FAMILY RELATIONS Cases.docx

8/10/2019 FAMILY RELATIONS Cases.docx

1/60

FAMILY RELATIONS

ARTICLE 173

HEIRS OF CHRISTINA AYUSTE vs.COURT OF APPEALS

G.R. No. 118784, September 2, 1999

Facts: Christina and Rafael Ayuste bought a house and lot, the title to which was in the nameof Rafael Ayuste married to Christina Ayuste.

Rafael sold the property to Viena Malabonga in 1987 without the consent of his wife.The deed of sale was registered and a TCT was issued in the name of the buyer during thesame year.

After her husbands death in 1989, Christina discovered the unauthorized sale. In 1990,

she filed a complaint seeking the annulment of the sale against the buyer. The TC annulled thesale. The CA however, reversed the decision invoking Art. 172 CC, holding that the right ofChristina to bring an action for the annulment of the sale is barred for failure to file the sameduring the existence of the marriage.

Issue: Is the action of Christina barred for having been filed out of time?

Held: Yes. Art. 173 is clear. The wife may during the marriage and within 10 years from thetransaction ask the courts for the annulment of any contract entered into by the husband withouther consent.

Although the action was filed within 10 years from the questioned transaction, it was notbrought during the existence of the marriage which was dissolved upon the death of Rafael in

1989.

PROPERTY, OWNERSHIP & ITS MODIFICATIONS

Ownership vs. Possession

GARCIA vs. COURT OF APPEALSG.R. NO. 133140, AUGUST 10, 1999

Facts: In 1981, a lot was registered and sold by Pedro Garcia to the Magpayo spouses. TheMagpayos mortgaged the land to the Philippine Bank of Commerce (PBCom). The spousesfailed to pay, hence, the mortgage was extra-judicially closed. The petition filed by PBCom forthe issuance of the writ of possession was granted, however, upon service of the writ ofpossession, Mrs. Magpayos brother, Jose Garcia, who was in possession of the land, refused


2/60

to honor it and filed a motion for intervention. He alleged that he inherited the land as one of theheirs of his mother.

The lower court held that the mortgage was void but, upon appeal, CA reversed its decision. Petitioner appealed to the SC

and raised, as one of the errors, that CA decided the case based on issues not raised in the trial court nor in the appellants brief.

Issue: Did the Court of Appeals err in resolving the issues of ownership and possession?

Held: No. PBComs appellate brief alleged that the trial court could not distinguish ownershipfrom possession; that plaintiff- appellees possession could not ripen into ownership; that hewas an intruder in bad faith and his possession is certainly not in the concept of an owner.

We stress again that the possession and ownership are distinct legal concepts. Ownership exists when a thing pertaining to

one person is completely subjected to his will in a manner not prohibited by law and consistent with the rights of others. Ownership

confers certain rights to the owner, one of which is the right to dispose of the thing by way of sale. Pedro Garcia and his wife

exercised their right to dispose of what they owned when they sold the subject property to the Magpayo spouses.

On the other hand, possession is defined as the holding of a thing or the enjoyment of aright. Literally, to possess means to actually and physically occupy a thing with or without right.Possession may be had in one of two ways: possession in the concept of an owner andpossession of a holder. A possessor in the concept of an owner may be the owner himself orone who claims to be so. On the other hand, one who possesses as a mere holder

acknowledges in another a superior right which he believes to be ownership, whether his beliefis right or wrong.The records show that petitioner occupied the property not in the concept ofan owner for his stay was merely tolerated by his parents.

CO-OWNERSHIP: ARTICLES 493 AND 494

TOMAS CLAUDIO MEMORIAL COLLEGE vs. COURT OF APPEALS

G.R. No. 124262, October 12, 1999

Facts: Private Respondents De Castro filed an action for partition over a parcel of land whichwas sold, without their knowledge, by their brother Mariano in favor of Petitioner Tomas ClaudioMemorial College. It is the contention of the private respondent De Castros that Mariano wasonly able to sell his undivided share on the lot in question but not the other co-ownersequivalent to four-fifths (4/5) of the property. Mariano, on the other hand, raises the defense ofprescription/laches.

Issue: 1) Did the sale by Mariano effectively include the entire land?2) Was the action for partition filed by the siblings of Mariano barred by prescription?

Held: 1) No. Even if a co-owner sells the whole property as his, the sale will affect only hisown share but not those of the other co-owners who did not consent to the sale. Under Article

493 of the Civil Code, the sale or other disposition affects only the sellers share pro indiviso,and the transferee gets only that which corresponds to his grantors share in the property ownedin common.

2) No. In the light of the foregoing, petitioners defense of prescription against an action forpartition is a vain proposition. Pursuant to Article 494 of the Civil Code, no co-owner shall beobliged to remain in the co-ownership. Such co-owner may demand at anytime the partition ofthe thing owned in common, insofar as his share is concerned. In Budlong vs. Bondoc, this


3/60

Court has interpreted said provision of law to mean that the action for partition isimprescriptible. It cannot be barred by prescription.

Art ic le 539; Rights of a Possesso r

PHILIPPINE TRUST COMPANY vs. COURT OF APPEALS

G.R. No. 124658, December 15, 1999

Facts: Private respondent Simeon Policarpio Shipyard and Shipping Corporation filed acomplaint for damages and injunction against petitioner Philtrust company for the fraudulentpossession of the land occupied by the former on the basis of an alias writ of execution. Thewrit of execution was based on a judgment previously decided that upheld the validity offoreclosure of Philtrust of the properties mortgaged by private respondents and Philtrusts rightto possess the property.

Private respondent contends that the property fraudulently possessed by Philtrust was

not included in the foreclosed mortgaged property. Thus, SPSSC is anchoring its complaint fordamages on the improper implementation of the alias writ of execution which as a result it wasdeprived of possession of the property (OCT-R-165). Petitioner, on the other hand, contendsthat SPSSC no longer owns the subject property because it was already foreclosed byLandbank; thus, not being the owner, Philtrust alleges that SPSSC cannot be entitled topossession.

Issue: Does private respondent SPSSC have a right to institute the complaint for damages?

Held: Since private respondent was in possession of the aforesaid land when the writ ofpossession was improperly implemented, it is not correct therefore to say that privaterespondent does not have a cause of action. It is elementary that a lawful possessor of a thinghas the right to institute an action should he be disturbed in its enjoyment.

Verily, Article 539 of the Civil Code states that Every possessor has a right to berespected in his possession; and should he be disturbed therein, he shall be restored to saidpossession by the means established by the laws and rules of court. The phrase everypossessor in the article indicates that all kinds of possession, from that of the owner to that of amere holder, except that which constitutes a crime, should be respected and protected by themeans established and the laws of procedure. Consequently, private respondent having beenin lawful possession of the property covered by OCT-R-165 at the time of possession wasimplemented, may institute an action for having been disturbed in its enjoyment.

Partition

NOCEDA vs. COURT OF APPEALSG.R. No. 119730, September 2, 1999

Facts: On June 1, 1981, Directo, Noceda, and Arbizo, heirs of the late Celestino Arbizo,extrajudicially settled a parcel of land known as Lot 1121. However, on August 17, 1981,another extrajudicial settlementpartition of Lot 1121 was executed: 3/5 of the said land wentto Maria Arbizo while Direto and Noceda got only 1/5 each. Later, it was found out that Lot


4/60

1121 contained an area in excess of that stated in its tax declaration, which was the basis ofpartition.

After Directo demanded from Noceda to vacate her land on the ground that the latterfenced the entire land of the former without her consent, a complaint for the recovery ofpossession and ownership and rescission/annulment of donation was filed against Noceda.

Noceda claimed that the discrepancies between the two deeds of partition with respect

to the area of Lot 1121 and the respective share of the parties therein indicated that they neverintended any of the deeds to be the final determination of the portions of Lot 1121 allotted tothem.

Issue: Should Lot 1121 be partitioned in accordance with the extra-judicial settlement datedAugust 17, 1981?

Held: Yes. The discrepancies between the extra-judicial settlements executed by Directo,Noceda and Maria Arbizo on June 1, 1981 and August 17, 1981 only meant that the latter wasintended to supersede the former. Although in the extra-judicial settlement dated August 17, theheirs of Celestino partitioned only less than the actual land area to conform with the areadeclared under tax declaration, the heirs were actually occupying a bigger portion the total land

area of which exceeded that of what is stated in the tax declaration.The purpose of partition is to put an end to co-ownership. It seeks a severance of theindividual interest of each co-owner, vesting in each a sole estate in specific property and givingto each one a right to enjoy his estate without supervision or interference from the other. Thereis no co-ownership where portion owned is concretely determined and identifiable, though nottechnically described, or that said portions are still embraced in one and the same certificate oftitle does not make said portions less determinable or identifiable, or distinguishable, one fromthe other, or that dominion over each portion less exclusive, in their respective owners. Apartition legally made confers upon each heir the exclusive ownership of the propertyadjudicated to him.

