CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
GEORGE W. BATCHELDER
vs. THE CENTRAL BANK OF THE PHILIPPINES
G.R. No. L-25071 March 29, 1972
FACTS:
Monetrary Board Res No 857 requires Filipino
and American resident contractors for US Military
bases in the Phils to surrender to the Central Bank
their dollar earnings under their respective
contracts but were entitled to utilize 90% of their
surrendered dollars for importation at the
preferred rate of commodities for use within or
outside US Military bases. Resolution 695
moreover denies their right to reacquire at the
preferred rate of 90% of the foreign exchange and
sold or surrendered earnings to CB for the
purpose of determining whether the imports
against proceeds of contracts entered into prior
April 25, 1960 are classified as dollar-to-dollar
transactions or not.
George Batchelder, an American Citizen permane
ntly residing in the Philippines who is
engaged in the Construction Business, surrender
ed to the Central Bank his dollar earnings
amounting to U.S. $199,966.00. He compels Cent
ral Bank of the Philippines to resell to hi
$170,210.60 at the preferred rate of exchange of
two Philippine pesos for one American dollar,mo
re specifically P2.00375 which was denied by the
court.He then contended that
said decision failed to consider that if there was
no contract obligating the bank to resell to him at
the preferred rate, the judgment of the lower co
urt canand should nevertheless be sustained on
the basis of there being such an obligation arisin
g fromlaw.
ISSUE:
Whether or not the CB has the obligation arising
from Law to resell the dollars to Batchelder at the
preferred rate.
RULING:
ARELLANO UNIVERSITY SCHOOL OF LAW
CB was intended to attain basic objectives in the
field of currency and finance. “It shall be the
responsibility of the CB of the Phils to administer
the monetary and banking system of the Republic.
It shall be the duty of the CB to use the powers
granted to it under
Central Bank was intended to attain basic objecti
ves in the field of currency and finance.
“It shall be the responsibility of the Central Bank of the Ph
ilippines to administer the monetary
and banking system of the Republic. It shall be th
e duty of the Central Bank to use the powers
granted to it under this Act to achieve the followi
ng objectives: (a) to maintain monetarystability i
n the Philippines; (b) to preserve the internation
al value of the peso and theconvertibility of the p
eso into other freely convertible currencies; and
(c) to promote a risinglevel of production, emplo
yment and real income in the Philippines."It is, of
course, true that obligations arise from 1) law; 2
) contracts; 3) quasi-
contracts;4) acts or omissions punished by law a
nd 5) quasi-
delicts. One of the sources an obligation thenis a l
aw. A legal norm could so require that a particula
r party be chargeable with a prestation orundert
aking to give or to deliver or to do or to render s
ome service. It is an indispensablerequisite thou
gh that such a provision, thus in fact exists. There
must be a showing to that effect.As early as 1909
in Pelayo v. Lauron, Court through Justice Torres
, categorically declared:"Obligation arising from l
aw are not presumed." For in the language of Just
ice Street in LeungBen v. O'Brien, a 1918 decisio
n, such an obligation is "a creation of the positive
law." They areordinarily traceable to code or sta
tute. It is true though, as noted in the motion forr
econsideration following People v. Que Po Lay, th
at a Central Bank circular may have the forceand
effect of law, especially when issued in pursuanc
e of its quasi-
legislative power. That of itself, however, is no ju
stification to conclude that it has thereby assume
d.
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
CONSENSUALITY OF CONTRACTS
REPUBLIC VS PLDT
(G.R. NO. L-18841)
FACTS: Soon after its creation in 1947, the Bureau
of Telecommunications set up its own
Government Telephone System by utilizing its
own appropriation and equipment and by renting
trunk lines of the PLDT to enable government
offices to call private parties. Its application for
the use of these trunk lines was in the usual form
of applications for telephone service, containing a
statement, above the signature of the applicant,
that the latter will abide by the rules and
regulations of the PLDT which are on file with the
Public Service Commission. One of the many rules
prohibits the public use of the service furnished
the telephone subscriber for his private use. The
Bureau has extended its services to the general
public since 1948, using the same trunk lines
owned by, and rented from, the PLDT, and
prescribing its (the Bureau's) own schedule of
rates. Through these trunk lines, a Government
Telephone System (GTS) subscriber could make a
call to a PLDT subscriber in the same way that the
latter could make a call to the former.
The plaintiff, through the Director of
Telecommunications, entered into an agreement
with RCA Communications, Inc., for a joint
overseas telephone service whereby the Bureau
would convey radio-telephone overseas calls
received by RCA's station to and from local
residents.
The defendant Philippine Long Distance
Telephone Company, complained to the Bureau of
Telecommunications that said bureau was
violating the conditions under which their Private
Branch Exchange (PBX) is inter-connected with
the PLDT's facilities, referring to the rented trunk
lines, for the Bureau had used the trunk lines not
only for the use of government offices but even to
serve private persons or the general public, in
ARELLANO UNIVERSITY SCHOOL OF LAW
competition with the business of the PLDT; and
gave notice that if said violations were not
stopped by midnight of 12 April 1958, the PLDT
would sever the telephone connections. When the
PLDT received no reply, it disconnected the trunk
lines being rented by the Bureau at midnight on
12 April 1958. The result was the isolation of the
Philippines, on telephone services, from the rest
of the world, except the United States.
Plaintiff Republic commenced suit against the
defendant, Philippine Long Distance Telephone
Company, in the Court of First Instance of Manila
(Civil Case No. 35805), praying in its complaint
for judgment commanding the PLDT to execute a
contract with plaintiff, through the Bureau, to
restrain the severance of the existing telephone
connections and/or restore those severed.
After trial, the lower court rendered judgment
that it could not compel the PLDT to enter into an
agreement with the Bureau because the parties
were not in agreement; that under Executive
Order 94, establishing the Bureau of
Telecommunications, said Bureau was not limited
to servicing government offices alone, nor was
there any in the contract of lease of the trunk
lines, since the PLDT knew, or ought to have
known, at the time that their use by the Bureau
was to be public throughout the Islands, hence the
Bureau was neither guilty of fraud, abuse, or
misuse of the poles of the PLDT; and, in view of
serious public prejudice that would result from
the disconnection of the trunk lines, declared the
preliminary injunction permanent, although it
dismissed both the complaint and the
counterclaims. Both parties appealed.
ISSUE: Whether or not the plaintiff can compel
the defendant to enter into a contract with it,
because the parties could not agree on the terms
and conditions of the interconnection?
HELD: No, the plaintiff cannot coerce PLDT to
enter into a contract where no agreement is had
between them as to the principal terms and
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

conditions of the contract. Freedom to stipulate

such terms and conditions is of the essence of our
contractual system, and by express provision of
the statute, a contract may be annulled if tainted
by violence, intimidation, or undue influence
(Articles 1306, 1336, 1337, Civil Code of the
Philippines). But the court a quo has apparently
overlooked that while the Republic may not
compel the PLDT to celebrate a contract with it,
the Republic may, in the exercise of the sovereign
power of eminent domain, require the telephone
company to permit interconnection of the
government telephone system and that of the
PLDT, as the needs of the government service may
require, subject to the payment of just
compensation to be determined by the court.

ARELLANO UNIVERSITY SCHOOL OF LAW Page 3

 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

CORPUS VS. CA WE reiterated this rule in Pacific Merchandising

(innominate contracts) Corp. vs. Consolacion Insurance & Surety Co., Inc.
(73 SCRA 564 [1976]) citing the case of Perez v.
Facts: David accepted the case of Corpus though Pomar, supra thus:
there was no express agreement regarding Where one has rendered services to another, and
attorney’s fees. Corpus was administratively these services are accepted by the latter, in the
charged. He employed the services of David. absence of proof that the service was rendered
David won the administrative case For Copuz. gratuitously, it is but just that he should pay a
Corpus gave a check to David, but was returned reasonable remuneration therefor because 'it is a
by David with the intention of getting paid after well-known principle of law, that no one should
the case is ruled with finality by the SC and Corpus be permitted to enrich himself to the damage of
gets his back salaries and wages. (Your another.
appreciation of the efforts I have invested in your
case is enough compensation therefor, however,
when you shall have obtained a decision which
would have finally resolved the case in your favor,
remembering me then will make me happy. In the
meantime, you will make me happier by just
keeping the check) David continued to fight for
Corpus’ case and got a favorable judgment.
Corpus refused to pay David contending that
since David refused the first check given by him,
he gave his services gratuitously.

Held: While there was no express agreement

between petitioner Corpus and respondent David
as regards attorney's fees, the facts of the case
support the position of respondent David that
there was at least an implied agreement for the
payment of attorney's fees.

Payment of attorney's fees to respondent David

may be justified by virtue of the innominate
contract of facio ut des (I do and you give which is
based on the principle that "no one shall unjustly
enrich himself at the expense of another."
Innominate contracts have been elevated to a
codal provision in the New Civil Code by
providing under Article 1307 that such contracts
shall be regulated by the stipulations of the
parties, by the general provisions or principles of
obligations and contracts, by the rules governing
the most analogous nominate contracts, and by
the customs of the people.

ARELLANO UNIVERSITY SCHOOL OF LAW Page 4

 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
EJERCITO vs ORIENTAL ASSURANCE
CORPORATION,
G.R. No. 192099 July 8, 2015
FACTS: Respondent Oriental Assurance
Corporation issued a Surety Bond in favor of FFV
Travel & Tours, Inc. (Company). The bond was
intended to guarantee the Company’s payment of
airline tickets purchased on credit from
participating members of International Air
Transport Association (IATA) to the extent of
3million.
On the same day, petitioners and Merissa
C. Somes (Somes) executed a Deed of Indemnity
in favor of respondent. FFV Travel & Tours, Inc.
has been declared in default for failure to pay its
obligations amounting 5,484,086.97 and USD
18,760.98. Consequently, IATA demanded
payment of the bond, and respondent heeded the
demand on 28 November 2000. IATA executed a
Release of Claim acknowledging payment of the
surety bond. The Surety Bond was effective for
one year from its issuance and it was renewed for
another year.
Respondent sent demand letters to
petitioners and Somes for reimbursement of the
3 million pursuant to the indemnity agreement.
For their failure to reimburse respondent, the
latter filed a collection suit.
RTC dismissed the complaint and held
Somes liable to pay the amount of 3 million and
interest per annum at the rate of 12% of the
principal obligation. The RTC found that there
was no written agreement to show the intention
of petitioners to renew the Deed of Indemnity.
The absence thereof was evidenced by the
nonappearance of any signature on the Renewal
Notice, which was not signed by Somes. The CA
reversed the finding of the RTC and ruled that
petitioners could not escape liability as they had
authorized respondent to grant any renewals or
extensions pursuant to the indemnity agreement.
ISSUE: Whether petitioners, by renewing the
contract through Somes, expressly bound
ARELLANO UNIVERSITY SCHOOL OF LAW
themselves to indemnify the respondent under
the deed of indemnity.
HELD: Yes. Petition denied. The contract of
indemnity is the law between the parties. it is a
cardinal rule in the interpretation of a contract
that if its terms are clear and leave no doubt on
the intention of the contracting parties, the literal
meaning of its stipulation shall control. The CA
aptly found provisions in the contract that could
not exonerate petitioners from their liability.
Clearly, as far as respondent is concerned,
petitioners have expressly bound themselves to
the contract, which provides for the term granting
authority to the company to renew the original
bond. The terms of the contract are clear, explicit
and unequivocal. Therefore, the subsequent acts
of the Company, through Somes, the led to the
renewal of the surety bond are binding on
petitioners as well.
The intention of Somes to renew the bond
cannot be denied, as she paid the renewal
premium and even submitted the renewed bond
to IATA.
The claim of petitioners that they only
consented to the one-year validity of the surety
bond must be directed against Somes in a
separate action. She allegedly convinced them
that the bond was valid for on year only. The
allegation of petitioners is an agreement outside
of the contract. In other words, respondent is not
privy to the alleged agreement between Somes
and petitioners. For respondent, there was a valid
indemnity agreement executed by the parties,
and contained a proviso that became the basis for
the authority to renew the original bond.
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
DAISY B. TIU vs. PLATINUM PLANS PHIL.,
INC.,
G.R. No. 163512
NATURE: Autonomy of Contracts, Action for
Damages
PONENTE: QUISUMBING, J.:
DATE: February 28, 2007
DOCTRINE: a non-involvement clause is not
necessarily void for being in restraint of trade as
long as there are reasonable limitations as to
time, trade, and place.
RELATED ARTICLE: Article 1306 of the Civil
Code provides that parties to a contract may
establish such stipulations, clauses, terms and
conditions as they may deem convenient,
provided they are not contrary to law, morals,
good customs, public order, or public policy.
Article 1159 of the same Code also provides
that obligations arising from contracts have the
force of law between the contracting parties and
should be complied with in good faith. Courts
cannot stipulate for the parties nor amend their
agreement where the same does not contravene
law, morals, good customs, public order or public
policy, for to do so would be to alter the real intent
of the parties, and would run contrary to the
function of the courts to give force and effect
thereto.
FACTS:
Respondent Platinum Plans Philippines, Inc. is
a domestic corporation engaged in the pre-need
industry. From 1987 to 1989, petitioner Daisy B.
Tiu was its Division Marketing Director. On
January 1, 1993, respondent re-hired petitioner
as Senior Assistant Vice-President and
Territorial Operations Head in charge of its
Hongkong and Asean operations. The parties
executed a contract of employment valid for five
years. On September 16, 1995, petitioner stopped
reporting for work. In November 1995, she
became the Vice-President for Sales of
ARELLANO UNIVERSITY SCHOOL OF LAW
Professional Pension Plans, Inc., a corporation
engaged also in the pre-need industry.
Consequently, respondent sued petitioner for
damages before the RTC of Pasig City. Respondent
alleged, among others, that petitioner’s
employment with Professional Pension Plans, Inc.
violated the non-involvement clause in her
contract of employment, to wit:
8. NON INVOLVEMENT PROVISION – The
EMPLOYEE further undertakes that during
his/her engagement with EMPLOYER and
in case of separation from the Company,
whether voluntary or for cause, he/she
shall not, for the next TWO (2) years
thereafter, engage in or be involved with
any corporation, association or entity,
whether directly or indirectly, engaged in
the same business or belonging to the
same pre-need industry as the EMPLOYER.
Any breach of the foregoing provision shall
render the EMPLOYEE liable to the
EMPLOYER in the amount of One Hundred
Thousand Pesos (P100,000.00) for and as
liquidated damages.5
Petitioner countered that the non-involvement
clause was unenforceable for being against public
order or public policy: First, the restraint
imposed was much greater than what was
necessary to afford respondent a fair and
reasonable protection. Petitioner contended that
the transfer to a rival company was an accepted
practice in the pre-need industry. Since the
products sold by the companies were more or less
the same, there was nothing peculiar or unique to
protect. Second, respondent did not invest in
petitioner’s training or improvement. At the time
petitioner was recruited, she already possessed
the knowledge and expertise required in the pre-
need industry and respondent benefited
tremendously from it. Third, a strict application
of the non-involvement clause would amount to a
deprivation of petitioner’s right to engage in the
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
only work she knew. In upholding the validity of
the non-involvement clause, the trial court ruled
that a contract in restraint of trade is valid
provided that there is a limitation upon either
time or place. In the case of the pre-need industry,
the trial court found the two-year restriction to
be valid and reasonable.
On appeal, the Court of Appeals affirmed the trial
court’s ruling. It reasoned that petitioner entered
into the contract on her own will and volition.
Thus, she bound herself to fulfill not only what
was expressly stipulated in the contract, but also
all its consequences that were not against good
faith, usage, and law. The appellate court also
ruled that the stipulation prohibiting non-
employment for two years was valid and
enforceable considering the nature of
respondent’s business.
ISSUE: Whether the non-involvement clause is
valid.
HELD: YES, it is valid.
In this case, the non-involvement clause has a
time limit: two years from the time petitioner’s
employment with respondent ends. It is also
limited as to trade, since it only prohibits
petitioner from engaging in any pre-need
business akin to respondent’s.
More significantly, since petitioner was the Senior
Assistant Vice-President and Territorial
Operations Head in charge of respondent’s
Hongkong and Asean operations, she had been
privy to confidential and highly sensitive
marketing strategies of respondent’s business. To
allow her to engage in a rival business soon after
she leaves would make respondent’s trade
secrets vulnerable especially in a highly
competitive marketing environment. In sum, we
find the non-involvement clause not contrary to
public welfare and not greater than is necessary
to afford a fair and reasonable protection to
respondent.
ARELLANO UNIVERSITY SCHOOL OF LAW
In any event, Article 1306 of the Civil Code
provides that parties to a contract may establish
such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are
not contrary to law, morals, good customs, public
order, or public policy.
Article 1159 of the same Code also provides that
obligations arising from contracts have the force
of law between the contracting parties and should
be complied with in good faith. Courts cannot
stipulate for the parties nor amend their
agreement where the same does not contravene
law, morals, good customs, public order or public
policy, for to do so would be to alter the real intent
of the parties, and would run contrary to the
function of the courts to give force and effect
thereto. Not being contrary to public policy, the
non-involvement clause, which petitioner and
respondent freely agreed upon, has the force of
law between them, and thus, should be complied
with in good faith.
Thus, as held by the trial court and the Court of
Appeals, petitioner is bound to pay
respondent P100,000 as liquidated damages.
While we have equitably reduced liquidated
damages in certain cases, we cannot do so in this
case, since it appears that even from the start,
petitioner had not shown the least intention to
fulfill the non-involvement clause in good faith.
Page 7
 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

