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RESCISSIBLE CONTRACTS  Deiparine vehemently refused to go along with the core test, insisting that the results of the

 Deiparine vehemently refused to go along with the core test, insisting that the results of the cylinder
test earlier made were conclusive enough to prove that the building was structurally sound. What
ERNESTO DEIPARINE, JR. vs. COURT OF APPELAS, CESARIO CARUNGAY and ENGR. NICANOR was the real reason for this refusal? After all, Carungay would shoulder the expenses if the
TRINIDAD specimens passed the core test, unlike the cylinder test, which was for the petitioner's account.
April 23, 1993 The only logical explanation would be that Deiparine was not sure that the core test would prove
favorable to him.
 In August 1982, spouses Cesario and Teresita Carungay entered into an agreement with Ernesto  The petitioner challenges the application by the lower court of Article 1191 of the Civil Code in
Deiparine for the construction of a three-story dormintory in Cebu City. The Carungays agreed to rescinding the construction agreement. His position is that the applicable rules are Articles 1385
pay P970,000.00, inclusive of contractor’s fee. Deiparine bound himself to erect the building in and 1725 of the Civil Code. Deiparine seems to be confused over the right of rescission, which is
strict accordance to plans and specifications. used in two different contexts in the Civil Code.
 In September 1982, Deiparine started the construction. Trinidad sent him a document entitled  Article 1385, upon which Deiparine relies, deals with the rescission of the contracts, which do not
General Conditions and Specifications which inter alia prescribed 3,000 psi as the minimum include the construction agreement in question. There is also a right of rescission of the law on
acceptable compressive strength of the building. obligations as granted in Article 1191.
 In the course of the construction, Trinidad reported to Cesario Carungay that Deiparine had been  Article 1191, unlike Article 1385, is not predicated on economic prejudice to one of the, parties but
deviating from the plans and specifications, thus impairing the strength and safety of the building. on breach of faith by one of them that violates the reciprocity between them. The violation of
 Carungay ordered Deiparine to first secure approval from him before pouring cement. This order reciprocity between Deiparine and the Carungay spouses, to wit, the breach caused by Deiparine's
was not heeded, prompting Carungay to send Deiparine another memorandum complaining that failure to follow the stipulated plans and specifications, has given the Carungay spouses the right
the "construction works are faulty and done haphazardly . . . mainly due to lax supervision coupled to rescind or cancel the contract.
with . . . inexperienced and unqualified staff." This memorandum was also ignored.  While it is true that the stress test was not required in any of the contract documents, conducting
 After several conferences, the parties agreed to conduct cylinder tests to ascertain if the structure the test was the only manner by which the owner could determine if the contractor had been
thus far built complied with safety standards. Carungay suggested core testing. Deiparine was faithfully complying with his presentations under their agreement. Furthermore, both parties later
reluctant at first but in the end agreed. He even promised that if the tests should show total failure, agreed in writing that the core test should be conducted. When the structure failed under this test
or if the failure should exceed 10%, he would shoulder all expenses; otherwise, the tests should be the Carungay spouses were left with no other recourse than to rescind their contract.
for the account of Carungay. Most of the samples in the core testing failed, which meant that the
building was structurally defective.
 In view of this finding, the spouses Carungay filed a complaint for the rescission of the construction EDS MANUFACTURING, INC. vs. HEALTHCHECK INTERNATIONAL, INC.
contract and for damages. Deiparine moved to dismiss, alleging that the court had no jurisdiction October 9, 2013
over construction contracts, which were now cognizable by the Philippine Construction
Development Board.  Healthcheck, Inc. is a health maintenance organization hat provides prepaid health and medical
insurance coverage to its clients. To undergird its program, it maintains a network of accredited
Whether or not petitioner’s breach of his duty constituted a substantial violation of the contract hospitals and medical clinics.
correctible by judicial rescission: YES  In 1998, being within the access of this medical facility, Eds Manufacturing, Inc. saw it fit to obtain
insurance coverage from it. They entered into a one-year contract in which HCI was to provide
 According to Eduardo Logarta, the petitioner's own project engineer, Deiparine actually instructed 4,191 employees of EMI and their 4, 592 dependents as host of medical services and benefits.
him and some of the other workers to ignore the specific orders or instructions of Carungay or  Attached to the agreement was a service program which listed the services that HCI would provide
Trinidad relative to the construction. Most of these orders involved safety measures. and the responsibilities that EMI would undertake in order to avail the services. Putting the
 Parenthetically, it is not disputed that Deiparine is not a civil engineer or an architect but a master agreement into effect, EMI paid the full premium for the coverage in the staggering amount of P8
mariner and former ship captain; that Pio Bonilla, a retainer of Deiparine Construction, was not the Million.
supervising architect of the protect; that the real supervisor of the construction was Eduardo-  Only two months into the program, problems began to loom in the horizon. HCI notified EMI that its
Logarta, who was only a third year civil engineering student at the time; that his understudy was accreditation with DLSUMC was suspended and advised it to avail of the services of nearby
Eduardo Martinez, who had then not yet passed the board examinations; and that the supposed accredited institutions. A more detailed communication to subscribers came out days later
project engineer, Nilo Paglinawan, was teaching full-time at the University of San Jose-Recoletos, informing them of the problems of the HMO industry in the wake of the Asian regional financial
and had in fact entered the construction site two months after the construction begun. crisis and proposing interim measures for the unexpired service contracts.
 It was after discovering that the specifications and the field memorandums were not being followed  Although HCI had yet to settle its accounts with it, DLSUMC resumed services. In another meeting
by Deiparine that Carungay insisted on the stress tests. with EMI, HCI undertook to settle all its accounts with DLSUMC in order to maintain its
 There were actually two sets of specifications. The first "Specifications" are labeled as such and accreditation. Despite his commitment, HCI failed to preserve its credit standing with DLSUMC
are but a general summary of the materials to be used in the construction. The other specifications, prompting the latter to suspend its accreditation for a second time. A third suspension was still to
are entitled "General Conditions and Specifications" and laid down in detail the requirements of the follow and remained in force until the end of the contract period.
private respondent in the construction of his building.  Until the difficulties between HCI and its client came to a head, complaints from EMI employees
 In his testimony, Deiparine declared that when the contract was signed, it was understood that the and workers were pouring in that their HMO cards were not being honored by the DLSUMC and
plans and specifications would be given to him by Trinidad later. Deiparine thus admitted that the other hospitals and physicians.
plans and specifications referred to in the construction agreement were not the first Specifications  EMI formally notified HCI that it was rescinding their 1998 agreement on account of HCI’s serious
but the General Conditions and Specifications submitted by Trinidad. and repeated breach of its undertaking including but not limited to the unjustified non-availability of