Part it ion; Compromise Agreement

ABARINTOS vs. COURT OF APPEALSSeptember 30, 1999

Facts: Petitioners and private respondents are co-owners of a hacienda. The co-ownersappointed petitioner Jose Garcia as administrator of the property. When private respondents,found out that the hacienda was mismanaged, they decided to manage directly the hacienda.Subsequently, the co-owners agreed to terminate the co-ownership and divide the propertyamong themselves. The co-owners entered into a compromise agreement to resolve the severalcases for partition filed by the co-owners and such agreement was approved by the lower court.

Private respondents, however, brought an action seeking to annul the compromise

agreement on the ground that it decides the action for the partition and appointment of areceiver without the benefit of trial on the merits.

Issue: Is the compromise agreement conclusive as to the civil cases filed by the co-owners.

Held: Under Article 2028 of the Civil Code, a compromise is a contract whereby the parties,by making reciprocal concessions, avoid a litigation or put an end to one already commenced.

A judicial compromise has the force of law and is conclusive between the parties. Once an


5/60

agreement is stamped with approval, it becomes more than a mere contract binding the parties,and having the sanction of the court and entered as its determination of the controversy, it hasthe force and effect of any other judgment.

It is settled that every act which is intended to put an end to indivision among co-heirsand legatees or devisees is deemed to be a partition, although it should purport to be a sale, anexchange, a compromise, or any other transaction.

SUCCESSION

ART. 811; PROBA TE OF A HOLOGRAPHIC WILL

CODOY vs. CALUGAYG.R. No. 123486, August 12, 1999

Facts: Matilde Seno Vda. de Ramonal died on January 16, 1990. On April 6, 1990,

Evangeline Calugay, Josephine Salcedo and Eufemia Patigas, devisees and legatees of theholographic will of Matilde, filed a petition for probate of the will. On June 28, 1990, EugeniaCodoy and Manuel Ramonal filed an opposition to the petition for probate, alleging that the willwas a forgery and that it is illegible. The legatees and devisees presented 6 witnesses andvarious documentary evidence. The oppositors instead of presenting their evidence, filed ademurrer to evidence, claiming that the legatees and devisees failed to establish sufficientfactual and legal basis for the probate of the will.

Issues: 1) Are the provisions of Art. 811 NCC permissive or mandatory?2) Should the probate of the will be allowed?

Held: 1) Art. 811 is mandatory. The word shall connotes a mandatory order. We have

ruled that shall in a statute denotes an imperative obligation and is inconsistent with the idea ofdiscretion and that the presumption is that the word shall, when used in a statute, ismandatory. The object of the solemnities surrounding the execution of wills is to close the dooragainst bad faith and fraud, to avoid substitution of wills and testaments and to guaranty theirtruth and authenticity. Therefore the laws on this subject should be interpreted in such a way asto attain these primordial ends. But, on the other hand, also one must not lose sight of the factthat it is not the object of the law to restrain and curtail the exercise of the right to make a will.However, we cannot eliminate the possibility of a false document being adjudged as the will ofthe testator, which is why if the holographic will is contested, that law requires 3 witnesses todeclare that the will was in the handwriting of the deceased.

2) Not all the witnesses presented by the legatees and devisees testified explicitly thatthey were familiar with the handwriting of the testator. There was no opportunity for an expert tocompare the signature and the handwriting of the deceased with other documents signed andexecuted by her during her lifetime. The records are ordered remanded to the court of originwith instructions to allow the oppositors to the probate to adduce evidence in support of theiropposition to the probate of the will.

Legitime

IMPERIAL vs. COURT OF APPEALS


6/60

G.R. No. 112483, October 8, 1999

Facts: Petitioner Eloy Imperial purchased a parcel of land from his father Leoncio Imperial.Although the transaction was denominated as a sale, both admit that it was a donation.

Subsequently, Leoncio filed an action for the annulment of the supposed deed of sale

but a compromise agreement was then made by both parties. When Leoncio died, his adoptedson, Victor, substituted him in the Compromise agreement. When Victor also died, his heirs(herein private respondents) filed an action for annulment of the donation on the ground thatthe conveyance of said property in favor of petitioner Eloy impaired the legitime of Victor, theirnatural brother and predecessors-in-interest.

Petitioner Imperial raises the defense that the donation did not impair Victors legitimeand that the action of respondents has already prescribed.

Issue: Was the donation made by Leoncio Imperial in favor of petitioner Eloy Imperialinofficious and should be reduced?

Held: No. Unfortunately for private respondents, a claim for legitime does not amount to aclaim of title. In the recent case of Vizconde vs. CA, we declared that what is brought tocollation is not the donated property itself, but the value of the property at the time it wasdonated. The rationale for this is that the donation is a real alienation which conveys ownershipupon its acceptance, hence, any increase in value or any deterioration or loss thereof is for theaccount of the heir of the donee.

OBLIGATIONS & CONTRACTS

Artic le 1249

CEBU INTERNATIONAL CORPORATIONvs. COURT OF APPEALSFacts: Private respondent, Vicente Alegre, invested with CIFC, a banking institution engagedin money market operations, P500,000.00 in cash. Petitioner issued a promissory note for whichit issued a BPI check on the due date. However, when the check was deposited, the same wasdishonored by BPI. Alegre filed a complaint for recovery of money. In response, CIFC filed amotion for leave of court to file a third party complaint against BPI.

Petitioner contends that the provisions of the Negotiable Instruments Law (not par. 2 ofArt. 1249 of the Civil Code) are the pertinent laws to govern its money market transactions.RTC decided in favor of Alegre, CA affirms the decision.

Issue: Is Art. 1249 of the New Civil Code applicable in the present case?

Held: Yes. Art. 1249 of NCC provides that:The payment of debts in money shall be made in the currency stipulated, and if it is notpossible to deliver such currency, then in the currency, which is legal tender in the Philippines.


7/60

The delivery of the promissory notes payable to order or bills of exchange or other mercantiledocuments shall produce the effect of payment only when they have been cashed, or whenthrough the fault of the creditor they have been impaired.

Considering the nature of money market transaction, the above-quoted provision shouldbe applied in the present controversy. As held in Perez Vs CA, a money market is a marketdealing in standardized short-term credit instruments (involving large amounts) where lenders

and borrowers do not deal directly with each other but through a middle man or dealer in openmarket. In money market transaction, the investor is a lender who loans his money to aborrower through a middle man or dealer.In the case at bar, the money market transaction between the petitioner and private respondent is in the nature of a loan.

Ar t ic le 1278; Compensation

E.G.V. REALTY DEVELOPMENT

CORPORATION vs. COURT OFAPPEALS

G.R. NO. 120236, JULY 20, 1999

Facts: E.G.V. Realty is the owner/developer of a seven-storey condominium building knownas Cristina Condominium Corporation (CCC). CCC holds title to all common areas of thecondominium and is in charge of managing, maintaining and administering the Condominiumscommon areas and providing for the buildings security. Unisphere International, Inc. is theowner/occupant of unit 301 of said condominium. Unisphere was robbed twice of various items.

The incidents were reported to CCC. When Unisphere demanded compensation andreimbursement from petitioner CCC for losses incurred as a result of the robbery, CCC deniedany liability. As a consequence, Unisphere withheld payment of its monthly due.

Unit 301 was sold to Unisphere but the condominium certificate of title bore an annotation of a lien in favor of petitioners.

Petitioners thereafter filed with SEC for the collection of unpaid monthly dues.

The second order of the Hearing Officer declared that the petitioners were not liable for the articles burglarized. Thei r appeal

was likewise dismissed for having been filed out of time after several extensions to file its memorandum of appeal.

The CA reversed SEC en bancs order and declared that the monthly dues of Unisphere to the corporation should be offset

by the losses suffered by Unisphere, and for the latter to pay the balance.

Issue: Is set-off or compensation proper in the instant case?

Held: No. In Art. 1278 of the Civil Code, compensation is said to take place when twopersons, in their own right, are creditors and debtors of each other. Compensation is a mode ofextinguishing to the concurrent amount, the obligations of those persons who in their own rightare reciprocally debtors and creditors of each other and the offsetting of two obligations whichare reciprocally extinguished if they are of equal value, or extinguished to the concurrentamount if of different value.

For compensation to take place, a distinction must be made between a debt and a mere claim. A debt is a claim which has

been formally passed upon by the highest authority to which it can in law be submitted and has been declared to be a debt. A claim,

on the other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the process prescribed by law before it

develops into what is properly called a debt.


8/60

While respondent Unisphere does not deny its liability for its unpaid dues to petitioners, the latter do not admit any

responsibility for the loss suffered by the former occasioned by the burglary. At best, what respondent Unisphere has against

petitioner is just a claim, not a debt.

Tested by the foregoing yardstick, it has not been sufficiently established that compensation/set-off is proper here as there is

lack of evidence to show that petitioner EGV Realty and CCC and respondent Unisphere are mutually debtors and creditors of each

other.

NOVATION; INTERESTS

BAUTISTA vs. PILAR DEVELOPMENT CORPORATION

G.R. No. 135046, August 17, 1999Facts: To secure a loan obtained from Apex Mortgage & Loan Corp., petitioners executed apromissory note (PN) obligating themselves to pay a sum equivalent to the loan with interestrate of 12% for a period of 240 months to be paid in monthly installments. However, petitionersfailed to pay several installments. They executed another PN in favor of Apex for a biggeramount at the increased rate of 21% per annum to be paid in monthly installments within a

period of 196 months. Petitioners again failed to pay the installments. Subsequently, Apexassigned the second PN to respondent Pilar Devt Corp.