CUI VS ARELLANO UNIVERSITY 38, s. 1949, it should have not entered into a
2 SCRA 205, May 30, 1961 contract of waiver with Cui on September 10,
Ponente: J. Concepcion 1951, which is a direct violation of our
Memorandum and an open challenge to the
FACTS authority of the Director of Private Schools
Emeritio Cui was granted scholarship by the because the contract was repugnant to sound
defendant university on scholarship merit as a morality and civic honesty.
student of the College of Law. Stipulated in the
contract for the scholarship grant is the following:
“In consideration of the scholarship granted to me
by the University, I hereby waive my right to
transfer to another school without having
refunded to the University (defendant) the
equivalent of my scholarship cash.”

On his last semester on the University, Cui

transferred to Abad Santos University where his
uncle, the previous dean and legal adviser of
Arellano University, was now the dean of the
College of Law of Abad Santos University.

Before taking the bar, Cui petitioned the

defendant university for the release of his TOR.
The university refused until Cui refunded the
scholarship granted to him totaling the amount of
Php 1,033.87, which he did under protest.

Thereafter, he filed for recovery plus damages.

The Court of First Instance of Manila ruled in
favor or Arellano University. Hence, this petition
for review.

ISSUE
Whether or not the stipulation on waiver of right
to transfer without having refunded the
scholarship is void.

HELD
Yes. The stipulation contravenes both moral and
public policy. Scholarship grants are not for
propaganda purposes but are awards for merits.
If Arellano University understood clearly the real
essence of scholarships and the motives which
prompted this office to issue Memorandum No.
ARELLANO UNIVERSITY SCHOOL OF LAW Page 8
 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
RAMON E. SAURA VS ESTELA P. SINDICO
G.R. No. L-13403 March 23, 1960
Ramon E. Saura and Estela P. Sindico were
contesting for nomination as the official
candidate of the Nacionalista Party in the
congressional elections of November 12, 1957. On
August 23, 1957, the parties entered into a
written agreement bearing the same date,
containing among other matters stated therein, a
pledge that —
“Each aspirant shall respect the result of the
aforesaid convention, i.e., no one of us shall either
run as a rebel or independent candidate after
losing in said convention.”
In the provincial convention held by the
Nacionalista Party on August 31, 1957, Saura was
elected and proclaimed the Party's official
congressional candidate for the aforesaid district.
Nonetheless, Sindico, in disregard of the
covenant, filed, on her certificate of candidacy for
the same office with the Commission on Elections,
and she openly and actively campaigned for her
election. Plaintiff Saura commenced this suit for
the recovery of damages. Upon motion of the
defendant, the lower court, in its order of
November 19, 1957, dismissed the complaint on
the basis that the agreement sued upon is null and
void, because (1) the subject matter of the
contract, being a public office, is not within the
commerce of man; and (2) the "pledge" was in
curtailment of the free exercise of elective
franchise and therefore against public policy.
Hence, this appeal.
Issue:
Whether the agreement between both
parties is a nullity?
Held:
ARELLANO UNIVERSITY SCHOOL OF LAW
Yes. We agree with the lower court in
adjudging the contract or agreement in question
a nullity. Among those that may not be the subject
matter (object) of contracts are certain rights of
individuals, which the law and public policy have
deemed wise to exclude from the commerce of
man. Among them are the political rights
conferred upon citizens, including, but not limited
to, once's right to vote, the right to present one's
candidacy to the people and to be voted to public
office, provided, however, that all the
qualifications prescribed by law obtain. Such
rights may not, therefore, be bargained away
curtailed with impunity, for they are conferred
not for individual or private benefit or advantage
but for the public good and interest.
In the case at hand, plaintiff complains on account
of defendant's alleged violation of the "pledge" in
question by filing her own certificate o candidacy
for a seat in the Congress of the Philippines and in
openly and actively campaigning for her election.
In the face of the preceding considerations, we
certainly cannot entertain plaintiff's action, which
would result in limiting the choice of the electors
to only those persons selected by a small group or
by party boses. Appeal is dismissed.
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
LEAL V. IAC
G.R. No. L-65425
November 5, 1987
FACTS:
Vicente Santiago and his brother, Luis Santiago
entered into a contract entitled “compraventa”
whereby the vendor sold t three parcels of land in
favor of Cirilio Leal Pursuant to this
"Compraventa," the title over the three parcels of
land in the name of the vendors was cancelled and
a new one was issued in the name of Cirilo Leal
who immediately took possession and exercised
ownership over the said lands. When Cirilo died
on December 10, 1959, the subject lands were
inherited by his six children, who are among the
petitioners, and who caused the consolidation
and subdivision of the properties among
themselves.
Between the years 1960 and 1965, the properties
were either mortgaged or leased by the
petitioners-children of Cirilo Leal — to their co-
petitioners.
Sometime before the agricultural year 1966-
1967, Vicente Santiago approached the
petitioners and offered re- repurchase the subject
properties. Petitioners, however, refused the
offer. Consequently, Vicente Santiago instituted a
complaint for specific performance before the
then Court of First Instance of Quezon City on
August 2, 1967.
ISSUE:
Whether the phrase in the “compraventa” gives
the Santiago a right to repurchase the land
HELD:
Contracts are generally binding between the
parties, their assigns and heirs; however, under
Art. 1255 of the Civil Code of Spain, which is
ARELLANO UNIVERSITY SCHOOL OF LAW
applicable in this instance, pacts, clauses, and
conditions which are contrary to public order are
null and void, thus, without any binding effect.
Parenthetically, the equivalent provision in the
Civil Code of the Philippines is that of Art. 1306,
which states: "That contracting parties may
establish such stipulations, clauses, terms and
conditions as they may deem convenient,
provided they are not contrary to law, morals,
good customs, public order, or public policy.
Public order signifies the public weal — public
policy. Essentially, therefore, public order and
public policy mean one and the same thing. Public
policy is simply the English equivalent of "order
publico" in Art. 1255 of the Civil Code of Spain.
One such condition which is contrary to public
policy is the present prohibition to self to third
parties, because the same virtually amounts to a
perpetual restriction to the right of ownership,
specifically the owner's right to freely dispose of
his properties. This, we hold that any such
prohibition, indefinite and stated as to time, so
much so that it shall continue to be applicable
even beyond the lifetime of the original parties to
the contract, is, without doubt, a nullity. In the
light of this pronouncement, we grant the
petitioners' prayer for the cancellation of the
annotations of this prohibition at the back of their
Transfer Certificates 'Title.
The law provides that for conventional
redemption to take place, the vendor should
reserve, in no uncertain terms, the right to
repurchase the thing sold. Thus, the right to
redeem must be expressly stipulated in the
contract of sale in order that it may have legal
existence.
In the case before us, we cannot and any express
or implied grant of a right to repurchase, nor can
we infer, from any word or words in the
questioned paragraph, the existence of any such
right. The interpretation in the resolution (Justice
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

Sison) is rather strained. The phrase "in case

case" of should be construed to mean "should the
buyers wish to sell which is the plain and simple
import of the words, and not "the buyers should
sell," which is clearly a contorted construction of
the same phrase. The resort to Article 1373 of the
Civil Code of the Philippines is erroneous. The
subject phrase is patent and unambiguous, hence,
it must not be given another interpretation

But even assuming that such a right of repurchase

is granted under the "Compraventa," the
petitioner correctly asserts that the same has
already prescribed. Under Art. 1508 of the Civil
Code of Spain (Art,. 1606 of the Civil Code of the
Philippines), the right to redeem or repurchase, in
the absence of an express agreement as to time,
shall last four years from the date of the contract.
In this case then, the right to repurchase, if it was
at four guaranteed under in the "Compraventa,"
should have been exercise within four years from
March 21, 1941 (indubitably the date of execution
of the contract), or at the latest in 1945.

In the respondent court's resolution, it is further

ruled that the right to repurchase was given birth
by the condition precedent provided for in the
phrase "siempre y cuando estos ultimos pueden
hacer la compra" (when the buyer has money to
buy). In other words, it is the respondent court's
contention that the right may be exercised only
when the buyer has money to buy. If this were so,
the second paragraph of Article 1508 would apply
— there is agreement as to the time, although it is
indefinite, therefore, the right should be exercised
within ten years, because the law does not favor
suspended ownership. Since the alleged right to
repurchase was attempted to be exercised by
Vicente Santiago only in 1966, or 25 years from
the date of the contract, the said right has
undoubtedly expired.

ARELLANO UNIVERSITY SCHOOL OF LAW Page 11

 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
BANCO FILIPINO SAVINGS vs. NAVARRO
G.R. No. L-46591, July 28, 1987 (152 SCRA
346); MELENCIO-HERRERA, J.:
FACTS:
On May 20, 1975, respondent Florante del
Valle obtained a loan secured by a real estate
mortgage from petitioner BANCO FILIPINO in the
sum of Forty-one Thousand Three Hundred
(P41,300.00) Pesos, payable and to be amortized
within fifteen (15) years at twelve (12%) per cent
interest annually. Stamped on the promissory
note evidencing the loan is an Escalation Clause,
reading as follows:
“I/We hereby authorize Banco Filipino to
correspondingly increase the interest rate
stipulated in this contract without advance notice
to me/us in the event law should be enacted
increasing the lawful rates of interest that may be
charged on this particular kind of loan.”
On June 30, 1976, BANCO FILIPINO gave
notice to Mr. Del Valle increasing the interest rate
on the LOAN from 12% to 17% per annum
effective on March 1, 1976 pursuant to Central
Bank CIRCULAR No. 494 issued on January 2,
1976, which provides that, “…The maximum rate
of interest, including commissions, premiums, fees
and other charges on loans with maturity of more
than seven hundred thirty (730) days, by banking
institutions, including thrift banks and rural banks,
or by financial intermediaries authorized to
engage in quasi-banking functions shall be
nineteen percent (19%) per annum...Except as
provided in this Circular and Circular No. 493,
loans or renewals thereof shall continue to be
governed by the Usury Law, as amended."
On August 28, 1976, Mr. Del Valle sought
clarification from the Central Bank on Banco
Filipino's recent decision to raise interest rates on
lots bought on installment from 12% to 17% per
annum. Central Bank replied on September 24,
1976, as follows:
ARELLANO UNIVERSITY SCHOOL OF LAW
….please be advised that the Monetary
Board, in its Resolution No. 1155 dated June 11,
1976, adopted the following guidelines to govern
interest rate adjustments by banks and non-banks
performing quasi-banking functions on loans
already existing as of January 3, 1976, in the light
of Central Bank Circulars Nos. 492-498: (l) Only
banks and non-bank financial intermediaries
performing quasi-banking functions may increase
interest rates on loans already existing as of
January 2, 1976, provided that: a. The pertinent
loan contracts/documents contain escalation
clauses expressly authorizing lending bank or non-
bank performing quasi-banking functions to
increase the rate of interest stipulated in the
contract, in the event that any law or Central
Bank regulation is promulgated increasing the
maximum interest rate for loans; and b. Said loans
were directly granted by them and the remaining
maturities thereof were more than 730 days as of
January 2, 1976; and (2) The increase in the rate of
interest can be effective only as of January 2, 1976
or on a later date. The foregoing guidelines,
however, shall not be understood as precluding
affected parties from questioning before a
competent court of justice the legality or validity of
such escalation clauses.
Contending that CIRCULAR No. 494 is not
the law contemplated in the Escalation Clause of
the promissory note, Mr. Del Valle filed suit
against BANCO FILIPINO for "Declaratory Relief"
with respondent Court, praying that the
Escalation Clause be declared null and void and
that BANCO FILIPINO be ordered to desist from
enforcing the increased rate of interest on Mr. Del
Valle's real estate loan.
In its judgment, respondent Court nullified
the Escalation Clause and ordered BANCO
FILIPINO to desist from enforcing the increased
rate of interest on the BORROWER's loan. It
reasoned out that P.D. No. 116 does not
expressly grant the Central Bank authority to
maximize interest rates with retroactive effect
and that BANCO FILIPINO cannot legally impose a
Page 12
 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

higher rate of interest before the expiration of the
15-year period in which the loan is to be paid
other than the 12% per annum in force at the time
of the execution of the loan. Hence, the petition for
review on Certiorari.
Issue:
Whether the Escalation Clause, to which
the BANCO FILIPINO based upon the increase in
the interest rate of the LOAN from 12% to 17%
per annum, was valid.
Whether the Central Bank CIRCULAR No.
494 is not the law contemplated in the Escalation
Clause of the promissory note.
Ruling:
rely thereon to raise the interest on the
borrower's loan from 12% to 17% per annum
because Circular No. 494 of the Monetary Board
was not the "law" contemplated by the parties.
It is clear from the stipulation between the
parties that the interest rate may be increased "in
the event a law should be enacted increasing the
lawful rate of interest that may be charged on this
particular kind of loan." The Escalation Clause was
dependent on an increase of rate made by "law"
alone. CIRCULAR No. 494, although it has the
effect of law, is not a law. An administrative
regulation adopted pursuant to law has the force
and effect of law.

