1. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano,
G.R. No.182349, July 24, 2013. (re: Valid Contracts)
DOCTRINE: A valid contract of sale requires: (a) a meeting of
minds of the parties to transfer ownership of the thing sold in
exchange for a price; (b) the subject matter, which must be a
possible thing; and (c) the price certain in money or its
equivalent
FACTS: In the 1950s, Nena Recio (Nena), the mother of Reman
Recio (petitioner), leased from the respondents Altamiranos a
parcel of land with improvements, situated at No. 39 10 de Julio
Street (now Esteban Mayo Street), Lipa City, Batangas. The said
land has an area of more or less eighty-nine square meters and
fifty square decimeters (89.50 sq m), and is found at the northern
portion of two (2) parcels of land covered by Transfer Certificate
of Title (TCT) Nos. 66009 and 66010 of the Registry of Deeds of
Lipa City. The Altamiranos inherited the subject land from their
deceased parents, the spouses Aguedo Altamirano and Maria
ValduviaNena used the ground floor of the subject property as a
retail store for grains and the upper floor as the familys
residence. The petitioner claimed that in 1988, the Altamiranos
offered to sell the subject property to Nena for Five Hundred
Thousand Pesos (P500,000.00). The latter accepted such offer, which
prompted the Altamiranos to waive the rentals for the subject
property. However, the sale did not materialize at that time due to
the fault of the Altamiranos. Nonetheless, Nena continued to occupy
and use the property with the consent of the Altamiranos
In the latter part of 1994, the petitioner renewed Nenas option
to buy the subject property. The petitioner conducted a series of
negotiations with respondent Alejandro who introduced himself as
representing the other heirs. After the said negotiations, the
Altamiranos through Alejandro entered into an oral contract of sale
with the petitioner over the subject property. In January 1995, in
view of the said oral contract of sale, the petitioner made partial
payments to the Altamiranos in the total amount of One Hundred Ten
Thousand Pesos (P110,000.00). Alejandro duly received and
acknowledged these partial payments as shown in a receipt dated
January 24, 1995. On April 14, 1995, the petitioner made another
payment in the amount of Fifty Thousand Pesos (P50,000.00), which
Alejandro again received and acknowledged through a receipt of the
same date. Subsequently, the petitioner offered in many instances
to pay the remaining balance of the agreed purchase price of the
subject property in the amount of Three Hundred Forty Thousand
Pesos (P340,000.00), but Alejandro kept on avoiding the petitioner.
Because of this, the petitioner demanded from the Altamiranos,
through Alejandro, the execution of a Deed of Absolute Sale in
exchange for the full payment of the agreed price
ISSUES: Is the verbal contract of sale between Alejandro and the
petitioner valid?
HELD: YesA valid contract of sale requires: (a) a meeting of
minds of the parties to transfer ownership of the thing sold in
exchange for a price; (b) the subject matter, which must be a
possible thing; and (c) the price certain in money or its
equivalent. In the instant case, all these elements are present.
The records disclose that the Altamiranos were the ones who offered
to sell the property to Nena but the transaction did not push
through due to the fault of the respondents. Thereafter, the
petitioner renewed Nenas option to purchase the property to which
Alejandro, as the representative of the Altamiranos verbally
agreed.
2. Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600,
January 15, 2014. (Re: Void Contracts)
DOCTRINE: Under Article 1409 (1) of the Civil Code, a contract
whose cause, object or purpose is contrary to law is a void or
inexistent contract. As such, a void contract cannot produce a
valid one. To the same effect is Article 1422 of the Civil Code,
which declares that a contract, which is the direct result of a
previous illegal contract, is also void and inexistent.
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 the petitioners company, Gonzalo
Construction, petitioner Domingo Gonzalo (Gonzalo) subcontracted
(The subcontract) to respondent John Tarnate, Jr. (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 (this deed of assignment is
premised on the validity of the subcontract) 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 (equivalent to P233,526.13) was the rent for Tarnates
equipment that had been utilized in the project.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. Thus, he brought this suit against
Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in
Mountain Province to recover the retention fee of P233,526.13In his
answer, Gonzalo admitted the deed of assignment and the authority
given therein to Tarnate, but averred that the project had not been
fully implemented because of its cancellation by the DPWH, and that
he had then revoked the deed of assignment. He insisted that the
assignment could not stand independently due to its being a mere
product of the subcontract that had been based on his contract with
the DPWH; and that Tarnate, having been fully aware of the
illegality and ineffectuality of the deed of assignment from the
time of its execution, could not go to court with unclean hands to
invoke any right based on the invalid deed of assignment or on the
product of such deed of assignment.
ISSUES: a) Is the subcontract void? b) Is the deed of assignment
void? c) What are the effects of a void contract?
HELD:a) Yes; every contractor is prohibited from subcontracting
with or assigning to another person any contract or project that he
has with the DPWH unless the DPWH Secretary has approved the
subcontracting or assignment. This is pursuant to Section 6 of
Presidential Decree No. 1594
b) Without the Sub-Contract Agreement there will be no Deed of
Assignment to speak of. The illegality of the Sub-Contract
Agreement necessarily affects the Deed of Assignment because the
rule is that an illegal agreement cannot give birth to a valid
contract.
c) Under Article 1409 (1) of the Civil Code, a contract whose
cause, object or purpose is contrary to law is a void or inexistent
contract. As such, a void contract cannot produce a valid one. To
the same effect is Article 1422 of the Civil Code, which declares
that a contract, which is the direct result of a previous illegal
contract, is also void and inexistent
3. Metropolitan Fabrics, Inc., et al. v. Prosperity Credit
Resources, Inc. et al., G.R. No. 154390, March 17, 2014 (Re:
Voidable Contracts)
DOCTRINE: Article 1390, in relation to Article 1391 of the Civil
Code, provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may
be annulled within four years from the time of the discovery of the
fraud.According to Article 1338 of the Civil Code, there is fraud
when one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud, to
vitiate consent, must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud is defined as
a deception employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other.
FACTS: Metropolitan Fabrics, Incorporated (MFI), a family
corporation, owned a 5.8 hectare industrial compound at No. 685
Tandang Sora Avenue, Novaliches, Quezon City which was covered by
TCT No. 241597.
Pursuant to a P2 million, 10year 14% per annum loan agreement
with Manphil Investment Corporation (Manphil) dated April 6, 1983,
the said lot was subdivided into 11 lots, with Manphil retaining
four lots as mortgage security. The other seven lots, now covered
by TCT Nos. 317699 and 317702 to 317707, were released to MFI.
In July 1984, MFI sought from PCRI a loan in the amount of
P3,443,330.52, the balance of the cost of its boiler machine, to
prevent its repossession by the seller. PCRI, also a familyowned
corporation licensed since 1980 to engage in money lending, was
represented by Domingo Ang (Domingo) its president, and his son
Caleb, vicepresident. The parties knew each other because they
belonged to the same family association, the Lioc Kui Tong
Fraternity.
On the basis only of his interview with Enrique, feedback from
the stockholders and the Chinese community, as well as information
given by his own father Domingo, and without further checking on
the background of Enrique and his business and requiring him to
submit a company profile and a feasibility study of MFI, Caleb
recommended the approval of the P3.44 million with an interest
ranging from 24% to 26% per annum and a term of between five and
ten years (Decision, p. 5). According to the court, it sufficed for
Caleb that Enrique was a wellrespected Chinese businessman, that he
was the president of their Chinese family association, and that he
had other personal businesses aside from MFI, such as the Africa
Trading.
However, in September 1984, the first amortization check bounced
for insufficient fund due to MFIs continuing business losses. It
was then that the appellees allegedly learned that PCRI had filled
up the 24 blank checks with dates and amounts that reflected a 35%
interest rate per annum, instead of just 24%, and a twoyear
repayment period, instead of 10 years.
On September 4, 1986, Enrique received a Notice of Sheriffs Sale
dated August 29, 1986, announcing the auction of the seven lots on
September 24, 1986 due to unpaid indebtedness of P10.5 million.
Vicky (daughter of owner of MFI, because their father went into a
coma because of intense pressure from the foreclosure) insisted
that prior to the auction notice, they never received any statement
or demand letter from the defendants to pay P10.5 million, nor did
the defendants inform them of the intended foreclosure.
ISSUES: Was the Mortgage Contract VOID?
HELD: NoAs the records show, petitioners really agreed to
mortgage their properties as security for their loan, and signed
the deed of mortgage for the purpose. Thereafter, they delivered
the TCTs of the properties subject of the mortgage to respondents.
