Deed of Conditional Sale is null and void ab initio for being ultra vires, since defendant CENTERTOWN is not qualified to acquire real estate property or to engage in real estate transactions. The court a quo dismissed the complaint and was affirmed by CA. Issue: Whether or not House International Building Tenants Association can sue for annulment of the deed of conditional sale between GSIS and Centertown. Held: NO. The main thrust of the petitioner's challenge on the validity of the conditional sale is that the contract is ultra vires because the respondent CENTERTOWN is not qualified to acquire properties under its Articles of Incorporation. The petitioner has confused a void contract with an ultra vires contract which is merely voidable. We agree with the Court of Appeals that on this issue the provision of Art. 1397 of the Civil Code is in point, thus: Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. Petitioner is neither a party nor a privy to the Deed of Conditional Sale and the assignment thereof: thus, it cannot assail the validity of the said contracts. In Ibañez vs. Hongkong and Shanghai Bank, we said: From these legal provisions it is deduced that it is the interest had in a given contract, that is the determining reason of the right which lies in favor of the party obligated principally or subsidiarily to enable him to bring an action for the nullity of the contract in which he intervened, and, therefore, he who has no right in a contract is not entitled to prosecute an action for nullity, for, according to the precedents established by the courts, the person who is not a party to a contract, nor has any cause of action or representation from those who intervened therein, is manifestly without right of action and personality such as to enable him to assail the validity of the contract. (Decisions of the supreme court of Spain, of April 18, 1901, and November 23, 1903, pronounced in cases requiring an application of the preinserted article 1302 of the Civil Code.) (22 Phil. 572; 584).
UNENFORCEABLE CONTRACTS
CASE: MARTA ORTEGA VS. DANIEL LEONARDO, MAY 28, 1958, J. BENGZON. Facts: Marta Ortega and Daniel Leonardo had an oral contract of sale of a parcel of land occupied by the former located at San Andres, Malate Manila. Defendant, however, also asserted a similar right, alleging occupancy of a portion of the land subsequent to plaintiff's. During the investigation of such conflicting interests, defendant asked plaintiff to desist from pressing her claim and definitely promised that if and when he succeeded in getting title to Lot I , he would sell to her a portion thereof with an area of 55.60 square meters (particularly described) at the rate of P25.00 per square meter, provided she paid for the surveying and subdivision of the Lot and provided further that after he acquired title, she could continue holding the lot a s tenant by paying a monthly re ntal of P10 .00 until said portion shall have been segregated and the purchase price fully paid. Plaintiff accepted defendant's offer, and desisted from further claiming Lot I. However, when defendant finally acquired title thereto; and that relying upon their agreement, plaintiff caused the survey and segregation of the portion which defendant had promised to sell incurring expenses therefor, said portion being now designated as Lot I-B in a duly prepared and approved subdivision plan. On July 1954, after the plans of subdivision and segregation of the lot had been approved by the Bureau of Lands, plai nti ff tendered to defendant the purchase pri ce which the latter r efused to accept, with out cause or reason. Hence, Ortega sued Leonardo for specific performance. The latter argued that the oral contract of sale is unenforceable. Issue: Whether or not the oral contract of sale is unenforceable. Held: NO. It is admitted by both parties that an oral agreement to sell a piece of land is not enforceable. (Art. 1403, Civil Code, Section 21, Rule 123, Rules of Court.) Plaintiff, however, argues that the contract in question, although verbal, was partially performed beca use plaintiff desisted fro m claiming the portion of lot I in question d ue to the promise of defendant to transfer said portion to her after the issuance of title to defendant. The court thinks that even granting that plaintiff really desisted to claim not on oral promise to sell made by defendant, the oral promise to sell cannot be enforced. The desistance to claim is not a part of the contract of sale of the land. Only in essential part of the executory contract will, if it has already been performed, make the verbal contract enforceable, payment of price being an essential part of the contract of sale. the above means that partial performance of a sale contract occurs only when part of the purchase price is paid, it surely constitutes a defective statement of the law. American Jurisprudence in its title "Statute of Frauds" lists other acts of partial performance, such as possession, the making of improvements, rendition of services, payment of taxes, relinquishm ent of rights, etc. Thus, it is stated that "The continuance in possession may, in a proper case, be sufficiently referable to the parol contract of sale to constitute a part performance thereof. There may be additional acts or peculiar circumstances which sufficiently refer the possession to the contract. . . . Continued possession under an oral contract of sale, by o ne alrea dy i n po ssession as a tenant, has been held a sufficient p art pe rformance, where accompanied by other acts which characterize the continued possession and
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CASE DIGESTS - CONTRACTS refer it to the contract of purchase. Hence, as there was partial performance, the
principle excluding parol contracts for the sale of realty, does not apply. CASE: ROSARIO CARBONNEL VS. JOSE PONCIO, RAMON INFANTE AND EMMA INFANTE, MAY 12, 1958, Facts: Jose Poncio is the owner of a parcel of land which both Rosario Carbonell and Emma Infante offered to buy. When Poncio was unable to keep up with the installments due on his mortgage, he approached Carbonell and offered to sell the lot to the latter which the latter accepted with the proposed price of 9.50 per square meter which Poncio accepted. Carbonell and Poncio executed a document. And Carbonell paid Poncio 200 (out of P647). However, when Carbonell was about to pay the balance, Poncio told Carbonell that he could not proceed with the sale because he sold it already to Infante for P3,535 (for the assumption of his mortgage with Republic Savings Bank). Carbonell sued Poncio and Infante to recover the land. Trial court dismissed the complaint upon the ground that Carbonell’s cause of action is unenforceable. Issue: Whether or not the sale of house and lot to Infante by Poncio was valid. Held: We are of the opinion and so hold that the appeal is well taken. It is well settled
in this jurisdiction that the Statute of Frauds is applicable only to executory contracts (Facturan vs. Sabanal, 81 Phil., 512), not to contracts that are totally or partially performed (Almirol, et al., vs. Monserrat, 48 Phil., 67, 70; Robles vs. Lizarraga Hermanos, 50 Phil., 387; Diana vs. Macalibo, 74 Phil., 70). Subject to a rule to the contrary followed in a few jurisdictions, it is the accepted view that part performance of a parol contract for the sale of real estate has the effect, subject to certain conditions concerning the nature and extent of the acts constituting performance and the right to equitable relief generally, of taking such contract from the operation of the statute of frauds, so that chancery may decree its specific performance or grant other equitable relief. It is well settled in Great Britain and in this country, with the exception of a few states, that a sufficient part performance by the purchaser under a parol contract for the sale of real estate removes the contract from the operation of the statute of frauds. (49 Am. Jur. 722-723.) In the words of former Chief Justice Moran: "The reason is simple. In executory contracts there is a wide field for fraud because unless they be in writing there is no palpable evidence of the intention o f the contracting parties. The statute has pr ecisely been enacted to preve nt fraud. " (Comments on t he Rules of Co urt, by Moran, Vol. III [1957 ed.], p. 178.) However, if a contract has been totally or partially performed, the exclusion of parol evidence would promote fraud or bad faith , for it would enable the defendant to keep the benefits already denied by him from the transaction in litigation, and, at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby. For obvious reasons, it is not enough for a party to allege partial performance in order to hold that there has been such performance and to render a decision declaring that the Statute of Frauds is inapplicable. But neither is such party required to establish such partial performance by documentary proof before he could have the opportunity to
introduce oral testimony on the transaction. Indeed, such oral testimony would usually be unnecessary if there were documents proving partial performance. Thus, the rejection of any and all testimonial evidence on partial performance, would nullify the rule that the Statute of Frauds is inapplicable to contracts which have been partly executed, and lead to the very evils that the statute seeks to prevent . Hence, Carbonell then had superior right over Infante. The private document entitled, “Contract for ½ lot which I bought from Jose Poncio” was not such memorandum in writing within the purview of the Statute of Frauds. The memorandum merely states that Poncio is allowed to stay in the property which he had sold to Carbonell. There is no mention of the essential elements of a contract of sale. Hence, from the terms of the contract, the sale of the property is already an accomplished act.
CASE: BIENVENIDO BABAO, ET AL. VS. FLORENCIO PEREZ, ET AL., DEC. 28, 1957, J. BAUTISTA ANGELO. Facts: Plaintiff is the judicial administrator of the estate of the late Santiago Babao while defendant Florencio Perez is the judicial administrator of the estate of the late Celestina Perez. Celestina Perez was in her lifetime the owner of the parcel of land in question which was not registered either under Act 496 or under the Spanish Mortgage law. Sometime in 1924 when the deceased Santiago Babao married Maria Cleofe Perez, niece of Celestina Perez, the latter and the former entered into a verbal agreement whereby Santiago Babao bound himself to improve the land by leveling and clearing all the forest trees standing thereon and planting in lieu there of coconuts, rice, corn and other crops such as bananas and bamboo trees, and to act at the same time as administrator thereof during the lifetime of Celestina Perez, all expenses for labor, and materials to be at his cost, in consideration of which Celestina in turn bound herself to convey to Santiago Babao or, his wife ½ of land, together with all the improvements thereon upon her death. Pursuant to said verbal agreement, Santiago Babao in 1924 left his job as administrator of the Llana Estate in San Juan, Batangas for which he was receiving a salary of P150 a month, and started leveling and clearing the land having planted in an area of 50 hectares 50,000 coconuts trees, and rice and corn in another area of 70 hectares, leaving out only 50 hectares unimproved, all of which having been administered by him from 1924 to 1946. H owever, i n the violation of the afor esaid verbal agr eement, Celestin a Perez, acting thr ough L eovigi ldo Perez, to whom she extended a power of Attor ney to sell , sold few days befor e she died about 127 hectares of the land in question in consequence of which Santiago Babao was . Said sales are deprived of the possession and administration thereof from 1945 fictitious and were made clear violation of the oral agreement made between Celestina Perez and Santiago Babao and as such the same are null and void. Hence, Babao sued the estate of Celestina for the recovery of his share on the land. Issue: Whether or not the verbal agreement between Santiago Babao and Celestina Perez is enforceable. Held: NO. This statute, formerly incorporated as Section 21 of Rule 123 of our Rules of Court, is now found in Article 1403 of the new Civil Code, which provides, in so far as pertinent to this case, as follows:
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CASE DIGESTS - CONTRACTS In the following cases an agreement hereafter made shall be enforceable by action unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged or by his agent, evidence therefore, of the agreement cannot be received without the writing, or secondary evidence of its contents; (a) An agreement that by its terms is not to be performed within a year from the making thereof. (e) An agreement . . . for the sale of real property or of an interest therein. Appellants contends that the alleged verbal agreement falls under the paragraphs (a) and (c) above-quoted because the same may be considered as an agreement which by its terms is not to be performed within one year from the making thereof, or one which involves a sale of real property or of an interest therein. If this premise is correct, appellants contend, then the trial court erred in allowing the introduction of parole evidence to prove the alleged agreement over the vigorous objection of counsel for appellants. That the alleged verbal agreement is one which by its terms is not to be performed within one year is very apparent from the allegations of the complaint. Thus, it is therein alleged that the agreement was allegedly made in 1924 and by its terms Santiago Babao bound himself (1) to improve all the forest trees and planting thereon coconuts, rice, corn and other crops such as bananas and bamboo trees, and (2) to act at the same time as administrator of said land and improvements during the lifetime to Celestina Perez. And in consideration of such undertaking, Celestina Perez "bound herself to give and deliver, either to Santiago Babao or his wife Cleofe Perez, one-half (½) of the whole area of said land as improved with all the improvements thereon upon her death". It is also alleged in the complaint that Celestina Perez died on August 24, 1947, or 23 years after the making of the alleged agreement while Santiago Babao died on January 6, 1948. From the above terms, therefore, it is not difficult to see that the undertaking assumed by Santiago Babao which was to clear, level and plant to coconut trees and other plants 156 hectares of forest land could not be accomplished in one year. In fact, the alleged improvements were supposedly accomplished during the lifetime of Celestina, which lasted over a period of 23 years, and even then not all was cleared and planted but only a portion thereof. Another part of his undertaking is that he is to administer the land during the lifetime of Celestina, and as we have already said, her death occurred 23 years after the agreement.