DEN DIGESTS | FEU INSTITUTE OF LAW


services. It demanded a return of premium for the unused period, giving a ballpark figure of P6  In their answer, Florante, Rita and Panfila asserted that they and the petitioners co-owned 22 out
Million. of the 43 parcels of land mentioned in the latter’s complaint, whereas Rita actually owned 10
 What went in the way of the rescission of the contract, the fly in the ointment so to speak, was the parcels of land out of 43 parcels which the petitioners sought to partition while the remaining 11
failure of EMI to collect all the HMO cards of the employees and surrender them to HCI as parcels of land are separately owned by Petra Adanza, Florante, Meliton Adalia, Consorcia
stipulated in the Agreement. HCI had to tell EMI than its employees were still utilizing the cards Adanza, Lilia and Santiago Mendez.
even beyond the pretermination date set by EMI. It asked for the surrender of the cards so that it  Further, they claimed that the lots were acquired by Rita using her own money. They denied that
could process the pretermination of the contract and finalize the reconciliation of accounts. Until we Rita appropriated solely for herself the income of the estate of Spouses Baylon, and expressed no
have received the IDs, HCI said, we will consider your account with us ongoing and existing, thus objection to the partition of the estate of Spouses Baylon, but only with respect to the co-owned
subject for inclusion to present billing and payment. parcels of land.
 Without responding to this reminder, EMI sent HCI two letters demanding for the payment of P5  During the pendency of the case, Rita, through a Deed of Donation coveyed the two lots to
million as the 2/3 portion of the premium that remained unutilized after the agreement was Florante. In 2000, Rita died intestate and without any issue.
rescinded.  Thereafter, learning of the said donation inter vivos in favor of Florante, the petitioners filed a
Supplemental Pleading praying that the said donation in favor of the respondent be rescinded in
Whether or not there was a valid rescission of the agreement between the parties: NO accordance with Article 1381(4) of the Civil Code. They further alleged that Rita was already sick
and very weak when the said Deed of Donation was supposedly executed and, thus, could not
 The general rule is that rescission (more appropriately, resolution) of a contract will not be have validly given her consent thereto.
permitted for a slight or casual breach, but only for such substantial and fundamental violations as  Florante and Panfia opposed the rescission of the said donation, asserting that Article 1381 (4) of
would defeat the very object of the parties in making the agreement. Thus, the rescission referred the Civil Code applies only when there is already a prior judicial decree on who between the
to in Article 1191, more appropriately referred to as resolution, is on the breach of faith by one of contending parties actually owned the properties under litigation.
the parties which is violative of the reciprocity between them.
 In the present case, it is apparent that HCI violated its contract with EMI to provide medical service Whether or not the donation inter vivos in favor of Florante may only be rescinded if there is already a
to its employees in a substantial way. As aptly found by the CA, the various reports made by the judicial determination that the same actually belonged to the estate of Spouses Baylon:
EMI employees from July to August 1998 are living testaments to the gross denial of services to
them at a time when the delivery was crucial to their health and lives. However, although a ground  Rescission is a remedy to address the damage or injury caused to the contracting parties or
exists to validly rescind the contract between the parties, it appears that EMI failed to judicially third persons. Rescission is a remedy granted by law to the contracting parties and even to third
rescind the same. persons, to secure the reparation of damages caused to them by a contract, even if it should be
 In Iringan v. Court of Appeals, the court reiterated the rule that in the absence of a stipulation, a valid, by means of the restoration of things to their condition at the moment prior to the celebration
party cannot unilaterally and extrajudicially rescind a contract. A judicial or notarial act is necessary of said contract. It is a remedy to make ineffective a contract, validly entered into and therefore
before a valid rescission (or resolution) can take place. obligatory under normal conditions, by reason of external causes resulting in a pecuniary prejudice
 What is more, it is evident that EMI had not rescinded the contract at all. As observed by the CA, to one of the contracting parties or their creditors.
despite EMI's pronouncement, it failed to surrender the HMO cards of its employees although this  Contracts which are rescissible are valid contracts having all the essential requisites of a contract,
was required by the Agreement, and allowed them to continue using them beyond the date of the but by reason of injury or damage caused to either of the parties therein or to third persons are
rescission. The in- patient and the out-patient utilization reports submitted by HCI shows entries as considered defective and, thus, may be rescinded.
late as March 1999, signifying that EMI employees were availing of the services until the contract  The kinds of rescissible contracts, according to the reason for their susceptibility to rescission, are
period were almost over. The continued use by them of their privileges under the contract, with the the following:first, those which are rescissible because of lesion or prejudice; second, those which
apparent consent of EMI, belies any intention to cancel or rescind it, even as they felt that they are rescissible on account of fraud or bad faith; and third, those which, by special provisions of law,
ought to have received more than what they got. are susceptible to rescission.
 Contracts which refer to things subject of litigation is rescissible pursuant to Article 1381
(4) of the Civil Code. Contracts which are rescissible due to fraud or bad faith include those which
LILIA ADA, ET. AL. vs. FLORANTE BAYLON involve things under litigation, if they have been entered into by the defendant without the
August 13, 2012 knowledge and approval of the litigants or of competent judicial authority.
 The rescission of a contract under Article 1381 (4) of the Civil Code only requires the concurrence
 This case involves the estate of Spouses Baylon who died in 1961 and 1974, respectively. At the of the following: first, the defendant, during the pendency of the case, enters into a contract which
time of their death, they were survived by their legitimate children, one of the children is herein refers to the thing subject of litigation; and second, the said contract was entered into without the
petitioner, Lilia Ada. knowledge and approval of the litigants or of a competent judicial authority. As long as the
 In 1996, petitioners filed a complaint for partition, accounting and damages against Rita, Panfila foregoing requisites concur, it becomes the duty of the court to order the rescission of the said
(Daughters of Spouses Baylon) and Florante Baylon (son of Ramon Baylon, one of the children of contract.
Spouses Baylon). They alleged therein that Spouses Baylon, during their lifetime, owned 43  The reason for this is simple. Article 1381 (4) seeks to remedy the presence of bad faith among the
parcels of land all situated in Negros Oriental. After the death of Spouses Baylon, they claimed that parties to a case and/or any fraudulent act which they may commit with respect to the thing subject
Rita took possession of the said parcels of land and appropriated for herself the income from the of litigation.
same. Using the income produced by the said parcels of land, Rita allegedly purchased two  When a thing is the subject of a judicial controversy, it should ultimately be bound by whatever
parcels of land situated in Dumaguete City. The petitioners averred that Rita refused to effect a disposition the court shall render. The parties to the case are therefore expected, in deference to
partition of the said parcels of land. the court's exercise of jurisdiction over the case, to refrain from doing acts which would dissipate or