The judgment appealed from is affirmed in The distinction between a law and an
so far as it orders petitioner Banco Filipino to administrative regulation is recognized in the
desist from enforcing the increased rate of Monetary Board guidelines quoted in the letter of
interest on petitioner's loan. Central Bank to Mr. Del Valle on September 24,
1976. According to the guidelines, for a loan's
The substantial question in this case is not interest to be subject to the increases provided in
really whether the Escalation Clause is a valid or CIRCULAR No. 494, there must be an Escalation
void stipulation. There should be no question that Clause allowing the increase "in the event that any
the clause is valid. Some contracts contain what is law or Central Bank regulation is promulgated
known as an "escalator clause," which is defined increasing the maximum interest rate for loans."
as one in which the contract fixes a base price but The guidelines thus presuppose that a Central
contains a provision that in the event of specified Bank regulation is not within the term "any law."
cost increases, the seller or contractor may raise
the price up to a fixed percentage of the base.
Attacks on such a clause have usually been based
on the claim that, because of the open price-
provision, the contract was too indefinite to be
enforceable and did not evidence an actual
meeting of the minds of the parties, or that the
arrangement left the price to be determined
arbitrarily by one party so that the contract
lacked mutuality. In most instances, however,
these attacks have been unsuccessful. The Court
further finds as a matter of law that the cost of
living index adjustment, or escalator clause, is not
substantively unconscionable.

However, while an escalation clause like

the one in question can ordinarily be held valid,
nevertheless, petitioner Banco Filipino cannot
ARELLANO UNIVERSITY SCHOOL OF LAW Page 13
 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
NEW WORLD DEVELOPERS AND
MANAGEMENT, INC., PETITIONER, VS.
AMA COMPUTER LEARNING CENTER,
INC., RESPONDENT
G.R. No. 187930 February 23, 2015
FACTS:
New World is the owner of a commercial building
located at No. 1104-1118 España corner Paredes
Streets, Sampaloc, Manila. In 1998, AMA agreed to
lease the entire second floor of the building for its
computer learning center, and the parties entered
into a Contract of Lease 4 covering the eight-year
period from 15 June 1998 to 14 March 2006.
The monthly rental for the first year was set
at P181,500, with an annual escalation rate
equivalent to 15% for the succeeding years. 5 It
was also provided that AMA may preterminate
the contract by sending notice in writing to New
World at least six months before the intended
date.6 In case of pretermination, AMA shall be
liable for liquidated damages in an amount
equivalent to six months of the prevailing rent.
In compliance with the contract, AMA paid New
World the amount of P450,000 as advance rental
and another P450,000 as security deposit.7
For the first three years, AMA paid the monthly
rent as stipulated in the contract, with the
required adjustment in accordance with the
escalation rate for the second and the third years.
In a letter dated 18 March 2002, AMA requested
the deferment of the annual increase in the
monthly rent by citing financial constraints
brought about by a decrease in its enrollment.
New World agreed to reduce the escalation rate
by 50% for the next six months. The following
year, AMA again requested the adjustment of the
monthly rent and New World obliged by granting
a 45% reduction of the monthly rent and a 5%
reduction of the escalation rate for the remaining
term of the lease. For this purpose, the parties
ARELLANO UNIVERSITY SCHOOL OF LAW
entered into an Addendum to the Contract of
Lease.9
On the evening of 6 July 2004, AMA removed all
its office equipment and furniture from the leased
premises. The following day, New World received
a letter from AMA dated 6 July 2004 10 stating that
the former had decided to preterminate the
contract effective immediately on the ground of
business losses due to a drastic decline in
enrollment. AMA also demanded the refund of its
advance rental and security deposit.
New World replied in a letter dated 12 July
2004,11 to which was attached a Statement of
Account12 indicating the following amounts to be
paid by AMA: 1) unpaid two months’ rent in the
amount of P466,620; 2) 3% monthly interest for
the unpaid rent in the amount of P67,426.59; 3)
liquidated damages equivalent to six months of
the prevailing rent in the amount of P1,399,860;
and 4) damage to the leased premises amounting
to P15,580. The deduction of the advance rental
and security deposit paid by AMA still left an
unpaid balance in the amount of P1,049,486.59.
Despite the meetings between the parties, they
failed to arrive at a settlement regarding the
payment of the foregoing amounts.13
On 27 October 2004, New World filed a complaint
for a sum of money and damages against AMA
before the Regional Trial Court of Marikina City,
Branch 156 (RTC).14
ISSUE:
Whether AMA is liable to pay six months’ worth of
rent as liquidated damages on the ground that
when the parties freely stipulate on the manner
by which one may preterminate the lease, that
stipulation has the force of law between them and
should be complied with in good faith?
RULING:
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

AMA is liable for six months’ worth of rent as
liquidated damages.
Item No. 14 of the Contract of Lease states:
That [AMA] may pre-terminate this Contract of
Lease by notice in writing to [New World] at least
six (6) months before the intended date of
pretermination, provided, however, that in such
case, [AMA] shall be liable to [New World] for an
amount equivalent to six (6) months current
rental as liquidated damages;30
Art. 1306. The contracting parties may establish
such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are
not contrary to law, morals, good customs, public
order, or public policy.
The fundamental rule is that a contract is the law
between the parties. Unless it has been shown
that its provisions are wholly or in part contrary
to law, morals, good customs, public order, or
public policy, the contract will be strictly enforced
by the courts.

Quite notable is the fact that AMA never denied its

liability for the payment of liquidated damages in
view of its pretermination of the lease contract
with New World. What it claims, however, is that
it is entitled to the reduction of the amount due to
the serious business losses it suffered as a result
of a drastic decrease in its enrollment.

This Court is, first and foremost, one of law. While

we are also a court of equity, we do not employ
equitable principles when well-established
doctrines and positive provisions of the law
clearly apply.31

The law does not relieve a party from the

consequences of a contract it entered into with all
the required formalities.32 Courts have no power
to ease the burden of obligations voluntarily
assumed by parties, just because things did not
turn out as expected at the inception of the
contract.33 It must also be emphasized that AMA
is an entity that has had significant business
experience, and is not a mere babe in the woods.

Articles 1159 and 1306 of the Civil Code state:

Art. 1159. Obligations arising from contracts have

the force of law between the contracting parties
and should be complied with in good faith.

xxxx

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
SALUDO vs SECURITY BANK CORP. Marcelo,
Emmanuel T.
G.R. NO. 184041 OCT. 13, 2010
Facts:
On May 1996, respondent Security Bank
Corp. (SBC) extended an omnibus line credit
facility amounting to P10,000.00 to Booklight Inc.
(Booklight) covered by Credit Agreement and a
Continuing Suretyship, with petitioner Saludo as
surety. On October 1997, SBC approved a renewal
of credit facility in favor of Booklight under the
prevailing security lending rate. Booklight failed
to settle the loans upon maturity, hence, demands
were made on Booklight and petitioner Saludo for
payment of the obligation but the duo failed to
pay.
SBC then filed with the RTC an action for
collection of money against Booklight and
petitioner Saludo. Booklight was declared in
default. Petitioner Saludo in his answer alleged
that under the Continuing Suretyship, it was the
parties understanding that his undertaking and
liability was merely as an accommodation
guaranty of Booklight. The RTC ruled that
petitioner Saludo is jointly and solidarily liable
with Booklight under the Continuing Suretyship
Agreement. On appeal, the CA affirmed in toto the
ruling of RTC and the motion for reconsideration
of the petitioner was denied. In the instant
petition before the Supreme Court, petitioner
Saludo argued that when the first credit facility
expired, its accessory contract, i.e. the Continuing
Security Agreement likewise expired,
accordingly, the second credit facility approved
by SBC in favor of Bookmark is not anymore
covered by the Continuing Suretyship. Petitioner
Saludo further argued that since he is the surety,
the approval of the second credit facility in favor
of Bookmark necessitates his consent before the
Continuing Suretyship Agreement for such
second credit facility be effective.
Issue:
ARELLANO UNIVERSITY SCHOOL OF LAW
Whether or not an approved second credit
facility under the same Credit Agreement is
covered by the Continuing Suretyship Agreement
executed to secure the said Credit Agreement,
hence, making the surety in such Continuing
Suretyship Agreement solidarily liable with the
debtor to whom the second credit facility was
extended.
Ruling:
The Supreme Court ruled in the
affirmative.
There is no doubt that Booklight was
extended two (2) credit facilities, each with a one-
year term, by SBC. Booklight availed of these two
(2) credit lines. While Booklight was able to
comply with its obligation under the first credit
line, it defaulted in the payment of the loan
obligation under the second credit line.
Under the Continuing Suretyship,
petitioner undertook to guarantee the following
obligations: (a) Guaranteed Obligations the
obligations of the Debtor arising from all credit
accommodations extended by the Bank to the
Debtor, including increases, renewals, roll-
overs, extensions, restructurings,
amendments or novations thereof, as well as
(i) all obligations of the Debtor presently or
hereafter owing to the Bank, as appears in the
accounts, books and records of the Bank, whether
direct or indirect, and (ii) any and all expenses
which the Bank may incur in enforcing any of its
rights, powers and remedies under the Credit
Instruments as defined hereinbelow:
Whether the second credit facility is
considered a renewal of the first or a brand new
credit facility altogether was indirectly answered
by the trial court when it invoked paragraph 10 of
the Continuing Suretyship which provides:
Page 16
 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

10. Continuity of Suretyship. This nature, a continuing suretyship covers current

Suretyship shall remain in full force and future loans, provided that, with respect to
and effect until full and due payment future loan transactions, they are x x x within the
and performance of the Guaranteed description or contemplation of the contract of
Obligations. This Suretyship shall not guaranty.
be terminated by the partial payment
to the Bank of Guaranteed Petitioner argues that the approval of the second
Obligations by any other surety or
credit facility necessitates his consent
sureties of the Guaranteed
considering the onerous and solidary liability of a
Obligations, even if the particular
surety or sureties are relieved of surety. This is contrary to the express waiver of
further liabilities. his consent to such renewal, contained in
paragraph 12 of the Continuing Suretyship, which
Trial court concluded that the liability of provides in part:
petitioner did not expire upon the termination of
the first credit facility. This very renewal is 12. Waivers by the Surety. The
explicitly covered by the guaranteed obligations Surety hereby waives: x x x (v)
notice or consent to any
of the Continuing Suretyship.
modification, amendment, renewal,
extension or grace period granted
The essence of a continuing surety has been by the Bank to the Debtor with
highlighted in the case of Totanes v. China Banking respect to the Credit Instruments.
Corporation in this wise:
Comprehensive or continuing surety The petition was denied. The Decision of
agreements are, in fact, quite the CA was affirmed in toto.
commonplace in present day financial
and commercial practice. A bank or
financing company which anticipates
entering into a series of credit
transactions with a particular
company, normally requires the
projected principal debtor to execute a
continuing surety agreement along
with its sureties. By executing such an
agreement, the principal places itself in
a position to enter into the projected
series of transactions with its creditor;
with such suretyship agreement, there
would be no need to execute a separate
surety contract or bond for each
financing or credit accommodation
extended to the principal debtor.

In Gateway Electronics Corporation v. Asianbank

Corporation, the Court emphasized that [b]y its

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
VELASCO VS. CA
G.R. No. L-47544 January 28, 1980
Facts:
Alta Farms secured from the GSIS two loans to
finance a piggery project. These loans were
secured by two mortgages. Alta Farms defaulted
in the payment of its amortizations. It is
presumably because of this that Alta Farms
executed a Deed of Sale With Assumption of
Mortgage with Asian Engineering Corporation
but without the previous consent or approval of
the GSIS and in direct violation of the provisions
of the mortgage contracts. Even without the
approval of the Deed of Sale With Assumption of
Mortgage by the GSIS, Asian Engineering
Corporation executed an Exclusive Sales Agency,
Management and Administration Contract in
favor of Laigo Realty Corporation, with intention
of converting the piggery farm into a subdivision.
Asian Engineering executed another contract
with Laigo, whereby Laigo was to undertake the
development of the property into a subdivision.
Conformably with the two contracts, Laigo
started the development of the lot into a
subdivision. Laigo entered into contracts with
petitoners for the construction of houses for
home buyers. The checks paid by Laigo to the
petitioners were dishonored.
When the petitioners could not collect from Laigo
and the home buyers and after the GSIS
foreclosed the subdivision including the
improvements, the petitioners sent a letter of
demand GSIS to pay for the indebtedness of Laigo
Realty Corporation.
Petitioners filed a case against the GSIS for the
collection of sums of money representing labor
and materials used in the construction of houses
caused by home buyers through the intercession
of Laigo Realty Corporation.
Petitioners and the GSIS filed their ‘Joint
Manifestation’ which in substance is a stipulation
ARELLANO UNIVERSITY SCHOOL OF LAW
of facts where it was agreed that the witnesses of
GSIS would testify on the execution of the Deed of
Quit-Claim in favor of defendant GSIS by Laigo
Realty Corporation, freeing said defendant from
any and all claims arising out of the suppliers,
contractors and house builders.
Issue:
Whether GSIS is liable to petitioners?
Ruling:
Yes. Laigo admittedly has not paid petitioners.
The "bouncing" checks issued by it in their favor
is mentioned by GSIS itself in its statement of the
facts. Supreme Court holds that upon this
premise, it is a fair construction of the Deed of
Quitclaim aforementioned, that GSIS can be held
liable to petitioners, without prejudice to its
securing corresponding indemnity from Laigo. It
is obvious from the terms of said deed that GSIS
contemplated the possibility of its being liable for
Laigo’s account, otherwise there was no need for
the reservation. This is one such liability. In this
connection, while, indeed, Article 1729 refers to
the laborers and materialmen themselves, under
the peculiar circumstances of this case, it is but
fair and just that petitioners be deemed as suing
for the reimbursement of what they have already
paid the laborers and materialmen, as otherwise
they (petitioners) would be unduly prejudiced
while either Laigo, GSIS or the occupants of the
houses would enrich themselves at their expense.
It is a bad law that would allow such a result.
At this juncture, We need to add only that Article
1311 of the Civil Code which GSIS invokes is not
applicable where the situation contemplated in
Article 1729 obtains. The intention of the latter
provision is to protect the laborers and the
materialmen from being taken advantage of by
unscrupulous contractors and from possible
connivance between owners and contractors.
Thus, a constructive vinculum or contractual
privity is created by this provision, by way of
exception to the principle underlying Article 1311
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

between the owner, on the one hand, and those

who furnish labor and/or materials, on the other.
As a matter of fact, insofar as the laborers are
concerned, by a special law, Act No. 3959, they are
given added protection by requiring contractors
to file bonds guaranteeing payment to them. And
under Article 2242 of the Civil Code, paragraphs
(3) and (4), claims of laborers and materialmen,
respectively, enjoy preference among the
creditors of the owner in regard to specific
immovable property.