CASE: FELIPE CABAGUE AND GERONIMO CABAGUE VS. MATIAS AUXILIO AND SOCORRO AUXILIO, NOV. 26, Facts: Felipe Cabague and his son Geronimo sued the defendant Matias Auxilio and his daughter Socorro to recover damages resulting from defendants' refusal to carry out the previously agreed marriage between Socorro and Geronimo. The complaint alleged, in short: (a) that defendants promised such marriage to plaintiffs, provided the latter wo uld improve the defendants ' house in Basud and spend for the wedding feast and the needs of the bride; (b) that relying upon such promises plaintiffs made the i mprovement and spent P700; and (c) that without cause defendants refused to honor their pledged word.
The defendants moved to dismiss, arguing that the contract was oral, unenforceable under the rule of evidence hereinbefore mentioned. And the court dismissed the case. On appeal to the Court of First Instance, the plaintiffs reproduced their complaint and defendants reiterated their motion to dismiss.
Issues: (1) Whether or not Geronimo may sue Socorro for damages for the alleged breach of mutual promise to marry. (2) Whether Felipe’s action may prosper in enforcing an agreement in consideration of marriage.
Held: (1) YES. For breach of that mutual promise to marry, Geronimo may sue Socorro for damages. This is such action, and evidence of such mutual promise is admissible. (2) NO. However Felipe Cabague's action may not prosper, because it is to enforce an agreement in consideration of marriage. Evidently as to Felipe Cabague and Matias Auxilio this action could not be maintained on the theory of "mutual promise to marry". Neither may it be regarded as action by Felipe against Socorro "on a mutual promise to marry."
CASE: SUGA SOTTO YUVIENCO, ET AL. VS. HON. DACUYCUY, DELY RODRIGUEZ, ET AL., MAY 27, 1981, Facts: The petitioners, thru Pedro Gamboa, owned the Sotto property (land and building) situated at Tacloban City are willing to sell such property to private respondents (Yao King Ong) with the following terms, “ I am therefore gluing you and the rest of the occupants until July 31, 1978 within it which to dec ide whether you want to buy the property. If I do not hear from you by July 31, I will offer or close the deal with the other interested buyer. Xxx" The private respondents accepted the same stating, “PROPOSAL ACCEPTED ARRIVING TUESDAY MORNING WITH CONTR ACT PREPARE PAYMENT BANK DRAFT”. Nonetheless, the alleged subsequent agreement about the P2 M down and P4.5 M in 90 days may at best be deemed as a distinct cause of action. And placed against the insistence of petitioners, as demonstrated in the two deeds of sale taken by Atty. Gamboa to Tacloban, Annexes 9 and 10 of the answer of herein respondents, that there was no agreement about 90 days, an issue of fact arose, which could warrant a trial in order for the trial court to determine whether or not there was such an agreement about the balance being payable in 90 days instead of the 30 days stipulated in Annexes 9 and 10 above-referred to. Hence, private respondent filed a suit for specific performance. Issue: Whether herein Private Respondent’s claim is enforceable. Held: NO. Our conclusion, therefore, is that although there was no perfected contract of sale in the light of the letter of Atty. Gamboa of July 12, 1978 and the letter-reply thereto of Yao; it being doubtful whether or not, under Article 1319 of the Civil Code, the said letter may be deemed as an offer to sell that is "certain", and more, the Yao telegram is far from being an "absolute" acceptance under said article, still there appears to be a cause of action alleged in Paragraphs 8 to 12 of the respondents' complaint, considering it is alleged therein that subsequent to the telegram of Yao, it was agreed that the petitioners would sell the property to respondents for P6.5 M, by paving P2 M down and the balance in 90 days and which agreement was allegedly
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CASE DIGESTS - CONTRACTS violated when in the deeds prepared by Atty. Gamboa and taken to Tacloban, only 30 days were given to respondents. Hence, looking at the pose of respondents that there was a perfected agreement of purchase and sale between them and petitioners under which they would pay in installments of P2 M down and P4.5 M within ninety 90) days afterwards it is evident that such oral contract involving the "sale of real property" comes squarely under the Statute of Frauds (Article 1403, No. 2(e), Civil Code.)
CASE: OLEGARIO CLARIN VS. ALBERTO RULONA, FEB. 20, 1984, J. GUTIRREZ, JR. Facts: Petitioner sold ten hectares of his share of the disputed lot to him for P2,500.00. The conditions of the sale were that a downpayment of P1,000.00 was to be made and then the balance of P1,500.00 was to be paid in monthly installment of P100.00. Respondent delivered to the petitioner a downpayment of P800.00 and on the first week of June the amount of P200.00 was also delivered thereby completing the downpayment of P1,000.00. On the first week of August, another delivery was made by the respondent in the amount of P100.00 as payment for the first installment. Respondent further alleged that despite repeated demands to let the sale continue and for the petitioner to take back the six postal money orders, the latter refused to comply. In his answer, the petitioner alleged that while it is true that he had a projected contract of sale of a portion of land with the respondent, such was subject to the following conditions: (1) that the contract woul d be reali zed onl y if hi s co-heir s would gi ve their consent to th e sale of a specifi c portion of their common in heritance from th e late Aniceto Clarin before partiti on of the said common property and (2) th at should hi s co-heir s refuse to give their consent, th e projected contr act would be discontin ued or woul d not be realized. Petitioner further contended that the respondent knew fully well the above terms and accepted them as conditions precedent to the perfection or consummation of the contract; that respondent delivered the amount of P1,000.00 as earnest money, subject to the above conditions and that the amount was returned by the petitioner up on his learning definitely that his co -heirs a nd co -owners re fused to give their consent to the projected sale. Respondent Rulona filed a complaint for specific performance and recovery of improvements on the ground that the petitioner and his wife violated the terms of the agreement of sale “by returning by their own volition and without the consent of plaintiff, the amount of P1,100.00 in six postal money orders, covering the downpayment of P1,000.00 and first installment of P100.00.” Trial court rendered judgment in favor of respond ent. CA sustained. Issue: Whether or not the contract of sale was perfected. Held: YES. While it is true that Exhibits A and B are, in themselves, not contracts of sale, they are, however, clear evidence that a contract of sale was perfected between
the petitioner and the respondent and that such contract had already been partially fulfilled and executed . A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. (Article 1475, Civil Code; Phil. Virginia Tobacco Administration v. De los
Angeles, 87 SCRA 210). Such contract is binding in whatever form it may have been entered into . (Lopez v. Auditor General, 20 SCRA 655). Construing Exhibits A and B together, it can be seen that the petitioner agreed to sell and the respondent agreed to buy a definite object, that is, ten hectares of land which is part and parcel of Lot 20 PLD No. 4, owned in common by the petitioner and his sisters although the boundaries of the ten hectares would be delineated at a later date. The parties also agreed on a definite price which is P2,500.00. Exhibit B further shows that the petitioner has received from the respondent as initial payment, the amount of P800.00. Hence, it cannot be denied that there was a perfected contract of sale between the parties and that such contract was already partially executed when the petitioner received the initial payment of P800.00. The latter’s acceptance of the payment clearly showed his consent to the contract thereby precluding him from rejecting its binding effect. (See Federation of United Namarco Distributors, Inc. v. National Marketing Corporation, 4 SCRA 884). With the contract being partially executed, the same is
no longer covered by the requirements of the Statute of Frauds in order to be enforceable. (See Khan v. Asuncion, 19 SCRA 996). Therefore, with the contract being valid and enforceable, the petitioner cannot avoid his obligation by interposing that Exhibit A is not a public document. On the contrary, under Article 1357 of the Civil Code, the petitioner can even be compelled by the respondent to execute a public document to embody their valid and enforceable contract. The petitioner’s contention that he was only forced to receive money from the respondent due to the insistence of the latter merits little consideration. It is highly improbable that the respondent would give different sums on separate dates to the petitioner with no appa rent reason, without a binding assur ance from the latter that the disputed lot would be sold to him. We agree with the trial court and the appellate court that the payments were made in fulfillment of the conditions of the sale, namely, a downpayment of P1,000.00 and the balance of P1,500.00, to be paid in monthly installments of P100.00 each. We, therefore, find no error in the l ower court’s holding that a contract of sale was perfected between the petitioner and the respondent and that the sale did not depend on a condition that the petitioner’s co -owners would have to agree to the sale.
CASE: BISAYA LAND TRANSPORTATION CO, ANTONIO CUENCO AND BENJAMIN ROA VS. MARCIANO SANCHEZ, AUG. 31, 1987, J. PADILLA. Facts: In May 1975, Sanchez was appointed by BISTRANCO as shipping agent in Butuan City for the vessel M/V Don Mariano. 2 The new Butuan City Agent 3 referred to in the letter "Exhibit "C" was Marciano Sanchez. Later, on 12 March 1976, when BISTRANCO was under receivership, Sanchez was appointed by its Receiver, Atty. Adolfo V. Amor, as acting shipping agent, also for M/V Doña Remedies, in addition to M/V Doña Filomena, in the port of Butuan City "pending the execution of the formal contract of agency. 4 When Sanchez was constituted as acting shipping agent, he received the same commission as his predecessor, one ONG YUI who received 10% for all freight and passenger revenues coming from Butuan City and 5 % for all freight going to Butuan. 5 Thereafter, or on 27 July 1976, a formal Contract of Agency, marked as Exhibit "F", was executed between BISTRANCO, represented by Receiver Atty. Adolfo V. Amor
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CASE DIGESTS - CONTRACTS and Marciano C. Sanchez, represented by his authorized representative Exequiel Aranas. On 30 July 1976, after Sanchez found that Paragraph 16 of the Contract of agency was quite prejudicial to him, he executed with BISTRANCO a Supplemental Shipping Agency Contract, marked as Exhibit "G", which was duly signed by Receiver Atty. Adolfo V. Amor on behalf of BISTRANCO and Marciano C. Sanchez himself. 6 But, both the Contract of Agency and the Supplemental Shipping Agency Contract were never submitted by Atty. Adolfo Amor to the receivership court for its approval. While the shipping business of BISTRANCO in Butuan City flourished, evidently to the mutual benefit of both parties, on 26 December 1979, co-petitioner Benjamin G. Roa, as Executive Vice-President of BISTRANCO, wrote Sanchez a letter 10 advising him that, effective 1 January 1980, BISTRANCO would commence operating its branch office in Butuan City. Realizing that the letter, marked as Exhibit "FF", was in effect a repudiation of the Contracts, Sanchez filed an action for specific performance with preliminary injunction and damages with the Regional Trial Court of Cebu City on 28 December 1979. Trial court rendered judgment in favor of Sanchez and CA affirmed. Issue: Whether or not the contracts are unenforceable for want of authority and approval from the receivership court. Held: YES. In the case at bar, it is undisputed that Atty. Adolfo Amor was entrusted, as receiver, with the administration of BISTRANCO and it business. But the act of entering into a contract is one which requires the authorization of the court which appointed him receiver. Consequently, the questioned Contracts can rightfully be classified as unenforceable for having been entered into by one who had acted beyond his powers, due to Receiver Amor's failure to secure the court's approval of said Contracts. These unenforceable Contracts were nevertheless deemed ratified in the case at bar, based upon the facts and circumstances on record which have led this Court to conclude that BISTRANCO had actually ratified the questioned Contracts as follows: (1) Reduce Sanchez’ commission; (2) Failure to post a bond; (3) Informing Sanchez that BISTRANCOis abiding strictly with the terms of the contract.