DEN DIGESTS | FEU INSTITUTE OF LAW


debase the thing subject of the litigation or otherwise render the impending decision therein good faith, rendering any judicial determination with regard to the thing subject of litigation illusory.
ineffectual. Surely, this paradoxical eventuality is not what the law had envisioned.
 There is, then, a restriction on the disposition by the parties of the thing that is the subject of the  Even if the donation inter vivos is validly rescinded, a determination as to the ownership of
litigation. Article 1381 (4) of the Civil Code requires that any contract entered into by a defendant in the subject parcels of land is still necessary. Admittedly, whoever may be adjudicated as the
a case which refers to things under litigation should be with the knowledge and approval of the owner of the two lots, be it Rita or Spouses Baylon, the same would ultimately be transmitted to the
litigants or of a competent judicial authority. parties in the proceedings before the RTC as they are the only surviving heirs of both Spouses
 Further, any disposition of the thing subject of litigation or any act which tends to render inutile the Baylon and Rita. However, the RTC failed to realize that a de􏰀nitive adjudication as to the
court's impending disposition in such case, sans the knowledge and approval of the litigants or of ownership of two lots is essential in this case as it affects the authority of the RTC to direct the
the court, is unmistakably and irrefutably indicative of bad faith. Such acts undermine the authority partition of the said parcels of land. Simply put, the RTC cannot properly direct the partition of Lot
of the court to lay down the respective rights of the parties in a case relative to the thing subject of No. 4709 and half of Lot No. 4706 until and unless it determines that the said parcels of land
litigation and bind them to such determination. indeed form part of the estate of Spouses Baylon.
 It should be stressed, though, that the defendant in such a case is not absolutely proscribed from  It should be stressed that the partition proceedings before the RTC only covers the properties co-
entering into a contract which refer to things under litigation. If, for instance, a defendant enters into owned by the parties therein in their respective capacity as the surviving heirs of Spouses Baylon.
a contract which conveys the thing under litigation during the pendency of the case, the Hence, the authority of the RTC to issue an order of partition in the proceedings before it only
conveyance would be valid, there being no de􏰀nite disposition yet coming from the court with affects those properties which actually belonged to the estate of Spouses Baylon.
respect to the thing subject of litigation. After all, notwithstanding that the subject thereof is a thing  In this regard, the lots, as unwaveringly claimed by Florante, are indeed exclusively owned by Rita,
under litigation, such conveyance is but merely an exercise of ownership. then the said parcels of land may not be partitioned simultaneously with the other properties
 This is true even if the defendant effected the conveyance without the knowledge and approval of subject of the partition case before the RTC. In such case, although the parties in the case before
the litigants or of a competent judicial authority. The absence of such knowledge or approval would the RTC are still co-owners of the said parcels of land, the RTC would not have the authority to
not precipitate the invalidity of an otherwise valid contract. Nevertheless, such contract, though direct the partition of the said parcels of land as the proceedings before it is only concerned with
considered valid, may be rescinded at the instance of the other litigants pursuant to Article 1381 (4) the estate of Spouses Baylon.
of the Civil Code.
 The petitioners had sufficiently established the presence of the requisites for the rescission of a
contract pursuant to Article 1381 (4) of the Civil Code. It is undisputed that, at the time they were
gratuitously conveyed by Rita, the two lots are among the properties that were the subject of the
partition case then pending with the RTC. It is also undisputed that Rita, then one of the
defendants in the partition case with the RTC, did not inform nor sought the approval from the
petitioners or of the RTC with regard to the donation inter vivos of the said parcels of land to
Florante. Although the gratuitous conveyance of the said parcels of land in favor of Florante was
valid, the donation inter vivos of the same being merely an exercise of ownership, Rita's failure to
inform and seek the approval of the petitioners or the RTC regarding the conveyance gave the
petitioners the right to have the said donation rescinded pursuant to Article 1381 (4) of the Civil
Code.
 Rescission under Article 1381(4) of the Civil Code is not preconditioned upon the judicial
determination as to the ownership of the thing subject of litigation. In this regard, the court
also finds the assertion that rescission may only be had after the RTC had 􏰀nally determined that
the parcels of land belonged to the estate of Spouses Baylon intrinsically amiss. The petitioners'
right to institute the action for rescission pursuant to Article 1381 (4) of the Civil Code is not
preconditioned upon the RTC's determination as to the ownership of the said parcels of land.
 It bears stressing that the right to ask for the rescission of a contract under Article 1381 (4) of the
Civil Code is not contingent upon the final determination of the ownership of the thing subject of
litigation. The primordial purpose of Article 1381 (4) of the Civil Code is to secure the possible
effectivity of the impending judgment by a court with respect to the thing subject of litigation. It
seeks to protect the binding effect of a court's impending adjudicationvis-a􏰀-vis the thing subject of
litigation regardless of which among the contending claims therein would subsequently be upheld.
Accordingly, a definitive judicial determination with respect to the thing subject of litigation is not a
condition sine qua non before the rescissory action contemplated under Article 1381 (4) of the Civil
Code may be instituted.
 Moreover, conceding that the right to bring the rescissory action pursuant to Article 1381 (4) of the
Civil Code is preconditioned upon a judicial determination with regard to the thing subject litigation,
this would only bring about the very predicament that the said provision of law seeks to obviate.
Assuming arguendo that a rescissory action under Article 1381 (4) of the Civil Code could only be
instituted after the dispute with respect to the thing subject of litigation is judicially determined,
there is the possibility that the same may had already been conveyed to third persons acting in
DEN DIGESTS | FEU INSTITUTE OF LAW
VOIDABLE OR ANNULLABLE CONTRACTS  In his complaint, respondent claimed ownership over the second parcel, allegedly by virtue of a
sale in his favor. He likewise claimed that the first parcel was subject to the co-ownership of the
SPS. RUDY AND CORAZON PARAGAS vs. HEIRS OF DOMINGO BALACANO surviving heirs of Francisca Herrera, the wife of Eligio, considering that she died intestate, before
August 31, 2005 the alleged sale to petitioner. Finally, respondent also alleged that the sale of two lots was null and
void on the ground that at the time of the sale, Eligio, was already incapacitated to give consent to
 Gregorio Balacano was the registered owner of several lots in Santiago City, Isabela. Gregorio and a contract because he was already afflicted with senile dementia, characterized by deteriorating
his wife Lorenza had three children, namely: Domingo, Catalino and Alfredo. mental and physical condition including loss of memory.
 Prior to his death, Gregorio was admitted at the Veterans General Hospital. Gregorio purportedly  In his answer, petitioner as defendant below alleged that respondent was estopped from assailing
sold, barely a week prior to his death, a portion of lot 1175-E and the whole lot 1175-F to the the sale of the lots. Petitioner contended that respondent had effectively ratified both contracts of
petitioner spouses. This sale appeared in a deed of absolute sale and was notarized and sales, by receiving the consideration offered in each transaction.
witnessed. The spouses Paragas then sold a portion of Lot 1175-E to Catalino Balacano.
 Domingo’s children filed a complaint for annulment of sale and partition against Catalino and the Whether or not the assailed contracts of sale were void or merely voidable and hence capable of being
spouses Paragas. They essentially alleged that their grandfather Gregorio could not have ratified: Voidable.
appeared before the notary public in Santiago City since he was then confined at the Veterans
Memorial Hospital in Quezon City; that at the time of the alleged execution of deed of sale,  A void or inexistent contract is one which has no force and effect from the very beginning. Hence, it
Gregorio was seriously ill, in fact dying at that time, which vitiated his consent to the disposal of the is as if it has never been entered into and cannot be validated either by the passage of time or by
property; and that Catalino manipulated the execution of the deed and prevailed upon the dying ratification. There are two types of void contracts: (1) those where one of the essential requisites of
Gregorio to sign his name on a paper the contents of which he never understood because of his a valid contract as provided for by Article 1318 of the Civil Code is totally wanting; and (2) those
serious condition. Alternatively, they alleged that assuming Gregorio was of sound and disposing declared to be so under article 1409 of the Civil Code. By contrast, a voidable or annullable
mind, he could only transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to contract is one in which the essential requisites for validity under Article 1318 are present, but
their grandmother Lorenza who predeceased Gregorio – they claimed that said lots form part of the vitiated by want of capacity, error, violence, intimidation, undue influence, or deceit.
conjugal partnership properties of Gregorio and Lorenza.  Article 1318 of the Civil Code states that no contract exists unless there is a concurrence of
consent of the parties, object certain as subject matter, and cause of the obligation established.
Whether or not the deed of sale executed between petitioners and the late Gregorio Balacano was null Article 1327 provides that insane or demented persons cannot give consent to a contract. But, if an
and void: YES insane or demented person does enter into a contract, the legal effect is that the contract is
voidable or annullable as specifically provided in Article 1390.
 The court agrees with the Court of Appeal’s decision that “It is not disputed that when Gregorio  Hence, the court rules that he assailed contracts are not void or inexistent per se; rather, these are
signed the deed of sale, Gregorio was seriously ill, as he in fact died a week after the deed's contracts that are valid and binding unless annulled through a proper action filed in court
signing. Gregorio died of complications caused by cirrhosis of the liver. Gregorio's death was seasonably.
neither sudden nor immediate; he fought at least a month-long battle against the disease until he  An annullable contract may be rendered perfectly valid by ratification, which can be express or
succumbed to death on July 22, 1996. Given that Gregorio purportedly executed a deed during the implied. Implied ratification may take the form of accepting and retaining the benefits of a contract.
last stages of his battle against his disease, we seriously doubt whether Gregorio could have read, This is what happened in this case. Respondent's contention that he merely received payments on
or fully understood, the contents of the documents he signed or of the consequences of his act.” behalf of his father merely to avoid their misuse and that he did not intend to concur with the
 The Deed of Sale was allegedly signed by Gregorio on his death bed in the hospital. Gregorio was contracts is unconvincing. If he was not agreeable with the contracts, he could have prevented
an octogenarian at the time of the alleged execution of the contract and suffering from liver petitioner from delivering the payments, or if this was impossible, he could have immediately
cirrhosis at that — circumstances which raise grave doubts on his physical and mental capacity to instituted the action for reconveyance and have the payments consigned with the court. None of