As regards Article 526 of the Civil Code also

invoked by GSIS, suffice it to say that this
provision refers particularly to instances where
the bad faith or the good faith of the builder is the
decisive factor in determining liability. In the case
at bar, there is no necessity to pass on the
question of whether petitioners acted in good
faith or bad faith, for the simple reason that under
the Deed of Quitclaim, GSIS freely accepted the
benefits of what they have accomplished.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
GEORGE A. KAUFFMAN vs. THE PHILIPPINE
NATIONAL BANK
G.R. No. 16454 September 29, 1921
STREET, J.:
FACTS:
George A. Kauffman, was the president of a
domestic corporation engaged chiefly in the
exportation of hemp from the Philippine Islands
and known as the Philippine Fiber and Produce
Company, of which company the plaintiff
apparently held in his own right nearly the entire
issue of capital stock. He was based in New York
City and as the president of the said company, he
was entitled to receive a dividend; as per
instruction, Wicks who worked as the treasurer of
the company, went to the exchange department of
PNB and requested a telegraphic transfer of the
money to Kauffman.
The PNB agreed with additional charges for the
transaction. The treasurer issued a check to PNB
and it was accepted. The PNB’s representative in
New York sent a message suggesting the
advisability of withholding this money from
Kauffman, in view of his reluctance to accept
certain bills of the company. PNB acquiesced in
this and dispatched to its NY agency a message to
withhold the Kauffman payment as suggested.
Meanwhile, Wicks then informed Kauffman that
his dividends had been wired to his credit in the
NY agency of PNB. So Kauffman went to PNB
office in NYC and demanded the money, however,
he was refused payment. So he filed this
complaint.
ISSUE:
Whether or not Kauffman has a right of action
against PNB?
HELD:
Yes. It is a stipulation pour autrui.
ARELLANO UNIVERSITY SCHOOL OF LAW
Should the contract contain any stipulation in
favor of a third person, he may demand its
fulfillment, provided he has given notice of his
acceptance to the person bound before the
stipulation has been revoked. (Art. 1257, par. 2,
Civ. Code.) In the light of the conclusion thus
stated, the right of the plaintiff to maintain the
present action is clear enough; for it is undeniable
that the bank's promise to cause a definite sum of
money to be paid to the plaintiff in NYC is a
stipulation in his favor within the meaning of the
paragraph above quoted; and the circumstances
under which that promise was given disclose an
evident intention on the part of the contracting
parties that the plaintiff should have the money
upon demand in NYC. The recognition of this
unqualified right in the plaintiff to receive the
money implies in our opinion the right in him to
maintain an action to recover it.
It will be noted that under the paragraph cited a
third person seeking to enforce compliance with
a stipulation in his favor must signify his
acceptance before it has been revoked. In this
case the plaintiff clearly signified his acceptance
to the bank by demanding payment; and although
PNB had already directed its NY agency to
withhold payment when this demand was made,
the rights of the plaintiff cannot be considered to
as there used, must be understood to imply
revocation by the mutual consent of the
contracting parties, or at least by direction of the
party purchasing he exchange. Thus, it was said,
"Cable transfers, therefore, mean a method of
transmitting money by cable wherein the seller
engages that he has the balance at the point on
which the payment is ordered and that on receipt
of the cable directing the transfer his
correspondent at such point will make payment
to the beneficiary described in the cable. All these
transaction are matters of purchase and sale
create no trust relationship."
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
BONIFACIO BROS., INC., ET.AL., Plaintiffs-
appellants, v. ENRIQUE MORA, ET.AL.,
Defendant-appellee.
(G.R. No. L-20853, May 29, 1967)
FACTS:
Enrique Mora owned an Oldsmobile sedan
which he mortgaged to H.S. Reyes Inc. (HSRI)
with the condition that Mora would insure the
sedan and H.S. Reyes would be the beneficiary.
The sedan was insured with State Bonding &
Insurance Co., Inc. (SBICI) and the pertinent
provisions of the policy are as follows:
1. The Company (referring to the State
Bonding & Insurance Co., Inc.) will,
subject to the Limits of Liability,
indemnify the Insured against loss of or
damages to the Motor Vehicle and its
accessories and spare parts whilst
ARELLANO UNIVERSITY SCHOOL OF LAW
thereon; (a) by accidental collision or
overturning or collision or overturning
consequent upon mechanical
breakdown or consequent upon wear
and tear,
xxx xxx xxx
2. At its own option the Company may
pay in cash the amount of the loss or
damage or may repair, reinstate, or
replace the Motor Vehicle or any part
thereof or its accessories or spare parts.
The liability of the Company shall not
exceed the value of the parts whichever
is the less. The Insured's estimate of
value stated in the schedule will be the
maximum amount payable by the
Company in respect of any claim for loss
or damage.1äwphï1.ñët
xxx xxx xxx
4. The Insured may authorize the repair
of the Motor Vehicle necessitated by
damage for which the Company may be
liable under this Policy provided that: —
(a) The estimated cost of such repair
does not exceed the Authorized Repair
Limit, (b) A detailed estimate of the cost
is forwarded to the Company without
delay, subject to the condition that "Loss,
if any is payable to H.S. Reyes, Inc.," by
virtue of the fact that said Oldsmobile
sedan was mortgaged in favor of the said
H.S. Reyes, Inc. and that under a clause in
said insurance policy, any loss was made
payable to the H.S. Reyes, Inc. as
Mortgagee;
xxx xxx xxx
The car was involved in an accident and
SBICI assigned the accident to Bayne Adjustment
Co for investigation and appraisal of the damage.
Mora authorized Bonifacio Bros Inc. (BBI) to
repair the sedan and Ayala Auto Parts Co. (AAPC)
supplied the materials. The amount for the labor
and the materials was PhP2,102.73. The car was
delivered to Mora even without the payment to
BBI and AAPC. SBICI issued a check amounting to
Page 21
 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
PhP2002.73 as the proceeds of the insurance
policy in favor of Mora or HSRI and entrusted the
check with Bayne Adjustment for the delivery to
the proper party.
BBI and AAPC filed a complaint for
collection of sum of money against Mora and
SBICI alleging that the insurance proceeds should
be paid directly to them. SBICI filed its Answer
with counterclaim for interpleader requiring BBI
and HSRI to interplead in order to determine who
has the better right over the insurance proceeds.
The Municipal Court declared HSRI as having the
better right. Upon appeal, the CFI affirmed the
decision. The Motion for Reconsideration was
denied.
ISSUE:
Whether there is privity of contract between
BBI/AAPC and SBICI since the latter and Mora
were the parties to the repair of the car based on
the following:
a. paragraph 4 of the contract which states
that:
“4. The Insured may authorize the repair
of the Motor Vehicle necessitated by
damage for which the Company may be
liable under this Policy provided that: —
(a) The estimated cost of such repair does
not exceed the Authorized Repair Limit,
(b) A detailed estimate of the cost is
forwarded to the Company without delay”
b. Bayne Adjustment Company’s
recommendation of payment of BBI and
AAPC’s bill and the issuance of SBICI of the
check amounting to PhP2,002.73 indicates
that Mora and Bayne Adjustment acted for
and in representation for the insurance
company.
HELD:
No. The SC held that the arguments of BBI
and AAPC does not have merit and that the cause
of action rest exclusively upon the terms of the
insurance contract. BBI and AAPC sought to
ARELLANO UNIVERSITY SCHOOL OF LAW
recover the insurance proceeds and relied on
paragraph 4 of the insurance contract executed
by and between SBICI and Mora.
“The appellants are not mentioned in the contract
as parties thereto nor is there any clause or
provision thereof from which we can infer that
there is an obligation on the part of the insurance
company to pay the cost of repairs directly to
them. It is fundamental that contracts take effect
only between the parties thereto, except in some
specific instances provided by law where the
contract contains some stipulation in favor of a
third person. Such stipulation is known as
stipulation pour autrui or a provision in favor of a
third person not a pay to the contract. Under this
doctrine, a third person is allowed to avail himself
of a benefit granted to him by the terms of the
contract, provided that the contracting parties
have clearly and deliberately conferred a favor
upon such person. Consequently, a third person
not a party to the contract has no action against
the parties thereto, and cannot generally demand
the enforcement of the same. The question of
whether a third person has an enforceable
interest in a contract, must be settled by
determining whether the contracting parties
intended to tender him such an interest by
deliberately inserting terms in their agreement
with the avowed purpose of conferring a favor
upon such third person. In this connection, this
Court has laid down the rule that the fairest test
to determine whether the interest of a third
person in a contract is a stipulation pour autrui or
merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their
contract. In the instant case the insurance
contract does not contain any words or clauses to
disclose an intent to give any benefit to any
repairmen or materialmen in case of repair of the
car in question. The parties to the insurance
contract omitted such stipulation, which is a
circumstance that supports the said conclusion.
On the other hand, the "loss payable" clause of the
insurance policy stipulates that "Loss, if any, is
payable to H.S. Reyes, Inc." indicating that it was
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

only the H.S. Reyes, Inc. which they intended to

benefit.”

“The SC likewise observe from the brief of SBICI

that it has vehemently opposed the assertion or
pretension of the appellants that they are privy to
the contract. If it were the intention of the
insurance company to make itself liable to the
repair shop or materialmen, it could have easily
inserted in the contract a stipulation to that effect.
To hold now that the original parties to the
insurance contract intended to confer upon the
appellants the benefit claimed by them would
require us to ignore the indespensable requisite
that a stipulation pour autrui must be clearly
expressed by the parties, which we cannot do.

As regards paragraph 4 of the insurance contract,

a perusal thereof would show that instead of
establishing privity between the appellants and
the insurance company, such stipulation merely
establishes the procedure that the insured has to
follow in order to be entitled to indemnity for
repair. This paragraph therefore should not be
construed as bringing into existence in favor of
the appellants a right of action against the
insurance company as such intention can

ARELLANO UNIVERSITY SCHOOL OF LAW Page 23

 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
BANK OF AMERICA v. INTERMEDIATE
APPELLATE COURT, ET AL.
(G.R. No. 74521 November 11, 1986)
FACTS: Private respondent Air Cargo and Travel
Corporation (ACTC) is the owner of Account
Number 19842-01-2 with petitioner Bank of
America (BANKAMERICA). Toshiyuki Minami,
President of ACTC in Japan, is the owner of
Account Number 24506-01-7 with Bank.
On March 10, 1981, the BANKAMERICA received
a tested telex advise from Kyowa Bank of Japan
(KYOWA) stating, “ADVISE PAY USDLS 23,595. —
TO YOUR A/C NBR 24506-01-7 OF A. C. TRAVEL
CORPORATION MR. TOSHIYUKO MINAMI.” Thus,
BANKAMERICA credited the amount of
US$23,595.00 to Account Number 24506-07-1
(should be 24506-01-7) owned by Minami, who
then withdrew P180,000.00 (equivalent of
US$23,595.00) from his account at
BANKAMERICA. Evidently, there was a previous
contractual agreement between KYOWA and
BANKAMERICA that, from time to time, KYOWA
can ask BANKAMERICA to pay amounts to a third
party (beneficiary) with BANKAMERICA
afterwards billing KYOWA the indicated amount
given to the beneficiary.
Accdg to ACTC, Tokyo Tourist Corporation, Japan,
applied with KYOWA for telegraphic transfer of
US$23,595.00 payable to ACTC's account with
BANKAMERICA, Manila. Hence, ACTC claimed
that the amount should have been credited to its
account and demanded restitution, but
BANKAMERICA refused.
ACTC filed suit for damages against
BANKAMERICA and Minami before the RTC for
failure of BANKAMERICA to restitute. Minami was
declared in default. Thereafter, judgment was
rendered against BANKAMERICA and Minami.
Upon appeal, the CA "affirmed in toto, " except
that the dollar-peso rate of ex-change would be
that "at the time of payment."
ARELLANO UNIVERSITY SCHOOL OF LAW
ISSUE:
WON a third party may question the
identity/validity of the beneficiary
of a stipulation pour autrui.
HELD: No, the identity of the beneficiary should
be in accordance with the identification made by
the parties to the contract, and a third party not
privy to said contract cannot question that
identification as it is not a party to the
arrangement.
In this case, the SC noted that the tested telex
originated from KYOWA at the behest of Tokyo
Tourist Corporation with whom ACTC had
business dealings. Minami, on the other hand, was
the liaison officer of ACTC in Japan. As the entity
responsible for the tested telex was Tokyo Tourist
Corporation, it can reasonably be concluded that
if it had intended that the US$23,595.00 should be
credited to ACTC, upon learning that the amount
was credited to Minami, it should have gone,
together with the representatives of ACTC, in
protest to KYOWA and lodged a protest. Since that
was not done, it could well be that Tokyo Tourist
Corporation had really intended its remittance to
be credited to Minami. The identity of the
beneficiary should be in accordance with the
identification made by KYOWA, and ACTC cannot
question that identification as it is not a party to
the arrangement between KYOWA and
BANKAMERICA.
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
MARIMPERIO VS CA
PARAS, J.:
FACTS: In 1964 Philippine Traders Corporation
and Union Import and Export Corporation
entered into a joint business venture for the
purchase of copra from Indonesia for sale in
Europe. Exequiel Toeg of Interocean was
commissioned to look for a vessel and he found
the vessel "SS Paxoi" of Marimperio available.
Philippine and Union authorized Toeg to
negotiate for its charter but with instructions to
keep confidential the fact that they are the real
charterers.
On March 21, 1965, in London England, a
"Uniform Time Charter" for the hire of vessel
"Paxoi" was entered into by the owner,
Marimperio Compania Naviera, S.A. through its
agents N. & J. Vlassopulos Ltd. and Matthews
Wrightson, Burbridge, Ltd. representing
Interocean Shipping Corporation, which was
made to appear as charterer, although it merely
acted in behalf of the real charterers, private
respondents.
On March 30, 1965 plaintiff Charterer cabled a
firm offer to P.T. Karkam. The Charterer was
however twice in default in its payments which
were supposed to have been done in advance.
On April 29, 1965, the shipowners entered into
another charter agreement with another
Charterer, the Nederlansche Stoomvart of
Amsterdam. Meanwhile, the original Charterer
again remitted on April 30, 1965, the amount
corresponding to the 3rd 15-day hire of the vessel
"PAXOI" but this time the remittance was refused.
On May 3, 1965, respondents Union Import and
Export Corporation and Philippine Traders
Corporation filed a complaint with the CFI against
the owners of the Vessel "SS Paxoi" for specific
performance with prayer for preliminary
attachment.
ARELLANO UNIVERSITY SCHOOL OF LAW
On March 16, 1966, respondent Interocean
Shipping Corporation filed a complaint-in-
intervention to collect what it claims to be its loss
of income by way of commission and expenses.
On November 22, 1969 the CFI rendered its
decision in favor of petitioner.
Plaintiffs filed a Motion for Reconsideration
and/or new trial. The trial court reversed its
decision on January 24, 1978.
Petitioner filed a motion for reconsideration
and/or new trial, which the court denied on
September 10, 1970.
On Appeal, the CA affirmed the amended decision
of the lower court except the portion granting
commission to the intervenor- appellee, which it
reversed thereby dismissing the complaint-in-
intervention.
ISSUE: Whether or not respondents have the legal
capacity to bring the suit for specific performance
against petitioner based on the charter party
RULING: According to Article 1311 of the Civil
Code, a contract takes effect between the parties
who made it, and also their assigns and heirs,
except in cases where the rights and obligations
arising from the contract are not transmissible by
their nature, or by stipulation or by provision of
law. Since a contract may be violated only by the
parties, thereto as against each other, in an action
upon that contract, the real parties in interest,
either as plaintiff or as defendant, must be parties
to said contract. Therefore, a party who has not
taken part in it cannot sue or be sued for
performance or for cancellation thereof, unless he
shows that he has a real interest affected thereby.
In the law of agency with an undisclosed
principal, the Civil Code in Article 1883 reads: If
an agent acts in his own name, the principal has
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

no right of action against the persons with whom

the agent has contracted; neither have such
persons against the principal.