disputed — Lots ABC and 4057-A of Lot 1-B. This area fell beyond the stipulated boundaries of Fr. Garcia's lan d and encro ached pro tanto on the land of Hernandez (on which, it should be mentioned, his tenants had been living for many years [decades, in fact] before the date of Fr. Garcia's application). 7 Allegedly lulled into complacency by the recentness of their agreement as to the limits of their respective p roperties, and confident that the visible landmarks installed by the government surveyors precluded any overstepping of those limits, Hernandez proffered no opposition to Fr. Garcia's application, leaving the heirs of Andres San Buenaventura as the only oppositors thereto. It was not until the court had already ordered the registration of the lots in Fr. Garcia's name that Hernandez discovered the anomaly in the application. He at once filed a petition for review o f the decree, but in view of the new trial ordered by the court upon motion of the heirs-oppositors, the petition was dismissed on the ground of prematurity. 8 The court thereafter adjudged Fr. Garcia as the owner of Lots 1-A and 2 and the heirs-oppositors as owners of Lot 1-B. On appeal, however, the Court of Appeals declared Fr. Garcia absolute owner, by acquisitive prescription, of an the lots. Issue: Whether or not the Statute of Frauds is applicable. Held: NO. Given the weight they deserve, the recorded facts prove Hernandez's entitlement to the relief sought. The respondents' reliance on the Statute of Frauds to secure a contrary judgment is misplaced. The Statute of Frauds finds no application to this case. Not every agreement "affecting land" must be put in writing to attain enforceability . Under the Statute of Frauds, Article 1403(2) (e) of the Civil Code, such formality is only required of contracts involving leases for longer than one year, or for the sale of real property or of an interest therein. Hernandez's testimony is thus admissible to establish his agreement with Fr. Garcia as to the boundary of their estates. It is also to be noted that the presence of Hernandez's tenants on the land within his side of the border, were this to be reckoned from the "mojones," further buttresses his claim.
VOID OR INEXISTENT CONTRACTS
recover the ownership and possession of certain portions of lot under Psu-99791 located in Barrio General Luna, Barotac Viejo, Iloilo which he bought from his fatherin-law, Francisco Militante in 1956 against its present occupant defendant, Isaias Batiller, who illegally entered said portions of the lot on two occasions — in 1945 and in 1959. Plaintiff prayed also for damages and attorneys fees. (pp. 1-7, Record on Appeal). In his answer with counter-claim defendant claims the complaint of the plaintiff d oes not state a cause of ac tion, the truth of the matter be ing tha t he and his predecessors-in-interest have always been in actual, open and continuous possession since time immemorial under claim of ownership of the portions of the lot in question. Issue: Whether or not the contract of sale between appellant and his father-in-law, the late Francisco Militante over the property subject of Plan Psu-99791 was void because it was made when plaintiff was counsel of his father-in-law in a land registration case involving the property in dispute.
CASE: VICTORINO HERNANDEZ VS. CA AND SUBSTITUTED HEIRS OF REV. FR. LUCIO GARCIA, APRIL 27, 1988, J. NARVASA. Facts: Fr. Garcia 4 applied in 1959 for the registration in his name of Lots 1-A, 1-B, and 2 of Plan Psu-172410-B in Bo. San Dionisio, Parañaque. His property adjoined that of Hernandez, and since both estates were once owned by one Andres San Buenaventura, 5 no dividing boundaries existed thereon until cadastral surveyors from the Bureau of Lands laid down official monuments to mark the separation of the lots. These monuments were set along a line which the landowners had previously agreed upon as representing the correct boundary between their estates. This was in 1956. 6 Unknown to Hernandez, the Advance Plan Psu-172410-B submitted in Fr. Garcia's behalf to the land registration court in 1959 included 220 square meters o f land now
CASE: DOMINGO RUBIAS VS. ISAIAS BATILLER, MAY 29, 1973, J. TEEHANKEE. Facts: On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to
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CASE DIGESTS - CONTRACTS Held: YES. It is noteworthy that Caltan's rationale for his conclusion that fundamental consideration of public policy render void and inexistent such expressly prohibited purchase (e.g. by public officers and employees of government property intrusted to them and by justices, judges, fiscals and lawyers of property and rights in litigation and submitted to or handled by them, under Article 1491, paragraphs (4) and (5) of our Civil Code) has been adopted in a new article of our Civil Code, viz, Article 1409 declaring such prohibited contracts as "inexistent and void from the beginning ." Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain paramount and do not permit of compromise or ratification. In his aspect, the permanent disqualification of public and judicial officers and lawyers grounded on public policy differs from the first three cases of guardians, agents and administrators
(Article 1491, Civil Code), as to whose transactions it had been opined that they may be "ratified" by means of and in "the form of a new contact , in which cases its validity shall be determined only by the circumstances at the time the execution of such new contract. The causes of nullity which have ceased to exist cannot impair
the validity of the new contract. Thus, the object which was illegal at the time of the first contract, may have already become lawful at the time of the ratification or second contract; or the service which was impossible may have become possible; or the intention which could not be ascertained may have been clarified by the parties. The ratification or second contract would then be valid from its execution ; however, it does not retroact to the date of the first contract."
CASE: BENEDICTO JAVIER, AS ADMINISTRATOR OF THE ESTATE OF EUSEBIO CRUZ VS. DOMINGA CRUZ, ET AL., NOV. 29, 1977, J. FERNANDEZ. Facts: Eusebio Cruz, who died on February 2, 1941 at the age of 100 years without leaving any will nor compulsory heirs, was the absolute and exclusive owner of a parcel of mountainous and unimproved land situated in sitio Matogalo, Taytay, Rizal which he inherited from his forebears, described therein; that during his lifetime, Eusebio Cruz had been living with one Teodora Santos 'without the sanction of marriage"; that Teodora Santos had with her as distant relatives and protegees the brothers Gregorio Cruz and Justo Cruz; that Gregorio Cruz was the father of Delfin Cruz, deceased husband of defendant Dominga Vda. de Cruz and father of defendants Leonila, Roman, Eliseo, Leberata and Melecio, all surnamed Cruz; that on January 16, 1941 Delf in Cr uz, by means of deceit an d in coll usion wit h persons among them hi s fath er Gregori o Cruz made Eusebio Cruz, who could read and wri te, stamp his thum bmark on a deed of sale of a porti on of th e lan d descri bed in t he complaint consistin g of 26,577 squar e meters for the sum of P700.00 in f avor of said Delf in Cruz; that at that time Delfin Cruz did not have theithin thirty days from submittal of the case for decision, but the validity of the law cannot be seriously challenged." Issue: Whether or not the deed of sale was valid. Held: NO. The undisputed facts of record support the evidence of Javier that the deed of sale is void and inexistent for lack of consent and consideration. It is a fact that on January 17, 1941, when the deed was executed, Eusebio was almost 100 years old and
was in a weak condition. With that, it is obvious that Delfincould not have raised the amount of 700 as consideration of the land supposedly sold to him by Eusebio. The consideration is not only grossly inadequate but also shocking to the conscience. No sane person would sell the land for only about 40.00 per hectare. The Court, thence, found Eusebio not voluntarily affix his thumb mark on the deed of sale. Case: Potenciano Menil and wife Crispina Nayve vs. CA, Agueda Garan, et al., July 31, 1978, J. Guerrero.
Facts: On November 3, 1955, Agueda Garan obtained a homestead patent over the land in question. On February 4, 1956, Original Certificate of Title No. 220 was issued by the Register of Deeds of Surigao in her name pursuant to the homestead patent. On May 7, 1960, within the prohibitive 5-year period, Agueda Garan sold the land to movant Patenciano Manil for P415.00, as evidenced by a deed of sale bearing the same date. But, for reasons not revealed in the records, the contracting parties did not registered the deed of sale in the Registry of Deeds in Surigao. Original Certificate of Title No. 220 was not cancelled and the land remained registered in the name of Agueda Garan. On August 30, 1964, Agueda Garan executed another deeds of sale over the same parcel of land in favor of the same vendee, Potenciano Menil, and for the same price P415.00. On August 30, 1965, the contracting parties registered the second deed of sale in the Registry of Deeds in Surigao. Original Certificate of Title No. 220 was cancelled, and Transfer Certificate of Title No. T-60, in lieu thereof, was issued in the name of Potenciano Menil. On February 28, 1966, Potenciano Menil mortgaged the land to the Development Bank of the Philippines to secure an agricultural loan which the former obtained from the latter. Petitioners were in possession of the land in question until sometime in 1967 when private respondents Agueda Garan, Francisco Calanias, Miguel Nayve, Jr., Rufo Nayve, and Lucio Calanias forcibly took possession of the said land, and filed against petitioners Civil Case No. 1692 for "Quieting of Title" before Branch 11 of the Court of First Instance of Surigao del Norte.
Issue: Whether or n ot Menil can stil l recover the land from Garan. Held: NO. It is not disputed by the parties that the contract of sale executed on May 7, 1960, having been executed less than 5 years from May 7, 1960, the date the homestead patent was awarded to private respondent Agueda Garan, is null and void for being violative of Section 118 of C.A. 141 [Public Land Act] which provides: Sec. 118. Except in favor of the government or any of its branches, units, or institutions, lands acquired under free patent or homestead provisions shall not be subject to enc umbrance or alienation from the date of the ap proval of the application and for a term of five years from and after the date of issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations. It cannot be claimed that there are two contracts: one which is undisputably null and void, and another, having been executed after the lapse of the 5-year prohibitory period, which is valid. The second contract of sale executed on March 3, 1964 is admittedly a confirmatory deed of sale. Even the petitioners concede this point. 3
33
CASE DIGESTS - CONTRACTS Inasmuch as the contract of sale executed on May 7, 1960 is void for it is expressly prohibited or declared void by law [CA- 141, Section 118], it therefore cannot be confirmed nor ratified. Article 1409 of the New Civil Code states: Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object, or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
Further, noteworthy is the fact that the second contract of sale over the said homestead in favor of the same vendee, petitioner Potenciano Menil, is for the same price of P415.00. Clearly, the unvarying term of the said contract is ample manifestation that the same is simulated and that no object or consideration passed between the parties to the contract. It is evident from the whole record of the case that the homestead had long been in the p ossession of the vendees upon the execution o f the first contract of sale on May 7, 1960; likewise, the amount of P415.00 had long been paid to Agueda Garan on that same occasion. We find no evidence to the contrary. Case: Director of Lands vs. Silveretra Ababa, et al., Feb. 27, 1979, J. Makasiar.