freely consent to the contract. Adding to the dubiety of the purported sale and further bolstering these happened. As found by the trial court and the Court of Appeals, upon learning of the sale,
respondents' claim that their uncle Catalino, one of the children of the decedent, had a hand in the respondent negotiated for the increase of the purchase price while receiving the installment
execution of the deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E payments. It was only when respondent failed to convince petitioner to increase the price that the
consisting of 6,416 square meters to Catalino for P60,000.00. One need not stretch his imagination former instituted the complaint for reconveyance of the properties. Clearly, respondent was
to surmise that Catalino was in cahoots with petitioners in maneuvering the alleged sale. agreeable to the contracts, only he wanted to get more. Further, there is no showing that
respondent returned the payments or made an offer to do so. This bolsters the view that indeed
there was ratification. One cannot negotiate for an increase in the price in one breath and in the
JULIAN FRANCISCO, ET. AL. vs. PASTOR HERRERA same breath contend that the contract of sale is void.
November 21, 2002  Nor can the court find for respondent’s argument that the contracts were void as Eligio could not
sell the lots in question as one of the properties had already been sold to him, while the other was
 Eligio Herrera, the father of respondent, was the owner of two parcels of land, both located in the subject of a co-ownership among the heirs of the deceased wife of Eligio. As declared owner of
Cainta, Rizal. said parcels of land, it follows that Eligio, Sr., had the right to transfer the ownership thereof under
 In 1991, petitioner bought from said landowner the first parcel for the price of P1,000,000.00 and the principle of jus disponendi.
bought the second parcel for the price of P750,000.00 three months later.
 Contending that the contract price for the two parcels of land was grossly inadequate, the children
of Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera, Jr., and respondent Pastor Herrera, tried
to negotiate with petitioner to increase the purchase price. When petitioner refused, herein
respondent then filed a complaint for annulment of sale.
DEN DIGESTS | FEU INSTITUTE OF LAW
UNENFORCEABLE CONTRACTS  Revilla testified that at the time he perfected the agreement to sell the litigated property, he was
acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up
LIMKETKAI SONS MILLING, INC. vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and the sale of the land, Revilla saw it fit to bring BPI officials into the transaction. If BPI could give the
NATIONAL BOOK STORE authority to sell to a licensed broker, we see no reason to doubt the authority to sell of the two BPI
December 1, 1995 Vice-Presidents whose precise job in the Bank was to manage and administer real estate property.
 Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made
 In 1976, Philippine Remnants Co., Inc. constituted BPI as its trustee to manage, administer, and up of top bank officials. It appears from the record that this trust committee meets rather
sell its real estate property. One such piece of property placed under trust was the disputed lot. infrequently and it does not have to pass on regular transactions.
 In 1988, Pedro Revilla Jr., a licensed real eastate broker was given formal authority by BPI to sell  In the present case, the position and title of Aromin alone, not to mention the testimony and
the lot for P1,000.00 per square meter. This arrangement was concurred in by the owners of the documentary evidence about his work, leave no doubt that he had full authority to act for BPI in the
Philippine Remnants. questioned transaction. There is no allegation of fraud, nor is there the least indication that Aromin
 Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. was acting for his own ultimate benefit. BPI later dismissed Aromin because it appeared that a top
Petitioner’s officials and Revilla were given permission by Rolando Aromin, BPI Assistant Vice- official of the bank was personally interested in the sale of the Pasig property and did not like
President, to enter and view the peroperty they were buying. Revilla formally informed BPI that he Aromin's testimony. Aromin was charged with poor performance but his dismissal was only
had procured a buyer, herein petitioner. sometime after he testified in court. More than two long years after the disputed transaction, he
 Petitioner’s officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale. They were was still Assistant Vice-President of BPI.
entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner asked that  The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine
the price of P1,000.00 per square meter be reduced to P900.00 while Albano stated the price to be Remnants Co. regarding the sale of the firm's property was addressed to Aromin. The P1,000.00
P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per square meter to figure on the first page of broker Revilla's authority to sell was changed to P1,100.00 by Aromin.
be paid in cash. Since the authority to sell was on a first come, first served and non-exclusive The price was later brought down again to P1,000.00, also by Aromin. The permission given to
basis, it may be mentioned at this juncture that there is no dispute over petitioner's being the first petitioner to view the lot was signed by Aromin and honored by the BPI guards.
comer and the buyer to be first served.
 Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso Whether or not there was a meeting of minds between petitioner Limketkai and respondent BPI as to
Lim asked if it was possible to pay on terms. The bank officials stated that there was no harm in the subject matter of the contract and the cause of the obligation: YES
trying to ask for payment on terms because in previous transactions, the same had been allowed. It
was the understanding, however, that should the term payment be disapproved, then the price  The record shows that if payment was in cash, either broker Revilla or Aromin had full authority.
shall be paid in cash. But because petitioner took advantage of the suggestion of Vice-President Albano, the matter was
 It was Albano who dictated the terms under which the installment payment may be approved, and sent to higher officials. Immediately upon learning that payment on terms was frozen and/or
acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano denied, Limketkai exercised his right within the period given to him and tendered payment in full.
embodying the payment initially of 10% and the remaining 90% within a period of 90 days. The BPI rejected the payment.
 Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso  The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI
Lim went to BPI and tendered the full payment of P33,056,000.00 to Albano. The payment was to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to
refused because Albano stated that the authority to sell that particular piece of property in Pasig broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property
had been withdrawn from his unit. The same check was tendered to BPI Vice-President Nelson and finally (d) the negotiations with Aromin and Albano at the BPI offices.
Bona who also refused to receive payment.  The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell
 An action for specific performance with damages was filed by petitioner against BPI. In the course and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed
of the trial, BPI informed the trial court that it had sold the property under litigation to National Book lot at P1,000.00 per square meter. Aside from this there was the earlier agreement between
Store. petitioner and the authorized broker. There was a concurrence of offer and acceptance, on the
object, and on the cause thereof.
 Petitioner states that the contract to sell and to buy was perfected when its top officials and broker
Revilla finalized details with BPI Vice Presidents and the BPI Offices.  The phases that a contract goes through may be summarized as follows:
o Preparation, conception or generation, which is the period of negotiation and
 Respondents, however, contend that what transpired were part of continuing negotiations to buy
bargaining, ending at the moment of agreement of the parties;
the land and not the perfection of the sale. he arguments of respondents center on two
o Perfection or birth of the contract, which is the moment when the parties come to agree
propositions — (1) Vice-Presidents Aromin and Albano had no authority to bind BPI on this
on the terms of the contract; and
particular transaction and (2) the subsequent attempts of petitioner to pay under terms instead of
o Consummation or death, which is the fulfillment or performance of the terms agreed
full payment in cash constitutes a counter-offer which negates the existence of a perfected
upon in the contract.
contract.
 In the case at bench, the allegation of NBS that there was no concurrence of the offer and
Whether or not the bank officials involved in the transaction were authorized by BPI to enter into the acceptance upon the cause of the contract is belied by the testimony of the very BPI official with
questioned contract: YES whom the contract was perfected. Aromin and Albano concluded the sale for BPI. The fact that the
deed of sale still had to be signed and notarized does not mean that no contract had already been
perfected. A sale of land is valid regardless of the form it may have been entered into.
 At the start of the transactions, broker Revilla by himself already had full authority to sell the
disputed lot. The court agrees that the authority given to him was to sell and not merely to look for  The requisite form under Article 1458 of the Civil Code is merely for greater efficacy or
a buyer as contended by respondents. convenience and the failure to comply therewith does not affect the validity and binding effect of
the act between the parties. If the law requires a document or other special form, as in the sale of
DEN DIGESTS | FEU INSTITUTE OF LAW
real property, the contracting parties may compel each other to observe that form, once the  The Cids, in turn, ceded the subject lot to Eduardo through a Deed of Absolute Sale.
contract has been perfected. Their right may be exercised simultaneously with action upon the  In 2000, Eduardo, through his lawyer, sent a letter addressed to Gabriel Jr. demanding that all
contract. persons residing or physically occupying the subject lot vacate the premises or face the prospect of
 Regarding the admissibility and competence of the evidence adduced by petitioner, respondent being ejected.
Court of Appeals ruled that because the sale involved real property, the statute of frauds is  Petitioners went to the residence of Gabriel Jr. There, they met Gabriel Jr.'s estranged wife,
applicable. In the instant case, counsel for respondents cross-examined petitioner's witnesses at Teresita, who informed them about her having filed an affidavit-complaint against her husband and
length on the contract itself, the purchase price, the tender of cash payment, the authority of the Cids for falsification of public documents. According to Teresita, her signature in the Gabriel Jr.
Aromin and Revilla, and other details of the litigated contract, even assuming that parol evidence – Bernard deed of sale was a forgery. Teresita further informed the petitioners of her intent to
was initially inadmissible, the same became competent and admissible because of the cross- honor the aforementioned 1996 verbal agreement between Gabriel Sr. and Antonita and the partial
examination, which elicited evidence proving the evidence of a perfected contract. The cross- payments they gave her father-in-law and husband for the subject lot.
examination on the contract is deemed a waiver of the defense of the Statute of Frauds.  Petitioners, joined by Teresita, filed a complaint for annulment of title, reconveyance with damages
 Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts against respondents.
pursuant to the Statute of Frauds is the existence of a written note or memorandum evidencing the
contract. The memorandum may be found in several writings, not necessarily in one document. Whether or not the Statute of Frauds bars the enforcement of the verbal sale contract between Gabriel
The memorandum or memoranda is/are written evidence that such a contract was entered into. Sr. and Antonita: NO