In such case the agent is the one directly bound in

favor of the person with whom he has contracted,
as if the transaction were his own, except when
the contract involves things belonging to the
principal.

The provisions of this article shall be understood

to be without prejudice to the actions between the
principal and agent.

While in the instant case, the true charterers of

the vessel were the private respondents herein
and they chartered the vessel through an
intermediary which upon instructions from them
did not disclose their names. Article 1883 cannot
help the private respondents, because although
they were the actual principals in the charter of
the vessel, the law does not allow them to bring
any action against the adverse party and vice,
versa.

ARELLANO UNIVERSITY SCHOOL OF LAW Page 26

 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

DAYWALT v LA CORPORACION DE LOS

PADRES AGUSTINOS RECOLETOS Issue: Whether Recoletos is liable to Daywalt?

Facts: Held: No, it is not liable.

In1902, Teodorica Endencia executed a The stranger who interferes in a contract

contract whereby she obligated herself to convey
to Geo W. Daywalt a 452-hectare parcel of land for
P 4000. They agreed that a deed should be
executed as soon as Endencia’s title to the land
was perfected in the Court of Land Registration
and a Torrens title issued in her name. When the
Torrens title was issued, Endencia found out that
the property measured 1248 hectares instead of
452 hectares, as she initially believed. Because of
this, she became reluctant to transfer the whole
tract to Daywalt, claiming that she never intended
to sell so large an amount and that she had been
misinformed as to its area. Daywalt filed an action
for specific performance. The SC ordered
Endencia to convey the entire tract to Daywalt.
Meanwhile, La Corporacion de los Padres
Agustinos Recoletos (Recoletos), was a religious
corp., w/c owned an estate immediately adjacent
to the property sold by Endencia to Daywalt. It
also happened that Fr. Sanz, the representative of
the Recoletos, exerted some influence and
ascendancy over Endencia, who was a woman of
little force and easily subject to the influence
of other people. Fr. Sanz knew of the existence of
the contracts with Daywalt and discouraged
her from conveying the entire tract.
between other parties cannot become more
extensively liable in damages for the non-
performance of the contract than the party in
whose behalf he intermediates. Hence, in order to
determine the liability of the Recoletos, there is
first a need to consider the liability of Endencia to
Daywalt. The damages claimed by Daywalt from
Endencia cannot be recovered from her, first,
because these are special damages w/c were not
w/in the contemplation of the parties when the
contract was made, and secondly, these damages
are too remote to be the subject of recovery. Since
Endencia is not liable for damages to Daywalt,
neither can the Recoletos be held liable. As
already suggested, by advising Endencia not to
perform the contract, the Recoletos could in no
event render itself more extensively liable than
the principal in the contract.

Daywalt filed an action for damages

against the Recoletos on the ground that it
unlawfully induced Endencia to refrain from the
performance of her contract for the sale of the
land in question and to withhold delivery of the
Torrens title. Daywalt’s claim for damages against
the Recoletos was for the huge sum of P 500,000
[in the year 1919], since he claims that because
of the interference of the Recoletos, she failed to
consummate a contract with another person for
thesale of the property and its conversion into a
sugar mill.

ARELLANO UNIVERSITY SCHOOL OF LAW Page 27

 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
GILCHRIST VS. CUDDY
G.R. No. L-9356 February 18, 1915
Facts:
Cuddy was the owner of the film Zigomar, he
rented it to C. S. Gilchrist for a week for P125, and
it was to be delivered on the 26th of May. A few
days prior to this Cuddy sent the money back to
Gilchrist, which he had forwarded to him in
Manila, saying that he had made other
arrangements with his film. The other
arrangements was the rental to these defendants
Espejo and his partner for P350 for the week and
the injunction was asked by Gilchrist against
these parties from showing it for the week
beginning the 26th of May.
It appears from the testimony in this case,
conclusively, that Cuddy willfully violated his
contract, he being the owner of the picture, with
Gilchrist because the defendants had offered him
more for the same period. Mr. Espejo at the trial
on the permanent injunction on the 26th of May
admitted that he knew that Cuddy was the owner
of the film. He was trying to get it through his
agents Pathe Brothers in Manila. He is the agent
of the same concern in Iloilo. There is in evidence
in this case on the trial today as well as on the
26th of May, letters showing that the Pathe
Brothers in Manila advised this man on two
different occasions not to contend for this film
Zigomar because the rental price was prohibitive
and assured him also that he could not get the film
for about six weeks. The last of these letters was
written on the 26th of April, which showed
conclusively that he knew they had to get this film
from Cuddy and from this letter that the agent in
Manila could not get it, but he made Cuddy an
offer himself and Cuddy accepted it because he
was paying about three times as much as he had
contracted with Gilchrist for. Therefore, in the
opinion of the court, the defendants failed signally
to show the injunction against the defendant was
wrongfully procured.
ARELLANO UNIVERSITY SCHOOL OF LAW
The appellants take the position that if the
preliminary injunction had not been issued
against them they could have exhibited the film in
their theater for a number of days beginning May
26, and could have also subleased it to other
theater owners in the nearby towns and, by so
doing, could have cleared, during the life of their
contract with Cuddy, the amount claimed as
damages.
Thus, an appeal was filed before the Supreme
Court.
Issue:
Were the appellants likewise liable for interfering
with the contract between Gilchrist and Cuddy,
they not knowing at the time the identity of one of
the contracting parties?
Ruling:
Yes. It is said that the ground on which the liability
of a third party for interfering with a contract
between others rests, is that the interference was
malicious. The contrary view, however, is taken
by the Supreme Court of the United States in the
case of Angle vs. Railway Co. (151 U. S., 1). The
only motive for interference by the third party in
that case was the desire to make a profit to the
injury of one of the parties of the contract. There
was no malice in the case beyond the desire to
make an unlawful gain to the detriment of one of
the contracting parties.
In the case at bar the only motive for the
interference with the Gilchrist — Cuddy contract
on the part of the appellants was a desire to make
a profit by exhibiting the film in their theater.
There was no malice beyond this desire; but this
fact does not relieve them of the legal liability for
interfering with that contract and causing its
breach. It is, therefore, clear, under the above
authorities, that they were liable to Gilchrist for
the damages caused by their acts, unless they are
relieved from such liability by reason of the fact
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

that they did not know at the time the identity of

the original lessee (Gilchrist) of the film.

The liability of the appellants arises from

unlawful acts and not from contractual
obligations, as they were under no such
obligations to induce Cuddy to violate his contract
with Gilchrist. So that if the action of Gilchrist had
been one for damages, it would be governed by
chapter 2, title 16, book 4 of the Civil Code. Article
1902 of that code provides that a person who, by
act or omission, causes damages to another when
there is fault or negligence, shall be obliged to
repair the damage do done. There is nothing in
this article which requires as a condition
precedent to the liability of a tort-feasor that he
must know the identity of a person to whom he
causes damages. In fact, the chapter wherein this
article is found clearly shows that no such
knowledge is required in order that the injured
party may recover for the damage suffered.

The Supreme Court affirmed the decision of the

trial court.

ARELLANO UNIVERSITY SCHOOL OF LAW Page 29

 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
SO PING BUN vs. COURT OF APPEALS
G.R. No. 120554. September 21, 1999,
QUISUMBING, J.:
Facts: In 1963, Tek Hua Trading Co, through its
managing partner, So Pek Giok, entered into lease
agreements with lessor Dee C. Chuan & Sons Inc.
(DCCSI). Subjects of four (4) lease contracts were
premises located at Nos. 930, 930-Int., 924-B and
924-C, Soler Street, Binondo, Manila. Tek Hua
used the areas to store its textiles. The contracts
each had a one-year term. They provided that
should the lessee continue to occupy the premises
after the term, the lease shall be on a month-to-
month basis.
When the contracts expired, the parties did not
renew the contracts, but Tek Hua continued to
occupy the premises. In 1976, Tek Hua Trading
Co. was dissolved. Later, the original members of
Tek Hua Trading Co. including Manuel C. Tiong,
formed Tek Hua Enterprising Corp., herein
respondent corporation.So Pek Giok, managing
partner of Tek Hua Trading, died in 1986. So Pek
Gioks grandson, petitioner So Ping Bun, occupied
the warehouse for his own textile business,
Trendsetter Marketing.
On August 1, 1989, lessor DCCSI sent letters
addressed to Tek Hua Enterprises, informing the
latter of the 25% increase in rent effective
September 1, 1989. The rent increase was later on
reduced to 20% effective January 1, 1990, upon
other lessees demand. Again on December 1,
1990, the lessor implemented a 30% rent
increase. Enclosed in these letters were new lease
contracts for signing. DCCSI warned that failure of
the lessee to accomplish the contracts shall be
deemed as lack of interest on the lessees part, and
agreement to the termination of the lease. Private
respondents did not answer any of these letters.
Still, the lease contracts were not rescinded until
the respondent send a notice to vacate to the
petitioner however Petitioner refused to vacate.
On March 4, 1992, petitioner requested formal
ARELLANO UNIVERSITY SCHOOL OF LAW
contracts of lease with DCCSI in favor Trendsetter
Marketing. So Ping Bun claimed that after the
death of his grandfather, So Pek Giok, he had been
occupying the premises for his textile business
and religiously paid rent. DCCSI acceded to
petitioners request.
Issue: Whether So Ping Bun is guilty of tortuous
interference of contract.
Held: Yes, The elements of tort interference are:
(1) existence of a valid contract; (2) knowledge on
the part of the third person of the existence of
contract; and (3) interference of the third person
is without legal justification or excuse.
Damage is the loss, hurt, or harm which results
from injury, and damages are the recompense or
compensation awarded for the damage
suffered.[6] One becomes liable in an action for
damages for a nontrespassory invasion of
anothers interest in the private use and
enjoyment of asset if (a) the other has property
rights and privileges with respect to the use or
enjoyment interfered with, (b) the invasion is
substantial, (c) the defendants conduct is a legal
cause of the invasion, and (d) the invasion is
either intentional and unreasonable or
unintentional and actionable under general
negligence rules.
A duty which the law of torts is concerned with is
respect for the property of others, and a cause of
action ex delicto may be predicated upon an
unlawful interference by one person of the
enjoyment by the other of his private property.
This may pertain to a situation where a third
person induces a party to renege on or violate his
undertaking under a contract. In the case before
us, petitioners Trendsetter Marketing asked
DCCSI to execute lease contracts in its favor, and
as a result petitioner deprived respondent
corporation of the latters property right. Clearly,
and as correctly viewed by the appellate court,
the three elements of tort interference above-
mentioned are present in the instant case.
Page 30
 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
PENTACAPITAL INVESTMENT CORPORATION,
Vs. MAKILITO B. MAHINAY,
G.R. No. 171736
Justice Nachura, ponente
Dispositive portion:
WHEREFORE, premises considered, the petitions
are hereby GRANTED. The Decisions and
Resolutions of the Court of Appeals dated
December 20, 2005 and March 1, 2006, in CA-G.R.
SP No. 74851, and October 4, 2007 and January
21, 2008, in CA-G.R. CV No. 86939, are REVERSED
and SET ASIDE.
Respondent Makilito B. Mahinay is ordered to pay
petitioner Pentacapital Investment
Corporation P1,936,800.00 plus 12% interest per
annum, and 12% per annum penalty charge,
starting February 17, 1997. He is likewise
ordered to pay 10% of his outstanding obligation
as attorney’s fees. No pronouncement as to costs.
Facts:
Petitioner filed a complaint for a sum of money
against respondent Makilito Mahinay based on
two separate loans obtained by the latter,
amounting to P1,520,000.00 and P416,800.00, or
a total amount of P1,936,800.00. These loans
were evidenced by two promissory
notes dated February 23, 1996. Despite repeated
demands, respondent failed to pay the loans,
hence, the complaint.
In his Answer with Compulsory
Counterclaim, respondent claimed that petitioner
had no cause of action because the promissory
notes on which its complaint was based were
subject to a condition that did not occur. While
admitting that he indeed signed the promissory
notes, he insisted that he never took out a loan
and that the notes were not intended to be
evidences of indebtedness. By way of
counterclaim, respondent prayed for the payment
ARELLANO UNIVERSITY SCHOOL OF LAW
of moral and exemplary damages plus attorney’s
fees.
Respondent explained that he was the counsel of
Ciudad Real Development Inc. (CRDI). In 1994,
Pentacapital Realty Corporation (Pentacapital
Realty) offered to buy parcels of land known as
the Molino Properties, owned by CRDI, located in
Molino, Bacoor, Cavite. The Molino Properties,
with a total area of 127,708 square meters, were
sold atP400.00 per sq m. As the Molino Properties
were the subject of a pending case, Pentacapital
Realty paid only the down payment amounting
to P12,000,000.00. CRDI allegedly instructed
Pentacapital Realty to pay the formers creditors,
including respondent who thus received a check
worth P1,715,156.90. It was further agreed that
the balance would be payable upon the
submission of an Entry of Judgment showing that
the case involving the Molino Properties had been
decided in favor of CRDI.
Respondent, Pentacapital Realty and CRDI
allegedly agreed that respondent had a charging
lien equivalent to 20% of the total consideration
of the sale in the amount of P10,277,040.00.
Pending the submission of the Entry of Judgment
and as a sign of good faith, respondent
purportedly returned the P1,715,156.90 check to
Pentacapital Realty. However, the Molino
Properties continued to be haunted by the
seemingly interminable court actions initiated by
different parties which thus prevented
respondent from collecting his commission.
Issue: Whether or not respondent is bound by
the promissory notes.
Held:
To ascertain whether or not respondent is bound
by the promissory notes, it must be established
that all the elements of a contract of loan are
present. Like any other contract, a contract of loan
is subject to the rules governing the requisites
and validity of contracts in general. It is
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
elementary in this jurisdiction that what
determines the validity of a contract, in general, is
the presence of the following elements: (1)
consent of the contracting parties; (2) object
certain which is the subject matter of the contract;
and (3) cause of the obligation which is
established.
In this case, respondent denied liability on the
ground that the promissory notes lacked
consideration as he did not receive the proceeds
of the loan.
Under Article 1354 of the Civil Code, it is
presumed that consideration exists and is lawful
unless the debtor proves the contrary. Moreover,
under Section 3, Rule 131 of the Rules of Court,
the following are disputable presumptions: (1)
private transactions have been fair and regular;
(2) the ordinary course of business has been
followed; and (3) there was sufficient
consideration for a contract. A presumption may
operate against an adversary who has not
introduced proof to rebut it. The effect of a legal
presumption upon a burden of proof is to create
the necessity of presenting evidence to meet the
legal presumption or the prima facie case created
thereby, and which, if no proof to the contrary is
presented and offered, will prevail. The burden of
proof remains where it is, but by the presumption,
the one who has that burden is relieved for the
time being from introducing evidence in support
of the averment, because the presumption stands
in the place of evidence unless rebutted.
In the present case, as proof of his claim of lack of
consideration, respondent denied under oath that
he owed petitioner a single centavo. He added
that he did not apply for a loan and that when he
signed the promissory notes, they were all blank
forms and all the blank spaces were to be filled up
only if the sale transaction over the subject
properties would not push through because of a
possible adverse decision in the civil cases
involving them (the properties). He thus posits
ARELLANO UNIVERSITY SCHOOL OF LAW
that since the sale pushed through, the
promissory notes did not become effective.
Contrary to the conclusions of the RTC and the CA,
we find such proof insufficient to overcome the
presumption of consideration. The presumption
that a contract has sufficient consideration cannot
be overthrown by the bare, uncorroborated and
self-serving assertion of respondent that it has no
consideration. The alleged lack of consideration
must be shown by preponderance of evidence.
As it now appears, the promissory notes clearly
stated that respondent promised to pay
petitioner P1,520,000.00 and P416,800.00, plus
interests and penalty charges, a year after their
execution. Nowhere in the notes was it stated that
they were subject to a condition. As correctly
observed by petitioner, respondent is not only a
lawyer but a law professor as well. He is,
therefore, legally presumed not only to exercise
vigilance over his concerns but, more
importantly, to know the legal and binding effects
of promissory notes and the intricacies involving
the execution of negotiable instruments including
the need to execute an agreement to document
extraneous collateral
conditions and/or agreements, if truly there wer
e such. This militates against respondents claim
that there was indeed such an agreement. Thus,
the promissory notes should be accepted as they
appear on their face.
Respondents liability is not negated by the fact
that he has uncollected commissions from the
sale of the Molino properties. As the records of the
case show, at the time of the execution of the
promissory notes, the Molino properties were
subject of various court actions commenced by
different parties. Thus, the sale of the properties
and, consequently, the payment of respondent’s
commissions were put on hold. The non-payment
of his commissions could very well be the reason
why he obtained a loan from petitioner.
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CONTRACTS PART I