Facts: The adverse claimant, Atty. Alberto B. Fernandez was retained as counsel by petitioner, Maximo Abarquez, in Civil Case No. R-6573 of the Court of First Instance of Cebu, entitled "Maximo Abarquez vs. Agripina Abarquez", for the annulment of a contract of sale with right of repurchase and for the recovery of the land which was the subject matter thereof. The Court of First Instance of Cebu rendered a decision on May 29, 1961 adverse to the petitioner and so he appealed to the Court of Appeals. Litigating as a pauper in the lower court and engaging the services of his lawyer on a contingent basis, petitioner, liable to compensate his lawyer whom he also retained for his appeal executed a document on June 10, 1961 in the Cebuano-Visayan dialect whereby he obliged himself to give to his lawyer one-half (1/2) of whatever he might recover from Lots 5600 and 5602 should the appeal prosper.
Issue: Whether or not the contract for a contingent fee is prohibi ted by Arti cle 1491 of th e New Civil Code.
Held: NO. This contention is without merit. Article 1491 prohibits only the sale or assignment between the lawyer and his client, of property which is the subject of litigation. As WE have already stated. "The prohibition in said article a only to applies
stated: " The prohibition in said article applies only to a sale or assignment to the lawyer by his client of the property which is the subject of litigation. In other words, for the prohibition to operate, the sale or t of the property must take place during the pendency of the litigation involving the property" (Rosario Vda. de Laig vs. Court of Appeals, et al., L-26882, November 21, 1978). Likewise, under American Law, the prohibition does not apply to "cases where after completion of litigation the lawyer accepts on account of his fee, an interest the assets realized by the litigation" (Drinker, Henry S., Legal Ethics, p. 100 [1953], citing App. A, 280; N.Y. Ciu 714). "There is a clear distraction between such cases and one in which the lawyer speculates on the outcome of the matter in which he is employed" (Drinker, supra, p. 100 citing A.B.A. Op. 279).
A contract for a contingent fee is not covered by Article 1491 because the tranfer or assignment of the property in litigation takes effect only after the finality of a favorable judgment. In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of whatever Maximo Abarquez might recover from his share in the lots in question, is contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that is, the transfer or assignment of one-half (1/2) of the property in litigation will take place only if the appeal prospers. Therefore, the tranfer actually takes effect after the finality of a favorable judgment rendered on appeal and not during the pendency of the litigation involving the property in question. Consequently, the contract for a contingent fee is not covered by Article 1491. Case: Francisco Tongkoy (For Estate of Late Luis Tongkoy) vs. CA, Mercedes Sonora, et al., June 28, 1983, J. Makasiar.
Facts: The first is Lot No. 1397 of the Cadastral Survey of Bacolod, otherwise known as Hacienda Pulo, containing an area of 727,650 square meters and originally registered under Original Certificate of Title No. 2947 in the names of Francisco Tongoy, Jose Tongoy, Ana Tongoy, Teresa Tongoy and Jovita Tongoy in pro-indiviso equal shares. Said co-owners were all children of the late Juan Aniceto Tongoy. The second is Lot No. 1395 of the Cadastral Survey of Bacolod, briefly referred to as Cuaycong property, containing an area of 163,754 square meters, and formerly covered by Original Certificate of Title No. 2674 in the name of Basilisa Cuayco ng. Of the original registered co-owners of Hacienda Pulo, three died without issue, namely: Jose Tongoy, who died a widower on March 11, 1961; Ama Tongoy, who also died single on February 6, 1957, and Teresa Tongoy who also died single on November 3, 1949. The other tpwo registered co-owners, namely, Francisco Tongoy and Jovita Tongoy, were survived by children. On April 17, 1918, Hacienda Pulo was mortgaged by its registered co-owners to the Philippine National Bank (PNB), Ba colod Branch, as security for a loan of P11,000.00 payable in ten (10) years at 8% interest per annum. The mortgagors however were unable to keep up with the yearly amortizations, as a result of which the PNB instituted judicial foreclosure proceedings over Hacienda Pulo on June 18, 1931. To avoid f oreclosure, one of the co-owners and mortgagor s, Jose Tongoy, proposed to the PNB an amortization plan that would enable them to li quidate their account. But, on December 23, 1932, the PNB Branch Manager in Bacolod advised Jose Tongoy by letter that the latter's proposal was rejected and that
34
CASE DIGESTS - CONTRACTS the foreclosure suit had to continue. As a matter of fact, the suit was pursued to finality up to the Supreme Court which affirmed on July 31, 1935 the decision of the CFI giving the PNB the right to foreclose the mortgage on Hacienda Pulo. In the meantime, Patricio D. Tongoy and Luis Tongoy executed on April 29, 1933 a Declaration of Inheritance wherein they declared themselves as the only heirs of the late Francisco Tongoy and thereby entitled to the latter's share in Hacienda Pulo. On M arch 13, 1934, Ana Ton goy, Teresa Tongoy, Mercedes Sonora, Tr in idad Sonora, Juan Sonor a and Patricio Tongoy executed an " Escri tura de Venta" (Exh. 2 or Exh. W), whi ch by its terms transferred for consideration th eir r ights and in terests over H acienda Pul o in favor of L uis D. Tongoy.
Issue: Whether or not the ri ghts of herein r espondents over subject properti es, which were the subj ects of simul ated or fi ctiti ous transactions, have already prescri bed. Held: NO. The negative answer to the aforesaid query is found in Articles 1409 and 1410 of the New Civil Code. Said provisions state thus: Art. 1409. The following contracts are inexistent and void from the beginning: xxx xxx xxx 2) Those which are absolutely simulated or fictitious; xxx xxx xxx These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived (emphasis supplied). Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
The characteristic of simulation is the fact that the apparent contract is not really desired nor intended to produce legal effects nor in any 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. This characteristic of simulation was defined by this Court in the case of Rodriguez vs. Rodriguez, No. L-23002, July 31, 1967, 20 SCRA 908. A void or inexistent contract is one which has no force and effect from the very beginning, as if it had ne ver been en tered into, and which cannot be valid ated either by time or by ratification (p. 592, Civil Code of the Philippines, Vol. IV, Tolentino, 1973 Ed.).
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 (p. 444, Comments and Jurisprudence on Obligations and Contracts, Jurado, 1969 Ed.; emphasis supplied). The nullity of these contracts is definite and cannot be cured by ratification. The nullity is permanent, even if the cause thereof has ceased to exist, or even when the parties have complied with the contract spontaneously (p. 595, Tolentino, supra).
In Eugenio vs. Perdido, et al. , No. L-7083, May 19, 1955, 97 Phil. 41, this Court thus reiterated: Under the existing classification, such contract would be "inexisting" and the "action or defense for declaration' of such inexistence "does not prescribe' (Art. 14 10 New Civil Code). While it is true that this is a new provision of the New Civil Code, it is nevertheless a principle recognized since Tipton vs. Velasco, 6 Phi l. 6 7 that "mere lapse of time cannot give efficacy to contracts that are null and void. Consistently, this Court held that 11 where the sale of a homestead is nun and void, the action to recover the same does not prescribe because mere lapse of time cannot give efficacy to the contracts that are null and void and inexistent" (Angeles, et al. vs. Court of Appeals, et al., No. L-11024, January 31, 1958, 102 Phil. 1006). Evidently, therefore, the deeds of transfer executed in favor of Luis Tongoy were
from the very beginning absolutely simulated or fictitious, since the same were made merely for the purpose of restructuring the mortgage over the subject properties and thus preventing the foreclosure by the PNB. Considering the law and jurisprudence on simulated or fictitious contracts as aforestated, the within action for reconveyance instituted by herein respondents which is anchored on the said simulated deeds of transfer cannot and should not be barred by prescription. No amount of time could accord validity or efficacy to such fictitious transactions, the defect of which is permanent. There is no implied trust that was generated by the simulated transfers; because being fictitious or simulated, the transfers were null and void ab initio -from the very beginning and thus vested no rights whatsoever in favor of Luis T ongoy or his heirs. That which is inexistent cannot give life to anything at all.
A void contract produces no effect whatsoever either against or in favor of anyone; hence, it does not create, modify or extinguish the juridical relation to which it refers (p. 594, Tolentino, supra).
Case: Lita Enterprises, Inc. vs. Second Civil Cases Division, IAC, Nicasio Ocampo and Francisca Garcia, April 27, 1984, J. Escolin.
The following are the most fundamental characteristics of void or inexistent c ontracts:
Facts: Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia,
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.
herein private respondents, purchased in installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate said agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession,
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CASE DIGESTS - CONTRACTS however, remained with tile spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name.
bear the consequences of his acts.
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused.
Case: Francisca Arsenal and Remedios Arsenal vs. IAC, Heirs of Torcuato Suralta, July 14, 1986, J. Gutierrez Jr.
Issue: Whether or not th e Spouses can recover th e cars fr om L ita En terpri ses. Held: NO. Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a person who has been granted a certificate of convenience allows another person who owns motors vehicles to operate under such franchise for a fee. A certificate of public convenience is a
(Exh. A) from the Register of Deeds of Bukidnon for Lot 81, Pls-112, consisting of 87,829 sq. m. more or less, situated at former barrio of Kitaotao now a municipality of Bukidnon, by virtue of Homestead Patent No. V-23602 granted to him.
special privilege conferred by the government . Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. In the words of Chief Justice Makalintal, "this is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon the good faith of the government. Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides: ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed; (1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking.
The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this Court said in Eugenio v. Perdido , 2 "the mere lapse of time cannot give efficacy to contracts that are null void." The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other."
Although certain exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should not be applied in the instant case. "Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must
Facts: On January 7, 1954, the defendant Filomeno Palaos secured OCT No. P-290
On September 10, 1957, said Filomeno Palaos and his wife Mahina Lagwas executed in favor of the plaintiff, Torcuato Suralta, sold four (4) hectares of the land embraced in his Torrens Certificate for the sum of P 890.00, Philippine Currency, by means of a deed of acknowledged before a Notary (Exh. C). Plaintiff Suralta immediately took possession of the four-hectare portion of Lot 81 above-mentioned cultivated and worked the same openly, continuously and peacefully up to the present time in concept of owner thereof. He built a house and introduced permanent improvements thereon now valued at no less than P20,000.00. Sometime in 1964, the defendant-spouses Francisca Arsenal and Remedio Arsenal became tenants o f an adjo ining land owned by Eusebio Pab ualan that is sep arated from the land in question only by a public road. On March 14, 1967, said Filomeno Palaos and his wife executed a notarial Deed of Sale (Exh. 1 for the defendant) in consideration of the amount of P800.00, Philippine Currency, supposedly for the remaining three (3) hectares of their land without knowing that the document covered the entirety of Lot 81 including the four-hectare portion previously deeded by them to the plaintiff. The deed of sale was presented to the Office of the Commission on National Integration at Malaybalay for approva l because Palaos and his wife b elong to the cultural minorities and unlettered. The field representative and inspector of that office subsequently approved the same (Exh. K and Exh. 2) without inspecting the land to determine the actual occupants thereon. On July 11, 1973, the plaintiff presented his Sales Contract in the Office of the Register of Deeds but it was refused registration for having been executed within the prohibitive period of five years from the issuance of the patent. In order to cure the defect, he caused Filomeno Palaos to sign a new Sales Contract (Exh. D) in his favor before Deputy Clerk of Court Florentina Villanueva covering the same four-hectare portion of Lot 81. In August 1973, the plaintiff caused the segregation of his portion from the rest of the land by Geodetic Engineer Benito P. Balbuena, who conducted the subdivision survey without protest from Francisca Arsenal who was notified thereof. The subdivision plan (Exh. E) was approved by the Commissioner of Land Registration on April 18, 1974. On March 6, 1974, Torcuato Suralta filed a case against Filomeno Palaos, Mahina Lagwas, Francisca Arsenal, Remedio Arsenal and the Register of Deeds of Bukidnon for the annulment of Transfer Certificate of Title No. T-7879 issued to the Arsenals insofar as it covers the four-hectare portion previously sold to him. In answer to the
36
CASE DIGESTS - CONTRACTS complaint, the Arsenals denied previous knowledge of the sale to Suralta of the land in question. As a special defense, they assailed the vali dity of th e pur chase by Suralt a in 1957, pointing to th e prohibition contained in the Public L and Law against its disposal wi thi n th e peri od of f ive years fr om the issuance of th e homestead patent. They also questioned the legality of the sale made to Suralta in 1957 by Filomeno Palaos and Mahina Lagwas for not having been approved by the Commission on National Integration despite the fact that Palaos and his wife belong to the cultural minorities, are illiterates, and do not understand the English language in which the deed of sale in favor of Suralta was written.