Whether or not NBS is an innocent purchaser for value: NO  The Statute of Frauds expressed in Article 1403, par. (2), of the Civil Code applies only to
executory contracts, i.e., those where no performance has yet been made. Stated a bit differently,
 Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It the legal consequence of non-compliance with the Statute does not come into play where the
was the willingness and design of NBS to buy property already sold to another party which led BPI contract in question is completed, executed, or partially consummated.
to dishonor the contract with Limketkai.  The Statute of Frauds, in context, provides that a contract for the sale of real property or of an
 It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly interest therein shall be unenforceable unless the sale or some note or memorandum thereof is in
negates any allegation of good faith on the part of the buyer. Instead of the vendee insisting that writing and subscribed by the party or his agent. However, where the verbal contract of sale has
the vendor guarantee its title to the land and recognize the right of the vendee against the vendor if been partially executed through the partial payments made by one party duly received by the
the title to the land turns out to be defective as when the land belongs to another person, the vendor, as in the present case, the contract is taken out of the scope of the Statute.
reverse is found in the deed of sale between BPI and NBS. Any losses which NBS may incur in the  The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations
event the title turns out to be vested in another person are to be borne by NBS alone. BPI is depending for their evidence on the unassisted memory of witnesses, by requiring certain
expressly freed under the contract from any recourse of NBS against it should BPI's title be found enumerated contracts and transactions to be evidenced by a writing signed by the party to be
defective. charged. The Statute requires certain contracts to be evidenced by some note or memorandumin
order to be enforceable. The term "Statute of Frauds" is descriptive of statutes that require certain
classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract
ANTHONY ORDUÑA, ET AL. vs. EDUARDO FUENTEBELLA, ET AL. with respect to the matters therein involved, but merely regulates the formalities of the contract
June 29, 2010 necessary to render it enforceable.
 Since contracts are generally obligatory in whatever form they may have been entered into,
 Central to the case is a residential lot located at Fairview Subdivision, Baguio City, originally provided all the essential requisites for their validity are present, the Statute simply provides the
registered in the name of Armando Gabriel. method by which the contracts enumerated in Art. 1403 (2) may be proved but does not declare
 In 1996, Gabriel Sr. sold the subject lot to petitioner Antonita Orduña, but no formal deed was them invalid because they are not reduced to writing. In fine, the form required under the Statute is
executed to document the sale. The contract price was apparently payable in installments as for convenience or evidentiary purposes only.
Antonita remitted from time to time and Gabriel Sr. accepted partial payments. One of the Ordun􏰀as  The records show that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr.
would later testify that Gabriel Sr. agreed to execute a final deed of sale upon full payment of the sums of money as partial payments of the purchase price. These payments were duly receipted by
purchase price. Gabriel Jr. Owing thus to its partial execution, the subject sale is no longer within the purview of the
 In 1979, however, Antonita and her sons, Dennis and Anthony Ordun􏰀a, were already occupying Statute of Frauds.
the subject lot on the basis of some arrangement undisclosed in the records and even constructed  Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of
their house thereon. benefits under the contract. Evidently, Gabriel, Jr., as his father earlier, had benefited from the
 After the death of Gabriel Sr., his son, respondent Gabriel Jr., secured a TCT over the subject lot partial payments made by the petitioners. Thus, neither Gabriel Jr. nor the other respondents —
and continued accepting payments from the petitioners. Gabriel Jr. wrote Antonita authorizing her successive purchasers of subject lots — could plausibly set up the Statute of Frauds to thwart
to fence off the said lot and to construct a road in the adjacent lot. petitioners' efforts towards establishing their lawful right over the subject lot and removing any
 Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP50,000, payable in cloud in their title. As it were, petitioners need only to pay the outstanding balance of the purchase
two weeks at a fixed interest rate, with the further condition that the subject lot would answer for price and that would complete the execution of the oral sale.
the loan in case of default. Gabriel Jr. failed to pay the loan and this led to the execution of a Deed
of Sale for the subject lot in the name of Bernard. Whether or not there was adequate consideration: YES
 Subsequently, Bernard sold to Marcos and Benjamin Cids the subject lot. Just like in the
immediately preceding transaction, the deed of sale between Bernard and the Cids had respondent  What is abundantly clear is that what Antonita agreed to pay Gabriel, Sr., albeit in installment, was
Eduardo J. Fuentebella (Eduardo) as one of the instrumental witnesses. very much more than what his son, for the same lot, received from his buyer and the latter's buyer
DEN DIGESTS | FEU INSTITUTE OF LAW
later. The Court, therefore, cannot see its way clear as to how the RTC arrived at its simplistic
conclusion about the transaction between Gabriel Sr. and Antonita being without "adequate
consideration."