A promissory note is a solemn acknowledgment

of a debt and a formal commitment to repay it on
the date and under the conditions agreed upon by
the borrower and the lender. A person who signs
such an instrument is bound to honor it as a
legitimate obligation duly assumed by him
through the signature he affixes thereto as a token
of his good faith. If he reneges on his promise
without cause, he forfeits the sympathy and
assistance of this Court and deserves instead its
sharp repudiation.
Aside from the payment of the principal
obligation of P1,936,800.00, the parties agreed
that respondent pay interest at the rate of 25%
from February 17, 1997 until fully paid. Such rate,
however, is excessive and thus, void. Since the
stipulation on the interest rate is void, it is as if
there was no express contract thereon. To be
sure, courts may reduce the interest rate as
reason and equity demand. In this case, 12%
interest is reasonable.
Lastly, respondent promised to pay 25% of his
outstanding obligations as attorney’s fees in case
of non-payment thereof. Attorney’s fees here are
in the nature of liquidated damages. As long as
said stipulation does not contravene law, morals,
or public order, it is strictly binding upon
respondent. Nonetheless, courts are empowered
to reduce such rate if the same is iniquitous or
unconscionable pursuant to the above-quoted
provision. This sentiment is echoed in Article
2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended
as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.

The promissory notes likewise required the

payment of a penalty charge of 3% per month or
36% per annum. We find such rates
unconscionable. This Court has recognized a
penalty clause as an accessory obligation which
the parties attach to a principal obligation for the
purpose of ensuring the performance thereof by
imposing on the debtor a special prestation
(generally consisting of the payment of a sum of
money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled. However, a
penalty charge of 3% per month is
unconscionable; hence, we reduce it to 1% per
month or 12% per annum, pursuant to Article
1229 of the Civil Code which states:

Art. 1229. The judge shall equitably reduce the

penalty when the principal obligation has been
partly or irregularly complied with by the
debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is
iniquitous or unconscionable.

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CONTRACTS PART I

C&C vs MENOR clearance certificate. It had a pending tax case in

AQUINO, J.:
FACTS: Judge Cloribel of the Court of First
Instance of Manila in his decision dated March 1,
1967 in Civil Case No. 66750, a mandamus case,
ordered the Acting General Manager of the
National Waterworks and Sewerage Authority
and the members of the Committee on Pre-
Qualification to allow C & C Commercial
Corporation to participate as a qualified bidder in
the public bidding for the supply of asbestos
cement pressure pipes to the Nawasa in spite of
the fact that it had a pending tax case and had no
tax clearance certificate.
By virtue of that judgment, which became final
because the Nawasa did not appeal, C & C
Commercial Corporation took part in the bidding.
When the bids were opened on May 18, 1967, it
was found to be the lowest bidder.
the Bureau of Internal Revenue. The award to C &
C Commercial Corporation would be in gross
contravention of Administrative Order No. 66.
The trial court erred in holding that
Administrative Order No. 66 could not be given a
retroactive effect to the bid of C & C, in spite of its
pending tax case.
A bidder whose bid is rejected has no cause for
complaint nor a right to dispute the award to
another bidder (Esguerra & Sons vs. Aytona, 114
Phil. 1189; Surigao Mineral Reservation Board vs.
Cloribel, L-27072, July 31, 1968, 24 SCRA 491).
It should be noted that "advertisements for
bidders are simply invitations to make proposals,
and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary
appears" (Art. 1326, Civil Code). No such contrary
intention appears in this case.

In a letter dated July 25, 1967, Antonio C. Menor,

the acting general manager of the Nawasa,
required C & C Commercial Corporation to submit
the tax clearance certificate required in
Presidential Administrative Order No. 66 dated
June 26, 1967. Menor said that the requirement as
to the tax clearance certificate was mandatory as
held by the Government Corporate Counsel in his
Opinion No. 159, Series of 1967. C & C Commercial
Corporation filed another action to enjoin the
award and implementation of the contract to
another party.

ISSUE/S:Whether or not C & C Commercial

Corporation should be allowed to take part in the
bidding even if it had no tax clearance certificate.

RULING: The court ruled in the negative . Nawasa

was justified in not awarding the contract to C &
C Commercial Corporation because it had no tax

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
CARIÑO VS CA
PADILLA, J.:
Facts: On 22 January 1954, Pablo Encabo applied
with the Bureau of Lands to purchase a parcel of
land purchased by the government pursuant to
Commonwealth Act No. 539.
Thereafter, Encabo, through petitioner Cirila
Vicencio, supposedly as "agent" entered into an
agreement with Josue Quesada transferring rights
over the lot to the latter, provided it is approved
by the Land Tenure Administration (LTA). The
transfer of rights by Encabo to Quesada was not
put in writing but payment of the price for the
rights transferred was evidenced by receipts on
which Cirila Vicencio signed as a witness.
Unaware of the transfer of rights by Encabo to
Quesada, LTA adjudicated the lot in favor of
Encabo. LTA later came to know about the
"transfer" of rights, it disapproved the same on
the ground that Quesada was not qualified to
acquire the lot because he is already a lot
owner. However, before the LTA's disapproval of
the transfer, the Quesada had entered into
possession of the lot and also allowed Cirila
Vicencio to enter into possession and occupancy.
In November 1958, Encabo executed a Deed of
Sale of House and Transfer of Rights purportedly
conveying to herein petitioners (Juanito Cariño
and Cirila Vicencio), his rights over the lot. Juanito
Cariño filed a petition with the LTA seeking
approval of the transfer on the basis of the Deed
of Sale of House and Transfer of Rights executed
by Pablo Encabo. Pablo Encabo objected and filed
an Answer in opposition thereto. Essentially, both
parties (Encabo and the spouses Cariño) claimed
the right to purchase the lot in question from the
LTA.
Issue: WON the Deed of Sale on which the
petitioners have based their application (to
purchase) over the questioned lot, is simulated
and, therefore, an inexistent deed of sale.
ARELLANO UNIVERSITY SCHOOL OF LAW
Held: Yes. This Court finds that there is
substantial and convincing evidence that it was a
simulated deed of sale and transfer of rights. The
characteristic of simulation is the fact that the
apparent contract is not really desired or
intended to produce legal effects nor in any way
alter the judicial situation of the parties. Under
the circumstances surrounding their transaction,
the parties knew that the document was at once
fictitious and simulated where none of the parties
intended to be bound thereby.
There is merit to the Encabos' claim that the
simulated deed of sale in favor of the Cariños was
executed in order to protect the money Quesada
invested in the purchase of the rights to the lot in
question, which transfer of said lot to his name
was later on disapproved by the LTA. As can be
gleaned from the testimony of Josue Quesada, he
did this by putting Cirila Vicencio as the vendee in
the stipulated Deed of Sale, when in fact, Encabo
and Quesada meant her only as a dummy for the
latter. To this effect Quesada testified, despite the
warning given to him by the court that his
statement might incriminate him.
Contracts of sale are void and produce no effect
whatsoever where the price, which appears
therein as paid, has in fact never been paid by the
vendee to the vendor. A sale of land without
consideration, but intended merely to protect a
party to a joint venture for the cash advances he
was to make for the realty subdivision that the
parties wanted to put up, is null and void. 24 The
law is clear on this matter. The Civil Code
provides:
Art. 1409. The following contracts are
inexistent and void from the beginning:
xxx xxx xxx
(2) Those which are absolutely simulated
or fictitious;
xxx xxx xxx
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These contracts cannot be ratified. Neither

can the right to set up the defense of
illegality be waived.

The ownership of the lot by the Cariños is still

contingent on the approval of the LTA upon their
compliance with all the requirements of the latter.
Since no approval or due course has yet been
given by the LTA or LA to such transfer of rights,
the document is not enforceable against the latter.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
LIAM LAW, vs. OLYMPIC SAWMILL CO. and
ELINO LEE CHI
PONENTE: MELENCIO-HERRERA, J.:
FACTS:
On or about September 7, 1957, plaintiff loaned
P10,000.00, without interest, to defendant
partnership and defendant Elino Lee Chi, as the
managing partner. The loan became ultimately
due on January 31, 1960, but was not paid on that
date, with the debtors asking for an extension of
three months, or up to April 30, 1960.
On March 17, 1960, the parties executed another
loan document. Payment of the P10,000.00 was
extended to April 30, 1960, but the obligation was
increased by P6,000.00 as follows:
That the sum of SIX THOUSAND PESOS
(P6,000.00), Philippine currency shall form part
of the principal obligation to answer for
attorney's fees, legal interest, and other cost
incident thereto to be paid unto the creditor and
his successors in interest upon the termination of
this agreement.
Defendants again failed to pay their obligation by
April 30, 1960 and, on September 23, 1960,
plaintiff instituted this collection case.
Defendants admitted the P10,000.00 principal
obligation, but claimed that the additional
P6,000.00 constituted usurious interest.
Upon application of plaintiff, the Trial Court
issued, on the same date of September 23, 1960, a
writ of Attachment on real and personal
properties of defendants located at Karanglan,
Nueva Ecija. After the Writ of Attachment was
implemented, proceedings before the Trial Court
versed principally in regards to the attachment.
On January 18, 1961, an Order was issued by the
Trial Court stating that "after considering the
manifestation of both counsel in Chambers, the
Court hereby allows both parties to
simultaneously submit a Motion for Summary
Judgment. 1 The plaintiff filed his Motion for
Summary Judgment on January 31, 1961, while
defendants filed theirs on February 2, 196l.
ARELLANO UNIVERSITY SCHOOL OF LAW
RTC’S DECISION
On June 26, 1961, the Trial Court rendered
decision ordering defendants to pay plaintiff "the
amount of P10,000.00 plus the further sum of
P6,000.00 by way of liquidated damages . . . with
legal rate of interest on both amounts from April
30, 1960." It is from this judgment that
defendants have appealed.
CA’S DECISION
AFFIRMED RTC DECISION
ISSUE: whether the agreement of the parties
relative to the P6,000.00 obligation is presumed
that it exists and lawful
HELD:
We have decided to affirm.
Under Article 1354 of the Civil Code, in regards to
the agreement of the parties relative to the
P6,000.00 obligation, "it is presumed that it exists
and is lawful, unless the debtor proves the
contrary". No evidentiary hearing having been
held, it has to be concluded that defendants had
not proven that the P6,000.00 obligation was
illegal. Confirming the Trial Court's finding, we
view the P6,000.00 obligation as liquidated
damages suffered by plaintiff, as of March 17,
1960, representing loss of interest income,
attorney's fees and incidentals.
The main thrust of defendants' appeal is the
allegation in their Answer that the P6,000.00
constituted usurious interest. They insist the
claim of usury should have been deemed
admitted by plaintiff as it was "not denied
specifically and under oath". 3
Section 9 of the Usury Law (Act 2655) provided:
SEC. 9. The person or corporation sued shall file
its answer in writing under oath to any complaint
brought or filed against said person or
corporation before a competent court to recover
the money or other personal or real property,
seeds or agricultural products, charged or
received in violation of the provisions of this Act.
The lack of taking an oath to an answer to a
complaint will mean the admission of the facts
contained in the latter.
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The foregoing provision envisages a complaint

