Final Oblicon Digest

NSAINT LOUIS UNIVERSITY
A. BONIFACIO ST., 2600 BAGUIO CITY,

PHILIPPINES
A Compilation of Case Digests in Partial

Fulfillment of the Requirements for
Law 121; Obligations and
Contracts
Submitted to:
Atty. JENNIFER N. ASUNCION
Submitted by:
GARCIA, Agnes Isabel
GONAYON, Glo Marie
March 15,2019
Page 1 of 178
TABLE OF CONTENTS
Case No. Case Title Page no.
1 G.R. No. 186069 Cabahug v. NAPOCOR 10
2 G.R. No. 200602 ACE Foods, Inc. v. Micro Pacific Technologies Co., Ltd. 11-12
3 G.R. No. 195117 Hur Tin Yang v. People 13-14
4 G.R. No. 191431 Cruz v. Gruspe 15-16
5 G.R. No. 174286 Traders Royal Bank v. Cuison Lumber Co., Inc. 17-19
6 G.R. No. 173562 Central Cement Corporation v. Mines Adjudication Board 20-21
7 G.R. No. 145483 Lorenzo Shipping Corp. v. BJ Marthel International, Inc., 22
8 G.R. No. 181833 International Freeport Traders, Inc. v. Danzas 23-24
9 G.R. No. 177783 Heirs of Ignacio v. Home Bankers Savings and Trust Co., 25
10 G.R. No. 173622 Robern Development Corp. v. People’s Landless Association 26-28
11 G.R. No. 138113 Bugatti v. Court of Appeals 29-30
12 G.R. No. 133632 BPI Investment Corporation v. Court of Appeals 31
13 2 SCRA 205 Cui v. Arellano University 32-33
14 G.R. No. 168523 Pactum commissorium: Edralin v. Philippines Veterans Bank 34
15 Pactum commissorium: Garcia v. Villar 35-36
16 G.R. No. 163512 Non-involvement clause: Tiu v. Platinum Plans Phil., Inc. 37
Prohibition to marry clause: Duncan Association of Detailman-PTGWO

17 G.R. No. 162994 38-39
v. Glaxo Wellcome Philippines, Inc.
18 G.R. No. 164774 Prohibition to marry clause: Star Paper Corporation v. Simbol 40-41
19 G.R. No. 153674 Exclusivity clause: Avon Cosmetics, Inc. v. Luna 42
20 G.R. No. 119379 Escalation clause: Polotan, Sr. v. Court of Appeals 43-44
Page 2 of 178
Escalation clause: New Sampaguita Builders Construction, Inc. v.
21 G.R. No. 148753 45-46
Philippine National Bank
22 G.R. No. 171201 Dragnet clause: Tecklo v. Rural Bank of Pamplona 47-48
Chua Tee Dee v. CA re: Deprivación de derecho v. Deprivación de

23 429 SCRA 418 (2004) 49-50
mero hecho [Arts. 1654 / 1664] in lease
24 G.R. No. 174632 Martin v. DBS Bank Philippines, Inc. 51-52
25 G.R. No. 189602 Heirs of Zabala v. Court of Appeals 53
26 G.R. No. 166642 P.L. Uy Realty Corp. v. ALS Management and Development Corp. 54-56
27 G.R. No. 169211 Star Two (SPV-AMC), Inc. v. Paper City Corporation of the Philippines
57-58
28 G.R. No. 160600 Gonzalo v. Tarnate 59
29 G.R. No. 207597 Campos v. Bank of the Philippine Islands 60-61
30 G.R. No. 135149 Acol v. Philippine Commercial Credit Card Incorporated 62-63
31 G.R. No. 90634 Carmelcraft Corporation v. National Labor Relations Commission64
32 G.R. No. 109125 Asuncion v. Court of Appeals 65
33 G.R. No. 133107 Rizal Commercial Banking Corporation v. Court of Appeals 66
Right of first refusal: Polytechnic University of the Philippines v. Golden

34 G.R. No. 183612 67-69
Horizon Realty Corporation
35 G.R. No. 181983 Consolidated Industrial Gases, Inc. v. Alabang Medical Center 70-71
36 G.R. No. 183204 Metropolitan Bank & Trust Company v. Rosales 72-73
37 G.R. No. 200895 Mendiola v. Commerz Trading Int’l., Inc. 74-75
38 G.R. No. 156841 GF Equity, Inc. v. Valenzona 76-77
39 G.R. No. 124290 Allied Banking Corporation v. Court of Appeals 78
40 G.R. No. 159912 United Coconut Planters Bank v. Beluso 79
41 G.R. No. 184041 Saludo, Jr. v. Security Bank Corp. 80-81
42 G.R. No. 156966 Pilipino Telephone Corporation v. Tecson 82-83
Page 3 of 178
43 G.R. No. 193178 Philippine Savings Bank v. Castillo 84-85
44 G.R. No. 88880 Philippine National Bank v. Court of Appeals 86-87
45 G.R. No. 101771 Florendo v. Court of Appeals 88
46 G.R. No. 187678 Juico v. China Banking Corporation 89-90
47 G.R No. 181045 Silos v. Philippine National Bank 91-92
48 G.R. No. 171351 Metropolitan Waterworks and Sewerage System v. Bautista 93-94
49 G.R. No. 169846 Borromeo v. Court of Appeals 95-96
50 G.R. No. 132196 Valdez v. Court of Appeals
51 G.R. No. 177113 Sta. Lucia Realty v. Buenaventura
52 G.R. No. 164703 Tortious interference: Go v. Cordero
53 G.R. No. 201787 Inocencion v. Hospicio de San Jose
54 G.R. No. 179382 Mamaril v. The Boy Scout of the Philippines
55 G.R. No. 118248 DKC Holdings Corporation v. Court of Appeals
56 G.R. No. 186738 Prudential Bank and Trust Company v. Abasolo
57 G.R. No. 120554 So Ping Bun v. Court of Appeals
II. ESSENTIAL REQUISITES/ ELEMENTS
58 G.R. No. 203655 SM Land, Inc. v. Bases Conversion and Development Authority
59 G.R. No. 174286 Traders Royal Bank v. Cuison Lumber Co., Inc.
60 G.R. No L-55048, Yuvienco v. Dacuycuy
Metropolitan Manila Development Authority v. Jancom Environmental

61 G.R. No. 147465
Corporation
62 45 SCRA 368 Sanchez v. Rigos
63 G.R. No. 125761 Malbarosa v. Court of Appeals
64 G.R. No. 16530 Laudico v. Rodriguez
Page 4 of 178
65 G.R. No. 159567 Catalan v. Basa
66 G.R. No. 127540 Domingo v. Court of Appeals
67 G.R. No. 143370 Mendezona v. Ozamiz
68 G.R. No. 126013 Theis v. Court of Appeals
69 G.R. No. L-32116 Rural Bank of Caloocan v. Court of Appeals
70 G.R. No. 82340 Dumez Company of France v. National Labor Relations Commission
71 31 Phil 160 Hill v. Veloso
72 G.R. No. 154670 Fontana Resort and Country Club, Inc. v. Tan
73 G.R. No. 188288 Viloria v. Continental Airlines, Inc.,
74 G.R. No. 171428 Tankeh v. Development Bank of the Philippines
75 G.R. 167874 Tongson v. Emergency Pawnshop Bula Inc.
76 G.R. No. 196182 ECE Realty and Development Inc. v. Mandap
77 G.R. No. 207176 Binua v. Ong
78 G.R. No. 183852 Mangahas v. Brobio
79 G.R. No. 165851 Catindig v. vda. De Meneses
80 G.R. No. 176841 Orduña v. Fuentebella
81 G.R. No. 180705 Cojuangco, Jr. v. Republic
82 G.R. No. 183852 Mangahas v. Brobio
83 G.R. No. 171736 Pentacapital Investment Corp. v. Mahinay
84 G.R. No. 173211 Heirs of Intac v. Court of Appeals
85 G.R. No. 186264 Formaran v. Ong
86 G.R. No. 169055 Villaceran s. De Guzman
87 G.R. No. 212277 De Leon v. Dela Llana
88 G.R. No. 165748 Heirs of Ureta v. Heirs of Ureta
Page 5 of 178
89 G.R. No. 204029 Rebusquillo v. Gualvez
90 G.R. No. L-27010 Dauden-Hernaez v. Delos Angeles
91 G.R. No. 181672 Vega v. Social Security System
92 G.R. No. 194785 David v. Misamis Occidental II Electric Cooperative, Inc.
93 28 SCRA 231 Atilano v. Atilano
94 G.R. No. 91334 Investor Finance Corp. v. Court of Appeals
95 111 SCRA 341 Pichel v. Alonzo
96 G.R. No. 117190 Tanguilig v. Court of Appeals
97 47 SCRA 65 Borromeo v. Court of Appeals
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100
101
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Page 9 of 178
SPOUSES JESUS L. CABAHUG AND CORONACION M. CABAHUG
VS. NATIONAL POWER CORPORATION
GR NO. 186069, JANUARY 30, 2013
PONENTE: PEREZ, J.
TOPIC: ARTS. 1305 - 1317
FACTS:
Spouses Cabahug, being owners of two parcels of land which were subjected to
expropriation proceedings by the National Power Corporation (NPC). NPC electrical cables
would be installed in the portions of the province and would traverse the land owned by the
petitioners. Cabahug, in consideration of the easement fees, granted NPC a continuous
easement right of way. Two years thereafter, Cabahug filed a complaint before RTC for
payment of just compensation after having learned that the compensation given by NPC was
very low compared to the appraisal made by the province of Leyte. RTC rendered decision in
favor of Cabahug. However, at the Court of Appeals, it was ruled that vested right has already
accrued in favour of NPC, and to allow spouses Cabahug to pursue the case would be a
violation of the contract and an unjust enrichment in favour of Cabahug.
ISSUE:
Whether or not NPC may still be held liable to pay for the full market value of the affected
property despite the fact transfer of title thereto was not required by the easement.
HELD:
Yes. The power of Eminent Domain may be exercised although title is not transferred
to the expropriator in easement of right of way. Just compensation which should be neither
more nor less than the money equivalent of the property is, moreover, due where the
nature and effect of the easement is to impose limitations against the use of the land for an
indefinite period and deprive the landowner if ordinary use.
The rule is settled that a contract constitutes the law between the parties who are
bound by its stipulations which, when couched in clear and plain language, should be applied
according to their literal tenor. Courts cannot supply material stipulations, read into the
contract words it does not contain or, for that matter, read into it any other intention that
would contradict its plain import. Neither can they rewrite contracts because they operate
harshly or inequitably as to one of the parties, or alter them for the benefit of one party and
to the detriment of the other, or by construction, relieve one of the parties from the terms
which he voluntarily consented to, or impose on him those which he did not
Page 10 of 178
ACE FOODS, INC. VS. MICRO PACIFIC TECHNOLOGIES CO., LTD.
GR NO. 200602, DECEMBER 11, 2013
PONENTE: PERLAS-BERNABE, J.
TOPIC: DEFINITION
FACTS:
ACE Foods is a domestic corporation engaged in the trading and distribution of
consumer goods in wholesale and retail bases, while MTCL is one engaged in the supply of
computer hardware and equipment
MTCL sent a letter-proposal for the delivery and sale of the subject products to be
installed at various offices of ACE Foods. Aside from the itemization of the products offered
for sale. ACE Foods accepted MTCL’s proposal and accordingly issued Purchase Order No.
100023 (Purchase Order) for the subject products amounting to P646,464.00 (purchase
price). MTCL delivered the said products to ACE Foods. The fine print of the invoice states,
inter alia, that "[t]itle to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD.
until full compliance of the terms and conditions of above and payment of the price" (title
reservation stipulation).
After delivery, the subject products were then installed and configured in ACE Foods’s
premises. MTCL’s demands against ACE Foods to pay the purchase price, however, remained
unheeded. Instead of paying the purchase price, ACE Foods sent MTCL a Letter stating that it
"ha[s] been returning the [subject products] to [MTCL] thru [its] sales representative Mr.
Mark Anteola who has agreed to pull out the said [products] but had failed to do so up to
now."
ACE Foods lodged a Complaint against MTCL before the RTC, praying that the latter
pull out from its premises the subject products since MTCL breached its "after delivery
services" obligations to it, particularly, to: (a) install and configure the subject products; (b)
submit a cost benefit study to justify the purchase of the subject products; and (c) train ACE
Foods’s technicians on how to use and maintain the subject products. ACE Foods likewise
claimed that the subject products MTCL delivered are defective and not working.
RTC rendered Decision in favor of ACE Foods. CA reversed and set aside the RTC’s
ruling.
ISSUE:
Whether ACE Foods should pay MTCL the purchase price for the subject products.
HELD:
Parties agreed to a contract of sale. A contract of sale had been perfected at the
precise moment ACE Foods accepted the latter’s proposal to sell the subject products in
consideration of the purchase price of P646,464.00. From that point in time, the reciprocal
obligations of the parties (to deliver and to pay PP respectively) already arose and
consequently may be demanded.
At this juncture, the Court must dispel the notion that the stipulation anent MTCL’s
reservation of ownership of the subject products as reflected in the Invoice Receipt, i.e., the
Page 11 of 178
title reservation stipulation, changed the complexion of the transaction from a contract of
sale into a contract to sell. Records are bereft of any showing that the said stipulation novated
the contract of sale between the parties which, to repeat, already existed at the precise
moment ACE Foods accepted MTCL’s proposal. To be sure, novation, in its broad concept,
may either be extinctive or modificatory. It is extinctive when an old obligation is terminated
by the creation of a new obligation that takes the place of the former; it is merely modificatory
when the old obligation subsists to the extent it remains compatible with the amendatory
agreement. In either case, however, novation is never presumed, and the animus novandi,
whether totally or partially, must appear by express agreement of the parties, or by their acts
that are too clear and unequivocal to be mistaken.
In the present case, it has not been shown that the title reservation stipulation
appearing in the Invoice Receipt had been included or had subsequently modified or
superseded the original agreement of the parties. The fact that the Invoice Receipt was signed
by a representative of ACE Foods does not, by and of itself, prove animus novandi since: (a) it
was not shown that the signatory was authorized by ACE Foods (the actual party to the
transaction) to novate the original agreement; (b) the signature only proves that the Invoice
Receipt was received by a representative of ACE Foods to show the fact of delivery; and (c)
as matter of judicial notice, invoices are generally issued at the consummation stage of the
contract and not its perfection, and have been even treated as documents which are not
actionable per se, although they may prove sufficient delivery. Thus, absent any clear
indication that the title reservation stipulation was actually agreed upon, the Court must
deem the same to be a mere unilateral imposition on the part of MTCL which has no effect on
the nature of the parties’ original agreement as a contract of sale. Perforce, the obligations
arising thereto, among others, ACE Foods’s obligation to pay the purchase price as well as to
accept the delivery of the goods, remain enforceable and subsisting.
Petition is denied. CA decision is affirmed.
Page 12 of 178
HUR TIN YANG V. PEOPLE
GR NO. 195117, AUGUST 14, 2013
PONENTE: VELASCO JR., J.

TOPIC: DEFINITION
FACTS:
Supermax Philippines, Inc. (Supermax) is a domestic corporation engaged in the
construction business. Metropolitan Bank and Trust Company (Metrobank), extended several
commercial letters of credit (LCs) to Supermax. These commercial LCs were used by
Supermax to pay for the delivery of several construction materials, which will be used in their
construction business. Thereafter, Metrobank required petitioner, as representative and Vice-
President for Internal Affairs of Supermax, to sign twenty-four (24) trust receipts as security
for the construction materials and to hold those materials or the proceeds of the sales in trust
for Metrobank to the extent of the amount stated in the trust receipts. When the 24 trust
receipts fell due and despite the receipt of a demand letter, Supermax failed to pay or deliver
the goods or proceeds to Metrobank. Instead, Supermax, through petitioner, requested the
restructuring of the loan. When the intended restructuring of the loan did not materialize,
Metrobank sent another demand letter. As the demands fell on deaf ears, Metrobank,
through its representative, Winnie M. Villanueva, filed the instant criminal complaints against
petitioner.
For his defense, while admitting signing the trust receipts, petitioner argued that said
trust receipts were demanded by Metrobank as additional security for the loans extended to
Supermax for the purchase of construction equipment and materials. In support of this
argument, petitioner presented as witness, Priscila Alfonso, who testified that the
construction materials covered by the trust receipts were delivered way before petitioner
signed the corresponding trust receipts. Further, petitioner argued that Metrobank knew all
along that the construction materials subject of the trust receipts were not intended for resale
but for personal use of Supermax relating to its construction business.
The trial court and the CA found petitioner guilty of the crime Estafa.
ISSUE:
Whether or not the trial court and the appellate court correctly held petitioner guilty of
Estafa under the Trust Receipts Law
HELD:
No. In determining the nature of a contract, courts are not bound by the title or name
given by the parties. The decisive factor in evaluating such agreement is the intention of the
parties, as shown not necessarily by the terminology used in the contract but by their conduct,
words, actions and deeds prior to, during and immediately after executing the agreement. As
such, therefore, documentary and parol evidence may be submitted and admitted to prove
such intention.
In the instant case, the factual findings of the trial and appellate courts reveal that the
dealing between petitioner and Metrobank was not a trust receipt transaction but one of
Page 13 of 178
simple loan. Petitioner’s admission––that he signed the trust receipts on behalf of Supermax,
which failed to pay the loan or turn over the proceeds of the sale or the goods to Metrobank
upon demand––does not conclusively prove that the transaction was, indeed, a trust receipts
transaction. In contrast to the nomenclature of the transaction, the parties really intended a
contract of loan.
A trust receipt transaction is one where the entrustee has the obligation to deliver to
the entruster the price of the sale, or if the merchandise is not sold, to return the merchandise
to the entruster. There are, therefore, two obligations in a trust receipt transaction: the first
refers to money received under the obligation involving the duty to turn it over (entregarla)
to the owner of the merchandise sold, while the second refers to the merchandise received
under the obligation to “return” it (devolvera) to the owner. A violation of any of these
undertakings constitutes Estafa defined under Art. 315, par. 1(b) of the RPC, as provided in
Sec. 13 of PD 115 (Trust Receipts Law).
Nonetheless, when both parties enter into an agreement knowing fully well that the
return of the goods subject of the trust receipt is not possible even without any fault on the
part of the trustee, it is not a trust receipt transaction penalized under Sec. 13 of PD 115 in
relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon by the
parties would be the return of the proceeds of the sale transaction. This transaction becomes
a mere loan, where the borrower is obligated to pay the bank the amount spent for the
purchase of the goods. The fact that the entruster bank, Metrobank in this case, knew even
before the execution of the alleged trust receipt agreements that the covered construction
materials were never intended by the entrustee (petitioner) for resale or for the manufacture
of items to be sold would take the transaction between petitioner and Metrobank outside the
ambit of the Trust Receipts Law.
Page 14 of 178
CRUZ V. GRUSPE
GR NO. 191431, MARCH 13, 2013
PONENTE: BRION, J.
TOPIC: DEFINITION
FACTS:
Cruz operated a mini bus where his driver Davin caused a collision against a Toyota
Corolla car owned by Gruspe. The following day, Cruz and a certain Leonardo Ibias went to
Gruspe’s office and apoligized for the incident, and executed a Joint Affidavit of Undertaking
promising jointly and severally to replace the damaged car in 20 days with the same model or
of the same quality; or alternatively, they would pay the cost of Gruspe’s car amounting to
Php 350k, with interest of 12% per month for any delayed payment beyond the agreed date
(November).Both of them failed to pay. However, Cruz and Leonardo denied the claim against
them and alleged that they were forced by Gruspe, a lawyer and the one who prepared the
affidavit, to affix their signatures without explaining and informing them of its contents. Cruz
claimed that he only signed in order to release the minibus because it was his only source of
income. Leonardo, who was a barangay official accompanying Cruz, on the other hand,
claimed that he was deceived into signing the contract. He was later represented by his widow
Esperanza in this suit.
Even if the Joint Affidavit of Undertaking was considered as a contract, Cruz and
Esperanza claim that it is invalid because Cruz and Leonardo’s consent thereto was vitiated;
the contract was prepared by Gruspe who is a lawyer, and its contents were never explained
to them. Moreover, Cruz and Leonardo were simply forced to affix their signatures,
otherwise, the mini van would not be released.
Also, they claim that prior to the filing of the complaint for sum of money, Gruspe did
not make any demand upon them. Hence, pursuant to Article 1169 of the Civil Code, they could
not be considered in default. Without this demand, Cruz and Esperanza contend that Gruspe
could not yet take any action.
ISSUE:
Whether or not there was a valid contract between Gruspe and Cruz.
HELD:
There is also no merit to the argument of vitiated consent. An allegation of vitiated
consent must be proven by preponderance of evidence; Cruz and Leonardo failed to support
their allegation.
They, in fact, admitted the genuineness and due execution of the Joint Affidavit and
Undertaking when they said that they signed the same to secure possession of their vehicle.
If they truly believed that the vehicle had been illegally impounded, they could have refused
to sign the Joint Affidavit of Undertaking and filed a complaint, but they did not. That the
release of their mini bus was conditioned on their signing the Joint Affidavit of Undertaking
does not, by itself, indicate that their consent was forced – they may have given it grudgingly,
but it is not indicative of a vitiated consent that is a ground for the annulment of a contract.
Page 15 of 178
Contracts are obligatory no matter what their forms may be, whenever the essential
requisites for their validity are present. In determining whether a document is an affidavit or
a contract, the Court looks beyond the title of the document, since the denomination or title
given by the parties in their document is not conclusive of the nature of its contents.
In the construction or interpretation of an instrument, the intention of the parties is
primordial and is to be pursued. If the terms of the document are clear and leave no doubt on
the intention of the contracting parties, the literal meaning of its stipulations shall control. If
the words appear to be contrary to the parties’ evident intention, the latter shall prevail over
the former. A simple reading of the terms of the Joint Affidavit of Undertaking readily
discloses that it contains stipulations characteristic of a contract.
The Court also held that the date of demand is material in computing for the amount
due. “In order that the debtor may be in default[,] it is necessary that the following requisites
be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially and
extrajudicially.”13 Default generally begins from the moment the creditor demands the
performance of the obligation. In this case, demand could be considered to have been made
upon the filing of the complaint on November 19, 1999, and it is only from this date that the
interest should be computed.
Page 16 of 178
TRADERS ROYAL BANK V. CUISON LUMBER CO., INC.
GR NO. 174286, JUNE 5, 2009
PONENTE: BRION, J.
TOPIC: STAGES OF A CONTRACT
FACTS:
On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president,
Roman Cuison Sr., obtained two loans from the bank. The loans were secured by a real estate
mortgage over a parcel of land covered by Transfer Certificate of Title No. 10282 (subject
property). CLCI failed to pay the loan, prompting the bank to extra judicially foreclose the
mortgage on the subject property. The bank was declared the highest bidder at the public
auction that followed, conducted on August 1, 1985. A Certificate of Sale and a Sheriff’s Final
Certificate of Sale were subsequently issued in the bank’s favor.
In a series of written communications between CLCI and the bank, CLCI manifested its
intention to restructure its loan obligations and to repurchase the subject property. On July
31, 1986, Mrs. Cuison, the widow and administratrix of the estate of Roman Cuison Sr., wrote
the bank’s Officer-in-Charge, Remedios Calaguas, a letter indicating her offered terms of
repurchase. CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on
September 3, 1986). The bank received and regarded these amounts as “earnest money” for
the repurchase of the subject property. On October 20, 1986, the bank sent Atty. Roman
Cuison, Jr. (Atty. Cuison), as the president and general manager of CLCI, a letter informing
CLCI of the bank’s board of directors’ resolution of October 10, 1986 (TRB Repurchase
Agreement), laying down the conditions for the repurchase of the subject property.
CLCI failed to comply with the terms notwithstanding the extensions of time given
by the bank. Nevertheless, CLCI tendered, on February 3, 1987, a check for P135,091.57
to cover fifty percent (50%) of the twenty percent (20%) bid price. The check, however, was
returned for “insufficiency of funds.” On May 13, 1987, CLCI tendered an additional
P50,000.00. On May 29, 1987, the bank sent Atty. Cuison a letter informing him that the
P185,000.00 CLCI paid was not a deposit, but formed part of the earnest money under the
TRB Repurchase Agreement. On August 28, 1987, Atty. Cuison, by letter, requested that CLCI’s
outstanding obligation of P1,221,075.61 (as of July 31, 1987) be reduced to P1 million, and the
amount of P221,075.61 be condoned by the bank. To show its commitment to the request,
CLCI paid the bank P100,000.00 and P200,000.00 on August 28, 1987. The bank credited both
payments as earnest money.
A year later, CLCI inquired about the status of its request. The bank responded
that the request was still under consideration by the bank’s Manila office. On
September 30, 1988, the bank informed CLCI that it would resell the subject property at an
offered price of P3 million, and gave CLCI 15 days to make a formal offer; otherwise, the bank
would sell the subject property to third parties. On October 26, 1988, CLCI Contracts offered
to repurchase the subject property for P1.5 million, given that it had already tendered the
amount ofP400,000.00 as earnest money.
CLCI subsequently claimed that the bank breached the terms of repurchase, as it
Page 17 of 178
had wrongly considered its payments (in the amounts of P140,485.18, P200,000.00 and
P100,000.00) as earnest money, instead of applying them to the purchase price.
Through its counsel, CLCI demanded that the bank rectify the repurchase agreement
to reflect the true consideration agreed upon for which the earnest money had been given.
The bank did not act on the demand. Instead, it informed CLCI that the amounts it received
were not earnest money, and that the bank was willing to return these sums, less the amounts
forfeited to answer for the unremitted rentals on the subject property.
In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989, filed with
the RTC a complaint for breach of contract, specific performance, damages, and attorney’s
fees against the bank. On April 20, 1989, the bank filed its Answer alleging that the TRB
repurchase agreement was already cancelled given CLCI’s failure to comply with its
provisions. RTC ruled in favor of the Cuisons. CA affirmed, hence this petition.
ISSUE:
Whether or not a perfected contract of repurchase existed and can be enforced
between the parties.
HELD:
Yes, there is a perfected contract of repurchase between tha bank and CLCI. Under the
law, a contract is perfected by mere consent, that is, from the moment that there is a meeting
of the offer and the acceptance upon the thing and the cause that constitute the contract.
The law requires that the offer must be certain and the acceptance absolute and unqualified.
An acceptance of an offer may be express and implied; a qualified offer constitutes a counter-
offer. Case law holds that an offer, to be considered certain, must be definite, while an
acceptance is considered absolute and unqualified when it is identical in all respects with that
of the offer so as to produce consent or a meeting of the minds. We have also previously held
that the ascertainment of whether there is a meeting of minds on the offer and acceptance
depends on the circumstances surrounding the case.
The clear and neat principle is that the offer must be certain and definite with respect
to the cause or consideration and object of the proposed contract, while the acceptance of
this offer – express or implied – must be unmistakable, unqualified, and identical in all respects
to the offer. The required concurrence, however, may not always be immediately clear and
may have to be read from the attendant circumstances; in fact, a binding contract may exist
between the parties whose minds have met, although they did not affix their signatures to
any written document. The facts of the present case, although ambivalent in some respects,
point on the whole to the conclusion that both parties agreed to the repurchase of the subject
property.
While there was a perfected contract between the parties, the bank effectively
cancelled the contract when it communicated with CLCI that it would sell the subject property
at a higher price to third parties, giving CLCI 15 days to make a formal offer, and disregarding
CLCIs counter-offer to buy the subject property for P1.5 million.
The TRB Repurchase Agreement is in the nature of a contract to sell where the title to
the subject property remains in the banks name, as the vendor, and shall only pass to the
respondents, as vendees, upon the full payment of the repurchase price. The settled rule for
Page 18 of 178
contracts to sell is that the full payment of the purchase price is a positive suspensive
condition; the failure to pay in full is not to be considered a breach, casual or serious, but
simply an event that prevents the obligation of the vendor to convey title from acquiring any
obligatory force. Viewed in this light, the bank cannot be compelled to perform its obligations
under the TRB Repurchase Agreement that has been rendered ineffective by the respondents
non-performance of their own obligations.
Page 19 of 178
CENTRAL CEMENT CORPORATION V. MINES ADJUDICATION BOARD
GR NO. 173562, JANUARY 22, 2008
PONENTE: REYES, R.T., J.

FACTS:
Petitioner CCC and private respondent Rock and Ore Industries, Inc. (ROII) are
domestic mining companies incorporated under Philippine law. In 1992, petitioner CCC filed
Mineral Production Sharing Agreement (MPSA), MPSA-P-III-24 and MPSA-P-III-31, with the
Department of Environment and Natural Resources (DENR) covering some 4,000 hectares at
Barangay Akle, Narra and Alagao in San Ildefonso, Bulacan. Private respondent ROII filed its
own MPSA-P-111-117 application over areas in Akle in 1995.
The application of private respondent ROII was duly published and posted. Petitioner
opposed and filed an adverse claim to the application of private respondent with the Panel of
Arbitrators of the DENR claiming that private respondent's MPSA-P-III-117 was in conflict with
its MPSA-P-III-24. A third company, Neutron Construction (NC), filed an intervention
complaining that its own MPSA-P-III-26 also overlapped private respondent's MPSA
application.
On February 24, 2000, the Panel of Arbitrators rendered a decision dismissing the
opposition of petitioner and the intervention of NC. The Panel of Arbitrators ruled, among
others, that the adverse claim of petitioner was filed beyond the 30-day reglementary period
as provided under DENR Administrative Order No. 96-40. It also upheld the MPSA application
of private respondent.
Petitioner appealed to the MAB. On January 4, 2001, the MAB affirmed the decision of
the Panel of Arbitrators. The MAB agreed with the ruling of the Panel of Arbitrators that the
adverse claim of petitioner was filed beyond the reglementary period and that petitioner was
estopped from challenging the application of private respondent.
Petitioner moved for reconsideration9 of the MAB's decision. During the pendency of
the motion for reconsideration, the President of private respondent, Manny Teng,10 brought
to the attention of MAB that two companies, Union Cement Corporation (UCC) and Eagle
Cement Corporation (ECC), had executed a Memorandum of Understanding (MOU)11 which
amicably settled the differences between the parties. The MOU was signed by Francisco Viray,
for UCC, and Ramon Ang, for ECC. The MOU essentially provided for reciprocal cession of
claims and ownership of lands in the mining dispute before the MAB by swapping of mining
claims and rights. Teng prayed for the resolution of the MAB appeal on the ground that both
parties had already resolved the issue by virtue of the executed MOU.
Private respondent responded to the MAB order stating that the claims which were
the subject matter of the MOU between UCC and ECC were the very same claims covered by
the case between it and petitioner and that private respondent had authorized ECC to execute
the MOU on its behalf.
In a Manifestation and Comment15 dated July 13, 2002, petitioner acknowledged that
it had merged with UCC and that it was bound by the MOU. The pertinent portions of the
manifestation and comment state:
Page 20 of 178
Appellant does not deny the existence, genuineness, and due execution of the
Memorandum of Understanding (MOU) between UNION CEMENT (UCC) AND EAGLE CEMENT
CORPORATION (ECC); that it is a corporation which was subsequently merged into UNION
CEMENT CORPORATION, the surviving corporation and that it is bound by the MOU; that it
recognizes that Rock and Ore Industries, Inc., and ECC have identical controlling interests; and
that both parties have agreed to settle this case, upon the swapping contemplated under the
MOU.Petitioner, however, resisted the resolution of the appeal on the ground of prematurity.
While admitting that it was bound by the MOU, it claims that the swapping of the claims that
was at the heart of the MOU had yet to be consummated by the submission by private
respondent of data that petitioner would compare with its own. Petitioner also reported that
the parties agreed to prepare and submit a joint motion to dismiss to terminate the litigation.
It prayed that the MAB hold in abeyance the dismissal of the appeal on the basis of the MOU
until a joint motion of the parties is submitted.
On August 2, 2002, the MAB18 treated the comment filed by petitioner as an
opposition and required the parties to iron out their differences and submit a joint motion for
its consideration.
On August 12, 2002, Teng wrote a letter19 to the MAB seeking an early resolution of
the MAB case on the basis of the comment and manifestation submitted by the parties.
ISSUE:
Whether or not a memorandum of understanding with the requisites of a contract is a valid
compromise agreement and that it can be executed upon its perfection.
HELD:
Article 1315 of the Civil Code provides that a contract is perfected by mere consent,
which is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. Here, there is no dispute that the MOU was already
"perfected" as manifested by the parties' assent to it. They freely and voluntarily signed the
MOU.Petitioner confuses the concept of "perfection" of contract with the "consummation"
of contract. A contract undergoes three distinct stages: (1) preparation or negotiation; (2)
perfection; and (3) consummation. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at the moment of
agreement of the parties. The perfection or birth of the contract takes place when the parties
agree upon the essential elements of the contract. The last stage is the consummation of the
contract wherein the parties fulfill or perform the terms agreed upon in the contract,
culminating in its extinguishment.
The delivery of pertinent data and the execution of the Deeds of Assignment are not
part of the "perfection" stage. They are part of the "consummation" stage of the MOU. This
is clear from the MOU itself. A reading of the MOU shows that the manifest intention of the
parties was the consolidation of rights to certain mining areas to be vested in a single party.
To this end, petitioner and private respondent agreed to swap mining rights for certain
parcels of land. This was the essence of the compromise agreement.
Page 21 of 178
LORENZO SHIPPING CORP. VS. BJ MARTHEL INTERNATIONAL, INC.
443 S 163
PONENTE: CHICO-NAZARIO, J.
FACTS:
From 1987 up to the institution of this case, respondent supplied petitioner with spare
parts for the latter's marine engines. Sometime in 1989, petitioner asked respondent for a
quotation for various machine parts, respondent then furnished petitioner with a formal
quotation. Petitioner ordered a cylinder liner, however instead of paying petitioner issued
postdated checks. However this checks were dishonored for lack of sufficiency of funds.
Subsequently, petitioner issued another Purchase Order for a second cylinder liner.
On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse.
In the statement of accounts the other items were fully paid but the two cylinder liners
delivered to petitioner remained unsettled.
02 January 1991 a demand letter was sent by the respondent requesting payment.
Petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of
the M/V Dadiangas Express, it (petitioner) would have to sell the cylinder liners in Singapore
and pay the balance from the proceeds of said sale.
Due to the failure of the parties to settle the matter, respondent filed an action for
sum of money and damage. Petitioner in its answer alleged that time was of the essence in
the delivery of the cylinder liners and respondent was late in the delivery.
The trial court dismissed the petition. Upon appeal to the court of Appeals, it reversed
the decision of the trial court holding petitioner liable. As such the following petition.
ISSUE:
Whether or not respondent has failed to deliver the items on time
HELD:
In determining whether time is of the essence in a contract, the ultimate criterion is
the actual or apparent intention of the parties and before time may be so regarded by a court,
there must be a sufficient manifestation, either in the contract itself or the surrounding
circumstances of that intention.
The Court disagreed with the petitioner that the purchase orders by themselves,
embody the terms of the sale of the cylinder liners. Further in the date of delivery the Purchase
orders did not indicate therein the due date for the delivery of the items.
When the time of delivery is not fixed or is stated in general and indefinite terms, time
is not of the essence of the contract. In such cases, the delivery must be made within a
reasonable time. While petitioner alleges that the cylinder liners were to be used for repair
and maintenance between 1989 to early 1990, the record is bereft of any indication that
respondent was aware of such fact. The failure of petitioner to notify respondent of said date
is fatal to its claim that time was of the essence in the subject contracts of sale.
Page 22 of 178
INTERNATIONAL FREEPORT TRADERS, INC., VS. DANZAS INTERCONTINENTAL, INC.
G.R. NO. 181833, JANUARY 26, 2011
PONENTE: ABAD, J.
FACTS:
Danzas International Freeport Traders, Inc. (IFTI) ordered a shipment of Toblerone
chocolates and assorted confectioneries from Jacobs Suchard Tobler Ltd. of Switzerland
through its Philippine agent, Colombo Merchants Phils., Inc., under the delivery term "F.O.B.
ExWorks." To ship the goods, Jacobs dealt with Danmar Lines of Switzerland which issued to
Jacobs negotiable house bills of lading signed by its agent, Danzas Intercontinental, Inc.
The bills of lading stated that the terms were "F.O.B." and "freight payable at
destination," with Jacobs as the shipper, China Banking Corporation as the consignee, and
IFTI as the party to be notified of the shipment.
Since Danmar did not have its own vessel, it contracted Orient Overseas Container Line
(OOCL) to ship the goods from Switzerland. OOCL issued a non-negotiable master bill of
lading, stating that the freight was prepaid with Danmar as the shipper and Danzas as the
consignee and party to be notified. The shipment was to be delivered at Angeles City in
Pampanga. Danmar paid OOCL the arbitrary fee of US$425.00 to process the release of the
goods from the port and ship the same to Clark in Angeles City. The fee was to cover
brokerage, trucking, wharfage, arrastre, and processing expenses.
The goods were loaded on board the OOCL vessel on April 20, 1997 and arrived at the
port of Manila on May 14, 1997. Upon learning from Danmar that the goods had been shipped,
Danzas immediately informed IFTI of its arrival. IFTI prepared the import permit needed for
the clearing and release of the goods from the Bureau of Customs and advised Danzas on May
20, 1997 to pick up the document. Danzas got the import permit on May 26, 1997. At the same
time, it asked IFTI to surrender the original bills of lading to secure the release of the goods,
and submit a bank guarantee inasmuch as the shipment was consigned to China Banking
Corporation to assure Danzas that it will be compensated for freight and other charges. But
IFTI did not provide Danzas a bank guarantee, claiming that letters of credit already covered
the shipment. IFTI insisted that Danzas should already endorse the import permit and bills of
lading to OOCL since the latter had been paid an arbitrary fee. But Danzas did not do this.
Because IFTI did not provide Danzas with the original bills of lading and the bank guarantee,
the latter withheld the processing of the release of the goods. Danzas reiterated to IFTI that
it could secure the release of the goods only if IFTI submitted a bank guarantee.
On January 19, 1998, Danzas wrote IFTI, demanding payment of P181, 809.45 for its
handling of the shipment. IFTI ignored the demand. Consequently, Danzas filed separate
complaints for sum of money against IFTI and OOCL.
IFTI countered that it had no liability to Danzas since IFTI was not privy to the hiring of
Danzas. Following normal procedure, IFTI coursed the import permit to Danzas since it was
the party that issued the house bills of lading. IFTI added that under arbitrary shipments,
imported goods are allowed to stay free of charge in the port for three working days and in
the storage for five to six calendar days. Since Danzas failed to process the release or
Page 23 of 178
transshipment of the goods within the three-day period, then it should shoulder all the
charges from May 20, 1997 to June 13, 1999.
ISSUE:
Whether or not a contract of lease of service exists between IFTI and Danzas
HELD:
Generally, contracts undergo three distinct stages: (1) preparation or negotiation; (2)
perfection; and (3) consummation. Negotiation begins from the time the prospective
contract where the parties fulfill or perform the terms they agreed on, culminating in its
extinguishment.
In the case, it can be concluded that the parties entered into a contract of lease of
service for the clearing and delivery of the imported goods. The facts show the existence of
several contracts: one between IFTI and Jacobs, another between Jacobs and Danmar, and
still another between Danmar and OOCL. IFTI bought chocolates and confectioneries from
Jacobs; Jacobs got Danmar to deliver the goods to its destination; Danmar got OOCL to carry
the goods for it by ship to Manila. For this purpose, Danmar paid OOCL an arbitrary fee to
process the release of the goods from the port of Manila and deliver the same to Clark. In all
these transactions, Danzas acted as an agent of Danmar who signed the house bills of lading
in favor of Jacobs.
What is clear to the Court is that, by acceding to all the documentary requirements that
Danzas imposed on it, IFTI voluntarily accepted its services. The bank guarantee IFTI gave
Danzas assured the latter that it would eventually be paid all freight and other charges arising
from the release and delivery of the goods to it. Another indication that IFTI recognized its
contract with Danzas is when IFTI requested Danzas to have the goods released pending
payment of whatever expenses the latter would incur in obtaining the release and delivery of
the goods at Clark.
Page 24 of 178
HEIRS OF IGNACIO VS. HOME BANKERS SAVINGS AND TRUST CO.
G.R. NO. 177783, JANUARY 23, 2013
PONENTE: VILLARAMA, JR., J

FACTS:
The case sprang from a real estate mortgage of two parcels of land in August 1981.
Fausto C. Ignacio mortgaged the properties to Home Bankers Savings and Trust Company
(Bank) as security for a loan extended by the Bank. After Ignacio defaulted in the payment of
the loan, the property was foreclosed and subsequently sold to the Bank in a public
auction.Ignacio offered to repurchase the property. Universal Properties Inc. (UPI), the bank’s
collecting agent sent Ignacio a letter on March 22, 1984 which contained the terms of the
repurchase. However, Ignacio annotated in the letter new terms and conditions. He claimed
that these were verbal agreements between himself and the Bank’s collection agent, UPI.No
repurchase agreement was finalized between Ignacio and the Bank. Thereafter the Bank sold
the property to third parties. Ignacio then filed an action for specific performance against the
Bank for the reconveyance of the properties after payment of the balance of the purchase
price. He argued that there was implied acceptance of the counter-offer of the sale through
the receipt of the terms by representatives of UPI. The Bank denied that it gave its consent to
the counter-offer of Ignacio. It countered that it did not approve the unilateral amendments
placed by Ignacio.
ISSUE:
Whether or not the negotiations between Ignacio and UPI is binding on the Bank.
HELD:
A contract of sale is perfected only when there is consent validly given. There is no
consent when a party merely negotiates a qualified acceptance or a counter-offer. An
acceptance must reflect all aspects of the offer to amount to a meeting of the minds between
the parties.In this case, while it is apparent that Ignacio proposed new terms and conditions
to the repurchase agreement, there was no showing that the Bank approved the modified
offer.
The negotiations between Ignacio and UPI, the collection agent, were merely
preparatory to the repurchase agreement and, therefore, was not binding on the Bank.
Ignacio could not compel the Bank to accede to the repurchase of the property.
A corporation may only give valid acceptance of an offer of sale through its authorized
officers or agents. Specifically, a counter-offer to repurchase a property will not bind a
corporation by mere acceptance of an agent in the absence of evidence of authority from the
corporation’s board of directors.
Page 25 of 178
ROBERN DEVELOPMENT CORPORATION AND RODOLFO M. BERNARDO, JR., VS. PEOPLE'S
LANDLESS ASSOCIATION REPRESENTED BY FLORIDA RAMOS AND NARDO LABORA
G.R. NO. 173622, MARCH 11, 2013
PONENTE: DEL CASTILLO, J.