Whether or not the action has already prescribed: NO

 The basic complaint, as couched, ultimately seeks the reconveyance of a fraudulently registered
piece of residential land. Having possession of the subject lot, petitioners' right to the reconveyance
thereof, and the annulment of the covering title, has not prescribed or is not time-barred. This is so
for an action for annulment of title or reconveyance based on fraud is imprescriptible where the
suitor is in possession of the property subject of the acts, the action partaking as it does of a suit
for quieting of title which is imprescriptible. Such is the case in this instance. Petitioners have
possession of subject lots as owners having purchased the same from Gabriel, Sr. subject only to
the full payment of the agreed price.
 The prescriptive period for the reconveyance of fraudulently registered real property is 10 years,
reckoned from the date of the issuance of the certificate of title, if the plaintiff is not in possession,
but imprescriptible if he is in possession of the property. Thus, one who is in actual possession of a
piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title
is attacked before taking steps to vindicate his right. As it is, petitioners' action for reconveyance is
imprescriptible.

Whether or not the respondent-purchasers are innocent purchasers for value: NO

 Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be innocent
purchasers for value or purchasers in good faith. For each knew or was at least expected to know
that somebody else other than Gabriel, Jr. has a right or interest over the lot. This is borne by the
fact that the initial seller, Gabriel Jr., was not in possession of subject property. With respect to
Marcos and Benjamin, they knew as buyers that Bernard, the seller, was not also in possession of
the same property. The same goes with Eduardo, as buyer, with respect to Marcos and Benjamin.
 Basic is the rule that a buyer of a piece of land which is in the actual possession of persons other
than the seller must be wary and should investigate the rights of those in possession. Otherwise,
without such inquiry, the buyer can hardly be regarded as a buyer in good faith. When a man
proposes to buy or deal with realty, his duty is to read the public manuscript, i.e., to look and see
who is there upon it and what his rights are.
 A want of caution and diligence which an honest man of ordinary prudence is accustomed to
exercise in making purchases is, in contemplation of law, a want of good faith. The buyer who has
failed to know or discover that the land sold to him is in adverse possession of another is a buyer in
bad faith.
 Upon the facts obtaining in this case, the act of registration by any of the three respondent-
purchasers was not coupled with good faith.