Consequently, petitioners contention of absence of consent had no
firm moorings. It remained unproved. To begin with, they neither
alleged nor established that they had been forced or coerced to
enter into the mortgage. Also, they had freely and voluntarily
applied for the loan, executed the mortgage contract and turned
over the TCTs of their properties. And, lastly, contrary to their
modified defense of absence of consent, Vicky Angs testimony tended
at best to prove the vitiation of their consent through insidious
words, machinations or misrepresentations amounting to fraud, which
showed that the contract was voidable. Where the consent was given
through fraud, the contract was voidable, not void ab initio. This
is because a voidable or annullable contract is existent, valid and
binding, although it can be annulled due to want of capacity or
because of the vitiated consent of one of the parties.
Article 1390, in relation to Article 1391 of the Civil Code,
provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may
be annulled within four years from the time of the discovery of the
fraud.According to Article 1338 of the Civil Code, there is fraud
when one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud, to
vitiate consent, must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud is defined as
a deception employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other.
4. THE MUNICIPALITY OF HAGONOY, BULACAN vs. HON. SIMEON P.
DUMDUM, JR. G.R. No. 168289 March 22, 2010 (Re: Unenforceable
Contracts)
DOCTRINE: The Statute of Frauds found in paragraph (2), Article
1403 of the Civil Code, requires for enforceability certain
contracts enumerated therein to be evidenced by some note or
memorandum. The term Statute of Frauds is descriptive of statutes
that require certain classes of contracts to be in writing; and
that do not deprive the parties of the right to contract with
respect to the matters therein involved, but merely regulate the
formalities of the contract necessary to render it enforceable. In
other words, the Statute of Frauds only lays down the method by
which the enumerated contracts may be proved. But it does not
declare them invalid because they are not reduced to writing
inasmuch as, by law, contracts are obligatory in whatever form they
may have been entered into, provided all the essential requisites
for their validity are present.
FACTS: Emily Rose Go filed suit for collection of a sum of money
and damages against herein petitioners, the Municipality of
HagonoySometime in the middle of the year 2000, respondent, doing
business as KD Surplus and as such engaged in buying and selling
surplus trucks, heavy equipment, machinery, spare parts and related
supplies, was contacted by petitioner Ople. Respondent had entered
into an agreement with petitioner municipality through Ople for the
delivery of motor vehicles, which supposedly were needed to carry
out certain developmental undertakings in the municipality.
Respondent claimed that because of Oples earnest representation
that funds had already been allocated for the project, she agreed
to deliver from her principal place of business in Cebu City
twenty-one motor vehicles whose value totaled P5,820,000.00. To
prove this, she attached to the complaint copies of the bills of
lading showing that the items were consigned, delivered to and
received by petitioner municipality on different dates.However,
despite having made several deliveries, Ople allegedly did not heed
respondents claim for payment.
Instead of addressing private respondents allegations,
petitioners filed a Motion to Dismiss on the ground that the claim
on which the action had been brought was unenforceable under the
statute of frauds, pointing out that there was no written contract
or document that would evince the supposed agreement they entered
into with respondent. They averred that contracts of this nature,
before being undertaken by the municipality, would ordinarily be
subject to several preconditions such as a public bidding and prior
approval of the municipal council which, in this case, did not
obtain. From this, petitioners impress upon us the notion that no
contract was ever entered into by the local government with
respondent
ISSUES: Is the contract unenforceable?
HELD: No, it is not unenforceableThe Statute of Frauds found in
paragraph (2), Article 1403 of the Civil Code, requires for
enforceability certain contracts enumerated therein to be evidenced
by some note or memorandum. The term Statute of Frauds is
descriptive of statutes that require certain classes of contracts
to be in writing; and that do not deprive the parties of the right
to contract with respect to the matters therein involved, but
merely regulate the formalities of the contract necessary to render
it enforceable. In other words, the Statute of Frauds only lays
down the method by which the enumerated contracts may be proved.
But it does not declare them invalid because they are not reduced
to writing inasmuch as, by law, contracts are obligatory in
whatever form they may have been entered into, provided all the
essential requisites for their validity are present.The object is
to prevent fraud and perjury in the enforcement of obligations
depending, for evidence thereof, on the unassisted memory of
witnesses by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be
charged.[ The effect of noncompliance with this requirement is
simply that no action can be enforced under the given contracts. If
an action is nevertheless filed in court, it shall warrant a
dismissal under Section 1(i), Rule 16 of the Rules of Court, unless
there has been, among others, total or partial performance of the
obligation on the part of either party.Thus, since there exists an
indication by way of allegation that there has been performance of
the obligation on the part of respondent, the case is excluded from
the coverage of the rule on dismissals based on unenforceability
under the statute of frauds, and either party may then enforce its
claims against the other.
5. METROPOLITAN BANK and TRUST COMPANY vs. INTERNATIONAL
EXCHANGE BANK G.R. No. 176131/176008 August 10, 2011 (Re:
Rescissible Contracts)
DOCTRINE: Under Article 1381 of the Civil Code, an accion
pauliana is an action to rescind contracts in fraud of creditors.22
However, jurisprudence is clear that the following successive
measures must be taken by a creditor before he may bring an action
for rescission of an allegedly fraudulent contract: (1) exhaust the
properties of the debtor through levying by attachment and
execution upon all the property of the debtor, except such as are
exempt by law from execution; (2) exercise all the rights and
actions of the debtor, save those personal to him (accion
subrogatoria); and (3) seek rescission of the contracts executed by
the debtor in fraud of their rights (accion pauliana).23 It is thus
apparent that an action to rescind, or an accion pauliana, must be
of last resort, availed of only after the creditor has exhausted
all the properties of the debtor not exempt from execution or after
all other legal remedies have been exhausted and have been proven
futile
FACTS: Sacramento Steel Corporation (SSC) is a business entity
engaged in manufacturing and producing steel and steel products.
For the purpose of increasing its capital, SSC entered into a
Credit Agreement with herein respondent International Exchange Bank
(IEB) on September 10, 2001 wherein the latter granted the former
an omnibus credit line in the amount of P60,000,000.00, a loan of
P20,000,000.00 and a subsequent credit line with a limit of
P100,000,000.00. As security for its loan obligations, SSC executed
five separate deeds of chattel mortgage constituted over various
equipment found in its steel manufacturing plant. The deeds of
mortgage were dated September 17, 2001, February 26, 2003, April
16, 2003, May 25, 2004 and June 7, 2004. Subsequently, SSC
defaulted in the payment of its obligations. IEB's demand for
payment went unheeded. On July 7, 2004, the IEB filed with the RTC
of Misamis Oriental an action for injunction for the purpose of
enjoining SSC from taking out the mortgaged equipment from its
premises.On the other hand, on July 18, 2004, SSC filed with the
same RTC of Misamis Oriental a Complaint for annulment of mortgage
and specific performance for the purpose of compelling the IEB to
restructure SSC's outstanding obligations. SSC also prayed for the
issuance of a Temporary Restraining Order (TRO) and writ of
preliminary injunction to prevent IEB from taking any steps to
dispossess SSC of any equipment in its steel manufacturing plant as
well as to restrain it from foreclosing the mortgage on the said
equipment.On October 21, 2004, herein petitioner Metropolitan Bank
and Trust Company (Metrobank) filed a motion for intervention
contending that it has legal interest in the properties subject of
the litigation between IEB and SSC because it is a creditor of SSC
and that the mortgage contracts between IEB and SSC were entered
into to defraud the latter's creditors. Metrobank prayed for the
rescission of the chattel mortgages executed by SSC in favor of
IEB.
ISSUES: Was the action of Metrobank, filing an Accion Pauliana
case, valid despite the existence of other possible remedies?
HELD: NoUnder Article 1381 of the Civil Code, an accion pauliana
is an action to rescind contracts in fraud of creditors. However,
jurisprudence is clear that the following successive measures must
be taken by a creditor before he may bring an action for rescission
of an allegedly fraudulent contract: 1) Exhaust the properties of
the debtor through levying by attachment and execution upon all the
property of the debtor, except such as are exempt by law from
execution; 2) Exercise all the rights and actions of the debtor,
save those personal to him (accion subrogatoria); and 3) Seek
rescission of the contracts executed by the debtor in fraud of
their rights (accion pauliana).
It is thus apparent that an action to rescind, or an accion
pauliana, must be of last resort, availed of only after the
creditor has exhausted all the properties of the debtor not exempt
from execution or after all other legal remedies have been
exhausted and have been proven futile. It does not appear that
Metrobank sought other properties of SSC other than the subject
lots alleged to have been transferred in fraud of creditors.