FACTS:
Al-Amanah owned a 2000-square meter lot located in Magtu-od, Davao City and
covered by Transfer Certificate of Title (TCT) No. 138914. On December 12, 1992, Al-Amanah
Davao Branch, thru its officer-in-charge Febe O. Dalig (OIC Dalig), asked some of the members
of PELA to desist from building their houses on the lot and to vacate the same, unless they
are interested to buy it. The informal settlers thus expressed their interest to buy the lot at
P100.00 per square meter, which Al-Amanah turned down for being far below its asking price.
Consequently, Al-Amanah reiterated its demand to the informal settlers to vacate the lot.
In a letter dated March 18, 1993, the informal settlers together with other members
comprising PELA offered to purchase the lot for P300,000.00, half of which shall be paid as
down payment and the remaining half to be paid within one year. In the lower portion of the
said letter, Al-Amanah made the following annotation: “Subject offer has been
acknowledged/received but processing to take effect upon putting up of the partial amt. of
P150,000.00 on or before April 15, 1993. By May 3, 1993, PELA had deposited P150,000.00 as
evidenced by four bank receipts.”
On November 29, 1993, Al-Amanah, thru Davao Branch Manager Abraham D.
Ututalum-Al Haj, wrote then PELA President Bonifacio Cuizon, Sr. informing him of the Head
Office's disapproval of PELA's offer to buy the said 2,000-square meter lot. Subsequently, Al-
Amanah sent similarly worded letters, all dated December 14, 1993, to 19 PELA members
demanding that they vacate the lot.
In a letter dated December 20, 1993, PELA, through Atty. Pedro S. Castillo, replied that
it had already reached an agreement with Al-Amanah regarding the sale of the subject lot
based on their offered price:
Meanwhile, acting on Robern's undated written offer, Al-Amanah issued a
Recommendation Sheet dated December 27, 1993 addressed to its Board Operations
Committee, indicating therein that Robern is interested to buy the lot for P400,000.00; that
it has already deposited 20% of the offered purchase price; that it is buying the lot on "as is"
basis; and, that it is willing to shoulder the relocation of all informal settlers therein.
On December 29, 1993, the Head Office informed the Davao Branch Manager that the
Board Operations Committee had accepted Robern's offer. Eight days later, Robern was
informed of the acceptance. Al-Amanah stressed that it is Robern's responsibility to eject the
occupants in the subject lot, if any, as well as the payment of the remaining amount within 15
days; otherwise, the P80,000.00 deposit shall be forfeited.
In a letter dated January 13, 1994, Robern expressed to Al-Amanah its uncertainty on
the status of the subject lot. To convince Robern that it has no existing contract with PELA,
Al-Amanah furnished it with copies of the Head Office's rejection letter of PELA's bid, the
demand letters to vacate, and the proof of consignment of PELA's P150,000.00 deposit to the
Page 26 of 178
Regional Trial Court (RTC) of Davao City that PELA refused to withdraw. Thereafter, on
February 2, 1994, it informed Robern that should the latter fail to pay the balance by February
9, 1994, its P80,000.00 deposit will be forfeited and the lot shall be up for sale to other
prospective buyers. Meanwhile, Al-Amanah requested for assistance for the removal of the
houses not only from the Office of the City Engineer of Davao City but also from Mayor
Rodrigo Duterte.
On March 4, 1994, Robern paid the balance of the purchase price. The Deed of Sale
over the realty was executed and was issued in Robern's name the following day.
A week later, PELA consigned P150,000.00 in the RTC of Davao City. Then on April 14,
1994, it wrote Al-Amanah asking the latter to withdraw the amount consigned.
Three months later, as its members were already facing eviction and possible
demolition of their houses, and in order to protect their rights as vendees, PELA filed a suit
for Annulment and Cancellation of Void Deed of Sale against Al-Amanah, its Director Engr.
Farouk Carpizo, OIC Dalig, Robern, and Robern's President and General Manager, petitioner
Rodolfo Bernardo (Bernardo) before the RTC of Davao City. It insisted that as early as March
1993 it has a perfected contract of sale with Al -Amanah. However, in an apparent act of bad
faith and in cahoots with Robern, Al-Amanah proceeded with the sale of the lot despite the
prior sale to PELA.
Al-Amanah and Engr. Carpizo claimed that the bank has every right to sell its lot to any
interested buyer with the best offer and thus they chose Robern. They clarified that the
P150,000.00 PELA handed to them is not part of the payment but merely a deposit in
connection with its offer. They asserted that PELA was properly apprised that its offer to buy
was subject to the approval of Al -Amanah's Head Office. They stressed that Al-Amanah never
entered into a sale with PELA for there was no perfected agreement as to the price since the
Head Office rejected PELA's offer.
ISSUE:
Whether there was a perfected contract of sale between PELA and Al-Amanah, the resolution
of which will decide whether the sale of the lot to Robern should be sustained or not
HELD:
PELA's contention that Robern cannot assail the alleged sale between PELA and Al-
Amanah is untenable. Robern is one of the parties who claim title to the disputed lot. As such,
it is a real party in interest since it stands to be benefited or injured by the judgment.
Petitioners' failure to attach the material portions of the record that would support the
allegations in the Petition is not fatal.
Anent the statement of the courts below that there was 'an apparent perfection of
contract of sale between Al-Amanah and PELA', we hold that the same is strictly confined to
the resolution of whether a writ of preliminary injunction should issue since the PELA
members were then about to be evicted. PELA should not rely on such statement as the same
is not decisive of the rights of the parties and the merits of this case.
Whether there was a perfected contract of sale between PELA and Al-Amanah. After
scrutinizing the testimonial and documentary evidence in the records of the case, the Court
Page 27 of 178
finds no proof of a perfected contract of sale between Al-Amanah and PELA. The parties did
not agree on the price and no consent was given, whether express or implied.
When PELA Secretary Florida Ramos (Ramos) testified, she referred to the March 18,
1993 letter which PELA sent to Al-Amanah as the document supposedly embodying the
perfected contract of sale. However, we find that the March 18, 1993 letter referred to was
merely an offer to buy.
Neither can the note written by the bank that "[s]ubject offer has been
acknowledged/received but processing to take effect upon putting up of the partial amount
of P150,000.00 on or before April 15, 1993" be construed as acceptance of PELA's offer to buy.
Taken at face value, the annotation simply means that the bank merely acknowledged receipt
of PELA's letter-offer.
It is thus undisputed, and PELA even acknowledges, that OIC Dalig made it clear that
the acceptance of the offer, notwithstanding the deposit, is subject to the approval of the
Head Office. Recognizing the corporate nature of the bank and that the power to sell its real
properties is lodged in the higher authorities. She never falsely represented to the bidders
that she has authority to sell the bank's property. And regardless of PELA's insistence that she
execute a written agreement of the sale, she refused and told PELA to wait for the decision
of the Head Office, making it clear that she has no authority to execute any deed of sale.
In the case at bench, the transaction between Al-Amanah and PELA remained in the
negotiation stage. The offer never materialized into a perfected sale, for no oral or
documentary evidence categorically proves that Al-Amanah expressed amenability to the
offered P300,000.00 purchase price. Before the lapse of the 1-year period PELA had set to pay
the remaining 'balance,' Al-Amanah expressly rejected its offered purchase price, although it
took the latter around seven months to inform the former and this entitled PELA to award of
damages. Al-Amanah's act of selling the lot to another buyer is the final nail in the coffin of
the negotiation with PELA. Clearly, there is no double sale, thus, we find no reason to disturb
the consummated sale between Al-Amanah and Robern.
WHEREFORE, we PARTIALLY GRANT the Petition. Except for paragraph 6 of the Court
of Appeals Decision which had already been long settled, the rest of the judgment in the
assailed August 16, 2005 Decision and May 30, 2006 Resolution of the Court of Appeals in CA-
G.R. No. CV No. 66071 are hereby ANNULLED and SET ASIDE . The August 10, 1999 Decision of
the Regional Trial Court of Davao City, Branch 12, dismissing the Complaint for Annulment and
Cancellation of Void Deed of Sale filed by respondent People's Landless Association is
REINSTATED and AFFIRMED. The amount of Pesos: Three Hundred Thousand (P300,000.00)
consigned with the Regional Trial Court of Davao City may now be withdrawn by People's
Landless Association. SO ORDERED.
Page 28 of 178
EMILIO BUGATTI VS. COURT OF APPEALS AND
SPOUSES BEN BAGUILAT AND MARIA BAGUILAT
G.R. NO. 138113, OCTOBER 17, 2000

FACTS:
The present case traces its origins to an action for recovery of possession and damages
filed by respondents Ben and Maria Baguilat on July 11, 1989, with the Regional Trial Court of
Lagawe, Ifugao against petitioner Emilio Bugatti.1 In their complaint, respondents alleged that
they are the owners of a parcel of land situated in Lagawa, Ifugao and that sometime in
December, 1987, petitioner offered to lease their land. According to respondents, they
discussed the terms and conditions of the lease with petitioner, particularly that petitioner
will lease a portion of respondents’ land for a period of nine (9) years in return for a monthly
rental of P500.00; that petitioner will construct a building on such land, the cost of which shall
not exceed P40,000.00; that respondents shall reimburse petitioner for the cost of the
building by applying the rentals thereto; that after petitioner is fully reimbursed for the costs
of construction in the amount of P40,000.00, he shall continue to pay the monthly rental of
P500.00 for the duration of the lease; that upon the termination of the lease, the building shall
belong to respondents. It was agreed by petitioner and respondents that the aforesaid terms
and conditions should be included in a written contract of lease to be prepared by petitioner
and presented to respondents for their approval. However, even before preparing the
contract of lease, petitioner occupied respondents’ land and began construction on January
18, 1988. Immediately objecting to the construction, respondent Maria Baguilat demanded
that the contract of lease should first be signed. However, petitioner assured respondents
that he was preparing the contract. Sometime in March, 1988, petitioner finally presented the
lease contract to respondents but it did not contain the terms and conditions previously
agreed upon. Respondents insisted that petitioner re-draft the contract in accordance with
their discussions. The revised document, presented to respondents sometime in April, 1988,
contained counter-proposals. Respondents refused to accede to such counter-proposals.
Despite the fact that no contract was signed by the parties, petitioner continued to occupy
respondents’ land.
ISSUE:
Whether or not a contract of lease had been perfected.
HELD:
After receiving the testimonial and documentary evidence of both parties, the trial
court concluded that no contract of lease existed and ruled in favor of respondents herein.
The Supreme court agrees with the trial court that when the parties met sometime in
the latter part of December, 1997 and in the first week of 1998 in order to discuss the terms
and conditions of the lease, they were merely negotiating. A contract undergoes three distinct
stages - preparation or negotiation, its perfection, and finally, its consummation. Negotiation
Page 29 of 178
begins from the time the prospective contracting parties manifest their interest in the
contract and ends at the moment of agreement of the parties. The perfection or birth of the
contract takes place when the parties agree upon the essential elements of the contract. The
last stage is the consummation of the contract wherein the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment thereof.15 From the
testimonies of respondent Maria Baguilat and petitioner it could clearly be inferred that it was
their intention that such terms and conditions were to be embodied in a lease contract to be
prepared by the latter and presented to respondents for their approval before either party
could be considered bound by the same.
Page 30 of 178
BANK OF THE PHILIPPINE ISLANDS INVESTMENT
CORPORATION (BPIIC) VS. COURT OF APPEALS
G.R. NO. 133632, FEBRUARY 15, 2002
PONENTE: QUISUMBING, J.
TOPIC: CONSENSUALITY – ART. 1315, 1316
FACTS:
Frank Roa obtained a loan at an interest rate of 16.25% per annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of BPIIC, for the
construction of a house on his lot. To secure the loan, the said house and lot were mortgaged
to AIDC.
Sometime in 1980, Roa sold the house and lot to the private respondents ALS
Management and Development Corporation (ALS) and Antonio Litonjua, who paid P350,000
in cash and assumed the P500,000 balance of Roa’s indebtedness with AIDC, which, however,
proposed to grant them a new loan of P500,000 to be applied to Roa’s debt and secured by
the same property, at an interest rate of 20% per annum.
In June 1984, BPIIC instituted foreclosure proceedings against ALS and Litonjua on the
ground that they failed to pay the mortgage indebtedness. They, on the other hand, alleged
that they were not in arrears in their payment, but in fact made an overpayment.
ISSUE:
Whether or not BPIIC may be held liable for moral and exemplary damages
HELD:
BPIIC claims that it should not be held liable for moral and exemplary damages. It did
not act maliciously when it initiated the foreclosure proceedings. It merely exercised its right
under the mortgage contract because the private respondents were irregular in the payment
of their monthly amortization. The private respondents counter that BPIIC acted in bad faith,
because it insisted on the payment of the amortization on the loan even before it was
released. Further, it did not make the corresponding deduction in the monthly amortization
to conform to the actual amount of loan released.
As admitted by the private respondents themselves, they were irregular in the
payment of their monthly amortization. Thus, BPIIC cannot be declared in bad faith and,
consequently, the award of moral and exemplary damages should be ruled out.
However, the Court finds BPIIC negligent in relying merely on the entries found in the
deed of mortgage, without checking and correspondingly adjusting its records on the release.
Such negligence resulted in damage to the private respondents, for which an award of
nominal damages in the amount of P25,000 should be given in recognition of their rights
violated by BPIIC. Lastly, the award of P50,000 is sustained in favor of the private respondents
as attorney’s fees since they were compelled to litigate.
Page 31 of 178
EMETERIO CUI VS. ARELLANO UNIVERSITY
G.R. NO. 15172, MAY 30, 1961
PONENTE: CONCEPCION, J.
TOPIC: FREEDOM/AUTONOMY TO STIPULATE – ART. 1306
FACTS:
Before the school year 1948-1949 Emeterio Cui took up preparatory law course in the
Arellano University. After Finishing his preparatory law course plaintiff enrolled in the College
of Law of the defendant from school year 1948-1949. Plaintiff finished his law studies in the
defendant university up to and including the first semester of the fourt year. During all the
school years in which plaintiff was studying law in defendant law college, Francisco R.
Capistrano, brother of mother of plaintiff, was the dean of college of law and legal counsel of
the defendant university. Plaintiff enrolled for last semester of his law studies in the
defendant university but failed to pay tuition fees because his uncle Dean Francisco R.
Capistrano, having severed his connection with defendant and having accepted the deanship
and chancellorship of the college of law of the Abad Santos University graduating from the
college of law of the latter university. Plaintiff, during all the time he has studying law in
Defendant University was awarded scholarship grants, for scholastic merit, so that his
semestral tuition fees were retured to him after the end of semester and when his scholarship
grants were awarded to him. The whole amount of tuition fess paid by the plaintiff to
defendant and refunded to him by the latter from the first semester up to and including the
first semester of his last year in college of law or the fourth year, is in total P1,003.87. After
Graduating in law from Abad Santos University he applied to take the bar examination. To
secure permission to take the bar, he needed the transcript of his records in defendant
Arellano University. Plaintiff petitioned the latter to issue to him the needed transcripts. The
defendant refused until after he paid back the P1,003.87 which defendant refunded him. As
he could not take the bar examination without those transcripts, plaintiff paid to defendant
the said sum under protest.
ISSUE:
Whether the provision of the contract between plaintiff and defendant, whereby the former
waived his right to transfer to another school without refunding to the latter the equivalent
of his scholarship in cash, is valid or not.
HELD:
Memorandum No. 38 issued by the Director of Private Schools provides that “When
students are given full or partial scholarship, it is understood that such scholarship are merited
and earned. The amount in tuition and other fees corresponding to These scholarship should
not be subsequently charged to recipient students when they decide to quit school or to
transfer to another institution. Scholarship should not be offered merely to attract and keep
students in a school.
Memorandum No. 38 merely incorporates a sound principle of public policy. The
defendant uses the scholarship as a business scheme designed to increase the business
Page 32 of 178
potential of an education institution. Thus conceived it is not only inconsistent with sound
policy but also good morals. The practice of awarding scholarship to attract students and keep
them in school is not Good custom nor has it received some kind of social and practical
confirmation except in some private institution as in Arellano University.
Wherefore, the decision appealed from is hereby reversed and another one shall be
entered sentencing the defendant to pay the plaintiff the sum of P1,033.87, with interest
thereon at the legal rate from September 1, 1954, date of the institution of this case, as well
as the costs, and dismissing the defendant’s counterclaim. It is so ordered.
Page 33 of 178
SPOUSES EDRALIN VS. PHILIPPINE VETERANS BANK
GR NO. 168523, MARCH 9, 2011

TOPIC: PACTUM COMMISSORIUM
FACTS:
On February 5, 1976, Veterans Bank granted petitioner spouses Fernando and Angelina
Edralin (Edralins) a loan in the amount of Two Hundred Seventy Thousand Pesos
(P270,000.00). As security thereof, petitioners executed a Real Estate Mortgage (REM) in
favor of Veterans Bank over a real property situated in the Municipality of Parañaque and
registered in the name of petitioner Fernando Edralin. The Edralins failed to pay their
obligation to Veterans Bank. Thus, on June 28, 1983, Veterans Bank filed a Petition for
Extrajudicial Foreclosure of the REM with the Office of the Clerk of Court and Ex-Officio Sheriff
of Rizal. Upon the Edralins’ failure to redeem the property during the one-year period
provided under Act No. 3135, Veterans Bank acquired absolute ownership of the subject
property. Consequently, Veterans Bank caused the consolidation of ownership of the subject
property in its name on January 19, 1994. Despite the foregoing, the Edralins failed to vacate
and surrender possession of the subject property to Veterans Bank. Veterans Bank filed an Ex-
Parte Petition for the Issuance of a Writ of Possession, however, was dismissed for Veterans
Bank’s failure to prosecute.
ISSUE/S:
Whether/not the consolidation of ownership of the extrajudicially foreclosed property
through a deed of sale is in accordance with law.
HELD:
Pactum commissorium is "a stipulation empowering the creditor to appropriate the
thing given as guaranty for the fulfillment of the obligation in the event the obligor fails to live
up to his undertakings, without further formality, such as foreclosure proceedings, and a
public sale." "The elements of pactum commissorium, which enable the mortgagee to acquire
ownership of the mortgaged property without the need of any foreclosure proceedings, are:
(1) there should be a property mortgaged by way of security for the payment of the principal
obligation, and (2) there should be a stipulation for automatic appropriation by the creditor
of the thing mortgaged in case of non-payment of the principal obligation within the
stipulated period."
The second element is missing to characterize the Deed of Sale as a form of pactum
commissorium. Veterans Bank did not, upon the petitioners’ default, automatically acquire or
appropriate the mortgaged property for itself. On the contrary, the Veterans Bank resorted
to extrajudicial foreclosure and was issued a Certificate of Sale by the sheriff as
557 | P a g e
proof of its purchase of the subject property during the foreclosure sale. That Veterans
Bank went through all the stages of extrajudicial foreclosure indicates that there was no
pactum commissorium.
Page 34 of 178
PABLO P. GARCIA VS. YOLANDA VALDEZ VILLAR
GR NO. 158891, JUNE 27, 2012
PONENTE: LEONARDO-DE CASTRO, J.

TOPIC: PACTUM COMMISSORIUM
FACTS:
Lourdes V. Galas was the original owner of a piece of property located at Malindang
St., Quezon City, covered by Transfer Certificate of Title (TCT) No. RT-67970(253279). On July
6, 1993, Galas, with her daughter, Ophelia G. Pingol, as co-maker, mortgaged the subject
property to Yolanda Valdez Villar as security for a loan in the amount of Two Million Two
Hundred Thousand Pesos (P2,200,000.00). On October 10, 1994, Galas, again with Pingol as
her co-maker, mortgaged the same subject property to Pablo P. Garcia to secure her loan of
One Million Eight Hundred Thousand Pesos (P1,800,000.00). On November 21, 1996, Galas
sold the subject property to Villar for One Million Five Hundred Thousand Pesos
(P1,500,000.00), and declared in the Deed of Sale that such property was free and clear of all
liens and encumbrances of any kind whatsoever.
On October 27, 1999, Garcia filed a Petition for Mandamus with Damages against Villar
before the RTC. Garcia subsequently amended his petition to a Complaint for Foreclosure of
Real Estate Mortgage with Damages. Garcia alleged that when Villar purchased the subject
property, she acted in bad faith and with malice as she knowingly and willfully disregarded the
provisions on laws on judicial and extrajudicial foreclosure of mortgaged property. Garcia
further claimed that when Villar purchased the subject property, Galas was relieved of her
contractual obligation and the characters of creditor and debtor were merged in the person
of Villar. Therefore, Garcia argued, he, as the second mortgagee, was subrogated to Villars
original status as first mortgagee, which is the creditor with the right to foreclose. Garcia
further asserted that he had demanded payment from Villar, whose refusal compelled him to
incur expenses in filing an action in court.
ISSUE/S:
Whether/not the sale of the subject property to villar was in violation of the prohibition on
pactum commissorium.
HELD:
The following are the elements of pactum commissorium:
(1) There should be a property mortgaged by way of security for the payment of the
principal obligation; and
(2) There should be a stipulation for automatic appropriation by the creditor of the
thing mortgaged in case of non-payment of the principal obligation within the stipulated
period.
Villar’s purchase of the subject property did not violate the prohibition on pactum
commissorium. The power of attorney provision above did not provide that the ownership
over the subject property would automatically pass to Villar upon Galas’ failure to pay the loan
on time. What it granted was the mere appointment of Villar as attorney-in-fact, with authority
Page 35 of 178
to sell or otherwise dispose of the subject property, and to apply the proceeds to the payment
of the loan. This provision is customary in mortgage contracts, and is in conformity with Article
2087 of the Civil Code, which reads:
Art. 2087. It is also of the essence of these contracts that when the principal obligation
becomes due, the things in which the pledge or mortgage consists may be alienated for the
payment to the creditor.
Galas’ decision to eventually sell the subject property to Villar for an additional
P1,500,000.00 was well within the scope of her rights as the owner of the subject property.
The subject property was transferred to Villar by virtue of another and separate contract,
which is the Deed of Sale. Garcia never alleged that the transfer of the subject property to
Villar was automatic upon Galas’ failure to discharge her debt, or that the sale was simulated
to cover up such automatic transfer.
Page 36 of 178
TIU VS. PLATINUM PLANS PHILS. INC.
GR NO. 163512, FEBRUARY 28, 2007
TOPIC: NON-INVOLVEMENT CLAUSE
FACTS:
On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President
and Territorial Operations Head in charge of its Hongkong and Asean operations. The parties
executed a contract of employment valid for five years. On September 16, 1995, petitioner
stopped reporting for work. In November 1995, she became the Vice-President for Sales of
Professional Pension Plans, Inc., a corporation engaged also in the pre-need industry.
Consequently, respondent sued petitioner for damages before the RTC of Pasig City, Branch
261. Respondent alleged, among others, that petitioner’s employment with Professional
Pension Plans, Inc. violated the non-involvement clause in her contract of employment.
ISSUE/S:
Whether/not the non-involvement clause is valid.
HELD:
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 ends. It is 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 leaves would make respondent’s trade secrets vulnerable especially 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 contrary to law, morals, good customs, public order, or public 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.
567 | P a g e
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-
involvement clause, which petitioner and respondent freely agreed upon, has the force of law
between them, and thus, should be complied with in good faith.
Page 37 of 178
DUNCAN ASSOCIATION OF DETAILMAN-PTGWO AND TECSON VS.
GLAXO WELCOM PHILIPPINES, INC.
GR NO. 162994, SEPTEMBER 17, 2004
PONENTE: TINGA, J.
TOPIC: PROHIBITION TO MARRY CLAUSE
FACTS:
Petitioner Pedro A. Tecson was hired by respondent Glaxo Welcome Philippines, Inc.
(Glaxo) as medical representative on October 24, 1995, after Tecson had undergone training
and orientation. Tecson signed a contract of employment which stipulates, among others,
that he agrees to study and abide by existing company rules; to disclose to management any
existing or future relationship by consanguinity or affinity with co-employees or employees of
competing drug companies and should management find that such relationship poses a
possible conflict of interest, to resign from the company. The Employee Code of Conduct of
Glaxo similarly provides that an employee is expected to inform management of any existing
or future relationship by consanguinity or affinity with co-employees or employees of
competing drug companies. If management perceives a conflict of interest or a potential
conflict between such relationship and the employee’s employment with the company, the
management and the employee will explore the possibility of a "transfer to another
department in a non-counterchecking position" or preparation for employment outside the
company after six months.
Subsequently, Tecson entered into a romantic relationship with Bettsy, an employee
of Astra Pharmaceuticals (Astra), a competitor of Glaxo. Bettsy was Astra’s Branch
Coordinator in Albay. Even before they got married, Tecson received several reminders from
his District Manager regarding the conflict of interest which his relationship with Bettsy might
engender. Still, love prevailed, and Tecson married Bettsy in September 1998. Tecson’s
superiors informed him that his marriage to Bettsy gave rise to a conflict of interest. His
superiors reminded him that he and Bettsy should decide which one of them would resign
from their jobs, although they told him that they wanted to retain him as much as possible
because he was performing his job well. In November 1999, Glaxo transferred Tecson to the
Butuan City-Surigao City-Agusan del Sur sales area. Tecson asked Glaxo to reconsider its
decision, but his request was denied.
ISSUE/S:
Whether/not the court of appeals erred in ruling that glaxo’s policy against its employees
marrying employees from competitor companies is valid, and in not holding that said.
HELD:
No reversible error can be ascribed to the Court of Appeals when it ruled that Glaxo’s
policy prohibiting an employee from having a relationship with an employee of a competitor
company is a valid exercise of management prerogative. Glaxo has a right to guard its trade
secrets, manufacturing formulas, marketing strategies and other confidential programs and
information from competitors, especially so that it and Astra are rival companies in the highly
Page 38 of 178
competitive pharmaceutical industry. The prohibition against personal or marital relationships
with employees of competitor companies upon Glaxo’s employees is reasonable under the
circumstances because relationships of that nature might compromise the interests of the
company. In laying down the assailed company policy, Glaxo only aims to protect its interests
against the possibility that a competitor company will gain access to its secrets and
procedures.
In any event, from the wordings of the contractual provision and the policy in its
employee handbook, it is clear that Glaxo does not impose an absolute prohibition against
relationships between its employees and those of competitor companies. Its employees are
free to cultivate relationships with and marry persons of their own choosing. What the
company merely seeks to avoid is a conflict of interest between the employee and the
company that may arise out of such relationships.
Page 39 of 178
STAR PAPER CORPORATION, ET AL VS. SIMBOL ET AL.
GR NO. 164774, APRIL 12, 2006
PONENTE: PUNO, J.
TOPIC: PROHIBITION TO MARRY CLAUSE
FACTS:
Simbol was employed by the company on October 27, 1993. He met Alma Dayrit, also
an employee of the company, whom he married on June 27, 1998. Prior to the marriage,
Ongsitco advised the couple that should they decide to get married, one of them should
resign pursuant to a company policy promulgated in 1995. Simbol resigned on June 20, 1998
pursuant to the company policy. Comia was hired by the company on February 5, 1997. She
met Howard Comia, a co-employee, whom she married on June 1, 2000. Ongsitco likewise
reminded them that pursuant to company policy, one must resign should they decide to get
married. Comia resigned on June 30, 2000. Estrella was hired on July 29, 1994. She met Luisito
Zuñiga, also a co-worker. Petitioners stated that Zuñiga, a married man, got Estrella pregnant.
The company allegedly could have terminated her services due to immorality but she opted
to resign on December 21, 1999. The respondents each signed a Release and Confirmation
Agreement. They stated therein that they have no money and property accountabilities in the
company and that they release the latter of any claim or demand of whatever nature.
Respondents later filed a complaint for unfair labor practice, constructive dismissal,
separation pay and attorney’s fees. They averred that the aforementioned company policy is
illegal and contravenes Article 136 of the Labor Code. They also contended that they were
dismissed due to their union membership.
ISSUE/S:
Whether/not the subject 1995 policy/regulation is violative of the constitutional rights towards
marriage and the family of employees and of article 136 of the labor code.
HELD:
The courts that have broadly construed the term "marital status" rule that it
encompassed the identity, occupation and employment of one's spouse. They strike down
the no-spouse employment policies based on the broad legislative intent of the state statute.
They reason that the no-spouse employment policy violate the marital status provision
because it arbitrarily discriminates against all spouses of present employees without regard
to the actual effect on the individual's qualifications or work performance. These courts also
find the no-spouse employment policy invalid for failure of the employer to present any
evidence of business necessity other than the general perception that spouses in the same
workplace might adversely affect the business. They hold that the absence of such a bona fide
occupational qualification invalidates a rule denying employment to one spouse due to the
current employment of the other spouse in the same office. Thus, they rule that unless the
employer can prove that the reasonable demands of the business require a distinction based
on marital status and there is no better available or acceptable policy which would better
accomplish the business purpose, an employer may not discriminate against an employee
Page 40 of 178
based on the identity of the employee’s spouse. This is known as the bona fide occupational
qualification exception.
We note that since the finding of a bona fide occupational qualification justifies an
employer’s no-spouse rule, the exception is interpreted strictly and narrowly by these state
courts. There must be a compelling business necessity for which no alternative exists other
than the discriminatory practice. To justify a bona fide occupational qualification, the
employer must prove two factors: (1) that the employment qualification is reasonably related
to the essential operation of the job involved; and, (2) that there is a factual basis for believing
that all or substantially all persons meeting the qualification would be unable to properly
perform the duties of the job.
Page 41 of 178
AVON COSMETICS, INC. AND FRANCO VS. LUNA
GR NO. 153674, DECEMBER 20, 2006
TOPIC: EXCLUSIVITY CLAUSE
FACTS:
Sometime in 1978, Avon Cosmetics, Inc., acquired and took over the management and
operations of Beautifont, Inc. Nonetheless, respondent Luna continued working for said
successor company. Aside from her work as a supervisor, respondent Luna also acted as a
make-up artist of petitioner Avon’s Theatrical Promotion’s Group, for which she received a
per diem for each theatrical performance. On 5 November 1985, petitioner Avon and
respondent Luna entered into an agreement, entitled Supervisor’s Agreement. By virtue of
the execution of the aforequoted Supervisor’s Agreement, respondent Luna became part of
the independent sales force of petitioner Avon.
Sometime in the latter part of 1988, respondent Luna was invited by a former Avon
employee who was then currently a Sales Manager of Sandré Philippines, Inc., a domestic
corporation engaged in direct selling of vitamins and other food supplements, to sell said
products. Respondent Luna apparently accepted the invitation as she then became a Group
Franchise Director of Sandré Philippines, Inc. concurrently with being a Group Supervisor of
petitioner Avon. In a letter dated 11 October 1988, petitioner Avon, through its President and
General Manager, Jose Mari Franco, notified respondent Luna of the termination or
cancellation of her Supervisor’s Agreement with petitioner Avon.
ISSUE/S:
Whether/not paragraph 5 of the supervisor’s agreement is void for being violative of law and
public policy.
HELD:
In business parlance, this is commonly termed as the "exclusivity clause." This is
defined as agreements which prohibit the obligor from engaging in "business" in competition
with the obligee. This exclusivity clause is more often the subject of critical scrutiny when it is
perceived to collide with the Constitutional proscription against "reasonable restraint of trade
or occupation." restrictions upon trade may be upheld when not contrary to public welfare
and not greater than is necessary to afford a fair and reasonable protection to the party in
whose favor it is imposed. Even contracts which prohibit an employee from engaging in
business in competition with the employer are not necessarily void for being in restraint of
trade.In sum, contracts requiring exclusivity are not per se void. Each contract must be viewed
vis-à-vis all the circumstances surrounding such agreement in deciding whether a restrictive
practice should be prohibited as imposing an unreasonable restraint on competition. There is
nothing invalid or contrary to public policy either in the objectives sought to be attained by
paragraph 5, i.e., the exclusivity clause, in prohibiting respondent Luna, and all other Avon
supervisors, from selling products other than those manufactured by petitioner Avon.
Page 42 of 178
RODELO G. POLOTAN, SR. VS. HON. COURT OF APPEALS
G.R. No. 119379, September 25, 1998
PONENTE: ROMERO, J.
TOPIC: ESCALATION CLAUSE
FACTS:
Private respondent Security Diners International Corporation (Diners Club), a credit
card company, extends credit accomodations to its cardholders for the purchase of goods
and other services from member establishments. Said goods and services are reimbursed
later on by cardholders upon proper billing.
Petitioner Rodelo G. Polotan, Sr. applied for membership and credit accmodations
with Diners Club in October 1985. The application form contained terms and conditions
governing the use and availment of the Diners Club card, among which is for the cardholder
to pay all charges made through the use of said card within the period indicated in the
statement of account and any remaining unpaid balance to earn 3% interest per annum plus
prime rate of Security Bank & Trust Company. Notably, in the application form submitted by
petitioner, Ofricano Canlas obligated himself to pay jointly and severally with petitioner the
latters obligation to private respondent.
As of May 8, 1987, petitioner incurred credit charges plus appropriate interest and
service charges in the aggregate amount of P33, 819.84 which had become due and
demandable. Demands for payment made against petitioner proved futile. Hence, private
respondent filed a Complaint for Collection of Sum of Money against petitioner before the
lower court.
ISSUE:
Whether or not petitioner indeed owed Diners Club the amount being demanded.
HELD:
A contract of adhesion is one in which one of the contracting parties imposes a ready-
made form of contract which the other party may accept or reject, but 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.
Admittedly, the contract containing standard stipulations imposed upon those who
seek to avail of its credit services was prepared by Diners Club. There is no way a prospective
credit card holder can object to any onerous provision as it is offered on a take-it-or-leave-it
basis. Being a contract of adhesion, any ambiguity in its provisions must be construed against
private respondent.
Indeed, the terms prime rate, prevailing market rate, 2% penalty charge, service fee,
and guiding rate are technical terms which are beyond the ken of an ordinary layman. To be
sure, petitioner hardly falls into the category of an ordinary layman. In this case, petitioner, in
effect, claims that the subject contract is one-sided in that the contract allows for the
Page 43 of 178
escalation of interests, but does not provide for a downward adjustment of the same in
violation of Central Bank Circular 905.
Be that as it may, there is nothing inherently wrong with escalation clauses. Escalation
clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain
the value of money in long term contracts. Escalation clauses are not basically wrong or legally
objectionable as long as they are not solely potestative but based on reasonable and valid
grounds. Obviously, the fluctuation in the market rates is beyond the control of private
respondent.
Although said exhibit would, by itself, show that Mrs. Polotan had no more account
with Diners Club, it would not have been conclusive to prove that said account was already
paid. The proper evidence would have been a receipt of payment.
Significantly, petitioner did not contest the purchases as indicated in the statements
of account but merely alleged that some of the purchases being claimed to have been made
by petitioner were not supported by invoices.
Page 44 of 178
NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI)
VS. PHILIPPINE NATIONAL BANK
G.R. NO. 148753, JULY 30, 2004
PONENTE: PANGANIBAN, J.
TOPIC: ESCALATION CLAUSE
FACTS:
On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by
[Petitioner] NSBCI [1)] authorizing the company to apply for or secure a commercial loan with
the PNB in an aggregate amount of P8.0M, under such terms agreed by the Bank and the
NSBCI, using or mortgaging the real estate properties registered in the name of its President
and Chairman of the Board Eduardo R. Dee as collateral; [and] 2) authorizing [petitioner-
spouses] to secure the loan and to sign any [and all] documents which may be required by
PNB and that [petitioner-spouses] shall act as sureties or co-obligors who shall be jointly and
severally liable with NSBCI for the payment of any [and all] obligations.
On August 15, 1989, Resolution No. 77 was approved by granting the request of
[Respondent] PNB thru its Board NSBCI for a P8 Million loan broken down into a revolving
credit line of P7.7M and an unadvised line of P0.3M for additional operating and working
capital to mobilize its various construction projects. The loan of [Petitioner] NSBCI was
secured by a first mortgage on the following: a) three (3) parcels of residential land; b) six (6)
parcels of residential land; and c) a residential lot and improvements thereon. The loan was
further secured by the joint and several signatures of [Petitioners] Eduardo Dee and Arcelita
Marquez Dee, who signed as accommodation-mortgagors since all the collaterals were
owned by them and registered in their names.
On August 31, 1989, [petitioner-spouses] executed a Joint and Solidary Agreement
(JSA) in favor of [Respondent] PNB unconditionally and irrevocably binding themselves to be
jointly and severally liable with the borrower for the payment of all sums due and payable to
the Bank under the Credit Document.
Later on, [Petitioner] NSBCI failed to comply with its obligations under the promissory
notes.
Petitioner Eduardo Dee later tendered four (4) post-dated Interbank checks
aggregating P1,111,306.67 in favor of [Respondent] PNB. Petitioners nevertheless failed to pay
their loan obligations within the [timeframe] given them and as a result, [Respondent] PNB
filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition for Sale under Act 3135,
as amended[,] and Presidential Decree No. 385 dated January 30, 1992.
Petitioners failed to redeem their properties within the one-year redemption period
and so [Respondent] PNB executed a [D]eed of [A]bsolute [S]ale consolidating title to the
properties in its name. Petitioners refused to pay the deficiency claim which compelled
[Respondent] PNB to institute the instant Complaint for the collection of its deficiency claim.
ISSUE/S:
Whether the loan accounts are bloated; and
Page 45 of 178
Whether the extrajudicial foreclosure and subsequent claim for deficiency are valid and
proper.
HELD:
Indeed, Petitioner NSBCIs loan accounts with respondent appear to be bloated with
some iniquitous imposition of interests, penalties, other charges and attorney’s fees. To
demonstrate this point, the Court shall take up one by one the promissory notes, the credit
agreements and the disclosure statements.
The unilateral determination and imposition of increased rates is violative of the
principle of mutuality of contracts ordained in Article 1308 of the Civil Code. One-sided
impositions do not have the force of law between the parties, because such impositions are
not based on the parties essential equality.
To summarize, to give full force to the Truth in Lending Act, only the interest rates of
19.5 percent and 21.5 percent stipulated in the Promissory Notes may be imposed by
respondent on the respective availments. After 730 days, the portions remaining unpaid are
automatically converted into medium-term loans at the legal rate of 12 percent. In all
instances, the simple method of interest computation is followed. Payments made by
petitioners are applied and pro-rated according to basic legal principles. Charges on penalty
and insurance are eliminated, and 1 percent attorney’s fees imposed upon the total unpaid
balance of the principal and interest as of the date of public auction. The P2 million deficiency
claim therefore vanishes, and a refund of P3, 686,101.52 arises.
PNB is ORDERED to refund the sum of P3,686,101.52 representing the over collection
computed above, plus interest thereon at the legal rate of six percent (6%) per annum from
the filing of the Complaint until the finality of this Decision. After this Decision becomes final
and executory, the applicable rate shall be twelve percent (12%) per annum until its
satisfaction.
Page 46 of 178
SPOUSES TECKLO V. RURAL BANK OF PAMPLONA, INC.
G.R. NO. 171201, JUNE 18, 2010
PONENTE: CARPIO, J.
TOPIC: DRAGNET CLAUSE
FACTS:
Spouses Roberto and Maria Antonette Co obtained from respondent Rural Bank of
Pamplona, Inc. a P100,000.00 loan due in three months which was secured by a real estate
mortgage. One of the stipulations in the mortgage contract was that the mortgaged property
would also answer for the future loans of the mortgagor. Pursuant to this provision, spouses
Co obtained on 4 March 1994 a second loan from respondent bank in the amount of
P150,000.00 due in three months. Petitioners, spouses Benedict and Maricel Dy Tecklo,
meanwhile instituted an action for collection of sum of money against spouses Co. When the
two loans remained unpaid after becoming due and demandable, respondent bank instituted
extrajudicial foreclosure proceedings Petitioners then exercised the right of redemption as
successors-in-interest of the judgment debtor. Stepping into the shoes of spouses Co,
petitioners tendered the amount of P155,769.50, based on the computation made by the
Office of the Provincial Sheriff, Respondent bank objected to the non-inclusion of the second
loan. It also claimed that the applicable interest rate should be the rate fixed in the mortgage,
which was 24% per annum plus 3% service charge per annum and 18% penalty per annum.
However, the Provincial Sheriff insisted that the interest rate should only be 12% per annum.
Respondent bank then sought annulment of the redemption, injunction, and damages in the
Regional Trial Court and the latter held that the second loan, not having been annotated on
the TCT of the mortgaged property, could not bind third persons such as petitioners. Upon
appeal, the CA affirmed the trial court’s decision. Hence, the petition.
ISSUE:
Whether or not he redemption amount includes the second loan in the amount of P150,000.00
even if it was not included in respondent bank’s application for extrajudicial foreclosure.
HELD:
No. For its failure to include the second loan in its application for extrajudicial
foreclosure as well as in its bid at the public auction sale, respondent bank is deemed to have
waived its lien on the mortgaged property with respect to the second loan. Of course,
respondent bank may still collect the unpaid second loan, and the interest thereon, in an
ordinary collection suit before the right to collect prescribes. After the foreclosure of the
mortgaged property, the mortgage is extinguished and the purchaser at auction sale acquires
the property free from such mortgage. Any deficiency amount after foreclosure cannot
constitute a continuing lien on the foreclosed property, but must be collected by the
mortgagee-creditor in an ordinary action for collection. In this case, the second loan from the
same mortgage deed is in the nature of a deficiency amount after foreclosure.
In order to effect redemption, the judgment debtor or his successor -in-interest need
only pay the purchaser at the public auction sale the redemption amount composed of (1) the
Page 47 of 178
price which the purchaser at the public auction sale paid for the property and (2) the amount
of any assessment or taxes which the purchaser may have paid on the property after the
purchase, plus the applicable interest. Respondent bank’s demand that the second loan be
added to the actual amount paid for the property at the public auction sale finds no basis in
law or jurisprudence.
Page 48 of 178
CHUA TEE DEE V. COURT OF APPEALS
G.R. NO. 135721, MAY 27, 2004
PONENTE: CALLEJO, SR., J.