DEN DIGESTS | FEU INSTITUTE OF LAW


VOID AND INEXISTENT CONTRACTS notarized documents is not absolute and may be rebutted by clear and convincing evidence to the
contrary."
VICENTE MANZANO vs. MARCELINO GARCIA  The proper basis for the nullity of the forged pacto de retro sale is not Article 1409 (which
November 28, 2011 enumerates examples of void contracts) in relation to Article 1505 (which refers to an
unenforceable contract and is applicable only to goods) of the Civil Code as stated by the Court of
 This case involves a parcel of land located in Cagayan de Oro City, issued in the name of Appeals, but Article 1318 of the Civil Code, which enumerates the essential requisites of a valid
Marcelino C. Garcia. The property was the subject of a deed of pacto de retro sale allegedly contract.
executed in favor of Constancio Manzano, brother of the petitioner for P80,500.00.  There are two types of void contracts: (1) those where one of the essential requisites of a valid
 Under said contract, Garcia purportedly reserved the right to repurchase the subject property for contract as provided for by Article 1318 of the Civil Code is totally wanting; and (2) those declared
the same price within three months from the date of the instrument. to be so under Article 1409 of the Civil Code. Conveyances by virtue of a forged signature . . . are
 In 1992, Constancio passed away. Vicente was named the administrator of the intestate estate of void ab initio. The absence of the essential [requisites] of consent and cause or consideration in
Constancio. Garcia did not redeem the subject property within the three-month period. these cases rendered the contract inexistent. . . . ."
 Consequently, Vicente instituted a petition for consolidation of ownership over the property. Garcia
filed an opposition, alleging that the document evidencing the pacto de retro sale was a forgery. He
ATTY. MANUEL UBARRA vs. JUDGE LUZVIMINDA MAPALAD
claimed that he and his wife were in the USA from 1988-1992 and therefore could not have
March 22, 1993
possibly executed the said pacto de retro sale.
 In 1994, Garcia filed a complaint for annulment of pacto de retro sale and recovery of the owner's
 Petitioner, on behalf of his client Juanito Calderon, charges respondent with grave misconduct,
title with preliminary injunction against Vicente. In his complaint, Garcia further alleged that he
knowingly rendering an unjust judgment, the violation of the Canons of Judicial Ethics and the
came to know the existence of said document only when the counsel of Vicente sent him a letter in
failure to decide within the mandated ninety-day period. This criminal case, entitled People v.
1993 demanding that he should repurchase the property pursuant to the purported terms of the
Cruda, involves the charge of grave threats.
pacto de retro sale within fifteen days from receipt of said letter.
 Calderon alleges in his affidavit that in the course of the trial, he noted that the accused worked as
 Upon further inquiry, he discovered that a certain Mr. P. Pacot had executed the questioned
a houseboy of the herein respondent; by that time, he had already observed the latter’s partiality in
document by misrepresenting himself as "Marcelino G. Garcia" bearing the wrong middle initial.
favor of the said accused. Roberto Cruda married Annabelle Manlangit, respondent’s younger
 Atty. Demosthenes Mediante, Jr., the person who notarized the deed of conveyance in question,
sister and it was respondent herself who solemnized the marriage. Despite such marriage,
testified that the Marcelino Garcia who appeared in his office and who executed the pacto de retro
respondent did not inhibit herself and instead proceeded to render a judgment acquitting Cruda,
sale is not the same Marcelino Garcia who was in court during the trial of the case.
her brother-in-law.
 Perla Babano, one of the witnesses to the execution of the pacto de retro sale, likewise testified
 Respondent denies having knowingly rendered an unjust judgment in favor of her brother-in-law
that the person who introduced himself as Marcelino G. Garcia and signed the document is not the
because she "was persuaded to dismiss the same not on account that the guilt of Cruda was not
same Marcelino Garcia who was in court during the trial of the case.
proven beyond reasonable doubt but by the very reason that both the private complainant and the
accused therein were in pari delicto."
Whether or not the pacto de retro sale was forged and, therefore, void ab initio: YES
Whether or not the rule on pari delicto can be applied in a criminal case: NO
 The variance in the alleged signature of Garcia in the pacto de retro sale, on one hand, and in the
evidence on record and in the verifications of the pleadings before this Court and the courts a quo,
 The court finds the application of the pari delicto theory in a criminal case to be strange, to say the
on the other hand, was enormous and obvious, such that this Court can readily conclude that the
least. In the first place, the rule on pari delicto is a rule in civil law. It is principally governed by
pacto de retro sale was in all likelihood made by someone who has not even seen the customary
Articles 1411 and 1412 of the Civil Code under the Chapter on Void or Inexistent Contracts, and
signature of Garcia.
presupposes a situation where the parties are in culpability similarly situated, i.e., in eodem loco.
 The court is of the opinion that it would be highly suspicious for such an impersonator to withhold
 That this rule can by no means apply in a criminal case is evidenced by the aforesaid Article 1411
the title of the property being sold from a person signing as a witness to the sale. It was precisely
which provides in part that "When the nullity proceeds from the illegality of the cause or object of
the presentation of the title that would convince others that the impostor was the owner of the real
the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall
property involved in the sale. Neither did it escape this Court's attention that the person who signed
have no action against each other, and both shall be prosecuted."
the pacto de retro sale used a residence certificate with the wrong middle initial of respondent
 Secondly, in view of the broader grounds of public policy, the rule may not be invoked against the
Garcia. As the respondent's full name is Marcelino de Claro Garcia, his middle initial should be
State.
either "D" or "C." It surely causes doubt when a person does not know his own middle initial.
 Thirdly, in the prosecution of public crimes, the complainant is the State — i.e., the People of the
 Furthermore, the falsity of the signature on the pacto de retro sale was affirmed by two persons
Philippines — while the private offended party is but a complaining witness. Any criminal act
present when the instrument was signed, one of which is the very person who notarized the same.
perpetrated by the latter on the occasion of the commission of the crime, or which may have given
 All things considered, Garcia's statement — that he and his wife could have easily paid the
rise to the criminal act imputed to the accused is not the act or conduct of the State and can by no
P80,500.00 but refused in principle to pay an account that is not theirs – is certainly believable. It is
means bind it under the doctrine of pari delicto. To rule otherwise would be to establish a
difficult to conceive that Garcia would sell their 6,951-square meter land at the heart of the city of
dangerous doctrine which would irreparably weaken the very foundations of the criminal justice
Cagayan de Oro for only P80,500.00. Garcia estimates the value of the property at P4.5 million.
system and frustrate the administration of justice. Whatever wrongful act may have been
 Petitioner likewise argues that the Court of Appeals erred in failing to appreciate that the notarized committed by the offended party may only be invoked to justify the accused's own act or mitigate
deed of pacto de retro sale was entitled to the presumption of regularity and should be given great his liability.
weight. It is settled that while a notarized document enjoys this presumption, "the fact that a deed is
notarized is not a guarantee of the validity of its contents." The "presumption of regularity of
DEN DIGESTS | FEU INSTITUTE OF LAW
 In spite of all this, however, the respondent may not necessarily be liable for rendering an unjust  The donation made by the husband in contravention of law is not void in its entirety, but only in so
judgment as there is no convincing evidence on record to show that she knew such judgment to be far as it prejudices the interest of the wife. In this regard, the law makes no distinction between
unjust and that she rendered the same with the conscious and deliberate intent to commit an gratuitous transfers and conveyances for a consideration.
injustice. She could only be as she is hereby found, guilty of gross ignorance of the law.  To determine the prejudice to the widow, it must be shown that the value of her share in the
 Respondent is hereby ordered dismissed from service for grave misconduct, gross inefficiency and property donated cannot be paid out of the husband's share of the community profits. The requisite
neglect of duty, gross ignorance of the law and conduct prejudicial to the best interest of the data, however, are not available to us and necessitate a remand of the records to the court of
service. origin that settled the estate of the late Salvador P. Lopez.
 The situation of the children and forced heirs of Lopez approximates that of the widow. As privies
of their parent, they are barred from invoking the illegality of the donation. But their right to a
CONCHITA LIGUEZ vs. COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL. legitime out of his estate is not thereby affected, since the legitime is granted them by the law itself,
December 18, 1957 over and above the wishes of the deceased. Hence, the forced heirs are entitled to have the
donation set aside in so far as inofficious: i.e., in excess of the portion of free disposal.
 A complaint was filed by petitioner-appellant against widow and heirs of the late Salvador Lopez to  So that in computing the legitimes, the value of the property donated to herein appellant, Conchita
recover a parcel of land situated in Mati, Province of Davao. She averred to be its legal owner, Liguez, should be considered part of the donor's estate. Once again, only the court of origin has
pursuant to a deed of donation of said land, executed in her favor by the late owner, Salvador the requisite date to determine whether the donation is inofficious or not. With regard to the
Lopez, in 1943. improvements in the land in question, the same should be governed by the rules of accession and
 The defense interposed that the donation was null and void for having an illicit causa or possession in good faith, it being undisputed that the widow and heirs of Lopez were unaware of
consideration, which was appellant’s entering into marital relations with Salvador Lopez, a married the donation in favor of the appellant when the improvements were made.
man; and that the property had been adjudicated to the appellees as heirs of Lopez by the CFI,
since 1949.
 The CA found that at the time of the signing and ratification of the deed of donation, appellant DIONISO RELLOSA vs. GAW CHEE HUN
Liguez was a minor, only 16 years of age. Further, they found that when the donation was made, September 29, 1953
Lopez had been living with the parents of appellant for barely a month; that the donation was made
in view of the desire of Lopez to have sexual relations with appellant; that Lopez had confessed his  In 1944, petitioner sol to respondent a parcel of land, together with the house erected thereon,
love for appellant to the instrumental witnesses, with the remark that her parents would not allow situated in the City of Manila. The vendor remained in possession of the property under a contract
Lopez to live with her unless he first donated the land in question; that after the donation, they lived of lease entered into on the same date between the same parties.
together in the house that was built upon the latter's orders, until Lopez was killed in 1943, by some  Alleging that the sale was executed subject to the condition that the vendee, being a Chinese
guerrillas who believed him to be pro-Japanese. citizen, would obtain the approval of the Japanese Military Administration in accordance with Seirei
 It was also ascertained that the donated land originally belonged to the conjugal partnership of No. 6 issued by the Japanese authorities, and said approval has not been obtained, and that, even
Lopez and his wife Maria Ngo; that the latter had met and berated Conchita for living martially with if said requirement were met, the sale would at all events be void under article XIII, section 5, of
her husband; that the widow and children of Lopez were in possession of the land and made our Constitution.
improvements thereon; that the land was assessed in the tax rolls first in the name of Lopez and  The vendor instituted the present action in the Court of First Instance of Manila seeking the
later in that of his widow and that the deed of donation was never recorded. annulment of the sale as well as the lease covering the land and the house above mentioned, and
praying that, once the sale and the lease are declared null and void, the vendee be ordered to
Whether or not the pari delicto rule can be applied: NO return to vendor the duplicate of the title covering the property, and be restrained from in any way
dispossessing the latter of said property.
 First, because it can not be said that both parties here had equal guilt when we consider that as  Defendant answered the complaint setting up as special defense that the sale referred to in the
against the deceased Salvador P. Lopez, who was a man advanced in years and mature complaint was absolute and unconditional and was in every respect valid and binding between the
experience, the appellant was a mere minor, 16 years of age, when the donation was made; that parties, it being not contrary to law, morals and public order, and that plaintiff is guilty of estoppel in
there is no finding made by the Court of Appeals that she was fully aware of the terms of the that, by having executed a deed of lease over the property, he thereby recognized the title of
bargain entered into by and between Lopez and her parents; that her acceptance in the deed of defendant to that property.
donation (which was authorized by Article 626 of the old Civil Code) did not necessarily imply  One of the issues raised by petitioner refers to the validity of Seirei No. 6 which prohibits an alien
knowledge of conditions and terms not set forth therein; and that the substance of the testimony of from acquiring any private land not agricultural in nature during the occupation unless the
the instrumental witnesses is that it was the appellant's parents who insisted on the donation necessary approval is obtained from the Director General of the Japanese Military Administration.
before allowing her to live with Lopez. These facts are more suggestive of seduction than of Petitioner contends that the sale in question cannot have any validity under the above military
immoral bargaining on the part of appellant. It must not be forgotten that illegality is not presumed, directive in view of the failure of respondent to obtain the requisite approval and it was error for the
but must be duly and adequately proved. Court of Appeals to declare said directive without any binding effect because the occupation
 In the second place, the rule that parties to an illegal contract, if equally guilty, will not be aided by government could not have issued it under article 43 of the Hague Regulations which command
the law but will both be left where it finds them, has been interpreted by this Court as barring the that laws that are municipal in character of an occupied territory should be respected and cannot
party from pleading the illegality of the bargain either as a cause of action or as a defense be ignored unless prevented by military necessity.
 The Court of Appeals correctly held that Lopez could not donate the entirety of the property in
litigation, to the prejudice of his wife Maria Ngo, because said property was conjugal in character, Whether or not Seirei No. 6 should govern the transaction: NO
and the right of the husband to donate community property is strictly limited by law.