Neither is there any showing that Metrobank subrogated itself in
SSC's transmissible rights and actions. Without availing of the
first and second remedies, Metrobank simply undertook the third
measure and filed an action for annulment of the chattel mortgages.
This cannot be done. Article 1383 of the New Civil Code is very
explicit that the right or remedy of the creditor to impugn the
acts which the debtor may have done to defraud them is subsidiary
in nature. It can only be availed of in the absence of any other
legal remedy to obtain reparation for the injury.
This fact is not present in this case. No evidence was presented
nor even an allegation was offered to show that Metrobank had
availed of the abovementioned remedies before it tried to question
the validity of the contracts of chattel mortgage between IEB and
SSC.
1. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano,
G.R. No.182349, July 24, 2013. (re: Valid Contracts)
DOCTRINE: A valid contract of sale requires: (a) a meeting of
minds of the parties to transfer ownership of the thing sold in
exchange for a price; (b) the subject matter, which must be a
possible thing; and (c) the price certain in money or its
equivalent
FACTS: In the 1950s, Nena Recio (Nena), the mother of Reman
Recio (petitioner), leased from the respondents Altamiranos a
parcel of land with improvements, situated at No. 39 10 de Julio
Street (now Esteban Mayo Street), Lipa City, Batangas. The said
land has an area of more or less eighty-nine square meters and
fifty square decimeters (89.50 sq m), and is found at the northern
portion of two (2) parcels of land covered by Transfer Certificate
of Title (TCT) Nos. 66009 and 66010 of the Registry of Deeds of
Lipa City. The Altamiranos inherited the subject land from their
deceased parents, the spouses Aguedo Altamirano and Maria
ValduviaNena used the ground floor of the subject property as a
retail store for grains and the upper floor as the familys
residence. The petitioner claimed that in 1988, the Altamiranos
offered to sell the subject property to Nena for Five Hundred
Thousand Pesos (P500,000.00). The latter accepted such offer, which
prompted the Altamiranos to waive the rentals for the subject
property. However, the sale did not materialize at that time due to
the fault of the Altamiranos. Nonetheless, Nena continued to occupy
and use the property with the consent of the Altamiranos
In the latter part of 1994, the petitioner renewed Nenas option
to buy the subject property. The petitioner conducted a series of
negotiations with respondent Alejandro who introduced himself as
representing the other heirs. After the said negotiations, the
Altamiranos through Alejandro entered into an oral contract of sale
with the petitioner over the subject property. In January 1995, in
view of the said oral contract of sale, the petitioner made partial
payments to the Altamiranos in the total amount of One Hundred Ten
Thousand Pesos (P110,000.00). Alejandro duly received and
acknowledged these partial payments as shown in a receipt dated
January 24, 1995. On April 14, 1995, the petitioner made another
payment in the amount of Fifty Thousand Pesos (P50,000.00), which
Alejandro again received and acknowledged through a receipt of the
same date. Subsequently, the petitioner offered in many instances
to pay the remaining balance of the agreed purchase price of the
subject property in the amount of Three Hundred Forty Thousand
Pesos (P340,000.00), but Alejandro kept on avoiding the petitioner.
Because of this, the petitioner demanded from the Altamiranos,
through Alejandro, the execution of a Deed of Absolute Sale in
exchange for the full payment of the agreed price
ISSUES: Is the verbal contract of sale between Alejandro and the
petitioner valid?
HELD: YesA valid contract of sale requires: (a) a meeting of
minds of the parties to transfer ownership of the thing sold in
exchange for a price; (b) the subject matter, which must be a
possible thing; and (c) the price certain in money or its
equivalent. In the instant case, all these elements are present.
The records disclose that the Altamiranos were the ones who offered
to sell the property to Nena but the transaction did not push
through due to the fault of the respondents. Thereafter, the
petitioner renewed Nenas option to purchase the property to which
Alejandro, as the representative of the Altamiranos verbally
agreed.
2. Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600,
January 15, 2014. (Re: Void Contracts)
DOCTRINE: Under Article 1409 (1) of the Civil Code, a contract
whose cause, object or purpose is contrary to law is a void or
inexistent contract. As such, a void contract cannot produce a
valid one. To the same effect is Article 1422 of the Civil Code,
which declares that a contract, which is the direct result of a
previous illegal contract, is also void and inexistent.
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 the petitioners company, Gonzalo
Construction, petitioner Domingo Gonzalo (Gonzalo) subcontracted
(The subcontract) to respondent John Tarnate, Jr. (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 (this deed of assignment is
premised on the validity of the subcontract) 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 (equivalent to P233,526.13) was the rent for Tarnates
equipment that had been utilized in the project.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. Thus, he brought this suit against
Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in
Mountain Province to recover the retention fee of P233,526.13In his
answer, Gonzalo admitted the deed of assignment and the authority
given therein to Tarnate, but averred that the project had not been
fully implemented because of its cancellation by the DPWH, and that
he had then revoked the deed of assignment. He insisted that the
assignment could not stand independently due to its being a mere
product of the subcontract that had been based on his contract with
the DPWH; and that Tarnate, having been fully aware of the
illegality and ineffectuality of the deed of assignment from the
time of its execution, could not go to court with unclean hands to
invoke any right based on the invalid deed of assignment or on the
product of such deed of assignment.
ISSUES: a) Is the subcontract void? b) Is the deed of assignment
void? c) What are the effects of a void contract?
HELD:a) Yes; every contractor is prohibited from subcontracting
with or assigning to another person any contract or project that he
has with the DPWH unless the DPWH Secretary has approved the
subcontracting or assignment. This is pursuant to Section 6 of
Presidential Decree No. 1594
b) Without the Sub-Contract Agreement there will be no Deed of
Assignment to speak of. The illegality of the Sub-Contract
Agreement necessarily affects the Deed of Assignment because the
rule is that an illegal agreement cannot give birth to a valid
contract.
c) Under Article 1409 (1) of the Civil Code, a contract whose
cause, object or purpose is contrary to law is a void or inexistent
contract. As such, a void contract cannot produce a valid one. To
the same effect is Article 1422 of the Civil Code, which declares
that a contract, which is the direct result of a previous illegal
contract, is also void and inexistent
3. Metropolitan Fabrics, Inc., et al. v. Prosperity Credit
Resources, Inc. et al., G.R. No. 154390, March 17, 2014 (Re:
Voidable Contracts)
DOCTRINE: Article 1390, in relation to Article 1391 of the Civil
Code, provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may
be annulled within four years from the time of the discovery of the
fraud.According to Article 1338 of the Civil Code, there is fraud
when one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud, to
vitiate consent, must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud is defined as
a deception employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other.
FACTS: Metropolitan Fabrics, Incorporated (MFI), a family
corporation, owned a 5.8 hectare industrial compound at No. 685
Tandang Sora Avenue, Novaliches, Quezon City which was covered by
TCT No. 241597.
Pursuant to a P2 million, 10year 14% per annum loan agreement
with Manphil Investment Corporation (Manphil) dated April 6, 1983,
the said lot was subdivided into 11 lots, with Manphil retaining
four lots as mortgage security. The other seven lots, now covered
by TCT Nos. 317699 and 317702 to 317707, were released to MFI.
In July 1984, MFI sought from PCRI a loan in the amount of
P3,443,330.52, the balance of the cost of its boiler machine, to
prevent its repossession by the seller. PCRI, also a familyowned
corporation licensed since 1980 to engage in money lending, was
represented by Domingo Ang (Domingo) its president, and his son
Caleb, vicepresident. The parties knew each other because they
belonged to the same family association, the Lioc Kui Tong
Fraternity.
On the basis only of his interview with Enrique, feedback from
the stockholders and the Chinese community, as well as information
given by his own father Domingo, and without further checking on
the background of Enrique and his business and requiring him to
submit a company profile and a feasibility study of MFI, Caleb
recommended the approval of the P3.44 million with an interest
ranging from 24% to 26% per annum and a term of between five and
ten years (Decision, p. 5). According to the court, it sufficed for
Caleb that Enrique was a wellrespected Chinese businessman, that he
was the president of their Chinese family association, and that he
had other personal businesses aside from MFI, such as the Africa
Trading.
However, in September 1984, the first amortization check bounced
for insufficient fund due to MFIs continuing business losses. It
was then that the appellees allegedly learned that PCRI had filled
up the 24 blank checks with dates and amounts that reflected a 35%
interest rate per annum, instead of just 24%, and a twoyear
repayment period, instead of 10 years.
On September 4, 1986, Enrique received a Notice of Sheriffs Sale
dated August 29, 1986, announcing the auction of the seven lots on
September 24, 1986 due to unpaid indebtedness of P10.5 million.