Issue: Whether or not th e contract of sale executed in 1957 between respondents Palaos and Suralta i s null and void.
Held: YES. The law on the matter which is the Public Land Act (Commonwealth Act No. 141, as amended) provides: Sec. 118. Except in favor, of the Government or any of its branches, units or institutions, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent or grant nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations. No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after issuance of title shall be valid without the approval of the Secretary of Agriculture and Natural Resources, which approval shall not be denied except on constitutional and legal ground (As amended by Com. Act No. 456, approved June 8, 1939). xxx xxx xxx Sec. 120. Conveyance and encumbrance made by persons belonging to the so-called 'non-Christian Filipinos' or national cultural minorities, when proper, shall be valid if the person making the conveyance or encumbrance is able to read and can understand the language in which the instrument or conveyance or encumbrance is written. Conveyances and encumbrances made by illiterate non-Christians or literate nonChristians where the instrument of conveyance is in a language not understood by the said literate non-Christian shall not be valid unless duly approved by the Chairman of the Commission on National Integration. (As amended by Rep. Act No. 3872, approved June 18, 1964). xxx xxx xxx Sec. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or executed in violation of any of the provisions of sections one hundred and eighteen, one hundred and twenty, one hundred and twenty-one, one hundred and twenty-two, and one hundred twenty-three of this Act shall be unlawful and null and void from its execution and shall produce the effect of annulling and cancelling the grant, title, patent, or p ermit originally issued, recognized or confirmed, actually or presumptively,
and cause the reversion of the property and its improvements to the State. The above provisions of law are clear and explicit. A contract which purports of alienate, transfer, convey or encumber any homestead within the prohibitory period of five years from the date of the issuance of the patent is void from its execution. In a number of cases, this Court has held that such provision is mandatory (De los Santos v. Roman Catholic Church of Midsayap, 94 Phil. 405). Under the provisions of the Civil Code, a void contract is inexistent from the beginning. It cannot be ratified neither can the right to set up the defense of its illegality be waived. (Art. 1409 , Civil Code). To further distinguish this contract from the other kinds of contract, a commentator has stated that: The right to set up the nullity of a void or non-existent contract is not limited to the parties as in the case o f annullable o r voidable contracts; it is extended to third persons who are directly affected by the contract. (Tolentino, Civil Code of the Philippines, Vol. IV, p. 604, [1973]). Any person may invoke the inexistence of the contract whenever juridical effects founded thereon are asserted against him. (Id. p. 595). Concededly, the contract of sale executed between the respondents Palaos and Suralta in 1957 is void. It was entered into three (3) years and eight (8) months after the grant of the homestead patent to the respondent Palaos in 1954. Being void, the foregoing principles and rulings are applicable. Thus, it was erroneous for the trial court to declare that the benefit of the prohibition in the Public Land Act "does not inure to any third party." Such a sweeping declaration does not find support in the law or in precedents. A third person who is directly affected by a void contract may set up its nullity. In this case, it is precisely the petitioners' interest in the disputed land which is in question. As to whether or not the execution by the respondents Palaos and Suralta of another instrument in 1973 cured the defects in their previous contract, we reiterate the rule that an alienation or sale of a homestead executed within the five-year prohibitory period is void and cannot be confirmed or ratified. This Court has on several occasions ruled on the nature of a confirmatory sale and the public policy which proscribes it. In the case of Menil v. Court of Appeals (84 SCRA 413), we stated that: It cannot be claimed that there are two contracts: one which is undisputably null and void, and another, having been executed after the lapse of the 5-year prohibitory period, which is valid. The second contract of sale executed on March 3, 1964 is admittedly a confirmatory deed of sale. Even the petitioners concede this point. (Record on Appeal, pp. 55-56). Inasmuch as the contract of sale executed on May 7, 1960 is void for it is expressly prohibited or declared void by law (CA 141, Section 118), it therefore cannot be confirmed nor ratified.
Case: Manotok Realty, Inc. vs. CA and Felipe Madlangawa, April 30, 1987, J.
Gutierrez Jr.
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CASE DIGESTS - CONTRACTS Facts: The private respondent Felipe Madlangawa claims that he has been occupying a parcel of land in the Clara de Tambunting de Legarda Subdivision since 1949 upon permission being obtained from Andres Ladores, then an overseer of the subdivision, with the understanding that the respondent would eventually buy the lot. On April 2, 1950, the owner of the lot, Clara Tambunting, died and her entire estate, including her paraphernal properties which covered the lot occupied by the private respondent were placed under custodia legis . On April 22, 1950, the private respondent made a deposit for the said lot in the sum of P1,500.00 which was received by Vicente Legarda, husband of the late owner. As evidenced by the receipt issued by Vicente Legarda, the lot consisted of an area of 240 square meters and was sold at P30.00 per square meter. There, thus, remained an unpaid balance of P5,700.00 but the private respondent did not pay or was unable to pay this b alance because after the d eath of the testatrix, Clara Tambunting de Legarda , her heirs could not settle their differences. Apart from the initial deposit, no further payments were made from 195 0. On April 28, 1950, Don Vicente Legarda was appointed as a special administrator of the estate. Meanwhile the private respondent remained in possession of the lot in question. In its effort to clear the Tambunting Subdivision of its squatters and occupants, the petitioner caused the publication of several notices in the Manila Times issues of January 1, 1966 and the Taliba issues of January 2, and March 16, 1966, advising the occupants to vacate their respective premises, otherwise, court action with damages would follow. In addition to these notices by publication, the petitioner sent circulars to the occupants to vacate. The private respondent was one of the many occupants who refused to vacate the lots they were occupying, so that on April 26, 1968, the petitioner filed the action below to recover the said lot.
Issue: Whether or not th e sale of the lot to Feli pe Madlangawa is valid. Held: NO. We are, therefore, led to the inevitable conclusion that the sale between Don Vicente Legarda and the private respondent is void ab initio , the former being neither an owner nor administrator of the subject property. Such being the case, the sale cannot be the subject of the ratification by the Philippine Trust Company or the probate court. As was held in the case of Arsenal v. Intermediate Appellate Court (143 SCRA 40, 49): Under the provisions of the Civil Code, a void contract is inexistent from the beginning. It cannot be ratified neither can the right to set up the defense of its illegality be waived. (Art. 1409, Civil Code . To further distinguish this contract from the other kinds of contract, a commentator has stated that. The right to set up the nullity of a void or nonexistent contract is not limited to the parties as in the case of annuable or voidable contracts, it is extended to third persons who are directly affected by the contract. (Tolentino, Civil Code of the
Philippines, Vol. IV, p. 604, [1973]). Any person may invoke the inexistence of the contract whenever juridical affects founded thereon are asserted against him. (Id. P. 595). Section 1, Rule 89 of the Revised Rules of Court provides for the procedure on how a property in custodia legis can be disposed of by sale: Order of sale of personalty . — Upon the application of the executor or administrator, and on written notice to the heirs and other persons interested, the court may order the whole or a part of the personal estate to be sold, if it appears necessary for the purpose of paying debts, expenses of administration, or legacies, or for the preservation of the property.
After the appointment of Don Vicente Legarda as administrator of the estate of Dona Clara Tambunting, he should have applied before the probate court for authority to sell the disputed property in favor of the private respondent. If the probate court approved the request, then Don Vicente Legarda would have been able to execute a valid deed of sale in favor of the respondent. Unfortunately, there was no effort on the part of the administrator to comply with the above-quoted rule of procedure nor on that of the respondent to protect his interests or to pay the balance of the installments to the court appointed administrator.
Case: Cornelia Clanor Vda. De Portugal, et al. Vs. IAC and Hugo C. Portugal, March 25, 1988, J. Sarmiento.
Facts: Petitioner Cornelia Clanor and her late husband Pascual Portugal, during the lifetime of the latter, were able to accumulate several parcels of real property. Among these were a parcel of residential land situated in Poblacion, Gen. Trias, Cavite, designated as Lot No. 3201, consisting of 2,069 square meters, more or less, and covered by T.C.T. No. RT-9355, in their names, and an agricultural land located at Pasong Kawayan, Gen. Trias, Cavite, with an area of 43,587 square meters, more or less, known as Lot No. 2337, and also registered in their names under T.C.T. No. RT9356 of the Registry of Deeds for the Province of Cavite. Sometime in January, 1967, the private respondent Hugo Portugal, a son of the spouses, borrowed from his mother, Cornelia, the certificates of title to the abovementioned parcels of land on the pretext that he had to use them in securing a loan that he was negotiating. Cornelia, the loving and helpful mother that she was, assented and delivered the titles to her son. The matter was never again brought up until after Pascual Portugal died on November 17, 1974. (Cornelia herself died on November 12, 1987.) When the other heirs of the deceased Pascual Portugal, the petitioners herein, for the purposes of executing an extra-judicial partition of Pascual's estate, wished to have all the properties of the spouses collated, Cornelia asked the private respondent for the return of the two titles she previously loaned, Hugo manifested that the said titles no longer exist. When further questioned, Hugo showed the petitioners Transfer Certificate of Title T.C.T. No. 23539 registered in his and his brother Emiliano
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CASE DIGESTS - CONTRACTS Portugal's names, and which new T.C.T. cancelled the two previous ones. This falsification was triggered by a deed of sale by which the spouses Pascual Portugal and Cornelia Clanor purportedly sold for P8,000.00 the two parcels of land adverted to earlier to their two sons, Hugo and Emiliano. Confronted by his mother of this fraud, Emiliano denied any participation. And to show his good faith, Emiliano caused the reconveyance of Lot No. 2337 previously covered by TCT No. RT-9356 and which was conveyed to him in the void deed of sale. Hugo, on the other hand, refused to make the necessary restitution thus compelling the petitioners, his mother and his other brothers and sisters, to institute an action for the annulment of the controversial deed of sale and the reconveyance of the title over Lot No. 3201 (the residential land).