TOPIC: DEPRIVACIÓN DE DERECHO V. DEPRIVACIÓN DE MERO HECHO IN LEASE
FACTS:
J.C. Agricom Development Corporation, Inc. (Agricom), is the owner of a rubber
plantation located at Davao City. Agricom planned to lease the plantation. Chua Tee Dee,
married to Amado Dee, is a businesswoman doing business under the name of Pioneer
Enterprises (Pioneer). Manuel G. Alba, the president of Agricom, had a business meeting in
Davao City with Amado Dee where they discussed the possibility of leasing the rubber
plantation to Chua Tee Dee/Pioneer.
The contract of lease was entered into by Agricom, represented by Alba, and Chua Tee
Dee doing business under the name and style Pioneer. Lillian Carriedo, a stockholder of
Agricom, also signed the contract. Thereafter, Alba informed the employees of the rubber
plantation of the impending termination of their employment due to the company’s contract
of lease with Chua Tee Dee. The employees were told that they would be given separation
pay. On June 3, 1985, Amado Dee delivered the amount of Php 270,000.00 to the Spouses
Alba as deposit for the lease. In the meantime, Agricom sent letters to the said employees,
confirming the termination of their employment and informing of their separation pay. The
severed employees filed a complaint for illegal dismissal and unfair labor practice against
Agricom, Amado Dee and Pioneer. The labor arbiter rendered his decision holding that the
termination of the complainants’ employment was illegal, but the complaint for unfair labor
practice was dismissed for lack of merit. On May 24, 1990, the counsel of the Carriedo heirs,
the stockholders-owners of Agricom, sent a telegraphic note to Amado Dee demanding
payment of long overdue rentals. Pioneer sent a letter to Agricom complaining of facts and
events which disrupted its operations in the plantation. Pioneer claimed that it was dragged
into labor disputes not of its own making and complained of being pestered by some
individuals who claimed portions of the plantation as their own property. Some of them went
to its office and even presented tax declarations to prove their claims. Agricom informed
Pioneer that, after due investigation, it concluded that the latter’s complaints were
unfounded. It also demanded the payment of back rentals for June, July and August 1990.
As Pioneer was unable to pay its monthly rentals, Agricom filed, on September 4, 1990,
a civil action for sum of money, damages and attorney’s fees against Chua Tee Dee. In her
Answer, Chua Tee Dee asserted that Agricom had no cause of action against her. She claimed
that it was Agricom which failed to comply with the terms and conditions of the contract of
lease when it failed to settle the labor dispute with its former employees, and that Agricom
failed to maintain her in the quiet and peaceful possession and enjoyment of the leased
premises during the effectivity of the lease contract. The RTC rendered judgment dismissing
the complaint and declaring the lease contract terminated for failure of Agricom to implement
the terms thereof. Agricom then filed a Motion for Reconsideration, which was granted by
the RTC. Judgment was rendered ordering Chua Tee Dee to pay to Agricom several amounts
due as back rentals, including the first 3 years of the lease. The CA affirmed the order of the
Page 49 of 178
lower court, with modification as to the award of attorney’s fees. Hence, this petition filed by
Chua Tee Dee.
ISSUE:
Did Agricom fail to maintain Chua Tee Dee in a quiet and peaceful enjoyment of the leased
premises?
HELD:
The Supreme Court held that Agricom did not deprived Chua Tee Dee of the quiet and
peaceful enjoyment of the leased premises. As lessor, Agricom had the duty to maintain Chua
Tee Dee in the peaceful and adequate enjoyment of the leased premises. Such duty was made
as part of the contract of lease entered into by the parties. Even if it had not been so, the
lessor is still dutybound under Art.1654of the Civil Code. The duty “to maintain the lessee in
the peaceful and adequate enjoyment of the lease for the duration of the contract”
mentioned in No. 3 of the article is merely a warranty that the lessee shall not be disturbed in
his legal, and not physical, possession. In the case at bar, Chua Tee Dee claims that several
people presented tax declarations to her and claimed some portions of the leased premises.
However, no case was filed by any of the said claimants against her or her lessor during the
time she occupied the premises.
Patently, then, Chua Tee Dee had not been disturbed in her legal possession of the
property in derogation of Article 1654 of the New Civil Code. When Chua Tee Dee’s
representative saw that a portion of the leased premises was being fenced by the claimants,
she had all the right to sue the intruders who had disturbed her physical possession as
provided for in Article 1654 of the New Civil Code. However, the petitioner did not file any suit
against any of the claimants. Thus, it cannot be said that Agricom violated the contract of
lease Chua Tee Dee failed to prove that she suffered any loss from the labor case that was
filed against her enterprise and her husband. True, the labor case was instituted during the
effectivity of the lease contract until the case was finally resolved on August 22, 1986.
Surprisingly, however, during the interregnum, appellant regularly paid the monthly rentals
for the years 1985 to 1989. It was after the labor case has been resolved that appellant started
to fail to pay her rentals, strongly indicating that the labor case has not dampened her
peaceful and adequate possession of the leased premises. The NLRC case did not deter the
continuance of the possession and occupation of the leased premises. In sum, then, the
petitioner failed to prove that the private respondent breached any of the provisions of the
contract of lease.
Thus, the petitioner had no valid reason to suspend the payment of rentals under Art.
1658 Chua Tee Dee’s obligation to pay back rentals should cover only the period of July
1990until the time that she vacated the leased premises. The CA, thus, erred when it affirmed
the order of the trial court ordering the petitioner to pay back rentals, including the first three
(3) years of the lease, as that period had already been paid by the petitioner. The petitioner
should also be credited for the amount of Php 270,000.00 she paid to the private respondent
as deposit for the lease.
Page 50 of 178
MARTIN, ET. AL. VS. DBS BANK PHILIPPINES, INC.
GR NO. 174632, JUNE 16, 2010
PONENTE: ABAD, J.
FACTS:
On March 27, 1997 Felicidad T. Martin, Melissa M. Isidro, Grace M. David, Caroline M.
Garcia, Victoria M. Roldan, and Benjamin T. Martin, Jr. (the Martins), as lessors, entered into a
lease contract with the DBS Bank Philippines, Inc. (DBS), as lessee, covering a commercial
warehouse and lots that DBS was to use for office, warehouse, and parking yard for
repossessed vehicles. The lease was for five years, On May 25 and August 13, 1997 heavy rains
flooded the leased property and submerged into water the DBS offices there along with its
326 repossessed vehicles. As a result, on February 11, 1998 DBS wrote the Martins demanding
that they take appropriate steps to make the leased premises suitable as a parking yard for its
vehicles. DBS suggested the improvement of the drainage system or the raising of the
property’s ground level. In response, the Martins filled the property’s grounds with soil and
rocks.
DBS lamented that the property remained unsuitable for its use since the Martins did
not level the grounds. Worse, portions of the perimeter fence collapsed because of the
excessive amount of soil and rock that were haphazardly dumped on it. In June 1998, DBS
vacated the property but continued paying the monthly rents. On September 11, 1998,
however, it made a final demand on the Martins to restore the leased premises to tenantable
condition on or before September 30, 1998, otherwise, it would rescind the lease contract. On
September 24, 1998 the Martins contracted the services of Altitude Systems & Technologies
Co. for the reconstruction of the perimeter fence on the property. On October 13, 1998 DBS
demanded the rescission of the lease contract and the return of its deposit. At that point, DBS
had already paid the monthly rents from March 1997 to September 1998. The Martins refused,
however, to comply with DBS demand. On July 7, 1999 DBS filed a complaint against the
Martins for rescission of the contract of lease with damages before the Regional Trial Court,
claiming that the leased premises had become untenantable, DBS demanded rescission of the
lease contract as well as the return of its deposit of P1,200,000.00.
ISSUE/S:
Whether/not the ca erred in holding that the martins allowed the leased premises to remain
untenantable after the floods, justifying dbs rescission of the lease agreement between them.
HELD:
Unless the terms of a contract are against the law, morals, good customs, and public
policy, such contract is law between the parties and its terms bind them. under their
agreement, the remedy of rescission would become unavailable to DBS only if the Martins, as
lessors, made the required repair and reconstruction after the damages by natural cause
occurred, which meant putting the premises after the floods in such condition as would
enable DBS to resume its use of the same for the purposes contemplated in the agreement,
Page 51 of 178
namely, as office, warehouse, and parking space for DBS repossessed vehicles. Undeniably,
the DBS suffered considerable damages when flood waters deluged its offices and 326
repossessed vehicles. Notably, DBS vacated the leased premises in June of 1998, without
rescinding the lease agreement, evidently to allow for unhindered repair of the grounds. In
fact, DBS continued to pay the monthly rents until September 1998, showing how DBS leaned
back to enable the Martins to finish the repair and rehabilitation of the place. The Martins
provided basis for rescission by DBS when they failed to do so.
As the Court held in Manila International Airport Authority v. Gingoyon, the various
stipulations in a contract must be read together and given effect as their meanings warrant.
Paragraph X, which barred pre-termination of the lease agreement, cannot be read in
isolation. Paragraph VIII gave DBS and the Martins the right to rescind the agreement in the
event the property becomes untenantable due to natural causes, including floods, unless
proper repairs and rehabilitation are carried out.
Page 52 of 178
HEIRS OF ZABALA VS. CA ET. AL
GR NO. 189602, MAY 6, 2010
PONENTE: NACHURA, J.
FACTS:
On April 1, 2002, respondent Vicente T. Manuel filed a Complaint for ejectment with damages
against Alfredo Zabala before the Municipal Trial Court in Cities. Respondent alleged that he
was in actual and peaceful possession of a fishpond located in Ibayo, Balanga City. On October
15, 2001, Zabala allegedly entered the fishpond without authority, and dumped soil into the
fishpond without an Environment Compliance Certificate. Zabala continued such action until
the time of the filing of the Complaint, killing the crabs and the bangus that respondent was
raising in the fishpond. Thus, respondent asked that Zabala be restrained from touching and
destroying the fishpond; that Zabala be ejected therefrom permanently; and for actual and
moral damages and attorney’s fees.
ISSUE/S:
Whether/not the compromise agreement is valid.
HELD:
Under Article 2028 of the Civil Code, a compromise agreement is a contract whereby the
parties, by making reciprocal concessions, avoid litigation or put an end to one already
commenced. Compromise is a form of amicable settlement that is not only allowed, but also
encouraged in civil cases. Contracting parties may establish such stipulations, clauses, terms,
and conditions as they deem convenient, provided that these are not contrary to law, morals,
good customs, public order, or public policy. Thus, finding the above Compromise Agreement
to have been validly executed and not contrary to law, morals, good customs, public order, or
public policy, we approve the same.
Page 53 of 178
P.L. UY REALTY CORPORATION vs. ALS MANAGEMENT &
DEVELOPMENT CORPORATION and ANTONIO S. LITONJUA
G.R. NO. 166462, OCTOBER 24, 2012
PONENTE: VELASCO, J.
FACTS:
On September 3, 1980, PLU, as vendor, and ALS, as vendee, executed a Deed of
Absolute Sale with Mortgage covering a registered parcel of land located at F. Blumentritt
Street, Mandaluyong, Metro Manila. The purchase price for the land was set at PhP 8,166,705
payable, as follows:
a. Upon execution of the Contract - P 500,000.00
b. Within 100 days thereafter, a downpayment equivalent to 24% (P1,960,000.00) of the
principal amount less the advance of P500,000.00 - 1,460,009.20
c. The balance of P6,206,695.80 together with interest of 12% per annum (estimated
interest included) on the diminishing balance shall be payable over a period of four (4)
years on or before the month and day of the first downpayment
The parties also stipulated on the eviction of informal settlers/ existing
occupants/squatters, the removal of which shall be for the sole expenses & responsibilities of
the VENDOR & that the VENDEE is authorized to withhold payment of the 1st 24% installment
unless the above-undertaking is done and completed to the satisfaction of the VENDEE;
Thereafter, the parties entered into an Agreement dated December 23, 1980 that all
accruals of interest as provided for in paragraph 2-c of the Deed of Sale with Mortgage will be
deferred and the subsequent payments of installments will correspondingly be extended to
the date the occupants/squatters will vacate the subject property. In the event the informal
settlers do not leave the property, PLU would reimburse ALS the following amounts:
a) All payments made, including the down payment
b) All costs of temporary/permanent improvements introduced by the SECOND PARTY in
the subject property
c) All damages suffered by the SECOND PARTY due to the refusal of the
occupants/squatters to vacate the premises.
On January 26, 1981, TCT No. 16721 was canceled and a new one, TCT No. 26048, issued
in the name of ALS. Subsequently, the parties executed a Partial Release of Mortgage dated
April 3, 1981 attesting to the payment by ALS of the first installment indicated in the underlying
deed. The relevant portion of the Partial Release of Mortgage reads:
a. Upon the execution of this document, the SECOND PARTY shall pay the net sum of
THREE HUNDRED NINETY FIVE THOUSAND PESOS (P395,000.00) after deducting
expenses, to complete the full payment of the first 24% installment.
b. The FIRST PARTY hereby executes a partial release of the mortgage to the extent of
TWENTY THOUSAND SQUARE METERS (20,000 sq.m.) in consideration of the advance
payment which would now amount to a total of P1,960,009.20, of a portion of the said
property indicated in the attached subdivision plan herewith x x x.
Page 54 of 178
ALS, however, failed to pay the 2nd payment despite demands.
Thus, on August 25, 1982, PLU filed a Complaint against ALS for Foreclosure of
Mortgage and Annulment of Documents. In the complaint, PLU alleged having had entered
into an oral agreement with ALS whereby the latter "agreed to take over the task of ejecting
the squatters/occupants from the property covered by TCT No. 26048 issued in its name,"
adding that, through the efforts of ALS, the property was already 90% clear of informal
settlers.
On May 9, 1986, the Makati RTC rendered a Decision ruling that the obligation of PLU
to clear the property of informal settlers was superseded by an oral agreement between the
parties whereby ALS assumed the responsibility of ejecting said informal settlers. The Makati
RTC, however, declared that the removal of the informal settlers on the property is still a
subsisting and valid condition.
The trial court further ruled that because informal settlers still occupied 28% of the
property, the condition, as to their eviction, had not yet been complied with. For this reason,
the Makati RTC found the obligation of ALS to pay the balance of the purchase price has not
yet fallen due and demandable; thus, it dismissed the case for being premature.
ALS appealed the case to this Court primarily questioning the finding of the Makati RTC
that it had assumed the responsibility of ejecting the informal settlers on the property. The
Court issued a Resolution affirming the rulings of the CA and the Makati RTC. The resolution
became final and executory on February 7, 1990.
Sometime thereafter, PLU again filed a Complaint dated November 12, 1990 against
ALS for Judicial Foreclosure of Real Estate Mortgage under Rule 68, before the RTC. In the
complaint, PLU claimed that ALS had not yet completed the agreed 1st payment obligation
despite numerous demands.
In defense, ALS claims that the installment payments for the balance of the purchase
price of the property are not yet due and demandable, as the removal of the informal settlers,
a condition precedent for such payments to be demandable, is still to be completed. ALS
further avers that respondent Antonio Litonjua (Litonjua) cannot be made personally liable
under the Deed of Absolute Sale with Mortgage, not being a party thereto and as no ground
exists for piercing the veil of corporate fiction to make Litonjua, a corporate officer of ALS,
liable. By way of counterclaim, ALS alleged that because there were still informal settlers on
the property, PLU should be directed to reimburse ALS the payments that it already made,
the cost of improvements introduced by ALS on the property and for other damages.
In a Decision dated November 17, 1993, the Pasig RTC dismissed the case for being
premature. Furthermore, the trial court, citing Art. 1167 of the Civil Code, ruled that the
foreclosure of the mortgage is not the proper remedy, and that PLU should have caused the
ejectment of the informal settlers. Also, the court found no reason to render Litonjua
personally liable for the transaction of ALS as there was no ground to pierce the veil of
corporate fiction.
ISSUE:
Whether or not the parties should still be bound by their agreements in the contract being a
valid one.
Page 55 of 178
HELD:
All the elements of res judicata, as a "bar by prior judgment," are present in the instant
case. The previous complaint for foreclosure of mortgage was dismissed by the trial court for
being premature in Civil Case No. 47438. The dismissal action, when eventually elevated to
this Court in G.R. No. 91656, was affirmed and the affirmatory resolution of the Court
becoming final and executory on February 7, 1990. Further, the element of indentity of parties
is considered existing even though Litonjua was only impleaded in Civil Case No. 60221 and
not in Civil Case No. 47438. Absolute identity of parties is not required for res judicata to apply;
substantial identity is sufficient.
Clearly, the instant complaint must be dismissed.
Art. 1306 of the Civil Code guarantees the freedom of parties to stipulate the terms of
their contract provided that they are not contrary to law, morals, good customs, public order,
or public policy. Thus, when the provisions of a contract are valid, the parties are bound by
such terms under the principle that a contract is the law between the parties.
Here, both parties knew for a fact that the property subject of their contract was
occupied by informal settlers, whose eviction would entail court actions that in turn, would
require some amount of time. They also knew that the length of time that would take to
conclude such court actions was not within their power to determine. Despite such
knowledge, both parties still agreed to the stipulation that the payment of the balance of the
purchase price would be deferred until the informal settlers are ejected. There was never any
allegation that PLU was coerced into signing the Deed of Sale with Mortgage or that its
consent was in any way vitiated. PLU was free to accept or decline such contracted provision.
Thus, PLU should not be allowed to renege on its agreement.
Page 56 of 178
STAR TWO (SPV-AMC), INC., VS PAPER CITY CORPORATION OF THE PHILIPPINES
G.R. NO. 169211, MARCH 6, 2013
PONENTE: PEREZ, J.
FACTS:
From 1990-1991, Paper City applied for and was granted four (4) loans and credit
accommodations by Rizal Commercial Banking Corporation (RCBC), now substituted by Star
Two (SPV-AMC), Inc by virtue of Republic Act No. 9182. The loans were secured by four (4)
Deeds of Continuing Chattel Mortgages on its machineries and equipments found inside its
paper plants. However, RCBC eventually executed a unilateral Cancellation of Deed of
Contining Chattel Mortgage. In 1992, RCBC, as the trustee bank, together with Metrobank and
Union Bank, entered into a Mortgage Trust Indenture (MTI), with Paper City. In the said MTI,
Paper City acquired additional loans secured by five (5) Deed of Real Estate Mortgage, plus
real and personal properties in an annex to the MTI, which covered the machineries and
equipment of Paper City. The MTI was later on amended and supplemented three (3) times,
wherein the loan was increased and included the same mortgages with an additional building
and other improvements inthe plant site. Paper City was able to comply with the loans but
only until 1997 due to an economic crisis. RCBC filed a petition for extra-judicial foreclosure
against the real estate executed by Paper City including all the improvements because of
payment default. The property was foreclosed and subjected to public acution. The three
banks and the highest bidder were issued a Certificate of Sale. Paper City filed a complaint
alleging that the sale was null and void due to lack of prior notice. During the pendency of
the complaint, Paper City filed a motion to remove machinery out of the foreclosed land and
building, that the same were not included in the foreclosure of the real estate mortgage. The
trial court denied the motion, ruling that the machineries and equipment were included.
Thereafter, Paper City's Motion for Reconsideration, the trial court granted the same and
justified the reversal by finding that the machineries and equipment are chattels by
agreement thru the four Deeds of Continuing Chattel Mortgages; and that the deed of
cancellation executed by RCBC of said mortgage was not valid because it was one unilaterally.
RCBC's Motion for Reconsideration was denied. The case was petitioned at CA that 1. That
Paper City gave its consent to consider the disputedmachineries and equipment as real
properties when they signed the MTI's and all its amendments; 2. That the machineries and
equipment are the same as inthe MTI's, hence treated by agreement of the parties as real
properties. The CA affirmed the orders of the trial court because it relied on the plain language
of the MTI's stating that nowhere from any of the MTIs executed by the parties can we find
the alleged "express" agreement adverted to by petitioner. There is no provision in any of the
parties’ MTI, which expressly states to the effect that the parties shall treat the equipments
and machineries as real property. On the contrary, the plain and unambiguous language of
the aforecited MTIs, which described the same as personal properties, contradicts petitioner’s
claims.
Page 57 of 178
ISSUE:
Whether the subsequent contracts of the parties such as Mortgage Trust Indenture as well
as the subsequent supplementary amendments included in its coverage of mortgaged
properties the subject machineries and equipment; and
Whether or not the subject machineries and equipment were considered real properties and
should therefore be included in the extra-judicial foreclosure which in turn were sold to the
banks.
HELD:
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to
RCBC are various parcels of land including the buildings and existing improvements thereon
as well as the machineries and equipments, which as stated in the granting clause of the
original mortgage, are "more particularly described and listed that is to say, the real and
personal properties listed in Annexes ‘A’ and ‘B’ x x x of which the Paper City is the lawful and
registered owner." Significantly, Annexes "A" and "B" are itemized listings of the buildings,
machineries and equipments typed single spaced in twenty-seven pages of the document
made part of the records. As held in Gateway Electronics Corp. v. Land Bank of the
Philippines,49 the rule in this jurisdiction is that the contracting parties may establish any
agreement, term, and condition they may deem advisable, provided they are not contrary to
law, morals or public policy. The right to enter into lawful contracts constitutes one of the
liberties guaranteed by the Constitution.
Law and jurisprudence provide and guide that even if not expressly so stated, the
mortgage extends to the improvements
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing
fruits, and the rents or income not yet received when the obligation becomes due, and to the
amount of the indemnity granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications
and limitations established by law, whether the estate remains in the possession of the
mortgagor, or it passes into the hands of a third person.
Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage includes
the machineries and equipments of respondent. Considering that the Indenture which is the
instrument of the mortgage that was foreclosed exactly states through the Deed of
Amendment that the machineries and equipments listed in Annexes "A" and "B" form part of
the improvements listed and located on the parcels of land subject of the mortgage, such
machineries and equipments are surely part of the foreclosure of the "real estate properties,
including all improvements thereon" as prayed for in the petition. The real estate mortgages
which specifically included the machineries and equipments were subsequent to the chattel
mortgages. Without doubt, the real estate mortgages superseded the earlier chattel
mortgages.
Page 58 of 178
DOMINGO GONZALO VS. JOHN TARNATE, JR.,
G.R. NO. 160600, JANUARY 15, 2014
PONENTE: BERSAMIN, J.
FACTS:
After the DPWH had awarded on July 22, 1997 the contract for the improvement of
the Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road to his company,
Gonzalo Construction, petitioner Gonzalo subcontracted to respondent Tarnate on October
15, 1997, the supply of materials and labor for the project under the latter’s business known
as JNT Aggregates. Their agreement stipulated, among others, that Tarnate would pay to
Gonzalo eight percent and four percent of the contract price, respectively, upon Tarnate’s
first and second billing in the project.
In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of
assignment whereby he, as the contractor, was assigning to Tarnate an amount equivalent
to 10% of the total collection from the DPWH for the project. This 10% retention fee was the
rent for Tarnate’s equipment that had been utilized in the project. In the deed of
assignment, Gonzalo further authorized Tarnate to use the official receipt of Gonzalo
Construction in the processing of the documents relative to the collection of the 10%
retention fee and in encashing the check to be issued by the DPWH for that purpose. The
deed of assignment was submitted to the DPWH on April 15, 1999. During the processing of
the documents for the retention fee, however, Tarnate learned that Gonzalo had unilaterally
rescinded the deed of assignment by means of an affidavit of cancellation of deed of
assignment dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the
disbursement voucher for the 10% retention fee had then been issued in the name of
Gonzalo, and the retention fee released to him. Tarnate demanded the payment of the
retention fee from Gonzalo, but to no avail.
ISSUE:
Whether or not the subcontract and deed of assignment are void contracts.
HELD:
YES. The Court held that the subcontract agreement and deed of assignment
between Gonzalo and Tarnate are void for being contrary to law. However, even though
both parties are in pare delicto the Court allowed Tarnate to recover his retention fee, as an
exception, due to unjust enrichment.
Page 59 of 178
ANECITO CAMPOS VS. BANK OF THE PHILIPPINE ISLANDS,
NOW SUBSTITUTED BY HOUSTON HOMEDEPOT, INC
G.R. NO. 207597, MAY 30, 2016
PONENTE: BRION, J.
FACTS:
In 1980, petitioner Campos mortgaged fourteen (14) lots in favor of the Far East Bank
and Trust, Co. (FEBTC) - now merged with respondent Bank of the Philippine Islands (BPI/the
Bank) - to secure a One (1) Million peso loan. Among these lots was the then vacant Lot No. 7-
G-4 (subject lot). Sometime in the late 1980's, Campos constructed a two-storey building on
the subject lot allegedly with the knowledge and consent of the Bank.
Due to unfortunate business losses, Campos failed to pay his loan. The loan eventually
ballooned to Eleven (11) Million pesos (P11,000,000.00).4 Consequently, the Bank moved for
the extra judicial foreclosure of the mortgaged lots. The Bank was issued a Certificate of Sale
after becoming the highest bidder during the public auction at a bid of 11.3 million pesos.
When Campos failed to redeem the properties within the legal redemption period, the
Bank consolidated its ownership of the properties.6 Thereafter, it filed a verified ex parte
motion for the issuance of a writ of possession before the Regional Trial Court (RTC).
On August 7, 2006, the RTC granted the motion and ordered the Clerk of Court and the
Ex Officio Sheriff of the RTC to place the Bank in possession of the lots. On September 8, 2006,
the RTC issued a Writ of Possession commanding the Ex Officio Provincial Sheriff of Negros
Occidental to execute the August 7, 2006 Order.
Long after the RTC's August 7, 2006 Order became final and executory, Campos filed
a Motion for the Suspension of the Implementation of the Writ of Possession and/or to Allow
Mortgagor to Present Evidence of Good Faith dated February 12, 2007. Campos claimed that
he constructed the building on subject Lot No. 7-G-4 in good faith and with the Bank's consent.
Citing Article 54611 in relation to Articles 44812 and 45013 of the Civil Code, Campos argues
that he has the right to retain possession of the subject lot until the Bank reimburses him the
value of the building.
The Bank opposed the motion arguing that the purchaser in a foreclosure sale has no
obligation to reimburse the mortgagor for the value of the improvements. More importantly,
the Bank cited the Mortgage Contract which stipulates: x x x the MORTGAGOR does hereby
transfer and convey by way of mortgage unto the MORTGAGEE, its successors or assigns, the
parcels of land which are described in the list inserted on the back of this document and/or
appended hereto, together with all the buildings and improvements now existing or which
may hereafter be erected or constructed thereon of which the MORTGAGOR declares that
he/it is the absolute owner free from all liens and incumbrances [sic], x x x [emphases
supplied]. On April 16, 2007, the RTC denied Campos' motion for lack of merit.17Citing Ong v.
Court of Appeals18and De Vera v. Agloro,19 the RTC explained that upon the expiration of the
redemption period, its duty to issue a writ of possession is ministerial. It likewise explained
that any cause of action for the reimbursement may be pursued in a separate civil action but
not in a non-litigious and ex parte proceeding for the issuance of a writ of possession. On April
Page 60 of 178
20, 2007, Campos moved for reconsideration21 citing Policarpio v. Court of Appeals22 where
the Court permitted the heirs of a mortgagor to present evidence that they were builders in
good faith.
On September 10, 2007, the RTC denied the motion for reconsideration.23 It explained
that in Policarpio, the main issue was denial of due process because the trial court had called
for evidence on the matter of good faith several times. However, the court capriciously
reversed itself during the absence of the petitioners' counsel due to illness, and received the
respondent's evidence ex parte.
The RTC further held that the motion for suspension was filed long after the writ of
possession attained finality. Campos responded to the denial through a petition for certiorari
with the CA with an application for a Temporary Restraining Order (TRO). The petition was
docketed as CA-G.R. CEB-SP No. 02964.
On July 24, 2012, the CA dismissed the petition after finding no grave abuse of
discretion on the part of the RTC.24 The CA held that the RTC's action is allowed under Section
7 of Act No. 3135 which grants the purchaser the right to demand a writ of possession upon
the lapse of the redemption period. Accordingly, it was the RTC's ministerial duty to issue a
writ of possession. Campos' remedy under Section 8 of Act No. 3135 was to file a petition to
set aside or cancel the writ of possession within thirty days after the Bank was given
possession.
Campos moved for reconsideration26 reiterating that he had not been furnished a
copy of the ex parte motion or of the RTC's order granting the writ of possession. He also
asserted the applicability of Policarpio to his situation.
ISSUE:
Whether or not the stipulation between the parties is valid.
HELD:
The mortgage contracts themselves specifically include "all the buildings and
improvements now existing or which may hereafter be erected or constructed [on the
properties]" as part of the mortgage. This renders the value of the improvements and
Campos' alleged good faith immaterial; he voluntarily included the building when he entered
into the mortgage.
Article 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient provided they are not contrary to law, morals,
good customs, public order, or public policy.
This Civil Code provision asserts the Autonomy of Contracts. Contractual obligations
have the force of law between the parties and should be complied with in good faith. The
Courts will not rescue a litigant from his bad bargains, protect him from unwise investments,
relieve him from disadvantageous contracts, or annul the effects of his foolish acts unless
there has been a violation of law.
Page 61 of 178
MANUEL C. ACOL, SUBSTITUTED BY MANUEL RAYMOND ACOL VS.
PHILIPPINE COMMERCIAL CREDIT CARD INCORPORATED
G.R. NO. 135149 : JULY 25, 2006
PONENTE: CORONA, J.
FACTS:
On August 20, 1982, petitioner Manuel Acol applied with respondent for a Bankard
credit card and extension.4 Both were issued to him shortly thereafter. For several years, he
regularly used this card, purchasing from respondent's accredited establishments and paying
the corresponding charges for such purchases.
Late in the evening of April 18, 1987, petitioner discovered the loss of his credit card.
After exhausting all efforts to find it, the first hour of the following day, April 19, 1987, a
Sunday, he called up respondent's office and reported the loss. The representative he spoke
to told him that his card would be immediately included in the circular of lost cards.
Again, on April 20, 1987, petitioner called up respondent to reiterate his report on the
loss of his card. He inquired if there were other requirements he needed to comply with in
connection with the loss. Respondent's representative advised him to put into writing the
notice of loss and to submit it, together with the extension cards of his wife and daughter.
Petitioner promptly wrote a letter dated April 20, 1987 confirming the loss and sent it to
respondent which received it on April 22, 1987.
On April 21, 1987, a day before receiving the written notice, respondent issued a special
cancellation bulletin informing its accredited establishments of the loss of the cards of the
enumerated holders, including petitioner's.
Unfortunately, it turned out that somebody used petitioner's card on April 19 and 20,
1987 to buy commodities worth P76,067.28. The accredited establishments reported the
invoices for such purchases to respondent which then billed petitioner for that amount.
Petitioner informed respondent he would not pay for the purchases made after April
19, 1987, the day he notified respondent of the loss. Immediately after receiving his statement
of account for the period ending April 30, 1987, petitioner confirmed his exceptions to the
billing in writing.
At first, respondent agreed to reverse the disputed billings, pending the result of an
investigation of petitioner's account. After the investigation and review, the respondent,
through its Executive Vice-President and General Manager, Atty. Serapio S. Gabriel, confirmed
that it was not the petitioner who used his Bankard on April 19 and 20, 1987.
Nonetheless, respondent reversed its earlier position to delete the disputed billings
and insisted on collecting within 15 days from notice. It alleged that it was the most
"practicable procedure and policy of the company." It cited provision no. 1 of the "Terms and
Conditions Governing The Issuance and Use of the Bankard" found at the back of the
application form: xxx Holder's responsibility for all charges made through the use of the card
shall continue until the expiration or its return to the Card Issuer or until a reasonable time
after receipt by the Card Issuer of written notice of loss of the Card and its actual inclusion in
the Cancellation Bulletin. xxx
Page 62 of 178
Petitioner, through his lawyer, wrote respondent to deny liability for the disputed
charges. In short order, however, respondent filed suit in the Regional Trial Court (RTC) of
Manila against petitioner for the collection of P76,067.28, plus interest and penalty charges.
After considering the evidence, the trial court dismissed the case and ordered the
respondent-plaintiff to pay petitioner attorney's fees of P10,000 and the costs of the suit.7
The RTC denied respondent's motion for reconsideration. Respondent appealed to the Court
of Appeals, which, while not disputing factual findings, reversed the RTC ruling and held
petitioner liable for the P76,067.28. The Court of Appeals denied petitioner's motion for
reconsideration
ISSUE:
Whether or not the stipulation is contrary to public policy.
HELD:
In this case, the stipulation in question is just as repugnant to public policy. As
petitioner points out, the effectivity of the cancellation of the lost card rests on an act entirely
beyond the control of the cardholder. Worse, the phrase "after a reasonable time" gives the
issuer the opportunity to actually profit from unauthorized charges despite receipt of
immediate written notice from the cardholder.
Under such a stipulation, petitioner could have theoretically done everything in his
power to give respondent the required written notice. But if respondent took a "reasonable"
time (which could be indefinite) to include the card in its cancellation bulletin, it could still hold
the cardholder liable for whatever unauthorized charges were incurred within that span of
time. This would have been truly iniquitous, considering the amount respondent wanted to
hold petitioner liable for.
Article 1306 of the Civil Code10 prohibits contracting parties from establishing
stipulations contrary to public policy. The assailed provision was just such a stipulation. It is
without any hesitation therefore that we strike it down.
Page 63 of 178
CARMELCRAFT CORPORATION &/OR CARMEN V. YULO, President and General Manager VS.
NATIONAL LABOR RELATIONS COMMISSION, CARMELCRAFT EMPLOYEES UNION,
PROGRESSIVE FEDERATION OF LABOR, represented by its Local President GEORGE OBANA,
G.R. NO. 90634-35 JUNE 6, 1990
PONENTE: CRUZ, J.
FACTS:
The record shows that after its registration as a labor union, the Camelcraft Employees
Union sought but did not get recognition from the petitioners. Consequently, it filed a petition
for certification election in June 1987. On July 13, 1987, Camelcraft Corporation, through its
president and general manager, Carmen Yulo, announced in a meeting with the employees
that it would cease operations on August 13, 1987, due to serious financial losses. Operations
did cease as announced. On August 17, 1987, the union filed a complaint with the Department
of Labor against the petitioners for illegal lockout, unfair labor practice and damages,
followed the next day with another complaint for payment of unpaid wages, emergency cost
of living allowances, holiday pay, and other benefits. On November 29, 1988, the Labor Arbiter
declared the shutdown illegal and violative of the employees' right to self-organization. The
claim for unpaid benefits was also granted
ISSUE:
Whether or not the quitclaims of the workers’ benefits estop them from asserting the same.
HELD:
ART. 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
The subordinate position of the individual employee vis-a-vis management renders him
especially vulnerable to its blandishments and importunings, and even intimidations, that may
result in his improvidently if reluctantly signing over benefits to which he is clearly entitled.
Recognizing this danger, we have consistently held that quitclaims of the workers' benefits
will not estop them from asserting them just the same on the ground that public policy
prohibits such waivers.
That the employee has signed a satisfaction receipt does not result in a waiver; the law
does not consider as valid any agreement to receive less compensation than what a worker is
entitled to recover. A deed of release or quitclaim cannot bar an employee from demanding
benefits to which he is legally entitled. 8
Release and quitclaim is inequitable and incongruous to the declared public policy of
the State to afford protection to labor and to assure the rights of workers to security of
tenure.
Page 64 of 178
ANG YU ASUNCION VS. COURT OF APPEALS
G.R. NO. 109125, DECEMBER 2, 1994
PONENTE: VITUG, J.
TOPIC: OBLIGATORY FORCE AND COMPLIANCE IN GOOD FAITH – ART. 1159, 1315
FACT:
Petitioners filed a complaint against Unjiengs, before the Regional Trial Court alleging
that Unjiengs informed Petitioners that they are offering to sell the premises and are giving
them priority to acquire the same; that during the negotiations, Unjiengs offered a price of
P6-million while Petitioners made a counter offer of P5-million; that Petitioners thereafter
asked the Unjiengs to put their offer in writing to which request defendants acceded; that in
reply to Unjiengs letter, plaintiffs asked to specify the terms and conditions of the offer to
sell; that when Petitioners did not receive any reply, they sent another letter; that since
defendants failed to specify the terms and conditions of the offer to sell and because of
information received that defendants were about to sell the property, Petitioners were
compelled to file the complaint to compel Unjiengs to sell the property to them. Judgment
was rendered in favor of the Unjiengs and against the Petitioners summarily dismissing the
complaint subject to the aforementioned condition that if the defendants subsequently
decide to offer their property for sale for a purchase price of Eleven Million Pesos or lower,
then the Petitioners has the option to purchase the property or of first refusal, otherwise,
defendants need not offer the property to the Petitioners if the purchase price is higher than
Eleven Million Pesos. Private Defendant wrote a letter to the Petitioners demanding that the
latter vacate the premises. Petitioners replied to petitioner stating that petitioner brought the
property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on
TCT No. 105254/T-881 in the name of the Cu Unjiengs. The Petitioners filed a Motion for
Execution to the RTC who ordered defendants to execute the necessary Deed of Sale of the
property in litigation in favor of the Petitioners for the consideration of P15,000,000.00 and
ordering the Register of Deeds of the City of Manila, to cancel and set aside the title already
issued in favor of Private Defendant. The appellate court, on appeal to it by Private Defendant,
set aside and declared without force and effect the above questioned orders of the court a
quo. Hence this case.
ISSUE:
Whether the plaintiff can compel defendants to execute the necessary Deed of Sale of the
property in litigation in favor of the plaintiffs who has a right of first refusal?
HELD:
NO, The final judgment in in favor to the plaintiff was merely a “right of first refusal”.
The consequence of such a declaration entails no more than what has heretofore been said.
In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of execution on the
judgment, since there is none to execute, but an action for damages in a proper forum for
the purpose.
Page 65 of 178
RIZAL COMMERCIAL BANKING CORPORATION (RCBC) V. COURT OF APPEALS
G.R. No. 133107, March 25, 1999
PONENTE:
FACTS:
The private respondent Atty. Felipe Lustre purchased a car from Toyota Shaw, Inc. for
which he made a downpayment, the balance of which is to be paid in twenty-four (24) equal
monthly installments. To secure the balance, Lustre executed a promissory note and a
contract of chattel mortgage over the vehicle in favor of Toyota Shaw. The said contract
provided for an acceleration clause, stating that if there be default on the part of the
mortgagor to pay any of the installments, the whole amount remaining shall become due.
Toyota Shaw then assigned all its rights and interest in the Chattel Mortgage to RCBC. The
problem arose when a check was not signed by Lustre. On the theory that he defaulted in his
payments, RCBC demanded the payment of the debt, including liquidated damages. When he
refused, RCBC filed an action for replevin and damages.
ISSUE:
Whether or not Lustre should be held in default
HELD:
Article 1170 of the Civil Code states that “those who in the performance of their
obligation are guilty of delay are liable for damages.” The delay in the performance must be
malicious or negligent. There was no imputation, much less evidence, that Lustre acted with
malice or negligence in failing to sign the check. The Supreme Court agreed with the Court of
Appeals that such omission was mere inadvertence on his part.
Page 66 of 178
PUP V. GOLDEN HORIZON
G.R. NO. 183612, MARCH 15, 2010
PONENTE: VILLARAMA, JR., J.

TOPIC: RIGHT OF FIRST REFUSAL
FACTS:
Petitioner National Development Company (NDC) is a government- owned and
controlled corporation, created under Commonwealth Act No. 182, as amended by Com. Act
No. 311 and Presidential Decree (P.D.) No. 668. Petitioner Polytechnic University of the
Philippines (PUP) is a public, non-sectarian, non-profit educational institution created in 1978
by virtue of P.D. No. 1341. In the early sixties, NDC had in its disposal a ten -hectare property
located along Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC
Compound and covered by Transfer Certificate of Title Nos. 92885, 110301 and 145470.On
September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden Horizon Realty
Corporation (GHRC) over a portion of the property, with an area of 2,407 square meters for a
period of ten years, renewable for another ten years with mutual consent of the parties.On
May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC
covering 3,222.80 square meters, also renewable upon mutual consent after the expiration of
the ten (10)-year lease period. In addition, GHRC as lessee was granted the "option to
purchase the area leased, the price to be negotiated and determined at the time the option
to purchase is exercised."
Under the lease agreements, GHRC was obliged to construct at its own expense
buildings of strong material at no less than the stipulated cost, and other improvements which
shall automatically belong to the NDC as lessor upon the expiration of the lease period.
Accordingly, GHRC introduced permanent improvements and structures as required by the
terms of the contract. After the completion of the industrial complex project, for which GHRC
spent P5 million, it was leased to various manufacturers, industrialists and other businessmen
thereby generating hundreds of jobs. On June 13, 1988, before the expiration of the ten (10)-
year period under the second lease contract, GHRC wrote a letter to NDC indicating its
exercise of the option to renew the lease for another ten years. As no response was received
from NDC, GHRC sent another letter on August 12, 1988, reiterating its desire to renew the
contract and also requesting for priority to negotiate for its purchase should NDC opt to sell
the leased premises. NDC still did not reply but continued to accept rental payments from
GHRC and allowed the latter to remain in possession of the property. Sometime after
September 1988, GHRC discovered that NDC had decided to secretly dispose the property to
a third party. On October 21, 1988, GHRC filed in the RTC a complaint for specific performance,
damages with preliminary injunction and temporary restraining order.
On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC
and its attorneys, representatives, agents and any other persons assisting it from proceeding
with the sale and disposition of the leased premises. On February 23, 1989, PUP filed a motion
to intervene as party defendant, claiming that as a purchaser pendente lite of a property
subject of litigation it is entitled to intervene in the proceedings. The RTC granted the said
motion and directed PUP to file its Answer-in-Intervention.PUP also demanded that GHRC
Page 67 of 178
vacate the premises, insisting that the latter’s lease contract had already expired. Its demand
letter unheeded by GHRC, PUP filed an ejectment case (Civil Case No. 134416) before the
Metropolitan Trial Court (MeTC) of Manila on January 14, 1991. Due to this development, GHRC
filed an Amended and/or Supplemental Complaint to include as additional defendants PUP,
Honorable Executive Secretary Oscar Orbos and Judge Ernesto A. Reyes of the Manila MeTC,
and to enjoin the afore-mentioned defendants from prosecuting Civil Case No. 134416 for
ejectment. A temporary restraining order was subsequently issued by the RTC enjoining PUP
from prosecuting and Judge Francisco Brillantes, Jr. from proceeding with the ejectment case.
On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513 (Polytechnic
University of the Philippines v. Court of Appeals) and 143590 (National Development
Corporation v. Firestone Ceramics, Inc.),15 which declared that the sale to PUP by NDC of the
portion leased by Firestone pursuant to Memorandum Order No. 214 violated the right of first
refusal granted to Firestone under its third lease contract with NDC.
ISSUE:
Whether or not our ruling in Polytechnic University of the Philippines v. Court of Appeals
applies in this case involving another lessee of NDC who claimed that the option to purchase
the portion leased to it was similarly violated by the sale of the NDC Compound in favor of
PUP pursuant to Memorandum Order No. 214.
HELD:
The CA was correct in declaring that there exists no justifiable reason not to apply the
same rationale in Polytechnic University of the Philippines v. Court of Appeals in the case of
respondent who was similarly prejudiced by petitioner NDC’s sale of the property to PUP, as
to entitle the respondent to exercise its option to purchase until October 1988 inasmuch as
the May 4, 1978 contract embodied the option to renew the lease for another ten (10) years
upon mutual consent and giving respondent the option to purchase the leased premises for
a price to be negotiated and determined at the time such option was exercised by respondent.
It is to be noted that Memorandum Order No. 214 itself declared that the transfer is "subject
to such liens/leases existing on the subject property."
The option in this case was incorporated in the contracts of lease by NDC for the
benefit of firestone which, in view of the total amount of its investments in the property,
wanted to be assured that it would be given the first opportunity to buy the property at a
price for which it would be offered. Consistent with their agreement, it was then implicit for
NDC to have first offered the leased premises of 2.60 hectares to FIRESTONE prior to the sale
in favor of PUP. Only if FIRESTONE failed to exercise its right of first priority could NDC lawfully
sell the property to petitioner PUP.
In the light of the foregoing, the Court held that respondent, which did not offer any
amount to petitioner NDC, and neither disputed the P1,500.00 per square meter actual value
of NDC’s property at that time it was sold to PUP at P554.74 per square meter, as duly
considered by this Court in the Firestone case, should be bound by such determination.
Accordingly, the price at which the leased premises should be sold to respondent in the
exercise of its right of first refusal under the lease contract with petitioner NDC, which was
pegged by the RTC at P554.74 per square meter, should be adjusted to P1, 500.00 per square
Page 68 of 178
meter, which more accurately reflects its true value at that time of the sale in favor of
petitioner PUP. Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw
a right of first refusal that stands upon valuable consideration. We have categorically ruled
that it is not correct to say that there is no consideration for the grant of the right of first
refusal if such grant is embodied in the same contract of lease. Since the stipulation forms
part of the entire lease contract, the consideration for the lease includes the consideration for
the grant of the right of first refusal. In entering into the contract, the lessee is in effect stating
that it consents to lease the premises and to pay the price agreed upon provided the lessor
also consents that, should it sell the leased property, then, the lessee shall be given the right
to match the offered purchase price and to buy the property at that price. We have further
stressed that not even the avowed public welfare or the constitutional priority accorded to
education, invoked by petitioner PUP in the Firestone case, would serve as license for us, and
any party for that matter, to destroy the sanctity of binding obligations. While education may
be prioritized for legislative and budgetary purposes, it is doubtful if such importance can be
used to confiscate private property such as the right of first refusal granted to a lessee of
petitioner NDC.42 Clearly, no reversible error was committed by the CA in sustaining
respondent’s contractual right of first refusal and ordering the conveyance of the leased
portion of petitioner NDC’s property in its favor. Hence the petition was denied.
Page 69 of 178
CONSOLIDATED INDUSTRIAL GASES, INC VS. ALABANG MEDICAL CENTER
G.R. NO. 181983, NOVEMBER 13, 2013
PONENTE: REYES, J.
FACTS:
Consolidated Industrial Gases, Inc. (CIGI) is a domestic corporation engaged in the
business of selling industrial gases (i.e., oxygen, hydrogen and acetylene) and installing
centralized medical and vacuum pipeline system. Respondent Alabang Medical Center (AMC),
on the other hand, is a domestic corporation operating a hospital business.
On August 14, 1995, CIGI, as contractor and AMC, as owner, entered into a contract
whereby the former bound itself to provide labor and materials for the installation of a
medical gas pipeline system for the first, second and third floors (Phase 1 installation project)
of the hospital for the contract price of Nine Million Eight Hundred Fifty-Six Thousand Seven
Hundred Twenty-Five Pesos and 18/100 (P9,856,725.18) which AMC duly paid in full.
The herein legal controversy arose after the parties entered into another agreement
on October 3, 1996 this time for the continuation of the centralized medical oxygen and
vacuum pipeline system in the hospital’s fourth & fifth floors (Phase 2 installation project) at
the cost of Two Million Two Hundred Sixty-Seven Thousand Three Hundred Forty-Four Pesos
and 42/100 (P2,267,344.42). This second contract followed the same terms and conditions of
the contract for the Phase 1 installation project. CIGI forthwith commenced installation works
for Phase 2 while AMC paid the partial amount of One Million Pesos (P1,000,000.00) with the
agreement that the balance shall be paid through progress billing and within fifteen (15) days
from the date of receipt of the original invoice sent by CIGI.
On August 4, 1997, CIGI sent AMC Charge Sales Invoice No. 125847 as completion billing
for the unpaid balance of P1,267,344.42 for the Phase 2 installation project. When the sales
invoice was left unheeded, CIGI sent a demand letter to AMC on January 7, 1998. AMC,
however, still failed to pay thus prompting CIGI to file a collection suit before the RTC on
September 15, 1998.
CIGI claimed that AMC’s obligation to pay the outstanding balance of the contract
price for the Phase 2 installation project is already due and demandable pursuant to Article II,
page 4 of the contract stating that the project shall be paid through progress billing within
fifteen (15) days from the date of receipt of original invoice.
In its Answer with Counterclaim, AMC averred that its obligation to pay the balance of
the contract price has not yet accrued because CIGI still has not turned over a complete and
functional medical oxygen and vacuum pipeline system. AMC alleged that CIGI has not yet
tested Phases 1 and 2 which constitute one centralized medical oxygen and vacuum pipeline
system of the hospital despite substantial payments already made.
ISSUE: Whether or not CIGI’s demand for payment upon AMC is proper
Page 70 of 178
HELD:
Under the subject contracts, CIGI as contractor bound itself to install a centralized
medical oxygen and vacuum pipeline system for the first to fifth floors of AMC, which in turn,
undertook to pay the contract price therefor in the manner prescribed in the contract. Being
reciprocal in nature, the respective obligations of AMC and CIGI are dependent upon the
performance of the other of its end of the deal such that any claim of delay or non-
performance can only prosper if the complaining party has faithfully complied with its own
obligation.
The Court has painstakingly evaluated the records of the case and based thereon,
there can be no other conclusion than that CIGI’s allegations failed to muster merit. The Court
finds that CIGI did not faithfully complete its prestations and hence, its demand for payment
cannot prosper based on the following grounds: (a) under the two installation contracts, CIGI
was bound to perform more prestations than merely supplying labor and materials; and (b)
CIGI failed to prove by substantial evidence that it requested AMC for electrical facilities as
such, its failure to conduct a test run and orientation/seminar is unjustified.
Both of the installation contracts clearly show that CIGI undertook to carry out more
prestations than merely supplying labor and materials for the medical oxygen and vacuum
pipeline system. CIGI agreed also: (a) to perform a pressure drop, leak testing, test run,
painting/color coding of the installed centralized medical oxygen, vacuum and nitrous oxide
pipeline system; and (b) to conduct orientation, seminars and training for the AMC employees
who will be involved in the operation of the centralized pipeline system before the formal
turnover of the project. This is evident from the herein reproduced provisions of the
installation contracts.
For failure to prove that it requested for electrical facilities from AMC, the undisputed
matter remains – CIGI failed to conduct the stipulated test run and seminar/orientation.
Consequently, the dismissal of CIGI’s collection suit is imperative as the balance of the
contract price is not yet demandable. For having failed to perform its correlative obligation to
AMC under their reciprocal contract, CIGI cannot unilaterally demand for the payment of the
remaining balance by simply sending an invoice and billing statement to the former. Its right
to demand for and collect payment will only arise upon its completion of ALL its prestations
under the subject contracts.
In reciprocal obligations, before a party can demand the performance of the obligation
of the other, the former must also perform its own obligation. For its failure to turn over a
complete project in accordance with the terms and conditions of the installation contracts,
CIGI cannot demand for the payment of the contract price balance from AMC, which, in turn,
cannot legally be ordered to pay. Otherwise, AMC will be effectively forced to accept an
incomplete performance contrary to Article 1248 of the Civil Code which states that "(u)nless
there is an express stipulation to that effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists."
Page 71 of 178
THE METROPOLITAN BANK AND TRUST COMPANY VS
ANA GRACE ROSALES AND YO YUK TO
G.R. NO. 183204, JANUARY 13, 2014
PONENTE: DEL CASTILLO