Vicky (daughter of owner of MFI, because their father went into a
coma because of intense pressure from the foreclosure) insisted
that prior to the auction notice, they never received any statement
or demand letter from the defendants to pay P10.5 million, nor did
the defendants inform them of the intended foreclosure.
ISSUES: Was the Mortgage Contract VOID?
HELD: NoAs the records show, petitioners really agreed to
mortgage their properties as security for their loan, and signed
the deed of mortgage for the purpose. Thereafter, they delivered
the TCTs of the properties subject of the mortgage to respondents.
Consequently, petitioners contention of absence of consent had no
firm moorings. It remained unproved. To begin with, they neither
alleged nor established that they had been forced or coerced to
enter into the mortgage. Also, they had freely and voluntarily
applied for the loan, executed the mortgage contract and turned
over the TCTs of their properties. And, lastly, contrary to their
modified defense of absence of consent, Vicky Angs testimony tended
at best to prove the vitiation of their consent through insidious
words, machinations or misrepresentations amounting to fraud, which
showed that the contract was voidable. Where the consent was given
through fraud, the contract was voidable, not void ab initio. This
is because a voidable or annullable contract is existent, valid and
binding, although it can be annulled due to want of capacity or
because of the vitiated consent of one of the parties.
Article 1390, in relation to Article 1391 of the Civil Code,
provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may
be annulled within four years from the time of the discovery of the
fraud.According to Article 1338 of the Civil Code, there is fraud
when one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud, to
vitiate consent, must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud is defined as
a deception employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other.
4. THE MUNICIPALITY OF HAGONOY, BULACAN vs. HON. SIMEON P.
DUMDUM, JR. G.R. No. 168289 March 22, 2010 (Re: Unenforceable
Contracts)
DOCTRINE: The Statute of Frauds found in paragraph (2), Article
1403 of the Civil Code, requires for enforceability certain
contracts enumerated therein to be evidenced by some note or
memorandum. The term Statute of Frauds is descriptive of statutes
that require certain classes of contracts to be in writing; and
that do not deprive the parties of the right to contract with
respect to the matters therein involved, but merely regulate the
formalities of the contract necessary to render it enforceable. In
other words, the Statute of Frauds only lays down the method by
which the enumerated contracts may be proved. But it does not
declare them invalid because they are not reduced to writing
inasmuch as, by law, contracts are obligatory in whatever form they
may have been entered into, provided all the essential requisites
for their validity are present.
FACTS: Emily Rose Go filed suit for collection of a sum of money
and damages against herein petitioners, the Municipality of
HagonoySometime in the middle of the year 2000, respondent, doing
business as KD Surplus and as such engaged in buying and selling
surplus trucks, heavy equipment, machinery, spare parts and related
supplies, was contacted by petitioner Ople. Respondent had entered
into an agreement with petitioner municipality through Ople for the
delivery of motor vehicles, which supposedly were needed to carry
out certain developmental undertakings in the municipality.
Respondent claimed that because of Oples earnest representation
that funds had already been allocated for the project, she agreed
to deliver from her principal place of business in Cebu City
twenty-one motor vehicles whose value totaled P5,820,000.00. To
prove this, she attached to the complaint copies of the bills of
lading showing that the items were consigned, delivered to and
received by petitioner municipality on different dates.However,
despite having made several deliveries, Ople allegedly did not heed
respondents claim for payment.
Instead of addressing private respondents allegations,
petitioners filed a Motion to Dismiss on the ground that the claim
on which the action had been brought was unenforceable under the
statute of frauds, pointing out that there was no written contract
or document that would evince the supposed agreement they entered
into with respondent. They averred that contracts of this nature,
before being undertaken by the municipality, would ordinarily be
subject to several preconditions such as a public bidding and prior
approval of the municipal council which, in this case, did not
obtain. From this, petitioners impress upon us the notion that no
contract was ever entered into by the local government with
respondent
ISSUES: Is the contract unenforceable?
HELD: No, it is not unenforceableThe Statute of Frauds found in
paragraph (2), Article 1403 of the Civil Code, requires for
enforceability certain contracts enumerated therein to be evidenced
by some note or memorandum. The term Statute of Frauds is
descriptive of statutes that require certain classes of contracts
to be in writing; and that do not deprive the parties of the right
to contract with respect to the matters therein involved, but
merely regulate the formalities of the contract necessary to render
it enforceable. In other words, the Statute of Frauds only lays
down the method by which the enumerated contracts may be proved.
But it does not declare them invalid because they are not reduced
to writing inasmuch as, by law, contracts are obligatory in
whatever form they may have been entered into, provided all the
essential requisites for their validity are present.The object is
to prevent fraud and perjury in the enforcement of obligations
depending, for evidence thereof, on the unassisted memory of
witnesses by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be
charged.[ The effect of noncompliance with this requirement is
simply that no action can be enforced under the given contracts. If
an action is nevertheless filed in court, it shall warrant a
dismissal under Section 1(i), Rule 16 of the Rules of Court, unless
there has been, among others, total or partial performance of the
obligation on the part of either party.Thus, since there exists an
indication by way of allegation that there has been performance of
the obligation on the part of respondent, the case is excluded from
the coverage of the rule on dismissals based on unenforceability
under the statute of frauds, and either party may then enforce its
claims against the other.
5. METROPOLITAN BANK and TRUST COMPANY vs. INTERNATIONAL
EXCHANGE BANK G.R. No. 176131/176008 August 10, 2011 (Re:
Rescissible Contracts)
DOCTRINE: Under Article 1381 of the Civil Code, an accion
pauliana is an action to rescind contracts in fraud of creditors.22
However, jurisprudence is clear that the following successive
measures must be taken by a creditor before he may bring an action
for rescission of an allegedly fraudulent contract: (1) exhaust the
properties of the debtor through levying by attachment and
execution upon all the property of the debtor, except such as are
exempt by law from execution; (2) exercise all the rights and
actions of the debtor, save those personal to him (accion
subrogatoria); and (3) seek rescission of the contracts executed by
the debtor in fraud of their rights (accion pauliana).23 It is thus
apparent that an action to rescind, or an accion pauliana, must be
of last resort, availed of only after the creditor has exhausted
all the properties of the debtor not exempt from execution or after
all other legal remedies have been exhausted and have been proven
futile
FACTS: Sacramento Steel Corporation (SSC) is a business entity
engaged in manufacturing and producing steel and steel products.
For the purpose of increasing its capital, SSC entered into a
Credit Agreement with herein respondent International Exchange Bank
(IEB) on September 10, 2001 wherein the latter granted the former
an omnibus credit line in the amount of P60,000,000.00, a loan of
P20,000,000.00 and a subsequent credit line with a limit of
P100,000,000.00. As security for its loan obligations, SSC executed
five separate deeds of chattel mortgage constituted over various
equipment found in its steel manufacturing plant. The deeds of
mortgage were dated September 17, 2001, February 26, 2003, April
16, 2003, May 25, 2004 and June 7, 2004. Subsequently, SSC
defaulted in the payment of its obligations. IEB's demand for
payment went unheeded. On July 7, 2004, the IEB filed with the RTC
of Misamis Oriental an action for injunction for the purpose of
enjoining SSC from taking out the mortgaged equipment from its
premises.On the other hand, on July 18, 2004, SSC filed with the
same RTC of Misamis Oriental a Complaint for annulment of mortgage
and specific performance for the purpose of compelling the IEB to
restructure SSC's outstanding obligations. SSC also prayed for the
issuance of a Temporary Restraining Order (TRO) and writ of
preliminary injunction to prevent IEB from taking any steps to
dispossess SSC of any equipment in its steel manufacturing plant as
well as to restrain it from foreclosing the mortgage on the said
equipment.On October 21, 2004, herein petitioner Metropolitan Bank
and Trust Company (Metrobank) filed a motion for intervention
contending that it has legal interest in the properties subject of
the litigation between IEB and SSC because it is a creditor of SSC
and that the mortgage contracts between IEB and SSC were entered
into to defraud the latter's creditors. Metrobank prayed for the
rescission of the chattel mortgages executed by SSC in favor of
IEB.
ISSUES: Was the action of Metrobank, filing an Accion Pauliana
case, valid despite the existence of other possible remedies?
HELD: NoUnder Article 1381 of the Civil Code, an accion pauliana
is an action to rescind contracts in fraud of creditors. However,
jurisprudence is clear that the following successive measures must
be taken by a creditor before he may bring an action for rescission
of an allegedly fraudulent contract: 1) Exhaust the properties of
the debtor through levying by attachment and execution upon all the
property of the debtor, except such as are exempt by law from
execution; 2) Exercise all the rights and actions of the debtor,
save those personal to him (accion subrogatoria); and 3) Seek
rescission of the contracts executed by the debtor in fraud of
their rights (accion pauliana).