Issue: Whether or not th e deed of sale is vali d. Held: NO. The case at bar is not purely an action for reconveyance based on an implied or constructive trust. Neither is it one for the annullment of a fraudulent contract. A closer scrutiny of the records of the case readily supports a finding that fraud and mistake are not the only vices present in the assailed contract of sale as held by the trial court. More than these, the alleged contract of sale is vitiated by the total absence of a valid cause or consideration. The petitioners in their complaint, assert that they, particularly Cornelia, never knew of the existence of the questioned deed of sale. They claim that they came to know of the supposed sale only after the private respondent, upon their repeated entreaties to produce and return the owner's duplicate copy of the transfer certificate of title covering the two parcels of land, showed to them the controversial deed. And their claim was immeasurably bolstered when the private respondent's co-defendant below, his brother Emiliano Portugal, who was allegedly his co-vendee in the transaction, disclaimed any knowledge or participation therein. If this is so, and this is not contradicted by the decisions of the courts below, the inevitable implication of the allegations is that contrary to the recitals found in the assailed deed, no consideration was ever paid at all by the private respondent. Applying the provisions of Articles 1350, 1352, and 1409 of the new Civil Code in relation to the indispensable requisite of a valid cause or consideration in any contract, and what constitutes a void or inexistent contract, we rule that the disputed deed of sale is void ab initio or inexistent, not merely voidable. And it is provided in Article 1410 of the Civil Code, that '(T)he action or defense for the declaration of the inexistence of a contract does not prescribe. But even if the action of the petitioners is for reconveyance of the parcel of land based on an implied or constructive trust, still it has been seasonably filed. For as heretofore stated, it is now settled that actions of this nature prescribe in ten years, the point of reference being the date of registration of the deed or the date of the issuance of the certificate of titIe over the property. 4 In this case, the petitioner commenced the instant action for reconveyance in the trial court on October 26, 1976, or less than ten years from January 23, 1967 when the deed of sale was registered with the Register of Deeds. 5 Clearly, even on this basis alone, the present action has not yet prescribed. Case: Heirs of Spouses Luis Yanas and Maria Aglimot (represented by Abraham Yanas) vs. Heirs of Spouses Antonio Acaylar, et al., April 25, 1985, J. Aquino Jr.
Facts: This case is about the validity of the sale of land executed by Luis Yanas, an
illiterate Subano. Yanas, also known as Sulung Subano, had occupied, even before 1926, Lot No. 5408 with an area of 13 hectares located at Sitio Dionom (Lower Gumay), Barrio Sianib, Pinan (Dipolog), Zamboanga del Norte (Exh. L). Through lawyer Leoncio S. Hamoy, Yanas claimed the lot in the cadastral proceeding. It is adjacent to the Dionom Creek and is about two kilometers from the national highway. He planted the land to rice, corn, coconuts and fruit trees. He built houses thereon. He declared it for tax purposes in his name. Judge Manalac on September 30, 1941 issued Decree No. N-11330 adjudicating Lot No. 5408 to Yanas "married to Maria Aglimot" (Exh. C). Lawyer Valeriano S. Concha, Sr., an adjoining owner of Yanas since 1946, who became clerk of court, testified that Yanas had always occupied the lot since 1 946 up to his death in 1962 (103 tsn June 4, 1970). His son filed an adverse claim for Yanas. On August 7,1950 Yanas thumbmarked in Dapitan a deed of sale and conveyance wherein he purportedly sold to Antonio L. Acaylar of Dapitan for P200 his 13-hectare land. The sale was notarized on the following day, August 8. An instrumental witness was lawyer Hamoy. The sale was approved by Governor Felipe B. Azcuna on May 15, 1953 or 33 months after the sale.
It is the theory of the heirs of Yanas that that deed of sale is fictitious and fraudulent because what Yanas thumbmarked on August 7, 1950 was supposed to be a receipt attesting that he owed Hamoy P 200 for his legal services. Hamoy allegedly taking advantage of his illiteracy, made Yanas affix his thumbmark to a deed of sale in English (Exh. 2). The decree issued by Judge Manalac in 1941 was registered only on June 5, 1954. On that day, OCT No. 64 was issued to Yanas. On December 21, 1954 Acaylar registered the 1950 deed of sale. He obtained TCT No. T-3338 (Exh. 5). How Acaylar came to have possession of the owner's duplicate of OCT No. 64 and why it was not delivered to Yanas are not shown in the record. When Yanas discovered that his title was cancelled, he caused on August 28, 1958 an adverse claim to be annotated on Acaylar's title. He stated in his adverse claim that he never sold his land and that the price of P200 was grossly inadequate because the land was worth not less than P6,000 (Exh. D). Yanas died in 1962. His widow, Maria Aglimot, also a Subano, and his children filed in 1963 an action to declare void Acaylar's title. A notice of lis pendens was annotated on that title. Aglimot died in 1965. The trial court found the sale to be valid and binding. The Appellate Court affirmed the trial court's decision. The heirs of Yanas appealed to this Court.
Issue: Whether or not th e deed of sale is valid. Held: NO. We hold that the sale was fictitious and fraudulent. Among the badges of fraud and fictitiousness taken collectively are the following: (1) the fact that the sale is in English, the alleged vendor being illiterate; (2) the fact that his wife did not join in the sale and that her name is indicated in the deed as "Maria S. Yanas" when the truth is that her correct name is Maria Aglimot Yanas; (3) the obvious inadequacy of P200 as price for a 13-hectare la nd (P15.40 a hectare); (4 ) the notarization of the sale o n the day following the alleged thumbmarking of the document; (5) the failure to state the
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CASE DIGESTS - CONTRACTS boundaries of the lot sold; (6) the fact that the governor approved it more than two years after the alleged sale; (7) its registration more than three years later, and (8) the fact that the Acaylars were able to occupy only four hectares out of the 13 hectares and were eventually forcibly ousted therefrom by the children and agents of the vendor. It was not a fair and regular transaction done in the ordinary course of business. The fact that the alleged sale took place in 1950 and the action to have it declared void or inexistent was filed in 1963 is immaterial. The action or defense for the declaration of the inexistence of a contract does not prescribe (Art. 1410, Civil Code).
Case: Epifania Sarsosa Vda de Barsobia and Pacita Vallar vs. Victoriano Cuenco, April 16, 1982, J. Melencio-Herrera.
Facts: On September 5, 1936, Epifania Sarsosa then a widow, sold the land in controversy to a Chinese, Ong King Po, for the sum of P1,050.00 (Exhibit "B"). Ong King Po took actual possession and enjoyed the fruits thereof. On August 5, 1961, Ong King Po sold the litigated property to Victoriano T. Cuenco (respondent herein), a naturalized Filipino, for the sum of P5,000.00 (Exhibit "A"). Respondent immediately took actual possession and harvested the fruits therefrom. On March 6, 1962, Epifania "usurped" the controverted property, and on July 26, 1962, Epifania (through her only daughter and child, Emeteria Barsobia), sold a one-half (1/2) portion of the land in question to Pacita W. Vallar, the other petitioner herein (Exhibit "2"). Epifania claimed that it was not her intention to sell the land to Ong King Po and that she signed the document of sale merely to evidence her indebtedness to the latter in the amount of P1,050.00. Epifania has been in possession ever since except for the portion sold to the other petitioner Pacita. On September 19, 1962, respondent filed a Forcible Entry case against Epifania before the Municipal Court of Sagay, Camiguin. The case was dismissed for lack of jurisdiction since, as the laws then stood, the question of possession could not be properly determined without first settling that o f ownership. On December 27, 1966, respondent instituted before the Court of First Instance of Misamis Oriental a Complaint for recovery of possession and ownership of the litigated land, against Epifania and Pacita Vallar (hereinafter referred to simply as petitioners). In their Answer below, petitioners insisted that they were the owners and possessors of the litigated land; that its sale to Ong King Po, a Chinese, was inexistent and/or void ab initio; and that the deed of sale between them was only an evidence of Epifania's indebtedness to Ong King Po.
Issue: Whether or not th e sale of l and is valid. Held: YES. The facts stand, a parcel of coconut land was sold by its Filipino owner, petitioner Epifania, to a Chinese, Ong King Po, and by the latter to a naturalized Filipino, respondent herein. In the meantime, the Filipino owner had unilaterally repudiated the sale she had made to the Chinese and had resold the property to another Filipino. The basic issue is: Who is the rightful owner of the property? There should be no question that the sale of the land in question in 1936 by Epifania to
40 6
Ong King Po was inexistent and void from the beginning (Art. 1409 [7], Civil Code) because it was a contract executed against the mandatory provision of the 1935 Constitution, which is an expression of public policy to conserve lands for the Filipinos. Said provision reads: Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals, corporations, or associations, qualified to acquire or hold lands of the public domain. 7
Had this been a suit between Epifania and Ong King Po, she could have been declared entitled to the litigated land on the basis, as claimed, of the ruling in Philippine Banking Corporation vs. Lui She , 8 reading: ... For another thing, and this is not only cogent but also important. Article 1416 of the Civil Code provides as an exception to the rule on pari delicto that when the 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 may, if public policy is thereby enhanced, recover what he has sold or delivered. ... But the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a naturalized citizen, was constitutionally qualified to own the subject property. There would be no more public policy to be served in allowing petitioner Epifania to recover the land as it is already in the hands of a qualified person. Applying by analogy the ruling of this Court in Vasquez vs. Giap and Li Seng Giap & Sons : 9 ... if the ban on aliens from acquiring not only agricultural but also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's lands for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization. While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of ownership to transmit, it is likewise inescapable that petitioner Epifania had slept on her rights for 26 years from 1936 to 1962. By her long inaction or inexcusable neglect, she should be held barred from asserting her claim to the litigated property (Sotto vs. Teves, 86 SCRA 157 [1978]).
Case: Vicente Godinez, et al. Vs. Fong Pak Luen, et al., Jan. 27, 1983, J. Gutierrez
Jr. Facts: On September 30, 1966, the plaintiffs filed a complaint in the Court of First Instance of Sulu alleging among others that they are the heirs of Jose Godinez who was married to Martina Alvarez Godinez sometime in 1910; that during the marriage of their parents the said parents acquired a parcel of land lot No. 94 of Jolo townsite with an area of 3,665 square meters as evidenced by Original Certificate of Title No. 179 (D
CASE DIGESTS - CONTRACTS -155) in the name of Jose Godinez; that their mother died sometime in 1938 leaving the plaintiffs as their sole surviving heirs; that on November 27, 1941, without the knowledge of the plaintiffs, the said Jose Godinez, for valuable consideration, sold the aforesaid parcel of land to the defendant Fong Pak Luen, a Chinese citizen, which transaction is contrary to law and in violation of the Civil Code because the latter being an alien who is inhibited by law to purchase real property; that Transfer Certificate Title No. 884 was then issued by the Register of Deeds to the said defendant, which is null and void ab initio since the transaction constituted a non-existent contract; that on January 11, 1963, said defendant Fong Pak Luen executed a power of attorney in favor of his co-defendant Kwan Pun Ming, also an alien, who conveyed and sold the above described parcel of land to co-defendant Trinidad S. Navata, who is aware of and with full knowledge that Fong Pak Luen is a Chinese citizen as well as Kwan Pun Ming, who under the law are prohibited and disqualified to acquire real property in this jurisdiction; that d efendant Fong Pak Luen has not acquired any title or intere st in said parcel of land as the purported contract of sale executed by Jose Godinez alone was contrary to law and considered non- existent, so much so that the alleged attorney-infact, defendant Kwan Pun Ming had not conveyed any title or interest over said property and defendant Navata had not acquired anything from said grantor and as a consequence Transfer Certificate of Title No. 1322, which was issued by the Register of Deeds in favor of the latter is null and void ab initio ,- that since one-half of the said property is conjugal property inherited by the plaintiffs from their mother, Jose Godinez could -not have legally conveyed the entire property; that notwithstanding repeated demands on said defendant to surrender to plaintiffs the said property she refused and still refuses to do so to the great damage and prejudice of the plaintiffs; and that they were constrained to engage the services of counsel in the sum of P2,000.00. 1äwphï1.ñët The plaintiffs thus pray that they be adjudged as the owners of the parcel of land in question and that Transfer Certificate of Title RT-90 (T-884) issued in the name of defendant Fong Pak Luen be declared null and void ab initio,
Issue: Whether or not the contract is nul l and void. Held: YES. The meaning of the above provision was fully discussed in Krivenko v. Register of Deeds of Manila (79 Phil. 461) which also detailed the evolution of the provision in the public land laws, Act No. 2874 and Commonwealth Act No. 141. The Krivenko ruling that "under the Constitution aliens may not acquire private or agricultural lands, including residential lands" is a declaration of an imperative constitutional policy. Consequently, prescription may never be invoked to defend that which the Constitution prohibits. However, we see no necessity from the facts of this case to pass upon the nature of the contract of sale executed by Jose Godinez and Fong Pak Luen whether void ab initio, illegal per se or merely pro-exhibited.** It is enough to stress that insofar as the vendee is concerned, prescription is unavailing. But neither can the vendor or his heirs rely on an argument based on imprescriptibility because the land sold in 1941 is now in the hands of a Filipino citizen against whom the constitutional prescription was never intended to apply. The lower court erred in treating the case as one involving simply the application of the statute of limitations.