FACTS:
Petitioner Metrobank is a domestic banking corporation duly organized and existing
under the laws of the Philippines. Respondent Rosales is the owner of a travel agency while
Yo Yuk To is her mother.
In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo
Branch. In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese
National applying for a retiree’s visa from the Philippine Leisure and Retirement Authority
(PLRA), to petitioner’s branch in Escolta to open a savings account. Since Liu Chiu Fang could
speak only in Mandarin, respondent Rosales acted as an interpreter for her.
On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint
Dollar Account with an initial deposit of US$14,000.00.
On July 31, 2003, petitioner issued a “Hold Out” order against respondents’ accounts.
On September 3, 2003, petitioner, through its Special Audit Department Head Antonio
Ivan Aguirre, filed before the Office of the Prosecutor of Manila a criminal case for Estafa
through False Pretences, Misrepresentation, Deceit, and Use of Falsified Documents.
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized
withdrawal from the dollar account of Liu Chiu Fang.
On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution
dismissing the criminal case for lack of probable cause. On September 10, 2004, respondents
filed before the RTC of Manila a complaint for Breach of Obligation and Contract with
Damages.
ISSUE:
Whether Metrobank breached its contract with respondents.
HELD:
YES. The Court held that Metrobank’s reliance on the “Hold Out” clause in the
Application and Agreement for Deposit Account is misplaced.
Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon
demand by the depositor.
The “Hold Out” clause applies only if there is a valid and existing obligation arising from
any of the sources of obligation enumerated in Article 1157 of the Civil Code, to wit: law,
contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed to show that
respondents have an obligation to it under any law, contract, quasi-contract, delict, or quasi-
delict. And although a criminal case was filed by petitioner against respondent Rosales, this is
not enough reason for petitioner to issue a “Hold Out” order as the case is still pending and
no final judgment of conviction has been rendered against respondent Rosales.
Page 72 of 178
In fact, it is significant to note that at the time petitioner issued the “Hold Out” order,
the criminal complaint had not yet been filed. Thus, considering that respondent Rosales is
not liable under any of the five sources of obligation, there was no legal basis for petitioner
to issue the “Hold Out” order. Accordingly, we agree with the findings of the RTC and the CA
that the “Hold Out” clause does not apply in the instant case.
In view of the foregoing, the Court found that petitioner is guilty of breach of contract
when it unjustifiably refused to release respondents’ deposit despite demand. Having
breached its contract with respondents, petitioner is liable for damages.
Page 73 of 178
ROLANDO M. MENDIOLA VS. COMMERZ TRADING INT'L., INC.
G.R. NO. 200895, JULY 31, 2013
PONENTE: CARPIO, J.
FACTS:
Genicon, Inc. (Genicon) is a foreign corporation based in Florida, United States of
America, which designs, produces, and distributes "patented surgical instrumentation
focused exclusively on laparoscopic surgery."5Petitioner, a physician by profession, entered
into a contract with Genicon to be its exclusive distributor of Genicon laparoscopic
instruments in the Philippines, as evidenced by a Distribution Agreement dated 18 July
2007.6Petitioner, in turn, entered into a Memorandum of Agreement (MOA)7 with
respondent to facilitate the marketing and sale of Genicon laparoscopic instruments in the
Philippines. Under the MOA, respondent would be compensated for ₱100,000.00 "for the use
of respondent’s name, office, secretary, invoices, official receipts and facilities x x x for every
sale of a complete set of Genicon laparoscopic instruments x x x."
Respondent sent a price quotation to Pampanga Medical Specialist Hospital, Inc.
(PMSHI), which thereafter agreed to purchase a Genicon laparoscopic instrument for Two
Million Six Hundred Thousand Pesos (₱2,600,000.00). Then, petitioner ordered the
laparoscopic instrument from Genicon, which in turn shipped the medical equipment to the
Philippines. Respondent undertook the release of the laparoscopic instrument from the
Bureau of Customs and subsequently delivered the same to PMSHI.
PMSHI made the following payments to respondent: (1) ₱520,000.00 per PMSHI Check
Voucher No. 2448 dated 1 February 2007, and to which respondent issued Official Receipt No.
11148; and (2) ₱2,080,000.00 per PMSHI Check Voucher No. 2419 dated 6 February 2007. From
the total amount of ₱2,600,000.00 paid by PMSHI to respondent, the latter’s president
Joaquin Ortega deducted ₱100,000.00 as respondent’s compensation for its services
pursuant to the MOA. Respondent remitted to petitioner ₱2,430,000.00 only, instead of
₱2,500,000.00.
Despite petitioner’s repeated demands, respondent failed to remit the remaining
balance of ₱70,000.00 from the proceeds of the sale of the laparoscopic instrument.
Consequently, petitioner filed a collection suit against respondent with the Metropolitan Trial
Court, Branch 79, Las Piñas City (MeTC).
In its Answer, respondent countered that petitioner had no cause of action because it
did not owe petitioner any amount. Respondent alleged that the case was a pre-emptive
measure taken by petitioner in anticipation of the collection suit respondent would file for
over payment of the purchase price of the laparoscopic instrument. Respondent claimed that
the unremitted amount of ₱70,000.00 represented a portion of the ₱267,857.14 Expanded
Value Added Tax (EVAT) which was erroneously and inadvertently credited or remitted by
respondent to petitioner’s account.
The MeTC rendered its Decision of 6 October 2008 in favor of petitioner. The MeTC
held that "respondent has no right to retain the ₱70,000.00 x x x. Respondent had been duly
Page 74 of 178
compensated for its work done. It is not its duty to pay any government taxes in whatever
form because it is clearly a responsibility of the buyer."
ISSUE:
Whether or not the respondent is authorized under the MOA to withhold a specific amount
from the proceeds of the sale of the Genicon laparoscopic instrument as tax due from
petitioner.
HELD:
The MOA is silent on this matter. The MOA does not expressly allow respondent to
collect or withhold from petitioner any amount from the sale of the Genicon laparoscopic
instrument for taxation purposes.
However, the same agreement (1) allows respondent to issue official receipts on which
VAT should have been computed and included in the purchase price, and (2) obligates
petitioner to pay any tax due on the sale.
since respondent, as the seller on record, will be liable for the payment of the VAT
based on the official receipt it issued, we shall allow respondent to retain the ₱70,000.00 only
for the purpose of paying forthwith, if it has not done so yet, this amount to the BIR as the
estimated tax due on the subject sale. There remains a dispute on the computation of the
correct amount of VAT because respondent allegedly issued an official receipt25 only in the
amount of ₱520,000.00, instead of the ₱2,600,000.00 purchase price. Considering this, and
the foregoing findings, the BIR must be informed of this Decision for its appropriate action.
Page 75 of 178
GF EQUITY, INC. V. ARTURO VALENZONA
462 SCRA 466 (2005)
PONENTE: CARPIO-MORALES, J.
TOPIC: MUTUALITY – ART. 1308 – 1310
FACTS:
Mutuality is one of the characteristics of a contract, its validity or performance or
compliance of which cannot be left to the will of only one of the parties.
GF Equity hired Arturo Valenzona (Valenzona) as head basketball coach of Alaska
team. As head coach, Valenzona was required to comply to his duties such as coaching at all
practices and games scheduled for the team. Under their contract, Valenzona would receive
P 35,000.00 monthly and GF Equity will provide him with a service vehicle and gasoline
allowance. Under paragraph 3 of the same contract it was stipulated there that;
“If at any time during the contract, the COACH, in the sole opinion of the
CORPORATION, fails to exhibit sufficient skill or competitive ability to coach the team, the
CORPORATION may terminate this contract.”
Subsequently, Valenzona was terminated. GF equity invoked paragraph 3 of the said
contract. Counsel of Valenzona demands for compensation arising from arbitrary and
unilateral termination of his employment. However, GF equity refused it. Valenzona filed a
complaint before the Regional Trial Court (RTC) of Manila against GF Equity for breach of
contract. Valenzona contends that the condition in paragraph 3 violates Article 1308 of New
Civil Code (NCC). But the RTC dismissed the complaint and affirmed the validity of paragraph
3 on the grounds that Valenzona was fully aware of entering into a bad bargain.
On appeal, the Court of Appeals (CA) held that the questioned provision in the contract
merely confers upon GF Equity the right to fire its coach upon a finding of inefficiency, a valid
reason within the ambit of its management prerogatives, subject to limitations imposed by
law, although not expressly stated in the clause‖; and ―the right granted in the contract can
neither be said to be immoral, unlawful, or contrary to public policy.‖ It concluded, however,
that while ―the mutuality of the clause‖ is evident, GF Equity ―abused its right by arbitrarily
terminating Valenzona‘s employment and opened itself to a charge of bad faith.‖
ISSUE:
Whether or not paragraph 3 of the contract is violative of the principle of mutuality of
contracts
HELD:
The ultimate purpose of the mutuality principle is thus to nullify a contract containing
a condition which makes its fulfillment or pre-termination dependent exclusively upon the
uncontrolled will of one of the contracting parties.
The contract incorporates in paragraph 3 the right of GF Equity to pre-terminate the
contract — that ―if the coach, in the sole opinion of the corporation, fails to exhibit sufficient
skill or competitive ability to coach the team, the corporation may terminate the contract.‖
The assailed condition clearly transgresses the principle of mutuality of contracts. It leaves the
Page 76 of 178
determination of whether Valenzona failed to exhibit sufficient skill or competitive ability to
coach Alaska team solely to the opinion of GF Equity. Whether Valenzona indeed failed to
exhibit the required skill or competitive ability depended exclusively on the judgment of GF
Equity. In other words, GF Equity was given an unbridled prerogative to pre-terminate the
contract irrespective of the soundness, fairness or reasonableness, or even lack of basis of its
opinion.
To sustain the validity of the assailed paragraph would open the gate for arbitrary and
illegal dismissals, for void contractual stipulations would be used as justification therefor. The
nullity of the stipulation notwithstanding, GF Equity was not precluded from the right to pre-
terminate the contract. The pre-termination must have legal basis, however, if it is to be
declared justified.
Page 77 of 178
ALLIED BANKING CORPORATION VS. HON. COURT OF APPEALS AND FILOTEO ALANO
G.R. NO. 108089, JANUARY 10, 1994
PONENTE: DAVIDE, JR., J.

FACTS:
Private respondent Potenciano Galanida was hired by petitioner Allied Banking
wherein it is agreed that the bank reserves the right to transfer or assign respondent to other
departments or branches of the bank as the need arises and in the interest of maintaining
smooth and uninterrupted service to the public.”Private respondent was promoted several
times and was transferred to several branches.
Petitioner listed respondent as second in the order of priority of assistant managers to
be assigned outside of Cebu City having been stationed in Cebu for seven years already.
Private respondent manifested his refusal to be transferred toBacolod. He then filed a
complaint before the Labor Arbiter for constructive dismissal.Subsequently, petitioner bank
informed private respondent that he was to report to the Tagbilaran City Branch but the
respondent refused.
On 5 October 1994, Galanida received a memo that Allied Bank had terminated his
services effective 1 September 1994. The reasons given for the dismissal were: (1) Galanida’s
continued refusal to be transferred from the Jakosalem, Cebu City branch; and (2) his refusal
to report for work despite the denial of his application for additional vacation leave. Labor
Arbiter- Galanida’s transfer was inconvenient NLRC- Allied Bank terminated Galanida without
just cause. CA- Affirmed NLRC ruling.
ISSUE:
Whether or not Galanida’s continued refusal to obey the transfer orders constituted willful
disobedience or insubordination, which is a just cause for termination under the Labor Code.
HELD:
The memorandum prepared by Atty. Durano and the assailed Decision of the Labor
Arbiter, both misquoted the Supreme Court’s ruling in Dosch v. NLRC.The phrase refusal to
obey a transfer order cannot be considered insubordination where employee cited reason for
said refusal, such as that of being away from the family” does not appear anywhere in the
Dosch decision. (misleading the court. Gawa gawa)
GR: The employer exercises the prerogative to transfer an employee for valid reasons
and according to the requirement of its business, provided the transfer does not result in
demotion in rank or diminution of the employee’s salary, benefits and other privileges.[24] In
illegal dismissal cases, the employer has the burden of showing that the transfer is not
unnecessary, inconvenient and prejudicial to the displaced employee.Dosch case not
applicable to the present case. The transfer of an employee to an overseas post cannot be
likened to a transfer from one city to another within the country. Willful refusal to be
transferred within the Philippines based on personal grounds was considered willful
disobedience.
Page 78 of 178
UNITED COCONUT PLANTERS BANK VS. SPOUSES WALTER UY AND LILY UY,
G.R. NO. 204039, JANUARY 10, 2018
PONENTE: MARTIRES, J
FACTS:
Prime Town Property Group, Inc. (PPGI) and E. Ganzon Inc. were the joint developers
of the Kiener Hills Mactan Condominium Project (Kiener Hills). In 1997, spouses Walter and
Lily Uy (respondents) entered into a Contract to Sell with PPGI for a unit in Kiener Hills. The
total contract price amounted to P1,151,718.75 payable according to the following terms: (a)
P100,000.00 as down payment; and (b) the balance paid in 40 monthly installments at
P26,297.97 from 16 January 1997 to 16 April 2000.
On April 1997, spouses Beluso constituted other than promissory notes, a real estate
mortgage over parcels of land. 3 of their promissory notes were renewed several times.
Subsequently, spouses failed to deliver payment upon UPCB’s demand. As a result, their
mortgage was foreclosed. Spouses filed Petition for Annulment, Accounting and Damages
against UCPB. Trial court ruled in favor of the spouses. CA affirmed the same decision.
ISSUE:
Whether the contract between the spouses Beluso and UPCB is valid.
HELD:
No. Article 1308 of the Civil Code provides: Art. 1308. The contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them. The
provision stating that the interest shall be at the “rate indicative of DBD retail rate or as
determined by the Branch Head” is indeed dependent solely on the will of petitioner UCPB.
Under such provision, petitioner UCPB has two choices on what the interest rate shall be: (1)
a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As
UCPB is given this choice, the rate should be categorically determinable in both choices. If
either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank
can easily choose such an option, thus making the entire interest rate provision violative of
the principle of mutuality of contracts.
Page 79 of 178
ANICETO G. SALUDO V. SECURITY BANK CORPORATION
G.R. NO. 184041, OCTOBER 13, 2010
PONENTE: PEREZ, J.
FACTS:
On 30 May 1996, Booklight was extended an omnibus line credit facility by SBC in the
amount of P10, 000,000.00. Said loan was covered by a Credit Agreement and a Continuing
Suretyship 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. From August 3 to 14, 1998, Booklight executed nine promissory notes in favor of
SBC in the aggregate amount of P9, 652,725.00. For failure to settle the loans upon maturity
demands were made on Booklight and petitioner for the payment of the obligation 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. On 16 June 2000, SBC filed against Booklight and
herein petitioner an action for collection of sum of money with the RTC. Book light initially
filed a motion to dismiss, which was later on denied for lack of merit. In his Answer, Booklight
asserted that the amount demanded by SBC was not based on the omnibus credit line facility
of 30 May 1996, but rather on the amendment of the credit facilities on 15 October 1996
increasing the loan line from P8, 000,000.00 to P10,000,000.00. Booklight denied executing
the promissory notes. It also claimed that it was not in default as in fact, it paid the sum of
P1,599,126.11 on 30 September 1999 as a prelude to restructuring its loan for which it earnestly
negotiated for a mutually acceptable agreement until 5 July 2000, without knowing that SBC
had already filed the collection case.
In his Answer to the complaint, herein petitioner alleged that under the Continuing
Suretyship, it was the parties’ understanding that his undertaking and liability was merely as
an accommodation guarantor of Booklight. He countered that he came to know that
Booklight offered to pay SBC the partial payment of the loan and proposed the restructuring
of the obligation. Petitioner argued that said offer to pay constitutes a valid tender of
payment which discharged Booklight’s obligation to the extent of the offer. Petitioner also
averred that the imposition of the penalty on the supposed due and unpaid principal
obligation based on the penalty rate of 2% per month is clearly unconscionable. On 7 March
2005, Booklight was declared in default. Consequently, SBC presented its evidence ex-parte.
The case against petitioner, however, proceeded and the latter was able to present evidence
on his behalf. After trial, the RTC ruled that petitioner is jointly and solidarily liable with
Booklight under the Continuing Suretyship Agreement. The Court of Appeals affirmed in toto
the ruling of the RTC. Petitioner filed a motion for reconsideration but it was denied by the
Court of Appeals on 7 August 2008. Hence, the instant petition.
Page 80 of 178
ISSUE:
Whether or not petitioner should be held solidarily liable for the second credit facility
extended to Booklight.
HELD:
We rule in the affirmative. There is no doubt that Booklight was extended two (2)
credit facilities, each with a one-year term, by SBC. Booklight availed of these two (2) credit
lines. While Booklight was able to comply with its obligation under the first credit line, it
defaulted in the payment of the loan obligation amounting to P9,652,725.00 under the second
credit line. There is likewise no dispute that the first credit line facility, with a term from 30
June 1996 to 30 June 1997, was covered by a Continuing Suretyship with petitioner acting as
the surety. The dispute is on the coverage by the Continuing Suretyship of the loan contracted
under the second credit facility. Comprehensive or continuing surety agreements are, in fact,
quite commonplace in present day financial and commercial practice. A bank or financing
company which anticipates entering into a series of credit transactions with a particular
company, normally requires the projected principal debtor to execute a continuing surety
agreement along with its sureties. By executing such an agreement, the principal places itself
in a position to enter into the projected series of transactions with its creditor; with such
suretyship agreement, there would be no need to execute a separate surety contract or bond
for each financing or credit accommodation extended to the principal debtor.
Petitioner argues that the approval of the second credit facility necessitates his
consent considering the onerous and solidary liability of a surety. This is contrary to the
express waiver of his consent to such renewal, contained in paragraph 12 of the Continuing
Suretyship. Respondent, as last resort, harps on the novation of the first credit facility to
exculpate itself from liability from the second credit facility. At the outset, it must be pointed
out that the Credit Agreement is actually the principal contract and it covers “all credit
facilities now or hereafter extended by SBC to Booklight;” and that the suretyship agreement
was executed precisely to guarantee these obligations, i.e., the credit facilities arising from
the credit agreement. The principal contract is the credit agreement covered by the
Continuing Suretyship. The two loan facilities availed by Booklight under the credit agreement
are the Omnibus Line amounting to P10,000,000.00 granted to Booklight in 1996 and the
other one is the Loan Line of the same amount in 1997. Petitioner however seeks to muddle
the issue by insisting that these two availments were two separate principal contracts,
conveniently ignoring the fact that it is the credit agreement which constitutes the principal
contract signed by Booklight in order to avail of SBC’s credit facilities. The two credit facilities
are but loans made available to Booklight pursuant to the credit agreement. On these facts
the novation argument advanced by petitioner must fail. There is no novation to speak of. It
is the first credit facility that expired and not the Credit Agreement. There was a second loan
pursuant to the same credit agreement. The terms and conditions under the Credit
Agreement continue to apply and the Continuing Suretyship continues to guarantee the
Credit Agreement. Hence the petition is denied.
Page 81 of 178
PILIPINO TELEPHONE CORP. VS. DELFINO TECSON
G.R. NO. 156966, MAY 7, 2004
PONENTE: VITUG, J.
FACTS:
On various dates in 1996, Delfino C. Tecson applied for 6 cellular phone subscriptions
with petitioner Pilipino Telephone Corporation (PILTEL), a company engaged in the
telecommunications business, which applications were each approved and covered,
respectively, by six mobiline service agreements. On 05 April 2001, respondent filed with the
Regional Trial Court a complaint against petitioner for a “Sum of Money and Damages.”
Petitioner moved for the dismissal of the complaint on the ground of improper venue, citing
a common provision in the mobiline service agreements to the effect that - “Venue of all suits
arising from this Agreement or any other suit directly or indirectly arising from the relationship
between PILTEL and subscriber shall be in the proper courts of Makati, Metro Manila.
Subscriber hereby expressly waives any other venues.” The Regional Trial Court denied
petitioner’s motion to dismiss.
ISSUE:
Whether or not the provision in the mobiline service agreements fixing the venue of all suits
arising from the contract is clear and binding and that the venue of the complaint was
improperly laid.
HELD:
The Court ruled in the affirmative. The provision is clear and binding, and the venue
was improperly laid. Section 4, Rule 4, of the Revised Rules of Civil Procedure allows the
parties to agree and stipulate in writing, before the filing of an action, on the exclusive venue
of any litigation between them. Such an agreement would be valid and binding provided that
the stipulation on the chosen venue is exclusive in nature or in intent, that it is expressed in
writing by the parties thereto, and that it is entered into before the filing of the suit.
The contract herein involved is a contract of adhesion. But such an agreement is not
per se inefficacious. The rule instead is that, should there be ambiguities in a contract of
adhesion, such ambiguities are to be construed against the party that prepared it. If, however,
the stipulations are not obscure, but are clear and leave no doubt on the intention of the
parties, the literal meaning of its stipulations must be held controlling. A contract of adhesion
is just as binding as ordinary contracts. It is true that this Court has, on occasion, struck down
such contracts as being assailable when the weaker party is left with no choice by the
dominant bargaining party and is thus completely deprived of an opportunity to bargain
effectively. Nevertheless, contracts of adhesion are not prohibited even as the courts remain
careful in scrutinizing the factual circumstances underlying each case to determine the
respective claims of contending parties on their efficacy.
In the case at bar, respondent secured 6 subscription contracts for cellular phones on
various dates. It would be difficult to assume that, during each of those times, respondent
Page 82 of 178
had no sufficient opportunity to read and go over the terms and conditions embodied in the
agreements. Respondent continued, in fact, to acquire in the pursuit of his business
subsequent subscriptions and remained a subscriber of petitioner for quite some time.
A contract duly executed is the law between the parties, and they are obliged to
comply fully and not selectively with its terms. A contract of adhesion is no exception.
Page 83 of 178
PHILIPPINE SAVINGS BANK VS. JOSEPHINE L. PAPA
G.R. NO. 200469, JANUARY 15, 2018
PONENTE: MARTIRES, J.
FACTS:
On 30 March 2006, petitioner Philippine Savings Bank (PSB) filed before the MeTC a
complaint5 for collection of sum of money against respondent Josephine L. Papa (Papa). In
its complaint, PSB alleged that Papa obtained a flexi-loan with a face amount of P207,600.00,
payable in twenty-four (24) monthly installments of P8,650.00 with interest at 38.40% per
annum. For the said loan, Papa executed a promissory note dated 26 July 2005. PSB further
alleged that the promissory note provides additional charges in case of default, to wit: Three
percent (3%) late payment charge per month of the total amount until the amount is fully paid;
Twenty-Five percent (25%) Attorney's Fees, but not less than P5,000.00; Ten percent (10%)
liquidated damages, but not less than P1,000.00; and costs of suit. When the obligation fell
due, Papa defaulted in her payment. PSB averred that as of 27 March 2006, Papa's total
obligation amounted to P173,000.00; and that despite repeated demands, Papa failed to meet
her obligation.
On 26 October 2006, Papa filed her Answer.6 She alleged that PSB had no cause of
action against her as her liability had already been extinguished by the several staggered
payments she made to PSB, which payments she undertook to prove. She likewise claimed
that there was no basis for the interest and damages as the principal obligation had already
been paid.
During the trial on the merits, PSB introduced in evidence a photocopy of the
promissory note,7 which the MeTC admitted despite the vehement objection by Papa.
Meanwhile, Papa chose to forego with the presentation of her evidence and manifested she
would instead file a memorandum.After the parties had submitted their respective
memoranda, the case was submitted for decision.
On 23 December 2008, the MeTC rendered a decision in favor of PSB and against Papa.
The MeTC was convinced that PSB was able to establish its cause of action against Papa by
preponderance of evidence. It also emphasized the fact that other than her bare allegation,
Papa never adduced any evidence regarding the payments she had allegedly made. The MeTC,
however, deemed it equitable to award interest at the rate of twelve percent (12%) per annum
only instead of the stipulated interest, penalty, and charges.
ISSUE:
Whether or not the court of appeals committed a reversible error when it dismissed
petitioner's appeal by reason of pure technicality thereby prejudicing the substantial right of
the petitioner to recover the unpaid loan of the respondent.
Page 84 of 178
HELD:
PSB is correct that filing and service are distinct from each other. Indeed, filing is the
act of presenting the pleading or other paper to the clerk of court; whereas, service is the
act of providing a party with a copy of the pleading or paper concerned.14
Nevertheless, although they pertain to different acts, filing and service go hand-in-
hand and must be considered together when determining whether the pleading, motion, or
any other paper was filed within the applicable reglementary period. Precisely, the Rules
require every motion set for hearing to be accompanied by proof of service thereof to the
other parties concerned; otherwise, the court shall not be allowed to act on it,15 effectively
making such motion as not filed.
In some decided cases, the Court considered filing by private courier as equivalent to
filing by ordinary mail.16 The Court opines that this pronouncement equally applies to
service of pleadings and motions. Hence, to prove service by a private courier or ordinary
mail, a party must attach an affidavit of the person who mailed the motion or pleading.
Further, such affidavit must show compliance with Rule 13, Section 7 of the Rules of Court.
This requirement is logical as service by ordinary mail is allowed only in instances
where no registry service exists either in the locality of the sender or the addressee.17 This is
the only credible justification why resort to service by ordinary mail or private courier may be
allowed.
Very clearly, PSB failed to comply with the requirements under Rule 13, Section 7 for
an effective service by ordinary mail. While PSB explained that personal service was not
effected due to lack of time and personnel constraints, it did not offer an acceptable reason
why it resorted to "private registered mail" instead of by registered mail. In particular, PSB
failed to indicate that no registry service was available in San Mateo, Rizal, where the office
of Papa's counsel is situated, or in Makati City, where the office of PSB's counsel is located.
Consequently, PSB failed to comply with the required proof of service by ordinary mail. Thus,
the RTC is correct when it denied PSB's motion for reconsideration, which, for all intents and
purposes, can be effectively considered as not filed.
Since PSB's motion for reconsideration is deemed as not filed, it did not toll the
running of the 15-day reglementary period for the filing of an appeal; and considering that
PSB's appeal was filed only after the expiration of the 15-day period on 10 November 2009,
such appeal has not been validly perfected. As such, the subject 14 October 2009 decision of
the RTC had already attained finality as early as 11 November 2009.
Page 85 of 178
PHILIPPINE NATIONAL BANK VS. THE HON. COURT OF "PEALS AND AMBROSIO PADILLA
G.R. NO 88880, APRIL 30, 1991
PONENTE: GRIRO-AQUINO, J
FACTS:
Private respondent (PR) Ambrosio Padilla, applied for and was granted a credit line of
321.8 million, by petitioner PNB. This was for a term of 2 years at 18% interest per annum and
was secured by real estate mortgage and 2 promissory notes executed in favor of Petitioner
by PR. The credit agreement and the promissory notes, in effect, provide that PR agrees to be
bound by “increases to the interest rate stipulated, provided it is within the limits provided
for by law”.
Conflict in this case arose when Petitioner unilaterally increased the interest rate from
18% to: (1) 32% [July 1984]; (2) 41% [October 1984]; and (3) 48% [November 1984], or 3 times
within the span of a single year. This was done despite the numerous letters of request made
by PR that the interest rate be increased only to 21% or 24%.
PR filed a complaint against Petitioner with the RTC. The latter dismissed the case for
lack of merit. Appeal by PR to CA resulted in his favor. Hence the petition for certiorari under
Rule 45 of ROC filed by PNB with SC.
ISSUE:
Whether or not the bank validly increases the stipulated interest rate on loans contracted with
third persons as often as necessary and against the protest of such persons despite the
removal of the Usury Law ceiling on interest.
HELD:
No. Although under Sec. 2 of PD 116, the Monetary Board is authorized to prescribe the
maximum rate of interest for loans and to change such rates whenever warranted by
prevailing economic and social conditions, by express provision, it may not do so “oftener
than once every 12 months”. If the Monetary Board cannot, much less can PNB, effect
increases on the interest rates more than once a year.
Based on the credit agreement and promissory notes executed between the parties,
although PR did agree to increase on the interest rates allowed by law, no law was passed
warranting Petitioner to effect increase on the interest rates on the existing loan of PR for the
months of July to November of 1984. Neither there being any document executed and
delivered by PR to effect such increase.
For escalation clauses to be valid and warrant the increase of the interest rates on
loans, there must be: (1) increase was made by law or by the Monetary Board; (2) stipulation
must include a clause for the reduction of the stipulated interest rate in the event that the
maximum interest is lowered by law or by the Monetary board. In this case, PNB merely relied
on its own Board Resolutions, which are not laws nor resolutions of the Monetary Board.
Page 86 of 178
Despite the suspension of the Usury Law, imposing a ceiling on interest rates, this does
not authorize banks to unilaterally and successively increase interest rates in violation of Sec.
2 PD 116.
Increases unilaterally effected by PNB was in violation of the Mutuality of Contracts
under Art. 1308. This provides that the validity and compliance of the parties to the contract
cannot be left to the will of one of the contracting parties. Increases made are therefore void.
Increase on the stipulated interest rates made by PNB also contravenes Art. 1956. It
provides that, “no interest shall be due unless it has been expressly stipulated in writing”. PR
never agreed in writing to pay interest imposed by PNB in excess of 24% per annum. Interest
rate imposed by PNB, as correctly found by CA, is indubitably excessive.
Page 87 of 178
FLORENDO VS CA AND LANDBANK OF THE PHILIPPINES
GR NO. 101771 DECEMBER 17, 1996
PONENTE: PANGANIBAN, J.
FACTS:
Florendo was an employee of Landbank of the Philippines (LBP) from May 17, 1976 until
August 16, 1984 when she voluntarily resigned. Before her resignation, she applied for a
housing loan payable in 25 years from LBP’s Provident Fund. Both parties executed a Housing
Loan Agreement and constituted a Real Estate Mortgage and Promissory Note. After almost
a year from her resignation, LBP increased the interest rate on the loan from 95 per annum to
17%. LBP informed Florendo and the latter protested the increase. LBP kept on demanding
Florendo to pay the increased interest or the new monthly installments based on the
increased interest rate. Florendo maintained that such increase is unjustified and unlawful.
Nevertheless, Florendo just disregarded the increased rate and continued to pay the
obligation under the original contract.
ISSUE:
Whether or not the LBP have a valid and legal basis to impose an increased interest rate on
the housing loan.
HELD:
The increased rate imposed or charged is not valid. In Banco Filipino, this Court,
disallowed the bank from increasing the interest rate on the subject loan from 12% to 17%
despite an escalation clause in the loan agreement authorizing the bank to “correspondingly
increase the interest rate stipulated in this contract without advance notice to me/us in the
event the law should be enacted increasing the lawful rates of interest that may be charged
on this particular kind of loan. In the case at bar, the loan was perfected on July 20, 1983. PD
No. 116 became effective on January 29, 1973. respondent bank was fully aware that it could
have imposed an interest 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 the petitioner’s loans shall remain at 9% 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 the
application of the escalation clause were considered barred or waived. 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. Let it be clear that this Court understands
respondent’s bank’s position that the concessional interest rate was really intended as a
means to remunerate its employees and thus an escalation clause due to resignation would
have been a valid stipulation. But no such stipulation was in fact made, and thus escalation
provision could not be legally applied and enforced against herein petitioners.
Page 88 of 178
SPOUSES IGNACIO F. JUICO AND ALICE P. JUICO VS. CHINA BANKING CORPORATION
G.R. NO. 187678, APRIL 10, 2013
PONENTE: VILLARAMA, JR., J.

FACTS:
Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China
Banking Corporation (respondent) as evidenced by two Promissory Notes both dated
October 6, 1998 and numbered 507-001051-34and 507-001052-0,5 for the sums of !!6,216,000
and P4, 139,000, respectively. The loan was secured by a Real Estate Mortgage (REM) over
petitioners’ property located at 49 Greensville St., White Plains, Quezon City
respondent demanded the full payment of the outstanding balance with accrued
monthly interests.
As of February 23, 2001, the amount due on the two promissory notes totaled
P19,201,776. On the same day, the mortgaged property was sold at public auction, with
respondent China bank as highest bidder for the amount of P10,300,000. Petitioners received
8a demand letter9 dated May 2, 2001 from respondent for the payment ofP8,901,776.63, the
amount of deficiency after applying the proceeds of the foreclosure sale respondent prayed
that judgment be rendered ordering the petitioners to pay jointly and severally:
(1)P8,901,776.63 representing the amount of deficiency, plus interests at the legal rate, from
February 23, 2001 until fully paid; (2) an additional amount equivalent to 1/10 of 1% per day of
the total amount, until fully paid, as penalty; (3) an amount equivalent to 10% of the foregoing
amounts as attorney’s fees; and (4) expenses of litigation and costs of suit.
Ms. Annabelle Cokai Yu, its Senior Loans Assistant stated that as of now the
outstanding balance of petitioners was P15,190,961.48. Yu reiterated that the interest rate
changes every month based on the prevailing market rate. she notified petitioners of the
prevailing rate by calling them monthly .It was increased unilaterally RTC: ordered Spouses to
pay bank 9M plus the interest which amounted to 15M. CA affirmed petitioner: They insist that
the increase in interest rates were unilaterally imposed by the bank and thus violate the
principle of mutuality of contracts.
ISSUE:
Whether or not the increase in interest rates is void for violating the mutuality of contracts
HELD:
Yes. Article 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. Article 1956 of the Civil Code likewise
ordains that "no interest shall be due unless it has been expressly stipulated in writing."
The binding effect of any agreement between parties to a contract is premised on xxx
(2) that there must be mutuality between the parties based on their essential equality. Any
contract which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties, is likewise, invalid
Page 89 of 178
Escalation clauses refer to stipulations allowing an increase in the interest rate agreed
upon by the contracting parties. This Court has long recognized that there is nothing
inherently wrong with escalation clauses
Nevertheless, an escalation clause "which grants the creditor an unbridled right to
adjust the interest independently and upwardly, completely depriving the debtor of the right
to assent to an important modification in the agreement" is void. A stipulation of such nature
violates the principle of mutuality of contracts. In a case,SC said that petitioner’s assent to the
modifications in the interest rates cannot be implied from their lack of response to the memos
sent by respondent
It is now settled that an escalation clause is void where the creditor unilaterally
determines and imposes an increase in the stipulated rate of interest without the express
conformity of the debtor. Such unbridled right given to creditors to adjust the interest
independently and upwardly would completely take away from the debtors the right to
assent to an important modification in their agreement and would also negate the element of
mutuality in their contracts.
Page 90 of 178
SPOUSES EDUARDO AND LYDIA SILOS VS. PHILIPPINE NATIONAL BANK
G.R. NO. 181045 JULY 2, 2014