filed against an entity which has committed
usury, for the recovery of the usurious interest
paid. In that case, if the entity sued shall not file
its answer under oath denying the allegation of
usury, the defendant shall be deemed to have
admitted the usury. The provision does not apply
to a case, as in the present, where it is the
defendant, not the plaintiff, who is alleging usury.
Moreover, for sometime now, usury has been
legally non-existent. Interest can now be charged
as lender and borrower may agree upon. 4 The
Rules of Court in regards to allegations of usury,
procedural in nature, should be considered
repealed with retroactive effect.
FALLO:
WHEREFORE, the appealed judgment is hereby
affirmed, without pronouncement as to costs.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
LAO SOK VS SABAYSABAY
G.R. No. L-61898 August 9, 1985 (Penned by:
GUTIERREZ, JR., J.:
This is a petition for review which seeks to set
aside for grave abuse of discretion the decision of
the National Labor Relations Commission dated
June 21, 1982 affirming the decision of Labor
Arbiter Apolonio L. Reyes ordering the petitioner
to pay the private respondents their separation
pay.
FACTS:
Petitioner Lao Sok was the owner and operator of
Shelton Department Store at Carriedo Street,
Quiapo, Manila and private respondents Lydia
Sabaysabay, Amparo Mangulat, Rosita Salviejo,
Nenita Ruinata, Vilma Capillo and Virginia
Sanorjo were all salesladies each earning P14.00
daily. On October 12, 1980, petitioner's store was
razed by fire. He did not report the loss of jobs as
result of the store burning to the Ministry of
Labor. He also promised them 1) transfer to
another dept. store but promise was not fulfilled,
2) give separation pay and other benefits upon
insurance collection from the fire razing, which
respondents accepted. Upon insurance collection,
they were neither paid nor re-hired in other
stores.On May 14, 1981, the private respondents
filed a complaint with the Ministry of Labor and
Employment charging the petitioner with illegal
dismissal and non-payment of their separation
pay, allowance and incentive leave pay.On July 23,
1981, Labor Arbiter (“LA”) Apolonio L. Reyes
rendered decision based on position papers
ordering petitioner to pay separation pay
equivalent to 1month per year of service at legal
rate of interest in the event of refusal. Other
issues were dismissed under res judicata. On Oct.
2, 1981, petitioner appealed on the NLRC, which
affirmed the LA decision and dismissed the
appeal and also denied the MR, hence this petition
for review.
ARELLANO UNIVERSITY SCHOOL OF LAW
ISSUE: The issue in this case is whether or not
petitioner Lao Sok is obligated to pay the private
respondents' separation pay.
HELD: The petitioner contends that under the
Labor Code, he is not required to give separation
pay for failing to make a report about the fire and
the dismissal of his employees which does not
need prior clearance. Compliance with rules is
only an administrative matter and the failure to
make a report does not make the dismissal illegal
per se, but only subjects him to administrative
penalties.However, the petitioner's obligation
to pay severance compensation is not based
on his failure to make a report or to ask for a
prior clearance. Under the Labor Code,
prescribed separation pay is called for whenever
there is a reduction of personnel caused by the
closure of an establishment. The department
store ceased operations not due to the fault of the
employer due to fire (fortuitous event), BUT his
acts after are equally deplorable as termination
w-o just cause. There is a need to alleviate their
plight of job loss and they were even given the run
around of unfulfilled promises (separation pay
and re-hiring in other dept. store).
Issue pertaining to Contracts under Special
Form of Contracts: Whether contract is
unenforceable under Statute of Frauds for
being an oral contract.
The Solicitor General affirmed the NLRC acted
properly in ordering petitioner to pay separation
pay as he was bound to comply with his
contractual obligations to the respondents. The
SolGen ALSO explained that this promise is not a
mere promise BUT A CONTRACT. because all the
essential requisites of a valid contract are
present, to wit: (1) consent was freely given by
the parties, (2) there was a subject matter, which
is the payment of the separation pay of private
respondents, and (3) a cause, which is the loss of
job of private respondents who had been
petitioner's salesladies for several years
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Lao Sok made an offer which was duly accepted
by the private respondents. There was, therefore,
a meeting of the minds between two parties
whereby one bound himself with respect to the
other, to give something or to render some
service (Article 1305, Civil Code). By the
unconditional acceptance of the offer that they
would be paid separation pay, a contract was
therefore perfected. Petitioner contends that the
contract though orally made is unenforceable
since it does not comply with the Statute of
Frauds.
agreement alleged in the amended
complaint in the present case can
be enforced even if it may not be in
writing.
The requirement of writing for the offer made by
Lao Sok is only for convenience and not
enforceability. In fact, the petitioner could be
compelled to put the offer in writing, a step no
longer necessary now because of this petition.

HELD: NO. Contracts in whatever form they

may have been entered into are binding on the
parties unless form is essential for the validity
and enforceability of that particular contract.

xxx xxx xxx

... Whether the agreement is in

writing or not is a question of
evidence. Nevertheless, even
granting that the agreement is not
in writing, this circumstance does
not militate against the validity or
enforceability of said agreement,
because contracts are binding upon
the parties in whatever form they
may have been entered into unless
the law requires otherwise. (Article
1356, Civil Code; Lopez v. The
Auditor General, et al., L-25859,
July 13, 1967; Pilar Gil Vdan de
Murciano v. The Auditor General, et
al., 103 Phil. 907). It is true that
Article 1358 of the Civil Code
provides that contracts involving
more than P500.00 must appear in
writing, but nothing is said therein
that such requirement is necessary
for their validity or enforceability.
It has been held that the writing
required under Article 1358 is
merely for convenience and so the

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
MELITON GALLARDO vs. IAC
G.R. No. L-67742 October 29, 1987
PARAS, J.:
FACTS: This is a petition for review on certiorari
seeking to set aside or reverse the decision * of
the Intermediate Appellate Court promulgated on
May 22, 1984 in AC-G.R. CV No. 69946 entitled
Meliton Gallardo and Teresa Villanueva v. Marta
Villanueva vda. de Agana, et al. affirming the
decision ** of the Court of First Instance of Laguna
8th Judicial District, Branch II, Sta. Cruz, Laguna
dated January 20, 1982, which dismissed the
complaint for Quieting of Title in Civil Case No. SC-
1492 and declared the plaintiff's (petitioner's
herein) Re-constituted Transfer Certificate of
Title RT-6293 (No. 23350) as null and void.
The subject matter of this controversy involves a
parcel of land situated in Cavinti, Laguna
consisting of 81,300 square meters, more or less,
initially covered by an original Certificate of Title
No. 2262, issued on April 2, 1924 owned and
registered in the name of the late Pedro.
Petitioners were nephew and niece of the late
Pedro Villanueva and first cousin of the private
respondent Marta Villanueva vda. de Agana, the
latter being the daughter of Pedro Villanueva.
On August 10, 1937, petitioner claimed that the
aforestated land was sold to them in a private
document, an unnotarized deed of sale written in
Tagalog that was allegedly signed by the late
Pedro Villanueva conveying and transfering the
property in question in favor of the petitioners.
Subsequently, the Original Certificate of Title was
cancelled on the basis of the private document of
sale (Exhibit "B") and a new certificate of title was
issued in the name of the petitioners covered by
Transfer Certificate of Title No. RT- 6293 (No.
23350) on January 4, 1944.
During the Second World War, the records as well
as the Office of the Register of Deeds of Laguna,
ARELLANO UNIVERSITY SCHOOL OF LAW
where the original of their new transfer
certificate of title was kept, were completely
burned. Accordingly, by virtue of an Affidavit of
Reconstitution dated December 2, 1958 and upon
presentation of the Owner's Duplicate Certificate
of Title, the title was administratively
reconstituted and the Register of Deeds of Laguna
issued Transfer Certificate of Title No. RT-6293
(No. 23350) in the name of the petitioners.
On November 17, 1976, defendant Marta
Villanueva together with Pedro Villanueva, Jr.,
and Restituto R. Villanueva executed and filed an
Affidavit of Adverse Claim with the Office of the
Register of Deeds of Laguna. However, on
December 6, 1976 a joint affidavit was filed by
Pedro G. Villanueva, Jr. and Restituto Villanueva
withdrawing their adverse claim on the said
parcel of land, with the Office of the Register of
Deeds of Laguna
.
When petitioners learned of this Affidavit of
Adverse Claim, attempt was made to settle said
controversy amicably. Several demands made by
herein petitioners upon private respondents
Marta Vda. de Agana to withdraw her adverse
claim, failed.
On December 9, 1976, said private respondent
executed a Deed of Conveyance and Release of
Claim wherein the parties agreed, among other
things, to the following:
That in consideration of the said
transfer and conveyance over a
1,000 square meter portion
mentioned in the next preceding
paragraph, the VENDEE (Marta V.
Agana) does hereby withdraw the
adverse claim mentioned above.
However, when private respondent Marta
Villanueva vda. de Agana refused to sign an
Affidavit of Quit-claim, petitioners instituted
court suit against the private respondent and her
husband, Dr. Marcelo S. Agana, Sr. by filing a
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complaint for Quieting of Title and Damages with
the Court of First Instance of Laguna on February
3, 1977, demanding that their title over the
questioned land be fortified by a declaration of
ownership in their favor and avoiding the
aforecited Deed of Conveyance and Release of
Claim. Accordingly, private respondents in their
answer countered that the Deed of Sale in Tagalog
and petitioners' title over the land be declared
void ab initio, among other demands
. appellants' reliance on Article 1356
On January 20, 1982, the Court of First Instance of
Laguna rendered its decision declaring the deed
of sale of August 10, 1937, as well as the
reconstituted transfer certificate of title of
petitioners, void ab initio.
ISSUE: WHETHER AN UNNOTARIZED DEED OF
SALE ON A PARCEL OF LAND CAN BE
CONSIDERED A VALID INSTRUMENT TO
TRANSFER OWNERSHIP
The crux of the matter now centers on whether or
not the unnotarized deed of sale purportedly
executed on August 10, 1937 by the primitive
owner Pedro Villanueva, in favor of petitioners,
can be considered as a valid instrument for
effecting the alienation by way of sale of a parcel
of land registerd under the Torrens System.
Corollary thereto, it becomes necessary to
examine other matters surrounding the execution
of the alleged document of sale.
Petitioners claim that the sale although not in a
public document, is nevertheless valid and
binding citing this Court's rulings in the cases of
Cauto v. Cortes, 8 Phil. 459, 460; Guerrero v.
Miguel, 10 Phil. 52, 53; Bucton v. Gabar 55 SCRA
499 wherein this Court ruled that even a verbal
contract of sale of real estate produces legal
effects between the parties. The contention is
unmeritorious.
As the respondent court aptly stated in its
decision:
ARELLANO UNIVERSITY SCHOOL OF LAW
True, as argued by appellants, a
private conveyance of registered
property is valid as between the
parties. However, the only right the
vendee of registered property in a
private document is to compel
through court processes the
vendor to execute a deed of
conveyance sufficient in law for
purposes of registration. Plaintiffs-
of the Civil Code is unfortunate. The
general rule enunciated in said Art.
1356 is that contracts are
obligatory, in whatever form they
may have been entered, provided
all the essential requisites for their
validity are present. The next
sentence provides the exception,
requiring a contract to be in some
form when the law so requires for
validity or enforceability. Said law
is Section 127 of Act 496 which
requires, among other things, that
the conveyance be executed
"before the judge of a court of
record or clerk of a court of record
or a notary public or a justice of the
peace, who shall certify such
acknowledgment substantially in
form next hereinafter stated."
Such law was violated in this case.
The action of the Register of Deeds
of Laguna in allowing the
registration of the private deed of
sale was unauthorized and did not
lend a bit of validity to the defective
private document of sale.
With reference to the special law, Section 127 of
the Land Registration Act, Act 496 (now Sec. 112
of P.D. No. 1529) provides:
Sec. 127. Deeds of Conveyance, ...
affecting lands, whether registered
under this act or unregistered shall
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CONTRACTS PART I
be sufficient in law when made
substantially in accordance with
the following forms, and shall be as
effective to convey, encumber, ... or
bind the lands as though made in
accordance with the more prolix
forms heretofore in use: Provided,
That every such instrument shall
be signed by the person or persons
executing the same, in the presence
of two witnesses, who shall sign the
instrument as witnesses to the
execution thereof, and shall be
acknowledged to be his or their free
act and deed by the person or
persons executing the same, before
the judge of a court of record or
clerk of a court of record, or a notary
public, or a justice of the peace, who
shall certify to such
acknowledgement substantially in
the form next hereinafter stated.
(Emphasis supplied).
It is therefore evident that Exhibit " E " in the case
at bar is definitely not registerable under the
Land Registration Act.
Likewise noteworthy is the case of Pornellosa and
Angels v. Land Tenure Administration and Guzman,
110 Phil. 986, where the Court ruled:
The deed of sale (Exhibit A),
allegedly executed by Vicente San
Jose in favor of Pornellosa is a mere
private document and does not
conclusively establish their right to
the parcel of land. WhiIe it is valid
and binding upon the parties with
respect to the sale of the house
erected thereon, yet it is not
sufficient to convey title or any
right to the residential lot in
litigation. Acts and contracts which
have for their object the creation,
transmission, modification or
ARELLANO UNIVERSITY SCHOOL OF LAW
extinguishment of real rights over
immovable property must appear
in a public document.
Upon consideration of the facts and
circumstances surrounding the execution of the
assailed document, the trial court found that said
private document (Exhibit "B") was null and void
and that it was signed by somebody else not
Pedro Villanueva. Such findings of fact besides
being based on the records, were sustained by the
Court of Appeals.
The contention that ownership over registered
property may be acquired by prescription or
adverse possession is absolutely without merit.
No title to registered land in derogation of that of
the registered owner shall be acquired by
prescription or adverse possession. Prescription
is unavailing not only against the registered
owner but also against his hereditary successors
(Umbay vs. Alecha, 135 SCRA 427 [1985]). The
right to recover possession of registered land is
imprescriptible because possession is a mere
consequence of ownership (Umbay vs. Alecha,
supra, citing Atun v. Nuñuz 97 Phil. 762; Manlapas
and Tolentino v. Llorente, 48 Phil. 298, 308: J.M.
Tuazon & Co., Inc. v. Aguirre, 117 Phil. 110, 113-
114) where land has been registered under the
Torrens System (Alarcon v. Bidin, 120 SCRA 390;
Umbay v. Alecha, supra) because the efficacy and
integrity of the Torrens System must be protected
(Director of Lands v. CA, 120 SCRA 370). As
prescription is rightly regarded as a statute of
repose whose objective is to suppress fraudulent
and stale claims from springing up at great
distances of time and suprising the parties or
their representatives when the facts have become
obscure from the lapse of time or the defective
memory or death or removal of witnesses (
Senoan v. Sorongon, 136 SCRA 407 [1985]).
In the matter of laches, the Court aptly stated in
the case of Marcelo Sotto v. Pilar Teves, et al., 86
SCRA 155 [1978] that "in determining whether a
delay in seeking to enforce a right constitutes
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laches, the existence of a confidential relationship

between the parties is an important circumstance
for consideration. A delay under such
circumstance is not as strictly regarded as where
the parties are strangers to each other. The
doctrine of laches is not strictly applied between
near relatives, and the fact that the parties are
connected by ties of blood or marriage tends to
excuse an otherwise unreasonable delay."

In the case of Esso Standard Eastern, Inc. v. Alfonso

Lim, 123 SCRA 464, 480 [1983]), the Court ruled
that laches cannot be asserted by a mere
possessor without claim of title, legal or equitable
because for laches to exist, there should be a
showing of delay in asserting the complainant's
right. The complainant should have knowledge or
notice of the defendant's conduct and an
opportunity to institute a suit. Delay is not
counted from the date the lot was sold to the
buyer but from the time of entry of the defendant
or from the time the complainant came to know of
the occupancy for that is the only time it could
possibly have demanded that he get out of the
premises or could have instituted a suit.

In the case at bar, it will be noted that what

transpired was an administrative reconstitution,
essentially ex-parte and without notice, thereby
lending credence to the claim that private
respondent Marta Agana was unaware of such
reconstitution and possession until she
discovered the same in the Office of the Register
of Deeds in 1976. As such it cannot be claimed
that she slept on her right as from that time on, it
is undeniable that she filed her adverse claim on
the said lot.