From the fact that prescription may not be used to defend a contract which the Constitution prohibits, it does not necessarily follow that the appellants may be allowed to recover the property sold to an alien. As earlier mentioned, Fong Pak Luen, the
disqualified alien vendee later sold the same property to Trinidad S. Navata, a Filipino citizen qualified to acquire real property.
Case : Donato Reyes Yap and Melitona Maravillas vs. Hon. Grageda and Jose Rico, March 28, 1983, J. Gutierrez Jr.
Facts: On April 12, 1939, Maximino Rico, for and in his own behalf and that of the minors Maria Rico, Filomeno Rico, Prisco Rico, and Lourdes' Rico, executed a Deed of Absolute Sale (Annex 'A' to the complaint) over Lot 339 and a portion of Lot 327 in favor of the petitioner Donato Reyes Yap who was then a Chinese national. Respondent Jose A. Rico is the eldest son of Maximino Rico, one of the vendors in Annex 'A'. Subsequently, the petitioner as vendee caused the registration of the instrument of sale and the cancellation of Original Certificates of Title Nos. 29332 and 29410 and the consequent issuance in his favor of Transfer Certificate of Title No. T-2433 covering the two lots subject matter of the Contract of Sale. After the lapse of nearly fifteen years from and after the execution of the deed of absolute sale, Donato Reyes Yap was admitted as a Filipino citizen and allowed to take his oath of allegiance to the Republic of the Philippines. He was, thereafter, issued Certificate of Naturalization No. 7, File No. 19 of the Court of First Instance of Albay. On December 1, 1967, the petitioner ceded the major portion of Lot No. 327 consisting of 1,078 square meters which he acquired by purchase under the deed of sale in favor of his engineer son, Felix Yap, who was also a Filipino citizen because of the Filipino citizenship of his mother and the naturalization of his father Donato Reyes Yap. Subsequently, Lourdes Rico, aunt and co-heir of respondent Jose A. Rico. sold the remaining portion of Lot 327 to the petitioner who had his rights thereon duly registered under Act 496. Petitioner, Donato Reyes Yap, has been in possession of the lots in question since 1939, openly, publicly, continuously, and adversely in the concept of owner until the present time. The petitioner has one surviving son by his first marriage to a Filipino wife. He has five children by his second marriage also to a Filipina and has a total of 23 grandchildren all of whom are Filipino citizens. The respondent court considered Section 5, Article XIII of the 1935 Constitution that "no private agricultural land shall be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines" to be an absolute and unqualified prohibition and, therefore, ruled that a conveyance contrary to it would not be validated nor its void nature altered by the subsequent naturalization of the vendee.
Issue: Whether or not the sale is vali d. Held: YES. The rulings in Vasquez v.Leng Seng Giap et al. (96 Phil. 447) and Sarosa Vda. de Bersabia v. Cuenco (113 SCRA 547) sustain the petitioner's contentions. We stated in Sarosa Vda de Bersabia:
There should be no question that the sale of the land in question in 1936 by Epifania to Ong King Po was inexistent and void from the
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CASE DIGESTS - CONTRACTS beginning (Art. 1409 [7], Civil Code) because it was a contract executed against the mandatory provision of the 1935 Constitution, which is an expression of public policy to conserve lands for the Filipinos. Said provision reads:
National Rice and Corn Administration (NARIC) to stop or delay the institution of criminal charges against Pineda who allegedly misappropriated 11,000 cavans of palay deposited at his ricemill in Concepcion, Tarlac. The NARIC general manager was allegedly an intimate friend of Dela Rama.
Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to in. individuals, corporations, or associations, qualified to acquire or hold lands of the public domain.
According to Dela Rama, petitioner Pineda has used up all his funds to buy a big hacienda in Mindoro and, therefore, borrowed the P9,300.00 subject of his complaint for collection. In addition to filling the suit to collect the loan evidenced by the matured promissory note, Dela Rama also sued to collect P5,000.00 attorney's fees for legal services rendered as Pineda's counsel in the case being investigated by NARIC.
Had this been a suit between Epifania and Ong King Po she could have been declared entitled to the litigated land on the basis, as claimed, of the ruling in Philippine Banking Corporation vs. Lui She, reading:
The Court of First Instance of Manila decided Civil Case No. 45762 in favor of petitioner Pineda. The court believed the evidence of Pineda that he signed the promissory note for P9,300.00 only because Dela Rama had to ld him that this amount had already been advanced to grease the palms of the 'Chairman and General Manager of NARIC in order to save Pineda from criminal prosecution.
... For another thing, and this is not only cogent but also important. Article 1416 of the Civil Code provides as an exception to the rule on pari delicto that when the 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 may, if public policy is thereby enhanced, recover what he has sold or delivered. ... But the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a naturalized citizen, was constitutionally qualified to own the subject property. There would be no more public policy to b e served in allowing pe titioner Epifania to recover the land as it is already in the hands of a qualified person. Applying by analogy the ruling of this Court in Vasquez vs. Giap and Leng Seng Giap & Sons: ... if the ban on aliens from acquiring not only agricultural but also urban lands, as construed by this Court in the Krivenko case, is to preserve the nation's lands for future generations of Filipinos, that aim or purpose would not be thwarted but achieved by making lawful the acquisition of real estate by aliens who became Filipino citizens by naturalization. Only recently, we had occasion to reiterate the above rulings in Vicente Godines v. Fong Pak Luen, et al. (G.R. No. L-36731, January 27, 1983).
Case: Jesus Pineda vs. Jose Dela Rama and CA, April 28, 1983, J. Gutierrez Jr.
Facts: Dela Rama is a practising lawyer whose services were retained by Pineda for the purpose of making representations with the chairman and general manager of the
Issue: Whether or n ot Dela Rama can recover fr om Pineda. Held: NO. We agree with the trial court which believed Pineda. It is indeed unusual for a lawyer to lend money to his client whom he had known for only three months, with no security for the loan and on interest. Dela Rama testified that he did not even know what Pineda was going to do with the money he borrowed from him. The petitioner had just purcha sed a haciend a in Mindoro for P210 ,000.00, owned s ugar and rice land s in Tarlac of around 800 hectares, and had P60,000.00 deposits in three banks when he executed the note. It is more logical to believe that Pineda would not borrow P5,000.00 and P4,300.00 five days apart from a man whom he calls a "fixer" and whom he had known for only three months. Whether or not the supposed cash advances reached their destination is of no moment. The consideration for the promissory note - to influence public officers in the performance of their duties - is co ntrary to la w and pub lic policy. The promissory note is void ab initio and no cause of action for the collection cases can arise from it.
Case: Conchita Liguez vs. CA and Maria Ngo Vda de Lopez, et al., Dec. 18, 1957,
J.B.L. Reyes. Facts: The case began upon complaint filed by petitioner-appellant against the widow and heirs of the late Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in barrio Bogac-Linot, of the municipality of Mati, Province of Davao. Plaintiff averred to be its legal owner, pursuant to a deed of donation of said land, executed in her favor by the late owner, Salvador P. Lopez, on 18 May 1943. The defense interposed was that the donation was null and void for having an illicit causa or consideration, which was the plaintiff's entering into marital relations with Salvador P. Lopez, a married man; and that the property had been adjudicated to the appellees as heirs of Lopez by the court of First Instance, since 1949. The Court of Appeals found that the deed of donation was prepared by the Justice of the Peace of Mati, Davao, before whom it was signed and ratified on the date aforesaid. At the time, the appellant Liguez was a minor, only 16 years of age. While the deed
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CASE DIGESTS - CONTRACTS recites — That the DONOR, Salvador P. Lopez, for and in the consideration of his love and affection for the said DONEE, Conchita Liguez, and also for the good and valuable services rendered to the DONOR by the DONEE, does by these presents, voluntarily give grant and donate to the sa id d onee, etc. (Paragraph 2, Exhibit "A") the Court of Appeals found that when the donation was made, Lopez had been living with the parents of appellant for barely a month; that the donation was made in view of the desire of Salvador P. Lopez, a man of mature years, to have sexual relations with appellant Conchita Liguez; that Lopez had confessed to his love for appellant to the instrumental witnesses, with the remark that her parents would not allow Lopez to live with her unless he first donated the land in question; that after the donation, Conchita Liguez and Salvador P. Lopez lived together in the house that was built upon the latter's orders, until Lopez was killed on July 1st, 1943, by some guerrillas who believed him to be pro -Japanese. It was also ascertained by the Court of Appeals that the donated land originally belonged to the conjugal partnership of Salvador P. Lopez and his wife, Maria Ngo; that the latter had met and berated Conchita for living maritally with her husband, sometime during June of 1943; that the widow and children of Lopez were in possession of the land and made improvements thereon; that the land was assessed in the tax rolls first in the name of Lopez and later in that of his widow.; and that the deed of donation was never recorded. Upon these facts, the Court of Appeals held that the deed of donation was inoperative, and null and void (1) because the husband, Lopez, had no right to donate conjugal property to the plaintiff appellant; and (2) becau se the donation was tainted with illegal cause or consideration, of which donor and donee were participants.
Issue: Whether or not th e deed of donation i s void. Held: Partly Yes. In our opinion, the Court of Appeals erred in applying to the present case the pari delicto rule. First, because it can not be said that both parties here had equal guilt when we consider that as against the deceased Salvador P. Lopez, who was a man advanced in years and mature experience, the appellant was a mere minor, 16 years of age, when the donation was made; that there is no finding made by the Court of Appeals that she was fully aware of the terms of the bargain entered into by and Lopez and her parents; that, her acceptance in the deed of donation (which was authorized by Article 626 of the Old Civil Code) did not necessarily imply knowledge of conditions and terms not set forth therein; and that the substance of the testimony of the instrumental witnesses is that it was the appellant's parents who insisted on the donation before allowing her to live with Lopez. These facts are more suggestive of seduction than of immoral bargaining on the part of appellant. It must not be forgotten that illegality is not presumed, but must be duly and adequately proved. In the second place, the rule that parties to an illegal contract, if equally guilty, will not be a ided b y the law b ut 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. Memo auditor propriam turpitudinem allegans . The text of the articles makes it plain that the donation made by the husband in
contravention of law is not void in its entirety, but only in so far as it prejudices the interest of the wife. In this regard, as Manresa points out (Commentaries, 5th Ed., pp. 650-651, 652-653), the law asks no distinction between gratuitous transfers and conveyances for a consideration. To determine the prejudice to the widow, it must be shown that the value of her share in the property donated can not be paid out of the husband's share of the community profits. The req uisite data, however, are not available to us and necessitate a re mand of the records to the court of origin that settled the estate of the late Salvador P. Lopez. The situation of the children and forced heirs of Lopez approximates that of the widow. As privies of their parent, they are barred from invoking the illegality of the donation. But their right to a legitime out of his estate is not thereby affected, since the legitime is granted them by the law itself, over and above the wishes of the deceased. Hence, the forced heirs are entitled to have the donation set aside in so far as in officious: i.e., in excess of the portion of free disposal (Civil Code of 1889, Articles 636, 654) computed as provided in Articles 818 and 819, and bearing in mind that "collationable gifts" under Article 818 should include gifts made not only in favor of the forced heirs, but even those made in favor of strangers, as decided by the Supreme Court of Spain in its decisions of 4 May 1899 and 16 June 1902. So that in computing the legitimes, the value of the property to herein appellant, Conchita Liguez, should be considered part of the donor's estate. Once again, only the court of origin has the requisite date to determine whether the donation is inofficious or not. With regard to the improvements in the land in question, the same should be governed by the rules of accession and possession in good faith, it being undisputed that the widow and heirs of Lopez were unaware of the donation in favor of the appellant when the improvements were made.