FACTS:
Spouses Eduardo and Lydia Silos have been in business of operating a department
store and buying and selling of ready-to-wear apparel. Respondent Philippine National Bank
(PNB) is a banking corporation organized and existing under Philippine laws. To secure a one-
year revolving credit line of P150, 000.00 obtained from PNB, petitioners constituted in
August 1987 a Real Estate Mortgage over a 370-square meter lot in Kalibo, Aklan. In July 1988,
the credit line was increased to P1.8 million and the mortgage was correspondingly increased
to P1.8 million. In July 1989, a Supplement to the Existing Real Estate Mortgage was executed
to cover the same credit line, which was increased to P2.5 million, and additional security was
given in the form of a lot covered. In addition, petitioners issued eight Promissory Notes and
signed a Credit Agreement. This July 1989 Credit Agreement contained a stipulation on
interest which provided that the Loan shall be subject to interest at the rate of 19.5% per
annum. Interest shall be payable in advance every one hundred twenty days at the rate
prevailing at the time of the renewal and the Borrower agrees that the Bank may modify the
interest rate in the Loan depending on whatever policy the Bank may adopt in the future,
including without limitation, the shifting from the floating interest rate system to the fixed
interest rate system, or vice versa. Where the Bank has imposed on the Loan interest at a rate
per annum, which is equal to the Bank’s spread over the current floating interest rate, the
Borrower hereby agrees that the Bank may, without need of notice to the Borrower, increase
or decrease its spread over the floating interest rate at any time depending on whatever
policy it may adopt in the future. The eight Promissory Notes, on the other hand, contained a
stipulation granting PNB the right to increase or reduce interest rates "within the limits
allowed by law or by the Monetary Board." The Real Estate Mortgage agreement provided
the same right to increase or reduce interest rates "at any time depending on whatever policy
PNB may adopt in the future." Petitioners religiously paid interest until the eighth month. In
August 1991, an Amendment to Credit Agreement was executed by the parties, with the
following stipulation regarding interest that the Borrowers agree to pay interest on each
Availment from date of each Availment up to but not including the date of full payment
thereof at the rate per annum which is determined by the Bank to be prime rate plus
applicable spread in effect as of the date of each Availment. Despite demand, petitioners
failed to pay the foregoing amount. Thus, PNB foreclosed on the mortgage, and on January
14, 1999, TCTs T-14250 and T-16208 were sold to it at auction for the amount of P4,324,172.96.
ISSUE:
Whether or not the interest rate to be applied after the expiration of the first 30-day interest
period for PN 9707237 should be 12% per annum; and Whether or not the PNB should
reimburse petitioners the excess in the bid price of P377,505.99 which is the difference
between the total amount due to PNB and the amount of its bid price.
Page 91 of 178
HELD:
The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any
time without notice, beyond the stipulated rate of 12% but only "within the limits allowed by
law." P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to
stipulate freely regarding any subsequent adjustment in the interest rate that shall accrue on
a loan or forbearance of money, goods or credits. In fine, they can agree to adjust, upward or
downward, the interest previously stipulated. However, contrary to the stubborn insistence
of petitioner bank, the said law and circular did not authorize either party to unilaterally raise
the interest rate without the other’s consent. Similarly, contract changes must be made with
the consent of the contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the agreement. In
the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture. Thus, any change must be mutually
agreed upon, otherwise, it is bereft of any binding effect. The interest rates imposed and
indicated in the 2nd up to the 26th Promissory Notes are DECLARED NULL AND VOID, and
such notes shall instead be subject to interest at the rate of twelve percent (12%) per annum
up to June 30, 2013, and starting July 1, 2013, six percent (6%) per annum until full satisfaction
The case is ordered REMANDED to the Regional Trial Court, Branch 6 of Kalibo, Aklan for the
computation of overpayments made by petitioners spouses Eduardo and Lydia Silos to
respondent Philippine National Bank, taking into consideration the foregoing dispositions,
and applying the procedure hereinabove set forth. The reimbursement of the excess in the
bid price of P377,505.99, which respondent Philippine National Bank is ordered to reimburse
petitioners, should be held in abeyance until the true amount owing to or owed by the parties
as against each other is determined
Page 92 of 178
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM V. BAUTISTA
G.R. NO. 171351, MARCH 14, 2008
PONENTE: FERNANDO, J.
TOPIC: RELATIVITY/PRIVITY – ART. 1311, 1317, 1312, 1313, 1314
FACTS:
Petitioner MWSS is a government-owned and controlled corporation organized under
Republic Act (R.A.) No. 6234. Private respondents are incumbent and former employees of
MWSS.
Prior to November 1, 1989, private respondents have been receiving allowances, fringe
benefits and COLA. They were receiving COLA equivalent to forty percent of their basic
monthly salary or P300.00 a month, whichever is higher. These benefits were discontinued
under R.A. No. 6758 entitled "An Act Prescribing a Revised Compensation and Position
Classification System in Government and for other Purposes," otherwise known as the Salary
Standardization Law.
Implementing R.A. No. 6758, the Department of Budget and Management (DBM)
issued Corporate Circular No. 10 (DBM Circular No. 10) which provided, among others, the
discontinuance without qualification of all allowances and fringe benefits, including COLA, of
government employees over and above their basic salaries starting November 1, 1989.
In De Jesus v. Commission on Audit,8 this Court declared DBM Circular No. 10
ineffective for lack of publication. The DBM later remedied the fatal defect when it published
the Circular in the March 1999 issue of the Official Gazette.
After vigorous complaints and requests from government employees, the Office of the
Government Corporate Counsel (OGCC) issued a Memorandum opining that employees of
government-owned and controlled corporations, whether incumbent or non-incumbents, are
entitled to the payment of COLA during the period that it was suspended under DBM Circular
No. 10.
Private respondents demanded the 95% balance of their COLA. MWSS denied their
request. MWSS Administrator Orlando Hondrade informed private respondents in a letter
dated September 24, 2003 that MWSS was willing to pay the 95% balance, but it opted to defer
payment because of the dismissal of a similar claim by the RTC, Branch 96, Quezon City in
"Erlich Barraquias, et al. v. Metropolitan Waterworks and Sewerage System." MWSS further
averred that it had no available funds to pay the balance.
Aggrieved, private respondents filed a petition for mandamus 14 with the RTC in
Quezon City to compel MWSS to pay the balance of their COLA. During the proceedings, other
aggrieved MWSS employees represented by Joaquin Pacis, et al. moved to intervene but their
motion was denied.
ISSUE/S:
Whether or not private respondents are entitled to COLA from 1989 to 1999.
Page 93 of 178
HELD:
In the present case under scrutiny, it is decisively clear that DBM CCC No. 10, which
completely disallows payment of allowances and other additional compensation to
government officials and employees, starting November 1, 1989, is not a mere interpretative
or internal regulation. It is something more than that. And why not, when it, tends to deprive
government workers of their allowances and additional compensation sorely needed to keep
body and soul together. At the very least, before the said circular under attack may be
permitted to substantially reduce their income, the government officials and employees
concerned should be apprised and alerted by the publication of subject circular in the Official
Gazette or in a newspaper of general circulation in the Philippines - to the end that they be
given amplest opportunity to voice out whatever opposition they may have, and to ventilate
their stance on the matter. This approach is more in keeping with democratic precepts and
rudiments of fairness and transparency.
Being ineffective, DBM Circular No. 10 cannot affect government employees'
entitlement to fringe benefits, allowances and COLA from 1989 to 1999. Thus, in De Jesus, the
Local Water Utilities Administration was ordered to pay the honoraria of petitioners which
were disallowed by the Circular.
Contrary to its present posturing, the OGCC itself issued a Memorandum, entitled
"Opinion and Guidelines on the Payment of Cost of Living Allowance (COLA), Amelioration
Allowance and other Forms of Allowance," opining that employees of government-owned
and controlled corporations are entitled to COLA from 1989 to 1999 even without prior
determination from DBM on whether or not the COLA was deemed integrated into their
salaries. We are surprised that the OGCC now argues for a position totally inconsistent with
its earlier opinion. Worse, MWSS unnecessarily passes the buck to the DBM when it had earlier
opined that no prior DBM approval is required.
Page 94 of 178
BORROMEO, ET AL. V CA, ET AL.,
G.R. NO. L-22962, SEPTEMBER 28, 1972
FACTS:
Defendant was a distributor of lumber belonging to Mr. Miller who was the agent of
the Insular Lumber Company in Cebu City. Defendant being a friend and former classmate of
plaintiff used to borrow from the latter certain amounts from time to time. On one occasion
with some pressing obligation to settle with Mr. Miller, defendant borrowed from plaintiff a
large sum of money for which he mortgaged his land and house in Cebu City. Mr. Miller filed
civil action against the defendant and attached his properties including those mortgaged to
plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered
because not properly drawn up. Plaintiff then pressed the defendant for settlement of his
obligation, but defendant instead offered to execute a document promising to pay his
indebtedness even after the lapse of ten years. Liquidation was made and defendant was
found to be indebted to plaintiff in the sum of P7,220.00, for which defendant signed a
promissory note therefor on November 29, 1933 with interest at the rate of 12% per annum,
agreeing to pay 'as soon as I have money'. The note further stipulated that defendant 'hereby
relinquish, renounce, or otherwise waive my rights to the prescriptions established by our
Code of Civil Procedure for the collection or recovery of the above sum of P7,220.00. ... at any
time even after the lapse of ten years from the date of this instrument'.
ISSUE/S:
Whether or not the petitioners could stil collect the debt from the respondents even after the
lapse of the 10 year period as stipulated in the promissory note.
HELD:
It is a fundamental principle in the interpretation of contracts that while ordinarily the
literal sense of the words employed is to be followed, such is not the case where they "appear
to be contrary to the evident intention of the contracting parties," which "intention shall
prevail." in Nielson and Company v. Lepanto Consolidated Mining Company, this Court, with
Justice Zaldivar, went on to state: "This is the basic rule in the interpretation of contracts
because all other rules are but ancillary to the ascertainment of the meaning intended by the
parties. And once this intention has been ascertained it becomes an integral part of the
contract as though it had been originally expressed therein in unequivocal terms. " While not
directly in point, what was said by Justice Labrador in Tumaneng v. Abad is relevant: "There is
no question that the terms of the contract are not clear on the period of redemption. But the
intent of the parties thereto is the law between them, and it must be ascertained and
enforced." Nor is it to be forgotten, following what was first announced in Velasquez v.
Teodoro that "previous, simultaneous and subsequent acts of the parties are properly
cognizable indicia of their true intention." There is another fundamental rule in the
interpretation of contracts specifically referred to in Kasilag v. Rodriguez, as "not less
Page 95 of 178
important" than other principles which "is to the effect that the terms, clauses and conditions
contrary to law, morals and public order should be separated from the valid and legal contract
when such separation can be made because they are independent of the valid contract which
expresses the will of the contracting parties. x x x
From the joint record on appeal, it is undoubted that the complaint was filed on
January 7, 1953. If the first ten-year period was to be excluded, the creditor had until
November 29, 1953 to start judicial proceedings. After deducting the first ten-year period
which expired on November 29, 1943, there was the additional period of still another ten
years. Nor could there be any legal objection to the complaint by the creditor Borromeo of
January 7, 1953 embodying not merely the fixing of the period within which the debtor
Villamor was to pay but likewise the collection of the amount that until then was not paid. As
was clearly set forth in Tiglao v. The Manila Railroad Company: There is something to
defendant's contention that in previous cases this Court has held that the duration of the term
should be fixed in a separate action for that express purpose. But we think the lower court
has given good reasons for not adhering to technicalities in its desire to do substantial justice.
Page 96 of 178
SPOUSES SEGUNDO RAMOS AND FELISA VALDEZ VS. HON. COURT OF APPEALS, LEILA
VALDEZ-PASCUAL, ARACELI VALDEZ, GLICERIA VALDEZ, JUANA VALDEZ, SIMEON VALDEZ,
CONRADA VALDEZ, SEVERINO VALDEZ, MARIO VALDEZ, ADORACION VALDEZ, JOSE
VALDEZ, DIONISIA VALDEZ, DANILO VALDEZ, SERAPIO VALDEZ, HELEN VALDEZ, PERLA
VALDEZ, AND DELIA VALDEZ
G.R. NO. 132196 DECEMBER 9, 2005
FACTS:
A complaint for unlawful detainer filed by petitioners Bonifacio and Venida Valdez
against private respondents Gabriel and Francisca Fabella. Without any color of title
whatsoever occupie[d] the said lot.
The Municipal Trial Court (MTC) rendered a decision in favor of the petitioners,
ordering private respondents to vacate the property
The Court of Appeals reversed and set aside the decision of the RTC. It held that
petitioners failed to make a case for unlawful detainer because they failed to show that they
had given the private respondents the right to occupy the premises
ISSUE:
Whether or not the allegations of the complaint clearly made out a case for unlawful detainer.
HELD:
It is the nature of defendant’s entry into the land which determines the cause of action,
whether it is forcible entry or unlawful detainer.
If the entry is illegal, then the action which may be filed against the intruder is forcible
entry. If, however, the entry is legal but the possession thereafter becomes illegal, the case is
unlawful detainer.
The jurisdictional facts must appear on the face of the complaint. The evidence
revealed that the possession of defendant was illegal at the inception
Clearly, defendant’s entry into the land was effected clandestinely, without the
knowledge of the owners, consequently, it is categorized as possession by stealth which is
forcible entry
An examination of the complaint reveals that key jurisdictional allegations that will
support an action for ejectment are lacking.
Page 97 of 178
STA. LUCIA REALTY VS. SPOUSES BUENAVENTURA
G.R. NO. 177113, OCTOBER 2, 2009
PONENTE: YNARES-SANTIAGO, J.
FACTS:
On January 16, 1996, respondent-spouses Francisco Segismundo and Emilia
Buenaventura, represented by Ricardo Segismundo, filed before the Housing and Land Use
Regulatory Board (HLRUB) a Complaint against petitioner Sta. Lucia Realty & Development,
Inc. for Specific Performance, Damages and Attorney’s Fees. Respondents alleged that they
bought a lot from Loida Gonzales Alfonso (Alfonso) on August 16, 1989; that the said lot is
part of a subdivision project owned and being developed by petitioner; that in the course of
the construction of their house, respondents discovered that their lot had been subdivided
and occupied by Marilou Panlaque (Panlaque) and Ma. Veronica Banez (Banez); and that like
respondents, the two occupants were also issued a construction permit by petitioner.
Respondents thus demanded from petitioner the rightful possession of their lot; but
to no avail. On September 1, 1997, petitioner filed a third-party complaint against ACL
Development Corporation and RCD Realty Corporation. RCD Realty Corporation alleged that
it was a builder in good faith; that it constructed the residential building on the lot upon
issuance of a construction permit by petitioner.
On June 16, 1998, the HLURB’s Arbiter found that while RCD Realty Corporation
constructed a residential building on the wrong lot, such construction was allowed by
petitioner as evidenced by the permit it ISSUE:d.. The HLURB Arbiter thus concluded that it
was petitioner’s neglect that ultimately led to the instant dispute. On June 24, 1999, the
HLURB Board of Commissioners affirmed the Decision of the HLURB Arbiter with modification
that the market value of the subject lot, stated in paragraph 2 of the dispositive portion, be
reduced from Php 4,500.00 to Php 3,200.00 per square meter, plus 12% interest per annum
from the time of the filing of the complaint On July 18, 2003, the Office of the President
ISSUE:d a Decision affirming the June 24, 1999 Decision of the HLURB Board of Commissioners
On December 21, 2006, the Court of Appeals affirmed the Decision of the Office of the
President. The appellate court found that it was petitioner who caused the confusion in the
identity of the lots by its issuance of a construction permit to RCD Realty Corporation; that
petitioner was remiss and negligent in complying with its obligations towards its buyers, their
heirs, assignees, and/or successors-in-interest when it failed to deliver the property described
in respondents’ title.
ISSUE:
Whether or not Sta. Lucia is liable for specific performance.
HELD:
The Supreme Court held that the petition is without merit. Petitioner originally sold the
subject lot to Alfonso, and the latter subsequently sold the same to herein respondents. As
assignees or successors-in-interest of Alfonso to Lot 3, Block 4, Phase II in petitioner’s
Page 98 of 178
subdivision project, respondents succeed to what rights the former had; and what is valid and
binding against Alfonso is also valid and binding as against them. In effect, respondents
stepped into the shoes of Alfonso and such transfer of rights also vests upon them the power
to claim ownership and the authority to demand to build a residential house on the lot to the
same extent as Alfonso could have enforced them against petitioner.
Article 1311 of the New Civil Code states that, “contracts take effect only between the
parties, their assigns and heirs, except in case where the rights and obligations arising from
the contract are not transmissible by their nature, or by stipulation or by provision of law.”
In this case, the rights and obligations between petitioner and Alfonso are
transmissible. There was no mention of a contractual stipulation or provision of law that
makes the rights and obligations under the original sales contract for Lot 3, Block 4, Phase II
intransmissible. Hence, Alfonso can transfer her ownership over the said lot to respondents
and petitioner is bound to honor its corresponding obligations to the transferee or new lot
owner in its subdivision project. Having transferred all rights and obligations over Lot 3, Block
4, Phase II to respondents, Alfonso could no longer be considered as an indispensable party.
An indispensable party is one who has such an interest in the controversy or subject matter
that a final adjudication cannot be made in his absence, without injuring or affecting that
interest.
Petitioner was remiss and negligent in the performance of its obligations towards its
buyers, their heirs, assignees, and/or successors-in-interest; and that it was petitioner’s
negligence which caused the confusion on the identity of the lot, which likewise resulted to
the erroneous construction done by RCD Realty Corporation. Petitioner cannot pass the
blame to RCD Realty Corporation because it is undisputed that it issued a construction permit
for Lot 3, Block 4, Phase II – the property of respondents. For its gross negligence which
resulted to the erroneous construction on Lot 3, Block 4, Phase II and caused respondents
undue damage and prejudice, petitioner is rightfully adjudged by the HLURB Arbiter liable for
P100,000.00 moral damages, P50,0000.00 exemplary damages, and P50,000.00 attorney’s
fees.
Although respondents prayed for specific performance to place them in possession of
Lot 3, Block 4, Phase II, the actual occupants therein were not impleaded. As correctly pointed
out by the HLURB Arbiter, the situation created an impossibility to grant the prayer of
respondents despite their ownership of the subject property and the finding that petitioner
was the cause of the inadvertent switching of lots. We agree with the HELD: of the HLURB
Arbiter that it will be more equitable and practicable to rescind the obligation of petitioner to
deliver possession of Lot 3, Block 4, Phase II to respondents; and in exchange, pay the value
of the lot by way of reimbursement in accordance with the price modification stated by the
HLURB Board of Commissioners. Moreover, this HELD: comes within the purview of
respondents’ final prayer for “other reliefs, just or equitable under the premises” and they are
evidently in accord with such outcome as they did not appeal the case or insist on claiming
back their lot. However, we find that the applicable interest rate for the amount to be
reimbursed to respondents is 6% per annum, reckoned from the time of the filing of the
complaint, because the case at bar involves a breach of obligation and not a loan or
forbearance of money.
Page 99 of 178
ALLAN C. GO VS. MORTIMER F. CORDERO
G.R. NO. 164747, MAY 4, 2010

TOPIC: TORTIOUS INTERFERENCE
FACTS:
Mortimer F. Cordero, Vice-President of Pamana Marketing Corporation (Pamana),
ventured into the business of marketing inter-island passenger vessels. After contacting
various overseas fast ferry manufacturers from all over the world, he came to meet Tony
Robinson, an Australian national based in Brisbane, Australia, who is the Managing Director
of Aluminium Fast Ferries Australia (AFFA). Between June and August 1997, Robinson signed
documents appointing Cordero as the exclusive distributor of AFFA catamaran and other fast
ferry vessels in the Philippines. As such exclusive distributor, Cordero offered for sale to
prospective buyers the 25- meter Aluminium Passenger catamaran known as the SEACAT 25.
After negotiations with Felipe Landicho and Vincent Tecson, lawyers of Allan C. Go who is the
owner/operator of ACG Express Liner of Cebu City, a single proprietorship, Cordero was able
to close a deal for the purchase of two SEACAT 25. Accordingly, the parties executed
Shipbuilding Contract No. 7825 for one high- speed catamaran (SEACAT 25) for the price of
US$1,465,512.00. Per agreement between Robinson and Cordero, the latter shall receive
commissions totalling US$328,742.00, or 22.43% of the purchase price, from the sale of each
vessel. Cordero made two trips to the AFFA Shipyard in Brisbane, Australia, and on one
occasion even accompanied Go and his family and Landicho, to monitor the progress of the
building of the vessel. He shouldered all the expenses for airfare, food, hotel
accommodations, transportation and entertainment during these trips. He also spent for long
distance telephone calls to communicate regularly with Robinson, Go, Tecson and Landicho.
However, Cordero later discovered that Go was dealing directly with Robinson when he was
informed by Dennis Padua of Wartsila Philippines that Go was canvassing for a second
catamaran engine from their company which provided the ship engine for the first SEACAT
25. Padua told Cordero that Go instructed him to fax the requested quotation of the second
engine to the Park Royal Hotel in Brisbane where Go was then staying. Cordero tried to
contact Go and Landicho to confirm the matter but they were nowhere to be found, while
Robinson refused to answer his calls. Cordero immediately flew to Brisbane to clarify matters
with Robinson, only to find out that Go and Landicho were already there in Brisbane
negotiating for the sale of the second SEACAT 25. Despite repeated follow-up calls, no
explanation was given by Robinson, Go, Landicho and Tecson who even made Cordero believe
there would be no further sale between AFFA and ACG Express Liner. In a handwritten letter
dated June 24, 1998, Cordero informed Go that such act of dealing directly with Robinson
violated his exclusive distributorship and demanded that they respect the same, without
prejudice to legal action against him and Robinson should they fail to heed the same.
Cordero’s lawyer, Atty. Ernesto A. Tabujara, Jr. of ACCRA law firm, also wrote ACG Express
Liner assailing the fraudulent actuations and misrepresentations committed by Go in
connivance with his lawyers in breach of Cordero’s exclusive distributorship appointment. On
August 21, 1998, Cordero instituted Civil Case No. 98-35332 seeking to hold Robinson, Go,
Page 100 of 178

Tecson and Landicho liable jointly and solidarily for conniving and conspiring together in
violating his exclusive distributorship in bad faith and wanton disregard of his rights, thus
depriving him of his due commissions (balance of unpaid commission from the sale of the first
vessel in the amount of US$31,522.01 and unpaid commission for the sale of the second vessel
in the amount of US$328,742.00) and causing him actual, moral and exemplary damages,
including P800,000.00 representing expenses for airplane travel to Australia,
telecommunications bills and entertainment, on account of AFFA’s untimely cancellation of
the exclusive distributorship agreement. Cordero also prayed for the award of moral and
exemplary damages, as well as attorney’s fees and litigation expenses. The trial court
rendered its decision in favor of Plaintiff and against defendants Allan C. Go, Tony Robinson,
Felipe Landicho, and Vincent Tecson. As prayed for, defendants are hereby ordered to pay
Plaintiff jointly and solidarily. On January 29, 2001, the CA rendered judgment granting the
petition for certiorari hence the appeal.
ISSUE:
Whether or not the CA erred in holding the petitioner liable for the breach.
HELD:
In the case at bar, it was established that petitioner Cordero was not paid the balance
of his commission by respondent Robinson. From the time petitioner Go and respondent
Landicho directly dealt with respondent Robinson in Brisbane, and ceased communicating
through petitioner Cordero as the exclusive distributor of AFFA in the Philippines, Cordero
was no longer informed of payments remitted to AFFA in Brisbane. In other words, Cordero
had clearly been cut off from the transaction until the arrival of the first SEACAT 25 which was
sold through his efforts. When Cordero complained to Go, Robinson, Landicho and Tecson
about their acts prejudicial to his rights and demanded that they respect his exclusive
distributorship, Go simply let his lawyers led by Landicho and Tecson handle the matter and
tried to settle it by promising to pay a certain amount and to purchase high-speed catamarans
through Cordero. However, Cordero was not paid anything and worse, AFFA through its
lawyer in Australia even terminated his exclusive dealership insisting that his services were
engaged for only one transaction, that is, the purchase of the first SEACAT 25 in August 1997.
We find that contrary to the claims of petitioner Cordero, there was indeed no
sufficient evidence that respondents actually purchased a second SEACAT 25 directly from
AFFA. But this circumstance will not absolve respondents from liability for invading Cordero’s
rights under the exclusive distributorship. Respondents clearly acted in bad faith in bypassing
Cordero as they completed the remaining payments to AFFA without advising him and
furnishing him with copies of the bank transmittals as they previously did, and directly dealt
with AFFA through Robinson regarding arrangements for the arrival of the first SEACAT 25 in
Manila and negotiations for the purchase of the second vessel pursuant to the Memorandum
of Agreement which Cordero signed in behalf of AFFA. As a result of respondents’ actuations,
Cordero incurred losses as he was not paid the balance of his commission from the sale of the
first vessel and his exclusive distributorship revoked by AFFA. While it is true that a third
person cannot possibly be sued for breach of contract because only parties can breach
contractual provisions, a contracting party may sue a third person not for breach but for
Page 101 of 178

inducing another to commit such breach. Article 1314 of the Civil Code provides that any third
person who induces another to violate his contract shall be liable for damages to the other
contracting party. 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 a contract; and (3) interference
of the third person is without legal justification.
Page 102 of 178

ANALITA P. INOCENCIO VS. HOSPICIO DE SAN JOSE
G.R. NO. 201787, 25 SEPTEMBER 2013
PONENTE: CARPIO, J.
FACTS:
Hospicio de San Jose (HDSJ) leased a parcel of land to German Inocencio (German).
German then constructed two buildings over the land which he subleased. Ramon, his son,
was designated to administer the properties. German died but Ramon did not inform HDSJ.
Nonetheless, Ramon collected rentals from the sublessees and paid rent to HDSJ. HDSJ
acknowledged the existence of an implied lease between Ramon and HDSJ, as the latter has
been receiving rental payments from the former. HDSJ informed Ramon that the contract
shall expire on 31 March 2001 and it has no intention of renewing the same since Ramon did
not inform HDSJ of the sublease. HDSJ then demanded Ramon to vacate the property within
30 days. HDSJ also entered into lease agreements with other parties. HDSJ now filed a
complaint for unlawful detainer. While pending, Ramon passed away and substituted now by
Analita Inocencio, his wife.
ISSUES:
Whether the sublease is valid
HELD:
Despite the non-transferability of the contract without the consent of the lessor, HDSJ
nonetheless acknowledged that Ramon is its month-to-month lessee. Thus, German’s death
did not terminate the lease. (Validity of the lease to Ramon). Ramon likewise had the right to
sublease the property since the lease contract did not contain any prohibitions on sublease,
pursuant to Article 1650. Thus, the sublease contracts entered into by Ramon were valid.
(Validity of sublease). Inocencios claim ownership over the property since they claim that
these are separate and distinct from the land on which they were built. Thus, they argue that
they have a right to lease the buildings to 3rd-parties, even after the termination of the lease.
Further, the Inocencios argue that when they entered into lease contracts with tenants for
the lease of portions of the said buildings, these contracts were independent contracts of
lease over their own building and not sub-leases of the parcel of land which they leased from
Respondent. The Court DISAGREES with the Inocencios by stating the ruling in the case of
Duellome v. Gotico: The lease of a building includes the lease of the lot and consequently, the
rentals of the building include the rentals of the lot. Accordingly, they pointed out that the
ARGUMENT of HDSJ is CORRECT when they stated the following: When the Inocencios leased
the buildings to third parties, they also "leased" to the third parties the plot of land on which
the buildings stood — either by implied transfer of the lease covering the plot of the land, or
by sublease. Either way, x x x the Inocencios themselves must have a valid lease contract with
[HDSJ] over the land. However, when the lease contract x x x with HDSJ ended on 31March
2001, Ramon lost his status as lessee of the land, and therefore, had no authority to transfer
the lease or sublease the land.
Page 103 of 178

SPS. MAMARIL VS. BOY SCOUT OF THE PHILIPPINES
G.R. NO. 179382, JANUARY 14, 2013
PONENTE: PERLAS-BERNABE, J
FACTS:
PUJ operators Sps. Mamaril would park their 6 passenger jeepneys every night at BSP’s
compound in Malate, Manila for a fee of P300.00 per month for each unit. One day, one of
the vehicles was missing and was never recovered. According to the security guards Peña and
Gaddi of AIB Security Agency with whom BSP had contracted for its security and protection,
a male person who looked familiar to them took the subject vehicle out of the compound.
Sps. Mamaril prayed that Peña and Gaddi, together with AIB and BSP, be held liable for: (a)
the value of the subject vehicle; (b) amount representing daily loss of income/boundary
reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral damages; (e)
attorney's fees; and (f) cost of suit.
BSP denied any liability contending that not only did Sps. Mamaril directly deal with
AIB with respect to the manner by which the parked vehicles would be handled, but the
parking ticket itself expressly stated that the "Management shall not be responsible for loss
of vehicle or any of its accessories or article left therein." It also claimed that Sps. Mamaril
erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers, and employees.
ISSUE:
Whether or not BSP may be held liable for the loss of the vehicle caused by the negligence of
its security guards.
HELD:
The proximate cause of the loss of Sps. Mamaril's vehicle was the negligent act of
security guards Peña and Gaddi in allowing an unidentified person to drive out the subject
vehicle. The records are bereft of any finding of negligence on the part of BSP. Neither will
the vicarious liability of an employer under Article 2180 of the Civil Code apply in this case.
Peña and Gaddi were assigned as security guards by AIB to BSP pursuant to the Guard Service
Contract. No employer-employee relationship existed between BSP and the security guards
assigned in its premises. Sps. Mamaril are not parties to the Guard Service Contract. Guard
Service Contract between defendant-appellant BSP and defendant AIB Security Agency is
purely between the parties therein.
Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent. 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
Page 104 of 178

sufficient. The contracting parties must have clearly and deliberately conferred a favor upon
a third person.
Thus, in order that a third person benefited by the second paragraph of Article 1311,
referred to as a stipulation pour autrui, may demand its fulfillment, the following requisites
must concur: (1) There is a stipulation in favor of a third person; (2) The stipulation is a part,
not the whole, of the contract; (3) The contracting parties clearly and deliberately conferred
a favor to the third person - the favor is not merely incidental; (4) The favor is unconditional
and uncompensated; (5) The third person communicated his or her acceptance of the favor
before its revocation; and (6) The contracting parties do not represent, or are not authorized,
by the third party. However, none of the foregoing elements obtains in this case.There is
absolutely nothing in the said contract that would indicate any obligation and/or liability on
the part of the parties therein in favor of third persons such as herein plaintiffs-appellees.
Moreover, the Court concurs with the finding of the CA that the contract between the
parties herein was one of lease as defined under Article 1643 of the Civil Code. It has been held
that the act of parking a vehicle in a garage, upon payment of a fixed amount, is a lease. The
agreement with respect to the ingress and egress of Sps. Mamaril's vehicles were coordinated
only with AIB and its security guards, without the knowledge and consent of BSP. Accordingly,
the mishandling of the parked vehicles that resulted in herein complained loss should be
recovered only from the tort feasors (Peña and Gaddi) and their employer, AIB; and not
against the lessor, BSP.
Page 105 of 178

DKC HOLDINGS CORPORATION VS COURT OF APPEALS
G.R. NO. 118248. APRIL 5, 2000
PONENTE: YNARES-SANTIAGO, J.
FACTS:
The subject of the controversy is a 14,021 square meter parcel of land located in
Malinta, Valenzuela, Metro Manila which was originally owned by private respondent Victor
U. Bartolome’s deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title
No. B-37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of one
of the textile plants of petitioner and, as such, was seen by the latter as a potential warehouse
site.
March 16, 1988. DKC entered a contract of lease with option to buy with Encarnacion
Bartolome (Victor’s deceased mom). DKC was given the option to lease or lease with
purchase the subject land, which option must be exercised within a period of two years
counted from the signing of the Contract. In turn, DKC undertook to pay P3,000.00 a month
as consideration for the reservation of its option. Within the two-year period, DKC shall serve
formal written notice upon the lessor Encarnacion Bartolome of its desire to exercise its
option. The contract also provided that in case DKC chose to lease the property, it may take
actual possession of the premises. In such an event, the lease shall be for a period of six years,
renewable for another six years, and the monthly rental fee shall be P15,000.00 for the first
six years and P18,000.00 for the next six years, in case of renewal.
DKC regularly paid Encarnacion until her death in January 1990. DKC then directed its
payment to the son of Enacarnacion who is the sole heir but Victor (Encarnacion’s son)
refused the payment.
January 10, 1990. Victor executed an affidavit of Self Adjudication all over her deceased
mom’s properties, including the subject lot. Victor the dick then cancelled the deed of transfer
of DKC and then issued a transfer certificate under his name, what a dick.
March 14, 1990. DKC sent a notice to Victor the royal douche, stating that they are
going to exercise their option to lease, tendering the amount of P15,000 as rent. Victor the
douche, being a dick as he is, refused payment.
DKC then opened a saving account with the China Banking Corp. under the name of
Victor and deposited the P15,000 as rental fee while also adding another P6000 for
reservation fees
DKC also tried to register and annotate the Contract on the title of Victor the dick to
the property. Although respondent Register of Deeds accepted the required fees, he
nevertheless refused to register or annotate the same or even enter it in the day book or
primary register.
April 23, 1990. DKC filed a complaint for specific performance and damages against
Victor and the Register of Deeds. DKC prayed for the surrender and delivery of possession of
the subject land in accordance with the Contract terms; the surrender of title for registration
and annotation thereon of the Contract; and the payment of P500,000.00 as actual damages,
Page 106 of 178

P500,000.00 as moral damages, P500,000.00 as exemplary damages and P300,000.00 as
attorney’s fees.
During the May of 1990, some guy named Andres Lonzano filed a motion for
intervention with motion to dismiss for he was a tenant-tiller of the subject property, dude is
under the Comprehensive Agrarian Reform Law, the motion was denied by the court, poor
guy.
The lower court then rendered its decision, it dismissed the complaint and ordered
DKC to pay Victor for P30,000 as attorney’s fee. On appeal, the CA affirmed the decision of
the lower court
ISSUE:
Whether or not the Contract of Lease with Option to Buy entered into by the late Encarnacion
Bartolome with petitioner was terminated upon her death or whether it binds her sole heir,
Victor, even after her demise.
HELD:
No. Article 1311 of the Civil Code and jurisprudence, Victor is bound by the subject
Contract of Lease with Option to buy executed by his predecessor-in-interest. It is futile for
Victor to insist that he is not a party to the contract because of the clear provision of Article
1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between
him and his deceased mother. He only succeeds to what rights his mother had and what is
valid and binding against her is also valid and binding as against him. The general rule,
therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest
except when the rights and obligations arising therefrom are not transmissible by (1) their
nature, (2) stipulation or (3) provision of law.
Page 107 of 178

PRUDENTIAL BANK AND TRUST COMPANY
(now BANK OF THE PHILIPPINE ISLANDS) VS. LIWAYWAY ABASOLO
G.R. No. 186738, September 27, 2010
PONENTE: CARPIO-MORALES, J.
FACTS:
Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan, Sta. Cruz,
Laguna (the properties), registered as OCT Nos. RO-527 and RO-528. After she passed away,
her heirs executed on June 14, 1993 a Special Power of Attorney (SPA) in favor of Liwayway
Abasolo empowering her to sell the properties.
Sometime in 1995, Corazon Marasigan wanted to buy the properties which were being
sold for P2,448,960, but as she had no available cash, she broached the idea of first
mortgaging the properties to petitioner Prudential Bank and Trust Company (PBTC), the
proceeds of which would be paid directly to Abasolo which she agreed to the proposal.
Corazon and Abasolo consultation with PBTCs Head Office, its employee, Norberto
Mendiola , allegedly advised Abasolo to issue an authorization for Corazon to mortgage the
properties, and for her to act as one of the co-makers so that the proceeds could be released
to both of them.
To guarantee the payment of the property, Corazon executed on August 25, 1995 a
Promissory Note for P2,448,960 in favor of Abasolo.
In October 1995, Mendiola advised her to transfer the properties first to Corazon for
the immediate processing of Corazons loan application with assurance that the proceeds
thereof would be paid directly to Abasolo, and the obligation would be reflected in a bank
guarantee.
Heeding Mendiolas advice, Abasolo executed a Deed of Absolute Sale over the
properties in favor of Corazon following which or on December 4, 1995, TCT Nos. 164159 and
164160 were issued in the name of Corazon.
Corazons application for a loan with PBTCs Tondo Branch was approved on December
1995. She thereupon executed a real estate mortgage covering the properties to secure the
payment of the loan. In the absence of a written request for a bank guarantee, the PBTC
released the proceeds of the loan to Corazon.
Abasolo later got wind of the approval of Corazons loan application and the release of
its proceeds to Corazon who, despite repeated demands, failed to pay the purchase price of
the properties.
Abasolo eventually accepted from Corazon partial payment in kind consisting of one
owner type jeepney and four passenger jeepneys, plus installment payments, which, by the
trial courts computation, totaled P665,000.
In view of Corazons failure to fully pay the purchase price, Abasolo filed a complaint
for collection of sum of money and annulment of sale and mortgage with damages, against
Corazon and PBTC before the (RTC) of Sta. Cruz, Laguna.
Petitioners Contention (Corazon and PBTC) :
Page 108 of 178

Corazon denied that there was an agreement that the proceeds of the loan would be
paid directly to Abasolo. And she claimed that the vehicles represented full payment of the
properties, and had in fact overpaid P76,040.
PBTC also denied that there was any arrangement between it and respondent that the
proceeds of the loan would be released to her. It claimed that it may process a loan application
of the registered owner of the real property who requests that proceeds of the loan or part
thereof be payable directly to a third party [but] the applicant must submit a letter request to
the Bank.
On March 12, 2004, RTC rendered judgment in favor of Abasolo and against Corazon
who was made directly liable to respondent, and against PBTC who was made subsidiarily
liable in the event that Corazon fails to pay. Thus the trial court disposed:
Defendant Corazon Marasigan to pay the plaintiff the amount of P1,783,960.00 plus
three percent (3%) monthly interest per month from August 25, 1995 until fully paid. Further,
to pay the plaintiff the sum equivalent to twenty percent five [sic] (25%) of P1,783,960.00 as
attorneys fees.
Defendant Prudential Bank and Trust Company to pay the plaintiff the amount of
P1,783,960.00 or a portion thereof plus the legal rate of interest per annum until fully paid in
the event that Defendant Corazon Marasigan fails to pay the said amount or a portion thereof.
On appeal, the Court of Appeals by Decision of January 14, 2008, affirmed the trial
courts decision with modification on the amount of the balance of the purchase price which
was reduced from P1,783,960 to P1,753,960.
Petitioners motion for reconsideration having been denied by the appellate court by
Resolution of February 23, 2009
ISSUE:
Whether or not the PBCT is subsidiary liable.
HELD:
In the absence of a lender-borrower relationship between petitioner and Liwayway,
there is no inherent obligation of PBTC to release the proceeds of the loan to Abasolo.
To a banking institution, well-defined lending policies and sound lending practices are
essential to perform 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
petitioners cause; 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 involved.
Page 109 of 178

Since it has not been established that petitioner had an obligation to Liwayway, there
is no breach to speak of. Liwayways claim should only be directed against Corazon.Petitioner
cannot thus be held subisidiarily liable.
Wherefore, the Decision of January 14, 2008 of the Court of Appeals, in so far as it holds
petitioner, Prudential Bank and Trust Company (now Bank of the Philippine Islands),
subsidiary liable in case its co-defendant Corazon Marasigan, who did not appeal the trial
courts decision, fails to pay the judgment debt, is REVERSED and SET ASIDE. The complaint
against petitioner is accordingly DISMISSED.
Page 110 of 178

SO PING BUN VS. COURT OF APPEALS
314 SCRA 751, September 21, 1999
FACTS:
In 1963, Tek Hua Trading Co. entered into lease agreements with lessor Dee C. Chuan
and Sons, Inc. involving four (4) premises in Binondo, which the former used to store textiles.
The agreements were for one (1) year, with provisions for month-to-month rental should the
lessee continue to occupy the properties after the term. In 1976, Tek Hua Trading Co. was
dissolved, and the former members formed Tek Hua Enterprises Corp., herein respondent. So
Pek Giok, managing partner of the defunct company, died in 1986. Petitioner So Ping Bun, his
grandson, occupied the warehouse for his own textile business, Trendsetter Marketing. On
March 1, 1991, private respondent Tiong sent a letter to petitioner, demanding that the latter
vacate the premises. Petitioner refused, and on March 4, 1992, he requested formal contracts
of lease with DCCSI. The contracts were executed. Private respondents moved for the
nullification of the contract and claimed damages. The petition was granted by the trial court,
and eventually by the Court of Appeals.
ISSUE:
Whether the appellate court erred in affirming the trial court’s decision finding So Ping Bun
guilty of tortuous interference of contact.
HELD:
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 property of Respondent Corporation and benefited from it, nothing on
record imputes deliberate wrongful motives or malice on him.
A duty which the law of torts is concerned with is respect for the property of others,
and 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 exist 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 party whose rights are invaded, and that an
individual acts under an economic interest that is substantial, not merely I de minimis for he
Page 111 of 178

acts in self-protection. Moreover, justification for protecting ones 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 be 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.
Page 112 of 178

SM LND, INC V. BASES CONVERSION AND DEVELOPEMENT AUTHORITY
G.R. NO. 203655, AUGUST 13, 2014

TOPIC: ELEMENTS: ESSENTIAL, NATURAL, ACCIDENTAL
FACTS:
Pursuant to RA 7227 (Bases Conversion and Development Act of 1992), the BCDA
opened for disposition and development its Bonifacio South Property. Jumping on the
opportunity, SM Land, Inc. (SMLI) submitted to the BCDA an unsolicited proposal for the
development of the lot through a Public-Private Joint Venture Agreement which was
accepted by the BCDA. However, the BCDA clarified that its act should not be construed to
bind the agency to enter into a joint venture agreement with SMLI but only constitutes an
authorization to conduct detailed negotiations with SMLI and iron out the terms and
conditions of the agreement.
Upon arriving at mutually acceptable terms and conditions, a Certification of
Successful Negotiations (Certification) was issued by the BCDA and signed by both parties
with the provisions that the BCDA undertook to “subject SMLI’s Original Proposal to
Competitive Challenge” and committed itself to “commence the activities for the solicitation
for comparative proposals.” Then, instead of proceeding with the Competitive Challenge, the
BCDA corresponded with SMLI stating that it will welcome any “voluntary and unconditional
proposal” to improve the original offer, with the assurance that the BCDA will nonetheless
respect any right which may have accrued in favor of SMLI. In turn, SMLI increased the total
secured payments with an upfront payment.
Without responding to SMLI’s new proposal, the BCDA sent a memorandum to the
Office of the President (OP) categorically recommending the termination of the Competitive
Challenge. Alarmed by this development, SMLI urged the BCDA to proceed with the
Competitive Challenge as agreed upon. However, the BCDA, via the assailed Supplemental
Notice No. 5, terminated the Competitive Challenge altogether. In the meantime, the BCDA
issued in favor of SMLI a check without explanation attached to it but its value corresponds
to the proposal security posted by SMLI, with interest. SMLI attempted to return the check
but to no avail. The BCDA caused the publication of an “Invitation to Bid” for the development
of the subject property. This impelled SMLI to file an Urgent Manifestation with Reiterative
Motion to Resolve SMLI’s Application for Temporary Restraining (TRO) and Preliminary
Injunction.
The Court issued the TRO prayed for by SMLI and enjoined BCDA from proceeding with
the new selection process for the development of the property. For its part, SMLI alleged in
its petition that the Certification issued by the BCDA and signed by the parties constituted a
contract and that under the said contract, BCDA cannot renege on its obligation to conduct
and complete the Competitive Challenge. The BCDA relies chiefly on the reservation clause in
the Terms of Reference (TOR), which mapped out the procedure to be followed in the
Competitive Challenge, which allegedly authorized the agency to unilaterally cancel the
Competitive Challenge. BCDA add that the terms and conditions agreed upon are
Page 113 of 178

disadvantageous to the government, and that it cannot legally be barred by estoppel in
correcting a mistake committed by its agents.
ISSUES:
Whether or not BCDA correct in issuing Supplemental Notice No. 5, which unilaterally aborted
the Competitive Challenge, and in subjecting the development of the project to public
bidding.
HELD:
No. SMLI has the right to a completed Competitive Challenge pursuant to the Detailed
Guidelines for Competitive Challenge Procedure for Public-Private Joint Ventures (NEDA JV
Guidelines) and the Certification issued by the BCDA. The reservation clause adverted to by
the BCDA cannot, in any way, prejudice said right. NEDA promulgated the NEDA Joint Venture
Guidelines, which detailed two (2) modes of selecting a private sector Joint Venture partner:
by competitive selection or through negotiated agreements. Competitive selection involves a
selection process based on transparent criteria, which should not constrain or limit
competition, and is open to participation, by any interested and qualified private entity.
Furthermore, it is well to point out that after BCDA accepted the unsolicited proposal of SMLI
and after both parties successfully concluded the detailed negotiations on the terms and
conditions of the project, SMLI acquired the status of an Original Proponent.
An Original Proponent, per the TOR, pertains to the party whose unsolicited proposal
for the development and privatization of the subject property through Joint Venture with
BCDA has been accepted by the latter, subject to certain conditions, and is now being
subjected to a Competitive Challenge. In this regard, SMLI insists that as an Original
Proponent, it obtained the right to a completed Competitive Challenge. A scrutiny of the
NEDA JV Guidelines reveals that certain rights are conferred to an Original Proponent. As
correctly pointed out by SMLI, these rights include the right to the conduct and completion
of a competitive challenge. By their mutual consent and in signing the Certification, both
parties, in effect, entered into a binding agreement to subject the unsolicited proposal to the
Competitive Challenge. Evidently, the Certification partakes of a contract wherein BCDA
committed itself to proceed with the Third Stage of the process and simultaneously grants
SMLI the right to expect that the BCDA will fulfill its obligations under the same. The
preconditions to the conduct of the Competitive Challenge having been met, what is left,
therefore, is to subject the terms agreed upon to a Competitive Challenge
Page 114 of 178