Issues:1.

Was the 1stPN novated by the 2ndPN?2. Was the interest rate of 21%, as provided in the 2ndPN, valid?

Held: 1. YES. The 1st PN was cancelled by the express terms of the 2nd PN. The 2ndPNbears a note that it cancels the 1stPN. To cancel is to strike out, to revoke, rescind or abandon,to terminate. In fine, the 1stnote was revoked and terminated. Simply put, it was novated. Theextinguishment of an obligation by the substitution or change of the obligation by a subsequentone which extinguishes or modifies the first is a novation.

Novation has 4 essential requisites: (1) the existence of a previous valid obligation; (2)the agreement of all parties to the new contract; (3) the extinguishment of the old contract; and(4) the validity of the new one. In the instant case, all 4 requisites have been complied with.

2. YES. When the 2ndPN was executed on Sept. 20, 1982, Central Bank Circular No.705 and 712 were already in effect. These Circulars fixed the effective interest rate for securedloan transactions with maturiites of more than 730 days at 21% per annum. The interest rate of21% provided in the 2ndPN was therefore authorized under these Circulars.

Reformat ion of Instrument; Fortu i tous event; Novat ion;Interests

HUIBONHOA vs. COURT OF APPEALS

G.R. No. 102604, December 14, 1999

Facts: On June 30, 1983, Huibonhoa entered into a contract of lease with siblings RufinaGojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating that Hiponhoa would leasefrom them 3 commercial lots for a period of 15 year commencing on July 1, 1983 and renewableupon agreement of the parties. Based on the said contract, the lessors authorized Huibonhua


9/60

to construct a building that must be completed within 8 months from the date of the execution ofthe contract. During the aforesaid period, no monthly rental would be collected fromHuibonhua. The parties further agreed that upon termination of the lease, ownership and title tothe building thus constructed would automatically transfer to the lessor.

During the construction of the building, former Senator Benigno Aquino, Jr wasassasinated. This incident affected adversely the construction of the building such that

Huibonhua failed to complete the same with the stipulated eight-month period. It wascompleted only in September 1984 or 7 seven months after the target date. Under the contract,Huibonhua was supposed to start paying rental in March 1984 but she failed to do. OnDecember 19, 1984, the lessors sent a final letter of demand to pay the rental arrearages and tovacate the leased premises.

On January 14, 1985, Huibonhua brought an action for reformation of contract allegingthat their true intention as to when the monthly rental would accrue was not therein expresseddue to mistake or accident. She claimed that their true intention was that no rents would accrueduring the entire period of actual construction. Moreover, she averred that by reason of mistakeor accident, the lease contract failed to provide that should an unforeseen event dramaticallyincrease the cost of construction, such as the assassination of Sen. Aquino, the monthly rentalwould be reduced and the term of the lease would be extended for such duration as may fair

and equitable to both the lessors and the lessee. Eleven days later, the lessors filed acomplaint for ejectment against Huabonhua. On January 31, 1995, Rufina Gojocco Lim agreedwith Huibonhua on the accrual of monthly rental, the reduction of its amount and the extensionof the lease by 3 years. After trial on the merits, the RTC dismissed the complaint. Itconsidered as misplaced Huibonhuas contention that the Aquino assassination was an accidentwithin the purview of Art. 1359 of the Civil Code. It also held that the act of Rufina in entering anagreement was not binding upon the 2 other lessees since they were separate and independentowner of the lots subject of the lease. Subsequently, the Court of Appeals affirmed the decisionof the RTC.

Issues:1. Will the action for reformation of instrument prosper?

2. Was the tragic assassination of Former Senator Benigno Aquino a fortuitous event orforce majeure which justified the adjustment of the terms of the contract of lease?

3. Did the act of Rufina in entering an agreement with Huibonhua novated the originallease contract?

4. Are Severino Gojocco and Loreto Gojocco Chua entitled to interest? If yes, at whatrate?

Held: 1. NO. An action for reformation of instrument under Article 1359 may prosper onlyupon the concurrence of the following requisites: (1) there must have been a meeting of theminds of the parties to the contract; (2) the instrument does not express the true intention of theparties; and (3) the failure of the instrument to express the true intention of the parties is due tomistake, fraud, inequitable conduct or accident. In case at bar, Huibonhua failed to discharge

the burden of proving that the intention of the parties has not been accurately expressed thelease contract sought to be reformed; thus, the trial court correctly held that no clear andconvincing proof warrants the reformation thereof. In actions for reformation of contract, theonus probandi is upon the party who insists that the contract should be reformed.

A contract duly executed is the law between the parties who are obliged to comply withits terms. Events occurring subsequent to the signing of the agreement may suffice to alter itsterms only if, upon failure of the parties to arrive at a valid compromise, the court deems thesame to be sufficient reasons in law for altering the terms of the contract.


10/60

2. NO. A fortuitous event is that which could not be foreseen, or which even if foreseen,was inevitable. To exempt the obligor from liability for a breach of an obligation due to an act ofGod, the following requisites must concur: (a) the cause of the breach of the obligation must beindependent 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 anormal manner; and (d) the debtor must be free from any participation in, or aggravation of the

injury to the creditor.In the case under scrutiny, the assassination of Sen. Aquino may indeed be considered

a fortuitous event. However, the said incident per se could not have caused the delay in theconstruction of the building. What might have caused the delay was the resulting escalation ofprices of commodities including construction materials. Be that as it may, there is no merit inHuibonhoas argument that the inflation justified the accrual of monthly rental, the reduction ofits amount and the extension of the lease by 3 years. It is only when an extraordinary inflationsupervenes that the law affords the parties a relief in contractual obligation. For Huibonhua toclaim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code,she must prove that inflation was the sole and proximate cause of the loss or destruction of thecontract. Having failed to do so , Huibonhuas contention is untenable.

3. NO. Under the law, novation is never presumed. The parties to a contract mustexpressly agree that they are abrogating their old contract in favor of a new one. No novation ofa contract had occurred when the new agreement entered into between the parties wasintended to give life to the old one. Giving life to the contract was the very purpose for whichRufina signed the agreement. It was intended to graft into the lease contract provisions thatwould facilitate fulfillment of Huibonhuas obligation therein. That the new agreement wasmeant to strengthen the enforceability of the lease is further evidenced by the fact that theagreement does not even hint that the lease itself would be abrogated. Where the parties to thenew obligation expressly recognize the continuing existence and validity of the old one, where,in other words, the parties expressly negated the lapsing of the obligation, there can be nonovation.

4. YES. Loreto is also entitled to interest at the rate of 6% per annum from the accrual of the rent in accordance with Art.2209 of the Civil Code until it is fully paid because monetary award does not partake of a loan or forbearance in money. However,

the interim period from the finality of the judgment until the monetary award is fully satisfied, is equivalent to a forbearance of credit

and therefore, during that interim period, the applicable rate of legal interest shall be 12%. As regards Severino, he shall be entitled

to such interests only from the time that Huibonhua defaulted paying her monthly rentals to him considering that he had already

received from her the amount of P270,825 as rentals.

CAUSE in Contracts; Rescission

UY vs. COURT OF APPEALS

GR No. 120465, September 9, 1999

Facts: Petitioners Uy and Roxas offered to sell eight parcels of land, as agents of the ownersthereof, to private respondent National Housing Authority (NHA) for the latter to utilize anddevelop as a housing project. The NHA thereafter approved the acquisition but for only 5parcels of land since it was determined that the other 3 were located at an active landslide area


11/60

and thus, not suitable for development into a housing project. Subsequently, the NHA cancelledthe purchase of the 3 lots.

Petitioners then filed an action for damages against the NHA for the cancellation ofpurchase contending that there was no basis for its rescission by the NHA. The lower court andrespondent Court of Appeals ruled that the cancellation was justified and that petitioners are notentitled to damages.

Issue: Does the cancellation of the sale by the NHA for the 3 lots amount to a rescission ofthat part of the contract?

Held: No. In this case, the NHA did not rescind the contract. Indeed, it did not have the rightto do so for the other parties to the contract, the vendors, did not commit any breach, much lessa substantial breach. Their obligation was merely to deliver the parcels of land to the NHA, anobligation that they fulfilled. The NHA did not suffer any injury by the performance thereof.

The cancellation, therefore, was not a rescissionunder Article 1191. Rather, thecancellation was based on the negation of thecausearising from the realization that the lands,which were the object of the sale, were not suitable for housing. Cause is the essential reasonwhich moves the contracting parties to enter into it.

Ordinarily, a partys motives for entering into a contract do not affect the contract. However, when the motive predetermines the cause, the motive may be regarded as thecause.

In this case, it is clear that the NHA would not have entered into the contract were thelands not suitable for housing. In other words, the quality of the land was an implied conditionfor the NHA to enter into the contract. On the part of the NHA, therefore, the motive was thecause for its being a party to the sale.

Accordingly, we hold that the NHA was justified in cancelling the contract. Therealization of the mistakeas regards the qualityof the land resulted in the negationofthe motive/causethus rendering the contract inexistent.