It is thus apparent that an action to rescind, or an accion
pauliana, must be of last resort, availed of only after the
creditor has exhausted all the properties of the debtor not exempt
from execution or after all other legal remedies have been
exhausted and have been proven futile. It does not appear that
Metrobank sought other properties of SSC other than the subject
lots alleged to have been transferred in fraud of creditors.
Neither is there any showing that Metrobank subrogated itself in
SSC's transmissible rights and actions. Without availing of the
first and second remedies, Metrobank simply undertook the third
measure and filed an action for annulment of the chattel mortgages.
This cannot be done. Article 1383 of the New Civil Code is very
explicit that the right or remedy of the creditor to impugn the
acts which the debtor may have done to defraud them is subsidiary
in nature. It can only be availed of in the absence of any other
legal remedy to obtain reparation for the injury.
This fact is not present in this case. No evidence was presented
nor even an allegation was offered to show that Metrobank had
availed of the abovementioned remedies before it tried to question
the validity of the contracts of chattel mortgage between IEB and
SSC.
1. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano,
G.R. No.182349, July 24, 2013. (re: Valid Contracts)
DOCTRINE: A valid contract of sale requires: (a) a meeting of
minds of the parties to transfer ownership of the thing sold in
exchange for a price; (b) the subject matter, which must be a
possible thing; and (c) the price certain in money or its
equivalent
FACTS: In the 1950s, Nena Recio (Nena), the mother of Reman
Recio (petitioner), leased from the respondents Altamiranos a
parcel of land with improvements, situated at No. 39 10 de Julio
Street (now Esteban Mayo Street), Lipa City, Batangas. The said
land has an area of more or less eighty-nine square meters and
fifty square decimeters (89.50 sq m), and is found at the northern
portion of two (2) parcels of land covered by Transfer Certificate
of Title (TCT) Nos. 66009 and 66010 of the Registry of Deeds of
Lipa City. The Altamiranos inherited the subject land from their
deceased parents, the spouses Aguedo Altamirano and Maria
ValduviaNena used the ground floor of the subject property as a
retail store for grains and the upper floor as the familys
residence. The petitioner claimed that in 1988, the Altamiranos
offered to sell the subject property to Nena for Five Hundred
Thousand Pesos (P500,000.00). The latter accepted such offer, which
prompted the Altamiranos to waive the rentals for the subject
property. However, the sale did not materialize at that time due to
the fault of the Altamiranos. Nonetheless, Nena continued to occupy
and use the property with the consent of the Altamiranos
In the latter part of 1994, the petitioner renewed Nenas option
to buy the subject property. The petitioner conducted a series of
negotiations with respondent Alejandro who introduced himself as
representing the other heirs. After the said negotiations, the
Altamiranos through Alejandro entered into an oral contract of sale
with the petitioner over the subject property. In January 1995, in
view of the said oral contract of sale, the petitioner made partial
payments to the Altamiranos in the total amount of One Hundred Ten
Thousand Pesos (P110,000.00). Alejandro duly received and
acknowledged these partial payments as shown in a receipt dated
January 24, 1995. On April 14, 1995, the petitioner made another
payment in the amount of Fifty Thousand Pesos (P50,000.00), which
Alejandro again received and acknowledged through a receipt of the
same date. Subsequently, the petitioner offered in many instances
to pay the remaining balance of the agreed purchase price of the
subject property in the amount of Three Hundred Forty Thousand
Pesos (P340,000.00), but Alejandro kept on avoiding the petitioner.
Because of this, the petitioner demanded from the Altamiranos,
through Alejandro, the execution of a Deed of Absolute Sale in
exchange for the full payment of the agreed price
ISSUES: Is the verbal contract of sale between Alejandro and the
petitioner valid?
HELD: YesA valid contract of sale requires: (a) a meeting of
minds of the parties to transfer ownership of the thing sold in
exchange for a price; (b) the subject matter, which must be a
possible thing; and (c) the price certain in money or its
equivalent. In the instant case, all these elements are present.
The records disclose that the Altamiranos were the ones who offered
to sell the property to Nena but the transaction did not push
through due to the fault of the respondents. Thereafter, the
petitioner renewed Nenas option to purchase the property to which
Alejandro, as the representative of the Altamiranos verbally
agreed.
2. Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600,
January 15, 2014. (Re: Void Contracts)
DOCTRINE: Under Article 1409 (1) of the Civil Code, a contract
whose cause, object or purpose is contrary to law is a void or
inexistent contract. As such, a void contract cannot produce a
valid one. To the same effect is Article 1422 of the Civil Code,
which declares that a contract, which is the direct result of a
previous illegal contract, is also void and inexistent.
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 the petitioners company, Gonzalo
Construction, petitioner Domingo Gonzalo (Gonzalo) subcontracted
(The subcontract) to respondent John Tarnate, Jr. (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 (this deed of assignment is
premised on the validity of the subcontract) 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 (equivalent to P233,526.13) was the rent for Tarnates
equipment that had been utilized in the project.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. Thus, he brought this suit against
Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in
Mountain Province to recover the retention fee of P233,526.13In his
answer, Gonzalo admitted the deed of assignment and the authority
given therein to Tarnate, but averred that the project had not been
fully implemented because of its cancellation by the DPWH, and that
he had then revoked the deed of assignment. He insisted that the
assignment could not stand independently due to its being a mere
product of the subcontract that had been based on his contract with
the DPWH; and that Tarnate, having been fully aware of the
illegality and ineffectuality of the deed of assignment from the
time of its execution, could not go to court with unclean hands to
invoke any right based on the invalid deed of assignment or on the
product of such deed of assignment.
ISSUES: a) Is the subcontract void? b) Is the deed of assignment
void? c) What are the effects of a void contract?
HELD:a) Yes; every contractor is prohibited from subcontracting
with or assigning to another person any contract or project that he
has with the DPWH unless the DPWH Secretary has approved the
subcontracting or assignment. This is pursuant to Section 6 of
Presidential Decree No. 1594
b) Without the Sub-Contract Agreement there will be no Deed of
Assignment to speak of. The illegality of the Sub-Contract
Agreement necessarily affects the Deed of Assignment because the
rule is that an illegal agreement cannot give birth to a valid
contract.
c) Under Article 1409 (1) of the Civil Code, a contract whose
cause, object or purpose is contrary to law is a void or inexistent
contract. As such, a void contract cannot produce a valid one. To
the same effect is Article 1422 of the Civil Code, which declares
that a contract, which is the direct result of a previous illegal
contract, is also void and inexistent
3. Metropolitan Fabrics, Inc., et al. v. Prosperity Credit
Resources, Inc. et al., G.R. No. 154390, March 17, 2014 (Re:
Voidable Contracts)
DOCTRINE: Article 1390, in relation to Article 1391 of the Civil
Code, provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may
be annulled within four years from the time of the discovery of the
fraud.According to Article 1338 of the Civil Code, there is fraud
when one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud, to
vitiate consent, must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud is defined as
a deception employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other.
FACTS: Metropolitan Fabrics, Incorporated (MFI), a family
corporation, owned a 5.8 hectare industrial compound at No. 685
Tandang Sora Avenue, Novaliches, Quezon City which was covered by
TCT No. 241597.
Pursuant to a P2 million, 10year 14% per annum loan agreement
with Manphil Investment Corporation (Manphil) dated April 6, 1983,
the said lot was subdivided into 11 lots, with Manphil retaining
four lots as mortgage security. The other seven lots, now covered
by TCT Nos. 317699 and 317702 to 317707, were released to MFI.
In July 1984, MFI sought from PCRI a loan in the amount of
P3,443,330.52, the balance of the cost of its boiler machine, to
prevent its repossession by the seller. PCRI, also a familyowned
corporation licensed since 1980 to engage in money lending, was
represented by Domingo Ang (Domingo) its president, and his son
Caleb, vicepresident. The parties knew each other because they
belonged to the same family association, the Lioc Kui Tong
Fraternity.
On the basis only of his interview with Enrique, feedback from
the stockholders and the Chinese community, as well as information
given by his own father Domingo, and without further checking on
the background of Enrique and his business and requiring him to
submit a company profile and a feasibility study of MFI, Caleb
recommended the approval of the P3.44 million with an interest
ranging from 24% to 26% per annum and a term of between five and
ten years (Decision, p. 5). According to the court, it sufficed for
Caleb that Enrique was a wellrespected Chinese businessman, that he
was the president of their Chinese family association, and that he
had other personal businesses aside from MFI, such as the Africa
Trading.