TRADERS ROYAL BANK V. CUISON LUMBER CO., INC.
G.R. NO. 174286, JUNE 5, 2009
PONENTE: BRION, J.
TOPIC: ACCEPTANCE – ART. 1320 - 1324
FACTS:
On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president,
Roman Cuison Sr., obtained two loans from the bank. The loans were secured by a real estate
mortgage over a parcel of land covered by Transfer Certificate of Title No. 10282 (subject
property). CLCI failed to pay the loan, prompting the bank to extra judicially foreclose the
mortgage on the subject property. The bank was declared the highest bidder at the public
auction that followed, conducted on August 1, 1985. A Certificate of Sale and a Sheriff’s Final
Certificate of Sale were subsequently issued in the bank’s favor.
In a series of written communications between CLCI and the bank, CLCI manifested its
intention to restructure its loan obligations and to repurchase the subject property. On July
31, 1986, Mrs. Cuison, the widow and administratrix of the estate of Roman Cuison Sr., wrote
the bank’s Officer-in-Charge, Remedios Calaguas, a letter indicating her offered terms of
repurchase. CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on
September 3, 1986). The bank received and regarded these amounts as “earnest money” for
the repurchase of the subject property. On October 20, 1986, the bank sent Atty. Roman
Cuison, Jr. (Atty. Cuison), as the president and general manager of CLCI, a letter informing
CLCI of the bank’s board of directors’ resolution of October 10, 1986 (TRB Repurchase
Agreement), laying down the conditions for the repurchase of the subject property.
CLCI failed to comply with the terms notwithstanding the extensions of time given
by the bank. Nevertheless, CLCI tendered, on February 3, 1987, a check for P135,091.57 to
cover fifty percent (50%) of the twenty percent (20%) bid price. The check, however, was
returned for “insufficiency of funds.” On May 13, 1987, CLCI tendered an additional
P50,000.00. On May 29, 1987, the bank sent Atty. Cuison a letter informing him that the
P185,000.00 CLCI paid was not a deposit, but formed part of the earnest money under the
TRB Repurchase Agreement. On August 28, 1987, Atty. Cuison, by letter, requested that CLCI’s
outstanding obligation of P1,221,075.61 (as of July 31, 1987) be reduced to P1 million, and the
amount of P221,075.61 be condoned by the bank. To show its commitment to the request,
CLCI paid the bank P100,000.00 and P200,000.00 on August 28, 1987. The bank credited both
payments as earnest money.
A year later, CLCI inquired about the status of its request. The bank responded
that the request was still under consideration by the bank’s Manila office. On
September 30, 1988, the bank informed CLCI that it would resell the subject property at an
offered price of P3 million, and gave CLCI 15 days to make a formal offer; otherwise, the bank
would sell the subject property to third parties. On October 26, 1988, CLCI Contracts offered
to repurchase the subject property for P1.5 million, given that it had already tendered the
amount ofP400,000.00 as earnest money.
CLCI subsequently claimed that the bank breached the terms of repurchase, as it
Page 115 of 178

had wrongly considered its payments (in the amounts of P140,485.18, P200,000.00 and
P100,000.00) as earnest money, instead of applying them to the purchase price.
Through its counsel, CLCI demanded that the bank rectify the repurchase agreement
to reflect the true consideration agreed upon for which the earnest money had been given.
The bank did not act on the demand. Instead, it informed CLCI that the amounts it received
were not earnest money, and that the bank was willing to return these sums, less the amounts
forfeited to answer for the unremitted rentals on the subject property.
In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989, filed with
the RTC a complaint for breach of contract, specific performance, damages, and attorney’s
fees against the bank. On April 20, 1989, the bank filed its Answer alleging that the TRB
repurchase agreement was already cancelled given CLCI’s failure to comply with its
provisions.
RTC ruled in favor of the Cuisons. CA affirmed, hence this petition.
ISSUE:
Whether or not a perfected contract of repurchase existed and can be enforced
between the parties.
HELD:
Yes, there is a perfected contract of repurchase between tha bank and CLCI. Under the
law, a contract is perfected by mere consent, that is, from the moment that there is a meeting
of the offer and the acceptance upon the thing and the cause that constitute the contract.
The law requires that the offer must be certain and the acceptance absolute and unqualified.
An acceptance of an offer may be express and implied; a qualified offer constitutes a counter-
offer. Case law holds that an offer, to be considered certain, must be definite, while an
acceptance is considered absolute and unqualified when it is identical in all respects with that
of the offer so as to produce consent or a meeting of the minds. We have also previously held
that the ascertainment of whether there is a meeting of minds on the offer and acceptance
depends on the circumstances surrounding the case.
The clear and neat principle is that the offer must be certain and definite with respect
to the cause or consideration and object of the proposed contract, while the acceptance of
this offer – express or implied – must be unmistakable, unqualified, and identical in all respects
to the offer. The required concurrence, however, may not always be immediately clear and
may have to be read from the attendant circumstances; in fact, a binding contract may exist
between the parties whose minds have met, although they did not affix their signatures to
any written document. The facts of the present case, although ambivalent in some respects,
point on the whole to the conclusion that both parties agreed to the repurchase of the subject
property.
While there was a perfected contract between the parties, the bank effectively
cancelled the contract when it communicated with CLCI that it would sell the subject property
at a higher price to third parties, giving CLCI 15 days to make a formal offer, and disregarding
CLCIs counter-offer to buy the subject property for P1.5 million.
The TRB Repurchase Agreement is in the nature of a contract to sell where the title to
the subject property remains in the banks name, as the vendor, and shall only pass to the
Page 116 of 178

respondents, as vendees, upon the full payment of the repurchase price. The settled rule for
contracts to sell is that the full payment of the purchase price is a positive suspensive
condition; the failure to pay in full is not to be considered a breach, casual or serious, but
simply an event that prevents the obligation of the vendor to convey title from acquiring any
obligatory force. Viewed in this light, the bank cannot be compelled to perform its obligations
under the TRB Repurchase Agreement that has been rendered ineffective by the respondents
non-performance of their own obligations.
Page 117 of 178

YUVIENCO Vs. DACUYCUY
G.R. NO. L-55048, MAY 27, 1981
PONENTE: BARREDO, J.
FACTS:
Petitioners own a property in Tacloban City which they intend to sell for 6.5M. They
gave the respondents the right to purchase the property nut only until July 31, 1978.
Respondents replied that they agree to buy the property and they will negotiate for details.
Petitioner sent another telegram informing respondents that their proposal is accepted and
a contract will be prepared.
Lawyer of defendant, Mr.Gamboa, arrived bringing a contact with an altered mode of
payment which says that the balance payment should be paid withing 30 days instead of the
former 90 days. (Otiginal terms: 2M payment upon execution. 4.5M after 90 days)
ISSUE:
Whether or not there was already a perfected contract of sale between the parties.
HELD:
There was no perfected contract of sale yet because both parties are still under
negotiation and hence, no meeting of the minds. Mr.Gamboa even went to the respondents
to negotiate for the sale. Even though there was an agreement on the terms of payment,
there was no absolute acceptance because respondents still insisted on further details.
With regard to the alleged violation of terms of payment, there was no written
document to prove that the respondents agreed to pay not in cash but in installment. In sale
of real property, payment of installment must be in requisite of a note under the statute of
frauds.
Page 118 of 178

METROPOLITAN MANILA DEVELOPMENT AUTHORITY VS.
JANCOM ENVIRONMENTAL CORPORATION
G.R. NO. 147465, JANUARY 30, 2002
PONENTE: MELO, J.
FACTS:
After bidding for a waste management project with the MMDA, Jancom won a
contract for the MMDA’s San Mateo waste management project. A BOT contract for the
waste to energy project was signed on Dec 19, 1997, between Jancom and the Philippine
Government.The contract, however, was never signed by President Ramos as it was too close
to the end of his term. He endorsed it to President Estrada, but Estrada refused to sign it.When
the MMDA published another call for proposals for solid waste management projects for
Metro Manila, Jancom filed a petition with the Pasig RTC asking the court to declare as void
the resolution of the Greater Metropolitan Manila Solid Waste Management Committee
disregarding the BOT contract with Jancom, and the call for bids for a new waste
management contract. On May 29, 2000, the lower court decided in favor of Jancom. When
the CA dismissed the petition, the MMDA went to the Supreme Court, arguing that the
contract with Jancom was not binding because it was not signed by the President, the
conditions precedent to the contract were not complied with, and there was no valid notice
of award.
ISSUE:
Whether or not there was a binding contract between the parties.
HELD:
Under Article 1305 of the Civil Code, "[a] contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render
some service." A contract undergoes three distinct stages — preparation or negotiation, its
perfection, and finally, its consummation. Negotiation begins from the time the prospective
contract wherein the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof. In the case at bar, the signing and execution of the
contract by the parties clearly show that, as between the parties, there was a concurrence of
offer and acceptance with respect to the material details of the contract, thereby giving rise
to the perfection of the contract. Admittedly, the notice of award has not complied with these
requirements. However, the defect was cured by the subsequent execution of the contract
entered into and signed by authorized representatives of the parties; hence, it may not be
gainsaid that there is a perfected contract existing between the parties giving to them certain
rights and obligations in accordance with the terms and conditions thereof. In any event,
petitioners, as successors of those who previously acted for the government, are estopped
from assailing the validity of the notice of award issued by the latter.
Page 119 of 178

NICOLAS SANCHEZ VS. SEVERINA RIGOS
G.R. NO. L-25494, JUNE 14, 1972
PONENTE: C.J. CONCEPCION

FACTS:
Nicolas Sanchez and Severina Rigos executed an instrument entitled “Option to
Purchase” wherein Mrs. Rigos agreed, promised and committed to sell to Mr. Sanchez a
parcel of land for the amount of P1,510 within two years from the date of the instrument, with
the understanding that the said option shall be deemed terminated and elapsed if Mr.
Sanchez shall fail to exercise his right to buy the property within the stipulated period.
Mrs. Rigos agreed and committed to sell and Mr. Sanchez agreed and committed to
buy. But there is nothing in the contract to indicate that her agreement, promise and
undertaking is supported by a consideration distinct from the price stipulated for the sale of
the land. Mr. Sanchez has made several tenders of payment in the said amount within the
period before any withdrawal from the contract has been made by Mrs. Rigos, but were
rejected nevertheless.
ISSUE:
Whether or not an accepted unilateral promise to sell without consideration distinct from the
price be withdrawn arbitrarily?
HELD:
No. An accepted promise to sell is an offer to sell when accepted becomes a contract
of sale. 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.
This view has the advantage of avoiding a conflict between Articles 1324 – on the
general principles on contracts – and 1479 – on sales – of the Civil Code.
Article 1324. When the offeror has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon consideration, as something paid or promised.
Article 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissory if the promise is supported by a consideration distinct from
the price.
The Court is of the considered opinion that it should, as it hereby reiterates the
doctrine laid down in the Atkins, Kroll and Co. case, and that, insofar as inconsistent therewith,
the view adhered to in the Southwestern Sugar & Molasses Co. case should be deemed
abandoned or modified.
Page 120 of 178

MALBAROSA V. COURT OF APPEALS
G.R. NO. 125761, APRIL 30, 2003
PONENTE: CALLEJO, SR., J.

FACTS:
Here in petitioner was the president and general manager of Philtectic Corp., a
subsidiary of respondent SEADC. Being an officer, he was issued a car and membership in the
Architectural Center. One day he intimidated with the vice-chairman of the BoD of respondent
his desire to retire and he requested that his incentive compensation be paid to him as
president of Philtectic. He then tendered his resignation to said VP. One of the officer met
with petitioner and informed him that he will get roughly around P395k.
Following his resignation, the VP sent a letter-offer to petitioner stating therein
acceptance of petitioner’s resignation and advised him that he is entitled to P251k as his
incentive compensation. In the same letter, the VP proposed the satisfaction of his incentive
by giving him the car the company issued and the membership in the Architectural Center will
be transferred to him, instead of cash. Petitioner was required by respondent through the VP
to affix his signature in the letter if he was agreeable to the proposal. The letter was given to
the petitioner by the officer who told him that he was supposed to get P395k.Petitioner was
dismayed when he received the letter-offer and refused to sign it as required by respondent
if he was agreeable to it.
Two weeks later, respondent company demanded the return the car and turn over the
membership in the Architectural Center. Petitioner wrote the counsel of respondent telling
him that he cannot comply with the demand since he already accepted the offer fourteen (14)
days after it was made. In his letter, he enclosed a Xerox of the original with his affixed
signature as required.
With his refusal, respondent instituted an action for recovery with replevin. In his
Answer to the complaint, the petitioner, as defendant therein, alleged that he had already
agreed on March 28, 1990 to the March 14, 1990 Letter-offer of the respondent, the plaintiff
therein, and had notified the said plaintiff of his acceptance; hence, he had the right to the
possession of the car.
After the trial, judgment was rendered against petitioner. The trial court opined that
there existed no perfected contract between the petitioner and the respondent on the
latter’s March 14, 1990 Letter-offer for failure of the petitioner to effectively notify the
respondent of his acceptance of said letter-offer before the respondent withdrew the same.
He appealed to the CA which affirmed the decision of the trial court. Hence, this present
appeal.
ISSUES:
Whether or not there was a valid acceptance on his part of the March 14, 1990 Letter-offer of
the respondent.
Whether or not there was an effective withdrawal by the respondent of said letter-offer.
Page 121 of 178

HELD:
No. Under Article 1319 of the New Civil Code, the consent by a party is manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. An offer may be reached at any time until it is accepted. An offer that
is not accepted does not give rise to a consent. To produce a contract, there must be
acceptance of the offer which may be express or implied but must not qualify the terms of
the offer. The acceptance must be absolute, unconditional and without variance of any sort
from the offer. The acceptance of an offer must be made known to the offeror. Unless the
offeror knows of the acceptance, there is no meeting of the minds of the parties, no real
concurrence of offer and acceptance.
The offeror may withdraw its offer and revoke the same before acceptance thereof by
the offeree. The contract is perfected only from the time an acceptance of an offer is made
known to the offeror. If an offeror prescribes the exclusive manner in which acceptance of his
offer shall be indicated by the offeree, an acceptance of the offer in the manner prescribed
will bind the offeror. On the other hand, an attempt on the part of the offeree to accept the
offer in a different manner does not bind the offeror as the absence of the meeting of the
minds on the altered type of acceptance.
An offer made inter praesentes must be accepted immediately. If the parties intended
that there should be an express acceptance, the contract will be perfected only upon
knowledge by the offeror of the express acceptance by the offeree of the offer. An
acceptance which is not made in the manner prescribed by the offeror is not effective but
constitutes a counter-offer which the offeror may accept or reject.
The contract is not perfected if the offeror revokes or withdraws its offer and the
revocation or withdrawal of the offeror is the first to reach the offeree.
In the case at bar, the respondent made its offer through its VP. On March 16, the
officer handed over the original letter-offer to petitioner. The respondent required the
petitioner to accept by affixing his signature and the date in the letter offer, thus foreclosing
an implied acceptance or any other mode of acceptance. And it is for a fact that the petitioner
did not accept or reject the offer for he needed time to decide whether to accept or reject.
Although the petitioner claims that he had affixed his conformity to the letter-offer on March
28, 1990, the petitioner failed to transmit the said copy to the respondent. It was only on April
7, 1990 when the petitioner appended to his letter to the respondent a copy of the said March
14, 1990 Letter-offer bearing his conformity that he notified the respondent of his acceptance
to said offer. But then, the respondent, through Philtectic Corporation, had already
withdrawn its offer and had already notified the petitioner of said withdrawal via
respondent’s letter dated April 4, 1990 which was delivered to the petitioner on the same day.
Indubitably, there was no contract perfected by the parties on the March 14, 1990 Letter-offer
of the respondent.
On the second issue. It is necessarily so because there was no need for the respondent
to withdraw its offer because the petitioner had already rejected the respondent’s offer on
March 16, 1990 when the petitioner received the original of the March 14, 1990 Letter-offer of
the respondent without the petitioner affixing his signature on the space therefor.
Page 122 of 178

MAMERTO LAUDICO AND FRED M. HARDEN VS. MANUEL ARIAS RODRIGUEZ, ET AL.,
G.R. NO. 16530, MARCH 31, 1922
PONENTE: AVANCEÑA, J.
FACTS:
Concepcion Felix, widow of the late Don Felipe Calderon and with whom she had one
living child, Concepcion Calderon, contracted a second marriage on June 20, 1929, with
Domingo Rodriguez, widower with four children by a previous marriage, named Geronimo,
Esmeragdo, Jose and Mauricio, all surnamed Rodriguez.Prior to her marriage to Rodriguez,
Concepcion Felix was the registered owner of 2 fishponds located in the barrio of Babañgad,
Bulacan which she consequently sold to her daughter Concepcion Calderon for P2,500. The
properties were then donated back to her and Rodriguez thus, having the properties
registered under the names of the spouses.
On March 6, 1953, Domingo Rodriguez died intestate, survived by the widow,
Concepcion Felix, his children Geronimo Esmeragdo and Mauricio and grandchildren Oscar,
Juan and Ana, surnamed Rodriguez, children of a son, Jose, who had predeceased him.The
heirs of Domingo entered into an extra-judicial settlement of his estate. Among the properties
listed as conjugal were the two parcels of land in Bulacan, which, together with another piece
of property, were divided as follows: ½ to Concepcion Feix as her share to the conjugal
property; ¾ of the remaining ½ to his children and ¼ of the remaining ½ to his grandchildren.
Corresponding new TCTs were issued.
On March 23, 1953, in a power of attorney executed by the children and grandchildren
of Domingo Rodriguez, Concepcion Felix was named their attorney in-fact, authorized to
manage their shares in the fishponds. On October 12, 1954, the Rodriguez children executed
another document granting unto the widow lifetime usufruct over one-third of the fishpond
which they received as hereditary share in the estate of Domingo, which grant was accepted
by Concepcion Felix. Then, in a contract dated December 15, 1961, the widow appeared to
have leased from the Rodriguez children and grandchildren the fishpond for a period of 5
years commencing August 16, 1962, for an annual rental of P7,161.37. At this time, the
relationship between Concepcion Felix and her step children turned sour and the widow
subsequently failed to deliver the balance of the earnings of the fishpond. A demand letter
was sent to her to claim such, but her answer was the present case seeking the annulment of
the transfer to the conjugal partnership of the two fishponds on the ground that the
conveyances in issue were obtained through duress, and were inexistent, being simulated and
without consideration.
ISSUE:
Whether or not the transfer of the two fishponds to the conjugal property were valid.
HELD:
The charge of simulation is untenable, for the characteristic of simulation is the fact
that the apparent contract is not really desired or intended to produce legal effects or in way
Page 123 of 178

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. But appellant contends that the sale by her to her daughter, and the subsequent
sale by the latter to appellant and her husband, the late Domingo Rodriguez, were done for
the purpose of converting the property from paraphernal to conjugal, thereby vesting a half
interest in Rodriguez, and evading the prohibition against donations from one spouse to
another during coverture. If this is true, then the appellant and her daughter must have
intended the two conveyance to be real and effective; for appellant could not intend to keep
the ownership of the fishponds and at the same time vest half of them in her husband. The
two contracts of sale then could not have been simulated, but were real and intended to be
fully operative, being the means to achieve the result desired. Nor does the intention of the
parties to circumvent by these contracts the law against donations between spouses make
them simulated ones.
What would invalidate the conveyances now under scrutiny is the fact that they were
resorted to in order to circumvent the legal prohibition against donations between spouses.
The illicit purpose then becomes illegal causa within the terms of the old Civil Code.
Unfortunately for herein appellant, in contracts invalidated by illegal subject matter or illegal
causa, apply rigorously the rule in pari delicto non oritur action, denying all recovery to the
guilty parties inter se. And appellant is clearly as guilty as her husband in the attempt to evade
the legal interdiction of Article 1334. Wherefore, her present action to reivindicate the,
conveyed properties was correctly repulsed by the Court. In view of the foregoing, the
decision appealed from is affirmed. Costs against appellant Concepcion Felix Vda. de
Rodriguez.
Page 124 of 178

CORAZON CATALAN ET, AL. VS. JOSE BASA ET, AL.
G.R. NO. 159567 : JULY 31, 2007
PONENTE: PUNO, C.J.

TOPIC: SPECIAL INCAPACITIES
FACTS:
On October 20, 1948, Feliciano was discharged from active military service due to his
schizophrenic reactions. Later on he was married to Cerezo. On June 16, 1951, a document was
executed wherein Feliciano allegedly donated to his sister Mercedes one-half of the subject
property.
On December 11, 1953, People’s Bank and Trust Company filed Special Proceedings
wherein it was named the guardian for the Estate of Feliciano due to the former’s
incompetency. On November 22, 1978, Feliciano and Corazon Cerezo donated property, to
their children. On March 26, 1979, Mercedes sold the property in issue in favor of her children
Delia and Jesus Basa.
On April 1, 1997, BPI, acting as Feliciano’s guardian, filed a case for Declaration of Nullity
of Documents. BPI alleged that the Deed of Absolute Donation to Mercedes was void as
Feliciano never donated the property to Mercedes. In addition, BPI averred that even if
Feliciano had truly intended to give the property to her, the donation would still be void, as
he was not of sound mind and was therefore incapable of giving valid consent.
On December 7, 1999, the trial court found, the presumption of sanity or competency
not having been duly impugned. It held that the donation was valid. The CA affirmed the
decision.
ISSUE:
Whether or not there was a valid donation.
HELD:
A donation is an act of liberality whereby a person disposes gratuitously a thing or right
in favor of another, who accepts it. Like any other contract, an agreement of the parties is
essential. Consent in contracts presupposes the following requisites: (1) it should be
intelligent or with an exact notion of the matter to which it refers; (2) it should be free; and
(3) it should be spontaneous. The parties' intention must be clear and the attendance of a vice
of consent, like any contract, renders the donation voidable. In order for donation of property
to be valid, what is crucial is the donor’s capacity to give consent at the time of the donation.
And there lies no doubt in the fact that insanity impinges on consent freely given.
The Court found that the records of the case at bar indubitably shows that the
evidence presented by the petitioners was insufficient to overcome the presumption that
Feliciano was competent when he donated the property in question to Mercedes. A study of
the nature of schizophrenia will show that Feliciano could still be presumed capable of
attending to his property rights. From these scientific studies it can be deduced that a person
suffering from schizophrenia does not necessarily lose his competence to intelligently dispose
his property.
Page 125 of 178

EUGENIO DOMINGO ET, AL. VS. HON. COURT OF APPEALS
G. R. NO. 127540, OCTOBER 17, 2001
PONENTE: QUISUMBNG, J.
FACTS:
Paulina Rigonan owned three (3) parcels of land. She allegedly sold them to private
respondents, the spouses Felipe and Concepcion Rigonan, who claim to be her relatives. In
1966, herein petitioners Eugenio Domingo, Crispin Mangabat and Samuel Capalungan, who
claim to be her closest surviving relatives, allegedly took possession of the properties by
means of stealth, force and intimidation, and refused to vacate the same. Consequently, on
February 2, 1976, herein respondent Felipe Rigonan filed a complaint for reinvindicacion
against petitioners. They alleged that they were the owners of the three parcels of land
through the deed of sale executed by Paulina Rigonan on January 28, 1965; that since then,
they had been in continuous possession of the subject properties.
According to defendants, the alleged deed of absolute sale was void for being spurious
as well as lacking consideration. They said that Paulina Rigonan did not sell her properties to
anyone. As her nearest surviving kin within the fifth degree of consanguinity, they inherited
the three lots and the permanent improvements thereon when Paulina died in 1966.
ISSUE:
Whether or not the alleged Deed of Sale executed by Paulina Rigonan in favor of the private
respondents is valid.
HELD:
The general rule is that a person is not incompetent to contract merely because of
advanced years or by reason of physical infirmities. However, when such age or infirmities
have impaired the mental faculties so as to prevent the person from properly, intelligently,
and firmly protecting her property rights then she is undeniably incapacitated.
In the present case, at the time of the execution of the alleged contract, Paulina
Rigonan was already of advanced age and senile. She died an octogenarian on March 20, 1966,
barely over a year when the deed was allegedly executed.
The unrebutted testimony of Zosima Domingo shows that at the time of the alleged
execution of the deed, Paulina was already incapacitated physically and mentally. She
narrated that Paulina played with her waste and urinated in bed. Given these circumstances,
the court held that there is sufficient reason to seriously doubt that she consented to the sale
of and the price for her parcels of land.
Page 126 of 178

MARIO J. MENDEZONA ET. AL. VS. JULIO H. OZAMIZ ET. AL.
G.R. NO. 143370,. FEBRUARY 6, 2002
PONENTE: DE LEON, JR., J.

FACTS:
A suit was instituted on September 25, 1991 by the petitioner spouses Mario J.
Mendezona and Teresita M. Mendezona as initial plaintiff and in the amended complaint filed
on October 7, 1991, herein co-petitioner spouses Luis J. Mendezona joined as co-plaintiff.
In their compliant, the petitioners as plaintiff therein alleged that petitioner spouses
Mario J. Mendezona and Teresita M. Mendezona petitioner spouses Luis J. Mendezona and
Maricar Mendezona own a parcel of land each The petitioners ultimately traced their titles of
ownership over their respective properties from a deed of Absolute Sale executed in their
favor by Carmen Ozamiz and in consideration of P 1,040,000.
It appears than on January 15, 1991, the respondents instituted the petition for
guardianship with RTC Oroquieta, City alleging that Carmen Ozamiz had become disoriented
and could not recognize most of her friends and could no longer take care of her properties
by reason of weak mind and absentmindedness. As guardians Roberto J. Montalvan and Julio
H. Ozamiz filed on August 6, 1991 with the guardianship court their Inventories and Accounts
including the 10,369 square meters Lahug property.
Said Lahug property covered by deed of Absolute Sale dated April 28, 1989 executed
by Carmen Ozamiz in favor of petitioners. In their Answer, respondents opposed the claim of
ownership of the Lahug property and alleged that the titles issued to the petitioners are
defective and illegal and the ownership of said properties was acquired in bad faith and
without value inasmuch as the consideration for the sale is grossly inadequate and
unconscionable. Respondents further alleged that on April 28, 1989 Carmen Ozamiz was
already ailing and not in full possession of her mental faculties
On September 23, 1992, the Trial court rendered decision in favor of petitioners. On
appeal the Court of Appeal reversed its decision and ruled that the Absolute Sale dated April
28, 1989 was a simulated contract since the petitioners failed to prove that the consideration
was actually paid.
ISSUE:
Whether or not there was a valid sale between the parties.
HELD:
It has been held that a person is not incapacitated to contract merely because of
advanced years or by reason of physical infirmities. Only when such age or infirmities impair
her mental faculties to such extent as to prevent her from properly, intelligently, and fairly
protecting her property rights, is she considered incapacitated.
The Court held that the respondents utterly failed to show adequate proof that at the
time of the sale on April 28, 1989 Carmen Ozamiz had allegedly lost control of her mental
faculties. After a thorough scrutiny of the transcripts of the testimonies of the witnesses, the
Page 127 of 178

Court held that the respondents’ core witnesses all made sweeping statements which failed
to show the true state of mind of Carmen Ozamiz at the time of the execution of the disputed
document. The testimonies of the respondents’ witnesses on the mental capacity of Carmen
Ozamiz are far from being clear and convincing, to say the least.
Page 128 of 178

SPS. THEIS VS. CA ET. AL.
G.R. NO. 126013, 12 FEB 1997
PONENTE: HERMOSISIMA, JR., J.:

TOPIC: MISTAKE/ERROR - ART. 1331 – 1334
FACTS:
Private respondent Calsons Development Corporation is the owner of three (3)
adjacent parcels of land (parcel nos.1, 2 and 3). All three parcels of land are situated in
Tagaytay City. Adjacent to parcel no.3 is a vacant lot denominated as parcel no. 4. In 1985,
Private respondent constructed a two-srorey house on parcel no. 3 and the two other lots
remained idle.
In a survey conducted in 1985, parcel no. 3 was erroneously indicated to be covered by
the TCT of parcel no. 1, while the parcel no. 1 and parcel no. 2 were mistakenly surveyed to be
located on parcel no. 4 instead. Unaware of the mistake private respondent sold said parcel
no. 4 to petitioners.
In 1990, petitioners discovered that parcel no. 4 was owned by another person. They
also discovered that the lots actually sold to them were parcel nos. 2 and 3. To remedy the
mistake, private respondent offered parcel nos. 1 and 2 as these two were precisely the two
vacant lots which private respondent owned and intended to sell. Petitioners rejected the
good faith offer. Private respondent made another offer, this time the return of an amount
double the price paid by petitioners. Petitioners still refused. Private respondent was then
compelled to file an action for annulment of deed of sale and reconveyance of the properties
subject thereof in the RTC which ruled on their favor and on appeal, the CA affirmed the same.
ISSUE:
Whether or not petitioners should be allowed to take parcel no. 3.
HELD:
Petition dismissed. CA decision affirmed. The SC held that private respondent
obviously committed an honest mistake in selling parcel no. 4. The good faith of the private
respondent is evident in the fact that when the mistake was discovered, it immediately
offered two other vacant lots to the petitioners or to reimburse them with twice the amount
paid. That petitioners refused either option left the private respondent with no other choice
but to file an action for the annulment of the deed of sale on the ground of mistake.
To allow the petitioners to take parcel no. 3 would be to countenance unjust
enrichment. Considering that petitioners intended at the outset to purchase a vacant lot, their
refusal to accept the offer of the private respondent to give them two (2) other vacant lots in
exchange, as well as their insistence on parcel no. 3, which is a house and lot, is manifestly
unreasonable.
Page 129 of 178

RURAL BANK OF CALOOCAN, INC. AND JOSE O. DESIDERIO, JR. VS.
THE COURT OF APPEALS AND MAXIMA CASTRO
G.R. NO. L-32116, APRIL 2L, 1981
PONENTE: DE CASTRO, J.
FACTS:
On December 7,1959 respondent Maxima Castro together with Severino Valencia they
went to the rural bank of Caloocan to apply for an industrial loan in the amount of P3,000.00
each of them and mortgaged the house and lot of Mrs Castro and also they executed a
promissory note in favor of the bank. On February 13,1961 the subject property was a subject
of sheriff sale but was postponed due to the request of Castro and Valencia with the consent
of the bank and was scheduled on April 10,1961 which was a special holiday but the auction
continued in the amount of P6,000.00 prompting Mrs Castro o filed a case against the bank
for the recovery of her property .
ISSUE:
Whether or not the promissory note executed by Mrs Castro is valid or not?
HELD:
Supreme court declare the promissory note valid between the bank and Castro and
the mortgage contract binding on Castro beyond the amount of P3,000.00 for while contracts
may not be in may not be invalidated insofar as they affect the bank and Castro on the ground
of fraud because the bank was not a participant thereto suc may however be invalidated on
the ground of substantial mistake mutually committed bt them as a consequence of the fraud
and misrepresentation inflicted by the Valencias. Wherefore finding no irreversible error in
the judgment under review. We affirmed the same in toto.
Page 130 of 178

DUMEZ COMPANY OF FRANCE VS. NATIONAL
LABOR RELATIONS COMMISSION AND FLORANTE JOSE
G.R. NO. 82340, AUGUST 12, 1991
PONENTE: FELICIANO, J.
FACTS:
Petitioner Dumez Company of France ("Dumez") is a French corporation which hires
Filipino workers through Eastern Construction Company, Inc. ("ECCOI"), a corporation
existing under the laws of and domiciled in the Philippines. Sometime in 1984, Dumez needed
additional manpower, including four (4) Senior Draftsmen at a proposed wage of US$600.00
per month for its Medical City project in Riyadh Saudi Arabia. Upon approval by the Philippine
Overseas Employment Administration ("POEA") of its corresponding request, petitioner
alleges, ECCOI summoned these draftsmen and gave each of them copy of their respective
Manpower Requisition Slip which indicated their name, category ("Senior Draftsmen") and
monthly basic salary (US$600.00). Among the draftsmen hired was private respondent
Florante Jose. Consequently, ECCOI and the draftsmen entered into an overseas employment
agreement.
Since ECCOI has no personality in Saudi Arabia, the draftsmen signed another set of
overseas employment agreements with Dumez. Private respondent signed his agreement on
16 January 1985. The monthly salary under Section 3 (j) of that agreement is based on eight
(8) hours per day for six (6) working days and one (1) paid rest day per week or a total of 240
hours per month. Though the employment agreements of the other three (3) Senior
Draftsmen reflected the amount of US$600.00 as the monthly base salary and US$2.50 as the
normal hourly rate, that of private respondent, however, showed the amount of US$680.00
monthly base salary but with the same hourly rate of US$2.50.
On 23 January 1985, private respondent commenced working at Medical City, Riyadh,
Saudi Arabia. Petitioner avers that it discovered the discrepancy in respondent's monthly base
salary when the site management in Saudi Arabia prepared the papers relating to
respondent's first month's salary. This was subsequently communicated to the Philippine
office. Mrs. Carmen Francisco of ECCOI explained in her affidavit that the discrepancy was due
to a typographical error, further alleging that private respondent was given a copy of the
Manpower Requisition Slip prior to his signing of the employment agreement with Dumez.
Petitioner also claims that Florante Jose was subsequently informed that the necessary
correction would have to be made on his salary and was requested to sign new contract
papers showing his monthly basic salary as US$600.00 with an hourly rate of US$2.50, but that
Jose insisted on being paid US$680.00 a month. Petitioner eventually acceded by paying
US$680.00 for services rendered in the first month of his employment subject, however, to
the condition that Mr. Jose would be transferred to a new job classification that would match
his desired salary scale. Petitioner found that no job with a higher classification was at that
particular time available. On 9 February 1985, Mr. Jose's services were terminated on the
ground of "surplus employee, excess of manpower and retrenchment." On 28 February 1985,
Page 131 of 178

private respondent was repatriated to the Philippines with petitioner shouldering his return
fare expenses.
On 13 September 1985, private respondent filed a complaint for illegal dismissal before
the POEA, raising the issue of whether or not there had been a breach of contract of
employment on the part of Dumez.
The POEA in its decision dated 9 April 1987 dismissed the complaint for lack of merit,
holding that the termination of private respondent's services was for a just cause in
accordance with Article 284 of the Labor Code and that the requirement of notice was duly
complied with. The POEA also ruled that there was no breach of contract on Dumez' part for
the reason that private respondent had previous knowledge that the monthly salary was in
truth US$600.00 since he was given a copy of the Manpower Requisition Slip. It likewise noted
that computation of the monthly base salary at US$2.50 per hour for 240 hours per month
results in US$600.00.
ISSUE:
Whether or not there was no illegal dismissal considering that the contract of employment
was inexistent as there was no meeting of the minds concerning the offer and acceptance.
HELD:
Even assuming arguendo, petitioner continues, that there existed a contract of
employment, private respondent's refusal to accept the actual salary of US$600.00
constituted serious misconduct, fraud or an analogous case under Article 283 (a), (c) and (d)
of the Labor Code.
Private respondent Jose, on the other hand, contends that there was constituted a
valid and subsisting contract of employment but that petitioner Dumez reneged on its
undertaking. The Solicitor General in its Comment suggests that the contract in controversy
was voidable by reason of vitiated consent.
The mutual mistake here present should be distinguished from mistake which vitiates
consent in a voidable contract. The latter case pre-supposes a valid and existing contract with
all the essential requisites present, with the element of consent, however, being vitiated. In
the case at bar, the element of consent was not present at all. There was no concurrence of
the offer and acceptance upon the subject matter and the cause which are to constitute the
contract.1 Petitioner was willing to offer only the amount of US$600.00 for the kind of
services expected of private respondent, while private respondent would accept employment
with petitioner only at a monthly salary base of US$680.00. The correct monthly base salary
figure was an essential consideration as far as each was concerned. In a situation wherein one
or both parties consider that certain matters or specifics, in addition to the subject matter and
the causa should be stipulated and agreed upon, the area of agreement must extend to all
points that the parties deem material or there is no contract.
Page 132 of 178

L.L. HILL VS. MAXIMINA CH. VELOSO, ET AL.
G.R. NO. L-9421, JULY 24, 1915
PONENTE: ARELLANO, C.J.

TOPIC: FRAUD/DECEIT – ART. 1338 – 1344
FACTS:
It is believed that defendant Maxima Ch. Veloso is indebted to Damasa Ricablanca, her
sister-in-law and widow of Potenciano Ch. Veloso, with the amount of P8, 000. It is also
believed that Domingo Franco, defendant’s son-in-law and minor child of Ricablanca, had the
latter sign a blank document for the purpose of compelling her to execute a document
regarding the acknowledgment of the abovementioned debt in his behalf. The guardian of
Franco, named Levering, according to the latter, is the one who compelled the defendant to
sign the said document on Franco’s behalf. Later on, the document that was signed by the
defendant turned out to be a document containing a different tenor which states that the
defendant had executed the said document for value of the goods that they received in La
Cooperative Filipina which they (the defendant and her husband) are bound to pay jointly and
severally to Michael and Co., for the sum of P6, 319.33. Levering, as the guardian of the minor
children of Damasa Ricablanca, commenced proceedings against the defendant for the
recovery of the sum of P8, 000. The defendant, in turn, pray for the annulment of the contract
with Michael and Co. on the grounds of deceit and error committed by her son-in-law Franco
who was then a deceased.
ISSUE:
Whether or not the alleged deceit caused by Franco may be a ground for the annulment of
the contract.
HELD:
The judgment is against defendant. The deceit, in order that it may annul the consent,
must be that which the law defines as a cause. According to Article 1269 of the Civil Code (now
Article 1338 of the New Civil Code), “there is deceit, when by words or insidious machinations
on the part of one of the contracting parties, the other is induced to execute a contract which
without them he would not have made.” The active subject and the party of the first part of
the promissory note in question is Michael and Co., and the passive subject and the party of
the second part are Maxima Ch. Veloso and Domingo Franco; two, or they be more, who are
one single subject, one single party. Domingo Franco is not one contracting party with regard
to Maxima Ch. Veloso as the other contracting party. They both are but one single contracting
party in contractual relation with, Michael and Co. Domingo Franco, like any other person who
might have been able to induce Maxima Ch. Veloso to act in the manner she is said to have
done, under the influence of deceit, would be for this purpose, but a third person. There
would then be not deceit on the part of the one of the contracting parties exercised upon the
other contracting party, but deceit practiced by a third person.
Page 133 of 178

FONTANA RESORT AND COUNTRY CLUB, INC. AND RN DEVELOPMENT CORP. VS.
SPOUSES ROY S. TAN AND SUSAN C. TAN
G.R. NO. 154670, JANUARY 30, 2012
PONENTE: LEONARDO-DE CASTRO, J.

FACTS:
Respondent Spouses tan bought from petitioner RN Development Corporation two
class "D" shares of stock in petitioner Fontana Resort worth P 387, 300.00, enticed by the
promises of petitioners' sales agents, that they would construct a park with frist class leisure
facilities in Clark Field, Pampanga to be called Fontana Leisure Park and that those class "D"
shareholders would be admitted to one membership in the country club, which will entitled
them to use park facilities and stay at a two-bedroom villa for five ordinary weekdays and two
weekends every year for free.
Two years later, respondents filed before the SEC a complaint for a refund of their P
387, 300.00 they spent to purchase shares of stock form Fontana. Respondents alleged that
they have been deceive into buying the Fontana shares because of petitioners fraudulent
misrepresentations. The construction of the park turned out to be still unfinished and the
policies, rules and regulations of the country club were obscure. The respondent spouses
after availing one free accommodation at the villa, but the succeeding reservations were
refused.
Petitioners filed their answer in which they asserted that respondents had been fully
informed of the privileges given to them as shareholders of class "D" , since these were all
explicitly provided in the promotional materials for the country club, the articles of
incorporation and the by laws of Fontana Resort and they denied that they unjustly canceled
respondents' reservation. Lastly, petitioners averred that when respondents were first
accommodated at FLP, minor or finishing construction works were left to be done and that
facilities of the country club were already operational.
SEC-SICD Hearing Officer Bacalla rendered a decision in favor of Spouses Tan. They
appealed the said decision of Bacalla before the SEC en banc but their appeal was denied.
Petitioners filed before the CA a petition for review and find their appeal to be partly
meritorious. Petitioner filed a motion for reconsideration, but it was denied, hence the
petition for review.
ISSUE:
Whether or not petitioner committed fraud or defaulted on their promises as would justify
the annulment or recission of their contract of sale with respondents.
HELD:
No, the petitioners did not commit fraud or default on their promises as would justify
the annulment or recission of their contract of sale with Respondents.
Article 1330 provides that fraud refers to dolo causante or causal fraud, in which, prior
to or simultaneous with the execution of the contract, one party secures the consent of the
Page 134 of 178

other party by using deception, without which such consent would not have been given. The
fraud must be the determining cause of the contract or must have caused the consent to be
given.
The general rule is that he who alleges fraud or mistake in a transaction must
substantiate his allegation as the presumption is that a person takes ordinary care for his
concerns and that private dealings have been entered into fairly and regularly.
In this case, respondents have miserably failed to prove how petitioners employed
fraud to induced respondents to buy shares of stock. It can only be expected that petitioners
presented the Fontana Leisure Park and the country club in the most positive light in order to
attract investor-members.
There is no showing that in their sales talk to respondents, petitioner actually used
insidious words or machinations, without which, respondents would not have brought shares
from Fontana. Respondents appears to be literate and of above-average means, who may not
be easily deceived into parting with a substantial amount of money.
What is apparent is that respondents knowingly and willingly consented to buying the
shares from Fontana, but were later on disappointed with the actual FLP facilities and club
membership benefits.
Respondents' complaint sufficiently alleged a cause of action for the annulment or
recission of the contract of sale of Fontana class "D" shares by petitioners to respondents,
however, respondents were unable to establish preponderance of evidence that they are
entitled to said annulment or recission.
Petition granted, judgment and resolution reversed and set aside.
Page 135 of 178

SPOUSES FERNANDO AND LOURDES VILORIA VS.
CONTINENTAL AIRLINES, INC.,
G.R. NO. 188288, JANUARY 16, 2012
PONENTE: REYES, J.
FACTS:
On or about July 21, 1997 and while in the United States, Fernando purchased for
himself and his wife, Lourdes, two (2) round trip airline tickets from San Diego, California to
Newark, New Jersey on board Continental Airlines. Fernando purchased the tickets from a
travel agency called “Holiday Travel” and was attended by Maragret Mager (Mager).
According to Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed
them that there were no available seats at Amtrak.
Subsequently, Fernando requested to reschedule their flight to an earlier date but
Mager informed him that flights to Newark was fully booked and offered flight via Frontier
Air but it was a higher fare so Fernando opted to request a refund. Mager denied his request
as the subject tickets are non-refundable and the only option that Continental Airlines can
offer is the re-issuance of new tickets within one (1) year from the date the subject tickets
were issued and consequently reserved two seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went to the
Greyhound Station where he saw an Amtrak station nearby and made inquiries. Amtrak told
Fernando that there are seats available and he can travel on Amtrak anytime and any day he
pleased so he purchased two tickets for Washington.
Upon returning to Philippines, Fernando sent a letter to CAI demanding a refund but
was denied and was advised for re-issuance of ticket within two years from the date they were
issued. Fernando availed of re-issuance of Lourdes’ ticket but was informed that it was non-
transferable.
Spouses Viloria filed a complaint against CAI praying for their refund, moral and
exemplary damages. They claim that the misrepresentation of Mager, agent of CAI, lead him
to avail the ticket and that CAI is liable for her misrepresentation.
Trial Court rendered an order in favor of the Spouses declaring that Mager of Holiday
Ticket is an agent of CAI and was in bad faith when she was less candid and diligent in
presenting to plaintiffs spouses their booking option. On appeal CA reversed RTC’s decision,
holding that CIA cannot be liable to be held liable for Mager’s act in the absence of any proof
that a principal-agent relationship existed between them. Hence this petition for review.
ISSUE:
Whether or not Mager is an agent of CAI and CAI should be held liable for her negligent act.
HELD:
Holiday Travel is one of the agent of CAI. All the elements of agency exist. The first and
second elements are present as CAI does not deny that it concluded an agreement with
Holiday Travel, whereby Holiday Travel would enter into contracts of carriage with third
Page 136 of 178

persons on CAI’s behalf. The third element is also present as it is undisputed that Holiday
Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is
bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth
element is also present considering that CAI has not made any allegation that Holiday Travel
exceeded the authority that was granted to it. In fact, CAI consistently maintains the validity
of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager
was not guilty of any fraudulent misrepresentation.
Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is
liable for the fault or negligence of Holiday Travel’s employees? If the passenger’s cause of
action against the airline company is premised on culpa aquiliana or quasi-delict for a tort
committed by the employee of the airline company’s agent, there must be an independent
showing that the airline company was at fault or negligent or has contributed to the
negligence or tortuous conduct committed by the employee of its agent. The mere fact that
the employee of the airline company’s agent has committed a tort is not sufficient to hold the
airline company liable. There is no vinculum juris between the airline company and its agent’s
employees and the contractual relationship between the airline company and its agent does
not operate to create a juridical tie between the airline company and its agent’s employees.
Article 2180 of the Civil Code does not make the principal vicariously liable for the tort
committed by its agent’s employees and the principal-agency relationship per se does not
make the principal a party to such tort; hence, the need to prove the principal’s own fault or
negligence.
Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent
misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing contractual
relationship between them. Therefore, it was incumbent upon Spouses Viloria to prove that
CAI was equally at fault. The records are devoid of any evidence by which CAI’s alleged liability
can be substantiated. A person’s vicarious liability is anchored on his possession of control,
whether absolute or limited, on the tortfeasor. Without such control, there is nothing which
could justify extending the liability to a person other than the one who committed the tort. It
is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over
Mager by preponderant evidence. The existence of control or supervision cannot be
presumed and CAI is under no obligation to prove its denial or nugatory assertion. Therefore,
without a modicum of evidence that CAI exercised control over Holiday Travel’s employees or
that CAI was equally at fault, no liability can be imposed on CAI for Mager’s supposed
misrepresentation.
Wherefore, the instant petition is denied.
Page 137 of 178