Art icle 1177; Requis i tes for Rescis sio n

of a Fraudulent Sale

ADORABLE vs. COURT OF APPEALSG.R. No. 119466, November 25, 1999

Facts: Private respondent Saturnino Bareng was the registered owner of 2 parcels of land.Petitioners were lessees of a 200 sq.m. portion of one of the said 2 lands.

On April 29, 1985, Saturnino Bareng and his son, Francisco Bareng, obtained a loan from petitioner amounting to P26,000

in consideration of which they promised to transfer the possession and enjoyment of the fruits of Lot No. 661-E.


12/60

On Aug 3, 1986, Saturnino sold to his son Francisco 18,500 sq.m. of lot No. 661-D-5-A.In turn, Francisco sold on Aug. 27, 1986 to private respondent Jose Ramos 3,000 sq. m. of thelot.

Petitioner filed a complaint for the annulment of the sale on the ground that the sale wasfraudulently prepared.

Issue: Does petitioner have a cause of action?

Held: No. Petitioners do not have such material interest as to allow them to sue forrescission of the contract of sale. At the outset, petitioners right against private respondents isonly a personal right to receive payment of the loan; it is not a real right over the lot subject ofthe deed of sale.

Nor can we sustain petitioners claim that the sale was made in fraud of creditors underArt. 1177 of the Civil Code. The following successive measures must be taken by a creditorbefore he may bring an action for rescission of an allegedly fraudulent sale: 1) exhaust theproperty of the debtor through levying by attachment and execution upon all the property of thedebtor, except such as are exempt by law from execution; 2) exercise all the rights and actionsof the debtor, save those personal to him; 3) seek rescission of the contracts executed by the

debtor in fraud of their rights. Without availing of the first and second remedies, i.e.,exhausting the properties of the debtor or subrogating themselves in Francisco Barengstransmissible rights and action, petitioners simply undertook the third measure and filed anaction for annulment of sale.

CONDITIONAL OBLIGATION

GONZALES vs. HEIRS OF THOMAS AND PAULA CRUZ

G.R. No. 131784, September 16, 1999

Facts: Petitioner Gonzales entered into a Contract of Lease/Purchase with the heirs ofThomas and Paula Cruz. Based on the said contract, the petitioner was given an option topurchase the leased property after the expiration of the one-year lease. The option was subjectto a condition contained in par. 9 of the Contract which provided that: The LESSORS (heirs) x xx shall undertake to obtain a separate and distinct TCT over the leased portion to the LESSEEwithin a reasonable period of time which shall not in any case exceed 4 years, x x x. After theexpiration of the lease, petitioner Gonzales did not exercise his option to purchase the property.He remained in possession without paying the purchase price. Alleging breach of the provisionsof the Contract, the heirs filed a complaint for the recovery of possession of the property. Forhis part, the petitioner defended that there was no breach since the heirs had not yet registeredthe leased property in their names in accordance with par. 9 of the Contract.

Issues: (1) Is par. 9 of the Lease/Purchase Contract a condition precedent before petitioner could exercise his option to buy the

property?

(2) Can respondents rescind the Contract after the one-year period?

Held: (1) YES. The clear intent of the 9thpar. was for respondents to obtain a separate anddistinct TCT in their names. This was necessary to enable them to show their ownership of thestipulated portion of the land and their concomitant right to dispose of it. It is a well-settledprinciple in law that no one can give what one does not have nemo dat quod non habet.


13/60

Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can acquireno more that what the seller can transfer legally. Because the 9thclause required respondentsto obtain a separate and distinct TCT in their names and not in the name of petitioner, it logicallyfollows that such under taking was a condition precedent to the latters obligation to purchaseand pay for the land. Put differently, petitioners obligation to purchase the land is a conditionalone and is governed by Article 1181 of the Civil Code. Condition has been defined as every

future and uncertain event upon which an obligation or provision is made to depend. Without it,the sale of the property under the Contract cannot be perfected, and the petitioner cannot beobliged to purchase the property. The obligatory force of a conditional obligation issubordinated to the happening of a future and uncertain event, so that if that event does nottake place, the parties would stand as if the conditional obligation had never existed.

(2) NO. Respondents cannot rescind the contract because they have not caused thetransfer of the TCT in their names, which is a condition precedent to petitioners obligation.There can be no rescission (or more properly, resolution) of an obligation as yet non-existent,because the suspensive condition has not happened.

Fraud in Ar t. 1338

RURAL BANK OF STA. MARIA, PANGASINAN vs. COURT OF APPEALS

G.R. No. 110672, September 14, 1999

Facts: A Deed of Absolute Sale with Assumption of Mortgage was executed between Behisas vendor/assignor and private respondents Rayandayan and Arceno as vendees/assignees forthe sum of P250,000. On the same day, private respondents, together with Behis, executedanother Agreement embodying the real consideration of the sale of the land in the sum ofP2,400,000. Thereafter, private respondents negotiated with the principal stockholder of thebank, Engr. Natividad, for the assumption of the indebtedness of Behis and the subsequentrelease of the mortgage on the property by the bank. Private respondents did not show to thebank the Agreement with Behis providing for the real consideration of P2,400,000.Subsequently, the bank consented to the substitution of private respondents as mortgagedebtors in place of Behis in a Memorandum of Agreement. Instead of the bank foreclosingimmediately for non-payment of the delinquent account of Behis, petitioner bank agreed toreceive only a partial payment of P143,000 by installment on specific dates. After paymentthereof, the bank agreed to release the mortgage of Behis; to give its consent to the transfer oftitle to the private respondents; and to the payment of the balance of P200,000 under new termswith a new mortgage to be executed by the private respondent over the same land. Despiterepeated demands by the private respondents, the bank refused to perform its obligations underthe Memorandum of Agreement on the ground of fraud for withholding from the said bank thereal consideration of the sale.

Issue: Is the Memorandum of Agreement voidable on the ground of bad faith or fraud on thepart of the private respondents in concealing the real consideration of the sale duringnegotiations with the petitioner bank on the assumption of the mortgage debt?

Held: NO. The kind of fraud that will vitiate a contract refers to those insidious word ormachinations resorted to by one of the contracting parties to induce the other to enter into acontract which without them he would not have agreed to. Simply stated, the fraud must be the


14/60

determining cause of the contract, or must have caused the consent to be given. It is believedthat the non-disclosure to the bank of the purchase price of the sale of the land between privaterespondents and Behis cannot be fraud contemplated by Article 1338 of the Civil Code. First ofall, the consideration could not have been the determining cause for the petitioner bank to enterinto the memorandum of agreement. To all intents and purposes, the bank entered into saidagreement in order to effect payment on the indebtedness of Behis. Secondly, pursuant to

Article 1339, silence or concealment, does not constitute fraud unless there is a special duty todisclose certain facts, or unless according to good faith and the usages of commerce thecommunication should be made. Verily, private respondents had no duty and therefore did notact in bad faith in failing to disclose the real consideration. Thirdly, the bank had other meansand opportunity of verifying the financial capacity of private respondents. Furthermore, the banksecurity remained unimpaired regardless of the consideration of the sale.

Consequently, not all elements of fraud vitiating consent for purposes of annulling acontract concur to wit: (a) It was employed by a contracting party upon the other; (b) It inducedthe other party to enter into contract; (c) It was serious; and (d) It resulted in damages and injuryto the party seeking annulment. Petitioner bank has not sufficiently shown that it was induced toenter into the agreement by the non-disclosure of the purchase price, and that the sameresulted in damages to the bank.

APPL ICATION OF IN PARI DELICTO RULE

MODINA vs. COURT OF APPEALSG.R. No. 109355, October 29, 1999

Facts: The parcels of land in question were sold to Ramon Chiang by his wife, Merlinda.Ramon subsequently sold the subject properties to Serfin Modina as evidenced by a Deed of

Absolute Sale.Modina brought a complaint for recovery of possession with damages against the

respondents.Merlinda sought the declaration of nullity of the Deed of Sale on the ground that the titles

of the parcels of land in dispute were never legally transferred to her husband, the sale beingviolative of Article 1490 of the NCC.

Modina stressed that what is applicable is Article 1412 on the principle of in pari delicto.

Issue: Is Merlinda barred by the principle of in pari delicto from questioning subject deed ofsale?

Held: No. The principle of in pari delicto is inapplicable as the sale was void for want of

consideration. In effect, Merlinda can recover the lots sold by her husband to Modina.The principle of in pari delicto non oritur action denies all recovery to the guilty partiesinter se. It applies to cases where the nullity arises from the illegality of the consideration or thepurpose of the contract. When two persons are equally at fault, the law does not relieve them.The exception to this general rule is when the principle is invoked with respect to inexistentcontracts, like in the case at bar.

As the contracts under controversy are inexistent contracts within legal contemplation,Articles 1411 and 1412 of the NCC are inapplicable. In pari delicto doctrine applies only to


15/60

contracts with illegal consideration or subject matter, whether the attendant facts constitute anoffense or misdemeanor or whether the consideration involved is merely rendered illegal.