However, in September 1984, the first amortization check bounced
for insufficient fund due to MFIs continuing business losses. It
was then that the appellees allegedly learned that PCRI had filled
up the 24 blank checks with dates and amounts that reflected a 35%
interest rate per annum, instead of just 24%, and a twoyear
repayment period, instead of 10 years.
On September 4, 1986, Enrique received a Notice of Sheriffs Sale
dated August 29, 1986, announcing the auction of the seven lots on
September 24, 1986 due to unpaid indebtedness of P10.5 million.
Vicky (daughter of owner of MFI, because their father went into a
coma because of intense pressure from the foreclosure) insisted
that prior to the auction notice, they never received any statement
or demand letter from the defendants to pay P10.5 million, nor did
the defendants inform them of the intended foreclosure.
ISSUES: Was the Mortgage Contract VOID?
HELD: NoAs the records show, petitioners really agreed to
mortgage their properties as security for their loan, and signed
the deed of mortgage for the purpose. Thereafter, they delivered
the TCTs of the properties subject of the mortgage to respondents.
Consequently, petitioners contention of absence of consent had no
firm moorings. It remained unproved. To begin with, they neither
alleged nor established that they had been forced or coerced to
enter into the mortgage. Also, they had freely and voluntarily
applied for the loan, executed the mortgage contract and turned
over the TCTs of their properties. And, lastly, contrary to their
modified defense of absence of consent, Vicky Angs testimony tended
at best to prove the vitiation of their consent through insidious
words, machinations or misrepresentations amounting to fraud, which
showed that the contract was voidable. Where the consent was given
through fraud, the contract was voidable, not void ab initio. This
is because a voidable or annullable contract is existent, valid and
binding, although it can be annulled due to want of capacity or
because of the vitiated consent of one of the parties.
Article 1390, in relation to Article 1391 of the Civil Code,
provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may
be annulled within four years from the time of the discovery of the
fraud.According to Article 1338 of the Civil Code, there is fraud
when one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud, to
vitiate consent, must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud is defined as
a deception employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other.
4. THE MUNICIPALITY OF HAGONOY, BULACAN vs. HON. SIMEON P.
DUMDUM, JR. G.R. No. 168289 March 22, 2010 (Re: Unenforceable
Contracts)
DOCTRINE: The Statute of Frauds found in paragraph (2), Article
1403 of the Civil Code, requires for enforceability certain
contracts enumerated therein to be evidenced by some note or
memorandum. The term Statute of Frauds is descriptive of statutes
that require certain classes of contracts to be in writing; and
that do not deprive the parties of the right to contract with
respect to the matters therein involved, but merely regulate the
formalities of the contract necessary to render it enforceable. In
other words, the Statute of Frauds only lays down the method by
which the enumerated contracts may be proved. But it does not
declare them invalid because they are not reduced to writing
inasmuch as, by law, contracts are obligatory in whatever form they
may have been entered into, provided all the essential requisites
for their validity are present.
FACTS: Emily Rose Go filed suit for collection of a sum of money
and damages against herein petitioners, the Municipality of
HagonoySometime in the middle of the year 2000, respondent, doing
business as KD Surplus and as such engaged in buying and selling
surplus trucks, heavy equipment, machinery, spare parts and related
supplies, was contacted by petitioner Ople. Respondent had entered
into an agreement with petitioner municipality through Ople for the
delivery of motor vehicles, which supposedly were needed to carry
out certain developmental undertakings in the municipality.
Respondent claimed that because of Oples earnest representation
that funds had already been allocated for the project, she agreed
to deliver from her principal place of business in Cebu City
twenty-one motor vehicles whose value totaled P5,820,000.00. To
prove this, she attached to the complaint copies of the bills of
lading showing that the items were consigned, delivered to and
received by petitioner municipality on different dates.However,
despite having made several deliveries, Ople allegedly did not heed
respondents claim for payment.
Instead of addressing private respondents allegations,
petitioners filed a Motion to Dismiss on the ground that the claim
on which the action had been brought was unenforceable under the
statute of frauds, pointing out that there was no written contract
or document that would evince the supposed agreement they entered
into with respondent. They averred that contracts of this nature,
before being undertaken by the municipality, would ordinarily be
subject to several preconditions such as a public bidding and prior
approval of the municipal council which, in this case, did not
obtain. From this, petitioners impress upon us the notion that no
contract was ever entered into by the local government with
respondent
ISSUES: Is the contract unenforceable?
HELD: No, it is not unenforceableThe Statute of Frauds found in
paragraph (2), Article 1403 of the Civil Code, requires for
enforceability certain contracts enumerated therein to be evidenced
by some note or memorandum. The term Statute of Frauds is
descriptive of statutes that require certain classes of contracts
to be in writing; and that do not deprive the parties of the right
to contract with respect to the matters therein involved, but
merely regulate the formalities of the contract necessary to render
it enforceable. In other words, the Statute of Frauds only lays
down the method by which the enumerated contracts may be proved.
But it does not declare them invalid because they are not reduced
to writing inasmuch as, by law, contracts are obligatory in
whatever form they may have been entered into, provided all the
essential requisites for their validity are present.The object is
to prevent fraud and perjury in the enforcement of obligations
depending, for evidence thereof, on the unassisted memory of
witnesses by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be
charged.[ The effect of noncompliance with this requirement is
simply that no action can be enforced under the given contracts. If
an action is nevertheless filed in court, it shall warrant a
dismissal under Section 1(i), Rule 16 of the Rules of Court, unless
there has been, among others, total or partial performance of the
obligation on the part of either party.Thus, since there exists an
indication by way of allegation that there has been performance of
the obligation on the part of respondent, the case is excluded from
the coverage of the rule on dismissals based on unenforceability
under the statute of frauds, and either party may then enforce its
claims against the other.
5. METROPOLITAN BANK and TRUST COMPANY vs. INTERNATIONAL
EXCHANGE BANK G.R. No. 176131/176008 August 10, 2011 (Re:
Rescissible Contracts)
DOCTRINE: Under Article 1381 of the Civil Code, an accion
pauliana is an action to rescind contracts in fraud of creditors.22
However, jurisprudence is clear that the following successive
measures must be taken by a creditor before he may bring an action
for rescission of an allegedly fraudulent contract: (1) exhaust the
properties of the debtor through levying by attachment and
execution upon all the property of the debtor, except such as are
exempt by law from execution; (2) exercise all the rights and
actions of the debtor, save those personal to him (accion
subrogatoria); and (3) seek rescission of the contracts executed by
the debtor in fraud of their rights (accion pauliana).23 It is thus
apparent that an action to rescind, or an accion pauliana, must be
of last resort, availed of only after the creditor has exhausted
all the properties of the debtor not exempt from execution or after
all other legal remedies have been exhausted and have been proven
futile
FACTS: Sacramento Steel Corporation (SSC) is a business entity
engaged in manufacturing and producing steel and steel products.
For the purpose of increasing its capital, SSC entered into a
Credit Agreement with herein respondent International Exchange Bank
(IEB) on September 10, 2001 wherein the latter granted the former
an omnibus credit line in the amount of P60,000,000.00, a loan of
P20,000,000.00 and a subsequent credit line with a limit of
P100,000,000.00. As security for its loan obligations, SSC executed
five separate deeds of chattel mortgage constituted over various
equipment found in its steel manufacturing plant. The deeds of
mortgage were dated September 17, 2001, February 26, 2003, April
16, 2003, May 25, 2004 and June 7, 2004. Subsequently, SSC
defaulted in the payment of its obligations. IEB's demand for
payment went unheeded. On July 7, 2004, the IEB filed with the RTC
of Misamis Oriental an action for injunction for the purpose of
enjoining SSC from taking out the mortgaged equipment from its
premises.On the other hand, on July 18, 2004, SSC filed with the
same RTC of Misamis Oriental a Complaint for annulment of mortgage
and specific performance for the purpose of compelling the IEB to
restructure SSC's outstanding obligations. SSC also prayed for the
issuance of a Temporary Restraining Order (TRO) and writ of
preliminary injunction to prevent IEB from taking any steps to
dispossess SSC of any equipment in its steel manufacturing plant as
well as to restrain it from foreclosing the mortgage on the said
equipment.On October 21, 2004, herein petitioner Metropolitan Bank
and Trust Company (Metrobank) filed a motion for intervention
contending that it has legal interest in the properties subject of
the litigation between IEB and SSC because it is a creditor of SSC
and that the mortgage contracts between IEB and SSC were entered
into to defraud the latter's creditors. Metrobank prayed for the
rescission of the chattel mortgages executed by SSC in favor of
IEB.