ALEJANDRO V. TANKEH VS. DEVELOPMENT BANK OF THE PHILIPPINES, STERLING SHIPPING
LINES, INC., RUPERTO V. TANKEH, VICENTE ARENAS, AND ASSET PRIVATIZATION TRUST
G.R. NO. 171428, NOVEMBER 11, 2013
PONENTE: LEONEN, J.
FACTS:
Respondent Ruperto V. Tankeh is the President of Sterling Shipping Lines who applied
a loan from Development Bank of the Philippines for the partial financing of M/V Golden Lilac
(now as M/V Sterling Ace).
Petitioner Dr. Alejandro V. Tankeh alleged that his younger brother, Ruperto
approached and informed him that the latter was operating a new shipping line business and
offered him (Dr.) 1,000 shares to be the director of the business worth 1M Pesos.
In 1981, petitioner signed the Assignment of Shares of Stock with Voting Rights and
the promissory note. The loan was then approved by DBP. Sometime in 1987, DBP sold the
M/V Sterling Ace in Singapore. Petitioner filed several Complaints and that the promissory
note he signed in 1981 be declared null and void on the ground that he was fraudulently
deceive into signing the contract.
ISSUE:
Whether the fraud contemplated serious enough to render a contract voidable.
HELD:
Ruperto V. Tankeh was liable for the commission of incidental fraud for refusing to
allow petitioner to participate in the management of the business. Although there was no
fraud that had been undertaken to obtain petitioner’s consent, there was fraud in the
performance of the contract. The records showed that petitioner had been unjustly excluded
from participating in the management of the affairs of the corporation. This exclusion from
the management in the affairs of Sterling Shipping Lines, Inc. constituted fraud incidental to
the performance of the obligation.There are two types of fraud contemplated in the
performance of contracts: dolo incidente or incidental fraud and dolo causante or fraud
serious enough to render a contract voidable.
Page 138 of 178

SPOUSES TONGSON VS. EMERGENCY PAWNSHOP BULA, INC.
GR NO 167874, JANUARY 15, 2010
PONENTE: CARPIO, J.
FACTS:
In May 1992, Napala offered to purchase from the Spouses Tongson their 364-square
meter parcel of land, situated in Davao City and covered by Transfer Certificate of Title (TCT)
No. 143020, for P3,000,000. Finding the offer acceptable, the Spouses Tongson executed with
Napala a Memorandum of Agreement dated 8 May 1992.
On 2 December 1992, respondents lawyer Atty. Petronilo A. Raganas, Jr. prepared a
Deed of Absolute Sale indicating the consideration as only P400,000. When Carmen Tongson
noticed that the consideration was very low, she [complained] and called the attention of
Napala but the latter told her not to worry as he would be the one to pay for the taxes and
she would receive the net amount of P3,000,000. To conform with the consideration stated
in the Deed of Absolute Sale, the parties executed another Memorandum of Agreement,
which allegedly replaced the first Memorandum of Agreement, showing that the selling price
of the land was only P400,000. Upon signing the Deed of Absolute Sale, Napala paid P200,000
in cash to the Spouses Tongson and issued a postdated Philippine National Bank (PNB) check
in the amount of P2,800,000, representing the remaining balance of the purchase price of the
subject property. Thereafter, TCT No. 143020 was cancelled and TCT No. T-186128 was issued
in the name of EPBI.
When presented for payment, the PNB check was dishonored for the reason Drawn
Against Insufficient Funds. Despite the Spouses Tongson's repeated demands to either pay
the full value of the check or to return the subject parcel of land, Napala failed to do either.
Left with no other recourse, the Spouses Tongson filed with the Regional Trial Court, Branch
16, Davao City a Complaint for Annulment of Contract and Damages with a Prayer for the
Issuance of a Temporary Restraining Order and a Writ of Preliminary Injunction.
ISSUE:
Whether or Not Napala employed fraud which induces the spouses to enter in the sale.
HELD:
The issuance of PNB check and fraudulently representation made by Napala could not
be considered as determining cause for the sale of the subject parcel of land. A valid contract
requires occurrence of three elements. In the present, there is no dispute as regards the
presence of two requisites; namely, (a) determinate subject matter, and (b) price certain in
money. As regards the requisite which is the consent of the parties, it is clearly shown for the
record that the spouses agreed to sell the land to Napala who offered to pay the price. The
fraud was not employed during the negotiation and perfection stages of the sale, but existed
in the consummation when the parties are in the process of their respective obligations
Page 139 of 178

ECE REALTY AND DEVELOPMENT INC. V. MANDAP
G.R. NO. 196182 SEPTEMBER 01, 2014
PONENTE: PERALTA, J.
FACTS:
Petitioner ECE Realty is a corporation engaged in the building and development of
condominium units. Sometime in 1995, it started the construction of a condominium project
called Central Park Condominium Building located along Jorge St., Pasay City. However,
printed advertisements were made indicating therein that the said project was to be built in
Makati City.
December 1995: respondent Mandap, agreed to buy a unit from the above project by
paying a reservation fee and, thereafter, downpayment and monthly installments. On June
18, 1996, respondent and the representatives of petitioner executed a Contract to Sell. In the
said Contract, it was indicated that the condominium project is located in Pasay City.
More than two years after the execution of the Contract to Sell, respondent Mandap,
through her counsel, wrote petitioner a letter demanding the return of P422,500.00,
representing the payments she made, on the ground that she subsequently discovered that
the condominium project was being built in Pasay City and not in Makati City as indicated in
its printed advertisements. Instead on answering the letter, petitioner ECE Realty sent a letter
informing her that her unit is already ready for inspection and occupancy should she decide
to move in.
Treating the letter as a form of denial of her demand for the return of the sum she had
paid to petitioner ECE Realty, respondent Mandap filed a complaint with the Expanded
National Capital Region Field Office (ENCRFO) of the HLURB seeking the annulment of her
contract with petitioner, the return of her payments, and damages.
Sept. 30, 2005: ENCRFO dismissed the complaint and directed the parties to resume
the fulfillment of the terms and conditions of their sales contract. ENCRFO held that the
respondent “failed to show or substantiate the legal grounds that consist of a fraudulent or
malicious dealing with her by the [petitioner], such as, the latter's employment of insidious
words or machinations which induced or entrapped her into the contract and which, without
them, would not have encouraged her to buy the unit.”
The HLURB Board of Commissioner and the Office of the President affirmed the
decision of the ENCRFO.
CA reverses the decision. It annulled the contract between the parties. ECE ordered to
return the payments made with legal interest. It held that petitioner employed fraud and
machinations to induce respondent Mandap to enter into a contract with it. It also expressed
doubt on the due execution of the Contract to Sell between the parties.
ISSUE: Whether or not ECE Realty was guilty of fraud and if so, whether such fraud is
sufficient ground to nullify its contract with Mandap.
Page 140 of 178

HELD:
No. Jurisprudence has shown that in order to constitute fraud that provides basis to
annul contracts, it must fulfill two conditions. First, the fraud must be dolo causante or it must
be fraud in obtaining the consent of the party. This is referred to as causal fraud. The deceit
must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily
prudent person into error; that which cannot deceive a prudent person cannot be a ground
for nullity. The circumstances of each case should be considered, taking into account the
personal conditions of the victim. Second, the fraud must be proven by clear and convincing
evidence and not merely by a preponderance thereof.
In the present case, this Court finds that petitioner is guilty of false representation of
a fact. This is evidenced by its printed advertisements indicating that its subject condominium
project is located in Makati City when, in fact, it is in Pasay City. However, insofar as the
present case is concerned, that the misrepresentation made by petitioner in its
advertisements does not constitute causal fraud which would have been a valid basis in
annulling the Contract to Sell between petitioner and respondent.
The Housing and Land Use Arbiter found that respondent failed to show that “the
essential and/or moving factor that led the [respondent] to give her consent and agree to buy
the unit was precisely the project's advantageous or unique location in Makati [City] – to the
exclusion of other places or city x x x.” Both the HLURB Board of Commissioners and the
Office of the President affirmed the finding of the Arbiter and unanimously held that
respondent failed to prove that the location of the said project was the causal consideration
or the principal inducement which led her into buying her unit in the said condominium
project. The Court finds no cogent reason to depart from the foregoing findings and
conclusion of the above agencies.
Indeed, evidence shows that respondent proceeded to sign the Contract to Sell
despite information contained therein that the condominium is located in Pasay City. This only
means that she still agreed to buy the subject property regardless of the fact that it is located
in a place different from what she was originally informed. If she had a problem with the
property's location, she should not have signed the Contract to Sell and, instead, immediately
raised this issue with petitioner. But she did not. It took respondent more than two years from
the execution of the Contract to Sell to demand the return of the amount she paid on the
ground that she was misled into believing that the subject property is located in Makati City.
In the meantime, she continued to make payments.
The Court is not persuaded by the ruling of the CA which expresses doubt on the due
execution of the Contract to Sell. The fact remains that the said Contract to Sell was notarized.
It is settled that absent any clear and convincing proof to the contrary, a notarized document
enjoys the presumption of regularity and is conclusive as to the truthfulness of its contents.
Neither does the Court agree that the presumption of regularity accorded to the notarized
Contract to Sell was overcome by evidence to the contrary. Respondent's allegation that she
signed the said Contract to Sell with several blank spaces, and which allegedly did not indicate
the location of the condominium, was not supported by proof. The basic rule is that mere
allegation is not evidence and is not equivalent to proof. In addition, the fact that respondent
made several payments prior to the execution of the subject Contract to Sell is not the kind
of evidence needed to overcome such presumption of regularity.
Page 141 of 178

In any case, even assuming that petitioner’s misrepresentation consists of fraud which
could be a ground for annulling their Contract to Sell, respondent's act of affixing her
signature to the said Contract, after having acquired knowledge of the property's actual
location, can be construed as an implied ratification thereof. Ratification of a voidable
contract is defined under Article 1393 of the Civil Code as follows: Art. 1393. Ratification may
be effected expressly or tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable and such reason having ceased,
the person who has a right to invoke it should execute an act which necessarily implies an
intention to waive his right.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts
showing approval or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom. Under Article 1392 of the Civil Code, “ratification extinguishes the action
to annul a voidable contract.” In addition, Article 1396 of the same Code provides that
“[r]atification cleanses the contract from all its defects from the moment it was constituted.”
Hence, based on the foregoing, the findings and conclusions of the Housing and Land
Use Arbiter, the HLURB Board of Commissioners and the Office of the President, should be
sustained.
Page 142 of 178

SPOUSES VICTOR and EDNA BINUA vs. LUCIA P. ONG
G.R. No. 207176, June 18, 2014
PONENTE: REYES, J.
TOPIC: INTIMIDATION - ART. 1335 -1336
FACTS:
Petitioner Edna was convicted of Estafa and was sentenced to imprisonment. She
was likewise ordered to pay the respondent the amount of ₱2.3M, with ten percent (10%)
interest, and damages. To avoid criminal liability, petitioner settled her indebtedness by
mortgaging her husband Victor’s properties.
However, Edna failed to settle her obligation, thus the mortgage was foreclosed. The
Sps. Binua then filed the case to nullify the Mortgage Contracts, alleging that it was
“executed under duress, that at the time of the execution of said deeds Edna was still
suffering from the effect of the conviction, and could not have been freely entered into said
contracts.”
RTC dismissed the case, citing Art. 1335 of the Civil Code, “A threat to enforce one’s
claim through competent authority, if the claim is just or legal, does not vitiate consent.” CA
affirmed the decision of the lower court.
ISSUE:
Whether the mortgage contracts were executed under duress.
HELD:
Article 1335 of the Civil Code states that, “[a] threat to enforce one’s claim through
competent authority, if the claim is just or legal, does not vitiate consent.”
In De Leon v. Court of Appeals, the Court held that in order that intimidation may vitiate
consent and render the contract invalid, the following requisites must concur:
1. that the intimidation must be the determining cause of the contract, or must have
caused the consent to be given;
2. that the threatened act be unjust or unlawful;
3. that the threat be real and serious, there being an evident disproportion between the
evil and the resistance which all men can offer, leading to the choice of the contract
as the lesser evil; and
4. that it produces a reasonable and well-grounded fear from the fact that the person
from whom it comes has the necessary means or ability to inflict the threatened
injury.
Petitioner Edna’s conviction was a result of a valid judicial process and her imprisonment is a
legal consequence of such conviction. The threat to prosecute for estafa is not an unjust act,
but rather a valid and legal act to enforce a claim, and cannot at all be considered as
intimidation. Petition is denied.
Page 143 of 178

BROBIO MANGAHAS V. BROBIO
G.R. NO. 183852, OCTOBER 20, 2010
TOPIC: INTIMIDATION - ART. 1335 -1336
FACTS:
Pacifico S. Brobio died intestate, leaving three parcels of land. He was survived by his
wife, respondent Eufrocina A. Brobio, and four legitimate and three illegitimate children;
petitioner Carmela Brobio Mangahas is one of the illegitimate children.
The heirs signed a deed of extrajudicial settlement of the estate of the Late Pacifico
with waiver of any share in said three parcel of land. Respondent promised petitioner that the
former will give the latter some share thereon. A year later, respondent was asked by the BIR
to submit an original copy of the deed. Respondent asked petitioner to sign the deed however
petitioner told respondent that she will sign only if she will give her the additional money she
promised as her share in the estate in the amount of P1,000,000.00. Respondent bargained
until the reduced amount of P600,000.00 was agreed. Since respondent has no money at that
time, she executed a promissory note. When the due date came, respondent refused to pay.
Petitinor sued. The defense of respondent was there was no consent since she was just forced
to sign the promissory note and there was no consideration.
ISSUE:
Whether or not the promissory note was void for lack of consent
HELD:
Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the
execution of the promissory note. Still, respondent insists that she was “forced” into signing
the promissory note because petitioner would not sign the document required by the BIR.
Respondent may have desperately needed petitioner’s signature on the Deed, but
there is no showing that she was deprived of free agency when she signed the promissory
note. Being forced into a situation does not amount to vitiated consent where it is not shown
that the party is deprived of free will and choice. Respondent still had a choice: she could have
refused to execute the promissory note and resorted to judicial means to obtain petitioner’s
signature. Instead, respondent chose to execute the promissory note to obtain petitioner’s
signature, thereby agreeing to pay the amount demanded by petitioner.
The fact that respondent may have felt compelled, under the circumstances, to
execute the promissory note will not negate the voluntariness of the act. As rightly observed
by the trial court, the execution of the promissory note in the amount of P600,000.00 was, in
fact, the product of a negotiation between the parties.
Page 144 of 178

CATINDIG VS. DE MENESES
G.R. NO. 165851, FEBRUARY 2, 2011
PONENTE: PERALTA, J.
TOPIC: EXISITING V. FUTURE THINGS - ART. 1347
FACTS:
Aurora Irene de Meneses is the surviving spouse of the registered owner of the
Masusuwi Fishpond. In her capacity as administratrix of her husband's estate, she filed a
Complaint for Recovery of Possession, Sum of Money and Damages against petitioners
Manuel Catindig and Silvino Roxas, Sr. before the Regional Trial Court of Malolos, Bulacan, to
recover possession over the Masusuwi Fishpond.
Respondent alleged that in September 1975, petitioner Catindig, the first cousin of her
husband, deprived her of the possession over the Masusuwi Fishpond, through fraud, undue
influence and intimidation. Since then, petitioner Catindig unlawfully leased the property to
petitioner Roxas. Petitioner Catindig maintained that he bought the Masusuwi Fishpond from
respondent and her children in January 1978, as evidenced by a Deed of Absolute Sale.
Catindig further argued that even assuming that respondent was indeed divested of her
possession of the Masusuwi Fishpond by fraud, her cause of action had already prescribed
considering the lapse of about 20 years.
The RTC ruled in favor of respondent. It found that the Deed of Absolute Sale executed
between respondent and petitioner Catindig was simulated and fictitious, and therefore, did
not convey title over the Masusuwi Fishpond to petitioner Catindig. It found that the Deed of
Absolute Sale executed between respondent and petitioner Catindig was simulated and
fictitious, and therefore, did not convey title over the Masusuwi Fishpond to petitioner
Catindig.
ISSUE:
Whether or not the Deed of Sale was genuine
HELD:
The issue on the genuineness of the deed of sale is essentially a question of fact.
Factual findings of the trial court, affirmed by the CA, are final and conclusive and may not be
reviewed on appeal. Since it was well established that the Deed of Sale is simulated and,
therefore void, petitioners’ claim that respondent's cause of action is one for annulment of
contract, which already prescribed, is unavailing, because only voidable contracts may be
annulled.
Furthermore, against the registered owners and the holder of an unregistered deed of
sale, it is the former who has a better right to possess. The certificate of title serves as
evidence of an indefeasible and incontrovertible title to the property in favor of the person
whose name appears therein. In this case, even if the Deed of Sale is valid, it would still not
help petitioner. The subject property is covered by TCT No. T-1749, registered in the name of
respondent's husband. Meanwhile, the Deed of Sale is not only unregistered, it is undated and
unnotarized.
Page 145 of 178

ORDUÑA, ET AL. V. FUENTEBELLA, ET AL.
G.R. NO. 176841, JUNE 29, 2010
PONENTE: VELASCO, JR., J.

FACTS:
Antonita Orduña purchased a residential lot from Gabriel Sr. payable in installments
but no deed of sale was executed. The installments were paid to Gabriel Sr. and later to Gabriel
Jr. after the death of the former. Improvements were thereafter introduced by petitioner and
the latter even paid its real property tax since 1979. Unknown to Orduña, the property has
been subject to further alienations until the same was ceded to respondent, Fuentebilla, Jr.
Orduña, after being demanded by Fuentebilla to vacate the disputed land, then filed a
Complaint for Annulment of Sale, Title, Reconveyance with Damages with aprayer to acquire
ownership over the subject lot upon payment of their remaining balance. The Regional Trial
Court dismissed the petition because the verbal sale between Gabriel Sr. and Orduña was
unenforceable under the Statute of Frauds. This was later affirmed by the Court of Appeals.
ISSUE:
Whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under
the Statute of Frauds
HELD:
No. It is a well-settled rule that the Statute of Frauds as expressed in Article 1403, par.
(2), of the Civil Code is applicable only to purely executory contracts and not to contracts
which have already been executed either totally or partially. Here, the verbal contract of sale
has been partially executed through the partial payments made by Orduña duly received by
both Gabriel Jr. and his father. The purpose of the Statute of Fraud is prevention fraud and
perjury in the enforcement of obligations depending for their evidence on the unassisted
memory of witnesses, by requiring some contracts and transactions to be evidenced by a
writing signed by the party to be charged. Since there is already ratification of the verbal
contract through the acceptance of benefits through the partial payments, it is thus
withdrawn from the purview of the Statute of Frauds.
Page 146 of 178

COJUANGCO, JR. V. REPUBLIC
G.R. NO. 180705

FACTS:
In 1971, Republic Act No. ("R.A.") 6260 was enacted creating the Coconut Investment
Company ("CIC") to administer the Coconut Investment Fund ("CIF"), which, under Section 8
thereof, was to be sourced from a PhP 0.55 levy on the sale of every 100 kg. of copra. Of the
PhP 0.55 levy of which the copra seller was – or ought to be – issued COCOFUND receipts, PhP
0.02 was placed at the disposition of COCOFED, the national association of coconut producers
declared by the
Philippine Coconut Administration ("PHILCOA" now "PCA") as having the largest
membership. The declaration of martial law in September 1972 saw the issuance of several
presidential decrees ("P.D.") purportedly designed to improve the coconut industry through
the collection and use of the coconut levy fund. While coming generally from impositions on
the first sale of copra, the coconut levy fund came under various names x x x. Charged with
the duty of collecting and administering the Fund was PCA. Like COCOFED with which it had a
legal linkage, the PCA, by statutory provisions scattered in different coco levy decrees, had its
share of the coco levy.
ISSUE:
Whether or not the acquisition of the so-called Cojuangco, Jr. UCPB shares by petitioner
Cojuangco x x x "not supported by valuable consideration.
HELD:
In PSJ-A, the Sandiganbayan struck down the PCA-Cojuangco Agreement as void for
lack of consideration/cause as required under Article 1318, paragraph 3 in relation to Article
1409, paragraph 3 of the Civil Code. The Sandiganbayan stated:
In sum, the evidence on record relied upon by defendant Cojuangco negates the
presence of: (1) his claimed personal and exclusive option to buy the 137,866 FUB shares; and
(2) any pecuniary advantage to the government of the said option, which could compensate
for generous payment to him by PCA of valuable shares of stock, as stipulated in the May 25,
1975 Agreement between him and the PCA.41
On the other hand, the aforementioned provisions of the Civil Code state:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Emphasis supplied)42
Art. 1409. The following contracts are inexistent and void from the beginning:
xxxx
(3) Those whose cause or object did not exist at the time of the transaction;43
Page 147 of 178

The Sandiganbayan found and so tagged the alleged cause for the agreement in
question, i.e., Cojuangco’s "personal and exclusive option to acquire the Option Shares," as
fictitious. A reading of the purchase agreement between Cojuangco and PCA, so the
Sandiganbayan ruled, would show that Cojuangco was not the only seller; thus, the option
was, as to him, neither personal nor exclusive as he claimed it to be. Moreover, as the
Sandiganbayan deduced, that option was inexistent on the day of execution of the PCA-
Cojuangco Agreement as the Special Power of Attorney executed by Cojuangco in favor of
now Senator Edgardo J. Angara, for the latter to sign the PC-ECJ Agreement, was dated May
25, 1975 while the PCA-Cojuangco Agreement was also signed on May 25, 1975. Thus, the
Sandiganbayan believed that when the parties affixed their signatures on the second
Agreement, Cojuangco’s option to purchase the FUB shares of stock did not yet exist. The
Sandiganbayan further ruled that there was no justification in the second Agreement for the
compensation of Cojuangco of 14,400 shares, which it viewed as exorbitant. Additionally, the
Sandiganbayan ruled that PCA could not validly enter, in behalf of FUB/UCPB, into a veritable
bank management contract with Cojuangco, PCA having a personality separate and distinct
from that of FUB. As such, the Sandiganbayan concluded that the PCA-Cojuangco Agreement
was null and void. Correspondingly, the Sandiganbayan also ruled that the sequestered FUB
(UCPB) shares of stock in the name of Cojuangco are conclusively owned by the Republic.
After a circumspect study, the Court finds as inconclusive the evidence relied upon by
Sandiganbayan to support its ruling that the PCA-Cojuangco Agreement is devoid of sufficient
consideration. We shall explain.
Rule 131, Section 3(r) of the Rules of Court states:
Sec. 3. Disputable presumptions.—The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other evidence:
(r) That there was a sufficient consideration for a contract;
The Court had the occasion to explain the reach of the above provision in Surtida v.
Rural Bank of Malinao (Albay), Inc.,44 to wit:
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 against an adversary who has not introduced proof to rebut it. The
effect of a legal presumption upon a burden of proof is to create the necessity of presenting
evidence to meet the legal presumption or the prima 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.
The presumption that a contract has sufficient consideration cannot be overthrown by
the bare uncorroborated and self-serving assertion of petitioners that it has no consideration.
To overcome the presumption of consideration, the alleged lack of consideration must be
shown by preponderance of evidence. Petitioners failed to discharge this burden
Page 148 of 178

BROBIO MANGAHAS V. BROBIO
G.R. NO. 183852, OCTOBER 20, 2010
TOPIC: CAUSE/CONSIDERATION
FACTS:
Pacifico S. Brobio died intestate, leaving three parcels of land. He was survived by his
wife, respondent Eufrocina A. Brobio, and four legitimate and three illegitimate children;
petitioner Carmela Brobio Mangahas is one of the illegitimate children.
The heirs signed a deed of extrajudicial settlement of the estate of the Late Pacifico
with waiver of any share in said three parcel of land. Respondent promised petitioner that the
former will give the latter some share thereon. A year later, respondent was asked by the BIR
to submit an original copy of the deed. Respondent asked petitioner to sign the deed however
petitioner told respondent that she will sign only if she will give her the additional money she
promised as her share in the estate in the amount of P1,000,000.00. Respondent bargained
until the reduced amount of P600,000.00 was agreed. Since respondent has no money at that
time, she executed a promissory note. When the due date came, respondent refused to pay.
Petitinor sued. The defense of respondent was there was no consent since she was just forced
to sign the promissory note and there was no consideration.
ISSUE:
Whether or not the promissory note was void for lack of consent
HELD:
Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the
execution of the promissory note. Still, respondent insists that she was “forced” into signing
the promissory note because petitioner would not sign the document required by the BIR.
Respondent may have desperately needed petitioner’s signature on the Deed, but
there is no showing that she was deprived of free agency when she signed the promissory
note. Being forced into a situation does not amount to vitiated consent where it is not shown
that the party is deprived of free will and choice. Respondent still had a choice: she could have
refused to execute the promissory note and resorted to judicial means to obtain petitioner’s
signature. Instead, respondent chose to execute the promissory note to obtain petitioner’s
signature, thereby agreeing to pay the amount demanded by petitioner.
The fact that respondent may have felt compelled, under the circumstances, to
execute the promissory note will not negate the voluntariness of the act. As rightly observed
by the trial court, the execution of the promissory note in the amount of P600,000.00 was, in
fact, the product of a negotiation between the parties.
Page 149 of 178

PENTACAPITAL INVESTMENT CORPORATION VS. MAKILITO MAHINAY
G.R. NO. 171736, JULY 5, 2010

TOPIC: CAUSE/CONSIDERATION
FACTS:
Mahinay was the counsel of CRDI. Pentacapital offered to but parcels of land known
as the Molino Properties owned by the CRDI but the parcels were the subject of a pending
case so Pentacapital only paid the downpayment. The CRDI allegedly instructed Pentacapital
to pay its creditors including Mahinay and the balance of the purchase price would be payable
upon Entry of Judgment in favor of the CRDI. The check received by Mahinay was returned by
him since the properties were still under litigation. Mahinay instituted a third party complaint
against CRDI which was granted. He also instituted and action for specific performance
against Pentacapital which was dismissed so a compulsory counterclaim was instituted by
Mahinay which was granted by the RTC. The CA dismissed the petition of Pentacapital
regarding the counterclaim. Hence, this petition.
ISSUE:
Whether or not the counterclaim of Mahinay is proper
HELD:
No. The Court found no sufficient proof to overcome the presumption of
consideration. He presumption that a contract has sufficient consideration cannot be
overthrown by bare, uncorroborated and self-serving assertions. At the time of the execution
of the promissory note, the properties were under court actions commenced by different
parties. The sale of the properties and the payment of Manhinay’s commissions were put on
hold. The non-payment of his commissions could very well the reason why he obtained a loan
from Pentacapital. Res judicata is also applicable in this case as the entity he sued in the first
complaint he instituted. Pentacapital Realty is the same as the petitioner as the latter is the
subsidiary of the former and that Pentacapital Realty is not privy to the contract between
CRDI and the petitioner.
Page 150 of 178

HEIRS OF DR. MARIO S. INTAC AND ANGELINA MENDOZA-INTAC VS. COURT OF APPEALS
AND SPOUSES MARCELO ROY, JR. AND JOSEFINA MENDOZA-ROY AND SPOUSES
DOMINADOR LOZADA AND MARTINA MENDOZA-LOZADA
G.R. No. 173211, October 11, 2012
PONENTE: MENDOZA, J.
TOPIC: SIMULATION OF CONTRACTS – ART. 1345 -1346
FACTS:
Ireneo Mendoza, married to Salvacion Fermin, was the owner of the subject property
located in Quezon city which he purchased in 1954. (TCT No. 242655). Ireneo had two children:
respondents Josefina and Martina (respondents), Salvacion being their stepmother. When he
was still alive, Ireneo, also took care of his niece, Angelina, since she was three years old until
she got married.
On October 25, 1977, Ireneo, with the consent of Salvacion, executed a deed of
absolute sale of the property in favor of Angelina and her husband, Mario (Spouses Intac).
Despite the sale, Ireneo and his family, including the respondents, continued staying
in the premises and paying the realty taxes. After Ireneo died intestate in 1982, his widow and
the respondents remained in the premises. After Salvacion died, respondents still maintained
their residence there. Up to the present, they are in the premises, paying the real estate taxes
thereon, leasing out portions of the property, and collecting the rentals.
The controversy arose when respondents sought the cancellation of TCT No. 242655,
claiming that the sale was only simulated and, therefore, void. The heirs of Ireneo, the
respondents in this case, alleged that: 1. When Ireneo was still alive, Spouses Intac borrowed
the title of the property (TCT No. 106530) from him to be used as collateral for a loan from a
financing institution; 2. they objected because the title would be placed in the names of said
spouses and it would then appear that the couple owned the property; that Ireneo, however,
tried to appease them, telling them not to worry because Angelina would not take advantage
of the situation considering that he took care of her for a very long time; that during his
lifetime, he informed them that the subject property would be equally divided among them
after his death; and 3. that respondents were the ones paying the real estate taxes over said
property.
Spouses Intac countered, among others, that the subject property had been
transferred to them based on a valid deed of absolute sale and for a valuable consideration;
that the action to annul the deed of absolute sale had already prescribed; that the stay of
respondents in the subject premises was only by tolerance during Ireneo’s lifetime because
they were not yet in need of it at that time; and that despite respondents’ knowledge about
the sale that took place on October 25, 1977, respondents still filed an action against them.
RTC ruled in favor of the respondents saying that the sale to the spouses Intac was null
and void. The CA also ruled that there was no consideration in the sale to the spouses Intac
and that the contract was one for equitable mortgage.
ISSUES:
Whether or not the Deed of Absolute Sale was a simulated contract or a valid agreement.
Page 151 of 178

Whether or not the Deed of Absolute Sale, dated October 25, 1977, involving the subject real
property in Pagasa, Quezon City, was a simulated contract or a valid agreement.
HELD:
The deed of sale executed by Ireneo and Salvacion was absolutely simulated for lack
of consideration and cause and, therefore, void.
Articles 1345 and 1346 of the Civil Code provide:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
when the parties do not intend to be bound at all; the latter, when the parties conceal their
true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation,
when it does not prejudice a third person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the parties to their real agreement.
Relatively simulated agreement vs. Absolute simulation
If the parties state a false cause in the contract to conceal their real agreement, the
contract is only relatively simulated and the parties are still bound by their real agreement.
Hence, where the essential requisites of a contract are present and the simulation refers only
to the content or terms of the contract, the agreement is absolutely binding and enforceable
between the parties and their successors in interest
In absolute simulation, there is a colorable contract but it has no substance as the
parties have no intention to be bound by it. "The main characteristic of an absolute simulation
is that the apparent contract is not really desired or intended to produce legal effect or in any
way alter the juridical situation of the parties." "As a result, an absolutely simulated or
fictitious contract is void, and the parties may recover from each other what they may have
given under the contract."
No valid sale took place between Ireneo and Spouses Intac. In the case at bench, the
Court is one with the courts below that no valid sale of the subject property actually took
place between the alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses
Intac. There was simply no consideration and no intent to sell it. Evidences to prove that there
was no absolute deed of sale between the parties
Critical is the testimony of Marietto, a witness to the execution of the subject absolute
deed of sale. He testified that Ireneo personally told him that he was going to execute a
document of sale because Spouses Intac needed to borrow the title to the property and use
it as collateral for their loan application. Ireneo and Salvacion never intended to sell or
permanently transfer the full ownership of the subject property to Spouses Intac. Marietto
was characterized by the RTC as a credible witness.
Aside from their plain denial, the heirs of Intac failed to present any concrete evidence
to disprove Marietto’s testimony. They claimed that they actually paid P150,000.00 for the
subject property. They, however, failed to adduce proof, even by circumstantial evidence, that
they did, in fact, pay it. Even for the consideration of P60,000.00 as stated in the contract,
petitioners could not show any tangible evidence of any payment therefor. Their failure to
prove their payment only strengthened Marietto’s story that there was no payment made
because Ireneo had no intention to sell the subject property.
Page 152 of 178

Angelina’s story, except on the consideration, was consistent with that of Marietto.
Angelina testified that she and her husband mortgaged the subject property sometime in July
1978 to finance the construction of a small hospital in Sta. Cruz, Laguna. Angelina claimed that
Ireneo offered the property as he was in deep financial need.
The contract of sale was only for the purpose of lending the title of the property to
Spouses Intac to enable them to secure a loan.
Their arrangement was only temporary and could not give rise to a valid sale. Where
there is no consideration, the sale is null and void ab initio. The case of Lequin vs. VIzconde
was cited in this case.
The fact that Ireneo was still in physical possession of the subject property after the
sale is a strong evidence to prove that there was no valid sale between the parties.
More importantly, Ireneo and his family continued to be in physical possession of the
subject property after the sale in 1977 and up to the present. They even went as far as leasing
the same and collecting rentals. If Spouses Intac really purchased the subject property and
claimed to be its true owners, why did they not assert their ownership immediately after the
alleged sale took place? Why did they have to assert their ownership of it only after the death
of Ireneo and Salvacion? One of the most striking badges of absolute simulation is the
complete absence of any attempt on the part of a vendee to assert his right of dominion over
the property.
As heretofore shown, the contemporaneous and subsequent acts of both parties in
this case, point to the fact that the intention of Ireneo was just to lend the title to the Spouses
Intac to enable them to borrow money and put up a hospital in Sta. Cruz, Laguna. Clearly, the
subject contract was absolutely simulated and, therefore, void.
The Spouses Intac never became the owners of the property despite its registration in
their names.
It is also of no moment that TCT No. 106530 covering the subject property was
cancelled and a new TCT (TCT No. 242655)21 was issued in their names. After all, registration
does not vest title. As a logical consequence, petitioners did not become the owners of the
subject property even after a TCT had been issued in their names.
Page 153 of 178

DR. LORNA C. FORMARAN VS. DR. GLENDA B. ONG AND SOLOMON S. ONG
G.R. NO. 186264, JULY 8, 2013
PONENTE: PEREZ, J.
FACTS:
Formaran received by way of donation by his uncle and aunt, Sps. Melquiades Barraca
and Praxedes Casidsid a parcel of land situated in Nabas, Aklan. From the time of donation
until present, Formaran was in actual possession of the land. Subsequent to the said donation,
Ong and father, Melquiades Barraca approached Formaran to borrow one-half of the land
donated to her so the Ong could obtain a loan from a bank to buy a dental chair. An absolute
deed of sale was executed without monetary consideration. More or less 30 years after the
said deed of sale was executed, Ong filed a complaint for unlawful detainer before the
Municipal Circuit Trial Court of Ibajay-Nabas, IBajay, Aklan against Formaran ordering the
latter to vacate the land sold to the former. The court rendered a decision in favor of Ong and
ordered Formaran to vacate the land in question. Petitioner, Formaran filed an action for the
annulment of the deed of absolute sale against Respondent, Ong in the RTC of Kalibo, Aklan.
And rendered a decision in favor of Formaran. Respondent coursed an appeal to the CA and
CA reversed and set aside the decision of the RTC and ordered petitioner to vacate the land.
Hence this present petiotion.
ISSUE:
Whether or not the absolute deed of sale is valid.
HELD:
The Court believes and so holds that the subject Deed of Sale is indeed simulated,2 as
it is: (1) totally devoid of consideration; (2) it was executed on August 12, 1967, less than two
months from the time the subject land was donated to petitioner on June 25, 1967 by no less
than the parents of respondent Glenda Ong; (3) on May 18, 1978, petitioner mortgaged the
land to the Aklan Development Bank for a ₱23,000.00 loan; (4) from the time of the alleged
sale, petitioner has been in actual possession of the subject land; (5) the alleged sale was
registered on May 25, 1991 or about twenty four (24) years after execution; (6) respondent
Glenda Ong never introduced any improvement on the subject land; and (7) petitioner’s house
stood on a part of the subject land. These are facts and circumstances which may be
considered badges of bad faith that tip the balance in favor of petitioner.
"The amplitude of foregoing undisputed facts and circumstances clearly shows that
the sale of the land in question was purely simulated. It is void from the very beginning (Article
1346, New Civil Code). If the sale was legitimate, defendant Glenda should have immediately
taken possession of the land, declared in her name for taxation purposes, registered the sale,
paid realty taxes, introduced improvements therein and should not have allowed plaintiff to
mortgage the land. These omissions properly militated against defendant Glenda’s
submission that the sale was legitimate and the consideration was paid.
Page 154 of 178

While the Deed of Absolute Sale was notarized, it cannot justify the conclusion that
the sale is a true conveyance to which the parties are irrevocably and undeniably bound.
Although the notarization of Deed of Absolute Sale, vests in its favor the presumption of
regularity, it does not validate nor make binding an instrument never intended, in the first
place, to have any binding legal effect upon the parties thereto (Suntay vs. Court of Appeals,
G.R. No. 114950, December 19, 1995; cited in Ruperto Viloria vs. Court of Appeals, et al., G.R.
No. 119974, June 30, 1999)."
Page 155 of 178

SPOUSES JOSE AND MILAGROS VILLACERAN AND FAR EAST BANK &
TRUST COMPANY VS. JOSEPHINE DE GUZMAN
G.R. NO. 169055, FEBRUARY 22, 2012
FACTS:
Josephine De Guzman filed a Complaint4 with the RTC of Echague, Isabela against the
spouses Jose and Milagros Villaceran and Far East Bank & Trust Company (FEBTC), Santiago
City Branch, for declaration of nullity of sale, reconveyance, redemption of mortgage and
damages with preliminary injunction. The complaint was later amended to include annulment
of foreclosure and Sheriff’s Certificate of Sale.
In her Amended Complaint,5 De Guzman alleged that she is the registered owner of a
parcel of land covered by Transfer Certificate of Title (TCT) No. T-236168,6 located in Echague,
Isabela, having an area of 971 square meters and described as Lot 8412-B of the Subdivision
Plan Psd-93948. On April 17, 1995, she mortgaged the lot to the Philippine National Bank (PNB)
of Santiago City to secure a loan of ₱600,000. In order to secure a bigger loan to finance a
business venture, De Guzman asked Milagros Villaceran to obtain an additional loan on her
behalf. She executed a Special Power of Attorney in favor of Milagros. Considering De
Guzman’s unsatisfactory loan record with the PNB, Milagros suggested that the title of the
property be transferred to her and Jose Villaceran and they would obtain a bigger loan as they
have a credit line of up to ₱5,000,000 with the bank.
On June 19, 1996, De Guzman executed a simulated Deed of Absolute Sale7 in favor of
the spouses Villaceran. On the same day, they went to the PNB and paid the amount of
₱721,891.67 using the money of the spouses Villaceran. The spouses Villaceran registered the
Deed of Sale and secured TCT No. T-2574168 in their names. Thereafter, they mortgaged the
property with FEBTC Santiago City to secure a loan of ₱1,485,000. However, the spouses
Villaceran concealed the loan release from De Guzman. Later, when De Guzman learned of the
loan release, she asked for the loan proceeds less the amount advanced by the spouses
Villaceran to pay the PNB loan. However, the spouses Villaceran refused to give the money
stating that they are already the registered owners of the property and that they would
reconvey the property to De Guzman once she returns the ₱721,891.67 they paid to PNB.9
De Guzman offered to pay ₱350,000 provided that the spouses Villaceran would
execute a deed of reconveyance of the property. In view of the simulated character of their
transaction, the spouses Villaceran executed a Deed of Absolute Sale10 dated September 6,
1996 in favor of De Guzman. They also promised to pay their mortgage debt with FEBTC to
avoid exposing the property to possible foreclosure and auction sale. However, the spouses
Villaceran failed to settle the loan and subsequently the property was extrajudicially
foreclosed. A Sheriff’s Certificate of Sale was issued in favor of FEBTC for the amount of
₱3,594,000. De Guzman asserted that the spouses Villaceran should be compelled to redeem
their mortgage so as not to prejudice her as the real owner of the property.11
On the other hand, the spouses Villaceran and FEBTC, in their Amended Answer,12
averred that in 1996 De Guzman was introduced to Milagros by a certain Digna Maranan. Not
Page 156 of 178

long afterwards, De Guzman requested Milagros to help her relative who had a loan obligation
with the PNB in the amount of ₱300,000. As a consideration for the accommodation, De
Guzman would convey her property located at Maligaya, Echague, Isabela which was then
being held in trust by her cousin, Raul Sison. Because of this agreement, Milagros paid De
Guzman’s obligation with the PNB in the amount of ₱300,000.
When Milagros asked for the title of the lot, De Guzman explained that her cousin
would not part with the property unless he is reimbursed the amount of ₱200,000
representing the amount he spent tilling the land. Milagros advanced the amount of ₱200,000
but De Guzman’s cousin still refused to reconvey the property. In order for De Guzman to
settle her obligation, she offered to sell her house and lot in Echague, Isabela. At first, Milagros
signified her non-interest in acquiring the same because she knew that it was mortgaged with
the PNB Santiago for ₱600,000. De Guzman proposed that they will just secure a bigger loan
from another bank using her house and lot as security. The additional amount will be used in
settling De Guzman’s obligation with PNB. Later, De Guzman proposed that she borrow an
additional amount from Milagros which she will use to settle her loan with PNB. To this
request, Milagros acceded. Hence, they went to the PNB and paid in full De Guzman’s
outstanding obligation with PNB which already reached ₱880,000.13
Since De Guzman’s total obligation already reached ₱1,380,000, the spouses Villaceran
requested her to execute a deed of absolute sale over the subject property in their favor.
Thus, the Deed of Absolute Sale is supported by a valuable consideration, and the spouses
Villaceran became the lawful owners of the property as evidenced by TCT No. 257416 issued
by the Office of the Register of Deeds of Isabela. Later, they mortgaged the property to FEBTC
for ₱1,485,000.
The spouses Villaceran denied having executed a deed of conveyance in favor of De
Guzman relative to the subject property and asserted that the signatures appearing on the
September 6, 1996 Deed of Sale, which purported to sell the subject property back to De
Guzman, are not genuine but mere forgeries.14
After due proceedings, the trial court rendered its decision on September 27, 2000.
The RTC ruled that the Deed of Sale dated June 19, 1996 executed by De Guzman in
favor of the spouses Villaceran covering the property located in Echague, Isabela was valid
and binding on the parties. The RTC ruled that the said contract was a relatively simulated
contract, simulated only as to the purchase price, but nonetheless binding upon the parties
insofar as their true agreement is concerned. The RTC ruled that De Guzman executed the
Deed of Absolute Sale dated June 19, 1996 so that the spouses Villaceran may use the property
located in Echague, Isabela as collateral for a loan in view of De Guzman’s need for additional
capital to finance her business venture. The true consideration for the sale, according to the
RTC, was the ₱300,000 the spouses Villaceran gave to De Guzman plus the ₱721,891.67 they
paid to PNB in order that the title to the subject property may be released and used to secure
a bigger loan in another bank.
The RTC also found that although the spouses Villaceran had already mortgaged the
subject property with FEBTC and the title was already in the possession of FEBTC -- which facts
were known to De Guzman who even knew that the loan proceeds amounting to ₱1,485,000
had been released -- the spouses Villaceran were nonetheless still able to convince De Guzman
that they could still reconvey the subject property to her if she pays the amount they had paid
Page 157 of 178

to PNB. The RTC found that the Deed of Sale dated September 6, 1996 was actually signed by
the spouses Villaceran although De Guzman was able to pay only ₱350,000, which amount
was stated in said deed of sale as the purchase price. The RTC additionally said that the
spouses Villaceran deceived De Guzman when the spouses Villaceran mortgaged the subject
property with the understanding that the proceeds would go to De Guzman less the amounts
the spouses had paid to PNB. Hence, according to the RTC, the spouses Villaceran should
return to De Guzman (1) the ₱350,000 which she paid to them in consideration of the
September 6, 1996 Deed of Sale, which sale did not materialize because the title was in the
possession of FEBTC; and (2) the amount of ₱763,108.33 which is the net proceeds of the loan
after deducting the ₱721,891.67 that the spouses paid to PNB.
ISSUE:
Whether or not Deed of Sale dated June 19, 1996 is a simulated contract and not a true sale of
the subject property.
HELD:
Article 134519 of the Civil Code provides that the simulation of a contract may either be
absolute or relative. In absolute simulation, there is a colorable contract but it has no
substance as the parties have no intention to be bound by it. The main characteristic of an
absolute simulation is that the apparent contract is not really desired or intended to produce
legal effect or in any way alter the juridical situation of the parties.20 As a result, an absolutely
simulated or fictitious contract is void, and the parties may recover from each other what they
may have given under the contract. However, if the parties state a false cause in the contract
to conceal their real agreement, the contract is only relatively simulated and the parties are
still bound by their real agreement. Hence, where the essential requisites of a contract are
present and the simulation refers only to the content or terms of the contract, the agreement
is absolutely binding and enforceable between the parties and their successors in interest.21
The primary consideration in determining the true nature of a contract is the intention
of the parties. If the words of a contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined not only from the express terms
of their agreement, but also from the contemporaneous and subsequent acts of the parties.22
In the case at bar, there is a relative simulation of contract as the Deed of Absolute Sale dated
June 19, 1996 executed by De Guzman in favor of petitioners did not reflect the true intention
of the parties.
As regards petitioners’ assertion that De Guzman’s previous loans should have been
considered to prove that there was an actual sale, the Court finds the same to be without
merit. Petitioners failed to present any evidence to prove that they indeed extended loans to
De Guzman in the amounts of ₱300,000, ₱600,000 and ₱200,000. We note that petitioners
tried to explain that on account of their close friendship and trust, they did not ask for any
promissory note, receipts or documents to evidence the loan. But in view of the substantial
amounts of the loans, they should have been duly covered by receipts or any document
evidencing the transaction. Consequently, no error was committed by the CA in holding that
the June 19, 1996 Deed of Absolute Sale was a simulated contract.
Page 158 of 178