DEN DIGESTS | FEU INSTITUTE OF LAW


 The law that should govern the particular transaction is not the above directive but the Constitution PHILIPPINE BANKING CORPORATION vs. LUI SHE
adopted by the then Republic of the Philippines. Said Constitution, in its article VIII, section 5, September 12, 1967
provides that "no private agricultural land shall be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain in the  Justina Santos y Canon Faustino and her sister Lorenzana were the owners in common of a piece
Philippines", which provisions are similar to those contained in our present Constitution. As to of land in Manila. In 1957, Justina Santos became the owner of the entire property as her sister
whether the phrase "private agricultural land" employed in said Constitution includes residential died with no other heir. Then already well advanced in years, being at the time 90 years old, blind,
lands, as the one involved herein, there can be no doubt because said phrase has already been crippled and an invalid, she was left with no other relative to live with. Her only companions in the
interpreted in the affirmative sense by this court. house were her 17 dogs and 8 maids. Her otherwise already existence was brightened now and
then by the visits of Wong's four children.
Whether or not petitioner can have the sale declared null and void: NO  Wong himself was the trusted man to whom she delivered various amounts for safekeeping,
including rentals from her property. Wong also took care of the payment, in her behalf, of taxes,
 In the case of Gonzaga v. Uy Hoo, the court held that even if the plaintiffs can still invoke the lawyers’ fees, funeral expenses, masses, salaries of maids and security guard, and her household
Constitution, or the doctrine in the Krivenko Case, to set aside the sale in question, they are now expenses.
prevented from doing so if their purpose is to recover the lands that they have voluntarily parted  In grateful acknowledgment of the personal services of the lessee to her, Santos executed a
with, because of their guilty knowledge that what they were doing was in violation of the contract of lease in favor of Wong, covering the portion then leased to him and another portion of
Constitution. They cannot escape this conclusion because they are presumed to know the law. As Florentino Torres street. The lease was for 50 years, although the lessee was given the right to
this court well said: 'A party to an illegal contract cannot come into a court of law and ask to have withdraw at any time from the agreement. Ten days later, the contract was amended so as to make
his illegal objects carried out. The law will not aid either party to an illegal agreement; it leaves the it cover the entire property, including the portion on which the house of Santos stood.
parties where it finds them.' The rule is expressed in the maxims: 'Ex dolo malo non oritur actio,'  Subsequently, she executed a contract giving Wong the option to buy the leased premises,
and 'In pari delicto potior est conditio defendentis.' payable within ten years. The option, written in Tagalog, imposed on him the obligation to pay for
 The doctrine above adverted to is the one known as In Pari Delicto. This is well known not only in the food of the dogs and the salaries of the maids in her household. The option was conditioned on
this jurisdiction but also in the United States where common law prevails. In the latter jurisdiction, his obtaining Philippine citizenship, a petition for which was then pending in the Court of First
the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law, Instance of Rizal. It appears, however, that this application for naturalization was withdrawn when it
from an illegal contract; no suit can be maintained for its specific performance, or to recover the was discovered that he was not a resident of Rizal.
property agreed to be sold or delivered, or the money agreed to be paid, or damages for its  In 1958, she filed a petition to adopt him and his children on erroneous belief that adoption would
violation. The rule has sometimes been laid down as though it were equally universal, that where confer on them Philippine citizenship.
the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other."  She executed two other contracts, extending the term of the lease to 99 years and fixing the term
 It is true that this doctrine is subject to one important limitation, namely, "whenever public policy is of the option at 50 years.
considered as advanced by allowing either party to sue for relief against the transaction" But not all  In her two wills executed in 1959, she appeared to have a change of heart. She claimed that
contracts which are illegal because opposed to public policy come under this limitation. The cases various contracts were made by her because of machinations and inducements practiced by him,
in which this limitation may apply only "include the class of contracts which are intrinsically contrary she now directed her executor to secure the annulment of the contracts.
to public policy, — contracts in which the illegality itself consists in their opposition to public policy,  The complaint alleged that the contracts were obtained by Wong "through fraud, misrepresentation,
and any other species of illegal contracts in which, from their particular circumstances, incidental inequitable conduct, undue influence and abuse of confidence and trust of and by taking advantage
and collateral motives of public policy require relief.” of the helplessness of the plaintiff and were made to circumvent the constitutional prohibition
 In our opinion, the contract in question does not come under this exception because it is not prohibiting aliens from acquiring lands in the Philippines and also of the Philippine Naturalization
intrinsically contrary to public policy, nor one where the illegality itself consists in its opposition to Laws.”
public policy. It is illegal not because it is against public policy but because it is against the  In his answer, Wong insisted that the various contracts were freely and voluntarily entered into by
Constitution. Nor may it be contended that to apply the doctrine of pari delicto would be tantamount the parties.
to contravening the fundamental policy embodied in the constitutional prohibition in that it would  After the case was submitted for decision, both parties died. Hence, Wong was substituted by his
allow an alien to remain in the illegal possession of the land, because in this case the remedy is wife, Lui She, while Santos was substituted by the Philippine Bank Corporation.
lodged elsewhere. To adopt the contrary view would be merely to benefit petitioner and not to
enhance public interest. Whether or not the contracts are valid: NO
 In view of the foregoing, we hold that the sale in question is null and void, but plaintiff is barred
from taking the present action under the principle of pari delicto.  The contract was fully explained to Justina Santos by her own lawyer. One incident, related by the
same witness, makes clear that she voluntarily consented to the lease contract. The truth is that
even after giving his client time to think the matter over, the lawyer could not make her change her
mind. Indeed, the charge of undue influence in this case rests on a mere inference drawn from the
fact that Justina Santos could not read (as she was blind) and did not understand the English
language in which the contract is written, but that inference has been overcome by her own
evidence. Nor is there merit in the claim that her consent to the lease contract, as well as to the
rest of the contracts in question, was given out of a mistaken sense of gratitude to Wong who, she
was made to believe, had saved her and her sister from a fire that destroyed their house during the
liberation of Manila.

DEN DIGESTS | FEU INSTITUTE OF LAW


 For the testimony just quoted while dispelling doubt as to the intention of Justina Santos, at the
same time gives the clue to what we view as a scheme to circumvent the Constitutional prohibition
against the transfer of land of aliens. The illicit purpose then becomes the illegal cause rendering
the contracts void.
 Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively, they
reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits. To be
sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to
buy real property on condition that he is granted Philippine citizenship.
 But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of
which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years,
then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner
divests himself in stages not only of the right to enjoy the land but also of the right to dispose of it –
rights the sum total of which make up ownership.
 It does not follow from what has been said, however, that because the parties are in pari delicto
they will be left where they are, without relief.
 For one thing, the original parties who were guilty of a violation of the fundamental charter have
died and have since been substituted by their administrators to whom it would be unjust to impute
their guilt.
 For another thing, and is not only cogent but also important, article 1416 of the Civil Code provides,
as an exception to the rule on pari delicto, that 'When the agreement, is not illegal per se but is
merely prohibited and the prohibition by law is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has paid or delivered." The Constitutional
provision that "Save in cases of hereditary succession, no private agricultural land shall be
transferred or assigned except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain in the Philippines is an expression of public policy to conserve
lands for the Filipinos.
 The claim for increased rentals and attorney's fees made in behalf of Justina Santos, must be
denied for lack of merit.

DEN DIGESTS | FEU INSTITUTE OF LAW