ISSUES: Was the action of Metrobank, filing an Accion Pauliana
case, valid despite the existence of other possible remedies?
HELD: NoUnder Article 1381 of the Civil Code, an accion pauliana
is an action to rescind contracts in fraud of creditors. However,
jurisprudence is clear that the following successive measures must
be taken by a creditor before he may bring an action for rescission
of an allegedly fraudulent contract: 1) Exhaust the properties of
the debtor through levying by attachment and execution upon all the
property of the debtor, except such as are exempt by law from
execution; 2) Exercise all the rights and actions of the debtor,
save those personal to him (accion subrogatoria); and 3) Seek
rescission of the contracts executed by the debtor in fraud of
their rights (accion pauliana).
It is thus apparent that an action to rescind, or an accion
pauliana, must be of last resort, availed of only after the
creditor has exhausted all the properties of the debtor not exempt
from execution or after all other legal remedies have been
exhausted and have been proven futile. It does not appear that
Metrobank sought other properties of SSC other than the subject
lots alleged to have been transferred in fraud of creditors.
Neither is there any showing that Metrobank subrogated itself in
SSC's transmissible rights and actions. Without availing of the
first and second remedies, Metrobank simply undertook the third
measure and filed an action for annulment of the chattel mortgages.
This cannot be done. Article 1383 of the New Civil Code is very
explicit that the right or remedy of the creditor to impugn the
acts which the debtor may have done to defraud them is subsidiary
in nature. It can only be availed of in the absence of any other
legal remedy to obtain reparation for the injury.
This fact is not present in this case. No evidence was presented
nor even an allegation was offered to show that Metrobank had
availed of the abovementioned remedies before it tried to question
the validity of the contracts of chattel mortgage between IEB and
SSC.
1. Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano,
G.R. No.182349, July 24, 2013. (re: Valid Contracts)
DOCTRINE: A valid contract of sale requires: (a) a meeting of
minds of the parties to transfer ownership of the thing sold in
exchange for a price; (b) the subject matter, which must be a
possible thing; and (c) the price certain in money or its
equivalent
FACTS: In the 1950s, Nena Recio (Nena), the mother of Reman
Recio (petitioner), leased from the respondents Altamiranos a
parcel of land with improvements, situated at No. 39 10 de Julio
Street (now Esteban Mayo Street), Lipa City, Batangas. The said
land has an area of more or less eighty-nine square meters and
fifty square decimeters (89.50 sq m), and is found at the northern
portion of two (2) parcels of land covered by Transfer Certificate
of Title (TCT) Nos. 66009 and 66010 of the Registry of Deeds of
Lipa City. The Altamiranos inherited the subject land from their
deceased parents, the spouses Aguedo Altamirano and Maria
ValduviaNena used the ground floor of the subject property as a
retail store for grains and the upper floor as the familys
residence. The petitioner claimed that in 1988, the Altamiranos
offered to sell the subject property to Nena for Five Hundred
Thousand Pesos (P500,000.00). The latter accepted such offer, which
prompted the Altamiranos to waive the rentals for the subject
property. However, the sale did not materialize at that time due to
the fault of the Altamiranos. Nonetheless, Nena continued to occupy
and use the property with the consent of the Altamiranos
In the latter part of 1994, the petitioner renewed Nenas option
to buy the subject property. The petitioner conducted a series of
negotiations with respondent Alejandro who introduced himself as
representing the other heirs. After the said negotiations, the
Altamiranos through Alejandro entered into an oral contract of sale
with the petitioner over the subject property. In January 1995, in
view of the said oral contract of sale, the petitioner made partial
payments to the Altamiranos in the total amount of One Hundred Ten
Thousand Pesos (P110,000.00). Alejandro duly received and
acknowledged these partial payments as shown in a receipt dated
January 24, 1995. On April 14, 1995, the petitioner made another
payment in the amount of Fifty Thousand Pesos (P50,000.00), which
Alejandro again received and acknowledged through a receipt of the
same date. Subsequently, the petitioner offered in many instances
to pay the remaining balance of the agreed purchase price of the
subject property in the amount of Three Hundred Forty Thousand
Pesos (P340,000.00), but Alejandro kept on avoiding the petitioner.
Because of this, the petitioner demanded from the Altamiranos,
through Alejandro, the execution of a Deed of Absolute Sale in
exchange for the full payment of the agreed price
ISSUES: Is the verbal contract of sale between Alejandro and the
petitioner valid?
HELD: YesA valid contract of sale requires: (a) a meeting of
minds of the parties to transfer ownership of the thing sold in
exchange for a price; (b) the subject matter, which must be a
possible thing; and (c) the price certain in money or its
equivalent. In the instant case, all these elements are present.
The records disclose that the Altamiranos were the ones who offered
to sell the property to Nena but the transaction did not push
through due to the fault of the respondents. Thereafter, the
petitioner renewed Nenas option to purchase the property to which
Alejandro, as the representative of the Altamiranos verbally
agreed.
2. Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600,
January 15, 2014. (Re: Void Contracts)
DOCTRINE: Under Article 1409 (1) of the Civil Code, a contract
whose cause, object or purpose is contrary to law is a void or
inexistent contract. As such, a void contract cannot produce a
valid one. To the same effect is Article 1422 of the Civil Code,
which declares that a contract, which is the direct result of a
previous illegal contract, is also void and inexistent.
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 the petitioners company, Gonzalo
Construction, petitioner Domingo Gonzalo (Gonzalo) subcontracted
(The subcontract) to respondent John Tarnate, Jr. (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 (this deed of assignment is
premised on the validity of the subcontract) 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 (equivalent to P233,526.13) was the rent for Tarnates
equipment that had been utilized in the project.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. Thus, he brought this suit against
Gonzalo on September 13, 1999 in the Regional Trial Court (RTC) in
Mountain Province to recover the retention fee of P233,526.13In his
answer, Gonzalo admitted the deed of assignment and the authority
given therein to Tarnate, but averred that the project had not been
fully implemented because of its cancellation by the DPWH, and that
he had then revoked the deed of assignment. He insisted that the
assignment could not stand independently due to its being a mere
product of the subcontract that had been based on his contract with
the DPWH; and that Tarnate, having been fully aware of the
illegality and ineffectuality of the deed of assignment from the
time of its execution, could not go to court with unclean hands to
invoke any right based on the invalid deed of assignment or on the
product of such deed of assignment.
ISSUES: a) Is the subcontract void? b) Is the deed of assignment
void? c) What are the effects of a void contract?
HELD:a) Yes; every contractor is prohibited from subcontracting
with or assigning to another person any contract or project that he
has with the DPWH unless the DPWH Secretary has approved the
subcontracting or assignment. This is pursuant to Section 6 of
Presidential Decree No. 1594
b) Without the Sub-Contract Agreement there will be no Deed of
Assignment to speak of. The illegality of the Sub-Contract
Agreement necessarily affects the Deed of Assignment because the
rule is that an illegal agreement cannot give birth to a valid
contract.
c) Under Article 1409 (1) of the Civil Code, a contract whose
cause, object or purpose is contrary to law is a void or inexistent
contract. As such, a void contract cannot produce a valid one. To
the same effect is Article 1422 of the Civil Code, which declares
that a contract, which is the direct result of a previous illegal
contract, is also void and inexistent
3. Metropolitan Fabrics, Inc., et al. v. Prosperity Credit
Resources, Inc. et al., G.R. No. 154390, March 17, 2014 (Re:
Voidable Contracts)
DOCTRINE: Article 1390, in relation to Article 1391 of the Civil
Code, provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may
be annulled within four years from the time of the discovery of the
fraud.According to Article 1338 of the Civil Code, there is fraud
when one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud, to
vitiate consent, must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud is defined as
a deception employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other.
FACTS: Metropolitan Fabrics, Incorporated (MFI), a family
corporation, owned a 5.8 hectare industrial compound at No. 685
Tandang Sora Avenue, Novaliches, Quezon City which was covered by
TCT No. 241597.
Pursuant to a P2 million, 10year 14% per annum loan agreement
with Manphil Investment Corporation (Manphil) dated April 6, 1983,
the said lot was subdivided into 11 lots, with Manphil retaining
four lots as mortgage security. The other seven lots, now covered
by TCT Nos. 317699 and 317702 to 317707, were released to MFI.