After a careful perusal of the case, there appears

to be no cogent reason to disturb the findings of
fact of the Court of Appeals which affirmed the
findings of the trial court.
PREMISES CONSIDERED, the petition is DENIED
and the assailed decision of the Intermediate
Appellate Court is AFFIRMED.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
LIM YHI LUYA vs.COURT OF APPEALS and
HIND SUGAR COMPANY
G.R. No. L-40258 September 11, 1980
GUERRERO, J.:
Facts:
Petitioner Lim Yhi Luya (Lim) is a businessman,
resident of Lingayen, Pangasinan where he
operates a grocery store, hardware store and
gasoline station. Private respondent Hind Sugar
Company (Hind Sugar) is engaged in the
manufacturing and marketing of sugar, its
principal office located in Manaoag, Pangasinan.
Vice President and General Manager of Hind
Sugar is Atty. Emiliano Abalos. His assistant is
Generoso Bongato, while the cashier and
accountant of the company is Teodoro Garcia.
Lim and Hind Sugar since 1958 have had business
dealings with each other, the company selling
sugar to the Lim and the latter has been supplying
the company with diesoline, gasoline, muriatic
acid, sulfuric acid, other supplies and materials
ordered on credit. On November 12, 1970,
petitioner received a telegram from Manager
Abalos in the following tenor: "Please come
tomorrow morning without fail." The following
day, November 13, 1970, Lim proceeded to the
company and in the office of Manager Abalos, the
latter offered to sell sugar at P37.00 per picul. The
parties agreed to the purchase of 4,085 piculs of
sugar at P35.00 per picul. The specific terms of the
contract (Exhibit “A”) are as follows:
CONTRACT OF SALE OF SUGAR
Seller : Hind Sugar Company
Manaoag, Pangasinan
Buyer : Lim Yhi Luya
Lingayen, Pangasinan
Quantity: Four Thousand Eighty-
Five (4,085)
piculs of Hind-2 sugar, 1969-70
crop
ARELLANO UNIVERSITY SCHOOL OF LAW
Price : Thirty Five (?35.00) Pesos
per
picul, f.o.b. Manaoag
Terms : Cash upon signing of this
contract.
Manaoag, Pangasina, Nov. 13, 1970.
On the same day, November 13, 1970, in
compliance with the contract, four delivery were
issued to Lim by cashier Garcia upon instructions
of Manager Abalos covering the total quantity of
sugar sold, 4,085 piculs. Between November 13,
1970 to January 27, 1971, Lim withdrew from the
company warehouse in varying quantities a total
amount of 3,735 piculs under substitute delivery
orders, leaving a balance of 350 piculs
undelivered.
On January 22, 1971, the question of payment
cropped out between the parties. Lim claimed
that he had paid P142,975.00 to the company
officials, Cashier Garcia and Manager Abalos on
November 13. 1970 and as proof of his payment,
he referred to the contract Exhibit "A",
particularly to the stipulation stating "Terms:
Cash upon signing of this contract." Hind Sugar
officials denied the claim of the Lim, alleging that
Lim never paid for the sugar on November 13,
1970 or at any time thereafter. An audit report or
examination of the books of the company made by
an external auditor showed no payment by Lim.
Issue:
Whether or not the Lim has paid the sum of
P142,975.00 which is the purchase price of 4,085
piculs of sugar covered by the contract of sale
between the parties.
Ruling:
Yes. The issue may be resolved by tile rules on the
interpretation of contracts,.
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CONTRACTS PART I
The Court laid down cardinal rules in the
interpretation of contracts as provided in the New
Civil Code, thus —
Art. 1370. If the terms of a contract are Clear
and leave no doubt upon the intention of the
contracting parties. the literal meaning of its
stipulation shall control.
If the words appear to be contrary to the
evident intention of the parties, the latter shall
prevail over the former.
Art. 1371. In order to judge the intention. Of
the contracting parties, their
contemporaneous and subsequent acts shall
be principally considered.
Art. 1375. Words which may have different
significations shall be understood in that
which is most in keeping with the nature and
object of the contract.
Art. 1377. The interpretation of obscure
words or stipulations in a contract shall not
favor the party who caused the obscurity.
Considering the admitted fact that the contract of
sale (Exhibit "A") was prepared in the office of
Hind Sugar by Generoso Bongato, Assistant to the
Manager of the company, upon instruction of
General Manager Emiliano L. Abalos who is a
lawyer, and the Court was confronted with the
varying or conflicting interpretations of the
parties thereto, Hind Sugar contending that the
stipulation "Terms: Cash upon signing of this
contract" does not mean that the agreement was
a cash transaction because no money was paid by
the petitioner at the time of the signing thereof,
Lim insists that it was a cash transaction
inasmuch as he paid cash amounting to
P142,975.00 upon the signing of the contract, the
payment having been made at around 1:30 in the
afternoon of November 13, 1970 to the cashier,
Teodoro Garcia, and Manager Abalos although the
sale was agreed to in the morning of the same day,
ARELLANO UNIVERSITY SCHOOL OF LAW
November 13, 1970, the conflicting
interpretations have shrouded the stipulation
with ambiguity or vagueness. Then, the cardinal
rule should and must apply, which is that the
interpretation shall not favor the party who
caused the ambiguity (Art. 1377, New Civil Code).
The Court ruled that in the instant case, the
interpretation to be taken shall not favor the Hind
Sugar since it is the party who caused the
ambiguity in its preparation.
In truth the stipulation in the contract which
reads: "Terms: Cash upon signing of this contract"
is very clear and simple in its meaning, leaving no
doubt in the Court’s minds upon the intention of
the contracting parties, hence, the first rule of
contract interpretation that the literal meaning of
its stipulation shall control, is the governing rule
at hand. Resorting to Webster's Third New
International Dictionary, p. 2515, for the
definition of the word "upon" which literally
means, among others, "10a (1): immediately
following on; very soon after; ... b: on the occasion
of at the time of; ... " the clear import of the
stipulation is that payment was made on the
occasion of or at the time of the signing of the
contract and not that payment will follow the
signing. The Court said that it must adopt the
former meaning because it is such an
interpretation that would most adequately
render the contract effectual, following Article
1373 of the New Civil Code which provides:
Art. 1373. If some stipulation of any contract
should admit of several meanings, it shall be
understood as bearing that import which is
most adequate to render it effectual.
The evidence for the Lim establishes that after
paying the cash consideration to Cashier Garcia
and Manager Abalos, the parties signed the
contract and thereafter a signed copy of said
contract was given to Lim and also the four (4)
delivery orders covering the 4,085 piculs of sugar
sold. The questioned stipulation recites exactly
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CONTRACTS PART I

the act of payment which is the paying of the

money on the occasion of or at the time of the
signing. Hind Sugar would have the Court
believed that the stipulation does not mean what
it conveys because Lim has not paid cash after the
signing of the contract nor at any time thereafter.
The Court did not agree with Hind Sugar for
otherwise the sanctity of the written contract can
easily be violated and impugned, for otherwise
oral testimony would prevail over a written
document to vary, alter or modify the written
terms, and most importantly, respondent's
interpretation would render the stipulation
ineffectual as a mere agreement.

(Furthermore, the issuance of and delivery to Lim

of the said four delivery orders covering all the
4,085 piculs of sugar placed the control and
possession of the thing sold to the vendee, Lim,
and pursuant to Article 1497 of the New Civil
Code, the sugar sold is understood as delivered to
the Lim. The thing sold shall be understood as
delivered when it is placed in the control and
possession of the vendee. Therefore, when the
thing subject of the sale is placed in the control
and possession of the vendee, delivery is
complete.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
REPUBLIC VS. CASTELLVI
[GR L-20620, 15 August 1974]
Zaldivar (J):
Facts:
The Republic of the Philippines through the
Armed Forced of the Philippines, particularly the
Philippine Air Force occupied the land of Carmen
M. vda. de Castellvi, the judicial administratrix of
the estate of the late Alfonso de Castellvi, from 1
July 1947, by virtue of a contract of lease, on a
year to year basis (from July 1 of each year to June
30 of the succeeding year). Before the expiration
of the contract of lease on 30 June 1956, the
Republic sought to renew the same but Castellvi
refused, informing the latter that the heirs of the
property had decided not to continue leasing the
property in question.
The Chief of Staff refused, saying that it was
difficult for the army to vacate the premises, and
that, there being no other recourse, expropriation
proceedings would be necessary. Castellvi then
brought suit to eject the Philippine Air Force from
the land. While this ejectment case was pending,
the Republic filed on 26 June 1959 complaints for
eminent domain against Castellvi over the 3
parcels of land. For purposes of determining the
amount of just compensation, the Republic
argued that it had taken the property when the
contract of lease commenced and not when the
expropriation proceedings began.
Issue:
Whether or not the taking of the property has
taken place when the Republic has entered and
occupied the property as lessee.
Held:
No, the taking of the property should not be
reckoned as of the year 1947 when the Republic
first occupied the same pursuant to the contract
of lease, and that the just compensation to be paid
for the property should not be determined on the
basis of the value of the property as of that year.
ARELLANO UNIVERSITY SCHOOL OF LAW
Untenable is the Republic’s contention that
although the contract of lease was on a year to
year basis, it was in reality a more or less
permanent right to occupy premises under the
guise of lease with the right and privilege to buy
the property should the lessor wish to terminate
the lease, ... so much so that the fair market value
has been agreed upon, not, as of the time of
purchase, but as of the time of occupancy". The
Court cannot accept the Republic's contention
that a lease on a year to year basis can give rise to
a permanent right to occupy, since by express
legal provision a lease made for a determinate
time, as was the lease of Castellvi's land in the
instant case, ceases upon the day fixed, without
need of a demand (Article 1669, Civil Code). To
sustain the contention of the Republic is to
sanction a practice whereby in order to secure a
low price for a land which the government
intends to expropriate (or would eventually
expropriate) it would first negotiate with the
owner of the land to lease the land (for say ten or
twenty years) then expropriate the same when
the lease is about to terminate, then claim that the
"taking" of the property for the purposes of the
expropriation be reckoned as of the date when
the Government started to occupy the property
under the lease, and then assert that the value of
the property being expropriated be reckoned as
of the start of the lease, in spite of the fact that the
value of the property, for many good reasons, had
in the meantime increased during the period of
the lease.
The Republic's claim that it had the "right and
privilege" to buy the property at the value that it
had at the time when it first occupied the property
as lessee nowhere appears in the lease contract.
What was agreed expressly in paragraph No. 5 of
the lease agreement was that, should the lessor
require the lessee to return the premises in the
same condition as at the time the same was first
occupied by the AFP, the lessee would have the
"right and privilege" (or option) of paying the
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CONTRACTS PART I

lessor what it would fairly cost to put the

premises in the same condition as it was at the
commencement of the lease, in lieu of the lessee's
performance of the undertaking to put the land in
said condition. The "fair value" at the time of
occupancy, mentioned in the lease agreement,
does not refer to the value of the property if
bought by the lessee, but refers to the cost of
restoring the property in the same condition as of
the time when the lessee took possession of the
property. Such fair value cannot refer to the
purchase price, for purchase was never intended
by the parties to the lease contract. It is a rule in
the interpretation of contracts that "However
general the terms of a contract may be, they shall
not be understood to comprehend things that are
distinct and cases that are different from those
upon which the parties intended to agree" (Art.
1372, Civil Code).

ARELLANO UNIVERSITY SCHOOL OF LAW Page 49

 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I

EASTERN SHIPPING LINES, INC vs. adhesion as embodied in the printed bill of lading
MARGARINE-VERKAUFS-UNION issued by petitioner for the shipment to which
G.R. No. L-31087 September 27, 1979 respondent as the consignee merely adhered,
having no choice in the matter, and consequently,
FACTS: Respondent corporation, a West any ambiguity therein must be construed against
German corporation not engaged in business in petitioner as the author.
the Philippines, was the consignee of 500 long
tons of Philippine copra in bulk with a total value
of US$ 108,750.00 shipped from Cebu City on
board petitioner's (a Philippine corporation)
vessel, the SS "EASTERN PLANET" for discharge
at Hamburg, Germany. Petitioner's bill of lading
for the cargo provided as follows:

... Except as otherwise stated herein

and in - the Charter Party, this
contract shag be governed by the
laws of the Flag of the Ship carrying
the goods. In case of average, same
shall be adjusted according to York-
Antwerp Rules of 1950.

While the vessel was off Gibraltar, a fire broke out

aboard and caused water damage to the copra
shipment in the amount of US$ 591.38. Petitioner
corporation rejected respondent's claim for
payment.
ISSUE: Whether or not petitioner is liable under
the terms of its own bill of lading for the damage
suffered by respondent's copra cargo on board
petitioner's vessel?

RULING: Yes. We hold that the lower court

correctly ruled that the cited codal article (Art.
848, Code of Commerce) to be "not applicable in
this particular case for the reason that the bill of
lading contains "an agreement to the contrary".
There is a clear and irreconcilable inconsistency
between the York-Antwerp Rules expressly
adopted by the parties as their contract under the
bill of lading which sustains respondent's claim
and the codal article cited by petitioner which
would bar the same.

Furthermore, as correctly contended by

respondent, what is here involved is a contract of
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
CONTRACTS PART I
FELIPE vs. HEIRS OF MAXIMO ALDON
FACTS:
Maximo Aldon married Gimena Almosara in
1936. They bought several pieces of land
sometime between 1948 and 1950. In 1951,
Gimena Almosara sold the lots to the spouses
Eduardo Felipe and Hermogena V. Felipe. The sale
was made without the consent of her husband.
On April 26, 1976, the heirs of Maximo Aldon,
namely his widow Gimena and their children
Sofia and Salvador Aldon filed a complaint that
alleged that the plaintiffs were the owners of Lots
1370, 1371 and 1415; that they had orally
mortgaged the same to the defendants; and an
offer to redeem the mortgage had been refused so
they filed the complaint in order to recover the
three parcels of land.
The trial court sustained the claim of the
defendants and rendered judgment in favor of
Spouses Felipe as lawful owners. The Court of
Appeals set aside the decision of CFI declaring the
parcels ‘were purchased by plaintiff Gimena
Almosara and her late husband Maximo Aldon’
(the lots having been purchased during the
existence of the marriage, the same are presumed
conjugal) and inferentially, by force of law, could
not, be disposed of by a wife without her
husband’s consent. Hence this petition.
ISSUE: WON the sale made by Gimena is a
defective contract but of what category?
HELD: It is a voidable contract. According to Art.
1390 of the Civil Code, among the voidable
contracts are “[T]hose where one of the parties is
incapable of giving consent to the contract.” (Par.
1.) In the instant case-Gimena had no capacity to
give consent to the contract of sale. The capacity
to give consent belonged not even to the husband
alone but to both spouses.
ARELLANO UNIVERSITY SCHOOL OF LAW
The case of Sofia and Salvador Aldon is different.
After the death of Maximo they acquired the right
to question the defective contract insofar as it
deprived them of their hereditary rights in their
father’s share in the lands. The father’s share is
one-half (1/2) of the lands and their share is two-
thirds (2/3) thereof, one-third (1/3) pertaining to
the widow.
The petitioners have been in possession of the
lands since 1951. It was only in 1976 when the
respondents filed action to recover the lands. In
the meantime, Maximo Aldon died.
As to the second question, the children’s cause of
action accrued from the death of their father in
1959 and they had thirty (30) years to institute it
(Art. 1141, Civil Code.) They filed action in 1976
which is well within the period.
WHEREFORE, the decision of the Court of Appeals
is hereby modified. Judgment is entered awarding
to Sofia and Salvador Aldon their shares of the
lands as stated in the body of this decision; and
the petitioners as possessors in bad faith shall
make an accounting of the fruits corresponding to
the share aforementioned from 1959 and
solidarity pay their value to Sofia and Salvador
Aldon; costs against the petitioners.
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