Resc issio n; Damages

ASUNCION vs. EVANGELISTAG.R. No. 133491, October 13, 1999

Facts: Asuncion and Evangelista entered into a Memorandum of Agreement (MOA) wherebythe former agreed to pay latter certain amounts of money and to assume all the liabilities ofEmbassy Farms which is controlled by respondent. In return, Evangelista will transfer control ofEmbassy Farms and transfer to Asuncion all the real properties held under real estate mortgagewith several savings banks and finance corporations.

While Asuncion fulfilled his payment commitments under the MOA, Evangelista failed totransfer the title of the real properties and the shares of stock of Embassy Farms in the name of

Asuncion. However, it was respondent who filed a complaint for the rescission of the MOAarguing that petitioner failed to comply with his obligations under the agreement.

During the trial, Evangelista explained that the reason he did not transfer the realproperties is because Asuncion did not agree to make a formal assumption of the mortgage

under the MOA. Both the TC and CA ruled in favor of Evangelista and ordered the rescission ofthe MOA with damages based on the alleged proceeds of the sale of hogs during the periodcontrol of the Embassy Farms was with Asuncion.

Issue: Is Evangelista entitled to damages?

Held: No. In case of rescission, while damages may be assessed in favor of the prejudicedparty, only those kinds of damages consistent with the remedy of rescission may be granted,keeping in mind that had the parties opted for specific performance, other kinds of damageswould have been called for which are absolutely distinct from those kinds of damages accruingin the case of rescission. Compensatory damages consisting of the value of the privatelandholdings would have been proper in case he resorted to the remedy of specificperformance, not rescission.

Art. 1434

PISUENA vs. HEIRS OF PETRA UNATING


16/60

G.R. No. 132803, August 31, 1999

Facts: Petra Unating inherited Lot No. 1201 from her mother. During her marriage toAquilino Villar, she registered the lot in her name. They had two children Felix and Catalina. In1948, Petra died. In 1949, Felix and Catalina sold the entire lot to Agustin Navarra but

repossessed the same upon the latters death in 1958. Meanwhile Aquilino died in 1953.In 1982, defendant Jessie Pisuena, son-in-law of Agustin wrested possession of theproperty from the heirs of Felix and Catalina. The latter filed a complaint for its recovery,assailing the validity of the deed of sale in favor of Agustin.

Issue: Did the Deed of Sale in 1949 transfer the whole lot in favor of Agustin despite the factthat Aquilino did not consent to the sale of his share?

Held: No. In 1949, Felix and Catalinas interest in the share of their father is still inchoate.They cannot dispose such share without the consent of their father. At most they conveyed onlytheir 2/3 share over the lost. However, when Aquilino died in 1953 without disposing of his1/3share, Felix and Catalinas interest on it was actualized because succession vested in them thetitle to their fathers share and consequently, the entire lot. Thus, the title passed to Agustinpursuant to Art. 1434 of the present Civil Code, which provides: When a person who is not theowner of the thing sells or alienates or delivers it, and later, the seller of grantor acquires titlethereto, such title passes by operation of law to the buyer or grantee.

LACHES

IMPERIAL vs. COURT OF APPEALSG.R. No. 112483, October 8, 1999

Facts: Petitioner Eloy Imperial purchased a parcel of land from his father Leoncio Imperial.Although the transaction was denominated as a sale, both admit that it was a donation.

Subsequently, Leoncio filed an action for the annulment of the supposed deed of salebut a compromise agreement was then made by both parties. When Leoncio died, his adoptedson, Victor, substituted him in the Compromise agreement. When Victor also died, his heirs(herein private respondents) filed an action for annulment of the donation on the ground thatthe conveyance of said property in favor of petitioner Eloy impaired the legitime of Victor, theirnatural brother and predecessors-in-interest.

Petitioner Imperial raises the defense that the donation did not impair Victors legitimeand that the action of respondents has already prescribed.

Issue: Is the action to question the donation barred by prescription?

Held: Yes. The case of Mateo vs. Lagua, which involved the reduction for inofficiousness of adonation propter nuptias, recognized that the cause of action to enforce a legitime accrues uponthe death of the donor-decedent. Clearly so, since it is only then that the net estate may beascertained and on which basis, the legitimes may be determined.

It took private respondents 24 years since the death of Leoncio to initiate this case, longbeyond the 10 year prescriptive period. The action, therefore, has long prescribed.

TRUST


17/60

SALTIGA DE ROMERO vs. COURT OF APPEALS

G.R. No. 109307, November 25, 1999

Facts: On Dec. 12, 1939 Eugenio Romero bought from spouses Macan the latters rights,interest, participation in a 12-hectare land. The land in question was then public land. WhenEugenio Romero applied for a homestead patent for said land, the same was disapproved bythe Bureau of Lands because said Romero already had applied for a homestead patent for 24hectares and was disqualified from owning additional 12 hectares.

Eugenio Romero placed the application in the name of his eldest son, EutiquioRomero, allegedly in trust for all the children of Eugenio. When Eutiquio got married and hadchildren, the application was transferred in the name of Lutero Romero. When Lutero in turngot married, he relinquished the application in favor of his younger brother Ricardo.

Eugenio Romero died in 1948. In 1961, his widow Teodora caused the land in questionto be subdivided among 6 of her children. The appellants claimed that after the partition, theyhad been in occupancy of their respective shares through their tenants.

However, Lutero claimed that in 1969, he was picked up by a policeman and brought tothe office of the mayor. He was then made to sign 3 affidavits conveying his share to his sisterGloriosa, brother-in-law Sabdullah and to Meliton Pacas. He said that he could not sell his landbecause the 5-year period had not yet elapsed. He was made to sign anyway.

Subsequently, he repudiated the affidavits. He then filed an action for the annulment ofthe affidavits.

Issue: Was there a trust constituted?

Held: No trust is constituted. Petitioners contend that Lutero merely holds Lot 23Pls-35 intrust for the benefit of the heirs of his father Eugenio since it was actually Eugenio who firstapplied for the homestead but considering that Eugenio was already granted a homestead, theapplication had to be placed in the name of his eldest son, which was later transferred to

Lutero.xxxHowever, it has been held that a trust will not be created when, for the purpose of

evading the law prohibiting one from taking or holding real property, he takes conveyancethereof in the name of a third person.

SALES AND LEASE

CONSENT AS ESSENTIAL ELEMENT OF CONTRACT OF SALE

DELOS REYES vs. COURT OF APPEALSG.R. No. 129103, September 3, 1999

Facts: Daluyong Gabriel owns a parcel of land in Tagum, Davao. Because he lives inManila, Gabriel appointed his sister as administratrix for the collection of the rentals for thoseportions which have been leased to certain tenants. In 1985, Gabriel sent his son Renato tocollect the rentals.


18/60

One of the tenants, Lydia Delos Reyes, verbally agreed to buy a portion of the land ofGabriel. Receipt of payment of the purchase price was acknowledged by Renato. However, nodeed of sale was executed covering the transactions. The purchaser proceeded with theconstruction therein of a 2-storey building. Gabriel demanded the purchaser to cease anddesist from the construction. Delos Reyes filed a complaint for specific performance.

Issue: Was there a valid contract of sale covering a portion of the land of Daluyong Gabriel?

Held: No. Renato Gabriel was neither the owner of the subject property nor a dulydesignated agent of the registered owner (Daluyong Gabriel) authorized to sell subject propertyin his behalf, and there was also no sufficient evidence adduced to show that Daluyongsubsequently ratified Renatos act. In this connection, it must be pointed out that pursuant to

Article 1874 of the Civil Code, when the sale of a piece of land or any interest therein is throughan agent, the authority of the latter shall be in writing, otherwise the sale shall be void. In otherwords, for want of capacity to give consent on the part of Renato, the oral contract of sale lacksone of the essential requisites for its validity prescribed under Article 1318 and is therefore nulland void ab initio.

PRICE; ELEMENT OF A CONTRACT OF SALE

DAVID vs. TIONGSON

G.R. No. 108169, August 25, 1999

Facts: Spouses David purchased a parcel of land from respondents spouses Tiongson for atotal consideration of P15,000. The parties expressly agreed that as soon as the petitionersfully paid the purchase price, respondents would execute a deed of absolute sale and cause theissuance of the certificate of title in petitioners favor. After paying a total of P15,050, the Davidsdemanded the execution of the deed of sale and the issuance of the corresponding title, but therespondents refused. Hence, the Davids filed a complaint for specific performance withdamages. The lower court ruled in favor of the Davids. However, the Court of Appeals modifiedthe trial courts decision. According to the Appellate Court, there was no agreement as to theprice since the receipts issued by the Mr. Tiongson failed to state the total purchase price orprove that full payment was made. Hence, there was no meeting of minds regarding the price,and consequently, there was no perfected contract of sale.

Issue: Is there an agreement as to the price of the lot?

Held: YES. The Court of Appeals relied heavily on the receipts issued by Mr. Tiongson.However, Mrs. David testified that there was an agreement to purchase the lot for P15,000which respondents failed to rebut. However, in the brief, the Tiongsons alleged that the agreed

price was P120 per sq. m. Hence, they are now estopped to deny the existence of an agreedprice. The question to be determined should not be whether there was an agreed price, butwhat that agreed price was, whether for a total of P15,000 or P120 per sq. m. The sellers couldnot render invalid a perfected contract of sale by merely contradicting the buyers allegationregarding the price, and subsequently raising the lack of agreement as to the price. Also, anoverpayment of P50 does not negate the existence of an agreed purchase price instead, thisentitles the buyer to claim reimbursement of any overpayment made.