In July 1984, MFI sought from PCRI a loan in the amount of
P3,443,330.52, the balance of the cost of its boiler machine, to
prevent its repossession by the seller. PCRI, also a familyowned
corporation licensed since 1980 to engage in money lending, was
represented by Domingo Ang (Domingo) its president, and his son
Caleb, vicepresident. The parties knew each other because they
belonged to the same family association, the Lioc Kui Tong
Fraternity.
On the basis only of his interview with Enrique, feedback from
the stockholders and the Chinese community, as well as information
given by his own father Domingo, and without further checking on
the background of Enrique and his business and requiring him to
submit a company profile and a feasibility study of MFI, Caleb
recommended the approval of the P3.44 million with an interest
ranging from 24% to 26% per annum and a term of between five and
ten years (Decision, p. 5). According to the court, it sufficed for
Caleb that Enrique was a wellrespected Chinese businessman, that he
was the president of their Chinese family association, and that he
had other personal businesses aside from MFI, such as the Africa
Trading.
However, in September 1984, the first amortization check bounced
for insufficient fund due to MFIs continuing business losses. It
was then that the appellees allegedly learned that PCRI had filled
up the 24 blank checks with dates and amounts that reflected a 35%
interest rate per annum, instead of just 24%, and a twoyear
repayment period, instead of 10 years.
On September 4, 1986, Enrique received a Notice of Sheriffs Sale
dated August 29, 1986, announcing the auction of the seven lots on
September 24, 1986 due to unpaid indebtedness of P10.5 million.
Vicky (daughter of owner of MFI, because their father went into a
coma because of intense pressure from the foreclosure) insisted
that prior to the auction notice, they never received any statement
or demand letter from the defendants to pay P10.5 million, nor did
the defendants inform them of the intended foreclosure.
ISSUES: Was the Mortgage Contract VOID?
HELD: NoAs the records show, petitioners really agreed to
mortgage their properties as security for their loan, and signed
the deed of mortgage for the purpose. Thereafter, they delivered
the TCTs of the properties subject of the mortgage to respondents.
Consequently, petitioners contention of absence of consent had no
firm moorings. It remained unproved. To begin with, they neither
alleged nor established that they had been forced or coerced to
enter into the mortgage. Also, they had freely and voluntarily
applied for the loan, executed the mortgage contract and turned
over the TCTs of their properties. And, lastly, contrary to their
modified defense of absence of consent, Vicky Angs testimony tended
at best to prove the vitiation of their consent through insidious
words, machinations or misrepresentations amounting to fraud, which
showed that the contract was voidable. Where the consent was given
through fraud, the contract was voidable, not void ab initio. This
is because a voidable or annullable contract is existent, valid and
binding, although it can be annulled due to want of capacity or
because of the vitiated consent of one of the parties.
Article 1390, in relation to Article 1391 of the Civil Code,
provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may
be annulled within four years from the time of the discovery of the
fraud.According to Article 1338 of the Civil Code, there is fraud
when one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud, to
vitiate consent, must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud is defined as
a deception employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other.
4. THE MUNICIPALITY OF HAGONOY, BULACAN vs. HON. SIMEON P.
DUMDUM, JR. G.R. No. 168289 March 22, 2010 (Re: Unenforceable
Contracts)
DOCTRINE: The Statute of Frauds found in paragraph (2), Article
1403 of the Civil Code, requires for enforceability certain
contracts enumerated therein to be evidenced by some note or
memorandum. The term Statute of Frauds is descriptive of statutes
that require certain classes of contracts to be in writing; and
that do not deprive the parties of the right to contract with
respect to the matters therein involved, but merely regulate the
formalities of the contract necessary to render it enforceable. In
other words, the Statute of Frauds only lays down the method by
which the enumerated contracts may be proved. But it does not
declare them invalid because they are not reduced to writing
inasmuch as, by law, contracts are obligatory in whatever form they
may have been entered into, provided all the essential requisites
for their validity are present.
FACTS: Emily Rose Go filed suit for collection of a sum of money
and damages against herein petitioners, the Municipality of
HagonoySometime in the middle of the year 2000, respondent, doing
business as KD Surplus and as such engaged in buying and selling
surplus trucks, heavy equipment, machinery, spare parts and related
supplies, was contacted by petitioner Ople. Respondent had entered
into an agreement with petitioner municipality through Ople for the
delivery of motor vehicles, which supposedly were needed to carry
out certain developmental undertakings in the municipality.
Respondent claimed that because of Oples earnest representation
that funds had already been allocated for the project, she agreed
to deliver from her principal place of business in Cebu City
twenty-one motor vehicles whose value totaled P5,820,000.00. To
prove this, she attached to the complaint copies of the bills of
lading showing that the items were consigned, delivered to and
received by petitioner municipality on different dates.However,
despite having made several deliveries, Ople allegedly did not heed
respondents claim for payment.
Instead of addressing private respondents allegations,
petitioners filed a Motion to Dismiss on the ground that the claim
on which the action had been brought was unenforceable under the
statute of frauds, pointing out that there was no written contract
or document that would evince the supposed agreement they entered
into with respondent. They averred that contracts of this nature,
before being undertaken by the municipality, would ordinarily be
subject to several preconditions such as a public bidding and prior
approval of the municipal council which, in this case, did not
obtain. From this, petitioners impress upon us the notion that no
contract was ever entered into by the local government with
respondent
ISSUES: Is the contract unenforceable?
HELD: No, it is not unenforceableThe Statute of Frauds found in
paragraph (2), Article 1403 of the Civil Code, requires for
enforceability certain contracts enumerated therein to be evidenced
by some note or memorandum. The term Statute of Frauds is
descriptive of statutes that require certain classes of contracts
to be in writing; and that do not deprive the parties of the right
to contract with respect to the matters therein involved, but
merely regulate the formalities of the contract necessary to render
it enforceable. In other words, the Statute of Frauds only lays
down the method by which the enumerated contracts may be proved.
But it does not declare them invalid because they are not reduced
to writing inasmuch as, by law, contracts are obligatory in
whatever form they may have been entered into, provided all the
essential requisites for their validity are present.The object is
to prevent fraud and perjury in the enforcement of obligations
depending, for evidence thereof, on the unassisted memory of
witnesses by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be
charged.[ The effect of noncompliance with this requirement is
simply that no action can be enforced under the given contracts. If
an action is nevertheless filed in court, it shall warrant a
dismissal under Section 1(i), Rule 16 of the Rules of Court, unless
there has been, among others, total or partial performance of the
obligation on the part of either party.Thus, since there exists an
indication by way of allegation that there has been performance of
the obligation on the part of respondent, the case is excluded from
the coverage of the rule on dismissals based on unenforceability
under the statute of frauds, and either party may then enforce its
claims against the other.
5. METROPOLITAN BANK and TRUST COMPANY vs. INTERNATIONAL
EXCHANGE BANK G.R. No. 176131/176008 August 10, 2011 (Re:
Rescissible Contracts)
DOCTRINE: Under Article 1381 of the Civil Code, an accion
pauliana is an action to rescind contracts in fraud of creditors.22
However, jurisprudence is clear that the following successive
measures must be taken by a creditor before he may bring an action
for rescission of an allegedly fraudulent contract: (1) exhaust the
properties of the debtor through levying by attachment and
execution upon all the property of the debtor, except such as are
exempt by law from execution; (2) exercise all the rights and
actions of the debtor, save those personal to him (accion
subrogatoria); and (3) seek rescission of the contracts executed by
the debtor in fraud of their rights (accion pauliana).23 It is thus
apparent that an action to rescind, or an accion pauliana, must be
of last resort, availed of only after the creditor has exhausted
all the properties of the debtor not exempt from execution or after
all other legal remedies have been exhausted and have been proven
futile
FACTS: Sacramento Steel Corporation (SSC) is a business entity
engaged in manufacturing and producing steel and steel products.
For the purpose of increasing its capital, SSC entered into a
Credit Agreement with herein respondent International Exchange Bank
(IEB) on September 10, 2001 wherein the latter granted the former
an omnibus credit line in the amount of P60,000,000.00, a loan of
P20,000,000.00 and a subsequent credit line with a limit of
P100,000,000.00. As security for its loan obligations, SSC executed
five separate deeds of chattel mortgage constituted over various
equipment found in its steel manufacturing plant. The deeds of
mortgage were dated September 17, 2001, February 26, 2003, April
16, 2003, May 25, 2004 and June 7, 2004. Subsequently, SSC
defaulted in the payment of its obligations. IEB's demand for
payment went unheeded. On July 7, 2004, the IEB filed with the RTC
of Misamis Oriental an action for injunction for the purpose of
enjoining SSC from taking out the mortgaged equipment from its
premises.On the other hand, on Ju