Case: Philippine Banking Corp (representing the Estate of Justinia Santos Y
Faustino) vs. Lui She (in her own behalf and as administratrix of the intestate estate of Wong Heng), Dec. 18, 1967, J. Castro. Facts: On November 15, 1957, the parties entered into the lease contract for 50 years: that ten days after, that is on November 25, they amended the contract so as to make it cover the entire property of Justina Santos; that on December 21, less than a month after, they entered into another contract giving Wong Heng the option to buy the leased premises should his pending petition for naturalization be granted; that on November 18, 1958, after failing to secure naturalization and after finding that adoption does not confer the citizenship of the adopting parent on the adopted, the parties entered into two other contracts extending the lease to 99 years and fixing the period of the option to buy at 50 years. which indubitably demonstrate that each of the contracts in question was designed to carry out Justina Santos' expressed wish to give the land to Wong and thereby in effect place its ownership in alien h ands,1 about which we shall have something more to say toward the end of this resolution. We concluded that "as the lease contract was part of a scheme to violate the Constitution it suffers from the same infirmity that renders the
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CASE DIGESTS - CONTRACTS other contracts void and can no more be saved from illegality than the rest of the contracts."
Issue: Whether or not th e contract is valid. Held: NO. As for the 1959 wills, it is said that they manifest a desire to abide by the law, as is evident from the statement therein that Wong's right to buy the land be allowed "anytime he or his children should be entitled to buy lands in the Philippines (i.e., upon becoming Filipino citizens)". It seems obvious, however, that this is nothing but a reiteration of the substance of the lease contract and conditional option to buy which in compensation, as our decision demonstrates, amount to a conveyance, the protestation of c ompliance with the law notwithstanding. In c ases like the one at bar, motives are seldom avowed and avowals are not always candid. The problem is not, however, insuperable, especially as in this case the very witnesses for the defendantappellant testified that — Considering her age, ninety (90) years old at the time and her condition, she is a wealthy woman, it is just natural when she said. "This is what I want and this will be done ." In particular reference to this contract of lease, when I said "This is not proper, she said — 'you just go ahead, you prepare that, I am the owner, and if there is illegality, I am the only one that can question the illegality.'"6 The ambition of the old woman before her death, according to her revelation to me, was to see to it that these properties be enjoyed, even to own them , by Wong Heng because Doña Justina told me that she did not have any relatives, near or far, and she considered Wong Heng as a son and his children her grandchildren; especially her consolation in life was when she would hear the children reciting prayers in Tagalog.7 She was very emphatic in the care of the seventeen (17) dogs and of the maids who helped her much, and she told me to see to it that no one could disturb Wong Heng from those properties. That is why we thought of adoption, believing that thru adoption Wong Heng might acquired Filipino citizenship, being the adopted child of a Filipino citizen.
Case: Heirs of Marciana Avila vs. CA and Aladino Ch. Bacarrisas, Nov. 14, 1 986,
J. Paras. Facts: In 1939, the Court of First Instance of Misamis Oriental, as a cadastral court, adjudicated Lots 594 and 828 of the Cadastral Survey of Cagayan to Paz Chavez. But because Paz Chavez failed to p ay the property taxes of Lot 5 94, the government offered the same for sale at a public auction. Marciana G. Avila, a teacher, wife of Leonardo Avila and the mother of the herein petitioners, participated in and won the bidding. Despite the provision of Section 579 of the Revised Administrative Code prohibiting public school teachers from buying delinquent properties, nobody, not even the government questioned her participation in said auction sale. In fact on February 20, 1940, after the expiration of the redemption period, the Provincial Treasurer executed in her favor the final bill of sale. (Rollo, pp. 10-11).
Sometime in 1947, OCT Nos. 100 and 101, covering said Lots 594 and 828, were issued in favor of Paz Chavez. In opposition thereto, private respondents filed a petition for review of the decrees on August 25, 1947 at the Court of First Instance of Misamis Oriental, Branch II, in Cadastral Case No. 17, Lot No. 594 entitled "The Director of Lands, Applicant v. Atanacia Abalde, et al., Claimants in Re: Petition for Review of Decree, Marciana G. Avila, Petitioner vs. Paz Chavez, Respondents."
Issue: Whether or not the purchase of A vila i s valid. Held: NO. While it is true that Marciana Avila, their mother and predecessor-ininterest, purchased the questioned property at a public auction conducted by the government; paid the purchase price; and was issued a final bill of sale after the expiration of the redemption period, it is however undisputed that such purchase was prohibited under Section 579 of the Revised Administrative Code, as amended, which provides: Section 579. Inhibition against purchase of property at tax sale.Official and employees of the Government of the Republic of the Philippines are prohibited from purchasing, directly or indirectly, from the Government, any property sold by the Government for the non-payment of any public tax. Any such purchase by a public official or employee shall be void. Thus, the sale to her of Lot 594 is void. On the other hand, under Article 1409 of the Civil Code, a void contract is inexistent from the beginning. It cannot be ratified neither can the right to set up the defense of its illegality be waived. (Arsenal, et al. vs, The Intermediate Appellate Court. et al., G.R. No. 66696, July 14, 1986). Moreover, Marciana Avila was a party to an illegal transaction, and therefore, under Art. 1412 of the Civil Code, she cannot recover what she has given by reason of the contract or ask for the fulfillment of what has been promised her. Furthermore, in a registration case, the judgment confirming the title of the applicant and ordering its registration in his name necessarily carries with it the delivery of possession which is a n inherent element of the right of ow nership. (Abulocio n et al. v. CFI of Iloilo, et al., 100 Phil. 553 [1956]). Hence, a writ of possession may be issued not only against the person who has been defeated in a registration case but also against anyone unlawfully and adversely occupying the land or any portion thereof during the land registration proceedings up to the issuance of the final decree. It is the duty of the registration court to issue said writ when asked for by the successful claimant. (Demorar v. Ibañez, etc., et al., 97 Phil. 72 [1955]; Abulocion et al v. CFI of Iloilo, et al., supra). Under the circumstances, possession cannot be claimed by petitioners, because their predecessor-in-interest besides being at fault is not the successful claimant in the registration proceedings and hence not entitled to a writ of possession. As correctly stated by the Court of Appeals when respondent Court issued the writ of execution as to Lot 594, there really was no legal basis for the same, for Avila had not secured a decree, nor a judgment of confirmation of title over said lot. Case: Teja Marketing And/Or Angel Jaucian vs. IAC and Pedro N. Nale, March 9,
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CASE DIGESTS - CONTRACTS 1987, J. Paras.
Facts: On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). The records of the LTC show that the motorcycle sold to the defendant was first mortgaged to the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because it was made to appear that way only as the defendant had no franchise of his own and he attached the unit to the plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to undertake the yearly registration of the motorcycle with the Land Transportation Commission. Pursuant to this agreement the defendant on February 22, 1976 gave the plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the registration fee of the motorcycle. The plaintiff, however failed to register the motorcycle on that year on the ground that the defendant failed to comply with some requirements such as the payment of the insurance premiums and the bringing of the motorcycle to the LTC for stenciling, the plaintiff saying that the defendant was hiding the motorcycle from him. Lastly, the plaintiff explained also that though the ownership of the motorcycle was already transferred to the defendant the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of Camaligan for the reason that all motorcycle purchased from the plaintiff on credit was rediscounted with the bank. It also appears and the Court so finds that defendant purchased the motorcycle in question, particularly for the purpose of engaging and using the same in the transportation business and for this purpose said trimobile unit was attached to the plaintiffs transportation line who had the franchise, so much so that in the re gistration certificate, the plaintiff appears to be the owner of the unit. Furthermore, it appears to have been agreed, further between the plaintiff and the defendant, that plaintiff would undertake the yearly registration of the unit in question with the LTC. Thus, for the registration of the unit for the year 1976, per agreement, the defendant gave to the plaintiff the amount of P82.00 for its registration, as well as the insurance coverage o f the unit. Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against private respondent Pedro N. Nale in the City Court of Naga City. The City Court rendered j udgment in favor of petitioner. CA a ffirmed.
Issue: Whether or not T eja Mar keting can recover fr om Pedro Nal e. Held: However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private respondent Jaucian, pursuant to what is commonly known as the "kabit system", without the prior approval of the Board of Transportation (formerly the Public Service Commission) was an illegal transaction involving the fictitious registration of the motor vehicle in the name of the private respondent so that he may traffic with the privileges of his franchise, or certificate of public convenience, to operate a tricycle service, the parties being in pari delicto, neither of them may bring an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code]. Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to operate under such
franchise for a fee. A certificate of public convenience is a special privilege conferred by the government. Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and co rruption in the government tran sportation offices. Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave both where it finds then. Upon this premise it would be error to accord the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides: Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: 1. When the fault is on the part of both contracting parties, neither may recover that he has given by virtue of the contract, or demand, the performance of the other's undertaking. The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere lapse of time cannot give efficacy to contracts that are null and void.
Case: Aurelio Briones vs. Primitivo Cammayo, et al., Oct. 4, 1971, J. Dizon.
Facts: Defendants executed the real estate mortgage, as security for the loan of P1,200.00 given to defendant Primitivo P. Cammayo upon the usurious agreement that defendant pays to the plaintiff and that the plaintiff reserve and secure, as in fact plaintiff reserved and secured himself, ou t of the alleged loan of P1, 500.00 as interest the sum of P300.00 for one year. That although the mortgage contract was executed for securing the payment of P1,500.00 for a period of one year, without interest, the truth and the real fact is that plaintiff delivered to the defendant Primitivo P. Cammayo only the sum of P1,200.00 and withheld the sum of P300.00 which was intended as advance interest for one year. That on account of said loan of P1,200.00, defendant Primitivo P. Cammayo paid to the plaintiff during the period from October 1955 to July 1956 the total sum of P330.00 which plaintiff, illegally and unlawfully refuse to acknowledge as part payment of the account but as in interest of the said loan for an extension of another term of one year. That said contract of loan entered into between plaintiff and defendant Primitivo P. Cammayo is a usurious contract and is contrary to law, morals, good customs, public order or public policy and is, therefore, in existent and void from the beginning (Art. 1407 Civil Code) Hence, Aurelio cannot recover the principal obligation.
Issue: Whether the creditor is entitled to collect from the debtor the amount representing the pri ncipal obli gation. Held: YES. We do not agree with such reasoning, Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from p revious interpretation that, a s pro vided in
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