19/60

Contract of sale

CO v. COURT OF APPEALS312 SCRA 528

Facts:Plaintiff Adoracion Custodio entered into a verbal contract with defendants spouses Co

for the purchase of the latters house and lot located at Alabang, Metro Manila at the agreedpurchase price of $100,000.00 payable in two payments $40,000.00 in Dec. 4, 1984 and thebalance of $60,000.00 on January 5, 1985. A week thereafter, plaintiff paid defendants theamount of $1,000.00 and Php40,000.00 as earnest money. On January 25, 1985, although theperiod of payment had already expired, plaintiff paid to defendants the sum of $30,000.00 aspartial payment. On March 15, 1985, defendants demanded from plaintiff payment of thebalance of purchase price but to no avail. On Aug. 8, 1986, defendants informed plaintiff thatshe lost her option to purchase the property and that her other rights to the property includingpayments already made are forfeited. On Sept. 5, 1986, plaintiff informed defendants that she is

now ready to pay the remaining balance but was ignored by the latter. Plaintiff then filed anaction for rescission.The lower court ruled that the earnest money is forfeited. It also ordered defendants to

remit to plaintiff the peso equivalent of $30,000.00 representing the partial payment of purchaseprice. Defendants appealed arguing that plaintiff had already lost her right on option to purchaseand that her failure to exercise said option resulted in forfeiture of any amounts paid.

Issue:Whether or not there is a perfected contract of sale and whether defendants can

unilaterally and extra-judicially rescind said contract of sale.

Held:A contract of sale is a consensual contract and is perfected at the moment there is a

meeting of the minds upon the thing which is the object of the contract and upon the price.Earnest money given in sale transaction is considered part of the purchase price and proof ofthe perfection of the sale.

In the absence of an express stipulation authorizing the sellers to extra-judicially rescindthe contract of sale, the defendants cannot unilaterally and extra-judicially rescind the contractof sale. Despite the fact that plaintiffs failure to pay the amounts of $40 ,000.00 and $60,000.00on or before Dec. 4, 1984 and January 5, 1985, respectively, was a breach of her obligationunder Article 1191 of the Civil Code, the defendants did not sue for either specific performanceor rescission of the contract. The defendants were of the mistaken belief that plaintiff had losther option over the property when she failed to pay the remaining balance.

SUFFICIENCY OF CONSIDERATION IN CONTRACT OF SA LE

J.R. BLANCO vs. QUASHAG.R. No. 133148, November 17, 1999


20/60

Facts: Mary Ruth Elizalde, an American citizen, owned a house and lot situated in ForbesPark, Makati. On May 22, 1975, she, through her attorney-in-fact, sold the lot to Parex RealtyCorp., excluding the house thereon, payable in 25 equal annual installments of P25,000 each.Simultaneously with the execution of the contract of sale, Parex and Elizalde entered into alease contract whereby Parex leased back to Elizalde the same land for a period of 25 years at

a monthly rental of P2,083.34 which totals P25,000 in a year. By virtue of the sale, a new titlewas issued in the name of Parex on May 27, 1975. Elizalde died on March 1, 1990. Thespecial administrator of her estate, J.R. Blanco, brought an action against Parex and itsincorporators for the reconveyance of the parcel of land. Blanco alleged that the sale wasabsolutely simulated and fictitious, and was made in order to circumvent the effects of theCourts ruling in Republic vs. Quasha which declared that under the Parity Amendment to theConstitution, US citizens and corporations owned and controlled by them cannot acquire andown, save in cases of hereditary succession, private agricultural lands in the Philippines.Blanco also argued that Elizalde did not receive a single centavo from the transactions.

Issue: Is the sale-lease-back agreement between Elizalde and Parex null and void for beingabsolutely simulated or fictitious?

Held: No. The fact that the amount of the annual installments of the purchase price dovetailswith the rate of rentals stipulated in the lease contract is not enough reason to claim that therewas no consideration for the contracts of sale and lease. Petitioner argues that Elizalde did notreceive money in the sale of her property. While that may be true, her continued occupancy ofthe premises even after she sold it to Parex constitutes valuable consideration which shereceived as compensation for the sale.

To resolve the issue of whether or not a sale-lease-back is simulated, it is imperativethat the true intention of the parties, rather than the correct interpretation of the writtenstipulations in the contracts, be looked into. However, to do so is to pass upon an issue of fact,a function not within the province of the SC.

Perfect ion of Contract of Sale;

Resciss ion

CO vs. COURT OF APPEALS

312 SCRA 528

Facts: Plaintiff Adoracion Custodio entered into a verbal contract with defendants spouses

Co for the purchase of the latters house and lot located at Alabang, Metro Manila at the agreedpurchase price of $100,000.00 payable in two payments $40,000.00 in Dec. 4, 1984 and thebalance of $60,000.00 on January 5, 1985. A week thereafter, plaintiff paid defendants theamount of $1,000.00 and Php40,000.00 as earnest money. On January 25, 1985, although theperiod of payment had already expired, plaintiff paid to defendants the sum of $30,000.00 aspartial payment. On March 15, 1985, defendants demanded from plaintiff payment of thebalance of purchase price but to no avail. On Aug. 8, 1986, defendants informed plaintiff thatshe lost her option to purchase the property and that her other rights to the property includingpayments already made are forfeited. On Sept. 5, 1986, plaintiff informed defendants that she is


21/60

now ready to pay the remaining balance but was ignored by the latter. Plaintiff then filed anaction for rescission.

The lower court ruled that the earnest money is forfeited. It also ordered defendants toremit to plaintiff the peso equivalent of $30,000.00 representing the partial payment of purchaseprice. Defendants appealed arguing that plaintiff had already lost her right on option to purchaseand that her failure to exercise said option resulted in forfeiture of any amounts paid.

Issue: Is there a perfected contract of sale and can defendants unilaterally and extra-judicially rescind said contract of sale?

Held: Yes, there is a perfected contract of sale. A contract of sale is a consensual contractand is perfected at the moment there is a meeting of the minds upon the thing which is theobject of the contract and upon the price. Earnest money given in sale transaction is consideredpart of the purchase price and proof of the perfection of the sale.

No. In the absence of an express stipulation authorizing the sellers to extra-judiciallyrescind the contract of sale, the defendants cannot unilaterally and extra-judicially rescind thecontract of sale. Despite the fact that plaintiffs failure to pay the amounts of $40,000.00 and$60,000.00 on or before Dec. 4, 1984 and January 5, 1985, respectively, was a breach of her

obligation under Article 1191 of the Civil Code, the defendants did not sue for either specificperformance or rescission of the contract. The defendants were of the mistaken belief thatplaintiff had lost her option over the property when she failed to pay the remaining balance.

RIGHT OF FIRST PRIORITY TO PURCHASE; PERFECTION OF CONTRACT OF SAL E

GABELO vs. COURT OF APPEALSG.R. No. 111743, October 8, 1999

Facts: Philippine Realty Corporation (PRC) entered into a contract of lease with privaterespondent Maglente over a parcel of land for a period of three years. The agreement providedfor the Lessee to have a first priority to buy in case the Lessor chooses to sell the land.Maglente subleased portions of the land to the petitioners.

Subsequently, PRC made a written offer to sell the subject property to Maglente.Thereafter, PRC and Maglente agreed on the price and terms of the purchase and the lattercompleted the required downpayment.

Later on, petitioners also expressed their intention to purchase the property. They alsoasked PRC to prevent Maglente from demolishing their houses. The parties then filed an actionin court which ruled that Maglente as the rightful party to purchase the land in controversy.Petitioners appealed contending that as the actual occupants of the property, they havepreferential right to purchase the land and that a contract of sale was yet to be perfectedbetween PRC and Maglente as they have yet to sign on any written agreement.

Issue: 1) Do petitioners have preferential right to purchase the leased land?2) Was there a perfected contract of sale between Maglente and PRC?

Held: 1) No. There is no legal basis for the assertion by the petitioners that as actualoccupants of the said property, they have the right of first priority to purchase the same.


22/60

As regards the freedom of contract, it signifies or implies the right to choose with whomto contact. PRC is thus free to offer its subject property for sale to any interested person. It isnot duty bound to sell the same to the petitioners simply because the latter were in actualoccupation of the property absent any prior agreement vesting in them as occupants the right offirst priority to buy.

2) Yes. In the case under consideration, the contract of sale was already perfected. Asa matter of fact, respondents have already completed payment of their downpayment. Anentpetitioners submission that the sale has not been perfected because the parties have notaffixed their signature thereto, suffice to state that under the law, the meeting of the mindsbetween the parties gives rise to a binding contract although they have not affixed theirsignatures to its written form.