ROBERT AND NENITA DE LEON VS. GILBERT AND ANALYN DELA LLANA
G.R. NO. 212277, FEBRUARY 11, 2015
FACTS:
Respondent Gilbert dela Llana entered into an undated contract of lease with Robert
de Leon and Gilbert de Leon for a 541 square-meter property intended for us as a lottery
outlet. The contract had a term of 5 years and contained a stipulation that any case arising
from such shall be filed in the Courts of Davao City only.
The case started when respondent filed a complaint of unlawful detainer before the
3rd Municipal Circuit Trial Court of Nabunturan-Mawab, Compostella Valley province against
Robert and Gilbert de Leon. Gilbert claimed that Robert and Gil failed to pay their rental
arrears and refused to vacate the said property despite repeated demands. In their defense,
Robert and Gil claimed that the lease was simulated and not binding on the parties.
MTCC-Nabunturan—Mawab dismissed the first ejectment complaint on the premise
that the lease contract was a relatively simulated contract and non-binding. And opined that
granting arguendo that the lease contract is not simulated, the dismissal was still in order on
the ground of improper venue given that the parties expressly agreed that any case arising
from the same shall be brought before the courts of Davao City only. And on August 8, 2006,
an entry of final judgment was issued that the January 24, 2006 decision of the MCTC-
Nabunturan-Mawab had already become final and executor on March 20, 2006.
Despite the decision Gilbert together with his spouse Analyn filed a second complaint
for unlawful detainer, damages and attorney’s fees against Robert and his wife Nenita before
the MTCC-Davao City. Petitioners in their answer raised the defense of res judicata that the
second complaint should be dismissed since it was already barred by prior judgment. MTCC-
Davao City found that the contract was not a simulated contract of lease. Petitioners
aggrieved appealed to the RTC.
The RTC reversed and aside the MTCC-Davao City ruling and ordered dismissal of the
second ejectment complaint because of improper venue. It held that the Municipal Trial Court
of Nabunturan, Compostella Valley Province is the right venue for the said case. Respondents
elevated their case to the Court of Appeals. CA reversed and set aside the RTC’s decision and
reinstated MTCC-Davao City’s decision. Unconvinced, petitioners filed a motion for
reconsideration which the CA denied, hence, this petition.
ISSUE:
Whether the principle of res judicata applies – that is, whether or not the second ejectment
complaint was barred by prior judgment, i.e., by the MCTC-Nabunturan-Mawab’s January 24,
2006 Decision in Civil Case No. 821.
HELD:
Yes. Res judicata a principle of law which precludes parties from re-litigating issues
actually litigated and determined by a prior and final judgment. There is a bar by prior
Page 159 of 178

judgment where there is identity of parties, subject matter, and causes of action between the
first case where the judgment was rendered and the second case that is sought to be barred.
In the MCTC-Nabunturan- Mawab decision, the first ejectment complaint was dismissed as the
undated lease contract entered into was relatively simulated and supposedly non-binding on
the parties. The pronouncement made was in reference to the cause of action raised in the
ejectment complaint. To find that the said contract was simulated, negates the cause of action
raised, hence resulting in dismissal. Furthermore, the decision attained finality on March 20,
2006 as per entry of final judgment.
The Court deems it apt to correct the MCTC-Nabunturan-Mawab’s characterization of
the simulated character of the undated lease contract, which, to note, stands as a mere error
in terminology that would not negate the granting of the present petition on the ground of
res judicata. Properly speaking, the contract, as gathered from the MCTC-Nabunturan-
Mawab’s ratiocination, should be considered as an absolutely and not a relatively simulated
contract. The distinction between the two was discussed in Heirs of Intac v. CA,:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
when the parties do not intend to be bound at all; the latter, when the parties conceal their
true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation,
when it does not prejudice a third person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the parties to their real agreement.
If the parties state a false cause in the contract to conceal their real agreement, the
contract is only relatively simulated and the parties are still bound by their real agreement.
Hence, where the essential requisites of a contract are present and the simulation refers only
to the content or terms of the contract, the agreement is absolutely binding and enforceable
between the parties and their successors in interest. In absolute simulation, there is a
colorable contract but it has no substance as the parties have no intention to be bound by it.
“The main characteristic of an absolute simulation is that the apparent contract is not really
desired or intended to produce legal effect or in any way alter the juridical situation of the
parties.” “As a result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract.
It is quite apparent that the MCTC-Nabunturan-Mawab actually intended to mean that
the undated lease contract subject of this case was absolutely simulated. Its pronouncement
that the parties did not intend to be bound by their agreement is simply inconsistent with
relative simulation. Note that regardless of the correctness of its ruling on the contract’s
simulated character, the fact of the matter is that the same had already attained finality. As a
result, the MCTC-Nabunturan-Mawab’s January 24, 2006 Decision bars any other action
involving the same parties, subject matter, and cause of action, such as the second ejectment
complaint. Further, with the undated lease contract definitely settled as absolutely simulated,
and hence, void, there can be no invocation of the exclusive venue stipulation on the part of
either party; thus, the general rule on the filing of real actions51 in the court where the
property is situated – as in the filing of the first ejectment complaint before the MCTC-
Nabunturan-Mawab located in Compostela Valley same as the subject property of this case –
prevails. Petition granted.
Page 160 of 178

HEIRS OF URETA V. HEIRS OF URETA
G.R. NO. 165748, 14 SEPTEMBER 2011
PONENTE: MENDOZA, J.
FACTS:
Alfonso Ureta was financially well-off and owned several properties. He begot
fourteen children, including herein petitioners and Policronio, father of respondents. For
taxation purposes, Alfonso sold, without monetary consideration, several parcels of land to
four of his children, including Policronio. Alfonso continued to own, possess and enjoy the
lands and their produce. Upon his death, Liberato acted as the administrator. The Fernandez
Family rented the portion transferred to Policronio. But even after the fact, the tenants never
turned over the produce of the lands to Policronio or any of this heirs, but to Alfonso and,
later, to the administrators of his estate. When Policronio died, except for a portion of one of
the parcels of land, neither Policronio nor his heirs ever took possession of the subject lands.
Alfonso’s heirs executed a Deed of Extra-Judicial Partition,8 which included all the lands that
were covered by the four (4) deeds of sale that were previously executed by Alfonso for
taxation purposes. Conrado, Policronio’s eldest son, representing the Heirs of Policronio,
signed the Deed of Extra-Judicial Partition in behalf of his co-heirs. Heirs of Policronio allegedly
learned about the Deed of Extra-Judicial Partition involving Alfonso’s estate when it was
published in the July 19, 1995 issue of the Aklan Reporter. The Heirs of Policronio averred that
the extra-judicial partition is void because Conrado signed the same without written authority
form his siblings.
ISSUE:
Whether or not Conrado Ureta’s lack of capacity to give his co-heirs’ consent to the Extra-
Judicial Partition rendered the same voidable.
HELD:
No. Article 1390 is not applicable in this case. Article 1390 (1) contemplates the
incapacity of a party to give consent to a contract. What is involved in the case at bench
though is not Conrado’s incapacity to give consent to the contract, but rather his lack of
authority to do so. Instead, Articles 1403 (1), 1404, and 1317 of the Civil Code find application
to the circumstances prevailing in this case. The Deed of Extrajudicial Partition and Sale is not
a voidable or an annullable contract under Article 1390 of the New Civil Code. Article 1390
renders a contract voidable if one of the parties is incapable of giving consent to the contract
or if the contracting party’s consent is vitiated by mistake, violence, intimidation, undue
influence or fraud. Therefore, Conrado’s failure to obtain authority from his co-heirs to sign
the Deed of Extra-Judicial Partition in their behalf did not result in his incapacity to give
consent so as to render the contract voidable, but rather, it rendered the contract valid but
unenforceable against Conrado’s co-heirs for having been entered into without their
authority.
Page 161 of 178

AVELINA ABARIENTOS REBUSQUILLO [SUBSTITUTED BY HER HEIRS, EXCEPT EMELINDA R.
GUALVEZ] AND SALVADOR A. OROSCO VS. SPS. DOMINGO AND EMELINDA REBUSQUILLO
GUALVEZ AND THE CITY ASSESSOR OF LEGAZPI CITY
G.R. NO. 204029, JUNE 4, 2014

FACTS:
Petitioner was one of the seven children of deceased, Eulalio Abarientos and Victoria
Villareal. Both of them died intestate. The deceased left a parcel of land in Legazpi City. In
2001, respondent Emelinda (daughter of petitioner), made petitioner sign two documents. In
2003, the petitioner discovered that the two documents were an affidavit of self-adjudication,
and a deed of absolute sale in favor of the respondent spouses. Petitioner then filed an action
to annul the two documents before the RTC. In the respondents’ answer, they admitted the
execution of the affidavit and deed, but they argued that it was with the consent of all the
heirs of Eulalio and Victoria, and that such was agreed to be done to facilitate the titling of the
property. Respondents further argued that the petitioner received the amount of Php 50,000
for the sale. The RTC ruled in favor of the petitioner. The CA reversed the RTC’s decision and
said that the affidavit and the sale were valid.
ISSUE:
Whether or not the affidavit of self-adjudication and the sale are valid
HELD:
No. The petition is granted. Both the affidavit and the deed of sale are void. An
Affidavit of Self-Adjudication is only proper when the affiant is the sole heir of the decedent.
(Sec. 1, Rule 74, ROC). As admitted by respondents, Avelina was not the sole heir of Eulalio. In
fact, as admitted by respondents, petitioner Salvador is one of the co-heirs by right of
representation of his mother. Without a doubt, Avelina had perjured herself when she
declared in the affidavit that she is the only daughter and sole heir of spouses Eulalio and
Victoria. The falsity of this claim renders her act of adjudicating to herself the inheritance left
by her father invalid.
In effect, Avelina was not in the right position to sell and transfer the absolute
ownership of the subject property to respondents. As she was not the sole heir of Eulalio and
her Affidavit of Self- Adjudication is void, the subject property is still subject to partition.
Avelina, in fine, did not have the absolute ownership of the subject property but only an
aliquot portion. What she could have transferred to respondents was only the ownership of
such aliquot portion. It is apparent from the admissions of respondents and the records of
this case that Avelina had no intention to transfer the ownership, of whatever extent, over
the property to respondents. Hence, the Deed of Absolute Sale is nothing more than a
simulated contract.
Page 162 of 178

The Civil Code provides: Art. 1345. Simulation of a contract may be absolute or relative.
The former takes place when the parties do not intend to be bound at all; the latter, when the
parties conceal their true agreement. Art. 1346. An absolutely simulated or fictitious contract
is void. A relative simulation, when it does not prejudice a third person and is not intended for
any purpose contrary to law, morals, good customs, public order or public policy binds the
parties to their real agreement. In the present case, respondents admitted that the purpose
of the sale was to facilitate titling and not the transfer of ownership.
Page 163 of 178

DAUDEN-HERNAEZ V. DE LOS ANGELES
G.R. NO. L-27010, 30 APRIL 1969
PONENTE: REYES, J.B.L., Acting C.J.

TOPIC: FORM OF CONTRACTS
FACTS:
Petitioner, an actress, filed a complaint against Hollywood Far East Productions to
recover fees for her services as leading actress in two motion pictures produced by the
company. Respondent judge, De los Angeles ordered the complaint dismissed grounded on
the reason that the “claim of plaintiff was not evidenced by any written document, either
public or private”. That according to Article 1358 governing unenforceable contracts, writing
was absolute and indispensable, because the amount involved exceeds five hundred pesos.
ISSUE:
Whether or not said contract must be in writing to be valid and enforceable.
HELD:
No. The aforementioned contract needs not to be in writing. Article 1315 of the Civil
Code provides that: “Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature, may be in keeping with good faith,
usage and law.”. Furthermore Article 1356 of the same book provides that: “Contracts shall
be obligatory in whatever form they may have been entered into, provided all the essential
requisites for their validity are present….” Exemptions to the general rule are solemn
contracts (needs to be in writing to be valid) and memorandums (governed by Article 1402(2)
of the Statute of Frauds). In the matter of formalities, the contractual system of our Civil Code
still follows the upholding of the spirit and intent of the parties over formalities: hence, in
general, contracts are valid and binding from their perfection regardless of form whether they
be oral or written. Petition is with merit and case remanded to lower court for fee
determination.
Page 164 of 178

SPS. ANTONIO & LETICIA VEGA VS. SOCIAL SECURITY SYSTEM (SSS)
& PILAR DEVELOPMENT CORPORATION
G.R. NO. 181672, SEPTEMBER 20, 2010
PONENTE: ABAD, J.
FACTS:
Magdalena Reyes owned a piece of titled land in Pilar Village, Las Pinas City. On August
17, 1979, she got a housing loan from SSS for which she mortgaged her land. Late 1979, Reyes
asked the Spouses Vega to assume the loan and buy her house and lot since she was to
emigrate.
An employee at SSS said, however, that SSS did not approve of members transferring
their mortgaged homes. But the Spouses Vega (Vegas) could make a private arrangement
with Reyes provided that they pay the monthly amortizations on time. Vegas agreed for Reyes
to execute in their favor a deed of assignment of real property with assumption of mortgage
and paid Reyes P20, 000 after she undertook to update the amortizations before leaving the
country. The Vegas took possession of the house in January 1981. Reyes did not execute the
deed of assignment. She left the country and left her sister (Julieta Ofilada) a special power
of attorney to convey ownership of property. Sometime between 1983 and 1984, Ofilada
executed the deed of assignment in favor of the Vegas, kept the original and gave the Vegas
two copies, one to be given to the Home Development Mortgage Fund and kept the other. A
storm in 1984 resulted in flood and destroyed their personal copy. In 1992, the Vegas learned
that Reyes did not update the amortizations because they received a notice to Reyes from the
SSS. They told the SSS that they already gave the payment to Reyes but, since it appeared
indifferent, on January 6, 1992, the Vegas updated the amortization and paid P115, 738.48 to
the SSS. They negotiated seven additional remittances and the SSS accepted P8, 681 more
from the Vegas.
On April 16, 1993, PDC filed an action for sum of money against Reyes before the RTC
of Manila, claiming that Reyes borrowed from Apex Mortgage and Loans Corporation (Apex)
P46, 500 to buy the lot and construct a house on it. Apex assigned Reyes’ credit to PDC on
December 29, 1992. RTC: Reyes must pay the PDC the loan of P46, 398 plus interest and
penalties beginning April 11, 1979 as well as attorney’s fees and costs. Unable to pay, RTC
issued a writ of execution against Reyes and its Sheriff levied on the property in Pilar Village.
On Feb 16, 1994, the Vegas requested the SSS to acknowledge their status as subrogees and
to give them an update of the account so they could settle it in full. SSS did not reply. RTC
sheriff published a notice for the auction sale of the property on Feb 24, March 3 and 10, 1994.
He also gave notice to the Vegas on March 20. The Vegas filed an affidavit of third party
claimant and a motion to quash the levy on the property. However, RTC directed the sheriff
to proceed with the execution.
ISSUE:
Whether or not the Vegas presented adequate proof of Reyes sale of the subject property to
them.
Page 165 of 178

HELD:
The CA ruled that the Vegas were unable to prove that Reyes assigned the subject
property to them, given that they failed to present the deed of assignment in their favor upon
a claim that they lost it. But the rule requiring the presentation of the original of that deed of
assignment is not absolute. Secondary evidence of the contents of the original can be
adduced, as in this case, when the original has been lost without bad faith on the part of the
party offering it.
Here, not only did the Vegas prove the loss of the deed of assignment in their favor
and what the same contained, they offered strong corroboration of the fact of Reyes sale of
the property to them. They took possession of the house and lot after they bought it. Indeed,
they lived on it and held it in the concept of an owner for 13 years before PDC came into the
picture. They also paid all the amortizations to the SSS with Antonio Vegas personal check,
even those that Reyes promised to settle but did not. And when the SSS wanted to foreclose
the property, the Vegas sent a managers check to it for the balance of the loan. Neither Reyes
nor any of her relatives came forward to claim the property. The Vegas amply proved the sale
to them.
Page 166 of 178

MISAMIS OCCIDENTAL II COOPERATIVE, INC. VS. VIRGILIO S. DAVID
G.R. NO. 129928, August 25, 2005
PONENTE: TINGA, J.
FACTS:
Virgilio S. David was the owner or proprietor of VSD Electric Sales, a company engaged
in the business of supplying electrical hardware for rural electric cooperatives like respondent
Misamis Occidental II Electric Cooperative, Inc. (MOELCI), with principal office located in
Ozamis City.
MOELCI expressed its intention to purchase a 10 MVA power transformer from David.
Its General Manager, Engr. Reynaldo Rada went to meet David in Quezon City. David agreed
to supply the power transformer provided they would secure a board resolution because the
item would still have to be imported.
On June 8, 1992, Engr. Rada and Director Jose Jimenez, in-charge of procurement,
returned to Manila and presented to David the board resolution. In turn, David presented his
proposal.
After the reading of the proposal and the discussion of terms, David instructed his
secretary to type the names of Engr. Rada and Jimenez at the end of the proposal. Both signed
the document under the word “conforme.” The board resolution was thereafter attached to
the proposal.
As stated in the proposal, the subject transformer, together with the basic accessories,
was valued at P5,200,000.00. It was also stipulated therein that 50% of the purchase price
should be paid as down payment and the remaining balance to be paid upon delivery. Freight
handling, insurance, customs duties, and incidental expenses were for the account of the
buyer.
The Board Resolution, on the other hand, stated that the purchase of the said
transformer was to be financed through a loan from the National Electrification
Administration (NEA).
As there was no immediate action on the loan application, Engr. Rada returned to
Manila in early December 1992 and requested David to deliver the transformer to them even
without the required down payment.
David granted the request provided that MOELCI would pay interest at 24% per annum. Engr.
Rada acquiesced to the condition. On December 17, 1992, the goods were shipped to Ozamiz
City via William Lines. In the Bill of Lading, a sales invoice was included which stated the agreed
interest rate of 24% per annum.
When nothing was heard from MOELCI after the shipment, Emanuel Medina (Medina),
David’s Marketing Manager, went to Ozamiz City to check on the shipment. Medina was able
to confer with Engr. Rada who told him that the loan was not yet released and asked if it was
possible to withdraw the shipped items. Medina agreed.
When no payment was made after several months, Medina sent the demand letter which
MOELCI duly received. Engr. Rada replied in writing that the goods were still in the warehouse
of William Lines again reiterating that the loan had not been approved.
Page 167 of 178

This prompted Medina to head back to Ozamiz City where he found out that the goods
had already been released to MOELCI evidenced by the shipping company’s copy of the Bill of
Lading which was stamped “Released,” and with the notation that the arrastre charges in the
amount of P5,095.60 had been paid. This was supported by a receipt of payment with the
corresponding cargo delivery receipt issued by the Integrated Port Services of Ozamiz, Inc.
Subsequently, demand letters were sent to MOELCI demanding the payment of the
whole amount plus the balance of previous purchases of other electrical hardware. Aside from
the formal demand letters, David added that several statements of accounts were regularly
sent through the mails by the company and these were never disputed by MOELCI.
On February 17, 1994, David filed a complaint about specific performance with damages with
the RTC.
CA affirmed the ruling of the RTC.
Although David was correct in saying that MOELCI was deemed to have admitted the
genuineness and due execution of the “quotation letter”, he failed to offer any textual
support to his stand that it was a contract of sale instead of a mere price quotation agreed to
by MOELCI representatives. On this score
ISSUES:
Whether or not there was a perfected contract of sale.
Whether or not there was a delivery that consummated the contract.
HELD:
David’s petition is GRANTED. CA’s decision is revered and respondent Misamis
Occidental II Electric Cooperative, Inc. is ordered to pay petitioner David the total sum of
P5,472,722.27 with interest at the rate of 12% per annum reckoned from the filing of the
complaint until fully paid.
There was a meeting of the minds, there was consent on the part of David to transfer
ownership of the power transformer to MOELCI in exchange for the price, thereby complying
with the first element. Thus, the said document cannot just be considered a contract to sell
but rather a perfected contract of sale. An examination of the alleged contract to sell, “Exhibit
A,” despite its unconventional form, would show that said document, with all the stipulations
therein and with the attendant circumstances surrounding it, was actually a Contract of Sale.
The rule is that it is not the title of the contract, but its express terms or stipulations that
determine the kind of contract entered into by the parties.
On the issue if there was a delivery that consummated the contract. Yes. There were
delivery and release.MOELCI agreed that the power transformer would be delivered and that
the freight, handling, insurance, customs duties, and incidental expenses shall be shouldered
by it.On the basis of this express agreement, Article 1523 of the Civil Code becomes applicable.
It provides: “Where, in pursuance of a contract of sale, the seller is authorized or required to
send the goods to the buyer delivery of the goods to a carrier, whether named by the buyer
or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods
to the buyer, except in the cases provided for in Article 1503, first, second and third
paragraphs, or unless a contrary intent appears.”
Page 168 of 178

Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of
Lading, was deemed to be a delivery to MOELCI. David was authorized to send the power
transformer to the buyer pursuant to their agreement. When David sent the item through the
carrier, it amounted to a delivery to MOELCI.
Page 169 of 178

ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, ASSISTED BY THEIR
RESPECTIVE HUSBANDS, HILARIO ROMANO, FELIPE BERNARDO, AND MAXIMO
LACANDALO, ISABEL ATILANO AND GREGORIO ATILANO VS.
LADISLAO ATILANO AND GREGORIO M. ATILANO
G.R. No. L-22487, May 21, 1969
PONENTE: MAKALINTAL, J.
TOPIC: REFORMATION OF INSTRUMENTS
FACTS:
In 1916, Atilano I acquired lot No. 535 by purchase. In 1920, he had the land subdivided
into five parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E, respectively. After
the subdivision had been effected, Atilano I executed a deed of salecovering lot No. 535-E in
favor of his brother Atilano II. Three other portions, namely, lots Nos. 535-B, 535-C, and 535-
D, were likewise sold to other persons. Atilano I retained for himself the remaining portions
of the land, presumably covered by the title to lot No. 535-A. upon his death, the title to this
lot passed to Ladislao, in whose name the corresponding certificate was issued.
On 1959, Atilano II and his children had the land resurveyed so that it could be
properly subdivided. However, they discovered that the land they were actually occupying
on the strength of the deed of sale was lot No. 353-A and not lot 535-E, while the land which
remained in the possession of Atilano I, and which was passed to Ladislao was lot No. 353-E
and not lot No. 535-A.
On 1960, the heirs of Atilano II alleging, inter alia, that they offered to surrender to
the possession of lot No. 535-A and demanded in return the possession of lot No. 535-E, but
the defendants refused to accept the exchange. The plaintiffs' insistence is quite
understandable, since lot No. 535-E has an area of 2,612 square meters as compared to the
1,808 square-meter area of lot No. 535-A.
In their answer to the complaint, the defendants alleged that the reference to lot No.
535-E in the deed of sale was an involuntary error; that the intention of the parties to that
sale was to convey the lot correctly identified as lot No. 535-A. On the basis of the foregoing
allegations the defendants interposed a counterclaim, praying that the plaintiffs be ordered
to execute in their favor the corresponding deed of transfer with respect to Lot No. 535-E.
The trial court rendered judgment in favor of the plaintiffs.
ISSUE:
Whether or not there has been a valid sale in view of the real intention of the parties.
HELD:
From the facts and circumstances, the object is lot No. 535-A and its designation as
lot No. 535-E in the deed of sale was a simple mistake in the drafting of the document. The
mistake did not vitiate the consent of the parties, or affect the validity and binding effect of
the contract between them. The new Civil Code provides a remedy by means of reformation
of the instrument. This remedy is available when, there having been a meeting of the minds
of the parties to a contract, their true intention is not expressed in the instrument
Page 170 of 178

purporting to embody the agreement by reason of mistake, fraud, inequitable conduct or
accident
In this case, the deed of sale executed in 1920 need no longer be reformed. The
parties have retained possession of their respective properties conformably to the real
intention of the parties to that sale, and all they should do is to execute mutual deed
ofconveyance.
Therefore, the judgment appealed from is reversed. The plaintiffs are ordered to
execute a deed of conveyance of lot No. 535-E in favor of the defendants, and the latter, in
turn, are ordered to execute a similar document, covering lot No. 535-A, in favor of the
plaintiffs. Costs against the latter.
Page 171 of 178

INVESTOR FINANCE CORPORATION VS.COURT OF APPEALS,RICHMANN
TRACTORS, INC., RICARDO B. PAJARILLAGA, ELLA P. PAJARILLAGA,
JOHN DOE, RICHARD DOE AND PETER DOE
G.R. NO. 91334, FEBRUARY 7, 1991
PONENTE: GUERRERO, J.
TOPIC: INTERPRETATION OF CONTRACTS
FACTS:
Before April 30, 1974, private respondents (Richmann Tractors Inc. is a corporation of
the Pajarillagas with Ricardo Pajarillaga as president)1 were the owners of certain
construction equipment, and, being in need of financing (for the operation of their
construction and logging business)2 they went to the Investors' Finance Corporation (or FNCB
Finance) with their equipment as collateral. In the appropriate documents3 which were
executed, it was made to appear that FNCB was the owner of the equipments and that private
respondents were merely leasing them. As a consideration for the lease, private respondents
were to pay monthly amortizations (over a period of 36 months).4
So that on April 30, 1974, petitioner FNCB Finance and respondent Richmann Tractors,
Inc. executed a "Lease Agreement" (Annex A, Petition) covering various properties described
in the Lease Schedules attached to the Lease Agreement. As security for the payment of
respondent Richmann's obligations under the Lease Agreement, respondent Ricardo B.
Pajarillaga and Ella P. Pajarillaga (respondent spouses) executed a Continuing Guaranty dated
April 30, 1974 (Annex B, Petition).
On May 20, 1976, respondent Richmann also applied for and was granted credit
financing facilities by petitioner in the amount of P977,034.88, payable in 24 equal monthly
installments commencing on June 20, 1976 and every month thereafter until fully paid, as
evidenced by the Non-Negotiable Promissory Note (Annex C, Petition) executed by said
respondent. The payment of respondent Richmann's obligation under said Promissory Note
is secured by a Continuing Guaranty dated July 31, 1974 (Annex D, Petition) executed by
respondent spouses.
Private respondents defaulted in their respective obligations under the Lease
Agreement, non-negotiable Promissory Note and the two (2) Deeds of Continuing Guaranty
aforementioned.
ISSUE:
Whether or not the remedy of the aggrieved party is to ask for the reformation, not
annulment.
HELD:
In the present case, the transaction between the FNCB and Pajarillaga was not a true
financial leasing for the intention of the parties was not to enable Pajarillaga to acquire and
use the various heavy equipment and machinery (which already belonged to him or Richmann
Tractors Inc.) but to extend to him a loan to use as capital for his construction and logging
businesses. As correctly observed by the trial court and the Court of Appeals, the lease
Page 172 of 178

agreements were simulated to disguise the true transaction between the parties, which was
a loan upon the security of Pajarillaga's various heavy equipment and machinery.
Pajarillaga's action for annulment of the simulated lease agreement was seasonably
filed in 1979, within ten years from the date of its execution in 1974 (Art. 1144, Civil Code).
However, the trial court and the Court of Appeals should have treated it as an action for
reformation of contract.
For, when the true intention of the parties to a contract is not expressed in the
instrument purporting to embody their agreement by reason of mistake, fraud, inequitable
conduct or accident the remedy of the aggrieved party is to ask for the reformation, not
annulment, of the instrument to the end that their true agreement may be expressed therein
(Arts. 1359 and 1362, Civil Code).
If the true transaction between FNCB and Pajarillaga or Richmann Tractors, Inc. –– a
loan with chattel mortgage –– had been reflected in the documents, instead of a simulated
financial leasing, the creditor-mortgagee (FNCB), upon the mortgagors' default in paving the
debt, would have been entitled to seize the mortgage and equipment from Pajarillaga or
Richmann Tractors for the purpose of foreclosing the chattel mortgage thereon. The
mortgagors would have had no cause of action for actual, moral and exemplary damages
arising from the replevin of their mortgaged machinery and equipment by the creditor, FNCB.
Page 173 of 178

LUIS PICHEL VS. PRUDENCIO ALONZO
G.R. NO. L-36902, JANUARY 30, 1982
PONENTE: GUERRERO, J.
FACTS:
Prudencio Alonzo was awarded by the Government that parcel of land designated as
Lot 21 of Subdivision Plan Psd-32465 of Balactasan, Lamitan, Basilan City in accordance with
RA 477. The award was cancelled by the Board of Liquidators on 27January 1965 on the ground
that, previous thereto, Alonzo was proved to have alienated the land to another, in violation
of law. In 1972, Alonzo’s rights to the land were reinstated. On 14 August 1968, Alonzo and his
wife sold to Pichel through a “deed of sale” all the fruits of the coconut trees which may be
harvested in the land for the period, from 15 September 1968 to 1 January 1976, in
consideration of P4,200.00. Itwas further stipulated that the vendor’s right, title, interest and
participation herein conveyed is of his own exclusive and absolute property, free from any
liens and encumbrances and he warrants to the Vendee good title thereto and to defend the
same against any and all claims of all persons whomsoever. Even as of the date of sale,
however, the land was still under lease to one Ramon Sua, and it was the agreement that part
of the consideration of the sale, in the sum of P3,650.00, was to be paid by Pichel directly to
Ramon Sua so as to release the land from the clutches of the latter. Pending said payment
Alonzo refused to allow the Pichel to make any harvest. In July1972, Pichel for the first time
since the execution of the deed of sale in his favor, caused the harvest of the fruit of the
coconut trees in the land. Alonzo filed an action for the annulment of a “Deed of Sale” before
the CFI Basilan City. On 5 January 1973, the lower court rendered its decision holding that
although the agreement in question is denominated by the parties as a deed of sale of fruits
of the coconut trees found in the vendor’s land, it actually is, for all legal intents and purposes,
a contract of lease of the land itself; an encumbrance prohibited under RA 477. The court thus
held that the deed of sale is null and void, and ordered Alonzo to pay back Pichel the
consideration of the sale in the sum of P4,200 with interests from the date of the filing of the
complaint until paid, and Pichel to pay the sum of P500.00 as attorney’s fees; with costs
against Pichel. Hence, the petition to review on certiorari was raised before the Supreme
Court. The Supreme Court set aside the judgment of the lower court and entered another
dismissing the complaint; without costs.
ISSUE:
Whether or not the contract of sale valid.
HELD:
Contract of sale valid, essential elements valid. The document in question expresses a
valid contract of sale as it has the essential elements of a contract of sale as defined under
Article 1458 of the New Civil Code. Article1458 provides that “by the contract of sale one of
the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefore a price certain in money or its equivalent,”
Page 174 of 178

and that “a contract of sale maybe absolute or conditional.” The subject matter of the
contract of sale are the fruits of the coconut trees on the land during the years from 15
September 1968 up to 1 January1976, which subject matter is a determinate thing.
Things having potential existence may be the object of the contract of sale
Under Article 1461 of the New Civil Code, things having a potential existence may be
the object of the contract of sale. A valid sale may be made of a thing, which though not yet
actually in existence, is reasonably certain to come into existence as the natural increment or
usual incident of something already in existence, and then belonging to the vendor, and the
title will vest in the buyer the moment the thing comes into existence. A man may sell
property of which he is potentially and not actually possessed.
Page 175 of 178

JACINTO TANGUILIG DOING BUSINESS UNDER THE NAME AND STYLE J.M.T. ENGINEERING
AND GENERAL MERCHANDISING V. COURT OF APPEALS AND VICENTE HERCE JR.,
G.R. NO. 117190 JANUARY 2, 1997
PONENTE: BELLOSILLO, J.
FACTS:
Petitioner Jacinto M. Tanguilig proposed to respondent Vicente Herce Jr. to construct
a wind mill system for him. After some negotiations they agreed on the construction of the
windmill for a consideration of P60,000.00. On 14 March 1988, due to the refusal and failure
of respondent to pay the balance, petitioner filed a complaint to collect the amount.
Respondent denied the claim saying that he had already paid this amount to the San Pedro
General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill
system was to be connected. According to respondent, since the deep well formed part of
the system the payment he tendered to SPGMI should be credited to his account by
petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should
be offset by the defects in the windmill system which caused the structure to collapse after a
strong wind hit their place.
Petitioner denied that the construction of a deep well was included in the agreement
to build the windmill system, for the contract price of P60,000.00 was solely for the windmill
assembly and its installation. He also disowned any obligation to repair or reconstruct the
system since its collapse was attributable to a typhoon, a force majeure, which relieved him
of any liability.
ISSUES:
Whether or not the payment for the deep well is part of the contract price
HELD:
There is absolutely no mention in the two documents that a deep well pump is a
component of the proposed windmill system. The contract prices fixed in both proposals
cover only the features specifically described therein and no other. Respondent is directed to
pay petitioner Tanguilig the balance of P15,000 plus legal interest.
Regarding the second issue, the Supreme Court has consistently held that in order for
a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the
Civil Code four (4) requisites must concur: (a) the cause of the breach of the obligation must
be independent of the will of the debtor; (b) the event must be either unforeseeable or
unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and, (d) the debtor must be free from any participation in or
aggravation of the injury to the creditor. Petitioner failed to show that the collapse of the
windmill was due solely to a fortuitous event. Petitioner merely stated that there was a
"strong wind." But a strong wind in this case cannot be fortuitous. On the contrary, a strong
wind should be present in places where windmills are constructed. Petitioner is ordered to
"reconstruct subject defective windmill system, in accordance with the one-year guaranty".
Page 176 of 178

BORROMEO, ET AL. V CA, ET AL.,
G.R. NO. L-22962, SEPTEMBER 28, 1972
FACTS:
Defendant was a distributor of lumber belonging to Mr. Miller who was the agent of
the Insular Lumber Company in Cebu City. Defendant being a friend and former classmate of
plaintiff used to borrow from the latter certain amounts from time to time. On one occasion
with some pressing obligation to settle with Mr. Miller, defendant borrowed from plaintiff a
large sum of money for which he mortgaged his land and house in Cebu City. Mr. Miller filed
civil action against the defendant and attached his properties including those mortgaged to
plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered
because not properly drawn up. Plaintiff then pressed the defendant for settlement of his
obligation, but defendant instead offered to execute a document promising to pay his
indebtedness even after the lapse of ten years. Liquidation was made and defendant was
found to be indebted to plaintiff in the sum of P7,220.00, for which defendant signed a
promissory note therefor on November 29, 1933 with interest at the rate of 12% per annum,
agreeing to pay 'as soon as I have money'. The note further stipulated that defendant 'hereby
relinquish, renounce, or otherwise waive my rights to the prescriptions established by our
Code of Civil Procedure for the collection or recovery of the above sum of P7,220.00. ... at any
time even after the lapse of ten years from the date of this instrument.
ISSUE/S:
Whether or not the petitioners could stil collect the debt from the respondents even after the
lapse of the 10 year period as stipulated in the promissory note.
HELD:
It is a fundamental principle in the interpretation of contracts that while ordinarily the
literal sense of the words employed is to be followed, such is not the case where they "appear
to be contrary to the evident intention of the contracting parties," which "intention shall
prevail." in Nielson and Company v. Lepanto Consolidated Mining Company, this Court, with
Justice Zaldivar, went on to state: "This is the basic rule in the interpretation of contracts
because all other rules are but ancillary to the ascertainment of the meaning intended by the
parties. And once this intention has been ascertained it becomes an integral part of the
contract as though it had been originally expressed therein in unequivocal terms. " While not
directly in point, what was said by Justice Labrador in Tumaneng v. Abad is relevant: "There is
no question that the terms of the contract are not clear on the period of redemption. But the
intent of the parties thereto is the law between them, and it must be ascertained and
enforced." Nor is it to be forgotten, following what was first announced in Velasquez v.
Teodoro that "previous, simultaneous and subsequent acts of the parties are properly
cognizable indicia of their true intention." There is another fundamental rule in the
interpretation of contracts specifically referred to in Kasilag v. Rodriguez, as "not less
Page 177 of 178

important" than other principles which "is to the effect that the terms, clauses and conditions
contrary to law, morals and public order should be separated from the valid and legal contract
when such separation can be made because they are independent of the valid contract which
expresses the will of the contracting parties. x x x
From the joint record on appeal, it is undoubted that the complaint was filed on
January 7, 1953. If the first ten-year period was to be excluded, the creditor had until
November 29, 1953 to start judicial proceedings. After deducting the first ten-year period
which expired on November 29, 1943, there was the additional period of still another ten
years. Nor could there be any legal objection to the complaint by the creditor Borromeo of
January 7, 1953 embodying not merely the fixing of the period within which the debtor
Villamor was to pay but likewise the collection of the amount that until then was not paid. As
was clearly set forth in Tiglao v. The Manila Railroad Company: There is something to
defendant's contention that in previous cases this Court has held that the duration of the term
should be fixed in a separate action for that express purpose. But we think the lower court
has given good reasons for not adhering to technicalities in its desire to do substantial justice.
Page 178 of 178

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NSAINT LOUIS UNIVERSITY

A. BONIFACIO ST., 2600 BAGUIO CITY,

A Compilation of Case Digests in Partial

1 G.R. No. 186069 Cabahug v. NAPOCOR 10

3 G.R. No. 195117 Hur Tin Yang v. People 13-14

4 G.R. No. 191431 Cruz v. Gruspe 15-16

7 G.R. No. 145483 Lorenzo Shipping Corp. v. BJ Marthel International, Inc., 22

8 G.R. No. 181833 International Freeport Traders, Inc. v. Danzas 23-24

11 G.R. No. 138113 Bugatti v. Court of Appeals 29-30

12 G.R. No. 133632 BPI Investment Corporation v. Court of Appeals 31

13 2 SCRA 205 Cui v. Arellano University 32-33

14 G.R. No. 168523 Pactum commissorium: Edralin v. Philippines Veterans Bank 34

15 Pactum commissorium: Garcia v. Villar 35-36

Prohibition to marry clause: Duncan Association of Detailman-PTGWO

19 G.R. No. 153674 Exclusivity clause: Avon Cosmetics, Inc. v. Luna 42

Chua Tee Dee v. CA re: Deprivación de derecho v. Deprivación de

24 G.R. No. 174632 Martin v. DBS Bank Philippines, Inc. 51-52

25 G.R. No. 189602 Heirs of Zabala v. Court of Appeals 53

28 G.R. No. 160600 Gonzalo v. Tarnate 59

29 G.R. No. 207597 Campos v. Bank of the Philippine Islands 60-61

31 G.R. No. 90634 Carmelcraft Corporation v. National Labor Relations Commission64

32 G.R. No. 109125 Asuncion v. Court of Appeals 65

33 G.R. No. 133107 Rizal Commercial Banking Corporation v. Court of Appeals 66

Right of first refusal: Polytechnic University of the Philippines v. Golden

37 G.R. No. 200895 Mendiola v. Commerz Trading Int’l., Inc. 74-75

38 G.R. No. 156841 GF Equity, Inc. v. Valenzona 76-77

39 G.R. No. 124290 Allied Banking Corporation v. Court of Appeals 78

40 G.R. No. 159912 United Coconut Planters Bank v. Beluso 79

41 G.R. No. 184041 Saludo, Jr. v. Security Bank Corp. 80-81

42 G.R. No. 156966 Pilipino Telephone Corporation v. Tecson 82-83

44 G.R. No. 88880 Philippine National Bank v. Court of Appeals 86-87

45 G.R. No. 101771 Florendo v. Court of Appeals 88

46 G.R. No. 187678 Juico v. China Banking Corporation 89-90

47 G.R No. 181045 Silos v. Philippine National Bank 91-92

49 G.R. No. 169846 Borromeo v. Court of Appeals 95-96

50 G.R. No. 132196 Valdez v. Court of Appeals

51 G.R. No. 177113 Sta. Lucia Realty v. Buenaventura

52 G.R. No. 164703 Tortious interference: Go v. Cordero

53 G.R. No. 201787 Inocencion v. Hospicio de San Jose

54 G.R. No. 179382 Mamaril v. The Boy Scout of the Philippines

55 G.R. No. 118248 DKC Holdings Corporation v. Court of Appeals

56 G.R. No. 186738 Prudential Bank and Trust Company v. Abasolo

57 G.R. No. 120554 So Ping Bun v. Court of Appeals

II. ESSENTIAL REQUISITES/ ELEMENTS

60 G.R. No L-55048, Yuvienco v. Dacuycuy

Metropolitan Manila Development Authority v. Jancom Environmental

62 45 SCRA 368 Sanchez v. Rigos

63 G.R. No. 125761 Malbarosa v. Court of Appeals

64 G.R. No. 16530 Laudico v. Rodriguez

66 G.R. No. 127540 Domingo v. Court of Appeals

67 G.R. No. 143370 Mendezona v. Ozamiz

68 G.R. No. 126013 Theis v. Court of Appeals

69 G.R. No. L-32116 Rural Bank of Caloocan v. Court of Appeals

71 31 Phil 160 Hill v. Veloso

73 G.R. No. 188288 Viloria v. Continental Airlines, Inc.,

74 G.R. No. 171428 Tankeh v. Development Bank of the Philippines

75 G.R. 167874 Tongson v. Emergency Pawnshop Bula Inc.

76 G.R. No. 196182 ECE Realty and Development Inc. v. Mandap