EQUITABL E MORTGAGE

LAPAT vs. ROSARIO

G.R. No. 127348, August 17, 1999Facts: In 1991, petitioner sold to respondents an Isuzu Elf truck, which the latter could usefor hauling their agricultural products, for P300,000 payable as follows: P120,000 asdownpayment upon delivery and the balance on or before 30 May 1992. Respondents paid thedownpayment upon delivery of the truck. Later however it was discovered that the vehicle hada defective motor; consequently, respondents offered to return the vehicle to the petitioner.Instead of accepting the vehicle, petitioner lent the respondents P60,000 at 40% interest inorder for the latter to replace the defective motor. To secure payment of the balance of thepurchase price and the P60,000 loan, respondents executed 2 documents purporting to be

deeds of sale of 2 parcels of land with right to repurchase the same on or before 30 May 1992.The total consideration was P500,000 which the petitioner claimed she paid in cash. Due topoor harvests, respondents returned the truck. Petitioner accepted it and released respondentsfrom paying the balance of the purchase price and the P60,000 loan. As regards the 2 Deeds ofSale with Right to Repurchase, petitioner promised to cancel them. However, petitionerreneged on her promise when she filed a complaint for consolidation of ownership due to thefailure of the respondents to redeem the properties on or before 30 May 1992. Both theRegional Trial Court and Court of Appeals dismissed the complaint declaring the 2 deeds ofsale with right to repurchase as equitable mortgages.

Issue: Were the 2 Deeds of Sale of Realty with Right to Repurchase equitable mortgagesunder Art. 1602 of the Civil Code?

Held: YES. The instant case falls squarely under par. (6) of Art. 1602 of the Civil Code, towit: The Contract shall be presumed to be an equitable mortgage x x x in any other case whereit may be inferred that the real intention of the parties is that the transaction shall secure thepayment of a debt or the performance of any other obligation. Circumstances abound pointingto this conclusion.

First. Petitioner claims she bought 2 parcels of land from respondents paying the latterP500,000 in cash. If this were true then why could not respondents afford the P60,000 neededfor the repair of the truck?


23/60

Second. Petitioner supposedly paid P500,000 cash to the respondents. If petitionerindeed paid, why did she have to shell out the full amount of P500,000 considering thatrespondents were allegedly indebted to her in the amount of P60,000.

Third. The last day to redeem the 2 parcels of land purportedly fell on 30 May 1992which interestingly coincided with the date respondents were supposed to pay the remainingbalance of the purchase price of the tuck.

Fourth. The cash receipts signed by the respondents failed to state that they wereintended as payment for the 2 parcels of land supposedly sold by respondents. On thecontrary, they were purportedly advances by respondents who in turn obliged themselves todeliver their rice produce to petitioner at harvest time.

Fifth. The amounts stated in the 2 deeds of sale with right to repurchase were writtenusing a different typewriter. In one deed, the TCT was not typewritten along with other detailspertaining to the land. Furthermore, the residence certificate number of one respondent was notthe same.

These circumstances attending the execution of the 2 Deeds of Sale with Right torepurchase cast serious doubt on petitioners claim that the real intention of the parties was saleover the properties and not equitable mortgage. The form of the instrument cannot prevail overthe true intent of the parties as established by the evidence. On determining the nature of a

contract, courts are not bound by the title or name given by the parties. The decisive factor inevaluating such agreement is the intention of the parties, as shown not necessarily by theterminology used in the contract but by their conduct, word, actions and deeds, prior to, duringand immediately after execution of the agreement. And, in case of doubt, a contract purportingto be a sale with right of repurchase shall be construed as an equitable mortgage.

AMIL vs. COURT OF APPEALSG.R. No. 125272, October 7, 1999

Facts: Candido Amil, as seller, and the spouses Gador, as buyers executed a documententitled Deed of Pacto de Retro Sale. After the redemption period had expired, the spousesGador filed a petition for the consolidation of their ownership over the property. Amil wasdeclared in default as his counsel failed to file an answer to the petition. The case was heardand a judgment rendered declaring the spouses Gador as the absolute owners of the lot andordering the Register of Deeds to make the annotation of the Consolidation of Ownership in thevendees-a-retro upon payment of prescribed fees. Amil, through new counsel, filed a motion fora new trial which was denied. The CA affirmed the denial of a new trial.

Issue: Is the contract between Amil and Spouses Gador a Pacto de Retro Sale?

Held: It would appear that the contract between Amil and the Spouses Gador is an equitable

mortgage rather than a pacto de retro sale. The price was unusually inadequate. The wordsmortgage, motgagor, and mortgagee, appear in the Addendum to the Deed of Pacto deRetro Sale. There is a stipulation which is considered a pactum commissorium and is thereforevoid. Considering all these, the case is remanded to the TC to enable Amil to present evidenceon the true nature of the contract in question.

CHING SEN BEN vs. COURT OF APPEALS

G.R. No. 124355, September 21, 1999


24/60

Facts: Petitioner sold to private respondent a parcel of land in Marikina. Partial payment wasmade through a housing loan granted to private respondent by the SSS. A promissory note wasalso executed by private respondent. To secure the loan, he also made a Deed of Real EstateMortgage both in favor of SSS. Meanwhile, after petitioner constructed a house on the lot (asper agreement), said petitioner reminded private respondent about the latters unpaid balance

of P45,000. Thereafter, the two parties executed a Deed of Sale with Assumption of Mortgageand with Right to Repurchase, whereby petitioner paid private respondent the amount ofP60,242.86. Private respondent remained in possession of the subject lot. After the latter failedto heed petitioners demand to execute a Deed of Sale in his favor, he filed a petition with thecourt a quo for the consolidation of his title to the property. The court however denied hispetition. The CA affirmed.

Issue: Is the Deed of Sale with Assumption of Mortgage and with Right to Repurchaseactually an equitable mortgage?

Held: Yes. For one, the purported consideration for the sale with the right to repurchase inthe amount of P62,242.86 is unusually inadequate compared to the purchase price (P150,000)

of the property when private respondent bought it from petitioner only 6 mos. before theexecution of the said deed of sale. For another, private respondent, the supposed vendor,remained in possession of the property even after the execution of the deed.

ART. 1544

CAVILES, JR. vs. BAUTISTAG.R. No. 102648, November 24, 1999

Facts: A writ of preliminary attachment was issued by the CFI on September 24, 1982 over aland owned by Renato Plata. The Notice of Attachment was entered in the Primary Entry Book(Day Book) on Oct. 6, but was not annotated on the original TCT nor on Platas duplicate TCTby the Register of Deeds. On Oct. 18, Plata sold the same property to the spouses Bautista.When the spouses Bautista verified the original title with the Office of the Register of Deeds,they found the same unblemished by any liens or encumbrances. Platas TCT was cancelledand a new TCT was issued in the name of the spouses Bautista. Notice of levy was entered inthe Day Book on Feb. 22, 1984 and on March 30, the property was sold on execution to thespouses Caviles. The certificate of sale was entered in the Day Book on April 2, 1987, butwhen its inscription was sought to be made, it was found out that Platas certificate had beencancelled and a new one issued to the spouses Bautista.

Issue: Whose interest will prevail, that of the spouses Bautista or that of the spousesCaviles?

Held: There was good faith and absence of negligence on both parties. The spousesBautista clearly had no notice of any defect, irregularity or encumbrance in the title of theproperty they purchased. The spouses Caviles, on the other hand, paid the corresponding feesfor the annotation of the notice of attachment and they had every right to presume that theRegister of Deeds would perform his duty properly, i.e., inscribe said notice on the original title


25/60

covering the subject property. Entry alone produces the effect of registration, whether thetransaction entered is a voluntary or involuntary one, as long as the registrant has complied withall that is required of him for purposes of entry and annotation, and nothing remains to be donebut a duty incumbent solely on the Register of Deeds. In involuntary registration, such as anattachment, levy on execution, lis pendens and the like, entry thereof in the Day Book is asufficient notice to all persons of such adverse claim.

Art. 1544 of the NCC provides: Should it be immovable property, the ownership shallbelong to the person acquiring it who in good faith first recorded it in the Registry of Property. The spouses Caviles lien of attachment was properly recorded when it was entered in the DayBook of the Register of Deeds on October 6, 1982. The execution sale retroacts to the date oflevy of the lien of attachment. The earlier registration of the spouses Caviles levy onpreliminary attachment gave them superiority and preference in rights over the attachedproperty as against spouses Bautista.

Right of First Refusal

LITONJUA vs. L & R CORPORATIONG.R. No. 130722, December 9, 1999

Facts: Petitioner-spouses Litonjua obtained a loan from L & R Corporation. It was stipulatedin the contract of mortgage which secured the loan that (1) the mortgagor shall not sell themortgaged property without the prior written consent of mortgagee; and (2) that the mortgageeshall be given priority should the mortgagor decide to sell the mortgaged property.

Spouses Litonjuas failed to pay the loan. L & R then foreclosed the mortgaged property.But when respondent tried to register the certificate of sale for the auction sale, it learned thatPetitioners Litonjua had already sold the mortgaged property to Philippine White House AutoSupply (PWHAS) without its the prior written consent and without allowing it to exercise the firstoption to buy the property. L & R consolidated title to the property when it refused to accept the

redemption price offered by PWHAS. Thereafter, a complaint for Quieting of Title andAnnulment of Title was filed by the spouses Litonjua and PWHAS against respondents.

The lower court dismissed the case. The Court of Appeals, however, reversed thedecision and held that (1) the stipulation in the mortgage contract requiring prior written consentof the mortgagee before the mortgagor can sell is valid; and (2) the sale between the Litonjuasand PWHAS must be rescinded because it violated L & Rs right of first refusal.

Issue: Is rescission available in case of violation of the Right of First Refusal?

Held: The right of first refusal has long been recognized as valid in our jurisdiction. Theconsideration for the loan-mortgage includes the consideration for the right of first refusal. Thecase of Guzman, Bocaling & Co v. Bonnevie is instructive on this point Under Article 1380 to

1381(3) of the Civil Code, a contract otherwise valid may nonetheless be subsequentlyrescinded by reason of injury to third persons, like creditors. The status of creditors could bevalidly accorded the Bonnevies for they had substantial interests that were prejudiced by thesale of the subject property to the petitioner without recognizing their right of first priority underthe contract of lease.

Sublease


26/60

PEREZ vs. COURT OF APPEALS

G.R. No. 107737, October 1, 1999

Facts: Juan Perez, along with four others, is a usufructuary of a parcel of land called PapayaFishpond. On June 5, 1975, the usufructuaries enterd into a contract leasing the fishpond toLuis Keh for 5 years renewable for another 5 years. Paragraph 5 of the lease contract statesthat the lessee cannot sublease the fishpond nor assign his rights to anyone. Despite theprohibition, the lessee, Keh offered the operation of the fishpond to Luis Crisostomo. A writtenagreement dated January 9, 1978 ceded, conveyed and transferred all the rights and interestsof Keh over the fishpond to Lee until June 1985. Lee acceded to take over Kehs rights as alessee of the fishpond. In June 1979, Juan Perez and his counsel, in the company of armedmen, went to the fishpond and presented Crisostomo with a letter dated June 7, 1979 showingthat Keh had surrendered possession of the fishpond to the usufructuaries. According topetitioners Juan Perez and Luis Keh, Luis Crisostomo is not a sublessee of the fishpond underthe law because no contract authorized him to be so.

Issue: Is private respondent Luis Crisostomo a sublessee of the fishpond and entitled tocontinuous possession until June 1985?

Held: Although the contract between the usufructuaries and the lessee Keh has a provisionbarring the sublease of the fishpond, it was Keh himself who violated that provision in offeringthe operation of the fishpond to Crisostomo. The established facts also show that Juan Perezand his counsel knew of and acquiesced to the arrangement of Keh and Crisostomo by the actof Perez of receiving from Crisostomo the rent for 1978-79. Perez is estopped to questionCrisostomos right to possess the fishpond as a lessee.

However, the Court hesitate to grant Crisostomos prayer that he should be restored tothe possession of the fishpond as a consequence of his unjustified ejectment therefrom. Torestore possession of the fishpond to him would entail violation of contractual obligations that

the usufructuaries have entered into over quite a long period of time now. Supervening events,such as the devaluation of the peso as against the dollar as well as the addition ofimprovements in the fishpond that the succeeding lessees could have introduced, havecontributed to the increase in rental value of the property. To place Crisostomo in the sameposition he was in 1980 when he was deprived the right to operate the fishpond under thecontract that already expired in 1985 shall be to sanction injustice and inequity. Nonetheless, itis but proper that Crisostomo should be properly compensated for the improvements heintroduced in the fishpond as well as awarded moral and exemplary damages and attorneysfees.

PARTNERSHIP

FORMATION OF A PARTNERSHIP; LIABILITY OF A PARTNER

LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.

G.R. No. 136448, November 3, 1999


27/60

Facts: Antonio Chua, Peter Yao and Lim Tong Lim decided to engage in a fishing businesswhich they started by buying boats worth P 3.35 million financed by a loan secured from JesusLim who was petitioners brother. They subsequently revealed their intention to pay the loanwith the proceeds of the sale of the boats and to divide equally among them the excess orloss. In pursuance to their business agreement, Yao and Chua, purchased nets from privaterespondent, in behalf of Ocean Quest Fishing Corporation, their purported business name. Yao

and Chua failed to pay. Private respondent filed a collection suit. Chua admitted his liabilitywhile Yao waived his right to cross examine and to present evidence. Lim Tong Lim, on theother hand, refused contending that he was not one of the signatory in the purchase of the netsand that Ocean Quest is a nonexistent corporation as shown by the SEC. The TC ruled thatpetitioner is liable as a partner. The CA affirmed the decision.

Issue: May Lim Tong Lim be held liable as a partner?

Held: Yes. A partnership may be deemed to exist among parties who agree to borrowmoney to pursue a business and to divide the profits or losses that may arise therefrom, even ifit is shown that they have not contributed any capital of their own to a common fund. Theircontribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being

partners, they are all liable for debts incurred by or on behalf of the partnership. The liability fora contract entered into on behalf of an unincorporated association or ostensible corporation maylie in a person who may not have directly transacted on its behalf, but reaped benefits from thatcontract.

ART. 1768

AGUILA, JR. vs. COURT OF APPEALSG.R. No. 127347, November 25, 1999

Facts: Petitioner Aguila Jr and private respondent Abrogar entered into an agreementwhereby the former shall buy from the latter her house and lot with option to repurchase within90 days. At the same time, a Deed of Sale concerning the subject property was executed bythe parties. Abrogar failed to repurchase and as per agreement, a new TCT was issued in thename of the partnership. However, Abrogar remained in possession of the premises prompting

Aguila to file an ejectment case with the MTC. The MTC ruled in favor of Aguila. Abrogarappealed to the RTC, then to the CA, and finally to the SC, but lost in all cases.

Abrogar thereafter filed with the RTC a petition for declaration of nullity of deed of salewith the RTC, alleging that the signature of her husband on the deed of sale was a forgery

because he was already dead when the deed was executed. However, the RTc denied herpetition. The CA however reversed the RTCs ruling, holding that the transaction between theparties herein is an equitable mortgage because the price paid is unusually inadequate.

Abrogar remained in the possession of the subject property and paid taxes thereon. (Art. 1602,Civil Code)

Issue: Did Abrogar correctly file the case against Aguila Jr.?


28/60

Held: No. Aguila Jr. is not the real party in interest but A.C. Aguila & Co., against which thiscase should have been brought. Under the Rules of Court, a complaint filed against a partywho is not a real party in interest should be dismissed for failure to state a cause of action. Apartnership has a juridical personality separate and distinct from that of each of the partners. Itis the partnership, not its officers or agents, which should be impleaded in any litigationinvolving property registered in its name.

Article 1773

TORRES vs. COURT OF APPEALSG.R. No. 134559, December 9, 1999

Facts: Petitioners Torres and Baring entered into a joint venture agreement with privaterespondent Manuel Torres for the development of a parcel of land into a subdivision. Theproject, however, did not push through and the land was subsequently foreclosed by thecreditor-bank.

Later on, petitioners filed a civil case against private respondent for damages for thelatters mismanagement and lack of skills. Respondent court, in affirming the lower court ruledthat petitioners and respondent had formed a partnership for the development of the land andthus, must bear the loss proportionately. On appeal to the Supreme Court, petitioners deny the

existence of a partnership contending that their joint venture agreement is void since they didnot comply with Article 1773 of the Civil Code which required an inventory of the real property tobe contributed in the partnership.

Issue: Is the inventory of real property contributed in the partnership necessary for thevalidity of the partnership agreement?

Held: We clarify. Article 1773 of the Civil Code was intended primarily to protect thirdpersons. Thus, the eminent Arturo Tolentino states that under the aforecited provision which isa complement of Article 1771, the execution of a public instrument would be useless if there isno inventory of the property contributed, because without its designation and description, theycannot be subject to inscription in the Registry of Property, and their contribution cannot

prejudice third persons. This will result in fraud to those who contract with the partnership withthe belief in the efficacy of the guaranty in which the immovables may consist. Thus, thecontract is declared void by law when no such inventory is made. The case at bar doesnotinvolve third parties who may be prejudiced.

In short, the alleged nullity of the partnershipwill not prevent courts from considering theJoint Venture Agreement an ordinary contract from which the parties rights and obligations toeach other may be inferred and enforced.


29/60

Dissolution of Partnership; Receivership

SY vs. COURT OF APPEALS

G.R. No. 94285, August 31, 1999

Facts: Sy Yong Hu & Sons is a partnership. In September, 1977, Keng Sian, Sy Yong Huscommon-law wife sued the partnership for the reconveyance of of its properties and the fruitsthereof.

During the pendency of the suit, one of the partners. Marciano Sy, filed a petition againsthis partners with the SEC asking that he be appointed managing partner to replace Jose Sywho earlier died. SC hearing officer Sison dismissed the petition and declared the partnershipdissolved and named one of the remaining partners as the managing partner.

The SEC en banc affirmed Sisons decision, ordering the distribution and partition ofpartnership assets.

However, before the same can be implemented, Keng Sians children with Sy Yong Huwere allowed by the SEC to intervene. The intervenors contend that their civil suit against thepartnership is still pending and that no petition for distribution should be commenced.

SEC Hearing Officer Tongco who replaced Sison placed the partnership underreceivership thereby preventing the partition and distribution of partnership assets. This wasaffirmed by the SEC en banc.

The remaining partners of the firm appealed.The CA ultimately affirmed the Tongco

FAMILY RELATIONS Cases.docx

Documents